UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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The Williams Companies, Inc.
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[WILLIAMS LOGO]
KEITH E. BAILEY
CHAIRMAN OF THE BOARD
To the Stockholders of The Williams Companies, Inc.:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
of The Williams Companies, Inc. to be held on Thursday, May 16, 2002, 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 Annual 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 Annual Meeting. A report on the operations of Williams will be presented at
the Annual 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 Annual
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 29, 2002
THE WILLIAMS COMPANIES, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2002
To the Stockholders of
The Williams Companies, Inc.
NOTICE IS HEREBY GIVEN that the 2002 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 16, 2002, at 11 a.m., local
time, for the following purposes:
1. To elect five 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 2002;
3. To approve The Williams Companies, Inc. 2002 Incentive Plan; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 22, 2002,
as the record date for the Annual Meeting, and only holders of Common Stock of
record at such time will be entitled to vote at the Annual Meeting or any
adjournment thereof.
By Order of the Board of Directors
/s/SUZANNE H. COSTIN
Suzanne H. Costin
Secretary
Tulsa, Oklahoma
March 29, 2002
EVEN IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY PROMPTLY SO THAT YOUR SHARES OF COMMON STOCK
MAY BE REPRESENTED AND VOTED AT THE ANNUAL MEETING. A RETURN ENVELOPE IS
ENCLOSED FOR THIS PURPOSE.
THE WILLIAMS COMPANIES, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2002
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 2002 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 the
Annual Meeting. The term "Williams" 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 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 $10,500 in fees, plus
expenses and disbursements. This Proxy Statement and accompanying proxy were
first mailed to stockholders on or about April 5, 2002.
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 and to
approve the 2002 Incentive Plan. 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 and approval of the 2002 Incentive Plan.
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 Williams 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 22, 2002, will be entitled to receive notice of and to vote at the
Annual Meeting. Williams had 516,068,852 shares of Common Stock outstanding on
the record date and each share is entitled to one vote.
PROPOSAL 1
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.
Five individuals, all of whom are currently Directors of Williams, have
been nominated for election for three-year terms as Directors at the Annual
Meeting. Eight Directors will continue in office to serve pursuant to their
prior elections. Pursuant to Williams' retirement policy for Directors, Mr.
Glenn A. Cox will retire in conjunction with the 2002 Annual Meeting of
Stockholders. Mr. Keith E. Bailey, whose term expires in May 2003, has decided
to retire early from the Board and will not stand for reelection. In accordance
with the recommendation of the Nominating Committee, the Board of Directors
proposes that the following nominees be elected: Messrs. Hugh M. Chapman, Ira D.
Hall, Frank T. MacInnis and Steven J. Malcolm and Ms. Janice D. Stoney.
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. Hugh M. Chapman, Ira D.
Hall, Frank T. MacInnis and Steven J. Malcolm and Ms. Janice D. Stoney. 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 2002 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 I
(TERMS EXPIRE MAY 2005)
HUGH M. CHAPMAN, AGE 69
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.
IRA D. HALL, AGE 57
Director since 2001. Mr. Hall was the Treasurer of TEXACO, Inc. from
October 1999 to October 2001 when he retired; General Manager, Alliance
Management, TEXACO, Inc. from June 1998 to October 1999; Director of Business
Development, IBM Global Services, IBM Corporation from January 1997 to May 1998;
and an executive with IBM Corporation from 1985 to January 1997. He also serves
as a director of American Express Funds, Imagistics International, Inc.,
Reynolds & Reynolds Company and TECO Energy, Inc.
FRANK T. MACINNIS, AGE 55
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 Geneva Steel Holdings Corporation, ITT Industries, Inc. and Greater New York
Chapter of the March of Dimes.
STEVEN J. MALCOLM, AGE 53
Director since 2001. Mr. Malcolm was elected Chief Executive Officer of
Williams in January 2002. He was elected President and Chief Operating Officer
of Williams in September 2001. Prior to that, he was an Executive Vice President
of Williams since May 2001, President and Chief Executive Officer of Williams
Energy Services, LLC, a subsidiary of Williams, since December 1998 and the
Senior Vice President and General Manager of Williams Field Services Company, a
subsidiary of Williams, since November 1994.
JANICE D. STONEY, AGE 61
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL OF THE
ABOVE-NAMED NOMINEES FOR ELECTION AS DIRECTORS.
DIRECTORS CONTINUING IN OFFICE
CLASS II
(TERMS EXPIRE MAY 2003)
WILLIAM E. GREEN, AGE 65
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.
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W. R. HOWELL, AGE 66
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 a director of Exxon
Mobil Corporation, Pfizer, Inc., Bankers Trust Corporation, Halliburton Company,
Viseon, Inc. and American Electric Power Company, Inc.
JAMES C. LEWIS, AGE 69
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.
GEORGE A. LORCH, AGE 60
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 and Household
International, Inc. Armstrong World Industries, Inc. recently filed for
voluntary reorganization under Chapter 11 of the United States Bankruptcy Code.
CLASS III
(TERMS EXPIRE MAY 2004)
THOMAS H. CRUIKSHANK, AGE 70
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 60
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, Inc. from its inception in 1995 through the acquisition of
MediaOne by AT&T Corp., which was completed in 2000. Mr. Lillis is a director of
SUPERVALU Inc. and Agilera, Inc.
GORDON R. PARKER, AGE 66
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 68
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.
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
4
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 16 meetings during 2001. 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 the chairman of each Committee. The following is a
description of each of the Committees as of February 28, 2002.
Executive Committee. Members: Keith E. Bailey, Chairman, Hugh M. Chapman,
Glenn A. Cox, James C. Lewis, Charles M. Lillis, 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 2001.
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.
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. All of the members of the Audit Committee are independent
under the rules of the New York Stock Exchange. In fulfilling its oversight
responsibilities, the Audit 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 Audit 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 Audit
Committee under generally accepted auditing standards. The Audit Committee has
discussed with the independent auditors the auditors' independence from
management and Williams and considered the compatibility of the provisions of
nonaudit services by the independent auditors with the auditors' independence.
The Audit Committee discussed with the independent auditors matters required to
be discussed by Statement on Auditing Standards No. 61 (Communications with
Audit Committees). Williams' independent auditors also provided to the Audit
Committee the written disclosures required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees).
The Audit Committee discussed with Williams' internal and independent
auditors the overall scope and plans for their respective audits. The Audit
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 Audit Committee held five meetings during 2001.
5
In reliance on the reviews and discussions referred to above, the Audit
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, 2001, for filing with the Securities and
Exchange Commission. The Audit Committee and the Board have also recommended,
subject to shareholder approval, the selection of Williams' independent
auditors.
Hugh M. Chapman, Chairman
Thomas H. Cruikshank
William E. Green
Ira D. Hall
George A. Lorch
Frank T. MacInnis
Janice D. Stoney
March 29, 2002
The Audit Committee Report in this Proxy Statement shall not be deemed
filed or incorporated by reference into any other filing by Williams under the
Securities Act of 1933 or the Securities Exchange Act of 1934 except to the
extent that Williams specifically incorporates this information by reference.
Nominating Committee. Members: Gordon R. Parker, Chairman, W. R. Howell,
Charles M. Lillis, George A. Lorch, 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 Nominating Committee recommends to the Board the
individual to be the Chairman of the Board and Chief Executive Officer. During
2001, 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 Nominating 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 of Williams.
Compensation Committee. Members: Glenn A. Cox, Chairman, Thomas H.
Cruikshank, William E. Green, Ira D. Hall, W. R. Howell, James C. Lewis and
Janice D. Stoney.
The members of the Compensation Committee are nonemployee Directors. The
Compensation Committee specifically approves compensation for the named
executive officers of Williams and reviews and approves the salary budget for
all other executives of Williams. The Compensation Committee reviews action
taken by management in accordance with the salary guidelines for executives and
establishes the performance objectives for variable compensation for executives.
The Compensation Committee also approves stock option grants for the executive
officers named herein. See the "Compensation Committee Report on Executive
Compensation" elsewhere herein. During 2001, the Compensation Committee met six
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 Williams' 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.
6
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
Williams' Common Stock or Williams' deferred stock. Deferred stock may be
deferred to any subsequent year or until such individual ceases to be a
director. Dividend equivalents are paid 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 2001.
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.
7
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation for the three fiscal years ended December 31, 2001 of Williams'
Chief Executive Officer and each of the four other most highly-compensated
executive officers of Williams and one additional individual for whom disclosure
would have been provided but for the fact that the individual was not serving as
an executive officer as of the end the fiscal year ending December 31, 2001.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION(1)
------------------------------ ---------------------------------------
STOCK
BONUS RESTRICTED OPTION SHARES(5)
NAME AND (YR. STOCK AWARDS ----------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY EARNED)(2) (YR. EARNED)(3)(4) WMB WCG COMPENSATION(6)
------------------ ---- ---------- ---------- ------------------ ------- ------- ---------------
Keith E. Bailey..................... 2001 $1,171,154 $1,859,208 $ -0- 217,853 $11,218
Chairman, President and 2000 950,000 -0- 1,224,911(7) 108,926 11,466
Chief Executive Officer 1999 902,595 -0- 662,540(7) 54,464 100,000 10,905
William E. Hobbs.................... 2001 336,538 387,787 4,000,003(8) 107,141 11,218
President & CEO Energy 2000 246,923 237,752 2,000,009 25,053 11,308
Marketing and Trading 1999 203,745 192,500 82,509 16,338 10,767
Steven J. Malcolm................... 2001 512,000 636,272 3,012,100(9) 174,938 11,218
President & Chief 2000 380,000 351,081 700,024(9) 65,356 11,308
Operating Officer 1999 344,799 160,928 69,002 21,786 50,000 10,767
Jack D. McCarthy.................... 2001 485,346 474,791 1,620,400(10) 76,248 11,218
Senior Vice President, Finance & 2000 440,000 349,888 -0- 54,463 11,466
Corporate Chief Financial Officer 1999 391,817 196,589 84,253 21,786 50,000 10,905
William G. von Glahn................ 2001 440,654 454,700 1,620,400(11) 54,463 11,218
Senior Vice President and 2000 390,000 335,225 -0- 43,571 11,466
General Counsel 1999 351,153 172,157 73,783 21,786 50,000 10,905
Cuba Wadlington, Jr. ............... 2001 408,577 399,686 2,613,000(12) 122,543 11,218
Former President & 2000 365,000 313,735 300,034(12) 65,356 50,000 11,308
CEO -- WGP 1999 267,760 147,295 63,163(12) 19,062 10,767
---------------
(1) Williams' restricted and deferred shares and stock options granted prior to
the April 23, 2001 spinoff of Williams Communications Group, Inc. were
adjusted as a result of the spinoff using a factor of 1.089263 per share.
Shares reported reflect this adjustment.
(2) Excludes incentive program awards required to be converted to deferred
stock amounts that are included in the Restricted Stock Awards column.
(3) Amounts reported in this column include the dollar value of Williams'
deferred and restricted stock awards under the terms of the Williams' 1996
Stock Plan, Williams' Stock Plan for Nonofficer Employees and phantom units
of deferred limited interest in Williams Energy Partners L. P. under the
terms of the Williams Energy Partners Long-Term Incentive Plan as of the
date such awards were granted. Conversion of incentive program awards to
deferred stock is based on the 52-week average stock price for the award
year.
(4) The total number of Williams' restricted shares held and the aggregate
closing market value at December 31, 2001, were as follows: Mr. Bailey,
361,151 shares valued at $9,216,574. The total number of Williams' deferred
shares held and the aggregate closing market value at December 31, 2001,
were as follows: Mr. Bailey, 137,695 shares valued at $3,513,977; Mr.
Hobbs, 56,303 shares valued at $1,436,853; Mr. Malcolm, 85,457 shares
valued at $2,180,863; Mr. McCarthy, 98,952 shares valued at $2,525,256; and
Mr. von Glahn, 85,595 shares valued at $2,184,385. The total number of
phantom units of deferred limited interest in Williams Energy Partners L.
P. held and the aggregate closing market value at December 31, 2001, were
as follows: Mr. Malcolm, 13,000 phantom units valued at $543,400. Aggregate
market value was calculated using $25.52 per share, the closing price of
Williams' Common
8
Stock, and $41.80 per unit, the closing price of Williams Energy Partners
L. P. Common Units, reported in the table entitled "New York Stock Exchange
Composite Transactions" contained in The Wall Street Journal for December
31, 2001. 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; distribution
equivalents are paid on vested phantom units of deferred limited interest
in Williams Energy Partners L. P.
(5) Williams' Common Stock is designated WMB. Williams Communications Group,
Inc. Common Stock option awards, denominated WCG, were awarded relative to
the initial public offering of Williams Communications Group, Inc. on
September 30, 1999.
(6) Consists of contributions made by Williams to the Investment Plus Plan, a
defined contribution plan, on behalf of each of the named executive
officers.
(7) Represents Williams' restricted stock award of 30,386 shares valued at
$1,224,911 using the 52-week average stock price for the week ending
December 30, 2000 ($40.3130) awarded in 2001 as 2000 incentive compensation
and Williams' restricted stock award of 16,679 shares valued at $662,540
using the 52-week average stock price for the week ending December 31, 1999
($39.7250) awarded in 2000 as 1999 incentive compensation, each instead of
awards of cash and deferred stock provided under the executive incentive
compensation program applicable to other executive officers. Not
represented is the value of 8,122 shares of Williams' restricted stock
awarded in 1999 to correct the number of restricted shares awarded in 1994,
1995 and 1996 when the conversion to restricted stock was based on
incorrect valuation methods. The restrictions on Mr. Bailey's restricted
stock awards are scheduled to lapse in April 2002 or until such time that
Mr. Bailey is no longer subject to Section 162(m).
(8) Represents Williams' deferred award of 119,443 shares valued at $4,000,003
using the 52-week average stock price for the week ending December 31, 2001
($33.4888) awarded in 2002 for 2001 incentive compensation. The award will
vest twenty percent each February 22nd and ending February 2007.
(9) Represents Williams' deferred award for retention purposes, 60,000 shares
valued at $2,613,000 using the closing WMB stock price ($43.55) on the
grant date April 2, 2001; Williams Energy Partners L.P. IPO deferred unit
award of 13,000 units of limited interest in Williams Energy Partners L.P.
("WEG") valued at $399,100 using the closing WEG stock price ($30.70) on
grant date April 19, 2001; and Williams' deferred award for retention
purposes, 16,717 shares valued at $700,024 using the closing WMB stock
price ($41.8750) on the grant date July 21, 2000.
(10) Represents Williams' deferred stock award for retention purposes, 40,000
shares valued at $1,620,400 using the closing WMB stock price ($40.51) on
the grant date May 17, 2000.
(11) Represents Williams' deferred stock award for retention purposes, 40,000
shares valued at $1,620,400 using the closing WMB stock price ($40.51) on
the grant date May 17, 2000.
(12) Represents Williams' deferred awards for retention purposes: 60,000 shares
valued at $2,613,000 using the closing WMB stock price ($43.55) on the
grant date April 2, 2001; and 7,165 shares valued at $300,034 using the
closing WMB stock price ($41.8750) on the grant date July 21, 2000. These
awards and 1,590 shares awarded in 1999 vested on December 9, 2001.
9
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning the grant of
Williams' stock options during the last fiscal year to the named executive
officers:
INDIVIDUAL GRANTS(1)
--------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
WMB GRANTED TO EXERCISE GRANT DATE
DATE OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED GRANTED FISCAL YEAR (PER SHARE) DATE VALUE(2)
---- -------- ---------- --------------- ----------- ---------- ----------
Keith E. Bailey.......... 01/18/01 217,853 3.02% $34.7712 01/18/11 $2,901,802
------- ---- ----------
217,853 3.02% $2,901,802
William E. Hobbs......... 01/18/01 87,141 1.21% $34.7712 01/18/11 $1,160,718
09/19/01 20,000 0.28% $26.7900 09/19/11 201,400
------- ---- ----------
107,141 1.49% $1,362,118
Steven J. Malcolm........ 01/18/01 114,373 1.58% $34.7712 01/18/11 $1,523,448
04/02/01 27,232 0.38% $39.9812 04/02/11 416,922
09/19/01 33,333 0.46% $26.7900 09/19/11 335,663
------- ---- ----------
174,938 2.42% $2,276,033
Jack D. McCarthy......... 01/18/01 76,248 1.06% $34.7712 01/18/11 $1,015,623
------- ---- ----------
76,248 1.06% $1,015,623
William G. von Glahn..... 01/18/01 54,463 0.75% $34.7712 01/18/11 $ 725,447
------- ---- ----------
54,463 0.75% $ 725,447
Cuba Wadlington, Jr. .... 01/18/01 95,311 1.32% $34.7712 12/09/02(3) $ 589,022
04/02/01 27,232 0.38% $39.9812 12/09/02(3) 176,191
------- ---- ----------
122,543 1.70% $ 765,213
---------------
(1) Options granted in 2001 were granted subject to an accelerated vesting
provision as discussed in the Compensation Committee Report on Executive
Compensation included herein. Williams granted these options under its 1996
Stock Plan. Williams' stock option shares granted prior to the April 23,
2001 spinoff of Williams Communications Group, Inc. were adjusted as a
result of the spinoff using a factor of 1.089263 per share.
(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 following weighted average values were determined
based on the above grants. The weighted average volatility of the expected
market price of Williams' common stock is 31.7 percent. The weighted average
risk-free rate of return is 5.1 percent. The model assumes a dividend yield
of 1.92 percent and an exercise date at the end of the contractual term in
2011 except as noted in footnote (3). The actual value, if any, that may be
realized by an executive will depend on the market price of the Williams'
Common Stock on the date of exercise. The dollar amounts shown are not
intended to forecast possible future appreciation in the Williams' stock
price.
(3) 31,771 options from the January grant and 9,078 options from the April grant
will vest prior to the December 9, 2002 expiration date. The remaining
shares may vest prior to the December 9, 2002 expiration date subject to an
accelerated vesting provision as discussed in the Compensation Committee
Report on Executive Compensation included herein.
