<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Williams Communications Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[WILLIAMS COMMUNICATIONS LOGO]
To the Stockholders of
Williams Communications Group, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Williams Communications Group, Inc. to be held on Thursday, May 18, 2000, in the
Williams Resource Center, One Williams Center, Tulsa, Oklahoma, commencing at 4
p.m., local time. We look forward to greeting personally as many of our
stockholders as possible at the meeting.
The Notice of the Annual Meeting and Proxy Statement accompanying this
letter provide information concerning matters to be considered and acted upon at
the meeting. A report on the operations of Williams Communications will be
presented at the meeting, followed by a question-and-answer and discussion
period.
We know that most of our stockholders are unable to personally attend the
Annual Meeting. The Company solicits proxies so that each stockholder has an
opportunity to vote on all matters that are scheduled to come before the
meeting. Whether or not you plan to attend, please take a few minutes now to
sign, date, and return your proxy in the enclosed postage-paid envelope.
Regardless of the number of shares you own, your vote is important.
Thank you for your continued interest in Williams Communications.
Very truly yours,
/s/ HOWARD E. JANZEN
Howard E. Janzen
Enclosures
March 27, 2000
<PAGE> 3
WILLIAMS COMMUNICATIONS GROUP, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 2000
To the Stockholders of
Williams Communications Group, Inc.
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Williams Communications Group, Inc. will be held in the Williams Resource
Center, One Williams Center, Tulsa, Oklahoma, on Thursday, May 18, 2000, at 4
p.m., local time, for the following purposes:
1. To elect three directors of the Company;
2. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as the independent auditor of the Company for 2000; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 24, 2000,
as the record date for the meeting, and only holders of Common Stock of record
at such time will be entitled to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Shawna L. Gehres
Secretary
Tulsa, Oklahoma
March 27, 2000
EVEN IF YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY PROMPTLY SO THAT YOUR SHARES OF COMMON STOCK MAY
BE REPRESENTED AND VOTED AT THE MEETING. A RETURN ENVELOPE IS ENCLOSED FOR THIS
PURPOSE.
<PAGE> 4
WILLIAMS COMMUNICATIONS GROUP, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 2000
This Proxy Statement is furnished by Williams Communications Group, Inc.
(the "Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company to be used at the 2000 Annual Meeting of Stockholders
to be held at the time and place and for the purposes set forth in the foregoing
Notice of Annual Meeting of Stockholders, and at any and all adjournments of
said meeting. The term "Company" also includes subsidiaries where the context
requires.
SOLICITATION AND REVOCATION OF PROXIES AND VOTING
Execution and return of the enclosed proxy will not affect a stockholder's
right to attend the Annual Meeting of Stockholders and to vote in person. A
stockholder giving a proxy has the power to revoke it at any time before it is
exercised. A stockholder may revoke the proxy prior to its exercise by
delivering written notice of revocation to the Secretary of the Company, 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 Communications 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 the Company's Class A Common Stock. The Company
expects to solicit proxies primarily by mail, but directors, officers,
employees, and agents of the Company may also solicit proxies in person or by
telephone or by other electronic means. In addition, the Company has retained
Morrow & Co., Inc. to assist in the solicitation of proxies for which the
Company will pay an estimated $5,000 in fees, plus expenses and disbursements.
This Proxy Statement and accompanying proxy were first mailed to stockholders on
or about April 4, 2000.
The presence, in person or by proxy, of a majority of the outstanding
shares of Class A Common Stock and Class B 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 the Company's
Restated Certificate of Incorporation, as amended, its By-laws, the laws of the
State of Delaware under whose laws the Company 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
<PAGE> 5
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 properly cast is required to ratify the appointment of the
auditor. Accordingly, abstentions will be counted in tabulating the votes cast
and, therefore, will have the same effect as a vote against the appointment of
the auditor. Broker non-votes will not be counted in tabulating the votes cast.
As a matter of policy, proxies and voting tabulations that identify
individual stockholders are kept confidential. Such documents are made available
only to those who process the proxy cards, tabulate the vote, and serve as
inspectors of election, none of whom are Company employees, and certain
employees of the Company 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 the Company's Class A Common Stock and Class B Common Stock
of record at the close of business on March 24, 2000, will be entitled to
receive notice of and to vote at the Annual Meeting. The Company had 68,195,470
shares of Class A Common Stock and 395,434,965 shares of Class B Common Stock
outstanding on the record date. Each share of Class A Common Stock is entitled
to one vote and each share of Class B Common Stock is entitled to ten votes. The
Williams Companies, Inc. ("Williams") holds all of the outstanding shares of
Class B Common Stock.
ELECTION OF DIRECTORS
The Company's 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 three. The term of each
class of directors is normally three years, and the term of one class expires
each year in rotation.
Three individuals, all of whom are currently directors of the Company, have
been nominated for election as directors for a three-year term at the Annual
Meeting. Seven directors will continue in office to serve pursuant to their
prior elections. Mr. James R. Herbster, whose term expires in May 2000, has
decided not to stand for reelection. In accordance with the recommendation of
the Nominating Committee, the Board of Directors proposes that the following
nominees be elected: Messrs. J. Cliff Eason, Michael P. Johnson, Sr., and Cuba
Wadlington, Jr.
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. J. Cliff Eason, Michael P.
Johnson, Sr., and Cuba Wadlington, Jr. Should any nominee named herein become
unable for any reason to stand for election as a director of the Company, 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. The Company 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 2000 Annual Meeting, their principal occupations during the
past five years, other directorships held, and certain other information are set
forth below.
2
<PAGE> 6
STANDING FOR ELECTION
CLASS III
(TERM EXPIRES MAY 2003)
J. CLIFF EASON, AGE 52
Director since January 2000. Mr. Eason has been President of SBC Network
Services -- SBC Operations, Inc. since November, 1999. From March 1998 to
November 1999, he served as President of SBC International -- SBC Operations,
Inc. Mr. Eason served as President and Chief Executive Officer of Southwestern
Bell Telephone Company from February 1996 to February 1998. From July 1995 to
February 1996, he was President and Chief Executive Officer of Southwestern Bell
Communications, Inc. Mr. Eason served as President of Southwestern Bell
Telephone Company -- Network Services from July 1993 to June 1995. Mr. Eason
also serves as a member of the board of directors of Reinsurance Group of
America, Inc.
MICHAEL P. JOHNSON, SR., AGE 52
Director since 1999. Mr. Johnson is the Senior Vice President of Human
Resources of Williams and has been since May 1, 1999. Prior to joining Williams
in December 1998 as Vice President of Human Resources, Mr. Johnson was a vice
president of human resources with Amoco Corporation, where he held various
officer level positions since 1991.
CUBA WADLINGTON, JR., AGE 56
Director since January 2000. Mr. Wadlington is President and Chief
Operating Officer of Williams Gas Pipeline Company, a subsidiary of Williams.
From 1995 to 1999, Mr. Wadlington was Senior Vice President and General Manager
of Transcontinental Gas Pipe Line Corporation, a subsidiary of Williams. Mr.
Wadlington also serves on the board of directors of Sterling Bank.
DIRECTORS CONTINUING IN OFFICE
CLASS II
(TERM EXPIRES MAY 2001)
JOHN C. BUMGARNER, JR., AGE 57
Director since 1997. Mr. Bumgarner serves as Senior Vice
President -- Strategic Investments of Williams Communications. Mr. Bumgarner is
also the Senior Vice President of Corporate Development and Planning of Williams
and President of Williams International Company, a subsidiary of Williams. Mr.
Bumgarner has held various officer level positions with Williams since 1977. Mr.
Bumgarner has been a member of the board of directors of Management Planning
Systems, Inc. since 1982.
STEVEN J. MALCOLM, AGE 51
Director since 1998. Mr. Malcolm is the President and Chief Executive
Officer of Williams Energy Services, a subsidiary of Williams. Mr. Malcolm has
held various management and officer level positions with subsidiaries of
Williams since 1984.
JACK D. MCCARTHY, AGE 57
Director since 1997. Mr. McCarthy is the Senior Vice President and Chief
Financial Officer of Williams. Mr. McCarthy has held various officer level
positions with Williams since 1986.
