-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PpMvSU0gdRKohUl6sfvYUPDzTlkWU756MNNciVoAalvj0jHKCgrdBgg9ZNz5Ksy8 dTWFlfFUyfscW4xUrMX+MA== 0000950134-03-005700.txt : 20030411 0000950134-03-005700.hdr.sgml : 20030411 20030411153719 ACCESSION NUMBER: 0000950134-03-005700 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20030411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST PIPELINE CORP CENTRAL INDEX KEY: 0000110019 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 870269236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-104474 FILM NUMBER: 03647120 BUSINESS ADDRESS: STREET 1: 295 CHIPETA WAY CITY: SALT LAKE CITY STATE: UT ZIP: 84158-0900 BUSINESS PHONE: 8015838800 MAIL ADDRESS: STREET 1: 295 CHIPETA WAY CITY: SALT LAKE STATE: UT ZIP: 84158 S-4 1 d03974sv4.txt FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 2003 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- NORTHWEST PIPELINE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 4922 87-0269236 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
--------------------- 295 CHIPETA WAY SALT LAKE CITY, UTAH 84108 (801) 583-8800 (Address, including zip code, and telephone number, including area code, of registrant's and co-registrants' principal executive offices) --------------------- RICHARD CARSON, ESQ. SENIOR ATTORNEY THE WILLIAMS COMPANIES, INC. ONE WILLIAMS CENTER TULSA, OKLAHOMA 74172 (918) 573-2000 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- WITH A COPY TO: RICHARD M. RUSSO GIBSON, DUNN & CRUTCHER LLP 1801 CALIFORNIA STREET, SUITE 4100 DENVER, COLORADO 80202 (303) 298-5700 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. --------------------- If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering: [ ] CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- 8 1/8% Senior Notes due 2010...... $175,000,000 100% $175,000,000 $14,157.50 - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f) promulgated under the Securities Act of 1933, as amended. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities 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 APRIL 11, 2003 PROSPECTUS NORTHWEST PIPELINE CORPORATION EXCHANGE OFFER FOR ALL OUTSTANDING 8 1/8% SENIOR NOTES DUE MARCH 1, 2010 (CUSIP NOS. 667748AJ6 AND U66640AA8) FOR NEW 8 1/8% SENIOR NOTES DUE MARCH 1, 2010 THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2003, UNLESS EXTENDED. TERMS OF THE EXCHANGE OFFER: - We will exchange all outstanding notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer. - You may withdraw tendered outstanding notes at any time prior to the expiration of the exchange offer. - The exchange of outstanding notes will not be a taxable exchange for United States federal income tax purposes. - The terms of the new notes to be issued are substantially identical to the terms of the outstanding notes, except that transfer restrictions, registration rights and liquidated damages provisions relating to the outstanding notes do not apply. - Each broker-dealer that receives securities for its own account pursuant to the Exchange Offer ("Exchange Securities") must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. - We will not receive any proceeds from the exchange offer. - There is no existing market for the new notes to be issued and we do not intend to apply for their listing on any securities exchange. See the "Description of Notes" section beginning on page 51 for more information about the new notes to be issued in this exchange offer. THE NEW NOTES INVOLVE SUBSTANTIAL RISKS SIMILAR TO THOSE ASSOCIATED WITH THE OUTSTANDING NOTES. SEE THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF THESE RISKS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES AND EXCHANGE COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated , 2003 TABLE OF CONTENTS
PAGE ---- Special Note Regarding Forward-Looking Statements........... ii Prospectus Summary.......................................... 1 Risk Factors................................................ 12 The Exchange Offer.......................................... 20 Use of Proceeds............................................. 29 Capitalization.............................................. 29 Selected Historical Financial Data.......................... 30 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 31 Business.................................................... 37 Management.................................................. 45 Certain Relationships and Related Party Transactions........ 47 Description of Other Indebtedness........................... 48 Description of Notes........................................ 51 Certain U.S. Federal Income Tax Considerations.............. 92 Plan of Distribution........................................ 97 Legal Matters............................................... 98 Experts..................................................... 98 Where You Can Find More Information......................... 98 Glossary.................................................... 99 Index to Financial Statements............................... F-1
--------------------- You should rely only upon the information contained in this document. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to exchange these securities in any jurisdiction where the offer or exchange is not permitted. You should assume the information appearing in this document is accurate only as of the date on the front cover of this document. Our business, financial condition, results of operations and prospects may have changed since that date. This document is based on information provided by us and other sources we believe are reliable. We have summarized certain documents and other information in a manner we believe to be accurate, but we refer you to the actual documents for a more complete understanding of what we discuss in this document. In making an investment decision, you must rely on your own examination of our business and the terms of this offering and the notes, including the merits and risks involved. This offering is being made on the basis of this prospectus. Any decision to purchase the notes in this offering must be based on the information contained in this prospectus. You should contact us with any questions about this offering or if you require additional information to verify the information contained in this document. We are not making any representation to any offeree of the notes regarding the legality of an investment in the notes by it under any legal investment or similar laws or regulations. You should not consider any information in this document to be legal, business or tax advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice regarding an investment in the notes. The federal securities laws prohibit trading in our securities while in possession of material non-public information with respect to us. The global note representing beneficial interests issued pursuant to this prospectus (the "global note") will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co., the nominee of DTC. Beneficial interests in the global note will be held only through DTC and its participants, including Clearstream Banking S.A. ("Clearstream") and Euroclear Bank S.A./N.V. ("Euroclear"), as operator of the Euroclear System. After initial issuance of the global notes, notes in certificated form may be issued in exchange for the global notes only in limited circumstances set forth in the indenture. The notes will be issued in registered form in minimum denominations of $1,000 and integral multiples of $1,000. See "Description of Notes -- Book-Entry, Delivery and Form" for further discussion of these matters and for definitions of certain of the capitalized terms used in this paragraph. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS The information in this prospectus includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to anticipated financial performance, management's plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. Words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "objective" and other similar expressions identify those statements that are forward-looking. These statements are based on management's beliefs and assumptions and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such statements, factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following: - future utilization of pipeline capacity, which can depend on energy prices, competition from other pipelines and alternative fuels, the general level of natural gas demand, decisions by customers not to renew expiring natural gas transportation contracts, adequate supplies of natural gas and weather conditions; - the ability to raise capital and fund capital expenditures in a cost-effective manner; - changes in federal, state or local laws and regulations to which we are subject, including allowed rates of return and related regulatory matters, and tax, environmental and employment laws and regulations; - the ability to manage costs; - the ability to expand into new markets as well as the ability to maintain existing markets; - the ability to obtain governmental and regulatory approval of various expansion projects; - the cost and effects of legal and administrative proceedings; - the effect of changes in accounting policies; - uncertainties or adverse developments involving our ultimate parent, The Williams Companies, Inc.; - changes in general economic conditions; - economic repercussions from terrorist activities and the government's response to such terrorist activities; and - other factors, including the risks outlined under "Risk Factors." Other factors and assumptions not identified above may also have been involved in deriving these forward-looking statements, and the failure of those other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. ii PROSPECTUS SUMMARY This summary contains basic information about us and this exchange offer but may not contain all the information that is important to you. For a more complete understanding of this exchange offer, we encourage you to read this entire prospectus and the documents we refer you to. References In this prospectus to "we," "us," "our," "Northwest" and "Pipeline" refer to Northwest Pipeline Corporation, unless the context indicates otherwise. The term "outstanding notes" refers to the 8 1/8% Senior Notes due March 1, 2010 issued on March 4, 2003. The term "new notes" refers to the 8 1/8% Senior Notes due March 1, 2010 offered by this prospectus. The term "notes" refers to the outstanding notes and the new notes, collectively. You should carefully consider the information set forth under "Risk Factors." In addition, certain statements are forward-looking statements which involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements." THE EXCHANGE OFFER Notes offered................. $175,000,000 aggregate principal amount of new 8 1/8% Senior Notes due March 1, 2010, all of which will have been registered under the Securities Act. The terms of the new notes offered in the exchange offer are substantially identical to those of the outstanding notes, except that certain transfer restrictions, registration rights and liquidated damages provisions relating to the outstanding notes do not apply to the registered new notes. Outstanding notes............. $175,000,000 aggregate principal amount of 8 1/8% Senior Notes due March 1, 2010, all of which were issued on March 4, 2003. The exchange offer............ We are offering to issue registered new notes in exchange for a like principal amount and like denomination of our outstanding notes. We are offering to issue these registered new notes to satisfy our obligations under a registration rights agreement that we entered into with the initial purchasers of the outstanding notes when we sold the outstanding notes in a transaction that was exempt from the registration requirements of the Securities Act. You may tender your outstanding notes for exchange by following the procedures described under the caption "The Exchange Offer." Tenders; Expiration date; Withdrawal.................... The exchange offer will expire at 5:00 p.m., New York City time, on , 2003, which is 30 days after the commencement of the exchange offer, unless we extend it. If you decide to exchange your outstanding notes for new notes, you must acknowledge that you are not engaging in, and do not intend to engage in, a distribution of the new notes. You may withdraw any outstanding notes that you tender for exchange at any time prior to the expiration of the exchange offer. If we decide for any reason not to accept any outstanding notes you have tendered for exchange, those outstanding notes will be returned to you without cost promptly after the expiration or termination of the exchange offer. See "The Exchange Offer -- Terms of the Exchange Offer" for a more complete description of the tender and withdrawal provisions. Conditions to the exchange offer......................... The exchange offer is subject to customary conditions, some of which we may waive. 1 U.S. federal income tax considerations Your exchange of outstanding notes for new notes to be issued in the exchange offer will not result in any gain or loss to you for U.S. federal income tax purposes. Use of proceeds............... We will not receive any cash proceeds from the exchange offer. Exchange agent................ JPMorgan Chase Bank Consequences of failure to exchange your outstanding notes......................... Outstanding notes that are not tendered or that are tendered but not accepted will continue to be subject to the restrictions on transfer that are described in the legend on those notes. In general, you may offer or sell your outstanding notes only if they are registered under, or offered or sold under an exemption from, the Securities Act and applicable state securities laws. We, however, will have no further obligation to register the outstanding notes. If you do not participate in the exchange offer, the liquidity of your outstanding notes could be adversely affected. Consequences of exchanging your outstanding notes........ Based on interpretations of the staff of the SEC, we believe that you may offer for resale, resell or otherwise transfer the new notes that we issue in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act if you: - acquire the new notes issued in the exchange offer in the ordinary course of your business; - are not participating, do not intend to participate, and have no arrangement or undertaking with anyone to participate, in the distribution of the new notes issued to you in the exchange offer; and - are not an "affiliate" of our company as defined in Rule 405 of the Securities Act. If any of these conditions is not satisfied and you transfer any new notes issued to you in the exchange offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We will not be responsible for or indemnify you against any liability you may incur. Any broker-dealer that acquires new notes in the exchange offer for its own account in exchange for outstanding notes which it acquired through market-making or other trading activities, must acknowledge that it will deliver a prospectus when it resells or transfers any new notes issued in the exchange offer. See "Plan of Distribution" for a description of the prospectus delivery obligations of broker-dealers in the exchange offer. 2 THE NOTES The terms of the new notes we are issuing in this exchange offer and the outstanding notes are identical in all material respects, except the new notes offered in the exchange offer: - will have been registered under the Securities Act; - will not contain transfer restrictions and registration rights that relate to the outstanding notes; and - will not contain provisions relating to the payment of liquidated damages to be made to the holders of the outstanding notes under circumstances related to the timing of the exchange offer. A brief description of the material terms of the notes follows: Company....................... Northwest Pipeline Corporation. Securities Offered............ $175,000,000 aggregate principal amount of 8 1/8% Senior Notes due March 1, 2010. Maturity Date................. March 1, 2010. Interest Payment Dates........ March 1 and September 1 of each year, commencing on September 1, 2003. Mandatory Redemption.......... We will not be required to make mandatory redemption or sinking fund payments with respect to the notes. Optional Redemption........... We may redeem all or part of the notes at any time on or after March 1, 2007. Before March 1, 2006, we may redeem up to 35% of the aggregate principal amount of the notes with the net cash proceeds of qualified equity offerings. In addition, we may redeem some or all of the notes at any time prior to March 1, 2007, pursuant to a make-whole premium, plus accrued and unpaid interest, if any, to the redemption date. Please see "Description of Notes -- Optional Redemption" for the applicable redemption prices and other details. Change of Control............. If we or Williams experience specified kinds of changes of control, we must offer to repurchase the notes at 101% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the date of repurchase. For more details, see "Description of Notes -- Repurchase at the Option of Holders -- Change of Control." Ranking....................... The notes will be our senior obligations and will rank pari passu in right of payment with our existing and future unsecured and unsubordinated indebtedness and will be senior in right of payment to all of our existing and future subordinated indebtedness. Certain Covenants............. We will issue the notes under an indenture, dated as of March 4, 2003, between us and JPMorgan Chase Bank, as trustee. The indenture contains limitations on, among other things: - Certain payments with respect to our equity and certain investments and the purchase, redemption or retirement of our capital stock; - restrictions affecting the right of restricted subsidiaries, if any, to make certain payments and distributions; - our ability to incur additional indebtedness and issue preferred stock; 3 - asset sales; - transactions with affiliates; - the incurrence of liens on assets to secure certain debt; - engaging in certain business activities; and - certain mergers or consolidations and transfers of assets. These covenants are subject to exceptions, and many of the covenants will terminate before the notes mature if two specified rating agencies assign the notes investment grade ratings in the future and no event of default exists under the indenture. See "Description of Notes -- Termination of Certain Covenants." Form and Denomination......... The notes will be issued in fully registered form in denominations of $1,000 and in integral multiples of $1,000. Notes will be represented by global certificates deposited with, or on behalf of, DTC. Beneficial interests in the notes will trade in DTC's same-day funds settlement system. 4 NORTHWEST PIPELINE CORPORATION We own and operate a regulated interstate natural gas pipeline system, including facilities for mainline transmission and gas storage. Our system extends from the San Juan Basin in northwestern New Mexico and southwestern Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near Sumas, Washington. Our natural gas pipeline system transports substantially all of the natural gas to the metropolitan areas of Seattle, Washington; Portland, Oregon; and Boise, Idaho, which represent most of our primary market areas. Our system has an aggregate mainline deliverability of approximately 2.9 Bcf of gas per day and is composed of approximately 4,000 miles of mainline and lateral transmission pipelines, 470 meter stations and 43 mainline compressor stations with a combined capacity of approximately 348,000 horsepower. We also own or have access to natural gas and liquefied natural gas storage facilities in Utah and Washington with an aggregate seasonal storage level of 11.4 Bcf of working gas and daily withdrawal capacity of approximately 600 MMcf. These storage facilities enable us to balance daily receipts and deliveries and provide storage services to our customers. For the year ended December 31, 2002, our transportation and storage services accounted for approximately 91% and 3% of our operating revenues, respectively. In 2002, we transported natural gas for a total of 166 customers, including distribution companies, municipalities, interstate and intrastate pipelines, gas marketers and direct industrial users. We provided services to markets located in California, New Mexico, Colorado, Utah, Nevada, Wyoming, Idaho, Oregon and Washington. Our firm transportation agreements are generally long-term agreements with various maturities of up to 30 years and accounted for approximately 87% of our operating revenues for the year ended December 31, 2002. These long-term agreements have historically resulted in predictable volumes and related cash flows. Additionally, we offer interruptible and short-term firm transportation services, which accounted for approximately 4% of our operating revenues for the year ended December 31, 2002. As with all interstate natural gas pipeline operators, our transmission and storage activities are subject to regulation by the Federal Energy Regulatory Commission ("FERC") and, as such, our rates and charges for the transportation of natural gas in interstate commerce, the extension, enlargement or abandonment of our jurisdictional facilities, and our accounting, among other things, are subject to regulation. In accordance with our most recent FERC rate case, we are currently authorized to charge our customers a rate equivalent to $0.3076/Dth for natural gas shipped on our pipeline system, regardless of the distance the gas is to be shipped. We currently have no outstanding rate cases before the FERC, nor any immediate plans to file a rate case with the FERC. For the year ended December 31, 2002, we generated operating revenues, EBITDA (as defined in "Summary Historical Financial and Operating Data") and net income of $297.6 million, $203.6 million and $80.6 million, respectively. For the same period, net cash provided by operating activities was $136.5 million, total gas volume throughput was 729 TBtu and our average daily transportation volume and firm reserved capacity were 2.0 TBtu and 2.9 TBtu, respectively. We are a wholly-owned subsidiary of Williams Gas Pipeline Company LLC ("WGP"), which is a wholly-owned subsidiary of The Williams Companies, Inc. ("Williams"). Williams is a diversified energy company which has been active in constructing gas pipelines since 1916 and in operating interstate natural gas pipelines since 1983, when it purchased our company. See "-- Our Relationship with Williams" and "Risk Factors -- Risks Relating to Our Ownership by Williams." COMPETITIVE STRENGTHS Stable, Recurring Revenues Contracted Under Long-Term Firm Agreements. For the year ended December 31, 2002, approximately 90% of our operating revenues were generated under long-term firm transportation and storage agreements. Our transportation and storage agreements are generally contracted on a long-term basis and our rates are substantially collected through fixed demand charges. As a result, fluctuations in natural gas prices and actual volumes transported and stored have a limited impact on our operating revenues. The average remaining primary term of our long-term firm agreements is approximately 5 8.9 years on a volume-weighted basis. Our long-term firm agreements generally contain year-to-year automatic renewals at the end of the primary term, unless a termination notice is given by the customer. We do not have any substantial transportation and storage agreements expiring in 2003. Agreements representing 14% of our total long-term firm capacity expire in 2004, and as a result of rollover provisions will become year-to-year contracts at such time, unless terminated or extended for a longer term. No single agreement which expires during the next 10 years represents more than 12% of our total long-term firm capacity. Additionally, we only invest in infrastructure expansion on the basis of long-term firm commitments (of at least 15 years) from customers for the additional capacity or with customer commitments for support of improvements to existing facilities. We have historically experienced minimal bad debt expense due to the relatively strong credit quality of most of our customers and the extensive credit screening process we conduct on all of our customers. Sole Provider in Significant Geographic Markets. Our natural gas pipeline system transports substantially all of the natural gas to the metropolitan areas of Seattle, Washington; Portland, Oregon; and Boise, Idaho, which represent most of our primary market areas. Although we do not face significant competition in many of our market areas, we consistently strive to provide high quality customer service. In 2002, we received our highest rating ever in our annual customer satisfaction survey conducted by Energy Insights, a third-party energy consulting firm. We believe our consistently high level of customer satisfaction is due to our flexible, reliable services as well as the customized transportation solutions we offer to our customers at prices generally lower than those of our competitors. Efficient Operations Resulting in a Competitive Cost Structure. The efficient operation of our pipeline system enables us to position ourselves as the low cost, high quality provider of transportation and storage services in our major market areas. We have attained our competitive cost structure by exercising strict expense and capital spending discipline, utilizing the same physical pipeline facilities to provide simultaneous gas transportation services in two directions, and expanding our facilities to complement our existing infrastructure and geographic markets. By maintaining low costs, we maximize our earnings and cash flows and increase the probability of earning a rate of return on equity that is at least equal to the regulated return as set by the FERC, and avoid the need to file new rate cases with the FERC. Flexible Pipeline Operations with Diversified Natural Gas Supplies. Our pipeline system is designed on a bi-directional basis, which allows us to provide gas transportation services both north and south simultaneously on the system. Because we can transport gas from the San Juan and Rockies basins in the south, as well as from Canada in the north, we are able to provide our customers with low cost supply alternatives and flexible service options. Through our system storage and Park and Loan service, we provide our customers flexibility in helping them manage their gas supply and transportation balancing needs. Strong Management Team. Our operating management team has an average tenure of more than 13 years managing Williams' gas pipeline systems. Our management has an intense focus on operating our assets efficiently while providing a high level of service to our customers. This team also has a comprehensive understanding of the regulatory environment under which we operate. The depth and strength of our management has enabled us to identify and capitalize on expansion and growth opportunities. BUSINESS STRATEGY Our primary strategy is to safely and efficiently operate our facilities and opportunistically invest in new infrastructure to meet the growing demands of our market areas. The principal elements of our business strategy are to: Maintain Safe and Reliable Operations with a High Degree of Customer Satisfaction. We intend to continue to operate our transportation and storage facilities in a safe manner for our communities, customers, employees and the environment. We believe our record of long-term customer relationships and contract extensions is due to our reliable and flexible transportation and storage services as well as the relatively lower rates we offer our customers. 6 Continue to Efficiently Operate and Reduce Costs in Our Existing Operations. We believe we can generate additional revenue and operating income by increasing and optimizing throughput on our existing pipeline assets and realizing cost savings through continued operational efficiencies. Because of our relatively low variable costs in operating our facilities, increasing revenues directly leads to increased cash flow and improved margins. We believe we can further reduce our costs by minimizing capital expenditures for maintenance items that do not impact pipeline safety, security or performance and by continuing to implement our strict operating expense discipline. Strategically Expand Our Natural Gas Transportation Infrastructure. We believe that the demand for natural gas in the Pacific Northwest will continue to increase due to the growing preference for natural gas in residential and commercial markets, as well as for use in power generation facilities in response to environmental concerns. We believe this growth in demand will support future expansions of our mainline and lateral capacity. We intend to capitalize on our existing infrastructure, market position and customer relationships in order to expand operations to meet the anticipated increased demand for natural gas transportation and storage services, while maintaining access to substantial sources of natural gas supply. We have expanded our infrastructure on the basis of long-term firm commitments (of at least 15 years) from customers for the additional capacity or with customer commitments for support of improvements to existing facilities. The following table summarizes our current major expansion projects:
ROCKIES EVERGREEN COLUMBIA GORGE ------------------ --------------- ------------------ Location.................... Wyoming, Idaho Washington Oregon, Washington Timing: Application Filed......... August 29, 2001 October 3, 2001 October 3, 2001 FERC Certification........ September 23, 2002 June 27, 2002 June 27, 2002 Start Construction........ May 2003 October 2002 May 2003 Expected In-Service Date................... November 1, 2003 October 1, 2003 November 1, 2003 Additional Capacity: Daily Capacity............ 175,000 Dth 276,625 Dth 56,000 Dth Pipeline Miles............ 91 28 NA Horsepower................ 26,057 64,160 24,030 Estimated Total Capital Cost(1)................... $140 million(2) $198 million $43 million Investment as of December 31, 2002.................. $11.3 million $53.5 million $5.6 million
- --------------- (1) Includes a small portion of the capital expenditures expected to be made during 2004 and allowance for funds used during construction, neither of which is reflected in our estimated 2003 capital expenditures. (2) Approximately $16 million of the estimated total capital cost is expected to be offset by settlement funds from a former customer associated with a contract restructuring. Our 2002 capital expenditures totaled approximately $182 million, of which approximately $33 million was for maintenance and other non-expansion purposes. We anticipate 2003 capital expenditures will total approximately $330 million, of which approximately $63 million is anticipated to be for maintenance and other non-expansion purposes. RECENT DEVELOPMENTS 2002 Financial Results. Our financial results for the year ended December 31, 2002 included the following: - operating revenues of $297.6 million, an increase of $12.4 million, or 4%, over the prior year's operating revenues of $285.2 million, due primarily to facility charge revenues of $3.6 million from incremental projects put into service during 2002, new reservation charges of $1.5 million and higher short-term firm transportation revenues, partially offset by a $1.6 million decrease in tracked fuel costs and Gas Research Institute charges billed to customers. Transportation services accounted for 91% and 93% of 7 operating revenues for the years ended December 31, 2002 and 2001, respectively. Additionally, gas storage services represented 3% of operating revenues in each of the years ended December 31, 2002 and 2001; - EBITDA of $203.6 million, an increase of $9.5 million, or 5%, over the prior year's EBITDA of $194.1 million; - operating income of $144.6 million, an increase of $9.2 million, or 7%, over the prior year's operating income of $135.4 million, due to the higher revenues discussed above, partially offset by higher operating expenses of $3.2 million, which included $3.9 million related to an enhanced-benefit early retirement option offered to certain Williams employee groups; and - net income of $80.6 million, an increase of $13.6 million, or 20%, over the prior year's net income of $67.0 million, due to the reasons discussed above combined with reduced charitable contributions and lower interest charges. Completed Expansion Project. On November 1, 2002, we placed in service our Grays Harbor Lateral project. This lateral pipeline is designed to provide 161,500 Dth per day of firm transportation capacity to serve a new power generation plant in the state of Washington. The Grays Harbor Lateral project was requested by one of our customers and included installation of 49 miles of 20-inch pipeline, the addition of 4,700 horsepower at an existing compressor station and a new meter station. The cost of the lateral project was approximately $92 million. The customer has suspended construction of the contemplated new power generation plant, but that does not affect its obligation to pay for the cost of service of the lateral pipeline on an incremental rate basis. The Grays Harbor Lateral project is based on a 30-year contract and is expected to generate approximately $22 million of operating revenues in its first twelve months of operations. OUR RELATIONSHIP WITH WILLIAMS We are a wholly-owned subsidiary of WGP, which is a wholly-owned subsidiary of Williams. Williams is an integrated energy company engaged in the transportation, processing and storage of natural gas, exploration and production of natural gas, transportation and distribution of petroleum products and energy marketing and risk management. Williams' principal operations are conducted through the following business segments: - Gas Pipelines: owns and operates Transcontinental Gas Pipe Line Corporation and Texas Gas Transmission Corporation in addition to our company. Transcontinental Gas Pipe Line Corporation consists of an approximately 10,400-mile pipeline system extending from south Texas to the New York City metropolitan area. Texas Gas Transmission Corporation consists of an approximately 5,800-mile pipeline system extending from the Louisiana Gulf Coast and east Texas to the mid-South, lower Midwest and Northeast. - Exploration & Production: produces, develops, explores for and manages natural gas reserves primarily located in the San Juan Basin and Rocky Mountain region of the United States. As of December 31, 2002, Williams had proved natural gas reserves of 2.85 Tcf. - Midstream Gas & Liquids: owns and operates natural gas gathering, processing and treating facilities throughout the U.S. and Canada. - Energy Marketing & Trading: buys, sells and transports natural gas, refined products, natural gas liquids, crude oil, propane, liquefied natural gas and liquid petroleum gas and provides risk management and other energy related services. On February 20, 2003, Williams announced its intent to sell Texas Gas Transmission Corporation, its general and limited partner interests in Williams Energy Partners L.P. (the owner of, among other things, a 6,700-mile refined petroleum products pipeline system) and selected assets from Exploration & Production and Midstream Gas & Liquids. 8 Williams' Business Structure [Flow Chart] During July 2002, the major rating agencies downgraded Williams' unsecured long-term credit ratings to below investment grade, reflecting the uncertainty associated with Williams' energy trading business, short-term cash requirements facing Williams and the increased level of debt Williams had incurred to meet payment obligations and guarantees associated with Williams Communications Group, Inc. ("WCG"), a former Williams affiliate. In July 2002, Williams completed a series of transactions to address then-current liquidity issues and to strengthen its finances. Williams amended and restated its $700 million revolving credit facility and provided security thereunder, and also entered into a new $400 million secured letter of credit facility. A Williams subsidiary also entered into a $900 million senior secured credit agreement. These facilities include pledges of certain assets and contain financial ratios that must be maintained and other covenants. If such provisions of these agreements are not complied with, financing commitments could be terminated and amounts outstanding could become due and payable immediately. The liquidity issues experienced by Williams during 2002, combined with deteriorating conditions in the general energy trading sector resulting from credit and regulatory concerns, limited the ability of Williams Energy Marketing & Trading ("WEM&T") to attract new business, manage market risk and execute hedging strategies. Williams has experienced substantial net losses due to the segment losses incurred by WEM&T as a result of a significant decline in the forward mark-to-market value of its portfolio, the partial impairment of goodwill and the conditions in the energy trading market previously noted. In August 2002, Williams announced its intention to further reduce its commitment and exposure to WEM&T. In July 2002, Williams announced an agreement in principle with the state of California and other parties including Washington and Oregon on a global settlement regarding outstanding litigation and claims against Williams, including the state's claims for refunds at issue with the FERC. In November 2002, Williams announced that it had agreed to restructure its long-term energy contracts with the state of California as part of the global settlement. All necessary approvals were obtained, and the settlement was finalized in December 2002. The settlement resolved most of Williams' outstanding litigation and civil claims related to natural gas and power markets with the states of California, Washington and Oregon. Our assets have not been pledged to secure any indebtedness of Williams or its other affiliates, but Williams' credit facilities contain restrictions on our ability to limit loans or advances to Williams or dividends to Williams on our capital stock. Our principal exposure to the credit difficulties of Williams relates to its indirect ownership of all of our common stock and the impact of that relationship if Williams were to become insolvent, and the advances we have made or may hereafter make indirectly to Williams under its cash management program. For additional discussion of our exposure to the credit difficulties of Williams, see "Risk Factors -- Risks Relating to our Ownership by Williams." --------------------- We were incorporated in Delaware in 1965. Our principal executive offices are located at 295 Chipeta Way, Salt Lake City, Utah 84108, and our telephone number is (801) 583-8800. 9 RISK FACTORS Prospective purchasers of the notes offered hereby should carefully consider all information contained in this prospectus, including the risk factors beginning on page 12. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA The following table summarizes our historical financial and operating data, which you should read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes contained herein. The summary financial data as of December 31, 2001 and 2002 and for each of the years in the three-year period ended December 31, 2002 have been derived from our audited financial statements included elsewhere in this prospectus. "Operating Data" below are not directly derived from our financial statements, but have been presented to provide additional data for your analysis.
YEAR ENDED DECEMBER 31, ------------------------------------ 2000 2001 2002 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Operating Revenues............................... $ 296,361 $ 285,171 $ 297,591 Operating Income................................. 149,862 135,419 144,634 Net Income....................................... 79,742 67,041 80,631 BALANCE SHEET (END OF PERIOD): Cash and Cash Equivalents........................ $ 1,890 $ 443 $ 207 Working Capital(1)............................... 13,427 36,708 7,720 Net Property, Plant & Equipment.................. 933,560 967,643 1,094,741 Total Assets..................................... 1,104,079 1,143,744 1,222,849 Current Maturities of Long-Term Debt............. 1,667 -- 7,500 Long-Term Debt, less current maturities.......... 369,146 367,503 360,023 Total Debt....................................... 370,813 367,503 367,523 Common Stockholder's Equity...................... 469,381 516,422 593,839 Total Capitalization(2).......................... 838,527 883,925 953,862 OTHER FINANCIAL DATA: Interest Charges................................. $ 31,914 $ 30,524 $ 25,627 Maintenance Capital Expenditures................. 32,176 41,313 27,134 Total Capital Expenditures....................... 47,933 94,923 181,843 Net Cash Provided by Operating Activities........ 155,572 105,906 136,487 Net Cash Used by Investing Activities............ (72,357) (84,024) (136,723) Net Cash Used by Financing Activities............ (81,667) (23,329) -- EBITDA(3)........................................ 206,420 194,073 203,622 OPERATING DATA: Total Throughput (TBtu).......................... 752 734 729 Average Daily Transportation Volumes (TBtu)...... 2.1 2.0 2.0 Average Daily Firm Reserved Capacity (TBtu)...... 2.7 2.7 2.9
10
YEAR ENDED DECEMBER 31, ------------------------------------ 2000 2001 2002 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) FINANCIAL RATIOS: Long-Term Debt/Total Capitalization.............. 44.0% 41.6% 37.7% EBITDA/Interest Charges.......................... 6.5x 6.4x 7.9x Total Debt/EBITDA................................ 1.8x 1.9x 1.8x Return on Equity(4).............................. 17.0% 13.6% 14.5% Earnings/Fixed Charges(5)........................ 4.7x 4.2x 5.2x PRO FORMA FINANCIAL RATIOS(6): Long-Term Debt/Total Capitalization.............. 47.4% EBITDA/Interest Charges.......................... 5.1x Total Debt/EBITDA................................ 2.7x
- --------------- (1) Working capital is calculated as current assets minus current liabilities, not including current maturities of long-term debt. (2) Total capitalization is calculated as long-term debt (less current maturities) plus common stockholder's equity. (3) EBITDA (earnings before interest, taxes, depreciation and amortization) is calculated as operating revenues minus the sum of general and administrative expenses, operating and maintenance expenses and taxes other than income taxes. EBITDA is presented here because it can be used as an indication of a company's ability to incur and service debt and is commonly used as an analytical indicator in our industry. EBITDA measures presented may not be comparable to similarly titled measures used by other companies. EBITDA is not a measurement presented in accordance with accounting principles generally accepted in the United States ("GAAP") and we do not intend EBITDA to represent cash flows from operations as defined by GAAP. You should not consider EBITDA to be an alternative to net income, cash flows from operations or any other items calculated in accordance with GAAP or an indicator of our operating performance. The following are the components of our EBITDA:
YEAR ENDED DECEMBER 31, ------------------------------ 2000 2001 2002 -------- -------- -------- (DOLLARS IN THOUSANDS) Operating Revenues................................... $296,361 $285,171 $297,591 General and Administrative Expenses.................. (39,912) (40,657) (49,338) Operation and Maintenance Expenses................... (36,666) (37,000) (32,279) Taxes, other than Income Taxes....................... (13,363) (13,441) (12,352) -------- -------- -------- EBITDA............................................... $206,420 $194,073 $203,622 ======== ======== ========
(4) Return on equity is calculated as net income divided by average common stockholder's equity. (5) For purposes of computing the ratio of earnings to fixed charges, earnings are divided by fixed charges. "Earnings" represent the aggregate of (a) our pre-tax income, and (b) fixed charges, net of interest capitalized. "Fixed charges" represent interest (whether expensed or capitalized), the amortization of total debt discount and expense and that portion of rentals considered to be representative of the interest factor. (6) Pro forma financial ratios reflect our financial ratios as adjusted to give effect to the previous offering of the outstanding notes. 11 RISK FACTORS You should consider carefully each of the following risks and all other information contained in this prospectus before deciding to exchange your outstanding notes for new notes. The risks and uncertainties described below are not the only ones we face. RISKS RELATING TO US AND OUR BUSINESS DECREASES IN THE VOLUME OF NATURAL GAS CONTRACTED OR TRANSPORTED THROUGH OUR PIPELINE SYSTEM FOR ANY OF THE REASONS DESCRIBED BELOW WILL ADVERSELY AFFECT OUR BUSINESS. Expiration of firm transportation agreements. For the year ended December 31, 2002, approximately 87% of our operating revenues were generated through long-term firm transportation agreements and operating revenues related to the contracts for which our 10 largest customers are responsible accounted for approximately 80% of our operating revenues. The agreements with our largest customer, Puget Sound Energy, Inc., are long-term contracts, many of which were last amended in 1992 and which will become year-to-year contracts in 2004, unless terminated or extended for a longer term. These contracts accounted for 13% of our operating revenues for the year ended December 31, 2002. Agreements representing a majority of our contracted capacity are scheduled to expire between 2007 and 2012. We cannot give any assurance as to whether any of these contracts will be renewed or extended or as to the terms that may be applicable to any such renewal or extension. A decision by customers upon the expiration of our long-term agreements to substantially reduce or cease to ship volumes of natural gas on our pipeline system could cause a significant decline in our revenues. Our results could also be adversely affected by decreased demand for interruptible and short-term firm transportation service, which accounted for 4% of our operating revenues and a slightly greater percentage of our operating profit for the year ended December 31, 2002. Decreases in natural gas production. Our operating results are dependent upon the continuing availability of supplies of natural gas. We depend on having access to multiple sources of gas production, both in the United States and Canada, in order to provide our customers with an overall lower cost for delivered gas. Moreover, we do not have the ability to operate our pipeline system at full capacity without access to multiple gas sources. The ability of producers to maintain production is dependent on the prevailing market price of natural gas, the exploration and production budgets of the major and independent gas companies, the depletion rate of existing sources, the success of new sources, environmental concerns, regulatory initiatives and other matters beyond our control. There can be no assurance that production of natural gas will be maintained at sufficient levels to sustain our expected volume of transportation commitments on our pipeline system or that multiple sources will remain available to provide our customers with access to low cost supplies. Operational limitations. In order to satisfy our firm transportation commitments, we depend on transporting gas from multiple sources and in two directions. The availability of sufficient quantities of gas from multiple sources at different points on our pipeline system permits us to fulfill certain transportation obligations by displacement. If our displacement capability in the future should be reduced as a result of declines in gas available to our pipeline system, capacity limitations in certain portions of our pipeline system would prevent physical movement and delivery of gas volumes to completely replace the volumes now transported through displacement. Absent our displacement capability, we also could not transport gas on any of our pipelines in the opposite direction of the physical flow of gas within the pipeline and could also be limited in our ability to provide all our customers with access, at all times, to the lowest cost gas source available on our system. Our contemplated expansion projects will not resolve all of the potential limitations on our pipeline system, and additional expansion projects may require more costly solutions. There can be no assurance that additional expansion projects, beyond current plans, will result in lower cost deliveries to our customers or increased returns for us. In addition, the relatively high costs of any additional expansion projects may restrain our ability to meet increased demand in our existing markets and to expand into new markets. Decreases in demand for natural gas. Demand depends on the ability and willingness of shippers with access to our facilities to satisfy their demand by deliveries through our system. Any decrease in this demand could adversely affect our business. Demand for natural gas is also dependent upon the impact of weather, 12 future industrial and economic conditions, fuel conservation measures, alternative fuel requirements, governmental regulation or technological advances in fuel economy and energy generation devices, all of which are matters beyond our control. Competitive pressures. Although most of our pipeline system's current capacity is contracted under long-term firm transportation service agreements, the market for the transportation of natural gas through pipelines is competitive. Other entities could construct new pipelines or expansions of existing pipelines that could potentially serve the same markets as our pipeline system. Any such new pipelines could offer transportation services that are more desirable to shippers because of locations, facilities or other factors. These new pipelines could charge rates or provide service to locations that would result in greater net profit for shippers and producers and thereby force us to lower the rates charged for service on our pipeline in order to extend our existing transportation service agreements or to attract new customers. Although we are not aware of any significant new pipeline proposals or expansions in our market service areas, such projects are always possible in the future and proposals are made from time to time. There can be no assurance that any such proposed project might not proceed and increase the competitive pressures upon us. In addition, because our rates are structured as "postage stamp" rates that do not vary based on the transportation distance, our short-haul customers may be attracted to possible alternatives with short-haul rates that would bypass our system. An increase in the availability of bypass alternatives could adversely affect our business. REDUCTIONS OF OUR CREDIT RATINGS HAVE NEGATIVELY AFFECTED OUR COST OF CAPITAL AND ANY ADDITIONAL REDUCTIONS IN OUR CREDIT RATING WILL FURTHER NEGATIVELY AFFECT OUR COST OF, AND POSSIBLY OUR ACCESS TO, CAPITAL. In July 2002, Moody's Investor Services, Standard & Poor's and Fitch Ratings reduced the credit ratings on our unsecured long-term debt from Baa1, BBB+ and BBB+ to Ba2, B+ and BB-, respectively. In November 2002, Moody's Investor Services further lowered our credit rating to B3 from Ba2. Currently, Moody's Investor Services and Standard & Poor's have our credit ratings on "negative outlook" and "negative watch," respectively. As a result of those downgrades, or any future downgrades in our credit ratings, our borrowing costs have increased and may increase further and our access to capital may be limited. In addition, the covenants in various debt instruments, including those in Williams' credit agreements and the indenture for the notes offered hereby, impose significant operating and financial restrictions upon us, which could place us at a disadvantage relative to competitors not subject to such limitations. These factors could materially and adversely affect our operating and expansion plans. Historically, we funded a portion of our capital requirements through a sale of receivables program. In July 2002, this program expired and was not renewed as a result of the loss of our investment grade rating. WE MAY NOT BE ABLE TO BORROW UNDER OUR CREDIT FACILITY. Williams and some of its subsidiaries, including us, are parties to a $700 million credit agreement, under which we can borrow up to $400 million. These funds are only available to us to the extent they have not been borrowed by Williams or other of its participating subsidiaries or otherwise must remain available to Williams, and only to the extent the commitments under the credit facility have not been reduced due to asset sales by Williams and its subsidiaries. These commitments had been reduced to $463 million at December 31, 2002. Also, even if we are not in default under the credit agreement, a default by Williams or other of its participating subsidiaries under the credit agreement could cause the commitments available to us under the credit facility to be terminated and any amounts borrowed by us to become immediately due and payable. CHANGES IN OUR REGULATORY ENVIRONMENT AND RECENT EVENTS IN THE ENERGY MARKETS THAT ARE BEYOND OUR CONTROL MAY SIGNIFICANTLY AFFECT OUR BUSINESS AND OUR ACCESS TO CAPITAL MARKETS. Our rates and operations are subject to regulation by various state and federal regulators as well as the actions of state and federal legislators. As a result of the energy crisis in California during 2000 and 2001, the volatility of natural gas prices in North America, the bankruptcy filings by certain energy companies and investigations by governmental authorities into energy trading activities, companies in the regulated and 13 unregulated utility businesses have generally been under an increased amount of scrutiny by public, state and federal regulators, the capital markets and the rating agencies. We cannot predict or control what effect these types of events, or future actions of regulatory agencies in response to such events, may have on our business or our access to the capital markets. On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking proposing to adopt uniform standards of conduct for transmission providers. The proposed rules define transmission providers as interstate natural gas pipelines and public utilities that own, operate or control electric transmission facilities. The proposed standards would regulate the conduct of transmission providers with their energy affiliates. The FERC proposed to define energy affiliates broadly to include any transmission provider affiliate that engages in or is involved in transmission (gas or electric) transactions, or manages or controls transmission capacity, or buys, sells, trades or administers natural gas or electric energy or engages in financial transactions relating to the sale or transmission of natural gas or electricity. Current rules regulate our conduct and the conduct of our gas marketing affiliates. The FERC's staff analysis of the proposed rulemaking proposed redefining energy affiliates to exclude affiliated transmission providers. If the proposed rules are adopted as proposed, they would require new compliance measures which could result in increased costs. On August 1, 2002, the FERC issued a Notice of Proposed Rulemaking that proposes restrictions on various types of cash management programs employed by companies in the energy industry such as Williams and its subsidiaries. In addition to stricter guidelines regarding the accounting for and documentation of cash management or cash pooling programs, the FERC proposal, if made final, would preclude public utilities, natural gas companies and oil pipeline companies from participating in such programs unless the parent company and its FERC-regulated affiliates maintain investment-grade credit ratings and the FERC-regulated affiliates maintain stockholders' equity of at least 30% of total capitalization. Williams' and our current credit ratings are non-investment grade. Should this proposed rule be enacted, we would incur additional costs from having to maintain separate treasury operations. We periodically file general rate cases with the FERC. In our general rate cases, the FERC establishes, among other things, our return on common equity, overall rate of return, depreciation expenses and our cost of service. Although we do not have any rate cases pending or any immediate plans to file one, unfavorable rulings by the FERC in possible future general rate cases could adversely impact our results of operation. In the case of our Rockies and Columbia Gorge expansion projects, where our customers have agreed to support the roll-in of expansion costs into our rates, we will not recover those costs for periods prior to the roll-in of such costs into our rates until we file a general rate case filing. WE ARE SUBJECT TO NUMEROUS ENVIRONMENTAL LAWS AND REGULATIONS THAT MAY INCREASE OUR COST OF OPERATIONS, IMPACT OR LIMIT OUR BUSINESS PLANS, OR EXPOSE US TO ENVIRONMENTAL LIABILITIES. Laws and regulations relating to environmental protection can result in increased capital, operating and other costs. These laws and regulations generally require us to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals, and may be enforced by both public officials and private individuals. We cannot predict the initiation, outcome or effect of any action or litigation that may arise from applicable environmental regulations. In addition, we may be required to be a responsible party for environmental clean-up at sites identified by environmental agencies or regulatory bodies. We cannot predict with certainty the identification of such sites, the imposition of such clean-up obligations upon us or the amount and timing of future expenditures related to environmental matters because of the difficulty of estimating clean-up costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties. Environmental regulations may also require us to install pollution control equipment at, or perform environmental remediation on, our facilities. Existing environmental regulations may be revised or new regulations may be adopted or become applicable to us. Revised or additional regulations imposed on us, which may result in increased compliance costs or additional operating restrictions, could have a material adverse effect on our financial condition and results of operations, particularly if those costs are not fully recoverable from our customers. 14 Furthermore, we may not be able to obtain or maintain all environmental regulatory approvals necessary to our business. If there is a delay in obtaining any required environmental regulatory approval, including in the case of future expansion projects, or if we fail to obtain, maintain or comply with any such approval, operations at our affected facilities could be halted or subjected to additional costs. SUBSTANTIAL OPERATIONAL RISKS ARE INVOLVED IN OPERATING A NATURAL GAS PIPELINE SYSTEM. There are risks associated with the operation of a complex pipeline system, such as operational hazards and unforeseen interruptions caused by events beyond our control. These include adverse weather conditions, accident, the breakdown or failure of equipment or processes, the performance of pipeline facilities below expected levels of capacity and efficiency, and catastrophic events such as explosions, fires, earthquakes, floods, landslides or other similar events beyond our control. A casualty occurrence might result in injury or loss of life, extensive property damage or environmental damage. Liabilities incurred, and interruptions to the operation of our pipeline caused by such an event, could reduce revenues generated by us and increase our expenses, thereby impairing our ability to meet our obligations and to make payments under the notes. Although we have insurance to protect against these risks, insurance proceeds may not be adequate to cover all liabilities or expenses incurred or revenues lost. WE ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS IN THE ORDINARY COURSE OF OUR BUSINESS. We are exposed to the credit risk of our customers in the ordinary course of our business. Generally our customers are rated investment grade or are required to make pre-payments or provide security to satisfy credit concerns. However, we cannot predict at this time to what extent our business may be impacted by the deteriorating conditions in the energy sector, including declines in our customers' creditworthiness. TERRORISM AND THE UNCERTAINTY OF WAR MAY ADVERSELY AFFECT OUR FUTURE GROWTH AND OPERATING RESULTS. The long-range impact that terrorist attacks or war may have on the energy industry in general, and on us in particular, is not predictable at this time. Uncertainty regarding a military campaign may affect our business in unpredictable ways, including disruptions of fuel supplies and markets, and it is possible that our infrastructure facilities could be direct targets or indirect casualties of an act of terror. Should new regulatory requirements regarding the security of our pipeline system be imposed, we could be subject to additional costs which could adversely affect our financial condition and results of operations. RISKS RELATING TO OUR OWNERSHIP BY WILLIAMS WE MAY BE ADVERSELY AFFECTED BY THE FINANCIAL CONDITION, LIQUIDITY PROBLEMS AND POSSIBLE BANKRUPTCY OF WILLIAMS AND ITS AFFILIATES. We are an indirect wholly-owned subsidiary of Williams. Substantially all of Williams' operations are conducted through its subsidiaries. Williams' cash flows are substantially derived from loans and dividends paid to it by its subsidiaries, including WGP, our parent company under which Williams' interstate natural gas pipelines and gas pipeline joint venture investments are grouped. Williams' cash flows are typically utilized to service debt and pay dividends on common stock of Williams, with the balance, if any, reinvested in its subsidiaries as contributions to capital. As a participant in Williams' cash management program, we make advances to and receive advances from Williams through WGP. These advances are represented by demand notes. In regard to these advances and to the extent we advance Williams funds in the future, we cannot assure you that Williams or WGP will have the ability to repay us or to repay us on demand. Moreover, we cannot assure you that Williams will continue to advance funds to us in the future. For the 24-month period ended December 31, 2002, net advances to Williams from us have been as high as approximately $80 million in May 2001 and as low as approximately $17 million at December 31, 2002. We intend to utilize the proceeds from the offering of the outstanding notes for general corporate purposes, including the funding of capital expenditures. Pending such utilization, we intend to invest such proceeds in cash and cash equivalents, however, we are not contractually 15 prohibited from including these proceeds in Williams' cash management program. Although Williams has indicated that it will continue to have the financial resources and liquidity to repay advances made by us, we cannot assure you that Williams or WGP will continue to have such financial resources and liquidity in the future. Williams has a substantial amount of debt and other obligations including its exposure attributable to WEM&T. Williams' liquidity problems have limited WEM&T's ability to manage market risk and exercise hedging strategies as market conditions have deteriorated, which in turn has required Williams to allocate additional liquidity to WEM&T. WEM&T and other Williams entities have also been parties to extensive litigation relating to trading activities and the California energy crisis, as well as shareholder and other litigation. Although much of the California litigation was settled in December 2002, Williams remains subject to potentially material litigation and possible regulatory responses. We expect that Williams' recent financial difficulties, together with the provisions contained in various credit agreements to which Williams is a party, will severely restrict the ability of Williams and WGP to make future capital contributions to us or to guarantee our obligations. Williams has agreed in its credit agreements to restrict its subsidiaries, including us, from taking certain actions, including agreeing to restrictions on their ability to make dividend and other payments or make loans to Williams, WGP and its other subsidiaries. In July 2002, all of the major credit ratings agencies downgraded the credit ratings on the unsecured long-term debt of Williams and all of its subsidiaries to below investment grade. In November 2002 Moody's Investor Services further downgraded Williams' and our credit ratings. Currently, Moody's Investor Services and Standard & Poor's have our credit ratings on "negative outlook" and "negative watch," respectively. As of the date hereof, Williams' unsecured long-term debt ratings are Caa1 from Moody's Investor Services, B from Standard & Poor's and B- from Fitch Ratings. As a result of the downgrades, Williams' ability to service its debt obligations and refinance its maturing debt as it becomes due has become uncertain. The terms of Williams' credit facilities, particularly those negotiated in July and amended in October 2002 (including the credit agreement to which we are a party as a borrower), have imposed significant new restrictions on Williams and its subsidiaries and their financial and operating flexibility. Williams is not currently able to access various financing sources formerly available to it, including the commercial paper market. In an effort to reduce its leverage, Williams commenced a series of asset sales in mid-2002, with substantially all the net proceeds being applied to reduce debt and lending commitments. As of December 31, 2002, Williams had cash and cash equivalents of approximately $1.7 billion. Williams has scheduled debt retirements through the first quarter of 2004 of approximately $3.8 billion (which includes certain contractual fees associated with the underlying debt), of which approximately $1.2 billion comes due in July 2003 and $1.5 billion comes due in the first quarter of 2004, and expected capital expenditures through 2003 of between $900 million and $1.05 billion. Williams has announced that it intends to meet its liquidity needs over those periods through a combination of cash flow from operations, refinancings and asset sales. Realization of the proceeds from forecasted asset sales is a significant element for Williams to satisfy one of its loan provisions regarding minimum levels of parent liquidity, and we cannot assure you of the successful execution of future asset sales, the realization of the anticipated proceeds or the time required to complete the asset sales. In the event that Williams' financial condition does not improve or becomes worse, or if it fails to realize sufficient proceeds from its planned asset sales, it may have to consider other options including the possibility of seeking protection in a bankruptcy proceeding. We cannot predict with certainty what impact a Williams bankruptcy would have on us. Under the equitable doctrine of substantive consolidation, a bankruptcy court may consolidate and pool the assets and liabilities of a subsidiary with those of its parent. We cannot assure you that Williams, WGP or their creditors would not attempt to advance substantive consolidation claims in the event of a Williams bankruptcy proceeding or, if advanced, how a bankruptcy court would resolve the issue. If a bankruptcy court were to allow the substantive consolidation of our assets and liabilities in the context of a Williams bankruptcy filing, our financial condition, operations and ability to meet our obligations with respect to the notes would be materially adversely affected. 16 WILLIAMS CAN EXERCISE SUBSTANTIAL CONTROL OVER OUR DIVIDEND POLICY AND OUR BUSINESS AND OPERATIONS AND MAY DO SO IN A MANNER THAT IS ADVERSE TO OUR OR YOUR INTERESTS. Our board of directors, which is elected by WGP, which in turn is controlled by Williams, exercises substantial control over our business and operations and makes determinations with respect to, among other things, the following: - payment of dividends and extension of advances; - decisions on financings and our capital raising activities; - mergers or other business combinations; and - acquisition or disposition of assets. Our board of directors could decide to increase dividends or advances to our parent entities. This could adversely affect our liquidity. Moreover, various Williams credit facilities include covenants prohibiting restrictions on the ability of Williams entities, including us, to make advances to Williams and its other subsidiaries, which could make the terms on which we may be able to secure additional financing in the future less favorable. RISKS RELATING TO THE NOTES THE NOTES IMPOSE RESTRICTIONS ON US THAT MAY ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS. The notes contain covenants that restrict, among other things, our ability to: - incur additional indebtedness and issue preferred stock; - enter into asset sales; - 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. 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, to remedy that default. Our failure to comply with those financial covenants could result in default, which could cause the notes (and by reason of cross-default provisions, other indebtedness) to become immediately due and payable. If such an event of default occurs and we are not able to remedy or obtain a waiver from such default, we may not have sufficient funds to repay the notes. THE NOTES CONTAIN ONLY LIMITED RESTRICTIONS ON DIVIDENDS AND INTERCOMPANY ADVANCES. For so long as our credit facility and various other agreements are in place, the notes will not by their terms prohibit us from paying dividends or distributions or making loans or advances to Williams and its other subsidiaries. WE MAY BE UNABLE TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL. If a change of control were to occur, the terms of our credit agreement and other credit facilities of Williams would currently limit our ability to purchase your notes. Our future debt agreements and Williams' debt agreements may contain similar restrictions and provisions. The notes require that, upon the occurrence of a change of control, we must offer to purchase all of the outstanding notes after first obtaining necessary waivers or causing Williams or the relevant borrowers to obtain waivers or prepay our credit agreement and other debt of Williams or such borrower that might otherwise prohibit such purchase. Accordingly, we may not be able to satisfy our obligations to purchase your notes unless we are able to refinance or waivers are 17 obtained under all of these credit facilities and other indebtedness with similar restrictions. Any failure to obtain these necessary waivers and make this offer to purchase, or to repay holders tendering notes, upon a change of control will result in an event of default under the notes. We cannot assure you that we will have the financial resources to purchase your notes, particularly if that change of control event triggers a similar repurchase requirement for, or results in the acceleration of, other indebtedness. See "Description of Other Indebtedness" and "Description of Notes -- Repurchase at the Option of Holders -- Change of Control." WE MAY NOT BE ABLE TO SERVICE OUR DEBT. Our ability to pay or to refinance our indebtedness, including the notes, 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, 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 in amounts sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. Williams, we and certain of Williams' other 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 of Williams and its subsidiaries. RESTRICTIVE COVENANTS IN OUR CREDIT FACILITY MAY ADVERSELY AFFECT US. Our credit facility contains restrictive covenants that will prohibit us from prepaying our indebtedness, including the notes, and also require us to maintain specified financial ratios and satisfy other financial condition tests. Williams is also party to various other debt agreements that contain similar and additional restrictions on our activities. It is not within our control to ensure that all of these conditions are met at any time under our credit facility or Williams' other agreements. A breach of any of these covenants would result in an event of default under the credit facilities. Upon the occurrence of an event of default under our credit facility, the lenders could elect to declare all amounts outstanding under the credit agreement 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, including the indenture for the notes, much of our other indebtedness could also become immediately due and payable at that time as well. If the lenders under the credit agreement accelerate the repayment of any loans outstanding to us, we cannot assure you that we will have sufficient assets to repay amounts outstanding under the credit facility and our other indebtedness, including the notes. YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES AND ANY FUTURE SUBSIDIARY GUARANTEES IS UNSECURED AND WILL BE EFFECTIVELY SUBORDINATED TO ANY FUTURE SECURED INDEBTEDNESS. We have agreed in the indenture that the notes will be guaranteed by our future subsidiaries unless we choose to designate any such subsidiary as an unrestricted subsidiary pursuant to the indenture. The notes will not be guaranteed by Williams. The notes and any guarantees by a future guarantor subsidiary will be effectively subordinated to claims of creditors under any secured debt that we or such guarantor subsidiary may issue or incur. Although we have no active subsidiaries at the time of this offering, we may in the future have one or more subsidiaries that, under certain circumstances, are not required to become guarantors. In that case, the notes would be effectively subordinated to the claims of all creditors, including trade creditors and tort claimants, of our subsidiaries that are not guarantors. In the event of the insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up of the business of a subsidiary that is not a guarantor, creditors of that subsidiary would generally have the right to be paid in full before any distribution is made to us or the holders of the notes. 18 YOU MAY HAVE DIFFICULTY SELLING ANY OUTSTANDING NOTES THAT YOU DO NOT EXCHANGE. If you do not exchange your outstanding notes for the new notes offered in this exchange offer, you will continue to be subject to the restrictions on the transfer of your outstanding notes. Those transfer restrictions are described in the indenture governing the outstanding notes and in the legend contained on the outstanding notes, and arose because we originally issued the outstanding notes under exemptions from, and in transactions not subject to, the registration requirements of the Securities Act. In general, you may offer or sell your outstanding notes only if they are registered under the Securities Act and applicable state securities laws, or if they are offered and sold under an exemption from those requirements. We do not intend to register the outstanding notes under the Securities Act. If a large number of outstanding notes are exchanged for new notes issued in the exchange offer, it may be more difficult for you to sell your outstanding notes. In addition, if you do not exchange your outstanding notes in the exchange offer, you will no longer be entitled to exchange your outstanding notes for registered notes or to have those outstanding notes registered under the Securities Act. See "The Exchange Offer -- Consequences of Failure to Exchange Outstanding Notes" for a discussion of the possible consequences of failing to exchange your notes. NO PUBLIC MARKET EXISTS FOR THE NOTES AND AN ACTIVE TRADING MARKET FOR THE NEW NOTES MAY NOT DEVELOP. The notes are a new issue of securities with no established trading market. We do not intend to list the notes for trading on any national securities exchange or arrange for any quotation system to quote prices for them. The initial purchasers of the outstanding notes informed us after the completion of the offering of the outstanding notes that they intended to make a market in those notes and we anticipate that they will make a market in the new notes. However, they are not obligated to do so and may cease market-making activities at any time. As a result, we cannot assure you that an active trading market will develop for the notes. 19 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER When we sold the outstanding notes on March 4, 2003, we entered into a registration rights agreement with the initial purchasers of those notes. Under the registration rights agreement, we agreed to file by June 2, 2003 a registration statement for the exchange of the outstanding notes for new notes registered under the Securities Act. This prospectus is a part of the registration statement we have filed to satisfy our obligation. We also agreed to use our commercially reasonable efforts to cause this registration statement to be declared effective by the SEC by September 1, 2003. We also agreed to use our reasonable best efforts to keep this registration statement effective until the exchange offer is completed. The registration rights agreement provides that we are required to pay liquidated damages to the holders of the outstanding notes whose notes are subject to transfer restrictions if: - by June 2, 2003, the registration statement for the exchange of the outstanding notes for new notes registered under the Securities Act has not been filed; - by September 1, 2003, the registration statement for the exchange of the outstanding notes for new notes registered under the Securities Act is not declared effective; or - the exchange offer has not been consummated on or before the 30th business day, or longer, if required by the federal securities laws, after the registration statement for the exchange of the outstanding notes for new notes registered under the Securities Act is declared effective. A copy of the registration rights agreement is filed as an exhibit to the registration statement. TERMS OF THE EXCHANGE OFFER This prospectus and the accompanying letter of transmittal together constitute the exchange offer. Subject to the terms and conditions in this prospectus and the letter of transmittal, we will accept for exchange outstanding notes which are properly tendered on or before the expiration date and are not withdrawn as permitted below. The expiration date for this exchange offer is 5:00 p.m., New York City time, on , 2003, or such later date and time to which we, in our sole discretion, extend the exchange offer. The form and terms of the new notes being issued in the exchange offer are the same as the form and terms of the outstanding notes, except that the new notes being issued in the exchange offer: - will have been registered under the Securities Act; - will not bear the restrictive legends restricting their transfer under the Securities Act; and - will not contain the registration rights and liquidated damages provisions contained in the outstanding notes. Notes tendered in the exchange offer must be in denominations of the principal amount of $1,000 and any integral multiple of $1,000. We expressly reserve the right, in our sole discretion: - to extend the expiration date; - to delay accepting any outstanding notes; - if any of the conditions set forth below under "-- Conditions to the Exchange Offer" has not been satisfied, to terminate the exchange offer and not accept any outstanding notes for exchange; and - to amend the exchange offer in any manner. We will give oral or written notice of any extension, delay, non-acceptance, termination or amendment as promptly as practicable by a public announcement, and in the case of an extension, no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. 20 During an extension, all outstanding notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any outstanding notes not accepted for exchange for any reason will be returned without cost to the holder that tendered them as promptly as practicable after the expiration or termination of the exchange offer. HOW TO TENDER OUTSTANDING NOTES FOR EXCHANGE When the holder of outstanding notes tenders and we accept outstanding notes for exchange, a binding agreement between us and the tendering holder is created, subject to the terms and conditions in this prospectus and the accompanying letter of transmittal. Except as set forth below, a holder of outstanding notes who wishes to tender outstanding notes for exchange must, on or prior to the expiration date: (1) transmit a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to JPMorgan Chase Bank, the exchange agent, at the address set forth below under the heading "-- The Exchange Agent"; or (2) if outstanding notes are tendered pursuant to the book-entry procedures set forth below, the tendering holder must transmit an agent's message to the exchange agent at the address set forth below under the heading "-- The Exchange Agent." In addition, one of the following must occur: (1) the exchange agent must receive the certificates for the outstanding notes and the letter of transmittal; (2) the exchange agent must receive, prior to the expiration date, a timely confirmation of the book-entry transfer of the outstanding notes being tendered into the exchange agent's account at the Depository Trust Company, or DTC, along with the letter of transmittal or an agent's message; or (3) the holder must comply with the guaranteed delivery procedures described below. The term "agent's message" means a message, transmitted to DTC and received by the exchange agent and forming a part of a book-entry transfer, referred to as a "book-entry confirmation," which states that DTC has received an express acknowledgment that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such holder. The method of delivery of the outstanding notes, the letters of transmittal and all other required documents is at the election and risk of the holders. If such delivery is by mail, we recommend registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. No letters of transmittal or notes should be sent directly to us. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the outstanding notes surrendered for exchange are tendered: (1) by a holder of outstanding notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or (2) for the account of an eligible institution. An "eligible institution" is a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. If signatures on a letter of transmittal or notice of withdrawal are required to be guaranteed, the guarantor must be an eligible institution. If outstanding notes are registered in the name of a person other than the signer of the letter of transmittal, the outstanding notes surrendered for exchange must be endorsed by, or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the holder's signature guaranteed by an eligible institution. 21 We will determine all questions as to the validity, form, eligibility (including time of receipt) and acceptance of outstanding notes tendered for exchange in our sole discretion. Our determination will be final and binding. We reserve the absolute right to: (1) reject any and all tenders of any outstanding note improperly tendered; (2) refuse to accept any outstanding note if, in our judgment or the judgment of our counsel, acceptance of the outstanding note may be deemed unlawful; and (3) waive any defects or irregularities or conditions of the exchange offer as to any particular outstanding note either before or after the expiration date, including the right to waive the ineligibility of any holder who seeks to tender outstanding notes in the exchange offer. Our interpretation of the terms and conditions of the exchange offer as to any particular notes either before or after the expiration date, including the letter of transmittal and the instructions to it, will be final and binding on all parties. Holders must cure any defects and irregularities in connection with tenders of notes for exchange within such reasonable period of time as we will determine, unless we waive such defects or irregularities. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defect or irregularity with respect to any tender of outstanding notes for exchange, nor will any of us incur any liability for failure to give such notification. If a person or persons other than the registered holder or holders of the outstanding notes tendered for exchange signs the letter of transmittal, the tendered outstanding notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the outstanding notes. If trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity sign the letter of transmittal or any notes or any power of attorney, such persons should so indicate when signing, and you must submit proper evidence satisfactory to us of such person's authority to so act unless we waive this requirement. By tendering, each holder will represent to us that, among other things, the person acquiring new notes in the exchange offer is obtaining them in the ordinary course of its business, whether or not such person is the holder, and that neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the new notes. If any holder or any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of our company, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of the new notes, such holder or any such other person: (1) may not rely on the applicable interpretations of the staff of the SEC; and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives new notes for its own account in exchange for the outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. See "Plan of Distribution." ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES ISSUED IN THE EXCHANGE OFFER Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all outstanding notes properly tendered and will issue new notes registered under the Securities Act. For purposes of the exchange offer, we will be deemed to have accepted properly tendered outstanding notes for exchange when, as and if we have given oral or written notice to the exchange agent, with written confirmation of any oral notice to be given promptly thereafter. See "-- Conditions to the Exchange Offer" for a discussion of the conditions that must be satisfied before we accept any notes for exchange. 22 For each outstanding note accepted for exchange, the holder will receive a new note registered under the Securities Act having a principal amount equal to, and in the denomination of, that of the surrendered outstanding note. Accordingly, registered holders of new notes that are outstanding on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from the issue date of the outstanding notes, or, if interest has been paid, the most recent date to which interest has been paid. Outstanding notes that we accept for exchange will cease to accrue interest from and after the date of consummation of the exchange offer. Under the registration rights agreement, we may be required to make additional payments in the form of liquidated damages to the holders of the outstanding notes under circumstances relating to the timing of the exchange offer. In all cases, we will issue new notes in the exchange offer for outstanding notes that are accepted for exchange only after the exchange agent timely receives: (1) certificates for such outstanding notes or a timely book-entry confirmation of such outstanding notes into the exchange agent's account at DTC; (2) a properly completed and duly executed letter of transmittal or an agent's message; and (3) all other required documents. If for any reason set forth in the terms and conditions of the exchange offer we do not accept any tendered outstanding notes, or if a holder submits outstanding notes for a greater principal amount than the holder desires to exchange, we will return such unaccepted or non-exchanged outstanding notes without cost to the tendering holder. In the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC, such non-exchanged outstanding notes will be credited to an account maintained with DTC. We will return the outstanding notes or have them credited to DTC as promptly as practicable after the expiration or termination of the exchange offer. BOOK-ENTRY TRANSFERS The exchange agent will make a request to establish an account at DTC for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in DTC's system must make book-entry delivery of outstanding notes by causing DTC to transfer the outstanding notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. Such participant should transmit its acceptance to DTC on or prior to the expiration date or comply with the guaranteed delivery procedures described below. DTC will verify such acceptance, execute a book- entry transfer of the tendered outstanding notes into the exchange agent's account at DTC and then send to the exchange agent confirmation of such book-entry transfer. The confirmation of such book-entry transfer will include an agent's message confirming that DTC has received an express acknowledgment from such participant that such participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such participant. Delivery of new notes issued in the exchange offer may be effected through book-entry transfer at DTC as applicable. However, the letter of transmittal or facsimile thereof or an agent's message, with any required signature guarantees and any other required documents, must: (1) be transmitted to and received by the exchange agent at the address set forth below under "-- Exchange Agent" on or prior to the expiration date; or (2) comply with the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES If a holder of outstanding notes desires to tender such notes and the holder's notes are not immediately available, or time will not permit such holder's outstanding notes or other required documents to reach the 23 exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if: (1) the holder tenders the outstanding notes through an eligible institution; (2) prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form we have provided, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the outstanding notes being tendered and the amount of the outstanding notes being tendered. The notice of guaranteed delivery will state that the tender is being made and guarantee that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent's message with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and (3) the exchange agent receives the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent's message with any required signature guarantees and any other documents required by the letter of transmittal, within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. WITHDRAWAL RIGHTS You may withdraw tenders of your outstanding notes at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, you must send a written notice of withdrawal to the exchange agent at one of the addresses set forth below under "-- Exchange Agent." Any such notice of withdrawal must: (1) specify the name of the person having tendered the outstanding notes to be withdrawn; (2) identify the outstanding notes to be withdrawn, including the principal amount of such outstanding notes; and (3) where certificates for outstanding notes are transmitted, specify the name in which outstanding notes are registered, if different from that of the withdrawing holder. If certificates for outstanding notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution. If outstanding notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of such facility. We will determine all questions as to the validity, form and eligibility (including time of receipt) of such notices and our determination will be final and binding on all parties. Any tendered outstanding notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any outstanding notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder of those notes without cost to the holder. In the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC, the outstanding notes withdrawn will be credited to an account maintained with DTC for the outstanding notes. The outstanding notes will be returned or credited to this account as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn notes may be re- tendered by following one of the procedures described under "-- How to Tender Outstanding Notes for Exchange" above at anytime on or prior to 5:00 p.m., New York City time, on the expiration date. 24 CONDITIONS TO THE EXCHANGE OFFER We are not required to accept for exchange, or to issue new notes in the exchange offer for, any outstanding notes. We may terminate or amend the exchange offer at any time before the acceptance of outstanding notes for exchange if: (1) any federal law, statute, rule or regulation is adopted or enacted which, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer; (2) any stop order is threatened or in effect with respect to either (i) the registration statement of which this prospectus constitutes a part or (ii) the qualification of the indenture under the Trust Indenture Act of 1939, as amended; (3) there is a change in the current interpretation by staff of the SEC which permits the new notes issued in the exchange offer in exchange for the outstanding notes to be offered for resale, resold and otherwise transferred by such holders, other than broker-dealers and any such holder which is an "affiliate" of our company within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the new notes acquired in the exchange offer are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of the new notes; (4) there is a general suspension of or general limitation on prices for, or trading in, securities on any national exchange or in the over-the-counter market; (5) any governmental agency creates limits that adversely affect our ability to complete the exchange offer; (6) there is any declaration of war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or the worsening of any such condition that existed at the time that we commence the exchange offer; (7) there is a change or a development involving a prospective change in our business, properties, assets, liabilities, financial condition, operations, results of operations taken as a whole, that is or may be adverse to us; or (8) we become aware of facts that, in our reasonable judgment, have or may have adverse significance with respect to the value of the outstanding notes or the new notes to be issued in the exchange offer. The preceding conditions are for our sole benefit and we may assert them regardless of the circumstances giving rise to any such condition. We may waive the preceding conditions in whole or in part at any time and from time to time in our sole discretion. If we do so, the exchange offer will remain open for at least three business days following any waiver of the preceding conditions. Our failure at any time to exercise the foregoing rights will not be deemed a waiver of any such right and each such right will be deemed an ongoing right which we may assert at any time and from time to time. 25 THE EXCHANGE AGENT JPMorgan Chase Bank has been appointed as our exchange agent for the exchange offer. All executed letters of transmittal should be directed to our exchange agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows: Main Delivery To: JPMORGAN CHASE BANK By mail, hand delivery or overnight courier: IF BY MAIL, TO: IF IN PERSON, TO: IF BY COURIER SERVICE, TO: JPMorgan Chase Bank JPMorgan Chase Bank JPMorgan Chase Bank Corporate Trust Services GIS Unit Trust Window Corporate Trust Services 2001 Bryan Street -- 9th 4 New York Plaza -- 1st 2001 Bryan Street -- 9th Floor Floor Floor Dallas, Texas 75201 New York, New York 10004 Dallas, Texas 75201 Attention: Frank Ivins Attention: Frank Ivins Attention: Frank Ivins
By facsimile transmission: (for eligible institutions only) (214) 468-6494 Confirm by telephone: (214) 468-6464 Delivery of the letter of transmittal to an address other than as set forth above or transmission of such letter of transmittal via facsimile other than as set forth above does not constitute a valid delivery of such letter of transmittal. FEES AND EXPENSES We will not make any payment to brokers, dealers, or others soliciting acceptance of the exchange offer except for reimbursement of mailing expenses. We will pay the cash expenses to be incurred in connection with the exchange offer, including: - SEC registration fees; - fees and expenses of the exchange agent and trustee; - accounting and legal fees; - printing fees; and - related fees and expenses. TRANSFER TAXES Holders who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. If, however, new notes issued in the exchange offer are to be delivered to, or are to be issued in the name of, any person other than the holder of the outstanding notes tendered, or if a transfer tax is imposed for any reason other than the exchange of outstanding notes in connection with the exchange offer, then the holder must pay any of these transfer taxes, whether imposed on the registered holder or on any other person. If satisfactory evidence of payment of, or exemption from, these taxes is not submitted with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder. 26 CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES Holders who desire to tender their outstanding notes in exchange for new notes registered under the Securities Act should allow sufficient time to ensure timely delivery. Neither the exchange agent nor we are under any duty to give notification of defects or irregularities with respect to the tenders of outstanding notes for exchange. Outstanding notes that are not tendered or are tendered but not accepted will, following the consummation of the exchange offer, continue to be subject to the provisions in the indenture regarding the transfer and exchange of the outstanding notes and the existing restrictions on transfer set forth in the legend on the outstanding notes and in the offering memorandum dated February 27, 2003, relating to the outstanding notes. Except in limited circumstances with respect to specific types of holders of outstanding notes, we will have no further obligation to provide for the registration under the Securities Act of such outstanding notes. In general, outstanding notes, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will take any action to register the outstanding notes under the Securities Act or under any state securities laws. Upon completion of the exchange offer, holders of the outstanding notes will not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances. Holders of the new notes and any outstanding notes which remain outstanding after consummation of the exchange offer will vote together as a single class for purposes of determining whether holders of the requisite percentage of the class have taken certain actions or exercised certain rights under the indenture. CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES Based on interpretations of the staff of the SEC, as set forth in no-action letters to third parties, we believe that the new notes may be offered for resale, resold or otherwise transferred by holders of those new notes, other than by any holder which is our "affiliate" within the meaning of Rule 405 under the Securities Act. The new notes may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act, if: (1) the new notes issued in the exchange offer are acquired in the ordinary course of the holder's business; and (2) the holder, other than broker-dealers, has no arrangement or understanding with any person to participate in the distribution of the new notes issued in the exchange offer. However, the SEC has not considered the exchange offer in the context of a no-action letter and we cannot guarantee that the staff of the SEC would make a similar determination with respect to the exchange offer as in such other circumstances. Each holder, other than a broker-dealer, must furnish a written representation, at our request, that: (1) it is not an affiliate of ours; (2) it is not engaged in, and does not intend to engage in, a distribution of the notes issued in the exchange offer and has no arrangement or understanding to participate in a distribution of notes issued in the exchange offer; (3) it is acquiring the new notes issued in the exchange offer in the ordinary course of its business; and (4) it is not acting on behalf of a person who could not make representations (1)-(3). Each broker-dealer that receives new notes for its own account in exchange for outstanding notes must acknowledge that: (1) such outstanding notes were acquired by such broker-dealer as a result of market-making or other trading activities; and 27 (2) it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, including the delivery of a prospectus that contains information with respect to any selling holder required by the Securities Act in connection with any resale of new notes issued in the exchange offer. Furthermore, any broker-dealer that acquired any of its outstanding notes directly from us: (1) may not rely on the applicable interpretation of the SEC staff's position contained in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1989), Morgan, Stanley & Co., Inc., SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1993); and (2) must also be named as a selling holder of the new notes in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction. See "Plan of Distribution" for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer. In addition, to comply with state securities laws of certain jurisdictions, the new notes issued in the exchange offer may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and complied with by the holders selling the new notes. We have agreed in the registration rights agreement that, prior to any public offering of transfer restricted notes, we will register or qualify or cooperate with the holders of the new notes in connection with the registration or qualification of the notes for offer and sale under the securities laws of those states as any holder of the notes reasonably requests in writing. Unless a holder requests, we currently do not intend to register or qualify the sale of the new notes in any state where an exemption from registration or qualification is required and not available. 28 USE OF PROCEEDS We will not receive any proceeds from the exchange offer. In consideration for issuing the new notes as contemplated in this prospectus, we will receive in exchange outstanding notes in like principal amount. We will cancel all outstanding notes exchanged for new notes in the exchange offer. CAPITALIZATION The following table sets forth the cash and cash equivalents and our capitalization as of December 31, 2002 on an actual basis and as adjusted to give effect to the previous offering of the outstanding notes. You should read this table in conjunction with our financial statements and the related notes to the financial statements included in this prospectus. See "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Other Indebtedness."
