<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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
The Williams Companies, 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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(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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[WILLIAMS LOGO]
KEITH E. BAILEY, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
To the Stockholders of The Williams Companies, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
The Williams Companies, Inc. to be held on Thursday, May 20, 1999, in the
Williams Resource Center, One Williams Center, Tulsa, Oklahoma, commencing at 11
a.m., local time. We look forward to greeting personally as many of our
stockholders as possible at the meeting.
The Notice of the Annual Meeting and Proxy Statement accompanying this
letter provide information concerning matters to be considered and acted upon at
the meeting. A report on the operations of Williams will be presented at the
meeting, followed by a question-and-answer and discussion period.
We know that most of our stockholders are unable personally to attend the
Annual Meeting. Proxies are solicited so that each stockholder has an
opportunity to vote on all matters that are scheduled to come before the
meeting. Whether or not you plan to attend, please take a few minutes now to
sign, date, and return your proxy in the enclosed postage-paid envelope.
Regardless of the number of shares you own, your vote is important.
Thank you for your continued interest in Williams.
Very truly yours,
[BAILEY SIGNATURE]
Keith E. Bailey
Enclosures
March 29, 1999
<PAGE> 3
THE WILLIAMS COMPANIES, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1999
To the Stockholders of
The Williams Companies, Inc.
NOTICE IS HEREBY GIVEN that the 1999 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 20, 1999, at 11 a.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 1999; 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 26, 1999,
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 29, 1999
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
THE WILLIAMS COMPANIES, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1999
This Proxy Statement is furnished by The Williams Companies, Inc. (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company to be used at the 1999 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 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 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 $9,500 in fees, plus expenses and disbursements. This Proxy Statement
and accompanying proxy were first mailed to stockholders on or about March 31,
1999.
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 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 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
<PAGE> 5
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 Common Stock of record at the close of
business on March 26, 1999, will be entitled to receive notice of and to vote at
the Annual Meeting. The Company had 438,011,398 shares of Common Stock
outstanding on the record date, and each share is entitled to one vote.
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 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.
Three individuals, all of whom are currently directors of the Company, have
been nominated for election as directors at the Annual Meeting. Two have been
nominated for a three-year term, and one has been nominated for a one-year term.
Nine directors will continue in office to serve pursuant to their prior
elections. Pursuant to the Company's retirement policy for Directors, Mr. Robert
J. LaFortune will retire in conjunction with the 1999 Annual Meeting of
Stockholders. Mrs. Kay A. Orr, whose term expires in May 1999, 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. Jack A. MacAllister, Frank T. MacInnis, and Peter C. Meinig.
The Company's Bylaws provide that the normal retirement date for Directors
is the first Annual Meeting of Stockholders following a Director's 72nd
birthday. Under this policy, Mr. Jack A. MacAllister has been nominated for a
one-year term expiring in May 2000. Messrs. Frank T. MacInnis and Peter C.
Meinig have been nominated for three-year terms expiring in May 2002.
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. Jack A. MacAllister, Frank
T. MacInnis, and Peter C. Meinig. 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 1999 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 I
(TERM EXPIRES MAY 2000)
JACK A. MACALLISTER, AGE 71
Director since 1994. Mr. MacAllister is Chairman Emeritus of U S WEST,
Inc., a telecommunications company. Mr. MacAllister retired as Chairman of the
Board of U S WEST in 1992. He served as the Chief Executive Officer of U S WEST
from 1982 to 1990.
(TERM EXPIRES MAY 2002)
FRANK T. MACINNIS, AGE 52
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.
PETER C. MEINIG, AGE 59
Director since 1993. Mr. Meinig is President and Chief Executive Officer of
HM International, Inc., a privately owned diversified manufacturing and
management company, and has been for more than five years.