10
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides certain information on stock option exercises
of Williams' stock in 2001 by the named executive officers and the value of such
officers' unexercised options at December 31, 2001.
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(1) AT FISCAL YEAR-END(1)(2)
ACQUIRED VALUE ----------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Keith E. Bailey........... 0 $ 0 163,390 217,853 $ 0 $0
William E. Hobbs.......... 28,306 $849,928 69,892 107,141 $ 30,876 $0
Steven J. Malcolm......... 0 $ 0 227,590 174,938 $1,197,681 $0
Jack D. McCarthy.......... 0 $ 0 98,034 76,248 $ 0 $0
William G. von Glahn...... 0 $ 0 147,600 54,463 $ 306,849 $0
Cuba Wadlington, Jr. ..... 0 $ 0 244,107 122,543 $1,540,388 $0
---------------
(1) Williams' stock option shares that were granted prior to April 23, 2001 were
adjusted as a result of the April 23, 2001 spinoff of Williams
Communications Group, Inc. using a factor of 1.089263 per share.
(2) 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 31, 2001 ($25.52 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.
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 Williams contribution and quarterly
interest allocations. Each year Williams allocates to an employee's pension
account an amount equal to a percentage of eligible pay. 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 pay to include salary and
11
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. McCarthy, Mr.
von Glahn and Mr. Wadlington, Jr. 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 retirement benefits payable at normal retirement age
under the cash balance formula from both the tax qualified pension plan and the
supplemental retirement plan are as follows:
Keith E. Bailey............................................. $819,372
William E. Hobbs............................................ 441,189
Steven J. Malcolm........................................... 319,523
Jack D. McCarthy............................................ 191,095
William G. von Glahn........................................ 183,779
Cuba Wadlington, Jr. ....................................... 210,186
The following schedule illustrates total estimated annual retirement
benefits payable at normal retirement age under the final average pay formula
from both the tax qualified pension plan and the supplemental retirement plan
based on various levels of final average pay and years of service, which
benefits are not subject to deduction for any offset amounts:
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- ----------
$ 400,000................. $108,488 $144,651 $180,814 $216,976 $ 253,139
600,000................. 163,988 218,651 273,314 327,976 382,639
800,000................. 219,488 292,651 365,814 438,976 512,139
1,000,000................. 274,988 366,651 458,314 549,976 641,639
1,200,000................. 330,488 440,651 550,814 660,976 771,139
1,400,000................. 385,988 514,651 643,314 771,976 900,639
1,600,000................. 441,488 588,651 735,814 882,976 1,030,139
1,800,000................. 496,988 662,651 828,314 993,976 1,159,639
As of December 31, 2001, the years of credited service under the tax
qualified pension plan for the executive officers named in the Summary
Compensation Table who are grandfathered under the final average pay formula
were: Mr. Bailey, 28; Mr. McCarthy, 15; Mr. von Glahn, 17; and Mr. Wadlington,
Jr., 23.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL SEVERANCE PLAN
Williams has no separate employment agreements with the named executive
officers. Williams has established Williams' 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
12
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.
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
stockholder 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 stockholder 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 and to regulated and unregulated energy companies, of similar size
supplied by nationally known compensation consulting firms.
Base Salary: The Committee reviews base salaries of Williams' senior
executive officers annually and positions each senior executive officer's base
salary by considering it relative to the 50th percentile of survey results for
that position and individual performance during the prior year. The Committee
also approves annually a merit increase budget for all executives. For 2001, the
merit increase budget approved for Williams' executives was 4.2 percent. This
target was developed based on Williams' review of survey data indicating that
estimated 2001 base salary increases for general industry executives would range
from 4.1 to 4.7 percent. Within this framework, base salary increases for
Williams' executives ranged from 0 to 11.25 percent, excluding adjustment
increases. The average 2001 merit increase for Williams' executives was 4.57
percent.
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
13
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
30 percent to 90 percent for executives. Actual awards can be up to 200 percent
of the target opportunity depending on achievement of business and individual
performance objectives.
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 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 stockholder return to the total stockholder return of the
S&P Corporate-500 Stock Index, the S&P Natural Gas Index and the S&P Utilities
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 2001 was tied to Williams' stock performance and
energy income applicable to common stockholders. 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.
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 2001 were granted subject to an accelerated vesting provision which
provides that if the average stock price, for five out of 10 consecutive
business days, reaches a target level approved by the Compensation Committee at
the date of grant, the options will vest immediately.
The Committee has established stock option award targets for each executive
participant 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. The WMB stock option target for Williams' Chairman,
President and Chief Executive Officer is 200,000 shares and the range for other
executives is 200,000 to 4,000 shares. 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 provides for the issuance of
restricted and deferred stock, which is not distributed to the executive until
the applicable restriction period lapses. Restricted and deferred
14
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
salaries and up to 100 percent of their cash bonuses 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.
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 2001 was
tied to Williams' stock performance and energy income applicable to common
stockholders. The stock performance component of business performance was
measured by comparing Williams' total stockholder return to the total
stockholder return of the S&P Corporate-500 Stock Index, the S&P Natural Gas
Index and the S&P Utilities Index. The remaining business performance components
were measured against pre-established business objectives. The award earned in
2001 and awarded in February 2002 was $1,859,208. This award represents 155
percent of the award target. Under Mr. Bailey's leadership and direction,
Williams completed the spinoff of Williams Communications, increased the common
stock dividend to 20 cents per share, completed a merger with Barrett Resources
Corporation and formed Williams Energy Partners to acquire, own and operate a
diversified portfolio of energy assets.
Prior to April 23, 2001, a stock option grant of 200,000 shares was also
approved for Mr. Bailey. This grant was adjusted to 217,853 as a result of the
April 23, 2001 spinoff of Williams Communications Group, Inc. using a factor of
1.089263. This award represents 100 percent of the target for stock option
awards previously established by the Committee for the Chairman, President and
Chief Executive Officer position. The specific award, relative to the target,
was based on a subjective analysis of Mr. Bailey's performance.
15
OTHER MATTERS
Section 162(m) of the Internal Revenue Code generally limits deductions by
publicly held corporations for federal income tax purposes to $1 million of
compensation paid to each of the executive officers listed in the Summary
Compensation Table unless such excess compensation is "performance based" as
defined in Section 162(m). In order for compensation to qualify as "performance
based," among other requirements, the performance goals must be (a) approved by
stockholders and (b) set (and in the case of options, the options must be
granted) by a compensation committee consisting solely of two or more outside
Directors (as defined in Section 162(m)). The Committee generally intends to
grant awards under the proposed amended 2002 Incentive Plan consistent with the
terms of Section 162(m) and the performance-based exception, so that such awards
will not be subject to the $1 million limit. The Committee will review from time
to time in the future the potential impact of Section 162(m) on the
deductibility of executive compensation. However, the Committee intends to
maintain the flexibility to take actions that it considers to be in the best
interests of Williams and its stockholders and which may be based on
considerations in addition to tax deductibility.
THE COMPENSATION COMMITTEE
Glenn A. Cox, Chairman
Thomas H. Cruikshank
William E. Green
Ira D. Hall
W. R. Howell
James C. Lewis
Janice D. Stoney
16
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, the S&P
Natural Gas Index and the S&P Utilities Index for the period of five fiscal
years commencing January 1, 1997. The graph assumes an investment of $100 at the
beginning of the period.
[PERFORMANCE GRAPH]
-----------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
-----------------------------------------------------------------------------------------------------------------------
The Williams Companies, Inc. $100.00 155.8 174.3 173.8 230.6 164.0
S&P 500 $100.00 133.4 171.5 207.5 188.7 166.2
S&P Natural Gas $100.00 118.0 129.3 154.0 270.2 117.7
S&P Utilities $100.00 118.4 130.3 113.6 172.3 116.3
17
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
---------------- ------------ --------
Capital Research and Management Company(1).................. 32,342,950 6.3%
333 South Hope Street
Los Angeles, California 90071
---------------
(1) A filing with the Securities and Exchange Commission on February 11, 2002,
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 32,342,950 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.
The following table sets forth, as of February 28, 2002, 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............................ 1,892,440(4) 236,008 2,128,448 *
Hugh M. Chapman............................ 9,207 14,893 24,100 *
Glenn A. Cox............................... 45,365(4) 21,429 66,794 *
Thomas H. Cruikshank....................... 23,498 58,470 81,968 *
William E. Green........................... 4,804 21,429 26,233 *
Ira D. Hall................................ 0 4,667 4,667 *
William E. Hobbs........................... 183,634 98,939 282,573 *
W. R. Howell............................... 12,238 25,786 38,024 *
James C. Lewis............................. 73,025 22,882 95,907 *
Charles M. Lillis.......................... 3,324 10,536 13,860 *
George A. Lorch............................ 3,143 7,631 10,774 *
Frank T. MacInnis.......................... 10,105 19,977 30,082 *
Jack D. McCarthy........................... 240,067 123,450 363,517 *
Steven J. Malcolm.......................... 148,280 274,793 423,073 *
Gordon R. Parker........................... 65,042 32,324 97,366 *
Janice D. Stoney........................... 5,206 14,893 20,099 *
William G. von Glahn....................... 235,859 165,755 401,614 *
Cuba Wadlington, Jr. ...................... 140,149 284,956 425,105 *
Joseph H. Williams......................... 558,712(4) 43,224 601,936 *
All Directors and executive officers as a
group (23 persons)....................... 3,927,002 2,167,097 6,094,099 1.2%
---------------
* Less than 1 percent.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 324,428, including 186,733 over which he has sole
voting and investment power; Mr. Hobbs, 182,831, including 7,085 over which
he has sole voting and investment power; Mr. McCarthy, 99,977, including
1,025 over which he has sole voting and investment power; Mr. Malcolm,
120,648, including 35,191 over which he
18
has sole voting and investment power; Mr. von Glahn, 101,467, including
15,872 over which he has sole voting and investment power; and Mr.
Wadlington, 108,378 over which his estate 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, 7,448; William E. Green, 3,292; W. R. Howell, 8,477; James C.
Lewis, 4,026; Charles M. Lillis, 1,324; George A. Lorch, 1,643; and Janice
D. Stoney, 765.
(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 option plans. Shares subject to option cannot be voted.
(4) Includes shares held in trust as follows: Mr. Bailey, 27,800; Mr. Cox,
44,615; 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 shares in Williams Energy Partners, L.P. as
shown in the next table.
The following table sets forth, as of February 28, 2002, the amount of
Common Units of Williams Energy Partners, L.P., 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 OF SHARES
CLASS A UNDERLYING
COMMON OPTIONS
UNITS OWNED EXERCISABLE PERCENT
DIRECTLY WITHIN OF
NAME OF INDIVIDUAL OR GROUP OR INDIRECTLY(1) 60 DAYS TOTAL CLASS
--------------------------- ---------------- ----------- ------ -------
Keith E. Bailey......................... 0 0 0 *
Hugh M. Chapman......................... 0 0 0 *
Glenn A. Cox............................ 0 0 0 *
Thomas H. Cruikshank.................... 0 0 0 *
William E. Green........................ 0 0 0 *
Ira D. Hall............................. 0 0 0 *
William E. Hobbs........................ 0 0 0 *
W. R. Howell............................ 0 0 0 *
James C. Lewis.......................... 500 0 500 *
Charles M. Lillis....................... 0 0 0 *
George A. Lorch......................... 0 0 0 *
Frank T. MacInnis....................... 0 0 0 *
Jack D. McCarthy........................ 0 0 0 *
Steven J. Malcolm....................... 15,358 0 15,358 *
Gordon R. Parker........................ 0 0 0 *
Janice D. Stoney........................ 0 0 0 *
William G. von Glahn.................... 0 0 0 *
Cuba Wadlington, Jr. ................... 0 0 0 *
Joseph H. Williams...................... 0 0 0 *
All Directors and executive officers as
a group (23 persons).................. 47,539 0 47,539 *
---------------
* Less than 1 percent.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Malcolm, 12,848.
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK OPTION LOAN PROGRAM
Prior to November 14, 2001, the stock option loan programs for the
Williams' 1996 Stock Plan, Williams' 1990 Stock Plan, Williams' 1988 Stock
Option Plan for Non-Employee Directors and Williams' 1985 Stock Option Plan
allowed Williams to loan money to participants to exercise stock options using
stock certificates as collateral. Effective November 14, 2001, Williams will no
longer issue new loans under the stock option loan programs. Current loan
holders have been offered a one-time opportunity to refinance outstanding loans
at a market rate of interest commensurate with the borrower's credit standing.
The refinancing, if elected, would be in the form of a full recourse note,
interest payable annually in cash, and loan maturity of no later than December
31, 2005. The loan would remain in force until maturity in the event of the
employee's termination. Williams would hold the collateral shares and would
review the borrower's financial position upon the one-time election and on an
annual basis thereafter. The variable rate of interest on the loans of
participants who elect new terms is determined at the signing of the promissory
note and is based on 1.75 percent plus the current three-month London Interbank
Offered Rate (LIBOR). The rate is subject to change every three months beginning
with the first three-month anniversary of the promissory note.
If a current loan holder does not elect to refinance, the current loans
would remain outstanding under the current terms with no refinancing at
maturity. Under the original terms of the loan, the interest rate is based on
the minimum applicable federal rates required to avoid imputed income, interest
payments are due annually, the principal is due at the end of either a three-or
five-year loan term, and if the participant leaves Williams during the loan
period, they will be required to pay the loan balance and any accrued interest
within 30 days of termination.
The following table sets forth the outstanding loans of certain Directors
and executive officers of Williams.
LARGEST
AMOUNT AMOUNT
INTEREST DUE DURING OUTSTANDING
NAME OF INDIVIDUAL RATE 2001 02/28/02
------------------ -------- -------------- --------------
Keith E. Bailey.................................... 3.47%(1) $ 113,593.33 $ 107,258.19
Keith E. Bailey.................................... 3.47%(1) $ 1,513,046.77 $ 1,442,442.73
Keith E. Bailey.................................... 3.47%(1) $ 3,892,296.45 $ 3,714,190.25
Keith E. Bailey.................................... 3.47%(1) $ 6,366,043.22 $ 6,076,314.80
Keith E. Bailey.................................... 3.47%(1) $ 2,667,211.20 $ 2,525,995.58
Keith E. Bailey.................................... 3.47%(1) $ 9,715,600.77 $ 9,194,917.76
-------------- --------------
Total.................................... $24,267,791.74 $23,061,119.31
Gary R. Belitz..................................... 4.47% $ 197,071.37 $ 190,002.21
Gary R. Belitz..................................... 4.67% $ 47,660.02 $ 45,877.32
Gary R. Belitz..................................... 4.98% $ 317,612.37 $ 304,981.05
Gary R. Belitz..................................... 6.40% $ 259,754.59 $ 246,655.83
Gary R. Belitz..................................... 5.87% $ 509,673.43 $ 485,982.30
-------------- --------------
Total.................................... $ 1,331,771.78 $ 1,273,498.71
20
LARGEST
AMOUNT AMOUNT
INTEREST DUE DURING OUTSTANDING
NAME OF INDIVIDUAL RATE 2001 02/28/02
------------------ -------- -------------- --------------
Jack D. McCarthy................................... 6.42% $ 220,681.03 $ 209,519.97
Jack D. McCarthy................................... 6.42% $ 323,130.28 $ 306,787.80
Jack D. McCarthy................................... 6.42% $ 334,839.89 $ 317,905.19
Jack D. McCarthy................................... 6.23% $ 361,868.67 $ 344,076.85
Jack D. McCarthy................................... 6.23% $ 365,091.26 $ 347,141.00
Jack D. McCarthy................................... 6.23% $ 368,803.37 $ 350,670.59
Jack D. McCarthy................................... 5.59% $ 85,679.95 $ 81,877.21
Jack D. McCarthy................................... 5.59% $ 119,896.18 $ 114,574.81
Jack D. McCarthy................................... 5.59% $ 120,963.90 $ 115,595.15
Jack D. McCarthy................................... 5.59% $ 122,193.82 $ 116,770.48
Jack D. McCarthy................................... 5.59% $ 125,456.12 $ 119,887.99
Jack D. McCarthy................................... 5.59% $ 130,002.41 $ 124,232.50
Jack D. McCarthy................................... 4.83% $ 1,308,278.40 $ 1,257,743.63
Jack D. McCarthy................................... 6.21% $ 57,859.81 $ 55,023.64
Jack D. McCarthy................................... 6.21% $ 67,031.26 $ 63,745.52
Jack D. McCarthy................................... 6.21% $ 98,149.94 $ 93,338.83
Jack D. McCarthy................................... 6.80% $ 131,751.90 $ 124,719.18
Jack D. McCarthy................................... 6.80% $ 194,828.83 $ 184,429.16
Jack D. McCarthy................................... 6.80% $ 198,818.88 $ 188,206.23
Jack D. McCarthy................................... 6.80% $ 200,840.39 $ 190,119.84
Jack D. McCarthy................................... 6.33% $ 76,693.70 $ 72,866.02
Jack D. McCarthy................................... 6.33% $ 112,298.09 $ 106,693.44
Jack D. McCarthy................................... 6.33% $ 236,328.21 $ 224,533.37
-------------- --------------
Total.................................... $ 5,361,486.29 $ 5,110,458.40
William G. von Glahn............................... 5.07% $ 2,988,508.82 $ 2,596,693.97
-------------- --------------
Total.................................... $ 2,988,508.82 $ 2,596,693.97
Thomas H. Cruikshank............................... 6.62% $ 71,576.99 $ --
Thomas H. Cruikshank............................... 6.62% $ 71,791.94 $ 50,640.24
-------------- --------------
Total.................................... $ 143,368.93 $ 50,640.24
---------------
(1) The terms were modified effective February 1, 2002. The initial interest
rate of 3.47 percent reflects the current LIBOR interest rate of 1.72
percent, when the note was executed, plus 1.75 percent.