DECEMBER 31, 2002 ---------------------- ACTUAL AS ADJUSTED -------- ----------- (DOLLARS IN THOUSANDS) Cash and cash equivalents................................... $ 207 $ 169,582 ======== ========== Current maturities of long-term debt........................ $ 7,500 $ 7,500 ======== ========== Long-term debt, less current maturities: 6.625% Debentures due 2007................................ $250,000 $ 250,000 7.125% Debentures due 2025................................ 84,740 84,740 9.000% Debentures due 2022................................ 25,283 25,283 Outstanding 8.125% Senior Notes due 2010.................. -- 175,000 -------- ---------- Total long-term debt, less current maturities.......... $360,023 $ 535,023 -------- ---------- Common stockholder's equity: Common stock.............................................. $ 1 $ 1 Additional paid-in capital................................ 262,844 262,844 Retained earnings......................................... 334,208 334,208 Accumulated other comprehensive loss...................... (3,214) (3,214) -------- ---------- Total common stockholder's equity...................... $593,839 $ 593,839 -------- ---------- Total capitalization(1)................................ $953,862 $1,128,862 ======== ==========
- --------------- (1) Total capitalization is calculated as long-term debt (less current maturities) plus common stockholder's equity. 29 SELECTED HISTORICAL FINANCIAL DATA The following table sets forth our selected historical financial data. You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes. The selected financial data as of December 31, 2001 and 2002 and for each of the years in the three-year period ended December 31, 2002 have been derived from our audited financial statements included elsewhere in this prospectus. The selected financial data as of December 31, 1998, 1999 and 2000 and for each of the years in the two-year period ended December 31, 1999 have been derived from our audited financial statements that are not included in this prospectus. The data should be read in conjunction with the financial statements, related notes and other financial information included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1998 1999 2000 2001 2002 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Operating Revenues......................... $ 287,390 $ 287,793 $ 296,361 $ 285,171 $ 297,591 Operating Expenses: General and administrative............... 47,283 43,441 39,912 40,657 49,338 Operation and maintenance................ 38,156 37,784 36,666 37,000 32,279 Depreciation and amortization............ 50,957 51,444 56,558 58,654 58,988 Taxes, other than income taxes........... 12,610 11,777 13,363 13,441 12,352 ---------- ---------- ---------- ---------- ---------- Total Operating Expenses............. 149,006 144,446 146,499 149,752 152,957 Operating Income........................... 138,384 143,347 149,862 135,419 144,634 Other Income, net.......................... 3,722 2,657 10,656 2,278 10,374 Interest Charges: Interest on long-term debt............... 29,064 26,064 25,914 25,670 25,577 Other interest........................... 8,496 4,185 6,273 5,302 2,688 Allowance for borrowed funds used during construction........................... (520) (833) (273) (448) (2,638) ---------- ---------- ---------- ---------- ---------- Total Interest Charges............... 37,040 29,416 31,914 30,524 25,627 Income Before Income Taxes................. 105,066 116,588 128,604 107,173 129,381 Provision for Income Taxes................. 41,030 43,575 48,862 40,132 48,750 ---------- ---------- ---------- ---------- ---------- Net Income................................. $ 64,036 $ 73,013 $ 79,742 $ 67,041 $ 80,631 ========== ========== ========== ========== ========== Cash Dividends on Common Stock............. $ 36,000 $ 56,000 $ 80,000 $ 20,000 $ -- RATIO OF EARNINGS TO FIXED CHARGES(1):.............................. 3.6x 4.5x 4.7x 4.2x 5.2x BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents.................. $ 1,164 $ 342 $ 1,890 $ 443 $ 207 Working Capital(2)......................... (6,991) 3,908 13,427 36,708 7,720 Net Property, Plant & Equipment............ 927,688 942,677 933,560 967,643 1,094,741 Total Assets............................... 1,080,271 1,080,767 1,104,079 1,143,744 1,222,849 Current maturities of long-term debt....... 1,667 1,667 1,667 -- 7,500 Long-term debt, less current maturities.... 372,440 370,793 369,146 367,503 360,023 Total Debt................................. 374,107 372,460 370,813 367,503 367,523 Common Stockholder's Equity................ 453,352 469,639 469,381 516,422 593,839 Total Capitalization(3).................... 825,792 840,432 838,527 883,925 953,862
- --------------- (1) For purposes of computing the ratio of earnings to fixed charges, earnings are divided by fixed charges. "Earnings" represent the aggregate of (a) our pre-tax income, and (b) fixed charges, net of interest capitalized. "Fixed charges" represent interest (whether expensed or capitalized), the amortization of total debt discount and expense and that portion of rentals considered to be representative of the interest factor. (2) Working capital is calculated as current assets minus current liabilities, not including current maturities of long-term debt. (3) Total capitalization is calculated as long-term debt, less current maturities, plus common stockholder's equity. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We own and operate a regulated interstate natural gas pipeline system, including facilities for mainline transmission and gas storage. Our system extends from the San Juan Basin in northwestern New Mexico and southwestern Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near Sumas, Washington. Our natural gas pipeline system transports substantially all of the natural gas to the metropolitan areas of Seattle, Washington; Portland, Oregon; and Boise, Idaho, which represent most of our primary market areas. Our system has an aggregate mainline deliverability of approximately 2.9 Bcf of gas per day, and is composed of approximately 4,000 miles of mainline and lateral transmission pipelines, 470 meter stations and 43 mainline compressor stations with a combined capacity of approximately 348,000 horsepower. We also own or have access to natural gas and liquefied natural gas storage facilities in Utah and Washington with an aggregate seasonal storage level of 11.4 Bcf of working gas and daily withdrawal capacity of approximately 600 MMcf. These storage facilities enable us to balance daily receipts and deliveries and provide storage services to our customers. For the year ended December 31, 2002, our transportation and storage services accounted for approximately 91% and 3% of our operating revenues, respectively. In 2002, we transported and stored natural gas for a total of 166 customers. We provided services to markets in California, New Mexico, Colorado, Utah, Nevada, Wyoming, Idaho, Oregon and Washington. As with all natural gas pipeline operators, our transmission and storage activities are subject to regulation by the FERC under the Natural Gas Act and the NGPA. In accordance with our most recent FERC rate case, we currently charge our customers a rate of $0.3076/Dth of natural gas shipped on our pipeline system, regardless of the distance the gas is to be shipped. Critical Accounting Policies Regulatory Accounting. We are regulated by the Federal Energy Regulatory Commission ("FERC"). Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation," provides that rate-regulated public utilities account for and report regulatory assets and liabilities consistent with the economic effect of the way in which regulators establish rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it reasonable to assume that such rates can be charged and collected. Accounting for businesses that are regulated and apply the provisions of SFAS No. 71 can differ from the accounting requirements for non-regulated businesses. Transactions that are recorded differently as a result of regulatory accounting requirements include the capitalization of an equity return component on regulated capital projects, employee related benefits and other costs and taxes included in, or expected to be included in, future rates. As a rate-regulated entity, our management has determined that it is appropriate to apply the accounting prescribed by SFAS No. 71 and, accordingly, the accompanying financial statements include the effects of the types of transactions described above that result from regulatory accounting requirements. Revenue Subject to Refund. The FERC regulatory processes and procedures govern the tariff rates that we are permitted to charge to customers for interstate transportation of natural gas. Key determinants in the ratemaking process are (i) volume throughput assumptions, (ii) costs of providing service, including depreciation expense, and (iii) allowed rate of return, including the equity component of a pipeline's capital structure and related income taxes. Accordingly, at any given time, some of the revenues collected by us may be subject to possible refunds which may be required by final orders of the FERC. We record estimates of rate refund liabilities considering our and other third-parties' regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks. Because we were not involved in any rate case proceedings at the FERC as of December 31, 2002, we had no potential rate refunds accrued as of that date. Contingent Liabilities. We establish reserves for estimated loss contingencies when it is management's assessment that a loss is probable and the amount of the loss can be reasonably estimated. Revisions to 31 contingent liabilities are reflected in income in the period in which different facts or information become known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon management's assumptions and estimates, advice of legal counsel or other third parties regarding the probable outcomes of the matter. Should the outcome differ from the assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required. Impairment of Long-Lived Assets. We evaluate long-lived assets for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. When such a determination has been made, management's estimate of undiscounted future cash flows attributable to the assets is compared to the carrying value of the assets to determine whether an impairment has occurred. If an impairment of the carrying value has occurred, the amount of the impairment recognized in the financial statements is determined by estimating the fair value of the assets and recording a loss for the amount by which the carrying value exceeds the estimated fair value. Judgments and assumptions are inherent in management's estimate of undiscounted future cash flows used to determine recoverability of an asset and the estimate of an asset's fair value used to calculate the amount of impairment to recognize. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the financial statements. Recent Developments Completed Expansion Project. On November 1, 2002, we placed in service our Grays Harbor Lateral project. This lateral pipeline is designed to provide 161,500 Dth per day of firm transportation capacity to serve a new power generation plant in the State of Washington. The Grays Harbor Lateral project was requested by one of our customers and included installation of 49 miles of 20-inch pipeline, the addition of 4,700 horsepower at an existing compressor station and a new meter station. The cost of the lateral project was approximately $92 million. The customer has suspended construction of the contemplated new power generation plant but that does not affect its obligation to pay for the cost of service of the lateral pipeline on an incremental rate basis. The Grays Harbor Lateral project is based on a 30-year contract and is expected to generate approximately $22 million of operating revenues in its first twelve months of operations. Early Retirement and Severance Expenses. As part of the effort to reduce future operating expenses, certain employee positions are being eliminated through organizational changes. In the second quarter of 2002, we recorded $3.9 million of pension benefits expense associated with an enhanced-benefit early retirement option offered to certain Williams employee groups. In the third and fourth quarters, we recorded an aggregate of $0.5 million of severance costs. RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements and related notes contained elsewhere in this prospectus. Year Ended December 31, 2002 vs. Year Ended December 31, 2001 Operating revenues increased $12.4 million, or 4%, due primarily to facility charge revenues of $3.6 million from incremental projects put into service during 2002, new reservation charges of approximately $1.5 million and higher short-term firm transportation revenues of $6.4 million, partially offset by a $1.6 million decrease in tracked fuel costs and Gas Research Institute charges billed to customers. Our transportation service accounted for 91% and 93% of operating revenues for the years ended December 31, 2002 and 2001, respectively. Additionally, gas storage services represented 3% of operating revenues in each of the years ended December 31, 2002 and 2001. Other revenues related to our transportation services represented 3% and 2% of operating revenues for the years ended December 31, 2002 and 2001, respectively. 32 Operating expenses increased $3.2 million, or 2%, due primarily to a $6.6 million increase in retirement plan expenses, including $3.9 million related to an enhanced-benefit early retirement option offered to certain Williams employee groups, higher allocated general and administrative costs from Williams resulting from the consolidation of several of our administrative functions into Williams, and a $1.1 million charge for an abandoned project. These increases were partially offset by the decrease in tracked fuel costs and Gas Research Institute charges collectible from customers, a $1.2 million reduction in employee benefit costs and $3.8 million lower labor and other employee related cots resulting primarily from recent staff reductions in connection with the early retirement option and organizational changes across Williams. The increased level of capital spending compared to 2001, which has resulted in a greater percentage of employee labor and expenses being dedicated to capital projects, including the expansion projects discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments" and "Business -- Expansion Projects," has also contributed to the decrease in operating expenses during 2002. Operating income increased $9.2 million, or 7%, due to the higher revenues discussed above, partially offset by the higher operating expenses. Other income (net) increased $8.1 million primarily due to reduced charitable contribution commitments reflecting our desire to reduce non-income producing related expenses. Other interest charges decreased $2.6 million resulting from the 1995 rate case settlement refund paid to customers in August 2001. Allowance for borrowed funds used during construction increased $2.2 million as a result of the increase in expenditures for capital projects, including expansion projects. Year Ended December 31, 2001 vs. Year Ended December 31, 2000 Operating revenues decreased $11.2 million, or 4%, due primarily to the recognition in 2000 of a $10.2 million surcharge resulting from a favorable FERC decision on return on equity related to our 1993 rate case. Our transportation service accounted for 93% and 94% of operating revenues for the years ended December 31, 2001 and 2000, respectively. Additionally, 3% of operating revenues represented gas storage service in each of the years ended December 31, 2001 and 2000. Operating expenses increased $3.3 million, or 2%, due primarily to higher depreciation in 2001 and the receipt in 2000 of $2.1 million in environmental liability insurance settlements, partially offset in 2001 by decreased rental expense reflected in general and administrative expense. Operating income decreased $14.4 million, or 10%, due to reasons identified above. Other income (net) decreased $8.4 million primarily resulting from the recognition in 2000 of $7.0 million of interest on the 1993 rate case surcharge revenues discussed above in operating revenues and higher charitable contributions in 2001. Other interest charges decreased $1.0 million due primarily to the payment of the 1995 rate case refund in August of 2001. Operating Statistics The following table summarizes volumes and capacity for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------ 2000 2001 2002 ---- ---- ---- Total Throughput (TBtu)..................................... 752 734 729 Average Daily Transportation Volumes (TBtu)................. 2.1 2.0 2.0 Average Daily Firm Reserved Capacity (TBtu)................. 2.7 2.7 2.9
33 CAPITAL RESOURCES AND LIQUIDITY Method of Financing We fund our capital requirements with cash flows from operating activities, by accessing capital markets, by repayments of funds advanced to WGP, by borrowings under the credit agreement described below, and, if required, advances from WGP. Williams and some of its subsidiaries, including us, are parties to a $700 million credit agreement, under which we can borrow up to $400 million to the extent the funds available under the credit agreement have not been borrowed by Williams or other subsidiaries or otherwise must remain available to Williams. The credit agreement expires in July 2005. Interest rates vary with current market conditions based on the base rate of Citibank N.A., the federal funds rate or the London Interbank Offered Rate ("LIBOR"). The credit agreement contains restrictions, which limit, under some circumstances, the issuance of additional debt, the attachment of liens on any assets and any change of ownership of us. As Williams completes certain asset sales, the commitments from participating banks in the credit agreement will be reduced to $400 million, and with further asset sales could be reduced below that amount, but we will continue to have borrowing capacity up to the lesser of $400 million or the amount that Williams would be able to borrow, to the extent the funds available under the credit agreement have not been borrowed by Williams or other participating subsidiaries or otherwise must remain available to Williams. At December 31, 2002, the commitment from participating banks had been reduced to $463 million, the borrowing capacity available to us was $400 million, and we had no outstanding borrowings under this agreement. Our assets have not been pledged to secure any indebtedness of Williams or its other affiliates, either under the credit agreement or pursuant to any other credit facility of Williams and its other affiliates. As a participant in Williams' cash management program, we make advances to and receive advances from Williams through our parent company, WGP. At December 31, 2002, the advances due to us by WGP totaled $17.3 million. The advances are represented by demand notes. The interest rate on intercompany demand notes is the LIBOR on the first day of the month plus an applicable margin (which was 3.5% at December 31, 2002) based on our current Standard & Poor's credit rating. Due to recent asset sales, anticipated asset sales in the future and recently negotiated secured borrowing facilities, Williams has indicated that it currently believes that it will continue to have the financial resources and liquidity to repay these advances made by us. See "Risk Factors -- Risks Relating to Our Ownership by Williams." Historically, we also funded our capital requirements through a sale of receivables program. Through a wholly-owned bankruptcy remote subsidiary, we sold certain trade accounts receivable to a special-purpose entity ("SPE") in a securitization structure requiring annual renewal. We acted as the servicing agent for the sold receivables. The sale of receivables program expired on July 25, 2002, and on July 26, 2002, we completed the repurchase of $15 million of trade accounts receivable previously sold. This program was not renewed as a result of the loss of our investment grade credit ratings. Our expenditures for property, plant and equipment additions were $181.8 million, $94.9 million and $47.9 million for 2002, 2001 and 2000, respectively. We expect total capital expenditures for 2003 will be approximately $330 million, of which approximately $63 million will be for maintenance capital expenditures and other non-expansion related items. Although no assurances can be given, we currently believe that the aggregate of cash flows from operating activities, supplemented, when necessary, by the repayment by WGP to us of funds previously advanced to WGP, the net proceeds of the offering of the outstanding notes, advances or capital contributions from Williams and borrowings under the revolving credit agreement will provide us with sufficient liquidity to meet our capital requirements. When necessary, we also expect to access the public and private capital markets to finance our capital requirements. Credit Ratings We have no guarantees of off-balance sheet debt to third parties and maintain no debt obligations that contain provisions requiring accelerated payment of the related obligations in the event of specified levels of 34 declines in Williams' or our credit ratings given by Moody's Investor Services, Standard & Poor's and Fitch Ratings. In July 2002, Moody's Investor Services, Standard & Poor's and Fitch Ratings lowered our credit ratings on our unsecured long-term debt from Baa1, BBB+ and BBB+ to Ba2, B+ and BB-, respectively. In November 2002, Moody's Investor Services further lowered our credit rating to B3 from Ba2. Currently, Moody's Investor Services and Standard & Poor's have our credit ratings on "negative outlook" and "negative watch," respectively. With the downgrade in our credit ratings, we expect interest rates on future financings may be higher than they would otherwise be. OTHER Contractual Obligations The table below summarizes some of the more significant contractual obligations and commitments by period (in millions of dollars).
CAPITAL TOTAL LONG-TERM OPERATING EXPENDITURE CONTRACTUAL PERIOD DEBT LEASES COMMITMENTS OBLIGATIONS - ------ --------- --------- ----------- ----------- 2003..................................... $ 7.5 $ 4.4 $ 324.6(1) $336.5 2004..................................... 7.5 6.0 30.2 43.7 2005..................................... 7.5 7.0 -- 14.5 2006..................................... 7.5 6.0 -- 13.5 2007..................................... 252.9 6.1 -- 259.0 After 2007............................... 85.0 12.1 -- 97.1 ------ ----- -------- ------ Total.................................... $367.9 $41.6 $ 354.8 $764.3 ====== ===== ======== ======
- --------------- (1) These contractual commitments for construction and acquisition of property, plant and equipment are included in our estimated $330 million of total capital expenditures for 2003. Contingencies We are not currently involved in any pending rate cases. See Note 2 of the notes to the audited financial statements as of December 31, 2002 and 2001 and for the three years in the period ended December 31, 2002 included elsewhere in this prospectus for information about regulatory, judicial and business developments which cause operating and financial uncertainties. Effect of Inflation We generally have experienced increased costs in recent years due to the effect of inflation on the cost of labor, materials and supplies, and property, plant and equipment. A portion of the increased labor and materials and supplies cost can directly affect income through increased maintenance and operating costs. The cumulative impact of inflation over a number of years has resulted in increased costs for current replacement of productive facilities. The majority of our property, plant and equipment and inventory is subject to rate-making treatment, and under current FERC practices, recovery is limited to historical costs. While amounts in excess of historical cost are not recoverable under current FERC practices, we believe we will be allowed to recover and earn a return based on the increased actual costs incurred when existing facilities are replaced. Cost-based regulation, along with competition and other market factors, limit our ability to price services or products based upon the effect of inflation on costs. 35 MARKET RISK DISCLOSURES Interest Rate Risk Our interest rate risk exposure is limited to our long-term debt. All interest rates on long-term debt are fixed in nature. The following table provides information as of December 31, 2002 about our long-term debt, including current maturities. The table presents principal cash flows (at face value) and weighted average interest rates by expected maturity dates.
2003 2004 2005 2006 2007 THEREAFTER TOTAL FAIR VALUE ---- ---- ---- ---- ------ ---------- ------ ---------- (DOLLARS IN MILLIONS) Long-term debt, including current portion: Fixed rate........................... $7.5 $7.5 $7.5 $7.5 $252.9 $85.0 $367.9 $328.2 Interest rate........................ 6.9% 6.9% 6.8% 6.8% 6.8% 7.1%
36 BUSINESS NORTHWEST PIPELINE CORPORATION We own and operate a regulated interstate natural gas pipeline system, including facilities for mainline transmission and gas storage. Our system extends from the San Juan Basin in northwestern New Mexico and southwestern Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near Sumas, Washington. Our natural gas pipeline system transports substantially all of the natural gas to the metropolitan areas of Seattle, Washington; Portland, Oregon; and Boise, Idaho which represent most of our primary market areas. Our system has an aggregate mainline deliverability of approximately 2.9 Bcf of gas per day and is composed of approximately 4,000 miles of mainline and lateral transmission pipelines, 470 meter stations and 43 mainline compressor stations with a combined capacity of approximately 348,000 horsepower. We also own or have access to natural gas and liquefied natural gas storage facilities in Utah and Washington with an aggregate seasonal storage level of 11.4 Bcf of working gas and daily withdrawal capacity of approximately 600 MMcf. These storage facilities enable us to balance daily receipts and deliveries and provide storage services to our customers. For the year ended December 31, 2002, our transportation and storage services accounted for approximately 91% and 3% of our operating revenues, respectively. In 2002, we transported natural gas for a total of 166 customers, including distribution companies, municipalities, interstate and intrastate pipelines, gas marketers and direct industrial users. We provided services to markets located in California, New Mexico, Colorado, Utah, Nevada, Wyoming, Idaho, Oregon and Washington. Our firm transportation agreements are generally long-term agreements with various maturities of up to 30 years and accounted for approximately 87% of our operating revenues for the year ended December 31, 2002. These long-term agreements have historically resulted in predictable volumes and related cash flows. Additionally, we offer interruptible and short-term firm transportation services, which accounted for approximately 4% of our operating revenues for the year ended December 31, 2002. As with all interstate natural gas pipeline operators, our transmission and storage activities are subject to regulation by the FERC and, as such, our rates and charges for the transportation of natural gas in interstate commerce, the extension, enlargement or abandonment of our jurisdictional facilities, and our accounting, among other things, are subject to regulation. In accordance with our most recent FERC rate case, we are currently authorized to charge our customers a rate equivalent to $0.3076/Dth for natural gas shipped on our pipeline system, regardless of the distance the gas is to be shipped. We currently have no outstanding rate cases before the FERC, nor any immediate plans to file a rate case with the FERC. COMPETITIVE STRENGTHS Stable, Recurring Revenues Contracted Under Long-Term Firm Agreements. For the year ended December 31, 2002, approximately 90% of our operating revenues were generated under long-term firm transportation and storage agreements. Our transportation and storage agreements are generally contracted on a long-term basis and our rates are substantially collected through fixed demand charges. As a result, fluctuations in natural gas prices and actual volumes transported and stored have a limited impact on our operating revenues. The average remaining primary term of our long-term firm agreements is approximately 8.9 years on a volume-weighted basis. Our long-term firm agreements generally contain year-to-year automatic renewals at the end of the primary term, unless a termination notice is given by the customer. We do not have any substantial transportation and storage agreements expiring in 2003. Agreements representing 14% of our total long-term firm capacity expire in 2004, and as a result of rollover provisions will become year-to-year contracts at such time, unless terminated or extended for a longer term. No single agreement which expires during the next 10 years represents more than 12% of our total long-term firm capacity. Additionally, we only invest in infrastructure expansion on the basis of long-term firm commitments (of at least 15 years) from customers for the additional capacity or with customer commitments for support of improvements to existing facilities. We have historically experienced minimal bad debt expense due to the relatively strong credit quality of most of our customers and the extensive credit screening process we conduct on all of our customers. 37 Sole Provider in Significant Geographic Markets. Our natural gas pipeline system transports substantially all of the natural gas to the metropolitan areas of Seattle, Washington; Portland, Oregon; and Boise, Idaho, which represent most of our primary market areas. Although we do not face significant competition in many of our market areas, we consistently strive to provide high quality customer service. In 2002, we received our highest rating ever in our annual customer satisfaction survey conducted by Energy Insights, a third-party energy consulting firm. We believe our consistently high level of customer satisfaction is due to our flexible, reliable services as well as the customized transportation solutions we offer to our customers at prices generally lower than those of our competitors. Efficient Operations Resulting in a Competitive Cost Structure. The efficient operation of our pipeline system enables us to position ourselves as the low cost, high quality provider of transportation and storage services in our major market areas. We have attained our competitive cost structure by exercising strict expense and capital spending discipline, utilizing the same physical pipeline facilities to provide simultaneous gas transportation services in two directions, and expanding our facilities to complement our existing infrastructure and geographic markets. By maintaining low costs, we maximize our earnings and cash flows and increase the probability of earning a rate of return on equity that is at least equal to the regulated return as set by the FERC, and avoid the need to file new rate cases with the FERC. Flexible Pipeline Operations with Diversified Natural Gas Supplies. Our pipeline system is designed on a bi-directional basis, which allows us to provide gas transportation services both north and south simultaneously on the system. Because we can transport gas from the San Juan and Rockies basins in the south, as well as from Canada in the north, we are able to provide our customers with low cost supply alternatives and flexible service options. Through our system storage and Park and Loan service, we provide our customers flexibility in helping them manage their gas supply and transportation balancing needs. Strong Management Team. Our operating management team has an average tenure of more than 13 years managing Williams' gas pipeline systems. Our management has an intense focus on operating our assets efficiently while providing a high level of service to our customers. This team also has a comprehensive understanding of the regulatory environment under which we operate. The depth and strength of our management has enabled us to identify and capitalize on expansion and growth opportunities. BUSINESS STRATEGY Our primary strategy is to safely and efficiently operate our facilities and opportunistically invest in new infrastructure to meet the growing demands of our market areas. The principal elements of our business strategy are to: Maintain Safe and Reliable Operations with a High Degree of Customer Satisfaction. We intend to continue to operate our transportation and storage facilities in a safe manner for our communities, customers, employees and the environment. We believe our record of long-term customer relationships and contract extensions is due to our reliable and flexible transportation and storage services as well as the relatively lower rates we offer our customers. Continue to Efficiently Operate and Reduce Costs in Our Existing Operations. We believe we can generate additional revenue and operating income by increasing and optimizing throughput on our existing pipeline assets and realizing cost savings through continued operational efficiencies. Because of our relatively low variable costs in operating our facilities, increasing revenues directly leads to increased cash flow and improved margins. We believe we can further reduce our costs by minimizing capital expenditures for maintenance items that do not impact pipeline safety, security or performance and by continuing to implement our strict operating expense discipline. Strategically Expand Our Natural Gas Transportation Infrastructure. We believe that the demand for natural gas in the Pacific Northwest will continue to increase due to the growing preference for natural gas in residential and commercial markets, as well as for use in power generation facilities in response to environmental concerns. We believe this growth in demand will support future expansions of our mainline and lateral capacity. We intend to capitalize on our existing infrastructure, market position and customer 38 relationships in order to expand operations to meet the anticipated increased demand for natural gas transportation and storage services, while maintaining access to substantial sources of natural gas supply. We have expanded our infrastructure on the basis of long-term firm commitments (of at least 15 years) from customers for the additional capacity or with customer commitments for support of improvements to existing facilities. Our 2002 capital expenditures totaled approximately $182 million, of which approximately $33 million was for maintenance and other non-expansion purposes. EXPANSION PROJECTS The Rockies Expansion Project. On August 29, 2001, we filed an application with the FERC to construct and operate an expansion of our pipeline system designed to provide an additional 175,000 dekatherms per day of capacity to our transmission system in Wyoming and Idaho in order to reduce reliance on displacement capacity. The Rockies Expansion Project includes the installation of 91 miles of pipeline loop and the upgrading or modification of six compressor stations for a total increase of 26,057 horsepower. We reached a settlement agreement with the majority of our firm shippers to support the roll-in of the expansion costs into our existing rates. The FERC issued a certificate on September 23, 2002 approving the project. We filed an application with the FERC in February 2003 to amend the certificate to reflect minor facility scope changes. Construction is scheduled to start by May 2003, with a targeted in-service date of November 1, 2003. The current estimated cost of the expansion project is approximately $140 million, of which approximately $16 million may be offset by settlement funds anticipated to be received from a former customer in connection with a contract restructuring. The Evergreen Expansion Project. On October 3, 2001, we filed an application with the FERC to construct and operate an expansion of our pipeline system designed to provide 276,625 dekatherms per day of firm transportation capacity to serve new power generation demand in western Washington. The Evergreen Expansion Project includes installing 28 miles of pipeline loop, upgrading, replacing or modifying five compressor stations and adding a net total of 64,160 horsepower of compression. The FERC issued a certificate on June 27, 2002 approving the expansion and the incremental rates to be charged our expansion customers. We started construction in October 2002 with completion targeted for October 1, 2003. We filed an application with the FERC in January 2003 to amend the certificate to reflect minor facility scope and schedule changes. The estimated cost of the expansion project is approximately $198 million. This expansion is based on 15 and 25 year contracts and is expected to provide approximately $42 million of operating revenues in its first twelve months of operations. The Columbia Gorge Expansion Project. Our October 3, 2001 application with respect to the Evergreen Expansion Project, which was approved by the FERC on June 27, 2002, also requested approvals to construct and operate an expansion of our pipeline system designed to replace 56,000 dekatherms per day of northflow design displacement capacity from Stanfield, Oregon to Washougal, Washington. The Columbia Gorge Project includes upgrading, replacing or modifying five existing compressor stations, adding a net total of 24,030 horsepower of compression. We reached a settlement with the majority of our firm shippers to support roll-in of 84% of the expansion costs into our existing rates with the remainder to be allocated to the incremental Evergreen Expansion customers. Our January 2003 application to amend the certificate also reflected minor facility scope changes for the Columbia Gorge Expansion Project. We plan to start construction by May 2003, with a targeted in-service date of November 1, 2003. The estimated cost of the expansion project is approximately $43 million. DESCRIPTION OF THE PIPELINE SYSTEM Pipeline Facilities. The mainline is comprised of approximately 2,371 miles of predominantly 26-inch diameter pipe, much of which is looped, and extends from its point of origination in the San Juan Basin to a point on the Canadian border near Sumas, Washington. An additional 1,641 miles of supply and service laterals of varying diameters are included as part of the mainline transmission system. The mainline 39 transmission system has a design capacity of 2.9 Bcf per day, which we expect to increase to 3.2 Bcf per day upon completion of our current expansion projects. Pipeline Operations. We currently have 43 mainline compressor stations, and we own and operate 470 meter stations as part of the mainline system. We maintain 24-hour monitoring of our pipeline system via a computerized data monitoring and control system that links all compressor stations and maintenance bases with our operations center in Salt Lake City, Utah. Remote facilities along our pipeline route are accessed with the use of multiple address radio communication links which allow our pipeline to be operated remotely from our operations center. The central gas control operations center includes the dispatching center, which houses the gas management and control and computer systems required to operate our pipeline system. A back-up operations center is located at the Evanston, Wyoming maintenance base. Operations. We have operated our pipeline system with regular and continuous maintenance since we commenced operations. Inspections and tests are performed at prescribed intervals to ensure the integrity of the pipeline system. These inspections include periodic corrosion surveys, testing of relief and over-pressure devices and periodic aerial inspections of the rights-of-way, all conforming to United States Department of Transportation regulations. TRANSPORTATION SERVICE Long-Term Firm Transportation Service Agreements. Most of our pipeline system's design capacity of 2.9 Bcf per day is contracted under long-term firm gas transportation service agreements with approximately 52 firm transportation shippers. Under these agreements our pipeline system receives natural gas on behalf of such shippers at designated receipt points, transports the gas on a firm basis up to each shipper's maximum daily quantity and delivers thermally equivalent quantities of gas at designated delivery points. In return for this service, as provided in the long-term firm transportation service agreements, each shipper pays us the amount set forth in our FERC gas tariff, with such amount consisting primarily of a fixed monthly reservation fee which is currently $0.2776 per Dth, based on each shipper's maximum daily quantity, and a commodity charge which is currently $0.0300 per Dth. We have long-term firm transportation service agreements providing for the transportation of approximately 2.2 MMDth per day of natural gas. Upon completion and placement in-service of our Evergreen expansion project, we will have long-term firm transportation service agreements providing for the transportation of approximately 2.5 MMDth per day. The following table provides information regarding capacity, stated as a function of contract demand associated with long-term firm transportation service agreements the primary terms of which are due to expire each year through 2012.
LONG-TERM FIRM CONTRACTS WITH PRIMARY TERMS EXPIRING IN: ------------------------------------------------------------------------- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ---- ----- ---- ---- ----- ----- ----- ---- ----- ----- MDth/d........................... 9.2 349.1 0.0 0.8 109.1 496.2 160.0 58.4 102.0 379.6
The foregoing table illustrates that the primary terms of our long-term firm transportation agreements representing a majority of our contracted capacity will expire over the course of the next 10 years. We believe, however, that because we are the only interstate natural gas pipeline company that presently provides significant service to most of our primary gas market areas, most of the customers who are parties to those long-term firm agreements are likely to renew or extend those agreements, although we cannot predict the terms that will be applicable to those renewals or extensions. In the event that any of those customers elected not to renew or extend its agreement, we could seek a change in rates with the FERC in order to allocate the costs associated with that agreement among other customers. Other Transportation Service Agreements. In addition to long-term firm transportation service agreements, we have entered into several relatively short-term firm service transportation agreements, which are typically for a term of less than one year. 40 GAS STORAGE Underground gas storage facilities enable us to balance daily receipts and deliveries and provide storage services to our customers. We have a contract with a third party, under which gas storage services are provided to us in an underground storage reservoir in the Clay Basin Field located in Daggett County, Utah. We are authorized to utilize the Clay Basin Field at a seasonal storage level of 3.0 Bcf of working gas, with a firm delivery capability of 25 MMcf of gas per day. We own a one-third interest in the Jackson Prairie underground storage facility located near Chehalis, Washington, with the remaining interests owned by two of our distribution customers. Our one-third share of the authorized seasonal storage capacity of the facility is 6.1 Bcf of working gas. Our one-third share of the facility provides peak-day deliveries to us of up to 283 MMcf per day on a firm basis and up to an additional 50 MMcf per day on a best-efforts basis. We also own and operate a liquefied natural gas storage facility located near Plymouth, Washington, which provides standby service for our customers during extreme peaks in demand. The facility has a total liquefied natural gas storage capacity equivalent to 2.3 Bcf of working gas, liquefaction capability of 12 MMcf per day and regasification capability of 300 MMcf per day. Some of our major customers own the working gas stored at the liquefied natural gas plant. OWNERSHIP OF PROPERTY Our pipeline system is owned in fee simple. However, a substantial portion of our system is constructed and maintained pursuant to rights-of-way, easements, permits, licenses or consents on and across properties owned by others. Our compressor stations with appurtenant facilities are located in whole or in part upon lands owned by us or held under leases or permits issued or approved by public authorities, or pursuant to easements granted by private landowners. Our liquefied natural gas facility is located on lands owned by us in fee simple. Various credit arrangements restrict the sale or disposal of a major portion of our pipeline system. INSURANCE We maintain insurance coverage for our pipeline system in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which we operate. Our insurance program includes general liability insurance, auto insurance, worker's compensation insurance and all-risk property, boiler and machinery and business interruption insurance with a mortgagee clause naming the collateral agent as sole loss payee. Our insurance needs are provided for, on an "at cost" basis, through Williams' insurance program. From time to time, Williams may extend insurance to us through a self-insurance program, to the extent and in the manner normal for companies of like size, type and financial condition. EMPLOYEES At January 31, 2003, 436 persons were either employed directly by us or otherwise assigned to us by Williams, none of whom is represented under collective bargaining agreements. No strike or work stoppage in any of our operations has occurred in the past, and relations with employees are good. REGULATORY MATTERS FERC Regulation and Rate Structure Our transportation of natural gas in interstate commerce is subject to regulation by the FERC under the Natural Gas Act and the Natural Gas Policy Act. We hold certificates of public convenience and necessity issued by the FERC authorizing us to own and operate all pipelines, facilities and properties considered jurisdictional for which certificates are required under the Natural Gas Act. 41 We are subject to the Natural Gas Pipeline Safety Act of 1968, as amended by Title I of the Pipeline Safety Act of 1979, which regulates safety requirements in the design, construction, operation and maintenance of interstate gas transmission facilities. Our rates and charges for transportation in interstate commerce are subject to regulation by the FERC under the applicable FERC regulations. FERC regulations and our FERC approved tariff allow us to establish and collect rates designed to give us an opportunity to recover all actually and prudently incurred operations and maintenance costs of our pipeline system, taxes, interest, depreciation and amortization and a regulated equity return. Rates charged by natural gas companies may not exceed the just and reasonable rates approved by the FERC. In addition, natural gas companies are prohibited from granting any undue preference to any person, or maintaining any unreasonable difference in their rates or terms and conditions of service. FERC regulations also prohibit us from preventing shippers from freely assigning their capacity, provided that the assignee meets the credit rating standards imposed by our FERC tariff and that the assignment is operationally feasible to accommodate. Under Section 5 of the Natural Gas Act, on its own motion or based on a complaint filed by a customer of the pipeline or other interested person, the FERC may initiate a proceeding seeking to compel a pipeline to change any rate which is on file. If the FERC determines that the existing rate or condition is unjust, unreasonable, unduly discriminatory or preferential, then any rate reduction that is ordered at the conclusion of such a proceeding is generally effective prospectively from the date of the order requiring this change. We currently have no outstanding rate cases before the FERC, nor any immediate plans to file a rate case. The nature, and degree of, regulation of natural gas companies has changed significantly during the past 20 years, and there is no assurance that further substantial changes will not occur, or that existing policies and rules will not be applied in a new or different manner. On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking proposing to adopt uniform standards of conduct for transmission providers. The proposed rules define transmission providers as interstate natural gas pipelines and public utilities that own, operate or control electric transmission facilities. The proposed standards would regulate the conduct of transmission providers with their energy affiliates. The FERC proposes to define energy affiliates broadly to include any transmission provider affiliate that engages in or is involved in transmission (gas or electric) transactions, or manages or controls transmission capacity, or buys, sells, trades or administers natural gas or electric energy or engages in financial transactions relating to the sale or transmission of natural gas or electricity. Current rules regulate our conduct and our gas marketing affiliates. The FERC invited interested parties to comment on the Notice of Proposed Rulemaking. On April 25, 2002, the FERC issued its staff analysis of the Notice of Proposed Rulemaking and the comments received. The staff analysis proposed redefining energy affiliates to exclude affiliated transmission providers. On May 21, 2002, the FERC held a public conference concerning the Notice of Proposed Rulemaking and the FERC invited the submission of additional comments. If adopted, these new standards would require us to adopt new compliance measures. On July 17, 2002, the FERC issued a Notice of Inquiry to seek comments on its negotiated rate policies and practices. The FERC states that it is undertaking a review of the recourse rate as a viable alternative and safeguard against the exercise of market power of interstate gas pipelines, as well as the entire spectrum of issues related to its negotiated rate program. The FERC has requested that interested parties respond to various questions related to the FERC's negotiated rate policies and practices. We have negotiated certain rates under the FERC's existing negotiated rate program, and participated in comments filed in this proceeding by Williams in support of the FERC's existing negotiated rate program. On August 1, 2002, the FERC issued a Notice of Proposed Rulemaking that proposes restrictions on various types of cash management programs employed by companies in the energy industry such as Williams and its subsidiaries. In addition to stricter guidelines regarding the accounting for and documentation of cash management or cash pooling programs, the FERC proposal, if made final, would preclude public utilities, natural gas companies and oil pipeline companies from participating in such programs unless the parent 42 company and its FERC-regulated affiliate maintain investment grade credit ratings and that the FERC-regulated affiliate maintains stockholders' equity of at least 30% of total capitalization. Williams' and our current credit ratings are non-investment grade. We participated in comments filed in this proceeding on August 28, 2002 by the Interstate Natural Gas Association of America. On September 25, 2002, the FERC convened a technical conference to discuss issues raised in the comments filed by parties in this proceeding. Safety Regulations Our operations are subject to regulation by the United States Department of Transportation under the Natural Gas Pipeline Safety Act of 1969, as amended, relating to the design, installation, testing, construction, operation and management of our pipeline system. The Natural Gas Pipeline Safety Act requires any entity that owns or operates pipeline facilities to comply with applicable safety standards, to establish and maintain inspection and maintenance plans and to comply with such plans. The Natural Gas Pipeline Safety Act was amended by the Pipeline Safety Act of 1992 to require the Department of Transportation's Office of Pipeline Safety to consider protection of the environment when developing minimum pipeline safety regulations. In addition, the amendments required that the Department of Transportation issue pipeline regulations concerning, among other things, the circumstances under which emergency flow restriction devices should be required, training and qualification standards for personnel involved in maintenance and operation, and requirements for periodic integrity inspections, as well as periodic inspection of facilities in navigable waters which could pose a hazard to navigation or public safety. In addition, the amendments narrowed the scope of our gas pipeline exemption pertaining to underground storage tanks under the Resource Conservation and Recovery Act. In 2002, the U.S. Congress enacted the Pipeline Safety Improvement Act, and final regulations implementing the Pipeline Safety Improvement Act are anticipated to be issued in 2003. The Pipeline Safety Improvement Act makes numerous changes to pipeline safety law, the most significant of which is the requirement that operators of pipeline facilities implement written integrity management programs. Such programs must include a baseline integrity assessment of each of an operator's transmission facilities that must be completed within 10 years of the enactment of the Pipeline Safety Improvement Act. We anticipate that the Pipeline Safety Improvement Act and regulations will impose increased costs associated with the new pipeline inspection and pipeline integrity program requirements, but based on current information we do not expect these costs to have a material adverse effect upon our earnings. ENVIRONMENTAL MATTERS We are subject to extensive federal, state and local statutes, rules and regulations relating to environmental protection, including the National Environmental Policy Act, the Clean Air Act, and the Comprehensive Environmental Response, Compensation and Liability Act. These laws and regulations can result in increased capital, operating, and other costs. These laws and regulations generally require us to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals, and may be enforced by both public officials and private individuals. We may be responsible for environmental clean-up and other costs at sites that we formerly or currently own or operate and at third-party waste disposal sites. We cannot predict with certainty the amount and timing of future expenditures related to environmental matters because of the difficulty of estimating clean-up costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties. Environmental regulations may also require us to install pollution control equipment at, or perform environmental remediation on, our facilities. Historically, with respect to any capital expenditures required to meet applicable standards and regulations, the FERC has granted the requisite rate relief so that, for the most part, such expenditures and a return thereon have been permitted to be recovered. We have no reason to believe the FERC will change that position. Our management believes that compliance with applicable environmental requirements is not likely to have a material adverse effect upon our financial condition. 43 LEGAL PROCEEDINGS In 1998, the U.S. Department of Justice informed Williams that Jack Grynberg, an individual, had filed claims in the U.S. District Court for the District of Colorado under the False Claims Act against Williams and some of its wholly-owned subsidiaries, including us. Mr. Grynberg had also filed claims against approximately 300 other energy companies and alleged that the defendants violated the False Claims Act in connection with the measurement, royalty valuation and purchase of hydrocarbons. The relief sought was an unspecified amount of royalties allegedly not paid to the federal government, treble damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the Department of Justice announced that it was declining to intervene in any of the Grynberg qui tam cases; including the action filed against Williams entities in the U.S. District Court for the District of Colorado. On October 21, 1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui tam cases, including those filed against Williams to the U.S. District Court for the District of Wyoming for pre-trial purposes. On October 9, 2002, the court granted a motion to dismiss Grynberg's royalty valuation claims. Grynberg's measurement claims remain pending against Williams and the other defendants. On June 8, 2001, 14 Williams entities, including us, were named as defendants in a nationwide class action lawsuit which has been pending against other defendants, generally pipeline and gathering companies, for more than one year. The plaintiffs allege that the defendants, including Williams defendants, have engaged in mismeasurement techniques that distort the heating content of natural gas, resulting in an alleged underpayment of royalties to the class of producer plaintiffs. In September 2001, plaintiffs' counsel voluntarily dismissed two of the 14 Williams entities named as defendants in the lawsuit. In November 2001, Williams defendants, along with other coordinating defendants, filed a motion to dismiss on non-jurisdictional grounds. In January 2002, most of the Williams defendants, along with a group of coordinating defendants filed a motion to dismiss for lack of personal jurisdiction. On August 19, 2002, defendants' motion to dismiss on non-jurisdictional grounds was denied. On September 17, 2002, the plaintiffs filed a motion for class certification. The Williams entities joined with other defendants in contesting certification of the plaintiff class and a decision on this issue is pending. We believe that the ultimate resolution of the foregoing matters, based on advice of counsel and after consideration of amounts accrued, insurance coverage, potential recovery from customers and other indemnification arrangements, will not have a materially adverse effect upon our future financial position, results of operations and cash flow requirements. 44 MANAGEMENT DIRECTORS AND OFFICERS The following is a list of our directors and officers, their ages and their positions as of January 31, 2003.