DIRECTORS CONTINUING IN OFFICE
CLASS II
(TERM EXPIRES MAY 2000)
KEITH E. BAILEY, AGE 56
Director since 1988. Mr. Bailey was elected Chairman of the Board of the
Company in 1994. He was elected President of the Company in 1992 and Chief
Executive Officer in 1994. He served as Executive Vice President of the Company
from 1986 to 1992. Mr. Bailey is also a director of Northwest Pipeline
Corporation, Transcontinental Gas Pipe Line Corporation, Texas Gas Transmission
Corporation, and Williams Holdings of Delaware, Inc.
WILLIAM E. GREEN, AGE 62
Director since January 1998. Mr. Green is founder of William Green &
Associates, a Palo Alto, California, law firm and has been with the firm since
1974.
W. R. HOWELL, AGE 63
Director since 1997. Mr. Howell is Chairman Emeritus of J. C. Penney
Company, Inc., a major retailer. He was Chairman of the Board and Chief
Executive Officer of J. C. Penney from 1983 to 1996. He is also a director of
Exxon Corporation, Warner-Lambert Company, Bankers Trust, Halliburton Company,
and Central Southwest and Chairman of the Board of Trustees of Southern
Methodist University, Dallas, Texas.
JAMES C. LEWIS, AGE 66
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, Inc.
3
<PAGE> 7
CLASS III
(TERM EXPIRES MAY 2001)
GLENN A. COX, AGE 69
Director since 1992. Mr. Cox was President and Chief Operating Officer of
Phillips Petroleum Company, a company engaged in the exploration, production,
refining, and marketing of petroleum and in the manufacture and distribution of
a wide variety of chemicals, until his retirement in 1991. Mr. Cox is also a
director of BOK Financial Corporation, and Helmerich & Payne, Inc.
THOMAS H. CRUIKSHANK, AGE 67
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 1995. He was an
executive of Halliburton for more than five years. Mr. Cruikshank is also a
director of The Goodyear Tire & Rubber Company, Seagull Energy Corporation, and
Lehman Bros. Holdings, Inc.
PATRICIA L. HIGGINS, AGE 49
Director since 1995. Ms. Higgins is Vice President and Chief Information
Officer of the Aluminum Company of America, an integrated aluminum company, and
has been since 1997. She was President of Worldwide Communications Market Sector
Group of Unisys Corporation from 1995 to 1997 and a Group Vice President of
NYNEX from 1991 to 1995. Ms. Higgins is also a director of Fleet Bank N.A.
GORDON R. PARKER, AGE 63
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 65
Director since 1969. He was Chairman of the Board of the Company prior to
his retirement in 1994. He was an executive of the Company for more than five
years. Mr. Williams is also a director of The Prudential Insurance Co. of
America.
---------------------
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 15 meetings during 1998. 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.
Executive Committee. Members: Keith E. Bailey, Chairman, Thomas H.
Cruikshank, Robert J. LaFortune, James C. Lewis, Peter C. Meinig, Kay A. Orr,
and Joseph H. Williams.
4
<PAGE> 8
The Executive Committee 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 met once in 1998.
Audit Committee. Members: Robert J. LaFortune, Chairman, Glenn A. Cox,
William E. Green, Patricia L. Higgins, Frank T. MacInnis, and Peter C. Meinig.
The Audit Committee is composed 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, and the
Committee or its Chairman must authorize in advance any nonaudit services in
excess of $50,000.
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 1998, the Audit Committee met five times.
Nominating Committee. Members: Kay A. Orr, Chairman, W.R. Howell, Jack A.
MacAllister, Frank T. MacInnis, Gordon R. Parker, and Joseph H. Williams.
The Nominating Committee is composed of nonemployee directors. The
Nominating Committee is responsible for recommending candidates to fill
vacancies on the Board as such vacancies occur, as well as the slate of nominees
for election as directors by the stockholders at each Annual Meeting of
Stockholders. Additionally, the Committee recommends to the Board the individual
to be the Chairman of the Board and Chief Executive Officer. During 1998, 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 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: Thomas H. Cruikshank, Chairman, Glenn A.