In December 2000, Williams loaned Jack D. McCarthy, Senior Vice President
and Chief Financial Officer of Williams, $275,199 at 5.87 percent interest for a
five-year term.
PROPOSAL 2
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 2002. The firm of Ernst & Young LLP has served Williams in this capacity
for many years. A representative of Ernst & Young LLP will be present at the
Annual Meeting 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.
Audit Fees. Fees for the last annual audit were $4.0 million and all other
fees were $6.6 million, including fees for audit related services of $2.2
million and nonaudit services of $4.4 million. Audit related
21
services generally include fees for statutory audits, business acquisitions and
other transactions, accounting consultations, and Securities and Exchange
Commission registration statements.
Financial Information Systems Design and Implementation Fees. There were
no fees to Ernst & Young LLP for financial information systems design and
implementation in 2001.
THE BOARD OF DIRECTORS OF WILLIAMS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF ERNST & YOUNG LLP AS AUDITORS FOR 2002.
PROPOSAL 3
SUMMARY OF THE 2002 INCENTIVE PLAN
INTRODUCTION
On January 20 2002, the Board of Directors of Williams approved The
Williams Companies, Inc. 2002 Incentive Plan (the "Plan"), subject to
stockholder approval. The Plan is a continuation of The Williams Companies, Inc.
1996 Stock Plan. If the Plan is approved by the stockholders, no further awards
will be made under the following stock plans: (a) The Williams Companies, Inc.
Stock Plan for Nonofficer Employees; (b) The Williams International Stock Plan;
and (c) The Williams Companies, Inc. 1996 Stock Plan for Non-Employee Directors.
Stockholders are being asked to approve the Plan, including certain
material terms of performance goals for those awards that are intended to be
performance-based. This approval is necessary, among other reasons, to ensure,
to the extent possible, that compensation earned by and paid to certain
executive officers of Williams pursuant to stock options and performance-based
awards granted under the Plan will be deductible, to the maximum extent allowed
by the tax code, by Williams for federal income tax purposes under Code Section
162(m). See "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION."
Some key features of the Plan of interest to stockholders, which are
described more fully below, include:
- prohibition against the repricing of stock options.
- A prohibition against granting options with an exercise price less than
the fair market value of a share on the grant date.
- Incorporates shares available under three other plans.
- A limit on the number of shares (generally two million) which may be
granted to any individual each year.
- A limit on the amount of cash awards (ten million dollars) which may be
granted to the Chief Executive Officer and the other four highest
compensated officers each year.
- A limit on the percentage of shares (25 percent) subject to grant under
the Plan that may be granted with respect to all awards other than
options.
- A limit on the number of shares (the total number of available shares
less the number of shares available which were carried over from other
stock plans) which may be granted as Incentive Stock Options.
A full copy of the Plan is attached as Appendix A. The material features of
the Plan are summarized below and such summary is qualified in its entirety by
reference to the complete text of the Plan.
PURPOSE
The Plan is intended to allow selected employees and officers of Williams
or an affiliate to acquire or increase equity ownership in Williams, thereby
strengthening their commitment to the success of Williams and stimulating their
efforts on behalf of Williams, and to assist Williams and its affiliates in
attracting new
22
employees and officers and retaining existing employees and officers. The Plan
is also intended to provide annual cash incentive compensation opportunities
that are competitive with those of other major corporations, to optimize the
profitability and growth of Williams and its affiliates through incentives which
are consistent with Williams' goals, to provide grantees with an incentive for
excellence in individual performance to promote teamwork among employees,
officers, and non-employee Directors, and to attract and retain highly qualified
persons to serve as non-employee Directors and to promote ownership by such
non-employee Directors of a greater proprietary interest in Williams, thereby
aligning such non-employee Directors' interests more closely with the interests
of Williams' stockholders.
ADMINISTRATION
The Plan will be administered by the Board with respect to non-employee
Director grantees and by the Compensation Committee of the Board with respect to
executive officers. Unless the Board or the Compensation Committee choose to
administer the Plan with respect to other grantees, the Chief Executive Officer
of Williams will do so, provided the Chief Executive Officer is a member of the
Board. The relevant person or group that administers the Plan is referred to in
this summary as the "Committee." Subject to the terms of the Plan, the Committee
has full power and discretion to select those persons to whom awards will be
granted (other than non-employee Director stock awards, which are automatic); to
determine the amounts and terms of awards; to change and determine the terms of
any award agreement, including but not limited to the term and the vesting
schedule; to determine and change the conditions, restrictions and performance
criteria relating to any award; to determine the settlement, cancellation,
forfeiture, exchange or surrender of any award; to make adjustments in the terms
and conditions of awards including, but not limited to, changing the exercise
price of any award; to construe and interpret the Plan and any award agreement;
to establish, amend and revoke rules and regulations for the administration of
the Plan; to make all determinations deemed necessary or advisable for
administration of the Plan; and to exercise any powers and perform any acts it
deems necessary or advisable to administer the Plan and subject to certain
exceptions, to amend, alter or discontinue the Plan or amend the terms of any
award.
ELIGIBILITY
The Plan provides for awards to employees, potential employees, officers,
and potential officers of Williams or an affiliate. Some awards will be provided
to officers and others who are deemed by Williams to be "insiders" for purposes
of Section 16 of the Securities Exchange Act of 1934. As of February 28, 2002
Williams and its affiliates had approximately 12,400 employees and officers, and
management of Williams estimates that 11 percent will be granted awards under
the Plan. An affiliate is defined in the Plan as any entity, individual, venture
or division that directly or indirectly, through one or more intermediaries,
controls, or is controlled by or is under common control with Williams.
The Plan also provides for automatic awards to non-employee Directors of
Williams, and for non-employee Directors to elect to receive director fees or
other awards in Common Stock or deferred shares. If the nominees for election
named in this Proxy Statement are elected, 12 Directors will qualify as non-
employee Directors under the Plan in 2002.
PARTICIPATION
The Committee may make award grants to eligible grantees (other than
non-employee Directors) in its discretion, subject to the limits on awards.
Awards to non-employee Directors consist of automatic grants to each
non-employee Director of options and shares. In addition, the Plan will permit
non-employee Directors to elect to receive all or part of their cash fees in the
form of Common Stock or deferred stock, as described below.
OFFERING OF COMMON STOCK
Under the terms of the Plan, 14,000,000 shares of the Common Stock of
Williams will be available for delivery in settlement of awards. (The term
"shares" or "stock" in this summary refers to Common Stock
23
unless otherwise indicated.) In addition to these fourteen million shares
reserved under the Plan, the Plan shall have available and reserved for the
grant of awards all shares currently available (not subject to outstanding
awards) and those which become available (due to forfeiture, expiration, use as
withholding payments or otherwise) under the following stock plans: The Williams
Companies, Inc. Stock Plan for Nonofficer Employees (estimated to be
approximately 8,386,000), The Williams International Stock Plan (estimated to be
approximately 435,000), The Williams Companies, Inc. 1996 Stock Plan for
Non-Employee Directors (estimated to be approximately 437,000), and The Williams
Companies, Inc. 1996 Stock Plan (estimated to be approximately 1,700,000).
The stock delivered to settle awards under the Plan may be authorized and
unissued shares or treasury shares, including shares repurchased by Williams for
purposes of the Plan. If any shares subject to any award are forfeited or
payment is made in a form other than shares or the award otherwise terminates
without payment being made, the shares subject to such awards will again be
available for issuance under the Plan. In addition, shares withheld or
surrendered in payment of the exercise price for stock options or withheld for
taxes upon the exercise or settlement of an award, will be available for
issuance under the Plan. While the level of awards under the Plan is not now
determinable, if performance objectives established for 2002 are achieved,
payments in 2002 under the Plan are expected to be generally as reported in the
Summary Compensation Table for 2001 under the 1996 Stock Plan.
If a dividend or other distribution, recapitalization, forward or reverse
stock split, subdivision, consolidation or reduction of capital, reorganization,
merger, consolidation, scheme or arrangement, split-up, spin-off or combination,
or similar transaction or event affects the Common Stock such that an adjustment
is appropriate in order to prevent dilution or enlargement of the rights of
grantees, the Committee will make an equitable change or adjustment as it deems
appropriate in the number and kind of securities subject to or to be issued in
connection with Awards (whether or not then outstanding) and the exercise price
or grant price relating to an award.
LIMITS ON AWARDS
The Plan contains several limits on the number of shares and the amount of
cash that may be issued as awards. To the extent the Committee determines that
compliance with the performance-based exception to tax deductibility limitations
under Code Section 162(m) is desirable, awards may not be granted to any
individual for an aggregate number of shares of Common Stock in any fiscal year
that exceeds two million shares of Common Stock, and the Chief Executive Officer
and the other four highest compensated officers of Williams may not be granted
awards payable in cash in any fiscal year that exceed ten million dollars.
Common Stock available for delivery under stock-based awards other than options
may not exceed 25 percent of the total number of shares of stock deliverable
under the Plan. Stock available for grant as incentive stock options ("ISOs")
may not exceed the total number of shares of Stock available for grant under the
Plan less the number of shares of stock available under the Plan as carried over
from other Company stock plans.
SUMMARY OF AWARDS UNDER THE PLAN
The Plan permits the granting of any or all of the following types of
awards to all grantees other than non-employee Directors: (i) stock options
including ISOs; (ii) restricted stock; (iii) deferred stock; (iv) dividend
equivalents; (v) performance units; (vi) performance shares; and (vii) other
stock-based awards valued in whole or in part by reference to or otherwise based
on the Common Stock or other securities of Williams. With respect to
non-employee Directors, the Plan provides for (a) automatic stock option grants;
(b) automatic stock grants; and (c) an election to receive Director fees in
Common Stock. Non-employee Directors may also elect to receive awards in the
form of deferred shares. Generally, awards under the Plan are granted for no
consideration other than prior and future services. Awards (other than
non-employee Director awards) granted under the Plan may, in the discretion of
the Committee, be granted alone or in addition to, in tandem with or in
substitution for, any other award under the Plan or other plan of Williams.
Stock Options. The Committee is authorized to grant stock options,
including ISOs. A stock option allows a grantee to purchase a specified number
of shares at a predetermined price during a fixed period
24
measured from the date of grant. The purchase price per share of stock subject
to a stock option is determined by the Committee and cannot be less than the
fair market value of a share on the grant date. The Committee has no authority
to reprice an option, unless such repricing is necessary in light of an
extraordinary corporate event in order to prevent dilution or enlargement of a
grantee's benefits. The term of each option is fixed by the Committee, except
the term of an ISO which is limited to ten years. Such awards are exercisable in
whole or in part at such time or times as determined by the Committee. Options
may be exercised by payment of the purchase price in cash, stock, other
outstanding awards or as the Committee determines.
Restricted Stock and Deferred Stock. The Committee may award restricted
stock consisting of shares which may not be disposed of by grantees until
certain restrictions established by the Committee lapse. A grantee receiving
restricted stock will have all of the rights of a stockholder of Williams,
including the right to vote the shares and the right to receive any dividends,
unless the Committee otherwise determines. The Committee may also make deferred
stock awards, generally consisting of a right to receive shares at the end of
specified deferral periods. Awards of deferred stock are subject to such
limitations as the Committee may impose, which limitations may lapse at the end
of the deferral period, in installments or otherwise. Deferred stock awards
carry no voting or dividend rights or other rights associated with stock
ownership. Upon termination of employment during the restriction or deferral
period, restricted or deferred stock will be forfeited subject to such
exceptions, if any, as are authorized by the Committee.
Dividend Equivalents. The Committee is authorized to grant dividend
equivalents which provide a grantee the right to receive, currently or on a
deferred basis, interest or dividends, or interest or dividend equivalents.
Dividend equivalents may be paid directly to grantees or may be deferred for
later delivery under the Plan.
Performance Units. The Committee may grant performance units, which
entitle a grantee to cash or shares conditioned upon the fulfillment of certain
performance conditions and other restrictions as specified by the Committee. A
performance unit is valued based upon a value established by the Committee. The
Committee will determine the terms and conditions of such awards, including
performance and other restrictions placed on these awards. It is expected that
annual or long-term performance bonuses will be granted as performance units and
that the performance measures will generally be selected from among those listed
in the Plan.
Performance Shares. The Committee may grant performance shares, which
entitle a grantee to a certain number of shares of Common Stock, conditioned
upon the fulfillment of certain performance conditions and other restrictions as
specified by the Committee. The Committee will determine the terms and
conditions of such awards, including performance and other restrictions placed
on these awards. These awards may be granted as a form of annual or long-term
performance bonuses.
Other Stock-Based Awards. In order to enable Williams to respond to
material developments in the area of taxes and other legislation and regulations
and interpretations thereof, and to trends in executive compensation practices,
the Plan authorizes the Committee to grant awards that are valued in whole or in
part by reference to or otherwise based on securities of Williams. The Committee
determines the terms and conditions of such awards, including consideration paid
for awards granted as share purchase rights and whether awards are paid in
shares or cash.
Director Stock Options. Generally, each Director who is not an employee of
Williams or an affiliate will be granted an option on each January regularly
scheduled Board meeting, to purchase 6,000 shares of Williams' Common Stock. In
the discretion of the Board, the Director option will be granted in installments
throughout the calendar year rather than entirely in January. The price per
share for the Director options, which are non-qualified options, will be 100
percent of the fair market value of a share on the grant date. The exercise
price of an option may be paid in cash, shares or by surrendering previously
acquired shares of Common Stock. Director stock options are immediately
exercisable. Such options will expire at the earlier of ten years after the date
of grant or five years after the grantee ceases serving as a Director for any
reason. Non-employee Directors may defer (until such date as is elected by the
Director) receipt of shares payable due to exercise of a Director option.
Dividend equivalents that would have been paid on deferred stock may be deferred
or paid in cash, as elected by the non-employee Director. All deferred shares
are nonforfeitable.
25
Director Stock Grants. Generally, each Director who is not an employee of
Williams or an affiliate will be granted shares valued at twenty thousand
dollars on each regularly scheduled annual meeting of Williams' stockholders.
Non-employee Directors may defer (until such date as is elected by the Director)
receipt of such shares. Dividend equivalents that would have been paid on
deferred stock may be deferred or paid in cash, as elected by the non-employee
Director. All deferred shares are nonforfeitable.
Director Election To Receive Fees as Stock. Each Director who is not an
employee of Williams or an affiliate may elect to receive his or her Director
fees in the form of shares, valued at their fair market value on the date the
fees would otherwise have been payable in cash. Non-employee Directors may defer
(until such date as is elected by the Director) receipt of such shares. Dividend
equivalents that would have been paid on deferred stock may be deferred or paid
in cash, as elected by the non-employee Director. All deferred shares are
nonforfeitable.
Performance-Based Awards. The Committee may require satisfaction of
preestablished performance goals, consisting of one or more business criteria
and a targeted performance level with respect to such criteria, as a condition
of awards being granted or becoming exercisable or payable under the Plan, or as
a condition to accelerating the timing of such events.
The performance measure(s) to be used for purposes of any awards intended
to satisfy the "performance based" exception to the limitations of Internal
Revenue Code Section 162(m) will be chosen from among the following: (1)
earnings (either in the aggregate or on a per-share basis); (2) net income
(before or after taxes); (3) operating income; (4) operating profit; (5) cash
flow; (6) stockholder returns (including return on assets, investments, equity,
or gross sales) (including income applicable to common stockholders or other
class of stockholders); (7) return measures (including return on assets, equity,
or sales); (8) earnings before or after either, or any combination of, interest,
taxes, depreciation or amortization (EBITDA); (9) gross revenues; (10) share
price (including growth measures and total stockholder return or attainment by
the Shares of a specified value for a specified period of time); (11) reductions
in expense levels in each case where applicable determined either in a
Company-wide basis or in respect of any one or more business units; (12) net
economic value; (13) market share; (14) annual net income to common stock; (15)
earnings per share; (16) annual cash flow provided by operations; (17) changes
in annual revenues; (18) strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market penetration, geographic
business expansion goals, objectively identified project milestones, production
volume levels, cost targets, and goals relating to acquisitions or divestitures;
(19) economic value added; (20) sales; (21) costs; (22) results of customer
satisfaction surveys; (23) aggregate product price and other product price
measures; (24) safety record; (25) service reliability; (26) operating and
maintenance cost management; (27) energy production availability performance
measures; (28) debt rating; and/or (29) achievement of business or operational
goals such as market shares and/or business development.
The Committee has the discretion to adjust the determinations of the degree
of attainment of the preestablished performance goals; provided, however, that
awards which are designed to qualify for the performance-based exception to the
limitations of Section 162(m) may not be adjusted upward (the Committee retains
the discretion to adjust such awards downward).
Payment and Deferral of Awards. Awards may be settled in cash, stock,
other awards or other property, in the discretion of the Committee. The
Committee may require or permit grantees to defer the distribution of all or
part of an award in accordance with such terms and conditions as the Committee
may establish. The Plan authorizes the Committee to place shares or other
property in trusts or make other arrangements to provide for payment of
Williams' obligations under the Plan. The Committee may condition the payment of
an award on the withholding of taxes and may provide that a portion of the stock
or other property to be distributed will be withheld to satisfy such tax
obligations.
Transfer Limitations on Awards. Awards granted under the Plan generally
may not be pledged or otherwise encumbered and generally are not transferable
except by will or by the laws of descent and distribution. Each award will be
exercisable during the grantee's lifetime only by the grantee or, if permitted
under applicable law, by the grantee's guardian or legal representative.
However, transfers of awards for estate planning purposes will be permitted in
the discretion of the Committee.
