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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
The Williams Companies, Inc.
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(Name of Registrant as Specified In Its Charter)
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[WIlliams logo]
KEITH E. BAILEY, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
To the Stockholders of The Williams Companies, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
The Williams Companies, Inc. to be held on Thursday, May 17, 2001, in the
Williams Resource Center, One Williams Center, Tulsa, Oklahoma, commencing at 11
a.m., local time. We look forward to greeting personally as many of our
stockholders as possible at the meeting.
The Notice of the Annual Meeting and Proxy Statement accompanying this
letter provide information concerning matters to be considered and acted upon at
the meeting. A report on the operations of Williams will be presented at the
meeting, followed by a question-and-answer and discussion period.
We know that most of our stockholders are unable to attend the Annual
Meeting in person. Williams solicits proxies so that each stockholder has an
opportunity to vote on all matters that are scheduled to come before the
meeting. Whether or not you plan to attend, please take a few minutes now to
sign, date, and return your proxy in the enclosed postage-paid envelope.
Regardless of the number of shares you own, your vote is important.
Thank you for your continued interest in Williams.
Very truly yours,
/s/ KEITH E. BAILEY
Keith E. Bailey
Enclosures
March 26, 2001
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THE WILLIAMS COMPANIES, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2001
To the Stockholders of
The Williams Companies, Inc.
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Stockholders of The
Williams Companies, Inc. will be held in the Williams Resource Center, One
Williams Center, Tulsa, Oklahoma, on Thursday, May 17, 2001, at 11 a.m., local
time, for the following purposes:
1. To elect six directors of Williams;
2. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as the independent auditor of Williams for 2001; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 23, 2001,
as the record date for the meeting, and only holders of Common Stock of record
at such time will be entitled to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
/s/ SUZANNE H. COSTIN
Suzanne H. Costin
Secretary
Tulsa, Oklahoma
March 26, 2001
EVEN IF YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE, AND
RETURN THE ACCOMPANYING PROXY PROMPTLY SO THAT YOUR SHARES OF COMMON STOCK MAY
BE REPRESENTED AND VOTED AT THE MEETING. A RETURN ENVELOPE IS ENCLOSED FOR THIS
PURPOSE.
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THE WILLIAMS COMPANIES, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2001
This Proxy Statement is furnished by The Williams Companies, Inc.
("Williams"), in connection with the solicitation of proxies by the Board of
Directors of Williams to be used at the 2001 Annual Meeting of Stockholders to
be held at the time and place and for the purposes set forth in the foregoing
Notice of Annual Meeting of Stockholders, and at any and all adjournments of
said meeting. The term "Company" also includes subsidiaries where the context
requires.
SOLICITATION AND REVOCATION OF PROXIES AND VOTING
Execution and return of the enclosed proxy will not affect a stockholder's
right to attend the Annual Meeting of Stockholders and to vote in person. A
stockholder giving a proxy has the power to revoke it at any time before it is
exercised. A stockholder may revoke the proxy prior to its exercise by
delivering written notice of revocation to the Secretary of Williams, by
executing a later dated proxy, or by attending the Annual Meeting and voting in
person. Properly executed proxies in the accompanying form, received in due time
and not previously revoked, will be voted at the Annual Meeting or any
adjournment thereof as specified therein by the person giving the proxy, but, if
no specification is made, the shares represented by proxy will be voted as
recommended by the Board of Directors.
Williams will pay the expenses of this proxy solicitation, including the
cost of preparing and mailing the Proxy Statement and proxy. Such expenses may
also include the charges and expenses of banks, brokerage firms, and other
custodians, nominees, or fiduciaries for forwarding proxies and proxy material
to beneficial owners of Williams' Common Stock. Williams expects to solicit
proxies primarily by mail, but directors, officers, employees, and agents of
Williams may also solicit proxies in person or by telephone or by other
electronic means. In addition, Williams has retained Morrow & Co., Inc. to
assist in the solicitation of proxies for which Williams will pay an estimated
$9,500 in fees, plus expenses and disbursements. This Proxy Statement and
accompanying proxy were first mailed to stockholders on or about April 4, 2001.
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting shall constitute a
quorum for the transaction of business. If a quorum is present, proposals to be
voted on at the Annual Meeting, other than the election of directors which
requires a plurality of the votes cast, will be decided by a majority of the
votes cast by the stockholders entitled to vote thereon, present in person or
represented by proxy, unless the proposal relates to matters on which more than
a majority vote is required under Williams' Restated Certificate of
Incorporation, as amended, its By-laws, the laws of the State of Delaware under
whose laws Williams is incorporated, or other applicable law.
A stockholder may, with respect to the election of directors: (i) vote for
the election of all nominees named herein; (ii) withhold authority to vote for
all such nominees; or (iii) vote for the election of all such nominees other
than any nominees with respect to whom the vote is specifically withheld by
indicating in the space provided on the proxy. A stockholder may, with respect
to each other matter to be voted upon: (i) vote for the matter; (ii) vote
against the matter; or (iii) abstain from voting on the matter.
Votes withheld from a nominee for election as a director or votes on other
matters that reflect abstentions or broker non-votes (i.e., shares as to which
the record owner has not received instructions from the beneficial owner of the
shares on a matter as to which, under the applicable rules of the New York Stock
Exchange, the record owner does not have authority to vote without such
instruction) will be treated as present at the Annual Meeting for the purpose of
determining a quorum but will not be counted as votes cast. A majority of the
votes
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properly cast is required to ratify the appointment of the auditor. Accordingly,
abstentions will be counted in tabulating the votes cast and, therefore, will
have the same effect as a vote against the appointment of the auditor. Broker
non-votes will not be counted in tabulating the votes cast.
As a matter of policy, proxies and voting tabulations that identify
individual stockholders are kept confidential. Such documents are made available
only to those who process the proxy cards, tabulate the vote, and serve as
inspectors of election, none of whom are Company employees, and certain
employees of Williams responsible for the Annual Meeting. The vote of any
stockholder is not disclosed except as may be necessary to meet legal
requirements.
Only holders of Williams' Common Stock of record at the close of business
on March 23, 2001, will be entitled to receive notice of and to vote at the
Annual Meeting. Williams had 484,040,320 shares of Common Stock outstanding on
the record date, and each share is entitled to one vote.
ELECTION OF DIRECTORS
Williams' Restated Certificate of Incorporation, as amended, provides for
three classes of directors of as nearly equal size as possible and further
provides that the total number of directors shall be determined by resolution
adopted by the affirmative vote of a majority of the Board of Directors, except
that the total number of directors may not be less than five nor more than 17.
The term of each class of directors is normally three years, and the term of one
class expires each year in rotation.
Six individuals, five of whom are currently directors of Williams, have
been nominated for election as directors at the Annual Meeting. Four have been
nominated for a three-year term, one has been nominated for a two-year term, and
one has been nominated for a one-year term. Eight directors will continue in
office to serve pursuant to their prior elections. In accordance with the
recommendation of the Nominating Committee, the Board of Directors proposes that
the following nominees be elected: Messrs. Glenn A. Cox, Thomas H. Cruikshank,
Charles M. Lillis, George A. Lorch, Gordon R. Parker, and Joseph H. Williams.
In order to maintain balance in the three classes of directors, as required
by the By-laws, Mr. Lorch, who was elected to the Board of Directors in March
2001, is standing for election as a Class II director for a two-year term
expiring in May 2003. Pursuant to Williams' retirement policy for Directors, Mr.
Glenn A. Cox will retire in conjunction with the 2002 Annual Meeting of
Stockholders and is standing for election for a one-year term expiring in May
2002. The remaining nominees have been nominated for full three-year terms
expiring in May 2004.
The persons named as proxies in the accompanying proxy, who have been
designated by the Board of Directors, intend to vote, unless otherwise
instructed in such proxy, for the election of Messrs. Glenn A. Cox, Thomas H.
Cruikshank, Charles M. Lillis, George A. Lorch, Gordon R. Parker, and Joseph H.
Williams. Should any nominee named herein become unable for any reason to stand
for election as a director of Williams, the persons named in the proxy will vote
for the election of such other person or persons as the Nominating Committee may
recommend and the Board of Directors may propose to replace such nominee or, if
none, the Nominating Committee will recommend that the size of the Board be
reduced. Williams knows of no reason why any of the nominees will be unavailable
or unable to serve.
The names of the nominees and the directors whose terms of office will
continue after the 2001 Annual Meeting, their principal occupations during the
past five years, other directorships held, and certain other information are set
forth below.
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STANDING FOR ELECTION
CLASS II
(TERM EXPIRES MAY 2003)
GEORGE A. LORCH, AGE 59
Director since 2001. Mr. Lorch is Chairman Emeritus of Armstrong Holdings,
Inc. From 1996 through April 2000, he served as Chairman of the Board and Chief
Executive Officer of Armstrong World Industries, Inc. He served as Chairman of
the Board and Chief Executive Officer of Armstrong Holdings, Inc. from May to
August of 2000. Mr. Lorch also serves on the boards of Pfizer, Household
International, and R.R. Donnelley. Armstrong World Industries, Inc. recently
filed for voluntary reorganization under Chapter 11 of the United States
Bankruptcy Code.
CLASS III
(TERM EXPIRES MAY 2004)
GLENN A. COX, AGE 71
Director since 1992. Mr. Cox was President and Chief Operating Officer of
Phillips Petroleum Company, a company engaged in the exploration, production,
refining, and marketing of petroleum and in the manufacture and distribution of
a wide variety of chemicals, until his retirement in 1991. Mr. Cox is also a
director of Helmerich & Payne, Inc.
THOMAS H. CRUIKSHANK, AGE 69
Director since 1990. Mr. Cruikshank was Chairman of the Board and Chief
Executive Officer of Halliburton Company, a diversified oil field services,
engineering, and construction company, until his retirement in 1996. He was an
executive of Halliburton for more than five years. Mr. Cruikshank is also a
director of The Goodyear Tire & Rubber Company, and Lehman Bros. Holdings, Inc.