Cox, William E. Green, Patricia L. Higgins, W.R. Howell, James C. Lewis, Jack A.
MacAllister, and Gordon R. Parker.
The members of the Compensation Committee are nonemployee directors and are
not eligible to participate in any of the plans or programs that the Committee
administers. The Compensation Committee approves the standard for 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 1998, the Compensation
Committee met three times.
5
<PAGE> 9
Compensation of Directors. Employee directors receive no additional
compensation for service on the Board of Directors or Committees of the Board.
Directors who are not employees receive an annual retainer of $12,000 in cash
and 750 shares of Common Stock and a Committee retainer (with the exception of
the Executive Committee) of $4,000 for each Committee assignment held, and an
additional fee for attending Board and Committee meetings (with the exception of
Executive Committee meetings) of $1,000 and $500, respectively. Members of the
Executive Committee do not receive an annual retainer for Executive Committee
membership but do receive a $750 meeting fee. Chairmen of the Audit, Nominating,
and Compensation Committees are paid an additional annual fee of $2,500.
Under the Company's 1996 Stock Plan for Non-Employee Directors, a director
may elect to receive all or any part of cash fees in the form of Common Stock or
deferred stock. Deferred stock may be deferred to any subsequent year or until
such individual ceases to be a director. Dividend equivalents are paid on
deferred shares and may be received in cash or reinvested in additional deferred
shares. Seven directors elected to defer fees under this plan in 1998.
Under the 1996 Stock Plan for Non-Employee Directors, all nonemployee
directors receive an annual stock option grant of 4,000 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.
6
<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 five other
most highly-compensated executive officers of the Company for the three fiscal
years ended December 31, 1998. This table also includes information for a former
executive officer who separated from the Company as of December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
------------------------------ RESTRICTED
BONUS(2) STOCK
NAME AND (YR. AWARDS(3)(4) STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) EARNED) (YR EARNED) OPTIONS COMPENSATION(5)
- ------------------ ---- --------- ----------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Keith E. Bailey............ 1998 $675,000 $300,000 $ 450,000(6) 50,000 $ 12,800
Chairman, President and 1997 675,000 325,000 337,509(6) 100,000 10,131
Chief Executive Officer 1996 675,000 275,000 675,356(6) 150,002 9,914
John C. Bumgarner, Jr...... 1998 375,000 131,250 1,707,375(7) 20,000 12,800
Senior Vice President 1997 325,000 113,750 48,750 40,000 10,131
Corporate Development & 1996 307,450 161,412 69,176 60,002 9,914
Planning
Stephen L. Cropper......... 1998 425,000 159,376 2,963,275(7)(8) 23,333 676,800(9)
Former President & CEO 1997 350,000 122,500 52,500 60,000 10,087
Williams Energy Services 1996 310,250 136,006 58,288 60,002 9,914
Howard E. Janzen........... 1998 400,000 126,000 2,574,000(7) 30,000 12,800
President & CEO Williams 1997 300,000 105,000 45,000 60,000 10,131
Communications Group 1996 250,000 108,282 46,406 60,002 9,914
Jack D. McCarthy........... 1998 375,000 131,250 1,707,375(7) 20,000 12,800
Senior Vice President, 1997 320,000 112,000 48,000 40,000 10,131
Finance & Corporate 1996 269,950 141,724 60,739 60,002 9,914
Chief Financial Officer
Brian E. O'Neill........... 1998 340,000 119,000 51,000 20,000 57,543(10)
President 1997 340,000 119,000 51,000 40,000 54,874(10)
Williams Gas Pipelines 1996 326,000 163,876 70,233 60,002 53,743(10)
</TABLE>
- ---------------
(1) Mr. Bumgarner elected to defer a portion of his salary in the form of
deferred stock. Under this elective deferral, Mr. Bumgarner has been
credited with 7,121 deferred shares. Such deferred shares are also
reflected in the amounts shown in footnote 4. Such amounts credited include
deferred shares representing the value of both deferred salary and
reinvested dividends on such shares.