26
AMENDMENT TO AND TERMINATION OF THE PLAN
The Plan may be amended, altered, suspended, discontinued or terminated by
the Board without further stockholder approval, unless such approval of an
amendment or alteration is required by law or regulation or under the rules of
the New York Stock Exchange (or other stock exchange or automated quotation
system on which the Common Stock is then listed or quoted). Thus, stockholder
approval will not necessarily be required for amendments which might increase
the cost of the Plan or broaden eligibility. Stockholder approval will not be
deemed to be required under laws or regulations that condition favorable
treatment of grantees on such approval, although the Board may, in its
discretion, seek stockholder approval in any circumstance in which it deems such
approval advisable. Without the approval of the stockholders, however, the Plan
may not be amended to increase the number of shares reserved under the Plan
(except pursuant to certain changes in the capital structure of Williams).
In addition, subject to the terms of the Plan, no amendment or termination
of the Plan may materially and adversely affect the right of a grantee under any
award granted under the Plan (other than an amendment to the change of control
provisions).
Unless earlier terminated by the Board, the Plan will terminate when no
shares remain reserved and available for issuance, and Williams has no further
obligation with respect to any award granted under the Plan.
CHANGE OF CONTROL
If, within two years after a change of control of Williams, a grantee's
employment (but not including service as a Director) with Williams or an
affiliate is terminated by Williams without cause or by the grantee for good
reason, (a) all of the grantee's outstanding awards will become fully vested,
(b) all performance criteria will be deemed fully achieved, and (c) the
grantee's non-qualified options will continue to be exercisable for 18 months
(but no longer than the remaining original option term). For purposes of the
Plan, a Change of Control is deemed to have occurred: (1) upon the acquisition
of 15 percent or more of the ownership of Williams by any entity, person or
group other than Williams, (2) upon the merger, reorganization or consolidation
that results in a more than 35 percent change in ownership of Williams, (3) if
the members of the Board of Williams as of the Board approval of the amended
Plan (or those voted for by 2/3 of such members) cease to constitute a majority
of the Board, (4) upon the approval by Williams' stockholders of a liquidation
or dissolution of Williams, (5) upon the approval by Williams' stockholders of a
sale or other disposition of all or substantially all of the assets of Williams
that results in a more than 50 percent change in ownership of Williams' assets
or (6) if the Board determines that a change of control has occurred.
The Plan reserves to the Board the right to amend the change of control
provisions (including with respect to outstanding awards) without the consent of
the grantee.
FEDERAL INCOME TAX CONSEQUENCES
Williams believes that under present law the following are the federal tax
consequences generally arising with respect to awards granted under the Plan.
This summary is for stockholder informative purposes and is not intended to
provide tax advice to grantees.
The grant of an option (including a stock-based award in the form of a
purchase right) will create no tax consequences for the grantee or Williams. The
grantee will have no taxable income upon exercising an ISO (except that the
alternative minimum tax may apply) and Williams will receive no deduction at the
time. Upon exercising an option other than an ISO, the grantee must generally
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the freely transferable and nonforfeitable stock
acquired on the date of exercise. In the case of options other than ISOs,
Williams will be entitled to a deduction for the amount recognized as ordinary
income by the grantee. The treatment to a grantee of a disposition of shares
acquired upon the exercise of an option depends on how long the shares have been
held and on whether such shares are acquired by exercising an ISO or by
exercising an option other than an ISO. Generally, there will be no tax
consequences to Williams in connection with a disposition of shares acquired
27
under an option except that Williams will be entitled to a deduction (and the
grantee will recognize ordinary taxable income) if shares acquired under an ISO
are disposed of before the applicable ISO holding periods have been satisfied.
Different tax rules apply with respect to grantees who are subject to Section 16
of the Securities Exchange Act of 1934 when they acquire stock in a transaction
deemed to be a nonexempt purchase under that statute. Different rules may also
apply to an option exercised by a Director less than six months after the date
of grant.
With respect to other awards granted under the Plan that may be settled
either in cash, in stock or other property that is either not restricted as to
transferability or not subject to a substantial risk of forfeiture, the grantee
must generally recognize ordinary income equal to the cash or the fair market
value of shares or other property received. Williams will be entitled to a
deduction for the same amount. With respect to awards involving stock or other
property that is restricted as to transferability and subject to a substantial
risk of forfeiture, the grantee must generally recognize ordinary income equal
to the fair market value of the shares or other property received at the first
time the shares or other property become transferable or not subject to a
substantial risk of forfeiture, whichever occurs earlier. Williams will be
entitled to a deduction for the same amount. In certain circumstances, a grantee
may elect to be taxed at the time of receipt of shares or other property rather
than upon the lapse of restrictions on transferability or the substantial risk
of forfeiture.
The foregoing provides only a general description of the application of
federal income tax laws to certain types of awards under the Plan. The summary
does not address the effects of foreign, state and local tax laws. Because of
the variety of awards that may be made under the Plan and the complexities of
the tax laws, grantees are encouraged to consult a tax advisor as to their
individual circumstances.
NEW PLAN BENEFITS
Awards to Grantees Other Than Non-Employee Directors. It is not possible
to determine how many discretionary grants, nor what types, will be made in the
future to grantees other than non-employee Directors. It is also not possible to
determine how many discretionary grants will vest rather than be forfeited.
Therefore, it is not possible to determine with certainty the dollar value or
number of shares of Williams' Common Stock that will be distributed to grantees
other than non-employee Directors under the Plan.
Non-Employee Director Awards. The following table sets forth the number of
options and shares of Common Stock that would have been granted to non-employee
Directors as a group under the Plan in 2001 had the amended Plan been in effect
during that year:
NEW PLAN BENEFITS
2002 INCENTIVE PLAN
Position Number of Units
--------------------------------- ----------------------
Non-Employee Directors as a Group
(14 in number)...................................... 78,000 options granted
6,683 shares granted
It is not possible at present to determine the number of shares that will
be deliverable under the Plan to non-employee Directors as Common Stock or
deferred stock in lieu of fees at the election of each non-employee Director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
2002 INCENTIVE PLAN.
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
28
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 2001, the following
table sets forth those Directors or officers of Williams who failed to file on a
timely basis, reports required by Section 16(a) of the Exchange Act during the
year 2001.
NUMBER OF TRANSACTIONS
NUMBER OF NOT REPORTED
LATE REPORTS ON A TIMELY BASIS
------------ ----------------------
Jack D. McCarthy..................................... 1 2
Joseph H. Williams................................... 1 1
STOCKHOLDER PROPOSALS FOR 2003
In order for a stockholder proposal to be considered for inclusion in
Williams' 2003 Proxy Statement, such proposal must be received by Williams no
later than November 22, 2002. 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 2003 Proxy Statement in accordance with applicable law. It
is suggested that such proposals be sent by certified mail, return receipt
requested. Under Williams' By-laws, any other stockholder proposal that is to be
included in Williams' 2003 Proxy Statement under Rule 14a-8 must be received by
Williams' Secretary no later than 90 days nor more than 120 days prior to the
date of the anniversary date of the 2002 Annual Meeting, and shall contain such
information as required under Williams' By-laws. Unless Williams announces a
different date, the 2002 Annual Meeting will be held on May 16, 2002. In the
event that the 2003 Annual Meeting is called for a date that is not within 30
days before or after the anniversary date of the 2002 Annual Meeting, in order
for a stockholder proposal to be timely it must be received not later than the
close of business on the 10th day following the day on which notice of the date
of the 2003 Annual Meeting was mailed or public disclosure of the date of the
2003 Annual Meeting was made, whichever first occurs.
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 29, 2002
29
APPENDIX A
THE WILLIAMS COMPANIES, INC.
2002 INCENTIVE PLAN
TABLE OF CONTENTS
ARTICLE PAGE
------- ----
ARTICLE 1. EFFECTIVE DATE, OBJECTIVES AND DURATION.......... 1
1.1 Effective Date of the Plan.......................... 1
1.2 Objectives of the Plan.............................. 1
1.3 Duration of the Plan................................ 1
ARTICLE 2. DEFINITIONS...................................... 1
2.1 "Affiliate"......................................... 1
2.2 "Award"............................................. 1
2.3 "Award Agreement"................................... 1
2.4 "CEO"............................................... 1
2.5 "Code".............................................. 1
2.6 "Committee" and "Management Committee".............. 1
2.7 "Common Stock"...................................... 1
2.8 "Covered Employee".................................. 1
2.9 "Deferred Stock".................................... 2
2.10 "Director Option"................................... 2
2.11 "Director Stock Grant".............................. 2
2.12 "Disability"........................................ 2
2.13 "Dividend Equivalent"............................... 2
2.14 "Eligible Person"................................... 2
2.15 "Exchange Act"...................................... 2
2.16 "Fair Market Value"................................. 2
2.17 "Grant Date"........................................ 2
2.18 "Grantee"........................................... 2
2.19 "Incentive Stock Option"............................ 2
2.20 "including" or "includes"........................... 2
2.21 "Mature Shares"..................................... 2
2.22 "Non-Employee Director"............................. 2
2.23 "Other Stock-Based Award"........................... 2
2.24 "Option"............................................ 2
2.25 "Option Price"...................................... 3
2.26 "Option Term"....................................... 3
2.27 "Performance-Based Exception"....................... 3
2.28 "Performance Measures".............................. 3
2.29 "Performance Period"................................ 3
2.30 "Performance Share" and "Performance Unit".......... 3
2.31 "Period of Restriction"............................. 3
2.32 "Person"............................................ 3
2.33 "Restricted Shares"................................. 3
2.34 "Rule 16b-3"........................................ 3
2.35 "SEC"............................................... 3
2.36 "Section 16 Non-Employee Director".................. 3
2.37 "Section 16 Person"................................. 3
2.38 "Share"............................................. 3
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ARTICLE PAGE
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2.39 "Termination of Affiliation"........................ 3
ARTICLE 3. ADMINISTRATION................................... 3
3.1 Committee........................................... 3
3.2 Powers of Committee................................. 4
ARTICLE 4. SHARES SUBJECT TO THE PLAN, MAXIMUM AWARDS, AND
162(M) COMPLIANCE......................................... 6
4.1 Number of Shares Available for Grants............... 6
4.2 Adjustments in Authorized Shares and Awards......... 6
4.3 Compliance with Section 162(m) of the Code.......... 7
4.4 Performance-Based Exception Under Section 162(m).... 7
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS..... 9
5.1 Eligibility......................................... 9
5.2 Award Agreement..................................... 9
5.3 General Terms and Termination of Affiliation........ 9
5.4 Nontransferability of Awards........................ 9
5.5 Cancellation and Rescission of Awards............... 9
5.6 Stand-Alone, Tandem and Substitute Awards........... 10
5.7 Compliance with Rule 16b-3.......................... 10
5.8 Deferral of Award Payouts........................... 11
ARTICLE 6. STOCK OPTIONS.................................... 11
6.1 Grant of Options.................................... 11
6.2 Award Agreement..................................... 11
6.3 Option Price........................................ 11
6.4 Grant of Incentive Stock Options.................... 11
6.5 Payment............................................. 12
ARTICLE 7. RESTRICTED SHARES................................ 13
7.1 Grant of Restricted Shares.......................... 13
7.2 Award Agreement..................................... 13
7.3 Consideration for Restricted Shares................. 13
7.4 Effect of Forfeiture................................ 13
7.5 Escrow; Legends..................................... 13
ARTICLE 8. PERFORMANCE UNITS AND PERFORMANCE SHARES......... 13
8.1 Grant of Performance Units and Performance Shares... 13
8.2 Value/Performance Goals............................. 14
8.3 Earning of Performance Units and Performance
Shares................................................. 14
ARTICLE 9. DEFERRED STOCK................................... 14
9.1 Grant of Deferred Stock............................. 14
9.2 Delivery and Limitations............................ 14
9.3 Forfeiture.......................................... 15
ARTICLE 10. DIVIDEND EQUIVALENTS............................ 15
ARTICLE 11. OTHER STOCK-BASED AWARDS........................ 15
ARTICLE 12. CHANGE OF CONTROL............................... 15
12.1 Acceleration of Exercisability and Lapse of
Restrictions........................................... 15
12.2 Definitions......................................... 16
12.3 Flexibility to Amend................................ 17
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ARTICLE PAGE
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ARTICLE 13. NON-EMPLOYEE DIRECTOR AWARDS.................... 17
13.1 Exclusive Means for Non-Employee Director Awards... 17
13.2 Director Option.................................... 17
13.3 Director Stock Grants.............................. 19
13.4 Election to Receive Director Fees in Shares or
Deferred Stock in Lieu of Cash......................... 19
13.5 Deferral Elections................................. 20
13.6 Insufficient Number of Shares...................... 21
13.7 Non-Forfeitability................................. 21
13.8 No Duplicate Payments.............................. 21
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION........ 21
14.1 Amendment, Modification, and Termination........... 21
14.2 Awards Previously Granted.......................... 21
ARTICLE 15. WITHHOLDING..................................... 22
15.1 Required Withholding............................... 22
15.2 Notification under Code Section 83(b).............. 22
ARTICLE 16. ADDITIONAL PROVISIONS........................... 22
16.1 Successors......................................... 22
16.2 Gender and Number.................................. 23
16.3 Severability....................................... 23
16.4 Requirements of Law................................ 23
16.5 Securities Law Compliance.......................... 23
16.6 No Rights as a Stockholder......................... 23
16.7 Nature of Payments................................. 23
16.8 Non-Exclusivity of Plan............................ 24
16.9 Governing Law...................................... 24
16.10 Share Certificates................................. 24
16.11 Unfunded Status of Awards; Creation of Trusts...... 24
16.12 Employment......................................... 24
16.13 Participation...................................... 24
16.14 Military Service................................... 24
16.15 Construction....................................... 24
16.16 Headings........................................... 24
16.17 Obligations........................................ 24
16.18 No Right to Continue as Director................... 24
16.19 Stockholder Approval............................... 25
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THE WILLIAMS COMPANIES, INC.
2002 INCENTIVE PLAN
ARTICLE 1.
EFFECTIVE DATE, OBJECTIVES AND DURATION
1.1 Effective Date of the Plan. The Williams Companies, Inc., a Delaware
corporation (the "Company"), established a stock plan known as The Williams
Companies, Inc. 1996 Stock Plan, as amended, which was duly approved by the
Company's stockholders. The Company amends, restates and renames such plan (as
so amended, the "Plan") as set forth herein effective March 1, 2002 ("Effective
Date"), subject to approval by the Company's stockholders.
1.2 Objectives of the Plan. The Plan is intended (a) to allow selected
employees and officers of the Company and its Affiliates to acquire or increase
equity ownership in the Company, thereby strengthening their commitment to the
success of the Company and stimulating their efforts on behalf of the Company,
and to assist the Company and its Affiliates in attracting new employees and
officers and retaining existing employees and officers, (b) to provide annual
cash incentive compensation opportunities that are competitive with those of
other major corporations, (c) to optimize the profitability and growth of the
Company and its Affiliates through incentives which are consistent with the
Company's goals, (d) to provide Grantees with an incentive for excellence in
individual performance, (e) to promote teamwork among employees, officers, and
Non-Employee Directors, and (f) to attract and retain highly qualified persons
to serve as Non-Employee Directors and to promote ownership by such Non-Employee
Directors of a greater proprietary interest in the Company, thereby aligning
such Non-Employee Directors' interests more closely with the interests of the
Company's stockholders.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date
and shall remain in effect, subject to the right of the Board of Directors of
the Company ("Board") to amend or terminate the Plan at any time pursuant to
Article 14 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions.
ARTICLE 2.
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below:
2.1 "Affiliate" means any Person that directly or indirectly, through one
or more intermediaries, controls, or is controlled by or is under common control
with the Company.
2.2 "Award" means Options (including non-qualified options, Incentive
Stock Options and Director Options), Restricted Shares, Performance Units (which
may be paid in cash), Performance Shares, Deferred Stock, Dividend Equivalents,
Other Stock-Based Awards, or Director Stock Grants granted under the Plan.
2.3 "Award Agreement" means the written agreement by which an Award shall
be evidenced.
2.4 "CEO" means the Chief Executive Officer of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to a particular section of the Code include references to
regulations and rulings thereunder and to successor provisions.
2.6 "Committee" and "Management Committee" have the respective meanings
set forth in Article 3.
2.7 "Common Stock" means the common stock, $1.00 par value, of the
Company.
2.8 "Covered Employee" means a Grantee who, as of the date that the value
of an Award is recognizable as income, is one of the group of "covered
employees," within the meaning of Code Section 162(m), with respect to the
Company.
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2.9 "Deferred Stock" means a right, granted under Section 9.1 or Article
13, to receive Shares at the end of a specified deferral period.
2.10 "Director Option" means a non-qualified Option granted to a
Non-Employee Director under Article 13.
2.11 "Director Stock Grant" means Shares granted to a Non-Employee
Director under Section 13.3.
2.12 "Disability" means, unless otherwise defined in an Award Agreement,
or as otherwise determined under procedures established by the Committee for
purposes of the Plan, for purposes of the exercise of an Incentive Stock Option,
a disability within the meaning of Section 22(e)(3) of the Code, and for all
other purposes, disability as defined in the Company's long-term disability plan
in which the Grantee participates or is eligible to participate, as determined
by the Committee.
2.13 "Dividend Equivalent" means a right to receive payments equal to
interest or dividends or property, if and when paid or distributed, on a
specified number of Shares.
2.14 "Eligible Person" means any employee (including any officer) of or
potential employee (including a potential officer) of the Company or an
Affiliate.
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to a particular section of the Exchange Act
include references to successor provisions.
2.16 "Fair Market Value" means (a) with respect to any property other than
Shares, the fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee, and (b)
with respect to Shares, unless otherwise determined in the good faith discretion
of the Committee, as of any date, (i) the closing price on the date of
determination reported in the table entitled "New York Stock Exchange Composite
Transactions" contained in The Wall Street Journal (or an equivalent successor
table) (or, if no sale of Shares was reported for such date, on the most recent
trading day prior to such date on which a sale of Shares was reported); (ii) if
the Shares are not listed on the New York Stock Exchange, the closing price of
the Shares on such other national exchange on which the Shares are principally
traded or as reported by the National Market System, or similar organization, or
if no such quotations are available, the average of the high bid and low asked
quotations in the over-the-counter market as reported by the National Quotation
Bureau Incorporated or similar organizations; or (iii) in the event that there
shall be no public market for the Shares, the fair market value of the Shares as
determined (which determination shall be conclusive) in good faith by the
Committee.
