AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 2003 FILE NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- THE WILLIAMS COMPANIES, INC. (Exact name of registrant as specified in its charter)
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JUNE 25, 2003 PROSPECTUS $300,000,000 THE WILLIAMS COMPANIES, INC. 5.50% JUNIOR SUBORDINATED CONVERTIBLE DEBENTURES DUE 2033 AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THE CONVERTIBLE DEBENTURES --------------------- We issued $300,000,000 aggregate principal amount of our 5.50% Junior Subordinated Convertible Debentures due 2033, which we refer to as the "convertible debentures" in May 2003. This prospectus will be used by selling securityholders named in this prospectus or a prospectus supplement to resell their convertible debentures and the common stock issuable upon conversion of their debentures. The convertible debentures bear interest at the rate of 5.50% per annum. We will pay interest on the convertible debentures on March 1, June 1, September 1 and December 1 of each year, commencing on September 1, 2003, subject to deferral during any extension period as described in this prospectus. The convertible debentures will mature on June 1, 2033. The convertible debentures are issued in minimum denominations of $50 and integral multiples thereof. Holders may convert their convertible debentures into shares of our common stock at a conversion rate of 4.5907 shares per $50 principal amount of the convertible debentures, subject to adjustment, at any time before the close of business on June 1, 2033 (or, in the case of convertible debentures called for redemption, before the close of business on the business day prior to the applicable redemption date). The initial conversion rate is equivalent to an initial conversion price of approximately $10.89 per share of common stock. Our common stock is traded on the New York Stock Exchange under the symbol "WMB." The last reported sales price of our common stock on June [ ], 2003 was $[ ] per share. On or after June 1, 2010, we may redeem the convertible debentures, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest to, but not including, the date of redemption if the closing price of our common stock on the New York Stock Exchange has exceeded 130% of the conversion price for at least 20 trading days in the preceding period of 30 consecutive trading days, including on the last day in the period. You may require us to repurchase any or all of your convertible debentures following a change of control as described in this prospectus at a purchase price equal to 100% of the principal amount to be repurchased, plus accrued and unpaid interest to, but not including, the date of repurchase. The payment of principal and interest on the convertible debentures will rank junior to all of our present and future senior and senior subordinated debt. In addition, payment of principal and interest on the convertible debentures will be structurally subordinated to the liabilities of our subsidiaries, including subsidiary debt. As of March 31, 2003, we had approximately $13.8 billion of senior and senior subordinated debt, including approximately $4.2 billion of subsidiary debt other than intercompany indebtedness, trade payables and other liabilities of our subsidiaries. As of March 31, 2003, we also had approximately $383 million in letters of credit outstanding. INVESTING IN THE CONVERTIBLE DEBENTURES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4. We will not receive any of the proceeds from the sale of the convertible debentures or the shares of common stock by any of the selling securityholders. The convertible debentures and the shares of common stock may be offered in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices. The timing and amount of any sale are within the sole discretion of the selling securityholders. In addition, the shares of common stock may be offered from time to time through ordinary brokerage transactions on the New York Stock Exchange. See "Plan of Distribution." The selling securityholders may be deemed to be "underwriters" as defined in the Securities Act of 1933, as amended. Any profits realized by the selling securityholders may be deemed to be underwriting commissions. If the selling securityholders use any broker-dealers and, if broker-dealers purchase any convertible debentures or shares of common stock as principals, any profits received by such broker-dealers on the resale of the convertible debentures or shares of common stock may be deemed to be underwriting discounts or commissions under the Securities Act. Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------- The date of this prospectus is , 2003
TABLE OF CONTENTS ---------------------
1929. Beliefs and assumptions as to what constitutes appropriate levels of capitalization and fundamental value have changed abruptly. The deterioration of our energy industry sector in the wake of the collapse of Enron combined with the meltdown of the telecommunications industry are both new realities that have had and will likely continue to have specific impacts on all companies, including us. Although we believe these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks that could cause future results to be materially different from the results stated or implied in this prospectus. Additional information about issues that could lead to material changes in performance is contained in our annual report on Form 10-K for the year ended December 31, 2002 and our quarterly report on Form 10-Q for the quarter ended March 31, 2003, which are incorporated by reference in this prospectus. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934, as amended. The registration statement of which this prospectus forms a part and these reports, proxy statements and other information can be inspected and copied at the public reference room maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 233 Broadway, New York, New York 10005. Copies of these materials may also be obtained from the SEC at prescribed rates by writing to the public reference room maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. We have filed with the SEC a registration statement on Form S-3 under the Securities Act with respect to this offering. This prospectus, which forms a part of the registration statement, does not contain all the information included in the registration statement and the attached exhibits. The SEC maintains a World Wide Web site on the internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding us. The reports, proxy and information statements and other information about us can be downloaded from the SEC's website and can also be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Williams is "incorporating by reference" information which it files with the SEC which means that it can disclose important information to investors by referring investors to those documents. The information incorporated by reference or deemed incorporated by reference is an important part of this prospectus and information that Williams files later with the SEC will be deemed to automatically update and supersede this incorporated information. Williams incorporates by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the completion of this offering. - Our annual report on Form 10-K for the year ended December 31, 2002. - Our quarterly report on Form 10-Q for the quarter ended March 31, 2003. - Our current reports on Form 8-K filed January 2, 2003, January 9, 2003, January 17, 2003, January 24, 2003, February 19, 2003, February 21, 2003, March 6, 2003, March 12, 2003, March 19, 2003, March 21, 2003, April 10, 2003, April 15, 2003, April 16, 2003, April 21, 2003, April 22, 2003, April 25, 2003, May 13, 2003, May 19, 2003, May 21, 2003, May 23, 2003, May 29, 2003, May 30, 2003, June 2, 2003, June 5, 2003, June 9, 2003, June 10, 2003, June 13, 2003 and June 19, 2003. - Our definitive proxy statement on Schedule 14A filed April 7, 2003. iii
Investors can get a free copy of any of the documents incorporated by reference by making an oral or written request directed to: The Williams Companies, Inc. One Williams Center Tulsa, Oklahoma 74172 Attention: Corporate Secretary Telephone: (918) 573-2000 Investors should rely only on the information contained or incorporated in this prospectus. Williams has not authorized anyone else to provide investors with different information. Investors should not rely on any other representations. Williams' affairs may change after this prospectus is distributed. Investors should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this document. Investors should read all information supplementing this prospectus. iv
THE WILLIAMS COMPANIES, INC. We are an energy company originally incorporated under the laws of the state of Nevada in 1949 and reincorporated under the laws of the state of Delaware in 1987. We were founded in 1908 when two Williams brothers began a construction company in Fort Smith, Arkansas. Today, we primarily find, produce, gather, process and transport natural gas. Our operations serve the Northwest, California, Rocky Mountains, Gulf Coast and Eastern Seaboard markets. In 2002, we faced many challenges including credit issues following the deterioration of our energy industry sector in the wake of the Enron bankruptcy in late 2001 and our assumption of payment obligations and performance on guarantees associated with our former telecommunications subsidiary, Williams Communications Group, Inc. (WCG). With the deterioration of the energy industry, the credit rating agencies' requirements for investment grade companies in this sector became more stringent. In response to those requirements, we announced plans on December 19, 2001, to strengthen our balance sheet in an effort to maintain our investment grade ratings. Those plans, as revised due to changing market conditions, included reducing capital expenditures, eliminating certain credit ratings triggers from our loan agreements, reducing costs and reducing quarterly dividends paid on our common stock, and selling assets to generate proceeds to reduce outstanding debt. Despite our balance sheet strengthening efforts, we lost our investment grade ratings in July 2002. With the loss of our investment grade ratings, our business changed significantly, especially our Energy Marketing & Trading business. Some counterparties were unwilling to extend credit and required cash, letters of credit, or other collateral. Concurrently, our credit facility banks were unwilling to extend our $2.2 billion 364-day unsecured credit facility. As a result, we faced a liquidity crisis. We quickly worked with our banks and other parties to obtain secured credit facilities, and also sold a significant amount of assets to meet our liquidity gap. Following this short-term liquidity crisis, we continued to pursue cost reducing measures including a downsizing of our work force. We also settled substantially all issues between us and WCG through WCG's Chapter 11 reorganization. On February 20, 2003, we outlined our planned business strategy for the next few years which we believe to be a comprehensive response to the events that impacted the energy sector and Williams during 2002. The business strategy focuses on retaining a strong, but smaller, portfolio of natural gas businesses and bolstering our liquidity through more asset sales, strategic financing at the Williams and subsidiary levels and additional reductions in our operating costs. This strategy is designed to address near-term and medium-term liquidity issues and to further reduce our leverage with the objective of returning to investment grade and to retain businesses with favorable returns and opportunities for growth in the future. We will need to complete further cost reductions and asset sales and realize our business strategy in order to meet our liquidity needs. See the Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition and Liquidity section of our annual report on Form 10-K for the fiscal year ending December 31, 2002 filed on March 19, 2003 and our quarterly report for the fiscal quarter ending March 31, 2003 filed on May 13, 2003 incorporated herein by reference for further details regarding the liquidity issues we are facing. See also the Risk Factors beginning on page 4 of this prospectus for a discussion of factors that could adversely affect our business, operating results, and financial condition, as well as adversely affect the value of an investment in our securities. Our ongoing business segments include Gas Pipeline, Exploration & Production, Midstream Gas & Liquids, and Energy Marketing & Trading. See "Part I -- Item 1. Business -- Business Segments" in our annual report on Form 10-K for the fiscal year ending December 31, 2002 for a more detailed description of assets owned and services provided by each of our business segments. 1
SUMMARY OF THE OFFERING This summary contains basic information about this offering. Because it is a summary, it does not contain all of the information that you should consider before investing. You should read this entire prospectus carefully, including the section entitled "Risk Factors," and our financial statements and the notes thereto before making an investment decision. Securities Offered............ $300,000,000 aggregate principal amount of 5.50% Junior Subordinated Convertible Debentures due 2033. Maturity Date................. June 1, 2033. Minimum Denominations......... $50 principal amount and integral multiples thereof. Interest...................... 5.50% per annum on the principal amount, from May 28, 2003 and payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, beginning September 1, 2003, subject to the deferral provisions described below. Deferral of Interest.......... As long as we do not default in the payment of interest on the convertible debentures, we have the right to defer payments of interest on the convertible debentures by extending the interest payment period from time to time for periods not exceeding 20 consecutive quarterly interest periods, which we refer to as "extension periods;" provided that no extension period may extend beyond the stated maturity of the convertible debentures or end on a date other than an interest payment date. During any period in which interest payments on the convertible debentures are deferred, interest will continue to accrue on the convertible debentures at the applicable interest rate compounded quarterly. Upon the termination of an extension period, payment of all accrued and unpaid amounts on the convertible debentures is due. If we pay all accrued and unpaid interest at the end of an extension period, we may elect to begin a new extension period. If a deferral of an interest payment occurs, the holders of the convertible debentures will continue to accrue income for U.S. federal income tax purposes in advance of the corresponding interest payment. See "Material U.S. Federal Income Tax Considerations -- Accrual of Original Issue Discount." Subject to certain exceptions, we have agreed and have agreed to cause our subsidiaries not to declare or pay any dividend on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to our common stock or preferred stock or make any guarantee payments with respect thereto during any extension period. The foregoing does not apply to dividends on our common stock payable in our common stock. Conversion Rights............. The convertible debentures are convertible at any time prior to the close of business on June 1, 2033, or, in the case of convertible debentures called for redemption, prior to the close of business on the business day prior to the applicable redemption date, at the option of the holder, into shares of our common stock, at the rate of 4.5907 shares of our common stock per $50 principal amount of convertible debenture, subject to adjustment in certain circumstances. This is equivalent to a conversion price of approximately 2
$10.89 per share of our common stock. The last reported sales price of our common stock on the New York Stock Exchange composite tape on June [ ], 2003 was $[ ] per share. No fractional shares of our common stock will be issued as a result of a conversion. Instead, we will pay cash in lieu of fractional shares. You will not receive cash or additional shares to compensate you for any accrued but unpaid interest on the convertible debentures through the time of conversion. This accrued interest will be forfeited, except in limited circumstances. Redemption.................... On or after June 1, 2010, we may redeem the convertible debentures for cash, at our option in whole or in part from time to time, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon, including compounded interest, to but not including the date of redemption, if for at least 20 trading days within the preceding period of 30 consecutive trading days, including on the last day in the 30-day period, the closing price of our common stock exceeds 130% of the conversion price. Repurchase upon Change of Control....................... Following a change of control, as defined in this prospectus, each holder of convertible debentures will have the right to require us to purchase any or all of the convertible debentures held by that holder at a purchase price equal to 100% of the principal amount to be repurchased, plus accrued and unpaid interest thereon, including compounded interest, to, but not including, the date of purchase. Subordination................. The payment of principal and interest on the convertible debentures will rank junior to all of our present and future senior and senior subordinated debt. In addition, payment of principal and interest on the convertible debentures will be structurally subordinated to the liabilities of our subsidiaries, including subsidiary debt. As of March 31, 2003, Williams had approximately $13.8 billion of senior and senior subordinated debt, including approximately $4.2 billion of subsidiary debt other than intercompany indebtedness, trade payables and other liabilities of our subsidiaries. As of March 31, 2003, we also had approximately $383 million of letters of credit outstanding. The indenture under which the convertible debentures have been issued does not limit the aggregate amount of senior and senior subordinated debt that may be incurred by us and does not limit the liabilities of our subsidiaries. Use of Proceeds............... We will not receive any of the proceeds of the resale of the convertible debentures or the common stock issuable upon conversion by the selling securityholders. 3
RISK FACTORS In addition to the other information contained in or incorporated by reference into this prospectus, you should carefully consider the following risk factors in deciding whether to purchase the convertible debentures or the common stock into which the convertible debentures may convert. RISKS AFFECTING OUR STRATEGY AND FINANCING NEEDS OUR STRATEGY TO STRENGTHEN OUR BALANCE SHEET AND IMPROVE LIQUIDITY DEPENDS ON OUR ABILITY TO DIVEST SUCCESSFULLY CERTAIN ASSETS. As part of our business strategy announced in February 2003, we expect to generate net proceeds from asset sales of approximately $4 billion during 2003 and the first quarter of 2004. The timing of and the net cash proceeds realized from such sales are dependent on locating and successfully negotiating and closing sales with prospective buyers, regulatory approvals, industry conditions, and lender consents. If the realized cash proceeds are insufficient or are materially delayed, we might not have sufficient funds on hand to pay maturing indebtedness or to implement our strategy. During the first quarter of 2003, we received $679.8 million in net proceeds from the sales of assets and businesses, including our retail travel centers and the Midsouth refinery. In April 2003, we announced that we had signed definitive agreements for the sales of Texas Gas Transmission Corporation, Williams' general partnership interest and limited partner investment in Williams Energy Partners L.P., and certain natural gas exploration and production properties in Kansas, Colorado, New Mexico and Utah. The sale of the Texas Gas Transmission Corporation, which closed on May 16, 2003, the sale of oil and gas properties to XTO Energy, which closed on May 30, 2003, the sale of Williams Bio-Energy L.L.C. together with two ethanol production plants, which closed on May 30, 2003, the sale of our investments in Williams Energy Partners L.P., which closed on June 17, 2003 and the other sales announced in April 2003 that are expected to close later in the second quarter are expected to generate net proceeds of approximately $2.0 billion. At March 31, 2003, we had debt obligations with maturities through March 2004 of approximately $3.5 billion (including certain contractual fees and deferred interest related to underlying debt). Because our cash flow from operations will be insufficient alone to repay all such debt and our access to capital markets is limited, in part as a result of the loss of our investment grade ratings, we will depend on our sales of assets to generate sufficient net cash proceeds to enable the payment of our maturing obligations. RECENT DEVELOPMENTS AFFECTING THE WHOLESALE POWER AND ENERGY TRADING INDUSTRY SECTOR HAVE REDUCED MARKET ACTIVITY AND LIQUIDITY AND MIGHT CONTINUE TO ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. As a result of the 2000-2001 energy crisis in California, the resulting collapse in energy merchant credit, the recent volatility in natural gas prices, the Enron Corporation bankruptcy filing, and investigations by governmental authorities into energy trading activities and increased litigation related to such inquiries, companies generally in the regulated and so-called unregulated utility businesses have been adversely affected. These market factors have led to industry-wide downturns that have resulted in some companies being forced to exit from the energy trading markets, leading to a reduction in the number of trading partners and in market liquidity and announcements by us, other energy suppliers and gas pipeline companies of plans to sell large numbers of assets in order to boost liquidity and strengthen their balance sheets. Proposed and completed sales by other energy suppliers and gas pipeline companies could increase the supply of the type of assets we are attempting to sell and potentially lead either to our failing to execute such asset sales or our obtaining lower prices on completed asset sales. If either of these developments were to occur, our ability to realize our strategy of improving our liquidity and reducing our indebtedness through asset sales could be significantly hampered. 4
BECAUSE WE NO LONGER MAINTAIN INVESTMENT GRADE CREDIT RATINGS, OUR COUNTERPARTIES MIGHT REQUIRE US TO PROVIDE INCREASING AMOUNTS OF CREDIT SUPPORT WHICH WOULD RAISE OUR COST OF DOING BUSINESS. Our transactions in each of our businesses, especially in our Energy Marketing & Trading business, will require greater credit assurances, both to be given from, and received by, us to satisfy credit support requirements. Additionally, certain market disruptions or a further downgrade of our credit ratings might further increase our cost of borrowing or further impair our ability to access one or any of the capital markets. Such disruptions could include: - economic downturns; - deteriorating capital market conditions generally; - market prices for electricity and natural gas; - terrorist attacks or threatened attacks on our facilities or those of other energy companies; or - the overall health of the energy industry, including the bankruptcy of energy companies. RISKS RELATED TO OUR BUSINESS ELECTRICITY, NATURAL GAS LIQUIDS AND GAS PRICES ARE VOLATILE AND THIS VOLATILITY COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS, CASH FLOWS, ACCESS TO CAPITAL AND ABILITY TO MAINTAIN EXISTING BUSINESSES. Our revenues, operating results, profitability, future rate of growth and the carrying value of our electricity and gas businesses depend primarily upon the prices we receive for natural gas and other commodities. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. Historically, the markets for these commodities have been volatile and they are likely to continue to be volatile. Wide fluctuations in prices might result from relatively minor changes in the supply of and demand for these commodities, market uncertainty and other factors that are beyond our control, including: - worldwide and domestic supplies of electricity, natural gas, petroleum and related commodities; - weather conditions; - the level of consumer demand; - the price and availability of alternative fuels; - the availability of pipeline capacity; - the price and level of foreign imports; - domestic and foreign governmental regulations and taxes; - the overall economic environment; and - the availability of credit in the markets where energy products are bought and sold. These factors and the volatility of the energy markets make it extremely difficult to predict future electricity and gas price movements with any certainty. Further, electricity and gas prices do not necessarily move in tandem. WE MIGHT NOT BE ABLE TO SUCCESSFULLY MANAGE THE RISKS ASSOCIATED WITH SELLING AND MARKETING PRODUCTS IN THE WHOLESALE ENERGY MARKETS. Our trading portfolios consist of wholesale contracts to buy and sell commodities, including contracts for electricity, natural gas, natural gas liquids and other commodities that are settled by the delivery of the commodity or cash throughout the United States. If the values of these contracts change in a direction or manner that we do not anticipate or cannot manage, we could realize material losses from our trading activities. In the past, certain marketing and trading companies have experienced severe financial problems 5
due to price volatility in the energy commodity markets. In certain instances this volatility has caused companies to be unable to deliver energy commodities that they had guaranteed under contract. In such event, we might incur additional losses to the extent of amounts, if any, already paid to, or received from, counterparties. In addition, in our businesses, we often extend credit to our counterparties. Despite performing credit analysis prior to extending credit, we are exposed to the risk that we might not be able to collect amounts owed to us. If the counterparty to such a financing transaction fails to perform and any collateral we have secured is inadequate, we will lose money. If we are unable to perform under our energy agreements, we could be required to pay damages. These damages generally would be based on the difference between the market price to acquire replacement energy or energy services and the relevant contract price. Depending on price volatility in the wholesale energy markets, such damages could be significant. OUR RISK MANAGEMENT AND HEDGING ACTIVITIES MIGHT NOT PREVENT LOSSES. Although we have risk management systems in place that use various methodologies to quantify risk, these systems might not always be followed or might not always work as planned. Further, such risk management systems only provide information, but do not in themselves manage risk. Adverse changes in energy commodity market prices, volatility, adverse correlation of commodity prices, the liquidity of markets, and changes in interest rates might still adversely affect our earnings and cash flows and our balance sheet under applicable accounting rules, even if risks have been identified. To lower our financial exposure related to commodity price and market fluctuations, we have entered into contracts to hedge certain risks associated with our assets and operations, including our long-term tolling agreements. In these hedging activities, we have used fixed-price, forward, physical purchase and sales contracts, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges, as well as long-term structured transactions when feasible. Substantial declines in market liquidity, however, as well as deterioration of our credit and termination of existing positions (due for example to credit concerns) have greatly limited our ability to hedge identified risks and have caused previously hedged positions to become unhedged. To the extent we have unhedged positions, fluctuating commodity prices could cause our net revenues and net income to be volatile. OUR OPERATING RESULTS MIGHT FLUCTUATE ON A SEASONAL AND QUARTERLY BASIS. Revenues from our businesses, including gas transmission and the sale of electric power, can have seasonal characteristics. In many parts of the country, demand for power peaks during the hot summer months, with market prices also peaking at that time. In other areas, demand for power peaks during the winter. In addition, demand for gas and other fuels peaks during the winter. As a result, our overall operating results in the future might fluctuate substantially on a seasonal basis. The pattern of this fluctuation might change depending on the nature and location of our facilities and pipeline systems and the terms of our power sale agreements and gas transmission arrangements. OUR INVESTMENTS AND PROJECTS LOCATED OUTSIDE OF THE UNITED STATES EXPOSE US TO RISKS RELATED TO LAWS OF OTHER COUNTRIES, TAXES, ECONOMIC CONDITIONS, FLUCTUATIONS IN CURRENCY RATES, POLITICAL CONDITIONS AND POLICIES OF FOREIGN GOVERNMENTS. THESE RISKS MIGHT DELAY OR REDUCE OUR REALIZATION OF VALUE FROM OUR INTERNATIONAL PROJECTS. We currently own and might acquire and/or dispose of material energy-related investments and projects outside the United States. The economic and political conditions in certain countries where we have interests or in which we might explore development, acquisition or investment opportunities present risks of delays in construction and interruption of business, as well as risks of war, expropriation, nationalization, renegotiation, trade sanctions or nullification of existing contracts and changes in law or tax policy, that are greater than in the United States. The uncertainty of the legal environment in certain foreign countries in which we develop or acquire projects or make investments could make it more difficult to obtain non-recourse project or other financing on suitable terms, could adversely affect the ability of certain customers to honor their obligations 6
with respect to such projects or investments and could impair our ability to enforce our rights under agreements relating to such projects or investments. Operations in foreign countries also can present currency exchange rate and convertibility, inflation and repatriation risk. In certain conditions under which we develop or acquire projects, or make investments, economic and monetary conditions and other factors could affect our ability to convert our earnings denominated in foreign currencies. In addition, risk from fluctuations in currency exchange rates can arise when our foreign subsidiaries expend or borrow funds in one type of currency but receive revenue in another. In such cases, an adverse change in exchange rates can reduce our ability to meet expenses, including debt service obligations. Foreign currency risk can also arise when the revenues received by our foreign subsidiaries are not in U.S. dollars. In such cases, a strengthening of the U.S. dollar could reduce the amount of cash and income we receive from these foreign subsidiaries. While we believe we have hedges and contracts in place to mitigate our most significant foreign currency exchange risks, our hedges might not be sufficient or we might have some exposures that are not hedged which could result in losses or volatility in our revenues. RISKS RELATED TO LEGAL PROCEEDINGS AND GOVERNMENTAL INVESTIGATIONS WE MIGHT BE ADVERSELY AFFECTED BY GOVERNMENTAL INVESTIGATIONS RELATED TO PRICING INFORMATION THAT WE PROVIDED TO MARKET PUBLICATIONS. On October 25, 2002, we disclosed that inaccurate pricing information had been provided to energy industry trade publications. This disclosure came as a result of an internal review conducted in conjunction with requests for information made by the FERC and the Commodity Futures Trading Commission ("CFTC") on energy trading practices. We had separately commenced a review of our historical survey publication data after another market participant announced in September 2002 that certain of its employees had provided inaccurate pricing data to publications. Later we received a subpoena from the San Francisco office of the U.S. Attorney relating to a federal grand jury inquiry regarding the same matters. We cannot predict the outcome of this investigation or whether this investigation will lead to additional legal proceedings against us, civil or criminal fines or penalties, or other regulatory action, including legislation, which might be materially adverse to the operation of our trading business and our trading revenues and net income or increase our operating costs in other ways. WE MIGHT BE ADVERSELY AFFECTED BY GOVERNMENTAL INVESTIGATIONS AND ANY RELATED LEGAL PROCEEDINGS RELATED TO THE ALLEGED CONDUCTING OF "ROUNDTRIP" TRADES BY OUR ENERGY TRADING BUSINESS. Public and regulatory scrutiny of the energy industry and of the capital markets has resulted in increased regulation being either proposed or implemented. In particular, the activities of Enron Corporation and other energy traders in allegedly using "roundtrip" trades which involve the prearrangement of simultaneously executed and offsetting buy and sell trades for the purpose of increasing reported revenues or trading volumes, or influencing prices and which lack a legitimate business purpose, have resulted in increased public and regulatory scrutiny. To date, we have responded to requests for information from the FERC and the SEC, related to an investigation of "roundtrip" energy transactions from January 2000 through 2002. We also have received and are responding to subpoenas and supplemental requests for information regarding gas and power trading activities, which involve the same issues and time period covered by the requests from the CFTC. Such inquiries are ongoing and continue to adversely affect the energy trading business as a whole. We might see these adverse effects continue as a result of the uncertainty of these ongoing inquiries or additional inquiries by other federal or state regulatory agencies. In addition, we cannot predict the outcome of any of these inquiries, or whether these inquiries will lead to additional legal proceedings against us, civil or criminal fines or penalties, or other regulatory action, including legislation, which might be materially adverse to the operation of our trading business and our trading revenues and net income or increase our operating costs in other ways. 7
WE MIGHT BE ADVERSELY AFFECTED BY OTHER LEGAL PROCEEDINGS AND GOVERNMENTAL INVESTIGATIONS RELATED TO THE ENERGY MARKETING AND TRADING BUSINESS. Electricity and natural gas markets in California and elsewhere will continue to be subject to numerous and far-reaching federal and state proceedings and investigations because of allegations that wholesale price increases resulted from the exercise of market power and collusion of the power generators and sellers such as Energy Marketing & Trading. Discussions by governmental authorities and representatives in California and other states have ranged from threats of re-regulation to suspension of plans to move forward towards deregulation. The outcomes of these proceedings and investigations might create corporate liability for Williams, and directly or indirectly affect our creditworthiness and ability to perform our contractual obligations as well as other market participants' creditworthiness and their ability to perform their contractual obligations. WE MIGHT BE ADVERSELY AFFECTED BY SECURITIES CLASS ACTION LITIGATION. Since January 2002, numerous class action lawsuits have been filed against us. The majority of these suits allege that we and our co-defendants fraudulently disclosed or failed to disclose material facts regarding our relationship with Williams Communications and our operation of our energy marketing and trading subsidiary. In addition, some of the suits contain allegations that we and our co-defendants acted jointly and severally to inflate our stock price and, for short periods of times, the stock price of Williams Communications. See "Legal Proceedings" in our annual report on Form 10-K for the year ended December 31, 2002 and our quarterly report on Form 10-Q for the quarter ended March 31, 2003. As a result of these, and any future securities class action litigation, we may face substantial costs and our management's attention and resources may be diverted, which could harm our business. RISKS RELATED TO THE REGULATION OF OUR BUSINESSES OUR BUSINESSES ARE SUBJECT TO COMPLEX GOVERNMENT REGULATIONS. THE OPERATION OF OUR BUSINESSES MIGHT BE ADVERSELY AFFECTED BY CHANGES IN THESE REGULATIONS OR IN THEIR INTERPRETATION OR IMPLEMENTATION. Existing regulations might be revised or reinterpreted, new laws and regulations might be adopted or become applicable to us or our facilities, and future changes in laws and regulations might have a detrimental effect on our business. Certain restructured markets have recently experienced supply problems and price volatility. These supply problems and volatility have been the subject of a significant amount of press coverage, much of which has been critical of the restructuring initiatives. In some of these markets, including California, proposals have been made by governmental agencies and other interested parties to re-regulate areas of these markets which have previously been deregulated. We cannot assure you that other proposals to re-regulate will not be made or that legislative or other attention to the electric power restructuring process will not cause the deregulation process to be delayed or reversed. If the current trend towards competitive restructuring of the wholesale and retail power markets is reversed, discontinued or delayed, our business models might be inaccurate and we might face difficulty in accessing capital to refinance our debt and funding for operating and generating revenues in accordance with our current business plans. For example, in 2000, the FERC issued Order 637, which sets forth revisions to its policies governing the regulation of interstate natural gas pipelines that it finds necessary to adjust its current regulatory model to the needs of evolving markets. The FERC, however, determined that any fundamental changes to its regulatory policy will be considered after further study and evaluation of the evolving marketplace. Order 637 revised the FERC's pricing policy to waive through September 30, 2002 the maximum price ceilings for short-term releases of capacity of less than one year and to permit pipelines to file proposals to implement seasonal rates for short-term services and term-differentiated rates. Certain parties requested rehearing of Order 637 and eventually appealed certain issues to the District of Columbia Circuit Court of Appeals. The D.C. Circuit remanded as to certain issues, and on October 31, 2002, the FERC issued its order on remand. Rehearing requests for that order are now pending with the FERC. Given the extent of the FERC's regulatory power, we cannot give any assurance regarding the likely regulations under which we will operate our natural gas 8
transmission and storage business in the future or the effect of regulation on our financial position and results of operations. The FERC has proposed to broaden its regulations that restrict relations between our jurisdictional natural gas companies, or "jurisdictional companies," and our marketing affiliates. In addition, the proposed rules would limit communications between each of our jurisdictional companies and all of our other companies engaged in energy activities. The rulemaking is pending at the FERC and the precise scope and effect of the rule is unclear. If adopted as proposed, the rule could adversely affect our ability to coordinate and manage our energy activities. OUR REVENUES MIGHT DECREASE IF WE ARE UNABLE TO GAIN ADEQUATE, RELIABLE AND AFFORDABLE ACCESS TO TRANSMISSION AND DISTRIBUTION ASSETS DUE TO THE FERC AND REGIONAL REGULATION OF WHOLESALE MARKET TRANSACTIONS FOR ELECTRICITY AND GAS. We depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver the electricity and natural gas we buy and sell in the wholesale market. If transmission is disrupted, if capacity is inadequate, or if credit requirements or rates of such utilities or energy companies are increased, our ability to sell and deliver products might be hindered. The FERC has issued power transmission regulations that require wholesale electric transmission services to be offered on an open-access, non- discriminatory basis. Although these regulations are designed to encourage competition in wholesale market transactions for electricity, some companies have failed to provide fair and equal access to their transmission systems or have not provided sufficient transmission capacity to enable other companies to transmit electric power. We cannot predict whether and to what extent the industry will comply with these initiatives, or whether the regulations will fully accomplish the FERC's objectives. In addition, the independent system operators who oversee the transmission systems in regional power markets, such as California, have in the past been authorized to impose, and might continue to impose, price limitations and other mechanisms to address volatility in the power markets. These types of price limitations and other mechanisms might adversely impact the profitability of our wholesale power marketing and trading. Given the extreme volatility and lack of meaningful long-term price history in many of these markets and the imposition of price limitations by regulators, independent system operators or other marker operators, we can offer no assurance that we will be able to operate profitably in all wholesale power markets. THE DIFFERENT REGIONAL POWER MARKETS IN WHICH WE COMPETE OR WILL COMPETE IN THE FUTURE HAVE CHANGING REGULATORY STRUCTURES, WHICH COULD AFFECT OUR GROWTH AND PERFORMANCE IN THESE REGIONS. Our results are likely to be affected by differences in the market and transmission regulatory structures in various regional power markets. Problems or delays that might arise in the formation and operation of new regional transmission organizations ("RTOs") might restrict our ability to sell power produced by our generating capacity to certain markets if there is insufficient transmission capacity otherwise available. The rules governing the various regional power markets might also change from time to time which could affect our costs or revenues. Because it remains unclear which companies will be participating in the various regional power markets, or how RTOs will develop or what regions they will cover, we are unable to assess fully the impact that these power markets might have on our business. OUR GAS SALES, TRANSMISSION AND STORAGE OPERATIONS ARE SUBJECT TO GOVERNMENT REGULATIONS AND RATE PROCEEDINGS THAT COULD HAVE AN ADVERSE IMPACT ON OUR ABILITY TO RECOVER THE COSTS OF OPERATING OUR PIPELINE FACILITIES. Our interstate gas sales, transmission and storage operations conducted through our Gas Pipeline business are subject to the FERC's rules and regulations in accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. The FERC's regulatory authority extends to: - transportation and sale for resale of natural gas in interstate commerce; - rates and charges; 9
- construction; - acquisition, extension or abandonment of services or facilities; - accounts and records; - depreciation and amortization policies; and - operating terms and conditions of service. The FERC has taken certain actions to strengthen market forces in the natural gas pipeline industry that has led to increased competition throughout the industry. In a number of key markets, interstate pipelines are now facing competitive pressure from other major pipeline systems, enabling local distribution companies and end users to choose a transmission provider based on economic and other considerations. RISKS RELATED TO ENVIRONMENTAL MATTERS WE COULD INCUR MATERIAL LOSSES IF WE ARE HELD LIABLE FOR THE ENVIRONMENTAL CONDITION OF ANY OF OUR ASSETS. We are generally responsible for all on-site liabilities associated with the environmental condition of our facilities and assets, which we have acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. We can also be held liable for the cleanup of sites that we formerly owned or operated, as well as third party disposal sites where wastes from our current or former operations have been sent. In addition, in connection with certain acquisitions and sales of assets, we might obtain, or be required to provide, indemnification against certain environmental liabilities. If we incur a material liability, or the other party to a transaction fails to meet its indemnification obligations to us, we could suffer material losses. ENVIRONMENTAL REGULATION AND LIABILITY RELATING TO OUR BUSINESS WILL BE SUBJECT TO ENVIRONMENTAL LEGISLATION IN ALL JURISDICTIONS IN WHICH IT OPERATES, AND ANY CHANGES IN SUCH LEGISLATION COULD NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS. Our operations are subject to extensive environmental regulation pursuant to a variety of federal, provincial, state, municipal and foreign laws and regulations. Such environmental legislation imposes, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances into the environment. Environmental legislation also requires that our facilities, sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Existing environmental regulations could also be revised or reinterpreted, new laws and regulations could be adopted or become applicable to us or our facilities, and future changes in environmental laws and regulations could occur. The federal government and several states recently have proposed increased environmental regulation of many industrial activities, including increased regulation of air quality, water quality and solid waste management. Compliance with environmental legislation will require significant expenditures, including expenditures for compliance with the Clean Air Act and similar legislation, for clean up costs and damages arising out of contaminated properties, and for failure to comply with environmental legislation and regulations which might result in the imposition of fines and penalties. The steps we take to bring certain of our facilities into compliance could be prohibitively expensive, and we might be required to shut down or alter the operation of those facilities, which might cause us to incur losses. Further, our regulatory rate structure and our contracts with clients might not necessarily allow us to recover capital costs we incur to comply with new environmental regulations. Also, we might not be able to obtain or maintain from time to time all required environmental regulatory approvals for certain development projects. If there is a delay in obtaining any required environmental regulatory approvals or if we fail to obtain and comply with them, the operation of our facilities could be prevented or become subject to additional costs. Should we fail to comply with all applicable environmental laws, we might he subject to penalties and fines imposed against us by regulatory authorities. Although we do not expect that the costs of complying with current environmental legislation will have a material adverse effect on our financial condition or results of 10
operations, no assurance can be made that the costs of complying with environmental legislation in the future will not have such an effect. Our wholly-owned subsidiaries, Williams Energy Services, LLC, Williams Natural Gas Liquids, Inc. and Williams, GP LLC (collectively, the "Selling Parties") retained potential environmental exposure in connection with the June 17, 2003 sale of the assets of Williams Energy Services, LLC and Williams Natural Gas Liquids, Inc., the membership interests in WEG GP LLC and the partnership interests in Williams Energy Partners, L.P. to WEG Acquisitions, L.P. Furthermore, we, as the parent company of the Selling Parties, entered into an agreement in favor of WEG Acquisitions, L.P., guaranteeing payment and performance of the Selling Parties' obligations to WEG Acquisitions, L.P. Included in the terms of the transaction were various indemnities given by the Selling Parties to WEG Acquisitions, L.P. The indemnities serve to protect WEG Acquisitions, L.P. from "Losses" that it sustains or incurs from certain environmental matters included on certain schedules to the purchase agreement that governs the sale and from breaches of the Selling Parties' representations, warranties or covenants under the agreement. The term "Losses" includes any damage, judgment, fine, penalty, demand, settlement, liability, cost, tax, expense, claim or cause of action. Under the purchase agreement, WEG Acquisitions, L.P. agreed to assume costs associated with certain scheduled environmental matters and other indemnity obligations of Selling Parties to a maximum amount of approximately $22 million. The parties also agreed that the Selling Parties' indemnity obligations under the agreement would be limited, under various circumstances, to a maximum aggregate amount of $175 million, with indemnity obligations limited to a maximum aggregate amount of $125 million for certain environmental indemnity obligations related to the assets of Williams Pipe Line Company, LLC and limited to a maximum aggregate amount of up to $15 million for certain environmental obligations related to assets of Williams Natural Gas Liquids, Inc. RISKS RELATING TO ACCOUNTING POLICY POTENTIAL CHANGES IN ACCOUNTING STANDARDS MIGHT CAUSE US TO REVISE OUR FINANCIAL DISCLOSURE IN THE FUTURE, WHICH MIGHT CHANGE THE WAY ANALYSTS MEASURE OUR BUSINESS OR FINANCIAL PERFORMANCE. Recently discovered accounting irregularities in various industries have forced regulators and legislators to take a renewed look at accounting practices, financial disclosures, companies' relationships with their independent auditors and retirement plan practices. Because it is still unclear what laws or regulations will develop, we cannot predict the ultimate impact of any future changes in accounting regulations or practices in general with respect to public companies or the energy industry or in our operations specifically. In addition, the Financial Accounting Standards Board ("FASB") or the SEC could enact new accounting standards that might impact how we are required to record revenues, expenses, assets and liabilities. For instance, Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations," implemented on January 1, 2003, requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate can be made. See Note 3 to our Consolidated Financial Statements in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2003 for further details. In October 2002, the FASB's Emerging Issues Task Force ("EITF") reached consensus on Issue No. 02-3 deliberations and rescinded Issue No. 98-10. As a result, all energy trading contracts that do not meet the definition of a derivative under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," will be reported on an accrual basis. We have applied the consensus effective January 1, 2003, and recorded a reduction to net income of $762.5 million in the first quarter of 2003 on an after-tax basis which was reported as a cumulative effect of a change in accounting principle. The accounting for Energy Marketing & Trading's energy-related contracts, which include contracts such as transportation, storage, load serving and tolling agreements, requires us to assess whether certain of these contracts are executory service arrangements or leases pursuant to SFAS No. 13, "Accounting for Leases." In May 2003, the EITF reached a consensus on Issue No. 01-8, "Determining Whether an Arrangement 11
Contains a Lease," that must be applied to arrangements consummated or substantively modified after the date of the consensus. RISKS RELATING TO OUR INDUSTRY THE LONG-TERM FINANCIAL CONDITION OF OUR U.S. AND CANADIAN NATURAL GAS TRANSMISSION AND MIDSTREAM BUSINESSES ARE DEPENDENT ON THE CONTINUED AVAILABILITY OF NATURAL GAS RESERVES. The development of additional natural gas reserves requires significant capital expenditures for exploration and development drilling and the installation of production, gathering, storage, transportation and other facilities that permit natural gas to be produced and delivered to our pipeline systems. Low prices for natural gas, regulatory limitations, or the lack of available capital for these projects could adversely affect the development of additional reserves and production, gathering, storage and pipeline transmission and import and export of natural gas supplies. Additional natural gas reserves might not be developed in commercial quantities and in sufficient amounts to fill the capacities of our gathering and processing pipeline facilities. OUR GATHERING, PROCESSING AND TRANSPORTING ACTIVITIES INVOLVE NUMEROUS RISKS THAT MIGHT RESULT IN ACCIDENTS AND OTHER OPERATING RISKS AND COSTS. There are inherent in our gas gathering, processing and transporting properties a variety of hazards and operating risks, such as leaks, explosions and mechanical problems that could cause substantial financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution, impairment of our operations and substantial losses to us. In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses. The occurrence of any of these events not fully covered by insurance could have a material adverse effect on our financial position and results of operations. The location of pipelines near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks. OTHER RISKS RECENT TERRORIST ACTIVITIES AND THE POTENTIAL FOR MILITARY AND OTHER ACTIONS COULD ADVERSELY AFFECT OUR BUSINESS. The continued threat of terrorism and the impact of retaliatory military and other action by the United States and its allies might lead to increased political, economic and financial market instability and volatility in prices for natural gas, which could affect the market for our gas operations. In addition, future acts of terrorism could be directed against companies operating in the United States, and it has been reported that terrorists might be targeting domestic energy facilities. While we are taking steps that we believe are appropriate to increase the security of our energy assets, there is no assurance that we can completely secure our assets or completely protect them against a terrorist attack. These developments have subjected our operations to increased risks and, depending on their ultimate magnitude, could have a material adverse effect on our business. In particular, we might experience increased capital or operating costs to implement increased security for our energy assets. The insurance industry has also been disrupted by these events. As a result, the availability of insurance covering risks that we and our competitors typically insure against might decrease. In addition, the insurance that we are able to obtain might have higher deductibles, higher premiums and more restrictive policy terms. RISKS RELATING TO THE CONVERTIBLE DEBENTURES WE CANNOT PAY YOU UNDER THE CONVERTIBLE DEBENTURES UNLESS WE FIRST MAKE OTHER REQUIRED PAYMENTS. Our obligations under the convertible debentures will rank junior to all of our current and future senior and senior subordinated indebtedness. This means that we cannot make any payments on the convertible debentures if we are in default on a payment of certain senior indebtedness or senior subordinated indebtedness, including upon acceleration thereof, and do not cure the default within the applicable grace period or, subject to certain time limits, if other defaults exist with respect to such senior or senior 12
subordinated indebtedness that give rise to a right to accelerate such indebtedness or if the senior indebtedness or senior subordinated indebtedness becomes immediately due because of a default and has not yet been paid in full. As of March 31, 2003, we had approximately $13.8 billion of senior and senior subordinated debt, including approximately $4.2 billion of subsidiary debt other than intercompany indebtedness, trade payables and other liabilities of our subsidiaries. In addition, we had approximately $383 million of letters of credit outstanding. 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 depends largely 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. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the convertible debentures or to make any funds available therefor, whether by dividends, loans or other payments. As a result of our holding company structure, the convertible debentures will effectively rank junior to all existing and future debt, trade payables and other liabilities of our subsidiaries. Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization, and therefore the right of holders of convertible debentures to participate in those assets, will be subject to the prior claims of that subsidiary's creditors, including trade creditors, except to the extent that we ourselves may be a creditor of such subsidiary. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, receivership, reorganization, assignment for the benefit of creditors, marshaling of assets and liabilities or in any bankruptcy, insolvency, or similar proceedings, the holders of senior and senior subordinated debt will be entitled to receive payment in full of all amounts due under all senior and senior subordinated debt before the holders of the convertible debentures will be entitled to receive any payment on the convertible debentures. There are no terms in the convertible debentures that limit our or our subsidiaries' ability to incur additional indebtedness. OUR OTHER DEBT AGREEMENTS IMPOSE RESTRICTIONS ON US THAT MAY ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS. Our other debt agreements contain covenants that restrict, among other things, our ability to: - incur additional indebtedness and issue preferred stock; - enter into asset sales; - pay dividends and distributions and make certain investments; - enter into transactions with affiliates; - incur liens on assets to secure certain debt; - engage in certain business activities; and - engage in certain mergers or consolidations and transfers of assets. In addition, our other debt agreements contain, and other debt agreements we enter into in the future may contain, financial covenants and other limitations that we will need to comply with. Our ability to comply with these covenants may be affected by many events beyond our control, and we cannot assure you that our future operating results will be sufficient to comply with the covenants, or in the event of a default under any of our debt agreements, to remedy that default. 13
Our failure to comply with any of our financial or other covenants in our other debt agreements could result in an event of default. Upon the occurrence of an event of default under our credit facilities, the lenders could elect to declare all amounts outstanding under the facility to be immediately due and payable and terminate all commitments to extend further credit. By reason of cross-default provisions in our other debt instruments and in the indenture for the convertible debentures, much of our other indebtedness could also become immediately due and payable at that time as well. If the lenders under any of our credit facilities or other debt agreements, including the convertible debentures, accelerate the maturity of any loans or other debt outstanding to us, we may not have sufficient assets to repay amounts outstanding under our credit facilities and our other indebtedness, including the convertible debentures. WE MAY NOT BE ABLE TO SERVICE OUR DEBT. Our ability to pay or to refinance our indebtedness, including the convertible debentures, will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. We anticipate that our operating cash flow, together with money we anticipate being available to us to borrow under our credit facility and through other sources including further issuances, if needed, in the capital markets and from asset sales, will be sufficient to meet anticipated future operating expenses, to fund capital expenditures and to service our debt as it becomes due. However, we cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to borrow additional funds or generate proceeds from asset sales in amounts sufficient to enable us to pay our indebtedness, including the convertible debentures, or to fund our other liquidity needs. We and certain of our subsidiaries are parties to a secured credit facility. Our ability to borrow under that facility depends not only on our financial performance but also on the ability of those other parties to comply with their obligations under the facility. The amount of funds available to us under that facility will be diminished at any time at which other borrowers under the facility are borrowing under it or if the commitments under it are reduced due to future asset sales by us or our subsidiaries. WE MAY BE UNABLE TO REPURCHASE THE CONVERTIBLE DEBENTURES UPON A CHANGE OF CONTROL. Upon a change of control, (as described under "Description of the Convertible Debentures -- Repurchase at Option of the Holder upon Change of Control", you may require us to repurchase all or a portion of your convertible debentures. If a change of control were to occur, the terms of our debt agreements would currently limit our ability to repurchase your convertible debentures. Our future debt agreements may contain similar restrictions and provisions. The convertible debentures require that, upon the occurrence of a change of control, we must offer to repurchase all of the outstanding convertible debentures after first obtaining necessary waivers or causing the relevant borrowers to obtain waivers or prepaying our debt agreements and other debt of Williams or such borrower that might otherwise prohibit such repurchase. Accordingly, we may not be able to satisfy our obligations to repurchase your convertible debentures unless we are able to refinance, or waivers are obtained under, all of our debt agreements with similar restrictions. Any failure to obtain these necessary waivers and make this offer to repurchase, or to repay holders tendering convertible debentures, upon a change of control will result in an event of default under the convertible debentures. In addition, if a change of control would constitute an event of default under our senior and senior subordinated indebtedness, the subordination provisions of the indenture would restrict our ability to make payments on the convertible debentures. We cannot assure you that we will have the financial resources to repurchase your convertible debentures, particularly if that change of control event triggers a similar repurchase requirement for other indebtedness, or results in the acceleration of other indebtedness through a cross-default or similar clause. The term "change of control" is limited to certain specified transactions and may not include other events that might adversely affect our financial condition. Our obligation to offer to repurchase the convertible debentures upon a change of control would not necessarily afford you protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction. See "Description of the Convertible Debentures -- Repurchase at Option of the Holder upon Change of Control." 14
OPTION TO EXTEND INTEREST PAYMENT PERIOD. So long as we are not in default in the payment of interest on the convertible debentures, we have the right under the indenture to defer payments of interest on the convertible debentures by extending the interest payment period from time to time on the convertible debentures for an extension period not exceeding 20 consecutive quarterly interest periods, which we refer to as an extension period, during which no interest shall be due and payable. Prior to the termination of any extension period, we may further extend that extension period; provided that such extension period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any extension period and the payment of all amounts then due, we may commence a new extension period, subject to the above requirements. Consequently, there could be multiple extension periods of varying lengths throughout the term of the convertible debentures. DEFERRAL OF INTEREST MAY ADVERSELY AFFECT THE TRADING PRICE OF THE CONVERTIBLE DEBENTURES. If we elect to extend the interest payment period for the convertible debentures, you will not receive accrued interest on the convertible debentures if you sell the convertible debentures before the end of any extension period. If we exercise our right to extend any interest payment period, the convertible debentures may trade at a price that does not fully reflect the value of accrued but unpaid interest. If you sell the convertible debentures during an extension period, you may not receive the same return on investment as someone else who continues to hold the convertible debentures. In addition, the existence of our right to defer payments of interest on the convertible debentures may mean that the market price for the convertible debentures may be more volatile than other securities that do not have these rights. DEFERRAL OF INTEREST WOULD HAVE ADVERSE TAX CONSEQUENCES FOR YOU. Because we have the right to extend the interest payment period for an extension period of up to 20 consecutive quarterly interest periods, the convertible debentures will be treated as issued with "original issue discount" for U.S. federal income tax purposes. As a result, holders of convertible debentures will be required to include original issue discount in gross income as it accrues for U.S. federal income tax purposes in advance of the receipt of cash. Generally, all of the interest income of a holder of convertible debentures with respect to the convertible debentures will be accounted for as "original issue discount" and actual payments of stated interest will not be separately reported as taxable income. See "Material U.S. Federal Income Tax Considerations -- Accrual of Original Issue Discount." THE CONVERTIBLE DEBENTURES IMPOSE ONLY LIMITED RESTRICTIVE COVENANTS. The covenants in the governing documents relating to the convertible debentures are extremely limited. In particular, the convertible debentures do not contain covenants that limit our ability to incur additional senior indebtedness or senior subordinated indebtedness or repurchase our capital stock. The indenture does generally prohibit us and our subsidiaries from paying dividends or making certain other distributions or payments with respect to our capital stock during any extension period or if an event of default or a potential event of default as defined in this prospectus has occurred and is continuing with respect to the convertible debentures. See "Description of Convertible Debentures -- Restrictions on Certain Payments." THE CONVERTIBLE DEBENTURES MAY BE REDEEMABLE FOR CASH, AT OUR OPTION, ON OR AFTER JUNE 1, 2010 IF, FOR A CERTAIN PERIOD OF TIME, THE CLOSING PRICE OF OUR COMMON STOCK EXCEEDS 130% OF THE CONVERSION PRICE. The convertible debentures may be redeemed, in whole or in part from time to time, on or after June 1, 2010 at a redemption price equal to 100% of the principal amount of the convertible debentures to be redeemed plus any accrued and unpaid interest to but not including the redemption date if for 20 trading days within the preceding period of 30 consecutive trading days (including the last day of the period), the closing price of our common stock exceeds 130% of the conversion price. You should assume that this redemption option will be exercised if we are able to refinance at a lower interest rate or it is otherwise in our interest to 15
redeem the convertible debentures. You may exercise your conversion right at any time until the close of business on the business day prior to the redemption date. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE FOR THE CONVERTIBLE DEBENTURES; THEREFORE, YOU MAY SUFFER A LOSS. We cannot give you any assurance as to the market price for the convertible debentures. If you resell your convertible debentures, the price you receive will depend on many other factors that may vary over time, including: - the number of potential buyers; - the level of liquidity of the convertible debentures; - ratings published by major credit ratings agencies; - our financial performance; - the amount of indebtedness we have outstanding; - the level, direction and volatility of market interest rates generally; - the market for similar securities; - the redemption and repayment features of the convertible debentures to be sold; and - the time remaining to the maturity of your convertible debentures. As a result of these factors, you may only be able to sell your convertible debentures at prices below those you believe to be appropriate, including prices below the price you paid for them. THERE MAY BE ADVERSE TAX CONSEQUENCES TO YOU IF YOU DISPOSE OF YOUR CONVERTIBLE DEBENTURES BETWEEN A RECORD DATE AND THE RELATED INTEREST PAYMENT DATE. The convertible debentures may trade at a price that does not fully reflect the value of accrued but unpaid interest. A holder who disposes of his convertible debentures between a record date and the related interest payment date will be required to include accrued original issue discount on the convertible debentures through the date of disposition, and to add such amount to his adjusted tax basis in the convertible debentures disposed of. Accordingly, such a holder will recognize a capital loss to the extent the selling price, which may not fully reflect the value of accrued original issue discount, is less than the holder's adjusted tax basis, which will include accrued original issue discount. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for U.S. federal income tax purposes. See "Material U.S. Federal Income Tax Considerations -- Disposition of the Convertible Debentures." THERE IS NO EXISTING MARKET FOR THE CONVERTIBLE DEBENTURES AND THERE MAY BE RESTRICTIONS ON RESALE OF THE CONVERTIBLE DEBENTURES. The convertible debentures are a new issue of securities with no established trading market. Lehman Brother has advised us that it intends to make a market in the convertible debentures, but it is not obligated to do so and may discontinue its market making at any time without notice. Accordingly, we cannot assure you that a market for the convertible debentures will develop. THE POSSIBLE VOLATILITY OF OUR COMMON STOCK PRICE COULD ADVERSELY AFFECT YOUR ABILITY TO RESELL THE CONVERTIBLE DEBENTURES OR COMMON STOCK ISSUABLE UPON CONVERSION OF THE CONVERTIBLE DEBENTURES. Securities markets worldwide have in the recent past experienced significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors, and in response, the market price of our common stock could decrease significantly. Investors may be unable to resell their shares of our common stock received upon conversion of the convertible debentures at or above the offering price. 16
USE OF PROCEEDS We will not receive any proceeds from the sale by any selling securityholder of the convertible debentures or the underlying shares of our common stock. RATIO OF EARNINGS TO FIXED CHARGES The following table presents our consolidated ratio of earnings to fixed charges for the periods shown. Some of the amounts within the calculation of the ratio of earnings to fixed charges have been reclassified due to certain of our activities which are now reported as discontinued operations as described in Note 1 of Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2002 incorporated herein by reference. However, the figures in this table are not adjusted to reflect the operations of Williams Energy Partners L.P. and Texas Gas Transmission Corporation as discontinued operations as described in our reports on Form 8-K filed on April 22, 2003 and May 22, 2003.