H. BRIAN THOMPSON, AGE 60
Director since 1999. Mr. Thompson has been Chairman and Chief Executive
Officer of Global TeleSystems Group, Inc. since March 1999. From January to
March 1999, he served as non-executive
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<PAGE> 7
chairman of Telecom Eireann, Ireland's incumbent telephone company. From June to
December 1998, Mr. Thompson served as Vice Chairman of Qwest Communications
International Inc. after its merger with LCI International. From 1991 to June
1998, Mr. Thompson served as Chairman and Chief Executive Officer of LCI
International. Mr. Thompson also serves as a member of the board of directors of
Bell Canada International Inc. and PageNet do Brazil, as co-chairman of the
Global Information Infrastructure Commission, and as chairman of the Advisory
Committee for Telecommunications for Ireland's Department of Public Enterprise.
CLASS I
(TERM EXPIRES MAY 2002)
KEITH E. BAILEY, AGE 57
Director since 1994. Mr. Bailey was elected Chairman of the Board of
Williams Communications in January 2000. Mr. Bailey is the Chairman of the
Board, President and Chief Executive Officer of Williams. Mr. Bailey has held
various officer level positions with Williams and its subsidiaries since 1975
and has served as a director of Williams since 1988. Mr. Bailey is also a
director of The Williams Companies, Inc., Northwest Pipeline Corporation,
Transcontinental Gas Pipe Line Corporation, and Texas Gas Transmission
Corporation.
HOWARD E. JANZEN, AGE 46
Director since 1994. Mr. Janzen has been the President and Chief Executive
Officer of Williams Communications since 1994. Prior to that, Mr. Janzen served
as Senior Vice President and General Manager of Williams Gas Pipelines Central,
Inc., a subsidiary of Williams. Mr. Janzen has also held various other
management and officer level positions with Williams since 1979. Mr. Janzen also
serves on the board of directors of BOK Financial Corporation.
ROY A. WILKENS, AGE 57
Director since 1999. Mr. Wilkens is currently CEO of the Data Network
division of McLeodUSA, Inc. He was President of Williams Pipeline Company, a
subsidiary of Williams, when he founded WilTel, Inc., then a subsidiary of
Williams, in 1985. He served as Chief Executive Officer of WilTel from 1985 to
1997. In 1995, LDDS Communications, which now operates under the name MCI
WorldCom, acquired WilTel from Williams. In 1997, Mr. Wilkens retired from
WorldCom as Vice Chairman. In 1992, President George Bush appointed Mr. Wilkens
to the National Security Telecommunications Advisory Council. He has also served
as chairman of both the Competitive Telecommunications Association and the
National Telecommunications Network. Mr. Wilkens is a member of the board of
directors of UniDial Inc., Orillion Corporation, The Management Network Group,
Inc., Tachion Networks, Inc., Splitrock Services, Inc., and McLeodUSA
Incorporated. He is a former director of Qwest Communications and Paging Network
Inc.
COMMITTEES, MEETINGS, AND DIRECTOR COMPENSATION
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of the Company. However, the
Board is not involved in the day-to-day operations of the Company. The Board is
kept informed of the Company's business through discussions with the Chief
Executive Officer and other officers, by reviewing analyses and reports provided
to it on a regular basis, and by participating in Board and Committee meetings.
The Board of Directors held two meetings during 1999. 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 the Company, the Board of Directors annually elects from its
members the members and chairman of each Committee.
4
<PAGE> 8
Executive Committee Members: Keith E. Bailey, Chairman, John C. Bumgarner,
Jr., Howard E. Janzen, Jack D. McCarthy, and Roy A. Wilkens.
The Executive Committee was established in November 1999 and is authorized
to act for the Board of Directors in the management of the business and affairs
of the Company, 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 1999.
Audit Committee Members: H. Brian Thompson, Chairman, J. Cliff Eason, and
Roy A. Wilkens.
The Audit Committee was established in September 1999 and is composed
solely of nonemployee directors. The Audit Committee annually considers the
qualifications of the independent auditor of the Company and makes
recommendations to the Board on the engagement of the independent auditor. The
Audit Committee meets on a scheduled basis with representatives of the
independent auditor and is available to meet at the request of the independent
auditor. During meetings, the Audit Committee receives reports regarding the
Company's books of accounts, accounting procedures, financial statements, audit
policies, and procedures and other matters within the scope of the Committee's
duties. It reviews the plans for and results of audits of the Company and its
subsidiaries. It reviews and approves the independence of the independent
auditor. It considers and authorizes the fees for both audit and nonaudit
services of the independent auditor.
The Audit Committee also meets with representatives of the Company's Audit
Services Department. It reviews the results of the internal audits, compliance
with the Company's written policies and procedures, and the adequacy of the
Company's system of internal accounting and management controls. It meets with
the financial and accounting officers of the accounting and management controls.
It meets with the financial and accounting officers of the Company and the
executive officers of subsidiary companies to review various aspects of their
operations. During 1999, the Audit Committee met once.
Nominating Committee Members: Howard E. Janzen, Chairman, Keith E. Bailey,
and Michael P. Johnson, Sr.
The Nominating Committee was established in November 1999. The Nominating
Committee is responsible for recommending candidates to fill vacancies on the
Board as such vacancies occur, as well as the slate of nominees for election as
directors by the stockholders at each Annual Meeting of Stockholders.
Additionally, the Committee recommends to the Board the individual to be the
Chairman of the Board and Chief Executive Officer. The Nominating Committee did
not meet in 1999.
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 the Company's lines of business and the
ability to serve the interests of all stockholders. The Committee will consider
director candidates submitted to it by other directors, employees, and
stockholders. As a requisite to consideration, each recommendation must be
accompanied by biographical material on the proposed candidate, as well as an
indication that the proposed candidate would be willing to serve as a director
if elected. Recommendations with supporting material may be sent to the
attention of the Corporate Secretary.
Compensation Committee Members: Roy A. Wilkens, Chairman, J. Cliff Eason,
and H. Brian Thompson.
The Compensation Committee was established in September 1999 and is
composed of nonemployee directors. The Compensation Committee approves the
standard for setting salary ranges for executive officers of the Company,
reviews and approves the salary budgets for all other officers of the Company
and of each subsidiary, and specifically reviews and approves the compensation
of the senior executives of the Company. It reviews action taken by management
in accordance with the salary guidelines for executives and establishes the
performance objectives for variable compensation for executives. It also
approves stock option grants for the executive officers named herein. See the
"Compensation Committee Report on Executive Compensation" elsewhere herein.
During 1999, the Compensation Committee met one time.
5
<PAGE> 9
Compensation of Directors. Directors who are our employees or who are
employees of Williams 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 $40,000 in shares of Class A Common
Stock. They also receive a committee retainer of $4,000 for serving on the
Audit, Nominating, or Compensation Committees. Chairmen of the Audit,
Nominating, and Compensation Committees receive an additional annual retainer of
$2,500. Nonemployee directors also receive $1,000 for each Board meeting
attended, $500 for each Audit, Nominating, or Compensation Committee meeting
attended and $750 for each Executive Committee meeting attended.
Under the Williams Communications Group, Inc. 1999 Stock Plan, a
nonemployee director may elect to receive all or any part of cash fees in the
form of the Company's Common Stock or deferred stock. Deferred stock may be
deferred to any subsequent year or until such individual ceases to be a
director. Under the Williams Communications Group, Inc. 1999 Stock Plan,
nonemployee directors receive an annual stock option grant of 8,000 shares of
the Company's 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
the Company. 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.
Nonemployee directors of the Company and of Williams serving at the time of
the equity offering received a one-time grant of ten-year options to purchase
10,000 shares of the Company's Common Stock. These options were vested upon
grant. Directors who were not our employees, but who were employees of Williams
at the time of the equity offering, received one-time grants of ten-year options
to purchase 50,000 shares of the Company's Common Stock at an exercise price
equal to the initial public offering price of the Company's Common Stock. Mr.
Bailey received 100,000 shares under the same terms. These grants will cliff
vest five years from the grant date on September 30, 2004. Mr. Bumgarner
received a retention award of 14,493 shares of the Company's Common Stock that
will cliff vest on September 30, 2002.