2.17 "Grant Date" means the date on which an Award is granted or, in the
case of a grant to an Eligible Person, such later date as specified in advance
by the Committee.
2.18 "Grantee" means a person who has been granted an Award.
2.19 "Incentive Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code.
2.20 "including" or "includes" means "including, without limitation," or
"includes, without limitation," respectively.
2.21 "Mature Shares" means Shares for which the holder thereof has good
title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.
2.22 "Non-Employee Director" means a member of the Board who is not an
employee of the Company or any Affiliate.
2.23 "Other Stock-Based Award" means a right, granted under Article 11
hereof, that relates to or is valued by reference to Shares or other Awards
relating to Shares.
2.24 "Option" means an option granted under Article 6 or Article 13 of the
Plan.
A-2
2.25 "Option Price" means the price at which a Share may be purchased by a
Grantee pursuant to an Option.
2.26 "Option Term" means the period beginning on the Grant Date of an
Option and ending on the date such Option expires, terminates or is cancelled.
2.27 "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m) contained in Code
Section 162(m)(4)(C) (including the special provisions for options thereunder).
2.28 "Performance Measures" has the meaning set forth in Section 4.4.
2.29 "Performance Period" means the time period during which performance
goals must be met.
2.30 "Performance Share" and "Performance Unit" have the respective
meanings set forth in Article 8.
2.31 "Period of Restriction" means the period during which Restricted
Shares are subject to forfeiture if the conditions specified in the Award
Agreement are not satisfied.
2.32 "Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government instrumentality, division, agency, body or department.
2.33 "Restricted Shares" means Shares that are subject to forfeiture if
the Grantee does not satisfy the conditions specified in the Award Agreement
applicable to such Shares.
2.34 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the
Exchange Act, as amended from time to time, together with any successor rule.
2.35 "SEC" means the United States Securities and Exchange Commission, or
any successor thereto.
2.36 "Section 16 Non-Employee Director" means a Non-Employee Director who
satisfies the requirements to qualify as a "non-employee director" under Rule
16b-3.
2.37 "Section 16 Person" means a person who is subject to potential
liability under Section 16(b) of the 1934 Act with respect to transactions
involving equity securities of the Company.
2.38 "Share" means a share of Common Stock, and such other securities of
the Company as may be substituted or resubstituted for Shares pursuant to
Section 4.2 hereof.
2.39 "Termination of Affiliation" occurs on the first day on which an
individual is for any reason no longer providing services to the Company or an
Affiliate in the capacity of an employee or officer, or with respect to an
individual who is an employee or officer of an Affiliate, the first day on which
such entity ceases to be an Affiliate of the Company.
ARTICLE 3.
ADMINISTRATION
3.1 Committee.
(a) Subject to Articles 13 and 14, and to Section 3.2, the Plan shall be
administered by a committee ("Committee"). Except to the extent the Board
reserves administrative powers to itself or appoints a different committee to
administer the Plan, the Committee shall be (i) the Board, with respect to all
Non-Employee Directors, (ii) the Compensation Committee of the Board, with
respect to all executive officers of the Company and any other Eligible Person
with respect to whom it elects to act as the Committee, and (iii) a committee of
directors of the Board consisting of the CEO, with respect to any Eligible
Person other than an executive officer of the Company, provided that if the CEO
is not a member of the Board, the Compensation Committee of the Board shall act
in lieu of the CEO. To the extent the Board considers it desirable to comply
with Rule 16b-3 or meet the Performance-Based Exception, the Committee shall
consist of two or more directors of the Company, all of whom qualify as "outside
directors" within the meaning of Code
A-3
Section 162(m) and Section 16 Non-Employee Directors. The number of members of
the Committee shall from time to time be increased or decreased, and shall be
subject to such conditions, in each case as the Board deems appropriate to
permit transactions in Shares pursuant to the Plan to satisfy such conditions of
Rule 16b-3 and the Performance-Based Exception as then in effect.
(b) The Board or the Compensation Committee may appoint and delegate to
another committee ("Management Committee") or to the CEO any or all of the
authority of the Board or the Committee, as applicable, with respect to Awards
to Grantees other than Grantees who are executive officers, Non-Employee
Directors, or are (or are expected to be) Covered Employees and/or are Section
16 Persons at the time any such delegated authority is exercised.
(c) Unless the context requires otherwise, any references herein to
"Committee" include references to the Board, the Management Committee or the
CEO, as applicable.
3.2 Powers of Committee. Subject to and consistent with the provisions of
the Plan (including Article 13), the Committee has full and final authority and
sole discretion as follows; provided that any such authority or discretion
exercised with respect to a specific Non-Employee Director shall be approved by
the affirmative vote of a majority of the members of the Board, even if not a
quorum, but excluding the Non-Employee Director with respect to whom such
authority or discretion is exercised:
(a) to determine when, to whom and in what types and amounts Awards
should be granted; provided that grants to Non-Employee Directors shall be
made solely pursuant to Article 13;
(b) to grant Awards to Eligible Persons in any number, and to
determine the terms and conditions applicable to each Award (including the
number of shares or the amount of cash or other property to which an Award
will relate, any exercise price, grant price or purchase price, any
limitation or restriction, any schedule for or performance conditions
relating to the earning of the Award or the lapse of limitations,
forfeiture restrictions, restrictions on exercisability or transferability,
any performance goals including those relating to the Company and/or an
Affiliate and/or any division thereof and/or an individual, and/or vesting
based on the passage of time, based in each case on such considerations as
the Committee shall determine);
(c) to determine the benefit payable under any Performance Unit,
Performance Share, Dividend Equivalent, or Other Stock-Based Award and to
determine whether any performance or vesting conditions have been
satisfied;
(d) to determine whether or not specific Awards shall be granted in
connection with other specific Awards, and if so, whether they shall be
exercisable cumulatively with, or alternatively to, such other specific
Awards and all other matters to be determined in connection with an Award;
(e) to determine the Option Term;
(f) to determine the amount, if any, that a Grantee shall pay for
Restricted Shares, whether to permit or require the payment of cash
dividends thereon to be deferred and the terms related thereto, when
Restricted Shares (including Restricted Shares acquired upon the exercise
of an Option) shall be forfeited and whether such shares shall be held in
escrow;
(g) to determine whether, to what extent and under what circumstances
an Award may be settled in, or the exercise price of an Award may be paid
in, cash, Shares, other Awards or other property, or an Award may be
accelerated, vested, canceled, forfeited or surrendered or any terms of the
Award may be waived, and to accelerate the exercisability of, and to
accelerate or waive any or all of the terms and conditions applicable to,
any Award or any group of Awards for any reason and at any time;
(h) to determine with respect to Awards granted to Eligible Persons
whether, to what extent and under what circumstances cash, Shares, other
Awards, other property and other amounts payable with respect to an Award
will be deferred either automatically (whether to limit loss of deductions
pursuant to Code Section 162(m) or otherwise), at the election of the
Committee or at the election of the Grantee;
A-4
(i) to offer to exchange or buy out any previously granted Award for a
payment in cash, Shares or other Award;
(j) to construe and interpret the Plan and to make all determinations,
including factual determinations, necessary or advisable for the
administration of the Plan;
(k) to make, amend, suspend, waive and rescind rules and regulations
relating to the Plan;
(l) to appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(m) to determine the terms and conditions of all Award Agreements
applicable to Eligible Persons (which need not be identical) and, with the
consent of the Grantee, to amend any such Award Agreement at any time,
among other things, to permit transfers of such Awards to the extent
permitted by the Plan; provided that the consent of the Grantee shall not
be required for any amendment (i) which does not adversely affect the
rights of the Grantee, or (ii) which is necessary or advisable (as
determined by the Committee) to carry out the purpose of the Award as a
result of any new applicable law or change in an existing applicable law,
or (iii) to the extent the Award Agreement specifically permits amendment
without consent;
(n) to cancel, with the consent of the Grantee, outstanding Awards and
to grant new Awards in substitution therefor;
(o) to make such adjustments or modifications to Awards or to adopt
such sub-plans for Grantees working outside the United States as are
advisable to fulfill the purposes of the Plan;
(p) to impose such additional terms and conditions upon the grant,
exercise or retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate, including limiting
the percentage of Awards which may from time to time be exercised by a
Grantee;
(q) to make adjustments in the terms and conditions of, and the
criteria in, Awards in recognition of unusual or nonrecurring events
(including events described in Section 4.2) affecting the Company or an
Affiliate or the financial statements of the Company or an Affiliate, or,
except with respect to Awards granted pursuant to Article 13, in response
to changes in applicable laws, regulations or accounting principles;
provided, however, that in no event shall such adjustment increase the
value of an Award for a person expected to be a Covered Employee for whom
the Committee desires to have the Performance-Based Exception apply;
(r) to correct any defect or supply any omission or reconcile any
inconsistency, and to construe and interpret the Plan, the rules and
regulations, and Award Agreement or any other instrument entered into or
relating to an Award under the Plan; and
(s) to take any other action with respect to any matters relating to
the Plan for which it is responsible and to make all other decisions and
determinations as may be required under the terms of the Plan or as the
Committee may deem necessary or advisable for the administration of the
Plan.
Any action of the Committee with respect to the Plan shall be final,
conclusive and binding on all persons, including the Company, its Affiliates,
any Grantee, any person claiming any rights under the plan from or through any
Grantee, and stockholders, except to the extent the Committee may subsequently
modify, or take further action not consistent with, its prior action. If not
specified in the Plan, the time at which the Committee must or may make any
determination shall be determined by the Committee, and any such determination
may thereafter be modified by the Committee. The express grant of any specific
power to the Committee, and the taking of any action by the Committee, shall not
be construed as limiting any power or authority of the Committee. The Committee
may delegate to officers or managers of the Company or any Affiliate the
authority, subject to such terms as the Committee shall determine, to perform
specified functions under the Plan (subject to Sections 4.3 and 5.7(c)).
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ARTICLE 4.
SHARES SUBJECT TO THE PLAN, MAXIMUM AWARDS, AND 162(m) COMPLIANCE
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2, the number of Shares hereby reserved for delivery under
the Plan shall be the sum of fourteen million (14,000,000) plus (a) the number
of Shares under The Williams Companies, Inc. Stock Plan for Nonofficer Employees
which are available (not subject to outstanding Awards granted thereunder and
not delivered out of the Shares reserved thereunder) as of the date of
stockholder approval of this Plan ("Unused Shares") plus the number of Shares
which become available under such plan after the date of stockholder approval of
this Plan pursuant to forfeiture, termination, application as payment for an
Award or to satisfy tax withholding, lapse or satisfaction of an Award in cash
or property other than Shares ("Returned Shares"), (b) the number of Unused
Shares plus the number of Returned Shares under The Williams International Stock
Plan, (c) the number of Unused Shares plus the number of Returned Shares under
The Williams Companies, Inc. 1996 Stock Plan for Non-Employee Directors, and (d)
the number of Unused Shares plus the number of Returned Shares under The
Williams Companies, Inc. 1996 Stock Plan as in effect immediately prior to its
amendment to become the Plan. The number of Shares available for delivery
pursuant to stock-based Awards other than Options shall not exceed twenty-five
percent (25%) of the total number of Shares deliverable under the Plan. The
number of Shares available for delivery pursuant to Incentive Stock Options
shall be the number determined under the first sentence of this Section 4.1,
reduced by the aggregate number of Returned Shares.
The Committee shall from time to time determine the appropriate methodology
for calculating the number of Shares to which an Award relates pursuant to the
Plan.
If any Shares subject to an Award granted hereunder are forfeited or such
Award otherwise terminates without the delivery of such Shares, the Shares
subject to such Award, to the extent of any such forfeiture or termination,
shall again be available for grant under the Plan. If any Shares subject to an
Award granted hereunder are withheld, applied as payment, or sold and the
proceeds thereof applied as payment in connection with the exercise of an Award
or the withholding or payment of taxes related thereto, such Shares, to the
extent of any such withholding or payment, shall again be available for grant
under the Plan. Shares delivered pursuant to the Plan may be, in whole or in
part, authorized and unissued Shares, or treasury Shares, including Shares
repurchased by the Company for purposes of the Plan.
4.2 Adjustments in Authorized Shares and Awards. In the event that the
Committee determines that any dividend or other distribution (whether in the
form of cash, Shares, or other property), recapitalization, forward or reverse
stock split, subdivision, consolidation or reduction of capital, reorganization,
merger, consolidation, scheme of arrangement, split-up, spin-off or combination
involving the Company or repurchase or exchange of Shares or other securities of
the Company or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that any adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (a) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(b) the number and type of Shares (or other securities or property) subject to
outstanding Awards, (c) the grant or exercise price with respect to any Award
or, if deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award, (d) the number and kind of Shares of outstanding Restricted
Shares or relating to any other outstanding Award in connection with which
Shares are subject, and (e) the number of Shares with respect to which Awards
may be granted to a Grantee, as set forth in Section 4.3; provided, in each
case, that with respect to Awards of Incentive Stock Options intended to
continue to qualify as Incentive Stock Options after such adjustment, no such
adjustment shall be authorized to the extent that such adjustment would cause
the Plan to violate Section 422(b)(1) of the Code; and provided further that the
number of Shares subject to any Award denominated in Shares shall always be a
whole number.
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4.3 Compliance with Section 162(m) of the Code. To the extent the
Committee determines that compliance with the Performance-Based Exception is
desirable, the following shall apply:
(a) Section 162(m) Compliance. All Awards granted to persons the Committee
believes likely to be Covered Employees shall comply with the requirements of
the Performance-Based Exception; provided, however, that to the extent Code
Section 162(m) requires periodic shareholder approval of performance measures,
such approval shall not be required for the continuation of the Plan or as a
condition to grant any Award hereunder after such approval is required. In
addition, in the event that changes are made to Code Section 162(m) to permit
flexibility with respect to the Award or Awards available under the Plan, the
Committee may, subject to this Section 4.3, make any adjustments to such Awards
as it deems appropriate.
(b) Annual Individual Limitations. During any calendar year, no Grantee
may be granted Awards (other than Awards that cannot be satisfied in Shares)
with respect to more than two million (2,000,000) Shares, subject to adjustment
as provided in Section 4.2. The maximum potential value of Awards to be settled
in cash or property (other than Shares) that may be granted with respect to any
calendar year (or the Company's fiscal year, if the Company's fiscal year is not
the calendar year) to any Grantee expected to be a Covered Employee (regardless
of when such Award is settled) shall not exceed $10,000,000. (Thus, Awards that
accrue over more than one calendar year (or fiscal year) may exceed the one-year
grant limit in the prior sentence at the time of payment or settlement.)
4.4 Performance-Based Exception Under Section 162(m). Unless and until
the Committee proposes for stockholder vote and stockholders approve a change in
the general performance measures set forth in this Section 4.4, for Awards
(other than Options) designed to qualify for the Performance-Based Exception,
the objective Performance Measure(s) shall be chosen from among the following:
(a) Earnings (either in the aggregate or on a per-share basis);
(b) Net income;
(c) Operating income;
(d) Operating profit;
(e) Cash flow;
(f) Stockholder returns (including return on assets, investments,
equity, or gross sales) (including income applicable to common stockholders
or other class of stockholders);
(g) Return measures (including return on assets, equity, or sales);
(h) Earnings before or after either, or any combination of, interest,
taxes, depreciation or amortization (EBITDA);
(i) Gross revenues;
(j) Share price (including growth measures and total stockholder
return or attainment by the Shares of a specified value for a specified
period of time);
(k) Reductions in expense levels in each case, where applicable,
determined either on a Company-wide basis or in respect of any one or more
business units;
(l) Net economic value;
(m) Market share;
(n) Annual net income to common stock;
(o) Earnings per share;
(p) Annual cash flow provided by operations;
(q) Changes in annual revenues;
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(r) Strategic business criteria, consisting of one or more objectives
based on meeting specified revenue, market penetration, geographic business
expansion goals, objectively identified project milestones, production
volume levels, cost targets, and goals relating to acquisitions or
divestitures;
(s) Economic value added;
(t) Sales;
(u) Costs;
(v) Results of customer satisfaction surveys;
(w) Aggregate product price and other product price measures;
(x) Safety record;
(y) Service reliability;
(z) Operating and maintenance cost management;
(aa) Energy production availability performance measures;
(bb) Debt rating; and/or
(cc) Achievement of business or operational goals such as market share
and/or business development;
provided that subsections (a) through (g) may be measured on a pre- or
post-tax basis; and provided further that the Committee may, on the Grant
Date of an Award intended to comply with the Performance-Based Exception,
and in the case of other grants, at any time, provide that the formula for
such Award may include or exclude items to measure specific objectives,
such as losses from discontinued operations, extraordinary gains or losses,
the cumulative effect of accounting changes, acquisitions or divestitures,
foreign exchange impacts and any unusual, nonrecurring gain or loss. For
Awards intended to comply with the Performance-Based Exception, the
Committee shall set the Performance Measures within the time period
prescribed by Section 162(m) of the Code. The levels of performance
required with respect to Performance Measures may be expressed in absolute
or relative levels and may be based upon a set increase, set positive
result, maintenance of the status quo, set decrease or set negative result.
Performance Measures may differ for Awards to different Grantees. The
Committee shall specify the weighting (which may be the same or different
for multiple objectives) to be given to each performance objective for
purposes of determining the final amount payable with respect to any such
Award. Any one or more of the Performance Measures may apply to the
Grantee, a department, unit, division or function within the Company or any
one or more Affiliates; and may apply either alone or relative to the
performance of other businesses or individuals (including industry or
general market indices).
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception may not be adjusted upward (the Committee shall retain the discretion
to adjust such Awards downward). The Committee may not delegate any
responsibility with respect to Awards intended to qualify for the
Performance-Based Exception. All determinations by the Committee as to the
achievement of the Performance Measure(s) shall be in writing prior to payment
of the Award.