CHARLES M. LILLIS, AGE 59
Director since 2000. Mr. Lillis is a co-founder and principal of LoneTree
Partners, a private equity investing group headquartered in Denver, Colorado.
Mr. Lillis served as the Chairman of the Board and Chief Executive Officer of
MediaOne Group (NYSE: UMG) from its inception in 1995 through the acquisition of
MediaOne by AT&T which was completed in 2000. Mr. Lillis is a director of
SUPERVALU Inc. and Agilera, Inc.
GORDON R. PARKER, AGE 65
Director since 1987. Mr. Parker was Chairman of the Board of Newmont Mining
Corporation, a company engaged in the exploration for, and the operation and
management of, precious metal properties, until his retirement in 1994. He was
an executive of Newmont for more than five years. Mr. Parker is also a director
of Caterpillar, Inc. and Phelps Dodge Corporation.
JOSEPH H. WILLIAMS, AGE 67
Director since 1969. He was Chairman of the Board of Williams prior to his
retirement in 1994. He was an executive of Williams for more than five years.
Mr. Williams is also a director of The Prudential Insurance Co. of America.
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DIRECTORS CONTINUING IN OFFICE
CLASS II
(TERM EXPIRES MAY 2003)
KEITH E. BAILEY, AGE 58
Director since 1988. Mr. Bailey was elected Chairman of the Board of
Williams in 1994. He was elected President of Williams in 1992 and Chief
Executive Officer in 1994. He served as Executive Vice President of Williams
from 1986 to 1992. Mr. Bailey is also Chairman of the Board of Williams
Communications Group, Inc.
WILLIAM E. GREEN, AGE 64
Director since 1998. Mr. Green is founder of William Green & Associates, a
Palo Alto, California, law firm and has been with the firm since 1974. He also
serves as Vice President, General Counsel, and Secretary of Information Network
Radio, Inc.
W. R. HOWELL, AGE 65
Director since 1997. Mr. Howell is Chairman Emeritus of J. C. Penney
Company, Inc., a major retailer. He was Chairman of the Board and Chief
Executive Officer of J.C. Penney from 1983 to 1996. He is also a director of
Exxon Corporation, Warner-Lambert Company, Bankers Trust, Halliburton Company,
and Central Southwest and Chairman of the Board of Trustees of Southern
Methodist University, Dallas, Texas.
JAMES C. LEWIS, AGE 68
Director since 1978. Mr. Lewis is Chairman of the Board of Optimus
Corporation, an investment company, and has been for more than five years. Mr.
Lewis is also a director of CFT.
CLASS I
(TERM EXPIRES MAY 2002)
HUGH M. CHAPMAN, AGE 68
Director since 1999. Mr. Chapman is a retired Chairman of the Board of
Nations Bank South, a commercial bank holding company, where he served from 1992
through June 1997. He also serves as a director of SCANA Corporation, West Point
Stevens, and Print Pack, Inc.
FRANK T. MACINNIS, AGE 54
Director since 1998. Mr. MacInnis is Chairman of the Board and Chief
Executive Officer of EMCOR Group, Inc., one of the world's largest electrical
and mechanical construction groups, and has been since 1994. Mr. MacInnis is
also Chairman of the Board of ComNet Communications, Inc. He is also a director
of UTT Corporation and a former director of Portec, Inc., and MAPCO Inc.
PETER C. MEINIG, AGE 61
Director since 1993. Mr. Meinig is Chairman and Chief Executive Officer of
HM International, Inc., a privately owned diversified manufacturing and
management company, and has held executive positions with HM International for
more than five years. He also serves as Chairman of Windsor Food Company, Ltd.
and Ninth House, Inc.
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JANICE D. STONEY, AGE 60
Director since 1999. Ms. Stoney retired as Executive Vice President of U S
WEST Communications, Inc. in 1992. She also serves on the board of directors of
Whirlpool Corporation and Bridges Investment Fund.
COMMITTEES, MEETINGS, AND DIRECTOR COMPENSATION
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of Williams. However, the
Board is not involved in the day-to-day operations of Williams. The Board is
kept informed of Williams' business through discussions with the Chief Executive
Officer and other officers, by reviewing analyses and reports provided to it on
a regular basis, and by participating in Board and Committee meetings.
The Board of Directors held 18 meetings during 2000. No director attended
less than 75 percent of the Board and Committee meetings. The Board has
established standing committees to consider designated matters. The Committees
of the Board are Executive, Audit, Nominating, and Compensation. In accordance
with the By-laws of Williams, the Board of Directors annually elects from its
members the members and chairman of each Committee.
Executive Committee. Members: Keith E. Bailey, Chairman, Glenn A. Cox,
James C. Lewis, Peter C. Meinig, Gordon R. Parker, and Joseph H. Williams.
The Executive Committee is authorized to act for the Board of Directors in
the management of the business and affairs of Williams, except as such authority
may be limited from time to time by the laws of the State of Delaware. The
Executive Committee did not meet in 2000.
Audit Committee. Williams' has an Audit Committee composed of nonemployee
directors for which information regarding the functions performed by the
Committee, its membership, and the number of meetings held during the year, is
set forth in the "Report of the Audit Committee," included in this Proxy
Statement. The Audit Committee is governed by a written charter approved by the
Board of Directors. A copy of this charter is included in Appendix A.
Report of the Audit Committee
The Audit Committee oversees Williams' financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of Williams' accounting principles and
such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and
Williams including the matters in the written disclosures required by the
Independence Standards Board and considered the compatibility of nonaudit
services with the auditors' independence.
The Committee discussed with Williams' internal and independent auditors
the overall scope and plans for their respective audits. The Committee meets
with the internal and independent auditors, with and without management present,
to discuss the results of their examinations, their evaluations of Williams'
internal controls, and the overall quality of Williams' financial reporting. The
Committee held six meetings during 2000.
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In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The Committee and the Board have also recommended, subject to
shareholder approval, the selection of Williams' independent auditors.
Peter C. Meinig, Chairman
Hugh M. Chapman
Thomas H. Cruikshank
William E. Green
Frank T. MacInnis
Janice D. Stoney
March 14, 2001
Nominating Committee. Members: Gordon R. Parker, Chairman, Hugh M. Chapman,
W.R. Howell, Charles M. Lillis, Frank T. MacInnis, and Joseph H. Williams.
The Nominating Committee is composed of nonemployee directors. The
Nominating Committee is responsible for recommending candidates to fill
vacancies on the Board as such vacancies occur, as well as the slate of nominees
for election as directors by the stockholders at each Annual Meeting of
Stockholders. Additionally, the Committee recommends to the Board the individual
to be the Chairman of the Board and Chief Executive Officer. During 2000, the
Nominating Committee met three times.
Qualifications considered by the Nominating Committee for director
candidates include an attained position of leadership in the candidate's field
of endeavor, business and financial experience, demonstrated exercise of sound
business judgment, expertise relevant to Williams' lines of business, and the
ability to serve the interests of all stockholders. The Committee will consider
director candidates submitted to it by other directors, employees, and
stockholders. As a requisite to consideration, each recommendation must be
accompanied by biographical material on the proposed candidate, as well as an
indication that the proposed candidate would be willing to serve as a director
if elected. Recommendations with supporting material may be sent to the
attention of the Secretary.
Compensation Committee. Members: Glenn A. Cox, Chairman, Thomas H.
Cruikshank, William E. Green, W.R. Howell, James C. Lewis, and Janice D. Stoney.
The members of the Compensation Committee are nonemployee directors and are
not eligible to participate in any of the plans or programs that the Committee
administers. The Compensation Committee approves the standard for salaries for
executive officers of Williams, reviews and approves the salary budgets for all
other officers of Williams, and specifically reviews and approves the
compensation of the senior executives of Williams. It reviews action taken by
management in accordance with the salary guidelines for executives and
establishes the performance objectives for variable compensation for executives.
It also approves stock option grants for the executive officers named herein.
See the "Compensation Committee Report on Executive Compensation" elsewhere
herein. During 2000, the Compensation Committee met five times.
Compensation of Directors. Employee directors receive no additional
compensation for service on the Board of Directors or Committees of the Board.
Nonemployee directors receive an annual retainer of $12,000 in cash and 750
shares of Common Stock. They also receive an annual committee retainer of $4,000
for serving on the Audit, Nominating or Compensation Committees. Chairmen of the
Audit, Nominating and Compensation Committees receive an additional annual
retainer of $2,500. Nonemployee directors also receive $1,000 for each Board
meeting attended, $500 for each Audit, Nominating or Compensation Committee
meeting attended and $750 for each Executive Committee meeting attended.
Under Williams' 1996 Stock Plan for Non-Employee Directors, a nonemployee
director may elect to receive all or any part of cash fees in the form of Common
Stock or deferred stock. Deferred stock may be deferred to any subsequent year
or until such individual ceases to be a director. Dividend equivalents are paid
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on deferred shares and may be received in cash or reinvested in additional
deferred shares. Four directors elected to defer fees under this plan in 2000.
Under the 1996 Stock Plan for Non-Employee Directors, all nonemployee
directors receive an annual stock option grant of 4,000 shares of Williams'
Common Stock. The options are exercisable on the date of grant and remain
exercisable for ten years so long as the director remains a director of
Williams. The exercise price is equal to the fair market value of the stock on
the date of grant as defined by the Plan.