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.
GENERAL The convertible debentures will be general unsecured obligations of Williams. Our payment obligations under the convertible debentures are subordinated to all of our current and future senior and senior subordinated indebtedness to the extent and in the manner set forth in the indenture and effectively subordinated to all debts and other liabilities of our subsidiaries as described under "-- Subordination of Convertible Debentures." The convertible debentures will be convertible into our common stock as described under "-- Conversion Rights." The convertible debentures will be limited to $300,000,000 in aggregate principal amount. The convertible debentures will be issued in minimum denominations of $50 and integral multiples of $50. The convertible debentures will mature on June 1, 2033 unless converted, redeemed or repurchased earlier and are not subject to any sinking fund. The convertible debentures bear interest at a rate of 5.50% per annum. Interest will accrue from May 28, 2003, or from the most recent date to which interest has been paid or duly provided for, and the amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. We will pay interest on March 1, June 1, September 1 and December 1 of each year, beginning September 1, 2003, to record holders at the close of business on the preceding February 15, May 15, August 15 or November 15, as the case may be. Interest payable upon redemption or repurchase will be paid to the person to whom principal is payable. Interest payments payable on any convertible debentures that are not punctually paid on any interest payment date will cease to be payable to the person in whose name such convertible debentures are registered on the original record date, and such defaulted payment will instead be made to the person in whose name such convertible debentures are registered on the special record date or other specified date determined in accordance with the indenture. Interest on the convertible debentures not paid on the scheduled payment date will accrue and compound quarterly, to the extent permitted by law, at the applicable interest rate. If any interest payment date is not a business day, then such interest payment will be made on the next day which is a business day, and without any interest or other payment accruing as a result of such delay, except that if such business day falls in the next calendar year, such interest payment will be made on the immediately preceding business day, in each case with the same force and effect as if made on the date such interest payment was originally payable. We will maintain an office in the Borough of Manhattan, The City of New York, where we will pay the principal and premium, if any, on the convertible debentures and you may present the convertible debentures for conversion, registration of transfer or exchange for other denominations, which shall initially be an office or agency of the trustee. We may pay interest by check mailed to your address as it appears in the convertible debenture register, provided that if you are a holder with an aggregate principal amount in excess of $2.0 million, you shall be paid, at your written election, by wire transfer in immediately available funds. However, payments to The Depository Trust Company, New York, New York, which we refer to as DTC, will be made by wire transfer of immediately available funds to the account of DTC or its nominee. Registration of transfers or exchanges of convertible debentures will be effected without charge, but payment of a sum sufficient to cover any tax or any other governmental charges that may be imposed in connection with any transfer or exchange may be required. OPTION TO EXTEND INTEREST PAYMENT PERIOD So long as we are not in default in the payment of interest on the convertible debentures, we will have the right under the indenture to defer payments of interest on the convertible debentures by extending the interest payment period at any time, and from time to time, on the convertible debentures. During any such extension period, interest on the convertible debentures will continue to accrue at the then-applicable annual interest rate, compounded quarterly, to the extent permitted by law. 19
We may not extend any interest payment period for the convertible debentures to more than 20 consecutive quarters, and no extension may extend beyond the stated maturity of the convertible debentures or end on a date other than an interest payment date. If we exercise our right to defer payments of interest, then under the terms of the convertible debentures we may not, and may not permit any subsidiary to, make any of the payments described under "-- Restrictions on Certain Payments." Prior to the termination of any extension period, we may further defer payments of interest by extending the interest payment period, subject to the limitations described above. Upon the termination of any extension period and the payment of all amounts then due, we may commence a new extension period, subject to the above requirements. We have no current intention of exercising our right to defer payments of interest on the convertible debentures. We will be required to give, or to cause the trustee to give, the holders of convertible debentures notice of our election of such extension period at least five business days before the earlier of (1) the record date for the scheduled interest payment date for the first quarter of such extension period or (2) the date upon which we are required to give notice of the record or payment date for such related interest payment for the first quarter to any national stock exchange or other organization on which the convertible debentures are listed or quoted, if any, or to holders of the convertible debentures. As used in this prospectus, a "business day" means any day, other than a Saturday or Sunday, that is not a day on which banking institutions in The City of New York, New York are authorized or obligated by law or executive order to remain closed or on which the principal corporate trust office of the trustee under the indenture is closed for business. CONVERSION RIGHTS GENERAL You may convert any of your convertible debentures, in whole or in part, into shares of our common stock at any time prior to the close of business on the final maturity date of the convertible debentures or, in the case of convertible debentures called for redemption, prior to the close of business on the business day prior to the redemption date, subject to prior redemption or repurchase of the convertible debentures. The number of shares of common stock you will receive upon conversion of the convertible debentures will be determined by multiplying the number of $50 principal amount of convertible debentures you convert by the conversion rate on the date of conversion. The initial conversion rate for the convertible debentures is 4.5907 shares of common stock per $50 principal amount of convertible debentures, subject to adjustment as described below, which represents an initial conversion price of approximately $10.89 per share. If we call convertible debentures for redemption, you may convert the convertible debentures only until the close of business on the business day prior to the redemption date unless we fail to pay the redemption price. If you have submitted your convertible debentures for repurchase upon a change of control, you may not convert your convertible debentures unless you withdraw your repurchase election as described under "-- Repurchase at Option of the Holder upon Change of Control." You may convert your convertible debentures in part so long as the principal amount of such part is $50 or an integral multiple of $50. Upon conversion, a holder will not be entitled to receive any accrued and unpaid interest, whether or not in arrears, on the convertible debentures and no interest will be payable on convertible debentures with respect to any interest payment date occurring subsequent to the date of conversion, except in the limited circumstance described below. However, if convertible debentures are surrendered for conversion after 5:00 p.m., New York City time, on any record date but on or prior to the next succeeding interest payment date, holders of such convertible debentures at the close of business on the record date will receive the interest payable on the corresponding interest payment date notwithstanding the conversion. Therefore, such convertible debentures, upon surrender for conversion, must be accompanied by payment in next day funds equal to the amount of interest that the registered holder of such convertible debentures on such record date is entitled to receive. Notwithstanding the foregoing, no such payment need be made (1) if we have specified a redemption date that is after a record date and on or prior to the next interest payment date, (2) if we have 20
specified a repurchase date following a change of control that is during such period or (3) to the extent of any overdue interest, if overdue interest exists at the time of conversion with respect to such convertible debenture. We will not issue fractional common shares upon conversion of convertible debentures. Instead, we will pay cash in lieu of fractional shares based on the last reported sale price of the common stock on the conversion date. As used in this prospectus, a "trading day" means any day on which the New York Stock Exchange is open for business. Our delivery to the holder of the full number of shares of our common stock into which a convertible debenture is convertible, together with any cash payment for such holder's fractional shares, will be deemed to satisfy our obligation to pay: - the principal amount of the convertible debenture; and - accrued but unpaid interest attributable to the period from the most recent interest payment date to the conversion date, subject to the fourth preceding sentence above. As a result, accrued but unpaid interest to the conversion date is deemed to be paid in full rather than cancelled, extinguished or forfeited. For a discussion of your tax treatment upon receipt of our common stock upon conversion, see "Material U.S. Federal Income Tax Considerations -- Conversion of Convertible Debentures to Williams Common Stock." Williams has authorized and will reserve for issuance the maximum number of shares of its common stock that it may be required to issue upon the conversion of convertible debentures. Shares of Williams common stock issued upon conversion will be validly issued, fully paid and nonassessable. CONVERSION PROCEDURES To convert your convertible debenture into common stock you must do the following: - complete and manually sign the irrevocable conversion notice on the back of the convertible debenture or facsimile of the conversion notice and deliver this notice to the conversion agent; - surrender the convertible debenture to the conversion agent; - if required, furnish appropriate endorsements and transfer documents; - if required, pay all transfer or similar taxes; and - if required, pay funds equal to interest payable on the next interest payment date. The date you comply with these requirements is the conversion date under the indenture. If your interest is a beneficial interest in a global debenture, to convert you must comply with the last three requirements listed above and comply with the DTC's procedures for converting a beneficial interest in a global debenture. CONVERSION RATE ADJUSTMENTS We will adjust the conversion rate if any of the following events occurs: - we issue common stock as a dividend or distribution on our common stock; - we issue to all holders of our common stock certain rights or warrants to purchase our common stock at less than the then current market value; - we subdivide or combine our common stock; - we distribute to all holders of our common stock, shares of our capital stock, evidences of indebtedness or assets, including securities but excluding: - rights or warrants specified above; - any dividends or distributions in connection with the liquidation or winding up of Williams; 21
- dividends or distributions specified above; and - cash distributions. If we distribute capital stock of, or similar equity interests in, a subsidiary or other business unit of ours, then the conversion rate will be adjusted based on the market value of the securities so distributed relative to the market value of our common stock, in each case based on the average closing sale prices of those securities (where such closing sale prices are available) for the 10 trading days commencing on and including the fifth trading day after the date on which "ex-dividend trading" commences for such distribution on the New York Stock Exchange or such other national or regional exchange or market on which the securities are then listed or quoted; - we distribute cash, excluding any dividend or distribution in connection with our liquidation, dissolution or winding up or any quarterly cash dividend on our common stock to the extent that the aggregate cash dividend per share of common stock in any quarter does not exceed the greater of: - the amount per share of common stock of the next preceding quarterly cash dividend on the common stock to the extent that the preceding quarterly dividend did not require an adjustment of the conversion rate pursuant to this clause, as adjusted to reflect subdivisions or combinations of the common stock; and - 10% of the average of the last reported sale price of the common stock during the ten trading days immediately prior to the declaration date of the dividend, calculated at the time of each distribution. If an adjustment is required to be made under this clause as a result of a distribution that is a quarterly dividend, the adjustment would be based upon the amount by which the distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant to this clause. If an adjustment is required to be made under this clause as a result of a distribution that is not a quarterly dividend, the adjustment would be based upon the full amount of the distribution; - we or one of our subsidiaries makes a payment in respect of a tender offer or exchange offer for our common stock to the extent that the cash and value of any other consideration included in the payment per share of common stock exceeds the closing sale price per share of common stock on the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer; and - someone other than us or one of our subsidiaries makes a payment in respect of a tender offer or exchange offer in which, as of the closing date of the offer, our board of directors is not recommending rejection of the offer. The adjustment referred to in this clause will only be made if: - the tender offer or exchange offer is for an amount that increases the offeror's ownership of common stock to more than 25% of the total shares of common stock outstanding; and - the cash and value of any other consideration included in the payment per share of common stock exceeds the closing sale price per share of common stock on the business day next succeeding the last date on which tenders or exchanges may be made pursuant to the tender or exchange offer. However, the adjustment referred to in this clause will generally not be made if as of the closing of the offer, the offering documents disclose a plan or an intention to cause us to engage in a consolidation or merger or a sale of all or substantially all of our assets. If the rights provided for in our rights agreement dated February 6, 1996 or in any future stockholder rights plan adopted by us have separated from our common stock in accordance with the provisions of the applicable stockholder rights agreement so that the holders of the debentures would not be entitled to receive any rights in respect of the common stock issuable upon conversion of the debentures, the conversion rate will be adjusted as if we distributed to all holders of our common stock, evidences of indebtedness or assets as described under the fourth bullet point above, subject to readjustment in the event of the expiration, termination or redemption of the rights. In lieu of any such adjustment, we may amend such applicable stockholder rights agreement to provide that upon conversion of the debentures the holders will receive, in 22
addition to the common stock issuable upon such conversion, the rights which would have attached to such shares of common stock if the rights had not become separated from the common stock under such applicable stockholder rights agreement. See "Description of Capital Stock -- Preferred Stock Purchase Rights." In the event of: - any reclassification of our common stock; - a consolidation, merger or combination involving us; or - a sale or conveyance to another person or entity of all or substantially all of our property and assets; in which holders of our common stock would be entitled to receive stock, other securities, other property, assets or cash for their common stock, upon conversion of your convertible debentures you will be entitled to receive the same type of consideration which you would have been entitled to receive if you had converted the convertible debentures into our common stock immediately prior to any of these events. If the transaction also constitutes a change of control, you can require us to repurchase all or a portion of your convertible debentures as described under "-- Repurchase at Option of the Holder upon Change of Control." You may in certain situations be deemed to have received a distribution subject to U.S. federal income tax as a dividend in the event of any taxable distribution to holders of our common stock or in certain other situations requiring a conversion rate adjustment. See "Material U.S. Federal Income Tax Considerations -- Adjustment of Conversion Price." We may from time to time, to the extent permitted by law, increase the conversion rate by any amount for any period of at least 20 days. In that case, we will give at least 15 days' notice of such increase. In addition, we may make such increases in the conversion rate as we deem advisable to avoid or diminish any income tax to holders of our common stock resulting from any dividend or distribution of stock, or rights to acquire stock, or from any event treated as such for income tax purposes. We will not be required to make an adjustment in the conversion rate unless the adjustment would require a change of at least 1% in the conversion rate. However, we will carry forward any adjustments that are less than 1% of the conversion rate. Except as described above in this section, we will not adjust the conversion rate for any issuance of our common stock or convertible or exchangeable securities or rights to purchase our common stock or convertible or exchangeable securities. The "closing sale price" of our common stock on any date means the closing per share sale price, or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices, on such date as reported in composite transactions for the principal United States securities exchange on which our common stock is traded or, if our common stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq System or by the National Quotation Bureau Incorporated. In the absence of such a quotation, we will determine the closing sale price on the basis we consider appropriate. OPTIONAL REDEMPTION BY WILLIAMS We may redeem the convertible debentures prior to maturity, in whole or in part, at any time on or after June 1, 2010 if the closing sale price of our common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the trading day prior to the mailing of the notice of redemption, including the last day in such period, exceeds 130% of the then-prevailing conversion price. The redemption price will be equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest, including deferred interest, and other amounts to but excluding the date of redemption, payable in cash. We will mail any notice of redemption at least 30 and no more than 60 days before the redemption date to each holder of convertible debentures to be redeemed at its registered address. Unless we default in payment of the redemption price, on the redemption date interest shall cease to accrue on the convertible debentures called for redemption. 23
Subject to applicable law, we or our affiliates may at any time and from time to time purchase outstanding convertible debentures by tender, in the open market or by private agreement. If less than all of the outstanding convertible debentures are to be redeemed, the trustee will select the convertible debentures to be redeemed in principal amounts of $50 or multiples of $50 by lot, pro rata or by another method the trustee considers fair and appropriate. If a portion of your convertible debentures is selected for partial redemption and you convert a portion of your convertible debentures, the converted portion will be deemed to be of the portion selected for redemption. We may redeem the convertible debentures only in whole, and not in part, if we have failed to pay any interest on the convertible debentures when due and such failure to pay is continuing, including during an extension period. We will notify the holders if we redeem the convertible debentures. REPURCHASE AT OPTION OF THE HOLDER UPON CHANGE OF CONTROL If a change of control, as defined below, occurs at any time prior to the maturity of the convertible debentures, you may require us to repurchase your convertible debentures, in whole or in part, on the repurchase date specified as described below. The convertible debentures may be repurchased in principal amounts of $50 or integral multiples of $50. We will repurchase the convertible debentures at a price equal to 100% of the principal amount to be repurchased, plus accrued and unpaid interest, including deferred interest, to, but excluding, the repurchase date. Within 30 days after the occurrence of a change of control, we must give notice of the change of control and the applicable repurchase date to registered holders of convertible debentures at their addresses shown in the register of the registrar. We will also give notice to beneficial owners as required by applicable law. This notice will state, among other things, the repurchase date, which must be no less than 20 and no more than 45 days after the date of our change of control notice, the repurchase price and the procedures that holders must follow to require us to repurchase their convertible debentures. If you elect to require us to repurchase your convertible debentures, you must deliver to us or our designated agent, on or before the repurchase date specified in our change of control notice, your repurchase notice and any convertible debentures to be repurchased by book-entry transfer or delivery of the convertible debenture, duly endorsed for transfer, to the paying agent at its corporate trust office in the Borough of Manhattan, The City of New York, or any other office of the paying agent. We will promptly pay the repurchase price for convertible debentures surrendered for repurchase following the later of the repurchase date and the time of book-entry transfer or delivery of the convertible debenture. You may withdraw your repurchase notice by delivering a written notice of withdrawal to the paying agent at any time prior to the close of business on the business day preceding the repurchase date. If a repurchase notice is given and withdrawn prior to the close of business on such day, we will not be obligated to repurchase the convertible debentures listed in the notice. The withdrawal notice must state: - the principal amount of the withdrawn convertible debentures; - if certificated debentures have been issued, the certificate numbers of the withdrawn convertible debentures, or, if your convertible debentures are not certificated, your withdrawal notice must comply with appropriate DTC procedures; and - the principal amount, if any, which remains subject to the repurchase notice. If the paying agent holds money sufficient to pay the repurchase price of your convertible debentures on the business day following the repurchase date, then, on and after such date: - those convertible debentures will cease to be outstanding; - interest will cease to accrue; and 24
- all your other rights as a holder will terminate, other than the right to receive the repurchase price upon delivery of the convertible debentures. This will be the case whether or not book-entry transfer of the convertible debentures has been made or the convertible debentures have been delivered to the paying agent. Williams will comply with the requirements of the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the convertible debentures as a result of a change of control. A "change of control" will be deemed to have occurred when any of the following has occurred: - the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger, other acquisition transaction or a series of such transactions, of shares of Williams' capital stock entitling that person to exercise 50% or more of the total voting power of all shares of Williams' capital stock entitled to vote generally in elections of directors, other than any acquisition by Williams, any of Williams' subsidiaries or future subsidiaries or any of Williams' employee benefit plans; - the first day on which a majority of the members of the board of directors of Williams are not "continuing directors," which means, as of any date of determination, any member of the board of directors of Williams who: - was a member of the board of directors throughout the 24 consecutive months preceding the date of determination; or - was nominated for election or elected to the board of directors with the approval of a majority of the continuing directors who were members of the board at the time of such director's nomination or election; or - the consolidation, combination or merger of Williams with or into any other person, any merger of another person into Williams, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of Williams' properties and assets to another person, other than: - any transaction: (a) that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Williams' capital stock; and (b) pursuant to which holders of Williams' capital stock immediately prior to such transaction are entitled to exercise, directly or indirectly, 50% or more of the total voting power of all shares of Williams' capital stock entitled to vote generally in elections of directors of the continuing or surviving person immediately after giving effect to such transaction; or - any merger solely for the purpose of changing Williams' jurisdiction of incorporation and resulting in a reclassification, conversion or exchange of outstanding shares of common stock solely into shares of common stock of the surviving entity. Beneficial ownership will be determined in accordance with Rule 13d-3 promulgated by the SEC under the Securities Exchange Act of 1934 referred to herein as the "Exchange Act". The term "person" includes any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act. However, a change of control will not be deemed to have occurred if: - the closing sale price per share of Williams common stock for any five full trading days, not including extended hours trading, within the period of ten consecutive trading days ending immediately after the later of the change of control or the public announcement of the change of control, in the case of a change of control under the first bullet point above, or the period of ten consecutive full trading days, not including extended hours trading, ending immediately before the change of control, in the case of a 25
change of control under the third bullet point above, equals or exceeds 110% of the conversion price per share of Williams common stock in effect on each of those trading days, as adjusted; or - at least 90% of the consideration in the transaction or transactions constituting a change of control consists of shares of common stock traded or to be traded immediately following such change of control on a national securities exchange or the Nasdaq National Market and, as a result of such transaction or transactions, the convertible debentures become convertible into such common stock and any rights attached thereto. Except as described above with respect to a change of control and below under "-- Merger and Sale of Assets by Williams," neither the convertible debentures nor the indenture will contain provisions that permit holders of convertible debentures to require that we repurchase the convertible debentures in the event of, or otherwise prohibit us from undertaking, a merger, takeover, recapitalization or similar business combination or restructuring transaction. The term "change of control" is limited to specified transactions and may not include other events that might adversely affect our financial condition or business operations. We may enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that could affect our capital structure or the value of our common stock, but that would not constitute a change of control. Our obligation to offer to redeem the convertible debentures upon a change of control would not necessarily afford you protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us. Our ability to repurchase convertible debentures upon the occurrence of a change of control is subject to important limitations. The occurrence of a change of control could cause an event of default under, or be prohibited or limited by, the terms of our senior or senior subordinated debt. As a result, any repurchase of the convertible debentures would, absent a waiver, be prohibited under the indentures governing such senior or senior subordinated debt until the debt is paid in full. Further, there can be no assurance that we would have the financial resources, or would be able to arrange financing, to pay the repurchase price for all the convertible debentures that might be delivered by holders of convertible debentures seeking to exercise their repurchase right. Any failure by us to repurchase the convertible debentures when required following a change of control would result in an event of default under the indenture, whether or not such repurchase is permitted by the indentures governing our senior or senior subordinated debt. Any such default may, in turn, cause a default under our other indebtedness. SUBORDINATION OF CONVERTIBLE DEBENTURES The payment of principal of and interest on the convertible debentures will, to the extent provided in the indenture, be subordinated to the prior payment in full of all present and future senior and senior subordinated indebtedness, as defined below. The convertible debentures also are effectively subordinated to all debt and other liabilities, including trade payables and lease obligations, if any, of our subsidiaries. Upon any payment or distribution of our assets upon any dissolution, winding up, liquidation or reorganization, or in a bankruptcy, insolvency or other proceeding, the payment of the principal of, or premium, if any, interest and liquidated damages, if any, on the convertible debentures will be subordinated in right of payment to the prior payment in full of all senior and senior subordinated indebtedness in cash, including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding. In the event of any acceleration of the convertible debentures because of an event of default, the holders of any outstanding senior or senior subordinated indebtedness would be entitled to payment in full in cash, including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding, of all senior and senior subordinated indebtedness obligations before the holders of the convertible debentures are entitled to receive any payment or distribution. We are required under the indenture to promptly notify holders of senior and senior subordinated indebtedness if payment of the convertible debentures is accelerated because of an event of default. 26
Neither we nor any of our subsidiaries may make any payment on the convertible debentures if: - a default in the payment of designated senior indebtedness occurs and is continuing beyond any applicable period of grace which we refer to herein as a "payment default"; or - a default, other than a payment default, on any designated senior indebtedness occurs and is continuing that permits holders of any of the designated senior indebtedness to accelerate its maturity, or in the case of a lease that is designated senior indebtedness, a default occurs and is continuing that permits the lessor either to terminate the lease or to require us to make an irrevocable offer to terminate the lease following an event of default under the lease, and the trustee receives a notice of such default which we refer to herein as a "payment blockage notice" from any person permitted to give such notice under the indenture which we refer to herein as a "non-payment default". We may resume payments and distributions on the convertible debentures: - in case of a payment default, on the date on which such default is cured or waived or ceases to exist; and - in case of a non-payment default, on the earlier of the date on which such non-payment default is cured or waived or ceases to exist and 179 days after the date on which the payment blockage notice is received, if the maturity of any of the designated senior indebtedness has not been accelerated or in the case of any lease, 179 days after notice is received if we have not received notice that the lessor under such lease has exercised its right to terminate the lease or require us to make an irrevocable offer to terminate the lease following an event of default under the lease. Not more than one payment blockage may be commenced pursuant to a payment blockage notice during any 360 consecutive days. No non-payment default that existed or was continuing on the date of delivery of any payment blockage notice, to the extent the holder of designated senior debt or the trustee or agent giving such notice had knowledge of the same, shall be the basis for any later payment blockage notice. If the trustee or any holder of the convertible debentures receives any payment or distribution of our assets with respect to the convertible debentures in contravention of the subordination provisions, then such payment or distribution will be held in trust for the benefit of holders of senior and senior subordinated indebtedness or their representatives to the extent necessary to make payment in full of all unpaid senior and senior subordinated indebtedness in cash. Because of the subordination provisions discussed above, in the event of our bankruptcy, dissolution or reorganization, holders of senior and senior subordinated indebtedness may receive more, ratably, and holders of the convertible debentures may receive less, ratably, than our other creditors. This subordination will not prevent the occurrence of any event of default under the indenture that would otherwise occur upon any nonpayment of the convertible debentures. The convertible debentures are exclusively our obligations and not obligations of any of our subsidiaries. Substantially all of our operations are conducted through our subsidiaries. As a result, our cash flow and our ability to service our debt, including the convertible debentures, is dependent upon the earnings of our subsidiaries. In addition, we are dependent on the distribution of earnings, loans or other payments from our subsidiaries. In addition, any payment of dividends, distributions, loans or advances by our subsidiaries to us could be subject to statutory or contractual restrictions. Payments to us by our subsidiaries will also be contingent upon our subsidiaries' earnings and business considerations. Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization, and therefore the right of the holders to participate in those assets, will be effectively subordinated to the claims of that subsidiary's creditors, including trade creditors, except to the extent that we ourselves may be a creditor of such subsidiary. In addition, even if we were a creditor to any of our subsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries senior to that held by us. 27
Subject to the qualifications described below, the term "senior and senior subordinated indebtedness" includes principal and premium, if any, and interest, including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law, on, and all other amounts owing in respect of (including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities thereunder) all of our indebtedness, whether outstanding on the date of the issuance of the convertible debentures or thereafter created, incurred or assumed. Notwithstanding the foregoing, senior and senior subordinated indebtedness will not include (1) any indebtedness which by its terms is expressly made equal in rank and payment with or subordinated to the convertible debentures, (2) obligations of Williams owed to its subsidiaries or (3) our redeemable stock. Senior and senior subordinated indebtedness will continue to be senior and senior subordinated indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of the senior and senior subordinated indebtedness or extension, renewal or refunding of the senior and senior subordinated indebtedness. The term "indebtedness" is defined in the indenture and includes, in general terms, our liabilities in respect of borrowed money, notes, bonds, debentures, letters of credit, bank guarantees, bankers' acceptances, obligations for the deferred purchase price of property, other than trade accounts payable in the ordinary course of business, all of our obligations under leases required or permitted to be capitalized under generally accepted accounting principles, interest rate and foreign currency derivative contracts or similar arrangements, guarantees and certain other obligations described in the indenture, subject to certain exceptions. The term does not include, for example, any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services. The term "designated senior indebtedness" is defined in the indenture and includes, in general terms, any senior or senior subordinated indebtedness that by its terms expressly provides that it is "designated senior indebtedness" for purposes of the indenture. As of March 31, 2003, we had approximately $13.8 billion of senior and senior subordinated debt, including approximately $4.2 billion of subsidiary debt other than intercompany indebtedness, trade payables and other liabilities of our subsidiaries. As of March 31, 2003, we also had approximately $383 million in letters of credit outstanding. Neither we nor our subsidiaries are prohibited from incurring debt, including senior indebtedness, under the indenture. We may from time to time incur additional debt, including senior indebtedness. Our subsidiaries may also from time to time incur additional debt and liabilities. We are obligated to pay reasonable compensation to the trustee and to indemnify the trustee against certain losses, liabilities or expenses incurred by the trustee in connection with its duties relating to the convertible debentures. The trustee's claims for these payments will generally be senior to those of convertible debenture holders in respect of all funds collected or held by the trustee. RESTRICTIONS ON CERTAIN PAYMENTS We have agreed that if: - an event has occurred that with the giving of notice or the lapse of time, or both, would constitute an event of default and we have not taken commercially reasonable steps to cure the event, referred to herein as a "potential event of default"; or - we have given notice of our intention to begin an interest deferral period, as described under "-- Option to Extend Interest Payment Period" and have not rescinded the notice, or any deferral period is continuing; 28
then we will not and will not permit any of our subsidiaries to do any of the following each referred to herein as a "Restricted Payment": - declare or pay any dividends on, make distributions regarding, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the capital stock of Williams, other than: (1) purchases of the capital stock of Williams in connection with employee or agent benefit plans or under any dividend reinvestment plan; (2) in connection with the reclassifications of any class or series of Williams' capital stock, or the exchange or conversion of one class or series of Williams' capital stock for or into another class or series of its capital stock; (3) the purchase of fractional interests in shares of Williams' capital stock in connection with the conversion or exchange provisions of that capital stock or the security being converted or exchanged; (4) dividends or distributions in Williams' capital stock, or options, warrants or rights to acquire capital stock, or repurchases or redemptions of capital stock solely from the issuance or exchange of capital stock; (5) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or issuances of stock under any such plan in the future, or redemptions or repurchases of any such rights pursuant to any such shareholders' rights plan; or (6) repurchases of Williams common stock in connection with acquisitions of businesses made by Williams or any of its subsidiaries, which repurchases are made in connection with the satisfaction of indemnification obligations of the sellers of such businesses; - make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities, including other convertible debentures, issued by Williams that rank equally with or junior to the convertible debentures; and - make any guarantee payments with respect to any guarantee by Williams of the debt securities, including other guarantees, of any of its subsidiaries, if such guarantee ranks equally with or junior in interest to the convertible debentures. Notwithstanding the foregoing, Restricted Payments shall not include payments or distributions of any kind made by Williams, directly or indirectly, to Williams Gas Pipeline Company, LLC, or any of its direct or indirect subsidiaries, or to any successor company established by Williams to own or manage its natural gas pipelines and related assets, or any of such successor company's direct or indirect subsidiaries. See "Risk Factors -- The convertible debentures impose only limited restrictive covenants." MERGER AND SALE OF ASSETS BY WILLIAMS The indenture provides that we may not consolidate with or merge with or into any other person or sell, convey, transfer or lease its properties and assets substantially as an entirety to another person, unless among other items: - we are the surviving person, or the resulting, surviving or transferee person, if other than us, is organized and existing under the laws of the United States, any state thereof or the District of Columbia; - the resulting, surviving or transferee person assumes all of our obligations under the convertible debentures and the indenture; - after giving effect to such transaction, there is no event of default, and no event which, after notice or passage of time or both, would become an event of default; and 29
- we have delivered to the trustee an officers' certificate and an opinion of counsel each stating that such consolidation, merger, sale, conveyance, transfer or lease complies with these requirements. When such a person assumes our obligations in such circumstances, subject to certain exceptions, we shall be discharged from all obligations under the convertible debentures and the indenture. EVENTS OF DEFAULT; NOTICE AND WAIVER The indenture provides that any one or more of the following described events, which has occurred and is continuing, constitutes an "Event of Default" with respect to the convertible debentures: - failure for 30 days to pay interest or liquidated damages on the convertible debentures when due, whether or not the payment is prohibited by subordination provisions, provided that a valid extension of the interest payment period by Williams shall not constitute a default in the payment of interest for this purpose; - failure to pay principal of or premium, if any, on the convertible debentures when due whether at maturity, by declaration or otherwise, whether or not the payment is prohibited by subordination provisions; - default in Williams' obligation to convert the convertible debentures into shares of its common stock upon exercise of a holder's conversion right; - default in Williams' obligation to repurchase the convertible debentures at the option of a holder upon a change of control, whether or not the payment is prohibited by subordination provisions; - default in Williams' obligation to redeem the convertible debentures after it has exercised its option to redeem, whether or not the payment is prohibited by subordination provisions; - failure to observe or perform any other covenant contained in the indenture for 90 days after written notice to Williams from the trustee or the holders of at least 25% in principal amount of the outstanding convertible debentures; - failure to pay at final stated maturity, giving effect to any applicable grace periods and any extensions thereof, the principal amount of any other junior subordinated indebtedness of Williams or the acceleration of the final stated maturity of any such other junior subordinated indebtedness, which acceleration is not rescinded, annulled or otherwise cured within 90 days of receipt by Williams of notice from the holders thereof of any such acceleration, if the aggregate principal amount of such indebtedness, together with the principal amount of any other such junior subordinated indebtedness in default for failure to pay principal at final stated maturity or which has been accelerated (in each case with respect to which the 90-day period described above has elapsed), aggregates $250 million or more at any time; or - certain events involving our bankruptcy, insolvency or reorganization. If an event of default occurs and continues, the trustee or the holders of at least 25% in principal amount of the outstanding convertible debentures may declare the principal, premium, if any, and accrued and unpaid interest, including liquidated damages, if any, on the outstanding convertible debentures to be immediately due and payable. In case of certain events of bankruptcy or insolvency involving us, the principal, premium, if any, and accrued and unpaid interest, including liquidated damages, if any, on the convertible debentures will automatically become due and payable. However, if we cure all defaults, except the nonpayment of principal, premium, if any, interest, including liquidated damages, if any, that became due as a result of the acceleration, and meet certain other conditions, with certain exceptions, this declaration may be cancelled and the holders of a majority of the principal amount of outstanding convertible debentures may waive these past defaults. The holders of a majority of outstanding convertible debentures will have the right to direct the time, method and place of any proceedings for any remedy available to the trustee, subject to limitations specified in the indenture. 30
No holder of the convertible debentures may pursue any remedy under the indenture, except in the case of a default in the payment of principal, premium, if any, or interest, including liquidated damages, if any, on the convertible debentures, unless: - the holder has given the trustee written notice of an event of default; - the holders of at least 25% in principal amount of outstanding convertible debentures make a written request, and offer reasonable indemnity, to the trustee to pursue the remedy; - the trustee does not receive an inconsistent direction from the holders of a majority in principal amount of the convertible debentures; - the holder or holders have offered reasonable security or indemnity to the trustee against any costs, liability or expense of the trustee; and - the trustee fails to comply with the request within 60 days after receipt of the request and offer of indemnity. Williams is required to file annually with the trustee a certificate as to whether or not Williams is in compliance with all the conditions and covenants under the indenture. MODIFICATION AND AMENDMENT The consent of the holders of a majority in principal amount of the outstanding convertible debentures is required to modify or amend the indenture. However, a modification or amendment requires the consent of the holder of each outstanding convertible debenture if it would: - extend the fixed maturity of any convertible debenture; - reduce the rate or extend the time for payment of interest, including liquidated damages, if any, of any convertible debenture; - reduce the principal amount or premium of any convertible debenture; - reduce any amount payable upon redemption or repurchase of any convertible debenture; - adversely change our obligation to redeem any convertible debenture on a redemption date; - adversely change our obligation to repurchase any convertible debenture upon a change of control; - impair the right of a holder to institute suit for payment on any convertible debenture; - change the currency in which any convertible debenture is payable; - impair the right of a holder to convert any convertible debenture or reduce the number of common shares or any other property receivable upon conversion; - reduce the quorum or voting requirements under the indenture; - subject to specified exceptions, modify certain of the provisions of the indenture relating to modification or waiver of provisions of the indenture; or - reduce the percentage of convertible debentures required for consent to any modification of the indenture. We are permitted to modify certain provisions of the indenture without the consent of the holders of the convertible debentures, including to: - secure any convertible debentures; - evidence the assumption of Williams' obligations by a successor person; - add covenants for the protection of the holders of convertible debentures; - cure any ambiguity or correct any inconsistency in the indenture, so long as such action will not adversely affect the interests of holders; 31
- establish the forms or terms of the convertible debentures; - evidence the acceptance of appointment by a successor trustee; and - make other changes to the indenture or forms or terms of the convertible debentures, provided no such change individually or in the aggregate with all other such changes has or will have a material adverse effect on the interests of the holders of the convertible debentures. FORM, DENOMINATION AND REGISTRATION The convertible debentures will be issued: - in fully registered form; - without interest coupons; and - in denominations of $50 principal amount and integral multiples of $50. GLOBAL DEBENTURE, BOOK-ENTRY FORM Convertible debentures will be evidenced by one or more global debentures deposited with the trustee as custodian for The Depository Trust Company which we refer to herein as the "DTC", and registered in the name of Cede & Co. as DTC's nominee. Record ownership of the global debentures may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee, except as set forth below. A holder may hold its interests in the global debentures directly through DTC if such holder is a participant in DTC, or indirectly through organizations which are direct DTC participants if such holder is not a participant in DTC. Transfers between direct DTC participants will be effected in the ordinary way in accordance with DTC's rules and will be settled in same-day funds. Holders may also beneficially own interests in the global debentures held by DTC through certain banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a direct DTC participant, either directly or indirectly. So long as Cede & Co., as nominee of DTC, is the registered owner of the global debentures, Cede & Co. for all purposes will be considered the sole holder of the global debentures. Except as provided below, owners of beneficial interests in the global debentures: - will not be entitled to have certificates registered in their names; - will not receive or be entitled to receive physical delivery of certificates in definitive form; and - will not be considered holders of the global debentures. The laws of some states require that certain persons take physical delivery of securities in definitive form. Consequently, the ability of an owner of a beneficial interest in a global security to transfer the beneficial interest in the global security to such persons may be limited. We will wire, through the facilities of the trustee, payments of principal, interest, liquidated damages, the redemption price or change of control purchase price on the global debentures to Cede & Co., the nominee of DTC, as the registered owner of the global debentures. None of Williams, the trustee or any paying agent will have any responsibility or be liable for paying amounts due on the global debentures to owners of beneficial interests in the global debentures. It is DTC's current practice, upon receipt of any payment on the global debentures, to credit participants' accounts on the payment date in amounts proportionate to their respective beneficial interests in the convertible debentures represented by the global debentures, as shown on the records of DTC, unless DTC believes that it will not receive payment on the payment date. Payments by DTC participants to owners of beneficial interests in convertible debentures represented by the global debentures held through DTC participants will be the responsibility of DTC participants, as is now the case with securities held for the accounts of customers registered in "street name." 32
If you would like to convert your convertible debentures into common stock pursuant to the terms of the convertible debentures, you should contact your broker or other direct or indirect DTC participant to obtain information on procedures, including proper forms and cut-off times, for submitting those requests. Because DTC can only act on behalf of DTC participants, who in turn act on behalf of indirect DTC participants and other banks, your ability to pledge your interest in the convertible debentures represented by global debentures to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate. Neither Williams nor the trustee, nor any registrar, paying agent or conversion agent under the indenture, will have any responsibility for the performance by DTC or direct or indirect DTC participants of their obligations under the rules and procedures governing their operations. DTC has advised us that it will take any action permitted to be taken by a holder of convertible debentures, including, without limitation, the presentation of convertible debentures for conversion or repurchase as described below, only at the direction of one or more direct DTC participants to whose account with DTC interests in the global debentures are credited and only for the principal amount of the convertible debentures for which directions have been given. DTC has advised us as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act, as amended. DTC was created to hold securities for DTC participants and to facilitate the clearance and settlement of securities transactions between DTC participants through electronic book-entry changes to the accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations, such as the initial purchaser of the convertible debentures. Certain DTC participants or their representatives, together with other entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a participant, either directly or indirectly. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the global debentures among DTC participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. If DTC is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by us within 90 days, we will cause convertible debentures to be issued in definitive form in exchange for the global debentures. None of Williams, the trustee or any of their respective agents will have any responsibility for the performance by DTC or direct or indirect DTC participants of their obligations under the rules and procedures governing their operations, including maintaining, supervising or reviewing the records relating to or payments made on account of beneficial ownership interests in global debentures. According to DTC, the foregoing information with respect to DTC has been provided to its participants and other members of the financial community for information purposes only and is not intended to serve as a representation, warranty or contract modification of any kind. INFORMATION CONCERNING THE TRUSTEE We have appointed JPMorgan Chase Bank, the trustee under the indenture, as paying agent, conversion agent, convertible debenture registrar and custodian for the convertible debentures. The trustee or its affiliates may also provide banking and other services to us in the ordinary course of their business. The indenture contains certain limitations on the rights of the trustee, if it or any of its affiliates is then our creditor, to obtain payment of claims in certain cases or to realize on certain property received on any claim as security or otherwise. The trustee and its affiliates will be permitted to engage in other transactions with us. However, if the trustee or any affiliate continues to have any conflicting interest and a default occurs with respect to the convertible debentures, the trustee must eliminate such conflict or resign. GOVERNING LAW The convertible debentures and the indenture shall be governed by, and construed in accordance with, the laws of the State of New York. 33
DESCRIPTION OF CAPITAL STOCK Under 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. See "Outstanding Preferred Stock" below. As of the date of this prospectus, Williams is authorized to issue up to 960,000,000 shares of common stock. As of March 31, 2003, Williams had 539,026,590 issued and outstanding shares of common stock. In addition, at March 31, 2003, options to purchase 37,756,368 shares of common stock were outstanding under various stock and compensation incentive plans. On May 15, 2003, our shareholders approved an amendment to our 2002 Incentive Plan that allows us to commence a one-time only stock option exchange program in which any eligible employee will be given an opportunity to exchange certain outstanding options for a proportionately lesser number of options at a lower exercise price. The program excludes our directors, executive officers, and non-U.S. citizen employees working outside the U.S. We have the authority, in our sole discretion, to determine whether and when the exchange program will commence, and to postpone the exchange program for any reason. Additionally, at March 31, 2003, purchase contracts obligating the holders of the purchase contacts to purchase up to 44,000,000 shares of common stock on February 16, 2005 were outstanding. The number of shares of common stock which the holders of these purchase contracts are required to purchase is subject to adjustment based on the market value of Williams' common stock. 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. EquiServe Trust Company, N.A., 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: - 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; - 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; - 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 - 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, which is 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: - 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; - 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 34
- 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. 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. 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 an 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 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) 1,200 times the aggregate per share amount of all cash dividends; plus - 1,200 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 1,200 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 35
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 we filed with the SEC as Exhibit 4 to our Form 8-K filed January 24, 1996. OUTSTANDING PREFERRED STOCK 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 structured notes issued by entities controlled by Williams Communications Group, Inc. through a commitment to issue Williams' equity upon the occurrence of certain trigger events. On March 5, 2002, Williams received the requisite approvals for its consent solicitation to amend the terms of these structured notes. The amendment, among other things, eliminates a bankruptcy by Williams Communications and a Williams credit ratings downgrade from the enumerated list of events that could cause an acceleration of the notes. 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 have been filed as exhibits to the 10-Q filed May 15, 2001 with the SEC. 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 which we refer to as the "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 have been filed as exhibits to the 10-K filed March 12, 2001 with the SEC. 36