In the event that applicable laws change to permit Committee discretion to
alter the governing performance measures without obtaining stockholder approval
of such changes, and still qualify for the Performance-Based Exception, the
Committee shall have sole discretion to make such changes without obtaining
stockholder approval.
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ARTICLE 5.
ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS
5.1 Eligibility. The Committee may in its discretion grant Awards to any
Eligible Person, whether or not he or she has previously received an Award. Each
Person who, on any date on which an Award is to be granted pursuant to Article
13, is a Non-Employee Director automatically shall be granted an Award pursuant
to Article 13 on such date.
5.2 Award Agreement. To the extent not set forth in the Plan, the terms
and conditions of each Award shall be set forth in an Award Agreement.
5.3 General Terms and Termination of Affiliation. The Committee may
impose on any Award or the exercise or settlement thereof, at the date of grant
or, subject to the provisions of Section 14.2, thereafter, such additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee
shall determine, including terms requiring forfeiture, acceleration or pro-rata
acceleration of Awards in the event of a Termination of Affiliation by the
Grantee. Except as may be required under the Delaware General Corporation Law,
Awards may be granted for no consideration other than prior and future services.
Except as otherwise determined by the Committee pursuant to this Section 5.3,
all Awards that have not been exercised subject to a risk of forfeiture, subject
to deferral by the Committee (and not voluntary deferral by the Grantee),
subject to vesting, or have outstanding Performance Periods at the time of a
Termination of Affiliation shall be forfeited to the Company.
5.4 Nontransferability of Awards.
(a) Each Award and each right under any Award shall be exercisable only by
the Grantee during the Grantee's lifetime, or, if permissible under applicable
law, by the Grantee's guardian or legal representative or by a transferee
receiving such Award pursuant to a qualified domestic relations order (a "QDRO")
as defined in the Code or Title I of the Employee Retirement Income Security Act
of 1974 as amended, or the rules thereunder.
(b) No Award (prior to the time, if applicable, Shares are delivered in
respect of such Award), and no right under any Award, may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Grantee otherwise than by will or by the laws of descent and distribution (or in
the case of Restricted Shares, to the Company) or pursuant to a QDRO, and any
such purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(c) Notwithstanding subsections (a) and (b) above, to the extent provided
in the Award Agreement, Director Options, Deferred Stock, and Awards other than
Incentive Stock Options, may be transferred to one or more trusts or persons
during the lifetime of the Grantee in connection with the Grantee's estate
planning, and may be exercised by such transferee in accordance with the terms
of such Award. If so determined by the Committee, a Grantee may, in the manner
established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the Grantee, and to receive any distribution with respect
to any Award upon the death of the Grantee. A transferee, beneficiary, guardian,
legal representative or other person claiming any rights under the Plan from or
through any Grantee shall be subject to and consistent with the provisions of
the Plan and any applicable Award Agreement, except to the extent the Plan and
Award Agreement otherwise provide with respect to such persons, and to any
additional restrictions or limitations deemed necessary or appropriate by the
Committee.
(d) Nothing herein shall be construed as requiring the Committee to honor a
QDRO except to the extent required under applicable law.
5.5 Cancellation and Rescission of Awards. Unless the Award Agreement
specifies otherwise, the Committee may cancel, rescind, suspend, withhold, or
otherwise limit or restrict any unexercised Award at any time if the Grantee is
not in compliance with all applicable provisions of the Award Agreement and the
Plan or if the Grantee has a Termination of Affiliation.
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5.6 Stand-Alone, Tandem and Substitute Awards.
(a) Awards granted under the Plan may, in the discretion of the Committee,
be granted either alone or in addition to, in tandem with, or in substitution
for, any other Award granted under the Plan or any award granted under The
Williams Companies, Inc. Stock Plan for Nonofficer Employees or The Williams
International Stock Plan, or any other plan of the Company or any Affiliate;
provided that if the stand-alone, tandem or substitute Award is intended to
qualify for the Performance-Based Exception, it must separately satisfy the
requirements of the Performance-Based Exception. In connection with the
Company's acquisition, however effected, of another corporation or entity (the
"Acquired Entity") or the assets thereof, the Committee may, at its discretion,
grant Awards ("Substitute Awards") associated with the stock or other equity
interest in such Acquired Entity ("Acquired Entity Award") held by a Grantee
immediately prior to such Acquisition in order to preserve for Grantee the
economic value of all or a portion of such Acquired Entity Award at such price
as the Committee determines necessary to achieve preservation of economic value.
If an Award is granted in substitution for another Award or any non-Plan award
or benefit, the Committee shall require the surrender of such other Award or
non-Plan award or benefit in consideration for the grant of the new Award.
Awards granted in addition to or in tandem with other Awards or non-Plan awards
or benefits may be granted either at the same time as or at a different time
from the grant of such other Awards or non-Plan awards or benefits. The Option
Price of any Option or the purchase price of any other Award conferring a right
to purchase Shares:
(i) If granted in substitution for an outstanding Award or non-Plan
award or benefit, shall be either not less than the Fair Market Value of
Shares at the date such substitute Award is granted or not less than such
Fair Market Value at that date reduced to reflect the Fair Market Value of
the Award or award required to be surrendered by the Grantee as a condition
to receipt of a substitute Award; or
(ii) If granted retroactively in tandem with an outstanding Award or
an award granted under another plan, shall be either not less than the Fair
Market Value of Shares at the date of grant of the later Award or the Fair
Market Value of Shares at the date of grant of the earlier Award or award
granted under such other plan.
(b) The Committee may, in its discretion and on such terms and conditions
as the Committee considers appropriate in the circumstances, grant Awards under
the Plan in substitution for stock and stock-based Awards held by employees of
another corporation who become employees of the Company or an Affiliate as the
result of a merger or consolidation of the employing corporation with the
Company or an Affiliate or the acquisition by the Company or an Affiliate of
property or stock of the employing corporation.
5.7 Compliance with Rule 16b-3.
(a) Six-Month Holding Period Advice. Unless a Grantee could otherwise
dispose of or exercise a derivative security or dispose of Shares delivered
under the Plan without incurring liability under Section 16(b) of the Exchange
Act, the Committee may advise or require a Grantee to comply with the following
in order to avoid incurring liability under Section 16(b): (i) at least six
months must elapse from the date of acquisition of a derivative security under
the Plan to the date of disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security, and (ii) Shares
granted or awarded under the Plan other than upon exercise or conversion of a
derivative security must be held for at least six months from the date of grant
of an Award.
(b) Reformation to Comply with Exchange Act Rules. To the extent the
Committee determines that a grant or other transaction by a Section 16 Person
should comply with applicable provisions of Rule 16b-3 (except for transactions
exempted under alternative Exchange Act rules), the Committee shall take such
actions as necessary to make such grant or other transaction so comply, and if
any provision of this Plan or any Award Agreement relating to a given Award does
not comply with the requirements of Rule 16b-3 as then applicable to any such
grant or transaction, such provision will be construed or deemed amended, if the
Committee so determines, to the extent necessary to conform to the then
applicable requirements of Rule 16b-3.
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(c) Rule 16b-3 Administration. Any function relating to a Section 16
Person shall be performed solely by the Committee or the Board if necessary to
ensure compliance with applicable requirements of Rule 16b-3, to the extent the
Committee determines that such compliance is desired. Each member of the
Committee or person acting on behalf of the Committee shall be entitled to, in
good faith, rely or act upon any report or other information furnished to him by
any officer, manager or other employee of the Company or any Affiliate, the
Company's independent certified public accountants or any executive compensation
consultant or attorney or other professional retained by the Company to assist
in the administration of the Plan.
5.8 Deferral of Award Payouts. The Committee may permit or require a
Grantee to defer receipt of the payment of cash or the delivery of Shares that
would otherwise be due by virtue of the exercise of an Option, the lapse or
waiver of restrictions with respect to Restricted Shares, the satisfaction of
any requirements or goals with respect to Performance Units or Performance
Shares, the lapse or waiver of the deferral period for Deferred Stock, or the
lapse or waiver of restrictions with respect to Other Stock-Based Awards. If any
such deferral is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals. Except as
otherwise provided in an Award Agreement, any payment or any Shares that are
subject to such deferral shall be made or delivered to the Grantee upon the
Grantee's Termination of Affiliation.
ARTICLE 6.
STOCK OPTIONS
6.1 Grant of Options. Subject to and consistent with the provisions of
the Plan, Options may be granted to any Eligible Person in such number, and upon
such terms, and at any time and from time to time as shall be determined by the
Committee.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the Option Term, the number of
Shares to which the Option pertains, the time or times at which such Option
shall be exercisable and such other provisions as the Committee shall determine.
6.3 Option Price. The Option Price of an Option under this Plan shall be
determined in the sole discretion of the Committee, and shall be at least equal
to 100% of the Fair Market Value of a Share on the Grant Date. Subject to the
adjustment allowed under Section 4.2, neither the Committee nor the Board shall
have the authority or discretion to change the Option Price of any outstanding
Option.
6.4 Grant of Incentive Stock Options. At the time of the grant of any
Option, the Committee may in its discretion designate that such Option shall be
made subject to additional restrictions to permit it to qualify as an Incentive
Stock Option. Any Option designated as an Incentive Stock Option:
(a) shall be granted only to an employee of the Company or a
Subsidiary Corporation (as defined below);
(b) shall have an Option Price of not less than 100% of the Fair
Market Value of a Share on the Grant Date, and, if granted to a person who
owns capital stock (including stock treated as owned under Section 424(d)
of the Code) possessing more than 10% of the total combined voting power of
all classes of capital stock of the Company or any Subsidiary Corporation
(a "10% Owner"), have an Option Price not less than 110% of the Fair Market
Value of a Share on its Grant Date;
(c) shall be for a period of not more than 10 years (five years if the
Grantee is a 10% Owner) from its Grant Date, and shall be subject to
earlier termination as provided herein or in the applicable Award
Agreement;
(d) shall not have an aggregate Fair Market Value (as of the Grant
Date) of the Shares with respect to which Incentive Stock Options (whether
granted under the Plan or any other stock option plan of the Grantee's
employer or any parent or Subsidiary Corporation ("Other Plans")) are
exercisable for the first time by such Grantee during any calendar year
("Current Grant"), determined in accordance with the provisions of Section
422 of the Code, which exceeds $100,000 (the "$100,000 Limit");
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(e) shall, if the aggregate Fair Market Value of the Shares
(determined on the Grant Date) with respect to the Current Grant and all
Incentive Stock Options previously granted under the Plan and any Other
Plans which are exercisable for the first time during a calendar year
("Prior Grants") would exceed the $100,000 Limit, be exercisable as
follows:
(i) the portion of the Current Grant which would, when added to any
Prior Grants, be exercisable with respect to Shares which would have an
aggregate Fair Market Value (determined as of the respective Grant Date
for such options) in excess of the $100,000 Limit shall, notwithstanding
the terms of the Current Grant, be exercisable for the first time by the
Grantee in the first subsequent calendar year or years in which it could
be exercisable for the first time by the Grantee when added to all Prior
Grants without exceeding the $100,000 Limit; and
(ii) if, viewed as of the date of the Current Grant, any portion of
a Current Grant could not be exercised under the preceding provisions of
this Section during any calendar year commencing with the calendar year
in which it is first exercisable through and including the last calendar
year in which it may by its terms be exercised, such portion of the
Current Grant shall not be an Incentive Stock Option, but shall be
exercisable as a separate option at such date or dates as are provided
in the Current Grant;
(f) shall be granted within 10 years from the earlier of the date this
amendment and restatement is adopted by the Board or the date the Plan is
approved by the stockholders of the Company;
(g) shall require the Grantee to notify the Committee of any
disposition of any Shares delivered pursuant to the exercise of the
Incentive Stock Option under the circumstances described in Section 421(b)
of the Code (relating to holding periods and certain disqualifying
dispositions) ("Disqualifying Disposition"), within 10 days of such a
Disqualifying Disposition; and
(h) shall by its terms not be assignable or transferable other than by
will or the laws of descent and distribution and may be exercised, during
the Grantee's lifetime, only by the Grantee; provided, however, that the
Grantee may, to the extent provided in the Plan in any manner specified by
the Committee, designate in writing a beneficiary to exercise his or her
Incentive Stock Option after the Grantee's death.
For purposes of this Section 6.4, "Subsidiary Corporation" means a
corporation other than the Company in an unbroken chain of corporations
beginning with the Company if, at the time of granting the Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. Notwithstanding the
foregoing and Section 3.2, the Committee may, without the consent of the
Grantee, at any time before the exercise of an Option (whether or not an
Incentive Stock Option), take any action necessary to prevent such Option from
being treated as an Incentive Stock Option.
6.5 Payment. Except as otherwise provided by the Committee in an Award
Agreement, Options shall be exercised by the delivery of a written notice of
exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment for the Shares
made by any one or more of the following means, subject to the approval of the
Committee:
(a) cash, personal check or wire transfer;
(b) Mature Shares, valued at their Fair Market Value on the date of
exercise;
(c) with the approval of the Committee, Restricted Shares held by the
Grantee for at least six months prior to the exercise of the Option, each
such share valued at the Fair Market Value of a Share on the date of
exercise; or
(d) subject to applicable law, pursuant to procedures previously
approved by the Company, through the sale of the Shares acquired on
exercise of the Option through a broker-dealer to whom the Grantee has
submitted an irrevocable notice of exercise and irrevocable instructions to
deliver promptly to the Company the amount of sale or loan proceeds
sufficient to pay for such Shares, together with, if requested
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by the Company, the amount of federal, state, local or foreign withholding
taxes payable by Grantee by reason of such exercise.
The Committee may in its discretion specify that, if any Restricted Shares
("Tendered Restricted Shares") are used to pay the Option Price, (x) all
the Shares acquired on exercise of the Option shall be subject to the same
restrictions as the Tendered Restricted Shares, determined as of the date
of exercise of the Option, or (y) a number of Shares acquired on exercise
of the Option equal to the number of Tendered Restricted Shares shall be
subject to the same restrictions as the Tendered Restricted Shares,
determined as of the date of exercise of the Option.
ARTICLE 7.
RESTRICTED SHARES
7.1 Grant of Restricted Shares. Subject to and consistent with the
provisions of the Plan, the Committee, at any time and from time to time, may
grant Restricted Shares to any Eligible Person in such amounts as the Committee
shall determine.
7.2 Award Agreement. Each grant of Restricted Shares shall be evidenced
by an Award Agreement that shall specify the Period(s) of Restriction, the
number of Restricted Shares granted, and such other provisions as the Committee
shall determine. The Committee may impose such conditions and/or restrictions on
any Restricted Shares granted pursuant to the Plan as it may deem advisable,
including restrictions based upon the achievement of specific performance goals,
time-based restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable securities laws; provided that such
conditions and/or restrictions may lapse, if so determined by the Committee, in
the event of the Grantee's Termination of Affiliation due to death, disability,
normal or approved early retirement, or involuntary termination by the Company
or an Affiliate without "cause".
7.3 Consideration for Restricted Shares. The Committee shall determine
the amount, if any, that a Grantee shall pay for Restricted Shares, subject to
the following sentence. Except with respect to Restricted Shares that are
treasury shares, for which no payment need be required, the Committee shall
require the Grantee to pay at least the par value of a Share for each Restricted
Share. Such payment shall be made in full by the Grantee before the delivery of
the Shares and in any event no later than 10 business days after the Grant Date
for such Shares.
7.4 Effect of Forfeiture. If Restricted Shares are forfeited, and if the
Grantee was required to pay for such shares or acquired such Restricted Shares
upon the exercise of an Option, the Grantee shall be deemed to have resold such
Restricted Shares to the Company at a price equal to the lesser of (x) the
amount paid by the Grantee for such Restricted Shares, or (y) the Fair Market
Value of a Share on the date of such forfeiture. The Company shall pay to the
Grantee the deemed sale price as soon as is administratively practical. Such
Restricted Shares shall cease to be outstanding, and shall no longer confer on
the Grantee thereof any rights as a stockholder of the Company, from and after
the date of the event causing the forfeiture, whether or not the Grantee accepts
the Company's tender of payment for such Restricted Shares.
7.5 Escrow; Legends. The Committee may provide that the certificates for
any Restricted Shares (x) shall be held (together with a stock power executed in
blank by the Grantee) in escrow by the Secretary of the Company until such
Restricted Shares become nonforfeitable or are forfeited or (y) shall bear an
appropriate legend restricting the transfer of such Restricted Shares. If any
Restricted Shares become nonforfeitable, the Company shall cause certificates
for such shares to be delivered without such legend.
ARTICLE 8.
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units and Performance Shares. Subject to and
consistent with the provisions of the Plan, Performance Units or Performance
Shares may be granted to any Eligible Person in
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such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee.
8.2 Value/Performance Goals. The Committee shall set performance goals in
its discretion which, depending on the extent to which they are met, will
determine the number or value of Performance Units or Performance Shares that
will be paid to the Grantee. With respect to Covered Employees and to the extent
the Committee deems it appropriate to comply with Section 162(m) of the Code,
all performance goals shall be objective Performance Measures satisfying the
requirements for the Performance-Based Exception, and shall be set by the
Committee within the time period prescribed by Section 162(m) of the Code and
related regulations.
(a) Performance Unit. Each Performance Unit shall have an initial
value that is established by the Committee at the time of grant.
(b) Performance Share. Each Performance Share shall have an initial
value equal to the Fair Market Value of a Share on the date of grant.
8.3 Earning of Performance Units and Performance Shares. After the
applicable Performance Period has ended, the holder of Performance Units or
Performance Shares shall be entitled to payment based on the level of
achievement of performance goals set by the Committee. If a Performance Unit or
Performance Share Award is intended to comply with the
Performance-Based Exception, the Committee shall certify the level of
achievement of the performance goals in writing before the Award is settled.