All directors are reimbursed for reasonable out-of-pocket expenses incurred
in attending meetings of the Board or any Committee or otherwise by reason of
their being a director.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation of Williams' Chief Executive Officer and each of the four other
most highly-compensated executive officers of Williams for the three fiscal
years ended December 31, 2000.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------------------
---------------------------- RESTRICTED STOCK
BONUS STOCK OPTION SHARES
NAME AND (YR. AWARDS ----------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY EARNED)(1) (YR. EARNED)(2)(3) WMB WCG(4) COMPENSATION(5)
------------------ ---- -------- ---------- ------------------ ------- ------- ---------------
Keith E. Bailey....................... 2000 $950,000 $ -0- $1,224,911(6) 100,000 -0- $11,466
Chairman, President and Chief 1999 902,595 -0- 662,540(6) 50,000 100,000 10,905
Executive Officer 1998 675,000 300,000 450,000(6) 50,000 -0- 12,800
John C. Bumgarner, Jr. ............... 2000 $425,000 $337,959 $ -0- 50,000 -0- $11,466
Senior Vice President, Corporate 1999 401,442 210,806 1,028,583(7) 20,000 50,000 10,905
Development & Planning 1998 375,000 131,250 1,707,375(8)(9) 20,000 -0- 12,800
Howard E. Janzen...................... 2000 $500,000 $446,393 $ -0- -0- 100,000 $11,466
President, Chief Executive 1999 451,538 226,616 97,122(10) 10,000 300,000 10,905
Officer, Williams Communications 1998 400,000 126,000 2,609,000(11) 30,000 -0- 12,050
Group, Inc.
Jack D. McCarthy...................... 2000 $440,000 $349,888 $ -0- 50,000 -0- $11,466
Senior Vice President, Finance & 1999 391,817 196,589 84,253 20,000 50,000 10,905
Corporate Chief Financial Officer 1998 375,000 131,250 1,707,375(8)(9) 20,000 -0- 12,800
William G. vonGlahn................... 2000 $390,000 $335,225 $ -0- 40,000 -0- $11,466
Senior Vice President and 1999 351,153 172,157 73,783 20,000 50,000 10,905
General Counsel 1998 300,000 105,000 1,305,000(8) 20,000 -0- 10,815
---------------
(1) Excludes 1999 and 1998 executive incentive compensation program awards
converted to deferred stock amounts that are included in the Restricted
Stock Awards column.
(2) Amounts reported in this column include the dollar value of Williams'
deferred and restricted stock awards under the terms of Williams' 1996
Stock Plan, and Williams Communications Group, Inc. deferred stock awards
under the terms of the Williams Communications Group, Inc. 1999 Stock Plan,
as of the date such awards were granted. Conversion of executive incentive
compensation program awards to deferred stock is based on the 52-week
average stock price for the award year, except as noted in footnote 10.
Receipt of deferred stock is deferred for approximately three years.
(3) The total number of Williams' restricted shares held and the aggregate
closing market value at December 31, 2000, were as follows: Mr. Bailey,
390,765 shares valued at $15,606,177. The total number of Williams' and
Williams Communications Group, Inc. deferred shares held, respectively, and
the aggregate closing market value at December 31, 2000, were as follows:
Mr. Bailey, 71,328 shares valued at $2,848,662; Mr. Bumgarner, 196,549
shares valued at $7,849,676 and 14,171 shares valued at $166,509; Mr.
Janzen, 1,769 shares valued at $70,649 and 101,569 shares valued at
$1,193,436; Mr. McCarthy, 55,964 shares valued at $2,235,062; and Mr. von
Glahn, 43,333 shares valued at $1,730,612. Aggregate market value was
calculated using $39.9375 per share, the closing price of Williams' Common
Stock and $11.7500 per share, the closing price of Williams Communications
Group, Inc. Common Stock, reported in the table entitled "New York Stock
Exchange Composite Transactions" contained in The Wall Street Journal for
December 31, 2000. Dividends are paid on Williams' restricted shares, and
dividend equivalents are paid on Williams' deferred stock at the same time
and at the same rate as dividends paid to stockholders generally; dividend
equivalents are not paid on Williams Communications Group, Inc. deferred
stock.
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(4) Williams' Common Stock is designated WMB. Effective with the initial public
offering of Williams Communications Group, Inc. on September 30, 1999,
certain employees of Williams received awards denominated in Williams
Communications Group, Inc. Common Stock (WCG).
(5) Consists of contributions made by Williams to the Investment Plus Plan, a
defined contribution plan, on behalf of each of the named executive
officers.
(6) Represents 30,386 shares of restricted stock valued at the 52-week average
stock price for the week ending December 30, 2000 ($40.3130) awarded in
2001 as 2000 incentive compensation, 16,679 shares of restricted stock
valued at the 52-week average stock price for the week ending December 31,
1999 ($39.7250) awarded in 2000 as 1999 incentive compensation and 14,742
shares of restricted stock valued at the 52-week average stock price for
week ending December 25, 1998 ($30.5260) awarded in 1999 as 1998 incentive
compensation instead of awards of cash and deferred stock provided under
the executive incentive compensation program applicable to other executive
officers. Also represents 8,122 shares of restricted stock awarded in 1999
to Mr. Bailey to correct the number of shares awarded in 1994, 1995 and
1996 when the conversion to restricted shares was based on incorrect
valuation methods. The restrictions on Mr. Bailey's restricted stock awards
lapse in April 2002.
(7) The amount includes retention awards of 14,642 deferred shares of Williams'
Common Stock awarded on July 23, 1999, valued at $604,898 and vesting on
April 30, 2001 and 14,493 deferred shares of Williams Communications Group,
Inc. Common Stock valued at $333,339 which were awarded at the initial
public offering (IPO) of Williams Communications Group, Inc. on September
30, 1999 and vested on June 30, 2000.
(8) Includes Williams' deferred stock awarded on May 21, 1998 for retention
purposes to the following individuals (market values at date of grant are
noted as follows): Mr. Bumgarner, 40,000 shares valued at $1,277,500 that
vested in January 2000; Mr. McCarthy, 40,000 shares valued at $1,277,500;
and Mr. von Glahn, 40,000 shares valued at $1,277,500.
(9) Includes Williams' deferred stock awarded on July 31, 1998 for termination
of employment agreement, respectively to the following individuals (market
values at date of grant are noted as follows): Mr. Bumgarner, 12,000 shares
valued at $385,500, vesting on April 30, 2001; and Mr. McCarthy, 12,000
shares valued at $385,500.
(10) Amount reported is the dollar value of an executive incentive compensation
program award of Williams Communications Group, Inc. deferred stock under
the terms of the Williams Communications Group, Inc. 1999 Stock Plan as of
December 31, 1999, the date of award. Conversion of the award to deferred
stock was based on the three-month average stock price since inception of
Williams Communications Group, Inc. Common Stock on September 30, 1999
($28.4290). Receipt of deferred stock is deferred for approximately three
years.
(11) This amount includes Williams' deferred stock award of 80,000 shares
granted for retention purposes on May 21, 1998 under The Williams
Companies, Inc. 1996 Stock Plan with a value of $2,555,000. These deferred
shares were converted at the completion of the equity offering of Williams
Communications Group, Inc. on September 30, 1999, to 130,870 Williams
Communications Group, Inc. deferred shares under the Williams
Communications Group, Inc. 1999 Stock Plan. Twenty-five percent of these
deferred shares (32,718) vested on that date.
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following tables provide certain information concerning the grant of
Williams' stock options and Williams Communications Group, Inc. stock options
during the last fiscal year to the named executive officers:
WILLIAMS OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OPTIONS
OF WMB GRANTED EXERCISE GRANT DATE
DATE OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED GRANTED FISCAL YEAR (PER SHARE) DATE VALUE(2)
---- ------- ------- ---------------- ----------- ---------- ----------
Keith E. Bailey......... 3/16/00 100,000 2.64% $46.0625 03/16/10 $2,020,000
------- ---- ----------
100,000 2.64% $2,020,000
John C. Bumgarner, 3/16/00 50,000 1.32% $46.0625 03/16/10 $1,010,000
Jr. ..................
------- ---- ----------
50,000 1.32% $1,010,000
Howard E. Janzen........ 0
Jack D. McCarthy........ 3/16/00 50,000 1.32% $46.0625 03/16/10 $1,010,000
------- ---- ----------
50,000 1.32% $1,010,000
William G. von Glahn.... 3/16/00 40,000 1.06% $46.0625 03/16/10 $ 808,000
------- ---- ----------
40,000 1.06% $ 808,000
---------------
(1) Options granted in 2000 were granted subject to an accelerated vesting
provision as discussed in the Compensation Committee Report on Executive
Compensation included herein. Those awarded in March 2000 were vested upon
grant pursuant to such accelerated vesting. Williams granted these options
under its 1996 Stock Plan.
(2) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 28.5
percent, a risk-free rate of return of 6.51 percent, a dividend yield of
1.47 percent and an exercise date at the end of the contractual term in
2010. The actual value, if any, that may be realized by an executive will
depend on the market price of Williams' Common Stock on the date of
exercise. The dollar amounts shown are not intended to forecast possible
future appreciation in Williams' stock price.
WILLIAMS COMMUNICATIONS GROUP, INC. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OPTIONS
OF WCG GRANTED EXERCISE GRANT DATE
DATE OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED GRANTED FISCAL YEAR (PER SHARE) DATE VALUE(2)
---- ------- ------- ---------------- ----------- ---------- ----------
Keith E. Bailey............... -- -- -- -- -- --
John C. Bumgarner, Jr. ....... -- -- -- -- -- --
Howard E. Janzen.............. 3/16/00 100,000 0.78% $48.7500 03/16/10 $3,966,000
------- ---- ----------
100,000 0.78% $3,966,000
Jack D. McCarthy.............. -- -- -- -- -- --
William G. von Glahn.......... -- -- -- -- -- --
---------------
(1) These stock options immediately vested on the grant date of 03/16/00 in
recognition of the efforts and achievements of the Williams Communications
Group, Inc.
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(2) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 71
percent, a weighted average risk-free rate of return of 6.28 percent, a
dividend yield of 0 percent and an exercise date at the end of the
contractual term in 2010. The actual value, if any, that may be realized by
an executive will depend on the market price of the Williams Communications
Group, Inc. Common Stock on the date of exercise. The dollar amounts shown
are not intended to forecast possible future appreciation in Williams
Communications Group, Inc. stock price.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following tables provide certain information on stock option exercises
of Williams' stock and Williams Communications Group, Inc. stock, respectively,
in 2000 by the named executive officers and the value of such officers'
unexercised options at December 31, 2000.