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<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation of the Company's Chief Executive Officer and each of the four other
most highly-compensated executive officers of the Company for the three fiscal
years ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- -------------------------------------
STOCK OPTIONS
RESTRICTED SHARES(4)
NAME AND PRINCIPAL BONUS STOCK AWARDS ---------------- ALL OTHER
POSITION YEAR SALARY (YR. EARNED)(1) (YR. EARNED)(2)(3) WCG WMB(5) COMPENSATION(6)
- ------------------ ---- -------- --------------- ------------------ ------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard E. Janzen............ 1999 $451,538 $226,616 $ 97,122 300,000 10,000 $10,905
President and Chief 1998 400,000 126,000 2,609,000(7) 30,000 12,050
Executive Officer 1997 300,000 105,000 45,000 60,000 10,131
Delwin L. Bothof............ 1999 $220,039 $ 52,377 $ 22,449 70,000 7,500 $10,905
Senior Vice President, 1998 210,000 46,857 658,832(8) 15,000 12,800
Domestic Strategic 1997 184,000 55,956 23,981 30,000 10,131
Investments
Lawrence C. Littlefield..... 1999 $211,808 $ 49,614 $ 232,866(9) 70,000 7,500 $10,905
Senior Vice President and 1998 190,000 42,394 209,794(8) 15,000 12,800
Group Executive 1997 175,000 53,219 22,808 30,000 10,131
Bob F. McCoy................ 1999 $201,037 $ 68,630 $ 29,414 25,000 10,500 $10,905
General Counsel 1998 192,408 28,284 12,122 10,500 10,815
1997 185,016 55,677 23,861 21,500 10,131
Frank M. Semple............. 1999 $264,000 $ 82,050 $ 35,165 100,000 7,500 $10,905
Senior Vice President and 1998 240,000 91,350 677,900(8) 15,000 12,800
Chief Operating Officer, 1997 210,717 95,404 40,888 50,000 10,131
Network
</TABLE>
- ---------------
(1) Excludes executive incentive compensation program awards converted to
deferred stock amounts that are included in the Restricted Stock Awards
column.
(2) Amounts reported in this column are the dollar value as of the date of grant
of the Company's deferred stock awards under the terms of the Company's 1999
Stock Plan and Williams deferred stock awards under the terms of The
Williams Companies, Inc. 1996 Stock Plan and The Williams Companies, Inc.
Stock Plan for Nonofficer Employees. Amounts shown include the value of
awards granted pursuant to the executive incentive compensation program.
Such awards are converted to deferred stock using the three-month average
stock price of the Company's stock for the 1999 awards and the 52-week
average stock price of Williams stock for the 1999, 1998 and 1997 awards as
follows: Mr. Janzen -- for 1999, 3,417 shares valued at $97,122, for 1998,
1,769 shares valued at $54,000 and for 1997, 1,963 shares valued at $45,000;
Mr. Bothof -- for 1999, 790 shares valued at $22,449, for 1998, 658 shares
valued at $20,082 and for 1997, 1,047 shares valued at $23,981; Mr.
Littlefield -- for 1999, 749 shares valued at $21,266, for 1998, 596 shares
valued at $18,169 and for 1997, 995 shares valued at $22,808; Mr.
McCoy -- for 1999, 889 shares valued at $29,414, for 1998, 398 shares valued
at $12,122, and for 1997, 1,041 shares valued at $23,861; Mr. Semple -- for
1999, 1,237 shares valued at $35,165, for 1998, 1,283 shares valued at
$39,150 and for 1997, 1,784 shares valued at $40,888. Receipt of deferred
stock under the executive incentive compensation program normally occurs
approximately three years after the date of grant. Dividend equivalents are
paid on Williams deferred stock at the same time and at the same rate as
dividends are paid to stockholders generally; dividend equivalents are not
paid on the Company's stock.
(3) The aggregate number and market value of the Company's deferred shares held
and of Williams deferred shares held, respectively, at the end of the fiscal
year, were as follows: Mr. Janzen, 98,152 shares valued at $2,840,274; 6,508
shares valued at $198,901; Mr. Bothof, 24,538 shares valued at $710,068;
1,705 shares valued at $52,109; Mr. Littlefield, 19,016 shares valued at
$550,276; 67,203 shares valued at $2,053,892;
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<PAGE> 11
Mr. McCoy, no Company deferred shares, 10,641 shares valued at $325,216; Mr.
Semple, 24,538 shares valued at $710,068; 11,700 shares valued at $357,581.
Aggregate market value was calculated using $28.9375 per share, the closing
price of the Company's Common Stock and $30.5625 per share, 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, 1999.
(4) The Company's Common Stock is designated WCG. Executives also hold Common
Stock of The Williams Companies, Inc., designated WMB.
(5) Adjusted to reflect stock split in Williams stock.
(6) Amounts reported in this column represent the value of contributions made by
Williams to defined contribution plans, on behalf of each of our executive
officers named in the table.
(7) This amount includes a Williams deferred stock award of 80,000 shares
granted for retention purposes on May 21, 1998 under The Williams Companies,
Inc. 1996 Stock Plan with a closing market value on the date of grant of
$2,555,000. Previously this award was valued using the average of the high
and low stock prices on the date of grant. At the time of the equity
offering, September 30, 1999, this deferred award was converted to the
Company's deferred stock under the terms of the Williams Communications
Group, Inc. 1999 Stock Plan. Twenty-five percent of these deferred shares
vested on that date.
(8) Amounts include the dollar value as of the date of grant of Williams
deferred stock under the terms of the Williams Communications Stock Plan.
Amounts represent the closing market value of stock awards granted on May
21, 1998 as follows: Mr. Bothof, 20,000 shares valued at $638,750; Mr.
Littlefield, 6,000 shares valued at $191,625; and Mr. Semple, 20,000 shares
valued at $638,750. Previously these awards were valued using the average of
the high and low stock prices on the date of grant. At the time of the
equity offering, September 30, 1999, these deferred awards were converted to
the Company's deferred stock under the terms of the Williams Communications
Group, Inc. 1999 Stock Plan. Twenty-five percent of these deferred shares
vested on that date.
(9) Amount includes the dollar value of 9,200 shares of the Company's deferred
stock awarded at the initial public offering on September 30, 1999, valued
at $211,600.
8
<PAGE> 12
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following tables provide certain information concerning the grant of
the Company's stock options and The Williams Companies, Inc. stock options
during the last fiscal year to the named executive officers:
WILLIAMS COMMUNICATIONS OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
WCG SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME DATE GRANTED OPTIONS GRANTED FISCAL YEAR(1) (PER SHARE) DATE PRESENT VALUE(2)
- ---- ------------ --------------- ---------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen........ 9/30/99 75,000(3) 0.98% $23.0000 9/30/09 $1,301,250
9/30/99 225,000(4) 2.95% $23.0000 9/30/09 $3,903,750
------- ---- ----------
300,000 3.93% $5,205,000
Delwin L. Bothof........ 9/30/99 25,000(3) 0.33% $23.0000 9/30/09 $ 433,750
9/30/99 45,000(4) 0.59% $23.0000 9/30/09 $ 780,750
------- ---- ----------
70,000 0.92% $1,214,500
Lawrence C.
Littlefield........... 9/30/99 25,000(3) 0.33% $23.0000 9/30/09 $ 433,750
9/30/99 45,000(4) 0.59% $23.0000 9/30/09 $ 780,750
------- ---- ----------
70,000 0.92% $1,214,500
Bob F. McCoy............ 11/18/99 25,000(5) 0.33% $27.3750 11/18/09 $ 516,250
Frank M. Semple......... 9/30/99 37,500(3) 0.49% $23.0000 9/30/09 $ 650,625
9/30/99 62,500(4) 0.82% $23.0000 9/30/09 $1,084,375
------- ---- ----------
100,000 1.31% $1,735,000
</TABLE>
- ---------------
(1) The total number of options granted to employees in the fiscal year excludes
715,750 options converted from Williams stock at the time of the equity
offering to the Company's Common Stock under the terms of the Williams
Communications Group, Inc. 1999 Stock Plan.
(2) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 59.9
percent, a risk-free rate of return of 6.36 percent, a dividend yield of 0
percent and an exercise date at the end of the contractual term in 2009. The
actual value, if any, that may be realized by an executive will depend on
the market price of the Company's Common Stock on the date of exercise. The
dollar amounts shown are not intended to forecast possible future
appreciation in the Company's stock price.
(3) These stock options will vest in thirds on September 30, 2000, September 30,
2001 and September 30, 2002, respectively.
(4) These stock options will cliff vest on September 30, 2004.