SELLING SECURITYHOLDERS The convertible debentures were originally issued by us and sold by Lehman Brothers Inc., in transactions exempt from the registration requirements of the Securities Act. Selling securityholders may from time to time offer and sell the convertible debentures and the underlying shares of common stock pursuant to this prospectus. When we refer to the "selling securityholders" in this prospectus, we mean those persons listed in the table below, as well as the pledgees, donees, assignees, transferees, successors and others who later hold any of the selling securityholders' interests. The following table contains information as of [ ], 2003, with respect to the selling securityholders and the principal amount of convertible debentures and the underlying shares of common stock beneficially owned by each selling securityholders that may be offered using this prospectus. We have prepared this table based on the information supplied to us by the selling securityholders named in the table. The selling securityholders listed in the table below may have sold or transferred, in transactions exempt from the registration requirements of the securities Act, some or all of their convertible debentures since the date on which the information in the table is presented. Information about the selling securityholders may change over time. Any changed information will be set forth in prospectus supplements. Because the selling securityholders may offer all or some of their convertible debentures or the underlying shares of common stock from time to time, we cannot estimate the amount of the convertible debentures or underlying shares of common stock that will be held by the selling securityholders upon the termination of any particular offering. See "Plan of Distribution". Unless set forth below, to our knowledge, none of the selling securityholders has, or within the past three years has had, any material relationship with us or any of our predecessors or affiliates or beneficially owns in excess 1% of our outstanding common stock.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS In the opinion of White & Case LLP, the following is a summary of the material U.S. federal income tax consequences of the purchase, ownership and disposition of the convertible debentures and any Williams common stock received pursuant to the conversion feature of the convertible debentures. This summary is based on the Internal Revenue Code of 1986, as amended, (the "Code"), Treasury Regulations thereunder, and administrative and judicial interpretations thereof as of the date hereof, all of which are subject to change (possibly on a retroactive basis). Unless otherwise stated, this summary deals only with convertible debentures held as capital assets by U.S. Holders (as defined below) who acquire the convertible debentures upon original issuance at the initial offering price. This summary does not address any of the tax consequences to holders that are not U.S. Holders or to holders that may be subject to special tax treatment such as banks, insurance companies, thrift institutions, real estate investment trusts, regulated investment companies, brokers and dealers in securities or currencies, tax-exempt investors or persons that will hold the convertible debentures as a position in a "straddle," as part of a "hedge," or as part of a "conversion transaction" or other integrated investment, or persons having a functional currency other than the U.S. dollar. Further, this summary does not address: - the U.S. federal income tax consequences to shareholders in, or partners, members or beneficiaries of, a holder of the convertible debentures; - the U.S. federal alternative minimum tax consequences material to the purchase, ownership or disposition of the convertible debentures; or - any state, local or foreign tax consequences material to the purchase, ownership or disposition of the convertible debentures. A "U.S. Holder" is a beneficial owner of convertible debentures who or which is for U.S. federal income tax purposes: - a citizen or resident of the United States; - a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof; - an estate, the income of which is includible in its gross income for U.S. federal income tax purposes without regard to its source, or trust if: (i) a court within the United States is able to exercise primary supervision over the administration of the trust; and (ii) one or more U.S. trustees have the authority to control all substantial decisions of the trust; or - a person whose worldwide income or gain is subject to U.S. federal income taxation on a net income basis. Investors are advised to consult their tax advisers as to the U.S. federal income tax consequences of the purchase, ownership and disposition of the convertible debentures in light of their particular circumstances, as well as the ownership of Williams common stock, including the tax consequences under state, local, foreign and other tax laws and possible effects of changes in such tax laws. CLASSIFICATION OF THE CONVERTIBLE DEBENTURES The convertible debentures are intended to be and in the opinion of White & Case LLP the convertible debentures should be classified for U.S. federal income tax purposes as Williams' indebtedness. No assurance can be given, however, that this position will not be challenged by the Internal Revenue Service (the "IRS"). Each U.S. Holder, by purchasing the convertible debentures, will covenant to treat the convertible debentures as indebtedness for U.S. federal income tax purposes. The remainder of this discussion assumes that the convertible debentures will be classified for U.S. federal income tax purposes as Williams' indebtedness. 38
ACCRUAL OF ORIGINAL ISSUE DISCOUNT Because we have the right to extend the interest payment period on the convertible debentures, all of the stated interest payments on the convertible debentures will be treated as "original issue discount" ("OID"). Accordingly, each U.S. Holder of convertible debentures will be required to include OID on the convertible debentures in income as it accrues, in accordance with a constant yield method based on a compounding of interest, before the receipt of cash payments on the convertible debentures. All of a U.S. Holder's interest income with respect to the convertible debentures will be accounted for as OID and actual distributions of stated interest will not be separately reported as taxable income. So long as the interest payment period is not extended, cash payments received by a U.S. Holder for any quarterly interest period (assuming no disposition prior to the record date for such payment) will equal the sum of the daily accruals of income for such quarterly interest period. The total amount of OID on a convertible debenture will equal the difference between the "issue price" of the convertible debenture and its "stated redemption price at maturity." All of the stated interest payments on a convertible debenture will be includible in determining its "stated redemption price at maturity." The "issue price" of each $50 principal amount of convertible debentures will be equal to the first price at which a substantial amount of the convertible debentures is sold to the public for cash. A U.S. Holder's initial tax basis in the convertible debentures will be equal to their "issue price," as defined above, and will be increased by OID accrued with respect to the convertible debentures, and reduced by the amount of cash payments with respect thereto. U.S. Holders will continue to accrue OID with respect to the convertible debentures during an extension period. A U.S. Holder who sells the convertible debentures during the extension period will generally not receive from Williams any cash related to the OID income the U.S. Holder accrued and included in its taxable income under the OID rules (because that cash will be paid to the holder of record at the end of the extension period). DISPOSITION OF THE CONVERTIBLE DEBENTURES Upon a sale, exchange or other disposition of a convertible debenture, a U.S. Holder will recognize gain or loss equal to the difference between the amount realized and the U.S. Holder's adjusted tax basis in the convertible debenture disposed of. The gain or loss generally will be capital gain or loss and generally will be considered long-term capital gain or loss if the U.S. Holder held the convertible debenture for more than one year immediately prior to such sale or disposition. Convertible debentures may trade at a price that does not fully reflect the value of accrued but unpaid interest. A U.S. Holder that disposes of its convertible debentures between record dates for payments of stated interest thereon will nevertheless be required to include accrued but unpaid OID on the convertible debentures through the date of disposition in income, and to add such amount to its adjusted tax basis in the convertible debentures disposed of. Accordingly, such a U.S. Holder will recognize a capital loss to the extent the selling price (which may not fully reflect the value of accrued but unpaid OID) is less than the U.S. Holder's adjusted tax basis (which will include accrued but unpaid OID). Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for U.S. federal income tax purposes. U.S. Holders are advised to consult their tax advisers regarding the taxation of capital gains and losses. CONVERSION OF CONVERTIBLE DEBENTURES TO WILLIAMS COMMON STOCK A U.S. Holder of convertible debentures will not recognize income, gain or loss upon the conversion of convertible debentures into common stock. A U.S. Holder of convertible debentures will recognize gain, however, upon the receipt of cash in lieu of a fractional share of common stock equal to the amount of cash received less such U.S. Holder's tax basis attributable to such fractional share. Such U.S. Holder's tax basis in the common stock received upon conversion will generally be equal to such U.S. Holder's tax basis in the convertible debentures delivered for conversion, less the basis allocated to any fractional share for which cash is received. Such U.S. Holder's holding period in the common stock received upon conversion will generally 39
include the U.S. Holder's holding period of the convertible debentures delivered for conversion, except with respect to common stock received in respect of any accrued but unpaid OID. ADJUSTMENT OF CONVERSION PRICE Treasury Regulations promulgated under section 305 of the Code would treat U.S. Holders of convertible debentures as having received a constructive distribution from Williams in certain events pursuant to which the conversion ratio of the convertible debentures were adjusted. Thus, under certain circumstances, an increase in the conversion ratio for the convertible debentures may result in deemed distributions to U.S. Holders of convertible debentures. Such deemed distributions will be taxed in the same manner as actual distributions. See "Ownership of Williams Common Stock" below. In certain circumstances, the failure to make an adjustment of the conversion ratio on the convertible debentures may result in a taxable distribution to holders of Williams common stock. U.S. Holders of convertible debentures are advised to consult their tax advisers as to the income tax consequences of adjustments in the conversion ratio of the convertible debentures. OWNERSHIP OF WILLIAMS COMMON STOCK Distributions received by U.S. Holders of Williams common stock in respect of such common stock will be treated as ordinary dividend income to such U.S. Holders to the extent that such distributions are considered to be paid by Williams out of its current or accumulated earnings and profits, as determined under U.S. federal income tax principles. U.S. Holders of Williams common stock that are corporations may be entitled to a "dividends received deduction" with respect to such dividends. To the extent that any distributions exceed the current or accumulated earnings and profits of Williams, such distributions will be treated first, as a tax-free return of capital to a holder of Williams common stock to the extent of such U.S. Holder's adjusted tax basis in the Williams common stock, and thereafter, as capital gain. Additional shares of Williams common stock, or rights to acquire additional shares of Williams common stock, that are received as part of a pro-rata distribution of such shares, or rights to acquire such shares, to all Williams shareholders generally should not be subject to U.S. federal income tax. The tax basis of such new shares or rights generally will be determined by allocating the U.S. Holder's adjusted tax basis in the "old" shares of Williams common stock between such "old" shares and the new shares or rights, based upon their relative fair market values on the date of distribution. A U.S. Holder of Williams common stock generally will recognize gain or loss on a sale or other taxable disposition of Williams common stock equal to the difference between the amount realized by the U.S. Holder on such sale or disposition and the U.S. Holder's basis in such Williams common stock. The gain or loss generally will be capital gain or loss and generally will be considered long-term capital gain or loss if the holder held the Williams common stock for more than one year immediately prior to such sale or disposition. BACKUP WITHHOLDING TAX AND INFORMATION REPORTING The amount of OID accrued on convertible debentures held of record by U.S. Holders (other than corporations and other exempt holders) will be reported to the IRS. Backup withholding will apply to payments to non-exempt U.S. Holders unless the U.S. Holder furnishes its taxpayer identification number in the manner prescribed in applicable Treasury Regulations, certifies that the number is correct, certifies as to no loss of exemption from backup withholding and meets certain other conditions. The current backup withholding rate is 30%. Payment of the proceeds from the disposition of the convertible debentures to or through the U.S. office of a broker is subject to information reporting and backup withholding unless the holder or beneficial owner establishes an exemption from information reporting and backup withholding. 40
Any amount withheld from a U.S. Holder under the backup withholding rules will be allowed as a refund or credit against such U.S. Holder's U.S. federal income tax liability, provided the required information is furnished to the IRS. CERTAIN ERISA CONSIDERATIONS GENERAL The following is a summary of certain considerations associated with the purchase of the convertible debentures by employee benefit plans that are subject to Title I of the Employee Retirement Income Security Act of 1974, as amended, "ERISA", a plan described in section 4975 of the Code, including an individual retirement arrangement under section 408 of the Code or a "Keogh" plan, a plan, such as a governmental, church or non-U.S. plan, subject to provisions under applicable federal, state, local, non-U.S. or other laws or regulations that are similar to the provisions of Title I of ERISA or section 4975 of the Code ("Similar Laws"), and any entity of which the underlying assets are considered to include "plan assets" of such plans, accounts and arrangements each referred to herein as a "Plan". ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or section 4975 of the Code referred to herein as an "ERISA Plan" and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other parties in interest or disqualified persons. Generally, a person who exercises discretionary authority or control with respect to the assets of an ERISA Plan will be considered a fiduciary of the ERISA Plan. In evaluating the purchase of convertible debentures with assets of a Plan, a fiduciary should consider, among other matters: - whether the acquisition and holding of convertible debentures is in accordance with the documents and instruments governing such Plan; and - whether the acquisition and holding of convertible debentures is solely in the interest of Plan participants and beneficiaries and otherwise consistent with the fiduciary's responsibilities and in compliance with the applicable requirements of ERISA, the Code or any Similar Laws including, in particular, any diversification, prudence and liquidity requirements. PROHIBITED TRANSACTIONS Section 406 of ERISA and section 4975 of the Code prohibit ERISA Plans from engaging in specified transactions involving plan assets with persons or entities who are "parties in interest," within the meaning of ERISA, or "disqualified persons" within the meaning of section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the ERISA Plan that engaged in such non-exempt prohibited transactions may be subject to penalties and liabilities under ERISA and the Code. The acquisition and/or holding of the convertible debentures by an ERISA Plan with respect to which Williams or the initial purchaser or their affiliates may be a party in interest or a disqualified person, may give rise to a prohibited transaction. Consequently, before investing in the convertible debentures, any person who is acquiring such securities for, or on behalf of, an ERISA Plan should determine that either a statutory or administrative exemption from the prohibited transaction rules is applicable to such investment in the convertible debentures, or that such acquisition and holding of such securities will not result in a non-exempt prohibited transaction. Because of the foregoing, the convertible debentures should not be purchased or held by any person investing plan assets of any Plan unless such purchase and holding will not constitute a non-exempt prohibited transaction under ERISA and the Code or a violation under any applicable Similar Laws. 41
Accordingly, by its acquisition of convertible debentures, each purchaser and subsequent transferee of the convertible debentures shall be deemed to be making a representation to Williams and the initial purchaser either that: (i) it is not a Plan and no part of the assets to be used by it to acquire and hold such convertible debentures or any interest therein directly or indirectly constitutes assets of any Plan or (ii) such acquisition and holding will not result in a prohibited transaction under Title I of ERISA or section 4975 of the Code, or a violation under Similar Laws, for which there is no applicable statutory or administrative exemption. The discussion of ERISA in this prospectus is general in nature and is not intended to be all inclusive. Any person considering an investment in the convertible debentures on behalf of a Plan should consult with its legal advisers regarding the consequences of such investment and consider whether the Plan can make the representations noted above. Further, the sale of investments to Plans is in no respect a representation by Williams, the initial purchaser or any other person associated with the sale of the convertible debentures that such securities meet all relevant legal requirements with respect to investments by Plans generally or by any particular Plan, or that such securities are otherwise appropriate for Plans generally or any particular Plan. PLAN OF DISTRIBUTION We will not receive any of the proceeds of the sale of the convertible debentures and the underlying shares of common stock offered by this prospectus. The convertible debentures and the underlying shares of common stock may be sold from time to time to purchasers: - directly by the selling securityholders; or - through underwriters, broker-dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the selling securityholders or the purchasers of the convertible debentures and the underlying shares of common stock. If the convertible debentures and the underlying shares of common stock are sold through underwriters or broker-dealers, the selling securityholders will be responsible for underwriting discounts or commissions or agent's commissions. The convertible debentures and underlying shares of common stock may be sold in one or more transactions at: - fixed prices; - prevailing market prices at the time of sale; - varying prices determined at the time of sale; or - negotiated prices. These sales may be effected in transactions: - on any national securities exchange or quotation service on which the convertible debentures and underlying shares of common stock may be listed or quoted at the time of the sale, including the New York Stock Exchange in the case of our common stock; - in the over-the-counter market; - in transactions otherwise than on such exchange or services or in the over-the-counter market; - through the writing of options; or - through the distribution by a selling securityholder to its partners, members or shareholders. The transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade. 42
In connection with sales of the convertible debentures and underlying shares of common stock or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers. These broker-deals may in turn engage in short sales of the convertible debentures and underlying shares of common stock in the course of hedging their positions. The selling securityholders may also sell the convertible debentures and underlying shares of common stock short and deliver convertible debentures and underlying shares of common stock to close out short positions, or loans or pledge convertible debentures and underlying shares of common stock to broker-dealers that in turn may sell the convertible debentures and underlying shares of common stock. To our knowledge, there are currently no plans, arrangement or undertakings between any selling securityholders and any underwriter, broker-dealer or agent regarding the sale of the convertible debentures and the underlying shares of common stock by the selling securityholders. In addition, we cannot assure you that any selling securityholder will not transfer, devise or gift the convertible debentures and the underlying shares of common stock by other means not described in this prospectus. Pursuant to the registration rights agreement filed as an exhibit to this registration statement, we and the selling securityholders will be indemnified by the other against certain liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection with these liabilities. Our common stock trades on the NYSE under the symbol "WMB". We do not intend to apply for listing of the convertible debentures on any securities exchange or for quotation through NYSE. Accordingly, no assurance can be given as to the development of liquidity or any trading market for the convertible debentures. We have agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the convertible debentures and underlying shares of common stock to the public other than commissions, fees and discounts of underwriters, brokers, and agents. The selling securityholders and any broker-dealers or agents who participate in the distribution of the convertible debentures and the underlying shares of common stock may be deemed to be "underwriters." As a result, any profits on the sale of the convertible debentures and underlying shares of common stock by selling securityholders and any discounts, commissions or concessions received by any broker-dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. If the selling securityholders were to be deemed underwriters, the selling securityholders may be subject to statutory liabilities of, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. Because the selling securityholders may be deemed to be underwriters within the meaning of Section 2(11) of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. At anytime a particular offer of the securities is made, a revised prospectus or prospectus supplement, if required, will be distributed which will disclose: - the name of the selling securityholders and any participating underwriters, broker-dealers or agents; - the aggregate amount and type of securities being offered; - the price at which the securities were sold and other material terms of the offering; - any discounts commissions, concessions or other items constituting compensation from the selling security holders and any discounts, commissions or concessions allowed or reallowed or paid to dealers; and - that the participating broker-dealers did not conduct any investigation to verify the information in this prospectus or incorporated in this prospectus by reference. There can be no assurance that any selling securityholder will sell any or all of the convertible debentures or underlying shares of common stock pursuant to this prospectus. In addition, any convertible debentures or underlying shares of common stock covered by this prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus. 43
The selling securityholders and any other person participating in such distribution will be subject to the Exchange Act. The rules under that Act include, without limitation, Regulation M, which may limit the timing of purchases and sale of any of the convertible debentures and the underlying shares of common stock by the selling securityholders and any other such person. In addition, Regulation M may restrict the ability of any person engaged in the distribution of the convertible debentures and the underlying shares of common stock to engage in market-making activities with respect to the particular convertible debentures and the underlying shares of common stock being distributed for a period of up to five business days prior to the commencement of such distribution. This may affect the marketability of the convertible debentures and the underlying shares of common stock. VALIDITY OF THE SECURITIES Certain legal matters with respect to the convertible debentures and the common stock issuable upon conversion of the convertible debentures and certain U.S. federal income taxation matters will be passed upon for us by White & Case LLP, New York, New York. EXPERTS The consolidated financial statements and schedule of The Williams Companies, Inc. appearing in its annual report on Form 10-K for the year ended December 31, 2002 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report included therein and incorporated by reference herein. Such consolidated financial statements and schedule are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. 44
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses, other than underwriting discounts and commission, payable by the Registrant in connection with the sale of common stock being registered:
ITEM 16. EXHIBITS
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa, State of Oklahoma, on the June 25, 2003. THE WILLIAMS COMPANIES, INC. By: /s/ TONY GEHRES ------------------------------------ Name: Tony Gehres Title: Associate General Counsel Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
EXHIBIT INDEX
EXHIBIT 1.1 THE WILLIAMS COMPANIES, INC. $275,000,000 5.50% Junior Subordinated Convertible Debentures Due 2033 PURCHASE AGREEMENT May 20, 2003 Lehman Brothers Inc. 745 Seventh Avenue New York, NY 10019 Ladies and Gentlemen: The Williams Companies, Inc. (the "COMPANY"), a Delaware corporation, proposes to issue and sell $275,000,000 aggregate principal amount of its 5.50% Junior Subordinated Convertible Debentures Due 2033 (the "FIRM SECURITIES;") to Lehman Brothers Inc. (the "INITIAL PURCHASER"). The Company also proposes to issue and sell to the Initial Purchaser not more than $25,000,000 aggregate principal amount of its 5.50% Junior Subordinated Convertible Debentures Due 2033 (the "ADDITIONAL SECURITIES") if requested by the Initial Purchaser as provided in Section 3 hereof. The Firm Securities and the Additional Securities are herein collectively called the "SECURITIES". The Securities will be issued pursuant to an Indenture (the "INDENTURE") between the Company and JPMorgan Chase Bank, as Trustee (the "TRUSTEE"). The Securities will be convertible at the option of the holders thereof into shares of common stock, par value $1 per share, of the Company (the "COMMON STOCK") as described in the Offering Memorandum (as defined herein). The Company hereby confirms its agreement with the Initial Purchaser to issue and sell all of the Securities to the Initial Purchaser, on the terms and conditions set forth herein. The Securities will be offered and sold to the Initial Purchaser, without registration under the Securities Act of 1933, as amended (the "SECURITIES Act"), in reliance upon an exemption from the registration requirements of the Securities Act. In connection with the sale of the Securities, the Company will deliver to the Initial Purchaser as soon as practicable after the date of this Agreement, copies of a final confidential offering memorandum, dated May 20, 2003 (together with all amendments and supplements thereto, and together with all documents
incorporated by reference therein, the "OFFERING MEMORANDUM"), relating to the Securities. All references in this Agreement to the Offering Memorandum include the documents incorporated by reference therein. The Company hereby confirms that it has authorized the use of the Offering Memorandum in connection with the offer and sale of the Securities. The Company understands that the Initial Purchaser proposes to make offerings ("EXEMPT RESALES") of the Securities only on the terms and in the manner set forth in the Offering Memorandum and Section 3 hereof, as soon as the Initial Purchaser deems advisable after this Agreement has been executed and delivered only to persons in the United States whom the Initial Purchaser reasonably believes to be "qualified institutional buyers" ("QIBs") as defined in Rule 144A under the Securities Act, as such rule may be amended from time to time ("RULE 144A"), or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchaser that each such account is a QIB to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A. The holders of the Securities will be entitled to the benefit of a Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company will file a registration statement (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the "COMMISSION") registering the Securities under the Securities Act. 1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, the Initial Purchaser that as of the date hereof and at the Closing Date (as defined herein): (a) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Offering Memorandum and is duly qualified to do business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition, results of operations, business or prospects of the Company and its subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"); (b) Each significant subsidiary of the Company (as defined in Rule 1-02 of Regulation S-X under the Securities Act (each, a 2
"SIGNIFICANT SUBSIDIARY" and collectively, "SIGNIFICANT SUBSIDIARIES") has been duly organized or validly formed, is validly existing and in good standing under the laws of the jurisdiction of its formation or incorporation, has the power (corporate or other) and authority to own its property and to conduct its business as described in the Offering Memorandum and is duly qualified to do business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect; (c) The Company and its Significant Subsidiaries each has all consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, and all courts or other tribunals (collectively, the "LICENSES") necessary to own, hold, or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Licenses could not reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to revocation or modification of any such Licenses, except to the extent that any such revocation or modification would not have a Material Adverse Effect; (d) The Company has an authorized capitalization as set forth in the Offering Memorandum; and all of the issued shares of capital stock of each Significant Subsidiary (in the case of each Significant Subsidiary which is a corporation) have been duly authorized and validly issued and are fully paid and non-assessable and, except as disclosed in the Offering Memorandum, are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (e) Each of the Company and its Significant Subsidiaries (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business as presently conducted and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except, with respect to (i), (ii) and (iii), as may be disclosed in the Offering Memorandum and except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other 3
approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not be reasonably likely to, singly or in the aggregate, have a Material Adverse Effect; (f) There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its Significant Subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or its Significant Subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except as may be disclosed in the Offering Memorandum and except for any violation or remedial action which would not be reasonably likely to have, singularly or in the aggregate, a Material Adverse Effect; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any of its Significant Subsidiaries or with respect to which the Company or any of its Significant Subsidiaries have knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not be reasonably likely to have, singularly or in the aggregate, a Material Adverse Effect; and the terms "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection; (g) The Company has filed all material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company, except where the same may be contested in good faith by appropriate proceedings, and where the Company has maintained in accordance with generally accepted accounting principles appropriate reserves for the accrual of any of the same. The charges, accruals and reserves on the books of the Company in respect of taxes or other governmental charges are, in the opinion of the Company, adequate; (h) The Company is not, and immediately following the consummation of the offering of the Securities and the application of the 4
proceeds therefrom will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (i) The Indenture has been duly authorized by the Company and, assuming due authorization, execution and authentication by the Trustee, the Indenture, when duly executed and delivered by the Company, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally or by general principles of equity (regardless of whether considered in a proceeding in equity or at law); (j) The Securities have been duly authorized by the Company and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchaser, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally or by general principles of equity (regardless of whether considered in a proceeding in equity or at law); (k) On each Closing Date (as defined herein), the Securities and the Indenture will conform as to legal matters to the descriptions thereof contained in the Offering Memorandum; (1) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Offering Memorandum and all of the outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to any preemptive or similar statutory rights; (m) The Common Stock issuable upon conversion of the Securities has been duly authorized by the Company and validly reserved for issuance by the Company upon such conversion by all necessary corporate action, and such Common Stock, when duly issued upon conversion, will be validly issued, fully paid and non-assessable; no holder thereof will be subject to personal liability solely by reason of being such a holder; the issuance of such Common Stock upon such conversion will not 5
be subject to preemptive rights; and the preferred stock purchase rights under the Rights Agreement dated as of February 6, 1996 (the "RIGHTS AGREEMENT") to which holders of shares of such Common Stock will be entitled, have been duly authorized and, when issued together with such shares of Common Stock will be validly issued and the Common Stock will conform in all material respects to the description thereof contained in the Offering Memorandum; (n) The Rights Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally or by general principles of equity (regardless of whether considered in a proceeding in equity or at law); (o) This Agreement has been duly authorized, executed and delivered by the Company; (p) The Registration Rights Agreement has been duly authorized by the Company and, when duly executed and delivered by the Company, and assuming due authorization, execution and delivery by or on behalf of the Initial Purchaser, will be a valid and binding agreement of the Company, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally or by general principles of equity (regardless of whether considered in a proceeding in equity or at law) and except as rights to indemnification and contribution thereunder may be limited by applicable law; (q) The execution and delivery by the Company of this Agreement, the Indenture and the Registration Rights Agreement, the issuance and delivery of the Securities, the consummation by the Company of the transactions contemplated herein and therein and the compliance by the Company with the terms of this Agreement, the Indenture, the Securities and the Registration Rights Agreement have been duly authorized by all necessary action (corporate or other) on the part of the Company, and do not and will not (i) result in any violation of the charter or by-laws of the Company or (ii) conflict with, or result in a breach of any of the terms or provisions of, or constitute a default or result in the 6
creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its affiliates is a party or by which the Company or any of its affiliates is bound (except for such conflicts, breaches or defaults that could not reasonably be expected to have a Material Adverse Effect), nor does or will such action result in any violation of any statute applicable to the Company or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties; and assuming the accuracy of the representations, warranties and agreements of the Initial Purchaser in Section 2 hereof and Section 7 hereof, no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issuance and sale of the Securities by the Company to the Initial Purchaser as contemplated by this Agreement, except as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Securities and by the federal and state securities laws with respect to the obligations of the Company under the Registration Rights Agreement; (r) The Company is not (i) in violation of its charter or by-laws, as applicable, (ii) in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it is bound or which any of its properties or assets may be subject or (iii) in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject, except with respect to (ii) or (iii), for any such violations or defaults that would not be reasonably likely, singly or in the aggregate, to have a Material Adverse Effect; (s) The Company has filed all documents with the Securities and Exchange Commission (the "COMMISSION") that it is required to file under the Securities Act and the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as applicable, and the rules and regulations of the Commission thereunder, and such documents conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and each document so filed or to be filed and incorporated by reference in the Offering Memorandum or any further amendment or supplement thereto, complied or will comply when so filed in all material respects to 7
the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and, when read together with the other information in the Offering Memorandum, or any amendment or supplement thereto furnished by the Company, do not or will not as of the applicable Closing Date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (t) The Offering Memorandum as of its date will not, and the Offering Memorandum (as amended or supplemented, if the Company shall have furnished any amendments or supplements thereto) will not as of the applicable Closing Date, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not be made to the Initial Purchaser with regard to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by it; (u) Neither the Company nor any of its Significant Subsidiaries has sustained, since the date of the latest audited financial statements included or incorporated by reference in the Offering Memorandum, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which would be reasonably likely to result in any Material Adverse Effect, or any development involving a material adverse change in or affecting the financial condition, results of operations, business or prospects of the Company and its subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Offering Memorandum, and, since the respective dates as of which information is given in the Offering Memorandum or since the date of the Offering Memorandum, there has not been (i) any change in the capital stock or long-term debt of the Company or any of its subsidiaries, (ii) any material adverse change in or affecting the financial condition, results of operations, business or prospects of the Company and its subsidiaries, taken as a whole or (iii) any transaction entered into by the Company or any of its Significant Subsidiaries, other than in the ordinary course of business, that is material to the Company and its subsidiaries, taken as a whole, otherwise than as disclosed, in each case, in the Offering Memorandum; (v) The Company and its Significant Subsidiaries have good and marketable title in fee simple to, or valid rights of way, easements, 8
leaseholds, licenses and consents to use, all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects, except such as are described in the Offering Memorandum or would not reasonably be expected to, singly or in the aggregate, have a Material Adverse Effect; and all real property and buildings held under lease by the Company and its Significant Subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as would not reasonably be expected to, singly or in the aggregate, have a Material Adverse Effect and do not interfere in any material respect with the use made and proposed to be made of such property and buildings by the Company or such Significant Subsidiary, as the case may be; (w) The Company and its Significant Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is reasonable in accordance with customary practices for companies engaged in similar businesses in similar industries for the conduct of their respective businesses and the value of their properties; (x) The consolidated financial statements filed with or as part of any document filed with the Commission present fairly in all material respects the financial position, results of operations and changes in financial position of the Company and its subsidiaries at the dates and for the periods indicated, all in conformity with generally accepted accounting principles (subject, in the case of interim statements, to normal year-end audit adjustments); and the Company has no material contingent obligation which is not disclosed in such financial statements or in the Offering Memorandum; (y) Ernst & Young LLP, who have reported upon the audited financial statements and schedules included or incorporated by reference in the Offering Memorandum, are independent auditors within the meaning of the rules and regulations promulgated under the Securities Act; (z) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company with respect to any securities of the Company owned or to be owned by such person (other than the Securities) to include such securities with the securities to be registered pursuant to the registration statement to be filed pursuant to the Registration Rights Agreement; (aa) The Company (i) makes and keeps books and records which accurately reflect transactions and dispositions of the Company's assets 9
and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's general or specific authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's general or specific authorization and (D) the recorded accountability for its assets is compared with existing assets at reasonable intervals; (bb) (i) The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13 a-14 under the Exchange Act); (ii) such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer and its principal financial officer, as appropriate, to allow timely decisions regarding required disclosure; and (iii) such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established; (cc) Since the date of the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, the Company's auditors and the audit committee of the board of directors of the Company (or persons fulfilling the equivalent function) have not been advised of (i) any significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data nor any material weaknesses in internal controls; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; (dd) Since the date of the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses; (ee) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined by ERISA) for which the Company would have any material liability; the 10
Company has not incurred and does not expect to incur material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, and "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "CODE"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401 (a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification; (ff) Other than as set forth or incorporated by reference in the Offering Memorandum, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, domestic or foreign, now pending or, to the knowledge of the Company, threatened against or affecting the Company or any Significant Subsidiary or to which any of their respective properties are subject that could reasonably be expected to result in any Material Adverse Effect, or that could reasonably be expected to adversely affect the consummation of the transactions contemplated in this Agreement; (gg) Assuming the accuracy of the representations, warranties and agreements of the Initial Purchaser in Section 2 hereof, compliance by the Initial Purchaser with the offering and transfer procedures and restrictions described in the Offering Memorandum and the accuracy of the representations and warranties deemed to be made in the Offering Memorandum by purchasers to whom the Initial Purchaser initially resells the Securities, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchaser or in connection with the initial resale of the Securities by the Initial Purchaser, in each case, in the manner contemplated by this Agreement and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended; (hh) The Offering Memorandum has been prepared by the Company for use in connection with the Exempt Resales. No decree or order preventing the use of the Offering Memorandum, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act has been issued and no proceeding for that purpose has commenced or is pending or, to the knowledge of the Company, is contemplated; (ii) The Company, its affiliates and any person acting on its or their behalf (other than the Initial Purchaser in connection with the 11
transactions contemplated hereby, about which the Company makes no representation) have not, directly or indirectly: (i) offered or sold the Securities in the United States by any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; or (ii) sold, solicited any offers to buy or offered to sell or otherwise negotiated in respect of any security in a manner that would require registration of the Securities under the Securities Act in accordance with the theory of "integration" referred to in Regulation D under the Securities Act; and (jj) The Securities satisfy the requirements of Rule 144A(d)(3) under the Securities Act. The Company (i) acknowledges that the Initial Purchaser and, for purposes of the opinions to be delivered to the Initial Purchaser pursuant hereto, counsel to the Company and counsel to the Initial Purchaser will rely upon the accuracy and truth of the foregoing representations and (ii) hereby consents to such reliance. 2. REPRESENTATIONS AND WARRANTIES OF THE INITIAL PURCHASER. The Initial Purchaser hereby represents and warrants to, and agrees with the Company that the Initial Purchaser (i) is an institutional "accredited investor" (as defined in Regulation D) with such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Securities; (ii) is not acquiring the Securities with a view to any distribution thereof that would violate the Securities Act or the securities or blue sky laws of any state or country, (iii) has received all information it considers necessary to evaluate the merits and risks of an investment in the Securities, (iv) has not and will not solicit offers for, or offer to sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act, or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and (v) has and will solicit offers for the Securities only from, and will offer, sell or deliver the Securities, as part of their initial offering, only to persons in the United States it reasonably believes to be QIBs to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchaser that each such account 12
is a QIB to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A. The Initial Purchaser (i) acknowledges that the Company and, for purposes of the opinions to be delivered to the Initial Purchaser pursuant hereto, counsel to the Company and counsel to the Initial Purchaser will rely upon the accuracy and truth of the foregoing representations and (ii) hereby consents to such reliance. 3. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell and the Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase from the Company the Firm Securities at 97% of their principal amount (the "PURCHASE PRICE") plus accrued interest, if any, from May 28, 2003 to the date of payment and delivery. In addition, the Company hereby grants to the Initial Purchaser an option to purchase up to $25,000,000 aggregate principal amount of the Additional Securities at the Purchase Price plus accrued interest, if any, from May 28, 2003 to the date of payment and delivery. Such option is exercisable as provided in Section 4 hereof. 4. PAYMENT AND DELIVERY. Payment for the Firm Securities shall be made by wire or other immediately available funds to the order of the Company to a bank account designated by the Company at 10:00 A.M., New York time, on May 28, 2003, or at such other time on the same or such other date, as shall be agreed by the parties and designated in writing by the Initial Purchaser. The time and date of such payment are herein referred to as the "FIRST CLOSING DATE." Payment for the Firm Securities shall be made against delivery to the Initial Purchaser of one or more global securities representing the Firm Securities (collectively, the "GLOBAL FIRM SECURITIES") registered in the name of Cede & Co. (the "GLOBAL HOLDER") with any transfer taxes payable in connection with the transfer of the Firm Securities to the Initial Purchaser duly paid. Such Global Firm Securities shall be made available to the Initial Purchaser for checking at least twenty four hours prior to the First Closing Date, at the offices of Davis Polk & Wardwell, New York, New York. The option granted in Section 3 will expire 30 days after the date of this Agreement, and may be exercised in whole or in part from time to time by written notice being given to the Company by the Initial Purchaser. Such notice shall set forth the aggregate principal amount of Additional Securities as to which the option is being exercised and when such Additional Securities are to be delivered; provided, however, that this date and time shall not be earlier than the First 13
Closing Date nor earlier than the second business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised. Payment for the Additional Securities shall be made by wire or other immediately available funds to the order of the Company to the account designated by the Company at 10:00 A.M., New York time, on the date specified in such notice, or at such other time on the same or such other date, as shall be agreed by the parties and designated in writing by the Initial Purchaser. The time and date of such payment are herein referred to as the "ADDITIONAL CLOSING DATE" and the First Closing Date and any Additional Closing Date are sometimes each referred to herein as a "CLOSING DATE". Payment for the Additional Securities shall be made against delivery to the Initial Purchaser of one or more global securities representing the Additional Securities (collectively, the "GLOBAL ADDITIONAL SECURITIES") registered in the name of the Global Holder with any transfer taxes payable in connection with the transfer of the Additional Securities to the Initial Purchaser duly paid. Such Global Additional Securities shall be made available to the Initial Purchaser for checking at least twenty four hours prior to the Additional Closing Date, at the offices of Davis Polk & Wardwell, New York, New York. 5. CONDITIONS TO THE INITIAL PURCHASER'S OBLIGATIONS. The obligations of the Initial Purchaser are subject to the following conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the applicable Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been received of (A) any intended or potential downgrading or (B) any review or possible change that does not indicate the direction of a possible change, in the rating accorded any of the securities of the Company by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Act, and (ii) there shall not have occurred any material adverse change, or any development which could reasonably be expected to result in a prospective material adverse change, in the financial condition, or in the earnings, business or operations of the Company, from that set forth in the Final Offering Memorandum. (b) The Initial Purchaser shall have received on the applicable Closing Date a certificate, dated such Closing Date and signed by an executive officer of the Company, to the effect set forth in clauses (a)(i) 14
and (ii) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of such Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before such Closing Date. The person signing and delivering such certificate may rely upon the best of such person's knowledge after due inquiry as to proceedings threatened. (c) The Initial Purchaser shall have received on the applicable Closing Date an opinion of James J. Bender, Esq., Senior Vice President and General Counsel of Williams, dated such Closing Date, with such exceptions and qualifications as shall be agreed by the Initial Purchaser, to the effect set forth in Exhibit A. The opinion of James J. Bender, Esq. described in Exhibit A shall be rendered to the Initial Purchaser at the request of the Company and shall so state therein. (d) The Initial Purchaser shall have received on the applicable Closing Date an opinion from White & Case LLP, special counsel for the Company, dated such Closing Date, with such exceptions and qualifications as shall be agreed by the Initial Purchaser, to the effect set forth in Exhibit B. (e) The Initial Purchaser shall have received on the applicable Closing Date an opinion of Davis Polk & Wardwell, counsel for the Initial Purchaser, dated such Closing Date, covering the matters referred to in paragraph 10 of Exhibit A, and such other matters as shall be agreed by the Initial Purchaser. With respect to paragraph 10 of Exhibit A, Davis Polk & Wardwell may state that their opinion and belief are based upon their participation in the preparation of the Offering Memorandum (excluding any documents incorporated by reference therein) and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified. Davis Polk & Wardwell may also state that they have relied solely on the opinion of James J. Bender, Esq., as to matters relating to the regulation of the Company by the Federal Energy Regulatory Commission. (f) The Initial Purchaser shall have received on the applicable Closing Date a letter, in form and substance satisfactory to the Initial 15
Purchaser, from Ernst & Young LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in the Offering Memorandum. (g) Prior to the First Closing Date, the Initial Purchaser and the Company shall have validly entered into the Registration Rights Agreement, in form and substance reasonably satisfactory to the Initial Purchaser and the Company. 6. COVENANTS OF THE COMPANY. In further consideration of the agreements of the Initial Purchaser herein contained, the Company, its affiliates and any person acting on its or their behalf, covenant with the Initial Purchaser as follows: (a) The Company, its affiliates and any person acting on its or their behalf will not, directly or indirectly: (i) offer or sell the Securities in the United States by any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; or (ii) sell, solicit any offers to buy or offer to sell or otherwise negotiate in respect of any security in a manner that would require registration of the Securities under the Securities Act in accordance with the theory of "integration" referred to in Regulation D under the Securities Act. (b) While any Security remains outstanding, during any period in which the Company is not subject to Section 13 or Section 15(d) of the Exchange Act and its securities are not exempt from Section 12(g) thereof pursuant to Rule 12g3-2(b) thereunder, the Company will upon request make available to the Initial Purchaser, to any holder of Securities, and to any prospective purchaser designated by any holder of Securities, the information regarding the Company specified in, and satisfying the requirements of, Rule 144A(d)(4) under the Securities Act. (c) The Company will prepare the Offering Memorandum in a form approved by the Initial Purchaser, and before amending or supplementing the Offering Memorandum, will furnish to the Initial 16
Purchaser a copy of each such proposed amendment or supplement and will not deliver any such proposed amendment or supplement to which the Initial Purchaser reasonably objects. (d) As soon as practicable but in no event later than the New York Business Day (as defined below) next succeeding the date of this Agreement and from time to time during the period that in the reasonable opinion of counsel for the Initial Purchaser a Offering Memorandum is required by law to be delivered in connection with Exempt Resales by the Initial Purchaser, the Company will furnish the Initial Purchaser, in New York City, with copies of the Offering Memorandum and each amendment or supplement thereto, together with any independent accountants' report contained in the Offering Memorandum, and any amendment or supplement containing amendments to the financial statements covered by such report, signed by the accountants, and additional copies thereof in such quantities as the Initial Purchaser from time to time reasonably requests, and if, at any time prior to the consummation of any Exempt Resale, any event shall have occurred as a result of which, in the judgment of the Company or in the opinion of counsel for the Initial Purchaser, the Offering Memorandum as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Offering Memorandum is delivered, not misleading, or, if for any other reason it shall be necessary or desirable, during such same period to amend or supplement the Offering Memorandum, the Company will prepare and furnish without charge to the Initial Purchaser and to any dealer in securities as many copies as the Initial Purchaser may from time to time reasonably request of the amended Offering Memorandum or supplement to the Offering Memorandum which will correct such statement or omission or effect such compliance. For the purposes of this paragraph, "New York Business Day" shall mean any day that is not a day on which banking institutions in New York are generally authorized or required by law or regulation to close; (e) During the period of ninety (90) days from the date of this Agreement, the Company will not, without the prior written consent of the Initial Purchaser (A) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any Securities, Common Stock or any similar securities or any security convertible into or exercisable or exchangeable for or repayable with Securities, Common Stock or similar securities; or 17