NAME AGE TITLE - ---- --- ----- Steven J. Malcolm.................... 54 Director and Chairman of the Board J. Douglas Whisenant................. 56 Director, President and Chief Executive Officer Allison G. Bridges................... 43 Director and Vice President, Commercial Operations Randall Lee Barnard.................. 44 Vice President, Operations Randall R. Conklin................... 46 Vice President, General Counsel and Assistant Secretary P. David Dean........................ 51 Vice President, Engineering and Construction Frank J. Ferazzi..................... 46 Vice President, Commercial Operations H. Dean Jones II..................... 50 Vice President, Commercial Operations Ronald M. Mucci...................... 45 Vice President, Chief Information Officer Richard D. Rodekohr.................. 44 Vice President, Finance and Accounting and Treasurer Nancy W. Schultz..................... 46 Vice President, Operations and Engineering Services Jeffrey P. Heinrichs................. 52 Controller and Assistant Treasurer Brian K. Shore....................... 38 Secretary
There are no family relationships among our directors or the officers listed. Directors serve one-year terms with elections held at each annual meeting, or until their successors have been elected and qualified. Officers serve a term which extends to and expires at the annual meeting of the Board of Directors or until a successor has been elected and qualified. Each of our officers is also an officer of WGP. Steven J. Malcolm has served as a Director and Chairman of the Board of our company since May 2002. He has been a director of Williams since 2001, and was elected Chief Executive Officer of Williams in January 2002. He was elected President and Chief Operating Officer of Williams in September 2001. Prior to that, he was an Executive Vice President of Williams since May 2001, President and Chief Executive Officer of Williams Energy Services, LLC, a subsidiary of Williams, from December 1998 to May 2001, and the Senior Vice President and General Manager of Williams Field Services Company, another subsidiary of Williams, from November 1994 to May 2001. J. Douglas Whisenant has served as a Director of our company since October 1992 and as President and Chief Executive Officer since December 2001. From 1992 until December, 2001 he was Senior Vice President and General Manager of our company. Prior to that he was Vice President, Finance and Administration from 1989, and Vice President, Finance from 1983. Allison G. Bridges has served as a Director of our company since December 2002 and as Vice President, Commercial Operations since November 2002. Before being named to her current position, she was Vice President, Service Delivery, Gas Management and Control for WGP. In 1981 she joined Transcontinental Gas Pipe Line Corporation, a subsidiary of Williams since 1995. Randall Lee Barnard has served as a Vice President, Operations of our company since April 2002. From 2001 until April 2002 he served as President of International Operations for Williams, and he also served as Senior Vice President of Williams Energy Services, LLC, a subsidiary of Williams. From 1997 to 2000 he was the Country Manager and General Manager of Williams' operations in Venezuela. He has been involved in Williams' international business development since 1994. Randall R. Conklin has served as Vice President, General Counsel and Assistant Secretary of our company since April 2002. Since 1992 he has served as Vice President and General Counsel of Transcontinen- 45 tal Gas Pipe Line Corporation, a subsidiary of Williams. He began his career in 1981 as an attorney with Transco Energy Company, a subsidiary of Williams since 1995. P. David Dean has served as a Vice President, Engineering and Construction of our company since April 2002. Prior to that he was Vice President, Technical Services for WGP from 1998 until April 2002, and from 1995 to 1998 he was the Director of Operations for our company and Kern River Gas Transmission Company, a former subsidiary of Williams. Frank J. Ferazzi has served as a Vice President, Commercial Operations of our company since April 2002. Prior to his current position, in 1995, he was elected Vice President, Customer Service for Transcontinental Gas Pipe Line Corporation, a subsidiary of Williams. He is also the Commercial Officer in charge of the development and implementation of WGP's 1Line Service Delivery System and is the Management Representative for Williams' investment in the Gulfstream Natural Gas System, a Williams joint venture with Duke Energy Gas Transmission Corporation. H. Dean Jones II has served as a Vice President, Commercial Operations of our company since April 2002, and in November 2002 he was also elected Vice President, Commercial Operations for Texas Gas Transmission Corporation, a subsidiary of Williams. Prior to that he was Vice President, Customer Service for WGP, Eastern Region, and from 2000 until April 2002 he was Vice President, Customer Services and Rates for WGP, South Central. In 1999 to 2000 he was Vice President, Strategic Business Relations for WEM&T. Ronald M. Mucci has served as Vice President, Chief Information Officer of our company since April 2002. Prior to his current position he was Senior Vice President, Williams Gas Pipeline Shared Services Unit, a division of WGP. He was Vice President, Business Practices and Systems and Chief Information Officer for WGP from 1997 until 1999, and from 1995 to 1997 he served as Vice President, Marketing of our company. From 1993 to 1994 he was Vice President, Operations and Engineering for Williams Natural Gas Company, and prior to that he was Vice President, Rates and Regulatory Affairs, Information Systems and Business Development of Williams Natural Gas Company. Richard D. Rodekohr has served as Vice President, Finance and Accounting and Treasurer of our company since November 2002. Prior to joining WGP he was Vice President of Investor Relations for Williams since 1998, having joined Williams in 1995 through the acquisition by Williams of Transco Energy Company where he was Director of Corporate Planning. Nancy W. Schultz has served as a Vice President, Operations and Engineering Services of our company since April 2002. Before being named to her current position she was Senior Vice President and General Manager, Technical Functions for the Gulfstream Natural Gas System, a Williams joint venture with Duke Energy Gas Transmission Corporation. From 1996 to 2000 she served as Director, Engineering and Project Management for WGP. In 1982 she joined Transcontinental Gas Pipe Line Corporation as an engineer, which became a Williams subsidiary in 1995. Jeffrey P. Heinrichs has served as Controller and Assistant Treasurer of our company since April 2002. Prior to that he was a Director of Williams Gas Pipeline Shared Services Unit, a division of WGP. Since 1976 he has worked in various financial and accounting positions for Transcontinental Gas Pipe Line Corporation, a subsidiary of Williams since 1995. Brian K. Shore has served as the Secretary of our company since November 2002. Prior to election as Corporate Secretary, he was a Senior Attorney in the Williams legal department representing the corporate services group. Over the past 14 years, he has also represented Williams Midstream Gas & Liquids, Williams Exploration & Production, and Williams Telecommunications, Inc., a former affiliate of Williams. 46 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS As a subsidiary of Williams, we engage in transactions with Williams and other Williams subsidiaries typical of group operations. As a participant in Williams' cash management program, we have advances to and from Williams through our parent company, WGP. The advances are represented by demand notes. The interest rate on intercompany demand notes is LIBOR on the first day of the month plus an applicable margin (which was 3.5% at December 31, 2002) based on our current Standard & Poor's Rating. We received interest income from advances to these affiliates of $1.6 million, $3.1 million and $3.4 million during 2002, 2001 and 2000, respectively. Our ability to participate in Williams' cash management program may be limited if the FERC adopts certain proposed rules. See "Business -- Regulatory Matters -- FERC Regulation and Rate Structure." Williams' corporate overhead expenses allocated to us were $9.7 million, $6.9 million and $4.5 million for 2002, 2001 and 2000, respectively. Such expenses have been allocated to us by Williams primarily based on the Modified Massachusetts formula, which is a FERC-approved method utilizing a combination of net revenues, gross payroll and gross plant for the allocation base. In addition, Williams or an affiliate has provided executive, data processing, legal, aviation, internal audit and other administrative services to us on a direct charge basis, which totaled $4.6 million, $5.0 million and $4.8 million for 2002, 2001 and 2000, respectively. Our operating revenues typically include transportation and exchange transactions with subsidiaries of Williams, including WEM&T. Combined operating revenues for these activities totaled $2.2 million, $1.8 million and $1.2 million for 2002, 2001 and 2000, respectively. We have entered into a credit agreement with Williams, Williams' other natural gas pipeline subsidiaries and a syndicate of banks. See "Description of Other Indebtedness -- Our Credit Agreement." We have entered into various other transactions with other related parties, the amounts of which were not significant. These transactions and the above-described transactions are made on the basis of commercial relationships and prevailing market prices or general industry practices. From time to time, employees are assigned on a temporary or permanent basis to us from Williams and its other affiliates and from us to other Williams affiliates. We have also entered into an interconnect agreement and an operation balance agreement, each in connection with the Georgia Strait Crossing project, with an affiliate of Williams. 47 DESCRIPTION OF OTHER INDEBTEDNESS OUR CREDIT AGREEMENT Williams, its natural gas pipeline subsidiaries, Transcontinental Gas Pipe Line Corporation, Texas Gas Transmission Corporation and our company, are each borrowers under a $700 million credit agreement with a syndicate of banks which as of December 31, 2002 permits total borrowings by Williams of $463 million. Under the credit agreement, the banks have commitments to us of $400 million, to the extent that the funds have not been borrowed by Williams or the other borrowers or otherwise must remain available to Williams. The credit agreement provides that the proceeds of any advance may only be used for general corporate purposes relating to the business of a borrower and its subsidiaries. Borrowings under the credit agreement are designated by the applicable borrower at the time of giving notice of such borrowing as either base rate type advances or Eurodollar rate type advances. The interest rate for base rate advances with respect to any period is the higher of Citibank, N.A.'s per annum base rate in effect from time to time and 0.50% per annum above the federal funds effective rate, in each case plus an applicable margin. The interest rate for Eurodollar rate advances with respect to any interest period is the London Interbank Offered Rate for U.S. Dollar deposits for a term comparable to the term of such interest period, plus an applicable margin. The applicable margin is determined by reference to the ratings of Williams senior unsecured long-term debt by Standard & Poor's Ratings Group and Moody's Investors Service, Inc. and to the level of utilization of commitments. The range of the base rate applicable margin is from 1.75% to 3.50%, and the range of the Eurodollar rate applicable margin is from 3.00% to 4.75%. The commitment and other fees payable under the terms of the credit agreement are direct obligations of Williams. The credit agreement terminates in July 2005. Prior to termination, each borrower has the right to terminate in whole or reduce ratably in part the unused portions of the respective commitments of the banks to such borrower. If all of the commitments of the banks to any borrower are so terminated or reduced, and such borrower is not otherwise in default under the credit agreement, then such borrower may elect to cease to be a borrower for the purposes of the credit agreement. In the event that Williams or its subsidiaries receive cash proceeds from certain asset dispositions or from the sale or issuance of preferred stock or other equity interests, the credit agreement provides for the mandatory application of such cash proceeds, in varying proportions, to the permanent ratable reduction of the respective commitments of the banks to Williams, the reduction of Williams' other indebtedness and the cash collateralization of certain Williams letter of credit commitments. The exact application of such cash proceeds, and therefore the extent to which the commitments of the banks to Williams are to be reduced, depends upon the aggregate amount of the commitments of the banks to Williams prior to such application, as well as the nature of the transaction which gives rise to the cash proceeds. These asset sale provisions apply to sales of our assets and, under the credit agreement, Williams is required to apply 50% of the net cash proceeds from the sale of any of our assets to the reduction of commitments under the credit agreement and to the reduction of certain other indebtedness of Williams and its affiliates, on a ratable basis until commitments under the credit agreement are reduced to $400 million and thereafter with priority to the reduction of certain other indebtedness. As Williams completes certain projected asset sales, the current commitment from participating banks in the credit agreement is anticipated to be reduced, but we will continue to have borrowing capacity up to the lesser of $400 million or the greatest amount that Williams would be able to borrow (but not over $400 million) to the extent the funds available under the credit agreement have not been borrowed by Williams or other participating subsidiaries or otherwise must remain available to Williams. Upon certain change of control events of any of the borrowers, the banks under the credit agreement have the option to terminate their obligations under the credit agreement. We do not guaranty the obligations of any other borrower under the credit agreement. The obligations under the credit agreement are secured by liens on assets of certain Williams affiliates, but not our assets. WGP and certain other subsidiaries of Williams are guarantors of borrowings under the credit agreement. 48 The credit agreement contains restrictions, which limit, under certain circumstances, prepayment of other debt (including the notes offered hereby), certain sale and lease-back transactions, the attachment of liens on or the disposition of certain assets and any change of ownership, whether by merger, consolidation or otherwise, of any borrower. In the credit agreement, we also agreed not to permit to exist any consensual encumbrance or consensual restriction on our ability to pay dividends or make any other distributions, to pay any obligations owed or to make loans or advances, to Williams or its other subsidiaries, with certain exceptions. Furthermore, we have agreed in the credit agreement not to permit the ratio of (a) the aggregate amount of our consolidated indebtedness, to (b) the sum of our consolidated net worth and the aggregate amount of our consolidated indebtedness, to exceed at any time 0.55 to 1.00. We have also agreed not to permit, for any period of four consecutive quarters, the ratio of (a) the sum of our cash flow plus interest expense to (b) interest expense to be less than 1.50 to 1.00. As of the date of this prospectus, we are in compliance with these covenants after giving effect to the offering of the outstanding notes and the application of the net proceeds therefrom. The credit agreement further requires that, if we make advances to WGP under the Williams cash management program, the obligations to repay those advances must be subordinated to the obligations under the credit agreement. OUR SENIOR NOTES In addition to the credit facility, at December 31, 2002, we also had outstanding three series of senior notes with a total outstanding principal amount of $367.9 million. One of these series of senior notes has a total outstanding principal amount of $250.0 million, pays interest semiannually at a rate of 6.625% and matures on December 1, 2007. Another of these series of senior notes has a total outstanding principal amount of $85.0 million, pays interest semiannually at a rate of 7.125% and matures on December 1, 2025. The third of these series of senior notes has a total outstanding principal amount of $32.9 million, pays interest semiannually at a rate of 9.000% and matures on August 1, 2022. Except with respect to the redemption and sinking fund features, which are summarized below, the material terms of the three series of senior notes are otherwise identical. We have also filed copies of the indentures under which the senior notes were issued with the Securities and Exchange Commission. The senior notes are our direct obligations and are not guaranteed or secured. The indentures contain certain events of default and agreements which are customary with respect to investment grade debt securities, including limitations on mergers, consolidations, and sale of substantially all assets by us, and limitations on liens and sale and leaseback transactions by us or our subsidiaries. The indentures do not limit the amount of indebtedness we may incur. Under certain circumstances described in the indentures, we may be entitled to discharge or defease our obligations with respect to the senior notes or our obligations pursuant to the restrictive covenants contained in the indentures. Defeasance, or covenant defeasance, with respect to any series of senior notes may be effected only if, among other things, we irrevocably deposit with the relevant trustee funds in an amount sufficient to pay at maturity (or upon redemption) the principal of and interest on all outstanding senior notes of such series, and we deliver to the relevant trustee an opinion of counsel to the effect that the holders of such series of senior notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance or covenant defeasance. The senior notes due on December 1, 2007 and December 1, 2025 do not include redemption or sinking fund features. The senior notes due on August 1, 2022 are redeemable at our option from and after August 1, 2002. If redeemed prior to July 31, 2012 the redemption price varies between 104.24% and 100.42% of the principal amount of the notes then outstanding, together with accrued interest to the date fixed for redemption. From and after August 1, 2012 the redemption price is 100.00% of the principal amount of the notes then outstanding, together with accrued interest to the date fixed for redemption. In the event of any redemption of less than all of the outstanding senior notes, the particular notes to be redeemed will be selected by the trustee under the applicable indenture. 49 The senior notes due on August 1, 2022 are also entitled to a mandatory sinking fund beginning August 1, 2003 in annual installments of $7.5 million. As a result of the mandatory sinking fund, we anticipate that the senior notes due on August 1, 2022 will be redeemed in their entirety by 2007. At our option, we may make an additional sinking fund payment on or before the due date of any mandatory sinking fund payment in an amount which does not exceed $7.5 million. 50 DESCRIPTION OF NOTES The terms of the new notes and the outstanding notes are identical in all material respects, except the new notes: - will have been registered under the Securities Act; - will not contain transfer restrictions and registration rights that relate to the outstanding notes; and - will not contain provisions relating to the payment of liquidated damages to be made to the holders of the outstanding notes under circumstances related to the timing of the exchange offer. Any outstanding notes that remain outstanding after the exchange offer, together with new notes issued in the exchange offer, will be treated as a single class of securities under the indenture for voting purposes. You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the word "Northwest" refers only to Northwest Pipeline Corporation and not to any of its subsidiaries. As of the date of the indenture, Northwest does not have any active subsidiaries. Northwest will issue the notes under an indenture between itself and JPMorgan Chase Bank, as trustee. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended. The following description is a summary of the material provisions of the indenture and the registration rights agreement. It does not restate the indenture and the registration rights agreement in their entirety. We urge you to read the indenture and the registration rights agreement because they, and not this description, define your rights as holders of the notes. Copies of the indenture and the registration rights agreement are available from Northwest. Certain defined terms used in this description but not defined below under "-- Certain Definitions" have the meanings assigned to them in the indenture. The registered Holder of a note will be treated as the owner of it for all purposes. Only registered Holders will have rights under the indenture. BRIEF DESCRIPTION OF THE NOTES AND FUTURE GUARANTEES The Notes The notes: - are general unsecured obligations of Northwest; - are pari passu in right of payment with any current and future senior Indebtedness of Northwest; - are senior in right of payment to any future subordinated Indebtedness of Northwest; and - will be fully and unconditionally guaranteed, on a joint and several basis, by all Domestic Restricted Subsidiaries of Northwest. Future Guarantees; Unrestricted Subsidiaries As of the date of this prospectus, our only subsidiaries are inactive, and will be "Unrestricted Subsidiaries." In addition, under the circumstances described below under the subheading "-- Certain Covenants -- Designation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate certain of our future subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture and will not guarantee the notes. As of the date of this prospectus, we have no subsidiaries that are or are required to become guarantors of the notes. If in the future we form or acquire any Domestic Restricted Subsidiary, such Domestic Restricted Subsidiary will be required to execute a guarantee of the notes. Any such guarantee so executed would be: - a general unsecured obligation of that Guarantor; 51 - pari passu in right of payment to all existing and future senior unsecured Indebtedness of that Guarantor; and - senior in right of payment to any future subordinated Indebtedness of that Guarantor. PRINCIPAL, MATURITY AND INTEREST Northwest originally issued the outstanding notes and will issue the new notes with an initial maximum aggregate principal amount of $175 million. Northwest may issue an unlimited amount of additional notes from time to time after this offering. Any offering of additional notes is subject to the covenant described below under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." The notes and any additional notes subsequently issued under the indenture will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Northwest will issue notes in denominations of $1,000 and integral multiples of $1,000. The notes will mature on March 1, 2010. Interest on the notes will accrue at the rate of 8 1/8% per annum and will be payable semi-annually in arrears on March 1 and September 1, commencing on September 1, 2003. Northwest will make each interest payment to the Holders of record on the immediately preceding February 15 and August 15. Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. METHODS OF RECEIVING PAYMENTS ON THE NOTES If a Holder has given wire transfer instructions to Northwest, Northwest will pay all principal, interest and premium and Liquidated Damages, if any, on that Holder's notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless Northwest elects to make interest payments by check mailed to the Holders at their address set forth in the register of Holders. PAYING AGENT AND REGISTRAR FOR THE NOTES The trustee will initially act as paying agent and registrar. Northwest may change the paying agent or registrar without prior notice to the Holders of the notes, and Northwest or any of its Subsidiaries may act as paying agent or registrar. TRANSFER AND EXCHANGE A Holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a Holder to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Holders will be required to pay all taxes due on transfer. Northwest is not required to transfer or exchange any note selected for redemption. Also, Northwest is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. SUBSIDIARY GUARANTEES The notes will be guaranteed by each of Northwest's future Domestic Restricted Subsidiaries. These Subsidiary Guarantees will be joint and several obligations of the Guarantors. In the event of the bankruptcy or financial difficulty of a Guarantor, such Guarantor's obligations under its Subsidiary Guarantee may be subject to review and avoidance under state and federal fraudulent transfer laws. Among other things, such obligations may be avoided if a court concludes that such obligations were incurred for less than reasonably equivalent value or fair consideration at a time when the Guarantor was insolvent, was rendered insolvent, or was left with inadequate capital to conduct its business. A court would likely conclude that a Guarantor did not receive reasonably equivalent value or fair consideration to the extent that the aggregate amount of its liability on its Subsidiary Guarantee exceeds the economic benefits it receives from the issuance of the notes. 52 The obligations of each Guarantor under its Subsidiary Guarantee will be limited in a manner intended to cause it not to be a fraudulent conveyance under applicable law, although no assurance can be given that a court would give the Holder the benefit of such provision. A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than Northwest or another Guarantor, unless: (1) immediately after giving effect to that transaction, no Default or Event of Default exists; and (2) either: (a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of that Guarantor under the indenture, its Subsidiary Guarantee and the registration rights agreement pursuant to a supplemental indenture satisfactory to the trustee; or (b) the Net Proceeds of such sale or other disposition (or an amount of cash equal to such Net Proceeds) are applied in accordance with the applicable provisions of the indenture. The Subsidiary Guarantee of a Guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of Northwest, if the sale or other disposition complies with the "Asset Sale" provisions of the indenture; or (2) in connection with any sale of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of Northwest, if the sale complies with the "Asset Sale" provisions of the indenture; or (3) if Northwest designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of the indenture. See "-- Repurchase at the Option of Holders -- Asset Sales." OPTIONAL REDEMPTION At any time and from time to time prior to March 1, 2007, Northwest may, at its option, redeem all or a portion of the notes at the Make-Whole Price plus accrued and unpaid interest to the redemption date. At any time and from time to time on or after March 1, 2007, Northwest may, at its option, redeem the notes, in whole or in part, at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest to the redemption date, if redeemed during the twelve-month period beginning on March 1, of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2007........................................................ 104.063% 2008........................................................ 102.031% 2009 and thereafter......................................... 100.000%
At any time and from time to time prior to March 1, 2006, Northwest may, at its option, redeem up to 35% of the aggregate principal amount of the notes with the net cash proceeds received by Northwest from any Public Equity Offering (excluding any net cash proceeds received from Williams or any of its Affiliates) at a redemption price equal to 108.125% of the principal amount plus accrued and unpaid interest and liquidated damages, if any, to the redemption date; provided that (1) in each case the redemption takes place not later than 90 days after the closing of the related Public Equity Offering, and 53 (2) at least 65% of the aggregate principal amount of notes remains outstanding immediately after the occurrence of such redemption (excluding notes held by Northwest and its Subsidiaries). MANDATORY REDEMPTION Northwest is not required to make mandatory redemption or sinking fund payments with respect to the notes. Termination of Certain Covenants From and after the first date after the date of the indenture on which the notes have an Investment Grade Rating from both Rating Agencies and no Default or Event of Default has occurred and is continuing under the indenture (the "Investment Grade Date"), Northwest and its Restricted Subsidiaries will no longer be subject to the provisions of the indenture described below under the following captions: - " -- Additional Interest," - " -- Repurchase at the Option of Holders -- Asset Sales," - " -- Certain Covenants -- Restricted Payments," - " -- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," - " -- Certain Covenants -- Transactions with Affiliates," - " -- Certain Covenants -- Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries," - " -- Certain Covenants -- Business Activities" provided, however, that the provisions of the indenture described below under the following captions will not be so terminated: - " -- Repurchase at the Option of Holders -- Change of Control," - " -- Certain Covenants -- Liens," - " -- Certain Covenants -- Merger, Consolidation or Sale of Assets" (except as set forth in that covenant), - " -- Certain Covenants -- Sale and Leaseback Transactions" (except as set forth in that covenant), - " -- Certain Covenants -- Additional Future Guarantees" (except as set forth in that covenant), - " -- Certain Covenants -- Payments for Consent," and - " -- Reports." As a result, the notes will be entitled to substantially reduced covenant protection from and after any Investment Grade Date. REPURCHASE AT THE OPTION OF HOLDERS Change of Control If a Change of Control occurs, each Holder of notes will have the right to require Northwest to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder's notes pursuant to a Change of Control Offer on the terms set forth in the indenture. In the Change of Control Offer, Northwest will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, on the notes repurchased, to the date of purchase. Within 30 days following any Change of Control, Northwest will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in the notice, which date will be no earlier 54 than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice. Northwest will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, Northwest will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict. On the Change of Control Payment Date, Northwest will, to the extent lawful: (1) accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and (3) deliver or cause to be delivered to the trustee the notes properly accepted together with an officers' certificate stating the aggregate principal amount of notes or portions of notes being purchased by Northwest. The paying agent will promptly mail to each Holder of notes properly tendered the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000. Prior to complying with any of the provisions of this "Change of Control" covenant, but in any event within 30 days following a Change of Control, if Northwest or any of its Williams Group Affiliates is subject to any agreement evidencing Indebtedness (or commitments to extend Indebtedness) that prohibits prepayment or repurchase of the notes pursuant to a Change of Control Offer, Northwest will either repay, or cause its Williams Group Affiliates to repay, all such outstanding Indebtedness of Northwest and its Williams Group Affiliates (and terminate all commitments to extend such Indebtedness), or obtain the requisite consents, if any, under all agreements governing such Indebtedness or commitments to permit the repurchase of notes required by this covenant. Northwest shall first comply with the covenant set forth in this paragraph before it shall be required to make a Change of Control Offer or to repurchase notes pursuant to the "Change of Control" covenant. Northwest's failure to comply with the covenant described in this paragraph may (with notice and lapse of time) constitute an Event of Default described in clause (3) but shall not constitute an Event of Default described in clause (2) under "Events of Default" below. Northwest will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require Northwest to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable to the transaction giving rise to such requirement. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the Holders of the notes to require that Northwest repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. Northwest will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by Northwest and purchases all notes properly tendered and not withdrawn under the Change of Control Offer. Various Credit Facilities and other agreements evidencing Indebtedness to which Northwest or its Williams Group Affiliates are parties currently prohibit Northwest from repurchasing any notes. Any future Credit Facilities or other agreements relating to Indebtedness to which any of Northwest or its Williams Group Affiliates becomes a party may contain similar restrictions. In the event a Change of Control occurs at 55 a time when Northwest is prohibited from purchasing notes (either directly or as a result of a covenant binding on one of its Williams Group Affiliates), Northwest could seek the consent of the creditors of Northwest or its Williams Group Affiliates to the purchase of the notes or could attempt to refinance (or have its Williams Group Affiliates attempt to refinance) the Indebtedness that contains such provision. If Northwest or its Williams Group Affiliates do not obtain such a consent or refinance such Indebtedness, Northwest will remain prohibited from purchasing notes. In such case, the failure to obtain such consent or complete such refinancing would constitute a Default under the indenture. If a Change of Control Offer is made, there can be no assurance that Northwest will have available funds sufficient to pay the Change of Control Payment for all the notes that might be delivered by Holders seeking to accept the Change of Control Offer. In the event that Northwest is required to purchase outstanding notes pursuant to a Change of Control Offer, Northwest expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that Northwest would be able to obtain such financing or that the terms of the indenture would permit the occurrence of such financing. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of Northwest and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of notes to require Northwest to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Northwest and its Subsidiaries taken as a whole to another Person or group may be uncertain. Asset Sales Northwest will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) Northwest (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) the fair market value is determined by (a) an executive officer of Northwest if the value is less than $10 million or (b) Northwest's Board of Directors if the value is $10 million or more, as evidenced by a resolution of such Board of Directors; (3) at least 75% of the consideration received in the Asset Sale by Northwest or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities, as shown on Northwest's or such Restricted Subsidiary's most recent balance sheet, of Northwest or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases Northwest or such Subsidiary from further liability; (b) any securities, notes or other obligations received by Northwest or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by Northwest or such Subsidiary into cash, to the extent of the cash received in that conversion; and (c) property or assets received as consideration for such Asset Sale that would otherwise constitute a permitted application of Net Proceeds (or other cash in such amount) under clauses (2), (3) or (4) under the next succeeding paragraph below. 56 Within 365 days after the receipt of any Net Proceeds from an Asset Sale, Northwest may apply an amount of cash equal to the amount of such Net Proceeds at its option: (1) to repay or prepay senior Indebtedness of Northwest and/or the Guarantors under a Credit Facility; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; (3) to make a capital expenditure; or (4) to acquire other long-term assets that are used or useful in a Permitted Business. To the extent that Northwest does not apply an amount of cash equal to the amount of such Net Proceeds of any Asset Sale during such period as provided in the preceding paragraph, the amount not so applied (excluding Net Proceeds of any Asset Sale of the Gray's Harbor lateral project and excluding Net Proceeds of any Asset Sale to the extent of the amount of acquisitions or capital expenditures described under clauses (2), (3) or (4) under the immediately preceding paragraph above made during the 365 days preceding the receipt of such Net Proceeds (other than any portion of such amount that was funded with Net Proceeds of any other Asset Sale or that has been allocated to exclude Net Proceeds of any other Asset Sales under this provision)) will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $20.0 million, Northwest will make an Asset Sale Offer to all Holders of notes and all holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, Northwest may use those Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes and other pari passuIndebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. Northwest will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the indenture, Northwest will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such conflict. Prior to making any Asset Sale Offer, but in any event within 30 days following the date on which such Asset Sale Offer would otherwise be required, if Northwest or any of its Williams Group Affiliates is subject to any agreement evidencing Indebtedness (or commitments to extend Indebtedness) that prohibits prepayment or repurchase of the notes pursuant to an Asset Sale Offer, Northwest will either repay, or cause its Williams Group Affiliates to repay, all such outstanding Indebtedness of Northwest and its Williams Group Affiliates (and terminate all commitments to extend such Indebtedness), or obtain the requisite consents, if any, under all agreements governing such Indebtedness or commitments to permit the repurchase of notes required by this covenant. Northwest shall first comply with the covenant set forth in this paragraph before it shall be required to make an Asset Sale Offer or to repurchase notes pursuant to this "Asset Sale" covenant. Northwest's failure to comply with the covenant described in this paragraph may (with notice and lapse of time) constitute an Event of Default in clause (3) but shall not constitute an Event of Default described in clause (2) under "Events of Default" below. Various Credit Facilities and other agreements evidencing Indebtedness to which Northwest or its Williams Group Affiliates are parties currently prohibit Northwest from repurchasing any notes. Any future Credit Facilities or other agreements relating to Indebtedness to which Northwest or its Williams Group Affiliates becomes a party may contain similar restrictions. In the event an Asset Sale Offer would be required at a time when Northwest is prohibited from purchasing notes (either directly or as a result of a covenant 57 binding on one of its Williams Group Affiliates), Northwest could seek the consent of the creditors of Northwest or its Williams Group Affiliates to the purchase of the notes or could attempt to refinance (or have its Williams Group Affiliates attempt to refinance) the Indebtedness that contains such prohibition. If Northwest (or its Williams Group Affiliates) do not obtain such a consent or refinance such Indebtedness, Northwest will remain prohibited from purchasing notes. In such case, the failure to obtain such consent or complete such refinancing would constitute a Default under the Indenture. SELECTION AND NOTICE If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption as follows: (1) if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or (2) if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the trustee deems fair and appropriate. No notes of $1,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may not be conditional. If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in a principal amount equal to the unredeemed portion of the original note will be issued in the name of the Holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of the notes called for redemption. If less than all of the notes are to be purchased at any time pursuant to an Asset Sale Offer, the trustee will select notes for purchase as set forth above for redemptions. No notes of $1,000 or less can be purchased in part. Asset Sale Offers will be mailed by first class mail at least 30 days before the purchase date to each Holder of Notes at its registered address. In the event of a partial purchase of any Note pursuant to an Asset Sale Offer or a Change of Control Offer, a new note in a principal amount equal to the unpurchased portion of the original note will be issued in the name of the Holder of Notes upon cancellation of the original note. ADDITIONAL INTEREST If, at any time and from time to time after the date of the indenture but prior to the earlier of (1) the Credit Agreement Refinancing Date and (2) the Investment Grade Date, the Fixed Charge Coverage Ratio for Northwest's four most recent fiscal quarters for which internal financial statements are available is less than 1.75 to 1.0, then, from (A) the date of any such determination until (B) the earliest of (1) the next date (if any) on which the Fixed Charge Coverage Ratio for Northwest's four most recent fiscal quarters then most recently ended for which internal financial statements are available is equal to or greater than 1.75 to 1.0, (2) the Credit Agreement Refinancing Date and (3) the Investment Grade Date, the interest rate otherwise applicable to the notes will be increased by a rate of 1.00% per annum. CERTAIN COVENANTS Restricted Payments Northwest will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of Northwest's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Northwest or any of its Restricted Subsidiar- 58 ies) or to the direct or indirect holders of Northwest's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Northwest or to Northwest or a Restricted Subsidiary of Northwest); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Northwest) any Equity Interests of Northwest or any direct or indirect parent of Northwest; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the notes or the Subsidiary Guarantees, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment, no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and (1) if the Fixed Charge Coverage Ratio for Northwest's four most recent fiscal quarters for which internal financial statements are available is not less than 1.75 to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Northwest and its Restricted Subsidiaries after the end of the fiscal year of Northwest then most recently ended for which internal financial statements are available, is less than the sum, without duplication, of: (a) Available Cash Flow from Operations for the fiscal year of Northwest then most recently ended for which internal financial statements are available, plus (b) 100% of the aggregate net cash proceeds received by Northwest (including the fair market value of any Permitted Business or assets used or useful in a Permitted Business to the extent acquired in consideration of Equity Interests (other than Disqualified Stock) of Northwest) after the date of the indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of Northwest (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of Northwest that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of Northwest), plus (c) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment, including without limitation repayment of principal of any Restricted Investment constituting a loan or advance (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) to the extent that any Unrestricted Subsidiary of Northwest is redesignated as a Restricted Subsidiary after the date of the indenture, the lesser of (i) the fair market value of Northwest's Investment in such Subsidiary as of the date of such redesignation or (ii) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary (the amount determined at any time pursuant to items (b), (c) and (d) being referred to as the "Incremental Funds"); minus (e) the aggregate amount of Restricted Payments previously made in reliance on Incremental Funds pursuant to this clause (1) or clause (2) below; or (2) if the Fixed Charge Coverage Ratio for Northwest's four most recent fiscal quarters for which internal financial statements are available is less than 1.75 to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Northwest and its Restricted Subsidiaries during the period commencing on the date such internal financial statements are available and ending on the date the next quarterly internal financial statements are available (such 59 Restricted Payments for purposes of this clause (2) meaning only distributions on Northwest's common stock and loans and advances to Williams and its Subsidiaries), is less than the sum, without duplication, of: (a) $50.0 million less the aggregate amount of all Restricted Payments made by Northwest pursuant to this clause (2)(a) during the period ending on the last day immediately preceding the date on which such internal financial statements are available and beginning on the date of the indenture; plus (b) the aggregate amount of Incremental Funds at such time minus the aggregate amount of Restricted Payments previously made in reliance on such Incremental Funds pursuant to this clause (2) or clause (1) above. Notwithstanding the foregoing, the preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of the indenture; (2) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of Northwest or any Guarantor or of any Equity Interests of Northwest in exchange for, or out of the net cash proceeds of, the substantially concurrent (a) contribution (other than from a Subsidiary of Northwest) to the equity capital of Northwest or (b) sale (other than to a Subsidiary of Northwest) of, Equity Interests of Northwest (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (1) (b) of the preceding paragraph; (3) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of Northwest or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any distribution or dividend by a Restricted Subsidiary of Northwest or to the holders of such Restricted Subsidiary's Equity Interests on a pro rata basis; (5) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, dividends, distributions or advances to Williams Group Affiliates, at times and in amounts equal to amounts expended by Williams for the repurchase, redemption or acquisition or retirement for value of any Equity Interests of Williams held by any member of Northwest's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $2.0 million in any twelve-month period and provided further that if the amount so paid in any calendar year is less than $2.0 million, such shortfall may be used to so repurchase, redeem, acquire or retire Equity Interests in either of the next two calendar years in addition to the $2.0 million that may otherwise be paid in each such calendar year; and (6) prior to the Credit Agreement Refinancing Date (i) to pay, directly or indirectly, dividends or make any other distributions in respect of its capital stock or pay any Debt or other obligation owed to Williams or any of its Subsidiaries, or (ii) to make loans or advances to Williams or any of its Subsidiaries. In computing the amount of Restricted Payments previously made for purposes of the immediately preceding paragraph, Restricted Payments made under clause (1) (but only if the declaration or such dividend or other distribution has not been counted in a prior period), clause (4) (but only to the extent of amounts paid to holders other than Northwest or any of its Restricted Subsidiaries), clause (5) and clause (6) of this paragraph shall be included, and Restricted Payments made under clauses (2), (3) and (4) (except as noted above) shall be excluded. 60 The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Northwest or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant will be determined, in the case of amounts under $5.0 million, by an officer of Northwest and, in the case of amounts over $5.0 million, by the Board of Directors. Incurrence of Indebtedness and Issuance of Preferred Stock Northwest will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and Northwest will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that Northwest and any Guarantor may incur Indebtedness (including Acquired Debt) or Northwest may issue Disqualified Stock, if the Fixed Charge Coverage Ratio for Northwest's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by Northwest and any Guarantor of additional Indebtedness and letters of credit under any Credit Facilities to which Northwest is a party in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the undrawn face amount thereof) not to exceed $400 million; (2) the incurrence by Northwest and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by Northwest of Indebtedness represented by the notes issued and sold in this offering and any Subsidiary Guarantees issued pursuant to the indenture; (4) the incurrence by Northwest and any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of Northwest or such Restricted Subsidiary, in an aggregate principal amount not to exceed $5 million at any time outstanding; (5) the incurrence by Northwest or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4) or (5) of this paragraph; (6) the incurrence by Northwest or any of its Restricted Subsidiaries of intercompany Indebtedness between or among Northwest and any of its Restricted Subsidiaries; provided, however, that: (a) if Northwest or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes, in the case of Northwest, or the Subsidiary Guarantee, in the case of a Guarantor; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Northwest or a Restricted Subsidiary of Northwest and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either Northwest or a Restricted Subsidiary of Northwest, will be deemed, in each case, to constitute an incurrence of such Indebtedness by Northwest or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); 61 (7) the incurrence by Northwest or any of its Subsidiaries of Hedging Obligations; (8) the guarantee by Northwest or any of the Guarantors of Indebtedness of Northwest or any Guarantor of Northwest that was permitted to be incurred by another provision of this covenant; (9) Indebtedness in respect of bankers acceptances, letters of credit and performance or surety bonds issued for the account of Northwest or any of its Restricted Subsidiaries in the ordinary course of business in amounts and for the purposes customary in Northwest's industry, in each case only to the extent that such incurrence does not result in the incurrence of any obligation to repay any borrowed money; and (10) the incurrence by Northwest or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (10), not to exceed $25 million. If any Non-Recourse Debt of an Unrestricted Subsidiary shall at any time cease to constitute Non-Recourse Debt or such Unrestricted Subsidiary shall be redesignated a Restricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary. For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant: (1) in the event that an item of proposed Indebtedness (including Acquired Debt) meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (10) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, Northwest will be permitted to classify (or later classify or reclassify in whole or in part in its sole discretion) such item of Indebtedness in any manner that complies with this covenant; (2) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in the computation of Fixed Charges of Northwest as accrued; and (3) for the purposes of determining compliance with any dollar-denominated restriction on the incurrence of Indebtedness denominated in a foreign currency, the dollar-equivalent principal amount of such Indebtedness incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was incurred. Liens Northwest will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness, Attributable Debt or trade payables (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the indenture and the notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien or, in the case of any obligation so secured that is expressly subordinated to the notes or any Subsidiary Guarantee, as applicable, by a Lien prior to any Liens securing any and all obligations thereby secured for so long as any such obligations shall be so secured. 62 Dividend and Other Payment Restrictions Affecting Subsidiaries Northwest will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to Northwest or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to Northwest or any of its Restricted Subsidiaries; (2) make loans or advances to Northwest or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to Northwest or any of its Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and the Credit Agreement as in effect on the date of the indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive in any material respect, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the respective agreements on the date of the indenture, as determined by the Board of Directors of Northwest in their reasonable and good faith judgment; (2) the indenture, the notes and the Subsidiary Guarantees; (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by Northwest or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; (5) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (6) Capital Lease Obligations, mortgage financings or purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of the preceding paragraph; (7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (8) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive in any material respect, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant described above under the caption "-- Liens" that limit the right of the debtor to dispose of the assets subject to such Liens; (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements; provided 63 that such restrictions apply only to the assets or property subject to such joint venture or similar agreement or to the assets or property being sold, as the case may be; and (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Merger, Consolidation or Sale of Assets Northwest may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not Northwest is the surviving Person); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of Northwest and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person unless: (1) either: (a) Northwest is the surviving Person; or (b) the Person formed by or surviving any such consolidation or merger (if other than Northwest) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than Northwest) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made expressly assumes by supplemental indenture all the obligations of Northwest under the notes, the indenture and the registration rights agreement and delivers to the trustee an opinion of counsel to the effect that the supplemental indenture has been duly authorized, executed and delivered by such Person and constitutes a valid and binding obligation of such Person, enforceable against such Person in accordance with its terms (subject to customary exceptions); (3) immediately after such transaction no Default or Event of Default exists; and (4) Northwest or the Person formed by or surviving any such consolidation or merger (if other than Northwest), or to which such sale, assignment, transfer, conveyance or other disposition has been made will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" provided, however, that this clause (4) shall no longer be applicable from and after any Investment Grade Date. In addition, Northwest may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. Clause (4) under this "Merger, Consolidation or Sale of Assets" covenant will not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among Northwest and any of its Restricted Subsidiaries. Without limitation of the foregoing, in no event shall Northwest, directly or indirectly, (1) consolidate or merge with or into Williams or any of the Williams Group Affiliates (whether or not Northwest is the surviving Person) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of Northwest and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to Williams or any of the Williams Group Affiliates (other than mergers or transactions otherwise permitted by this covenant with (a) Williams Group Affiliates engaged in no businesses other than being principally engaged in owning and operating regulated interstate natural gas pipeline systems and any businesses incidental and reasonably related thereto, including facilities for mainline transmission and gas storage ("Pipeline Business") or (b) a holding company of Northwest engaged in no businesses other than Pipeline Business and having no Subsidiaries other than Subsidiaries engaged in no businesses other than Pipeline Business and in the case of (a) or (b), only if at the time of such merger or transaction, Northwest and such Williams Group Affiliate or holding company each have an Investment Grade Rating from Moody's and S&P and the surviving Person will have an Investment Grade Rating from Moody's and S&P). 64 Transactions with Affiliates Northwest will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to Northwest or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by Northwest or such Restricted Subsidiary with an unrelated Person; and (2) Northwest delivers to the trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10 million, a resolution of the Board of Directors set forth in an officers' certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25 million, an opinion as to the fairness to Northwest of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement on customary terms entered into by Northwest or any of its Restricted Subsidiaries in the ordinary course of business of Northwest or such Restricted Subsidiary; (2) transactions between or among Northwest and/or its Restricted Subsidiaries; (3) transactions with a Person that is an Affiliate of Northwest solely because Northwest owns an Equity Interest in, or controls, such Person; (4) payment of reasonable directors fees and provision to directors, officers and employees of customary indemnities and customary benefits pursuant to employee benefit plans and similar arrangements; (5) sales of Equity Interests (other than Disqualified Stock) to Affiliates of Northwest; (6) (A) corporate sharing agreements with Northwest's Williams Group Affiliates and their subsidiaries with respect to tax sharing and general overhead and other administrative matters and (B) any other intercompany arrangements disclosed or described in Northwest's report on Form 10-K for the fiscal year ended December 31, 2001 (including the exhibits thereto) or the offering memorandum relating to the sale of the outstanding notes, all as in effect on the date of the indenture, and any amendment or replacement of any of the foregoing so long as such amendment or replacement agreement is not less advantageous to Northwest in any material respect than the agreement so amended or replaced, as such agreement was in effect on the date of the indenture; (7) transactions entered into as part of a Permitted Receivables Financing; and (8) Restricted Payments that are permitted by the provisions of the indenture described above under the caption "-- Restricted Payments." Designation of Restricted and Unrestricted Subsidiaries The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default; provided that in no event will the businesses currently operated by Northwest be transferred to or held by an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by 65 Northwest and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "-- Restricted Payments" or Permitted Investments, as determined by Northwest. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Future Subsidiary Guarantees If Northwest or any of its Restricted Subsidiaries acquires or creates another Domestic Restricted Subsidiary after the date of the indenture, then that newly acquired or created Domestic Restricted Subsidiary will become a Guarantor and execute a supplemental indenture and deliver to the trustee an opinion of counsel to the effect that the supplemental indenture has been duly authorized, executed and delivered by the Domestic Restricted Subsidiary and constitutes a valid and binding obligation of the Domestic Restricted Subsidiary, enforceable against the Domestic Restricted Subsidiary in accordance with its terms (subject to customary exceptions), all within 10 Business Days of the date on which it was acquired or created; provided, however, that the foregoing shall not apply to subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with the indenture for so long as they continue to constitute Unrestricted Subsidiaries. Sale and Leaseback Transactions Northwest will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction; provided that Northwest or any Guarantor may enter into a Sale and Leaseback Transaction if: (1) Northwest or that Guarantor, as applicable, could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction under the Fixed Charge Coverage Ratio test in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (2) immediately after giving effect to such Sale and Leaseback Transaction, the aggregate outstanding Attributable Debt with respect to all Sale and Leaseback Transactions by Northwest and the Guarantors does not exceed 10% of the Consolidated Net Tangible Assets of Northwest; and (3) the gross cash proceeds of that Sale and Leaseback Transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an officers' certificate delivered to the trustee, of the property that is the subject of that Sale and Leaseback Transaction; provided, however, that the foregoing clauses (1) and (2) shall no longer be applicable after any Investment Grade Date. Business Activities Northwest will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to Northwest and its Subsidiaries taken as a whole. Payments for Consent Northwest will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid and is paid to all Holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. 66 REPORTS Whether or not required by the Commission, so long as any notes are outstanding, Northwest will furnish to the trustee, within 15 days after the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if Northwest were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" (or, if applicable to Northwest for such filings at such time, or if such filings were required at such time, a "Management's Narrative and Analysis of Results of Operations"), and, with respect to the annual information only, a report on the annual financial statements by Northwest's certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if Northwest were required to file such reports. If Northwest has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations (or, as applicable, in Management's Narrative and Analysis of Results of Operations), of the financial condition and results of operations of Northwest and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of Northwest. In addition, following the consummation of the exchange offer contemplated by this prospectus, whether or not required by the Commission, Northwest will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, Northwest and the Guarantors have agreed that, for so long as any outstanding notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the notes; (2) default in payment when due of the principal of, or premium, if any, on the notes; (3) failure by Northwest to purchase notes tendered pursuant to an offer described under the captions "-- Repurchase at the Option of Holders -- Change of Control," "-- Repurchase at the Option of Holders -- Asset Sales" in accordance with the terms thereof, or failure of Northwest or any Guarantor to comply with the provisions of "-- Certain Covenants -- Merger, Consolidation or Sale of Assets;" (4) failure by Northwest or any of its Restricted Subsidiaries for 60 days after notice, from the Trustee or the Holders of at least 25% of the outstanding principal amount of the notes, to comply with any of the other agreements in the indenture; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Northwest or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Northwest or any of its Restricted 67 Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the indenture, if that default: (a) is caused by a failure of Northwest or any Subsidiary of Northwest to pay principal of such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15 million or more; (6) failure by Northwest or any of its Subsidiaries to pay final judgments aggregating in excess of $15 million, which judgments are not paid, discharged or stayed for a period of 60 days; (7) except as permitted by the indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (8) certain events of bankruptcy or insolvency described in the indenture with respect to Northwest or any of its Restricted Subsidiaries. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Northwest, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the Holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from Holders of the notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal or interest or Liquidated Damages. The Holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the Holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or Liquidated Damages on, or the principal of, the notes. The Holders of a majority in aggregate principal amount of the notes then outstanding also may rescind and cancel a declaration of acceleration and its consequences, if: (1) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the notes that have become due solely by the declaration of acceleration, have been cured or waived, and (2) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of Northwest with the intention of avoiding payment of the premium (including, in the case of any such Event of Default prior to March 1, 2007, payment of the Make-Whole Price) that Northwest would have had to pay if Northwest then had elected to redeem the notes pursuant to the optional redemption provisions of the indenture, an equivalent premium (or, in the case of any such Event of Default prior to March 1, 2007, the relevant Make-Whole Amount that would apply at such time if the notes were optionally redeemed at the Make-Whole Price) will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. 68 Northwest is required to deliver to the trustee annually a statement regarding compliance with the indenture. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of Northwest or any Guarantor, as such, will have any liability for any obligations of Northwest or the Guarantors under the notes, the indenture, the Subsidiary Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Northwest may, at its option and at any time, elect to have all of its obligations discharged with respect to the notes and all obligations of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal Defeasance") except for: (1) the rights of Holders of notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on such notes when such payments are due from the trust referred to below; (2) Northwest's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the trustee, and Northwest's and the Guarantor's obligations in connection therewith; and (4) the Legal Defeasance provisions of the indenture. In addition, Northwest may, at its option and at any time, elect to have the obligations of Northwest and the Guarantors released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "-- Events of Default and Remedies" will no longer constitute an Event of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) Northwest must irrevocably deposit with the trustee, in trust, for the benefit of the Holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and Northwest must specify whether the notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, Northwest has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) Northwest has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; 69 (3) in the case of Covenant Defeasance, Northwest has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which Northwest or any of its Subsidiaries is a party or by which Northwest or any of its Subsidiaries is bound; (6) Northwest must deliver to the trustee an officers' certificate stating that the deposit was not made by Northwest with the intent of preferring the Holders of notes over the other creditors of Northwest with the intent of defeating, hindering, delaying or defrauding creditors of Northwest or others; and (7) Northwest must deliver to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the indenture or the notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the indenture or the notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting Holder): (1) reduce the principal amount of notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any note or alter the provisions (including without limitation the amount of any premium or the price therefor) with respect to the redemption of the notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"); (3) reduce the rate of or change the time for payment of interest on any note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the notes (except a rescission of acceleration of the notes by the Holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration); (5) make any note payable in money other than that stated in the notes; (6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of Holders of notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the notes; (7) waive a redemption payment with respect to any note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders"); 70 (8) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the indenture, except in accordance with the terms of the indenture; or (9) make any change in the preceding amendment and waiver provisions. Notwithstanding the preceding, without the consent of any Holder of notes, Northwest, the Guarantors and the trustee may amend or supplement the indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated notes in addition to or in place of certificated notes; (3) to provide for the assumption of Northwest's obligations to Holders of notes in the case of a merger or consolidation or sale of all or substantially all of Northwest's assets; (4) to provide for any Guarantee of the notes, to secure the notes or to confirm and evidence the release, termination or discharge of any Guarantee of or Lien securing the notes when such release, termination or discharge is permitted by the indenture; (5) to make any change that would provide any additional rights or benefits to the Holders of notes or that does not adversely affect the legal rights under the indenture of any such Holder; or (6) to comply with requirements of the Commission under the Securities Act or the Exchange Act or in order to effect or maintain the qualification of the indenture under the Trust indenture Act. SATISFACTION AND DISCHARGE The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when: (1) either: (a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to Northwest, have been delivered to the trustee for cancellation; or (b) all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and Northwest or any Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non- callable Government Securities, in amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption; (2) Northwest or any Guarantor has paid or caused to be paid all sums payable by it under the indenture; and (3) Northwest has delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be. In addition, Northwest must deliver an officers' certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. CONCERNING THE TRUSTEE If the trustee becomes a creditor of Northwest or any Guarantor, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any 71 conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any Holder of notes, unless such Holder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. You may obtain a copy of the indenture and registration rights agreement without charge by writing to Northwest Pipeline Corporation, 295 Chipeta Way, Salt Lake City, Utah 84108; Attention: Legal Department. BOOK-ENTRY, DELIVERY AND FORM Except as described in the next paragraph, the notes will initially be issued in the form of one or more Global Notes (the "Global Notes"). Upon issuance, the Global Notes will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC (such nominee being referred to herein as the "Global Note Holder"). See "-- Depository Procedures" below for a description of DTC and its procedures. Notes that are issued as described below under "-- Exchange of Global Notes for Certificated Notes" will be issued in the form of Certificated Notes (as defined therein). Upon the transfer of Certificated Notes, Certificated Notes may, unless all Global Notes have previously been exchanged for Certificated Notes, be exchanged for an interest in the Global Note representing the principal amount of notes being transferred, subject to the transfer restrictions set forth in the indenture. Prospective purchasers are advised that the laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to such extent. So long as the Global Note Holder is the registered owner of any notes, the Global Note Holder will be considered the sole Holder under the indenture of any notes evidenced by the Global Notes. Beneficial owners of notes evidenced by the Global Notes will not be considered the owners or Holders of the notes under the indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the trustee thereunder. Neither Northwest nor the trustee will have any responsibility or liability for any aspect of the records of DTC or for maintaining, supervising or reviewing any records of DTC relating to the notes. Payments in respect of the principal of, and interest and premium and Liquidated Damages, if any, on a Global Note registered in the name of the Global Note Holder on the applicable record date will be payable by the trustee to or at the direction of the Global Note Holder in its capacity as the registered Holder under the indenture. Under the terms of the indenture, Northwest and the trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither Northwest, the trustee nor any agent of Northwest or the trustee has or will have any responsibility or liability for: (1) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes; or (2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised Northwest that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with 72 the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or Northwest. Neither Northwest nor the trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the notes, and Northwest and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. DEPOSITORY PROCEDURES The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and procedures are solely within the control of DTC and are subject to changes by it. Northwest takes no responsibility for these operations and procedures and urges investors to contact DTC or its participants directly to discuss these matters. DTC has advised Northwest that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised Northwest that, pursuant to procedures established by it: (1) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the trustee with portions of the principal amount of the Global Notes; and (2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes). Investors in the Global Notes who are Participants in DTC's system may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold their interests therein indirectly through organizations which are Participants in such system. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds, and transfers between Indirect Participants will be effected in accordance with their respective rules and operating procedures. 73 DTC has advised Northwest that it will take any action permitted to be taken by a Holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for legended notes in certificated form, and to distribute such notes to its Participants. Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among Participants, it is under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither Northwest nor the trustee nor any of their respective agents will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES A Global Note is exchangeable for definitive notes in registered certificated form ("Certificated Notes") if: (1) DTC (a) notifies Northwest that it is unwilling or unable to continue as depositary for the Global Notes and Northwest fails to appoint a successor depositary or (b) has ceased to be a clearing agency registered under the Exchange Act; (2) Northwest, at its option, notifies the trustee in writing that it elects to cause the issuance of the Certificated Notes; or (3) there has occurred and is continuing a Default or Event of Default with respect to the notes. In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures). SAME DAY SETTLEMENT AND PAYMENT Northwest will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. Northwest will make all payments of principal, interest and premium and Liquidated Damages, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such Holder's registered address. The notes represented by the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. Northwest expects that secondary trading in any Certificated Notes will also be settled in immediately available funds. REGISTRATION RIGHTS; LIQUIDATED DAMAGES The following description is a summary of the material provisions of the registration rights agreement. It does not restate that agreement in its entirety. We urge you to read the proposed form of registration rights agreement in its entirety because it, and not this description, defines your registration rights as Holders of the outstanding notes. Copies of the registration rights agreement may be obtained from Northwest. See "Where You Can Find More Information." Northwest and the initial purchasers of the outstanding notes entered into the registration rights agreement on March 4, 2003. Pursuant to the registration rights agreement, Northwest agreed to file with the Commission a registration statement in connection with the Registered Exchange Offer (the "Exchange Offer 74 Registration Statement") on the appropriate form under the Securities Act with respect to the an issue of notes of Northwest ("Exchange Notes") with terms substantially identical to the outstanding notes (except that the new notes will not be subject to transfer restrictions or liquidated damages). Upon the effectiveness of the Exchange Offer Registration Statement, Northwest will offer to the Holders of Transfer Restricted Securities pursuant to the Exchange Offer who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for Exchange Notes. If: (1) Northwest is not (a) required to file the Exchange Offer Registration Statement; or (b) permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or (2) any Holder of Transfer Restricted Securities notifies Northwest prior to the 20th day following consummation of the Exchange Offer that: (a) it is prohibited by law or Commission policy from participating in the Exchange Offer; or (b) it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales; or (c) it is a broker-dealer and owns notes acquired directly from Northwest or an affiliate of Northwest, Northwest will file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of the notes by the Holders of the notes who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. Northwest will use its commercially reasonable efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the preceding, "Transfer Restricted Securities" means each outstanding note until: (1) the date on which such note has been exchanged by a Person other than a broker-dealer for an Exchange Note in the Exchange Offer; (2) following the exchange by a broker-dealer in the Exchange Offer of an outstanding note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement; (3) the date on which such note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; or (4) the date on which such note is distributed to the public or is saleable pursuant to Rule 144 under the Securities Act. The registration rights agreement provides that: (1) Northwest will file an Exchange Offer Registration Statement with the Commission on or prior to 90 days after the closing of the offering of the outstanding notes; (2) Northwest will use its commercially reasonable efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 180 days after the closing of the offering of the outstanding notes; (3) unless the Exchange Offer would not be permitted by applicable law or Commission policy, Northwest will 75 (a) commence the Exchange Offer; and (b) use its commercially reasonable efforts to issue on or prior to 30 business days, or longer, if required by the federal securities laws, after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all outstanding notes tendered prior thereto in the Exchange Offer; and (4) if obligated to file the Shelf Registration Statement, Northwest will use its commercially reasonable efforts to file the Shelf Registration Statement with the Commission on or prior to 60 days after such filing obligation arises (or, if later, the date by which Northwest is obligated to file an Exchange Offer Registration Statement) and to cause the Shelf Registration to be declared effective by the Commission on or prior to 180 days after such obligation arises (or, if later, the date by which Northwest is obligated to use commercially reasonably efforts to have the Exchange Offer Registration Statement declared effective). If: (1) Northwest fails to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing; or (2) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"); or (3) Northwest and the Guarantors fails to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement; or (4) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the registration rights agreement (except with respect to permitted suspension periods as provided therein) (each such event referred to in clauses (1) through (4) above, a "Registration Default"), then Northwest and the Guarantors will pay Liquidated Damages to each Holder of notes or, in the case of a Shelf Registration Statement, affected notes, with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to $.05 per week per $1,000 principal amount of notes held by such Holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages for all Registration Defaults of $.50 per week per $1,000 principal amount of notes. All accrued Liquidated Damages will be paid by Northwest on each Damages Payment Date to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to Holders of Certificated Notes by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Holders of outstanding notes will be required to make certain representations to Northwest (as described in the registration rights agreement) in order to participate in the Exchange Offer and will be required to deliver certain information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the registration rights agreement in order to have their notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. By acquiring Transfer Restricted Securities, a Holder will be deemed to have agreed to indemnify Northwest and the Guarantors against certain losses arising out of information furnished by such Holder in writing for inclusion in any Shelf Registration Statement. Holders of outstanding notes will also be required to suspend their use of the prospectus included 76 in the Shelf Registration Statement under certain circumstances upon receipt of written notice to that effect from Northwest. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "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 purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of Northwest and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests in any of Northwest's Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries. Notwithstanding the preceding, the following items will not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $2.0 million; (2) a transfer of assets between or among Northwest and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to Northwest or to another Restricted Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) dispositions of accounts receivable and related assets to a Securitization Subsidiary in connection with a Permitted Receivables Financing; (7) Sale and Leaseback Transactions; and (8) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." 77 "Attributable Debt" in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Available Cash Flow from Operations" means for any period of Northwest, Consolidated Cash Flow of Northwest for such period, minus the sum of the following, each determined for such period on a consolidated basis: (1) cash taxes for Northwest and its Restricted Subsidiaries, including payments to Northwest's Williams Group Affiliates in respect of taxes pursuant to tax sharing arrangements; plus (2) cash interest expense paid by Northwest and its Restricted Subsidiaries whether or not capitalized (including, without limitation, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations); plus (3) additions to property, plant and equipment and other capital expenditures of Northwest and its Restricted Subsidiaries that are (or would be) set forth in a consolidated statement of cash flows of Northwest and its Restricted Subsidiaries for such period prepared in accordance with generally accepted accounting principles (except to the extent financed by the incurrence of Indebtedness); plus (4) the aggregate principal amount of long-term Indebtedness repaid by Northwest and its Restricted Subsidiaries and any short-term Indebtedness that financed capital expenditures referred to in clause (3) above, excluding any such repayments (i) under working capital facilities (except to the extent that such Indebtedness so repaid was incurred to finance capital expenditures as described in clause (3) above), (ii) out of Net Cash Proceeds of Asset Sales as provided above in "-- Certain Covenants -- Asset Sales" and (iii) through a refinancing involving the incurrence of new long-term Indebtedness. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; 78 (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding 365 days and overnight bank deposits and other similar types of investments routinely offered by commercial banks, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank or trust company having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within 270 days after the date of acquisition; (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition; and (7) deposits available for withdrawal on demand with any commercial bank not meeting the qualifications specified in clause (3) above; provided that all such deposits are made in the ordinary course of business, do not remain on deposit for more than 30 consecutive days and do not exceed $10.0 million in the aggregate at any one time. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of Northwest and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of Northwest; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that (A) any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act), other than a Williams Group Affiliate, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Northwest, measured by voting power rather than number of shares (B) any "person" or "group" (as defined above) (other than a trustee or other fiduciary holding securities under an employee benefit plan of Williams or any of its Subsidiaries) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Williams, measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of Northwest are not Continuing Directors; or 79 (5) Northwest consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, Northwest, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of Northwest or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of Northwest outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "Commission" means the U.S. Securities and Exchange Commission. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus (without duplication): (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; plus (5) unrealized non-cash losses resulting from foreign currency balance sheet adjustments required by GAAP to the extent such losses were deducted in computing such Consolidated Net Income; plus (6) all extraordinary, unusual or non-recurring items of gain or loss, or revenue or expense to the extent such gains or losses were added or deducted in computing such Consolidated Net Income. in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, 80 instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded; and (4) the cumulative effect of a change in accounting principles will be excluded. "Consolidated Net Tangible Assets" means, with respect to any Person at any date of determination, the aggregate amount of total assets included in such Person's most recent quarterly or annual consolidated balance sheet prepared in accordance with GAAP less applicable reserves reflected in such balance sheet, after deducting the following amounts: (i) all current liabilities reflected in such balance sheet, and (ii) all goodwill, trademarks, patents, unamortized debt discounts and expenses and other like intangibles reflected in such balance sheet. "Consolidated Subsidiaries" means, with respect to any Person, all other Persons the financial statements of which are consolidated with those of such Person in accordance with generally accepted accounting principals. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of Northwest who: (1) was a member of such Board of Directors on the date of the indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Credit Agreement" means the First Amended and Restated Credit Agreement dated as of October 31, 2002, by and among The Williams Companies, Inc., Northwest, Transcontinental Gas Pipe Line Corporation and Texas Gas Transmission Corporation as Borrowers and the banks named therein as Banks, JPMorgan Chase Bank and Commerzbank AG as Co-Syndication Agents, Credit Lyonnais New York Branch as Documentation Agent and Citicorp USA, Inc. as Agent and Salomon Smith Barney Inc. as Arranger, providing for up to $400 million of revolving credit borrowings to Northwest, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Credit Agreement Refinancing Date" means the first date after the date of the indenture on which Northwest's ability to enter into or suffer to exist restrictions on dividends and advances to its Williams Group Affiliates is no longer restricted pursuant to a credit facility or debt instrument to which any Williams Group Affiliates are parties from time to time, including without limitation pursuant to Section 5.02(d) of the Credit Agreement as in effect on the date of the indenture. "Credit Facilities" means, one or more debt facilities (including, without limitation, (1) the Credit Agreement and (2) one or more Permitted Receivables Financings) or commercial paper facilities, in each case with banks or other institutional lenders, or pursuant to intercompany loan or advance arrangements with Williams and/or Williams Gas Pipeline Company, LLC (provided that in the case of such arrangements with Williams and/or Williams Gas Pipeline Company, LLC that such arrangements are on terms consistent with practices in existence on the date of the indenture) providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund 81 obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require Northwest to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that Northwest may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." "Domestic Restricted Subsidiary" means any Restricted Subsidiary of Northwest that was formed under the laws of the United States or any state of the United States or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of Northwest. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Notes" has the meaning set forth in the second paragraph under "-- Registration Rights; Liquidated Damages." "Exchange Offer Registration Statement" has the meaning set forth in the second paragraph under "-- Registration Rights; Liquidated Damages." "Existing Indebtedness" means up to $367.9 million in aggregate principal amount of Indebtedness of Northwest and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the indenture, until such amounts are repaid. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers, consolidations or otherwise (including acquisitions of assets used in a Permitted Business) and Qualifying Expansion Projects that have been commenced by the specified Person or any of its Restricted Subsidiaries, and including in each case any related financing transactions (including repayment of Indebtedness) during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred or (in the case of any Qualifying Expansion Projects) been completed and in service on the first day of the four-quarter reference period, including any Consolidated Cash Flow (including interest income reasonably anticipated by such Person to be received from Cash and Cash Equivalents held by such Person or any of its Restricted Subsidiaries) and any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of the chief financial officer or chief accounting officer of Northwest (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the Commission related thereto), but in the case of Qualifying Expansion Projects, only to the extent of Qualifying Expansion Project Amounts; 82 (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, any premiums, fees, discounts, expenses and losses on the sale of accounts receivable (and any amortization thereof) in connection with a Permitted Receivables Financing, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of Northwest (other than Disqualified Stock) or to Northwest or a Restricted Subsidiary of Northwest, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the indenture. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Guarantors" means any subsidiary of Northwest that executes a Subsidiary Guarantee in accordance with the provisions of the indenture and its successors and assigns. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person incurred in the normal course of business and consistent with past practices and not for speculative purposes under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; (2) foreign exchange contracts and currency protection agreements entered into with one of more financial institutions designed to protect the person or entity entering into the agreement against 83 fluctuations in interest rates or currency exchanges rates with respect to Indebtedness incurred and not for purposes of speculation; (3) any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that entity at the time; and (4) other agreements or arrangements designed to protect such person against fluctuations in interest rates or currency exchange rates. "Incremental Funds" has the meaning set forth in the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." "Indebtedness" means, with respect to any specified Person, any obligation of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; (6) representing any Hedging Obligations, or (7) under Permitted Receivables Financings; if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations and obligations in respect of Permitted Receivables Financings) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) in the case of any Permitted Receivables Financing, the net unrecovered principal amount of the accounts receivable sold thereunder at such date, or other similar amount representing the principal financing amount thereof; (3) in the case of any Hedging Obligation, the net amount payable if such Hedging Obligation is terminated at that time due to default by such Person (after giving effect to any contractually permitted set-off); and (4) the principal amount of the Indebtedness in the case of any other Indebtedness. "Investment Grade Date" has the meaning set forth above under "-- Termination of Certain Covenants." "Investment Grade Rating" means a rating equal to or higher than Baa3 by Moody's and BBB -- by S&P. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees (other than Guarantees of Indebtedness of Northwest or any of its Guarantors to the extent permitted in the covenant described above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock")), 84 advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and excluding trade payables of Northwest and its subsidiaries arising in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If Northwest or any Subsidiary of Northwest sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of Northwest such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of Northwest, Northwest will be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." The acquisition by Northwest or any Subsidiary of Northwest of a Person that holds an Investment in a third Person will be deemed to be an Investment by Northwest or such Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Make-Whole Amount" with respect to a note means an amount equal to the excess, if any, of (1) the present value of the remaining interest, premium and principal payments due on such note (excluding any portion of such payments of interest accrued as of the redemption date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (2) the outstanding principal amount of such note. "Treasury Rate" is defined as the yield to maturity (calculated on a semi-annual bond-equivalent basis) at the time of the computation of United States Treasury securities with a constant maturity (as compiled by and published in the most recent Federal Reserve Statistical Release H.15 (510), which has become publicly available at least two business days prior to the date of the redemption notice or, if such Statistical Release is no longer published, any publicly available source of similar market data) most nearly equal to the then remaining maturity of the notes; provided that if the Make-Whole Average Life of such note is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make- Whole Average Life of such note is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Make-Whole Average Life" means the number of years (calculated to the nearest one-twelfth) between the date of redemption and the Stated Maturity of the notes. "Make-Whole Price" means the sum of the outstanding principal amount of the notes to be redeemed plus the Make-Whole Amount of those notes. "Maturity Date" means, with respect to any note, the date on which any principal of such note becomes due and payable, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such 85 Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by Northwest or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale (as reasonably estimated by Northwest), in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (1) as to which neither Northwest nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the notes) of Northwest or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of Northwest or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Business" means the lines of business conducted by us and our Restricted Subsidiaries on the date of the indenture and any business incidental or reasonably related thereto or which is a reasonable extension thereof as determined in good faith by our Board of Directors and set forth in an officer's certificate delivered to the trustee. "Permitted Investments" means: (1) any Investment in Northwest or in a Restricted Subsidiary of Northwest; (2) any Investment in Cash Equivalents; (3) any Investment by Northwest or any Subsidiary of Northwest in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of Northwest; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Northwest or a Restricted Subsidiary of Northwest; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales," or any non-cash consideration that was excluded from the definition of "Asset Sale" pursuant to clause (1) or (4) (for the sale or lease of equipment) pursuant to the second paragraph of such definition; 86 (5) any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Northwest; (6) any purchase or other acquisition of senior debt of Northwest or any Guarantor (other than Indebtedness that is subordinated to the notes or the Subsidiary Guarantees); (7) any Investments received in compromise of obligations of such persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; (8) Hedging Obligations permitted to be incurred under the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; (9) Investments in a Securitization Subsidiary that are necessary or desirable to effect any Permitted Receivables Financing; and (10) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) that are at the time outstanding not to exceed $10 million. "Permitted Liens" means: (1) Liens of Northwest and any Guarantor securing any Credit Facility that was permitted by the terms of the indenture to be incurred and all Obligations and Hedging Obligations relating to such Indebtedness (but excluding any Credit Facility with Williams or any Williams Group Affiliate, as lender); (2) Liens in favor of Northwest or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with Northwest or any Restricted Subsidiary of Northwest or renewals or replacement of such Liens in connection with the incurrence of Permitted Refinancing Indebtedness to refinance Indebtedness secured by such Liens; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with Northwest or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition of the property by Northwest or any Restricted Subsidiary of Northwest or renewals or replacement of such Liens in connection with the incurrence of Permitted Refinancing Indebtedness to refinance Indebtedness secured by such Liens; provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of tenders, bids, statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; 87 (10) Liens on accounts receivable and related assets and proceeds thereof arising in connection with a Permitted Receivables Financing; and (11) Liens with respect to Indebtedness that at the time of incurrence does not exceed 10% of the Consolidated Net Tangible Assets of Northwest. "Permitted Receivables Financing" means any receivables financing facility or arrangement pursuant to which a Securitization Subsidiary purchases or otherwise acquires accounts receivable of Northwest or any Restricted Subsidiaries and enters into a third party financing thereof on terms that the Board of Directors has concluded are customary and market terms fair to Northwest and its Restricted Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness of Northwest or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of Northwest or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith) and any premiums paid on the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded; (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes and any Subsidiary Guarantees, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the notes and any Subsidiary Guarantees, as the case may be, on terms at least as favorable to the Holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by Northwest or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Public Equity Offering" means an underwritten primary public offering, after the date of the indenture, of Capital Stock (other than Disqualified Stock) of Northwest pursuant to an effective registration statement under the Securities Act other than an issuance registered on Form S-4 or S-8 or any successor thereto or any issuance pursuant to employee benefit plans or otherwise in compensation to officers, directors or employees. "Qualifying Expansion Project" means any capital expansion project that has increased or will increase the physical capacity of the pipeline system of Northwest and the Guarantors; provided that such project has been completed and the assets are in service at, or Northwest reasonably believes that the in-service date of the project will be within twelve months after, the Calculation Date. "Qualifying Expansion Project Amounts" means with respect to any calculation of pro forma amounts under the Fixed Charge Coverage Ratio additional revenues (if any) and related expenses for any Qualifying Expansion Project for the portion of the four-quarter period prior to the in-service date of such Qualifying Expansion Project (the "Estimation Period"); provided that revenues and related expenses anticipated from any Qualifying Expansion Project during any Estimation Period shall be included in such calculation only to the extent (1) of the portion of the capacity of such Qualifying Expansion Project that is committed under a long-term firm transportation contract on customary terms (as determined in good faith by Northwest) with a 88 counterparty that has an Investment Grade Rating of its long-term debt from at least one of S&P and Moody's and (2) the aggregate amount of Qualifying Expansion Project Amounts for all Qualifying Expansion Projects included in any such calculation does not exceed 25% of the aggregate revenues of Northwest and its Restricted Subsidiaries for such period, determined for this purpose on a pro forma basis but before inclusion of any Qualifying Expansion Project Amounts. "Rating Agency" means each of S&P and Moody's, or if S&P or Moody's or both shall not make a rating on the notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by Northwest (as evidenced by a resolution of the Board of Directors), which shall be substituted for S&P or Moody's, or both, as the case may be. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "S&P" means Standard and Poor's, a division of The McGraw-Hill Companies, Inc., and its successors. "Sale and Leaseback Transaction" means any arrangement with any Person (other than Northwest or a Subsidiary), or to which any such Person is a party, providing for the leasing, pursuant to a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP, to Northwest or a Restricted Subsidiary of any property or asset which has been or is to be sold or transferred by Northwest or such Restricted Subsidiary to such Person or to any other Person (other than Northwest or a Subsidiary), to which funds have been or are to be advanced by such Person. "Securitization Subsidiary" means a Subsidiary of Northwest (1) that is designated a "Securitization Subsidiary" by the Board of Directors, (2) that does not engage in, and whose charter prohibits it from engaging in, any activities other than Permitted Receivables Financings and any activity necessary, incidental or related thereto, (3) no portion of the Debt or any other obligation, contingent or otherwise, of which (A) is Guaranteed by Northwest or any Restricted Subsidiary of Northwest, (B) is recourse to or obligates Northwest or any Restricted Subsidiary of Northwest in any way, or (C) subjects any property or asset of Northwest or any Restricted Subsidiary of Northwest, directly or indirectly, contingently or otherwise, to the satisfaction thereof, (4) with respect to which neither Northwest nor any Restricted Subsidiary of Northwest (other than an Unrestricted Subsidiary) has any obligation to maintain or preserve such its financial condition or cause it to achieve certain levels of operating results other than, in respect of clauses (3) and (4), pursuant to customary representations, warranties, covenants and indemnities entered into in connection with a Permitted Receivables Financing. "Shelf Registration Statement" has the meaning set forth in the second paragraph under "-- Registration Rights; Liquidated Damages." "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. 89 "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Subsidiary Guarantee" means each Guarantee of the notes issued by a Guarantor pursuant to the indenture. "Unrestricted Subsidiary" means (1) any Securitization Subsidiary, (2) NWP Enterprises, LLC, (3) NWP Enterprises, Inc., or (4) any Subsidiary of Northwest that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with Northwest or any Restricted Subsidiary of Northwest unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Northwest or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Northwest; (3) is a Person with respect to which neither Northwest nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Northwest or any of its Restricted Subsidiaries. Any designation of a Subsidiary of Northwest as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of Northwest as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," Northwest will be in default of such covenant. The Board of Directors of Northwest may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of Northwest of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. 90 "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Williams" means The Williams Companies, Inc. "Williams Group Affiliates" means Williams and its Subsidiaries other than Northwest and its Subsidiaries. 91 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes the material U.S. federal tax consequences of the exchange of outstanding notes for new notes and of the beneficial ownership and disposition of new notes. This summary is based on the Internal Revenue Code of 1986, referred to herein as the "Code," regulations issued under the Code, judicial authority and administrative rulings and practice, all as of the date of this prospectus, all of which are subject to change. Any such change may be applied retroactively and may adversely affect the federal tax consequences described in this prospectus. This summary addresses only the tax consequences to investors that own the outstanding notes and will own the new notes as capital assets and not as part of a "straddle" or "conversion transaction" for federal income tax purposes, or as part of some other integrated investment. This summary does not discuss all of the tax consequences that may be relevant to particular investors or to investors subject to special treatment under the federal income tax laws (such as insurance companies, financial institutions, tax-exempt organizations, retirement plans, regulated investment companies, securities dealers, expatriates or persons whose functional currency for tax purposes is not the U.S. dollar). We will not seek a ruling from the Internal Revenue Service, referred to herein as the "IRS," with respect to any matters discussed in this section, and we cannot assure you that the IRS will not challenge one or more of the tax consequences described below. When we use the term "holder" in this section, we are referring to a beneficial owner of the notes and not the record holder. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES OF THE EXCHANGE OFFER AND OF THE BENEFICIAL OWNERSHIP AND DISPOSITION OF THE NEW NOTES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS The following is a general discussion of the material U.S. federal income tax consequences of the purchase, beneficial ownership and disposition of the notes by a holder that is a United States person, referred to herein as a "U.S. Holder." For purposes of this discussion, a United States person means: - a citizen or resident of the United States (as defined for federal income tax purposes); - a corporation, partnership or other business entity created or organized in or under the laws of the United States or any State or political subdivision thereof or therein (including the District of Columbia); - an estate whose income is subject to U.S. federal income taxation regardless of its source; or - a trust if a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions, or certain electing trusts that were in existence on August 19, 1996, and were treated as domestic trusts on that date. The Exchange Offer The exchange of outstanding notes for new notes pursuant to this exchange offer will not be treated as an "exchange" for United States federal income tax purposes because the new notes will not be considered to differ materially in kind or extent from the outstanding notes. Rather, any new notes received by you should be treated as a continuation of your investment in the outstanding notes. As a result, there should be no United States federal income tax consequences to you resulting from the exchange offer. In addition, you should have the same adjusted issue price, adjusted basis, and holding period in the new notes as you had in the outstanding notes immediately prior to the exchange. Treatment of Interest Stated interest on the notes will be taxable to a U.S. Holder as ordinary income at the time it is accrued or received (in accordance with the U.S. Holder's method of tax accounting). 92 Treatment of Liquidated Damages and Additional Interest The outstanding notes provided for the payment of Liquidated Damages and the notes provide for the payment of additional amounts of interest, under certain circumstances described above under "Description of Notes -- Registration Rights; Liquidated Damages" and "Description of Notes -- Additional Interest" and therefore are subject to Treasury regulations that apply to debt instruments providing for one or more contingent payments. For purposes of determining whether the notes were issued with "original issue discount" for federal income tax purposes, we intend to take the position that, as of the issue date, the notes do not represent contingent payment debt instruments because (i) the likelihood of our paying Liquidated Damages as a result of a Registration Default is remote and (ii) the payment schedule without payments of additional interest resulting from our Fixed Charge Coverage Ratio falling below 1.75 to 1.0 is significantly more likely than not to occur as compared to the alternative payment schedules that would result if our Fixed Charge Coverage Ratio were to fall below 1.75 to 1.0; and therefore, we intend to take the position that the notes will not be considered to be issued with original issue discount. If, contrary to our expectations, the IRS were to assert successfully that the likelihood of making contingent payments was sufficient to cause original issue discount, then a U.S. Holder may be required to include in gross income interest in excess of the coupon amount of interest received periodically over the term of the notes as it accrues, regardless of the holder's method of tax accounting, which may result in the recognition of interest income before the receipt in cash of such interest income; and any gain on the sale, exchange, redemption or retirement of a note may be recharacterized as ordinary income. If we become obligated to pay Liquidated Damages or additional interest, we intend to take the position that such amounts are includible in a U.S. Holder's gross income in accordance with such U.S. Holder's method of tax accounting. U.S. Holders should consult their tax advisors regarding the tax consequences of the notes being treated as contingent payment debt instruments. Market Discount If a U.S. Holder purchases a new note (or purchased an outstanding note and exchanges it for a new note) for an amount that is less than the stated principal amount of the note, the amount of such difference is treated as "market discount" for U.S. federal income tax purposes, unless such difference is less than 1/4 of one percent of the stated principal amount multiplied by the remaining number of complete years to maturity from the date of the acquisition. A U.S. Holder holding a note with market discount generally will be required to treat any full or partial principal payment, or any gain upon the sale, exchange or retirement (including redemption or repurchase) of the note, as ordinary income to the extent of the accrued market discount on the note that such holder has not previously included in income. A U.S. Holder may be required to defer, until the maturity of the note or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry a note with market discount. In general, any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the note, unless the holder elects to accrue the market discount under a constant yield method. A U.S. Holder may elect to include market discount in gross income currently as it accrues (on either a ratable or constant yield method), rather than on disposition of the note, in which case the rule described above regarding deferral of interest deductions will not apply. This election to include market discount in gross income on an accrual basis, once made, applies to all market discount obligations acquired by the holder on or after the first day of the first taxable year to which the election applies, and is irrevocable without the consent of the IRS. The holder's tax basis in the notes will be increased by the amount of any market discount included in gross income under such an election. Amortizable Bond Premium In general, if a U.S. Holder purchases a new note (or purchased an outstanding note and exchanges it for a new note) for an amount in excess of the sum of all amounts payable on the note (other than stated interest payments), such excess will be considered to have purchased the note with "amortizable bond premium." A 93 U.S. Holder generally may elect to amortize the bond premium over the remaining term of the note on a constant yield method as an offset to interest. A special rule applies to determine the amount of amortizable bond premium on debt instruments (such as the notes) that may be redeemed prior to maturity at the issuer's option. Under these rules, a U.S. Holder will calculate the amount of amortizable bond premium based on the amount payable at the applicable call date, but only if the use of the call date (in lieu of the stated maturity date) results in a smaller amortizable bond premium for the period ending on the call date. If a U.S. holder does not elect to amortize bond premium, that premium will decrease the gain or increase the loss such holder would otherwise recognize on disposition of the note. If a U.S. Holder elects to amortize bond premium, its tax basis in the note will be reduced by the amount of allowable amortization. The election to amortize bond premium applies to all taxable debt obligations held during or after the taxable year for which the election is made, and is irrevocable without the consent of the IRS. The rules regarding market discount and amortizable bond premium are complex, and you should consult your own tax advisors regarding these rules. Treatment of Dispositions of Notes Upon the sale, exchange, retirement or other taxable disposition of a note, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount received on such disposition (other than amounts representing accrued and unpaid interest not previously included in income) and the U.S. Holder's tax basis in the note. A U.S. Holder's tax basis in a note will be, in general, the cost of the note to the U.S. Holder. Subject to the market discount rules discussed above, gain or loss realized on the sale, exchange or retirement of a note generally will be capital gain or loss, and will be long-term capital gain or loss if, at the time of such sale, exchange or retirement, the note has been held for more than one year. Net long-term capital gain recognized by a non-corporate U.S. Holder is generally subject to U.S. federal income tax at a preferential rate. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS The following is a general discussion of the U.S. federal income and estate tax consequences of the exchange offer, and of the beneficial ownership and disposition of new notes by a holder that is not a United States person, referred to herein as a "Non-U.S. Holder." For purposes of the following discussion, any interest income and any gain realized on the sale, exchange or other disposition of a note will be considered "U.S. trade or business income" if such interest income or gain is (i) effectively connected with the conduct of a trade or business in the United States, or (ii) in the case of a treaty resident, attributable to a permanent establishment (or in the case of an individual, to a fixed base) in the United States. The Exchange Offer The exchange of outstanding notes for new notes pursuant to this exchange offer will not be a taxable sale or exchange for United States federal income tax purposes. Treatment of Interest A Non-U.S. Holder will not be subject to U.S. federal income or withholding tax in respect of interest income on a note if each of the following requirements is satisfied: - The interest is not U.S. trade or business income (as defined above). - The Non-U.S. Holder provides to us or our paying agent an appropriate statement on IRS Form W-8BEN (or suitable substitute form), together with all appropriate attachments, signed under penalties of perjury, identifying the Non-U.S. Holder and stating, among other things, that the Non-U.S. Holder is not a United States person. If a note is held through a securities clearing organization, bank or another financial institution that holds customers' securities in the ordinary course of its trade or business, this requirement is satisfied if (i) the Non-U.S. Holder provides such a form to the 94 organization or institution, and (ii) the organization or institution, under penalties of perjury, certifies to us that it has received such a form from the beneficial owner or another intermediary and furnishes us or our paying agent with a copy. - The Non-U.S. Holder does not actually or constructively own 10% or more of the voting power of our stock. - The Non-U.S. Holder is not a "controlled foreign corporation" (as defined for federal income tax purposes) that is actually or constructively related to us. To the extent these conditions are not met, a 30% U.S. withholding tax will apply to interest income on the notes, unless one of the following two exceptions is satisfied. The first exception is that an applicable income tax treaty reduces or eliminates such tax, and a Non-U.S. Holder claiming the benefit of that treaty provides to us or our paying agent a properly executed IRS Form W-8BEN (or substitute form). The second exception is that the interest is U.S. trade or business income (as defined above) and the Non-U.S. Holder provides an appropriate statement to that effect on IRS Form W-8ECI (or substitute form). In the case of the second exception, such Non-U.S. Holder generally will be subject to U.S. federal income tax with respect to all income from the notes on a net income basis in the same manner as a U.S. Holder, as described above. Additionally, Non-U.S. Holders that are corporations could be subject to a branch profits tax on such income. Special procedures contained in Treasury regulations may apply to partnerships, trusts and intermediaries. We urge Non-U.S. Holders to consult their own tax advisors for information on the impact of these withholding regulations. Treatment of Dispositions of Notes Generally, a Non-U.S. Holder will not be subject to U.S. federal income tax on gain realized upon the sale, exchange, retirement or other disposition of a note unless: - such holder is an individual present in the United States for 183 days or more in the taxable year of the sale, exchange, retirement or other disposition and certain other conditions are met, or - the gain is U.S. trade or business income (as defined above). Treatment of Notes for U.S. Federal Estate Tax Purposes A note held, or treated as held, by an individual who is a Non-U.S. Holder at the time of his or her death will not be subject to U.S. federal estate tax, provided that the Non-U.S. Holder does not at the time of death actually or constructively own 10% or more of the combined voting power of all classes of our stock and payments of interest on such notes would not have been considered U.S. trade or business income (as defined above). U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING When required, we will report to the holders of the notes and the IRS amounts paid on or with respect to the notes and the amount of any tax withheld from such payments. Certain non-corporate U.S. Holders may be subject to backup withholding at a rate equal to the fourth lowest marginal rate of income tax applicable to unmarried individuals on payments made on or with respect to the notes and on payment of the proceeds from the disposition of a note. This rate is currently 30%. In general, backup withholding will apply to a U.S. Holder only if the U.S. Holder: - fails to furnish its Taxpayer Identification Number, or TIN, which for an individual is his or her Social Security Number; - furnishes an incorrect TIN; - is notified by the IRS that it has failed properly to report payments of interest and dividends; or 95 - under certain circumstances, fails to certify, under penalties of perjury, that it has furnished a correct TIN and has not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. A U.S. Holder will be eligible for an exemption from backup withholding by providing a properly completed IRS Form W-9 (or substitute form) to us or our paying agent. A Non-U.S. Holder that provides an IRS Form W-8BEN (or substitute form), together with all appropriate attachments, signed under penalties of perjury, identifying the Non-U.S. Holder and stating that the Non-U.S. Holder is not a United States person, will not be subject to IRS information reporting requirements and U.S. backup withholding provided that neither we nor our paying agent has actual knowledge that the holder is a United States person or otherwise does not satisfy the requirements of an exemption. Information reporting and backup withholding requirements with respect to the payment of proceeds from the disposition of a note by a Non-U.S. Holder are as follows: - If the proceeds are paid to or through the U.S. office of a broker, they generally will be subject to information reporting and backup withholding as described above. However, no such reporting and withholding will be required if: (i) the holder either certifies as to its status as a Non-U.S. Holder under penalties of perjury on IRS Form W-8BEN (or substitute form) or otherwise establishes an exemption, and (ii) the broker does not have actual knowledge to the contrary. - If the proceeds are paid to or through a foreign office of a broker that is not a United States person or a "U.S. related person," as defined below, they will not be subject to information reporting or backup withholding. - If the proceeds are paid to or through a foreign office of a broker that is either a United States person or a "U.S. related person," they generally will be subject to information reporting. However, no such reporting will be required if (i) the holder certifies as to its status as a Non-U.S. Holder under penalties of perjury or the broker has certain documentary evidence in its files as to the Non-U.S. Holder's foreign status, and (ii) the broker has no actual knowledge to the contrary. Backup withholding will not apply to payments made through foreign offices of a United States person or U.S. related person, absent actual knowledge that the payee is a United States person. For these purposes, a "U.S. related person" is: - a "controlled foreign corporation," as defined for U.S. federal income tax purposes; - a foreign person 50% or more of whose gross income during a specified three-year period was effectively connected with the conduct of a trade or business within the United States; or - a foreign partnership if, at any time during its tax year, one or more of its partners are United States persons who, in the aggregate, hold more than 50% of the income or capital interest in the partnership or if, at any time during its tax year, the partnership is engaged in the conduct of a trade or business in the United States. Backup withholding is not an additional tax and may be refunded or credited against the holder's U.S. federal income tax liability, provided that certain required information is furnished to the IRS. The information reporting requirements may apply regardless of whether withholding is required. Copies of the information returns reporting interest and withholding may be made available to the tax authorities in foreign countries under the provisions of a tax treaty or agreement. THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE BENEFICIAL OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. 96 PLAN OF DISTRIBUTION Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of notes received in exchange for outstanding notes where such outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the expiration date of the exchange offer, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of new notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker- dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the expiration date of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents as set forth in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the outstanding notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the outstanding notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 97 LEGAL MATTERS Certain matters with respect to the issuance and sale of the notes offered hereby will be passed upon for us by Gibson, Dunn & Crutcher LLP. EXPERTS The financial statements of Northwest Pipeline Corporation at December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, appearing in this prospectus and registration statement and appearing in Northwest Pipeline Corporation's Annual Report (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 thereon appearing and incorporated by reference herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and file reports and other information with the SEC. The public may read and copy any reports or other information that we file with the SEC at the SEC's public reference room, Room 1024 at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. We have filed the following document with the SEC which is incorporated by reference: - our Annual Report on Form 10-K for the year ended December 31, 2002. You may request a copy of this filing at no cost, by writing or telephoning us at the following address: Northwest Pipeline Corporation Attention: Cheryl Blycker 295 Chipeta Way Salt Lake City, Utah 84108 (801) 583-8800 All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference into this prospectus and be a part of it from the dates of filing of these documents. 98 GLOSSARY All volumes of natural gas stated in this prospectus are stated at a pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit. "Bcf"......................... one billion cubic feet "Contract demand"............. the maximum amount of natural gas deliverable to a customer on a given day "Dekatherm"................... the standard quantity for nominations, confirmations and scheduling is dekatherms per gas day. One dekatherm is equal to one MMBtu "Displacement"................ utilizing the same physical pipeline facilities to, in effect, provide simultaneous gas transportation service in both directions "Dth"......................... one dekatherm "Incremental rate"............ a separately stated rate designed to recover all costs associated with new facilities "Looping"..................... the installation of a redundant pipeline, generally a second line, parallel or adjacent to an existing line, creating an integrated system which increases the physical carrying capacity and adds to the reliability of that part of the pipeline system "Mcf"......................... one thousand cubic feet "MDth"........................ one thousand dekatherms "MMBtu"....................... one million British Thermal Units "MMcf"........................ one million cubic feet "MMDth"....................... one million dekatherms "TBtu"........................ one trillion British Thermal Units "Tcf"......................... one trillion cubic feet "Working gas"................. gas stored pending further transportation and delivery to customers 99 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors.............................. F-2 Statement of income......................................... F-3 Balance sheet............................................... F-4 Statement of cash flows..................................... F-5 Statement of common stockholder's equity.................... F-6 Notes to financial statements............................... F-7
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors Northwest Pipeline Corporation We have audited the accompanying balance sheet of Northwest Pipeline Corporation as of December 31, 2002 and 2001, and the related statements of income, cash flows, and common stockholder's equity for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northwest Pipeline Corporation at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Houston, Texas February 21, 2003 F-2 NORTHWEST PIPELINE CORPORATION STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (THOUSANDS OF DOLLARS) Operating Revenues.......................................... $297,591 $285,171 $296,361 Operating Expenses: General and administrative................................ 49,338 40,657 39,912 Operation and maintenance................................. 32,279 37,000 36,666 Depreciation.............................................. 58,988 58,654 56,558 Taxes, other than income taxes............................ 12,352 13,441 13,363 -------- -------- -------- 152,957 149,752 146,499 -------- -------- -------- Operating income....................................... 144,634 135,419 149,862 -------- -------- -------- Other Income -- net......................................... 10,374 2,278 10,656 -------- -------- -------- Interest Charges: Interest on long-term debt................................ 25,577 25,670 25,914 Other interest............................................ 2,688 5,302 6,273 Allowance for borrowed funds used during construction..... (2,638) (448) (273) -------- -------- -------- 25,627 30,524 31,914 -------- -------- -------- Income Before Income Taxes.................................. 129,381 107,173 128,604 Provision for Income Taxes.................................. 48,750 40,132 48,862 -------- -------- -------- Net Income.................................................. $ 80,631 $ 67,041 $ 79,742 Cash Dividends on Common Stock.............................. $ -- $ 20,000 $ 80,000 ======== ======== ========
See accompanying notes. F-3 NORTHWEST PIPELINE CORPORATION BALANCE SHEET
DECEMBER 31, ----------------------- 2002 2001 ---------- ---------- (THOUSANDS OF DOLLARS) ASSETS Current Assets: Cash and cash equivalents................................. $ 207 $ 443 Advances to affiliates.................................... 17,282 72,073 Accounts receivable -- Trade, less reserves of $486 for 2002 and $138 for 2001.................................................. 30,031 12,497 Affiliated companies................................... 775 5,407 Materials and supplies.................................... 10,510 11,009 Exchange gas due from others.............................. 1,995 2,236 Deferred income taxes..................................... 2,768 3,810 Excess system gas......................................... 14,016 13,000 Prepayments and other..................................... 1,334 1,697 ---------- ---------- Total current assets................................... 78,918 122,172 ---------- ---------- Property, Plant and Equipment, at cost...................... 1,937,096 1,775,222 Less -- Accumulated depreciation.......................... 842,355 807,579 ---------- ---------- Total property, plant and equipment.................... 1,094,741 967,643 ---------- ---------- Other Assets: Deferred charges.......................................... 49,190 53,929 ---------- ---------- Total assets........................................... $1,222,849 $1,143,744 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable -- Trade.................................................. $ 20,502 $ 15,624 Affiliated companies................................... 7,547 30,396 Accrued liabilities -- Income taxes due to affiliate.......................... 12,138 9,094 Taxes, other than income taxes......................... 2,932 2,509 Interest............................................... 3,117 3,123 Employee costs......................................... 8,075 8,549 Exchange gas due to others............................. 16,010 15,236 Other.................................................. 877 933 Current maturities of long-term debt................... 7,500 -- ---------- ---------- Total current liabilities............................ 78,698 85,464 ---------- ---------- Long-term debt, less current maturities..................... 360,023 367,503 Deferred Income Taxes....................................... 164,818 153,801 Deferred Credits and Other Noncurrent Liabilities........... 25,471 20,554 Contingent Liabilities and Commitments Common Stockholder's Equity: Common stock, par value $1 per share; authorized and outstanding, 1,000 shares.............................. 1 1 Additional paid-in capital................................ 262,844 262,844 Retained earnings......................................... 334,208 253,577 Accumulated other comprehensive loss...................... (3,214) -- ---------- ---------- Total common stockholder's equity.................... 593,839 516,422 ---------- ---------- Total liabilities and stockholder's equity........... $1,222,849 $1,143,744 ========== ==========
See accompanying notes. F-4 NORTHWEST PIPELINE CORPORATION STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------- 2002 2001 2000 --------- -------- -------- (THOUSANDS OF DOLLARS) Operating Activities: Net Income................................................ $ 80,631 $ 67,041 $ 79,742 Adjustments to reconcile to net cash provided by operating activities -- Depreciation........................................... 58,988 58,654 56,558 Provision for deferred income taxes.................... 15,956 3,163 23,050 Amortization of deferred charges and credits........... 139 1,871 1,111 Allowance for equity funds used during construction.... (5,496) (826) (496) Reserve for doubtful accounts.......................... 348 138 -- Changes in: Accounts receivable and exchange gas due from others............................................ (12,639) 23,469 (17,635) Materials and supplies............................... 499 (211) (64) Other current assets................................. (653) (5,459) (6,513) Deferred charges..................................... (920) 7,705 (4,124) Accounts payable, income taxes due to affiliate and exchange gas due to others........................ (2,940) (19,234) 27,242 Other accrued liabilities............................ 2,931 (29,609) (3,086) Other deferred credits............................... (359) (653) (213) Other.................................................. 2 (143) -- --------- -------- -------- Net cash provided by operating activities................. 136,487 105,906 155,572 --------- -------- -------- Investing Activities: Property, plant and equipment -- Capital expenditures................................... (181,843) (94,923) (47,933) Proceeds from sales.................................... 4,586 3,155 988 Changes in accounts payable............................ (14,257) 25,935 (2,372) Repayments from (Advances to) affiliates.................. 54,791 (18,191) (23,040) --------- -------- -------- Net cash used by investing activities..................... (136,723) (84,024) (72,357) --------- -------- -------- Financing Activities: Principal payments on long-term debt...................... -- (3,329) (1,667) Dividends paid............................................ -- (20,000) (80,000) --------- -------- -------- Net cash used by financing activities..................... -- (23,329) (81,667) --------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents........ (236) (1,447) 1,548 Cash and Cash Equivalents at Beginning of Year.............. 443 1,890 342 --------- -------- -------- Cash and Cash Equivalents at End of Year.................... $ 207 $ 443 $ 1,890 ========= ======== ========
See accompanying notes. F-5 NORTHWEST PIPELINE CORPORATION STATEMENT OF COMMON STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (THOUSANDS OF DOLLARS) Common stock, par value $1 per share, authorized and outstanding, 1,000 shares................................. $ 1 $ 1 $ 1 -------- -------- -------- Additional paid-in capital -- Balance at beginning and end of period.................... 262,844 262,844 262,844 -------- -------- -------- Retained earnings -- Balance at beginning of period............................ 253,577 206,536 206,794 Net income................................................ 80,631 67,041 79,742 Cash dividends............................................ -- (20,000) (80,000) -------- -------- -------- Balance at end of period.................................. 334,208 253,577 206,536 -------- -------- -------- Accumulated other comprehensive income -- Balance at beginning of period............................ -- -- -- Minimum pension liability adjustment...................... (3,214) -- -- -------- -------- -------- Balance at end of period.................................. (3,214) -- -- -------- -------- -------- Total common stockholder's equity........................... $593,839 $516,422 $469,381 ======== ======== ========
See accompanying notes. F-6 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CORPORATE STRUCTURE AND CONTROL Northwest Pipeline Corporation ("Pipeline") is a wholly-owned subsidiary of Williams Gas Pipeline Company LLC ("WGP"). WGP is a wholly-owned subsidiary of The Williams Companies, Inc. ("Williams"). NATURE OF OPERATIONS Pipeline owns and operates a pipeline system for the mainline transmission of natural gas. This system extends from the San Juan Basin in northwestern New Mexico and southwestern Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near Sumas, Washington. REGULATORY ACCOUNTING Pipeline is regulated by the Federal Energy Regulatory Commission ("FERC"). Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation," provides that rate-regulated public utilities account for and report regulatory assets and liabilities consistent with the economic effect of the way in which regulators establish rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it reasonable to assume that such rates can be charged and collected. Accounting for businesses that are regulated and apply the provisions of SFAS No. 71 can differ from the accounting requirements for non-regulated businesses. Transactions that are recorded differently as a result of regulatory accounting requirements include the capitalization of an equity return component on regulated capital projects, employee related benefits, and other costs and taxes included in, or expected to be included in, future rates. As a rate-regulated entity, Pipeline management has determined that it is appropriate to apply the accounting prescribed by SFAS No. 71 and, accordingly, the accompanying financial statements include the effects of the types of transactions described above that result from regulatory accounting requirements. BASIS OF PRESENTATION Pipeline's 1983 acquisition by Williams has been accounted for using the purchase method of accounting. Accordingly, an allocation of the purchase price was assigned to the assets and liabilities of Pipeline, based on their estimated fair values at the time of the acquisition. Williams has not pushed down the purchase price allocation (amounts in excess of original cost) of $89.2 million, as of December 31, 2002, to Pipeline as current FERC policy does not permit Pipeline to recover through its rates amounts in excess of original cost. The accompanying financial statements reflect Pipeline's original basis in its assets and liabilities. ACCOUNTING ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. On an ongoing basis, Pipeline evaluates its estimates, including those related to revenues subject to refund, bad debts, materials and supplies obsolescence, property, plant and equipment and other long-lived assets, income taxes, pensions and other postretirement benefits and contingent liabilities. Pipeline bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from such estimates. F-7 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment ("plant"), consisting principally of natural gas transmission facilities, is recorded at original cost. Pipeline accounts for repair and maintenance costs under the guidance of FERC regulations. The FERC identifies installation, construction and replacement costs that are to be capitalized. Routine maintenance, repairs and renewal costs are charged to income as incurred. Gains or losses from the ordinary sale or retirement of plant are charged or credited to accumulated depreciation. Depreciation is provided by the straight-line method for plant. The annual weighted average composite depreciation rate recorded for transmission and storage plant was 3.08 percent, 3.09 percent and 3.16 percent for 2002, 2001 and 2000, respectively, including an allowance for negative salvage. ALLOWANCE FOR BORROWED AND EQUITY FUNDS USED DURING CONSTRUCTION Allowance for funds used during construction ("AFUDC") represents the estimated cost of borrowed and equity funds applicable to utility plant in process of construction and are included as a cost of property, plant and equipment because it constitutes an actual cost of construction under established regulatory practices. The FERC has prescribed a formula to be used in computing separate allowances for borrowed and equity AFUDC. The composite rate used to capitalize AFUDC was approximately 10.0 percent in 2002 and 9.9 percent in each of the years 2001 and 2000. Equity AFUDC of $5.5 million, $0.8 million and $0.5 million for 2002, 2001 and 2000, respectively, is reflected in other income. ADVANCES TO AFFILIATES As a participant in Williams' cash management program, Pipeline makes advances to and receives advances from Williams through WGP. The advances are represented by demand notes. Advances are stated at the historical carrying amounts. Interest income is recognized when chargeable and collectibility is reasonably assured. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL RECEIVABLES Accounts receivable are stated at the historical carrying amount net of reserves or write-offs. Due to its customer base, Pipeline has not historically experienced recurring credit losses in connection with its receivables. As a result, receivables determined to be uncollectible are reserved or written off in the period of such determination. IMPAIRMENT OF LONG-LIVED ASSETS Pipeline evaluates long-lived assets for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. When such a determination has been made, management's estimate of undiscounted future cash flows attributable to the assets is compared to the carrying value of the assets to determine whether an impairment has occurred. If an impairment of the carrying value has occurred, the amount of the impairment recognized in the financial statements is determined by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. INCOME TAXES Pipeline is included in Williams' consolidated federal income tax return. Pipeline's federal income tax provisions are computed as though separate tax returns are filed. Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of Pipeline's assets and liabilities. F-8 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DEFERRED CHARGES Pipeline amortizes deferred charges over varying periods consistent with the FERC approved accounting treatment for such deferred items. Unamortized debt expense, debt discount and losses on reacquired long-term debt are amortized by the bonds outstanding method over the related debt repayment periods. CASH AND CASH EQUIVALENTS Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are highly liquid investments with an original maturity of three months or less. EXCHANGE GAS IMBALANCES In the course of providing transportation services to customers, Pipeline may receive different quantities of gas from shippers than the quantities delivered on behalf of those shippers. These transactions result in imbalances, which are typically settled through the receipt or delivery of gas in the future. Customer imbalances to be repaid or recovered in-kind are recorded as exchange gas due from others or due to others in the accompanying balance sheets. These imbalances are valued at the average of the spot market rates at the Canadian border and the Rocky Mountain market as published in "Inside FERC's Gas Market Report." Settlement of imbalances requires agreement between the pipelines and shippers as to allocations of volumes to specific transportation contracts and timing of delivery of gas based on operational conditions. EXCESS SYSTEM GAS Pipeline's excess system gas is valued at the average of the spot market rates of the Canadian border and the Rocky Mountain market as published in "Inside FERC's Gas Market Report". REVENUE RECOGNITION Revenues from the transportation of gas are recognized based on contractual terms and the related transported volumes. Pipeline is subject to FERC regulations and, accordingly, certain revenues collected may be subject to possible refunds upon final orders in pending rate cases. Pipeline records rate refund liabilities considering Pipeline and other third party regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks. ENVIRONMENTAL MATTERS Pipeline is subject to Federal, state, and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their future economic benefit and potential for rate recovery. Pipeline believes that, with respect to any expenditures required to meet applicable standards and regulations, the FERC would grant the requisite rate relief so that, for the most part, such expenditures would be permitted to be recovered. Pipeline believes that compliance with applicable environmental requirements is not likely to have a material effect upon Pipeline's financial position. INTEREST PAYMENTS Cash payments for interest were $22.9 million, $39.9 million and $25.7 million, net of $2.6 million, $0.4 million and $0.3 million of interest capitalized (allowance for borrowed funds used during construction) in 2002, 2001 and 2000, respectively. EMPLOYEE STOCK BASED AWARDS Williams' employee stock-based awards are accounted for under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Williams' fixed plan F-9 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) common stock options generally do not result in compensation expense, because the exercise price of the stock options equals the market price of the underlying stock on the date of grant. The plans are described more fully in Note 4. The following table illustrates the effect on net income if Pipeline had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation.