(5) These stock options will cliff vest on November 18, 2004.
9
<PAGE> 13
WILLIAMS OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
WMB SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME DATE GRANTED OPTIONS GRANTED(1)(2) FISCAL YEAR (PER SHARE) DATE PRESENT VALUE(3)
- ---- ------------ --------------------- ---------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen...... 3/18/99 10,000 0.20% $39.9375 3/18/09 $157,400
Delwin L. Bothof...... 3/18/99 7,500 0.15% $39.9375 3/18/09 $118,050
Lawrence C.
Littlefield......... 3/18/99 7,500 0.15% $39.9375 3/18/09 $118,050
Bob F. McCoy.......... 3/18/99 5,250 0.10% $39.9375 3/18/09 $ 82,635
9/16/99 5,250 0.10% $40.5000 9/16/09 $ 89,775
------ ---- --------
10,500 0.20% $172,410
Frank M. Semple....... 3/18/99 7,500 0.15% $39.9375 3/18/09 $118,050
</TABLE>
- ---------------
(1) All options were granted from The Williams Companies, Inc. Stock Plan for
Non-Officer Employees except for options granted to Messrs. Janzen and
McCoy, which were granted from The Williams Companies, Inc. 1996 Stock Plan.
(2) Options granted in 1999 were granted subject to an accelerated vesting
provision as discussed in the Compensation Committee Report on Executive
Compensation included herein. Those awarded in March 1999 vested on April
15, 1999 and those awarded in September 1999 vested upon grant pursuant to
such accelerated vesting.
(3) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 27
percent "weighted-average", a risk-free rate of return of 6 percent
"weighted-average", a dividend yield of 1.54 percent and an exercise date at
the end of the contractual term in 2009. The actual value, if any, that may
be realized by an executive will depend on the market price of Williams'
Common Stock on the date of exercise. The dollar amounts shown are not
intended to forecast possible future appreciation in Williams' stock price.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following tables provide certain information on stock option exercises
of the Company's stock and The Williams Companies, Inc. stock, respectively, in
1999 by the named executive officers and the value of such officers' unexercised
options at December 31, 1999.
AGGREGATED OPTION EXERCISES OF THE COMPANY'S STOCK IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen............ 0 $0 0 300,000 $0 $1,781,250
Delwin L. Bothof............ 0 $0 0 70,000 $0 $ 415,625
Lawrence C. Littlefield..... 0 $0 0 70,000 $0 $ 415,625
Bob F. McCoy................ 0 $0 0 25,000 $0 $ 39,062
Frank M. Semple............. 0 $0 0 100,000 $0 $ 593,750
</TABLE>
- ---------------
(1) Based on the closing price of the Company's Common Stock reported in the
table entitled "New York Stock Exchange Composite Transactions" contained in
The Wall Street Journal for December 31, 1999 ($28.9375 per share), less the
exercise price. The values shown reflect the value of options accumulated
over periods of up to ten years. Such values had not been realized at that
date and may not be realized. In the event the options are exercised, their
value will depend on the market price of the Company's Common Stock on the
date of exercise.
10
<PAGE> 14
AGGREGATED OPTION EXERCISES OF WILLIAMS STOCK IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen....... 74,808 $2,233,935 180,004 0 $1,554,437 $0
Delwin L. Bothof....... 0 $ 0 52,500 0 $ 189,062 $0
Lawrence C.
Littlefield.......... 0 $ 0 108,500 0 $ 968,562 $0
Bob F. McCoy........... 0 $ 0 89,000 0 $ 788,410 $0
Frank M. Semple........ 0 $ 0 162,500 0 $1,819,687 $0
</TABLE>
- ---------------
(1) Based on the closing price of Williams' Common Stock reported in the table
entitled "New York Stock Exchange Composite Transactions" contained in The
Wall Street Journal for December 31, 1999 ($30.5625 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
Eligible employees participate in the Williams pension plan. The Williams
pension plan is a noncontributory, tax-qualified defined benefit plan subject to
the Employee Retirement Income Security Act of 1974. The Williams pension plan
generally includes salaried employees of the Company who have completed one year
of service. Except as noted below, executive officers of the Company participate
in the Williams 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 employer contribution and quarterly
interest allocations. Each year an employer contribution equal to a percentage
of eligible compensation is allocated to an employee's pension account. Such
percentage is based upon the employee's age according to the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF ELIGIBLE PAY GREATER
AGE ALL ELIGIBLE PAY THAN THE SOCIAL SECURITY WAGE BASE
- --- ---------------- ----------------------------------
<S> <C> <C> <C>
<30............................ 4.5% + 1%
30-39.......................... 6% + 2%
40-49.......................... 8% + 3%
50+............................ 10% + 5%
</TABLE>
For employees, including the executive officers named in the Summary
Compensation Table, who were active employees and plan participants on March 31,
1998, and April 1, 1998, the percentage of all eligible pay is increased by an
amount equal to the sum of 0.3 percent multiplied by the participant's total
years of service prior to March 31, 1998. Interest is credited to account
balances quarterly at a rate determined annually in accordance with the terms of
the plan. The normal retirement benefit is a monthly annuity based on an
individual's account balance as of benefit commencement. The plan defines
eligible compensation to include salary and bonuses. Normal retirement age is
65. Early retirement may begin as early as age 55. At retirement, employees are
entitled to receive a single-life annuity or one of several optional forms of
payment having an equivalent actuarial value to the single-life annuity.
Participants who were age 50 or older as of March 31, 1998, were
grandfathered under a transitional provision that gives them the greater of the
benefit payable under the cash balance formula or the final average pay formula
based on all years of service and compensation. Mr. Bothof, Mr. Littlefield, and
Mr. McCoy are covered under this grandfather provision.
11
<PAGE> 15
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, the Company has adopted an
unfunded supplemental retirement plan to provide a supplemental retirement
benefit equal to the amount of such reduction to every employee, including the
executive officers named in the Summary Compensation Table, whose benefit
payable under the pension plan is reduced by Internal Revenue Code limitations.
Total estimated annual benefits payable at normal retirement age under the
cash balance formula from both the tax qualified and the supplemental retirement
plans are as follows:
<TABLE>
<S> <C>
Howard E. Janzen.......................................... $504,840
Delwin L. Bothof.......................................... 92,319
Lawrence C. Littlefield, Jr. ............................. 44,394
Bob F. McCoy.............................................. 96,859
Frank M. Semple........................................... 259,410
</TABLE>
The following schedule illustrates projected annual retirement benefits
under the final average pay formula, payable from both the tax qualified and the
supplemental retirement plans based on various levels of final average annual
compensation and years of service. The benefits are not subject to deduction for
any offset amounts:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$ 400,000..................... $109,022 $145,363 $181,703 $218,044 $ 254,385
600,000..................... 164,522 219,363 274,203 329,044 383,885
800,000..................... 220,022 293,363 366,703 440,044 513,385
1,000,000..................... 275,522 367,363 459,203 551,044 642,885
1,200,000..................... 331,022 441,363 551,703 662,044 772,385
1,400,000..................... 386,522 515,363 644,203 773,044 901,885
1,600,000..................... 442,022 589,363 736,703 884,044 1,031,385
1,800,000..................... 497,522 663,363 829,203 995,044 1,160,885
</TABLE>
As of December 31, 1999, the years of credited service under the pension
plan for the executive officers named in the Summary Compensation Table, who are
grandfathered under the final average pay formula, were: Mr. Bothof, 9; Mr.
Littlefield, 10; and Mr. McCoy, 12.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL SEVERANCE PLAN
The Company has established Williams Communications Group, Inc. Change in
Control Severance Plan, which covers certain employees of the Company, including
the executive officers named in the Summary Compensation Table. The plan
provides severance benefits if, within two years following a change in control
of the Company, 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 of 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.
12
<PAGE> 16
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 the Company's executive compensation program.
COMPENSATION POLICY
The executive compensation program of the Company is designed to serve the
interests of the Company 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) implement compensation practices that allow the Company to attract
and retain qualified executives and maintain a competitive position in the
executive marketplace with employers of comparable size and in similar
lines of business;
(ii) enhance the compensation potential of executives who are in the
best position to contribute to the growth and success of the Company by
providing flexibility to compensate individual performance; and
(iii) directly align the interests of executives with the interests of
stockholders through compensation opportunities in the form of ownership of
Common Stock or Common Stock equivalents.