At the discretion of the Committee, the settlement of Performance Units or
Performance Shares may be in cash, Shares of equivalent value, or in some
combination thereof, as set forth in the Award Agreement.
If a Grantee is promoted, demoted or transferred to a different business
unit of the Company during a Performance Period, then, to the extent the
Committee determines the performance goals or Performance Period are no longer
appropriate, the Committee may adjust, change, eliminate or cancel the
performance goals or the applicable Performance Period as it deems appropriate
in order to make them appropriate and comparable to the initial performance
goals or Performance Period.
At the discretion of the Committee, a Grantee may be entitled to receive
any dividends or Dividend Equivalents declared with respect to Shares
deliverable in connection with grants of Performance Units or Performance Shares
which have been earned, but not yet delivered to the Grantee. In addition, a
Grantee may, at the discretion of the Committee, be entitled to exercise his or
her voting rights with respect to such Shares.
ARTICLE 9.
DEFERRED STOCK
9.1 Grant of Deferred Stock. Subject to and consistent with the
provisions of the Plan, the Committee, at any time and from time to time, may
grant Deferred Stock to any Eligible Person, in such amount and upon such terms
as the Committee shall determine.
9.2 Delivery and Limitations. Delivery of Shares will occur upon
expiration of the deferral period specified for the Award of Deferred Stock by
the Committee. In addition, an Award of Deferred Stock shall be subject to such
limitations as the Committee may impose, which limitations may lapse at the
expiration of the deferral period or at other specified times, separately or in
combination, in installments or otherwise, as the Committee shall determine at
the time of grant or thereafter. A Grantee awarded Deferred Stock will have no
voting rights and will have no rights to receive dividends in respect of
Deferred Stock, unless and only to the extent that the Committee shall award
Dividend Equivalents in respect of such Deferred Stock.
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9.3 Forfeiture. Except as otherwise determined by the Committee, upon
Termination of Affiliation during the applicable deferral period, Deferred Stock
that is at that time subject to deferral (other than a deferral at the election
of the Grantee) shall be forfeited.
ARTICLE 10.
DIVIDEND EQUIVALENTS
The Committee is authorized to grant Awards of Dividend Equivalents alone
or in conjunction with other Awards. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Shares or additional Awards or otherwise
reinvested.
ARTICLE 11.
OTHER STOCK-BASED AWARDS
The Committee is authorized, subject to limitations under applicable law,
to grant such other Awards that are denominated or payable in, valued in whole
or in part by reference to, or otherwise based on, or related to, Shares, as
deemed by the Committee to be consistent with the purposes of the Plan including
Shares awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debt securities or other rights convertible or
exchangeable into Shares, Awards valued by reference to the value of securities
of or the performance of specified Affiliates, and Awards payable in securities
of Affiliates. Subject to and consistent with the provisions of the Plan, the
Committee shall determine the terms and conditions of such Awards. Except as
provided by the Committee, Shares delivered pursuant to a purchase right granted
under this Article 11 shall be purchased for such consideration, paid for by
such methods and in such forms, including cash, Shares, outstanding Awards or
other property, as the Committee shall determine.
ARTICLE 12.
CHANGE OF CONTROL
12.1 Acceleration of Exercisability and Lapse of Restrictions. If, within
two (2) years following a Change of Control, a Grantee has a Termination of
Affiliation with the Company and the Company's Affiliates (excluding any
transfer to the Company or its Affiliates) voluntarily for Good Reason, or
involuntarily (other than due to Cause, death, Disability, or Retirement) the
following acceleration provisions shall apply to Awards other than Awards
granted under Article 13:
(a) All outstanding Awards pursuant to which the Grantee may have
rights the exercise of which is restricted or limited shall become fully
exercisable, except to the extent otherwise provided in Section 5.7(a);
unless the right to lapse restrictions or limitations is waived or deferred
by a Grantee prior to such lapse, all restrictions or limitations
(including risks of forfeiture) on outstanding Awards subject to
restrictions or limitations under the Plan shall lapse; and all performance
criteria and other conditions to payment of Awards under which payments of
cash, Shares or other property are subject to conditions shall be deemed to
be achieved or fulfilled and shall be waived by the Company, except to the
extent otherwise provided in Section 5.7(a); and
(b) In the event that any Award is subject to limitations under
Section 5.7(a) at the time of a Change of Control, then, solely for the
purpose of determining the rights of the Grantee with respect to such
Award, a Change of Control will be deemed to occur at the close of business
on the first business day following the date on which the limitations on
such Award under Section 5.7(a) have expired. In addition, notwithstanding
any other provision of the Plan or any outstanding Award Agreement, Awards
in the form of nonqualified stock options which are accelerated under this
Section 12.1 shall be exercisable after a Grantee's Termination of
Affiliation for a period equal to the lesser of (i) the remaining term of
each nonqualified option; or (ii) eighteen (18) months.
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12.2 Definitions. For purposes of this Article 12, the following terms
shall have the meanings set forth below:
(a) "Cause" means, unless otherwise defined in an Award Agreement,
from and after the occurrence of a Change of Control, the occurrence of any
one or more of the following, as determined in the good faith and
reasonable judgment of the Committee: (i) willful failure by a Grantee to
substantially perform his or her duties (as they existed immediately prior
to a Change of Control), other than any such failure resulting from a
Disability, or (ii) gross negligence or willful misconduct of the Grantee
which results in a significantly adverse effect upon the Company or an
Affiliate, or (iii) willful violation or disregard of the code of business
conduct or other published policy of the Company or an Affiliate by the
Grantee, or (iv) Grantee's conviction of a crime involving an act of fraud,
embezzlement, theft, or any other act constituting a felony involving moral
turpitude or causing material harm, financial or otherwise, to the Company
or an Affiliate.
(b) "Change of Control" means, unless otherwise defined in an Award
Agreement, the occurrence of any one or more of the following:
(i) any Person, other than the Company or a Related Party, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 15% or more of the total voting power of all the then
outstanding Voting Securities; or
(ii) any Person, other than the Company or a Related Party,
purchases or otherwise acquires, under a tender offer, securities
representing 15% or more of the total voting power of all the then
outstanding Voting Securities; or
(iii) individuals (a) who as of the Effective Date constitute the
Board or (b) who thereafter are elected to the Board and whose election,
or nomination for election, to the Board was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors as of the Effective Date or whose election or nomination
for election was previously so approved, cease for any reason to
constitute a majority thereof; or
(iv) the consummation of a merger, consolidation, recapitalization
or reorganization of the Company or an acquisition by the Company, other
than any such transaction which would result in the Voting Securities
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity) at least 65% of the total voting power represented
by the Voting Securities of such surviving entity outstanding
immediately after such transaction if the voting rights of each Voting
Security relative to the other Voting Securities were not altered in
such transaction; or
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets other
than any such transaction which would result in a Related Party owning
or acquiring more than 50% of the assets owned by the Company
immediately prior to the transaction; or
(vi) the Board adopts a resolution to the effect that a Change of
Control has occurred.
(c) "Good Reason" means, unless otherwise defined in an Award
Agreement, the occurrence, within two years following a Change of Control
and without a Grantee's prior written consent, of any one or more of the
following:
(i) a material change in the Grantee's duties from those assigned
to the Grantee immediately prior to a Change of Control, unless
associated with a bona fide promotion of the Grantee and a commensurate
increase in the Grantee's compensation, in which case the Grantee shall
be deemed to consent, or
(ii) a significant reduction in the authority and responsibility
assigned to the Grantee, or
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(iii) the removal of the Grantee from, or failure to reelect the
Grantee to, any corporate office of the Company or an Affiliate to which
the Grantee may have been elected and was occupying immediately prior to
a Change of Control, unless associated with a bona fide promotion of the
Grantee and a commensurate increase in the Grantee's compensation or in
connection with the election of the Grantee to a corresponding or higher
office of the Company or any Affiliate, in each which case the Grantee
shall be deemed to consent, or
(iv) reduction of a Grantee's base salary, or
(v) termination of any of the incentive compensation plans in which
the Grantee shall be participating at the time of a Change of Control,
unless such plan is replaced by a successor plan providing incentive
opportunities and awards at least as favorable to the Grantee as those
provided in the plan being terminated, or
(vi) amendment of any of the incentive compensation plans in which
the Grantee shall be participating at the time of a Change of Control so
as to provide for incentive opportunities and awards less favorable to
the Grantee than those provided in the plan being amended, or
(vii) failure by the Company or an Affiliate to continue the
Grantee as a participant in any of the incentive compensation plans in
which the Grantee is participating immediately prior to a Change of
Control on a basis comparable to the basis on which other similarly
situated employees participate in such plan, or
(viii) except in relation to a wage freeze applicable to all
employees of the Company or an Affiliate, modification of the
administration of any of the incentive compensation plans so as to
adversely affect the level of incentive opportunities or awards actually
received by the Grantee, or
(ix) a requirement by the Company or an Affiliate that the
Grantee's principal duties be performed at a location more than fifty
(50) miles from the location where the Grantee was employed immediately
preceding the Change of Control, except for travel reasonably required
in the performance of the Grantee's duties.
(d) "Related Party" means: (i) a majority-owned subsidiary of the
Company; or (ii) an employee or group of employees of the Company or any
majority-owned subsidiary of the Company; or (iii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company
or any majority-owned subsidiary of the Company; or (iv) a corporation
owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the Voting Power.
(e) "Retirement" shall have the meaning ascribed to such term in the
Company's governing tax-qualified retirement plan applicable, or if no such
plan is applicable to the Grantee, at the discretion of the Committee.
(f) "Voting Securities" means any securities of the Company which
carry the right to vote generally in the election of directors.
12.3 Flexibility to Amend. The provisions of this Article 12 and any
Award Agreement may be modified at any time prior to a Change in Control,
without the consent of the Grantee or the Company's stockholders in order to
cause the Change in Control provisions applicable to Awards to conform with the
Company's policies regarding treatment of compensation upon a Change in Control.
ARTICLE 13.
NON-EMPLOYEE DIRECTOR AWARDS
13.1 Exclusive Means for Non-Employee Director Awards. Awards to
Non-Employee Directors shall be made solely pursuant to this Article 13.
13.2 Director Option. Subject to adjustment as provided in Section 4.2,
each Non-Employee Director shall be automatically granted a Director Option for
6,000 Shares on the date of the regularly scheduled Board
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meeting in January of each year; provided that if no meeting is held in January,
the Grant Date for such Director Option shall be January 31. Notwithstanding the
foregoing, the Board may, in its discretion exercised at any time prior to the
date a Director Option is granted for a year, provide that the Director Option
for such year shall be granted in installments, so that only a portion (which
portion shall be the same for each Non-Employee Director) of the Director Option
shall be granted in January of such year, and the remaining portion or portions
shall be granted at such time or times in such year as the Board may specify at
the time it determines to grant the Director Option in installments. A person
who becomes a Non-Employee Director after the January Board meeting in any year
(or after the end of January if there is a no January Board meeting) shall be
granted a prorated Director Option for such year. The Grant Date for such
prorated Director Option shall be the date of the first regularly scheduled
meeting of the Board occurring in the earliest of May, September, or January
after such person becomes a Non-Employee Director (or the last day of such
earliest month if there is no regularly scheduled Board meeting in such earliest
month). The number of Shares subject to such prorated Director Option shall be
6,000 multiplied by a fraction, the numerator of which is the number of full and
partial months elapsing between the date such person became a Non-Employee
Director and December 31 of the year in which such person became a Non-Employee
Director, and the denominator of which is twelve. Such prorated Director Option
shall be for a whole number of Shares determined by rounding up to the next
higher whole number of Shares any fractional portion of a Share equal to or in
excess of one-half Share (and otherwise rounding down to the next lower whole
number of Shares). In the event the Board has determined that the Director
Option for a year shall be granted in installments, the Board shall make
appropriate provision for prorating installments with respect to Non-Employee
Directors entitled to a prorated Director Option, consistent with the preceding
provisions of this Section 13.2.
(a) Non-Employee Director Status. A person must be a Non-Employee
Director on the Grant Date of a Director Option (or any installment
thereof) in order to be granted such Director Option (or installment
thereof).
(b) Option Price. The Option Price for each Director Option shall be
100 percent of the Fair Market Value of a Share on the Grant Date. Subject
to the adjustment allowed under Section 4.2, the Board shall not have the
authority or discretion to change the Option Price of any outstanding
Director Option.
(c) Director Option Term. The Option Term of each Director Option
shall expire the earlier of (i) the tenth anniversary of the Grant Date or
(ii) the fifth anniversary of the date the Grantee ceases to serve as a
Non-Employee Director.
(d) Vesting and Exercisability. Each Director Option shall be fully
vested and exercisable at any time, or from time to time, throughout the
Option Term.
(e) Method of Exercise. A Grantee may exercise a Director Option, in
whole or in part, during the Option Term, by giving written notice of
exercise to the Human Resources Department of the Company, specifying the
Director Option to be exercised and the number of Shares to be purchased,
and paying in full the exercise price by any one or any combination of the
following means:
(i) in cash, personal check or wire transfer;
(ii) by surrendering Mature Shares having a Fair Market Value at
the time of exercise equal to the Option Price for Shares being
acquired; or
(iii) subject to applicable law, pursuant to procedures previously
approved by the Company, through the sale of the Shares acquired on
exercise of the Option through a broker-dealer to whom the Grantee has
submitted an irrevocable notice of exercise and irrevocable instructions
to deliver promptly to the Company the amount of sale or loan proceeds
sufficient to pay for such Shares.
(f) Exercise of Director Option for Deferred Stock. A Non-Employee
Director who makes a Deferral Election in accordance with Section 13.5 and
who pays the Option Price with Mature Shares may exercise his or her option
for an equal number of shares of Deferred Stock in lieu of Shares.
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13.3 Director Stock Grants.
(a) Automatic Annual Stock Grant. Subject to adjustment as provided in
Section 4.2, each Non-Employee Director automatically shall be granted fully
vested Shares ("Director Stock Grant") valued at twenty thousand dollars at the
close of business on the day of each Annual Meeting of Company stockholders at
which a class of directors is elected or reelected by the Company's
stockholders; provided the Grantee is a Non-Employee Director at the conclusion
of such Annual Meeting. The number of Shares will be determined by dividing
twenty thousand dollars by the Fair Market Value of a Share on the date of the
Annual Meeting of Company stockholders, and rounding up to the next higher whole
number of Shares any fractional portion of a Share equal to or in excess of
one-half Share, and otherwise rounding down to the next lower whole number of
Shares. Each Non-Employee Director who first becomes a Non-Employee Director
after the conclusion of such Annual Meeting and prior to August 1 of any year
shall automatically receive a full Director Stock Grant in December of such
year. The number of Shares will be determined by dividing twenty thousand
dollars by the Fair Market Value of a Share on the last business day in December
of such year and rounding up to the next higher whole number of Shares any
fractional portion of a Share equal to or in excess of one-half Share, and
otherwise rounding down to the next lower whole number of Shares.
(b) Prorated Director Stock Grant. Subject to adjustment as provided in
Section 4.2, each Non-Employee Director who first becomes a Non-Employee
Director on or after August 1 and on or before December 31 of any calendar year
automatically shall receive a prorated Director Stock Grant in December of such
year. The number of Shares in such prorated Director Stock Grant shall be
determined by multiplying twenty thousand dollars by a fraction, the numerator
of which is the number of full and fractional months such Non-Employee
Director's service as a Non-Employee Director in such calendar year, and the
denominator of which is six, the prorated amount, and dividing the prorated
amount by the Fair Market Value of a Share on the last business day in December
of such year. Such prorated Director Stock Grant shall be for a whole number of
Shares determined by rounding up to the next higher whole number of Shares any
fractional portion of a Share equal to or in excess of one-half Share (and
otherwise rounding down to the next lower whole number of Shares).
(c) Election to Defer Shares Under Director Stock Grant. A Non-Employee
Director who makes a Deferral Election in accordance with Section 13.5 shall
receive all or part (as he or she elects) of the Shares to be delivered pursuant
to a Director Stock Grant in the form of an equal number of shares of Deferred
Stock in lieu of delivery of Shares under Section 13.3(a).
13.4 Election to Receive Director Fees in Shares or Deferred Stock in Lieu
of Cash.
(a) Payment of Director Fees in Shares. A Non-Employee Director may elect
("Share Election") to be paid all or a portion of the cash fees earned in his or
her capacity as a Non-Employee Director (including annual retainer fees, meeting
fees, fees for service on a Board committee, fees for service as chairman of a
Board committee, and any other fees paid to directors) ("Director Fees") in the
form of Shares in lieu of cash. A Share Election may be made at any time prior
to the date Director Fees would otherwise have been paid in cash, subject to
such restrictions and advance filing requirements as the Company may impose.
Share Elections made pursuant to The Williams Companies, Inc. 1996 Stock Plan
for Non-Employee Directors that were in effect on the date stockholders approve
this Plan shall remain in effect under this Plan, subject to the remainder of
this Section 13.4(a). Each Share Election shall be irrevocable, shall specify
the portion of the Director Fees to be paid in the form of Shares and shall
remain in effect with respect to future Director Fees until the Non-Employee
Director revokes or changes such Share Election. Any such revocation or change
shall have prospective application only. Shares delivered pursuant to a Share
Election shall be the whole number of Shares determined by dividing the amount
of Director Fees to be paid in Shares by the Fair Market Value of a Share on the
date such Director Fees would otherwise be paid (rounding up to the next higher
whole number of Shares any fractional portion of a Share equal to or in excess
of one-half Share, and otherwise rounding down to the next lower whole number of
Shares).
(b) Payment of Director Fees in Deferred Stock. A Non-Employee Director
who makes a Deferral Election in accordance with Section 13.5 shall receive all
or part (as he or she elects) of his or her Director Fees in the form of a
number of shares of Deferred Stock equal to the quotient (rounding up to the
next higher
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whole number of shares, any fractional portion of a Share equal to or in excess
of one-half Share, and otherwise rounding down to the next lower whole number of
Shares) of the amount of Director Fees to be paid in the form of Deferred Stock
divided by the Fair Market Value of a Share on the date such Director Fees would
otherwise be paid in cash.