(2) Excludes executive incentive compensation program awards 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 deferred and
restricted stock awards under the terms of the Company's 1996 Stock Plan as
of the date such awards were granted. Executive incentive compensation
program awards converted to deferred stock are based on the 52-week average
stock price for the award year. Receipt of deferred stock is deferred for
approximately three years.
(4) The total number of restricted shares held and the aggregate market value
at December 31, 1998, were as follows: Mr. Bailey, 351,222 shares valued at
$10,953,736. The total number of deferred shares held and the aggregate
market value at December 31, 1998, were as follows: Mr. Bailey, 71,328
shares valued at $2,224,542; Mr. Bumgarner, 170,096 shares valued at
$5,304,869; Mr. Cropper, 118,579 shares valued at $3,698,183; Mr. Janzen,
84,739 shares valued at $2,642,798; Mr. McCarthy, 52,000 shares valued at
$1,621,750; and Mr. O'Neill, 56,624 shares valued at $1,765,961 Aggregate
market value was calculated
7
<PAGE> 11
using $31.1875 per share, 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, 1998.
Dividends are paid on the restricted shares, and dividend equivalents are
paid on deferred stock at the same time and at the same rate as dividends
paid to stockholders generally.
(5) Consists of contributions made by the Company to the Investment Plus Plan,
a defined contribution plan, on behalf of each of the named executive
officers, except as noted in footnotes 9 and 10.
(6) Represents 36,200 shares of restricted stock valued at December 31, 1996
($18.6563) awarded in 1997 as 1996 incentive compensation, 14,722 shares of
restricted stock valued at December 31, 1997 ($22.9255) awarded in 1998 as
1997 incentive compensation and 14,742 shares of restricted stock valued at
December 31, 1998 ($30.5260) awarded in 1999 as 1998 incentive compensation
instead of awards of cash and deferred stock provided under the executive
incentive compensation program applicable to other executive officers. The
restrictions on Mr. Bailey's restricted stock awards lapse in April 2002.
(7) Includes deferred stock awarded on May 21, 1998 for retention purposes and
deferred stock awarded on July 31, 1998 for termination of employment
agreement, respectively to the following individuals (Market values at May
21, 1998 and July 31, 1998, are noted as follows:) Mr. Bumgarner, 40,000
shares valued at $1,260,000 and will vest in January 2000; 12,000 shares
valued at $391,125; Mr. Cropper, 80,000 shares valued at $2,520,000; 13,600
shares valued at $443,275; Mr. Janzen, 80,000 shares valued at $2,520,000,
and Mr. McCarthy, 40,000 shares valued at $1,250,000; 12,000 shares valued
at $391.125. Dividend equivalents are paid on deferred stock at the same
time and at the same rate as dividends paid to stockholders.
(8) Under the terms of the 1998 deferred stock award described in footnote (7),
Mr. Cropper forfeited 112,800 shares of deferred stock valued at $3,517,950
at December 31, 1998 ($31.1875) at the time of his separation from the
Company.
(9) As part of a separation agreement with the Company, Mr. Cropper received a
cash payment of $664,000.
(10) Includes an annual payment of $44,743 from Transcontinental Gas Pipe Line
Corporation, a subsidiary of the Company, under the terms of a separation
of employment agreement between Mr. O'Neill and Transco Energy Company,
dated November 24, 1987.