(B) directly or indirectly, enter into any swap or any other agreement or any transaction that transfers, in whole or in part, the economic equivalent of ownership of any Securities, Common Stock or similar securities or any security convertible into or exercisable or exchangeable for or repayable with Securities, Common Stock or similar securities whether any such swap or transaction is to be settled by delivery of Securities, Common Stock or similar securities or by cash. The foregoing sentence shall not apply (i) in connection with the offering and sale of any Securities to the Initial Purchaser pursuant to this Agreement; (ii) to any purchases, issuances or grants of options, rights or warrants under the Company's employee or director compensation and benefits plans, or used for similar employee compensation or benefit purposes; (iii) to any purchases and issuances under the Company's direct stock purchase and dividend reinvestment plan or (iv) to shares of Common Stock used as consideration for acquisitions or issued in connection with strategic alliances (provided that the recipient of any such shares of Common Stock agrees to be bound by the transfer restrictions set forth herein for the unexpired remaining term thereof); (f) The Company will arrange for the qualification of the Securities for sale under the laws ("BLUE SKY LAWS") of such states in the United States as the Initial Purchaser designates and will continue such qualifications in effect so long as required for the resale of the Securities by the Initial Purchaser; provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state. (g) The Company consents to the use of the Offering Memorandum, in accordance with the Offering Memorandum and the Blue Sky Laws of the jurisdictions in which the Securities are offered by the Initial Purchasers and by all dealers to whom Securities may be sold, in connection with the offering and sale of the Securities. (h) So long as any of the Securities are outstanding, the Company will furnish to the Initial Purchaser (i) promptly after it is available, a copy of each report of the Company filed with any stock exchange or the Commission and (ii) from time to time such other information concerning the Company as the Initial Purchaser may reasonably request. (i) The Company and its affiliates have not taken, nor will any of them take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation 18
of the price of the Securities or the Common Stock to facilitate the sale or resale of the Securities. Except as permitted by the Securities Act, the Company will not distribute any offering material in connection with the Exempt Resales. (j) The Company will take all reasonable action necessary to permit the Securities to be designated Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the PORTAL market. (k) The Company will take all reasonable action necessary to enable Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. ("S&P"), and Moody's Investors Service, Inc. ("MOODY'S") to provide their respective ratings of the Securities. (1) The Company will cooperate with the Initial Purchaser and use its reasonable best efforts to permit the Securities to be eligible for clearance and settlement through the facilities of The Depository Trust Company. (m) The Company will use an amount equal to the net proceeds from the offering of the Securities solely as set forth under the caption "Use of Proceeds" in the Offering Memorandum. (n) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay all expenses incident to the performance of its obligations under this Agreement, including: (i) expenses associated with the preparation, printing and distribution of the Offering Memorandum and all amendments and supplements thereto; (ii) the preparation, issuance and delivery of the Securities; (iii) the fees and disbursements of counsel for the Company and the Company's accountants and of the Trustee and its counsel, (iv) the costs of qualification of the Securities under state securities or blue sky laws in accordance with the provisions of Section 6(f), including filing fees and the fees and disbursements of counsel for the Initial Purchaser in connection therewith and in connection with the preparation of any blue sky or legal investment memoranda; (v) the costs of printing and delivery to the Initial Purchaser in quantities as herein above stated of copies of the Offering Memorandum and any amendments or supplements thereto; (vi) the costs of printing and delivery to the Initial Purchaser of copies of any blue sky or legal investment memoranda; (vii) 19
any fees charged by rating agencies for the rating of the Securities; (viii) the fees (including listing fees) and expenses incurred in connection with the application for quotation of the Securities in the PORTAL market; (ix) any expenses incurred by the Company in connection with any "road show" presentation to potential investors, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and (x) the performance by the Company of their other obligations under this Agreement to the extent not provided for above. (o) The Company will use its reasonable best efforts to do and perform all things required or necessary to be done and performed under this Agreement by them prior to the applicable Closing Date, and to satisfy all conditions precedent to the Initial Purchaser's obligations hereunder to purchase the Securities. 7 COVENANTS OF THE INITIAL PURCHASER. (a) The Initial Purchaser acknowledges that the Securities have not been and will not be registered under the Securities Act and agrees that it, its affiliates and any person acting on its or their behalf: (i) will not offer or sell the Securities in the United States by any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4 (2) if the Securities Act; and (ii) will offer or sell the Securities only to persons whom it reasonably believes to be qualified institutional buyers ("QIBS") within the meaning of Rule 144 A under the Securities Act in compliance with Rule 144 A. 8. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless the Initial Purchaser, its directors, its officers, its employees and each person, if any, who controls the Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, 20
without limitation, any legal or other expenses reasonably incurred by the Initial Purchaser or any such controlling person in connection with defending or investigating any such action or claim) caused by (i) any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum or any amendment thereof (as amended or supplemented, if the Company shall have furnished any amendments or supplements thereto) or (ii) caused by any omission or alleged omission to state in the Offering Memorandum or any amendment thereof (as amended or supplemented, if the Company shall have furnished any amendments or supplements thereto) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Initial Purchaser furnished to the Company in writing by the Initial Purchaser expressly for use in the Offering Memorandum or any amendments or supplements thereto. (b) The Initial Purchaser agrees to indemnify and hold harmless the Company, its directors, its officers, its employees and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to the Initial Purchaser, but only with reference to information relating to the Initial Purchaser furnished to the Company in writing by the Initial Purchaser expressly for use in the Offering Memorandum or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) of this Section 8, such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably 21
satisfactory to the indemnified party or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Such firm shall be designated in writing by the Initial Purchaser, in the case of the parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent (which consent shall not be unreasonably withheld), but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), settle, compromise or consent to the entry of any judgment with respect to any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent the indemnification provided for in paragraph (a) or (b) of this Section 8 is unavailable to an indemnified party or insufficient in respect of any losses, claims., damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of 22
indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchaser on the other hand from the offering and sale of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Initial Purchaser on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchaser on the other hand in connection with the offering of the Securities shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Securities (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Initial Purchaser, in each case as set forth in the Offering Memorandum, bears to the aggregate initial offering price of the Securities. The relative fault of the Company on the one hand and the Initial Purchaser on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Initial Purchaser agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) of this Section 8. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or appearing as a third party witness in any such action or claim. Notwithstanding the provisions of this Section 8, the Initial Purchaser shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it exceeds the amount of any damages that the Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The remedies provided for in 23
this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchaser or any person controlling the Initial Purchaser or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Securities. (g) The Initial Purchaser confirms and the Company acknowledges that the statements with respect to the offering of the Securities by the Initial Purchaser set forth on the last paragraph of the cover page, the second sentence of the second paragraph of text under "Plan of Distribution" and the third, fourth, eighth, ninth, tenth, eleventh and twelfth paragraphs of text under "Plan of Distribution" in the Offering Memorandum are correct and constitute the only information concerning the Initial Purchaser furnished in writing to the Company by or on behalf of the Initial Purchaser specifically for inclusion in the Offering Memorandum. 9. TERMINATION. This Agreement shall be subject to termination by notice given by the Initial Purchaser to the Company, if (a) after the execution and delivery of this Agreement and prior to the applicable Closing Date any of the events described in Section 5(a) shall have occurred or (b) (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States shall have occurred or (iv) there shall have occurred any outbreak or escalation of hostilities (including, without limitation, an act of terrorism) or any material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the judgment of the Initial Purchaser, impracticable or inadvisable to market the Securities on the terms and in the manner contemplated in the Offering 24
Memorandum. Notice of such cancellation shall be given to the Company by telecopy or telephone but shall be subsequently confirmed by letter. 10. EFFECTIVENESS. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. 11. REIMBURSEMENT OF INITIAL PURCHASER'S EXPENSES. If this Agreement shall be terminated by the Initial Purchaser because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Initial Purchaser for all out-of-pocket expenses (including the fees and disbursements of its counsel) reasonably incurred by the Initial Purchaser hi connection with this Agreement and the offering contemplated hereunder. 12. NOTICES. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchaser, shall be delivered or sent by mail, telex or facsimile transmission to Lehman. Brothers Inc., 399 Park Avenue, 11th Floor, New York, New York 10022, Attention: Syndicate Department (Fax: 212-526-0943) with a copy, in the case of any notice pursuant to Section 8(c), to the Director of Litigation, Office of the General Counsel, Lehman Brothers Inc., 399 Park Avenue, 15th Floor, New York, NY 10022; (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission c/o The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172, Attention: Treasurer (Fax: 918-573-2065). Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. 13. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the Initial Purchaser, the Company and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control the Initial Purchaser within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the 25
persons referred to in this Section 13, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. 15. PARTIAL UNENFORCEABILITY. If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other section, paragraph or provision hereof. 16. COUNTERPARTS. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 17. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 18. HEADINGS. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. 26
Please confirm that the foregoing correctly sets forth the agreement among the Company and the Initial Purchaser. Very truly yours, THE WILLIAMS COMPANIES, INC. By: /s/ Donald Chappel ---------------------------------------- Name: Donald Chappel Title: Senior Vice President Finance & CFO Accepted as of the date hereof: By: LEHMAN BROTHERS INC. _______________________________ Name: Title:
Please confirm that the foregoing correctly sets forth the agreement among the Company and the Initial Purchaser. Very truly yours, THE WILLIAMS COMPANIES, INC. By: ___________________________ Name: Title: Accepted as of the date hereof: By: LEHMAN BROTHERS INC. /s/ Robert Pierce - ------------------------------ Name: Robert Pierce Title: Senior Vice President
EXHIBIT A OPINION OF JAMES J. BENDER, ESQ., SENIOR VICE PRESIDENT AND GENERAL COUNSEL OF THE WILLIAMS COMPANIES, INC. 1. The Company and each of its Significant Subsidiaries have been duly incorporated or otherwise validly organized or validly formed and are validly existing in good standing under the laws of their respective jurisdictions of formation or incorporation, have the requisite power and authority to own their property and to conduct their business as described in the Offering Memorandum and are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, except to the extent such failure to be qualified or in good standing would not reasonably be expected to have a Material Adverse Effect, and all of the issued shares of capital stock of each Significant Subsidiary have been duly and validly authorized and issued and are fully paid, non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; 2. The Company and its Significant Subsidiaries each has all Licenses necessary to own, hold, or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Licenses could not reasonably be expected to have a Material Adverse Effect, and, to the best of such counsel's knowledge, neither the Company nor any of its subsidiaries has received any notice of proceedings relating to revocation or modification of any such Licenses, except to the extent that any such revocation or modification could not reasonably be expected to have a Material Adverse Effect; 3. The Company is not in violation of its charter or bylaws, and, to the best of such counsel's knowledge, the Company is not (i) in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any Material Contract, or (ii) in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject, except as disclosed in the Offering Memorandum, and in case of (i) and (ii), for such defaults or violations are not reasonably expected to have a Material Adverse Effect; A-1
4. Each of the Purchase Agreement, the Registration Rights Agreement, the Indenture, the Rights Agreement and the Securities have been duly authorized, executed, and delivered by the Company. 5. The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Registration Rights Agreement, the Securities and the Indenture will not contravene any law applicable to the Company, or the Certificate of Incorporation or By-laws of the Company or any Material Contract, or any judgment, order, decree of any governmental body, agency or court having jurisdiction over the Company. This paragraph 5 does not include any opinion regarding any federal or state securities or Blue Sky laws or regulations. 6. The Company has filed all documents with the Commission that it is required to file under the Exchange Act and the rules and regulations of the Commission thereunder, and such documents (other than the financial statements, including the notes thereto, and related schedules therein, and the other financial and accounting data, as to which such counsel need express no opinion) conformed, when filed, in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; 7. To the best of such counsel's knowledge, other than as set forth or incorporated by reference in the Offering Memorandum, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, domestic or foreign, now pending or threatened against the Company or to which any of its properties are subject that could reasonably be expected to result in any Material Adverse Effect, or that could reasonably be expected to adversely affect the consummation of the transactions contemplated by this Agreement; 8. All of the outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to any preemptive or similar statutory rights; 9. The Common Stock issuable upon conversion of the Securities has been duly authorized by the Company and validly reserved for issuance by the Company upon such conversion by all necessary corporate action, and such Common Stock, when duly issued upon conversion, will be validly issued, fully paid and non-assessable; no holder thereof will be subject to personal liability solely by reason of being such a holder; the issuance of such Common Stock upon such conversion will not be subject to preemptive rights; and the preferred stock purchase rights under the Rights Agreement to which holders of shares of such Common Stock will be entitled, have been duly authorized and, when issued A-2
together with such shares of Common Stock will be validly issued and the Common Stock will conform in all material respects to the description thereof contained in the Offering Memorandum; 10. Such counsel shall state that such counsel or personnel under such counsel's supervision have participated in conferences with officers and other representatives of the Company, the Company's outside counsel, representatives of the independent auditors for the Company, your representatives and your counsel at which the contents of the Offering Memorandum and related matters were discussed and, although such counsel is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained or incorporated by reference in the Offering Memorandum; on the basis of the foregoing, no facts have come to such counsel's attention that have led such counsel to believe that the Offering Memorandum, as of its date or as of the applicable Closing Date, contained or contains an untrue statement of material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that such counsel need not express an opinion or belief with respect to the financial statements, schedules and other financial and accounting data included or incorporated by reference in the Offering Memorandum. "MATERIAL CONTRACT" means all agreements and instruments included in the list of exhibits in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and Current Reports on Form 8-K filed subsequent to such Annual Report (except for employment agreements, stock option plans, stock election plans, stock incentive plans, officer and director indemnification agreements and deferred compensation plans, all of which are excluded). A-3
EXHIBIT B OPINION OF WHITE & CASE LLP 1. The Securities, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchaser, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). 2. The Indenture has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). 3. The Registration Rights Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law), and except to the extent that the rights to indemnity and contribution contained therein may be limited by applicable state or federal securities laws or the public policy underlying such laws. 4. The Purchase Agreement has been duly executed and delivered by the Company. 5. The issuance of the Securities and the execution, delivery and performance by the Company of the Purchase Agreement, the Indenture, the Securities and the Registration Rights Agreement do not violate, or require any filing with or approval of any governmental authority or regulatory body of the State of New York or the United States of America under, any law or regulation of B-1
the State of New York or the United States of America applicable to the Company, except the declaration of effectiveness by the Commission of the registration statement filed pursuant to the Registration Rights Agreement, the Common Stock into which the Securities are convertible being accepted for listing on the New York Stock Exchange, and such consents, approvals, authorizations, registrations or qualifications as have been obtained and made and as may be required under the state securities or "blue sky laws" in connection with the purchase and distribution of the Securities by the Initial Purchaser (as to which we express no opinion). 6. The execution, delivery and performance by the Company of the Purchase Agreement, the Registration Rights Agreement, the Securities and the Indenture will not violate (i) the Certificate of Incorporation or By-laws of the Company, (ii) the terms of any Material Contract, or (iii) any order, judgment or decree of any court or other agency of government known to such counsel. 7. The Company is not, and immediately after giving effect to the offering of the Securities and the application of the proceeds therefrom as contemplated by the Offering Memorandum will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 8. The Common Stock issuable upon conversion of the Securities has been duly authorized by the Company and validly reserved for issuance by the Company upon such conversion by all necessary corporate action, and such Common Stock, when duly issued upon conversion pursuant to the Indenture, will be validly issued, fully paid and non-assessable; no holder thereof will be subject to personal liability solely by reason of being such a holder; the issuance of such Common Stock upon such conversion will not be subject to preemptive rights; and the preferred stock purchase rights under the Rights Agreement to which holders of shares of such Common Stock will be entitled, will be validly issued and the Common Stock will conform in all material respects to the description thereof contained in the Offering Memorandum. 9. The statements set forth in the Offering Memorandum under the caption "Description of the Debentures", insofar as they purport to constitute a summary of the terms of the Indenture, the Registration Rights Agreement and the Securities fairly summarize in all material respects the terms thereof. The authorized capital stock of the Company conforms as to legal matters to the description thereof in the Final Offering Memorandum. The statements under the caption "Certain United States Federal Income Tax Considerations," insofar as such statements constitute matters of United States law, are accurate in all material respects, subject to the qualifications and limitations set forth therein. B-2
10. Assuming (i) the accuracy of the representations and warranties of the Company set forth in Section 1 of this Agreement, (ii) the due performance by the Company of the covenants and agreements set forth in Section 6 of this Agreement, (iii) the compliance by the Initial Purchaser with the offering and transfer procedures and the restrictions described in the Offering Memorandum and its covenants and agreements in Sections 2 and 7 of this Agreement and (iv) the accuracy of the representations and warranties of the Initial Purchaser set forth in Section 2 of this Agreement, the offer, sale and delivery of the Securities to the Initial Purchaser in the manner contemplated by this Agreement and the Offering Memorandum and the initial resale of the Securities by the Initial Purchaser in the manner contemplated in the Offering Memorandum and this Agreement, do not require registration under the Securities Act or qualification of the Indenture or the Declaration under the TIA, it being understood that such counsel expresses no opinion as to any subsequent resale of any Security. 11. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent auditors for the Company, your representatives and your counsel at which the contents of the Offering Memorandum and related matters were discussed and, although such counsel is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained or incorporated by reference in the Offering Memorandum, on the basis of the foregoing, no facts have come to such counsel's attention that have led such counsel to believe that the Offering Memorandum, as of its date or as of the applicable Closing Date, contained or contains an untrue statement of material fact or omitted or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that such counsel need not express an opinion or belief with respect to the financial statements, schedules and other financial and accounting data included or incorporated by reference in the Offering Memorandum. "MATERIAL CONTRACT" means all agreements and instruments included in the list of exhibits in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and Current Reports on Form 8-K filed subsequent to such Annual Report (except for employment agreements, stock option plans, stock election plans, stock incentive plans, officer and director indemnification agreements and deferred compensation plans, all of which are excluded). B-3
EXHIBIT 4.1 - -------------------------------------------------------------------------------- THE WILLIAMS COMPANIES, INC. AND JPMORGAN CHASE BANK, as Trustee --------------------------------------------------------------------- INDENTURE Dated as of May 28, 2003 --------------------------------------------------------------------- 5.50% JUNIOR SUBORDINATED CONVERTIBLE DEBENTURES DUE 2033 - --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE ---- ARTICLE 1 DEFINITIONS Section 1.01. Definitions..................................................................... 2 ARTICLE 2 ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES Section 2.01. Designation Amount and Issue of Debentures...................................... 12 Section 2.02. Form of Debentures.............................................................. 12 Section 2.03. Date and Denomination of Debentures; Payments of Interest....................... 13 Section 2.04. Execution of Debentures......................................................... 15 Section 2.05. Exchange and Registration of Transfer of Debentures; Restrictions on Transfer............................................................. 16 Section 2.06. Mutilated, Destroyed, Lost or Stolen Debentures................................. 23 Section 2.07. Temporary Debentures............................................................ 24 Section 2.08. Cancellation of Debentures...................................................... 25 Section 2.09. CUSIP Numbers................................................................... 25 ARTICLE 3 REDEMPTION AND REPURCHASE OF DEBENTURES Section 3.01. Company's Right to Redeem...................................................... 26 Section 3.02. Notice of Optional Redemption; Selection of Debentures......................... 26 Section 3.03. Payment of Debentures Called for Redemption by the Company.............................................................................. 28 Section 3.04. Conversion Arrangement on Call for Redemption.................................. 29 Section 3.05. Repurchase of Debentures by the Company at Option of the Holder upon a Change of Control...................................................... 29 ARTICLE 4 SUBORDINATION OF DEBENTURES Section 4.01. Agreement of Subordination..................................................... 34 Section 4.02. Payments to Debentureholders................................................... 34 Section 4.03. Subrogation of Debentures...................................................... 38 Section 4.04. Authorization to Effect Subordination.......................................... 39 Section 4.05. Notice to Trustee.............................................................. 39 Section 4.06. Trustee's Relation to Senior and Senior Subordinated Indebtedness......................................................................... 40
Section 4.07. No Impairment of Subordination............................................... 40 Section 4.08. Certain Conversions Not Deemed Payment....................................... 41 Section 4.09. Article Applicable to Paying Agents.......................................... 41 Section 4.10. Senior and Senior Subordinated Indebtedness Entitled to Rely ................ 42 Section 4.11. Reliance on Judicial Order or Certificate of Liquidating Agent................ 42 ARTICLE 5 DEFERRAL OF INTEREST PAYMENT PERIOD Section 5.01. Extended Interest Payment Period................................................ 42 Section 5.02. Notification of Deferral of Interest Payment Periods............................ 43 ARTICLE 6 PARTICULAR COVENANTS OF THE COMPANY Section 6.01. Payment of Principal, Premium and Interest.................................... 43 Section 6.02. Maintenance of Office or Agency............................................... 43 Section 6.03. Appointments to Fill Vacancies in Trustee's Office............................ 44 Section 6.04. Provisions as to Paying Agent................................................. 44 Section 6.05. Existence..................................................................... 45 Section 6.06. Rule 144A Information Requirement............................................. 46 Section 6.07. Stay, Extension and Usury Laws................................................ 46 Section 6.08. Compliance Certificate........................................................ 46 Section 6.09. Liquidated Damages Notice..................................................... 47 Section 6.10. Tax Treatment................................................................. 47 Section 6.11. Restrictions on Certain Payments.............................................. 47 Section 6.12. Termination of Designated Agreements.......................................... 49 ARTICLE 7 DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 7.01. Debentureholders' Lists......................................................... 49 Section 7.02. Preservation and Disclosure of Lists............................................ 49 Section 7.03. Reports by Trustee.............................................................. 50 Section 7.04. Reports by Company.............................................................. 50 ARTICLE 8 REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON AN EVENT OF DEFAULT Section 8.01. Events of Default............................................................... 50 Section 8.02. Payments of Debentures on Default; Suit Therefor................................ 53 Section 8.03. Application of Monies........................................................... 55 Section 8.04. Proceedings by Debentureholder.................................................. 56 Section 8.05. Proceedings by Trustee.......................................................... 57 Section 8.06. Remedies Cumulative and Continuing.............................................. 57 ii
Section 8.07. Direction of Proceedings and Waiver of Defaults by Majority of Debentureholders.................................................................. 57 Section 8.08. Notice of Defaults.............................................................. 58 Section 8.09. Undertaking to Pay Costs....................................................... 58 ARTICLE 9 THE TRUSTEE Section 9.01. Duties and Responsibilities of Trustee.......................................... 59 Section 9.02. Reliance on Documents, Opinions, Etc............................................ 61 Section 9.03. No Responsibility For Recitals, Etc............................................. 62 Section 9.04. Trustee, Paying Agents, Conversion Agents or Registrar May Own Debentures........................................................................ 62 Section 9.05. Monies to Be Held in Trust...................................................... 62 Section 9.06. Compensation and Expenses of Trustee............................................ 62 Section 9.07. Officer's Certificate as Evidence............................................... 63 Section 9.08. Conflicting Interests of Trustee................................................ 64 Section 9.09. Eligibility of Trustee.......................................................... 64 Section 9.10. Resignation or Removal of Trustee............................................... 64 Section 9.11. Acceptance by Successor Trustee................................................. 66 Section 9.12. Succession by Merger............................................................ 66 Section 9.13. Preferential Collection of Claims............................................... 67 ARTICLE 10 THE DEBENTUREHOLDERS Section 10.01. Action by Debentureholders..................................................... 67 Section 10.02. Proof of Execution by Debentureholders......................................... 67 Section 10.03. Who Are Deemed Absolute Owners................................................ 68 Section 10.04. Company-owned Debentures Disregarded........................................... 68 Section 10.05. Revocation of Consents, Future Holders Bound................................... 69 ARTICLE 11 MEETINGS OF DEBENTUREHOLDERS Section 11.01. Purpose of Meetings............................................................ 69 Section 11.02. Call of Meetings by Trustee.................................................... 69 Section 11.03. Call of Meetings by Company or Debentureholders................................ 70 Section 11.04. Qualifications for Voting...................................................... 70 Section 11.05. Regulations.................................................................... 70 Section 11.06. Voting......................................................................... 71 Section 11.07. No Delay of Rights by Meeting.................................................. 72 iii
ARTICLE 12 SUPPLEMENTAL INDENTURES Section 12.01. Supplemental Indentures Without Consent of Debentureholders..................................................................... 72 Section 12.02. Supplemental Indenture with Consent of Debentureholders........................ 74 Section 12.03. Effect of Supplemental Indenture............................................... 75 Section 12.04. Notation on Debentures......................................................... 75 Section 12.05. Evidence of Compliance of Supplemental Indenture to Be Furnished to Trustee................................................................. 75 ARTICLE 13 CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 13.01. Company May Consolidate on Certain Terms....................................... 75 Section 13.02. Successor to Be Substituted.................................................... 76 Section 13.03. Opinion of Counsel to Be Given Trustee......................................... 77 ARTICLE 14 SATISFACTION AND DISCHARGE OF INDENTURE Section 14.01. Discharge of Indenture....................................................... 77 Section 14.02. Deposited Monies to Be Held in Trust by Trustee.............................. 78 Section 14.03. Paying Agent to Repay Monies Held............................................ 78 Section 14.04. Return of Unclaimed Monies................................................... 78 ARTICLE 15 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 15.01. Indenture and Debentures Solely Corporate Obligations.......................... 78 ARTICLE 16 CONVERSION OF DEBENTURES Section 16.01. Right to Convert............................................................... 79 Section 16.02. Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends................................ 79 Section 16.03. Cash Payments in Lieu of Fractional Shares..................................... 81 Section 16.04. Conversion Rate................................................................ 81 Section 16.05. Adjustment of Conversion Rate.................................................. 81 Section 16.06. Effect of Reclassification, Consolidation, Merger or Sale...................... 92 Section 16.07. Taxes on Shares Issued......................................................... 93 Section 16.08. Reservation of Shares, Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock............................... 93 Section 16.09. Responsibility of Trustee...................................................... 94 iv
Section 16.10. Notice to Holders Prior to Certain Actions..................................... 95 Section 16.11. Stockholder Rights Plans....................................................... 96 ARTICLE 17 MISCELLANEOUS PROVISIONS Section 17.01. Provisions Binding on Company's Successors..................................... 96 Section 17.02. Official Acts by Successor Corporation......................................... 96 Section 17.03. Addresses for Notices, Etc..................................................... 97 Section 17.04. Governing Law.................................................................. 97 Section 17.05. Evidence of Compliance with Conditions Precedent, Certificates to Trustee.............................................................. 97 Section 17.06. Legal Holidays................................................................. 98 Section 17.07. Trust Indenture Act............................................................ 98 Section 17.08. No Security Interest Created................................................... 98 Section 17.09. Benefits of Indenture.......................................................... 99 Section 17.10. Table of Contents, Headings, Etc............................................... 99 Section 17.11. Authenticating Agent........................................................... 99 Section 17.12. Execution in Counterparts...................................................... 100 Section 17.13. Severability................................................................... 100 Schedule A: Designated Agreements Exhibit A: Form of Debenture
INDENTURE INDENTURE dated as of May 28, 2003 between The Williams Companies, Inc., a Delaware corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "COMPANY"), having its principal office at One Williams Center, Tulsa, Oklahoma 74172, and JPMorgan Chase Bank, a banking corporation duly organized and existing under the laws of the State of New York, as trustee hereunder (hereinafter called the "TRUSTEE"). WITNESSETH: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue of its 5.50% Junior Subordinated Convertible Debentures due 2033 (hereinafter called the "DEBENTURES"), in an aggregate principal amount not to exceed $300,000,000, and, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, the Debentures, the certificate of authentication to be borne by the Debentures, a form of assignment, a form of option to elect repurchase upon a change of control and a form of conversion notice to be borne by the Debentures are to be substantially in the forms hereinafter provided for; and WHEREAS, all acts and things necessary to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute this Indenture a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Debentures have in all respects been duly authorized, NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Debentures are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Debentures by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Debentures (except as otherwise provided below), as follows:
ARTICLE 1 DEFINITIONS Section 1.01. Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture that are defined in the Trust Indenture Act or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of the execution of this Indenture. The words "HEREIN", "HEREOF, "HEREUNDER" and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. The terms defined in this Article include the plural as well as the singular. "ACCEPTED PURCHASED SHARES" has the meaning specified in Section 16.05(g). "ADJUSTMENT EVENT" has the meaning specified in Section 16.05(1). "AGENT MEMBERS" has the meaning specified in Section 2.05(a). "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "CONTROL", when used with respect to any specified Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "CONTROLLING" AND "CONTROLLED" have meanings correlative to the foregoing. "BOARD OF DIRECTORS" means the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder. "BUSINESS DAY" means any day, other than a Saturday or Sunday, that is not a day on which banking institutions in The City of New York, New York are authorized or obligated by law or executive order to remain closed or on which the Corporate Trust Office of the Trustee is closed for business. "CHANGE OF CONTROL" means: (a) the acquisition by any Person of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, through a purchase, merger, other acquisition transaction or a series of such transactions, of shares of 2
the Company's capital stock entitling that Person to exercise 50% or more of the total voting power of all shares of the Company's capital stock entitled to vote generally in elections of directors, other than any acquisition by the Company, any of the Company's Subsidiaries or future Subsidiaries or any of the Company's employee benefit plans; (b) the first day on which a majority of the members of the board of directors of the Company are not Continuing Directors; or (c) the consolidation, combination or merger of the Company with or into any other Person, any merger of another Person into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the Company's properties and assets to another Person, other than (i) any transaction (x) that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of the Company's capital stock, and (y) pursuant to which holders of the Company's capital stock immediately prior to such transaction are entitled to exercise, directly or indirectly, 50% or more of the total voting power of all shares of the Company's capital stock entitled to vote generally in elections of directors of the continuing or surviving Person immediately after giving effect to such transaction, or (ii) any merger solely for the purpose of changing the Company's jurisdiction of incorporation and resulting in a reclassification, conversion or exchange of outstanding shares of common stock solely into shares of common stock of the surviving entity. Notwithstanding the foregoing, a Change of Control will not be deemed to have occurred if: (i) the Closing Sale Price per share of the Company's common stock for any five full Trading Days (not including extended hours trading) within the period of ten consecutive Trading Days ending immediately after the later of the Change of Control or the public announcement of the Change of Control, in the case of a Change of Control under (a) above, or the period of ten consecutive full Trading Days (not including extended hours trading) ending immediately before the Change of Control, in the case of a Change of Control under (c) above, equals or exceeds 110% of the Conversion Price in effect on each of those Trading Days (as adjusted in accordance with Article 16 hereof); or (ii) at least 90% of the consideration in the transaction or transactions constituting a Change of Control consists of shares of common stock traded or to be traded immediately following such Change of Control on a national securities exchange or the Nasdaq National Market and, as a result of such transaction or transactions, the Debentures become convertible into such common stock (and any rights attached thereto). 3
"CHANGE OF CONTROL NOTICE" has the meaning specified in Section 3.05(b). "CLOSING SALE PRICE" of the shares of Common Stock on any date means the closing sale price per share (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported in composite transactions for the principal United States securities exchange on which shares of Common Stock are traded or, if the shares of Common Stock are not listed on a United States national or regional securities exchange, as reported by the Nasdaq System or by the National Quotation Bureau Incorporated. In the absence of such quotations, the Company shall be entitled to determine the Closing Sale Price on the basis it considers appropriate. The Closing Sale Price shall be determined without reference to extended or after hours trading. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "COMMON STOCK" means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 16.06, however, shares issuable on conversion of Debentures shall include only shares of the class designated as Common Stock of the Company at the date of this Indenture (namely, the common stock, par value $1.00) or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable on conversion shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "COMPANY" means the corporation named as the "COMPANY" in the first paragraph of this Indenture, and, subject to the provisions of Article 13 and Section 16.06, shall include its successors and assigns. "COMPOUNDED INTEREST" has the meaning specified in Section 5.01. 4
"CONTINUING DIRECTORS" means, as of any date of determination, any member of the board of directors of the Company who (i) was a member of the board of directors throughout the twenty-four consecutive months preceding such date of determination; or (ii) was nominated for election or elected to the board of directors with the approval of a majority of the Continuing Directors who were members of the board of directors at the time of such director's nomination or election. "CONVERSION AGENT" means the office or agency designated by the Company in accordance with Section 6.02 where the Debentures may be presented for conversion. "CONVERSION DATE" has the meaning specified in Section 16.02. "CONVERSION NOTICE" has the meaning specified in Section 16.02. "CONVERSION PRICE" as of any day will equal $50 divided by the Conversion Rate as of such date. "CONVERSION RATE" has the meaning specified in Section 16.04. "CORPORATE TRUST OFFICE" or other similar term, means the designated office of the Trustee at which at any particular time its corporate trust business as it relates to this Indenture shall be principally administered, which office is, at the date as of which this Indenture is dated, located at 4 New York Plaza, 15th Floor, New York, New York 10004, Attention: Institutional Trust Services. "CURRENCY AGREEMENT" means, with respect to any Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in currency values to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary thereafter. "CURRENT MARKET PRICE" has the meaning specified in Section 16.05(h). "CUSTODIAN" means JPMorgan Chase Bank, as custodian with respect to the Debentures in global form, or any successor entity thereto. "DEBENTURE" or "DEBENTURES" means any Debenture or Debentures (as defined in the first "WHEREAS" clause hereof), as the case may be, authenticated and delivered under this Indenture, including any Global Debenture. "DEBENTURE REGISTER" has the meaning specified in Section 2.05(a). "DEBENTURE REGISTRAR" has the meaning specified in Section 2.05(a). 5
"DEBENTUREHOLDER" OR "HOLDER" as applied to any Debenture, or other similar terms (but excluding the term "beneficial holder"), means any Person in whose name at the time a particular Debenture is registered on the Debenture Registrar's books. "DEFAULT" means any event that is, or after notice or passage of time, or both, would be, an Event of Default. "DEFAULTED INTEREST" has the meaning specified in Section 2.03. "DEPOSITARY" means, the clearing agency registered under the Exchange Act that is designated to act as the Depositary for the Global Debentures. The Depository Trust Company shall be the initial Depositary, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "DEPOSITARY" shall mean or include such successor. "DESIGNATED AGREEMENTS" means the agreements specified on Schedule A. "DESIGNATED AGREEMENT TERMINATION DATE" has the meaning specified in Section 6.12. "DESIGNATED SENIOR INDEBTEDNESS" means any Senior and Senior Subordinated Indebtedness of the Company which, at the date of incurrence or thereafter, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $5,000,000 and which is specifically designated by the Company, at the time of incurrence or thereafter, in the instrument evidencing or governing such Senior and Senior Subordinated Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "DETERMINATION DATE" has the meaning specified in Section 16.05(1). "EVENT OF DEFAULT" means any event specified in Section 8.01 as an Event of Default. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time. "EXPIRATION TIME" has the meaning specified in Section 16.05(f). "EXTENDED INTEREST PAYMENT PERIOD" has the meaning specified in Section 5.01. "FAIR MARKET VALUE" has the meaning specified in Section 16.05(h). 6
"GLOBAL DEBENTURE" has the meaning specified in Section 2.02. "GUARANTEE" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. "INDEBTEDNESS" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit, bank guarantees, or bankers acceptance or other similar instruments (or reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred purchase price of property or services, except Trade Payables, (v) all obligations of such Person as lessee under leases required or permitted to be treated as capitalized leases under U.S. generally accepted accounting principles, (vi) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that, for purposes of determining the amount of any Indebtedness of the type described in this clause, if recourse with respect to such Indebtedness is limited to such asset, the amount of such Indebtedness shall be limited to the lesser of the fair market value of such asset or the amount of such Indebtedness; (vii) all Indebtedness of others Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise included in this definition, all obligations of such Person under Currency Agreements and Interest Rate Agreements. "INDENTURE" means this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. "INITIAL PURCHASER" means Lehman Brothers Inc. "INTEREST" means, when used with reference to the Debentures, any interest payable under the terms of the Debentures, including Liquidated Damages, if any, payable under the terms of the Registration Rights Agreement. 7
"INTEREST PAYMENT DATE" means March 1, June 1, September 1 or December 1. "INTEREST RATE AGREEMENT" means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary thereafter. "JUNIOR SECURITIES" has the meaning specified in Section 4.08. "JUNIOR SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company ranking equally and ratably with, or junior to, the Debentures, other than obligations owed by the Company to its Subsidiaries. "Lien" means, with respect to any property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such property. For purposes of this Indenture, the Company shall be deemed to own subject to a Lien any property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property. "LIQUIDATED DAMAGES" has the meaning specified for "LIQUIDATED DAMAGES AMOUNT" in Section 2(e) of the Registration Rights Agreement. "LIQUIDATED DAMAGES NOTICE" has the meaning specified in Section 6.09. "MATURITY DATE" means June 1, 2033. "NON-ELECTING SHARE" has the meaning specified in Section 16.06. "OFFER EXPIRATION TIME" has the meaning specified in Section 16.05(g). "OFFICER'S CERTIFICATE", when used with respect to the Company, means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "VICE PRESIDENT"), the Treasurer or any Assistant Treasurer, or the Secretary of the Company. "OPINION OF COUNSEL" means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or other counsel reasonably acceptable to the Trustee. 8
"OUTSTANDING", when used with reference to Debentures and subject to the provisions of Section 10.04, means, as of any particular time, all Debentures authenticated and delivered by the Trustee under this Indenture, except: (a) Debentures theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Debentures, or portions thereof, (i) for the redemption of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or (ii) which shall have been otherwise defeased in accordance with Article 14; (c) Debentures in lieu of which, or in substitution for which, other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.06; and (d) Debentures converted into Common Stock pursuant to Article 16 and Debentures deemed not outstanding pursuant to Article 3. "PAYING AGENT" means the office or agency designated by the Company in accordance with Section 6.02 where the Debentures may be presented for payment. "PERSON" means a corporation, an association, a partnership, a limited liability company, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof. "PORTAL MARKET" means The Portal Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. "POTENTIAL EVENT OF DEFAULT" has the meaning specified in Section 6.11. "PREDECESSOR DEBENTURE" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture, and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.06 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture that it replaces. "PREMIUM" means any premium payable under the terms of the Debentures. "PURCHASED SHARES" has the meaning specified in Section 16.05(f). "QIB" means a "QUALIFIED INSTITUTIONAL BUYER" as defined in Rule 144A. 9
"RECORD DATE" has the meaning specified in Section 2.03. "REDEMPTION DATE" has the meaning specified in Section 3.02. "REDEMPTION NOTICE" has the meaning specified in Section 3.02. "REDEMPTION PRICE" has the meaning specified in Section 3.01. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of May 28, 2003, between the Company and the Initial Purchaser, as amended from time to time in accordance with its terms. "REPRESENTATIVE" means (a) the indenture trustee or other trustee, agent or representative for holders of Senior and Senior Subordinated Indebtedness or (b) with respect to any Senior and Senior Subordinated Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior and Senior Subordinated Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior and Senior Subordinated Indebtedness, any holder or owner of such Senior and Senior Subordinated Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior and Senior Subordinated Indebtedness and (ii) in the case of all other such Senior and Senior Subordinated Indebtedness, the holder or owner of such Senior and Senior Subordinated Indebtedness. "REPURCHASE DATE" has the meaning specified in Section 3.05(a). "REPURCHASE ELECTION" has the meaning specified in Section 3.05(c). "REPURCHASE EXPIRATION TIME" has the meaning specified in Section 3.05(b). "REPURCHASE PRICE" has the meaning specified in Section 3.05(a). "RESPONSIBLE OFFICER" shall mean, any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, or any trust officer or any other officer of the Trustee within the Institutional Trust Services--Conventional Debt Unit (or any successor unit, department or division of the Trustee) located at the Corporate Trust Office of the Trustee who has direct responsibility for the administration of this Indenture, and, for the purposes of clause (b) of Section 9.01 and the proviso of Section 8.08 (and only the proviso), shall also include any other officer of the Trustee to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject. "RESTRICTED PAYMENT" has the meaning specified in Section 6.11. 10
"RESTRICTED SECURITIES" has the meaning specified in Section 2.05(c). "RULE 144A" means Rule 144A as promulgated under the Securities Act. "SECURITIES" has the meaning specified in Section 16.05(d). "SECURITIES Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time. "SENIOR AND SENIOR SUBORDINATED INDEBTEDNESS" means the principal of (and premium, if any) and interest (including interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of (including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities thereunder) all Indebtedness of the Company whether created, incurred or assumed before, on or after the date of this instrument; provided that Senior and Senior Subordinated Indebtedness shall not include (i) Indebtedness of the Company that, when incurred and without respect to any election under Section 1111(b) of Title 11, U.S. Code, was without recourse to the Company, (ii) the Debentures and any other Indebtedness of the Company which by the terms of the instrument creating or evidencing the same is expressly made equal in rank and payment with or subordinated to the Debentures, (iii) obligations by the Company owed to its Subsidiaries and (iv) stock of the Company. "SIGNIFICANT SUBSIDIARY" means, as of any date of determination, a Subsidiary of the Company that would constitute a "SIGNIFICANT SUBSIDIARY" as such term is defined under Rule l-02(w) of Regulation S-X of the Commission as in effect on the date of this Indenture. "SPINOFF VALUATION PERIOD" has the meaning specified in Section 16.05(d). "STOCK RECORD DATE" has the meaning specified in Section 16.05(h). "SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interest entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person (or a combination thereof). 11
"TRADE PAYABLES" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "TRADING DAY" has the meaning specified in Section 16.05(h). "TRIGGER EVENT" has the meaning specified in Section 16.05(d). "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended, as it was in force at the date of this Indenture, except as provided in Section 12.03 and Section 17.07; provided that if the Trust Indenture Act of 1939 is amended after the date hereof, the term "TRUST INDENTURE Act" shall mean, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. ARTICLE 2 ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES Section 2.01. Designation Amount and Issue of Debentures. The Debentures shall be designated as "5.50% JUNIOR SUBORDINATED CONVERTIBLE DEBENTURES DUE 2033". Debentures not to exceed the aggregate principal amount of $300,000,000 (except pursuant to Sections 2.05, 2.06, 3.03, 3.05 and 16.02 hereof) upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its Chairman of the Board, Chief Executive Officer, President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "VICE PRESIDENT"), the Treasurer or any Assistant Treasurer or the Secretary, without any further action by the Company hereunder. Section 2.02. Form of Debentures. The Debentures and the Trustee's certificate of authentication to be borne by such Debentures shall be substantially in the form set forth in Exhibit A. The terms and provisions contained in the form of Debenture attached as Exhibit A hereto shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the 12
Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Any of the Debentures may have such letters, numbers or other marks of identification and such notations, legends, endorsements or changes as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Debentures to be tradable on The Portal Market or as may be required for the Debentures to be tradable on any other market developed for trading of securities pursuant to Rule 144A or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Debentures may be listed, or to conform to usage, or to indicate any special limitations or restrictions to which any particular Debentures are subject. So long as the Debentures are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, or otherwise contemplated by Section 2.05(a), all of the Debentures will be represented by one or more Debentures in global form registered in the name of the Depositary or the nominee of the Depositary (a "GLOBAL DEBENTURE"). The transfer and exchange of beneficial interests in any such Global Debenture shall be effected through the Depositary in accordance with this Indenture and the applicable procedures of Depositary. Except as provided in Section 2.05(a), beneficial owners of a Global Debenture shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered holders of such Global Debenture. Any Global Debenture shall represent such of the outstanding Debentures as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Debentures from time to time endorsed thereon and that the aggregate amount of outstanding Debentures represented thereby may from time to time be increased or reduced to reflect redemptions, repurchases, conversions, transfers or exchanges permitted hereby. Any endorsement of a Global Debenture to reflect the amount of any increase or decrease in the amount of outstanding Debentures represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the holder of such Debentures in accordance with this Indenture. Payment of principal of and Interest and premium, if any, on any Global Debenture shall be made to the holder of such Debenture. Section 2.03. Date and Denomination of Debentures; Payments of Interest. The Debentures shall be issuable in registered form without coupons in denominations of $50 principal amount and integral multiples thereof. Each 13