These objectives are met through a program comprised of base salary; annual
cash bonus and deferred stock opportunities directly tied to individual
performance as well as consolidated and operating company performance; and
long-term incentive opportunities primarily in the form of stock options and the
selective use of deferred stock. Compensation decisions with respect to those
executives named in the Summary Compensation Table are made by the Committee and
ratified by the Board of Directors.
COMPENSATION PROGRAM
Base Salary. Base salary ranges for the Company's executive officers,
including those named in the Summary Compensation Table, were targeted at the
50th percentile of salary survey results. For this purpose, the Company uses
compensation survey information relevant to companies of similar size and to
companies in our industry supplied by nationally known compensation consulting
firms. Other information concerning overall compensation levels and forms, such
as total cash compensation and stock option award information is also used by
the Committee in making compensation decisions.
The Committee considers base salary adjustments for each of the Company's
executive officers annually. The Committee also approves annually a merit
increase budget for all officers. For 1999, the merit increase budget approved
for executive employees was 5.0 percent. This target was arrived at after a
review of survey data for estimated 1999 base salary increases for the
telecommunications industry. Within this framework, base salary increases for
the Company's executive officers ranged from 0 to 10.95 percent, excluding
adjustment increases. The average 1999 merit increase for such officers was 5.3
percent. Specific increases for individual executive officers involve
consideration of certain subjective factors, principally the performance of such
executive over the prior compensation period.
Cash Bonus and Deferred Stock. The executive officers of the Company,
including those named in the Summary Compensation Table, are eligible each year
for cash and deferred stock bonuses. Each executive officer has a maximum target
opportunity that is a percentage of base salary that can be earned if stretch
performance targets are met. The target opportunity percentages vary by level of
management. The percentages of base salary used for this purpose range from 20
percent for manager level participants to 75 percent for senior vice presidents.
Mr. Janzen's target opportunity is discussed elsewhere herein. Maximum bonus
targets are set as a percentage of base salary such that the combined base
salary and maximum bonus approximate the 75th percentile of total annual
compensation (base salary plus annual bonus) relative to survey data on
comparably sized companies and companies in our industry, when stretch
performance is achieved. The three components of the award formula are personal
performance, business
13
<PAGE> 17
performance and stockholder return. Awards are earned based on the extent to
which preestablished performance targets are achieved. Each component is
weighted, with the sum of the weights for the three components totaling one. The
components are weighted differently for each level of management depending on
the Committee's subjective judgment as to the particular level of management's
ability to influence performance for a given award component. An executive
officer'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 three
components.
The performance targets for the business performance component are set by
the Committee at threshold, target and stretch levels at the beginning of each
year. The target level represents a targeted level of performance for the plan
year as submitted by the respective business units and as approved by the
Committee 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 target) and performance at which the full bonus
potential should be paid (the stretch target). If performance is at target, the
performance factor used to calculate the award is normally 50 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. Where results exceed stretch, the
performance factor applied is within the sole discretion of the Committee.
Except in unusual circumstances, there are no awards for performance below
threshold.
The personal performance assessment for each executive officer is based on
an analysis of the individual's performance with consideration given to such
factors as significant business decisions, innovative achievements and timely
completion of projects within budgeted ranges, among other things. The business
performance for 1999 was tied to earnings before interest, income taxes,
depreciation and amortization ("EBITDA") of the business unit. In addition to
its EBITDA, our Solutions unit was tied to sales, general and administrative
expense and days sales outstanding goals and our Network unit was tied to
revenue and service delivery goals. Stockholder return performance was tied to
Williams stock performance for the first three quarters of 1999 and our
Company's stock performance for the fourth quarter of 1999 (from the date of the
equity offering). The stockholder return component for 1999 for Mr. Janzen is
discussed elsewhere herein. The Committee retains the discretion to adjust
reported performance to allow for extraordinary, nonrecurring factors.
Once the award is determined for each executive officer as described above,
70 percent of the award is paid in cash and 30 percent is deferred and paid in
stock. The 30 percent mandatory deferred portion vests approximately three years
from the award date. Deferred stock is normally forfeited if the executive
terminates employment for any reason other than retirement, disability or death
prior to the end of the deferral period. Executive officers also have the option
to defer all or a portion of the cash award. Participants who elect to defer all
or a portion of the cash award may elect to defer for up to five years from the
award date. Deferred stock cannot be sold or otherwise disposed of until the
applicable deferral period lapses. The value of the deferred award is at risk
during the deferral period since the value is tied to the stock price.
Long-term Compensation. In 1999, prior to the equity offering, stock option
and deferred stock awards relating to Williams' Common Stock were made to our
employees under The Williams Companies, Inc. 1996 Stock Plan, The Williams
Companies, Inc. Stock Plan for Nonofficer Employees and The Williams
Communications Stock Plan. These plans permitted the compensation committee of
Williams' board of directors to grant different types of stock-based awards,
including deferred stock awards. In 1999 Williams' stockholders approved the
Williams Communications Group, Inc. 1999 Stock Plan. Concurrent with the equity
offering, stock option and deferred stock was awarded from Williams
Communications Group, Inc. 1999 Stock Plan on September 30, 1999 and awards that
had been granted under The Williams Communications Stock Plan were converted to
awards under the Williams Communications Group, Inc. 1999 Stock Plan.
Stock option awards made on March 18, 1999, and September 16, 1999, related
to Williams' Common Stock and were granted subject to three year vesting. These
shares have an accelerated vesting feature which provides that if the average
Williams' stock price for five out of 10 consecutive business days reaches a
level
14
<PAGE> 18
that is 1.33 times the average Williams' stock price on the first business day
of the award year, the options vest immediately. (This acceleration feature is
the equivalent of a 10 percent increase in stock price compounded for three
years.) As a result of this provision, the stock option awards granted on March
18, 1999 vested on April 15, 1999 and those granted on September 16, 1999 were
vested upon grant.
All of these plans provide for stock option awards giving executives the
right to purchase common stock over a ten-year period at the market value per
share of common stock as of the date the option is granted. Awards from the
Williams Communications Group, Inc. 1999 Stock Plan will generally be subject to
a three-year (one-third per year) graded vesting schedule. Stock options granted
in 1999 under the Williams Communications Group, Inc. 1999 Stock Plan did not
provide for vesting acceleration, as did those from the Williams' plans.
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.
The Williams Compensation Committee has established stock option award
targets for each level of Williams' management participating in the Williams
stock option program. These target levels for stock option grants applied to the
March 18, 1999, and September 16, 1999, Williams' Common Stock option awards for
our employees. The annual targets, which were established based on competitive
market practices, ranged from 15,000 shares for executive officers to 1,500
shares for manager-level employees. Prior to the equity offering, the Williams
Compensation Committee established target levels for our Company's stock option
grants in conjunction with the equity offering on September 30, 1999. The target
levels for these awards ranged from 25,000 shares for senior vice presidents to
1,875 shares for manager-level employees. Target levels for Mr. Janzen for 1999
grants of Williams stock options and our Company's stock options are described
elsewhere herein.
In making decisions on stock option awards, the Committee has available to
it information on previous stock option awards granted to its executive
officers. Stock option awards are not tied to preestablished performance
targets.
The Williams Communication Group, Inc. 1999 Stock Plan also provides for
the issuance of deferred stock, which is not distributed to the executive until
the applicable restriction period lapses. Deferred stock 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 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 the Company in a way that aligns the executive's interests with
those of the other stockholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
In 1999, Mr. Janzen's performance was reviewed by Mr. Bailey and the
Williams Compensation Committee. In the future, the full Williams Communications
Board will meet in executive session each year to review Mr. Janzen's
performance. The session will be conducted without Mr. Janzen present, and the
meeting will be chaired by the Chairman of the Compensation Committee. The
result of this performance review will be shared with Mr. Janzen and used by the
Compensation Committee in making its review of Mr. Janzen's performance for
compensation purposes.
Mr. Janzen participates in the cash bonus and deferred stock program
described herein and has a maximum target opportunity as a percentage of base
salary of 100 percent if stretch performance targets are met. The stockholder
return component of Mr. Janzen's bonus award formula is tied to Williams stock
performance, although the deferred portion of Mr. Janzen's award is denominated
in the Company's Common Stock. Mr. Janzen's target opportunity for the March
1999 grant of Williams stock was 10,000 shares; his target opportunity for stock
options granted at the equity offering of the Company's Common Stock was 75,000
shares. In addition, Mr. Janzen received a stock option grant of 225,000 shares
of Williams Communications Group, Inc. stock at the initial public offering of
Williams Communications Group, Inc. Common Stock.