AGGREGATED OPTION EXERCISES OF WILLIAMS' STOCK IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Keith E. Bailey........... 300,002 $4,859,414 150,000 0 $ 0 $0
John C. Bumgarner, Jr. ... 0 $ 0 60,000 0 $ 0 $0
Howard E. Janzen.......... 60,002 $1,677,559 120,002 0 $1,626,295 $0
Jack D. McCarthy.......... 0 $ 0 90,000 0 $ 159,166 $0
William G. von Glahn...... 0 $ 0 135,504 0 $1,139,808 $0
---------------
(1) Based on the closing price of Williams' Common Stock reported in the table
entitled "New York Stock Exchange Composite Transactions" contained in The
Wall Street Journal for December 29, 2000 ($39.9375 per share), less the
exercise price. The values shown reflect the value of options accumulated
over periods of up to ten years. Such values had not been realized at that
date and may not be realized. In the event the options are exercised, their
value will depend on the market price of Williams' Common Stock on the date
of exercise.
AGGREGATED OPTION EXERCISES OF WILLIAMS COMMUNICATIONS GROUP, INC. STOCK IN LAST
FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Keith E. Bailey................ 0 $0 0 100,000 $0 $0
John C. Bumgarner, Jr. ........ 0 $0 0 50,000 $0 $0
Howard E. Janzen............... 0 $0 125,000 275,000 $0 $0
Jack D. McCarthy............... 0 $0 0 50,000 $0 $0
William G. von Glahn........... 0 $0 0 50,000 $0 $0
---------------
(1) Based on the closing price of Williams Communications Group, Inc. Common
Stock reported in the table entitled "New York Stock Exchange Composite
Transactions" contained in The Wall Street Journal for December 29, 2000
($11.7500 per share), less the exercise price. The values shown reflect the
value of options accumulated over periods of up to ten years. Such values
had not been realized at that date and may not be realized. In the event the
options are exercised, their value will depend on the market price of the
Williams Communications Group, Inc. Common Stock on the date of exercise.
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RETIREMENT PLAN
Williams' pension plan is a noncontributory, tax-qualified defined benefit
plan subject to the Employee Retirement Income Security Act of 1974. The pension
plan generally includes salaried employees of Williams who have completed one
year of service. Except as noted below, executive officers of Williams
participate in the pension plan on the same terms as other full-time employees.
Effective April 1, 1998, Williams converted its pension plan from a final
average pay plan to a cash balance pension plan. Each participant's accrued
benefit as of that date was converted to a beginning account balance. Account
balances are credited with an annual Company contribution and quarterly interest
allocations. Each year Williams allocates to an employee's pension account an
amount equal to a percentage of eligible compensation. Such percentage is based
upon the employee's age according to the following table:
PERCENTAGE OF PERCENTAGE OF ELIGIBLE PAY GREATER
AGE ALL ELIGIBLE PAY THAN THE SOCIAL SECURITY WAGE BASE
--- ---------------- ----------------------------------
30......................... 4.5% + 1%
30-39...................... 6% + 2%
40-49...................... 8% + 3%
50+........................ 10% + 5%
For employees, including the executive officers named in the Summary
Compensation Table, who were active employees and plan participants on March 31,
1998, and April 1, 1998, the percentage of all eligible pay is increased by an
amount equal to the sum of 0.3 percent multiplied by the participant's total
years of service prior to March 31, 1998. Interest is credited to account
balances quarterly at a rate determined annually in accordance with the terms of
the plan. The normal retirement benefit is a monthly annuity based on an
individual's account balance as of benefit commencement. The plan defines
eligible compensation to include salary and bonuses. Normal retirement age is
65. Early retirement may begin as early as age 55. At retirement, employees are
entitled to receive a single-life annuity or one of several optional forms of
payment having an equivalent actuarial value to the single-life annuity.
Participants who were age 50 or older as of March 31, 1998, were
grandfathered under a transitional provision that gives them the greater of the
benefit payable under the cash balance formula or the final average pay formula
based on all years of service and compensation. Mr. Bailey, Mr. Bumgarner, Mr.
McCarthy, and Mr. von Glahn are covered under this grandfather provision.
The Internal Revenue Code of 1986, as amended, currently limits the pension
benefits that can be paid from a tax-qualified defined benefit plan, such as the
pension plan, to highly compensated individuals. These limits prevent such
individuals from receiving the full pension benefit based on the same formula as
is applicable to other employees. As a result, Williams has adopted an unfunded
supplemental retirement plan to provide a supplemental retirement benefit equal
to the amount of such reduction to every employee, including the executive
officers named in the Summary Compensation Table, whose benefit payable under
the pension plan is reduced by Internal Revenue Code limitations.
Total estimated annual benefits payable at normal retirement age under the
cash balance formula from both the tax qualified and the supplemental retirement
plans are as follows:
Keith E. Bailey............................................. $828,230
John C. Bumgarner, Jr. ..................................... 276,463
Howard E. Janzen............................................ 571,227
Jack D. McCarthy............................................ 192,897
William G. von Glahn........................................ 186,027
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The following schedule illustrates projected annual retirement benefits
under the final average pay formula, payable from both the tax qualified and the
supplemental retirement plans based on various levels of final average annual
compensation and years of service. The benefits are not subject to deduction for
any offset amounts:
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- ----------
$ 400,000................. $108,631 $144,841 $181,051 $217,262 $ 253,472
600,000................. 164,131 218,841 273,551 328,262 382,972
800,000................. 219,631 292,841 366,051 439,262 512,472
1,000,000................. 275,131 366,841 458,551 550,262 641,972
1,200,000................. 330,631 440,841 551,051 661,262 771,472
1,400,000................. 386,131 514,841 643,551 772,262 900,972
1,600,000................. 441,631 588,841 736,051 883,262 1,030,472
1,800,000................. 497,131 662,841 828,551 994,262 1,159,972
As of December 31, 2000, the years of credited service under the pension
plan for the executive officers named in the Summary Compensation Table, who are
grandfathered under the final average pay formula, were: Mr. Bailey, 27; Mr.
Bumgarner, 24; Mr. McCarthy, 14; Mr. von Glahn, 16.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL SEVERANCE PLAN
As authorized by the Board of Directors, Williams previously had separate
employment agreements with certain of the executive officers named in the
Summary Compensation Table and certain other individuals. In 1998, Williams and
all but one of the executive officers entered into agreements to terminate these
employment agreements. In early 2000, the remaining employment agreement was
terminated in connection with the retirement of the executive officer.
Williams has established The Williams Companies, Inc. Change in Control
Severance Plan, which covers certain employees of Williams, including the
executive officers named in the Summary Compensation Table. The plan provides
severance benefits if, within two years following a change in control of
Williams, a participant's employment is terminated (i) involuntarily other than
for cause, death, disability, or the sale of a business, or (ii) voluntarily for
good reason. The severance benefit is a lump sum payment equal to 100 percent of
the participant's annual base salary plus 100 percent of the participant's
monthly base salary for each completed year of service, subject to a maximum
severance benefit equal to 200 percent of the participant's annual base salary.
If necessary, a participant is also entitled to receive a corresponding gross-up
payment sufficient to compensate for the amount of any excise tax imposed by
Internal Revenue Code Section 4999, and for any taxes imposed on such additional
payment. Amounts payable under the plan are in lieu of any payments that may
otherwise be payable under any other severance plan or program.
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17
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of independent outside directors. The Committee is responsible for
overseeing and administering Williams' executive compensation program.
COMPENSATION POLICY
The executive compensation program of Williams is designed to serve the
interests of Williams and its stockholders by aligning executive compensation
with stockholder objectives and to encourage and reward management initiatives
and performance. Specifically, the executive compensation program seeks to:
(i) Attract and retain the talent needed to drive superior shareholder
value and help each of Williams' businesses meet or exceed financial
performance targets;
(ii) Motivate and reward to achieve superior performance relative to
industry peers;
(iii) Align executive and shareholder interests; and
(iv) Reinforce and reward leadership supporting Williams core values.
These objectives are met through a program comprised of base salary; annual
cash bonus directly tied to business performance and individual performance; and
long-term incentive opportunities primarily in the form of stock options and the
selective use of deferred and restricted stock. Compensation decisions with
respect to those executives named in the Summary Compensation Table are made by
the Committee.
COMPENSATION PROGRAM
Total Compensation: Base salary, cash bonus targets and stock option
targets for Williams' executives, including those executive officers named in
the Summary Compensation Table, were generally established at the 50th
percentile of compensation survey results. For this purpose, Williams uses
compensation survey information relevant to high-performance general industry
companies, to regulated and unregulated energy companies, and to communication
companies, of similar size supplied by nationally known compensation consulting
firms.
Base Salary: The Committee considers base salary adjustments for each of
Williams' executives annually. The Committee also approves annually a merit
increase budget for all executives. For 2000, the merit increase budget approved
for Williams corporate, energy and gas pipeline executives was 4.2 percent; the
merit increase budget approved for Williams communications executives was 5.0
percent. These targets were developed based on Williams' review of survey data
indicating that estimated 2000 base salary increases for general industry
executives would range from 4.1 to 4.5 percent and that estimated 2000 base
salary increases for telecommunications industry executives would range from 4.7
to 5.1 percent. Within this framework, base salary increases for Williams'
corporate, energy and gas pipeline executives ranged from 0 to 5.67 percent,
excluding adjustment increases; base salary increases for Williams'
communications executives ranged from 0 to 8.57 percent, excluding adjustment
increases. The average 2000 merit increase for corporate, energy and gas
pipeline executives was 3.98 percent; the average 2000 merit increase for
communications executives was 4.91 percent. Specific increases for individual
executives involve consideration of certain subjective factors, principally the
performance of such executive over the prior compensation period.
Cash Bonus: The bonus arrangement for Mr. Bailey is discussed elsewhere
herein. The executives of Williams, including the senior executive officers
named in the Summary Compensation Table, are eligible each year for cash
bonuses. The cash bonus program is designed to measure and reward both business
and individual achievements. Each participant has a cash bonus target
opportunity that is a percentage of base salary that can be earned when business
results meet target levels of performance and individual performance achieves
expectations. The cash bonus target opportunity percentages of base salary used
for this purpose range from 12.5 percent for manager level participants to 75
percent for executives. Actual awards can be up to 200 percent of the target
opportunity depending on achievement of business and individual performance
objectives.