Debenture shall be dated the date of its authentication and shall bear interest from the date specified on the face of the form of Debenture attached as Exhibit A hereto. Interest on the Debentures shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Subject to Article 5, the Person in whose name any Debenture (or its Predecessor Debenture) is registered on the Debenture Register at the close of business on any Record Date with respect to any Interest Payment Date shall be entitled to receive the Interest payable on such Interest Payment Date, except that the Interest payable upon redemption or repurchase will be payable to the Person to whom principal is payable pursuant to such redemption or repurchase. Notwithstanding the foregoing, if any Debenture (or portion thereof) is converted into Common Stock during the period after a Record Date for the payment of Interest to, but excluding, the next succeeding Interest Payment Date, the Company shall not be required to pay Interest on such Interest Payment Date in respect of any such Debenture (or portion thereof), except as provided in Section 16.02. Interest shall be payable at the office of the Company maintained by the Company for such purposes in the Borough of Manhattan, City of New York, which shall initially be an office or agency of the Trustee. The Company shall pay Interest (i) on any Debentures in certificated form by check mailed to the address of the Person entitled thereto as it appears in the Debenture Register (or, upon written notice, by wire transfer in immediately available funds, if such Person is entitled to interest on Debentures with an aggregate principal amount in excess of $2,000,000) or (ii) on any Global Debenture by wire transfer of immediately available funds to the account of the Depositary or its nominee. The term "RECORD DATE" with respect to any Interest Payment Date shall mean the February 15, May 15, August 15 or November 15 preceding the applicable March 1, June 1, September 1 or December 1 Interest Payment Date, respectively. Any Interest on any Debenture which is payable, but is not punctually paid, deferred in accordance with Article 5 or duly provided for, on any March 1, June 1, September 1 or December 1 (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the Debentureholder on the relevant Record Date by virtue of his having been such Debentureholder, and such Defaulted Interest shall be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment (which shall be not less than twenty-five (25) days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an 14
earlier date), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment, and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each holder at his address as it appears in the Debenture Register, not less than ten (10) days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (2) of this Section 2.03. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Debentures may be listed or designated for issuance, and upon such notice as may be required by such exchange or automated quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Section 2.04. Execution of Debentures. The Debentures shall be signed in the name and on behalf of the Company by the manual or facsimile signature of its Chairman of the Board, Chief Executive Officer, President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "VICE PRESIDENT") or its Treasurer (which may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). Only such Debentures as shall bear thereon a certificate of authentication substantially in the form set forth on the form of Debenture attached as Exhibit A hereto, manually executed by the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 17.11), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. 15
In case any officer of the Company who shall have signed any of the Debentures shall cease to be such officer before the Debentures so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Debentures nevertheless may be authenticated and delivered or disposed of as though the person who signed such Debentures had not ceased to be such officer of the Company, and any Debenture may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Debenture, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.05. Exchange and Registration of Transfer of Debentures', Restrictions on Transfer, (a) The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 6.02 being herein sometimes collectively referred to as the "DEBENTURE REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Debentures and of transfers of Debentures. The Debenture Register shall be in written form or in any form capable of being converted into written form within a reasonably prompt period of time. The Trustee is hereby appointed "DEBENTURE REGISTRAR" for the purpose of registering Debentures and transfers of Debentures as herein provided. The Company may appoint one or more co-registrars in accordance with Section 6.02; provided, however, that there shall be only one Debenture Register. Upon surrender for registration of transfer of any Debenture to the Debenture Registrar or any co-registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.05, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Debentures of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. Debentures may be exchanged for other Debentures of any authorized denominations and of a like aggregate principal amount, upon surrender of the Debentures to be exchanged at any such office or agency maintained by the Company pursuant to Section 6.02. Whenever any Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Debentures which the Debentureholder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding. All Debentures issued upon any registration of transfer or exchange of Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debentures surrendered upon such registration of transfer or exchange. 16
All Debentures presented or surrendered for registration of transfer or for exchange, redemption, repurchase or conversion shall (if so required by the Company or the Debenture Registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, and the Debentures shall be duly executed by the Debentureholder thereof or his attorney duly authorized in writing. No service charge shall be made to any holder for any registration of, transfer or exchange of Debentures, but the Company may require payment by the holder of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Debentures. Neither the Company nor the Trustee nor any Debenture Registrar shall be required to exchange or register a transfer of (a) any Debentures for a period of fifteen (15) days next preceding any selection of Debentures to be redeemed, (b) any Debentures or portions thereof called for redemption pursuant to Section 3.02, (c) any Debentures or portions thereof surrendered for conversion pursuant to Article 16 or (d) any Debentures or portions thereof tendered for repurchase (and not withdrawn) pursuant to Section 3.05. (b) The following provisions shall apply only to Global Debentures: (i) Each Global Debenture authenticated under this Indenture shall be registered in the name of the Depositary or a nominee thereof and delivered to such Depositary or a nominee thereof or Custodian therefor, and each such Global Debenture shall constitute a single Debenture for all purposes of this Indenture. (ii) Notwithstanding any other provision in this Indenture, no Global Debenture may be exchanged in whole or in part for Debentures registered, and no transfer of a Global Debenture in whole or in part may be registered, in the name of any Person other than the Depositary or a nominee thereof unless (A) the Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Debenture and a successor depositary has not been appointed by the Company within ninety days or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) an Event of Default has occurred and is continuing or (C) the Company, in its sole discretion, notifies the Trustee in writing that it no longer wishes to have all the Debentures represented by Global Debentures. Any Global Debenture exchanged pursuant to clause (A) or (B) above shall be so exchanged in whole and not in part and any Global Debenture exchanged pursuant to clause (C) above may be exchanged in whole or from time to time in part as directed by the Company. Any Debenture issued in exchange for a Global 17
Debenture or any portion thereof shall be a Global Debenture; provided that any such Debenture so issued that is registered in the name of a Person other than the Depositary or a nominee thereof shall not be a Global Debenture. (iii) Securities issued in exchange for a Global Debenture or any portion thereof pursuant to clause (ii) above shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount equal to that of such Global Debenture or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear any legends required hereunder. Any Global Debenture to be exchanged in whole or in part shall be surrendered by the Depositary to the Trustee, as Debenture Registrar. Upon any such surrender, the Trustee shall authenticate and make available for delivery the Debenture issuable on such exchange to or upon the written order of the Depositary or an authorized representative thereof and the Global Debenture shall be cancelled or its principal amount reduced in accordance with Section 2.05(b)(vi). (iv) In the event of the occurrence of any of the events specified in clause (ii) above, the Company will promptly make available to the Trustee a reasonable supply of certificated Debentures in definitive, fully registered form, without interest coupons. (v) Neither any members of, or participants in, the Depositary ("AGENT MEMBERS") nor any other Persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Debenture registered in the name of the Depositary or any nominee thereof, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Debenture for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other Person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Debenture. (vi) At such time as all interests in a Global Debenture have been redeemed, repurchased, converted, canceled or exchanged for Debentures in certificated form, such Global Debenture shall, upon receipt thereof, be canceled by the Trustee in accordance with standing 18
procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a Global Debenture is redeemed, repurchased, converted, canceled or exchanged for Debentures in certificated form, the principal amount of such Global Debenture shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced, and an endorsement shall be made on such Global Debenture, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction. (c) Every Debenture that bears or is required under this Section 2.05(c) to bear the legend set forth in this Section 2.05(c) (together with any Common Stock issued upon conversion of the Debentures and required to bear the legend set forth in Section 2.05(c), collectively, the "RESTRICTED SECURITIES") shall be subject to the restrictions on transfer set forth in this Section 2.05(c) (including those set forth in the legend below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted Security, by such Debentureholder's acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Section 2.05(c) and 2.05(d), the term "TRANSFER" encompasses any sale, pledge, loan, transfer or other disposition whatsoever of any Restricted Security or any interest therein. Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any certificate evidencing such Debenture (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.05(c), if applicable) shall bear a legend in substantially the following form, unless such Debenture has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or pursuant to Rule 144 under the Securities Act or any similar provision then in force, or unless otherwise agreed by the Company in writing, with written notice thereof to the Trustee." THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY AGREES FOR THE BENEFIT OF THE WILLIAMS COMPANIES, INC. THAT (a) THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE WILLIAMS COMPANIES, INC. OR ANY AFFILIATE, (2) IN A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE 19
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (2) OR (4), TO THE RECEIPT BY THE WILLIAMS COMPANIES, INC. OF AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE ACCEPTABLE TO THE WILLIAMS COMPANIES, INC. THAT SUCH RESALE, PLEDGE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (b) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE A COPY OF THE TRANSFER RESTRICTIONS APPLICABLE HERETO. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS DEBENTURE PURSUANT TO CLAUSE (5) ABOVE OR UPON ANY TRANSFER OF THIS DEBENTURE UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING RESTRICTION. THIS DEBENTURE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR U.S. FEDERAL INCOME TAX PURPOSES. FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986 (AS AMENDED), THE ISSUE PRICE OF EACH DEBENTURE IS $50 PER $50 OF PRINCIPAL AMOUNT, THE ISSUE DATE IS MAY 28, 2003, THE YIELD TO MATURITY IS 5.50% COMPOUNDED QUARTERLY AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $82.52. THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT DATED MAY 28, 2003 AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT. 20
BECAUSE OF THE FOREGOING RESTRICTIONS, PURCHASERS ARE ADVISED TO CONSULT LEGAL COUNSEL PRIOR TO MAKING ANY RESALE, PLEDGE OR TRANSFER OF ANY OF THE CONVERTIBLE DEBENTURES OR COMMON STOCK ISSUABLE UPON CONVERSION OF THE CONVERTIBLE DEBENTURES. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. Any Debenture (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of such Debenture for exchange to the Debenture Registrar in accordance with the provisions of this Section 2.05, be exchanged for a new Debenture or Debentures, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.05(c). If the Restricted Security surrendered for exchange is represented by a Global Debenture bearing the legend set forth in this Section 2.05(c), the principal amount of the legended Global Debenture shall be reduced by the appropriate principal amount and the principal amount of a Global Debenture without the legend set forth in this Section 2.05(c) shall be increased by an equal principal amount. If a Global Debenture without the legend set forth in this Section 2.05(c) is not then outstanding, the Company shall execute and the Trustee shall authenticate and deliver an unlegended Global Debenture to the Depositary. (d) Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of any Debenture shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or pursuant to Rule 144 under the Securities Act or any similar provision then in force, or such Common Stock has been issued upon conversion of Debentures that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act or pursuant to Rule 144 under the Securities Act or any similar provision then in force, or unless otherwise agreed by the Company in writing with written notice thereof to the transfer agent: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY AGREES FOR THE BENEFIT OF THE WILLIAMS COMPANIES, INC. THAT (a) THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE 21
TRANSFERRED OTHER THAN (1) TO THE WILLIAMS COMPANIES, INC. OR ANY AFFILIATE, (2) IN A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (2) OR (4), TO THE RECEIPT BY THE WILLIAMS COMPANIES, INC. OF AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE ACCEPTABLE TO THE WILLIAMS COMPANIES, INC. THAT SUCH RESALE, PLEDGE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (b) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE A COPY OF THE TRANSFER RESTRICTIONS APPLICABLE HERETO. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS DEBENTURE PURSUANT TO CLAUSE (5) ABOVE OR UPON ANY TRANSFER OF THIS DEBENTURE UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING RESTRICTION. THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT DATED MAY 28, 2003 AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT. BECAUSE OF THE FOREGOING RESTRICTIONS, PURCHASERS ARE ADVISED TO CONSULT LEGAL COUNSEL PRIOR TO MAKING ANY RESALE, PLEDGE OR TRANSFER OF ANY OF THE CONVERTIBLE DEBENTURES OR COMMON STOCK ISSUABLE 22
UPON CONVERSION OF THE CONVERTIBLE DEBENTURES. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.05(d). (e) Any Debenture or Common Stock issued upon the conversion of a Debenture that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Debentures or Common Stock, as the case may be, no longer being "RESTRICTED SECURITIES" (as defined under Rule 144). (f) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Debenture (including any transfers between or among Depositary participants or beneficial owners of interests in any Global Debenture) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Section 2.06. Mutilated, Destroyed, Lost or Stolen Debentures. In case any Debenture shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its written request the Trustee or an authenticating agent appointed by the Trustee shall authenticate and make available for delivery, a new Debenture, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case, the applicant for a substituted Debenture shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in every case 23
of destruction, loss or theft, the applicant shall also furnish to the Company, to the Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Debenture and of the ownership thereof. Following receipt by the Trustee or such authenticating agent, as the case may be, of satisfactory security or indemnity and evidence, as described in the preceding paragraph, the Trustee or such authenticating agent may authenticate any such substituted Debenture and make available for delivery such Debenture. Upon the issuance of any substituted Debenture, the Company may require the payment by the holder of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Debenture which has matured or is about to mature or has been called for redemption or has been tendered for repurchase upon a Change of Control (and not withdrawn) or is to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated Debenture), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless from any loss, liability, cost or expense caused by or in connection with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, the Trustee and, if applicable, any Paying Agent or Conversion Agent evidence to their satisfaction of the destruction, loss or theft of such Debenture and of the ownership thereof. Every substitute Debenture issued pursuant to the provisions of this Section 2.06 by virtue of the fact that any Debenture is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be found at any time, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. To the extent permitted by law, all Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion or redemption or repurchase of mutilated, destroyed, lost or stolen Debentures and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion or redemption or repurchase of negotiable instruments or other securities without their surrender. Section 2.07. Temporary Debentures. Pending the preparation of Debentures in certificated form, the Company may execute and the Trustee or an 24
authenticating agent appointed by the Trustee shall, upon the written request of the Company, authenticate and deliver temporary Debentures (printed or lithographed). Temporary Debentures shall be issuable in any authorized denomination, and substantially in the form of the Debentures in certificated form, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every such temporary Debenture shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in substantially the same manner, and with the same effect, as the Debentures in certificated form. Without unreasonable delay, the Company will execute and deliver to the Trustee or such authenticating agent Debentures in certificated form and thereupon any or all temporary Debentures may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 6.02 and the Trustee or such authenticating agent shall authenticate and make available for delivery in exchange for such temporary Debentures an equal aggregate principal amount of Debentures in certificated form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Debentures in certificated form authenticated and delivered hereunder. Section 2.08. Cancellation of Debentures. All Debentures surrendered for the purpose of payment, redemption, repurchase, conversion, exchange or registration of transfer shall, if surrendered to the Company or any Paying Agent or any Debenture Registrar or any Conversion Agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be promptly canceled by it, and no Debentures shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall dispose of such canceled Debentures in accordance with its customary procedures. If the Company shall acquire any of the Debentures, such acquisition shall not operate as a redemption, repurchase or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. Section 2.09. CUSIP Numbers. The Company in issuing the Debentures may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Debentureholders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. 25
ARTICLE 3 REDEMPTION AND REPURCHASE OF DEBENTURES Section 3.01. Company's Right to Redeem. Prior to June 1, 2010, the Securities will not be redeemable at the Company's option. Beginning on June 1, 2010, if, for at least 20 Trading Days in the period of 30 consecutive Trading Days ending on the Trading Day immediately preceding the date of mailing of the Redemption Notice pursuant to Section 3.02 (including on the last Trading Day in such period), the Closing Sale Price of the Common Stock shall have exceeded 130% of the Conversion Price in effect on the last Trading Day of such period, the Company, at its option, may redeem the Securities in accordance with the provisions of Sections 3.02, 3.03 and 3.04 on the Redemption Date for cash, in whole or in part, at a redemption price (the "REDEMPTION PRICE") equal to 100% of the principal amount of the Securities to be redeemed together in each case with accrued and unpaid Interest (including deferred interest) on the Securities redeemed to (but excluding) the Redemption Date. Section 3.02. Notice of Optional Redemption; Selection of Debentures. In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the Debentures pursuant to Section 3.01 it shall fix a date for redemption (the "REDEMPTION DATE") and it or, at its written request received by the Trustee not fewer than forty-five (45) days prior (or such shorter period of time as may be acceptable to the Trustee) to the Redemption Date, the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed a notice of such redemption (a "REDEMPTION NOTICE") not fewer than thirty (30) nor more than sixty (60) days prior to the Redemption Date to each holder of Debentures so to be redeemed as a whole or in part at its last address as the same appears on the Debenture Register; provided that if the Company shall give such notice, it shall also give written notice of the Redemption Date to the Trustee. Such mailing shall be by first class mail. The notice, if mailed in the manner herein provided, shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Debenture designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Debenture. Concurrently with the mailing of any such Redemption Notice, the Company shall issue a press release announcing such redemption, the form and content of which press release shall be determined by the Company in its sole discretion. The failure to issue any such press release or any defect therein shall not affect the validity of the Redemption Notice or any of the proceedings for the redemption of any Debenture called for redemption. Each such Redemption Notice shall specify the aggregate principal amount of Debentures to be redeemed, the CUSIP number or numbers of the Debentures being redeemed, the date fixed for redemption (which shall be a Business Day), the Redemption Price at which Debentures are to be redeemed, the 26
place or places of payment, that payment will be made upon presentation and surrender of such Debentures, that Interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date Interest thereon or on the portion thereof to be redeemed will cease to accrue. Such notice shall also state the current Conversion Rate and the date on which the right to convert such Debentures or portions thereof into Common Stock will expire. If fewer than all the Debentures are to be redeemed, the Redemption Notice shall identify the Debentures to be redeemed (including CUSIP numbers, if any). In case any Debenture is to be redeemed in part only, the Redemption Notice shall state the portion of the principal amount thereof to be redeemed and shall state that, on and after the Redemption Date, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof will be issued. On or prior to the Redemption Date specified in the Redemption Notice given as provided in this Section 3.02, the Company will deposit with the Trustee or with one or more Paying Agents (or, if the Company is acting as its own Paying Agent, set aside, segregate and hold in trust as provided in Section 6.04) an amount of money in immediately available funds sufficient to redeem on the Redemption Date all the Debentures (or portions thereof) so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate Redemption Price; provided that if such payment is made on the Redemption Date it must be received by the Trustee or Paying Agent, as the case may be, by 11:00 a.m., New York City time, on such date. The Company shall be entitled to retain any interest, yield or gain on amounts deposited with the Trustee or any Paying Agent pursuant to this Section 3.02 in excess of amounts required hereunder to pay the Redemption Price and accrued interest to, but excluding, the Redemption Date. Subject to the last sentence of Section 9.05, if any Debenture called for redemption is converted pursuant hereto prior to such Redemption Date, any money deposited with the Trustee or any Paying Agent or so segregated and held in trust for the redemption of such Debenture shall be paid to the Company upon its written request, or, if then held by the Company, shall be discharged from such trust. Whenever any Debentures are to be redeemed, the Company will give the Trustee written notice in the form of an Officer's Certificate not fewer than forty-five (45) days (or such shorter period of time as may be acceptable to the Trustee) prior to the Redemption Date as to the aggregate principal amount of Debentures to be redeemed. If less than all of the outstanding Debentures are to be redeemed, the Trustee shall select the Debentures or portions thereof of the Global Debenture or the Debentures in certificated form to be redeemed (in principal amounts of $50 or multiples thereof) by lot, on a pro rata basis or by another method the Trustee deems fair and appropriate. If any Debenture selected for partial redemption is submitted for conversion in part after such selection, the portion of such Debenture submitted for conversion shall be deemed (so far as may be possible) 27
to be the portion to be selected for redemption. The Debentures (or portions thereof) so selected shall be deemed duly selected for redemption for all purposes hereof, notwithstanding that any such Debenture is submitted for conversion in part before the mailing of the Redemption Notice. Upon any redemption of less than all of the outstanding Debentures, the Company and the Trustee may (but need not), solely for purposes of determining the pro rata allocation among such Debentures as are unconverted and outstanding at the time of redemption, treat as outstanding any Debentures surrendered for conversion during the period of fifteen (15) days next preceding the mailing of a Redemption Notice and may (but need not) treat as outstanding any Debenture authenticated and delivered during such period in exchange for the unconverted portion of any Debenture converted in part during such period. Section 3.03. Payment of Debentures Called for Redemption by the Company. If notice of redemption has been given as provided in Section 3.02, the Debentures or portion of Debentures with respect to which such notice has been given shall, unless converted into Common Stock pursuant to the terms hereof, become due and payable on the date fixed for redemption and at the place or places stated in such notice at the applicable Redemption Price, and on and after said date (unless the Company shall default in the payment of such Debentures at the Redemption Price) Interest on the Debentures or portion of Debentures so called for redemption shall cease to accrue and, after the close of business on the Business Day immediately preceding the Redemption Date (unless the Company shall default in the payment of such Debentures at the Redemption Price) such Debentures shall cease to be convertible into Common Stock and, except as provided in Section 9.05 and 13.04, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Debentures except the right to receive the Redemption Price thereof. On presentation and surrender of such Debentures at a place of payment in said notice specified, the said Debentures or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price. Upon presentation of any Debenture redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Debenture or Debentures, of authorized denominations, in principal amount equal to the unredeemed portion of the Debentures so presented. Notwithstanding the foregoing, the Trustee shall not redeem less than all the outstanding Debentures or mail any Redemption Notice with respect to less than all the outstanding Debentures during the continuance of a default in payment of Interest or premium, if any, on the Debentures or during any Extended Interest Payment Period. If any Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, 28
shall, until paid or duly provided for, continue to bear interest at the rate borne by the Debenture, compounded quarterly, and such Debenture shall remain convertible into Common Stock until the principal and premium, if any, and Interest shall have been paid or duly provided for. Section 3.04, Conversion Arrangement on Call for Redemption. In connection with any redemption of Debentures, the Company may arrange for the purchase and conversion of any Debentures by an agreement with one or more investment banks or other purchasers to purchase such Debentures by paying to the Trustee in trust for the Debentureholders, on or before the date fixed for redemption, an amount not less than the applicable Redemption Price of such Debentures. Notwithstanding anything to the contrary contained in this Article 3, the obligation of the Company to pay the Redemption Price of such Debentures shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which will be filed with the Trustee prior to the date fixed for redemption, any Debentures not duly surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article 16) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Debentures shall be extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Debentures. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Debentures shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture. Section 3.05. Repurchase of Debentures by the Company at Option of the Holder upon a Change of Control. (a) If a Change of Control shall occur at any time prior to the Maturity Date, then each Debentureholder shall have the right, at such holder's option, to require the Company to repurchase all of such holder's Debentures, or any portion thereof that is a multiple of $50 principal amount, on the date (the "REPURCHASE DATE") that is specified by the Company in accordance with Section 3.05(b) (or, if such day is not a Business Day, the next succeeding Business Day) at a repurchase price (the "REPURCHASE PRICE") equal to 100% of the principal amount thereof, together with accrued and unpaid Interest (including deferred interest) to, but excluding, the Repurchase Date. 29
(b) On or before the thirtieth (30th) day after the occurrence of a Change of Control, the Company, or at its written request the Trustee in the name of and at the expense of the Company (which request must be received by the Trustee at least five (5) Business Days prior to the date the Trustee is requested to give notice as described below, unless the Trustee shall agree to a shorter period), shall mail or cause to be mailed, by first class mail, to all holders of record on such date a notice (the "CHANGE OF CONTROL NOTICE") of the occurrence of such Change of Control and of the repurchase right at the option of the holders arising as a result thereof to each holder of Debentures at its last address as the same appears on the Debenture Register; provided that if the Company shall give such notice, it shall also give written notice of the Change of Control to the Trustee at such time as it is mailed to Debentureholders. Such notice, if mailed in the manner herein provided, shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. Concurrently with the mailing of any Change of Control Notice, the Company shall issue a press release announcing such Change of Control referred to in the Change of Control Notice, the form and content of which press release shall be determined by the Company in its sole discretion. The failure to issue any such press release or any defect therein shall not affect the validity of the Change of Control Notice or any proceedings for the repurchase of any Debenture which any Debentureholder may elect to have the Company repurchase as provided in this Section 3.05. Each Change of Control Notice shall specify the circumstances constituting the Change of Control, the Repurchase Date (which must be no less than 20 and no more than 45 days after the date of the Change of Control Notice), the Repurchase Price, that the holder must exercise the repurchase right on or prior to the close of business on the Repurchase Date (the "REPURCHASE EXPIRATION TIME"), that the holder shall have the right to withdraw any Debentures surrendered prior to the Repurchase Expiration Time, a description of the procedure which a Debentureholder must follow to exercise such repurchase right or to withdraw any surrendered Debentures, the place or places where the holder is to surrender such holder's Debentures, the amount of interest accrued on each Debenture to the Repurchase Date and the CUSIP number or numbers of the Debentures (if then generally in use). No failure of the Company to give the foregoing notices and no defect therein shall limit the Debentureholders' repurchase rights or affect the validity of the proceedings for the repurchase of the Debentures pursuant to this Section 3.05. (c) Debentures shall be repurchased pursuant to this Section 3.05 at the option of the holder upon: (i) delivery to the Trustee (or other Paying Agent appointed by the Company) by a holder of a duly completed notice (the "REPURCHASE 30
ELECTION") in the form set forth on the reverse of the Debenture at any time prior to the Repurchase Expiration Time; and (ii) delivery or book-entry transfer of the Debentures to the Trustee (or other Paying Agent appointed by the Company) at any time after delivery of the Repurchase Election (together with all necessary endorsements) at the Corporate Trust Office of the Trustee (or other Paying Agent appointed by the Company) in the Borough of Manhattan, such delivery being a condition to receipt by the holder of the purchase price therefor; provided that such purchase price shall be so paid pursuant to this Section 3.05 only if the Debenture so delivered to the Trustee (or other Paying Agent appointed by the Company) shall conform in all respects to the description thereof in the related Repurchase Election. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Debenture for repurchase shall be determined by the Company, whose determination shall be final and binding absent manifest error. (d) The Company shall purchase from the holder thereof, pursuant to this Section 3.05, a portion of a Debenture, if the principal amount of such portion is $50 or a whole multiple of $50. Provisions of this Indenture that apply to the purchase of all of a Debenture also apply to the purchase of such portion of such Debenture. Upon presentation of any Debenture repurchased in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Debenture or Debentures, of any authorized denomination, in aggregate principal amount equal to the portion of the Debentures presented not repurchased. (e) On or prior to the Repurchase Date, the Company will deposit with the Trustee or with one or more Paying Agents (or, if the Company is acting as its own Paying Agent, set aside, segregate and hold in trust as provided in Section 6.04) an amount of cash sufficient to repurchase on the Repurchase Date all the Debentures or portions thereof to be repurchased on such date at the Repurchase Price; provided that if such payment is made on the Repurchase Date it must be received by the Trustee or Paying Agent, as the case may be, by 11:00 a.m., New York City time, on such date. If the Trustee or other Paying Agent appointed by the Company, or the Company or an Affiliate of the Company, if it or such Affiliate is acting as the Paying Agent, holds cash sufficient to pay the aggregate Repurchase Price of all the Debentures or portions thereof that are to be repurchased as of the Repurchase Date, on or after the Repurchase Date (i) such Debentures will cease to be outstanding, (ii) Interest on such Debentures will cease to accrue and (iii) all other rights of the holders of such Debentures will terminate, whether or not book-entry transfer of the Debentures has been made or the Debentures have been delivered 31
to the Trustee or Paying Agent, other than the right to receive the Repurchase Price upon delivery of the Debentures. (f) Upon receipt by the Trustee (or other Paying Agent appointed by the Company) of the Repurchase Election specified in Section 3.05(c), the holder of the Debenture in respect of which such Repurchase Election was given shall (unless such Repurchase Election is validly withdrawn) thereafter be entitled to receive solely the Repurchase Price with respect to such Debenture. Such Repurchase Price shall be paid to such holder, subject to receipt of funds and/or Debentures by the Trustee (or other Paying Agent appointed by the Company), promptly (but in no event more than five (5) Business Days) following the later of (x) the Repurchase Date with respect to such Debenture (provided the holder has satisfied the conditions in Section 3.05(c)) and (y) the time of delivery of such Debenture to the Trustee (or other Paying Agent appointed by the Company) by the holder thereof in the manner required by Section 3.05(c). Debentures in respect of which a Repurchase Election has been given by the holder thereof may not be converted pursuant to Article 16 hereof on or after the date of the delivery of such Repurchase Election unless such Repurchase Election has first been validly withdrawn. (g) Notwithstanding anything herein to the contrary, any holder delivering to the office of the Trustee (or other Paying Agent appointed by the Company) the Repurchase Election contemplated by Section 3.05(c) shall have the right to withdraw such Repurchase Election at any time prior to the close of business on the Business Day preceding the Repurchase Date by delivery of a written notice of withdrawal to the Trustee (or other Paying Agent appointed by the Company) specifying: (i) the certificate number, if any, of the Debenture in respect of which such notice of withdrawal is being submitted, or the appropriate Depositary information if the Debenture in respect of which such notice of withdrawal is being submitted is represented by a Global Debenture, (ii) the principal amount of the Debenture with respect to which such notice of withdrawal is being submitted, and (iii) the principal amount, if any, of such Debenture which remains subject to the original Repurchase Election and which has been or will be delivered for repurchase by the Company. The Trustee (or other Paying Agent appointed by the Company) shall promptly notify the Company of the receipt by it of any Repurchase Election or written notice of withdrawal thereof. 32
(h) In the case of a reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 16.06 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive stock, securities or other property or assets (including cash), which includes shares of Common Stock of the Company or shares of common stock of another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such stock, securities or other property or assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (accompanied by an Opinion of Counsel that such supplemental indenture complies with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of the Debentures to cause the Company to repurchase the Debentures following a Change of Control, including without limitation the applicable provisions of this Section 3.05 and the definitions of Common Stock and Change of Control, as appropriate, as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to such other Person if different from the Company and the common stock issued by such Person (in lieu of the Company and the Common Stock of the Company). (i) The Company will comply with the provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act to the extent then applicable in connection with the repurchase rights of the holders of Debentures in the event of a Change of Control. (j) The Trustee (or other Paying Agent appointed by the Company) shall return to the Company any cash that remains unclaimed as provided in Section 14.04, together with interest, if any, thereon, held by them for the payment of the Repurchase Price; provided that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 3.05(e) exceeds the aggregate Repurchase Price of the Debentures or portions thereof which the Company is obligated to purchase as of the Repurchase Date then, unless otherwise agreed in writing with the Company, promptly after the Business Day following the Repurchase Date, the Trustee shall return any such excess to the Company together with interest, if any, thereon. 33
ARTICLE 4 SUBORDINATION OF DEBENTURES Section 4.01. Agreement of Subordination. The Company covenants and agrees, and each holder of Debentures issued hereunder by its acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article 4, and each Person holding any Debentures, whether upon original issue or upon registration of transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and Interest on all Debentures (including, but not limited to, the Redemption Price with respect to Debentures called for redemption in accordance with Section 3.02 or Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 3.05) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior and Senior Subordinated Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article 4 shall prevent the occurrence of any default or Event of Default hereunder or have any effect on the rights of the holders of the Debentures or the Trustee to accelerate the maturity of the Debentures. Section 4.02. Payments to Debentureholders. No payment shall be made with respect to the principal of, premium, if any, or Interest on the Debentures (including, but not limited to, the Redemption Price with respect to Debentures called for redemption in accordance with Section 3.02 or Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 3.05), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.05, if: (i) a default in the payment of principal, premium, if any, interest, rent or other obligations in respect of Designated Senior Indebtedness occurs and is continuing (or, in the case of Designated Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Designated Senior Indebtedness) (a "PAYMENT DEFAULT"); or (ii) a default, other than a Payment Default, on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity (or in the case of any lease that is Designated Senior Indebtedness, a default occurs and is continuing that then permits the lessor to either terminate the lease or require the Company to make an irrevocable offer to terminate the lease 34
following an event of default thereunder) and the Trustee receives a notice of the default (a "PAYMENT BLOCKAGE NOTICE") from a holder of Designated Senior Indebtedness or a Representative of Designated Senior Indebtedness (a "NON-PAYMENT DEFAULT"). If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section 4.02 unless and until at least 360 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No Non-Payment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice (to the extent the holder or the Representative of Designated Senior Indebtedness giving such notice had knowledge of the same) to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Debentures (including, but not limited to, the Redemption Price with respect to Debentures called for redemption in accordance with Section 3.02 or Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 3.05) upon the earlier of: (1) in the case of a Payment Default, the date upon which any such Payment Default is cured or waived or ceases to exist, or (2) in the case of a Non-Payment Default, the earlier of (a) the date upon which such default is cured or waived or ceases to exist or (b) 179 days after the applicable Payment Blockage Notice is received by the Trustee if the maturity of such Designated Senior Indebtedness has not been accelerated (or in the case of any lease, 179 days after notice is received if the Company has not received notice that the lessor under such lease has exercised its right to terminate the lease or require the Company to make an irrevocable offer to terminate the lease following an event of default thereunder), unless this Article 4 otherwise prohibits the payment or distribution at the time of such payment or distribution. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior and Senior Subordinated Indebtedness shall first be paid in full in cash (including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding) before any payment is made on account of 35
the principal of, premium, if any, or Interest on the Debentures (except payments made pursuant to Article 14 from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding up, liquidation or reorganization), and upon any such dissolution or winding up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other similar proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Debentures or the Trustee would be entitled, except for the provisions of this Article 4, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior and Senior Subordinated Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior and Senior Subordinated Indebtedness held by such holders, or as otherwise required by law or a court order) or their Representative or Representatives, as their respective interests may appear, to the extent necessary to pay all Senior and Senior Subordinated Indebtedness in full in cash, after giving effect to any concurrent payment or distribution to or for the holders of Senior and Senior Subordinated Indebtedness, before any payment or distribution is made to the holders of the Debentures or to the Trustee. For purposes of this Article 4, the words, "CASH, PROPERTY OR SECURITIES" shall not be deemed to include shares of Common Stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article 4 with respect to the Debentures to the payment of all Senior and Senior Subordinated Indebtedness which may at the time be outstanding; provided that (i) the Senior and Senior Subordinated Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior and Senior Subordinated Indebtedness (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Article 13 shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 4.02 if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article 13. In the event of the acceleration of the Debentures because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of 36
Debentures in respect of the principal of, premium, if any, or Interest on the Debentures (including, but not limited to, the Redemption Price with respect to Debentures called for redemption in accordance with Section 3.02 or Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 3.05), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.05, until all Senior and Senior Subordinated Indebtedness has been paid in full in cash (including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding) or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Debentures is accelerated because of an Event of Default, the Company or, at the Company's request and expense, the Trustee shall promptly notify holders of Senior and Senior Subordinated Indebtedness of the acceleration. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing provisions in this Section 4.02, shall be received by the Trustee or the holders of the Debentures before all Senior and Senior Subordinated Indebtedness is paid in full in cash (including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding) or provision is made for such payment thereof in accordance with its terms in cash (including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding), to the extent that the Trustee or any holder of the Debentures has acquired written notice that all Senior and Senior Subordinated Indebtedness has not been paid in full, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior and Senior Subordinated Indebtedness or their Representative or Representatives, as their respective interests may appear, as calculated by the Company, for application to the payment of any Senior and Senior Subordinated Indebtedness remaining unpaid to the extent necessary to pay all Senior and Senior Subordinated Indebtedness in full in cash (including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding), after giving effect to any concurrent payment or distribution to or for the holders of such Senior and Senior Subordinated Indebtedness. Nothing in this Article 4 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.03 or Section 9.06. This Section 4.02 shall be subject to the further provisions of Section 4.05. 37
Section 4.03. Subrogation of Debentures. Subject to the payment in full in cash (including interest after the commencement of any such proceeding at the rate specified in the applicable debt agreement or other document, whether or not allowed as a claim in such proceeding) of all Senior and Senior Subordinated Indebtedness, the rights of the holders of the Debentures shall be subrogated to the extent of the payments or distributions made to the holders of such Senior and Senior Subordinated Indebtedness pursuant to the provisions of this Article 4 (equally and ratably with the holders of all Indebtedness of the Company which by its express terms is subordinated to Senior and Senior Subordinated Indebtedness to the same extent as the Debentures are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior and Senior Subordinated Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior and Senior Subordinated Indebtedness until the principal, premium, if any, and Interest on the Debentures shall be paid in full, and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior and Senior Subordinated Indebtedness of any cash, property or securities to which the holders of the Debentures or the Trustee would be entitled except for the provisions of this Article 4, and no payment pursuant to the provisions of this Article 4, to or for the benefit of the holders of Senior and Senior Subordinated Indebtedness by holders of the Debentures or the Trustee, shall, as among the Company, its creditors other than holders of Senior and Senior Subordinated Indebtedness, and the holders of the Debentures, be deemed to be a payment by the Company to or on account of the Senior and Senior Subordinated Indebtedness, and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Debentures pursuant to the subrogation provisions of this Article 4, which would otherwise have been paid to the holders of Senior and Senior Subordinated Indebtedness, shall be deemed to be a payment by the Company to or for the account of the Debentures. It is understood that the provisions of this Article 4 are intended solely for the purposes of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of the Senior and Senior Subordinated Indebtedness, on the other hand. Nothing contained in this Article 4 or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as among the Company, its creditors other than the holders of Senior and Senior Subordinated Indebtedness, and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of, premium, if any, and Interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company other than the holders of the Senior and Senior Subordinated Indebtedness, nor shall anything herein or therein prevent the Trustee or, subject to Section 8.04, the holder of any Debenture from exercising all remedies otherwise permitted by 38
applicable law upon default under this Indenture, subject to the rights, if any, under this Article 4 of the holders of Senior and Senior Subordinated Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Section 4.04. Authorization to Effect Subordination. Each holder of a Debenture by the holder's acceptance thereof authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 4 and appoints the Trustee to act as the holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section 8.02 hereof at least thirty (30) days before the expiration of the time to file such claim, the holders of any Senior and Senior Subordinated Indebtedness or their Representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Debentures. Section 4.05. Notice to Trustee. The Company shall give prompt written notice in the form of an Officer's Certificate to a Responsible Officer of the Trustee and to any Paying Agent of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee or any Paying Agent in respect of the Debentures pursuant to the provisions of this Article 4. Notwithstanding the provisions of this Article 4 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article 4, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from the Company (in the form of an Officer's Certificate) or a Representative or a holder or holders of Senior and Senior Subordinated Indebtedness, and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 9.01, shall be entitled in all respects to assume that no such facts exist; provided, however, that if on a date not less than two (2) Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or Interest on any Debenture) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 4.05, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to apply monies received to the purpose for which they were received, and shall not be affected by any notice to the contrary that may be received by it on or after such prior date. Notwithstanding anything in this Article 4 to the contrary, nothing shall prevent any payment by the Trustee to the Debentureholders of monies deposited with it pursuant to Section 14.01, if a Responsible Officer of the Trustee shall not 39
have received written notice at the Corporate Trust Office on or before two (2) Business Days prior to the date such payment is due that such payment is not permitted under Section 4.01 or Section 4.02, The Trustee, subject to the provisions of Section 9.01, shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Senior and Senior Subordinated Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior and Senior Subordinated Indebtedness or a trustee on behalf of any such holder or holders. The Trustee shall not be required to make any payment or distribution to or on behalf of a holder of Senior and Senior Subordinated Indebtedness pursuant to this Article 4 unless it has received satisfactory evidence as to the amount of Senior and Senior Subordinated Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 4. Section 4.06. Trustee's Relation to Senior and Senior Subordinated Indebtedness. The Trustee, in its individual capacity, shall be entitled to all the rights set forth in this Article 4 in respect of any Senior and Senior Subordinated Indebtedness at any time held by it, to the same extent as any other holder of Senior and Senior Subordinated Indebtedness, and nothing in Section 9.13 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior and Senior Subordinated Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 4, and no implied covenants or obligations with respect to the holders of Senior and Senior Subordinated Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior and Senior Subordinated Indebtedness and, subject to the provisions of Section 9.01, the Trustee shall not be liable to any holder of Senior and Senior Subordinated Indebtedness (i) for any failure to make any payments or distributions to such holder or (ii) if it shall pay over or deliver money to holders of Debentures, the Company or any other Person in compliance with this Article 4. Section 4.07. No Impairment of Subordination. No right of any present or future holder of any Senior and Senior Subordinated Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged 40
with. Senior and Senior Subordinated Indebtedness may be created, renewed or extended and holders of Senior and Senior Subordinated Indebtedness may exercise any rights under any instrument creating or evidencing such Senior and Senior Subordinated Indebtedness, including, without limitation, any waiver of default thereunder, without any notice to or consent from the holders of the Debentures or the Trustee. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of the Senior and Senior Subordinated Indebtedness or any terms or conditions of any instrument creating or evidencing such Senior and Senior Subordinated Indebtedness shall in any way alter or affect any of the provisions of this Article 4 or the subordination of the Debentures provided thereby. Section 4.08. Certain Conversions Not Deemed Payment. For the purposes of this Article 4 only, (1) the issuance and delivery of Junior Securities upon conversion of Debentures in accordance with Article 16 and (2) the payment, issuance or delivery of cash, property or securities upon conversion of a Debenture as a result of any transaction specified in Section 16.06 shall not be deemed to constitute a payment or distribution on account of the principal of, premium, if any, or Interest on Debentures or on account of the purchase or other acquisition of Debentures. For the purposes of this Section 4.08, the term "JUNIOR SECURITIES" means (a) Common Stock of the Company or (b) securities of the Company that are subordinated in right of payment to all Senior and Senior Subordinated Indebtedness that may be outstanding at the time of issuance or delivery of such securities to the same extent as, or to a greater extent than, the Debentures are so subordinated as provided in this Article 4. Nothing contained in this Article 4 or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as among the Company, its creditors (other than holders of Senior and Senior Subordinated Indebtedness) and the Debentureholders, the right, which is absolute and unconditional, of the Holder of any Debenture to convert such Debenture in accordance with Article 16. Section 4.09. Article Applicable to Paying Agents. If at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "TRUSTEE" as used in this Article 4 shall (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article 4 in addition to or in place of the Trustee; provided, however, that the first paragraph of Section 4.05 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. The Trustee shall not be responsible for the actions or inactions of any other Paying Agents (including the Company if acting as its own Paying Agent) and shall have no control of any funds held by such other Paying Agents. 41
Section 4.10. Senior and Senior Subordinated Indebtedness Entitled to Rely. The holders of Senior and Senior Subordinated Indebtedness (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article 4, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. Section 4.11. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article 4, the Trustee and the Debentureholders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Debentureholders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior and Senior Subordinated Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 4. ARTICLE 5 DEFERRAL OF INTEREST PAYMENT PERIOD Section 5.01. Extended Interest Payment Period. So long as the Company is not in default in the payment of Interest on the Debentures, and so long as the Designated Agreement Termination Date has occurred, the Company shall have the right, at any time during the term of the Debentures, from time to time to extend any interest payment period with respect to such Debentures for up to 20 consecutive quarterly interest periods (an "EXTENDED INTEREST PAYMENT PERIOD"), at the end of which period the Company shall pay all Interest accrued and unpaid thereon (together with interest thereon at the rate of 5.50% per annum to the extent permitted by applicable law, compounded quarterly ("COMPOUNDED INTEREST")); provided that no Extended Interest Payment Period may extend beyond the Maturity Date or Redemption Date of the Debentures or end on a day other than an Interest Payment Date. Prior to the termination of any such Extended Interest Payment Period, the Company may pay all or any portion of the Interest accrued on the Debentures on any Interest Payment Date to holders of record on the regular Record Date for such Interest Payment Date or from time to time further extend such Period; provided that such Extended Interest Payment Period, including such extension and all such further extensions thereof, shall not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extended Interest Payment Period and upon the payment of all accrued and 42