15
<PAGE> 19
OTHER MATTERS
Section 162(m) of the Code places a $1 million per person limitation on the
tax deduction the Company may take for compensation paid to its Chief Executive
Officer and its four other highest paid executive officers. Compensation
constituting performance-based compensation, as defined by the Code, is not
subject to the $1 million limit. The Committee generally intends to grant awards
under the Williams Communications Group, Inc. 1999 Stock Plan consistent with
the terms of Section 162(m) so that such awards will not be subject to the $1
million limit. In other respects, the Committee expects to take actions in the
future that may be necessary to preserve the deductibility of executive
compensation to the extent reasonably practicable and consistent with other
objectives of the Company's compensation program. In doing so, the Committee may
utilize alternatives such as deferring compensation to qualify compensation for
deductibility and may rely on grandfathering provisions with respect to existing
compensation commitments. The Committee believes that approximately $370,000 of
Mr. Janzen's compensation, otherwise deductible for 1999, exceeded the
deductibility limit.
THE COMPENSATION COMMITTEE
Roy A. Wilkens, Chairman
J. Cliff Eason
H. Brian Thompson
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the Company's cumulative total
stockholder return on its Common Stock with the cumulative total return of the
S&P Corporate-500 Stock Index and a Network Index (composed of
telecommunications industry peer companies) from the date of the equity
offering, September 30, 1999 through December 31, 1999. The graph assumes an
investment of $100 at the beginning of the period at the IPO price of $23 per
share of Class A Common Stock.
1999 WCG STOCKHOLDER RETURN
CHART
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
9/30/99 10/29/00 11/30/99 12/31/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WCG 100 138.6 129.6 125.8
S&P 500 100 106.3 108.3 114.5
Network Index 100 122.6 139.8 170.2
</TABLE>
16
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Class A Common Stock
and Class B Common Stock of the Company and the percentage represented by such
number of each person who is known to the Company to own beneficially 5 percent
or more of the Company's Class A Common Stock and Class B Common Stock. The
Company obtained certain information in the table from filings made with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT
TITLE OF CLASS NAME AND ADDRESS COMMON STOCK OF CLASS
-------------- ---------------- ------------ --------
<S> <C> <C> <C>
Class A Common Telefonos de Mexico, S.A. de C.V.... 4,612,546 6.8%
Marque Via 198-102
Col. Cuauhtenoc
Mexico 06594 D.F. Mexico
Class A Common Intel Corporation................... 9,225,093 13.5%
2200 Mission College Boulevard
Santa Clara, California 95052
Class A Common SBC Communications Inc.............. 20,226,812 29.7%
175 East Houston
San Antonio, Texas 78205
Class B Common The Williams Companies, Inc......... 395,434,965 100%
One Williams Center
</TABLE>
The following table sets forth, as of February 29, 2000, the amount of the
Company's Class A 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.
<TABLE>
<CAPTION>
SHARES
SHARES OF UNDERLYING
COMMON OPTIONS
STOCK EXERCISABLE
OWNED DIRECTLY WITHIN PERCENT
TITLE OF OR 60 OF
CLASS NAME OF INDIVIDUAL OR GROUP INDIRECTLY(1) DAYS(2) TOTAL CLASS
-------- --------------------------- -------------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Class A Common Keith E. Bailey............ 0 0 0 *
Class A Common Delwin L. Bothof........... 30,992 0 30,992 *
Class A Common John C. Bumgarner, Jr. .... 41,796 0 41,796 *
Class A Common J. Cliff Eason............. 0 0 0 *
Class A Common James R. Herbster.......... 303 0 303 *
Class A Common Howard E. Janzen........... 123,318 0 123,318 *
Class A Common Michael P. Johnson, Sr. ... 303 0 303 *
Class A Common Steven J. Malcolm.......... 303 0 303 *
Class A Common Jack D. McCarthy........... 0 0 0 *
Class A Common Bob F. McCoy............... 2,248 0 2,248 *
Class A Common Frank M. Semple............ 48,768 0 48,768 *
Class A Common H. Brian Thompson.......... 1,442 14,000 15,442 *
Class A Common Cuba Wadlington, Jr. ...... 303 0 303 *
Class A Common Roy A. Wilkens............. 301,442 14,000 315,442 *
All directors and executive
officers as a group (22
Class A Common persons(3))................ 695,379 32,090 727,180 1.0%
</TABLE>
- ---------------
* Less than 1 percent.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bothof, 25,328; Mr. Bumgarner, 14,493; Mr. Herbster, 303, over
which he has sole voting and investment power; Mr. Janzen, 101,872,
including 303 over which he has sole voting and investment power; Mr. McCoy,
1,848, including 303 over which he has sole voting and investment power; and
Mr. Semple, 43,407, including 303 over which he has sole voting and
investment power.
17
<PAGE> 21
(2) The Securities and Exchange Commission deems a person to have beneficial
ownership of all shares that that person has the right to acquire within 60
days. The shares indicated represent stock options granted under the
Company's Stock Plans. Shares subject to option cannot be voted.
(3) Does not include security ownership of Mr. Lawrence C. Littlefield, who
ceased being an executive officer of the Company on February 15, 2000.
No director or officer of the Company owns beneficially any securities of
the Company's subsidiaries other than directors' qualifying shares.
The following table sets forth, as of February 29, 2000, the amount of The
Williams Companies, Inc. Common Stock beneficially owned by each of the
Company's directors, each of the executive officers named in the Summary
Compensation Table and by all directors and nominees and executive officers as a
group.
<TABLE>
<CAPTION>
SHARES
UNDERLYING
SHARES OF OPTIONS
COMMON STOCK EXERCISABLE PERCENT
OWNED DIRECTLY WITHIN OF
NAME OF INDIVIDUAL OR GROUP OR INDIRECTLY(1) 60 DAYS(2) TOTAL CLASS
- --------------------------- ---------------- ----------- --------- -------
<S> <C> <C> <C> <C>
Keith E. Bailey......................... 1,893,951 350,002 2,243,953 *
Delwin L. Bothof........................ 133,320 52,500 185,820 *
John C. Bumgarner, Jr. ................. 1,058,144 10,000 1,068,144 *
J. Cliff Eason.......................... 0 0 0 *
James R. Herbster....................... 167,012 213,904 380,916 *
Howard E. Janzen........................ 176,812 180,004 356,816 *
Michael P. Johnson, Sr. ................ 22,502 15,250 37,752 *
Steven J. Malcolm....................... 57,153 148,938 206,091 *
Jack D. McCarthy........................ 253,151 40,000 293,151 *
Bob F. McCoy............................ 51,299 89,000 140,299 *
Frank M. Semple......................... 62,053 162,500 224,553 *
H. Brian Thompson....................... 0 0 0 *
Cuba Wadlington, Jr. ................... 139,321 164,102 303,423 *
Roy A. Wilkens.......................... 400,000 0 400,000 *
All directors and executive officers as
a group (22 persons(3))............... 4,873,024 1,812,513 6,685,573.. 1%
</TABLE>
- ---------------
* Less than 1 percent.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 623,778, including 178,364 over which he has sole
voting and investment power; Mr. Bothof, 12,335, including 10,630 over which
he has sole voting and investment power; Mr. Bumgarner, 415,696, including
224,958 over which he has sole voting and investment power; Mr. Herbster,
93,339, including 44,735 over which he has sole voting and investment power;
Mr. Janzen, 62,775, including 59,043 over which he has sole voting and
investment power; Mr. Johnson, 22,198, including 851 over which he has sole
voting and investment power; Mr. Malcolm, 37,087, including 32,926 over
which he has sole voting and investment power; Mr. McCarthy, 99,720,
including 43,756 over which he has sole voting and investment power; Mr.
McCoy, 51,299, including 39,423 over which he has sole voting and investment
power; Mr. Semple, 65,939, including 54,239 over which he has sole voting
and investment power; and Mr. Wadlington, 108,906, including 103,119 over
which he has sole voting and investment power.
(2) The Securities and Exchange Commission deems a person to have beneficial
ownership of all shares that person has the right to acquire within 60 days.