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18
An executive's award for a given year is the sum of the product of (i) the
percentage actual performance bears to targeted performance (the "performance
factor"); (ii) the applicable weight of the component; (iii) the target
opportunity percentage; and (iv) the participant's base salary, for each of the
components. Awards are earned based on the extent to which pre-established
performance targets are achieved. The components and weighting of the award
formula are 67 percent business performance and 33 percent individual
performance, with the sum of the weights for the components totaling one.
The components of business performance, except the stock option performance
component, are measured by comparing actual business results to pre-established
goals based on Williams' business strategies. The respective business units
submit goals for these components of business performance, at threshold, target
and stretch levels, to the Committee for approval in January of the plan year.
Threshold and stretch levels represent the Committee's subjective assessment of
performance below which there should be no bonus (the threshold level) and
performance at which 200 percent of the bonus potential should be paid (the
stretch level). If performance is at target, the performance factor used to
calculate the award is 100 percent. Performance above or below target results in
awards representing a linear increase/decrease from target to stretch and from
target to threshold depending upon where actual performance falls. Except in
unusual circumstances, there are no awards for performance below threshold. The
Committee assesses WMB stock performance in January following the plan year, by
comparing its total shareholder return to the total shareholder return of the
S&P 500 Index and the S&P Natural Gas Index. The range for the stock performance
component is 0 to 200 percent. For the senior executive officers named in the
Summary Compensation Table, the business performance factor for 2000 was tied to
Williams' stock performance, energy income applicable to common shareholders and
Williams Communications Group, Inc. earnings before income taxes, depreciation
and amortization. The Committee retains the discretion to adjust reported
performance to allow for extraordinary, nonrecurring factors.
The Committee determines the amount of funding for an individual
performance component award pool from which the actual individual performance
awards are distributed. The Committee funds the pool for the plan year at 0 to
200 percent of the target level. Individual performance is measured by the
performance management process, comparing individual results to pre-established
individual objectives. The size of actual individual awards is impacted by the
individual performance component award pool.
Long-term Compensation. The Committee's objective with respect to stock
option awards is to provide a long-term component to overall compensation that
aligns the interests of executives with the interests of stockholders through
stock ownership. Compensation opportunities in the form of stock options serve
this purpose.
Williams' 1996 Stock Plan, approved by the stockholders in 1996, permits
the Committee to grant stock option awards giving executives the right to
purchase Common Stock over a ten-year period at the market value per share of
Williams' Common Stock, as defined by the 1996 Stock Plan, as of the date the
option is granted. Stock option awards from this plan will generally be subject
to three-year (one-third per year) graded vesting schedule. Stock option awards
issued in 2000 were granted subject to an accelerated vesting provision which
provided that if the average stock price, for five out of 10 consecutive
business days, reached a level that was 1.4 times the average stock price on the
first business day of the award year, rounded up to a marketable amount, the
options vested immediately. Stock options granted on March 16, 2000 were vested
upon grant pursuant to such accelerated vesting.
The Williams Communications Group, Inc. 1999 Stock Plan, established by the
Committee and approved by stockholders in 1999, provides for issuance of
Williams Communications Group, Inc. stock options to employees and members of
the board of directors of Williams Communications or its affiliates. These stock
option awards give executives the right to purchase WCG common stock over a
ten-year period at the market value per share of WCG common stock, as defined by
the plan, as of the date the option is granted. Stock option awards from this
plan will generally be subject to three-year (one-third per year) graded vesting
schedule. Stock option awards issued in 2000 were granted subject to an
accelerated vesting provision which provided that if the average stock price,
for five out of 10 consecutive business days, reached a level that was 1.5 times
the average stock price on the first business day of the award year, rounded up
to a marketable
15
19
amount, the options vested immediately. Stock options granted on March 16, 2000
were vested upon grant pursuant to such accelerated vesting.
The Committee has established stock option award targets for each executive
participant and for director and manager level participants in the stock option
program. The target levels for annual stock option grants have been established
based on competitive market data for each executive position and based on
competitive market practices for director and manager level positions. The WMB
stock option targets for corporate, energy and gas pipeline participants range
from 100,000 shares for the Chairman, President and Chief Executive Officer to
1,500 shares for manager-level employees. The WCG stock option targets for
Williams Communications participants range from 100,000 shares for the President
and Chief Executive Officer to 2,200 shares for manager-level employees. The
size of actual stock option awards is tied to individual performance, as
measured by the performance management process, comparing individual results to
pre-established individual objectives.
Deferred Stock: Williams' 1996 Stock Plan and the Williams Communications
Group, Inc. 1999 Stock Plan provide for the issuance of restricted and deferred
stock, which is not distributed to the executive until the applicable
restriction period lapses. Restricted and deferred stock that is not vested is
normally forfeited if the executive terminates employment for any reason other
than retirement, disability or death prior to the lapsing of applicable
restrictions. The Committee uses restricted and deferred stock awards primarily
to provide, on a selective basis, a vehicle for tying an element of compensation
to the executive's willingness to remain with Williams in a way that aligns the
executive's interests with those of the other stockholders.
All executives have an opportunity to defer up to 50 percent of their base
salary and up to 100 percent of their cash bonus for an elective period in the
form of vested deferred stock. Deferred stock cannot be sold or otherwise
disposed of until the applicable deferral period lapses. Dividend equivalents
are paid on Williams deferred stock. The value of the deferred stock is at risk
during the deferral period since the value is tied to the stock price.
CHIEF EXECUTIVE OFFICER COMPENSATION
The full Board meets in executive session each year to review Mr. Bailey's
performance. The session is conducted without Mr. Bailey present, and the
meeting is chaired by the Chairman of the Compensation Committee. The results of
this performance review, which are shared with Mr. Bailey, are used by the
Compensation Committee in making its review of Mr. Bailey's performance for
compensation purposes.
As previously mentioned, a special incentive compensation program has been
approved for Mr. Bailey. The program pays out entirely in restricted stock in
order to weight his compensation more heavily in stock, to the extent earned.
Mr. Bailey's bonus target opportunity is 100 percent of base salary when
business results meet target levels of performance and individual performance
achieves expectations. The maximum award potential is equal to 200 percent of
base salary when business performance is at stretch level and individual
performance exceeds expectations. The business performance factor for 2000 was
tied to Williams' stock performance, energy income applicable to common
shareholders and Williams Communications Group, Inc. earnings before income
taxes, depreciation and amortization. The stock performance component of
business performance was measured by comparing Williams' total shareholder
return to the total shareholder return of the S&P 500 Index and the S&P Natural
Gas Index. The remaining business performance components were measured against
pre-established business objectives. The award earned in 2000 and awarded in
January 2001 was 30,386 shares of restricted stock. This award represents 129
percent of the award target. The restricted stock awarded to Mr. Bailey vests in
2002. The restricted stock is forfeited to the extent Mr. Bailey terminates
employment prior to the lapse of the restriction period whether due to
resignation, voluntary retirement without prior Board consent or termination for
cause. Under Mr. Bailey's leadership and direction, Williams doubled the energy
segment profit reached in 1999, completed the communications segment 33,000
route-mile network on schedule, decreased segment losses compared to 1999, and
implemented initiatives to support leadership goals.
A stock option grant of 100,000 shares was also approved for Mr. Bailey in
2000. This award represents 100 percent of the target for stock option awards
previously established by the Committee for the Chairman,
16
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President and Chief Executive Officer position. The specific award, relative to
the target, was based on a subjective analysis of Mr. Bailey's performance.
OTHER MATTERS
Section 162(m) of the Code places a $1 million per person limitation on the
tax deduction Williams may take for compensation paid to its Chief Executive
Officer and its four other highest paid executive officers, except compensation
constituting performance-based compensation, as defined by the Code, is not
subject to the $1 million limit. The Committee generally intends to grant awards
under the 1996 Stock Plan consistent with the terms of Section 162(m) so that
such awards will not be subject to the $1 million limit. In other respects, the
Committee expects to take actions in the future that may be necessary to
preserve the deductibility of executive compensation to the extent reasonably
practicable and consistent with other objectives of Williams' compensation
program. In doing so, the Committee may utilize alternatives such as deferring
compensation to qualify compensation for deductibility and may rely on
grandfathering provisions with respect to existing compensation commitments. The
Committee believes that approximately $190,000 of Mr. Bailey's compensation,
otherwise deductible for 2000, exceeded the deductibility limit.
THE COMPENSATION COMMITTEE
Glenn A. Cox, Chairman
Thomas H. Cruikshank
William E. Green
W. R. Howell
James C. Lewis
Janice D. Stoney
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STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing Williams' cumulative total
stockholder return on its Common Stock (assuming reinvestment of dividends) with
the cumulative total return of the S&P Corporate-500 Stock Index and the S&P
Natural Gas Index for the period of five fiscal years commencing January 1,
1996. The graph assumes an investment of $100 at the beginning of the period.
[PERFORMANCE GRAPH]
-----------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
-----------------------------------------------------------------------------------------------------------------------
The Williams Companies, Inc. 100.00 131.79 204.88 228.82 227.81 301.89
S&P 500 100.00 122.94 163.95 210.80 255.16 231.93
S&P Natural Gas 100.00 132.89 156.80 171.83 204.64 359.13
18
22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock of
Williams and the percentage represented by such number of each person who is
known to Williams to own beneficially 5 percent or more of Williams' Common
Stock. Williams obtained certain information in the table from filings made with
the Securities and Exchange Commission.