unpaid Interest then due, together with Compounded Interest, the Company may select a new Extended Interest Payment Period, subject to the foregoing requirements. No Interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof. At the end of the Extended Interest Payment Period, the Company shall pay all Interest accrued and unpaid on the Debentures including any Compounded Interest which shall be payable to the holders of the Debentures in whose names the Debentures are registered in the Debenture Register on the first Record Date prior to the end of the Extended Interest Payment Period. Section 5.02. Notification of Deferral of Interest Payment Periods. The Company shall, or shall cause the Trustee to, give the holders of the Debentures written notice of its selection of an Extended Interest Payment Period at least 5 Business Days prior to the earlier of (i) the Record Date with respect to the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to any national stock exchange or other self-regulatory organization on which the Debentures are listed or quoted or to holders of the Debentures. The quarter in which any notice is given pursuant to this Section 5.02 shall be counted as one of the quarters permitted in the maximum Extended Interest Payment Period permitted under this Article 5. If the Company shall give such notice, the Company shall also deliver a copy of such notice to the Trustee at such time as it is mailed to Debentureholders. ARTICLE 6 PARTICULAR COVENANTS OF THE COMPANY Section 6.01. Payment of Principal, Premium and Interest, The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any (including, but not limited to, the Redemption Price with respect to Debentures called for redemption in accordance with Section 3.02 or Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 3.05), and Interest, on each of the Debentures at the places, at the respective times and in the manner provided herein and in the Debentures. Section 6.02. Maintenance of Office or Agency. The Company will maintain an office or agency in the Borough of Manhattan, the City of New York, where the Debentures may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, redemption or repurchase and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company 43
shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office. The Company may also from time to time designate co-registrars and one or more offices or agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Trustee as Paying Agent, Debenture Registrar, Custodian and Conversion Agent and each of the Corporate Trust Office and the office of agency of the Trustee in The Borough of Manhattan, shall be considered as one such office or agency of the Company for each of the aforesaid purposes. So long as the Trustee is the Debenture Registrar, the Trustee agrees to mail, or cause to be mailed, the notices set forth in Section 9.10(a) and the third paragraph of Section 9.11. If co-registrars have been appointed in accordance with this Section, the Trustee shall mail such notices only to the Company and the holders of Debentures it can identify from its records. Section 6.03. Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 9.10, a Trustee, so that there shall at all times be a Trustee hereunder. Section 6.04. Provisions as to Paying Agent. (a) If the Company shall appoint a Paying Agent other than the Trustee, or if the Trustee shall appoint such a Paying Agent, the Company will cause such Paying Agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 6.04: (1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or Interest on the Debentures (whether such sums have been paid to it by the Company or by any other obligor on the Debentures) in trust for the benefit of the holders of the Debentures; (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Debentures) to make any payment of the principal of and premium, if any, or Interest on the Debentures when the same shall be due and payable; and 44
(3) that at any time during the continuance of an Event of Default, upon request of the Trustee, it will forthwith pay to the Trustee all sums so held in trust. The Company shall, on or before each due date of the principal of, premium, if any, or Interest on the Debentures, deposit with the Paying Agent a sum (in funds which are immediately available on the due date for such payment) sufficient to pay such principal, premium, if any, or Interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action; provided that if such deposit is made on the due date, such deposit shall be received by the Paying Agent by 11:00 a.m., New York City time, on such date. (b) If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or Interest on the Debentures, set aside, segregate and hold in trust for the benefit of the holders of the Debentures a sum sufficient to pay such principal, premium, if any, or Interest so becoming due and will promptly notify the Trustee of any failure to take such action and of any failure by the Company (or any other obligor under the Debentures) to make any payment of the principal of, premium, if any, or Interest on the Debentures when the same shall become due and payable. (c) Anything in this Section 6.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any Paying Agent hereunder as required by this Section 6.04, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any Paying Agent to the Trustee, the Company or such Paying Agent shall be released from all further liability with respect to such sums. (d) Anything in this Section 6.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 6.04 is subject to Sections 14.03 and 14.04. The Trustee shall not be responsible for the actions of any other Paying Agent (including the Company if acting as its own Paying Agent) and shall have no control of any funds held by such other Paying Agents. Section 6.05. Existence. Subject to Article 13, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and rights (charter and statutory); provided that the Company shall not be required to preserve any such right if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the 45
Company and that the loss thereof is not disadvantageous in any material respect to the Debentureholders. Section 6.06. Rule 144A Information Requirement. Within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, make available to any holder or beneficial holder of Debentures or any Common Stock issued upon conversion thereof which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of Debentures or such Common Stock designated by such holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any holder or beneficial holder of the Debentures or such Common Stock and it will take such further action as any holder or beneficial holder of such Debentures or such Common Stock may reasonably request, all to the extent required from time to time to enable such holder or beneficial holder to sell its Debentures or Common Stock without registration under the Securities Act within the limitation of the exemption provided by Rule 144A, as such Rule may be amended from time to time. Upon the request of any holder or any beneficial holder of the Debentures or such Common Stock, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. Section 6.07. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or Interest on the Debentures as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 6.08. Compliance Certificate. The Company shall deliver to the Trustee, within one hundred twenty (120) days after the end of each fiscal year of the Company (which fiscal year of the Company is presently the twelve calendar months ending December 31), a certificate signed by either the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in 46
default, specifying all such defaults and the nature and the status thereof of which the signer may have knowledge. The Company will deliver to the Trustee, promptly upon becoming aware of (i) any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or (ii) any Event of Default, an Officer's Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. Any notice required to be given under this Section 6.08 shall be delivered to a Responsible Officer of the Trustee at its Corporate Trust Office. Section 6.09. Liquidated Damages Notice. In the event that the Company is required to pay Liquidated Damages to holders of Debentures pursuant to the Registration Rights Agreement, the Company will provide written notice ("LIQUIDATED DAMAGES NOTICE") to the Trustee of its obligation to pay Liquidated Damages no later than fifteen (15) days prior to the proposed payment date for the Liquidated Damages, and the Liquidated Damages Notice shall set forth the amount of Liquidated Damages to be paid by the Company on such payment date. The Trustee shall not at any time be under any duty or responsibility to any holder of Debentures to determine the Liquidated Damages, or with respect to the nature, extent or calculation of the amount of Liquidated Damages when made, or with respect to the method employed in such calculation of the Liquidated Damages. Section 6.10. Tax Treatment. The Company agrees and, by acceptance of a Debenture, each beneficial holder of a Debenture will covenant to treat the Debentures as indebtedness of the Company for U.S. federal income tax purposes. Section 6.11. Restrictions on Certain Payments. The Company agrees that if (i) an event has occurred that with the giving of notice or the lapse of time, or both, would constitute an Event of Default and the Company has not taken commercially reasonable steps to cure the event (a "POTENTIAL EVENT OF DEFAULT") or (ii) the Company has given notice of its intention to begin an Extended Interest Payment Period pursuant to Section 5.02 and has not rescinded the notice or any Extended Interest Payment Period is continuing, then the Company will not and will not permit any of its Subsidiaries to do any of the following (each, a "RESTRICTED PAYMENT"): (a) declare or pay any dividends on, make distributions regarding, or redeem, purchase, acquire or make any liquidation payment with respect to, any of the capital stock of the Company, other than: 47
(i) purchases of the capital stock of the Company in connection with employee or agent benefit plans or under any dividend reinvestment plan; (ii) in connection with the reclassifications of any class or series of the Company's capital stock, or the exchange or conversion of one class or series of the Company's capital stock for or into another class or series of its capital stock; (iii) the purchase of fractional interests in shares of the Company's capital stock in connection with the conversion or exchange provisions of that capital stock or the security being converted or exchanged; (iv) dividends or distributions in the Company's capital stock, or options, warrants or rights to acquire capital stock, or repurchases or redemptions of capital stock solely from the issuance or exchange of capital stock; (v) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or issuances of stock under any such plan in the future, or redemptions or repurchases of any such rights pursuant to any such shareholders' rights plan; or (vi) repurchases of Common Stock in connection with acquisitions of businesses made by the Company or any of its Subsidiaries (which repurchases are made in connection with the satisfaction of indemnification obligations of the sellers of such businesses); (b) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including other convertible debentures) issued by the Company that rank equally with or junior to the Debentures; or (c) make any guarantee payments with respect to any Guarantee by the Company of the debt securities (including other Guarantees) of any of its Subsidiaries, if such Guarantee ranks equally with or junior in interest to the Debentures; provided that the limitation described in clause (a) above will not apply when a Potential Event of Default is occurring until such time as each of the Designated Agreements has been replaced, retired or otherwise terminated or has been duly amended so that such Designated Agreement does not limit the Company's ability to agree not to make the payments described in clause (a) above (the first date on 48
which all of the Designated Agreements has been so replaced, retired, terminated or amended, the "DESIGNATED AGREEMENT TERMINATION DATE"). Notwithstanding the foregoing, Restricted Payments shall not include payments or distributions of any kind made by the Company, directly or indirectly, to Williams Gas Pipeline Company, LLC or any of its direct or indirect Subsidiaries, or to any successor company established by the Company to own or manage its natural gas pipelines and related assets, or any of such successor company's direct or indirect Subsidiaries. Section 6.12. Termination of Designated Agreements. The Company agrees to use its commercially reasonable efforts to cause each of the Designated Agreements to be replaced, retired or otherwise terminated or to be amended so that such Designated Agreement does not limit the Company's ability to agree not to make the payments described in clause (a) of Section 6.11 within 90 days after the date of this Indenture. ARTICLE 7 DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 7.01. Debentureholders' Lists. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semiannually, not more than fifteen (15) days after each June 1 and December 1 in each year beginning with December 1, 2003, and at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request (or such lesser time as the Trustee may reasonably request in order to enable it to timely provide any notice to be provided by it hereunder), a list in such form as the Trustee may reasonably require of the names and addresses of the holders of Debentures as of a date not more than fifteen (15) days (or such other date as the Trustee may reasonably request in order to so provide any such notices) prior to the time such information is furnished, except that no such list need be furnished by the Company to the Trustee so long as the Trustee is acting as the sole Debenture Registrar. Section 7.02. Preservation and Disclosure of Lists, (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures contained in the most recent list furnished to it as provided in Section 7.01 or maintained by the Trustee in its capacity as Debenture Registrar or co-registrar in respect of the Debentures, if so acting. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) The rights of Debentureholders to communicate with other holders of Debentures with respect to their rights under this Indenture or under the 49
Debentures, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Debentureholder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of holders of Debentures made pursuant to the Trust Indenture Act. Section 7.03. Reports by Trustee, (a) Within sixty (60) days after December 15 of each year commencing with the year 2003, the Trustee shall transmit to holders of Debentures such reports dated as of December 15 of the year in which such reports are made concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of such report shall, at the time of such transmission to holders of Debentures, be filed by the Trustee with each stock exchange and automated quotation system upon which the Debentures are listed, with the Securities and Exchange Commission and with the Company. The Company will promptly notify the Trustee in writing when the Debentures are listed on any stock exchange or automated quotation system or delisted therefrom. Section 7.04. Reports by Company. The Company shall file with the Trustee (and the Commission if at any time after the Indenture becomes qualified under the Trust Indenture Act), and transmit to holders of Debentures, such information, documents and other reports and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act, whether or not the Debentures are governed by such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15 (d) of the Exchange Act shall be filed with the Trustee within fifteen (15) days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on an Officer's Certificates). ARTICLE 8 REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON AN EVENT OF DEFAULT Section 8.01. Events of Default. In case one or more of the following events (each an "EVENT OF DEFAULT") (whatever the reason for such Event of 50
Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: (a) default in the payment of any installment of Interest upon any of the Debentures as and when the same shall become due and payable, and continuance of such default for a period of thirty (30) days, whether or not the payment is prohibited by the provisions of Article 4 hereof, provided that a valid extension of the interest payment period by the Company pursuant to Article 5 shall not constitute an Event of Default; or (b) default in the payment of the principal of or premium, if any, on any of the Debentures as and when the same shall become due and payable either at maturity or in connection with any redemption, repurchase or otherwise, in each case pursuant to Article 3, by acceleration or otherwise, whether or not the payment is prohibited by the provisions of Article 4 hereof; or (c) default in the Company's obligation to convert the Debentures into Common Stock upon the exercise of a holder's rights pursuant to Article 16; or (d) default in the Company's obligation to repurchase the Debentures at the option of a holder upon a Change of Control pursuant to Section 3.05, whether or not the payment is prohibited by the provisions of Article 4 hereof; or (e) failure to provide notice of the occurrence of a Change of Control on a timely basis as required by Section 3.05; or (f) default in Williams' obligation to redeem the convertible debentures after it has exercised its option to redeem, whether or not the payment is prohibited by the provisions of Article 4 hereof; or (g) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Debentures or in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section 8.01 specifically dealt with) continued for a period of ninety (90) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or the Company and a Responsible Officer of the Trustee by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Debentures at the time outstanding determined in accordance with Section 10.04; or (h) failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Junior 51
Subordinated Indebtedness of the Company or the acceleration of the final stated maturity of any such Junior Subordinated Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 90 days of receipt by the Company of notice from the holders thereof of any such acceleration) if the aggregate principal amount of such Junior Subordinated Indebtedness, together with the principal amount of any other Junior Subordinated Indebtedness of the Company that is in default for failure to pay principal at final stated maturity or which has been accelerated (in each case with respect to which the 90-day period described above has elapsed), aggregates $250 million or more at any time; or (i) the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to the Company or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of the Company or any substantial part of the property of the Company, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against the Company, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (j) an involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to the Company or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of the Company or any substantial part of the property of the Company, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) consecutive days; then, and in each and every such case (other than an Event of Default specified in Section 8.01(i) or 8.01(j)), unless the principal of all of the Debentures shall have already become due and payable, either the Trustee or the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Debentures then outstanding hereunder determined in accordance with Section 10.04, by notice in writing to the Company (and to the Trustee if given by Debentureholders), may declare the principal of and premium, if any, on all the Debentures and the Interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Debentures contained to the contrary notwithstanding. If an Event of Default specified in Section 8.01(i) or 8.01(j) occurs, the principal of all the Debentures and the Interest accrued thereon shall be immediately and automatically due and payable without necessity of further action. This provision, however, is subject to the conditions that if, at any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall 52
deposit with the Trustee a sum sufficient to pay all matured installments of Interest upon all Debentures and the principal of and premium, if any, on any and all Debentures which shall have become due otherwise than by acceleration (with interest on overdue installments of Interest (to the extent that payment of such interest is enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Debentures, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 9.06, and if any and all defaults under this Indenture, other than the nonpayment of principal of and premium, if any, and accrued Interest on Debentures which shall have become due by acceleration, shall have been cured or waived pursuant to Section 8.07, then and in every such case the holders of a majority in aggregate principal amount of the Debentures then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereon. The Company shall notify in writing a Responsible Officer of the Trustee, promptly upon becoming aware thereof, of any Event of Default. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the holders of Debentures, and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Debentures, and the Trustee shall continue as though no such proceeding had been taken. Section 8.02. Payments of Debentures on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment of any installment of Interest upon any of the Debentures as and when the same shall become due and payable, and such default shall have continued for a period of thirty (30) days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Debentures as and when the same shall have become due and payable, whether at maturity of the Debentures or in connection with any redemption, repurchase, acceleration, declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debentures, the whole amount that then shall have become due and payable on all such Debentures for principal and premium, if any, or Interest, as the case may be, with interest upon the overdue principal and premium, if any, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and all other amounts due the Trustee under Section 9.06. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and Interest 53
on the Debentures to the registered holders, whether or not the Debentures are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Debentures and collect in the manner provided by law out of the property of the Company or any other obligor on the Debentures wherever situated the monies adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Debentures under Title 11 of the United States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Debentures, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Debentures shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 8.02, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and Interest owing and unpaid in respect of the Debentures, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Debentureholders allowed in such judicial proceedings relative to the Company or any other obligor on the Debentures, its or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee under Section 9.06, and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Debentureholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Debentureholders, to pay to the Trustee any amount due it for reasonable compensation, expenses, advances and disbursements, including counsel fees and expenses incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property which the holders 54
of the Debentures may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. All rights of action and of asserting claims under this Indenture, or under any of the Debentures, may be enforced by the Trustee without the possession of any of the Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the holders of the Debentures. In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Debentures, and it shall not be necessary to make any holders of the Debentures parties to any such proceedings. Section 8.03. Application of Monies. Any monies collected by the Trustee pursuant to this Article 8 and, after an Event of Default, any other money or other property distributable in respect of the Company's obligations under this Indenture shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Debentures, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: FIRST: To the Trustee (including any predecessor Trustee) for the payment of all amounts due under Section 9.06; SECOND: In case the principal of the outstanding Debentures shall not have become due and be unpaid, subject to the provisions of Article 4, to the payment of Interest on the Debentures in default in the order of the maturity of the installments of such Interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of Interest at the rate borne by the Debentures, such payments to be made ratably to the Persons entitled thereto; THIRD: In case the principal of the outstanding Debentures shall have become due, by declaration or otherwise, and be unpaid, subject to the provisions of Article 4, to the payment of the whole amount then owing and unpaid upon the Debentures for principal and premium, if any, and Interest, with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of Interest at the rate borne by the Debentures, and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Debentures, then to the 55
payment of such principal and premium, if any, and Interest without preference or priority of principal and premium, if any, over Interest, or of Interest over principal and premium, if any, or of any installment of Interest over any other installment of Interest, or of any Debenture over any other Debenture, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid Interest; and FOURTH: To the payment of the remainder, if any, to the Company or any other Person lawfully entitled thereto. Section 8.04. Proceedings by Debentureholder. No holder of any Debenture shall have any right by virtue of or by reference to any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Debentures then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable security or indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 8.07; it being understood and intended, and being expressly covenanted by the taker and holder of every Debenture with every other taker and holder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatever by virtue of or by reference to any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures (except as otherwise provided herein). For the protection and enforcement of this Section 8.04, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provision of this Indenture and any provision of any Debenture, the right of any holder of any Debenture to receive payment of the principal of and premium, if any (including, but not limited to, the Redemption Price with respect to Debentures called for redemption in accordance with Section 3.02 or Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 3.05), and accrued Interest on such Debenture, on or after the respective due dates expressed in such Debenture or in 56
the event of redemption, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder. Anything in this Indenture or the Debentures to the contrary notwithstanding, the holder of any Debenture, without the consent of either the Trustee or the holder of any other Debenture, in its own behalf and for its own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, its rights of conversion as provided herein. Section 8.05. Proceedings by Trustee. In case of an Event of Default, the Trustee may, in its discretion, proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as are necessary to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 8.06. Remedies Cumulative and Continuing. Except as provided in Section 2.06, all powers and remedies given by this Article 8 to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any default or Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or any acquiescence therein, and, subject to the provisions of Section 8.04, every power and remedy given by this Article 8 or by law to the Trustee or to the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. Section 8.07. Direction of Proceedings and Waiver of Defaults by Majority of Debentureholders. The holders of a majority in aggregate principal amount of the Debentures at the time outstanding determined in accordance with Section 10.04 shall have the right to 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; provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture or would involve the Trustee in personal liability or expense, (b) the Trustee may take any other action which is not inconsistent with such direction and (c) the Trustee may decline to take any action that would benefit some Debentureholder to the detriment of other Debentureholders. The holders of a majority in aggregate principal amount of the 57
Debentures at the time outstanding determined in accordance with Section 10.04 may, on behalf of the holders of all of the Debentures, waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment of Interest or premium, if any, on, or the principal of, the Debentures, (ii) a failure by the Company to convert any Debentures into Common Stock, (iii) a default in the payment of the Redemption Price pursuant to Article 3, (iv) a default in the payment of the Repurchase Price pursuant to Article 3 or (v) a default in respect of a covenant or provisions hereof which under Article 12 cannot be modified or amended without the consent of the holders of each or all Debentures then outstanding or affected thereby. Upon any such waiver, the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 8.07, said default or Event of Default shall for all purposes of the Debentures and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 8.08. Notice of Defaults. The Trustee shall, within ninety (90) days after a Responsible Officer of the Trustee has knowledge of the occurrence of a default, mail to all Debentureholders, as the names and addresses of such holders appear upon the Debenture Register, notice of all defaults known to a Responsible Officer, unless such defaults shall have been cured or waived before the giving of such notice; provided that except in the case of default in the payment of the principal of, or premium, if any, or Interest on any of the Debentures, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Debentureholders. For the purpose of this Section 8.08, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. Section 8.09. Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Debenture by his acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section 8.09 (to the extent permitted by law) shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders, holding in the aggregate 58
more than ten percent in principal amount of the Debentures at the time outstanding determined in accordance with Section 10.04, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of or premium, if any, or Interest on any Debenture on or after the due date expressed in such Debenture or to any suit for the enforcement of the right to convert any Debenture in accordance with the provisions of Article 16. ARTICLE 9 THE TRUSTEE Section 9.01. Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee, and in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: (i) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture and the Trust Indenture Act, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture and the Trust Indenture Act against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or 59
opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the holders of not less than a majority in principal amount of the Debentures at the time Outstanding determined as provided in Section 1.01 and Section 10.04 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; (d) this paragraph shall not be construed to limit the effect of the penultimate paragraph of this Section 9.01; (e) the Trustee shall not be liable in respect of any payment (as to the correctness of amount, entitlement to receive or any other matters relating to payment) or notice effected by the Company or any Paying Agent or any records maintained by any co-registrar with respect to the Debentures; and (f) if any party fails to deliver a notice relating to an event the fact of which, pursuant to this Indenture, requires notice to be sent to the Trustee, the Trustee may conclusively rely on its failure to receive such notice as reason to act as if no such event occurred. The Trustee shall not be deemed to have knowledge or notice of any default (as defined in Section 8.08) or Event of Default hereunder unless a Responsible Officer of the Trustee shall have received at the Corporate Trust Office written notice of such default or Event of Default from the Company or the holders of at least 10% in aggregate principal amount of the Debentures and such notice refers to such default or Event of Default, the Debentures and the Indenture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of 60
such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section 9.01. Section 9.02. Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 9.01: (a) the Trustee may conclusively rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon or other paper or document (whether in its original or facsimile form) believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officer's Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c) the Trustee may consult with counsel of its own selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; (e) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys 61
and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder. (g) the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (h) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder; and (i) the Trustee may request that the Company deliver an Officer's Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officer's Certificate may be signed by any person authorized to sign an Officer's Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 9.03. No Responsibility For Recitals, Etc. The recitals contained herein and in the Debentures (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of any Debentures or the proceeds of any Debentures authenticated and delivered by the Trustee in conformity with the provisions of this Indenture. Section 9.04. Trustee, Paying Agents, Conversion Agents or Registrar May Own Debentures. The Trustee, any Paying Agent, any Conversion Agent or Debenture Registrar, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, Paying Agent, Conversion Agent or Debenture Registrar. Section 9.05. Monies to Be Held in Trust. Subject to the provisions of Section 14.04, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as may be agreed in writing from time to time by the Company and the Trustee. Section 9.06. Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee 62
shall be entitled to, such compensation for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as mutually agreed to in writing between the Company and the Trustee, and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances reasonably incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or willful misconduct. The Company also covenants to indemnify the Trustee and any predecessor Trustee (or any officer, director or employee of the Trustee and such predecessor Trustee), in any capacity under this Indenture and its agents and any authenticating agent for, and to hold them harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based on the income of the Trustee) incurred without negligence or willful misconduct on the part of the Trustee or such officers, directors, employees and agent or authenticating agent, as the case may be, and arising out of or in connection with the acceptance or administration of this trust or in any other capacity hereunder, including the costs and expenses of defending themselves against any claim (whether asserted by the Company, any holder or any other Person) of liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section 9.06 to compensate or indemnify the Trustee (or any predecessor Trustee) and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. The obligation of the Company under this Section and such lien shall survive the satisfaction and discharge of this Indenture, the resignation or removal of the Trustee and the termination of this Indenture for any reason. When the Trustee and its agents and any authenticating agent incur expenses or render services after an Event of Default specified in Section 8.01(i) or (j) with respect to the Company occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy, insolvency or similar laws. Section 9.07. Officer's Certificate as Evidence. Except as otherwise provided in Section 9.01, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith or willful misconduct on the part of the Trustee, be deemed to be conclusively proved and established by an Officer's Certificate delivered to the Trustee. 63
Section 9.08. Conflicting Interests of Trustee. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 9.09. Eligibility of Trustee. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000 (or if such Person is a member of a bank holding company system, its bank holding company shall have a combined capital and surplus of at least $50,000,000). If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.09, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 9.10. Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving written notice of such resignation to the Company and to the holders of Debentures. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment sixty (60) days after the mailing of such notice of resignation to the Debentureholders, the resigning Trustee may, upon ten (10) Business Days' notice to the Company and the Debentureholders, appoint a successor identified in such notice or may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor trustee, or, if any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six (6) months may, subject to the provisions of Section 8.09, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (i) the Trustee shall fail to comply with Section 9.08 after written request therefor by the Company or by any Debentureholder who 64
has been a bona fide holder of a Debenture or Debentures for at least six (6) months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.09 and shall fail to resign after written request therefor by the Company or by any such Debentureholder; or (iii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 8.09, any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee; provided that if no successor Trustee shall have been appointed and have accepted appointment sixty (60) days after either the Company or the Debentureholders has removed the Trustee, or the Trustee resigns, the Trustee so removed may petition, at the expense of the Company, any court of competent jurisdiction for an appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures at the time outstanding may at any time remove the Trustee and nominate a successor trustee which shall be deemed appointed as successor trustee unless, within ten (10) days after notice to the Company of such nomination, the Company objects thereto, in which case the Trustee so removed or any Debentureholder, or if such Trustee so removed or any Debentureholder fails to act, the Company, upon the terms and conditions and otherwise as in Section 9.10(a) provided, may petition any court of competent jurisdiction for an appointment of a successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 9.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.11. 65
Section 9.11. Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 9.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amount then due it pursuant to the provisions of Section 9.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property and funds held or collected by such trustee as such, except for funds held in trust for the benefit of holders of particular Debentures, to secure any amounts then due it pursuant to the provisions of Section 9.06. No successor trustee shall accept appointment as provided in this Section 9.11 unless, at the time of such acceptance, such successor trustee shall be qualified under the provisions of Section 9.08 and be eligible under the provisions of Section 9.09. Upon acceptance of appointment by a successor trustee as provided in this Section 9.11, the Company (or the former trustee or successor trustee, at the written direction of the Company) shall mail or cause to be mailed notice of the succession of such trustee hereunder to the holders of Debentures at their addresses as they shall appear on the Debenture Register. If the Company fails to mail such notice within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 9.12. Succession by Merger. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Trustee (including any trust created by this Indenture), shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that in the case of any Person succeeding to all or substantially all of the corporate trust business of the Trustee, such Person shall be qualified under the provisions of Section 9.08 and eligible under the provisions of Section 9.09. 66
In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture, any of the Debentures shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee or authenticating agent appointed by such predecessor trustee, and deliver such Debentures so authenticated; and in case at that time any of the Debentures shall not have been authenticated, any successor to the Trustee or any authenticating agent appointed by such successor trustee may authenticate such Debentures in the name of the successor trustee; and in all such cases such certificates shall have the full force that is provided in the Debentures or in this Indenture; provided that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Debentures in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 9.13. Preferential Collection of Claims. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of the claims against the Company (or any such other obligor). ARTICLE 10 THE DEBENTUREHOLDERS Section 10.01. Action by Debentureholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Debentureholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Debentures voting in favor thereof at any meeting of Debentureholders duly called and held in accordance with the provisions of Article 11, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Debentureholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Debentures, the Company or the Trustee may fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than fifteen (15) days prior to the date of commencement of solicitation of such action. Section 10.02. Proof of Execution by Debentureholders. Subject to the provisions of Sections 9.01, 9.02 and 11.05, proof of the execution of any instrument by a Debentureholder or its agent or proxy shall be sufficient if made 67
in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Debentures shall be proved by the registry of such Debentures or by a certificate of the Debenture Registrar. The record of any Debentureholders' meeting shall be proved in the manner provided in Section 11.06. Section 10.03. Who Are Deemed Absolute Owners. The Company, the Trustee, any Paying Agent, any Conversion Agent and any Debenture Registrar may deem the Person in whose name such Debenture shall be registered upon the Debenture Register to be, and may treat it as, the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notation of ownership or other writing thereon made by any Person other than the Company or any Debenture Registrar) for the purpose of receiving payment of or on account of the principal of, premium, if any, and Interest on such Debenture, for conversion of such Debenture and for all other purposes; and neither the Company nor the Trustee nor any Paying Agent nor any Conversion Agent nor any Debenture Registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Debenture. Section 10.04. Company-owned Debentures Disregarded. In determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent, waiver or other action under this Indenture, Debentures which are owned by the Company or any other obligor on the Debentures or any Affiliate of the Company or any other obligor on the Debentures shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action, only Debentures which a Responsible Officer knows are so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 10.04 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Debentures and that the pledgee is not the Company, any other obligor on the Debentures or any Affiliate of the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officer's Certificate listing and identifying all Debentures, if any, known by the Company to be owned or held by or for the account of any of the above described Persons, and, subject to Section 9.01, the Trustee shall be entitled to accept such Officer's Certificate as conclusive evidence of the facts therein set forth and of the fact that 68
all Debentures not listed therein are outstanding for the purpose of any such determination. Section 10.05. Revocation of Consents, Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 10.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder of a Debenture which is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 10.02, revoke such action so far as concerns such Debenture. Except as aforesaid, any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture and of any Debentures issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Debenture or any Debenture issued in exchange or substitution therefor. ARTICLE 11 MEETINGS OF DEBENTUREHOLDERS Section 11.01. Purpose of Meetings. A meeting of Debentureholders may be called at any time and from time to time pursuant to the provisions of this Article 11 for any of the following purposes: (1) to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under this Indenture, or to consent to the waiving of any default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Debentureholders pursuant to any of the provisions of Article 8; (2) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article 9; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 12.02; or (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Debentures under any other provision of this Indenture or under applicable law. Section 11.02. Call of Meetings by Trustee. The Trustee may at any time call a meeting of Debentureholders to take any action specified in Section 11.01, 69
to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Debentureholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 10.01, shall be mailed to holders of Debentures at their addresses as they shall appear on the Debenture Register. Such notice shall also be mailed to the Company. Such notices shall be mailed not less than twenty (20) nor more than ninety (90) days prior to the date fixed for the meeting. Any meeting of Debentureholders shall be valid without notice if the holders of all Debentures then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Debentures outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 11.03. Call of Meetings by Company or Debentureholders. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least ten percent (10%) in aggregate principal amount of the Debentures then outstanding, shall have requested the Trustee to call a meeting of Debentureholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or such Debentureholders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 11.01, by mailing notice thereof as provided in Section 11.02. Section 11.04. Qualifications for Voting. To be entitled to vote at any meeting of Debentureholders a person shall (a) be a holder of one or more Debentures on the record date pertaining to such meeting or (b) be a person appointed by an instrument in writing as proxy by a holder of one or more Debentures on the record date pertaining to such meeting. The only persons who shall be entitled to be present or to speak at any meeting of Debentureholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 11.05. Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Debentureholders, in regard to proof of the holding of Debentures and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. 70
The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Debentureholders as provided in Section 11.03, in which case the Company or the Debentureholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Debentures represented at the meeting and entitled to vote at the meeting. Subject to the provisions of Section 10.04, at any meeting each Debentureholder or proxyholder shall be entitled to one vote for each $50 principal amount of Debentures held or represented by him; provided that no vote shall be cast or counted at any meeting in respect of any Debenture challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Debentures held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Debentureholders. Any meeting of Debentureholders duly called pursuant to the provisions of Section 11.02 or 11.03 may be adjourned from time to time by the holders of a majority of the aggregate principal amount of Debentures represented at the meeting, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 11.06. Voting. The vote upon any resolution submitted to any meeting of Debentureholders shall be by written ballot on which shall be subscribed the signatures of the holders of Debentures or of their representatives by proxy and the outstanding principal amount of the Debentures held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Debentureholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 11.02. The record shall show the principal amount of the Debentures voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 71
Section 11.07. No Delay of Rights by Meeting. Nothing contained in this Article 11 shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Debentureholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Debentureholders under any of the provisions of this Indenture or of the Debentures. ARTICLE 12 SUPPLEMENTAL INDENTURES Section 12.01. Supplemental Indentures Without Consent of Debentureholders. The Company, when authorized by the resolutions of the Board of Directors, and the Trustee may, from time to time, and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) make provision with respect to the conversion rights of the holders of Debentures pursuant to the requirements of Section 16.06 and the redemption obligations of the Company pursuant to the requirements of Section 3.05(h); (b) to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Debentures, any property or assets; (c) to evidence the succession of another Person to the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of the Company pursuant to Article 13; (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the holders of Debentures, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided that in respect of any such additional covenant, restriction or condition, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (e) to provide for the issuance under this Indenture of Debentures in coupon form (including Debentures registrable as to principal only) and to provide for exchangeability of such Debentures with the Debentures issued 72
hereunder in fully registered form and to make all appropriate changes for such purpose; (f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture that may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture that shall not materially adversely affect the interests of the holders of the Debentures; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debentures; (h) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualifications of this Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted; or (i) make other changes to the indenture or forms or terms of the Debentures, provided no such change individually or in the aggregate with all other such changes has or will have a material adverse effect on the interests of the Debentureholders. Upon the written request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any supplemental indenture, the Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations that may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, if any, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 12.01 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 12.02. Notwithstanding any other provision of the Indenture or the Debentures, the Registration Rights Agreement and the obligation to pay Liquidated Damages thereunder may be amended, modified or waived in accordance with the provisions of the Registration Rights Agreement. 73
Section 12.02. Supplemental Indenture with Consent of Debentureholders. With the consent (evidenced as provided in Article 10) of the holders of at least a majority in aggregate principal amount of the Debentures at the time outstanding, the Company, when authorized by the resolutions of the Board of Directors, and the Trustee may, from time to time and at any time, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Debenture, or reduce the rate or extend the time of payment of Interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption or repurchase thereof, or impair the right of any Debentureholder to institute suit for the payment thereof, or make the principal thereof or Interest or premium, if any, thereon payable in any coin or currency other than that provided in the Debentures, or change the obligation of the Company to redeem any Debenture on a Redemption Date in a manner adverse to the holders of Debentures, or change the obligation of the Company to repurchase any Debenture upon a Change of Control in a manner adverse to the holders of Debentures, or impair the right to convert the Debentures into Common Stock subject to the terms set forth herein, including Section 16.06, or reduce the number of shares of Common Stock or other property receivable upon conversion, in each case, without the consent of the holder of each Debenture so affected, or modify any of the provisions of this Section 12.02 or Section 8.07, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the holder of each Debenture so affected, or reduce the quorum or voting requirements set forth in Article 11 or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Debentures then outstanding. Upon the written request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Debentureholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Debentureholders under this Section 12.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. 74
Section 12.03. Effect of Supplemental Indenture. Any supplemental indenture executed pursuant to the provisions of this Article 12 shall comply with the Trust Indenture Act, as then in effect, provided that this Section 12.03 shall not require such supplemental indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to such supplemental indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions of this Article 12, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 12.04. Notation on Debentures. Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article 12 may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may, at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 17.10) and delivered in exchange for the Debentures then outstanding, upon surrender of such Debentures then outstanding. Section 12.05. Evidence of Compliance of Supplemental Indenture to Be Furnished to Trustee. Prior to entering into any supplemental indenture, the Trustee shall be provided with an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of, and that the Trustee's execution of such supplemental indenture is permitted under, this Article 12. ARTICLE 13 CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 13.01. Company May Consolidate on Certain Terms. Subject to the provisions of Section 13.02, the Company shall not consolidate or merge with 75
or into any other Person or Persons (whether or not affiliated with the Company), nor shall the Company or its successor or successors be a party or parties to successive consolidations or mergers, nor shall the Company sell, convey, transfer or lease the property and assets of the Company substantially as an entirety, to any other Person (whether or not affiliated with the Company), unless: (i) the Company is the surviving Person, or the resulting, surviving or transferee Person is a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia; (ii) upon any such consolidation, merger, sale, conveyance, transfer or lease, the due and punctual payment of the principal of and premium, if any, and Interest on all of the Debentures, according to their tenor and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company, shall be expressly assumed, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the Person (if other than the Company) formed by such consolidation, or into which the Company shall have been merged, or by the Person that shall have acquired or leased such property, and such supplemental indenture shall provide for the applicable conversion rights set forth in Section 16.06; and (iii) immediately after giving effect to the transaction described above, 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. Section 13.02. Successor to Be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer or lease and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and Interest on all of the Debentures and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor Person shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of this first part. Such successor Person thereupon may cause to be signed, and may issue either in its own name or in the name of The Williams Companies, Inc. any or all of the Debentures, issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Debentures that previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Debentures that such successor Person thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had 76
been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance, transfer or lease, the Person named as the "COMPANY" in the first paragraph of this Indenture or any successor that shall thereafter have become such in the manner prescribed in this Article 13 may be dissolved, wound up and liquidated at any time thereafter and such Person shall be released from its liabilities as obligor and maker of the Debentures and from its obligations under this Indenture. In case of any such consolidation, merger, sale, conveyance, transfer or lease, such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. Section 13.03. Opinion of Counsel to Be Given Trustee. The Trustee shall receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or lease and any such assumption complies with the provisions of this Article 13. ARTICLE 14 SATISFACTION AND DISCHARGE OF INDENTURE Section 14.01. Discharge of Indenture. When (a) the Company shall deliver to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures that have been destroyed, lost or stolen and in lieu of or in substitution for which other Debentures shall have been authenticated and delivered) and not theretofore canceled, or (b) all the Debentures not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable and the Company shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all of the Debentures (other than any Debentures that shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Debentures shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and Interest due or to become due to such date of maturity or Redemption Date, as the case may be, accompanied by a verification report, as to the sufficiency of the deposited amount, from an independent certified accountant or other financial professional satisfactory to the Trustee, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Debentures, (ii) rights hereunder of Debentureholders to receive payments of principal of and premium, if any, and Interest on, the Debentures and the other rights, duties and obligations of Debentureholders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder, including, but not limited to, Section 9.06 hereof), and the 77