13.5 Deferral Elections. Each member of the Board who is a Non-Employee
Director may make an election ("Deferral Election") to be paid any or all of the
following ("Deferrable Amounts") in the form of Deferred Stock in lieu of cash
or Shares, as applicable: (i) shares to be delivered on exercise of a Director
Option as provided in Section 13.2(e); (ii) Director Stock Grants as provided in
Section 13.3; (iii) Director Fees as provided in 13.4(a); or (iv) Dividend
Equivalents on Deferred Stock, as provided in Section 13.5(d).
(a) Timing of Deferral Elections. An initial Deferral Election must be
filed with the Human Resources Department of the Company no later than December
31 of the year preceding the calendar year in which the Deferrable Amounts to
which the Deferral Election applies would otherwise be paid or delivered,
subject to such restrictions and advance filing requirements as the Company may
impose; provided that any newly elected or appointed Non-Employee Director may
file a Deferral Election not later than 30 days after the date such person first
became a Non-Employee Director (or at such later time in the year of such
election or appointment as the Company shall permit). A Deferral Election shall
be irrevocable as of the filing deadline and shall only apply with respect to
Deferrable Amounts otherwise payable after the filing of such election. Each
Deferral Election (including a deferral election filed under The Williams
Companies, Inc. 1996 Stock Plan for Non-Employee Directors that was in effect
with respect to 2002 Deferrable Amounts on the date stockholders approved this
Plan) shall remain in effect with respect to subsequently earned Deferrable
Amounts unless the Non-Employee Director revokes or changes such Deferral
Election. Any such revocation or change shall have prospective application only.
(b) Content of Deferral Elections. A Deferral Election must specify the
following:
(i) The number of Shares acquired on exercise of a Director Option or
under a Director Stock Grant to be paid in Deferred Stock, or the dollar
amount or percentage of Director Fees to be paid in Deferred Stock;
(ii) the date such Deferred Stock shall be paid (subject to such
limitations as may be specified by counsel to the Company); and
(iii) whether Dividend Equivalents on Deferred Stock are to be paid in
cash or deposited in the form of Deferred Stock to the Non-Employee
Director's Deferral Account (as defined in Section 13.5(c)), to be paid at
the time the Deferred Stock to which they relate are paid.
(c) Deferral Account. The Company shall establish an account ("Deferral
Account") on its books for each Non-Employee Director who makes a Deferral
Election. A number of shares of Deferred Stock (determined in the case of a
Deferrable Amount otherwise payable in cash, by dividing the amount of cash to
be deferred by the Fair Market Value of a Share on the date such cash would
otherwise be paid, and rounding up to the next higher whole number of Shares any
fractional portion of a Share equal to or in excess of one-half Share, and
otherwise rounding down to the next lower whole number of Shares) shall be
credited to the Non-Employee Director's Deferral Account as of each date a
Deferrable Amount subject to a Deferral Election would otherwise be paid.
Deferral Accounts shall be maintained for recordkeeping purposes only and the
Company shall not be obligated to segregate or set aside assets representing
securities or other amounts credited to Deferral Accounts. The obligation to
make distributions of securities or other amounts credited to Deferral Accounts
shall be an unfunded unsecured obligation of the Company.
(d) Crediting of Dividend Equivalents. Whenever dividends are paid or
distributions made with respect to Shares, Dividend Equivalents shall be
credited to Deferral Accounts on all Deferred Stock credited thereto as of the
record date for such dividend or distribution. If the Non-Employee Director has
elected cash payment of Dividend Equivalents pursuant to Section 13.5(b), such
Dividend Equivalents shall be paid in cash on the payment date of the dividend
or distribution. Otherwise, such Dividend Equivalents shall be credited to the
Deferral Account in the form of additional Deferred Stock in a number determined
by dividing the aggregate value of such Dividend Equivalents by the Fair Market
Value of a Share at the payment date of
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the dividend or distribution (rounding up to the next higher whole number of
Shares any fractional portion of a Share equal to or in excess of one-half
Share, and otherwise rounding down to the next lower whole number of Shares).
(e) Settlement of Deferral Accounts. The Company shall settle a
Non-Employee Director's Deferral Account by delivering to the holder thereof
(which may be the Non-Employee Director or his or her beneficiary) a number of
Shares equal to the whole number of Deferred Stock then credited to such
Deferral Account (or a specified portion in the event of any partial
settlement); provided that if less than the value of a whole Share remains in
the Deferral Account at the time of any such distribution, the number of Shares
distributed shall be rounded up to the next higher whole number of Shares if the
fractional portion of a Share remaining is equal to or in excess of one-half
Share, and otherwise shall be rounded down to the next lower whole number of
Shares. Such settlement shall be made at the time or times specified in the
applicable Deferral Election; provided that a Non-Employee Director may further
defer settlement of the Deferral Account by filing a new Deferral Election if
counsel to the Company determines that such further deferral likely would not
trigger immediate taxation of amounts otherwise distributable from such Deferral
Account under applicable federal income tax laws and regulations.
13.6 Insufficient Number of Shares. If at any date insufficient Shares
are available under the Plan for the automatic grant of Director Options or
Director Stock Grants, or the delivery of Shares in lieu of cash payment of
Director Fees, or crediting Deferred Stock pursuant to a Deferral Election, (a)
Director Options under Section 13.2 and Director Stock Grants under Section 13.3
automatically shall be granted proportionately to each Non-Employee Director
eligible for such a grant to the extent Shares are then available (provided that
no Director Option shall be granted with respect to a fractional number of
Shares), and (b) then, if any Shares remain available, Director Fees elected to
be received in Shares shall be paid in the form of Shares or deferred in the
form of Deferred Stock proportionately among Non-Employee Directors then
eligible to participate to the extent Shares are then available.
13.7 Non-Forfeitability. The interest of each Non-Employee Director in
Director Options, Director Stock Grants or Deferred Stock (and any Deferral
Account relating thereto) granted or delivered under the Plan at all times shall
be non-forfeitable.
13.8 No Duplicate Payments. No payments or Awards shall be made or
granted under this Plan with respect to any services as a Non-Employee Director
if a payment or award has been or will be made for the same services under The
Williams Companies, Inc. 1996 Stock Plan for Non-Employee Directors.
ARTICLE 14.
AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, and Termination. Subject to Section 14.2,
the Board may, at any time and from time to time, alter, amend, suspend,
discontinue or terminate the Plan in whole or in part without the approval of
the Company's stockholders, except that (a) any amendment or alteration shall be
subject to the approval of the Company's stockholders if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Shares may then be
listed or quoted, and (b) the Board may otherwise, in its discretion, determine
to submit other such amendments or alterations to stockholders for approval.
14.2 Awards Previously Granted. Except as otherwise specifically permitted
in the Plan or an Award Agreement, no termination, amendment, or modification of
the Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the written consent of the Grantee of such Award;
provided that Article 12 may be removed, amended or modified at any time prior
to a Change of Control without the consent of any Grantee.
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ARTICLE 15.
WITHHOLDING
15.1 Required Withholding
(a) Mandatory Tax Withholding.
(i) Whenever, under the Plan, Shares are to be delivered upon exercise
or payment of an Award, upon Restricted Shares becoming nonforfeitable,
upon payment of cash, or any other event with respect to rights and
benefits hereunder, the Company or any Affiliate shall be entitled to
require (A) that the Grantee remit an amount in cash, or in the Company's
discretion, in Mature Shares, sufficient to satisfy all of the employer's
federal, state, and local tax withholding requirements related thereto but
no more than the minimum amount necessary to satisfy such amounts
("Required Withholding"), (B) the withholding of such Required Withholding
from compensation otherwise due to the Grantee or from any Shares due to
the Grantee under the Plan or (C) any combination of the foregoing.
(ii) Any Grantee who makes a Disqualifying Disposition (as defined in
Section 6.4(g)) or an election under Section 83(b) of the Code shall remit
to the Company an amount sufficient to satisfy all resulting Required
Withholding; provided that, in lieu of or in addition to the foregoing, the
Company and/or an Affiliate shall have the right to withhold such Required
Withholding from compensation otherwise due to the Grantee or from any
Shares or other payment due to the Grantee under the Plan.
(b) Elective Excess Withholding.
(i) Subject to the following subsection and with the Committee's prior
approval, a Grantee (other than a Non-Employee Director) may elect to remit
(or attest to the ownership of) Mature Shares upon the exercise or
settlement of an Award or upon Restricted Shares becoming non-forfeitable
(each, a "Taxable Event") having a Fair Market Value equal to an amount
greater than the Required Withholding for the Taxable Event but not to
exceed the estimated total amount of such Grantee's tax liability ("Excess
Withholding") with respect to the Taxable Event.
(ii) Each Excess Withholding election shall be subject to the
following conditions:
(A) any Grantee's election shall be subject to the Committee's
discretion to revoke the Grantee's right to elect Excess Withholding at
any time before the Grantee's election if the Committee has reserved the
right to do so in the Award Agreement;
(B) the Grantee's election must be made before the date (the "Tax
Date") on which the amount of tax to be withheld is determined; and
(C) the Grantee's election shall be irrevocable.
15.2 Notification under Code Section 83(b). If the Grantee, in connection
with the exercise of any Option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such Grantee's
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such election within 10
days of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations issued
under Section 83(b) of the Code. The Committee may, in connection with the grant
of an Award or at any time thereafter, prohibit a Grantee from making the
election described above.
ARTICLE 16.
ADDITIONAL PROVISIONS
16.1 Successors. All obligations of the Company under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise of all or substantially
all of the business and/or assets of the Company.
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16.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
16.3 Severability. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or part
of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.
16.4 Requirements of Law. The granting of Awards and the delivery of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. Notwithstanding any provision of the
Plan or any Award, Grantees shall not be entitled to exercise, or receive
benefits under, any Award, and the Company (and any Affiliate) shall not be
obligated to deliver any Shares or deliver benefits to a Grantee, if such
exercise or delivery would constitute a violation by the Grantee or the Company
of any applicable law or regulation.
16.5 Securities Law Compliance.
(a) If the Committee deems it necessary to comply with any applicable
securities law, or the requirements of any stock exchange upon which Shares may
be listed, the Committee may impose any restriction on Shares acquired pursuant
to Awards under the Plan as it may deem advisable. All certificates for Shares
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the SEC,
any stock exchange upon which Shares are then listed, any applicable securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. If so requested
by the Company, the Grantee shall make a written representation to the Company
that he or she will not sell or offer to sell any Shares unless a registration
statement shall be in effect with respect to such Shares under the Securities
Act of 1993, as amended, and any applicable state securities law or unless he or
she shall have furnished to the Company, in form and substance satisfactory to
the Company, that such registration is not required.
(b) If the Committee determines that the exercise or nonforfeitability of,
or delivery of benefits pursuant to, any Award would violate any applicable
provision of securities laws or the listing requirements of any national
securities exchange or national market system on which are listed any of the
Company's equity securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as applicable, but the Company shall use all
reasonable efforts to cause such exercise, nonforfeitability or delivery to
comply with all such provisions at the earliest practicable date.
16.6 No Rights as a Stockholder. No Grantee (except as expressly provided
in Article 13) shall have any rights as a stockholder of the Company with
respect to the Shares (other than Restricted Shares) which may be deliverable
upon exercise or payment of such Award until such Shares have been delivered to
him or her. Restricted Shares, whether held by a Grantee or in escrow by the
Secretary of the Company, shall confer on the Grantee all rights of a
stockholder of the Company, except as otherwise provided in the Plan or Award
Agreement. At the time of a grant of Restricted Shares, the Committee may
require the payment of cash dividends thereon to be deferred and, if the
Committee so determines, reinvested in additional Restricted Shares. Stock
dividends and deferred cash dividends issued with respect to Restricted Shares
shall be subject to the same restrictions and other terms as apply to the
Restricted Shares with respect to which such dividends are issued. The Committee
may in its discretion provide for payment of interest on deferred cash
dividends.
16.7 Nature of Payments. Unless otherwise specified in the Award
Agreement, Awards shall be special incentive payments to the Grantee and shall
not be taken into account in computing the amount of salary or compensation of
the Grantee for purposes of determining any pension, retirement, death or other
benefit under (a) any pension, retirement, profit-sharing, bonus, insurance or
other employee benefit plan of the Company or any Affiliate, except as such plan
shall otherwise expressly provide, or (b) any agreement
A-23
between (i) the Company or any Affiliate and (ii) the Grantee, except as such
agreement shall otherwise expressly provide.
16.8 Non-Exclusivity of Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements for employees or Non-Employee Directors as it
may deem desirable.
16.9 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware,
other than its laws respecting choice of law.
16.10 Share Certificates. All certificates for Shares delivered under the
terms of the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under federal or state
securities laws, rules and regulations thereunder, and the rules of any national
securities laws, rules and regulations thereunder, and the rules of any national
securities exchange or automated quotation system on which Shares are listed or
quoted. The Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions or any other
restrictions or limitations that may be applicable to Shares. In addition,
during any period in which Awards or Shares are subject to restrictions or
limitations under the terms of the Plan or any Award Agreement, or during any
period during which delivery or receipt of an Award or Shares has been deferred
by the Committee or a Grantee, the Committee may require any Grantee to enter
into an agreement providing that certificates representing Shares deliverable or
delivered pursuant to an Award shall remain in the physical custody of the
Company or such other person as the Committee may designate.
16.11 Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award Agreement shall give any such Grantee any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Shares or other property pursuant to any Award which trusts or
other arrangements shall be consistent with the "unfunded" status of the Plan
unless the Committee otherwise determines.
16.12 Employment. Nothing in the Plan or an Award Agreement shall
interfere with or limit in any way the right of the Company or any Affiliate to
terminate any Grantee's employment at any time, nor confer upon any Grantee the
right to continue in the employ or as an officer of the Company or any
Affiliate.
16.13 Participation. No employee or officer shall have the right to be
selected to receive an Award under this Plan or, having been so selected, to be
selected to receive a future Award.
16.14 Military Service. Awards shall be administered in accordance with
Section 414(u) of the Code and the Uniformed Services Employment and
Reemployment Rights Act of 1994.
16.15 Construction. The following rules of construction will apply to the
Plan: (a) the word "or" is disjunctive but not necessarily exclusive, and (b)
words in the singular include the plural, words in the plural include the
singular, and words in the neuter gender include the masculine and feminine
genders and words in the masculine or feminine gender include the other neuter
genders.
16.16 Headings. The headings of articles and sections are included solely
for convenience of reference, and if there is any conflict between such headings
and the text of this Plan, the text shall control.
16.17 Obligations. Unless otherwise specified in the Award Agreement, the
obligation to deliver, pay or transfer any amount of money or other property
pursuant to Awards under this Plan shall be the sole obligation of a Grantee's
employer; provided that the obligation to deliver or transfer any Shares
pursuant to Awards under this Plan shall be the sole obligation of the Company.
16.18 No Right to Continue as Director. Nothing in the Plan or any Award
Agreement shall confer upon any Non-Employee Director the right to continue to
serve as a director of the Company.
A-24
16.19 Stockholder Approval. No Awards payable in Shares shall be granted
prior to the date the Company's stockholders approve the amended and restated
Plan.
A-25
[LOGO]
PROXY SERVICES
EQUISERVE
P O BOX
EDISON, NEW JERSEY 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.eproxvvote.com.wmb
Use the Internet to transmit your voting
instructions and for electronic delivery
of information. Have your proxy card in
hand when you access the web site. You
will be prompted to enter your Control
Number to obtain your records and create
an electronic voting instruction form.
VOTE BY MAIL - Mark, sign and date your
proxy card and return it in the
postage-paid envelope we've provided or
return to The Williams Companies, Inc.,
c/o EquiServe Trust Company, N.A., P O
Box 8057, Edison, New Jersey 08818-8057
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS
---------------------------------------------------------------------------------------------------
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.
If no direction is made, this proxy will be voted FOR proposals 1, 2 and 3.
ELECTION OF DIRECTORS
For Withhold For All To withhold authority
All All Except to vote, mark "For All
Except" and write the nominee's
number on the line below
1. 01) Hugh M. Chapman, 02) Ira D. Hall,
03) Frank T. MacInnis, 04) Steven J. Malcolm and
05) Janice D. Stoney [ ] [ ] [ ] -------------------------------
VOTE ON PROPOSALS
For Against Abstain
2. Approval of The Williams Companies, Inc. 2002
Incentive Plan. [ ] [ ] [ ]
3. Ratification of Ernst & Young LLP as auditors
for 2002. [ ] [ ] [ ]
In their discretion of one or more of said proxies upon any other business as
may properly come before the Annual 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 Annual Meeting or any adjournments thereof.
---------------------------------------- -------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
--------------------------------------------------------------------------------
THE WILLIAMS COMPANIES, INC.
Proxy Solicited on Behalf of the Board of
Directors of Williams for the Annual Meeting of
Stockholders on May 16, 2002.
The undersigned stockholder of The Williams Companies, Inc. ("Williams")
hereby appoints STEVEN J. MALCOLM, 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 Williams' Common Stock the undersigned is
entitled to vote at the Annual Meeting of Stockholders of Williams to be held on
the 16th day of May, 2002, and at any and all adjournments thereof on all
matters coming before said meeting.
(change of address/comments)
Election of Directors. Nominees:
-------------------------------------------------
01) Hugh M. Chapman, 02) Ira D. Hall, 03) Frank T. MacInnis, -------------------------------------------------
04) Steven J. Malcolm and 05) Janice D. Stoney -------------------------------------------------
-------------------------------------------------
(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, Mid-South PACE Savings
and Retirement Plan, WES Savings Plan for Hourly Employees, WCG Investment Plan,
Platinum Equity 401(k) Plan, WilTel Savings & Retirement Plan, WEC Inc. Employee
Savings Plan and Telus NationalSystems Inc. 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