NUMBER OF
SHARES OF PERCENT
NAME AND ADDRESS COMMON STOCK OF CLASS
---------------- ------------ --------
Wells Fargo & Company(1).................................... 35,724,913 7.4%
420 Montgomery Street
San Francisco, California 94104
Capital Research and Management Company(2).................. 33,122,950 6.8%
333 South Hope Street
Los Angeles, California 90071
---------------
(1) A filing with the Securities and Exchange Commission on February 13, 2001,
indicates that Wells Fargo & Company is a Parent Holding Company in
accordance with Section 240.13d-1(b)(ii)(G).
(2) A filing with the Securities and Exchange Commission on February 12, 2001,
indicates that Capital Research and Management Company, an investment
adviser under Section 203 of the Investment Advisors Act of 1940, is deemed
to be the beneficial owner of 33,122,950 shares of Williams' Common Stock as
a result of acting as investment advisor to various investment companies
registered under Section 8 of the Investment Company Act of 1940.
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23
The following table sets forth, as of February 28, 2001, the amount of
Williams' Common Stock beneficially owned by each of its directors, each of the
executive officers named in the Summary Compensation Table, and by all directors
and nominees and executive officers as a group.
SHARES
UNDERLYING
SHARES OF OPTIONS
COMMON STOCK EXERCISABLE
OWNED DIRECTLY WITHIN PERCENT
NAME OF INDIVIDUAL OR GROUP OR INDIRECTLY(1)(2) 60 DAYS(3) TOTAL OF CLASS
--------------------------- ------------------- ----------- --------- --------
Keith E. Bailey............................ 2,188,283(4) 150,000 2,338,283 *
John C. Bumgarner, Jr. .................... 1,072,572(4) 60,000 1,132,572 *
Hugh M. Chapman............................ 7,078 10,000 17,078 *
Glenn A. Cox............................... 9,750(4) 48,008 57,758 *
Thomas H. Cruikshank....................... 21,982 50,006 71,988 *
William E. Green........................... 3,711 16,000 19,711 *
W. R. Howell............................... 9,399 20,000 29,399 *
Howard E. Janzen........................... 219,090 120,002 339,092 *
James C. Lewis............................. 74,561(4) 17,334 91,895 *
Charles M. Lillis.......................... 2,500 6,000 8,500 *
George A. Lorch............................ 500 0 500 *
Frank T. MacInnis.......................... 7,953 14,667 22,620 *
Jack D. McCarthy........................... 210,052 90,000 300,052 *
Peter C. Meinig............................ 18,201(4) 42,008 60,209 *
Gordon R. Parker........................... 62,997 26,002 88,999 *
Janice D. Stoney........................... 4,434 10,000 14,434 *
William G. von Glahn....................... 192,363 135,504 327,867 *
Joseph H. Williams......................... 556,522(4) 36,008 592,530 *
All directors and executive officers as a
group (22 persons)....................... 4,969,319 1,442,329 6,411,648 1.3%
---------------
* Less than 1 percent.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 253,321, including 181,993 over which he has sole
voting and investment power; Mr. Bumgarner, 418,969, including 229,100 over
which he has sole voting and investment power; Mr. Janzen, 62,188, including
60,419 over which he has sole voting and investment power; Mr. McCarthy,
56,625, including 657 over which he has sole voting and investment power;
and Mr. von Glahn, 59,005, including 15,672 over which he has sole voting
and investment power.
(2) Includes shares held under the terms of compensation plans over which
directors have no voting or investment power as follows: Thomas H.
Cruikshank, 6,682; William E. Green, 3,711; W.R. Howell, 5,638; James C.
Lewis, 8,639; Charles M. Lillis, 500; Peter C. Meinig, 8,751; and Janice D.
Stoney, 1,434.
(3) The Securities and Exchange Commission deems a person to have beneficial
ownership of all shares that that person has the right to acquire within 60
days. The shares indicated represent stock options granted under Williams'
Stock Plans. Shares subject to option cannot be voted.
(4) Includes shares held in trust as follows: Mr. Bailey, 27,800; Mr. Bumgarner,
637,976; Mr. Cox, 9,000 shares; Mr. Lewis, 18,188; Mr. Meinig, 6,450 shares;
and Mr. Williams, 24,600 shares. Each individual has voting and investment
power over such shares.
No director or officer of Williams owns beneficially any securities of
Williams' subsidiaries other than directors' qualifying shares and shares in
Williams Communications Group, Inc. as shown in the next table.
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The following table sets forth, as of February 28, 2001, the amount of
Class A Common Stock of Williams Communications Group, Inc., a majority owned
subsidiary of Williams, beneficially owned by each of its directors, each of the
executive officers named in the Summary Compensation Table, and by all directors
and nominees and executive officers as a group.
SHARES
UNDERLYING
SHARES OF OPTIONS
COMMON STOCK EXERCISABLE
OWNED DIRECTLY WITHIN PERCENT
NAME OF INDIVIDUAL OR GROUP OR INDIRECTLY(1) 60 DAYS(2) TOTAL OF CLASS
--------------------------- ------------------- ----------- ------- --------
Keith E. Bailey..................... 0 0 0 *
John C. Bumgarner, Jr. ............. 193,474(3) 0 193,474 *
Hugh M. Chapman..................... 3,000 10,000 13,000 *
Glenn A. Cox........................ 5,000 10,000 15,000 *
Thomas H. Cruikshank................ 5,000 10,000 15,000 *
William E. Green.................... 5,000 10,000 15,000 *
W. R. Howell........................ 5,000 10,000 15,000 *
Howard E. Janzen.................... 123,318 125,000 248,318 *
James C. Lewis...................... 5,000 10,000 15,000 *
Charles M. Lillis................... 6,500 0 6,500 *
George A. Lorch..................... 0 0 0 *
Frank T. MacInnis................... 5,000 10,000 15,000 *
Jack D. McCarthy.................... 0 0 0 *
Peter C. Meinig..................... 5,000 10,000 15,000 *
Gordon R. Parker.................... 5,000 10,000 15,000 *
Janice D. Stoney.................... 5,000 10,000 15,000 *
William G. von Glahn................ 303 0 303 *
Joseph H. Williams.................. 5,000 10,000 15,000 *
All directors and executive officers
as a group (22 persons)........... 364,340 235,000 599,340 *
---------------
* Less than 1 percent.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bumgarner, 14,171; Mr. Janzen, 101,872, including 303 over
which he has sole voting and investment power.
(2) The Securities and Exchange Commission deems a person to have beneficial
ownership of all shares that that person has the right to acquire within 60
days. The shares indicated represent stock options granted under Williams
Communications Group, Inc. Stock Plan. Shares subject to option cannot be
voted.
(3) Includes 152,000 shares held in trust. Mr. Bumgarner has voting and
investment power of these shares.
21
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK OPTION LOAN PROGRAM
1985, 1990, AND 1996 STOCK PLAN AND 1996 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
The stock option loan programs for The Williams Companies, Inc. 1996 Stock
Plan, The Williams Companies, Inc. 1996 Stock Plan for Non-Employee Directors,
The Williams Companies, Inc. 1990 Stock Plan, and The Williams Companies, Inc.
1985 Stock Plan provide that loans using stock certificates as collateral may be
either for a three- or five-year term. Interest payments are due annually during
the term of the loan and interest rates are based on the minimum applicable
federal rates required to avoid imputed income. The principal amount is due at
the end of the loan term, provided, however, that a participant may request,
prior to the end of a loan term, a new loan that may be granted at the
discretion of Williams. Participants who leave Williams during the loan period
are required to pay the loan balance and any accrued interest within 30 days of
termination.