Trustee, on written demand of the Company accompanied by an Officer's Certificate and an Opinion of Counsel as required by Section 17.04 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Debentures. Section 14.02. Deposited Monies to Be Held in Trust by Trustee. Subject to Section 14.04, all monies deposited with the Trustee pursuant to Section 14.01, shall be held in trust for the sole benefit of the Debentureholders, and such monies shall be applied by the Trustee to the payment, either directly or through any Paying Agent (including the Company if acting as its own Paying Agent), to the holders of the particular Debentures for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and Interest and premium, if any. Section 14.03. Paying Agent to Repay Monies Held. Upon the satisfaction and discharge of this Indenture, all monies then held by any Paying Agent of the Debentures (other than the Trustee) shall, upon written request of the Company, be repaid to it or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such monies. Section 14.04. Return of Unclaimed Monies. Subject to the requirements of applicable law, any monies deposited with or paid to the Trustee for payment of the principal of, premium, if any, or Interest on Debentures and not applied but remaining unclaimed by the holders of Debentures for two years after the date upon which the principal of, premium, if any, or Interest on such Debentures, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee on demand and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Debentures shall thereafter look only to the Company for any payment that such holder may be entitled to collect unless an applicable abandoned property law designates another Person. ARTICLE 15 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 15.01. Indenture and Debentures Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or Interest on any Debenture, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Debenture, or because 78
of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Debentures. ARTICLE 16 CONVERSION OF DEBENTURES Section 16.01, Right to Convert, (a) Subject to and upon compliance with the provisions of this Indenture, prior to the close of business on June 1, 2033 (or in the case of Debentures called for redemption pursuant to Section 3.01, prior to the close of business on the Business Day prior to the Redemption Date), the holder of any Debenture shall have the right, at such holder's option, to convert the principal amount of the Debenture, or any portion of such principal amount which is a multiple of $50, into fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) at the Conversion Rate in effect at such time, by surrender of the Debenture so to be converted in whole or in part, together with any required funds, under the circumstances described in this Section 16.01 and in the manner provided in Section 16.02. (b) A Debenture in respect of which a holder is electing to exercise its option to require repurchase upon a Change of Control pursuant to Section 3.05, may be converted only if such holder withdraws its election in accordance with Section 3.05(g). A holder of Debentures is not entitled to any rights of a holder of Common Stock until such holder has converted its Debentures to Common Stock, and only to the extent such Debentures are deemed to have been converted to Common Stock under this Article 16. Section 16.02. Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Debenture in certificated form, the Company must receive at the office or agency of the Company maintained for that purpose or, at the option of such holder, the Corporate Trust Office, such Debenture with the original or facsimile of the form entitled "CONVERSION NOTICE" on the reverse thereof, duly completed and manually signed, together with such Debentures duly endorsed for transfer, accompanied by the funds, if any, required by the fifth paragraph of this Section 16.02. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on 79
such conversion shall be issued, and shall be accompanied by transfer or similar taxes, if required pursuant to Section 16.07. In order to exercise the conversion privilege with respect to any interest in a Global Debenture, the beneficial holder must complete, or cause to be completed, the appropriate instruction form for conversion pursuant to the Depositary's book-entry conversion program, deliver, or cause to be delivered, by book-entry delivery an interest in such Global Debenture, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or Conversion Agent, and pay the funds, if any, required by this Section 16.02 and any transfer taxes if required pursuant to Section 16.07. As promptly as reasonably practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Debentureholder (as if such transfer were a transfer of the Debenture or Debentures (or portion thereof) so converted), the Company shall issue and shall deliver to such Debentureholder at the office or agency maintained by the Company for such purpose pursuant to Section 6.02, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Debenture or portion thereof as determined by the Company in accordance with the provisions of this Article 16 and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, calculated by the Company as provided in Section 16.03. In case any Debenture of a denomination greater than $50 shall be surrendered for partial conversion, and subject to Section 2.03, the Company shall execute and the Trustee shall authenticate and deliver to the holder of the Debenture so surrendered, without charge to him, a new Debenture or Debentures in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Debenture. Each conversion shall be deemed to have been effected as to any such Debenture (or portion thereof) on the date on which the requirements set forth above in this Section 16.02 have been satisfied as to such Debenture (or portion thereof) (such date, the "CONVERSION DATE"), and the Person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the Person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Rate in effect on the date upon which such Debenture shall be surrendered. 80
Any Debenture or portion thereof surrendered for conversion during the period from 5:00 p.m., New York City time, on the Record Date for any Interest Payment Date to the close of business on the following Interest Payment Date that has not been called for redemption during such period shall be accompanied by payment, in immediately available funds or other funds acceptable to the Company, of an amount equal to the Interest otherwise payable on such Interest Payment Date on the principal amount being converted; provided that no such payment need be made (1) if the Company has specified a Redemption Date that is after a Record Date and on or prior to the next Interest Payment Date, (2) if the Company has specified a Repurchase Date following a Change of Control that is during such period or (3) to the extent of any overdue Interest, if any overdue Interest exists at the time of conversion with respect to such Debenture. Except as provided above in this Section 16.02, no payment or other adjustment shall be made for Interest accrued on any Debenture converted or for dividends on any shares issued upon the conversion of such Debenture as provided in this Article 16. Upon the conversion of an interest in a Global Debenture, the Trustee (or other Conversion Agent appointed by the Company), or the Custodian at the direction of the Trustee (or other Conversion Agent appointed by the Company), shall make a notation on such Global Debenture as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any conversions of Debentures effected through any Conversion Agent other than the Trustee. Section 16.03. Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip certificates representing fractional shares shall be issued upon conversion of Debentures. If more than one Debenture shall be surrendered for conversion at one time by the same holder, the number of full shares that shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Debentures (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Debenture or Debentures, the Company shall make an adjustment and payment therefor in cash at the Closing Sale Price on the Conversion Date to the holder of Debentures. Section 16.04. Conversion Rate. Each $50 principal amount of the Debentures shall be convertible into the number of shares of Common Stock specified in the form of Debenture (herein called the "CONVERSION RATE") attached as Exhibit A hereto, subject to adjustment as provided in this Article 16. Section 16.05. Adjustment of Conversion Rate. The Conversion Rate shall be adjusted from time to time by the Company as follows: 81
(a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution by a fraction, (i) the numerator of which shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for the determination of stockholders entitled to receive such dividend or other distribution plus the total number of shares of Common Stock constituting such dividend or other distribution; and (ii) the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, such increase to become effective immediately after the opening of business on the Business Day following the date fixed for such determination. For the purpose of this paragraph (a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 16.05(a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction, (i) the numerator of which shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the total number of additional shares of Common Stock offered for subscription or purchase, and 82
(ii) the denominator of which shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price. Such adjustment shall be successively made whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the Business Day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the Business Day following the day upon which such subdivision becomes effective shall be proportionately increased, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the Business Day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 16.05(b), excluding any dividends or distributions in connection with the liquidation or winding up of the Company, and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 16.05(a) (any of the foregoing hereinafter in this Section 83
16.05(d)) called the "SECURITIES")), then, in each such case (unless the Company elects to reserve such Securities for distribution to the Debentureholders upon the conversion of the Debentures so that any such holder converting Debentures will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had converted its Debentures into Common Stock immediately prior to the Stock Record Date), the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect on the Stock Record Date with respect to such distribution by a fraction, (i) the numerator of which shall be the Current Market Price on such Stock Record Date; and (ii) the denominator of which shall be the Current Market Price on such Stock Record Date less the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Stock Record Date of the portion of the Securities so distributed applicable to one share of Common Stock, such adjustment to become effective immediately prior to the opening of business on the Business Day following such Stock Record Date; provided that if the then Fair Market Value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Stock Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Debentureholder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each Debenture on the Stock Record Date. If such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the Fair Market Value of any distribution for purposes of this Section 16.05(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price on the applicable Stock Record Date. Notwithstanding the foregoing, if the Securities distributed by the Company to all holders of its Common Stock consist of capital stock of, or similar equity interests in, a Subsidiary or other business unit, the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect on the Stock Record Date with respect to such distribution by a fraction, (i) the numerator of which shall be the sum of (x) the average Closing Sale Price of one share of Common Stock over the ten 84
consecutive Trading Day period (the "SPINOFF VALUATION PERIOD") commencing on and including the fifth Trading Day after the date on which "ex-dividend trading" commences on the Common Stock on the New York Stock Exchange or such other national or regional exchange or market on which the Common Stock is then listed or quoted and (y) the average Closing Sale Price over the Spinoff Valuation Period of the portion of the Securities so distributed applicable to one share of Common Stock; and (ii) the denominator of which shall be the average Closing Sale Price of one share of Common Stock over the Spinoff Valuation Period, such adjustment to become effective immediately prior to the opening of business on the Business Day following such Stock Record Date; provided that the Company may in lieu of the foregoing adjustment make adequate provision so that each Debentureholder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each Debenture on the Stock Record Date with respect to such distribution. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("TRIGGER EVENT"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 16.06 (and no adjustment to the Conversion Rate under this Section 16.06 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made under this Section 16.05(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and Stock Record Date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this Section 16.06 was made, (1) in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such 85
distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants that shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such rights and warrants had not been issued. No adjustment of the Conversion Rate shall be made pursuant to this Section 16.05(d) in respect of rights or warrants distributed or deemed distributed on any Trigger Event to the extent that such rights or warrants are actually distributed, or reserved by the Company for distribution to holders of Debentures upon conversion by such holders of Debentures to Common Stock. For purposes of this Section 16.05(d) and Section 16.05(a) and (b), any dividend or distribution to which this Section 16.05(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Rate adjustment required by this Section 16.05(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Rate adjustment required by Sections 16.05(a) and 16.05(b) with respect to such dividend or distribution shall then be made), except (A) the Stock Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "the date fixed for the determination of stockholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of Section 16.05(a) and 16.05(b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 16.05(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Conversion Rate pursuant to this Section 16.05(e) (as adjusted to reflect subdivisions, or combinations of the Common Stock), and (B) 10% of the arithmetic average of the Closing Sale Price during the ten Trading Days immediately prior to the date of declaration of such dividend, and 86
(y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on such Stock Record Date by a fraction, (i) the numerator of which shall be the Current Market Price on such Stock Record Date; and (ii) the denominator of which shall be the Current Market Price on such Stock Record Date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock, such adjustment to be effective immediately prior to the opening of business on the day following the Stock Record Date', provided that if the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Stock Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Debentureholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Debenture on the Stock Record Date. If such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 16.05(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 16.05(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) In case a tender or exchange offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that as of the last time (the "EXPIRATION TIME") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction, (i) the numerator of which shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration 87
payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "PURCHASED SHARES") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time such adjustment to become effective immediately prior to the opening of business on the Business Day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount that increases the offerer's ownership of Common Stock to more than twenty-five percent (25%) of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) that as of the last time (the "OFFER EXPIRATION TIME") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) exceeds the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Offer Expiration Time by a fraction (i) the numerator of which shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "ACCEPTED PURCHASED SHARES") and (y) the product of the 88
number of shares of Common Stock outstanding (less any Accepted Purchased Shares) at the Offer Expiration Time and the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Offer Expiration Time, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Offer Expiration Time multiplied by the Closing Sale Price of a share of Common Stock on the Trading Day next succeeding the Offer Expiration Time, such adjustment to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. If such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 16.05(g) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article 13. (h) For purposes of this Section 16.05, the following terms shall have the meaning indicated: (i) "CURRENT MARKET PRICE" shall mean the average of the daily Closing Sale Prices per share of Common Stock for the ten consecutive Trading Days selected by the Company commencing no more than 30 Trading Days before and ending not later than the earlier of such date of determination and the day before the "EX" date with respect to the issuance, distribution, subdivision or combination requiring such computation immediately prior to the date in question. For purpose of this paragraph, the term "EX" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades, regular way, on the relevant exchange or in the relevant market from which the Closing Sale Price was obtained without the right to receive such issuance or distribution, and (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades, regular way, on such exchange or in such market after the time at which such subdivision or combination becomes effective. If another issuance, distribution, subdivision or combination to which Section 16.05 applies occurs during the period applicable for calculating "CURRENT MARKET PRICE" pursuant to the definition in the preceding paragraph, 89
"CURRENT MARKET PRICE" shall be calculated for such period in a manner determined by the Board of Directors to reflect the impact of such issuance, distribution, subdivision or combination on the Closing Sale Price of the Common Stock during such period. (ii) "FAIR MARKET VALUE" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction. (iii) "STOCK RECORD DATE" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (iv) "TRADING DAY" shall mean (x) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (y) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (i) The Company may make such increases in the Conversion Rate, in addition to those required by Section 16.05(a), (b), (c), (d), (e), (f) or (g), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least twenty (20) days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall mail to holders of record of the Debentures a notice of the increase at least fifteen (15) days prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect. 90
(j) No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such rate; provided that any adjustments that by reason of this Section 16.05(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 16 shall be made by the Company and shall be made to the nearest cent or to the nearest one-ten thousandth (1/10,000) of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest or for any issuance of Common Stock or convertible or exchangeable securities or rights to purchase Common Stock or convertible or exchangeable securities. To the extent the Debentures become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on any cash into which the Debentures are convertible. (k) Whenever the Conversion Rate is adjusted as herein provided, the Company shall promptly file with the Trustee and any Conversion Agent other than the Trustee an Officer's Certificate setting forth the Conversion Rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Responsible Officer of the Trustee shall have received such Officer's Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Rate and may assume that the last Conversion Rate of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Rate to the holder of each Debenture at his last address appearing on the Debenture Register provided for in Section 2.05 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (l) In any case in which this Section 16.05 provides that an adjustment shall become effective immediately after (1) a Record Date or Stock Record Date for an event, (2) the date fixed for the determination of stockholders entitled to receive a dividend or distribution pursuant to Section 16.05(a), (3) a date fixed for the determination of stockholders entitled to receive rights or warrants pursuant to Section 16.05(b), (4) the Expiration Time for any tender or exchange offer pursuant to Section 16.05(f), or (5) the Offer Expiration Time for a tender or exchange offer pursuant to Section 16.05(g)(i) (each a "DETERMINATION DATE"), the Company may elect to defer until the occurrence of the applicable Adjustment Event (as hereinafter defined) (x) issuing to the holder of any Debenture converted after such Determination Date and before the occurrence of such Adjustment Event, the additional shares of Common Stock or other securities issuable upon such conversion by reason of the adjustment required by such 91
Adjustment Event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 16.03. For purposes of this Section 16.05(l), the term "ADJUSTMENT EVENT" shall mean: (i) in any case referred to in clause (1) hereof, the occurrence of such event, (ii) in any case referred to in clause (2) hereof, the date any such dividend or distribution is paid or made, (iii) in any case referred to in clause (3) hereof, the date of expiration of such rights or warrants, and (iv) in any case referred to in clause (4) or clause (5) hereof, the date a sale or exchange of Common Stock pursuant to such tender or exchange offer is consummated and becomes irrevocable. (m) For purposes of this Section 16.05, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. Section 16.06. Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 16.05(c) applies), (ii) any consolidation, merger or combination of the Company with another Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of all or substantially all of the properties and assets of the Company to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing Person, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that each Debenture shall be convertible into the kind and amount of shares of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Debentures (assuming, for such purposes, a sufficient number of authorized shares of Common Stock are available to convert all such 92
Debentures) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("NON-ELECTING SHARE"), then for the purposes of this Section 16.06 the kind and amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 16. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Debentures, at its address appearing on the Debenture Register provided for in Section 2.05 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 16.06 applies to any event or occurrence, Section 16.05 shall not apply. Section 16.07. Taxes on Shares Issued. The issue of stock certificates on conversions of Debentures shall be made without charge to the converting Debentureholder for any documentary, stamp or similar issue or transfer tax in respect of the issue thereof. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Debenture converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 16.08. Reservation of Shares, Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but 93
unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Debentures from time to time as such Debentures are presented for conversion. Before taking any action which would cause an adjustment increasing the Conversion Rate to an amount that would cause the Conversion Price to be reduced below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Debentures, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Rate. The Company covenants that all shares of Common Stock which may be issued upon conversion of Debentures will upon issue be fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that, if any shares of Common Stock to be provided for the purpose of conversion of Debentures hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as reasonably possible, to the extent then permitted by the rules and interpretations of the Commission (or any successor thereto), endeavor to secure such registration or approval, as the case may be. The Company further covenants that, if at any time the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system, the Company will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Debenture; provided that if the rules of such exchange or automated quotation system permit the Company to defer the listing of such Common Stock until the first conversion of the Debentures into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Debentures in accordance with the requirements of such exchange or automated quotation system at such time. Section 16.09. Responsibility of Trustee. The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility to any holder of Debentures to determine the Conversion Rate or whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other Conversion Agent 94
shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debenture; and the Trustee and any other Conversion Agent make no representations with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Debenture for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article 16. Without limiting the generality of the foregoing, neither the Trustee nor any other Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 16.06 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Debentureholders upon the conversion of their Debentures after any event referred to in such Section 16.06 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 9.01, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officer's Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 16.10. Notice to Holders Prior to Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Rate pursuant to Section 16.05; or (b) the Company shall authorize the granting to the holders of all or substantially all of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; the Company shall cause to be filed with the Trustee and to be mailed to each holder of Debentures at his address appearing on the Debenture Register provided for in Section 2.05 of this Indenture, as promptly as possible but in any event at 95
least ten (10) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Section 16.11. Stockholder Rights Plans. If the rights provided for in the Company's rights agreement dated February 6, 1996 or in any future stockholder rights plan adopted by the Company have separated from the shares of Common Stock in accordance with the provisions of the applicable stockholder rights agreement so that the holders of the Debentures would not be entitled to receive any rights in respect of Common Stock issuable upon conversion of the Debentures, the Conversion Rate will be adjusted as if the Company had distributed to all holders of Common Stock shares of the Company's capital stock, evidences of indebtedness or assets in accordance with Section 16.05(d), subject to readjustment in the event of the expiration, termination or redemption of the rights. In lieu of any such adjustment, the Company may amend such applicable stockholder rights agreement to provide that upon conversion of the Debentures the holders will receive, in addition to the Common Stock Issuable upon such conversion, the rights which would have attached to such Common Stock if the rights had not become separated from the Common Stock under such applicable stockholder rights agreement. ARTICLE 17 MISCELLANEOUS PROVISIONS Section 17.01. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements by the Company contained in this Indenture shall bind its successors and assigns whether so expressed or not. Section 17.02. Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any Person that shall at the time be the lawful sole successor of the Company. 96
Section 17.03. Addresses for Notices, Etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures on the Company shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being deposited postage prepaid by registered or certified mail in a post office letter box or sent by telecopier transmission addressed as follows: to The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma, 74172, Telecopier No.: (918) 573-2065, Attention: Treasurer. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or served in writing by telecopier transmission addressed as follows: JPMorgan Chase Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, Telecopier No.: (212) 623-6167, Attention: Institutional Trust Services. No such notice, direction, request or demand shall be deemed given to the Trustee unless actually received by a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee. The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Debentureholder shall be mailed to him by first class mail, postage prepaid, at his address as it appears on the Debenture Register and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 17.04. Governing Law. This Indenture and each Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of the State of New York (including Section 5-1401 of the New York General Obligations Law or any successor to such statute). Section 17.05. Evidence of Compliance with Conditions Precedent, Certificates to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. 97
Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based (such brief statement may indicate the extent to which such person relied upon an opinion of counsel or other officer of the Company in conducting such examination or investigation); (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 17.06. Legal Holidays. In any case in which the date of maturity of Interest on or principal of the Debentures or the redemption date of any Debenture will not be a Business Day, then payment of such Interest on or principal of the Debentures need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the redemption date, and no Interest shall accrue for the period from and after such date, except that if such next succeeding Business Day would fall in the next calendar year, then payment of such Interest on or principal of the Debentures shall be made on the immediately preceding Business Day. Section 17.07. Trust Indenture Act. This Indenture is hereby made subject to, and shall be governed by, the provisions of the Trust Indenture Act required to be part of and to govern indentures qualified under the Trust Indenture Act; provided that unless otherwise required by law, notwithstanding the foregoing, this Indenture and the Debentures issued hereunder shall not be subject to the provisions of subsections (a)(l), (a)(2), and (a)(3) of Section 314 of the Trust Indenture Act as now in effect or as hereafter amended or modified; provided further that this Section 17.07 shall not require this Indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to the Indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in an indenture qualified under the Trust Indenture Act, such required provision shall control. Section 17.08. No Security Interest Created. Except as otherwise provided in Section 9.06 hereof, nothing in this Indenture or in the Debentures, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and 98
in effect, in any jurisdiction in which property of the Company or its subsidiaries is located. Section 17.09. Benefits of Indenture. Nothing in this Indenture or in the Debentures, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any authenticating agent, any Conversion Agent, any Debenture Registrar and their successors hereunder and the holders of Debentures any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 17.10. Table of Contents, Headings, Etc. The table of contents and the titles and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 17.11. Authenticating Agent. The Trustee may appoint an authenticating agent that shall be authorized to act on its behalf, and subject to its direction, in the authentication and delivery of Debentures in connection with the original issuance thereof and transfers and exchanges of Debentures hereunder, including under Sections 2.04, 2.05, 2.06, 2.07, 3.03 and 3.05, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Debentures. For all purposes of this Indenture, the authentication and delivery of Debentures by the authenticating agent shall be deemed to be authentication and delivery of such Debentures "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Debentures for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a Person eligible to serve as trustee hereunder pursuant to Section 9.09. Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation is otherwise eligible under this Section 17.11, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall 99
either promptly appoint a successor authenticating agent or itself assume the duties and obligations of the former authenticating agent under this Indenture and, upon such appointment of a successor authenticating agent, if made, shall give written notice of such appointment of a successor authenticating agent to the Company and shall mail notice of such appointment of a successor authenticating agent to all holders of Debentures as the names and addresses of such holders appear on the Debenture Register. The Company agrees to pay to the authenticating agent from time to time such reasonable compensation for its services as shall be agreed upon in writing between the Company and the authenticating agent. The provisions of Sections 9.02, 9.03, 9.04 and 10.03 and this Section 17.11 shall be applicable to any authenticating agent. Section 17.12. Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Section 17.13. Severability. In case any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, then (to the extent permitted by law) the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. JPMorgan Chase Bank hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions herein above set forth. 100
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed. THE WILLIAMS COMPANIES, INC. By: /s/ James G. Ivey ------------------------------ Name: Title: JPMORGAN CHASE BANK, as Trustee By: ______________________________ Name: Title:
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed. THE WILLIAMS COMPANIES, INC. By: ______________________________ Name: Title: JPMORGAN CHASE BANK, as Trustee By: /s/ Joanne Adamis ------------------------------ Name: Joanne Adamis Title:Vice President
EXHIBIT A [Include only for Global Debentures:] [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [Include only for Debentures that are Restricted Securities] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY AGREES FOR THE BENEFIT OF THE WILLIAMS COMPANIES, INC. THAT (a) THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE WILLIAMS COMPANIES, INC. OR ANY AFFILIATE, (2) IN A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (2) OR (4), TO THE RECEIPT BY THE WILLIAMS COMPANIES, INC. OF AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE ACCEPTABLE TO THE WILLIAMS COMPANIES, INC. THAT SUCH RESALE, PLEDGE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (b) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE A COPY OF THE TRANSFER RESTRICTIONS APPLICABLE HERETO. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS DEBENTURE PURSUANT TO CLAUSE (5) ABOVE OR UPON ANY TRANSFER OF THIS DEBENTURE UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING RESTRICTION. THIS DEBENTURE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR U.S. FEDERAL INCOME TAX PURPOSES. FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986 (AS AMENDED), THE ISSUE PRICE OF EACH DEBENTURE IS $50 PER $50 OF PRINCIPAL AMOUNT, THE ISSUE DATE IS MAY 28, 2003, THE YIELD TO MATURITY IS 5.50% COMPOUNDED QUARTERLY AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $82.52. THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT DATED MAY 28, 2003 AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT. BECAUSE OF THE FOREGOING RESTRICTIONS, PURCHASERS ARE ADVISED TO CONSULT LEGAL COUNSEL PRIOR TO MAKING ANY RESALE, PLEDGE OR TRANSFER OF ANY OF THE CONVERTIBLE DEBENTURES OR COMMON STOCK ISSUABLE UPON CONVERSION OF THE CONVERTIBLE DEBENTURES. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. A-2
THE WILLIAMS COMPANIES, INC. 5.50% JUNIOR SUBORDINATED CONVERTIBLE DEBENTURE DUE 2033 CUSIP: 969457852 No. $____________________ The Williams Companies, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "COMPANY", which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received hereby promises to pay to_____________________________ or its registered assigns, the principal sum of [________________________DOLLARS] [the principal sum set forth on Schedule I hereto](1) on June 1, 2033 at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest (subject to deferral as provided herein), quarterly on March 1, June 1, September 1 and December 1 of each year, commencing September 1, 2003, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 5.50%, from the March 1, June 1, September 1 or December 1, as the case may be, next preceding the date of this Debenture to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Debenture, or unless no interest has been paid or duly provided for on the Debentures, in which case from May 28, 2003 until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any February 15, May 15, August 15 or November 15, as the case may be, and before the following March 1, June 1, September 1, or December 1, this Debenture shall bear interest from such March 1, June 1, September 1 or December 1; provided that if the Company shall default in the payment of interest due on such March 1, June 1, September 1, or December 1, then this Debenture shall bear interest from the next preceding March 1, June 1, September 1, or December 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Debenture, from May 28, 2003. Except as otherwise provided in the Indenture, the interest payable on the Debenture pursuant to the Indenture on any March 1, June 1, September 1 or December 1 will be paid to the Person entitled thereto as it appears in the Debenture Register at the close of business on the Record Date, which shall be the February 15, May 15, August 15 or November 15 (whether or not a Business Day) next preceding such March 1, June 1, September 1 or December 1, as - ----------------------- (1) For Global Debentures only. A-3
provided in the Indenture; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. The Company shall pay interest (i) on any Debentures in certificated form by check mailed to the address of the Person entitled thereto as it appears in the Debenture Register (or, upon written notice, by wire transfer in immediately available funds, if such Person is entitled to interest on Debentures with an aggregate principal amount in excess of $2,000,000) or (ii) on any Global Debenture by wire transfer of immediately available funds to the account of the Depositary or its nominee. The Company promises to pay interest on overdue principal, premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) interest at the rate of 5.50%, per annum, compounded quarterly. Reference is made to the further provisions of this Debenture set forth on the reverse hereof, including, without limitation, provisions giving the holder of this Debenture the right to convert this Debenture into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of the State of New York (including Section 5-1401 of the New York General Obligations Law or any successor to such statute). This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. A-4
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed. THE WILLIAMS COMPANIES, INC. By: __________________________ Dated: May 28, 2003 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-named Indenture. JPMORGAN CHASE BANK, as Trustee By: _______________________ Authorized Signatory A-5
FORM OF REVERSE OF DEBENTURE THE WILLIAMS COMPANIES, INC. 5.50% JUNIOR SUBORDINATED CONVERTIBLE DEBENTURE DUE 2033 This Debenture is one of a duly authorized issue of Debentures of the Company, designated as its 5.50% Junior Subordinated Convertible Debentures due 2033 (herein called the "DEBENTURES"), limited in aggregate principal amount to $300,000,000, issued and to be issued under and pursuant to an Indenture dated as of May 28, 2003 (herein called the "INDENTURE"), between the Company and JPMorgan Chase Bank, as trustee (herein called the "TRUSTEE"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. In case an Event of Default shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Debentures may be declared by either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures then outstanding, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of at least a majority in aggregate principal amount of the Debentures at the time outstanding, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Debentures; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Debenture, or reduce the rate or extend the time of payment of Interest, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable upon redemption or repurchase thereof, or impair the right of any Debentureholder to institute suit for the payment thereof, or make the principal thereof or Interest or premium, if any, thereon payable in any coin or currency other than that provided in the Debentures, or change the obligation of the Company to redeem any Debenture on a Redemption Date in a manner adverse to the holders of Debentures, or change the obligation of the Company to repurchase any Debenture upon a Change of Control in a manner adverse to the holders of the Debentures, or impair the right to convert the Debentures into Common Stock subject to the terms set forth in the Indenture, including Section 16.06 thereof, or reduce the number of shares of Common Stock or other property receivable upon conversion, in each case without the consent of the holder of each Debenture so affected, or modify any of the provisions of Section 12.02 or Section 8.07 thereof, except to increase any such percentage or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder A-6
of each Debenture so affected, or reduce the quorum or voting requirements set forth in Article 11 or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Debentures then outstanding. Subject to the provisions of the Indenture, the holders of a majority in aggregate principal amount of the Debentures at the time outstanding may on behalf of the holders of all of the Debentures waive any past default or Event of Default under the Indenture and its consequences except (A) a default in the payment of Interest, or any premium on, or the principal of, any of the Debentures, (B) a failure by the Company to convert any Debentures into Common Stock of the Company, (C) a default in the payment of the Redemption Price pursuant to Article 3 of the Indenture, (D) a default in the payment of the Repurchase Price pursuant to Article 3 of the Indenture, or (E) a default in respect of a covenant or provisions of the Indenture which under Article 12 of the Indenture cannot be modified or amended without the consent of the holders of each or all Debentures then outstanding or affected thereby. Any such consent or waiver by the holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and any Debentures which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Debenture or such other Debentures. The indebtedness evidenced by the Debentures is, to the extent and in the manner provided in the Indenture, expressly subordinated and subject in right of payment to the prior payment in full of all Senior and Senior Subordinated Indebtedness of the Company, whether outstanding at the date of the Indenture or thereafter incurred, and this Debenture is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Debenture, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney-in-fact for such purpose. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and Interest on this Debenture at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Debentures shall be computed on the basis of a 360-day year of twelve 30-day months. So long as the Company is not in default in the payment of Interest on the Debentures and so long as the Designated Agreement Termination Date has occurred, the Company shall have the right, at any time during the term of the A-7
Debentures, from time to time to extend an interest payment period with respect to such Debentures for up to 20 consecutive quarterly interest periods (an "EXTENDED INTEREST PAYMENT PERIOD"), at the end of which period the Company shall pay all Interest then accrued and unpaid (together with interest thereon at the rate of 5.50% per annum to the extent permitted by applicable law, compounded quarterly ("COMPOUNDED INTEREST")); provided that no Extended Interest Payment Period may extend beyond the Maturity Date or any Redemption Date of the Debentures or end on a day other than an Interest Payment Date. During such Extended Interest Payment Period, the Company shall not make any Restricted Payment as provided in the Indenture. Prior to the termination of any such Extended Interest Payment Period, the Company may pay all or any portion of the interest accrued on the Debentures on any Interest Payment Date to holders of record on the regular Record Date for such Interest Payment Date or from time to time further extend such Extended Interest Payment Period; provided that such Extended Interest Payment Period, including such extension and all further extensions thereof, shall not exceed 20 consecutive quarterly interest periods. Upon the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest then due, together with Compounded Interest, the Company may select a new Extended Interest Payment Period, subject to the foregoing requirements. No interest on this Debenture shall be due and payable during an Extended Interest Payment Period, except at the end thereof. At the end of the Extended Interest Payment Period the Company shall pay all interest accrued and unpaid on the Debentures including any Compounded Interest which shall be payable to the holders of the Debentures in whose names the Debentures are registered in the Debenture Register on the first Record Date prior to the end of the Extended Interest Payment Period. The Debentures are issuable in fully registered form, without coupons, in denominations of $50 principal amount and any multiple of $50. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration or exchange of Debentures, Debentures may be exchanged for a like aggregate principal amount of Debentures of any other authorized denominations. Beginning on June 1, 2010, if, for at least 20 Trading Days in the period of 30 consecutive Trading Days ending on the Trading Day before the date of mailing of the Redemption Notice pursuant to Section 3.02 of the Indenture (including on the last day in such period), the Closing Sale Price of the Common Stock shall have exceeded 130% of the Conversion Price in effect on the last Trading Day of such period, the Company, at its option, may redeem the Securities on a Redemption Date specified by the Company in accordance with Article 3 of the Indenture for cash in whole or in part, at a redemption price (the "REDEMPTION PRICE") equal to the principal amount of the Securities to be A-8
redeemed together in each case with accrued and unpaid Interest (including deferred interest) on the Securities redeemed to (but excluding) the Redemption Date. In no event will any Security be redeemable at the option of the Company before June 1,2010. The Company may redeem Debentures only in whole and not in part if a default in the payment of interest, or premium, if any, on the Debentures has occurred and is continuing or during an Extended Interest Payment Period. The Debentures are not subject to redemption through the operation of any sinking fund. If a Change of Control occurs at any time prior to maturity of the Debentures, this Debenture will be repurchased at the option of the holder on the Repurchase Date specified by the Company in accordance with the Indenture at a Repurchase Price equal to 100% of the principal amount thereof, together with accrued and unpaid Interest (including deferred interest) to but excluding the Repurchase Date. The Debentures will be repurchased in multiples of $50 principal amount. The Company shall mail to all holders of record of the Debentures a notice of the occurrence of a Change of Control and of the repurchase right arising as a result thereof on or before the 30th day after the occurrence of such Change of Control. For a Debenture to be so repurchased at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, such Debenture with the form entitled "OPTION TO ELECT REPURCHASE UPON A CHANGE OF CONTROL" on the reverse thereof duly completed, together with such Debenture, duly endorsed for transfer, on or before the Repurchase Date Holders have the right to withdraw any such repurchase election by delivering to the Trustee (or other Paying Agent appointed by the Company) a written notice of withdrawal up to the close of business on the Business Day preceding the Repurchase Date, all as provided in the Indenture. If cash sufficient to pay the Repurchase Price with respect to all Debentures or portions thereof to be repurchased as of the Repurchase Date is deposited with the Trustee (or other Paying Agent appointed by the Company) on the Business Day following the Repurchase Date, interest will cease to accrue on such Debentures (or portions thereof) on and after the Repurchase Date and the holder thereof shall have no other rights as such other than the right to receive the Repurchase Price upon surrender of such Debenture. In compliance with the provisions of the Indenture, prior to the final Maturity Date of the Debentures, the holder hereof has the right, at its option, to A-9
convert each $50 principal amount of the Debentures into 4.5907 shares of the Company's Common Stock, as such shares shall be constituted at the date of conversion and subject to adjustment from time to time as provided in the Indenture, upon surrender of this Debenture with the form entitled "CONVERSION NOTICE" on the reverse hereof duly completed, to the Company at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of such holder, the Corporate Trust Office, and, unless the shares issuable on conversion are to be issued in the same name as this Debenture, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. If the Company (i) is a party to a consolidation, merger, statutory share exchange or combination, (ii) reclassifies the Common Stock, or (iii) sells or conveys its properties and assets substantially as an entirety to any Person, the right to convert a Security into shares of Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or such other Person, in each case in accordance with the Indenture. No adjustment in respect of interest on any Debenture converted or dividends on any shares issued upon conversion of such Debenture will be made upon any conversion except as set forth in the next sentence. If this Debenture (or portion hereof) is surrendered for conversion during the period from the close of business on any Record Date for the payment of Interest to the close of business on the following Interest Payment Date, this Debenture (or portion hereof being converted) must be accompanied by payment, in immediately available funds or other funds acceptable to the Company, of an amount equal to the Interest otherwise payable on such Interest Payment Date on the principal amount being converted; provided that no such payment shall be required (1) if the Company has specified a Redemption Date that is after a Record Date and prior to the next Interest Payment Date, (2) if the Company has specified a Repurchase Date following a Change of Control that is during such period or (3) to the extent of any overdue interest, if any overdue interest exists at the time of conversion with respect to such debenture. No fractional shares will be issued upon any conversion, but an adjustment and payment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Debenture or Debentures for conversion. A Debenture in respect of which a holder is exercising its right to require repurchase upon a Change of Control may be converted only if such holder withdraws its election to exercise such right in accordance with the terms of the Indenture. A-10
Any Debentures called for redemption, unless surrendered for conversion by the holders thereof on or before the close of business on the Business Day preceding the Redemption Date, may be deemed to be redeemed from the holders of such Debentures for an amount equal to the applicable Redemption Price, together with accrued but unpaid Interest to, but excluding, the date fixed for redemption, by one or more investment banks or other purchasers who may agree with the Company (i) to purchase such Debentures from the holders thereof and convert them into shares of the Company's Common Stock and (ii) to make payment for such Debentures as aforesaid to the Trustee in trust for the holders. Upon due presentment for registration of transfer of this Debenture at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, a new Debenture or Debentures of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the limitations provided in the Indenture, without charge except for any tax, assessment or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any Paying Agent, any Conversion Agent and any Debenture Registrar may deem and treat the registered holder hereof as the absolute owner of this Debenture (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Debenture Registrar) for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any Paying Agent nor other Conversion Agent nor any Debenture Registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Debenture. No recourse for the payment of the principal of or any premium or Interest on this Debenture, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any supplemental indenture or in any Debenture, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. A-ll
This Debenture shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York (including Section 5-1401 of the New York General Obligations Law or any successor to such statute). Terms used in this Debenture and defined in the Indenture are used herein as therein defined. A-12
ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Debenture, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common UNIF GIFT MIN ACT -_____Custodian____ TEN ENT - as tenant by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act survivorship and not as tenants __________________________________ in common (State) Additional abbreviations may also be used though not in the above list.
CONVERSION NOTICE TO: THE WILLIAMS COMPANIES, INC. The undersigned registered owner of this Debenture hereby irrevocably exercises the option to convert this Debenture, or the portion thereof (which is $50 or a multiple thereof) below designated, into shares of Common Stock of The Williams Companies, Inc. in accordance with the terms of the Indenture referred to in this Debenture, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Debentures representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Indenture. If shares or any portion of this Debenture not converted are to be issued in the name of a person other than the undersigned, the undersigned will provide the appropriate information below and pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Debenture. Dated: ___________________ ___________________________ ___________________________ Signature(s) Signature(s) must be guaranteed by an "ELIGIBLE GUARANTOR INSTITUTION" meeting the requirements of the Debenture Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "SIGNATURE GUARANTEE PROGRAM" as may be determined by the Debenture Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. ___________________________ Signature Guarantee
Fill in the registration of shares of Common Stock if to be issued, and Debentures if to be delivered, other than to and in the name of the registered holder: ___________________________ (Name) ___________________________ (Street Address) ___________________________ (City, State and Zip Code) ___________________________ Please print name and address Principal amount to be converted (if less than all): $__________________________ Social Security or Other Taxpayer Identification Number: ___________________________
OPTION TO ELECT REPURCHASE UPON A CHANGE OF CONTROL TO: THE WILLIAMS COMPANIES, INC. The undersigned registered owner of this Debenture hereby irrevocably acknowledges receipt of a notice from The Williams Companies, Inc. (the "COMPANY") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repurchase the entire principal amount of this Debenture, or the portion thereof (which is $50 or a multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Debenture at the price of 100% of such entire principal amount or portion thereof, together with accrued interest (including deferred interest) to, but excluding, the Repurchase Date, to the registered holder hereof. Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Indenture. Dated: ____________________ ____________________________________ ____________________________________ Signature(s) NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Debenture in every particular without alteration or enlargement or any change whatever. Principal amount to be repaid (if less than all): ____________________________________ ____________________________________ Social Security or Other Taxpayer Identification Number
ASSIGNMENT For value received_______________________________________hereby sell(s) assign(s) and transfer(s) unto__________________________________________(Please insert social security or other Taxpayer Identification Number of assignee) the within Debenture, and hereby irrevocably constitutes and appoints ________________________________________________________attorney to transfer said Debenture on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the Debenture prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision) (other than any transfer pursuant to a registration statement that has been declared effective under the Securities Act), the undersigned confirms that such Debenture is being transferred: [ ] To The Williams Companies, Inc. or a subsidiary thereof; or [ TO A "QUALIFIED INSTITUTIONAL BUYER" in compliance with Rule 144A under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; or [ ] Pursuant to a Registration Statement which has been declared - effective under the Securities Act of 1933, as amended, and which continues to be effective at the time of transfer; and unless the Debenture has been transferred to The Williams Companies, Inc. or a subsidiary thereof, the undersigned confirms that such Debenture is not being transferred to an "AFFILIATE" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended. Unless one of the boxes is checked, the Trustee will refuse to register any of the Debentures evidenced by this certificate in the name of any person other than the registered holder thereof. Dated: ____________________ ___________________________ ___________________________ Signature(s)
Signature(s) must be guaranteed by an "ELIGIBLE GUARANTOR INSTITUTION" meeting the requirements of the Debenture Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "SIGNATURE GUARANTEE PROGRAM" as may be determined by the Debenture Registrar in addition to, or in substitution for, STAMP, al in accordance with the Securities Exchange Act of 1934, as amended. ___________________________ Signature Guarantee NOTICE: The signature on the Conversion Notice, the Option to Elect Repurchase Upon a Change of Control or the Assignment must correspond with the name as written upon the face of the Debenture in every particular without alteration or enlargement or any change whatever.