YEARS ENDED DECEMBER 31, --------------------------- 2002 2001 2000 ------- ------- ------- (THOUSANDS OF DOLLARS) Net income, as reported................................. $80,631 $67,041 $79,742 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax.................................... 365 401 1,320 ------- ------- ------- Pro forma net income.................................... $80,266 $66,640 $78,422 ======= ======= =======
Pro forma amounts for 2002 include compensation expense from Williams awards made in 2002 and 2001 and compensation expense from certain Williams awards made in 1999. Pro forma amounts for 2001 include compensation expense from certain Williams awards made in 1999 and compensation expense from Williams awards made in 2001. Pro forma amounts for 2000 include compensation expense from certain Williams awards made in 1999 and the total compensation expense from Williams awards made in 2000, as these awards fully vested in 2000 as a result of accelerated vesting provisions. The pro forma net income effects of applying SFAS 123 recognition of compensation expense provided for the periods shown above may not be representative of the effects on reported net income for future years. The fair value of each award was estimated using the Black-Scholes options pricing model. See Note 4 for the assumptions used in the calculation of fair value. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. The Statement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. Pipeline will adopt the new rules on asset retirement obligations on January 1, 2003. The impact of adoption is to be reported as a cumulative effect of change in accounting principle. Retirement obligations have not been estimated for assets with currently indeterminable lives including pipeline transmission assets and gas gathering systems accordingly, the impact of adopting the statement is not expected to have a material effect on Pipeline's financial position or results of operations. The FASB issued SFAS 144, "Accounting for Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 retains the accounting and reporting provisions of SFAS 121 for recognition and measurement of long-lived asset impairment and for the measurement of long-lived assets to be disposed of by sale and the accounting and reporting provisions of APB 30. In addition to these fundamental provisions, SFAS 144 provides guidance for determining whether long-lived assets should be tested for impairment and specific criteria for classifying assets to be disposed of as held for sale. The statement is effective for fiscal years beginning after December 15, 2001. Pipeline adopted the statement F-10 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) as of January 1, 2002. The adoption of this statement had no material effect on Pipeline's financial position or results of operations. In the second quarter of 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections." The rescission of SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, "requires that gains and losses from extinguishment of debt only be classified as extraordinary items in the event that they meet the criteria of APB Opinion No. 30. SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers," established accounting requirements for the effects of transition to the Motor Carriers Act of 1980 and is no longer required now that the transitions have been completed. Finally, the amendments to SFAS No. 13, "Accounting for Leases," require certain lease modifications that have economic effects, which are similar to sale-leaseback transactions, be accounted for as sale-leaseback transactions. The provisions of this Statement related to the rescission of SFAS No. 4 to be applied in fiscal years beginning after May 15, 2002, while the provisions related to SFAS No. 13 are effective for transactions occurring after May 15, 2002. All other provisions of the Statement are effective for financial statements issued on or after May 15, 2002. There was no initial impact of SFAS No. 145 on Pipeline's results of operations and financial position. The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under this Statement, a liability for a cost associated with an exit or disposal activity is recognized at fair value when the liability is incurred rather than at the date of an entity's commitment to an exit plan. The provisions of the Statement are effective for exit or disposal activities that are initiated after December 31, 2002; hence, initial adoption of this Statement on January 1, 2003, did not have any impact on Pipeline's results of operations or financial position. The FASB issued SFAS 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure," which is effective for fiscal years ending after December 15, 2002. SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation," to permit two additional transition methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation from the intrinsic method under APB 25, "Accounting for Stock Issued to Employees." The prospective method of transition under SFAS 123 is an option to the entities that adopt the recognition provisions under this statement in a fiscal year beginning before December 15, 2003. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements concerning the method of accounting used for stock-based employee compensation and the effects of that method on reported results of operations. Under SFAS 148, pro forma disclosures will be required in a specific tabular format in the "Summary of Significant Accounting Policies". Pipeline has adopted the disclosure requirements of this statement effective December 31, 2002. The adoption had no effect on Pipeline's consolidated financial position or results of operations. Pipeline continues to account for its stock-based compensation plans under APB 25. See "Employee Stock Based Awards". The FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." This Interpretation requires the initial recognition at fair value of guarantees issued or modified after December 31, 2002, and expands the disclosure requirements for guarantees. Initial adoption of this Interpretation did not have any impact on Pipeline's results of operations or financial position. The expanded disclosure requirements have been incorporated in this annual report. The FASB issued FIN 46, "Consolidation of Variable Interest Entities." FIN 46 requires companies with a variable interest in a variable interest entity to apply this guidance to that entity as of the beginning of the F-11 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) first interim period beginning after June 15, 2003 for existing interests and immediately for new interests. The application of the guidance could result in the consolidation of a variable interest entity. As of December 31, 2002, Pipeline has no variable interest entities as defined by FIN 46. RECLASSIFICATIONS Certain reclassifications have been made in the 2001 and 2000 financial statements to conform to the 2002 presentation. 2. CONTINGENT LIABILITIES AND COMMITMENTS RATE AND REGULATORY MATTERS GENERAL RATE CASE (DOCKET NO. RP93-5) On April 1, 1993, Pipeline began collecting new rates, subject to refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). Pipeline made refunds to customers in June 1998 totaling $27 million, including interest, reflecting the FERC's resolution of all disputed matters in this case. Pipeline and other parties sought judicial review of the FERC's decision concerning rate of return on equity. One party sought judicial review of the inclusion of unpaid accruals in rate base. In July 1998, the FERC issued orders concerning its rate of return on equity policy in rate proceedings of other pipelines adopting a formula that gives less weight to the long-term growth component. In April 1999, the Court of Appeals for the D.C. Circuit remanded the 1993 Rate Case to the FERC for application of its revised rate of return on equity policy. On July 14, 1999, the FERC issued an order requiring Pipeline to: (a) submit a surcharge plan to the FERC, (b) recalculate rates consistent with the new weighting formula favoring short term growth, and (c) address in a remand hearing the appropriate source for Gross Domestic Product ("GDP") growth data. The new weighting formula generally results in a higher authorized rate of return on equity. Pipeline and its customers resolved by settlement those issues relating to long term GDP growth. In February 2000, the FERC approved the long-term growth settlement and issued an order related to return on equity issues requiring Pipeline to incorporate the effects of the settlement and to calculate its allowed rate of return on equity consistent with the recently announced policy changes in other proceedings. As a part of this recalculation of allowed return on equity, the FERC provided that Pipeline must use the median instead of the midpoint of the various results of Discounted Cash Flow ("DCF") analysis for a proxy group. This resulted in a 13.67 percent return on equity for Pipeline. On April 3, 2000, Pipeline made the necessary compliance filings to implement the FERC's decision including the establishment of surcharges in order to recollect moneys that shippers owe Pipeline for these corrective actions. On July 14, 2000, the FERC issued an order denying customer rehearing requests and approving Pipeline's compliance filing. The order reaffirmed Pipeline's right to use the median result from the DCF proxy group analysis. Some of Pipeline's customers sought judicial review concerning the FERC's orders with respect to return on equity issues. On July 13, 2001, the D.C. Circuit issued its decision affirming the FERC's earlier rulings on various rate base, accounting, and risk issues, but remanding the case to the FERC to allow the FERC to set forth more clearly its rationale for allowing Pipeline to utilize the median result of the DCF proxy group analysis. On June 12, 2002, the FERC issued an Order on Remand reaffirming its decision to utilize the median of the proxy companies in setting Pipeline's return on equity. No requests for rehearing were filed in response to the June 12, 2002 order. This decision effectively brought the 1993 Rate Case to its conclusion. GENERAL RATE CASE (DOCKET NO. RP95-409) On February 1, 1996, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate Case"). During the first quarter of 1998, the Administrative Law Judge ("ALJ") issued an Initial Decision. The ALJ found that the facts of this case continue to support Pipeline's capital structure of 55 percent equity and 45 percent debt. The ALJ also determined that Pipeline fits within the average risk range for determining pipeline return on equity and allowed a return on equity of 11.2 percent. On June 1, 1999, the FERC issued its order affirming many aspects of the ALJ's initial decision, but finding that the return on equity issue should be resolved by using the FERC's new policy concerning rate of return determinations. This resulted in an allowed return on F-12 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) equity of 12.22 percent. On September 29, 2000, the FERC issued its Order on Rehearing, which, for the most part, reaffirmed the FERC's earlier June 1, 1999 decision. Pipeline made a compliance filing on October 16, 2000. On July 11, 2001, the FERC issued an Order accepting Pipeline's compliance filings, subject to Pipeline making some minor rate related changes relating to billing determinants and cost of service recovery for facilities subject to reimbursement agreements. On August 31, 2001, Pipeline made refunds to customers totaling $43.1 million, including interest. Some shippers filed petitions for review concerning return on equity issues. On October 25, 2002, the United States Court of Appeals for the D.C. Circuit affirmed the FERC's decision in its treatment of return on equity issues. This decision effectively brought the 1995 Rate Case to its conclusion. NOTICE OF PROPOSED RULEMAKING (DOCKET NO. RM01-10-000) On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking ("NOPR") proposing to adopt uniform standards of conduct for transmission providers. The proposed rules define transmission providers as interstate natural gas pipelines and public utilities that own, operate or control electric transmission facilities. The proposed standards would regulate the conduct of transmission providers with their energy affiliates. The FERC proposed to define energy affiliates broadly to include any transmission provider affiliate that engages in or is involved in transmission (gas or electric) transactions, or manages or controls transmission capacity, or buys, sells, trades or administers natural gas or electric energy or engages in financial transactions relating to the sale or transmission of natural gas or electricity. Current rules regulate the conduct of Pipeline and its gas marketing affiliates. The FERC's staff analysis of the proposed rulemaking proposed redefining energy affiliates to exclude affiliated transmission providers. If the proposed rules are adopted as proposed, these new standards would require new compliance measures by Pipeline. NOTICE OF INQUIRY (DOCKET NO. PL02-6-000) On July 17, 2002, the FERC issued a Notice of Inquiry to seek comments on its negotiated rate policies and practices. The FERC states that it is undertaking a review of the recourse rate as a viable alternative and safeguard against the exercise of market power of interstate gas pipelines, as well as the entire spectrum of issues related to its negotiated rate program. Pipeline has negotiated certain rates under the FERC's existing negotiated rate program, and participated in comments filed in this proceeding by Williams in support of the FERC's existing negotiated rate program. NOTICE OF PROPOSED RULEMAKING (DOCKET NO. RM02-14-000) On August 1, 2002, the FERC issued a NOPR that proposes restrictions on various types of cash management programs employed by companies in the energy industry such as Williams and its subsidiaries, including Pipeline. In addition to stricter guidelines regarding the accounting for and documentation of cash management or cash pooling programs, the FERC proposal, if made final, would preclude public utilities, natural gas companies and oil pipeline companies from participating in such programs unless the parent company and its FERC-regulated affiliate maintain investment-grade credit ratings and the FERC-regulated affiliate maintains stockholder's equity of at least 30 percent of total capitalization. Williams' and Pipeline's current credit ratings are not investment grade. Pipeline participated in comments filed in this proceeding on August 28, 2002 by the Interstate Natural Gas Association of America. On September 25, 2002, the FERC convened a technical conference to discuss issues raised in the comments filed by parties in this proceeding. LEGAL PROCEEDINGS In 1998, the United States Department of Justice ("DOJ") informed Williams that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against Williams and certain of its wholly-owned subsidiaries including Pipeline. Mr. Grynberg had also filed claims against approximately 300 other energy companies and alleged that the defendants violated the False Claims Act in connection with the measurement, royalty valuation and purchase of hydrocarbons. The relief sought was an unspecified amount of royalties allegedly not paid to the federal government, treble damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the DOJ announced that it was declining to intervene in any of the Grynberg qui tam cases; including the action filed against the F-13 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Williams entities in the United States District Court for the District of Colorado. On October 21, 1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui tam cases, including those filed against Williams to the United States District Court for the District of Wyoming for pre-trial purposes. On October 9, 2002, the court granted a motion to dismiss Grynberg's royalty valuation claims. Grynberg's measurement claims remain pending against Williams and the other defendants. On June 8, 2001, fourteen Williams entities, including Pipeline, were named as defendants in a nationwide class action lawsuit which has been pending against other defendants, generally pipeline and gathering companies, for more than one year. The plaintiffs allege that the defendants, including the Williams defendants, have engaged in mismeasurement techniques that distort the heating content of natural gas, resulting in an alleged underpayment of royalties to the class of producer plaintiffs. In September 2001, plaintiffs' counsel voluntarily dismissed two of the fourteen Williams entities named as defendants in the lawsuit. In November 2001, The Williams defendants, along with other coordinating defendants, filed a motion to dismiss on non-jurisdictional grounds. In January 2002, most of the Williams defendants, along with a group of coordinating defendants filed a motion to dismiss for lack of personal jurisdiction. On August 19, 2002, defendants' motion to dismiss on non-jurisdictional grounds was denied. On September 17, 2002, the plaintiffs filed a motion for class certification. The Williams entities joined with other defendants in contesting certification of the plaintiff class and this issue, along with the personal jurisdiction motion, remains pending. OTHER LEGAL AND REGULATORY MATTERS In addition to the foregoing, various other proceedings are pending against Pipeline incidental to its operations. SUMMARY While no assurances may be given, Pipeline does not believe that the ultimate resolution of the foregoing matters, taken as a whole and after consideration of amounts accrued, recovery from customers, insurance coverage or other indemnification arrangements, will have a materially adverse effect upon Pipeline's financial position, results of operations, or cash flow requirements. OTHER COMMITMENTS Commitments for construction and acquisition of property, plant and equipment are approximately $354.8 million at December 31, 2002. 3. DEBT, FINANCING ARRANGEMENTS AND LEASES DEBT COVENANTS The terms of Pipeline's debt indentures restrict the issuance of mortgage bonds. The indentures contain provisions for the acceleration of repayment or the reset of interest rates under certain conditions. Pipeline's debt indentures also contain restrictions, which, under certain circumstances, limit the issuance of additional debt and restrict the disposal of a major portion of its natural gas pipeline system. ADJUSTABLE INTEREST RATE NOTES On May 15, 2001, under the terms of the note agreement, Pipeline prepaid, without penalty, the outstanding $1.7 million balance of its adjustable rate notes with accrued interest. Prepayment was made from Pipeline's operations and available cash. F-14 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ----------------------- 2002 2001 ---------- ---------- (THOUSANDS OF DOLLARS) 6.625%, payable 2007........................................ $250,000 $250,000 7.125%, payable 2025........................................ 84,740 84,729 9.000%, payable 2003 through 2007........................... 32,783 32,774 -------- -------- Total long-term debt...................................... 367,523 367,503 Less current maturities..................................... 7,500 -- -------- -------- Total long-term debt, less current maturities............. $360,023 $367,503 ======== ========
As of December 31, 2002, cumulative sinking fund requirements and other maturities of long-term debt (at face value) for each of the next five years are as follows:
(THOUSANDS OF DOLLARS) ---------------------- 2003........................................................ $ 7,500 2004........................................................ 7,500 2005........................................................ 7,500 2006........................................................ 7,500 2007........................................................ 252,867 Thereafter.................................................. 85,000 -------- Total..................................................... $367,867 ========
LINE-OF-CREDIT ARRANGEMENTS Williams and certain of its subsidiaries, including Pipeline, are parties to a $700 million credit agreement (Credit Agreement), under which Pipeline can borrow up to $400 million to the extent the funds available under the Credit Agreement have not been borrowed by Williams or other subsidiaries. The Credit Agreement expires in July 2005. Interest rates vary with current market conditions based on the base rate of Citibank N.A., federal funds rate or the London Interbank Offered Rate. The Credit Agreement contains restrictions, which limit, under certain circumstances, the issuance of additional debt, the attachment of liens on any assets and any change of ownership of Pipeline. As Williams completes certain asset sales, the commitments from participating banks in the Credit Agreement will be reduced to $400 million, and with further asset sales could be reduced below that amount, but Pipeline will continue to have borrowing capacity up to the lesser of $400 million or the amount that Williams would be able to borrow to the extent the funds available under the Credit Agreement have not been borrowed by Williams or other participating subsidiaries or that otherwise would be required to remain available to Williams. At December 31, 2002, the commitment from participating banks had been reduced to $463 million, the borrowing capacity available to Pipeline was $400 million, and Pipeline had no outstanding borrowings under this agreement. Pipeline's assets have not been pledged to secure any indebtedness of Williams or its other affiliates, either under the Credit Agreement or pursuant to any other credit facility of Williams and its other affiliates. LEASES Pipeline's leasing arrangements include mostly premise and equipment leases that are classified as operating leases. F-15 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The major operating lease is a leveraged lease, which became effective during 1982 for Pipeline's headquarters building. The agreement has an initial term of approximately 27 years, with options for consecutive renewal terms of approximately 9 years and 10 years. The major component of the lease payment is set through the initial and first renewal terms of the lease. Various purchase options exist under the building lease, including options involving adverse regulatory developments. Pipeline subleases portions of its headquarters building to third parties under agreements with varying terms. Following are the estimated future minimum yearly rental payments required under operating leases, which have initial or remaining noncancelable lease terms in excess of one year:
(THOUSANDS OF DOLLARS) ---------------------- 2003........................................................ $ 8,806 2004........................................................ 8,806 2005........................................................ 8,807 2006........................................................ 6,354 2007........................................................ 6,355 Thereafter.................................................. 14,120 ------- $53,248 Less: noncancelable subleases............................... 11,689 ------- Total..................................................... $41,559 =======
Operating lease rental expense amounted to $5.4 million, $6.1 million and $8.8 million for 2002, 2001 and 2000, respectively. 4. EMPLOYEE BENEFIT PLANS PENSION AND POSTRETIREMENT MEDICAL PLANS Pipeline's employees are covered by Williams' non-contributory defined-benefit pension plan and Williams' health care plan that provides postretirement medical benefits to certain retired employees. Contributions for pension and postretirement medical benefits related to Pipeline's participation in these plans were $5.9 million, $2.3 million and $2.8 million in 2002, 2001 and 2000, respectively. These amounts are currently recoverable in Pipeline's rates. At December 31, 2002, Pipeline recorded a minimum pension liability of $3.2 million, net of $2.0 million tax, which is included as a component of Pipeline's other comprehensive loss for the year 2002. DEFINED CONTRIBUTION PLAN Pipeline's employees are also covered by various Williams' defined contribution plans. Pipeline's costs related to these plans totaled $2.3 million, $2.1 million and $1.8 million in 2002, 2001 and 2000, respectively. STOCK-BASED COMPENSATION Williams has several plans providing for common-stock-based awards to its employees and employees of its subsidiaries. The plans permit the granting of various types of awards including, but not limited to, stock options, stock appreciation rights, restricted stock and deferred stock. Awards may be granted for no consideration other than prior and future services or based on certain financial performance targets being achieved. The purchase price per share for stock options and the grant price for stock appreciation rights may not be less than the market price of the underlying stock on the date of grant. Stock options generally become exercisable in one-third increments each year from the anniversary of the grant or after three or five years, F-16 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) subject to accelerated vesting if certain future stock prices or if specific financial performance targets are achieved. Stock options expire 10 years after grant. The following summary reflects stock option activity for Williams common stock attributable to Pipeline and related information for 2002, 2001 and 2000 (options in thousands):
2002 2001 2000 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Outstanding -- beginning of year......................... 1,291 $24.38 1,200 $24.02 1,183 $20.64 Granted........................ 527 $ 7.27 159 $38.00 136 $46.04 Exercised...................... (26) $ 9.59 (112) $11.82 (131) $15.01 Forfeited/expired.............. (484) $24.59 (21) $32.81 (7) $38.66 Adjustment for WCG spinoff(1)................... -- -- 111 -- -- -- Employee transfers, in......... 594 $25.46 99 $20.50 235 $22.90 Employee transfers, out........ (391) $22.70 (145) $23.32 (216) $23.06 ----- ----- ----- Outstanding -- end of year..... 1,511 $19.40 1,291 $24.38 1,200 $24.02 ===== ===== ===== Exercisable at year end........ 1,040 $24.45 1,102 $22.58 1,169 $23.66 ===== ===== =====
- --------------- (1) Effective with the spinoff of Williams Communications Group ("WCG") on April 23, 2001, by Williams, the number of unexercised Williams stock options and the exercise price were adjusted to preserve the intrinsic value of the stock options that existed prior to the spinoff. The following summary provides information about stock options granted to employees of Pipeline that are outstanding and exercisable at December 31, 2002 (options in thousands):
STOCK OPTIONS OUTSTANDING -------------------------------------- WEIGHTED STOCK OPTIONS EXERCISABLE AVERAGE -------------------------- WEIGHTED REMAINING WEIGHTED RANGE OF EXERCISE AVERAGE CONTRACTUAL AVERAGE PRICES OPTIONS EXERCISE PRICE LIFE (YRS) OPTIONS EXERCISE PRICE - ----------------- ------- -------------- ----------- -------- --------------- $2.27 to $2.58 340 $ 2.58 9.89 -- $ 0.00 $6.71 to $15.32 320 $12.38 2.59 320 $12.38 $15.71 to $42.29 851 $28.76 5.54 720 $29.81 ----- ----- 1,511 $19.40 5.33 1,040 $24.45 ===== =====
F-17 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The estimated fair value at the date of grant of options for Williams common stock granted in 2002, 2001 and 2000, using the Black-Scholes option-pricing model is as follows:
2002 2001 2000 ----- ------ ------ Weighted-average grant date fair value of options for Williams common stock granted during the year............ $2.77 $10.93 $15.44 ===== ====== ====== Assumptions Dividend yield........................................... 1.0% 1.9% 1.5% Volatility............................................... 56% 35% 31% Risk-free interest rate.................................. 3.6% 4.8% 6.5% Expected life (years).................................... 5.0 5.0 5.0
5. INCOME TAXES Significant components of the deferred tax liabilities and assets are as follows:
DECEMBER 31, ----------------------- 2002 2001 ---------- ---------- (THOUSANDS OF DOLLARS) Property, plant and equipment............................... $155,927 $141,637 Regulatory assets........................................... 6,223 5,243 Loss on reacquired debt..................................... 6,482 7,214 Other -- net................................................ 799 648 -------- -------- Deferred tax liabilities.................................... 169,431 154,742 -------- -------- Regulatory liabilities...................................... 500 917 Accrued liabilities......................................... 6,881 3,834 -------- -------- Deferred tax assets......................................... 7,381 4,751 -------- -------- Net deferred tax liabilities................................ $162,050 $149,991 ======== ======== Reflected as: Deferred income taxes -- current asset.................... $ 2,768 $ 3,810 Deferred income taxes -- noncurrent liability............. 164,818 153,801 -------- -------- $162,050 $149,991 ======== ========
F-18 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes includes:
YEAR ENDED DECEMBER 31, --------------------------- 2002 2001 2000 ------- ------- ------- (THOUSANDS OF DOLLARS) Current: Federal............................................... $29,305 $33,036 $23,150 State................................................. 3,489 3,933 2,662 ------- ------- ------- 32,794 36,969 25,812 ------- ------- ------- Deferred: Federal............................................... 14,461 2,827 20,598 State................................................. 1,495 336 2,452 ------- ------- ------- 15,956 3,163 23,050 ------- ------- ------- Total provision......................................... $48,750 $40,132 $48,862 ======= ======= =======
A reconciliation of the statutory Federal income tax rate to the provision for income taxes is as follows:
YEAR ENDED DECEMBER 31, --------------------------- 2002 2001 2000 ------- ------- ------- (THOUSANDS OF DOLLARS) Provision at statutory Federal income tax rate of 35 percent................................................... $45,283 $37,511 $45,011 Increase (decrease) in tax provision resulting from -- State income taxes net of Federal tax benefit............. 3,240 2,775 3,324 Other -- net.............................................. 227 (154) 527 ------- ------- ------- Provision for income taxes............................. $48,750 $40,132 $48,862 ======= ======= ======= Effective tax rate.......................................... 37.68% 37.45% 37.99% ======= ======= =======
Net cash payments made to Williams for income taxes were $29.7 million, $35.9 million and $26.3 million in 2002, 2001 and 2000, respectively. 6. FINANCIAL INSTRUMENTS DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash, cash equivalents and advances to affiliate -- The carrying amounts of these items approximates their fair value. Long-term debt -- The fair value of Pipeline's publicly traded long-term debt is valued using year-end traded market prices. Private debt is valued based on the prices of similar securities with similar terms and credit ratings. Pipeline used the expertise of an outside investment-banking firm to estimate the fair value of long-term debt. The carrying amount and estimated fair value of Pipeline's long term debt, including current maturities, were $368 million and $328 million, respectively, at December 31, 2002, and $368 million and $369 million, respectively, at December 31, 2001. F-19 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. TRANSACTIONS WITH MAJOR CUSTOMERS AND AFFILIATES CONCENTRATION OF OFF-BALANCE-SHEET AND OTHER CREDIT RISK During the periods presented, more than 10 percent of Pipeline's operating revenues were generated from each of the following customers:
YEAR ENDED DECEMBER 31, --------------------------- 2002 2001 2000 ------- ------- ------- (THOUSANDS OF DOLLARS) Puget Sound Energy, Inc..................................... $42,116 $43,919 $43,368 Northwest Natural Gas Co.................................... 37,815 39,203 40,376
Pipeline's major customers are located in the Pacific Northwest. As a general policy, collateral is not required for receivables, but customers' financial condition and credit worthiness are regularly evaluated and historical collection losses have been minimal. Pipeline, through a wholly-owned bankruptcy remote subsidiary, sold certain trade accounts receivable to a special-purpose entity ("SPE") in a securitization structure requiring annual renewal. Pipeline acted as the servicing agent for the sold receivables. The sale of receivables program expired on July 25, 2002, and on July 26, 2002, Pipeline completed the repurchase of $15 million of trade accounts receivable previously sold. For 2002, cash inflows from the SPE were approximately $112 million. The sales of these receivables resulted in a net charge to results of operations of approximately $0.2 million and $0.7 million in 2002 and 2001, respectively. RELATED PARTY TRANSACTIONS As a subsidiary of Williams, Pipeline engages in transactions with Williams and other Williams subsidiaries characteristic of group operations. As a participant in Williams' cash management program, Pipeline makes advances to and receives advances from Williams through Pipeline's parent company, WGP. The advances are represented by demand notes. The interest rate on intercompany demand notes is LIBOR on the first day of the month plus an applicable margin based on Pipeline's current credit ratings as determined by Moody's Investors Service and Standard and Poor's. Pipeline received interest income from advances to these affiliates of $1.6 million, $3.1 million, and $3.4 million during 2002, 2001 and 2000, respectively. Williams' corporate overhead expenses allocated to Pipeline were $9.7 million, $6.9 million and $4.5 million for 2002, 2001 and 2000, respectively. Such expenses have been allocated to Pipeline by Williams primarily based on the Modified Massachusetts formula, which is a FERC approved method utilizing a combination of net revenues, gross payroll and gross plant for the allocation base. In addition, Williams or an affiliate has provided executive, data processing, legal, aviation, accounting, internal audit and other administrative services to Pipeline on a direct charge basis, which totaled $4.6 million, $5.0 million and $4.8 million for 2002, 2001 and 2000, respectively. During the periods presented, Pipeline's revenues include transportation and exchange transactions with subsidiaries of Williams. Combined revenues for these activities totaled $2.2 million, $1.8 million and $1.2 million for 2002, 2001 and 2000, respectively. Pipeline has entered into various other transactions with certain related parties, the amounts of which were not significant. These transactions and the above-described transactions are made on the basis of commercial relationships and prevailing market prices or general industry practices. Pipeline has also entered into an interconnect agreement and an operation balance agreement, each in connection with the Georgia Strait Crossing project, with an affiliate of Williams. F-20 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 8. QUARTERLY INFORMATION (UNAUDITED) The following is a summary of unaudited quarterly financial data for 2002 and 2001:
QUARTER OF 2002 ------------------------------------- FIRST SECOND THIRD FOURTH ------- ------- ------- ------- (THOUSANDS OF DOLLARS) Operating revenues..................................... $71,617 $73,228 $73,042 $79,704 Operating income....................................... 34,034 31,645 37,987 40,968 Net income............................................. 18,377 16,683 22,211 23,360
QUARTER OF 2001 ------------------------------------- FIRST SECOND THIRD FOURTH ------- ------- ------- ------- (THOUSANDS OF DOLLARS) Operating revenues..................................... $71,198 $71,881 $69,624 $72,468 Operating income....................................... 34,437 35,532 33,824 31,626 Net income............................................. 17,532 18,135 15,584 15,790
9. SUBSEQUENT EVENT (UNAUDITED) On March 4, 2003, Pipeline sold $175 million of senior notes due 2010 to certain institutional investors in an offering exempt from the registration requirements of the Securities Act of 1933. Pipeline intends to use the proceeds for general corporate purposes, including the funding of capital expenditures. F-21 No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus does not offer to sell or ask for offers to buy any securities other than those to which this prospectus relates and it does not constitute an offer to sell or ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who cannot legally be offered the securities. The information contained in this prospectus is current only as of its date. ------------------------ PROSPECTUS ------------------------ NORTHWEST PIPELINE CORPORATION EXCHANGE OFFER FOR OUTSTANDING 8 1/8% SENIOR NOTES DUE MARCH 1, 2010 IN EXCHANGE FOR NEW 8 1/8% SENIOR NOTES DUE MARCH 1, 2010 , 2003 PART II ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS Northwest Pipeline Corporation, a Delaware corporation (the "Company"), is empowered by Section 145 of the General Corporation Law of the State of Delaware, subject to the procedures and limitations stated therein, to indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is made party by reason of his being or having been a director, officer, employee or agent of the Company. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. The By-laws of the Company provide for indemnification by the Company of its directors and officers to the fullest extent permitted by the General Corporation Law of the State of Delaware. In addition, Williams has entered into indemnity agreements with certain directors and certain officers of the Company providing for, among other things, the indemnification of and the advancing of expenses to such individuals to the fullest extent permitted by law, and to the extent insurance is maintained, for the continued coverage of such individuals. Policies of insurance are maintained by Williams under which the directors and officers of the Company are insured, within the limits and subject to the limitations of the policies, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities which might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such directors or officers. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Merger Agreement, dated as of September 20, 1983, between Williams and Northwest Energy Company ("Energy") (incorporated herein by reference to Exhibit 18 to Energy schedule 14D-9 (Amendment No. 3) dated September 22, 1983). 2.2 The Plan of Merger, dated as of November 7, 1983, between Energy and a subsidiary of Williams (incorporated herein by reference to Exhibit 2(b) to the Registrant's report on Form 10-K, No. 1-7414, filed March 22, 1984). 3.1 Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3a to Amendment No. 1 to Registration Statement on Form S-1, No. 2-55-273, filed January 13, 1976). 3.2 By-laws, as amended (incorporated herein by reference to Exhibit 3c to Registration Statement on Form S-1, No. 2-55273, filed December 30, 1975). 4.1 Senior Indenture, dated as of August 1, 1992, between the Registrant and Continental Bank, N.A., relating to the Registrant's 9% Debentures, due 2022 (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-3, No. 33-49150, filed July 2, 1992). 4.2 Senior Indenture, dated as of November 30, 1995 between the Registrant and Chemical Bank, relating to the Registrant's 7.125% Debentures, due 2025 (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-3, No. 33-62639, filed September 14, 1995). 4.3 Senior Indenture, dated as of December 8, 1997 between the Registrant and The Chase Manhattan Bank, relating to the Registrant's 6.625% Debentures, due 2007 (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-3, No. 333-35101, filed September 8, 1997). 4.4 First Amended and Restated Credit Agreement dated as of October 31, 2002, among the Registrant, Williams and certain affiliated companies, as borrowers, and the banks named therein, JPMorgan Chase Bank and Commerzbank AG, as co-syndication agents, Credit Lyonnais New York Branch, as documentation agent, and Citicorp USA, Inc., as agent, and Salomon Smith Barney Inc., as arranger. (incorporated herein by reference to Exhibit 10.2 to Williams Form 10-Q for the quarter ended September 30, 2002, Commission File Number 1-4174). 4.5 Senior Indenture, dated as of March 4, 2003, between the Registrant and JPMorgan Chase Bank, relating to the Registrant's 8 1/8% Senior Notes due 2010. 4.6 Registration Rights Agreement, dated as of March 4, 2003, by and among the Registrant and the parties listed therein. 4.7 Form of 8 1/8% Senior Note due 2010 (included in Exhibit 4.5). 5.1 Opinion of Gibson, Dunn & Crutcher LLP. 10.1 Form of Transfer Agreement, dated July 1, 1991, between the Registrant and Gas Processing (incorporated herein by reference to Exhibit 10(c)(8) to the Registrant's Annual Report on Form 10-K, No. 1-7414, filed March 26, 1992). 10.2 Form of Operating Agreement, dated July 1, 1991, between the Registrant and Williams Field Services Company (incorporated herein by reference to Exhibit 10(c)(9) to the Registrant's Annual Report on Form 10-K, No. 1-7414, filed March 26, 1992). 10.3 Purchase Agreement dated as of February 27, 2003 by and among the Registrant and the parties listed therein. 12.1 Computation of ratio of earnings to fixed charges. 21.1 Subsidiaries. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1). 24.1 Powers of Attorney (included as part of signature pages to this registration statement). 25.1 Form T-1 Statement of Eligibility of JPMorgan Chase Bank to act as Trustee under the Indenture.
II-2
EXHIBIT NO. DESCRIPTION - ------- ----------- 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.4 Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes 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 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. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of the receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the provisions described in Item 20 above, 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 Act 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 counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of 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, Northwest Pipeline Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Salt Lake City, State of Utah, on April 11, 2003. NORTHWEST PIPELINE CORPORATION By: /s/ JEFFREY P. HEINRICHS ------------------------------------ NAME: JEFFREY P. HEINRICHS Title: Controller and Assistant Treasurer Each of the undersigned, being a director or officer of Northwest Pipeline Corporation, a Delaware corporation (the "Company"), hereby constitutes and appoints Richard Carson and Richard Rodekhor, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any registration statement related to the offering contemplated by this registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such Registration Statement or Registration Statements shall comply with the Securities Act of 1933, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ STEVEN J. MALCOLM Chairman of the Board April 11, 2003 ------------------------------------------------ Steven J. Malcolm /s/ J. DOUGLAS WHISENANT Director, President and Chief April 11, 2003 ------------------------------------------------ Executive Officer (Principal J. Douglas Whisenant Executive Officer) /s/ ALLISON G. BRIDGES Director and Vice President April 11, 2003 ------------------------------------------------ Allison G. Bridges /s/ RICHARD D. RODEKHOR Vice President, Finance and April 11, 2003 ------------------------------------------------ Accounting and Treasurer Richard D. Rodekhor (Principal Financial Officer) /s/ JEFFREY P. HEINRICHS Controller and Assistant Treasurer April 11, 2003 ------------------------------------------------ (Principal Accounting Officer) Jeffrey P. Heinrichs
II-4 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Merger Agreement, dated as of September 20, 1983, between Williams and Northwest Energy Company ("Energy") (incorporated herein by reference to Exhibit 18 to Energy schedule 14D-9 (Amendment No. 3) dated September 22, 1983). 2.2 The Plan of Merger, dated as of November 7, 1983, between Energy and a subsidiary of Williams (incorporated herein by reference to Exhibit 2(b) to the Registrant's report on Form 10-K, No. 1-7414, filed March 22, 1984). 3.1 Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3a to Amendment No. 1 to Registration Statement on Form S-1, No. 2-55-273, filed January 13, 1976). 3.2 By-laws, as amended (incorporated herein by reference to Exhibit 3c to Registration Statement on Form S-1, No. 2-55273, filed December 30, 1975). 4.1 Senior Indenture, dated as of August 1, 1992, between the Registrant and Continental Bank, N.A., relating to the Registrant's 9% Debentures, due 2022 (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-3, No. 33-49150, filed July 2, 1992). 4.2 Senior Indenture, dated as of November 30, 1995 between the Registrant and Chemical Bank, relating to the Registrant's 7.125% Debentures, due 2025 (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-3, No. 33-62639, filed September 14, 1995). 4.3 Senior Indenture, dated as of December 8, 1997 between the Registrant and The Chase Manhattan Bank, relating to the Registrant's 6.625% Debentures, due 2007 (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-3, No. 333-35101, filed September 8, 1997). 4.4 First Amended and Restated Credit Agreement dated as of October 31, 2002, among the Registrant, Williams and certain affiliated companies, as borrowers, and the banks named therein, JPMorgan Chase Bank and Commerzbank AG, as co-syndication agents, Credit Lyonnais New York Branch, as documentation agent, and Citicorp USA, Inc., as agent, and Salomon Smith Barney Inc., as arranger. (incorporated herein by reference to Exhibit 10.2 to Williams Form 10-Q for the quarter ended September 30, 2002, Commission File Number 1-4174). 4.5 Senior Indenture, dated as of March 4, 2003, between the Registrant and JPMorgan Chase Bank, relating to the Registrant's 8 1/8% Senior Notes due 2010. 4.6 Registration Rights Agreement, dated as of March 4, 2003, by and among the Registrant and the parties listed therein. 4.7 Form of 8 1/8% Senior Note due 2010 (included in Exhibit 4.5). 5.1 Opinion of Gibson, Dunn & Crutcher LLP. 10.1 Form of Transfer Agreement, dated July 1, 1991, between the Registrant and Gas Processing (incorporated herein by reference to Exhibit 10(c)(8) to the Registrant's Annual Report on Form 10-K, No. 1-7414, filed March 26, 1992). 10.2 Form of Operating Agreement, dated July 1, 1991, between the Registrant and Williams Field Services Company (incorporated herein by reference to Exhibit 10(c)(9) to the Registrant's Annual Report on Form 10-K, No. 1-7414, filed March 26, 1992). 10.3 Purchase Agreement dated as of February 27, 2003 by and among the Registrant and the parties listed therein. 12.1 Computation of ratio of earnings to fixed charges. 21.1 Subsidiaries. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1). 24.1 Powers of Attorney (included as part of signature pages to this registration statement). 25.1 Form T-1 Statement of Eligibility of JPMorgan Chase Bank to act as Trustee under the Indenture. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.4 Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
II-5 EX-4.5 3 d03974exv4w5.txt SENIOR INDENTURE EXHIBIT 4.5 ================================================================================ NORTHWEST PIPELINE CORPORATION as Company and JPMORGAN CHASE BANK as Trustee INDENTURE Dated as of March 4, 2003 Series A and Exchange 8 1/8% Senior Notes due 2010 ================================================================================ CROSS-REFERENCE TABLE*
TIA Section Indenture Section - ----------- ----------------- 310 (a)(1) .................................................................. 6.10 (a)(2)................................................................... 6.10 (a)(3)................................................................... N.A. (a)(4)................................................................... N.A. (a)(5)................................................................... 6.10 (b)...................................................................... 6.10 (c)...................................................................... N.A. 311 (a)...................................................................... 6.11 (b)...................................................................... 6.11 (c)...................................................................... N.A. 312 (a)...................................................................... 2.05 (b)...................................................................... 11.03 (c)...................................................................... 11.03 313 (a)...................................................................... 6.06 (b)...................................................................... 6.06 (c)...................................................................... 6.06 (d)...................................................................... 6.06 314 (a)(4)................................................................... 3.04 (b)...................................................................... N.A. (c)(1)................................................................... N.A. (c)(2)................................................................... N.A. (c)(3)................................................................... N.A. (d)...................................................................... N.A. (e)...................................................................... 10.05 (f)...................................................................... N.A. 315 (a)...................................................................... N.A. (b)...................................................................... N.A. (c)...................................................................... N.A. (d)...................................................................... N.A. (e)...................................................................... N.A. 316 (a)(last sentence)....................................................... N.A. (a)(1)(A)................................................................ N.A. (a)(1)(B)................................................................ N.A. (a)(2)................................................................... N.A. (b)...................................................................... N.A. (c)...................................................................... N.A. 317 (a)(1)................................................................... N.A. (a)(2)................................................................... N.A. (b)...................................................................... N.A. 318 (a)...................................................................... N.A. 318 (c)...................................................................... N.A.
- ----------------- N.A. means not applicable * This Cross-Reference Table is not part of the Indenture 3 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions.................................................................. 1 SECTION 1.02. Other Definitions............................................................ 26 SECTION 1.03. Incorporation by Reference of Trust Indenture Act............................ 27 SECTION 1.04. Rules of Construction........................................................ 27 ARTICLE 2 THE NOTES SECTION 2.01. Form and Dating.............................................................. 28 SECTION 2.02. Execution and Authentication................................................. 29 SECTION 2.03. Registrar and Paying Agent................................................... 30 SECTION 2.04. Paying Agent to Hold Money in Trust.......................................... 31 SECTION 2.05. Holder Lists................................................................. 31 SECTION 2.06. Transfer and Exchange........................................................ 31 SECTION 2.07. Certificated Notes........................................................... 37 SECTION 2.08. Replacement Notes............................................................ 38 SECTION 2.09. Outstanding Notes............................................................ 39 SECTION 2.10. Treasury Notes............................................................... 40 SECTION 2.11. Temporary Notes.............................................................. 40 SECTION 2.12. Cancellation................................................................. 40 SECTION 2.13. Defaulted Interest........................................................... 40 SECTION 2.14. Persons Deemed Owners........................................................ 40 SECTION 2.15. CUSIP Numbers................................................................ 41 ARTICLE 3 COVENANTS SECTION 3.01. Payment of Notes............................................................. 41 SECTION 3.02. Maintenance of Office or Agency.............................................. 41 SECTION 3.03. Commission Reports; Financial Statements..................................... 42 SECTION 3.04. Compliance Certificate....................................................... 43 SECTION 3.05. Limitation on Restricted Payments............................................ 43 SECTION 3.06. Limitation on Incurrence of Indebtedness and Issuance Preferred Stock........ 47 SECTION 3.07. Limitation on Liens.......................................................... 50 SECTION 3.08. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.......................................... 50 SECTION 3.09. Additional Interest.......................................................... 52
PAGE ---- SECTION 3.10. Guaranties by Restricted Subsidiaries........................................ 52 SECTION 3.11. Repurchase of Notes upon a Change of Control................................. 53 SECTION 3.12. Limitation on Asset Sales.................................................... 53 SECTION 3.13. Limitation on Transactions with Affiliates................................... 56 SECTION 3.14. Designation of Restricted and Unrestricted Subsidiaries...................... 57 SECTION 3.15. Limitation on Sale and Leaseback Transactions................................ 58 SECTION 3.16. Business Activities.......................................................... 58 SECTION 3.17. Payments for Consent......................................................... 58 ARTICLE 4 CONSOLIDATION, MERGER AND SALE SECTION 4.01. Limitation on Mergers and Consolidations..................................... 59 SECTION 4.02. Successors Substituted....................................................... 60 SECTION 4.03. Consolidation, Merger or Sale of Assets by a Guarantor....................... 61 ARTICLE 5 DEFAULTS AND REMEDIES SECTION 5.01. Events of Default............................................................ 61 SECTION 5.02. Acceleration................................................................. 64 SECTION 5.03. Other Remedies............................................................... 65 SECTION 5.04. Waiver of Existing Defaults.................................................. 65 SECTION 5.05. Control by Majority.......................................................... 66 SECTION 5.06. Limitations on Suits......................................................... 66 SECTION 5.07. Rights of Holders to Receive Payment......................................... 66 SECTION 5.08. Collection Suit by Trustee................................................... 67 SECTION 5.09. Trustee May File Proofs of Claim............................................. 67 SECTION 5.10. Priorities................................................................... 67 SECTION 5.11. Undertaking for Costs........................................................ 68 ARTICLE 6 TRUSTEE SECTION 6.01. Duties of Trustee............................................................ 68 SECTION 6.02. Rights of Trustee............................................................ 69 SECTION 6.03. Individual Rights of Trustee................................................. 71 SECTION 6.04. Trustee's Disclaimer......................................................... 71 SECTION 6.05. Notice of Defaults........................................................... 71 SECTION 6.06. Reports by Trustee to Holders................................................ 71 SECTION 6.07. Compensation and Indemnity................................................... 72 SECTION 6.08. Replacement of Trustee....................................................... 72
ii
PAGE ---- SECTION 6.09. Successor Trustee by Merger, Etc............................................. 73 SECTION 6.10. Eligibility; Disqualification................................................ 74 SECTION 6.11. Preferential Collection of Claims Against Company............................ 74 ARTICLE 7 DEFEASANCE AND DISCHARGE SECTION 7.01. Discharge of Company's Obligations........................................... 75 SECTION 7.02. Legal Defeasance............................................................. 76 SECTION 7.03. Covenant Defeasance.......................................................... 77 SECTION 7.04. Covenant Termination......................................................... 78 SECTION 7.05. Application of Trust Money................................................... 78 SECTION 7.06. Repayment to Company......................................................... 78 SECTION 7.07. Reinstatement................................................................ 79 ARTICLE 8 AMENDMENTS SECTION 8.01. Without Consent of Holders................................................... 79 SECTION 8.02. With Consent of Holders...................................................... 80 SECTION 8.03. Compliance with Trust Indenture Act.......................................... 82 SECTION 8.04. Revocation and Effect of Consents............................................ 82 SECTION 8.05. Notation on or Exchange of Notes............................................. 83 SECTION 8.06. Trustee to Sign Amendments, Etc.............................................. 83 ARTICLE 9 REDEMPTION SECTION 9.01. Notices to Trustee........................................................... 83 SECTION 9.02. Selection of Notes to Be Redeemed............................................ 83 SECTION 9.03. Notices to Holders........................................................... 84 SECTION 9.04. Effect of Notices of Redemption.............................................. 85 SECTION 9.05. Deposit of Redemption Price.................................................. 85 SECTION 9.06. Notes Redeemed in Part....................................................... 86 SECTION 9.07. Optional Redemption.......................................................... 86 SECTION 9.08. Redemption with Proceeds of Public Equity Offering........................... 86 SECTION 9.09. Change of Control Offer...................................................... 87
iii
PAGE ---- ARTICLE 10 GUARANTIES SECTION 10.01. The Guaranties.............................................................. 89 SECTION 10.02. Guarantee Unconditional..................................................... 89 SECTION 10.03. Discharge; Reinstatement.................................................... 90 SECTION 10.04. Waiver by the Guarantors.................................................... 90 SECTION 10.05. Subrogation and Contribution................................................ 90 SECTION 10.06. Stay of Acceleration........................................................ 91 SECTION 10.07. Limitation on Amount of Guarantee........................................... 91 SECTION 10.08. Execution and Delivery of Guarantee......................................... 91 SECTION 10.09. Release of Guarantee........................................................ 91 ARTICLE 11 MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls................................................ 92 SECTION 11.02. Notices..................................................................... 92 SECTION 11.03. Communication by Holders with Other Holders................................. 93 SECTION 11.04. Certificate and Opinion as to Conditions Precedent.......................... 94 SECTION 11.05. Statements Required in Certificate or Opinion............................... 94 SECTION 11.06. Rules by Trustee and Agents................................................. 94 SECTION 11.07. Legal Holidays.............................................................. 94 SECTION 11.08. No Recourse Against Others.................................................. 95 SECTION 11.09. Governing Law............................................................... 95 SECTION 11.10. No Adverse Interpretation of Other Agreements............................... 95 SECTION 11.11. Successors.................................................................. 95 SECTION 11.12. Severability................................................................ 95 SECTION 11.13. Counterpart Originals....................................................... 95 SECTION 11.14. Table of Contents, Headings, Etc............................................ 95
iv EXHIBITS EXHIBIT A Form of Note............................................ A-1 EXHIBIT B Form of Supplemental Indenture.......................... B-1
INDENTURE dated as of March 4, 2003 between Northwest Pipeline Corporation, a Delaware corporation (the "COMPANY") and JPMorgan Chase Bank, a New York banking corporation, as trustee (the "TRUSTEE"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 81/8% Series A Senior Notes due 2010 (the "SERIES A NOTES") and 8 1/8% Exchange Senior Notes due 2010 (the "EXCHANGE NOTES" and together with the Series A Notes, the "NOTES"). ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "ACQUIRED DEBT" means, with respect to any Person, (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "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 purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "AGENT" means any Registrar or Paying Agent. "ASSET SALE" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described in Section 3.11 and/or the provisions described in Article IV and not by the provisions of Section 3.12; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries. Notwithstanding the preceding, the following items will not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $2.0 million; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) dispositions of accounts receivable and related assets to a Securitization Subsidiary in connection with a Permitted Receivables Financing; (7) Sale and Leaseback Transactions; and (8) a Restricted Payment or Permitted Investment that is permitted by Section 3.05. "ATTRIBUTABLE DEBT" in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "AVAILABLE CASH FLOW FROM OPERATIONS" means for any period of the Company, Consolidated Cash Flow of the Company for such period, minus the sum of the following, each determined for such period on a consolidated basis: 2 (1) cash taxes for the Company and its Restricted Subsidiaries, including payments to the Company's Williams Group Affiliates in respect of taxes pursuant to tax sharing arrangements; plus (2) cash interest expense paid by the Company and its Restricted Subsidiaries whether or not capitalized (including, without limitation, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations); plus (3) additions to property, plant and equipment and other capital expenditures of the Company and its Restricted Subsidiaries that are (or would be) set forth in a consolidated statement of cash flows of the Company and its Restricted Subsidiaries for such period prepared in accordance with generally accepted accounting principles (except to the extent financed by the incurrence of Indebtedness); plus (4) the aggregate principal amount of long-term Indebtedness repaid by the Company and its Restricted Subsidiaries and any short-term Indebtedness that financed capital expenditures referred to in clause (3) above, excluding any such repayments (i) under working capital facilities (except to the extent that such Indebtedness so repaid was incurred to finance capital expenditures as described in clause (3) above), (ii) out of Net Cash Proceeds of Asset Sales as provided in Section 3.12 and (iii) through a refinancing involving the incurrence of new long-term Indebtedness. "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "BENEFICIALLY OWNS" and "BENEFICIALLY OWNED" have a corresponding meaning. "BOARD OF DIRECTORS" means: (1) with respect to a corporation, the board of directors of the corporation; 3 (2) with respect to a partnership, the board of directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "BUSINESS DAY" means any day that is not a Legal Holiday. "CAPITAL LEASE OBLIGATION" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and Eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding 365 days and overnight bank deposits and other similar types of investments routinely offered by commercial banks, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank or trust company having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; 4 (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within 270 days after the date of acquisition; (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition; and (7) deposits available for withdrawal on demand with any commercial bank not meeting the qualifications specified in clause (3) above, provided that all such deposits are made in the ordinary course of business, do not remain on deposit for more than 30 consecutive days and do not exceed $10.0 million in the aggregate at any one time. "CHANGE OF CONTROL" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that (A) any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act), other than a Williams Group Affiliate, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares (B) any "person" or "group" (as defined above) (other than a trustee or other fiduciary holding securities under an employee benefit plan of Williams or any of its Subsidiaries) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Williams, measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors; or 5 (5) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "CHANGE OF CONTROL OFFER" has the meaning assigned to such term in Section 9.09. "COMMISSION" means the U.S. Securities and Exchange Commission. "COMPANY" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of the Indenture, and thereafter "Company" shall mean such successor Person. "CONSOLIDATED CASH FLOW" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus (without duplication): (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus 6 (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; plus (5) unrealized non-cash losses resulting from foreign currency balance sheet adjustments required by GAAP to the extent such losses were deducted in computing such Consolidated Net Income; plus (6) all extraordinary, unusual or non-recurring items of gain or loss, or revenue or expense to the extent such gains or losses were added or deducted in computing such Consolidated Net Income. in each case, on a consolidated basis and determined in accordance with GAAP. "CONSOLIDATED NET INCOME" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded; and (4) the cumulative effect of a change in accounting principles will be excluded. 7 "CONSOLIDATED NET TANGIBLE ASSETS" means, with respect to any Person at any date of determination, the aggregate amount of total assets included in such Person's most recent quarterly or annual consolidated balance sheet prepared in accordance with GAAP less applicable reserves reflected in such balance sheet, after deducting the following amounts: (i) all current liabilities reflected in such balance sheet, and (ii) all goodwill, trademarks, patents, unamortized debt discounts and expenses and other like intangibles reflected in such balance sheet. "CONSOLIDATED SUBSIDIARIES" means, with respect to any Person, all other Persons the financial statements of which are consolidated with those of such Person in accordance with generally accepted accounting principals. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of the Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CORPORATE TRUST OFFICE OF THE TRUSTEE" means the office of the Trustee at which the corporate trust business of the Trustee shall be principally administered, which office shall initially be located at the address of the Trustee specified in Section 11.02 hereof and may be located at such other address as the Trustee may give notice to the Company and the Holders or such other address as a successor Trustee may designate from time to time by notice to the Holders and the Company. "CREDIT AGREEMENT" means the First Amended and Restated Credit Agreement dated as of October 31, 2002, by and among The Williams Companies, Inc., the Company, Transcontinental Gas Pipe Line Corporation and Texas Gas Transmission Corporation as Borrowers and the banks named therein as Banks, JPMorgan Chase Bank and Commerzbank AG as Co-Syndication Agents, Credit Lyonnais New York Branch as Documentation Agent and Citicorp USA, Inc. as Agent and Salomon Smith Barney Inc. as Arranger, providing for up to $400 million of revolving credit borrowings to the Company, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "CREDIT AGREEMENT REFINANCING DATE" means the first date after the date of the Indenture on which the Company's ability to enter into or suffer to exist restrictions on dividends and advances to its Williams Group Affiliates is no longer 8 restricted pursuant to a credit facility or debt instrument to which any Williams Group Affiliates are parties from time to time, including without limitation pursuant to Section 5.02(d) of the Credit Agreement as in effect on the date of the Indenture. "CREDIT FACILITIES" means, one or more debt facilities (including, without limitation, (1) the Credit Agreement and (2) one or more Permitted Receivables Financings) or commercial paper facilities, in each case with banks or other institutional lenders, or pursuant to intercompany loan or advance arrangements with Williams and/or Williams Gas Pipeline Company, LLC (provided that in the case of such arrangements with Williams and/or Williams Gas Pipeline Company, LLC that such arrangements are on terms consistent with practices in existence on the date of the Indenture) providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "DEFAULT" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "DEPOSITARY" means The Depository Trust Company, its nominees and their respective successors. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 3.05. "DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of the Company that was formed under the laws of the United States or any state of the United States or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of the Company. 9 "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and any successor statute. "EXCHANGE NOTES" means the Company's 81/8% Senior Notes due 2010 to be issued pursuant to the Indenture in an Exchange Offer. "EXCHANGE OFFER" means the offer that may be made by the Company pursuant to a Registration Rights Agreement to exchange Exchange Notes for Series A Notes. "EXCHANGE OFFER REGISTRATION STATEMENT" means a registration statement under the Securities Act relating to an Exchange Offer, including the related prospectus. "EXISTING INDEBTEDNESS" means up to $367.9 million in aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid. "FIXED CHARGES" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, any premiums, fees, discounts, expenses and losses on the sale of accounts receivable (and any amortization thereof) in connection with a Permitted Receivables Financing, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus 10 (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers, consolidations or otherwise (including acquisitions of assets used in a Permitted Business) and Qualifying Expansion Projects that have been commenced by the specified Person or any of its Restricted Subsidiaries, and including in each case any related financing transactions (including repayment of Indebtedness) during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred or (in the case of any Qualifying Expansion Projects) been completed and in service on the first day of the four-quarter reference period, including any Consolidated Cash Flow (including interest income reasonably anticipated by such Person to be received from Cash and Cash Equivalents held by such Person or any of its Restricted Subsidiaries) and any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of the chief financial officer or chief accounting officer of the Company (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the Commission 11 related thereto), but in the case of Qualifying Expansion Projects, only to the extent of Qualifying Expansion Project Amounts; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture. "GUARANTEE" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "GUARANTOR" means any subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture and its successors and assigns. "HEDGING OBLIGATIONS" means, with respect to any specified Person, the obligations of such Person incurred in the normal course of business and consistent with past practices and not for speculative purposes under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; (2) foreign exchange contracts and currency protection agreements entered into with one of more financial institutions designed to protect the person or entity entering into the agreement against fluctuations in interest rates or currency exchanges rates with respect to Indebtedness incurred and not for purposes of speculation; 12 (3) any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that entity at the time; and (4) other agreements or arrangements designed to protect such person against fluctuations in interest rates or currency exchange rates. "HOLDER" means a Person in whose name a Note is registered. "INCREMENTAL FUNDS" has the meaning set forth in Section 3.05. "INDEBTEDNESS" means, with respect to any specified Person, any obligation of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; (6) representing any Hedging Obligations, or (7) under Permitted Receivables Financings; if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations and obligations in respect of Permitted Receivables Financings) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; 13 (2) in the case of any Permitted Receivables Financing, the net unrecovered principal amount of the accounts receivable sold thereunder at such date, or other similar amount representing the principal financing amount thereof; (3) in the case of any Hedging Obligation, the net amount payable if such Hedging Obligation is terminated at that time due to default by such Person (after giving effect to any contractually permitted set-off); and (4) the principal amount of the Indebtedness in the case of any other Indebtedness. "INDENTURE" means this Indenture as amended or supplemented from time to time. "INDEPENDENT INVESTMENT BANKER" means Lehman Brothers Inc. or another independent investment banking institution of national standing appointed by the Company. "INITIAL ISSUE DATE" means the first date on which the Series A Notes are issued under the Indenture. "INITIAL PURCHASERS" means any initial purchasers of Series A Notes issued in connection with an offering under Rule 144A and/or Regulation S, including without limitation, the Original Initial Purchasers, as such in the Original Offering. "INTEREST PAYMENT DATE" shall have the meaning assigned to such term in the Notes. "INVESTMENT GRADE DATE" has the meaning set forth in Section 7.04. "INVESTMENT GRADE RATING" means a rating equal to or higher than Baa3 by Moody's and BBB- by S&P. "INVESTMENTS" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees (other than Guarantees of Indebtedness of the Company or any of its Guarantors to the extent permitted in Section 3.06), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and excluding trade payables of the Company and its subsidiaries arising in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the 14 Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in Section 3.05(d). The acquisition by the Company or any Subsidiary of the Company of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in Section 3.05(d). "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in New York, New York or a place of payment are authorized or obligated by law, regulation or executive order to remain closed. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "LIQUIDATED DAMAGES" has the meaning given to such term in any Registration Rights Agreement. "MAKE-WHOLE AMOUNT" with respect to a Note means an amount equal to the excess, if any, of (1) the present value of the remaining interest, premium and principal payments due on such Note (excluding any portion of such payments of interest accrued as of the redemption date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (2) the outstanding principal amount of such Note. "MAKE-WHOLE AVERAGE LIFE" means the number of years (calculated to the nearest one-twelfth) between the date of redemption and the Stated Maturity of the Notes. "MAKE-WHOLE PRICE" means the sum of the outstanding principal amount of the Notes to be redeemed plus the Make-Whole Amount of those Notes. "MATURITY DATE" means, with respect to any Note, the date on which any principal of such Note becomes due and payable, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. 15 "MOODY'S" means Moody's Investors Service, Inc. and its successors. "NET INCOME" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "NET PROCEEDS" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale (as reasonably estimated by the Company), in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NON-RECOURSE DEBT" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. 16 "NOTES" means the Series A Notes and the Exchange Notes. "NOTES CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFICER" means the Chairman of the Board, the Chief Executive Officer, the President, any Vice Chairman of the Board, any Vice President, the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Assistant Secretary of a Person. "OFFICERS' CERTIFICATE" means a certificate signed by two Officers of a Person, one of whom must be the Person's Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer or Treasurer. "OPINION OF COUNSEL" means a written opinion from legal counsel who is acceptable to the Trustee. Such counsel may be an employee of or counsel to the Company or any parent corporation. "ORIGINAL INITIAL PURCHASERS" means Lehman Brothers Inc., Banc of America Securities LLC, Credit Lyonnais Securities (USA) Inc., J.P. Morgan Securities Inc., Salomon Smith Barney Inc., Scotia Capital (USA) Inc., TD Securities (USA) Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated as initial purchasers of the Series A Notes in the Original Offering. "ORIGINAL OFFERING" means the offering of the Series A Notes pursuant to the Original Offering Memorandum. "ORIGINAL OFFERING MEMORANDUM" means the Offering Memorandum of the Company, dated February 27, 2003, relating to the offering of the Series A Notes. "PERMITTED BUSINESS" means the lines of business conducted by the Company and its Restricted Subsidiaries on the date of the Indenture and any business incidental or reasonably related thereto or which is a reasonable extension thereof as determined in good faith by the Board of Directors of the Company and set forth in an Officer's Certificate delivered to the Trustee. 17 "PERMITTED INVESTMENTS" means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 3.12 or any non-cash consideration that was excluded from the definition of "Asset Sale" pursuant to clause (1) or (4) (for the sale or lease of equipment) pursuant to the second paragraph of such definition; (5) any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any purchase or other acquisition of senior debt of the Company or any Guarantor (other than Indebtedness that is subordinated to the Notes or the Subsidiary Guarantees); (7) any Investments received in compromise of obligations of such persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; (8) Hedging Obligations permitted to be incurred under Section 3.06; (9) Investments in a Securitization Subsidiary that are necessary or desirable to effect any Permitted Receivables Financing; and (10) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments 18 made pursuant to this clause (10) that are at the time outstanding not to exceed $10 million. "PERMITTED LIENS" means: (1) Liens of the Company and any Guarantor securing any Credit Facility that was permitted by the terms of the Indenture to be incurred and all Obligations and Hedging Obligations relating to such Indebtedness (but excluding any Credit Facility with Williams or any Williams Group Affiliate, as lender); (2) Liens in favor of the Company or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company or renewals or replacement of such Liens in connection with the incurrence of Permitted Refinancing Indebtedness to refinance Indebtedness secured by such Liens; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition of the property by the Company or any Restricted Subsidiary of the Company or renewals or replacement of such Liens in connection with the incurrence of Permitted Refinancing Indebtedness to refinance Indebtedness secured by such Liens; provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of tenders, bids, statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by Section 3.06(b)(4) covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the Indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; 19 (9) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (10) Liens on accounts receivable and related assets and proceeds thereof arising in connection with a Permitted Receivables Financing; and (11) Liens with respect to Indebtedness that at the time of incurrence does not exceed 10% of the Consolidated Net Tangible Assets of the Company. "PERMITTED RECEIVABLES FINANCING" means any receivables financing facility or arrangement pursuant to which a Securitization Subsidiary purchases or otherwise acquires accounts receivable of the Company or any Restricted Subsidiaries and enters into a third party financing thereof on terms that the Board of Directors has concluded are customary and market terms fair to the Company and its Restricted Subsidiaries. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith) and any premiums paid on the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded; (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes and any Subsidiary Guarantees, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes and any Subsidiary Guarantees, as the case may be, on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and 20 (4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "PRIVATE EXCHANGE" means the offer by the Company to any of the Initial Purchasers to issue and deliver to such Initial Purchaser, in exchange for the Series A Notes held by such Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Notes. "PRIVATE EXCHANGE NOTES" means the Exchange Notes to be issued pursuant to the Indenture to an Initial Purchaser in a Private Exchange. "PUBLIC EQUITY OFFERING" means an underwritten primary public offering, after the date of the Indenture, of Capital Stock (other than Disqualified Stock) of the Company pursuant to an effective registration statement under the Securities Act other than an issuance registered on Form S-4 or S-8 or any successor thereto or any issuance pursuant to employee benefit plans or otherwise in compensation to officers, directors or employees. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "QUALIFYING EXPANSION PROJECT" means any capital expansion project that has increased or will increase the physical capacity of the pipeline system of the Company and the Guarantors; provided that such project has been completed and the assets are in service at or the Company reasonably believes that the in-service date of the project will be within twelve months after the Calculation Date. "QUALIFYING EXPANSION PROJECT AMOUNTS" means with respect to any calculation of pro forma amounts under the Fixed Charge Coverage Ratio additional revenues (if any) and related expenses for any Qualifying Expansion Project for the portion of the four-quarter period prior to the in-service date of such Qualifying Expansion Project (the "ESTIMATION PERIOD"); provided that revenues and related expenses anticipated from any Qualifying Expansion Project during any Estimation Period shall be included in such calculation only to the extent (1) of the portion of the capacity of such Qualifying Expansion Project that is committed under a long-term firm transportation contract on customary terms (as determined in good faith by the Company) with a counterparty that has an Investment Grade Rating of its long-term debt from at least one of S&P and Moody's and (2) the aggregate amount of Qualifying Expansion Project Amounts for all Qualifying Expansion Projects included in any such calculation does not exceed 25% of the aggregate revenues of the Company and its Restricted 21 Subsidiaries for such period, determined for this purpose on a pro forma basis but before inclusion of any Qualifying Expansion Project Amounts. "RATING AGENCY" means each of S&P and Moody's, or if S&P or Moody's or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company (as evidenced by a resolution of the Board of Directors), which shall be substituted for S&P or Moody's, or both, as the case may be. "REDEMPTION DATE" when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to the Indenture. "REDEMPTION PRICE" shall have the meaning assigned to such term in the Notes. "REGISTRATION RIGHTS AGREEMENT" means any registration rights agreement entered into by the Company relating to any Notes issued hereunder, including without limitation, the Registration Rights Agreement, dated as of March 4, 2003, among the Company and the Original Initial Purchasers. "REGULATION S CERTIFICATE" means a letter to be delivered in connection with transfers pursuant to Regulation S substantially in the form attached to the Note. "RESPONSIBLE OFFICER" means, when used with respect to the Trustee, 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 Section 6.01(c)(ii) and Section 6.05 hereof, 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 INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "RULE 144A CERTIFICATE" means a certificate to be completed by a purchaser of a Note in reliance on Rule 144A substantially in the form attached to the Note. 22 "S&P" means Standard and Poor's, a division of The McGraw-Hill Companies, Inc., and its successors. "SALE AND LEASEBACK TRANSACTION" means any arrangement with any Person (other than the Company or a Subsidiary), or to which any such Person is a party, providing for the leasing, pursuant to a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP, to the Company or a Restricted Subsidiary of any property or asset which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person (other than the Company or a Subsidiary), to which funds have been or are to be advanced by such Person. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended, and any successor statute. "SECURITIZATION SUBSIDIARY" means a Subsidiary of the Company (1) that is designated a "Securitization Subsidiary" by the Board of Directors, (2) that does not engage in, and whose charter prohibits it from engaging in, any activities other than Permitted Receivables Financings and any activity necessary, incidental or related thereto, (3) no portion of the Debt or any other obligation, contingent or otherwise, of which (A) is Guaranteed by the Company or any Restricted Subsidiary of the Company, (B) is recourse to or obligates the Company or any Restricted Subsidiary of the Company in any way, or (C) subjects any property or asset of the Company or any Restricted Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, (4) with respect to which neither the Company nor any Restricted Subsidiary of the Company (other than an Unrestricted Subsidiary) has any obligation to maintain or preserve such its financial condition or cause it to achieve certain levels of operating results other than, in respect of clauses (3) and (4), pursuant to customary representations, warranties, covenants and indemnities entered into in connection with a Permitted Receivables Financing. "SERIES A NOTES" means the Company's 81/8% Series A Notes due 2010, to be issued pursuant to the Indenture. "SHELF REGISTRATION STATEMENT" means a registration statement to be filed by the Company, in connection with the offer and sale of Series A Notes or Private Exchange Notes, pursuant to a Registration Rights Agreement. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture. 23 "STATED MATURITY" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "SUBSIDIARY" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "SUBSIDIARY GUARANTEE" means each Guarantee of the Notes issued by a Guarantor pursuant to the Indenture. "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections 77aaa-77bbbb), as in effect on the Initial Issue Date. "TRANSFER RESTRICTED NOTES" with respect to any Notes, has the meaning given to such term in the Registration Rights Agreement applicable to such Notes. "TREASURY RATE" means the yield to maturity (calculated on a semi-annual bond-equivalent basis) as determined by the Independent Investment Banker at the time of the computation of United States Treasury securities with a constant maturity (as compiled by and published in the most recent Federal Reserve Statistical Release H.15 (510), which has become publicly available at least two business days prior to the date of the redemption notice or, if such statistical release is no longer published, any publicly available source of similar market data) most nearly equal to the then remaining maturity of the Notes; provided that if the Make-Whole Average Life of such Note is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make-Whole Average Life of such Note is less than one year, the weekly average yield on actually traded 24 United States Treasury securities adjusted to a constant maturity of one year shall be used. "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of the Indenture and thereafter means the successor serving hereunder. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "UNRESTRICTED SUBSIDIARY" means (1) any Securitization Subsidiary, (2) NWP Enterprises, LLC, (3) NWP Enterprises, Inc., or (4) any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 3.05. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 3.06, the Company will be in default of such covenant. The Board of Directors of the Company may at any 25 time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under Section 3.06, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "VOTING STOCK" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "WILLIAMS" means The Williams Companies, Inc. "WILLIAMS GROUP AFFILIATES" means Williams and its Subsidiaries other than the Company and its Subsidiaries. SECTION 1.02. Other Definitions.