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 2000 02/28/2001
---- -------- -------------- -------------- --------------
Keith E. Bailey.................... 6.28% $ 50,641.92 $ 163,499.92 $ --
Keith E. Bailey.................... 6.58% $ 71,656.20 $ 220,941.09 $ --
Keith E. Bailey.................... 6.42% $ 67,673.84 $ 253,517.81 $ --
Keith E. Bailey.................... 6.80% $ 49,588.48 $ 241,628.36 $ --
Keith E. Bailey.................... 6.80% $ 59,459.20 $ 221,858.04 $ --
Keith E. Bailey.................... 6.80% $ 36,162.67 $ 113,593.32 $ 107,529.89
Keith E. Bailey.................... 5.68% $ 406,609.84 $ 1,513,046.81 $ 1,444,869.99
Keith E. Bailey.................... 5.57% $ 1,026,811.18 $ 3,892,296.45 $ 3,720,129.75
Keith E. Bailey.................... 5.54% $ 1,670,829.99 $ 6,366,043.25 $ 6,085,893.09
Keith E. Bailey.................... 6.45% $ 484,833.60 $ 2,632,327.91 $ 2,531,723.45
Keith E. Bailey.................... 6.53% $ 1,786,619.91 $ 9,424,339.42 $ 9,216,326.17
-------------- -------------- --------------
Total.................... $ 5,710,886.83 $25,043,092.38 $23,106,472.34
Gary R. Belitz..................... 5.70% $ 56,325.48 $ 348,010.10 $ --
Gary R. Belitz..................... 4.47% $ 25,296.52 $ 197,071.36 $ 190,002.21
Gary R. Belitz..................... 4.67% $ 10,876.32 $ 132,555.86 $ --
Gary R. Belitz..................... 4.67% $ 5,709.29 $ 47,660.06 $ 45,877.32
Gary R. Belitz..................... 4.98% $ 45,200.31 $ 317,612.39 $ 304,981.05
Gary R. Belitz..................... 6.40% $ 78,121.68 $ 254,247.65 $ 246,655.83
Gary R. Belitz..................... 5.87% $ 141,295.13 $ 481,723.24 $ 485,982.30
-------------- -------------- --------------
Total.................... $ 362,824.73 $ 1,778,880.66 $ 1,273,498.71
John C. Bumgarner, Jr. ............ 5.91% $ 203,927.62 $ 1,170,111.16 $ --
John C. Bumgarner, Jr. ............ 6.46% $ 104,168.11 $ 1,223,601.85 $ 1,182,329.70
John C. Bumgarner, Jr. ............ 5.42% $ 559,102.89 $ 3,624,884.80 $ 3,468,642.31
John C. Bumgarner, Jr. ............ 5.42% $ 373,329.60 $ 2,420,443.18 $ 2,316,115.48
-------------- -------------- --------------
Total.................... $ 1,240,528.21 $ 8,439,040.99 $ 6,967,087.49
Thomas H. Cruikshank............... 6.62% $ 22,220.96 $ 69,555.79 $ 67,851.18
Thomas H. Cruikshank............... 6.62% $ 22,287.69 $ 69,764.67 $ 68,054.93
-------------- -------------- --------------
Total.................... $ 44,508.64 $ 139,320.46 $ 135,906.11
James R. Herbster(1)............... 6.74% $ 17,864.37 $ 56,582.88 $ 53,587.53
James R. Herbster(1)............... 6.49% $ 119,416.00 $ 391,883.17 $ 371,860.57
James R. Herbster(1)............... 5.93% $ 77,115.43 $ 275,508.90 $ 262,578.83
-------------- -------------- --------------
Total.................... $ 214,395.80 $ 723,974.95 $ 688,026.93
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TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 2000 02/28/2001
---- -------- -------------- -------------- --------------
Howard E. Janzen................... 5.70% $ 80,997.64 $ 500,003.83 $ --
Howard E. Janzen................... 5.69% $ 87,092.51 $ 323,543.31 $ 308,940.39
Howard E. Janzen................... 5.77% $ 38,864.87 $ 142,486.55 $ 135,970.05
Howard E. Janzen................... 4.71% $ 25,451.88 $ 112,692.14 $ 108,898.77
Howard E. Janzen................... 4.71% $ 27,328.23 $ 120,999.99 $ 116,926.94
Howard E. Janzen................... 4.71% $ 54,070.99 $ 239,407.68 $ 231,348.85
Howard E. Janzen................... 4.83% $ 114,621.70 $ 492,021.37 $ 478,329.58
Howard E. Janzen................... 5.37% $ 101,999.39 $ 391,455.23 $ 383,183.51
Howard E. Janzen................... 6.71% $ 173,152.09 $ 541,837.88 $ 521,699.39
Howard E. Janzen................... 6.71% $ 178,617.93 $ 558,941.91 $ 538,167.73
Howard E. Janzen................... 6.62% $ 180,651.86 $ 564,828.35 $ 551,616.25
Howard E. Janzen................... 5.87% $ 163,847.67 $ 559,241.97 $ 559,239.28
-------------- -------------- --------------
Total.................... $ 1,226,696.75 $ 4,547,460.21 $ 3,934,320.74
Jack D. McCarthy................... 6.23% $ 107,056.32 $ 365,091.24 $ 347,141.00
Jack D. McCarthy................... 6.23% $ 108,144.83 $ 368,803.37 $ 350,670.59
Jack D. McCarthy................... 6.23% $ 106,111.35 $ 361,868.64 $ 344,076.85
Jack D. McCarthy................... 5.59% $ 28,721.07 $ 120,963.92 $ 115,595.15
Jack D. McCarthy................... 5.59% $ 29,013.10 $ 122,193.81 $ 116,770.48
Jack D. McCarthy................... 5.59% $ 28,467.56 $ 119,896.19 $ 114,574.81
Jack D. McCarthy................... 6.42% $ 97,467.41 $ 323,130.32 $ 306,787.80
Jack D. McCarthy................... 6.42% $ 100,999.44 $ 334,839.90 $ 317,905.19
Jack D. McCarthy................... 6.42% $ 66,565.13 $ 220,681.05 $ 209,519.97
Jack D. McCarthy................... 5.59% $ 26,566.90 $ 125,456.11 $ 119,887.99
Jack D. McCarthy................... 5.59% $ 27,529.63 $ 130,002.43 $ 124,232.50
Jack D. McCarthy................... 5.59% $ 18,143.80 $ 85,679.94 $ 81,877.21
Jack D. McCarthy................... 4.83% $ 301,392.00 $ 1,308,278.41 $ 1,257,743.63
Jack D. McCarthy................... 6.21% $ 8,504.25 $ 66,784.97 $ 63,745.52
Jack D. McCarthy................... 6.21% $ 12,452.27 $ 97,789.33 $ 93,338.83
Jack D. McCarthy................... 6.21% $ 7,340.67 $ 57,647.24 $ 55,023.64
Jack D. McCarthy................... 6.80% $ 17,328.98 $ 130,353.80 $ 124,719.18
Jack D. McCarthy................... 6.80% $ 31,942.00 $ 196,709.05 $ 188,206.23
Jack D. McCarthy................... 6.80% $ 32,266.77 $ 198,709.10 $ 190,119.84
Jack D. McCarthy................... 6.80% $ 31,300.96 $ 192,761.35 $ 184,429.16
Jack D. McCarthy................... 6.33% $ 10,769.73 $ 108,151.74 $ 106,693.44
Jack D. McCarthy................... 6.33% $ 7,355.16 $ 73,861.97 $ 72,866.02
Jack D. McCarthy................... 6.33% $ 50,571.34 $ 227,602.36 $ 224,533.37
-------------- -------------- --------------
Total.................... $ 1,256,010.64 $ 5,337,256.24 $ 5,110,458.40
William G. von Glahn............... 5.83% $ 64,363.20 $ 371,056.51 $ --
William G. von Glahn............... 5.83% $ 1,287.26 $ 7,486.97 $ --
William G. von Glahn............... 5.83% $ 1,287.26 $ 7,486.97 $ --
William G. von Glahn............... 5.83% $ 6,296.40 $ 36,621.00 $ --
William G. von Glahn............... 5.91% $ 6,240.96 $ 35,388.08 $ --
William G. von Glahn............... 6.23% $ 11,961.60 $ 65,179.78 $ --
William G. von Glahn............... 6.23% $ 11,662.56 $ 63,550.27 $ --
William G. von Glahn............... 5.54% $ 23,156.31 $ 141,611.91 $ --
William G. von Glahn............... 5.54% $ 32,907.60 $ 201,245.68 $ --
William G. von Glahn............... 5.59% $ 32,418.94 $ 152,049.60 $ --
William G. von Glahn............... 5.59% $ 3,431.31 $ 15,451.40 $ --
23
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TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 2000 02/28/2001
---- -------- -------------- -------------- --------------
William G. von Glahn............... 5.59% $ 3,619.26 $ 16,264.64 $ --
William G. von Glahn............... 5.39% $ 4,632.86 $ 39,012.43 $ --
William G. von Glahn............... 5.39% $ 4,831.80 $ 40,637.94 $ --
William G. von Glahn............... 5.39% $ 3,092.09 $ 20,221.45 $ --
William G. von Glahn............... 5.48% $ 76,281.60 $ 489,427.21 $ --
William G. von Glahn............... 5.57% $ 55,700.00 $ 211,139.97 $ --
William G. von Glahn............... 5.54% $ 113,547.84 $ 432,629.58 $ --
William G. von Glahn............... 5.28% $ 40,757.26 $ 184,239.99 $ --
William G. von Glahn............... 5.82% $ 200,208.00 $ 728,041.60 $ --
William G. von Glahn............... 5.98% $ 45,448.00 $ 161,089.57 $ --
William G. von Glahn............... 6.20% $ 551.17 $ 3,910.45 $ --
William G. von Glahn............... 6.20% $ 551.17 $ 3,910.45 $ --
William G. von Glahn............... 5.74% $ 6,485.13 $ 71,837.34 $ --
William G. von Glahn............... 6.20% $ 18,494.68 $ 84,960.02 $ --
William G. von Glahn............... 6.71% $ 235,558.58 $ 735,450.65 $ --
William G. von Glahn............... 5.07% $ 725,828.51 $ -- $ 2,886,693.97
-------------- -------------- --------------
Total.............................. $ 1,730,601.36 $ 4,319,901.46 $ 2,886,693.97
Grand Total........................ $11,786,452.97 $50,328,927.35 $44,102,464.69
---------------
(1) Pursuant to a Separation Agreement dated 7/1/00, Mr. Herbster's outstanding
stock option loans in effect on the date of his retirement from Williams
shall continue in force through the remainder of their original terms.
John C. Bumgarner, Jr., a Senior Vice President of Williams, owns real
estate and leases a portion of it to subsidiaries of Williams for use as office
space. In 2000, payments under these leases approximated $1,089,000. These
leases remain in place, and Williams expects its subsidiaries to make similar
payments approximating $92,276 per month for the term of the leases.
In December 2000, Williams loaned Jack D. McCarthy, a Senior Vice President
of Williams, $275,199 at 5.87 percent interest for a five-year term.
Thomas H. Cruikshank, a Director of Williams, is also a Director of Lehman
Bros. Holdings, Inc. Williams and its subsidiaries have entered into various
financial transactions with Lehman Bros. Holdings, Inc. and its subsidiaries and
affiliates, where Lehman acts as an underwriter. In the fourth quarter of 2000,
Williams entered into a $600 million debt obligation with Lehman Brother Inc.,
which was subsequently repaid and terminated during the first quarter of 2001.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed, subject to stockholder approval, the firm of Ernst & Young LLP as the
independent auditors to audit the financial statements of Williams for calendar
year 2001. The firm of Ernst & Young LLP has served Williams in this capacity
for many years. Fees for the last annual audit were $4.4 million and all other
fees with $21.4 million, including audit related services of $6.1 million and
nonaudit services of $15.3 million. Audit related services generally include
fees for statutory audits, business acquisitions and other transactions,
accounting consultations, internal audit and Securities and Exchange Commission
registration statements. Management recommends a vote "FOR" the ratification of
Ernst & Young LLP as auditors for 2001.
A representative of Ernst & Young LLP will be present at the Annual Meeting
of Stockholders and will be available to respond to appropriate questions.
Although the audit firm has indicated that no statement will be made, an
opportunity for a statement will be provided.