Schedule I [Include Schedule I only for a Global Debenture] 5.50% Junior Subordinated Convertible Debenture due 2033 No. ____________________ ========================================================================================================= Authorized Signature Notation Explaining Principal of Trustee or Date Principal Amount Amount Recorded Custodian - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
EXHIBIT 4.3 REGISTRATION RIGHTS AGREEMENT BETWEEN THE WILLIAMS COMPANIES, INC., AS ISSUER, AND LEHMAN BROTHERS INC., AS INITIAL PURCHASER DATED AS OF MAY 28, 2003
REGISTRATION RIGHTS AGREEMENT dated as of May 28, 2003 between The Williams Companies, Inc., a Delaware corporation (the "COMPANY"), and Lehman Brothers Inc. (the "INITIAL PURCHASER") pursuant to the Purchase Agreement dated May 20, 2003 (the "PURCHASE AGREEMENT"), between the Company and the Initial Purchaser. In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The Company agrees with the Initial Purchaser, (i) for its benefit as Initial Purchaser and (ii) for the benefit of the beneficial owners (including the Initial Purchaser) from time to time of the Debentures (as defined herein) and the beneficial owners from time to time of the Underlying Common Stock (as defined herein) issued upon conversion of the Debentures (each of the foregoing a "HOLDER" and together the "HOLDERS"), as follows: SECTION 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "AFFILIATE" means with respect to any specified person, an "affiliate," as defined in Rule 144, of such person. "AMENDMENT EFFECTIVENESS DEADLINE DATE" has the meaning set forth in Section 2(d) hereof. "BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. "CLOSING DATE" has the meaning assigned such term in the Purchase Agreement. "COMMON STOCK" means the shares of common stock, $1.00 par value per share, of the Company. "CONVERSION PRICE" has the meaning assigned such term in the Indenture. "DAMAGES ACCRUAL PERIOD" has the meaning set forth in Section 2(e) hereof. "DAMAGES PAYMENT DATE" means each March 1, June 1, September 1 and December 1, beginning September 1, 2003. "DEBENTURES" means the 5.50% Junior Subordinated Convertible Debentures due 2033 of the Company to be purchased pursuant to the Purchase Agreement. 2
"DEFERRAL NOTICE" has the meaning set forth in Section 3(h) hereof. "DEFERRAL PERIOD" has the meaning set forth in Section 3(h) hereof. "EFFECTIVENESS DEADLINE DATE" has the meaning set forth in Section 2(a) hereof. "EFFECTIVENESS PERIOD" means the period commencing on the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities. "EVENT" has the meaning set forth in Section 2(e) hereof. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "FILING DEADLINE DATE" has the meaning set forth in Section 2(a) hereof. "HOLDER" has the meaning set forth in the second paragraph of this Agreement. "INDENTURE" means the Indenture, dated as of May 28, 2003, between the Company and JPMorgan Chase Bank, as trustee, pursuant to which the Debentures are being issued. "INITIAL PURCHASER" means Lehman Brothers Inc. "INITIAL SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2(a) hereof. "ISSUE DATE" means the Closing Date. "LIQUIDATED DAMAGES AMOUNT" has the meaning set forth in Section 2(e) hereof. "MATERIAL EVENT" has the meaning set forth in Section 3(h) hereof. "NOTICE AND QUESTIONNAIRE" means a written notice delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Annex A to the Offering Memorandum of the Company dated May 20, 2003 relating to the Debentures. "NOTICE HOLDER" means, on any date, any Holder that has delivered a Notice and Questionnaire to the Company on or prior to such date. "PURCHASE AGREEMENT" has the meaning set forth in the preamble hereof. 3
"PROSPECTUS" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 43OA promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus. "RECORD HOLDER" means with respect to any Damages Payment Date relating to any Debentures or Underlying Common Stock as to which any Liquidated Damages Amount has accrued, the registered holder of such Debenture or Underlying Common Stock on the February 15, May 15, August 15 and November 15, as the case may be, immediately preceding a Damages Payment Date. "REGISTRABLE SECURITIES" means the Debentures until such Debentures have been converted into or exchanged for the Underlying Common Stock and, at all times subsequent to any such conversion, the Underlying Common Stock and any securities into or for which such Underlying Common Stock has been converted or exchanged, and any security issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such security, (A) the earliest of (i) its effective registration under the Securities Act and resale in accordance with the Registration Statement covering it, (ii) expiration of the holding period that would be applicable thereto under Rule 144(k) or (iii) its sale to the public pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A) under the Securities Act, and (B) as a result of the event or circumstance described in any of the foregoing clauses (i) through (iii), the legend with respect to transfer restrictions required under the Indenture is removed or removable in accordance with the terms of the Indenture or such legend, as the case may be. "REGISTRATION STATEMENT" means any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement. "RESTRICTED SECURITIES" means "Restricted Securities" as defined in Rule 144. "RULE 144" means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. "RULE 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. "SEC" means the Securities and Exchange Commission. 4
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2(a) hereof. "SPECIAL COUNSEL" means Davis Polk & Wardwell or one such other successor counsel as shall be specified by the Holders of a majority of the Registrable Securities, but which may, with the written consent of the Initial Purchaser (which shall not be unreasonably withheld), be another nationally recognized law firm experienced in securities law matters designated by the Company, the reasonable fees and expenses of which will be paid by the Company pursuant to Section 5 hereof. For purposes of determining the holders of a majority of the Registrable Securities in this definition, Holders of Debentures shall be deemed to be the Holders of the number of shares of Underlying Common Stock into which such Debentures are or would be convertible as of the date the consent is requested. "SUBSEQUENT SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2(b) hereof. "TIA" means the Trust Indenture Act of 1939, as amended. "TRUSTEE" means JPMorgan Chase Bank, the Trustee under the Indenture. "UNDERLYING COMMON STOCK" means the Common Stock into which the Debentures are convertible or issued upon any such conversion. SECTION 2. Shelf Registration, (a) The Company shall prepare and file or cause to be prepared and filed with the SEC, not later than the date (the "FILING DEADLINE DATE") ninety (90) days after the Issue Date, a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "SHELF REGISTRATION STATEMENT") registering the resale from time to time by Holders thereof of all of the Registrable Securities (the "INITIAL SHELF REGISTRATION STATEMENT"). The Initial Shelf Registration Statement shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by such Holders in accordance with the methods of distribution elected by the Holders and set forth in the Initial Shelf Registration Statement. The Company shall use its reasonable best efforts to cause the Initial Shelf Registration Statement to be declared effective under the Securities Act by the date (the "EFFECTIVENESS DEADLINE DATE") that is one hundred eighty (180) days after the Issue Date, and to keep the Initial Shelf Registration Statement (or any Subsequent Shelf Registration Statement) continuously effective under the Securities Act until the expiration of the Effectiveness Period. At the time the Initial Shelf Registration Statement is declared effective, each Holder that became a Notice Holder on or prior to the date ten (10) Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Initial Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to 5
deliver such Prospectus to purchasers of Registrable Securities in accordance with applicable law. None of the Company's security holders (other than the Holders of Registrable Securities) shall have the right to include any of the Company's securities in the Shelf Registration Statement. (b) If the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Registrable Securities registered thereunder shall have been resold pursuant thereto or shall have otherwise ceased to be Registrable Securities), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Registrable Securities (a "SUBSEQUENT SHELF REGISTRATION STATEMENT"). If a Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is reasonably practicable after such filing and to keep such Registration Statement (or Subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period. (c) The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or as necessary to name a Notice Holder as a selling securityholder pursuant to Section (d) below. (d) Each Holder agrees that if such Holder wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(d) and Section 3(h) and Section 4 of this Agreement. Following the date that the Initial Shelf Registration Statement is declared effective, each Holder wishing to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire to the Company at least ten (10) Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration Statement. From and after the date the Initial Shelf Registration Statement is declared effective, the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered pursuant to Section 8(c), and in any event upon the later of (x) fifteen (15) Business Days after such date or (y) fifteen (15) Business Days after the expiration of any Deferral Period in effect when the Notice and Questionnaire is delivered or put into effect within fifteen (15) Business Days of such delivery date: (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document 6
incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its reasonable best efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is reasonably practicable, but in any event by the date (the "AMENDMENT EFFECTIVENESS DEADLINE DATE") that is forty-five (45) days after the date such post-effective amendment is required by this clause to be filed; (ii) provide such Holder copies of any documents filed pursuant to Section 2(d)(i); and (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(d)(i); provided, that if such Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall, to the extent required, take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 3(h). Notwithstanding anything contained herein to the contrary, (i) the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Registration Statement or related Prospectus and (ii) the Amendment Effectiveness Deadline Date shall be extended by up to ten (10) Business Days from the expiration of a Deferral Period (and the Company shall incur no obligation to pay Liquidated Damages during such extension) if such Deferral Period shall be in effect on the Amendment Effectiveness Deadline Date. (e) The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if, other than as permitted hereunder, (i) the Initial Shelf Registration Statement has not been declared effective under the Securities Act on or prior to the Effectiveness Deadline Date, (ii) the Company has failed to perform its obligations set forth in Section 2(d)(i) within the time period required therein, (iii) any post-effective amendment to a Shelf Registration Statement filed pursuant to Section 2(d)(i) has not become effective under the Securities Act on or prior to the Amendment Effectiveness Deadline Date, 7
(iv) the aggregate duration of Deferral Periods in any period exceeds the number of days permitted in respect of such period pursuant to Section 3(h) hereof, or (v) the number of Deferral Periods in any period exceeds the number permitted in respect of such period pursuant to Section 3(h) hereof. Each event described in any of the foregoing clauses (i) through (v) is individually referred to herein as an "EVENT". For purposes of this Agreement, each Event set forth above shall begin and end on the dates set forth in the table below: Type of Event by Beginning Ending Clause Date Date ------ ---- ---- (i) Effectiveness Deadline the date the Initial Shelf Date Registration Statement becomes effective under the Securities Act (ii) the date by which the the date the Company Company is required to performs its obligations set perform its obligations forth in Section 2(d)(i) under Section 2(d)(i) (iii) the Amendment the date the applicable Effectiveness Deadline post-effective amendment Date to a Shelf Registration Statement becomes effective under the Securities Act (iv) the date on which the termination of the Deferral aggregate duration of Period that caused the limit Deferral Periods in any on the aggregate duration period exceeds the number of Deferral Periods to be of days permitted by exceeded Section 3(h) 8
Type of Event by Beginning Ending Clause Date Date ------ ---- ---- (v) the date of commencement termination of the Deferral of a Deferral Period that Period that caused the causes the number of number of Deferral Periods Deferral Periods to exceed to exceed the number the number permitted by permitted by Section 3(h) Section 3(h) For purposes of this Agreement, Events shall begin on the dates set forth in the table above and shall continue until the ending dates set forth in the table above. Commencing on (and including) any date that an Event has begun and ending on (but excluding) the next date on which there are no Events that have occurred and are continuing (a "DAMAGES ACCRUAL PERIOD"), the Company shall pay, as liquidated damages and not as a penalty, to Record Holders of Registrable Securities an amount (the "LIQUIDATED DAMAGES AMOUNT") accruing, for each day in the Damages Accrual Period, (i) in respect of any Debenture, at a rate per annum equal to 0.5% of the aggregate principal amount of such Debenture and (ii) in respect of each share of Underlying Common Stock at a rate per annum equal to 0.5% of the Conversion Price on such date, as the case may be; provided that in the case of a Damages Accrual Period that is in effect solely as a result of an Event of the type described in clause (ii) or (iii) of the preceding paragraph, such Liquidated Damages Amount shall be paid only to the Holders (as set forth in the succeeding paragraph) that have delivered Notices and Questionnaires that caused the Company to incur the obligations set forth in Section 2(d) the non-performance of which is the basis of such Event. In calculating the Liquidated Damages Amount on any date on which no Debentures are outstanding, the Conversion Price and the Liquidated Damages Amount payable with respect to shares of Common Stock which are Registrable Securities shall be calculated as if the Debentures were still outstanding. Notwithstanding the foregoing, no Liquidated Damages Amount shall accrue as to any Registrable Security from and after the earlier of (x) the date such security is no longer a Registrable Security and (y) expiration of the Effectiveness Period. The rate of accrual of the Liquidated Damages Amount with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events. The Liquidated Damages Amount shall accrue from the first day of the applicable Damages Accrual Period, and shall be payable on each Damages Payment Date during the Damages Accrual Period (and on the Damages Payment Date next succeeding the end of the Damages Accrual Period if the Damage Accrual Period does not end on a Damages Payment Date) to the Record Holders of the Registrable Securities entitled thereto; provided that any Liquidated Damages Amount accrued with respect to any Debenture or portion thereof redeemed 9
by the Company on a redemption date or converted into Underlying Common Stock on a conversion date prior to the Damages Payment Date, shall, in any such event, be paid instead to the Holder who submitted such Debenture or portion thereof for redemption or conversion on the applicable redemption date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion); provided, further, that, in the case of an Event of the type described in clause (ii) or (iii) of the first paragraph of this Section 2(e), such Liquidated Damages Amount shall be paid only to the Holders entitled thereto pursuant to such first paragraph by check mailed to the address set forth in the Notice and Questionnaire delivered by such Holder. The Trustee shall be entitled, on behalf of registered holders of Debentures or Underlying Common Stock, to seek any available remedy for the enforcement of this Agreement, including for the payment of such Liquidated Damages Amount. Notwithstanding the foregoing, the parties agree that the sole damages payable for a violation of the terms of this Agreement with respect to which liquidated damages are expressly provided shall be such liquidated damages. Nothing shall preclude any Holder from pursuing or obtaining specific performance or other equitable relief with respect to this Agreement. All of the Company's obligations set forth in this Section 2(e) that are outstanding with respect to any Registrable Security at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of this Agreement pursuant to Section 8(k)). The parties hereto agree that the liquidated damages provided for in this Section 2(e) constitute a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities by reason of the failure of the Shelf Registration Statement to be filed or declared effective or available for effecting resales of Registrable Securities in accordance with the provisions hereof. SECTION 3. Registration Procedures. In connection with the registration obligations of the Company under Section 2 hereof, during the Effectiveness Period, the Company shall: (a) Prepare and file with the SEC a Registration Statement or Registration Statements on Form S-3 or another appropriate form under the Securities Act available for the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that before filing any Registration Statement or Prospectus or any amendments or supplements thereto with the SEC, furnish to the Initial Purchaser and the Special Counsel of such offering, if any, copies of all such documents proposed to be filed at least three (3) Business Days prior to the filing of such Registration Statement or amendment thereto or Prospectus or supplement thereto. 10
(b) Subject to Section 3(h), prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2(a); cause the related Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and use its reasonable best efforts to comply with the provisions of the Securities Act applicable to it with respect to the disposition of all securities covered by such Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented. (c) As promptly as practicable give notice to the Notice Holders, the Initial Purchaser and the Special Counsel, (i) when any Prospectus, prospectus supplement, Registration Statement or post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment, when the same has been declared effective, (ii) of any request, following the effectiveness of the Initial Shelf Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the occurrence of, but not the nature of or details concerning, a Material Event and (vi) of the determination by the Company that a post-effective amendment to a Registration Statement will be filed with the SEC, which notice may, at the discretion of the Company (or as required pursuant to Section 3(h)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(h) shall apply. (d) Use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case at the earliest possible moment, and provide immediate notice to each Notice Holder and the Initial Purchaser of the withdrawal of any such order. (e) As promptly as practicable furnish to each Notice Holder, the Special Counsel and the Initial Purchaser, upon request and without charge, at least one (1) conformed copy of the Registration Statement and any amendment thereto, including 11
exhibits and all documents incorporated or deemed to be incorporated therein by reference. (f) During the Effectiveness Period, deliver to each Notice Holder, the Special Counsel, if any, and the Initial Purchaser, in connection with any sale of Registrable Securities pursuant to a Registration Statement, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such Notice Holder may reasonably request; and the Company hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked) to the use of such Prospectus or each amendment or supplement thereto by each Notice Holder in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein. (g) Prior to any public offering of the Registrable Securities pursuant to a Registration Statement, use its reasonable best efforts to register or qualify or cooperate with the Notice Holders and the Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Notice Holder reasonably requests in writing (which request may be included in the Notice and Questionnaire); prior to any public offering of the Registrable Securities pursuant to the Shelf Registration Statement, use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period in connection with such Notice Holder's offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the relevant Registration Statement and the related Prospectus; provided that the Company will not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject. (h) Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a "MATERIAL Event") as a result of which any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein 12
or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the occurrence or existence of any pending corporate development that, in the sole judgment of the Company, makes it appropriate to suspend the availability of the Shelf Registration Statement and the related Prospectus: (i) in the case of clause (B) above, subject to the next sentence, as promptly as reasonably practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Registration Statement and Prospectus so that such Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, subject to the next sentence, use its reasonable best efforts to cause it to be declared effective as promptly as is practicable, and (ii) give notice to the Notice Holders, and the Special Counsel, if any, that the availability of the Shelf Registration Statement is suspended (a "DEFERRAL NOTICE") and, upon receipt of any Deferral Notice, each Notice Holder agrees not to sell any Registrable Securities pursuant to the Registration Statement until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company will use its reasonable best efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) above, as promptly as is reasonably practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Company, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Company or, if necessary to avoid unreasonable burden or expense, as soon as reasonably practicable thereafter and (z) in the case of clause (C) above, as soon as in the sole judgment of the Company, such suspension is no longer appropriate. The Company shall be entitled to exercise its right under this Section 3(h) to suspend the availability of the Shelf Registration Statement or any Prospectus, without incurring or accruing any obligation to pay liquidated damages pursuant to Section 2(e), and any such period during which the availability of the Registration Statement and 13
any Prospectus is suspended (the "DEFERRAL PERIOD") shall, without incurring any obligation to pay liquidated damages pursuant to Section 2(e), not exceed 45 days; provided that the aggregate duration of any Deferral Periods shall not exceed 45 days in any 90-day period (or 75 days in any 90-day period in the event of a Material Event pursuant to which the Company has delivered a second notice as permitted below) or 90 days in any 360-day period; provided that in the case of a Material Event relating to an acquisition or a probable acquisition or financing, recapitalization, business combination or other similar transaction, the Company may, without incurring any obligation to pay liquidated damages pursuant to Section 2(e), deliver to Notice Holders a second notice to the effect set forth above, which shall have the effect of extending the Deferral Period by up to an additional 30 days, or such shorter period of time as is specified in such second notice. Each Notice Holder agrees to hold any notice by the Company in respect of any Deferral Period or Material Event described in the last clause of the preceding sentence in confidence. (i) If requested in writing in connection with an underwritten disposition of Registrable Securities pursuant to a Registration Statement, make reasonably available for inspection during normal business hours by a representative for the underwriters of such Registrable Securities, any attorneys and accountants retained by such underwriters all relevant financial and other records and pertinent corporate documents and properties of the Company and its subsidiaries, and cause the appropriate officers, directors and employees of the Company and its subsidiaries to make reasonably available for inspection during normal business hours on reasonable notice all relevant information reasonably requested by such representative for such underwriters, or any attorneys or accountants in connection with such disposition, in each case as is customary for similar "due diligence" examinations; provided that such persons shall first agree in writing with the Company that any non-public information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Registration Statement or the use of any prospectus referred to in this Agreement), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person or (iv) such information becomes available to any such person from a source other than the Company and such source is not bound by a confidentiality agreement, and provided further that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of all underwriters and the other parties entitled thereto by Special Counsel. Any person legally compelled to disclose any such confidential information made available for inspection shall provide the Company with prompt prior written notice of such requirement so that the Company may seek a protective order or other appropriate remedy. 14
(j) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements (which need not be audited) satisfying the provisions of Section 1l(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) for a 12-month period commencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Registration Statement, which statements shall be made available no later than 45 days after the end of the 12-month period or 90 days if the 12-month period coincides with the fiscal year of the Company. (k) Cooperate with each Notice Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold or to be sold pursuant to a Registration Statement, which certificates shall not bear any restrictive legends, and cause such Registrable Securities to be in such denominations as are permitted by the Indenture and registered in such names as such Notice Holder may request in writing at least one (1) Business Day prior to any sale of such Registrable Securities. (l) Provide a CUSIP number for all Registrable Securities covered by each Registration Statement not later than the effective date of such Registration Statement and provide the Trustee and the transfer agent for the Common Stock with printed certificates for the Registrable Securities that are in a form eligible for deposit with The Depository Trust Company. (m) Cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. (n) Upon (i) the filing of the Initial Shelf Registration Statement and (ii) the effectiveness of the Initial Shelf Registration Statement, announce the same, in each case by release to Reuters Economic Services and Bloomberg Business News. SECTION 4. Holder's Obligations. Each Holder agrees, by acquisition of the Registrable Securities, that no Holder shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(d) hereof (including the information required to be included in such Notice and Questionnaire and the information set forth in the next sentence and a sales notice (a "SALES NOTICE") setting forth the amount of Registrable Securities to be sold and the proposed sales date not later than three Business Days prior to the proposed sales date). Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably 15
request. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading. Each Holder acknowledges and agrees that a Sales Notice will only be valid for a period of five Business Days commencing with the proposed sales date and that if any of the Registrable Securities to which such Sales Notice relates are not sold during such period, a new Sales Notice will need to be submitted to the Company not later than three Business Days prior to the new proposed sales date. Notwithstanding the foregoing, no Sales Notice may be submitted, or if submitted will be of no force and effect, and no Registrable Securities may be sold pursuant to the Shelf Registration Statement if a Deferral Period is then in effect. SECTION 5. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance by the Company of its obligations under Sections 2 and 3 of this Agreement whether or not any Registration Statement is declared effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal and state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of the Special Counsel in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as Notice Holders may designate pursuant to Section 3(g) of this Agreement and any filings required to be made with the National Association of Securities Dealers, Inc.), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), (iii) duplication expenses relating to copies of any Registration Statement or Prospectus delivered to any Holders hereunder, (iv) reasonable fees and disbursements of counsel for the Company and of Special Counsel in connection with the Shelf Registration Statement, (v) reasonable fees and disbursements of the Trustee and its counsel and of the registrar and transfer agent for the Common Stock and (vi) any Securities Act liability insurance obtained by the Company in its sole discretion. In addition, the Company shall pay the internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing by the Company of the Registrable Securities on any securities exchange on which similar securities of the Company are then listed and the fees and expenses of any person, including special experts, retained by the Company. Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay selling expenses, 16
including any underwriting discount and commissions, and all registration expenses to the extent required by applicable law. SECTION 6. Indemnification and Contribution. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Holder, each person, if any, who controls any Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Holder within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Holder furnished to the Company in writing by such Holder expressly for use therein; provided that the indemnification contained in this paragraph shall not inure to the benefit of any Holder (or to the benefit of any person controlling such Holder) on account of any such losses, claims, damages or liabilities caused by any untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus; provided in each case the Company has performed its obligations under Section 3(f) hereof if either (A) (x) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the person asserting the claim from which such losses, claims, damages or liabilities arise and (y) the Prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (B) (x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented, with or prior to the delivery of written confirmation of the sale of a Registrable Security to the person asserting the claim from which such losses, claims, damages or liabilities arise. (b) Indemnification by Holders. Each Holder agrees severally and not jointly to indemnify and hold harmless the Company and its directors, its officers and each person, if any, who controls the Company (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) and each affiliate of the Company within the meaning of Rule 405 under the Securities Act or any other Holder, to the same extent as the foregoing indemnity from the Company to such Holder, but only with reference to information relating to such Holder furnished to the Company in writing by such Holder expressly for use in such Registration 17
Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of any Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 6(a) or 6(b) hereof, such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by, in the case of parties indemnified pursuant to Section 6(a), the Holders of a majority (with Holders of Debentures deemed to be the Holders, for purposes of determining such majority, of the number of shares of Underlying Common Stock into which such Debentures are or would be convertible as of the date on which such designation is made) of the Registrable Securities covered by the Registration Statement held by Holders that are indemnified parties pursuant to Section 6(a) and, in the case of parties indemnified pursuant to Section 6(b), the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such 18
settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) Contribution. To the extent that the indemnification provided for in Section 6(a) or 6(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company shall be deemed to be equal to the total net proceeds from the initial placement pursuant to the Purchase Agreement (before deducting expenses) of the Registrable Securities to which such losses, claims, damages or liabilities relate. The relative benefits received by any Holder shall be deemed to be equal to the value of receiving Registrable Securities that are registered under the Securities Act. The relative fault of the Holders on the one hand and the Company on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Holders or by the Company, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this Section 6 are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rota allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding this Section 6, no indemnifying party that is a selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by it and distributed to the public were offered to the public exceeds the amount of any damages that such indemnifying party has otherwise been 19
required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 1l(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The remedies provided for in THIS SECTION 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity, hereunder, under the Purchase Agreement or otherwise. (f) The indemnity and contribution provisions contained in THIS SECTION 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder, any person controlling any Holder or any affiliate of any Holder or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) the sale of any Registrable Securities by any Holder. SECTION 7. Information Requirements. The Company covenants that, if at any time before the end of the Effectiveness Period the Company is not subject to the reporting requirements of the Exchange Act, it will cooperate with any Holder and take such further commercially reasonable action as any Holder may reasonably request in writing (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A under the Securities Act and customarily taken in connection with sales pursuant to such exemptions. Upon the written request of any Holder, the Company shall deliver to such Holder a written statement as to whether it has complied with such filing requirements, unless such a statement has been included in the Company's most recent report filed pursuant to Section 13 or Section 15(d) of Exchange Act. Notwithstanding the foregoing, nothing in THIS SECTION 7 shall be deemed to require the Company to register any of its securities (other than the Common Stock) under any section of the Exchange Act. SECTION 8. Miscellaneous, (a) No Conflicting Agreements. The Company is not, as of the date hereof, a party to, nor shall it, on or after the date of this Agreement, enter into, any agreement with respect to its securities that conflicts with the rights granted to the Holders in this Agreement. The Company represents and warrants that the rights granted to the Holders hereunder do not in any way conflict with the rights granted to the holders of the Company's securities under any other agreements. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has 20
obtained the written consent of Holders of a majority of the then outstanding Underlying Common Stock constituting Registrable Securities (with Holders of Debentures deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Underlying Common Stock into which such Debentures are or would be convertible as of the date on which such consent is requested). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing sentence, (i) this Agreement may be amended by written agreement signed by the Company and the Initial Purchaser, without the consent of the Holders of Registrable Securities, to cure any ambiguity or to correct or supplement any provision contained herein that may be defective or inconsistent with any other provision contained herein, or to make such other provisions in regard to matters or questions arising under this Agreement that shall not adversely affect the interests of the Holders of Registrable Securities. Each Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to THIS SECTION 8(b), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Holder. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by telecopier, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows: (i) if to a Holder, at the most current address given by such Holder to the Company in a Notice and Questionnaire or any amendment thereto; (ii) if to the Company, to: The Williams Companies, Inc. One Williams Center Tulsa, Oklahoma 74172 Attention: Treasurer Telecopy No.: (918) 573-2065 (iii) if to the Initial Purchaser, to: 21
Lehman Brothers Inc. 399 Park Avenue, 11th Floor New York, New York 10022 Attention: Syndicate Department Fax No.: (212) 526-0943 with a copy, in the case of any notice pursuant to Section 6, to the: Director of Litigation, Office of the General Counsel, Lehman Brothers Inc. 399 Park Avenue, 15th Floor New York, NY 10022 or to such other address as such person may have furnished to the other persons identified in this SECTION 8(c) in writing in accordance herewith. (d) Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Purchaser or subsequent Holders if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (e) Successors and Assigns. Any person who purchases any Registrable Securities from the Initial Purchaser shall be deemed, for purposes of this Agreement, to be an assignee of the Initial Purchaser. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities, Provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement. 22
(g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Sever ability. If any term provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in fill force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. Except as provided in the Purchase Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights. No party hereto shall have any rights, duties or obligations other than those specifically set forth in this Agreement. In no event will such methods of distribution take the form of an underwritten offering of the Registrable Securities without the prior agreement of the Company. (k) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Section 4, 5 or 6 hereof and the obligations to make payments of and provide for liquidated damages under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with its terms. 23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. THE WILLIAMS COMPANIES, INC. By: /s/ James G. Ivey ----------------------- Name: Title: Confirmed and accepted as of the date first above written: By: LEHMAN BROTHERS INC. By: ________________________ Name: Title:
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. THE WILLIAMS COMPANIES, INC. By: ___________________________ Name: Title: Confirmed and accepted as of the date first above written: By: LEHMAN BROTHERS INC. By: /s/ Robert Pierce ------------------------ Name: Title:
EXHIBIT 8.1 [WHITE & CASE LIMITED LIABILITY PARTNERSHIP LETTERHEAD] May 28, 2003 Lehman Brothers Inc. 745 Seventh Avenue New York, New York 10019 Re: $300,000,000 5.50% Junior Subordinated Convertible Debentures Due 2033 Dear Ladies and Gentlemen: We have acted as special counsel for The Williams Companies, Inc. (the "Company"), a company organized under the laws of the State of Delaware, in connection with the issuance and sale by the Company of $300,000,000 aggregate principal amount of 5.50% Junior Subordinated Convertible Debentures due 2033 (the "Securities"). This opinion is delivered to you pursuant to Section 5(d) of the Purchase Agreement (the "Purchase Agreement"), dated as of May 20, 2003, between the Company and the Initial Purchaser. Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Purchase Agreement or the exhibits thereto. In so acting, we have examined such certificates of officers of the Company, and the originals (or copies thereof, certified to our satisfaction) of such corporate documents and records of the Company, and such other documents, records and papers as we have deemed relevant in order to give the opinions hereinafter set forth. In this connection, we have assumed the genuineness of signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed, facsimile or photostatic copies. In addition, we have relied, to the extent that we deem such reliance proper, upon such certificates of officers of the Company with respect to the accuracy of material factual matters contained therein which we have not independently established, and upon the representations and warranties of the Company in Section 1 of the Purchase Agreement and of the Initial Purchaser in Section 2 of the Purchase Agreement.
WHITE & CASE LIMITED LIABILITY PARTNERSHIP Page 2 Based upon and subject to the foregoing, we are of the opinion that: 1. The Securities, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchaser, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). 2. The Indenture has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). 3. The Registration Rights Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law), and except to the extent that the rights to indemnity and contribution contained therein may be limited by applicable state or federal securities laws or the public policy underlying such laws. 4. The Purchase Agreement has been duly executed and delivered by the Company. 5. The issuance of the Securities and the execution, delivery and performance by the Company of the Purchase Agreement, the Indenture, the Securities and the Registration Rights Agreement do not violate, or require any filing with or approval of any governmental authority or regulatory body of the State of New York or the United States of America under, any law or regulation of the State of New York or the United States of America applicable to the Company, except the declaration of effectiveness by the Commission of the registration statement filed pursuant to the Registration Rights Agreement, the Common Stock into which the Securities are convertible being accepted for listing on the New York Stock Exchange, and such consents, approvals, authorizations, registrations or qualifications as have been obtained and made and as may be required under the state securities or "blue sky laws" in connection with the purchase and distribution of the Securities by the Initial Purchaser (as to which we express no opinion). 6. The execution, delivery and performance by the Company of the Purchase Agreement, the Registration Rights Agreement, the Securities and the Indenture will not violate (i) the Certificate of Incorporation or By-laws of the Company, (ii) the terms of any Material Contract, or (iii) any order, judgment or decree of any court or other agency of government known to us.
WHITE & CASE LIMITED LIABILITY PARTNERSHIP Page 3 7. The Company is not, and immediately after giving effect to the offering of the Securities and the application of the proceeds therefrom as contemplated by the Offering Memorandum will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 8. The Common Stock issuable upon conversion of the Securities has been duly authorized by the Company and validly reserved for issuance by the Company upon such conversion by all necessary corporate action, and such Common Stock, when duly issued upon conversion pursuant to the Indenture, will be validly issued, fully paid and non-assessable; no holder thereof will be subject to personal liability solely by reason of being such a holder; the issuance of such Common Stock upon such conversion will not be subject to preemptive rights; and the preferred stock purchase rights under the Rights Agreement to which holders of shares of such Common Stock will be entitled, will be validly issued and the Common Stock will conform in all material respects to the description thereof contained in the Offering Memorandum. 9. The statements set forth in the Offering Memorandum under the caption "Description of Convertible Debentures", insofar as they purport to constitute a summary of the terms of the Indenture, the Registration Rights Agreement and the Securities fairly summarize in all material respects the terms thereof. The authorized capital stock of the Company conforms as to legal matters to the description thereof in the Offering Memorandum. The statements under the caption "Material U.S. Federal Income Tax Considerations," insofar as such statements constitute matters of United States law, are accurate in all material respects, subject to the qualifications and limitations set forth therein. 10. Assuming (i) the accuracy of the representations and warranties of the Company set forth in Section 1 of the Purchase Agreement, (ii) the due performance by the Company of the covenants and agreements set forth in Section 6 of the Purchase Agreement, (iii) the compliance by the Initial Purchaser with the offering and transfer procedures and the restrictions described in the Offering Memorandum and its covenants and agreements in Sections 2 and 7 of the Purchase Agreement and (iv) the accuracy of the representations and warranties of the Initial Purchaser set forth in Section 2 of the Purchase Agreement, the offer, sale and delivery of the Securities to the Initial Purchaser in the manner contemplated by the Purchase Agreement and the Offering Memorandum and the initial resale of the Securities by the Initial Purchaser in the manner contemplated in the Offering Memorandum and the Purchase Agreement, do not require registration of the Securities under the Securities Act or qualification of the Indenture under the TIA, it being understood that we express no opinion as to any subsequent resale of any Securities. * * * In the course of preparation by the Company of the Offering Memorandum, we have participated in conferences with officers of the Company and with you and your counsel. Other than the Company's annual report on Form 10-K for the year ended December 31, 2002 and the Company's definitive proxy statement on Schedule 14A filed on April 7, 2003, we did not participate in the preparation of the documents incorporated by reference in the Offering Memorandum or review them prior to their filing with the Securities and Exchange Commission
WHITE & CASE LIMITED LIABILITY PARTNERSHIP Page 4 (the "Commission") under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") or mailing to the Company's security holders, but we did review them in connection with our participation in the preparation of the Offering Memorandum. We are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum (except to the extent stated in paragraph 9 above), and our judgments as to materiality are, to the extent we deem appropriate, based in part upon the views of appropriate officers and other representatives of the Company. Based upon such participation in the preparation of the Offering Memorandum, but without independent check or verification, and subject to the preceding paragraph and the final paragraph hereof, nothing has come to our attention which causes us to believe that the Offering Memorandum (other than the financial statements and related schedules and other financial and accounting data included or incorporated by reference therein, as to which we express no belief), as of its date or as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The phrase, "to our knowledge," or words of similar import, means the actual knowledge (without independent investigation except as otherwise stated) of lawyers at White & Case LLP who have been principally involved in negotiating and reviewing the Purchase Agreement and the transactions contemplated thereby. We do not express or purport to express any opinions with respect to laws other than the laws of the State of New York, the General Corporation Law of the State of Delaware and the Federal laws of the United States. This opinion is given solely for your use pursuant to the Purchase Agreement and may not be relied on by any other person or for any other purpose. We do not undertake to advise you of any changes in our opinions expressed herein resulting from matters that may hereafter arise or that hereafter may be brought to our attention. Very truly yours, KK:BB
EXHIBIT 23.1 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and the related Prospectus of The Williams Companies, Inc. for the registration of $300 million of 5.5% junior subordinated convertible debentures, and to the incorporation by reference therein of our report dated March 5, 2003, with respect to the consolidated financial statements and schedule of The Williams Companies, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 2002, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Tulsa, Oklahoma June 23, 2003
EXHIBIT 24.1 THE WILLIAMS COMPANIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned individuals, in their capacity as a director or officer, or both, as hereinafter set forth below their signature, of THE WILLIAMS COMPANIES, INC., a Delaware corporation ("Williams"), do hereby constitute and appoint James J. Bender, Tony Gehres and Brian Shore their true and lawful attorneys and each of them (with full power to act without the others) their true and lawful attorneys for them and in their name and in their capacity as officers of Williams, as hereinafter set forth below their signature, to sign a Registration Statement on Form S-3 for the registration under the Securities Act of 1933, as amended, of $300,000,000 aggregate principal amount of 5.50% Junior Subordinated Convertible Debentures due 2033 issued in May 2003 by Williams, whereby selling security holders named in the prospectus or a prospectus supplement of said registration statement may resell their convertible debentures and the common shares upon conversion of their convertible debentures, and any and all amendments and pre- and post-effective amendments to said registration statement and any and all instruments necessary or incidental in connection therewith; and THAT the undersigned Williams does hereby constitute and appoint James J. Bender, Tony Gehres and Brian Shore its true and lawful attorneys and each of them (with full power to act without the others) its true and lawful attorney for it and in its name and on its behalf to sign such registration statement and any and all amendments and pre- and post-effective amendments thereto and any and all instruments necessary or incidental in connection therewith. Each of said attorneys shall have full power of substitution and resubstitution, and said attorneys or any of them or any substitute appointed by any of them hereunder shall have full power and authority to do and perform in the name and on behalf of each of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully to all intents and purposes as each of the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys or any of them or of any such substitute pursuant hereto. * * * * signature pages follows
IN WITNESS WHEREOF, the undersigned have executed this instrument, all as of the ___ day of June, 2003. ____________________________________ ____________________________________ Steven J. Malcolm Donald R. Chappel President, Chief Executive Office and Chief Financial Officer (Principal Chairman of the Board (Principal Financial Officer) Executive Officer) ____________________________________ ____________________________________ Gary R. Belitz Hugh M. Chapman Controller (Principal Accounting Director Officer) ____________________________________ ____________________________________ Thomas H. Cruikshank William E. Green Director Director ____________________________________ ____________________________________ W. R. Howell Charles M. Lillis Director Director ____________________________________ ____________________________________ George A. Lorch Frank T. MacInnis Director Director ____________________________________ ____________________________________ Janice D. Stoney Joseph H. Williams Director Director THE WILLIAMS COMPANIES, INC. By: ______________________________ Name: Title: ATTEST: ____________________________________ Name: Title: -2-
Accepted and agreed to this ____ day of June, 2003 By: ______________________________________ Name: James J. Bender Title: Accepted and agreed to this ____ day of June, 2003 By: ______________________________________ Name: Tony Gehres Title: Accepted and agreed to this ____ day of June, 2003 By: ______________________________________ Name: Brian Shore Title: -3-
EXHIBIT 25.1 ------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ------------------------------------------- JPMORGAN CHASE BANK (Exact name of trustee as specified in its charter) NEW YORK 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 PARK AVENUE NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) --------------------------------------------------------- THE WILLIAMS COMPANIES, INC. (Exact name of obligor as specified in its charter) DELAWARE 73-0569878 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ONE WILLIAMS CENTER TULSA, OKLAHOMA 74172 (Address of principal executive offices) (Zip Code) ---------------------------------------------- 5.50% JUNIOR SUBORDINATED CONVERTIBLE DEBENTURES DUE 2033 (Title of the indenture securities) =============================================================
GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor and Guarantors. If the obligor or any Guarantor is an affiliate of the trustee, describe each such affiliation. None.
- 2 - Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Restated Organization Certificate of the Trustee dated March 25, 1997 and the Certificate of Amendment dated October 22, 2001 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-76894, which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001 in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation was renamed JPMorgan Chase Bank. 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 333-76894, which is incorporated by reference.). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001, in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation was renamed JPMorgan Chase Bank. 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, JPMorgan Chase Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 20TH DAY OF JUNE, 2003. JPMORGAN CHASE BANK By _____________________________________ Joanne Adamis Vice President
-3- Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Restated Organization Certificate of the Trustee dated March 25, 1997 and the Certificate of Amendment dated October 22, 2001 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-76894, which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001 in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation was renamed JPMorgan Chase Bank. 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 333-76894, which is incorporated by reference.). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001, in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation was renamed JPMorgan Chase Bank. 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, JPMorgan Chase Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 20TH DAY OF JUNE, 2003. JPMORGAN CHASE BANK By /s/ Joanne Adamis ---------------------- Joanne Adamis Vice President
Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF JPMorgan Chase Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 2003, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. DOLLAR AMOUNTS ASSETS IN MILLIONS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ........................................... $ 21,415 Interest-bearing balances ................................... 6,882 Securities: Held to maturity securities ...................................... 334 Available for sale securities .................................... 80,076 Federal funds sold and securities purchased under agreements to resell........................................ Federal funds sold in domestic offices ...................... 14,044 Securities purchased under agreements to resell ............. 73,060 Loans and lease financing receivables: Loans and leases held for sale .............................. 25,832 Loans and leases, net of unearned income .................... $161,345 Less: Allowance for loan and lease losses ................... 3,823 Loans and leases, net of unearned income and allowance ................................................... 157,522 Trading Assets ................................................... 189,427 Premises and fixed assets (including capitalized leases) ......... 6,186 Other real estate owned........................................... 131 Investments in unconsolidated subsidiaries and associated companies ........................................ 691 Customers' liability to this bank on acceptances outstanding ................................................. 225 Intangible assets Goodwill .................................................... 2,180 Other Intangible assets ..................................... 3,314 Other assets ..................................................... 40,377 TOTAL ASSETS ..................................................... $621,696 ========
LIABILITIES Deposits In domestic offices ........................................................ $ 174,351 Noninterest-bearing ........................................................ $ 70,991 Interest-bearing ........................................................... 103,360 In foreign offices, Edge and Agreement subsidiaries and IBF's ..................................................... 125,789 Noninterest-bearing ........................................................ $ 7,531 Interest-bearing ........................................................... 118,258 Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased in domestic offices ................................ 5,929 Securities sold under agreements to repurchase ............................. 113,903 Trading liabilities ............................................................. 116,329 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases) .................................. 10,758 Bank's liability on acceptances executed and outstanding ........................ 225 Subordinated notes and debentures ............................................... 8,306 Other liabilities ............................................................... 29,735 TOTAL LIABILITIES ............................................................... 585,325 Minority Interest in consolidated subsidiaries .................................. 97 EQUITY CAPITAL Perpetual preferred stock and related surplus ................................... 0 Common stock .................................................................... 1,785 Surplus (exclude all surplus related to preferred stock) ........................ 16,304 Retained earnings ............................................................... 17,228 Accumulated other comprehensive income .......................................... 957 Other equity capital components ................................................. 0 TOTAL EQUITY CAPITAL ............................................................ 36,274 --------- TOTAL LIABILITIES, MINORITY INTEREST, AND EQUITY CAPITAL ........................ $ 621,696 ========= I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. WILLIAM B. HARRISON, JR. ) HELENE L. KAPLAN ) DIRECTORS WILLIAM H. GRAY, III )