TERM DEFINED IN SECTION Affiliate Transaction................................... 3.13(a) Agent Members........................................... 2.01(c) Asset Sale Offer........................................ 3.12(c) Change of Control Payment............................... 3.11(a) Change of Control Payment Date.......................... 9.09(b) Covenant Defeasance..................................... 7.03(a) DTC..................................................... 2.03 Event of Default........................................ 5.01 Excess Proceeds......................................... 3.12(c) Global Note............................................. 2.01(b) Incremental Funds....................................... 3.05(a) Investment Grade Date................................... 7.04
26
TERM DEFINED IN SECTION Legal Defeasance........................................ 7.02(a) Paying Agent............................................ 2.03 Payment Default......................................... 5.01(a) Permitted Debt.......................................... 3.06(b) Pipeline Business....................................... 4.01(b) Purchase Amount......................................... 9.09(b) Registrar............................................... 2.03 Regulation S............................................ 2.01(b) Restricted Notes Legend................................. 2.01(a) Restricted Payments..................................... 3.05(a) Rule 144A............................................... 2.01(b)
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "COMMISSION" means the Commission. "INDENTURE SECURITIES" means the Notes. "INDENTURE SECURITY HOLDER" means a Holder. "INDENTURE TO BE QUALIFIED" means this Indenture. "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee. "OBLIGOR" on the indenture securities means the Company. All terms used in this Indenture that are defined by the TIA, defined by a TIA reference to another statute or defined by an SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; 27 (d) words in the singular include the plural, and in the plural include the singular; and (e) provisions apply to successive events and transactions. ARTICLE 2 THE NOTES SECTION 2.01. Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A to the Indenture, the terms of which are hereby incorporated into the Indenture. The Notes may have notations, legends or endorsements required by law, securities exchange rule, the Company's certificate of incorporation, memorandum of association, articles of association, other organizational documents, agreements to which the Company is subject, if any, or usage, provided that any such notation, legend or endorsement is in a form acceptable to the Company. The Notes shall be in registered form without coupons and only in denominations of $1,000 and any integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture and to the extent applicable, the Company, by its execution and delivery of the Indenture, expressly agrees to such terms and provisions and to be bound thereby. The Notes shall be dated the date of their authentication. (b) Global Notes. Series A Notes offered and sold (i) to QIBs in reliance on Rule 144A under the Securities Act ("RULE 144A") shall be issued initially in the form of one or more permanent global Notes in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend (the "RESTRICTED NOTES LEGEND") set forth in Section 2.06 (each, a "RULE 144A GLOBAL NOTE") and (ii) in reliance on Regulation S under the Securities Act ("REGULATION S") shall be issued initially in the form of one or more permanent global notes with the global securities legend and restricted securities legend set forth in Section 2.06 (each, a "REGULATION S GLOBAL NOTE" and, together with the Rule 144A Global Notes, the "GLOBAL NOTES"). Each Global Note shall be deposited on behalf of the purchasers of the Series A Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. 28 (c) Book-entry Provisions. This Section 2.01(c) shall apply only to a Global Note deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.01(c), authenticate and deliver initially one or more Global Notes that shall be registered in the name of the Depositary for such Global Note or Global Notes or the nominee of such Depositary and shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as custodian for the Depositary. Members of, or participants in, the Depositary ("AGENT MEMBERS") shall have no rights under the Indenture with respect to any Global Note held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Note, and the Depositary shall be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note 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 impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Note. (d) Certificated Notes. Except as provided in this Section 2.01 or Section 2.06 or 2.07, owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of certificated Notes. Section 2.02. Execution and Authentication. One Officer of the Company shall sign the Notes on behalf of the Company by manual or facsimile signature. The Company's seal may be (but shall not be required to be) impressed, affixed, imprinted or reproduced on the Notes and may be in facsimile form. If an Officer of the Company whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note shall be valid nevertheless. A Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of an authorized signatory of the Trustee, which signature shall be conclusive evidence that the Note has been authenticated under the Indenture. The Trustee shall authenticate (i) for original issue on the Initial Issue Date, Series A Notes in the aggregate principal amount of $175,000,000, (ii) Exchange Notes for original issue, pursuant to any Exchange Offer or Private Exchange, for a like principal amount of Series A Notes and (iii) any amount of additional Notes 29 specified by the Company, in each case, upon a written order of the Company signed by one Officer of the Company. Such order shall specify (a) the amount of the Notes to be authenticated and the date of original issue thereof, and (b) whether the Notes are Series A Notes or Exchange Notes. The aggregate principal amount of Notes of any series outstanding at any time may not exceed the aggregate principal amount of Notes of such series authorized for issuance by the Company pursuant to one or more written orders of the Company, except as provided in Section 2.08 hereof. Subject to the foregoing, the aggregate principal amount of Notes of any series that may be issued under the Indenture shall not be limited. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in the Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company, or an Affiliate of any of them. The Series A Notes and the Exchange Notes shall be considered collectively to be a single class for all purposes of the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or exchange ("REGISTRAR") and an office or agency where Notes may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to the Indenture. Such agreement shall implement the provisions of the Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to the Indenture. The Company may change any Paying Agent or Registrar without notice to any Holder. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints the Trustee as Registrar and Paying Agent. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to each Global Note. 30 SECTION 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Notes, whether such money shall have been paid to it by the Company and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon payment over to the Trustee and upon accounting for any funds disbursed, the Paying Agent (if other than the Company or a Subsidiary of the Company) shall have no further liability for the money. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. SECTION 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. (i) The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depositary, in accordance with the Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Note (other than a transfer of a beneficial interest in a Global Note for a beneficial interest in the same Global Note) shall deliver to the Registrar a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in the Global Note. The Registrar shall, subject to this Section 2.06, in accordance with such instructions, instruct the Depositary to credit to the account of the Person specified in such instructions a beneficial interest in the Global Note and to debit the account of the Person making the transfer the beneficial interest in the Global Note being transferred. The Trustee shall refuse to register any requested transfer or exchange that does not comply with the preceding sentence. 31 (ii) Notwithstanding any other provisions of the Indenture (other than the provisions set forth in Section 2.07), a Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (iii) If a Global Note is exchanged for Notes in definitive registered form pursuant to this Section 2.06 or Section 2.07, prior to the consummation of an Exchange Offer or prior to or in a transfer made pursuant to an effective Shelf Registration Statement with respect to such Notes, such Notes may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.06 (including the certification and other requirements set forth on the reverse of the Series A Notes intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be, or are otherwise in compliance with the requirements of the Securities Act) and such other procedures as may from time to time be adopted by the Company. (b) Legend. Except as permitted by the following paragraphs (c), (d), (e) and (f), each Note certificate evidencing the Global Notes (and all Notes issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR OTHER SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING ITS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE 32 SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A INSIDE THE U.S., (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE U.S. WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THIS TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S." AND "U.S. PERSON" 33 HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. (c) Certification Requirements. Subject to paragraph (e), the transfer or exchange of any Note (or a beneficial interest therein) of the type set forth in column A below for a Note (or a beneficial interest therein) of the type set forth opposite in column B below may only be made in compliance with the certification requirements (if any) described in the clause of this paragraph set forth opposite in column C below.
A B C Rule 144A Global Note Rule 144A Global Note (i) Rule 144A Global Note Regulation S Global Note (ii) Rule 144A Global Note Certificated Note (iii) Regulation S Global Note Rule 144A Global Note (iv) Regulation S Global Note Regulation S Global Note (i) Regulation S Global Note Certificated Note (v) Certificated Note Rule 144A Global Note (iv) Certificated Note Regulation S Global Note (ii) Certificated Note Certificated Note (iii)
(i) No certification is required. (ii) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee a duly completed Regulation S Certificate; provided that if the requested transfer or exchange is made by the Holder of a Certificated Note that does not bear the Restricted Notes Legend, then no certification is required. (iii) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee (x) a duly completed Rule 144A Certificate or (y) a duly completed Regulation S Certificate and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer or exchange is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States; provided that if the requested transfer or exchange is made by the Holder of a certificated Note that does not bear the Restricted Notes Legend, then no certification is required. In the event that (i) the requested transfer or exchange takes place after the Restricted Period and a duly completed Regulation S Certificate is delivered to the Trustee or (ii) a certificated Note that does not bear the Restricted Notes Legend is surrendered for 34 transfer or exchange, upon transfer or exchange the Trustee will deliver a certificated Note that does not bear the Restricted Notes Legend. (iv) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee a duly completed Rule 144A Certificate. (v) Notwithstanding anything to the contrary contained herein, no such exchange is permitted if the requested exchange is made during the Restricted Period. If the requested transfer involves a beneficial interest in a Regulation S Global Note during the Restricted Period, the Person requesting the transfer must deliver or cause to be delivered to the Trustee a duly completed Rule 144A Certificate and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States. If the requested transfer or exchange involves a beneficial interest in a Regulation S Global Note after the Restricted Period, no certification is required and the Trustee will deliver a certificated Note that does not bear the Restricted Notes Legend. (d) Rule 144A Transfers. Upon any sale or transfer of a Transfer Restricted Note (including any Transfer Restricted Note represented by a Rule 144A Global Note) pursuant to Rule 144 under the Securities Act, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a Note (or, in the case of any Transfer Restricted Note that is represented by a Rule 144A Global Note, an interest in a Global Note) that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Note, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Note). (e) Transfers Pursuant to an Effective Shelf Registration Statement. After a transfer of any Series A Notes or Private Exchange Notes during the period of the effectiveness of and pursuant to a Shelf Registration Statement with respect to such Series A Notes or Private Exchange Notes, as the case may be, all requirements pertaining to legends on such Note or such Private Exchange Note will cease to apply. (f) Transfers Pursuant to a Registered Exchange Offer. Upon the consummation of a Registered Exchange Offer with respect to the Series A Notes pursuant to which Holders of such Series A Notes are offered Exchange Notes in exchange for their Series A Notes, Exchange Notes in certificated or global form (depending on whether certificated Notes or interests in Global Notes are 35 exchanged), in each case not bearing the Restricted Notes Legend, will be available to Holders that exchange such Series A Notes in such Exchange Offer. (g) Private Exchanges. Upon the consummation of a Private Exchange with respect to the Series A Notes pursuant to which Holders of such Series A Notes are offered Private Exchange Notes in exchange for their Series A Notes, Private Exchange Notes in certificated or global form (depending on whether certificated Notes or interests in Global Notes are exchanged) with the Restricted Notes Legend will be available to Holders that exchange such Series A Notes in such Private Exchange. (h) Cancellation or Adjustment of Global Note. At such time as all beneficial interests in a Global Note have either been exchanged for certificated Notes, redeemed, repurchased or canceled, such Global Note shall be returned to the Depositary for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for certificated Notes, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Note shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Notes Custodian for such Global Note) with respect to such Global Note, by the Trustee or the Notes Custodian, to reflect such reduction. (i) Obligations with Respect to Transfers and Exchanges of Notes. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate certificated Notes and Global Notes at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 5.11, 8.05 and 9.06). (ii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of (a) any certificated Note selected for redemption in whole or in part pursuant to Article IX, except the unredeemed portion of any certificated Note being redeemed in part, or (b) any Note for a period beginning 15 Business Days before the mailing of a notice of an offer to repurchase or redeem Notes or 15 Business Days before an interest payment date. (iii) Prior to the due presentation for registration of transfer of any Note, the Company, the Trustee, the Paying Agent, the Registrar or any co-Registrar may deem and treat the Person in whose name a Note is 36 registered as the absolute owner of such Note for the purpose of receiving payment of principal of, premium, if any, and interest and Liquidated Damages, if any, on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (iv) All Notes issued upon any transfer or exchange pursuant to the terms of the Indenture shall evidence the same debt and shall be entitled to the same benefits under the Indenture as the Notes surrendered upon such transfer or exchange. (j) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, any Agent Member or other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely conclusively and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under the Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary participants, members or beneficial owners in any Global Note) 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 the Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 37 SECTION 2.07. Certificated Notes. (a) A Global Note deposited with the Depositary or with the Trustee as custodian for the Depositary pursuant to Section 2.01 shall be transferred to the beneficial owners thereof in the form of certificated Notes in an aggregate principal amount equal to the principal amount of such Global Note, in exchange for such Global Note, only if such transfer complies with Section 2.06 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Note or if at any time such Depositary ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, (ii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Notes under the Indenture; or (iii) there has occurred and is continuing a Default or Event of Default with respect to the Notes. (b) Any Global Note that is transferred to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depositary to the Trustee at its office located in the Borough of Manhattan, The City of New York, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Note, an equal aggregate principal amount of certificated Notes of authorized denominations. Any portion of a Global Note transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Note delivered in exchange for an interest in the Global Note shall, except as otherwise provided by Section 2.06(c), bear the restricted securities legend set forth in Section 2.06(b). (c) Subject to the provisions of Section 2.06(b), the registered Holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under the Indenture or the Notes. (d) If any of the events specified in Section 2.07(a) occurs, the Company shall promptly make available to the Trustee a reasonable supply of certificated Notes in definitive, fully registered form without interest coupons. (e) If a certificated Note issued pursuant to this Section 2.07 is exchanged for another certificated Note prior to the consummation of an Exchange Offer or prior to or in a transfer made pursuant to an effective Shelf Registration Statement with respect to such Notes, such Notes may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of (i) Section 2.06(a)(iii) (including the certification and other requirements set forth on the reverse of the Series A Notes intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be, or are otherwise in 38 compliance with the requirements of the Securities Act) and such other procedures as may from time to time be adopted by the Company and (ii) Section 2.06(b). SECTION 2.08. Replacement Notes. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee shall authenticate a replacement Note, but only if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must furnish an indemnity bond that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Note is replaced. The Company and the Trustee may charge for their expenses in replacing a Note. If, after the delivery of such replacement Note, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment or registration such original Note, the Trustee shall be entitled to recover such replacement Note from the Person to whom it was delivered or any Person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Trustee or the Company in connection therewith. Every replacement Note is an additional obligation of the Company. SECTION 2.09. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee hereunder and those described in this Section 2.09 as not outstanding; provided, however, that in determining whether the holders of the requisite principal amount of outstanding Notes are present at a meeting of holders of Notes for quorum purposes or have consented to or voted in favor of any request, demand, authorization, direction, notice, consent, waiver, amendment or modification hereunder, Notes held for the account of the Company, any of its Subsidiaries or any of their respective Affiliates shall be disregarded and deemed not to be outstanding, except that in determining whether the Trustee shall be protected in making such a determination or relying upon any such quorum, consent or vote, only Notes which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. If a Note is replaced pursuant to Section 2.08 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. 39 If the principal amount of any Note is considered paid under Section 3.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. A Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. SECTION 2.10. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or any of its Affiliates shall be disregarded, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. SECTION 2.11. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes, but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under the Indenture as definitive Notes. SECTION 2.12. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation. All canceled Notes held by the Trustee shall be disposed of in accordance with the usual disposal procedures of the Trustee. The Company may not issue new Notes to replace Notes that have been paid or that have been delivered to the Trustee for cancellation. SECTION 2.13. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest on the defaulted interest, in each case at the rate provided in the Notes and in Section 3.01 hereof. The Company may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. At least 15 days before any special record date, the Company (or the Trustee, in the name of and at the expense of the 40 Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.14. Persons Deemed Owners. The Company, the Trustee, any Agent and any authenticating agent may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payments of principal of or premium, if any, or interest on such Note and for all other purposes. None of the Company, the Trustee, any Agent or any authenticating agent shall be affected by any notice to the contrary. SECTION 2.15. CUSIP Numbers. The Company in issuing the Notes 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 Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE 3 COVENANTS SECTION 3.01. Payment of Notes. The Company shall pay the principal of and premium, if any, Liquidated Damages, if any, and interest on the Notes on the dates and in the manner provided in the Notes and in the Indenture. Principal, premium, if any, Liquidated Damages, if any, and interest shall be considered paid on the date due if the Paying Agent, other than the Company or a Subsidiary of the Company, holds by 11:00 a.m., Eastern time, on that date money deposited by the Company designated for and sufficient to pay all principal, premium, if any, Liquidated Damages, if any, and interest then due. To the extent lawful, the Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal, premium, if any, Liquidated Damages, if any, and interest payments (without regard to any applicable grace period) at a rate equal to the then applicable interest rate on the Notes. SECTION 3.02. Maintenance of Office or Agency. The Company shall maintain, in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee, the Registrar or the Paying Agent) where Notes may be presented for registration of transfer or exchange, where 41 Notes may be presented for payment and where notices and demands to or upon the Company in respect of the Notes and the Indenture may be served. Unless otherwise designated by the Company by written notice to the Trustee, such office or agency shall be the principal office of the Trustee in the Borough of Manhattan, The City of New York, which, on the date hereof, is located at the address set forth in Section 11.02 hereof. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company 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 of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. SECTION 3.03. Commission Reports; Financial Statements. (a) Whether or not required by the Commission, so long as any Notes are outstanding, the Company will furnish to the Trustee, within 15 days after the time periods specified in the Commission's rules and regulations: (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such reports, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" (or, if applicable to the Company for such filings at such time, or if such filings were required at such time, a "Management's Narrative and Analysis of Results of Operations"), and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. (b) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by paragraph (a) will include a reasonably detailed presentation, either on the face of 42 the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations (or, as applicable, in Management's Narrative and Analysis of Results of Operations), of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. (c) In addition, following the consummation of the Exchange Offer, whether or not required by the Commission, the Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company and the Guarantors will, for so long as any Notes remain outstanding, furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (d) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to Holders under this Section. (e) 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 Officer's Certificates). SECTION 3.04. Compliance Certificate. (a) The Company shall deliver to the Trustee, on or prior to the last day of the fifth month after the end of each fiscal year of the Company, a statement signed by two Officers of the Company (one of whom shall be the principal financial, principal accounting or principal executive officer of the Company), which statement need not constitute an Officers' Certificate, complying with TIA Section 314(a)(4) and stating that in the course of performance by the signing Officers of the Company of their duties as such Officers, they would normally obtain knowledge of the keeping, observing, performing and fulfilling by the Company, of its obligations under the Indenture, and further stating, as to each such Officer signing such statement, that to his knowledge, the Company has kept, observed, performed and fulfilled each and every covenant contained in the Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge and what action the Company is taking or proposes to take with respect thereto). 43 SECTION 3.05. Limitation on Restricted Payments. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Subsidiary Guarantees, except a payment of interest or principal at the Stated Maturity thereof; or (iv) make any Restricted Investment (all such payments and other actions set forth in these clauses (i) through (iv) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment, no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and (1) if the Fixed Charge Coverage Ratio for the Company's four most recent fiscal quarters for which internal financial statements are available is not less than 1.75 to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the end of the fiscal year of the Company then most recently ended for which internal financial statements are available, is less than the sum, without duplication, of: (A) Available Cash Flow from Operations for the fiscal year of the Company then most recently ended for which internal financial statements are available, plus (B) 100% of the aggregate net cash proceeds received by the Company (including the fair market value of any Permitted 44 Business or assets used or useful in a Permitted Business to the extent acquired in consideration of Equity Interests (other than Disqualified Stock) of the Company) after the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (C) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment, including without limitation repayment of principal of any Restricted Investment constituting a loan or advance (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (D) to the extent that any Unrestricted Subsidiary of the Company is redesignated as a Restricted Subsidiary after the date of the Indenture, the lesser of (i) the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation or (ii) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary (the amount determined at any time pursuant to items (b), (c) and (d) being referred to as the "INCREMENTAL FUNDS"); minus (E) the aggregate amount of Restricted Payments previously made in reliance on Incremental Funds pursuant to this clause (1) or clause (2) below; or (2) if the Fixed Charge Coverage Ratio for the Company's four most recent fiscal quarters for which internal financial statements are available is less than 1.75 to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries during the period commencing on the date such internal financial statements are available and ending on the date the next quarterly internal financial statements are available (such Restricted Payments for purposes of this clause (2) meaning only distributions on the Company's common stock and loans and advances to Williams and its Subsidiaries), is less than the sum, without duplication, of: 45 (A) $50.0 million less the aggregate amount of all Restricted Payments made by the Company pursuant to this clause (2)(A) during the period ending on the last day immediately preceding the date on which such internal financial statements are available and beginning on the date of the Indenture; plus (B) the aggregate amount of Incremental Funds at such time minus the aggregate amount of Restricted Payments previously made in reliance on such Incremental Funds pursuant to this clause (2) or clause (1) above. (b) Notwithstanding the foregoing, the preceding provisions will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of the Indenture; (ii) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of, the substantially concurrent (a) contribution (other than from a Subsidiary of the Company) to the equity capital of the Company or (b) sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (1) (B) of the preceding paragraph; (iii) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any distribution or dividend by a Restricted Subsidiary of the Company or to the holders of such Restricted Subsidiary's Equity Interests on a pro rata basis; (v) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, dividends, distributions or advances to Williams Group Affiliates, at times and in amounts equal to amounts expended by Williams for the repurchase, redemption or 46 acquisition or retirement for value of any Equity Interests of Williams held by any member of the Company's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $2.0 million in any twelve-month period and provided further that if the amount so paid in any calendar year is less than $2.0 million, such shortfall may be used to so repurchase, redeem, acquire or retire Equity Interests in either of the next two calendar years in addition to the $2.0 million that may otherwise be paid in each such calendar year; and (vi) prior to the Credit Agreement Refinancing Date, the ability (i) to pay, directly or indirectly, dividends or make any other distributions in respect of its capital stock or pay any Debt or other obligation owed to Williams or any of its Subsidiaries, or (ii) to make loans or advances to Williams or any of its Subsidiaries. (c) In computing the amount of Restricted Payments previously made for purposes of the immediately preceding paragraph, Restricted Payments made under clause (i) (but only if the declaration or such dividend or other distribution has not been counted in a prior period), clause (iv) (but only to the extent of amounts paid to Holders other than the Company or any of its Restricted Subsidiaries), clause (v) and clause (vi) of this paragraph shall be included, and Restricted Payments made under clauses (ii), (iii) and (iv) (except as noted above) shall be excluded. (d) The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant will be determined, in the case of amounts under $5.0 million, by an Officer of the Company and, in the case of amounts over $5.0 million, by the Board of Directors of the Company. SECTION 3.06. Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "INCUR") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, 47 that the Company and any Guarantor may incur Indebtedness (including Acquired Debt) or the Company may issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) Paragraph (a) of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "PERMITTED DEBT"): (i) the incurrence by the Company and any Guarantor of additional Indebtedness and letters of credit under any Credit Facilities to which the Company is a party in an aggregate principal amount at any one time outstanding under this clause (i) (with letters of credit being deemed to have a principal amount equal to the undrawn face amount thereof) not to exceed $400 million; (ii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iii) the incurrence by the Company of Indebtedness represented by the Notes issued and sold in this offering and any Subsidiary Guarantees issued pursuant to the Indenture; (iv) the incurrence by the Company and any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount not to exceed $5 million at any time outstanding; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under paragraph (a) of this Section 3.06 or clauses (ii), (iii), (iv) or (v) of this paragraph (b) of this Section 3.06; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that: 48 (A) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Subsidiary Guarantee, in the case of a Guarantor; and (B) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary of the Company, will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations; (viii) the guarantee by any of the Guarantors of Indebtedness of the Company or any Guarantor of the Company that was permitted to be incurred by another provision of this Section 3.06; (ix) Indebtedness in respect of bankers acceptances, letters of credit and performance or surety bonds issued for the account of the Company or any of its Restricted Subsidiaries in the ordinary course of business in amounts and for the purposes customary in the Company's industry, in each case only to the extent that such incurrence does not result in the incurrence of any obligation to repay any borrowed money; and (x) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (x), not to exceed $25 million. (c) If any Non-Recourse Debt of an Unrestricted Subsidiary shall at any time cease to constitute Non-Recourse Debt or such Unrestricted Subsidiary shall be redesignated a Restricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary. (d) For purposes of determining compliance with this Section: 49 (i) in the event that an item of proposed Indebtedness (including Acquired Debt) meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) of paragraph (b) of this Section 3.06, or is entitled to be incurred pursuant to paragraph (a) of this Section, the Company will be permitted to classify (or later classify or reclassify in whole or in part in its sole discretion) such item of Indebtedness in any manner that complies with this Section; (ii) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section, provided, in each such case, that the amount thereof is included in the computation of Fixed Charges of the Company as accrued; and (iii) for the purposes of determining compliance with any dollar- denominated restriction on the incurrence of Indebtedness denominated in a foreign currency, the dollar-equivalent principal amount of such Indebtedness incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was incurred. SECTION 3.07. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness, Attributable Debt or trade payables (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien or, in the case of any obligation so secured that is expressly subordinated to the Notes or any Subsidiary Guarantee, as applicable, by a Lien prior to any Liens securing any and all obligations thereby secured for so long as any such obligations shall be so secured. SECTION 3.08. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (i) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Subsidiaries, or with respect to any 50 other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (ii) make loans or advances to the Company or any of its Restricted Subsidiaries; or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. (b) Notwithstanding the foregoing, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (i) agreements governing Existing Indebtedness and the Credit Agreement as in effect on the date of the Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements, provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive in any material respect, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the respective agreements on the date of the Indenture, as determined by the Board of Directors of the Company in their reasonable and good faith judgment; (ii) the Indenture, the Notes and the Subsidiary Guarantees; (iii) applicable law; (iv) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred; (v) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (vi) Capital Lease Obligations, mortgage financings or purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (iii) of paragraph (a); 51 (vii) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (viii) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive in any material respect, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (ix) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 3.07 that limit the right of the debtor to dispose of the assets subject to such Liens; (x) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements, provided that such restrictions apply only to the assets or property subject to such joint venture or similar agreement or to the assets or property being sold, as the case may be; and (xi) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. SECTION 3.09. Additional Interest. If, at any time and from time to time after the date of the Indenture but prior to the earlier of (1) the Credit Agreement Refinancing Date and (2) the Investment Grade Date, the Fixed Charge Coverage Ratio for the Company's four most recent fiscal quarters for which internal financial statements are available is less than 1.75 to 1.0, then, from (A) the date of any such determination until (B) the earliest of (1) the next date (if any) on which the Fixed Charge Coverage Ratio for the Company's four most recent fiscal quarters then most recently ended for which internal financial statements are available is equal to or greater than 1.75 to 1.0, (2) the Credit Agreement Refinancing Date and (3) the Investment Grade Date, the interest rate otherwise applicable to the Notes will be increased by a rate of 1.00% per annum. The Company shall give prompt written notice to the Trustee of any such increase or decrease in the interest rate applicable to the Notes pursuant to this Section 3.09. SECTION 3.10. Guaranties by Restricted Subsidiaries. If the Company or any of its Restricted Subsidiaries acquires or creates another Domestic Restricted Subsidiary after the date of the Indenture, then that newly acquired or created Domestic Restricted Subsidiary will become a Guarantor and execute a Supplemental Indenture in the form of Exhibit B and deliver to the Trustee an Opinion of Counsel to the effect that the Supplemental Indenture has been duly 52 authorized, executed and delivered by such Domestic Restricted Subsidiary and constitutes a valid and binding obligation of such Domestic Restricted Subsidiary, enforceable against such Domestic Restricted Subsidiary in accordance with its terms (subject to customary exceptions), all within 10 Business Days of the date on which it was acquired or created; provided, however, that the foregoing shall not apply to Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with the Indenture for so long as they continue to constitute Unrestricted Subsidiaries. SECTION 3.11. Repurchase of Notes upon a Change of Control. (a) Subject to paragraph (b) of this Section, not later than 30 days following a Change of Control, the Company will make a Change of Control Offer to purchase all outstanding Notes at a purchase price (the "CHANGE OF CONTROL PAYMENT") equal to 101% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase; provided that the Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer. (b) Prior to complying with any of the provisions of this Section, but in any event within 30 days following a Change of Control, if the Company or any of its Williams Group Affiliates is subject to any agreement evidencing Indebtedness (or commitments to extend Indebtedness) that prohibits prepayment or repurchase of the Notes pursuant to a Change of Control Offer, the Company will either repay, or cause its Williams Group Affiliates to repay, all such outstanding Indebtedness of the Company and its Williams Group Affiliates (and terminate all commitments to extend such Indebtedness), or obtain the requisite consents, if any, under all agreements governing such Indebtedness or commitments to permit the repurchase of Notes required by paragraph (a) of this Section. The Company shall first comply with this paragraph (b) before it shall be required to make a Change of Control Offer or to repurchase Notes pursuant to paragraph (a). The Company's failure to comply with paragraph (b) may (with notice and lapse of time) constitute an Event of Default under Section 5.01(a)(iv) but shall not constitute an Event of Default under Section 5.01(a)(iii). (c) The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. SECTION 3.12. Limitation on Asset Sales. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: 53 (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (ii) the fair market value is determined by (a) an executive officer of the Company if the value is less than $10 million or (b) the Company's Board of Directors if the value is $10 million or more, as evidenced by a resolution of such Board of Directors; (iii) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash: (A) any liabilities, as shown on the Company's or such Restricted Subsidiary's most recent balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Subsidiary from further liability; (B) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by the Company or such Subsidiary into cash, to the extent of the cash received in that conversion; and (C) property or assets received as consideration for such Asset Sale that would otherwise constitute a permitted application of Net Proceeds (or other cash in such amount) under clauses (ii), (iii) or (iv) under paragraph (b) of this Section. (b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply an amount of cash equal to the amount of such Net Proceeds at its option: (i) to repay or prepay senior Indebtedness of the Company and/or the Guarantors under a Credit Facility; (ii) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; (iii) to make a capital expenditure; or 54 (iv) to acquire other long-term assets that are used or useful in a Permitted Business. (c) Subject to paragraph (e) of this Section, to the extent that the Company does not apply an amount of cash equal to the amount of such Net Proceeds of any Asset Sale during such period as provided in paragraph (b) of this Section, the amount not so applied (excluding Net Proceeds of any Asset Sale of the Gray's Harbor lateral project and excluding Net Proceeds of any Asset Sale to the extent of the amount of acquisitions or capital expenditures described under clauses (ii), (iii) or (iv) under paragraph (b) of this Section made during the 365 days preceding the receipt of such Net Proceeds (other than any portion of such amount that was funded with Net Proceeds of any other Asset Sale or that has been allocated to exclude Net Proceeds of any other Asset Sales under this provision)) will constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds (each such offer an "ASSET SALE OFFER"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. (d) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 3.12 by virtue of such conflict. (e) Prior to making any Asset Sale Offer, but in any event within 30 days following the date on which such Asset Sale Offer would otherwise be required, if the Company or any of its Williams Group Affiliates is subject to any agreement evidencing Indebtedness (or commitments to extend Indebtedness) that prohibits 55 prepayment or repurchase of the Notes pursuant to an Asset Sale Offer, the Company will either repay, or cause its Williams Group Affiliates to repay, all such outstanding Indebtedness of the Company and its Williams Group Affiliates (and terminate all commitments to extend such Indebtedness), or obtain the requisite consents, if any, under all agreements governing such Indebtedness or commitments to permit the repurchase of Notes required by this Section 3.12. The Company shall first comply with this paragraph (e) before it shall be required to make an Asset Sale Offer or to repurchase Notes pursuant to this Section. The Company's failure to comply with the covenant described in this paragraph may (with notice and lapse of time) constitute an Event of Default under 5.01(a)(iv) but shall not constitute an Event of Default under Section 5.01(a)(iii). SECTION 3.13. Limitation on Transactions with Affiliates. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "AFFILIATE TRANSACTION"), unless: (i) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (ii) the Company delivers to the Trustee: (A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10 million, a resolution of the Board of Directors of the Company set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this Section 3.13 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Company; and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25 million, an opinion as to the fairness to the Company of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. (b) The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: 56 (i) any employment agreement on customary terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company or such Restricted Subsidiary; (ii) transactions between or among the Company and/or its Restricted Subsidiaries; (iii) transactions with a Person that is an Affiliate of the Company solely because the Company owns an Equity Interest in, or controls, such Person; (iv) payment of reasonable directors fees and provision to directors, officers and employees of customary indemnities and customary benefits pursuant to employee benefit plans and similar arrangements; (v) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; (vi) (A) corporate sharing agreements with the Company's Williams Group Affiliates and their subsidiaries with respect to tax sharing and general overhead and other administrative matters and (B) any other intercompany arrangements disclosed or described in the Company's report on Form 10-K for the fiscal year ended December 31, 2001 (including the exhibits thereto) or the Offering Memorandum, all as in effect on the date of the Indenture, and any amendment or replacement of any of the foregoing so long as such amendment or replacement agreement is not less advantageous to the Company in any material respect than the agreement so amended or replaced, as such agreement was in effect on the date of the Indenture; (vii) transactions entered into as part of a Permitted Receivables Financing; and (viii) Restricted Payments that are permitted by the provisions of Section 3.05. SECTION 3.14. Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default; provided that in no event will the businesses operated by the Company on the date of this Indenture be transferred to or held by an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be 57 an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under Section 3.05(a) or Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. SECTION 3.15. Limitation on Sale and Leaseback Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction; provided that the Company or any Guarantor may enter into a Sale and Leaseback Transaction if: (i) the Company or that Guarantor, as applicable, could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction under the Fixed Charge Coverage Ratio test in Section 3.06(a); (ii) immediately after giving effect to such Sale and Leaseback Transaction, the aggregate outstanding Attributable Debt with respect to all Sale and Leaseback Transactions by the Company and the Guarantors does not exceed 10% of the Consolidated Net Tangible Assets of the Company; and (iii) the gross cash proceeds of that Sale and Leaseback Transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors of the Company and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of that Sale and Leaseback Transaction; provided, however, that the foregoing clauses (i) and (ii) shall no longer be applicable after any Investment Grade Date. SECTION 3.16. Business Activities. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. SECTION 3.17. Payments for Consent. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame 58 set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 4 CONSOLIDATION, MERGER AND SALE SECTION 4.01. Limitation on Mergers and Consolidations. (a) The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving Person); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person unless: (i) either: (a) the Company is the surviving Person; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made expressly assumes by Supplemental Indenture all the obligations of the Company under the Notes, this Indenture and any Registration Rights Agreement and delivers to the Trustee an Opinion of Counsel to the effect that the Supplemental Indenture has been duly authorized, executed and delivered by such Person and constitutes a valid and binding obligation of such Person, enforceable against such Person in accordance with its terms (subject to customary exceptions); (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 3.06(a); provided, however, that 59 this clause (iv) shall no longer be applicable from and after any Investment Grade Date. (b) In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. Clause (iv) under paragraph (a) of this Section will not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Restricted Subsidiaries. Without limitation of the foregoing, in no event shall the Company, directly or indirectly, (1) consolidate or merge with or into Williams or any of the Williams Group Affiliates (whether or not the Company is the surviving Person) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to Williams or any of the Williams Group Affiliates (other than mergers or transactions otherwise permitted by this Section 4.01 with (a) Williams Group Affiliates engaged in no businesses other than being principally engaged in owning and operating regulated interstate natural gas pipeline systems and any businesses incidental and reasonably related thereto, including facilities for mainline transmission and gas storage ("PIPELINE BUSINESS") or (b) a holding company of the Company engaged in no businesses other than Pipeline Business and having no Subsidiaries other than Subsidiaries engaged in no businesses other than Pipeline Business, and in the case of (a) or (b), only if at the time of such merger or transaction, the Company and such Williams Group Affiliate or holding company each have an Investment Grade Rating from Moody's and S&P and the surviving Person will have an Investment Grade Rating from Moody's and S&P). SECTION 4.02. Successors Substituted. In case of any such consolidation, merger, sale, lease or conveyance, and following such an assumption by the successor Person, such successor Person shall succeed to and be substituted for the Company, with the same effect as if it had been named herein. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession any or all of the Notes issuable hereunder which 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 the Indenture prescribed, the Trustee shall authenticate and shall deliver any Notes which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes which such successor Person thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Notes so issued shall in all respects have the same legal rank and benefit under the Indenture as the Notes theretofore or thereafter issued in accordance with the terms of the Indenture as though all of such Notes had been issued at the date of the execution hereof. 60 In case of any such consolidation, merger, sale, lease or conveyance such changes in phrasing and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. In the event of any such sale or conveyance (other than a conveyance by way of lease) the Company or any successor Person which shall theretofore have become such in the manner described in this Article shall be discharged from all obligations and covenants under the Indenture, and the Notes and may be liquidated and dissolved. SECTION 4.03. Consolidation, Merger or Sale of Assets by a Guarantor. (a) No Guarantor may: (i) consolidate with or merge with or into any Person, or (ii) sell, convey, transfer or dispose of, all or substantially all its assets as an entirety or substantially as an entirety, in one transaction or a series of related transactions, to any Person, or (iii) permit any Person to merge with or into the Guarantor unless (A) immediately after giving effect to the transaction, no Default or Event of Default exists; and (B) either: (b) (i) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of that Guarantor under the Indenture, its Subsidiary Guarantee and any Registration Rights Agreement pursuant to a Supplemental Indenture satisfactory to the Trustee; or (ii) in connection with any sale or other disposition of all or substantially all of the assets of the Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the sale or other disposition complies with Section 3.12. ARTICLE 5 DEFAULTS AND REMEDIES SECTION 5.01. Events of Default. (a) Each of the following is an Event of Default: 61 (i) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Notes; (iii) failure by the Company to purchase Notes tendered pursuant to an offer described under Sections 3.11 and 3.12 in accordance with the terms thereof, or failure of the Company or any Guarantor to comply with the provisions of Article IV; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice, from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes, to comply with any of the other agreements in the Indenture; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default: (A) is caused by a failure of the Company or any Subsidiary of the Company to pay principal of such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "PAYMENT DEFAULT"); or (B) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15 million or more; (vi) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $15 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any 62 Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any of its Restricted Subsidiaries in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any of its Restricted Subsidiaries a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any of its Restricted Subsidiaries under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any of its Restricted Subsidiaries or of any substantial part of the property of the Company or any of its Restricted Subsidiaries, or ordering the winding up or liquidation of the affairs of the Company or any of its Restricted Subsidiaries, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or (ix) the commencement by the Company or any of its Restricted Subsidiaries of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company or any of its Restricted Subsidiaries in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any of its Restricted Subsidiaries or of any substantial part of the property of the Company or any of its Restricted Subsidiaries, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any of its Restricted Subsidiaries in furtherance of any such action. (b) The Trustee shall not be deemed to know of a Default or Event of Default unless a Responsible Officer at the Corporate Trust Office of the Trustee has actual knowledge of such Default or Event of Default or the Trustee receives written notice at the Corporate Trust Office of the Trustee of such Default or 63 Event of Default with specific reference to such Default or Event of Default and the Notes and this Indenture. (c) When a Default is cured, or when an Event of Default is deemed cured pursuant to Section 5.04, such Default, or Event of Default, as the case may be, ceases. SECTION 5.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (viii) or (ix) of Section 5.01(a) hereof with respect to the Company, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes by notice to the Company and the Trustee, may declare the principal of and premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, on all then outstanding Notes to be due and payable immediately. Upon any such declaration the amounts due and payable on the Notes, as determined in accordance with the next succeeding paragraph, shall be due and payable immediately. If an Event of Default specified in clause (viii) or (ix) of Section 5.01(a) with respect to the Company, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, occurs, the principal of and premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, on all Notes then outstanding shall ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration with respect to the Notes has been made and before a judgment for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by the declaration of acceleration, have been cured or waived, and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. No such rescission shall affect any subsequent Default or impair any right consequent thereon. 64 If the maturity of the Notes is accelerated pursuant to this Section 5.02, 100% of the principal amount thereof shall become due and payable plus premium, if any, and accrued interest and Liquidated Damages, if any, to the date of payment. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium (including, in the case of any such Event of Default prior to March 1, 2007, payment of the Make-Whole Price) that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium (or, in the case of any such Event of Default prior to March 1, 2007, the relevant Make-Whole Amount that would apply at such time if the Notes were optionally redeemed at the Make-Whole Price) will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. SECTION 5.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of, or premium, if any, Liquidated Damages, if any, or interest on the Notes or to enforce the performance of any provision of the Notes, the Indenture or any Registration Rights Agreement. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 5.04. Waiver of Existing Defaults. Subject to Sections 5.07 and 8.02 hereof, the Holders of a majority in aggregate principal amount of the outstanding Notes by notice to the Trustee may waive an existing Default or Event of Default and its consequences (including waivers obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes or a solicitation of consents in respect of the Notes), except (1) a continuing Default or Event of Default in the payment of interest or Liquidated Damages on, or the principal of, the Notes or (2) a continuing Default in respect of a provision that under Section 8.02 hereof cannot be amended without the consent of each Holder affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of the Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. 65 SECTION 5.05. Control by Majority. The Holders of a majority in principal amount of the Notes then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it hereunder. However, the Trustee may refuse to follow any direction that conflicts with applicable law or the Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 5.06. Limitations on Suits. Subject to Section 5.07 hereof, a Holder may pursue a remedy with respect to the Indenture or the Notes only if: (i) such Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in principal amount of the Notes then outstanding make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the Notes do not give the Trustee a direction inconsistent with the request. A Holder may not use the Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 5.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of the Indenture, the right of any Holder of a Note to receive payment of principal of, and premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of such Holder. 66 SECTION 5.08. Collection Suit by Trustee. If an Event of Default specified in clause (i) or (ii) of Section 5.01 hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the amount of principal and premium, if any, and interest (and Liquidated Damages, if any) remaining unpaid on the Notes, and interest on overdue principal, premium, if any, and Liquidated Damages, if any and, to the extent lawful, interest on overdue interest (and Liquidated Damages, if any), and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 5.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents and to take such actions, including participating as a member, voting or otherwise, of any committee of creditors, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company or its creditors or properties and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof out of the estate in any such proceeding, 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, money, securities and other properties which the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee (including any Predecessor Trustee) for amounts due under Section 6.07 hereof; 67 Second: to Holders for amounts due and unpaid on the Notes for principal, premium, if any, Liquidated Damages, if any, and interest ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, Liquidated Damages, if any, and interest, respectively; and Third: to the Company. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Article. SECTION 5.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under the Indenture or in any suit against the Trustee for any action taken or omitted by it as a trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.07 hereof, or a suit by a Holder or Holders of more than 10% in principal amount of the Notes then outstanding. ARTICLE 6 TRUSTEE SECTION 6.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in such exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee need perform only those duties that are specifically set forth in the Indenture and no others, and no implied covenants or obligations shall be read into the Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of the Indenture. However, with respect to certificates or opinions specifically required by 68 any provision hereof to be furnished to it, the Trustee shall examine such certificates and opinions to determine whether or not, on their face, they appear to conform substantially to the requirements of the Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraphs (b) or (e) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.05 hereof. (d) Whether or not therein expressly so provided, every provision of the Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section. (e) No provision of the Indenture shall require the Trustee to expend or risk its own funds or incur any liability. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. All money received by the Trustee shall, until applied as herein provided, be held in trust for the payment of the principal of, and premium if any, and interest on the Notes. SECTION 6.02. Rights of Trustee. (a) The Trustee may rely conclusively and shall be fully protected in acting or refraining from acting on any document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its own selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. 69 (c) The Trustee may act through agents or attorneys and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by the Indenture. (e) Unless otherwise specifically provided in the Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee is not required to give any bond or surety with respect to the performance of its duties or the exercise of its powers under the Indenture. (g) The Trustee's immunities and protections from liability and its right to indemnification in connection with the performance of its duties under the Indenture shall extend and be enforceable by the Trustee in each of its capacities hereunder and shall extend to the Trustee's officers, directors, agents, attorneys and employees. Such immunities and protections and right to indemnity, together with the Trustee's right to compensation, shall survive the Trustee's resignation or removal, the discharge of the Indenture and final payment of the Notes. (h) The permissive right of the Trustee to take the actions permitted by the Indenture shall not be construed as an obligation or duty to do so. (i) Except for information provided by the Trustee concerning the Trustee, the Trustee shall have no responsibility for any information in any offering memorandum or other disclosure material distributed with respect to the Notes, and the Trustee shall have no responsibility for compliance with any state or federal securities laws in connection with the Notes. (j) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to the Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. (k) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the Holders pursuant to the Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, 70 expenses and liabilities which might be incurred by it in compliance with such request or direction. (l) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. SECTION 6.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any of its Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 6.10 and 6.11 hereof. SECTION 6.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of the Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision hereof, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee and it shall not be responsible for any statement or recital herein or any statement in the Notes other than its certificate of authentication. SECTION 6.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and it is actually known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, or premium, if any, Liquidated Damages, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Holders. SECTION 6.06. Reports by Trustee to Holders. On or before May 15 of each year, beginning with May 15, 2004, the Trustee shall mail to Holders a brief report dated as of a date convenient to the Trustee no more than 60 nor less than 45 days prior thereto, that complies with TIA Section 313(a); provided, however, that if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted. The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Sections 313(c) and 313(d). A copy of each report at the time of its mailing to Holders shall be filed with the Commission and each securities exchange, if any, on which the Notes are listed. The Company shall notify the Trustee if and when the Notes are listed on any stock exchange or delisted therefrom. 71 SECTION 6.07. Compensation and Indemnity. The Company agrees to pay to the Trustee from time to time such compensation as agreed to by the Company and the Trustee, for its acceptance of the Indenture and its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company agrees to reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company agrees to fully indemnify the Trustee or any predecessor Trustee and their agents for and to hold them harmless against any and all loss, liability damage, claims, or expense (including taxes, other than taxes based upon, measured by or determined by the income of the Trustee) incurred by it arising out of or in connection with the acceptance or administration of its duties under the Indenture, including the costs and expenses of defending itself against any claim (whether asserted aby the Company, any Holder or any other Person), except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel, and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The Company shall not be obligated to reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or willful misconduct. To secure the payment obligations of the Company in this Section 6.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal of, and premium, if any, and interest and Liquidated Damages, if any, on particular Notes. Such lien shall survive the satisfaction and discharge of the Indenture, the resignation or removal of the Trustee and the termination of this Indenture for any reason. Without prejudice to its rights hereunder, when the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.01(a)(viii) or (ix) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 6.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 6.08. 72 The Trustee may resign and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (i) the Trustee fails to comply with Section 6.10 hereof; (ii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (iii) a Custodian or public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes then outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Notes then outstanding may petition (at the expense of the Company) any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.10 hereof, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under the Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 6.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 6.08 hereof, the obligations of the Company under Section 6.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 6.09. Successor Trustee by Merger, Etc. Subject to Section 6.10 hereof, if the Trustee consolidates, merges or converts into, or transfers all or 73 substantially all of its corporate trust business to, another Person, the successor Person without any further act shall be the successor Trustee. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in the Indenture provided that the certificate of the Trustee shall have. SECTION 6.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia and authorized under such laws to exercise corporate trust power, shall be subject to supervision or examination by Federal or State (or the District of Columbia) authority and shall have, or be a Subsidiary of a bank or bank holding company having, a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is subject to and shall comply with the provisions of TIA Section 310(b) during the period of time required by the Indenture. For purposes of Section 301(b)(1) of the TIA and to the extent permitted thereby, the Trustee shall not be deemed to have a conflicting interest arising from its capacity as trustee in respect of any series of securities issued under the Indentures dated as of August 1, 1992, November 30, 1995 and December 8, 1997, each by and between the Company and JPMorgan Chase Bank (or its predecessor), as trustee, and any other indentures of the Company pursuant to which JPMorgan Chase Bank acts as trustee. Nothing in the Indenture shall prevent the Trustee from filing with the SEC the application referred to in the penultimate paragraph of TIA Section 310(b). SECTION 6.11. Preferential Collection of Claims Against Company. The Trustee is subject to and shall comply with the provisions of TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 74 ARTICLE 7 DEFEASANCE AND DISCHARGE SECTION 7.01. Discharge of Company's Obligations. (a) Subject to paragraph (b), the Company's obligations under the Notes and the Indenture, and each Guarantor's obligations under its Subsidiary Guarantee, will terminate if: (i) either (A) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the Company, have been delivered to the Trustee for cancellation; or (B) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and noncallable Government Securities, in amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption; (ii) the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and (iii) the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at the Maturity Date or the Redemption Date, as the case may; and (iv) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of the Indenture have been complied with, together with an Opinion of Counsel to the same effect. (b) After satisfying the conditions in clauses (a)(i)(A),(ii),(iii) and (iv), only the Company's obligations under Section 6.07 will survive. After satisfying the conditions in clauses (a)(i)(B), (ii), (iii) and (iv), only the Company's 75 obligations in Article II and Sections 3.01, 3.02, 6.07, 6.08, 7.05 and 7.06 will survive. In either case, the Trustee upon request will acknowledge in writing the discharge of the Company's obligations under the Notes and the Indenture other than the surviving obligations. SECTION 7.02. Legal Defeasance. (a) After the 91st day following the deposit referred to in clause (i), the Company will be deemed to have paid and will be discharged from its obligations in respect of the Notes and the Indenture, other than its obligations in Article II and Sections 3.01, 3.02, 6.07, 6.08, 7.05 and 7.06, and each Guarantor's obligations under its Subsidiary Guarantee will terminate ("LEGAL DEFEASANCE"), provided the following conditions have been satisfied: (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non- callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding Notes on the Stated Maturity or on the applicable Redemption Date, as the case may be, and the Company must specify whether the Notes are being defeased to Maturity Date or to a particular Redemption Date; (ii) the Company has delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel will confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (iv) such Legal Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; 76 (v) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (vi) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance have been complied with. Prior to the end of the 91-day period, none of the Company's obligations under the Indenture will be discharged. Thereafter, the Trustee upon request will acknowledge in writing the discharge of the Company's obligations under the Notes and the Indenture except for the surviving obligations specified above. SECTION 7.03. Covenant Defeasance. (a) After the 91st day following the deposit referred to in clause (i), the Company's obligations set forth in Sections 3.03 through 3.17, inclusive and clause (iv) of Section 4.01(a), and each Guarantor's obligations under its Subsidiary Guarantee, will terminate, and clauses (iii), (iv), (v), (vi) and (vii) of Section 5.01(a) will no longer constitute Events of Default ("COVENANT DEFEASANCE"), provided the following conditions have been satisfied: (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non- callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding Notes on the Stated Maturity or on the applicable Redemption Date, as the case may be, and the Company must specify whether the Notes are being defeased to Maturity Date or to a particular Redemption Date; (ii) the Company has delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iii) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); 77 (iv) such Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (v) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (vi) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance have been complied with. Except as specifically stated above, none of the Company's obligations under the Indenture will be discharged. SECTION 7.04. Covenant Termination. From and after the first date after the date of the Indenture on which the Notes have an Investment Grade Rating from both Rating Agencies and no Default or Event of Default has occurred and is continuing under the Indenture (the "INVESTMENT GRADE DATE"), the Company and its Restricted Subsidiaries will no longer be subject to Sections 3.05, 3.06, 3.08, 3.09, 3.12, 3.13 and 3.16 of the Indenture. SECTION 7.05. Application of Trust Money. The Trustee or a trustee satisfactory to the Trustee and the Company shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 7.01, 7.02 and 7.03 hereof. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with the Indenture to the payment of principal of, premium, if any, Liquidated Damages, if any, and interest on the Notes. SECTION 7.06. Repayment to Company. The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time. Subject to the requirements of any applicable abandoned property laws, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal, premium, if any, Liquidated Damages, if any, or interest that remains unclaimed for two years after the date upon which such payment shall have become due; provided, however, that the Company shall have either caused notice of such payment to be mailed to each 78 Holder entitled thereto no less than 30 days prior to such repayment or within such period shall have published such notice in a financial newspaper of widespread circulation published in The City of New York. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and the Paying Agent with respect to such money shall cease. In the absence of a written request from the Company to return unclaimed funds to the Company, the Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Trustee in its sole discretion, in accordance with customary practices and procedures of the Trustee. Any unclaimed funds held by the Trustee pursuant to this Section 7.06 shall be held uninvested and without any liability for interest. SECTION 7.07. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money or U. S. Government Obligations in accordance with Section 7.01, 7.02 or 7.03 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company under the Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 7.01, 7.02 or 7.03 hereof until such time as the Trustee or the Paying Agent is permitted to apply all such money or U. S. Government Obligations in accordance with Section 7.01, 7.02 or 7.03 hereof; provided, however, that if the Company has made any payment of principal of or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or the Paying Agent. ARTICLE 8 AMENDMENTS SECTION 8.01. Without Consent of Holders. The Company, the Guarantors and the Trustee may amend or supplement the Indenture or any of the Notes or waive any provision hereof or thereof without the consent of any Holder: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to provide for uncertificated Notes in addition to or in place of certificated Notes; 79 (iii) to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (iv) to provide for any Guarantee of the Notes, to secure the Notes or to confirm and evidence the release, termination or discharge of any Guarantee of or Lien securing the Notes when such release, termination or discharge is permitted by the Indenture; (v) to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder; or to provide for the acceptance of appointment hereunder of a successor Trustee in compliance with the provisions hereof; (vi) to comply with requirements of the Commission under the Securities Act or the Exchange Act or in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such Supplemental Indenture, and upon receipt by the Trustee of the documents described in and subject to the other terms of Section 8.06 hereof, the Trustee shall join with the Company in the execution of any Supplemental Indenture authorized or permitted by the terms of the Indenture and make any further appropriate agreements and stipulations that may be therein contained. After an amendment, supplement or waiver under this Section 8.01 becomes effective, the Company shall mail to the Holders of each Note affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. SECTION 8.02. With Consent of Holders. Except as provided below in this Section 8.02, the Company and the Trustee may amend or supplement the Indenture or the Notes with the written consent (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes or a solicitation of consents in respect of the Notes) of the Holders of at least a majority in principal amount of the Notes then outstanding. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such Supplemental Indenture, and upon the filing with the Trustee of evidence of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the 80 documents described in Section 8.06 hereof, the Trustee shall join with the Company in the execution of such Supplemental Indenture. It shall not be necessary for the consent of the Holders under this Section 8.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. The Holders of a majority in principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of the Indenture or the Notes (including waivers obtained in connection with a purchase of, tender offer or exchange offer for, the Notes or a solicitation of consents in respect of the Notes). Without the consent of each Holder affected, an amendment, supplement or waiver under this Section may not: (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions (including without limitation the amount of any premium or the price therefor) with respect to the redemption of the Notes (other than provisions relating to Sections 3.11 and 3.12); (iii) reduce the rate of or change the time for payment of interest or Liquidated Damages on any Note; (iv) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (v) make any Note payable in money other than that stated in the Notes; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the Notes; (vii) waive a redemption payment with respect to any Note (other than a payment required by Sections 3.11 or 3.12); 81 (viii) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the Indenture, except in accordance with the terms of the Indenture; or (ix) make any change in the preceding amendment and waiver provisions. The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of the Notes with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture. SECTION 8.03. Compliance with Trust Indenture Act. Every amendment to the Indenture or the Notes shall comply in form and substance with the TIA as then in effect. SECTION 8.04. Revocation and Effect of Consents. A consent to an amendment (which includes a supplement) or waiver by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to his or her Note or portion of a Note if the Trustee receives written notice of revocation at any time prior to (but not after) the date the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver or to take any other action under the Indenture. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consents from Holders of the principal amount of the Notes required hereunder for such amendment or waiver to be effective shall have also been given and not revoked within such 90-day period. 82 After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it is of the type described in any of clauses (i) through (ix) of Section 8.02 hereof. In such case, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder that evidences the same debt as the consenting Holder's Note. SECTION 8.05. Notation on or Exchange of Notes. If an amendment changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment. SECTION 8.06. Trustee to Sign Amendments, Etc. The Trustee shall sign any amendment, waiver or Supplemental Indenture authorized pursuant to this Article if the amendment, waiver or Supplemental Indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment, waiver or Supplemental Indenture, the Trustee shall receive, and subject to Section 6.01 hereof, shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate, as conclusive evidence that such amendment, waiver or Supplemental Indenture is authorized or permitted by the Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. ARTICLE 9 REDEMPTION SECTION 9.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the redemption provisions of Section 9.07, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a Redemption Date (unless the Trustee consents in writing to a shorter period of at least 30 days prior to the Redemption Date), an Officers' Certificate setting forth the Redemption Date, the principal amount of such Notes to be redeemed and the Redemption Price. SECTION 9.02. Selection of Notes to Be Redeemed. (a) If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption as follows: 83 (i) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (ii) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee deems fair and appropriate. The particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 days nor more than 60 days prior to the Redemption Date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of them selected shall be in amounts of $1,000 or whole multiples of $1,000. Except as provided in the preceding sentence, provisions of the Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 9.03. Notices to Holders. (a) At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail in conformity with Section 11.02 a notice of redemption to each Holder whose Notes are to be redeemed, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. Notices of redemption may not be conditional. The Notice shall identify the Notes to be redeemed (including CUSIP numbers, if any) and shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued; (iv) the name and address of the Paying Agent; (v) that Notes called for redemption must be surrendered to the Paying Agent at the address specified in such notice to collect the Redemption Price; 84 (vi) that unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Notes; and (vii) the aggregate principal amount of Notes being redeemed. If any of the Notes to be redeemed is in the form of a Global Note, then the Company shall modify such notice to the extent necessary to accord with the procedures of the Depositary applicable to redemptions. (b) At the Company's request, the Trustee shall give the notice required in Section 9.03(a) in the Company's name; provided, however, that the Company shall deliver to the Trustee, at least 45 days prior to the Redemption Date (unless the Trustee consents in writing to a shorter period at least 30 days prior to the Redemption Date), an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in Section 9.03(a). SECTION 9.04. Effect of Notices of Redemption. Once notice of redemption is mailed pursuant to Section 9.03, Notes called for redemption become due and payable on the Redemption Date at the Redemption Price. Upon surrender to the Paying Agent, such Notes shall be paid out at the Redemption Price. SECTION 9.05. Deposit of Redemption Price. At or prior to 11:00 am New York City time on the Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the Redemption Price of all Notes to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money not required for that purpose less the expenses of the Trustee as provided herein. If the Company complies with the preceding paragraph, interest on the Notes or portions thereof to be redeemed (whether or not such Notes are presented for payment) will cease to accrue on the applicable Redemption Date. If any Note called for redemption shall not be so paid upon surrender because of the failure of the Company to comply with the preceding paragraph, then interest will be paid on the unpaid principal and premium, if any, from the Redemption Date until such principal and premium are paid and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 3.01. 85 SECTION 9.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder, at the expense of the Company, a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 9.07. Optional Redemption. (a) At any time and from time to time prior to March 1, 2007, the Company may, at its option, redeem all or a portion of the Notes at the Make-Whole Price plus accrued and unpaid interest to the redemption date. (b) At any time and from time to time on or after March 1, 2007, the Company may, at its option, redeem the Notes, in whole or in part, at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest to the redemption date.