24
28
Financial Information Systems Design and Implementation Fees. Fees to Ernst
& Young LLP for financial information systems design and implementation were
$11.2 million in 2000.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Williams'
directors, executive officers, and persons who beneficially own more than 10
percent of Williams' stock to file certain reports with the SEC and the New York
Stock Exchange concerning their beneficial ownership of Williams' equity
securities. The SEC regulations also require that a copy of all such Section
16(a) forms filed must be furnished to Williams by the executive officers,
directors, and greater than 10 percent stockholders. Based on a review of the
copies of such forms and amendments thereto received by Williams with respect to
2000, Williams is not aware of any late filings.
STOCKHOLDER PROPOSALS FOR 2002
In order for a stockholder proposal to be considered for inclusion in
Williams' 2002 Proxy Statement, such proposal must be received by Williams no
later than December 1, 2001. The proposal should be addressed to the Secretary,
The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172. Upon
receipt of any such proposal, Williams will determine whether or not to include
such proposal in the Proxy Statement in accordance with applicable law. It is
suggested that such proposals be sent by certified mail, return receipt
requested.
GENERAL
Williams knows of no matters to be presented at the meeting other than
those included in the Notice. Should any other matter requiring a vote of
stockholders arise, including a question of adjourning the meeting, the persons
named in the accompanying proxy will vote thereon according to their best
judgment in what they consider the best interests of Williams. The enclosed
proxy confers discretionary authority to take action with respect to any
additional matters that may come before the meeting.
It is important that your stock be represented at the meeting regardless of
the number of shares you hold. Whether or not you plan to attend, please sign,
date and return the enclosed proxy promptly. For your convenience, a return
envelope is enclosed requiring no additional postage if mailed within the United
States.
By Order of the Board of Directors
/s/ SUZANNE H. COSTIN
Suzanne H. Costin
Secretary
Tulsa, Oklahoma
March 26, 2001
25
29
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS OF THE WILLIAMS COMPANIES, INC.
1.Purpose. The Audit Committee's purpose is to provide assistance to the
Board of Directors in fulfilling its legal and fiduciary obligations with
respect to matters involving the accounting, auditing, financial
reporting, and internal control functions of the Company and its
subsidiaries.
2. Composition. The Audit Committee shall be comprised of three or more
directors as determined by the Board. The members of the Audit Committee
will meet the independence and experience requirements of the New York
Stock Exchange. The Chairman of the Audit Committee shall be designated
by the Board of Directors
3. Meetings. The Audit Committee shall meet with such frequency and at such
intervals as it shall determine is necessary to carry out its duties and
responsibilities. The Audit Committee, in its discretion, may ask
members of management or others to attend its meetings (or portions
thereof) and to provide pertinent information as necessary. The Audit
Committee shall maintain minutes of its meetings and records relating to
those meetings and provide regular reports of its activities to the
Board of Directors.
4. Duties and Responsibilities. In carrying out its duties and
responsibilities, the Audit Committee's policies and procedures should
remain flexible, so that it may be in a position to best react or
respond to changing circumstances or conditions. The following should be
considered within the authority of the Audit Committee:
(1) Make recommendations to the Board of Directors as to the selection
of the firm of independent public accountants to audit the books and
accounts of the Company and its subsidiaries for each fiscal year;
(2) Review and approve the Company's independent auditors' annual
engagement letter, including the proposed fees contained therein;
(3) Review the performance of the Company's independent auditors and
make recommendations to the Board of Directors regarding the replacement or
termination of the independent auditors when circumstances warrant;
(4) Oversee the independence of the Company's independent auditors by,
among other things:
(1) requiring the independent auditors to deliver to the Audit
Committee on a periodic basis a formal written statement delineating all
relationships between the independent auditors and the Company and its
affiliates; and
(2) actively engaging in a dialogue with the independent auditors
with respect to any disclosed relationships or services that may impact
the objectivity and independence of the independent auditors and
recommending that the Board of Directors take appropriate action to
satisfy itself of the auditors' independence;
(5) Instruct the Company's independent auditors that they are
ultimately accountable to the Audit Committee and the Board of Directors,
and that the Audit Committee and the Board of Directors are responsible for
the selection, evaluation, and termination of the Company's independent
auditors;
(6) Review and accept, if appropriate, the annual audit plan of the
Company's independent auditors, including the scope of audit activities,
and monitor such plan's progress and results during the year;
(7) Review and accept, if appropriate, the internal audit charter and
ensure the independence of and concur in the selection, retention, and
dismissal of the chief internal auditing executive.
A-1
30
(8) Review the results of the year-end audit of the Company, including
any comments or recommendations of the Company's independent auditors;
(9) Review with management and the Company's independent auditors such
accounting policies (and changes therein) of the Company, including any
financial reporting issues which could have a material impact on the
Company's financial statements, as are deemed appropriate for review by the
Audit Committee prior to any interim or year-end filings with the
Securities and Exchange Commission or other regulatory body;
(10) Meet or confer, either as a Committee or as represented by the
Chairman of the Audit Committee, with the independent auditors and
management quarterly to review, prior to filing with the Securities and
Exchange Commission, the Company's interim financial statements to be
included in Quarterly Reports on Form 10-Q and confirm that such financial
statements have been reviewed by the Company's independent auditors;
(11) Review the adequacy and effectiveness of the Company's accounting
and internal control policies and procedures through inquiry and
discussions with the Company's independent auditors and management of the
Company;
(12) Receive periodic reports from the Company's independent auditors
and management of the Company to assess the impact on the Company of
significant accounting or financial reporting developments that may have a
bearing on the Corporation;
(13) Establish and maintain free and open means of communication
between and among the Board of Directors, the Audit Committee, the
Company's independent auditors, the Company's internal auditing department
and management, including providing such parties with appropriate
opportunities to meet privately with the Audit Committee;
(14) Review and assess annually the adequacy of the Audit Committee's
charter;
(15) Meet annually with the general counsel, and outside counsel when
appropriate, to review legal and regulatory matters, including any matters
that may have a material impact on the financial statements of the Company;
(16) Direct preparation of and approve the report required by the
rules of the Securities and Exchange Commission to be included in the
Company's annual proxy statement;
(17) Review the Company's policies and practices relating to the
avoidance of conflicts of interest;
(18) Obtain from the Company's independent auditors any information
pursuant to Section 10A of the Securities Exchange Act of 1934;
(19) Secure independent expert advice, including retaining independent
counsel, accountants, consultants, or others, to assist the Audit Committee
in fulfilling its duties and responsibilities; and
(20) Perform such additional activities, including review of the
Company's business risk practices, and consider such other matters within
the scope of its responsibilities, as the Audit Committee or the Board of
Directors deems necessary or appropriate.
***
While the Audit Committee has the duties and responsibilities set forth in
this charter, the Audit Committee is not responsible for planning or conducting
the audit or for determining whether the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles. Similarly, it is not the responsibility of the Audit Committee to
resolve disagreements, if any, between management and the independent auditors
or to ensure that the Company complies with all laws and regulations.
A-2
31
LOGO
PROXY SERVICES
First Chicago Trust Company,
a division of Equiserve
P.O. Box
------------
Edison, NJ 08818
VOTE BY PHONE - 1-877-779-8683
Use any touch-tone telephone to transmit
your voting instructions. Have your proxy
card in hand when you call. You will be
prompted to enter your Control Number
and then follow the simple instructions the
Vote Voice provided to you.
VOTE BY INTERNET www.eproxyvote.com\wmb
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instructions and for electronic delivery of
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return it in the postage-paid envelope we've
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a division of Equiserve
P.O. Box
-------------
Edison, NJ 08818
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
THE WILLIAMS COMPANIES, INC.
For address changes and/or comments, please check
this box and write them on the back where indicated. [ ]
This proxy, when properly executed, will be voted in the manner directed herein.
To withhold authority to vote, mark "For All
Except" and write the nominee's number on
If no direction is made, this proxy will be the line below
voted FOR proposals 1 and 2. For Withhold For All
All All Except
ELECTION OF DIRECTORS [ ] [ ] [ ] --------------------------------------------
1. 01) Glenn A. Cox, 02) Thomas H. Cruikshank, 03) Charles M. Lillis,
04) George A. Lorch, 05) Gordon R. Parker and 06) Joseph H. Williams.
VOTE ON PROPOSALS For Against Abstain
2. Ratification of Ernst & Young LLP as auditors for 2001. [ ] [ ] [ ]
In their discretion of one or more of said proxies upon any other business as
may properly come before the Meeting or any adjournments thereof.
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such
The signer hereby revokes all proxies therefore given by the signer to
vote at said meeting or any adjournments thereof.
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Signature (PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
32
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THE WILLIAMS COMPANIES, INC.
Proxy Solicited on Behalf of the Board of Directors of
the Company for the Annual Meeting of Stockholders on May 17, 2001.
The undersigned stockholder of The Williams Companies, Inc. hereby appoints
KEITH E. BAILEY, JACK D. McCARTHY and WILLIAM G. VON GLAHN, jointly and
severally with full power of substitution, as proxies to represent and to vote
all of the shares of Common Stock the undersigned is entitled to vote at the
Annual Meeting of Stockholders of The Williams Companies, Inc. to be held on the
17th day of May, 2001 and at any and all adjournments thereof on all matters
coming before said meeting.
(change of address/comments)
Election of Directors. Nominees:
01) Glenn A. Cox, 02) Thomas H. Cruikshank, 03) Charles M. Lillis,
04) George A. Lorch, 05) Gordon R. Parker and 06) Joseph H. Williams -------------------------------------------------
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(If you have written in the above space, please mark the
corresponding box on the reverse side of this card.)
To participants in The Williams Investment Plus Plan, Williams Communications
Solutions, LLC Investment Plan, Williams Ethanol Services, Inc.
Savings/Retirement Plan for Hourly Employees (formerly the Pekin Energy plan),
Williams Pipe Line Company Investment Plan for Hourly Employees, Mid-South PACE
Savings and Retirement Plan, and Wiltel Savings & Retirement Plan:
This proxy/voting instruction card constitutes your voting instructions to the
Trustee(s) of one or more of the Plans listed above. Non-voted shares will be
voted in the same proportion on each issue as the Trustees votes those shares
for which it receives voting instructions from Participants.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS.
SEE REVERSE
SIDE