The shares indicated represent stock options granted under the Company's
Stock Plans. Shares subject to option cannot be voted.
(3) Does not include security ownership of Mr. Lawrence C. Littlefield, who
ceased being an executive officer of the Company on February 15, 2000.
18
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK OPTION LOAN PROGRAM
1985, 1990 AND 1996 STOCK PLANS AND 1996 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
There is no provision for loans in the Williams Communications Group, Inc.
1999 Stock Plan; however, the stock option loan programs for The Williams
Companies, Inc. 1996 Stock Plan, The Williams Companies, Inc. 1996 Stock Plan
for Non-Employee Directors, The Williams Companies, Inc. 1990 Stock Plan, and
The Williams Companies 1985 Stock Plan provide that loans using stock
certificates as collateral may be either for a three- or five-year term.
Interest payments are due annually during the term of the loan and interest
rates are based on the minimum applicable federal rates required to avoid
imputed income. The principal amount is due at the end of the loan term,
provided, however, that a participant may request, prior to the end of a loan
term, a new loan that may be granted at the discretion of the company.
Participants who leave the company during the loan period are required to pay
the loan balance and any accrued interest within 30 days of termination.
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1999 3/17/00
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Keith E. Bailey.................. 6.28% $ 50,641.92 $ 171,408.39 $ 163,416.67
Keith E. Bailey.................. 6.58% $ 71,656.20 $ 232,131.21 $ 220,823.30
Keith E. Bailey.................. 6.42% $ 67,673.84 $ 266,050.00 $ 253,385.89
Keith E. Bailey.................. 6.80% $ 36,162.67 $ 113,593.31 $ 107,886.57
Keith E. Bailey.................. 6.80% $ 49,588.48 $ 254,269.42 $ 241,495.31
Keith E. Bailey.................. 6.80% $ 59,459.20 $ 233,464.78 $ 221,735.86
Keith E. Bailey.................. 5.68% $ 406,609.84 $ 1,513,046.80 $ 1,448,880.39
Keith E. Bailey.................. 5.57% $1,026,811.18 $ 3,892,296.43 $ 3,730,257.20
Keith E. Bailey.................. 5.54% $1,670,829.99 $ 6,366,043.21 $ 6,102,372.51
------------- -------------- --------------
Total.................. $3,439,433.31 $13,042,303.55 $12,490,253.70
Delwin L. Bothof................. 5.42% $ 241,045.04 $ 1,562,790.15 $ 1,499,391.99
Delwin L. Bothof................. 4.67% $ 69,781.32 $ 622,339.21 $ 605,911.07
------------- -------------- --------------
Total.................. $ 310,826.35 $ 2,185,129.36 $ 2,105,303.06
John C. Bumgarner, Jr. .......... 5.91% $ 203,927.62 $ 1,218,159.86 $ 1,164,524.12
John C. Bumgarner, Jr. .......... 5.42% $ 559,102.89 $ 3,624,884.74 $ 3,477,833.04
John C. Bumgarner, Jr. .......... 5.42% $ 373,329.60 $ 2,333,503.43 $ 2,322,252.40
------------- -------------- --------------
Total.................. $1,136,360.11 $ 7,176,548.03 $ 6,964,609.56
Gerald L. Carson................. 5.59% $ 183,874.33 $ 694,643.63 $ 665,626.79
------------- -------------- --------------
Total.................. $ 183,874.33 $ 694,643.63 $ 665,626.79
James R. Herbster................ 6.74% $ 17,864.37 $ 56,582.87 $ 53,763.73
James R. Herbster................ 6.49% $ 119,416.00 $ 391,883.22 $ 373,038.37
James R. Herbster................ 5.93% $ 77,115.43 $ 275,508.89 $ 263,339.42
------------- -------------- --------------
Total.................. $ 214,395.80 $ 723,974.98 $ 690,141.52
Howard E. Janzen................. $ -- $ 10,547.35(1) $ --
Howard E. Janzen................. 5.70% $ 80,997.64 $ 500,669.57 $ 479,366.12
Howard E. Janzen................. 5.69% $ 87,092.51 $ 323,543.31 $ 309,799.39
Howard E. Janzen................. 5.77% $ 38,864.87 $ 142,486.55 $ 136,353.38
Howard E. Janzen................. 4.71% $ 25,451.88 $ 112,692.14 $ 109,149.80
Howard E. Janzen................. 4.71% $ 27,328.23 $ 120,999.99 $ 117,196.48
Howard E. Janzen................. 4.71% $ 54,070.99 $ 239,407.68 $ 231,882.15
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1999 3/17/00
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Howard E. Janzen................. 4.83% $ 114,621.70 $ 492,021.37 $ 479,460.09
Howard E. Janzen................. 5.37% $ 101,999.39 $ 391,455.23 $ 384,189.54
------------- -------------- --------------
Total.................. $ 530,427.21 $ 2,333,823.19 $ 2,247,396.95
Jack D. McCarthy................. 6.23% $ 107,056.32 $ 365,091.26 $ 348,196.90
Jack D. McCarthy................. 6.23% $ 108,144.83 $ 368,803.35 $ 351,737.22
Jack D. McCarthy................. 6.23% $ 106,111.35 $ 361,868.69 $ 345,123.43
Jack D. McCarthy................. 5.59% $ 28,721.07 $ 120,963.89 $ 115,910.96
Jack D. McCarthy................. 5.59% $ 29,013.10 $ 122,193.79 $ 117,089.50
Jack D. McCarthy................. 5.59% $ 28,467.56 $ 119,896.15 $ 114,887.84
Jack D. McCarthy................. 6.42% $ 97,467.41 $ 323,130.26 $ 307,749.12
Jack D. McCarthy................. 6.42% $ 100,999.44 $ 334,839.89 $ 318,901.35
Jack D. McCarthy................. 6.42% $ 66,565.13 $ 220,681.05 $ 210,176.50
Jack D. McCarthy................. 5.59% $ 26,566.90 $ 125,456.13 $ 120,215.53
Jack D. McCarthy................. 5.59% $ 27,529.63 $ 130,002.40 $ 124,571.91
Jack D. McCarthy................. 5.59% $ 18,143.80 $ 85,679.99 $ 82,100.90
Jack D. McCarthy................. 4.83% $ 301,392.00 $ 1,295,562.16 $ 1,260,716.27
Jack D. McCarthy................. 6.21% $ 8,504.25 $ -- $ 63,691.84
Jack D. McCarthy................. 6.21% $ 12,452.27 $ -- $ 93,260.22
Jack D. McCarthy................. 6.21% $ 7,340.67 $ -- $ 54,977.30
Jack D. McCarthy................. 6.80% $ 17,328.98 $ -- $ 124,604.27
Jack D. McCarthy................. 6.80% $ 31,942.00 $ -- $ 186,714.91
Jack D. McCarthy................. 6.80% $ 32,266.77 $ -- $ 188,613.35
Jack D. McCarthy................. 6.80% $ 31,300.96 $ -- $ 182,967.77
------------- -------------- --------------
Total.................. $1,187,314.42 $ 3,974,169.01 $ 4,712,207.09
Frank M. Semple.................. 5.42% $ 180,664.33 $ 1,171,318.21 $ 1,123,800.99
------------- -------------- --------------
Total.................. $ 180,664.33 $ 1,171,318.21 $ 1,123,800.99
William G. von Glahn............. 5.83% $ 64,363.20 $ 389,454.40 $ --
William G. von Glahn............. 5.83% $ 1,287.26 $ 7,789.09 $ 7,450.52
William G. von Glahn............. 5.83% $ 1,287.26 $ 7,789.09 $ 7,450.52
William G. von Glahn............. 5.83% $ 6,296.40 $ 38,098.75 $ 36,442.76
William G. von Glahn............. 5.91% $ 6,240.96 $ 37,280.27 $ --
William G. von Glahn............. 6.23% $ 11,961.60 $ 67,987.23 $ 64,841.14
William G. von Glahn............. 6.23% $ 11,662.56 $ 66,287.49 $ 63,220.11
William G. von Glahn............. 5.54% $ 23,156.31 $ 147,046.79 $ 140,956.34
William G. von Glahn............. 5.54% $ 744.58 $ 4,550.04 $ --
William G. von Glahn............. 5.54% $ 744.58 $ 4,550.04 $ --
William G. von Glahn............. 5.54% $ 32,907.60 $ 208,969.20 $ 200,314.05
William G. von Glahn............. 5.59% $ 32,418.94 $ 152,049.60 $ --
William G. von Glahn............. 5.59% $ 648.38 $ 2,925.42 $ --
William G. von Glahn............. 5.59% $ 648.38 $ 2,925.42 $ --
William G. von Glahn............. 5.59% $ 3,431.31 $ 16,049.66 $ 15,379.25
William G. von Glahn............. 5.59% $ 3,619.26 $ 16,894.37 $ 16,188.68
William G. von Glahn............. 5.39% $ 4,632.86 $ 40,469.79 $ 38,836.63
William G. von Glahn............. 5.39% $ 4,831.80 $ 42,156.00 $ 40,454.83
William G. von Glahn............. 5.39% $ 3,092.09 $ 20,976.86 $ 20,130.32
William G. von Glahn............. 5.39% $ 99.42 $ 649.74 $ --
William G. von Glahn............. 5.39% $ 99.42 $ 649.74 $ --
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1999 3/17/00
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
William G. von Glahn............. 5.48% $ 76,281.60 $ 489,427.21 $ 469,364.09
William G. von Glahn............. 5.57% $ 55,700.00 $ 211,140.04 $ 202,350.08
William G. von Glahn............. 5.54% $ 113,547.84 $ 432,629.58 $ 414,710.79
William G. von Glahn............. 5.28% $ 40,757.26 $ 181,835.08 $ 176,949.26