TWELVE-MONTH PERIOD COMMENCING MARCH 1 IN YEAR PERCENTAGE - ------------------- ----------- 2007 104.063% 2008 102.031% 2009 and thereafter 100.000%
Any redemption pursuant to this Section 9.07 shall be made, to the extent applicable, pursuant to the provisions of Sections 9.01 through 9.06. SECTION 9.08. Redemption with Proceeds of Public Equity Offering. (a) At any time and from time to time prior to March 1, 2006, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes with the net cash proceeds received by the Company from any Public Equity Offering (excluding any net cash proceeds received from Williams or any of its Affiliates) at a redemption price equal to 108.125% of the principal amount plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, provided that (i) in each case the redemption takes place not later than 90 days after the closing of the related Public Equity Offering, and (ii) at least 65% of the aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries). 86 Any redemption pursuant to this Section 9.07 shall be made, to the extent applicable, pursuant to the provisions of Sections 9.01 through 9.06. SECTION 9.09. Change of Control Offer. (a) A "CHANGE OF CONTROL OFFER" means an offer by the Company to purchase Notes as required by Section 3.11. A Change of Control Offer must be made by written offer (the "OFFER") sent to the Holders. The Company will notify the Trustee at least three Business Days (or such shorter period as is acceptable to the Trustee) prior to sending the offer to Holders of its obligation to make a Change of Control Offer, and the offer will be sent by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. (b) The offer must include or state the following as to the terms of the Change of Control Offer: (i) the provision of the Indenture pursuant to which the Change of Control Offer is being made; (ii) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Change of Control Offer (the "PURCHASE AMOUNT"); (iii) the purchase price, including the portion thereof representing accrued interest; (iv) a payment date (the "CHANGE OF CONTROL PAYMENT DATE") not less than 30 days or more than 60 days after the date of the offer; (v) a description of the transaction or transactions constituting the Change of Control; (vi) a Holder may tender all or any portion of its Notes, subject to the requirement that any portion of a Note tendered must be in a multiple of $1,000 principal amount; (vii) the place or places where Notes are to be surrendered for tender pursuant to the Change of Control Offer; (viii) each Holder electing to tender a Note pursuant to the offer will be required to surrender such Note at the place or places specified in the offer prior to the close of business on the Change of Control Payment Date (such Note being, if the Company or the Trustee so requires, duly endorsed or accompanied by a duly executed written instrument of transfer); 87 (ix) interest on any Note not tendered will continue to accrue; (x) on the Change of Control Payment Date the purchase price will become due and payable on each Note accepted for purchase, and interest on Notes purchased will cease to accrue on and after the Change of Control Payment Date; (xi) Holders are entitled to withdraw Notes tendered by giving notice, which must be received by the Company or the Trustee not later than the close of business on the Change of Control Payment Date, setting forth the name of the Holder, the principal amount of the tendered Notes, the certificate number of the tendered Notes and a statement that the Holder is withdrawing all or a portion of the tender; (xii) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Change of Control Offer, the Company will purchase all such Notes; (xiii) if any Note is purchased in part, new Notes equal in principal amount to the unpurchased portion of the Note will be issued; and (xiv) if any Note contains a CUSIP or CINS number, no representation is being made as to the correctness of the CUSIP or CINS number either as printed on the Notes or as contained in the offer and that the Holder should rely only on the other identification numbers printed on the Notes. (c) Prior to the Change of Control Payment Date, the Company will accept tendered Notes for purchase as required by the Change of Control Offer and deliver to the Trustee all Notes so accepted together with an Officers' Certificate specifying which Notes have been accepted for purchase. On the Change of Control Payment Date the purchase price will become due and payable on each Note accepted for purchase, and interest on Notes purchased will cease to accrue on and after the Change of Control Payment Date. The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly return to Holders any Notes not accepted for purchase and send to Holders new Notes equal in principal amount to any unpurchased portion of any Notes accepted for purchase in part, provided that each new Note will be in a principal amount of $1,000 or an integral multiple of $1,000. (d) On the Change of Control Payment Date, the Company will, to the extent lawful: 88 (i) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (iii) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. (e) The Company will comply with Rule 14e-1 under the Exchange Act and all other applicable laws in making any Change of Control Offer, and the above procedures will be deemed modified as necessary to permit such compliance. ARTICLE 10 GUARANTIES SECTION 10.01. The Guaranties. Subject to the provisions of this Article, each Guarantor hereby irrevocably and unconditionally guarantees, jointly and severally, on an unsecured basis, the full and punctual payment (whether at Stated Maturity, upon redemption, purchase pursuant to an Change of Control Offer or acceleration, or otherwise) of the principal of, premium, if any, and interest on, and all other amounts payable under, each Note, and the full and punctual payment of all other amounts payable by the Company under the Indenture. Upon failure by the Company to pay punctually any such amount, each Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Indenture. SECTION 10.02. Guarantee Unconditional. The obligations of each Guarantor hereunder are unconditional and absolute and, without limiting the generality of the foregoing, will not be released, discharged or otherwise affected by (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under the Indenture or any Note, by operation of law or otherwise; (ii) any modification or amendment of or supplement to the Indenture or any Note; 89 (iii) any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any obligation of the Company contained in the Indenture or any Note; (iv) the existence of any claim, set off or other rights which the Guarantor may have at any time against the Company, the Trustee or any other Person, whether in connection with the Indenture or any unrelated transactions, provided that nothing herein prevents the assertion of any such claim by separate suit or compulsory counterclaim; (v) any invalidity or unenforceability relating to or against the Company for any reason of the Indenture or any Note, or any provision of applicable law or regulation purporting to prohibit the payment by the Company of the principal of or interest on any Note or any other amount payable by the Company under the Indenture; or (vi) any other act or omission to act or delay of any kind by the Company, the Trustee or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to such Guarantor's obligations hereunder. SECTION 10.03 Discharge; Reinstatement. Each Guarantor's obligations hereunder will remain in full force and effect until the principal of, premium, if any, and interest on the Notes and all other amounts payable by the Company under the Indenture have been paid in full. If at any time any payment of the principal of, premium, if any, or interest on any Note or any other amount payable by the Company under the Indenture is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, each Guarantor's obligations hereunder with respect to such payment will be reinstated as though such payment had been due but not made at such time. SECTION 10.04. Waiver by the Guarantors. Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Company or any other Person. SECTION 10.05. Subrogation and Contribution. Upon making any payment with respect to any obligation of the Company under this Article, the Guarantor making such payment will be subrogated to the rights of the payee against the Company with respect to such obligation, provided that the Guarantor may not enforce either any right of subrogation, or any right to receive payment in the nature of contribution, or otherwise, from any other Guarantor, with respect to 90 such payment so long as any amount payable by the Company hereunder or under the Notes remains unpaid. SECTION 10.06. Stay of Acceleration. If acceleration of the time for payment of any amount payable by the Company under the Indenture or the Notes is stayed upon the insolvency, bankruptcy or reorganization of the Company, all such amounts otherwise subject to acceleration under the terms of the Indenture are nonetheless payable by the Guarantors hereunder forthwith on demand by the Trustee or the Holders. SECTION 10.07. Limitation on Amount of Guarantee. Notwithstanding anything to the contrary in this Article, each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent conveyance under applicable fraudulent conveyance provisions of the United States Bankruptcy Code or any comparable provision of state law. To effectuate that intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor under its Subsidiary Guarantee are limited to the maximum amount that would not render the Guarantor's obligations subject to avoidance under applicable fraudulent conveyance provisions of the United States Bankruptcy Code or any comparable provision of state law. SECTION 10.08. Execution and Delivery of Guarantee. The execution by each Guarantor of the Indenture (or a Supplemental Indenture in the form of Exhibit B) evidences the Subsidiary Guarantee of such Guarantor, whether or not the person signing as an officer of the Guarantor still holds that office at the time of authentication of any Note. The delivery of any Note by the Trustee after authentication constitutes due delivery of the Subsidiary Guarantee set forth in the Indenture on behalf of each Guarantor. SECTION 10.09. Release of Guarantee. The Subsidiary Guarantee of a Guarantor will terminate upon (i) any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the sale or other disposition complies with Section 3.12; or (ii) the sale or other disposition of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, if the sale or other disposition complies with Section 3.12; or 91 (iii) the Company designating any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; or (iv) defeasance or discharge of the Notes, as provided in Article VII. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the foregoing effect, the Trustee will execute any documents reasonably required in order to evidence the release of the Guarantor from its obligations under its Subsidiary Guarantee. ARTICLE 11 MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls. If any provision of the Indenture limits, qualifies or conflicts with another provision which is required to be included in the Indenture by the TIA, the required provision shall control. If the Indenture excludes any provision of the TIA that is required to be included, such provision shall be deemed included herein. SECTION 11.02. Notices. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to the Company: Northwest Pipeline Corporation 295 Chipeta Way Salt Lake City, Utah 84108 Telecopier No.: (801) 584-7862 Attention: Legal Department 92 If to the Trustee: JPMorgan Chase Bank Institutional Trust Services 4 New York Plaza-15th Floor New York, New York 10004 Telecopier No.: (212) 623-6167 Attention: Joanne Adamis Each of the Company and the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed by registered or certified mail; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Notwithstanding the foregoing, notices to the Trustee shall be effective only upon receipt. Any notice or communication to a Holder shall be mailed by first-class mail, postage prepaid, to the Holder's address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. All notices or communications, including without limitation notices to the Trustee or the Company by Holders, shall be in writing, except as set forth below, and in the English language. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice required by the Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. SECTION 11.3. Communication by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under the Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). 93 SECTION 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under the Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in the Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Notwithstanding the foregoing, no such Opinion of Counsel shall be required in connection with the issuance of the Series A Notes pursuant to the Original Offering. SECTION 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in the Indenture shall include: (i) a statement that the Person making such certificate or opinion has read such covenant or condition; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) 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 (iv) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 11.6. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or the Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 11.7. Legal Holidays. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. 94 SECTION 11.8. No Recourse Against Others. No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture, the Subsidiary Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 11.9. Governing Law. This Indenture and the Notes shall be governed by and constructed in accordance with the laws of the State of New York (including without limitation Section 5-1401 of the New York General Obligations Law or any successor to such statute). SECTION 11.10. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company, or any other Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret the Indenture. SECTION 11.11. Successors. All agreements of the Company in the Indenture and the Notes shall bind its successors. All agreements of the Trustee in the Indenture shall bind its successors. SECTION 11.12. Severability. In case any provision in the Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.13. Counterpart Originals. The parties may sign any number of copies of the Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.14. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of the 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. 95 IN WITNESS WHEREOF, the parties hereto have caused the Indenture to be duly executed as of the day and year first above written. Company: NORTHWEST PIPELINE CORPORATION By: __________________________ Name: Title: Trustee: JPMORGAN CHASE BANK By: __________________________ Name: Title: EXHIBIT A [FACE OF SECURITY] [Global Notes Legend] [UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. THE DEPOSITORY TRUST COMPANY SHALL ACT AS THE DEPOSITARY UNTIL A SUCCESSOR SHALL BE APPOINTED BY THE COMPANY AND THE REGISTRAR. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), 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 SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), 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.]* [Transfer Restricted Notes Legend] THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR OTHER SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING ITS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A INSIDE THE U.S., (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE U.S. WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THIS TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S." AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. NORTHWEST PIPELINE CORPORATION 8 1/8% Series [A/Exchange] Note due 2010 CUSIP [__________] No. ___ $___________ - --------------------------- * This paragraph should be included only if the Note is a Global Note. A-1 Northwest Pipeline Corporation, a Delaware corporation (the "Company"), for value received promises to pay to ___________________________ or registered assigns, the principal sum of _________ United States Dollars [or such greater or lesser amount as is indicated on the Schedule of Exchanges of Notes on the other side of this Note]* on March 1, 2010. Interest Payment Dates: March 1 and September 1 Record Dates: February 15 and August 15 Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. - --------------------------- * This paragraph should be included only if the Note is a Global Note. A-2 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officer. Dated: March 4, 2003 NORTHWEST PIPELINE CORPORATION By: __________________________ Name: Title: Certificate of Authentication: JPMORGAN CHASE BANK, as Trustee, certifies that this is one of the Notes referred to in the within-mentioned Indenture. By: __________________________ Authorized Signatory A-3 [REVERSE OF SECURITY] NORTHWEST PIPELINE CORPORATION 8 1/8% Series [A/Exchange] Senior Note due 2010 This Note is one of a duly authorized issue of 8 1/8% Series [A/Exchange] Senior Notes due 2010 (the "Notes") of Northwest Pipeline Corporation, a Delaware corporation (the "Company"). 1. Interest. The Company promises to pay interest on the principal amount of this Note at 8 1/8% per annum from March 4, 2003 until maturity. The Company will pay interest semiannually on March 1 and September 1 of each year (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day, to the holder of record at the close of business on February 15 or August 15 immediately preceding such Interest Payment Date. Interest on the Notes will accrue from the most recent Interest Payment Date on which interest has been paid or, if no interest has been paid, from March 4, 2003; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be September 1, 2003. Further, the Company shall pay interest on overdue principal and premium, if any, from time to time on demand at a rate equal to the interest rate then in effect; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. [The Holder of this Note is entitled to the benefits of a registration rights agreement, dated as of March 4, 2003, between the Company and the Initial Purchasers named therein (the "Registration Rights Agreement"). In the event that a Registration Default (as defined in the Registration Rights Agreement) occurs, liquidated damages ("Liquidated Damages") will accrue on the affected Transfer Restricted Notes and the affected Private Exchange Notes, as applicable. The rate of Liquidated Damages will be $0.05 per week per $1,000 principal amount of Transfer Restricted Notes and affected Private Exchange Notes held by such Holder for the first 90-day period immediately following the occurrence of a Registration Default, increasing by an additional $0.05 per week per $1,000 principal amount of Transfer Restricted Notes and affected Private Exchange Notes with respect to each subsequent 90-day period thereafter up to a maximum amount of Liquidated Damages for all Registration Defaults of $0.50 per week per $1,000 principal amount of Transfer Restricted Notes and affected Exchange Notes, from and including the date on which any such Registration Default shall occur to, but excluding, the earlier of (1) the date on which all Registration Defaults have been cured or (2) the date on which all Transfer Restricted Notes and Private Exchange Notes otherwise become freely transferrable by Holders A-4 other than affiliates of the Company without further registration under the Securities Act.]** 2. Ranking. The Notes are senior unsecured obligations of the Company. 3. Redemption and Repurchase; Discharge Prior to Redemption or Maturity. (a) At any time and from time to time prior to March 1, 2007, the Company may, at its option, redeem the Notes, in whole or in part, at the Make-Whole Price plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date. "Make-Whole Amount" with respect to a Note means an amount equal to the excess, if any, of (1) the present value of the remaining interest, premium and principal payments due on such Note (excluding any portion of such payments of interest accrued as of the Redemption Date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (2) the outstanding principal amount of such Note. "Make-Whole Average Life" means the number of years (calculated to the nearest one-twelfth) between the Redemption Date and the Stated Maturity of the Notes. "Make-Whole Price" means the sum of the outstanding principal amount of the Notes to be redeemed plus the Make-Whole Amount for such Notes. "Treasury Rate" is defined as the yield to maturity (calculated on a semi-annual bond-equivalent basis) at the time of the computation of United States Treasury securities with a constant maturity (as compiled by and published in the most recent Federal Reserve Statistical Release H.15 (510), which has become publicly available at least two business days prior to the date of the redemption notice or, if such Statistical Release is no longer published, any publicly available source of similar market data) most nearly equal to the then remaining maturity of the Notes; provided that if the Make-Whole Average Life of such note is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make-Whole Average Life of such Note is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. (b) At any time and from time to time on or after March 1, 2007, the Company may, at its option, redeem the Notes, in whole or in part, at a redemption price equal to the percentage of their principal amount set forth below plus accrued and unpaid interest and Liquidated Damages, if any, to the - --------------------------- ** Include only for the Transfer Restricted Notes and Private Exchange Notes. A-5 Redemption Date, if redeemed during the twelve-month period beginning on March 1 of the years indicated below:
Twelve-Month Period Commencing in Year Percentage - ------------------- ---------- 2007 104.063% 2008 102.031% 2009 and thereafter 100.000%
(c) At any time and from time to time prior to March 1, 2006, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the notes with the net cash proceeds received by the Company from any Public Equity Offering (excluding any net cash proceeds received from Williams or any of its Affiliates) at a redemption price equal to 108.125% of their principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date; provided that (1) in each case the redemption takes place not later than 90 days after the closing of the related Public Equity Offering, and (2) at least 65% of the aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries). (d) This Note may be the subject of a Change of Control Offer and/or an Asset Sale Offer, each as further described in the Indenture. (e) If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest and Liquidated Damages on the Notes to the Redemption Date or the Maturity Date, as the case may be, the Company may in certain circumstances specified in the Indenture be discharged from the Indenture and the Notes or may be discharged from certain of its obligations under the Indenture. (f) Periodic interest installments with respect to which the Interest Payment Date is on or prior to any Redemption Date will be payable to Holders of record at the close of business on the relevant record dates referred to herein, all as provided in the Indenture. (g) Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On or after the Redemption Date interest will cease to accrue on Notes or on the portions thereof called for redemption, as the case may be. 4. Paying Agent and Registrar. Initially, JPMorgan Chase Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar, co-registrar or additional A-6 paying agent without notice to any Holder. The Company or any of its subsidiaries may act in any such capacity. 5. Indenture. The Company issued the Notes under an Indenture dated as of March 4, 2003 (as amended, supplemented or otherwise modified form time to time, the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date of execution of the Indenture (the "TIA"). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. Capitalized terms used but not defined in this Note have the respective meanings given to such terms in the Indenture. 6. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Notes during the period between a record date and the corresponding Interest Payment Date. 7. Persons Deemed Owners. The registered Holder of a Note shall be treated as its owner for all purposes. 8. Amendments and Waivers. Subject to certain exceptions and limitations, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and compliance in a particular instance by the Company with any provision of the Indenture may be waived (other than certain provisions, including any continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on the Notes) by the Holders of at least a majority in principal amount of the Notes then outstanding in accordance with the terms of the Indenture. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger, consolidation or sale of all or substantially all of the assets of the Company; (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; (iv) to provide for any Guarantee of the Notes, to secure the Notes or to confirm and evidence the release, termination or discharge of any Guarantee of or Lien securing the Notes when such release, termination or discharge is permitted by the Indenture; (v) to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder; (vi) to provide for the acceptance of appointment under the Indenture of a successor Trustee in compliance with the provisions of the Indenture; or (vii) to comply with any requirements of the A-7 Commission under the Securities Act or the Exchange Act or in order to effect or maintain the qualification of the Indenture under the TIA. The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Notes with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture. Without the consent of each Holder affected, an amendment, supplement or waiver under the Indenture may not (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the rate of or change the time for payment of interest or Liquidated Damages on any Note, (iii) reduce the principal of or change the fixed maturity of any Note or alter the provisions (including, without limitation, the amount of any premium or the price thereunder) with respect to the redemption of the Notes (other than as specified in Section 8.02 of the Indenture), (iv) make any Note payable in money other than that stated in the Note, (v) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the Notes, (vi) waive a redemption payment with respect to any Note (other than as specified in Section 8.02 of the Indenture); (vii) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the Indenture, except in accordance with the terms of the Indenture; or (viii) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration) or (ix) make any change in the preceding amendment and waiver provisions. 9. Defaults and Remedies. Events of Default include: (i) default in payment when due of interest or Liquidated Damages, if any, on the Notes for 30 days; (ii) default in payment when due of principal of, or premium, if any, on the Notes; (iii) failure by the Company to purchase Notes tendered pursuant to a Change of Control Offer or an Asset Sale Offer as described under and in accordance with the terms of Sections 3.11 and 3.12 of the Indenture, or failure of the Company or any Guarantor to comply with the provisions of Article IV of the Indenture relating to mergers and consolidations, (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes, to comply with any of the other agreements in the Indenture; (v) certain defaults specified in Section 5.01(a)(v) of the Indenture under any mortgage, indenture or instrument evidencing Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries); (vi) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $15 million, A-8 which judgments are not paid, discharged or stayed for a period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee being held in any judicial proceeding to be unenforceable or invalid or ceasing for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, denying or disaffirming its obligations under its Subsidiary Guarantee; and (viii) certain voluntary or involuntary events specified in Sections 5.01(a)(viii) and 5.01(a)(ix) of the Indenture involving bankruptcy, insolvency or reorganization of the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare the principal of, and premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, on all the Notes to be immediately due and payable, except that in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization of the Company, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary specified in Sections 5.01(a)(viii) and 5.01(a)(ix) of the Indenture, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it under the Indenture. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or premium, if any, or interest) if and so long as it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 10. Trustee Dealings with the Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 11. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 12. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 13. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed A-9 on the Notes and reliance may be placed only on the other identification numbers printed thereon. 14. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 15. Governing Law. The Indenture and the Notes shall be governed by and constructed in accordance with, the laws of the State of New York. 16. [Additional Rights and Obligations of Holders of Transfer Restricted Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Transfer Restricted Notes and Private Exchange Notes shall have all the rights set forth in the Registration Rights Agreement applicable to such Notes. Each Holder of a Transfer Restricted Note or a Private Exchange Note, by his acceptance thereof, acknowledges and agrees to the provisions of such Registration Rights Agreement, including without limitation the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein.]*** The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Northwest Pipeline Corporation 295 Chipeta Way Salt Lake City, Utah 84108 Telephone No.: (801) 583-8800 Attention: Legal Department - --------------------------- *** This paragraph should be included only if the Note is a Transfer Restricted Note or a Private Exchange Note. A-10 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to _______________________ ________________________________________________________________________________ (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint __________________________________________________as agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ____________ Your Signature: ________________________________________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee: ___________________________________________________________ (Participant in a Recognized Signature Guaranty Medallion Program) In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the later of (i) the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by the Company or any Affiliate of the Company, and (ii) such later date, if any, as may be required by applicable law, the undersigned confirms that such Notes are being transferred as specified below: CHECK ONE (1) [ ] to the Company; or (2) [ ] to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or A-11 (3) [ ] outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933; or (4) [ ] pursuant to an effective registration statement under the Securities Act of 1933; or (5) [ ] pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act of 1933, provided by Rule 144 thereunder. and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933 (an "Affiliate"): [ ] The transferee is an Affiliate of the Company. Unless one of items (1) through (5) above is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if item (3) or (5) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in their sole discretion, such written legal opinions, certifications (including an investment letter, and in the case of a transfer pursuant to item (3), a Regulation S Letter in substantially the form set forth below) and other information as the Trustee or the Company have reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.06 of the Indenture shall have been satisfied. Signed: __________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: _________________________________________________ A-12 TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________________ _________________________________________ Notice: to be executed by an executive officer**** - --------------------------- **** These paragraphs should be included only if the Note is Transfer Restricted Note. A-13 FORM OF REGULATION S LETTER TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S __________________,____ JPMorgan Chase Bank, as Trustee. Four New York Plaza, 15th Floor New York, New York 10004 Telecopier No.: (212) 623-6167 Attention: Joanne Adamis Re: 8 1/8% Series A Senior Notes due 2010 of Northwest Pipeline Corporation. Ladies and Gentlemen: In connection with our proposed sale of $________________ principal amount of the above referenced Notes (the "Notes"), we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States of America; (2) at the time the buy order was originated, the transferee was outside the United States of America or we and any person acting on our behalf reasonably believed that the transferee was outside the United States of America; (3) no directed selling efforts have been made by us, any of our affiliates or any person acting on our or their behalf in the United States of America in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. You and Northwest Pipeline Corporation are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used but not defined in this letter have the meanings set forth in Regulation S under the Securities Act. Very truly yours, [Name of Transferor] By_________________________ Authorized Signature A-14 SCHEDULE OF EXCHANGES OF NOTES**** The following exchanges, redemptions or repurchases of a part of this Global Note have been made:
Principal Amount of Global Note Signature of Amount of decrease Amount of increase following such authorized Officer, Date of in Principal Amount in Principal Amount decrease (or Trustee or Notes Transaction of Global Note of Global Note increase) Custodian - ----------- -------------- -------------- --------- ---------
- --------------------------- **** This Schedule should be included only if the Note is a Global Note. A-15 EXHIBIT B SUPPLEMENTAL INDENTURE dated as of __________, ____ among NORTHWEST PIPELINE CORPORATION, [The Guarantor(s) Party Hereto] and JPMORGAN CHASE BANK, as Trustee 8 1/8% Senior Notes due 2010 B-1 THIS SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), entered into as of __________, ____, among Northwest Pipeline Corporation, a Delaware corporation (the "COMPANY"), [insert each Guarantor executing this Supplemental Indenture and its jurisdiction of incorporation] (each an "UNDERSIGNED") and JPMorgan Chase Bank, as trustee (the "TRUSTEE"). RECITALS WHEREAS, the Company, the Guarantors party thereto and the Trustee entered into the Indenture, dated as of March 4, 2003 (the "INDENTURE"), relating to the Company's 8 1/8% Senior Notes due 2010 (the "NOTES"); WHEREAS, as a condition to the Trustee entering into the Indenture and the purchase of the Notes by the Holders, the Company agreed pursuant to the Indenture to cause any newly acquired or created Domestic Restricted Subsidiaries to provide Guaranties. AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and intending to be legally bound, the parties to this Supplemental Indenture hereby agree as follows: SECTION 1. Capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture. SECTION 2. Each Undersigned, by its execution of this Supplemental Indenture, agrees to be a Guarantor under the Indenture and to be bound by the terms of the Indenture applicable to Guarantors, including, but not limited to, Article 10 thereof. SECTION 3. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. This Supplemental Indenture may be signed in various counterparts which together will constitute one and the same instrument. SECTION 5. This Supplemental Indenture is an amendment supplemental to the Indenture and the Indenture and this Supplemental Indenture will henceforth be read together. B-2 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. NORTHWEST PIPELINE CORPORATION, as Issuer By: _______________________ Name: Title: [GUARANTOR] By: _______________________ Name: Title: JPMORGAN CHASE BANK, as Trustee By: _______________________ Name: Title: B-3 EX-4.6 4 d03974exv4w6.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.6 REGISTRATION RIGHTS AGREEMENT dated as of March 4, 2003 among NORTHWEST PIPELINE CORPORATION and LEHMAN BROTHERS INC. on behalf of itself and the Initial Purchasers listed on Schedule I REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made and entered into as of March 4, 2003, by and among Northwest Pipeline Corporation (the "COMPANY"), a corporation duly organized and existing under the laws of the State of Delaware, and Lehman Brothers Inc., acting on behalf of itself and the several initial purchasers listed on Schedule I hereto, (the "INITIAL PURCHASERS"). This Agreement is made pursuant to the Purchase Agreement dated as of February 27, 2003, by and among the Company and the Initial Purchasers (the "PURCHASE AGREEMENT"), which provides for the sale by the Company to the Initial Purchasers of $175,000,000 principal amount of its 81/8% Senior Notes due 2010 (the "SECURITIES"). The Notes are to be issued pursuant to the provisions of an Indenture dated as of March 4, 2003 (as amended, supplemented or otherwise modified from time to time, the "INDENTURE") by and among the Company and JPMorgan Chase Bank, as trustee (the "TRUSTEE"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to each Initial Purchaser and its direct and indirect transferees the registration rights with respect to the Securities set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 ACT" shall mean the Securities Act of 1933, as amended from time to time. "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time. "AGREEMENT" shall have the meaning set forth in the preamble. "BUSINESS DAY" shall have the meaning set forth in Rule 13e-4(a)(3) under the 1934 Act. 2 "CLOSING DATE" shall mean the Closing Date as defined in the Purchase Agreement. "COMPANY" shall have the meaning set forth in the preamble and shall also include the Company's successors. "EXCHANGE DATES" shall have the meaning set forth in Section 2(a)(ii). "EXCHANGE OFFER" shall mean the exchange offer by the Company of Exchange Securities for all Securities that are Transfer Restricted Securities pursuant to Section 2(a) hereof. "EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933 Act effected pursuant to Section 2(a) hereof. "EXCHANGE OFFER REGISTRATION STATEMENT" shall mean a registration statement on Form S-4 (or, if applicable, on another appropriate form) relating to an offering of Exchange Securities pursuant to an Exchange Offer and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "EXCHANGE SECURITIES" shall mean any securities issued by the Company to be offered to Holders in exchange for Securities (pursuant to the Exchange Offer or otherwise) pursuant to an Exchange Offer Registration Statement containing terms identical to the Securities for which they are exchanged except that (i) interest thereon shall accrue from the last date on which interest was paid on the Securities or, if no such interest has been paid, from the date of issuance of the Securities and (ii) the Exchange Securities will not contain the legend appearing on the face of the Securities in the form recited in the Indenture and will not contain terms with respect to transfer restrictions. "HOLDER" shall mean each Initial Purchaser, for so long as it owns any Transfer Restricted Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Transfer Restricted Securities under the Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the term "Holder" shall include Participating Broker-Dealers (as defined in Section 4(a)). "INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c). "INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c). "INDENTURE" shall have the meaning set forth in the preamble. 3 "INITIAL PURCHASERS" shall have the meaning set forth in the preamble. "LIQUIDATED DAMAGES" shall have the meaning set forth in Section 2(e). "MAJORITY HOLDERS" shall mean the Holders of a majority of the aggregate principal amount of outstanding Transfer Restricted Securities; provided that, for purposes of Section 6(b), whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or any of its affiliates (as such term is defined in Rule 405 under the 1933 Act)(other than the Initial Purchasers or subsequent Holders of Transfer Restricted Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holding of such Transfer Restricted Securities) shall not be considered outstanding and shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage or amount. "PARTICIPANT" shall have the meaning set forth in Section 5(a). "PARTICIPATING BROKER-DEALER" shall have the meaning set forth in Section 4(a) hereof. "PERSON" shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "PROSPECTUS" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Transfer Restricted Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to such prospectus, and in each case including all material incorporated by reference therein. "PURCHASE AGREEMENT" shall have the meaning set forth in the preamble. "REGISTRATION DEFAULT" shall have the meaning set forth in Section 2(e). "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities 4 or Transfer Restricted Securities), (iii) all expenses of any Person in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws, (vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Company and, in the case of a Shelf Registration Statement, the reasonable fees and disbursements of one counsel for the Holders (which counsel shall be selected by the Majority Holders and which counsel may also be counsel for the Initial Purchasers) and (viii) the fees and disbursements of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, but excluding fees of counsel to the Underwriters (other than the fees and expenses set forth in clause (ii) above) and the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Transfer Restricted Securities by a Holder. "REGISTRATION STATEMENT" shall mean any registration statement of the Company that covers any of the Exchange Securities or the Transfer Restricted Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. "SECURITIES" shall have the meaning set forth in the preamble. "SHELF REGISTRATION" shall mean a registration effected pursuant to Section 2(b) hereof. "SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2(b) of this Agreement which covers all of the Transfer Restricted Securities (but no other securities unless approved by the Holders of a majority of the aggregate principal amount of outstanding Transfer Restricted Securities that are covered by such Shelf Registration Statement) on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. 5 "TIA" shall have the meaning set forth in Section 3(1) hereof. "TRANSFER RESTRICTED SECURITIES" shall mean each outstanding Security until: (i) the date on which such Security has been exchanged by a Person other than a broker-dealer for an Exchange Security in the Exchange Offer; (ii) following the exchange by a broker-dealer in the Exchange Offer of a Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the Prospectus contained in the Exchange Offer Registration Statement; (iii) the date on which such Security has been effectively registered under the 1933 Act and disposed of in accordance with the Shelf Registration Statement; or (iv) the date on which such Security is distributed to the public or is saleable pursuant to Rule 144 under the 1933 Act. "TRUSTEE" shall have the meaning set forth in the preamble. "UNDERWRITER" shall have the meaning set forth in Section 3 hereof. "UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" shall mean a registration in which Transfer Restricted Securities are sold to an Underwriter for reoffering to the public. 2. Registration under the 1933 Act. (a) To the extent not prohibited by any applicable law or applicable interpretation of the Staff of the SEC, the Company shall (1) cause to be filed an Exchange Offer Registration Statement within 90 days following the Closing Date covering the offer by the Company to the Holders to exchange all of the Transfer Restricted Securities for an equal aggregate principal amount of Exchange Securities and (2) use its commercially reasonable efforts to cause such Exchange Offer Registration Statement to become effective within 180 days following the Closing Date. The Company shall use its commercially reasonable efforts to have the Exchange Offer Registration Statement remain effective until the closing of the Exchange Offer. The Company shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement has been declared effective by the SEC and use its commercially reasonable efforts to have the Exchange Offer consummated not later than 30 Business Days, or longer, if required by the federal securities laws, after such effective date. The Company shall commence the Exchange Offer by mailing the related exchange offer Prospectus and accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law: 6 (i) that the Exchange Offer is being made pursuant to this Registration Rights Agreement and that all Transfer Restricted Securities validly tendered will be accepted for exchange; (ii) the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the "Exchange Dates"); (iii) that any Transfer Restricted Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement; (iv) that Holders electing to have a Transfer Restricted Security exchanged pursuant to the Exchange Offer will be required to surrender such Transfer Restricted Security, together with the enclosed letters of transmittal, to the institution and at the address specified in the notice prior to the close of business on the last Exchange Date; and (v) that Holders will be entitled to withdraw their election, not later than the close of business on the last Exchange Date, by sending to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Transfer Restricted Securities delivered for exchange and a statement that such Holder is withdrawing his election to have such Transfer Restricted Securities exchanged. As soon as practicable after the last Exchange Date, the Company shall: (A) accept for exchange Transfer Restricted Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer; and (B) deliver, or cause to be delivered, to the Trustee for cancellation all Transfer Restricted Securities or portions thereof so accepted for exchange by the Company and issue, and cause the Trustee to promptly authenticate and deliver to each Holder, an Exchange Security equal in aggregate principal amount to the aggregate principal amount of the Transfer Restricted Securities surrendered by such Holder. 7 The Company shall use its commercially reasonable efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the 1933 Act, the 1934 Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable interpretation of the Staff of the SEC. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right, subject to applicable law, to contact such Holders and otherwise facilitate the tender of Transfer Restricted Securities in the Exchange Offer. If, during the period the Exchange Offer Registration Statement is effective, an event occurs which makes any statement made in such Exchange Offer Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Exchange Offer Registration Statement or Prospectus in order to make the statements therein not misleading, the Company shall use its commercially reasonable efforts to prepare and file with the SEC a supplement or post-effective amendment to the Exchange Offer Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Transfer Restricted Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company agrees to notify the Holders to suspend the exchange of the Transfer Restricted Securities as promptly as practicable after the occurrence of such an event, and the Holders hereby agree to suspend such exchange until the Company has amended or supplemented the Prospectus to correct such misstatement or omission. (b) If (i) the Company is not (A) required to file the Exchange Offer Registration Statement or (B) permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or applicable interpretation of the Staff of the SEC; or (ii) any Holder of Transfer Restricted Securities notifies the Company prior to the 20th day following the consummation of the Exchange Offer that: (A) it is prohibited by law or applicable interpretation of the Staff of the SEC from participating in the Exchange Offer, (B) it may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a Prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales 8 or (C) it is a broker-dealer and owns Securities acquired directly from the Company or an affiliate of the Company, the Company shall (x) use its commercially reasonable efforts to file with the SEC within 60 days after such filing obligation arises (or, if later, the date by which the Company is obligated to file an Exchange Offer Registration Statement) a Shelf Registration Statement providing for the resale by the Holders (other than those who fail to comply with the paragraph immediately following clause (p) of Section 3) of all of their Transfer Restricted Securities and (y) use its commercially reasonable efforts to cause such Shelf Registration Statement to become effective within 180 days after such filing obligation arises (or, if later, the date by which the Company is obligated to use its commercially reasonable efforts to have the Exchange Offer Registration Statement declared effective). If the Company is required to file a Shelf Registration Statement solely as a result of the matters referred to in clause (ii) of the preceding sentence, the Company shall use it commercially reasonable efforts to file and have declared effective by the SEC both an Exchange Offer Registration Statement pursuant to Section 2(a) with respect to all Transfer Restricted Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to reoffers and resales of Transfer Restricted Securities held by the Holders who must deliver the related Prospectus. Subject to the following paragraph, the Company agrees to use its commercially reasonable efforts to keep the Shelf Registration Statement continuously effective until the expiration of the period referred to in Rule 144(k) with respect to the Transfer Restricted Securities or such shorter period that will terminate when all of the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be Transfer Restricted Securities within the meaning of this Agreement. The Company further agrees to supplement or 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 or by the 1933 Act or by any other rules and regulations thereunder for shelf registration or if reasonably requested by a Holder with respect to information relating to such Holder, and to use its commercially reasonable efforts to cause any such amendment to become effective and such Shelf Registration Statement to become usable as soon as thereafter practicable. The Company agrees to furnish to the Holders of Transfer Restricted Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. Notwithstanding anything to the contrary in this Agreement, the Company, upon advising the Initial Purchasers and each Holder, may suspend the use of the Prospectus included in any Shelf Registration 9 Statement in the event that and for periods of time not to exceed 30 consecutive days and for no more than 60 days during any 365 day period in which such suspensions are in effect (each such period, a "SUSPENSION PERIOD") if (i) an event or circumstance occurs and is continuing as a result of which the Shelf Registration Statement, the related Prospectus or any document incorporated therein by reference as then amended or supplemented or proposed to be filed would, in the good faith judgment of the Company, contain an untrue statement of a material fact or omit 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 and (ii) (A) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a material business transaction or development which has not been publicly disclosed; provided, however, that upon the termination of such Suspension Period, the Company shall promptly advise the Initial Purchasers and each Holder that such Suspension Period has been terminated. (c) The Company shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay all underwriting discounts, if any, and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Transfer Restricted Securities pursuant to a Shelf Registration Statement. (d) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that, if, after it has been declared effective, the offering of Transfer Restricted Securities pursuant to a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Transfer Restricted Securities pursuant to such Registration Statement may legally resume. (e) The Company and the Initial Purchasers agree that the Holders will suffer damages if the Company fails to fulfill its obligations under Section 2(a) or Section 2(b) hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees that if: 10 (i) the Exchange Offer Registration Statement is not filed with the SEC on or prior to the 90th day following the Closing Date, (ii) the Exchange Offer Registration Statement is not declared effective on or prior to the 180th day following the Closing Date, (iii) the Exchange Offer is not completed on or prior to the 30th Business Day following the date the Exchange Offer Registration Statement is declared effective, or (iv) the Shelf Registration Statement is required to be filed but is not filed or declared effective within the respective time periods set forth herein or is declared effective but thereafter ceases to be effective or usable (other than during a Suspension Period) prior to the expiration of the period referred to in Rule 144(k) with respect to the Transfer Restricted Securities other than after the Transfer Restricted Securities have been disposed of under the Shelf Registration Statement or cease to be Transfer Restricted Securities, without being succeeded within two Business Days by a post-effective amendment which cures the failure and that is itself immediately declared effective, (each such event referred to in clauses (i) through (iv) a "REGISTRATION DEFAULT"), liquidated damages ("LIQUIDATED DAMAGES") will accrue on the affected Transfer Restricted Securities and the affected Exchange Securities, as applicable. The rate of Liquidated Damages will be $0.05 per week per $1,000 principal amount of Transfer Restricted Securities and affected Exchange Securities held by such Holder for the first 90-day period immediately following the occurrence of a Registration Default, increasing to by an additional $0.05 per week per $1,000 principal amount of Transfer Restricted Securities and affected Exchange Securities with respect to each subsequent 90-day period thereafter up to a maximum amount of Liquidated Damages for all Registration Defaults of $0.50 per week per $1,000 principal amount of Transfer Restricted Securities and affected Exchange Securities, from and including the date on which any such Registration Default shall occur to, but excluding, the earlier of (1) the date on which all Registration Defaults have been cured or (2) the date on which all the Transfer Restricted Securities and Exchange Securities otherwise become freely transferable by Holders other than affiliates of the Company without further registration under the 1933 Act. 11 Notwithstanding the foregoing, (1) the amount of Liquidated Damages payable shall not increase because more than one Registration Default has occurred and is pending and (2) a Holder of Transfer Restricted Securities or Exchange Securities who is not entitled to the benefits of the Shelf Registration Statement (i.e., such Holder has not elected to including information) shall not be entitled to Liquidated Damages with respect to a Registration Default that pertains to the Shelf Registration Statement. (f) The Company shall notify the Trustee within one Business Day after each date on which an event occurs in respect of which Liquidated Damages are required to be paid. Any amounts of Liquidated Damages due pursuant to this Section 2 will be payable in addition to any other interest payable from time to time with respect to the Transfer Restricted Securities in cash semi-annually on the interest payment dates specified in the Indenture (to the holders of record as specified in the Indenture), commencing with the first such interest payment date occurring after any such Liquidated Damages commence to accrue. The amount of Liquidated Damages will be determined in a manner consistent with the calculation of interest under the Indenture. (g) Without limiting the remedies available to the Holders, the Company acknowledges that any failure by the Company to comply with its obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Section 2(a) and Section 2(b) hereof. 3. Registration Procedures. In connection with the obligations of the Company with respect to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the Company shall as expeditiously as possible (provided, however, that the Company shall not be required to take actions more promptly than required by Sections 2(a) and 2(b)): (a) prepare and file with the SEC a Registration Statement on the appropriate form under the 1933 Act, which form shall (x) be selected by the Company, (y) in the case of a Shelf Registration, be available for the sale of the Transfer Restricted Securities by the selling Holders thereof and (z) comply as to form in all material respects with the applicable 12 requirements of the 1933 Act and rules and regulations promulgated thereunder and include all financial statements required by the SEC to be filed therewith, and use commercially reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) 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 effective for the applicable period and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; and keep each Prospectus current during the period described under Section 4(3) and Rule 174 under the 1933 Act that is applicable to transactions by brokers or dealers with respect to the Transfer Restricted Securities or Exchange Securities; (c) in the case of a Shelf Registration, furnish to each Holder of Transfer Restricted Securities, to counsel for the Initial Purchasers and to counsel for the Holders and to each Underwriter of an Underwritten Offering of Transfer Restricted Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus and any amendment or supplement thereto and such other documents as such Holder or Underwriter may reasonably request, in order to facilitate the public sale or other disposition of the Transfer Restricted Securities; and, subject to Section 3(i), the Company consents to the use of such Prospectus and any amendment or supplement thereto in accordance with applicable law by each of the selling Holders of Transfer Restricted Securities and any such Underwriters in connection with the offering and sale of the Transfer Restricted Securities covered by and in the manner described in such Prospectus or any amendment or supplement thereto in accordance with applicable law; (d) use its commercially reasonable efforts to register or qualify the Transfer Restricted Securities under all applicable state securities or blue sky laws of such jurisdictions as any Holder of Transfer Restricted Securities covered by a Registration Statement shall reasonably request in writing by the time the applicable Registration Statement is declared effective by the SEC, and to cooperate with such Holders in connection with any filings required to be made with the National Association of Securities Dealers, Inc. and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Transfer Restricted Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in 13 securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) file any general consent to service of process or (iii) subject itself to taxation in any such jurisdiction if it is not so subject; (e) in the case of a Shelf Registration, notify each Holder of Transfer Restricted Securities, counsel for the Holders and counsel for the Initial Purchasers (or, if applicable, separate counsel for the Holders) promptly and, if requested by any such Holder or counsel, confirm such advice in writing, (i) when a Registration Statement has become effective and when any post-effective amendment thereto has been filed and becomes effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if, between the effective date of a Registration Statement and the closing of any sale of Transfer Restricted Securities covered thereby, the Company receives any notification with respect to the suspension of the qualification of the Transfer Restricted Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (v) of the happening of any event during the period a Shelf Registration Statement is effective which makes any statement made in such Shelf Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of any determination by the Company that a post-effective amendment to a Registration Statement would be appropriate and (vii) of any Suspension Period; (f) use its commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment and provide immediate notice to each Holder of the withdrawal of any such order; (g) in the case of a Shelf Registration, furnish to each Holder of Transfer Restricted Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (h) in the case of a Shelf Registration, cooperate with the selling Holders of Transfer Restricted Securities to facilitate the timely preparation 14 and delivery of certificates representing Transfer Restricted Securities (if such Securities are certificated) to be sold and not bearing any restrictive legends (unless required by applicable securities laws) and enable such Transfer Restricted Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders may reasonably request at least two Business Days prior to the closing of any sale of Transfer Restricted Securities; (i) in the case of a Shelf Registration, upon the occurrence of any event contemplated by Section 3(e)(v) or (vii) hereof, use its commercially reasonable efforts to prepare and file with the SEC a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Transfer Restricted Securities, such Prospectus will not contain any untrue statement of a material fact or omit 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 Company agrees to notify the Holders to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and the Holders hereby agree to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to the Holders or until the Company notifies the Holders that the sale of the Transfer Restricted Securities may be resumed; (j) a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus (except any amendment or supplement solely to add additional selling securityholders), provide copies of such document to the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Holders and their counsel) and make such of the representatives of the Company as shall be reasonably requested by the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Holders or their counsel) available for discussion of such document, and shall not at any time file or make any amendment to the Shelf Registration Statement, any Prospectus or any amendment of or supplement to a Shelf Registration Statement or a Prospectus (except any amendment or supplement solely to add additional selling securityholders) of which the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Holders or their counsel) shall not have previously been advised and furnished a copy or to which the Initial Purchasers or their counsel (and, in the case of a Shelf 15 Registration Statement, the Holders or their counsel) shall reasonably object; (k) obtain a CUSIP number for all Exchange Securities or Transfer Restricted Securities, as the case may be, not later than the effective date of the applicable Registration Statement; (l) cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Securities or Transfer Restricted Securities, as the case may be, and cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use commercially reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (m) in the case of a Shelf Registration, make available for inspection by a representative of the Holders of the Transfer Restricted Securities, any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, and attorneys and accountants designated by the Holders, at reasonable times and in a reasonable manner, all financial and other records, pertinent documents and properties of the Company, and cause the respective officers, directors and employees of the Company to supply all information reasonably requested by any such representative, Underwriter, attorney or accountant in connection with a Shelf Registration Statement, in each case that would customarily be reviewed or examined in connection with "due diligence" review of the Company; (n) use its reasonable best efforts to cause the Exchange Securities to continue to be rated by two nationally recognized statistical rating organizations (as such term is defined in Rule 436(g)(2) under the 1933 Act), if the Transfer Restricted Securities have been rated; (o) if reasonably requested by any Holder of Transfer Restricted Securities covered by a Registration Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information with respect to such Holder as such Holder reasonably requests to be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such filing; and 16 (p) in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including those reasonably requested by the Holders of a majority of the Transfer Restricted Securities being sold thereunder) in order to expedite or facilitate the disposition of such Transfer Restricted Securities thereunder including, but not limited to, pursuant to an Underwritten Offering and in such connection, (i) to the extent possible, make such representations and warranties to the Holders and any Underwriters of such Transfer Restricted Securities with respect to the business of the Company and its subsidiaries, the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested, (ii) obtain opinions of counsel to the Company (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Holders of a majority in principal amount of the Transfer Restricted Securities being sold under such Shelf Registration Statement, such Underwriters and their respective counsel) addressed to each selling Holder and Underwriter of Transfer Restricted Securities, covering the matters customarily covered in opinions requested in underwritten offerings, (iii) obtain "cold comfort" letters from the independent certified public accountants of the Company (and, if necessary, any other certified public accountant of any subsidiary of the Company, or of any business acquired by the Company for which financial statements and financial data are or are required to be included in the Registration Statement) addressed to each selling Holder and Underwriter of Transfer Restricted Securities, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Transfer Restricted Securities being sold under such Shelf Registration Statement or by the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the Company made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in an underwriting agreement. In the case of a Shelf Registration Statement, the Company may require each Holder of Transfer Restricted Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Transfer Restricted 17 Securities as the Company may from time to time reasonably request in writing. No Holder of Transfer Restricted Securities may include its Transfer Restricted Securities in such Shelf Registration Statement unless and until such Holder furnishes such information to the Company. Each Holder including Transfer Restricted Securities in a Shelf Registration Statement shall agree to furnish promptly to the Company all information regarding such Holder and the proposed distribution by such Holder of such Transfer Restricted Securities required to make the information previously furnished to the Company by such Holder not materially misleading. In connection with an Exchange Offer Registration, each Holder exchanging Securities for Exchange Securities shall be required to represent that (i) the Exchange Securities are being obtained in the ordinary course of business of the Person receiving such Exchange Securities, whether or not such Person is a Holder, (ii) neither such Holder nor any such other Person has an arrangement or understanding with any Person to participate in the distribution of Exchange Securities, (iii) other than as set forth in Section 4, if the Holder is not a broker-dealer, or is a broker-dealer but will not receive Exchange Securities for its own account in exchange for Securities, neither the Holder nor any such other Person is engaged in or intends to participate in a distribution of the Exchange Securities and (iv) neither the Holder nor any such other Person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or, if such Person is an "affiliate", that such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e)(v) hereof or of a Suspension Period, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if so directed by the Company, such Holder will destroy or deliver to the Company (at its expense) all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities current at the time of receipt of such notice. If the Company shall give any such notice to suspend the disposition of Transfer Restricted Securities pursuant to a Registration Statement, the Company shall extend the period during which the Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the 18 Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions. The Holders of Transfer Restricted Securities covered by a Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers (the "Underwriters") that will administer the offering will be selected by the Majority Holders of the Transfer Restricted Securities included in such offering, provided that such Underwriters shall be reasonably acceptable to the Company. 4. Participation of Broker-Dealers in Exchange Offer. (a) The parties hereto understand that the Staff of the SEC has taken the position that any broker-dealer that receives Exchange Securities for its own account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities (a "Participating Broker-Dealer"), may be deemed to be an "underwriter" within the meaning of the 1933 Act and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. The Company understands that it is currently the Staff's position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligation under the 1933 Act in connection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the 1933 Act. (b) In light of the above, notwithstanding the other provisions of this Agreement, the Company agrees that the provisions of this Agreement as they relate to a Shelf Registration shall also apply to an Exchange Offer Registration to the extent, and with such reasonable modifications thereto as may be, reasonably requested by the Initial Purchasers or by one or more Participating Broker-Dealers, in each case as provided in clause (ii) below, in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions of the Staff recited in Section 4(a) above; provided that: 19 (i) the Company shall not be required to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement, as would otherwise be contemplated by Section 3(i), for a period exceeding 180 days after the last Exchange Date (as such period may be extended pursuant to the penultimate paragraph of Section 3 of this Agreement) and Participating Broker-Dealers shall not be authorized by the Company to deliver and shall not deliver such Prospectus after such period in connection with the resales contemplated by this Section 4; and (ii) the application of the Shelf Registration procedures set forth in Section 3 of this Agreement to an Exchange Offer Registration, to the extent not required by the positions of the Staff of the SEC or the 1933 Act and the rules and regulations thereunder, will be in conformity with the reasonable request in writing to the Company by the Initial Purchasers or with the reasonable request in writing to the Company by one or more broker-dealers who certify to the Initial Purchasers and the Company in writing that they anticipate that they will be Participating Broker-Dealers; and provided further that, in connection with such application of the Shelf Registration procedures set forth in Section 3 to an Exchange Offer Registration, the Company shall be obligated (x) to deal only with one entity representing the Participating Broker-Dealers, which shall be Lehman Brothers Inc. unless it elects not to act as such representative, (y) to pay the fees and expenses of only one counsel representing the Participating Broker-Dealers, which shall be counsel to the Initial Purchasers unless such counsel elects not to so act and (z) to cause to be delivered only one, if any, "cold comfort" letter with respect to the Prospectus in the form existing on the last Exchange Date and with respect to each subsequent amendment or supplement, if any, effected during the period specified in clause (i) above. (c) The Initial Purchasers shall have no liability to the Company, other than as Holders in accordance with the terms hereof, or to any other Holder with respect to any request that they may make pursuant to Section 4(b) above. 5. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder and each Person, if any, who controls the 20 Initial Purchasers or any Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, or is under common control with, or is controlled by, the Initial Purchasers or any Holder (each, a "Participant"), from and against all losses, claims, damages and liabilities (including, without limitation, any legal fees or other expenses reasonably incurred by a Participant 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 thereto) pursuant to which Exchange Securities or Transfer Restricted Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or 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, or caused by any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) forming a part of such Registration Statement, or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made 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 and in conformity with information relating to the Initial Purchasers or any Holder furnished to the Company in writing by the Initial Purchasers or any selling Holder expressly for use therein; provided that the foregoing indemnity with respect to any Prospectus shall not inure to the benefit of any Holder from whom the Person asserting any such losses, claims, damages or liabilities purchased Securities, or any Person controlling such Holder, if a copy of the final Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent by, or delivered on behalf of, such Holder to such Person at or prior to the written confirmation of the sale of the Securities to such Person, if the final Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. In connection with any Underwritten Offering permitted by Section 3, the Company will also enter into an underwriting agreement pursuant to which the Company will agree to indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in such Underwritten Offering, their officers and directors and each Person who controls such Persons (within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act) to the same extent as provided above with respect to the indemnification of the Holders, if requested in connection with any Registration Statement for such Underwritten Offering. 21 (b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Initial Purchasers and the other selling Holders, and each of their respective directors and officers who sign the Registration Statement and each Person, if any, who controls the Company, the Initial Purchasers and any other selling Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as the foregoing indemnity from the Company to the Initial Purchasers and the Holders pursuant to Section 5(a), but only with reference to information relating to such Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement 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 paragraph (b) above, such Person (the "INDEMNIFIED PARTY") shall promptly notify the Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing, but the failure to so promptly notify the Indemnifying Party shall not negate the obligation to so indemnify such Indemnified Party unless the Indemnifying Party is materially prejudiced by such delay, 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 expenses 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, in the opinion of counsel to the Indemnifying Party, 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 connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Initial Purchasers and all Persons, if any, who control the Initial Purchasers within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each Person, if any, who controls the Company within the meaning of either such Section and (c) the fees and 22 expenses of more than one separate firm (in addition to any local counsel) for all Holders and all Persons, if any, who control any Holders within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In such case involving the Initial Purchasers and Persons who control the Initial Purchasers, such firm shall be designated in writing by the Initial Purchasers. In such case involving the Holders and such Persons who control Holders, such firm shall be designated in writing by the Majority Holders. In all other cases, such firm shall be designated by 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. 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 such 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) If the indemnification provided for in paragraph (a) or paragraph (b) of this Section 5 is unavailable to an Indemnified Party or insufficient in respect of any losses, claims, damages or liabilities, 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 in such proportion as is appropriate to reflect 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 fault of the Company and the Holders 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 Holders 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 5(d) are several in proportion to the respective principal amount of Transfer Restricted Securities of the applicable Holder that were registered pursuant to a Registration Statement. 23 (e) The Company and each Holder agree that it would not be just or equitable if contribution pursuant to this Section 5(d) 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 Section 5(d) above. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in Section 5(d) above 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 the provisions of this Section 5, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which Transfer Restricted Securities were sold by such Holder exceeds the amount of any damages that such Holder has otherwise been 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 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 5 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. The indemnity and contribution provisions contained in this Section 5 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 Purchasers, any Holder or any Person controlling the Initial Purchasers or any Holder, or by or on behalf of the Company, its officers or directors or any Person controlling the Company, (iii) acceptance of any of the Exchange Securities and (iv) any sale of Transfer Restricted Securities pursuant to a Shelf Registration Statement. 6. Miscellaneous. (a) No Inconsistent Agreements. The Company has not entered into, and on or after the date of this Agreement will not enter into, any agreement which is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such 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 24 hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Transfer Restricted Securities affected by such amendment, modification, supplement, waiver or consent; provided, however, that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof or this paragraph (b) shall be effective as against any Holder of Transfer Restricted Securities unless consented to in writing by such Holder. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, facsimile or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Initial Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the Company, initially at the Company's address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices and communications shall be deemed to have been duly given at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage pre-paid, if mailed; when receipt is acknowledged, if sent by facsimile; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. (d) Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms of the Securities and the Purchase Agreement. If any transferee of any Holder shall acquire Transfer Restricted Securities, in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted 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 25 Person shall be entitled to receive the benefits hereof. The Initial Purchasers shall have no liability or obligation to the Company with respect to any failure by a Holder to comply with, or any breach by any other Holder of, any of the obligations of such Holder under this Agreement. (e) Purchases and Sales of Securities. The Company shall not, and shall use its reasonable best efforts to cause its affiliates (as defined in Rule 405 under the 1933 Act) not to, purchase and then resell or otherwise transfer any Securities unless such resold or transferred Securities have an appropriate legend regarding transfer restrictions and the date of such resale or transfer. (f) Third Party Beneficiary. Each Holder shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, shall be bound by all of the terms and provisions of this Agreement and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (g) 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 an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law This Agreement shall be governed by the laws of the State of New York. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 26 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. NORTHWEST PIPELINE CORPORATION By ______________________ Name: Title: Confirmed and accepted as of the date first above written: LEHMAN BROTHERS INC. on behalf of itself and the several Managers listed on Schedule I hereto By: ___________________________ Name: Title: SCHEDULE I Initial Purchasers Lehman Brothers Inc. Banc of America Securities LLC Credit Lyonnais Securities (USA) Inc. J.P. Morgan Securities Inc. Salomon Smith Barney Inc. Scotia Capital (USA) Inc. TD Securities (USA) Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated 28 EX-5.1 5 d03974exv5w1.txt OPINION/CONSENT OF GIBSON, DUNN & CRUTCHER LLP EXHIBIT 5.1 (LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP) April 10, 2003 (303) 298-5700 C 97394-00008 Northwest Pipeline Corporation 295 Chipeta Way Salt Lake City, Utah 84108 Re: Northwest Pipeline Corporation Registration Statement on Form S-4 Ladies and Gentlemen: We have acted as special counsel to Northwest Pipeline Corporation, a Delaware corporation (the "Issuer"), in connection with the Issuer's registration, on a Registration Statement on Form S-4 (the "Registration Statement"), under the Securities Act of 1933, as amended, of $175,000,000 aggregate principal amount of 8 1/8% Senior Notes due 2010 (the "New Notes"). The New Notes will be offered in exchange for like principal amounts of the Issuer's outstanding 8 1/8% Senior Notes due 2010 (the "Old Notes") pursuant to the Registration Rights Agreement, dated as of March 4, 2003 (the "Registration Rights Agreement"), by and between the Issuer and Lehman Brothers Inc., on behalf of itself and the Initial Purchasers listed on Schedule I thereto. The Registration Rights Agreement was executed in connection with the private placement of the Old Notes. The New Notes will be issued pursuant to the Indenture, dated as of March 4, 2003 (the "Indenture"), by and between the Issuer and JPMorgan Chase Bank, as Trustee. The New Notes and the Indenture are each governed under the internal laws of the State of New York, and are sometimes collectively referred to herein as the "Documents." In rendering this opinion, we have examined the Documents, and have also made such inquiries and examined, among other things, originals or copies, certified or otherwise identified Northwest Pipeline Corporation April 10, 2003 Page 2 to our satisfaction, of such records, agreements, certificates, instruments and other documents, as we have considered necessary or appropriate for purposes of this opinion. In rendering this opinion, we have assumed: (a) Each party to the Documents (i) is a validly existing corporation in good standing under the laws of its state of incorporation, (ii) has all requisite power and authority to execute, deliver and perform its obligations under the Documents, (iii) has duly authorized, by all necessary action on such party's part, the execution and delivery of each such Document and the performance of such obligations and (iv) has duly executed and delivered each such Document; (b) Each of the Documents is the legal, valid and binding obligation of, and is enforceable against, each party thereto (other than the Issuer, as to which the assumptions in this clause (b) do not apply) in accordance with its terms; (c) The signatures on all documents examined by us are genuine, all individuals executing such documents had all requisite legal capacity and competency and were duly authorized to execute and deliver such documents, the documents submitted to us as originals are authentic, and the documents submitted to us as certified or reproduction copies conform to the originals; (d) There are no agreements or understandings between or among the Company and other parties to the Documents, or third parties, that would expand, modify or otherwise affect the terms of the Documents or the respective rights or obligations of the parties thereunder; (e) The proceeds from the sale of the Old Notes were applied as set forth in the Offering Memorandum of the Company dated February 27, 2003 in connection with the issuance and sale of the Old Notes; and (f) The issuance and delivery of the New Notes will not, at any time, violate any applicable law or result in a violation of any provision of any instrument or agreement then binding on the Issuer or any restriction imposed by any court or governmental body having jurisdiction over the Issuer. Based upon the foregoing and in reliance thereon, and subject to the assumptions, exceptions, qualifications and limitations contained herein, we are of the opinion that when issued in exchange for the Old Notes pursuant to the terms of the Indenture and the exchange offer described in the Registration Statement, the New Notes will be legally issued and will constitute binding obligations of the Issuer. The foregoing opinions are subject to the following exceptions, qualifications and limitations: Northwest Pipeline Corporation April 10, 2003 Page 3 A. Our opinions are subject to (i) the effect of any bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws affecting the rights and remedies of creditors' generally (including, without limitation, the effect of statutory or other laws regarding fraudulent transfers or preferential transfers) and (ii) general principles of equity, including without limitation concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other equitable remedies regardless of whether enforceability is considered in a proceeding in equity or at law. B. We express no opinion regarding the effectiveness (i) of any waiver (whether or not stated as such) under the Documents, or any consent thereunder relating to, any unknown future rights or the rights of any party thereto existing, or duties owing to it, as a matter of law; (ii) of any waiver (whether or not stated as such) contained in the Documents of rights of any party, or duties owing to it, that is broadly or vaguely stated or does not describe the right or duty purportedly waived with reasonable specificity; (iii) of provisions relating to indemnification, exculpation or contribution, (iv) of any provisions of the Documents that may be construed as penalties or forfeitures; or (v) of any covenants (other than covenants relating to the payment of principal, interest, premium, indemnities and expenses) in the Indenture to the extent they are construed to be independent requirements as distinguished from conditions to the declaration or occurrence of a default or any event of default. C. We render no opinion herein as to matters involving the laws of any jurisdiction other than the State of New York and the United States of America, and this opinion is limited to the effect of the present state of the laws of the State of New York and the United States of America. We assume no obligation to revise or supplement this opinion in the event of changes in such laws or the interpretations thereof or in the event of changes in such facts. D. We express no opinion as to the applicability to, or the effect of noncompliance by, the holders of the New Notes or the Trustee with any state or federal laws applicable to the transactions contemplated by the Documents because of the nature of the business of such party. Northwest Pipeline Corporation April 10, 2003 Page 4 We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading "Legal Matters" contained in the prospectus that forms a part of the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. Very truly yours, /s/ Gibson, Dunn & Crutcher LLP GIBSON, DUNN & CRUTCHER LLP RMR/CMN EX-10.3 6 d03974exv10w3.txt PURCHASE AGREEMENT EXHIBIT 10.3 NORTHWEST PIPELINE CORPORATION $175,000,000 8.125% Notes due 2010 PURCHASE AGREEMENT February 27, 2003 To the Initial Purchasers listed on Schedule I hereto c/o Lehman Brothers Inc. 745 Seventh Avenue New York, NY 10019 Ladies and Gentlemen: Northwest Pipeline Corporation, a Delaware corporation, (the "COMPANY"), proposes to issue and sell to the several initial purchasers listed on Schedule I hereto (the "INITIAL PURCHASERS", individually, each an "INITIAL PURCHASER"), $175,000,000 aggregate principal amount of its 8.125% Senior Notes due 2010 (the "SECURITIES"), to be issued pursuant to the provisions of an Indenture to be dated as of March 4, 2003 (the "INDENTURE"), between the Company and JPMorgan Chase Bank, as trustee (the "TRUSTEE"). The Securities will be entitled to the benefits of a registration rights agreement to be dated as of March 4, 2003 between the Company and the Initial Purchasers (the "REGISTRATION RIGHTS AGREEMENT"). The Company hereby confirms its agreement with the Initial Purchasers to issue and sell all of the Securities to the Initial Purchasers, on the terms and conditions set forth herein. The Securities will be offered and sold to the Initial Purchasers, 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 has prepared and delivered to the Initial Purchasers a preliminary confidential offering memorandum, dated February 20, 2003 (together with all documents incorporated by reference therein, the "PRELIMINARY OFFERING MEMORANDUM") and has prepared and will deliver to the Initial Purchasers on the date hereof or as soon as practicable thereafter, copies of a final confidential offering memorandum, dated February 27, 2003 (together with all amendments and supplements thereto, and together with all documents incorporated by reference therein, the "FINAL OFFERING MEMORANDUM"), relating to the Securities. The Preliminary Offering Memorandum and the Final Offering Memorandum are sometimes collectively referred to herein as the "Offering Memorandum." 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 Purchasers propose 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 Purchasers deem advisable after this Agreement has been executed and delivered only (i) to persons in the United States whom the Initial Purchasers reasonably believe 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 Purchasers 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 or (ii) in offshore transactions to non-U.S. persons in reliance on Regulation S under the Securities Act ("REGULATION S"). 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, the Initial Purchasers 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 of the subsidiaries of the Company (the "SUBSIDIARIES" or "SUBSIDIARY") has been duly organized or validly formed, is validly existing and in good standing under the laws of the jurisdiction of its 2 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) Each of the Company and its Subsidiaries 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 Final Offering Memorandum and all of the issued shares of capital stock of the Company have been duly authorized and validly issued, and are fully paid and non-assessable; all of the issued shares of capital stock of the Company are owned, directly or indirectly, by The Williams Companies, Inc. ("WILLIAMS"); and all of the issued shares of capital stock of each Subsidiary (in the case of each Subsidiary which is a corporation) have been duly authorized and validly issued and are fully paid and non-assessable and 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 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 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 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 Subsidiaries or with respect to which the Company or any of its 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 proceeds therefrom will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; 4 (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). On the Closing Date, the Indenture will conform in all material respects to the description thereof in the Offering Memorandum; (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 Purchasers in accordance with the terms of this Agreement, 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) The Securities constitute unsecured and unsubordinated obligations of the Company and rank pari passu without any preference among themselves; the Securities rank pari passu with all other unsecured and unsubordinated debt obligations of the Company; (l) This Agreement has been duly authorized, executed and delivered by the Company; (m) 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 Purchasers, will be a valid and binding agreement of the Company, enforceable against the Company 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 5 to indemnification and contribution thereunder may be limited by applicable law; (n) 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 corporate action 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 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 Williams or any of their respective affiliates is a party or by which the Company or Williams or any of their respective 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 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 Purchasers 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 Company's obligations under the Registration Rights Agreement; (o) Neither the Company nor Williams is (i) in violation of its charter or by-laws, (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 6 defaults that would not be reasonably likely, singly or in the aggregate, to have a Material Adverse Effect; (p) 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 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 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; (q) The Preliminary Offering Memorandum and the Final Offering Memorandum as of their respective dates did not, and the Final Offering Memorandum (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) will not as of the 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 Purchasers with regard to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by, or on behalf of the Initial Purchasers through Lehman Brothers Inc.; (r) Neither the Company nor any of its 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, 7 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 in the case of Williams, since February 21, 2002, the date of the most recent Current Report on Form 8-K filed by Williams under the Exchange Act) or since the date of the Final 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 or Williams or (iii) any transaction entered into by the Company or any of its 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 (or in the case of Williams, in the documents Williams has publicly filed under the Exchange Act); (s) Since the date of the Preliminary Offering Memorandum through the date hereof, and except as may otherwise be disclosed in the Offering Memorandum, the Company has not (i) issued or granted any securities, (ii) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business, (iii) entered into any material transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock; (t) The Company has good and marketable title in fee simple to, or valid rights of way, easements, leaseholds, licenses and consents to use, all real property and good and marketable title to all personal property owned by it, 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 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; (u) The Company carries, or is 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 its business and the value of its properties; 8 (v) 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; (w) 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; (x) 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 statements to be filed pursuant to the Registration Rights Agreement; (y) The Company (i) makes and keeps books and records which accurately reflect transactions and dispositions of the Company's assets 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; (z) (i) The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-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; 9 (aa) Since the date of the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 , 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; (bb) Since the date of the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, 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; (cc) 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 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; (dd) 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 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 in this Agreement; 10 (ee) Assuming the accuracy of the representations, warranties and agreements of the Initial Purchasers in Section 2 hereof, compliance by the Initial Purchasers 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 Purchasers initially resell the Securities, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers or in connection with the initial resale of the Securities by the Initial Purchasers, 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; (ff) The Preliminary Offering Memorandum and the Offering Memorandum have been prepared by the Company for use in connection with the Exempt Resales. No decree or order preventing the use of the Preliminary Offering Memorandum or the Offering Memorandum, or any order asserting that the transactions contemplated by the 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; (gg) The Company, its affiliates and any person acting on its or their behalf (other than the Initial Purchasers in connection with the transactions contemplated hereby, about which the Company makes no representation) have not, directly or indirectly: (i) engaged in any directed selling efforts (within the meaning of Regulation S under the Securities Act) with respect to the Securities; (ii) 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 (iii) 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. 11 (hh) Assuming the accuracy of the Initial Purchasers' representations and warranties and the compliance by the Initial Purchasers with their agreements made herein, the Securities offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions, and the sale of the Securities pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act; and (ii) The Securities satisfy the requirements of Rule 144A(d)(3) under the Securities Act. The Company (i) acknowledges that the Initial Purchasers and, for purposes of the opinions to be delivered to each Initial Purchaser pursuant hereto, counsel to the Company and counsel to the Initial Purchasers 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 PURCHASERS. Each Initial Purchaser, severally and not jointly, hereby represents and warrants to, and agrees with the Company that: such 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 (A) to persons in the United States such Initial Purchaser reasonably believes to be QIBs to whom notice has been given that such sale or delivery is being 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 Purchasers 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 or (B) in offshore transactions to non-U.S. persons in reliance on Regulation S. Each Initial Purchaser, severally and not jointly, hereby represents and warrants to, and agrees with the Company that: 12 (i) such Initial Purchaser and its affiliates or any person acting on its or their behalf have not engaged or will not engage in any directed selling efforts within the meaning of Regulation S with respect to the Securities; (ii) such Initial Purchaser has not offered or sold and will not offer or sell the Securities in the United States or to, or for the benefit or account of, a U.S. Person (other than a distributor), in each case, as defined in Rule 902 under the Securities Act (a) as part of its distribution at any time and (b) otherwise until 40 days after the later of the commencement of the offering of the Securities pursuant hereto and the Closing Date, other than in accordance with Regulation S of the Securities Act or another exemption from the registration requirements of the Securities Act; (iii) at or prior to confirmation of a sale of Securities by such Initial Purchaser pursuant hereto in reliance on Regulation S to any distributor, dealer or person receiving a selling concession, fee or other remuneration during the 40-day restricted period referred to in Rule 903(b)(2) under the Securities Act, it will send to such distributor, dealer or person receiving a selling concession, fee or other remuneration a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of your distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the Offering and the Closing Date, except in either case in accordance with Regulation S under the Securities Act or Rule 144A in transactions that are exempt from the registration requirements of the Securities Act, and in connection with any subsequent sale by you of the Securities covered hereby in reliance on Regulation S during the period referred to above to any distributor, dealer or person receiving a selling concession, fee or other remuneration, you must deliver a notice to substantially the foregoing effect. Terms used above have the meanings assigned to them in Regulation S." (iv) it has (A) not offered or sold and, prior to the date six months after the Closing Date, will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments 13 (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (B) only communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the "FSMA")) received by it in connection with the issue or sale of any Securities in circumstances in which Section 21(1) of the FSMA does not apply to the Company, and (C) complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; The Initial Purchasers (i) acknowledge that the Company and, for purposes of the opinions to be delivered to each Initial Purchaser pursuant hereto, counsel to the Company and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and (ii) hereby consent to such reliance. 3. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective principal amounts of Securities set forth in Schedule I hereto opposite its name at 97.50% of their principal amount (the "PURCHASE PRICE") plus accrued interest, if any, from March 4, 2003 to the date of payment and delivery. 4. PAYMENT AND DELIVERY. Payment for the 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 March 4, 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 Purchasers. The time and date of such payment are herein referred to as the "CLOSING DATE." Payment for the Securities shall be made against delivery to the Initial Purchasers of the one or more global notes representing the Securities (collectively, the "GLOBAL NOTES") registered in the name of Cede & Co. (the "GLOBAL HOLDER") with any transfer taxes payable in connection with the transfer of the Securities to the Initial Purchasers duly paid. Such Global Notes shall be made available to the Initial Purchasers for checking at least twenty four hours prior to the Closing Date, at the offices of Davis Polk & Wardwell, New York, New York. 5. CONDITIONS TO THE INITIAL PURCHASERS' OBLIGATIONS. The obligations of the Initial Purchasers are subject to the following conditions: 14 (a) Subsequent to the execution and delivery of this Agreement and prior to the 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 or Williams 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 or Williams, from that set forth in the Final Offering Memorandum. (b) The Initial Purchasers shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in clauses (a)(i) 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 the 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 the Closing Date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge after due inquiry as to proceedings threatened. (c) The Initial Purchasers shall have received on the Closing Date an opinion of James Bender, Esq., Senior Vice President and General Counsel of Williams dated the Closing Date, with such exceptions and qualifications as shall be agreed by the Initial Purchasers, to the effect set forth in Exhibit A. The opinion of James Bender, Esq. described in Exhibit A shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein. 15 (d) The Initial Purchasers shall have received on the Closing Date an opinion from Gibson, Dunn & Crutcher LLP, special counsel for the Company, dated the Closing Date, with such exceptions and qualifications as shall be agreed by the Initial Purchasers, to the effect set forth in Exhibit B. (e) The Initial Purchasers shall have received on the Closing Date an opinion of Davis Polk & Wardwell, counsel for the Initial Purchasers, dated the Closing Date, covering the matters referred to in paragraph 9 of Exhibit A, and such other matters as shall be agreed by the Initial Purchasers. With respect to paragraph 9 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 Bender, Esq., as to matters relating to the regulation of the Company by the Federal Energy Regulatory Commission. (f) The Initial Purchasers shall have received on the date hereof and on the Closing Date letters, in form and substance satisfactory to the Initial Purchasers, 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) The Initial Purchasers and the Company shall have validly entered into the Registration Rights Agreement, substantially in the form of Exhibit C hereto. 6. COVENANTS OF THE COMPANY. In further consideration of the agreements of the Initial Purchasers herein contained, the Company, its affiliates and any person acting on its or their behalf, covenant with the Initial Purchasers as follows: (a) The Company, its affiliates and any person acting on its or their behalf will not, directly or indirectly: 16 (i) engage in any directed selling efforts (within the meaning of Regulation S under the Securities Act) with respect to the Securities; (ii) 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 (iii) 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 Purchasers, 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 Final Offering Memorandum in a form approved by the Initial Purchasers, and before amending or supplementing the Final Offering Memorandum, will furnish to Lehman Brothers Inc. on behalf of the Initial Purchasers a copy of each such proposed amendment or supplement and will not deliver any such proposed amendment or supplement to which the Initial Purchasers reasonably object. (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 opinion of counsel for the Initial Purchasers a Final Offering Memorandum is required by law to be delivered in connection with Exempt Resales by the Initial Purchasers, the Company will furnish the Initial Purchasers, in New York City, with copies of the Final Offering Memorandum and each amendment or supplement thereto, together with any independent accountants' report contained in the Final Offering Memorandum, and any amendment or supplement containing amendments to the financial 17 statements covered by such report, signed by the accountants, and additional copies thereof in such quantities as the Initial Purchasers from time to time reasonably request, 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 Purchasers, the Final 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 Final 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 Final Offering Memorandum, the Company will prepare and furnish without charge to the Initial Purchasers and to any dealer in securities as many copies as the Initial Purchasers may from time to time reasonably request of the amended Final Offering Memorandum or supplement to the Final 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 beginning on the date hereof until the 90th day following the Closing Date, the Company will not offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any debt securities of the Company substantially similar to the Securities (other than the Securities) or any securities convertible into, or exercisable for, such debt securities issued or guaranteed by the Company, without the prior written consent of the Initial Purchasers. (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 Purchasers designate and will continue such qualifications in effect so long as required for the resale of the Securities by the Initial Purchasers; 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, 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 dealers, prior to the date of the Offering Memorandum, of each Preliminary Offering Memorandum so furnished by the Company. The Company consents to the use of the Offering Memorandum in accordance with the Offering 18 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 Purchasers (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 Purchasers 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 of the price of the Securities 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. (l) The Company will cooperate with the Initial Purchasers 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 Final Offering Memorandum. (n) The Company will not voluntarily claim, and will resist actively all attempts to claim, the benefit of any usury laws against holders of the Securities. 19 (o) 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 the Company's counsel and 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 Purchasers 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 Purchasers 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 Purchasers of copies of any blue sky or legal investment memoranda; (vii) 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 the cost of any aircraft chartered in connection with the road show and (x) the performance by the Company of its other obligations under this Agreement to the extent not provided for above. (p) 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 it prior to the Closing Date, and to satisfy all conditions precedent to the Initial Purchasers' obligations hereunder to purchase the Securities. 7. COVENANTS OF THE INITIAL PURCHASERS. (a) Each Initial Purchaser severally acknowledges that the Securities have not been and will not be registered under the Securities Act 20 and severally 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 144A under the Securities Act in compliance with Rule 144A or in offshore transactions to non-U.S. persons in reliance on Regulation S. 8. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser, its directors, its officers, its employees and each person, if any, who controls any of the Initial Purchasers 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, without limitation, any legal or other expenses reasonably incurred by any 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 each Initial Purchaser furnished to the Company in writing by the Initial Purchasers through Lehman Brothers Inc. expressly for use in the Offering Memorandum or any amendments or supplements thereto; provided, however, that the foregoing indemnity agreement with respect to the Preliminary Offering Memorandum shall not inure to the benefit of the Initial Purchasers, or any person controlling any of the Initial Purchasers, if the person asserting any such losses, claims, damages or liabilities purchased any Securities in an Exempt Resale and a copy of the 21 Final Offering Memorandum (as then amended or supplemented if the Company shall have timely furnished any amendment or supplement thereto) was not sent or given by or on behalf of the Initial Purchasers to such person, at or prior to the written confirmation of the sale of the Securities to such person, and if such Final Offering Memorandum would have cured the defect giving rise to such losses, claims, damages or liabilities. (b) Each Initial Purchaser agrees, severally and not jointly, 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 each Initial Purchaser, but only with reference to information relating to such Initial Purchaser furnished to the Company in writing by such Initial Purchaser through Lehman Brothers Inc. 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 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 Lehman Brothers Inc., 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 22 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 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 each 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 Purchasers on the other hand in connection with the statements or omissions that 23 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 Purchasers 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 Purchasers, 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 Purchasers 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 Purchasers 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 Purchasers 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 Purchasers shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by them exceeds the amount of any damages that the Initial Purchasers have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The remedies provided for in 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 Purchasers or any person controlling the Initial Purchasers or by or on behalf of the Company, its 24 officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Securities. The Initial Purchasers' obligations to contribute as provided in Sections 8(d) and (e) are several in proportion to their respective purchase obligations and not joint. (g) The Initial Purchasers severally confirm and the Company acknowledges that the statements with respect to the public offering of the Securities by the Initial Purchasers set forth on the last paragraph of the cover page, the fifth sentence of the sixth paragraph of text under "Plan of Distribution" and the seventh, tenth, twelfth, thirteenth and fourteenth paragraphs of text under "Plan of Distribution" in the Offering Memorandum are correct and constitute the only information concerning such Initial Purchasers furnished in writing to the Company by or on behalf of the Initial Purchasers specifically for inclusion in the Offering Memorandum. 9. TERMINATION. This Agreement shall be subject to termination by notice given by the Initial Purchasers to the Company, if (a) after the execution and delivery of this Agreement and prior to the 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 or Williams 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 or the financial markets in the United States shall be such) as to make it, in the judgment of a majority in interest of the several Initial Purchasers, impracticable or inadvisable to market the Securities on the terms and in the manner contemplated in the Offering Memorandum. Notice of such cancellation shall be given to the Company by telecopy or telephone but shall be subsequently confirmed by letter. 10. EFFECTIVENESS; DEFAULTING INITIAL PURCHASERS. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date, any one or more of the Initial Purchasers shall fail or refuse to purchase Securities that it has or they have agreed to purchase hereunder on such 25 date, and the aggregate principal amount of Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of the Securities to be purchased on such date, the other Initial Purchasers shall be obligated severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule I bear to the principal amount of Securities set forth opposite the names of all such non-defaulting Initial Purchasers, or in such other proportions as you may specify, to purchase the Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase on such date; provided that in no event shall the principal amount of Securities that any Initial Purchaser has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 10 by an amount in excess of one-ninth of such principal amount of Securities without the written consent of such Initial Purchaser. If, on the Closing Date, any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase Securities and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Initial Purchaser or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes in the Offering Memorandum or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Initial Purchaser from liability in respect of any default of such Initial Purchaser under this Agreement. Any notice under this Section 10 may be made by telecopy or telephone but shall be subsequently confirmed by letter. 11. REIMBURSEMENT OF INITIAL PURCHASER'S EXPENSES. If this Agreement shall be terminated by the Initial Purchasers 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 Purchasers for all out-of-pocket expenses (including the fees and disbursements of its counsel) reasonably incurred by the Initial Purchasers in connection with this Agreement and the offering contemplated hereunder. 12. NOTICES. All statements, requests, notices and agreements hereunder shall be in writing, and: 26 (a) if to the Initial Purchasers, 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). provided, however, that any notice to an Initial Purchaser pursuant to Section 8(c) shall be delivered or sent by mail, telex or facsimile transmission to such Initial Purchaser at its address set forth in its acceptance telex to Lehman Brothers Inc., which address will be supplied to any other party hereto by Lehman Brothers Inc. upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers by Lehman Brothers Inc. 13. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, 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 any 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 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. 27 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. 28 Please confirm that the foregoing correctly sets forth the agreement among the Company and the Initial Purchasers. Very truly yours, NORTHWEST PIPELINE CORPORATION By: ________________________________ Name: Title: Accepted as of the date hereof: LEHMAN BROTHERS INC. BANC OF AMERICA SECURITIES LLC CREDIT LYONNAIS SECURITIES (USA) INC. J.P. MORGAN SECURITIES INC. SALOMON SMITH BARNEY INC. SCOTIA CAPITAL (USA) INC. TD SECURITIES (USA) INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: LEHMAN BROTHERS INC. ________________________ Name: Title: EXHIBIT A OPINION OF JAMES BENDER, ESQ., SENIOR VICE PRESIDENT AND GENERAL COUNSEL OF THE WILLIAMS COMPANIES, INC. 1. The Company and each of its 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 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. Each of the Company and its Subsidiaries 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 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, neither the Company nor Williams (i) is 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) is 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 (ii) and (iii), 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 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, the Purchase 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 in this Agreement; 8. The Company is not, and immediately following the consummation of 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; 9. 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 A-2 of the foregoing, no facts have come to such counsel's attention that have led such counsel to believe that the Final Offering Memorandum, as of its date or as of the 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 Final Offering Memorandum. "MATERIAL CONTRACT" means all agreements and instruments included in the list of exhibits in the Company's or Williams', as applicable, Annual Report on Form 10-K for the year ended December 31, 2001 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (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 GIBSON, DUNN & CRUTCHER 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 Purchasers in accordance with the terms of the Purchase Agreement, will be valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. 2. The Indenture is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. 3. 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 that, in our experience, is generally applicable to transactions in the nature of those contemplated by the Purchase Agreement, except for such filings or approvals 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 Federal and state securities laws with respect to the Company's obligations under the Registration Rights Agreement. 4. 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 identified to such counsel in an officers' certificate of the Company as constituting all orders, judgments or decrees binding on the Company and attached to such opinion. This paragraph 4 does not include any opinion regarding any federal or state securities or Blue Sky laws or regulations. "MATERIAL CONTRACT" means all agreements and instruments included in the list of exhibits in the Company's or Williams', as applicable, Annual Report on Form 10-K for the year ended December 31, 2001 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (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-1 5. The Registration Rights Agreement is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms. 6. The Indenture, the Registration Rights Agreement and the Securities conform in all material respects with the descriptions thereof contained in the Final Offering Memorandum. The statements in the Final Offering Memorandum under the caption "Description of Other Indebtedness," insofar as such statements constitute a general summary of provisions of documents referred to therein, are accurate in all material respects and fairly summarize the matters referred to therein, and the statements under the caption "Certain U.S. Federal Income Tax Consequences," 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. 7. 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 Purchasers with the offering and transfer procedures and the restrictions described in the Offering Memorandum and their covenants and agreements in Sections 2 and 7 of the Purchase Agreement and (iv) the accuracy of the representations and warranties of the Initial Purchasers set forth in Section 2 of the Purchase Agreement, the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by the Purchase Agreement and the Offering Memorandum and the initial resale of the Securities by the Initial Purchasers in the manner contemplated in the Offering Memorandum and the Purchase Agreement, do not require registration under the Securities Act or qualification of the Indenture under the TIA, it being understood that such counsel expresses no opinion as to any subsequent resale of any Security. 8. 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 Final Offering Memorandum, as of its date or as of the 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 B-2 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 Final Offering Memorandum. Gibson, Dunn & Crutcher LLP may also state that they do not express any opinion regarding any federal or state laws or regulations applicable to entities operating in the energy industry, including regulations of the Federal Energy Regulatory Commission. B-3 Schedule I
PRINCIPAL AMOUNT INITIAL PURCHASER PURCHASED - --------------------------------------------------------------------- ---------------- Lehman Brothers Inc................................................. $ 43,750,000 Banc of America Securities LLC...................................... $ 43,750,000 Credit Lyonnais Securities (USA) Inc................................ $ 16,450,000 J.P. Morgan Securities Inc.......................................... $ 16,450,000 Salomon Smith Barney Inc............................................ $ 16,450,000 Scotia Capital (USA) Inc............................................ $ 16,450,000 TD Securities (USA) Inc............................................. $ 16,450,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated.................. $ 5,250,000 ------------ $175,000,000 ============
EX-12.1 7 d03974exv12w1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 NORTHWEST PIPELINE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Thousands)
For the Year Ended December 31, ------------------------------------------------------------- 1998 1999 2000 2001 2002 --------- --------- --------- --------- --------- Earnings: Income before income taxes $ 105,066 $ 116,588 $ 128,604 $ 107,173 $ 129,381 Add: Interest expense on long-term debt 29,064 26,064 25,914 25,670 25,577 Other interest expense, including amortization of debt discount and expense 8,496 4,185 6,273 5,302 2,688 Capitalized interest (AFUDC) (520) (833) (273) (448) (2,638) Rental expense representative of interest factor 2,632 2,446 2,241 2,020 1,783 --------- --------- --------- --------- --------- Total earnings $ 144,738 $ 148,450 $ 162,759 $ 139,717 $ 156,791 ========= ========= ========= ========= ========= Fixed Charges: Interest expense on long-term debt $ 29,064 $ 26,064 $ 25,914 $ 25,670 $ 25,577 Other interest expense, including amortization of debt discount and expense 8,496 4,185 6,273 5,302 2,688 Rental expense representative of interest factor 2,632 2,446 2,241 2,020 1,783 --------- --------- --------- --------- --------- Total fixed charges $ 40,192 $ 32,695 $ 34,428 $ 32,992 $ 30,048 ========= ========= ========= ========= ========= Ratio of Earnings to Fixed Charges 3.6 4.5 4.7 4.2 5.2 ========= ========= ========= ========= =========
For the purposes of computing the ratio of earnings to fixed charges, earnings are divided by fixed charges. "Earnings" represent the aggregate of (a) our pre-tax income, and (b) fixed charges, net of interest capitalized. "Fixed charges" represent interest (whether expensed or capitalized), the amortization of total debt discount and expense and that portion of rentals considered to be representative of the interest factor. EX-21.1 8 d03974exv21w1.txt SUBSIDIARIES EXHIBIT 21.1 Subsidiaries of the Registrant 1. NWP Enterprises, LLC, a Delaware limited liability company 2. NWP Enterprises, Inc., a Delaware corporation EX-23.1 9 d03974exv23w1.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 21, 2003, included in the Registration Statement (Form S-4) and related Prospectus of Northwest Pipeline Corporation for the registration of $175,000,000 Senior Notes due 2010 and to the incorporation by reference therein of our report dated February 21, 2003, with respect to the financial statements of Northwest Pipeline Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 2002, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Houston, Texas April 9, 2003 EX-25.1 10 d03974exv25w1.txt FORM T-1 STATEMENT OF ELIGIBILITY 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) -------------------------------------------- NORTHWEST PIPELINE CORPORATION (Exact name of obligor as specified in its charter) DELAWARE 87-0269236 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 295 CHIPETA WAY SALT LAKE CITY, UTAH 84108 (Address of principal executive offices) (Zip Code) ---------------------------------------- 8 1/8% SENIOR NOTES DUE 2010 (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 2ND DAY OF APRIL, 2003. JPMORGAN CHASE BANK By /s/ Joanne Adamis ------------------ Joanne Adamis Vice President -3- 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 December 31, 2002, 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 ................................... $ 18,102 Interest-bearing balances ............................................................ 8,392 Securities: Held to maturity securities ............................................................... 396 Available for sale securities ............................................................. 79,372 Federal funds sold and securities purchased under agreements to resell Federal funds sold in domestic offices ............................................... 16,164 Securities purchased under agreements to resell ...................................... 67,327 Loans and lease financing receivables: Loans and leases held for sale ....................................................... 24,545 Loans and leases, net of unearned income ............................................. $159,647 Less: Allowance for loan and lease losses ............................................ 3,572 Loans and leases, net of unearned income and allowance ............................... 156,075 Trading Assets ............................................................................ 194,198 Premises and fixed assets (including capitalized leases) .................................. 6,280 Other real estate owned ................................................................... 104 Investments in unconsolidated subsidiaries and associated companies ....................... 678 Customers' liability to this bank on acceptances outstanding .............................. 349 Intangible assets Goodwill .......................................................................... 2,159 Other Intangible assets ........................................................... 3,315 Other assets .............................................................................. 44,932 TOTAL ASSETS .............................................................................. $622,388 ========
-4- LIABILITIES Deposits In domestic offices .................................................................. $171,786 Noninterest-bearing .................................................................. $ 75,101 Interest-bearing ..................................................................... 96,685 In foreign offices, Edge and Agreement subsidiaries and IBF's ............................................................... 128,780 Noninterest-bearing ..................................................................... $ 7,380 Interest-bearing ..................................................................... 121,400 Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased in domestic offices .......................................... 5,701 Securities sold under agreements to repurchase ....................................... 120,579 Trading liabilities ....................................................................... 118,113 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases) ............................................ 8,388 Bank's liability on acceptances executed and outstanding .................................. 356 Subordinated notes and debentures ......................................................... 8,528 Other liabilities ......................................................................... 24,520 TOTAL LIABILITIES ......................................................................... 586,751 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 ......................................................................... 16,347 Accumulated other comprehensive income .................................................... 1,104 Other equity capital components ........................................................... 0 TOTAL EQUITY CAPITAL ...................................................................... 35,540 -------- TOTAL LIABILITIES, MINORITY INTEREST, AND EQUITY CAPITAL .................................. $622,388 ========
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 in- structions issued by the appropriate Federal regulatory authority and is true and correct. WILLIAM B. HARRISON, JR. ) ELLEN V. FUTTER ) DIRECTORS FRANK A. BENNACK, JR. ) EX-99.1 11 d03974exv99w1.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 LETTER OF TRANSMITTAL FOR 8 1/8% SENIOR NOTES DUE 2010 OF NORTHWEST PIPELINE CORPORATION PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF ALL OF ITS OUTSTANDING 8 1/8% SENIOR NOTES DUE 2010 FOR ITS NEW 8 1/8% SENIOR NOTES DUE 2010 PURSUANT TO THE PROSPECTUS DATED , 2003 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2003, OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE. TO: JPMORGAN CHASE BANK, EXCHANGE AGENT By mail, hand delivery or overnight courier: IF BY MAIL, TO: IF IN PERSON, TO: IF BY COURIER SERVICE, TO: JPMorgan Chase Bank JPMorgan Chase Bank JPMorgan Chase Bank Corporate Trust Services GIS Unit Trust Window Corporate Trust Services 2001 Bryan Street -- 9th 4 New York Plaza -- 1st 2001 Bryan Street -- 9th Floor Floor Floor Dallas, Texas 75201 New York, New York 10004 Dallas, Texas 75201 Attention: Frank Ivins Attention: Frank Ivins Attention: Frank Ivins
By facsimile transmission: (for eligible institutions only) (214) 468-6494 Confirm by telephone: (214) 468-6464 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET- FORTH ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY OF THIS LETTER OF TRANSMITTAL. The undersigned acknowledges that he or she has received and reviewed a prospectus, dated , 2003 (the "Prospectus"), of Northwest Pipeline Corporation, a Delaware corporation (the "Company"), and this letter of transmittal (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to issue an aggregate principal amount of up to $175,000,000 of its 8 1/8% Senior Notes due 2010 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), in exchange for a like principal amount of issued and outstanding 8 1/8% Senior Notes due 2010 (the "Old Notes"), which were not so registered. Capitalized terms used but not defined herein have the meanings given to them in the Prospectus. In order for any Holder (as herein defined) of Old Notes to tender all or any portion of such Old Notes, the Exchange Agent must receive either this Letter of Transmittal completed by such Holder or an Agent's Message (as hereinafter defined) with respect to such Holder. Certificates for Old Notes are to be forwarded herewith or, if a tender of Old Notes is to be made by book-entry transfer, the tender should be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC") pursuant to the procedures set forth in the Prospectus under "The Exchange Offer-How to Tender Outstanding Notes for Exchange." Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Old Notes into the Exchange Agent's account at DTC (a "Book-Entry Confirmation") and all other documents required by this Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer-Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. By causing Old Notes to be credited to the Exchange Agent's account at DTC in accordance with DTC's procedures for transfer, including the transmission by DTC of an Agent's Message to the Exchange Agent, the DTC participant will be deemed to confirm, on behalf of itself and the beneficial owners of such Old Notes, all provisions of this Letter of Transmittal applicable to it and such beneficial owners as fully as if it had completed the information required herein and executed and delivered this Letter of Transmittal to the Exchange Agent. As used herein, the term "Agent's Message" means a message, electronically transmitted by DTC to and received by the Exchange Agent, and forming a part of the Book-Entry Confirmation, which states that DTC has received an express acknowledgement from a Holder of Old Notes stating that such Holder has received and agrees to be bound by, and makes each of the representations and warranties contained in, this Letter of Transmittal and, further, that such Holder agrees that the Company may enforce this Letter of Transmittal against such Holder. The term "Holder", as used in this Letter of Transmittal, means any of (a) any person in whose name Old Notes are registered on the books of the Company, (b) any other person who has obtained a properly completed bond power from the registered Holder, and (c) any DTC participant whose Old Notes are held of record by DTC. Holders who wish to tender their Old Notes must complete this Letter of Transmittal in its entirety or must cause an Agent's Message to be transmitted. Any other beneficial owner whose Old Notes are registered in the name of a broker or other nominee and who wishes to tender should contact such broker or nominee promptly and instruct such broker or nominee to tender on behalf of the beneficial owner. If the beneficial owner wishes to tender on its own behalf, such beneficial owner must, prior to completing and executing this Letter of Transmittal and delivering its Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such beneficial owner's name or obtain a properly completed bond power from the registered Holder of the Old Notes. The transfer of registered ownership may take considerable time. Complete the appropriate boxes below to indicate the Old Notes to which this Letter of Transmittal relates and the action the undersigned desires to take with respect to the Exchange Offer. If the space provided below is inadequate, the certificate numbers and principal amount of Old Notes should be listed on a separate signed schedule affixed hereto. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER MAY BE DIRECTED TO THE EXCHANGE AGENT. - ------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF OLD NOTES 1 2 3 4 - ------------------------------------------------------------------------------------------------------------------ AGGREGATE NAME(S) AND ADDRESS(ES) PRINCIPAL PRINCIPAL OF REGISTERED HOLDER(S) CERTIFICATE CUSIP AMOUNT OF AMOUNT (PLEASE FILL IN, IF BLANK) NUMBER(S)* NUMBER(S) OLD NOTE(S) TENDERED** - ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ TOTAL - ------------------------------------------------------------------------------------------------------------------ * Need not be completed if Old Notes are being tendered by book-entry transfer. ** Unless otherwise indicated in the column, a Holder will be deemed to have tendered ALL of the Old Notes represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in minimum denominations of principal amount of $1,000 and integral multiples of $1,000 thereof. See Instruction 1. - ------------------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution: - -------------------------------------------------------------------------------- DTC Account Number: - -------------------------------------------------------------------------------- Transaction Code Number: - -------------------------------------------------------------------------------- By crediting Old Notes to the Exchange Agent's account at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP procedures with respect to the Exchange Offer, including transmitting an Agent's Message to the Exchange Agent in which the Holder of Old Notes acknowledges and agrees to be bound by the terms of this Letter of Transmittal, the participant in ATOP confirms on behalf of itself and the beneficial owners of such Old Notes all provisions of this Letter of Transmittal applicable to it and such beneficial owners as if it had completed the information required herein and executed and transmitted this Letter of Transmittal to the Exchange Agent. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): - ---------------------------------------------------------------------------- Window Ticket Number (if any): - ----------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: - -------------------------------------------------------- Name of Institution which guaranteed delivery: - --------------------------------------------------------------- IF DELIVERY BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Account Number Transaction Code Number Name of Tendering Institution - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH. Name: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not participating in, and does not intend to participate in, a distribution of the New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a broker-dealer and would like to receive 10 additional copies of the prospectus and 10 copies of any amendments or supplements thereto, please contact the exchange agent at the address set forth on page one of this Letter of Transmittal to make such a request. TENDER OF OLD NOTES Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Notes as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact with full power of substitution, for purposes of delivering this Letter of Transmittal and the Old Notes to the Company. The Power of Attorney granted in this paragraph shall be deemed irrevocable from and after the Expiration Date and coupled with an interest. The undersigned hereby acknowledges its full understanding that the Exchange Agent also performs functions as agent of the Company. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Old Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned hereby further represents and warrants that (a) any New Notes acquired in exchange for Old Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the undersigned, (b) neither the Holder of such Old Notes nor any such other person is engaged or intends to engage in, or has an arrangement or understanding with any person to participate in, the distribution (within the meaning of the Securities Act) of such New Notes, (c) neither the Holder of such Old Notes nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company and (d) if such holder is a broker or dealer registered under the Exchange Act, it will receive the New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities. The undersigned also acknowledges that this Exchange Offer is being made by the Company in reliance on an interpretation by the staff of the Securities and Exchange Commission (the "SEC"), as set forth in no-action letters issued to third parties, that the New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holders' business and that such Holders have no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of such New Notes. However, the Company does not intend to request the SEC to consider, and the SEC has not considered, the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. The undersigned represents that it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of New Notes and, if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution (within the meaning of the Securities Act) of such New Notes. The undersigned also acknowledges that if the Company's interpretation of the above mentioned no-action letters is incorrect such Holder may be held liable for any offers, resales or transfers of New Notes that are in violation of the Securities Act. The undersigned further acknowledges that neither the Company nor the Exchange Agent will indemnify any Holder for any such liability under the Securities Act. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. By acceptance of the Exchange Offer, each participating broker-dealer that will receive New Notes for its own account pursuant to the Exchange Offer agrees that, upon receipt of notice from the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such broker dealer. The undersigned acknowledges that in reliance on an interpretation by the staff of the SEC, a broker-dealer may fulfill its prospectus delivery requirements with respect to the New Notes (other than a resale of New Notes received in exchange for an unsold allotment of Old Notes purchased directly from the Company) with the Prospectus which constitutes part of the Exchange Offer. The undersigned also warrants that acceptance of any tendered Old Notes by the Company and the issuance of New Notes in exchange therefor shall constitute performance in full by the Company of certain of its obligations under the related registration rights agreement, which has been filed as an exhibit to the registration statement in connection with the Exchange Offer. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer -- Withdrawal Rights" section of the Prospectus. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please issue the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not tendered or exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Old Notes, please credit the account indicated above maintained at DTC. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Old Notes." The Company will be deemed to have accepted validly tendered Old Notes when, as and if the Company shall have given oral (promptly confirmed in writing) or written notice of acceptance to the Exchange Agent. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE. SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Old Notes not exchanged and/or New Notes are to be issued in the name of someone other than the person or persons whose signature(s) appear(s) below on this Letter of Transmittal, or if Old Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at DTC other than the account indicated above. Issue: New Notes and/or Old Notes to: Name(s) ------------------------------------------------------------------------ (PLEASE TYPE OR PRINT) - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Address ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (ZIP CODE) CUSIP Number of Old Notes ------------------------------------------------------ Employer Identification Number or Social Security Number --------------------------------------------------------- (COMPLETE SUBSTITUTE FORM W-9) [ ] Credit unexchanged Old Notes delivered by book-entry transfer to the DTC account set forth below. - -------------------------------------------------------------------------------- (DTC ACCOUNT NUMBER, IF APPLICABLE) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Old Notes not exchanged and/or New Notes are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter of Transmittal below or to such person or persons at an address other than shown in the box entitled "Description of Old Notes" on this Letter of Transmittal above. Mail: New Notes and/or Old Notes to: Name(s) ------------------------------------------------------------------------ (PLEASE TYPE OR PRINT) - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Address ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (ZIP CODE) CUSIP Number of Old Notes ------------------------------------------------------ IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU THEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE. PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE) Dated: X ---------------------------- ---------------------------- , 2003 X ---------------------------- ---------------------------- , 2003 SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number ------------------------------------------------ Aggregate Principal Amount of Old Note(s) Tendered: --------------------------- Employer Identification Number or CUSIP Number --------------------------- Social Security Number -----------------
This Letter of Transmittal must be signed by the registered Holder(s) as the name(s) appear(s) on the certificate(s) for the Old Notes hereby tendered or on a DTC security position listing or by any person(s) authorized to become a registered Holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Name(s): ----------------------------------------------------------------------- ----------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Capacity: ---------------------------------------------------------------------- Address: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution: ------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (TITLE) - -------------------------------------------------------------------------------- (NAME AND FIRM) Dated: ------------------------------------------------------------------------- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES. In order for any Holder of Old Notes to tender all or any portion of such Old Notes, the Exchange Agent must receive either this Letter of Transmittal completed by such Holder or an Agent's Message with respect to such Holder. Certificates for all physically tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or facsimile hereof or Agent's Message in lieu hereof) and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at the address set forth herein prior to the Expiration Date, or the tendering Holder must comply with the guaranteed delivery procedures set forth below. Old Notes tendered hereby must be in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. Holders whose certificates for Old Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent prior to the Expiration Date, or who cannot complete the procedures for book-entry tender on a timely basis, may tender their Old Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer-Guaranteed Delivery Procedures." Pursuant to such procedures, (1) such tender must be made through an Eligible Institution, (2) prior to 5:00 p.m., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder of Old Notes, the certificate numbers of such Old Notes (unless tender is to be made by book-entry transfer) and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange ("NYSE") trading days after the date of delivery of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof), with any required signature guarantees and any other documents required by this Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (3) the certificates for all physically tendered Old Notes, in the proper form for transfer, or Book-Entry Confirmation, as the case may be, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof), with any required signature guarantees and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The method of delivery of Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holder, but the delivery will be deemed made only when actually received by the Exchange Agent. Instead of delivery by mail, it is recommended that Holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the Exchange Agent before the Expiration Date. No Old Notes or Letters of Transmittal should be sent to the Company. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for such Holders. See the section entitled "The Exchange Offer"in the Prospectus. 2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If less than all of the Old Notes evidenced by a submitted certificate are to be tendered, the tendering Holder(s) should fill in the aggregate principal amount of Old Notes to be tendered in the box above entitled "Description of Old Notes -- Principal Amount Tendered." A reissued certificate representing the balance of nontendered Old Notes will be sent to such tendering Holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, promptly after the Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. 3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the Holder of the Old Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates or on DTC's security position listing as the Holder of such Old Notes without any change whatsoever. If any tendered Old Notes are owned of record by two or more joint owners, all of such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered Holder or Holders of the Old Notes specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required. If, however, the New Notes are to be issued, or any untendered Old Notes are to be reissued, to a person other than the registered Holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) or bond powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered Holder or Holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered Holder or Holders appear(s) on the certificate(s) and signatures on such certificate(s) or bond powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificates representing Old Notes or any bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. EXCEPT AS PROVIDED BELOW, ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE INSTITUTION"). SIGNATURES ON THIS LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION IF THE OLD NOTES ARE TENDERED: (1) BY A REGISTERED HOLDER OF OLD NOTES WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" OR (2) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTION. Tendering Holders of Old Notes should indicate in the applicable box the name and address to which New Notes issued pursuant to the Exchange Offer and/or substitute certificates evidencing Old Notes not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Holders tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at DTC as such Holder may designate hereon. If no such instructions are given, such Old Notes not exchanged will be returned to the name or address of the person signing this Letter of Transmittal. 5. TAXPAYER IDENTIFICATION NUMBER. United States federal income tax law generally requires that a tendering Holder whose Old Notes are accepted for exchange must provide the Company (as payor) with such Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 below, which in the case of a tendering Holder who is an individual, is generally his or her social security number. If the Company is not provided with the current TIN or an adequate basis for an exemption, such tendering Holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to such tendering Holder of New Notes may be subject to backup withholding of all reportable payments made after the exchange. The backup withholding rate for 2002 and 2003 is 30%; for 2004 and 2005, 29%; for 2006 through 2010, 28%; and for 2011 and later years, 31%. Certain types of Holders of Old Notes (generally including, among others, corporations and certain foreign entities) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. To prevent backup withholding, each tendering Holder of Old Notes must provide its correct TIN by completing the substitute Form W-9 set forth below, certifying that the Holder is a United States person (including a United States resident alien), that the TIN provided is correct (or that such Holder is awaiting a TIN) and that (1) the Holder is exempt from backup withholding, (2) the Holder has not been notified by the Internal Revenue Service that such Holder is subject to a backup withholding as a result of a failure to report all interest or dividends or (3) the Internal Revenue Service has notified the Holder that such Holder is no longer subject to backup withholding. If the tendering Holder of Old Notes is a nonresident alien or foreign entity not subject to backup withholding, such Holder must give the Company a completed Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or if applicable, Form W-8ECI, Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected with the Conduct of a Trade or Business in the United States. These forms may be obtained from the Exchange Agent. If the Old Notes are in more than one name or are not in the name of the actual owner, such Holder should consult the W-9 Guidelines for information on which TIN to report. If such Holder does not have a TIN, such Holder should consult the W-9 Guidelines for instructions on applying for a TIN, check the box in Part 2 of the substitute Form W-9, write "applied for" in lieu of its TIN and sign the Certificate of Awaiting Taxpayer Identification Number. Note: Checking this box and writing "applied for" on the Form means that such Holder has already applied for a TIN or that such Holder intends to apply for one in the near future. If such Holder does not provide its TIN to the Company within 60 days, backup withholding will begin and continue until such Holder furnishes its TIN to the Company. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered Holder of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes to the Company or its order pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or any other person) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering Holder. 7. COMPANY DETERMINATION FINAL; WAIVER OF CONDITIONS. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. None of the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders of the Old Notes, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering Holders of Old Notes, by causing this Letter of Transmittal or an Agent's Message in lieu hereof to be delivered to the Exchange Agent, shall waive any right to receive notice of the acceptance of their Old Notes for exchange. None of the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Old Notes nor shall any of them incur any liability for failure to give any such notice. 9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. REQUESTS FOR ADDITIONAL COPIES. Requests for additional copies of the Prospectus and this Letter of Transmittal may be directed to the Exchange Agent, at the address and telephone number indicated above. 11. INCORPORATION OF THE LETTER OF TRANSMITTAL. This Letter of Transmittal shall be deemed to be incorporated in, and acknowledged and accepted by, a tender through, DTC's ATOP procedures by any participant on behalf of itself and the beneficial owners of any Old Bonds so tendered. 12. WITHDRAWALS. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer -- Withdrawal Rights" section of the Prospectus. TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5)
- ------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX TIN: --------------------------------- FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING (Social Security Number or BELOW: Employer Identification Number) - ------------------------------------------------------------------------------------------------------------------- PART 2 -- TIN APPLIED FOR [ ] - ------------------------------------------------------------------------------------------------------------------- DEPARTMENT OF THE PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFICATION TREASURY INTERNAL REVENUE SERVICE CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me); (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; (3) I am a U.S. person (including a U.S. resident alien); and (4) any other information provided on this form is true and correct. SIGNATURE ---------------------------- DATE ------------------------------- - ------------------------------------------------------------------------------------------------------------------- You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax return and you have not been notified subsequently by the IRS that you are no longer subject to backup withholding. - ------------------------------------------------------------------------------------------------------------------- YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKEDTHE BOX IN PART 2 OF SUBSTITUTE FORM W-9 - ------------------------------------------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administrative Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number by the time of the exchange, 30 percent (subject to further adjustment under applicable law) of all reportable payments made to me thereafter will be withheld until I provide a number. - -------------------------------------------------------------------------- --------------------------------------- SIGNATURE DATE - -------------------------------------------------------------------------------------------------------------------
EX-99.2 12 d03974exv99w2.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF 8 1/8% SENIOR NOTES DUE 2010 (THE "OLD NOTES") OF NORTHWEST PIPELINE CORPORATION This form or one substantially equivalent hereto must be used to accept the Exchange Offer of Northwest Pipeline Corporation (the "Issuer") made pursuant to the Prospectus, dated , 2003 (the "Prospectus"), if certificates for the Issuer's outstanding 8 1/8% Senior Notes due 2010 (the "Old Notes") are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach JPMorgan Chase Bank, as exchange agent (the "Exchange Agent"), prior to 5:00 p.m., New York City time, on the Expiration Date of the Exchange Offer. Such form may be delivered or transmitted by facsimile transmission, mail or hand delivery to the Exchange Agent as set forth below. Capitalized terms not defined herein are defined in the Prospectus. TO: JPMORGAN CHASE BANK, EXCHANGE AGENT By mail, hand delivery or overnight courier: IF BY MAIL, TO: IF IN PERSON, TO: IF BY COURIER SERVICE, TO: JPMorgan Chase Bank JPMorgan Chase Bank JPMorgan Chase Bank Corporate Trust Services GIS Unit Trust Window Corporate Trust Services 2001 Bryan Street -- 9th 4 New York Plaza -- 1st Floor 2001 Bryan Street -- 9th Floor New York, New York 10004 Floor Dallas, Texas 75201 Attention: Frank Ivins Dallas, Texas 75201 Attention: Frank Ivins Attention: Frank Ivins
By facsimile transmission: (for eligible institutions only) (214) 468-6494 Confirm by telephone: (214) 468-6464 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: Upon the terms and conditions set forth in the Prospectus, the undersigned hereby tenders to the Issuer the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedure described in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." Principal Amount of Old Notes Tendered (must be in denominations of principal amount of $1,000 or any integral multiple thereof: $ - -------------------------------------------- Certificate Nos. (if available) CUSIP Nos. - -------------------------------------------- -------------------------------------------- If Old Notes will be delivered by book-entry Total Principal Amount Represented by Old transfer to The Depository Trust Company, Notes Certificate(s): provide account number. $ Account Number - -------------------------------------------- ----------------------------------
All authority herein conferred or agreed to be conferred shall survive the death of incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. PLEASE SIGN HERE X X - --------------------------------------------------- --------------------------------------------------- X X - --------------------------------------------------- --------------------------------------------------- Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number - ------------------------------------------------------------------------ Must be signed by the holder(s) of Old Notes as their names(s) appear(s) on certificates for Old Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Capacity - -------------------------------------------------------------------------------- Address(es) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, an Eligible Institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program, hereby guarantees that the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any required signature guarantees and any other documents required by the Letter of Transmittal, will be received by the Exchange Agent at the address set forth above, within three (3) New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Letter of Transmittal and the Old Notes tendered hereby to the Exchange Agent within the time period set for the above and that failure to do so could result in a financial loss to the undersigned. - --------------------------------------------------- --------------------------------------------------- NAME OF FIRM AUTHORIZED SIGNATURE - --------------------------------------------------- --------------------------------------------------- ADDRESS TITLE - --------------------------------------------------- --------------------------------------------------- ZIP CODE (PLEASE TYPE OR PRINT)
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THE FORM. CERTIFICATES FOR OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. EX-99.3 13 d03974exv99w3.txt FORM OF LETTER TO BROKERS DEALERS COMMERCIAL BANKS EXHIBIT 99.3 NORTHWEST PIPELINE CORPORATION OFFER TO EXCHANGE ANY AND ALL OF ITS OUTSTANDING 8 1/8% SENIOR NOTES DUE 2010 FOR ITS NEW 8 1/8% SENIOR NOTES DUE 2010 TO: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, AND OTHER NOMINEES: Northwest Pipeline Corporation (the "Company") is offering, upon and subject to the terms and conditions set forth in the Prospectus, dated , 2003 (the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of Transmittal") (which together constitute the "Exchange Offer"), to exchange a principal amount of its new 8 1/8% Senior Notes due 2010 (the "Exchange Notes"), which exchange has been registered under the Securities Act of 1933, as amended, pursuant to a registration statement of which the Prospectus is part, for an equal principal amount of its outstanding 8 1/8% Senior Notes due 2010 (the "Old Notes"), of which $175 million in aggregate principal amount are outstanding as of the date hereof, upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement, dated as of March 4, 2003 (the "Registration Rights Agreement"), by and among the Company, as the issuer, and Lehman Brothers Inc., on behalf of itself and the other initial purchasers listed on Schedule I thereto (in such capacities, the "Initial Purchasers"). We are requesting that you contact your clients for whom you hold Old Notes regarding the Exchange Offer. For your information and for forwarding to your clients for whom you hold Old Notes registered in your name or in the name of your nominee, or who hold Old Notes registered in their own names, we are enclosing the following documents: 1. Prospectus dated , 2003; 2. The Letter of Transmittal for your use and for the information of your clients; 3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer, if certificates for Old Notes are not immediately available, or time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date (as defined below), or if the procedure for book-entry transfer cannot be completed on a timely basis; 4. A form of letter that may be sent to your clients for whose account you hold Old Notes registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. Return envelopes addressed to JPMorgan Chase Bank, the Exchange Agent for the Old Notes. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., New York City time, , 2003 unless extended by the Company (the "Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date. To participate in the Exchange Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, should be sent to the Exchange Agent, and certificates representing the Old Notes should be delivered to the Exchange Agent, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus. If holders of Old Notes wish to tender, but it is impracticable for them to forward their certificates for Old Notes prior to the expiration of the Exchange Offer or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." The Company will, upon request, reimburse brokers, dealers, commercial banks, and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Prospectus and the related documents to the beneficial owners of Old Notes held by them as nominee or in a fiduciary capacity. The Company will pay or cause to be paid all stock transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange Offer, except as set forth in Instruction 5 of the Letter of Transmittal. Any inquiries you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to JPMorgan Chase Bank, the Exchange Agent for the Old Notes, at its address and telephone number set forth on the front of the Letter of Transmittal. Very truly yours, NORTHWEST PIPELINE CORPORATION NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF NORTHWEST PIPELINE CORPORATION OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. EX-99.4 14 d03974exv99w4.txt FORM OF LETTER TO CLIENTS EXHIBIT 99.4 NORTHWEST PIPELINE CORPORATION OFFER TO EXCHANGE ANY AND ALL OF ITS OUTSTANDING 8 1/8% SENIOR NOTES DUE 2010 FOR ITS NEW 8 1/8% SENIOR NOTES DUE 2010 TO OUR CLIENTS: Enclosed for your consideration is a Prospectus, dated , 2003 (the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "Exchange Offer") of Northwest Pipeline Corporation (the "Company") to exchange a principal amount of its 8 1/8% Senior Notes due 2010 (the "Exchange Notes"), which exchange has been registered under the Securities Act of 1933, as amended, pursuant to a registration statement of which the Prospectus is part, for an equal principal amount of its outstanding 8 1/8% Senior Notes due 2010 (the "Old Notes"), of which $175 million in aggregate principal amount are outstanding as of the date hereof, upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement, dated as of March 4, 2003 (the "Registration Rights Agreement"), by and among the Company, as the issuer, and Lehman Brothers Inc., on behalf of itself and the other initial purchasers listed on Schedule I thereto (in such capacities, the "Initial Purchasers"). This material is being forwarded to you as the beneficial owner of the Old Notes carried by us in your account but not registered in your name. A tender of such Old Notes may only be made by us as the holder of record and pursuant to your instructions. Accordingly, we request instructions as to whether you wish us to tender on your behalf the Old Notes held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal. Your instructions should be forwarded to us as promptly as possible in order to permit us to tender the Old Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 2003, unless extended by the Company. Any Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for any and all Old Notes. 2. The Exchange Offer is subject to certain conditions set forth in the Prospectus in the section captioned "The Exchange Offer." 3. Any transfer taxes incident to the transfer of Old Notes from the holder to the Company will be paid by the Company, except as otherwise provided in the Instructions in the Letter of Transmittal. 4. The Exchange Offer expires at 5:00 p.m., New York City time, on , 2003, unless extended by the Company. If you wish to have us tender your Old Notes, please so instruct us by completing, executing and returning to us the instruction form on the back of this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES. INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer made by Northwest Pipeline Corporation with respect to its Old Notes. 1 This will instruct you to tender the Old Notes held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the Prospectus and the related Letter of Transmittal. Please tender the Old Notes held by you for my account as indicated below: [ ] Please do not tender any Old Notes held -------------------------------------------------- by you for my account -------------------------------------------------- Dated ----------, 2003 [ ] Please tender ---------- aggregate principal amount of the Old Notes held by you for my account. -------------------------------------------------- -------------------------------------------------- Signature(s) -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- Please print name(s) here -------------------------------------------------- -------------------------------------------------- Address(es) -------------------------------------------------- -------------------------------------------------- Area Code and Telephone Number -------------------------------------------------- Tax Identification or Social Security No(s).
None of the Old Notes held by us for your account will be tendered unless we receive written instructions from you to do so. Unless a specific contrary instruction is given in the space provided, your signature(s) hereon will constitute an instruction to us to tender all the Old Notes held by us for your account. 2 -----END PRIVACY-ENHANCED MESSAGE-----