William G. von Glahn............. 5.82% $ 200,208.00 $ 706,868.91 $ 696,447.13
William G. von Glahn............. 5.98% $ 45,448.00 $ 154,490.29 $ 153,917.53
William G. von Glahn............. 6.20% $ 551.17 $ 3,858.92 $ 3,890.23
William G. von Glahn............. 6.20% $ 551.17 $ 3,858.92 $ 3,890.23
William G. von Glahn............. 5.74% $ 6,485.13 $ 68,247.52 $ 68,760.35
William G. von Glahn............. 6.20% $ 18,494.68 $ 80,394.08 $ 81,046.36
------------- -------------- --------------
Total.................. $ 662,507.03 $ 2,912,735.51 $ 2,922,991.20
Grand Total............ $7,955,494.90 $34,910,209.50 $33,922,330.86
</TABLE>
- ---------------
(1) Represents $10,547.35 of additional interest that Mr. Janzen was
undercharged in 1998. The amount was paid in 1999.
Williams agreed to loan Scott E. Schubert, in connection with his employment
agreement, approximately $4,000,000 to provide funds to exercise options granted
by his former employer. Currently Mr. Schubert has three such loans outstanding,
the first two of which were made on June 22, 1999, in the principal amount of
$1,200,000 and bearing an interest rate of 4.98 percent and in the principal
amount of $800,000 and bearing an interest rate of 5.37 percent and the third of
which was made on February 29, 2000 in the principal amount of $2,000,000 and
bearing an interest rate of 6.56 percent.
John C. Bumgarner, a director and Senior Vice President, Strategic
Investments, of the Company, owns real estate and leases a portion of it to
subsidiaries of the Company for use as office space. In 1999, payments under
these leases approximated $900,000. These leases remain in place, and the
Company expects its subsidiaries to make similar payments approximating $75,000
per month for the term of the leases.
Williams, which owns 100 percent of the outstanding shares of the Company's
Class B Common Stock, has entered into agreements with the Company for the
provision of certain administrative and other services to the Company, for the
lease of certain property and facilities, for the sharing of tax liabilities and
benefits, and the license of the Williams name and logo.
SBC Communications Inc., which owns approximately 29.7 percent of the
outstanding shares of the Company's Class A Common Stock, has entered into a
series of agreements with the Company under which SBC must first seek to obtain
domestic voice and data long distance services from the Company for 20 years;
the Company must first seek to obtain select international wholesale services
and various other services, including toll-free, operator, calling card and
directory assistance services, from SBC for 20 years; and the Company and SBC
will sell each other's products to their respective customers and provide
installation and maintenance of communications equipment and other services.
A subsidiary of Intel Corporation, which owns approximately 13.5 percent of
the outstanding shares of the Company's Class A Common Stock, has entered into a
ten-year master alliance agreement with the Company under which each will
purchase services from the another and work together to create a co-marketing
arrangement. The services the Company provides include domestic transport
services, and Intel provides Web hosting services pursuant to the co-marketing
arrangement. Subject to the Company's meeting price, quality of service, and
other specifications, Intel will purchase a significant portion of its yearly
domestic transport requirements from the Company.
21
<PAGE> 25
Telefonos de Mexico, S.A. de C.V. (TelMex), which owns approximately 6.8
percent of the outstanding shares of the Company's Class A Common Stock, has
entered into agreements with the Company under which TelMex must first seek to
obtain select international wholesale services and various other services from
the Company for 20 years and the Company must first seek to obtain select
international wholesale services and various other services from TelMex for 20
years. In addition, the Company and TelMex have entered into an interconnection
agreement and are negotiating additional agreements for the purchase and sale of
telecommunications services.
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,
independent public accountants, as the independent auditor of the Company for
calendar year 2000. The firm of Ernst & Young LLP and its predecessor has served
the Company in this capacity for many years. Management recommends a vote "FOR"
the ratification of Ernst & Young LLP as auditors for 2000.
A representative of Ernst & Young LLP will be present at the Annual Meeting
of Stockholders and will be available to respond to appropriate questions.
Although the audit firm has indicated that no statement will be made, an
opportunity for a statement will be provided.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who beneficially own more than 10
percent of the Company's stock to file certain reports with the SEC and the New
York Stock Exchange concerning their beneficial ownership of the Company's
equity securities. The SEC regulations also require that a copy of all such
Section 16(a) forms filed must be furnished to the Company 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 the Company with
respect to 1999, the Company is not aware of any late filings.
STOCKHOLDER PROPOSALS FOR 2001
In order for a stockholder proposal to be considered for inclusion in the
Company's 2001 Proxy Statement, such proposal must be received by the Company no
later than December 1, 2000. The proposal should be addressed to the Secretary,
Williams Communications Group, Inc., One Williams Center, Tulsa, Oklahoma 74172.
Upon receipt of any such proposal, the Company will determine whether or not to
include such proposal in the Proxy Statement in accordance with applicable law.
It is suggested that such proposals be sent by certified mail, return receipt
requested.
GENERAL
The Company 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 the Company. The enclosed
proxy confers discretionary authority to take action with respect to any
additional matters that may come before the meeting.
22
<PAGE> 26
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
Shawna L. Gehres
Secretary
Tulsa, Oklahoma
March 27, 2000
23
<PAGE> 27
WILLIAMS COMMUNICATIONS GROUP, INC.
Proxy Solicited on Behalf of the Board of Directors of
the Company for the Annual Meeting of Stockholders on May 18, 2000
The undersigned stockholder of Williams Communications Group, Inc. hereby
appoints Howard E. Janzen, Scott E. Schubert, and Bob F. McCoy, jointly and
severally, with full power of substitution, as proxies to represent and to vote
all of the shares of Common Stock the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Williams Communications Group, Inc. to be held
on the 18th day of May, 2000 and at any adjournments thereof, on all matters
coming before said meeting.
Election of Directors. Nominees: (change of address/comments)
J. Cliff Eason
-----------------------------------
Michael P. Johnson, Sr.
-----------------------------------
Cuba Wedlington, Jr.
-----------------------------------
-----------------------------------
(If you have written in the above
space, please mark the corresponding
box on the reverse side of this
card.)
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
-----------
- FOLD AND DETACH HERE -
Communications Regular Card
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE.
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 AND 2.
FOR WITHHELD FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ]
1. Election of 2. Ratification of Ernst & 3. In the discretion of one or more
Directors Young LLP as auditors for of said proxies upon any other
(See reverse) 2000 business as may properly come
before the Meeting or any
For, except vote withheld from the following nominee(s) adjournments thereof.
- -----------------------------------------------------------
Change of address,
see reverse side.
SIGNATURE(S) DATE The signer hereby revokes all proxies heretofore
--------------------------------------------------------- ------- given by the signer to vote at said 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.
o FOLD AND DETACH HERE o
</TABLE>