8
<PAGE> 12
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning the grant of
stock options during the last fiscal year to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------------------------------------
NUMBER PERCENT OF TOTAL
OF OPTIONS GRANTED EXERCISE GRANT DATE
DATE OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED GRANTED FISCAL YEAR (PER SHARE) DATE VALUE(2)
---- -------- ------- ---------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Keith E. Bailey........... 3/30/98 16,666 0.33% $31.5625 03/30/08 $179,326
7/25/98 16,667 0.33% 34.3750 07/25/08 195,504
11/19/98 16,667 0.33% 30.0000 11/19/08 173,170
------ ----- --------
50,000 0.99% 548,000
John C. Bumgarner, Jr..... 3/30/98 6,666 0.13% 31.5625 03/30/08 71,726
7/25/98 6,667 0.13% 34.3750 07/25/08 78,204
11/19/98 6,667 0.13% 30.0000 11/19/08 69,270
------ ----- --------
20,000 0.39% 219,200
Stephen L. Cropper........ 3/30/98 10,000 0.20% 31.5625 12/31/03(3) 79,400
7/25/98 10,000 0.20% 34.3750 12/31/03(3) 87,200
11/19/98 3,333 0.07% 30.0000 12/31/03(3) 26,297
------ ----- --------
23,333 0.47% 192,897
Howard E. Janzen.......... 3/30/98 10,000 0.20% 31.5625 03/30/08 107,600
7/25/98 10,000 0.20% 34.3750 07/25/08 117,300
11/19/98 10,000 0.20% 30.0000 11/19/08 103,900
------ ----- --------
30,000 0.60% 328,800
Jack D. McCarthy.......... 3/30/98 6,666 0.13% 31.5625 03/30/08 71,726
7/25/98 6,667 0.13% 34.3750 07/25/08 78,204
11/19/98 6,667 0.13% 30.0000 11/19/08 69,270
------ ----- --------
20,000 0.39% 219,200
Brian E. O'Neill.......... 3/30/98 6,666 0.13% 31.5625 03/30/08 71,726
7/25/98 6,667 0.13% 34.3750 07/25/08 78,204
11/19/98 6,667 0.13% 30.0000 11/19/08 69,270
------ ----- --------
20,000 0.39% $219,200
</TABLE>
- ---------------
(1) Options granted in March 1998 will vest on January 20, 2003, subject to an
accelerated vesting provision as discussed in the Compensation Committee
Report on Executive Compensation included herein, and options granted in
July and November 1998 vested in March 1999 pursuant to such accelerated
vesting. The Company granted these options under its 1996 Stock Plan.
(2) The grant date present value is determined using the Black-Scholes option
pricing model. The present value, as of the date of grant, calculated using
the Black-Scholes model, 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 25
percent "weighted-average", a risk-free rate of return of 5.3 percent
"weighted-average", a dividend yield of 2 percent and an exercise date at
the end of the contractual term in 2008. 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) As part of a separation agreement with the Company, Mr. Cropper's 1998 stock
option grants will continue to vest for five years for the March grant and
three years for the July and November grants and are exercisable for five
years from his separation date of December 31, 1998.
9
<PAGE> 13
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides certain information on stock option exercises
in 1998 by the named executive officers and the value of such officers'
unexercised options at December 31, 1998.
AGGREGATED OPTION EXERCISES 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>
Keith E. Bailey........... 785,404 $14,470,445 250,002 50,000 $2,855,234 $19,792
John C. Bumgarner, Jr..... 232,074 $ 2,189,225 40,000 20,000 $ 273,330 $ 7,917
Stephen L. Cropper........ 134,334 $ 2,573,098 294,606 23,333 $4,979,802 $ 3,958
Howard E. Janzen.......... 52,194 $ 1,160,176 214,812 30,000 $3,214,637 $11,875
Jack D. McCarthy.......... 0 $ 0 40,000 20,000 $ 273,330 $ 7,917
Brian E. O'Neill.......... 0 $ 0 294,404 20,000 $5,537,110 $ 7,917
</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, 1998 ($31.1875), 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 upon the value of the Company's Common Stock on the date of
exercise.
RETIREMENT PLAN
The Company's 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 the Company who have
completed one year of service. Except as noted below, executive officers of the
Company participate in the pension plan on the same terms as other full-time
employees.
Effective April 1, 1998, the Company converted its pension plan from a
final average pay plan to a cash balance pension plan. Each participant's
accrued benefit as of that date was converted to a beginning account balance.
Account balances are credited with an annual Company contribution and quarterly
interest allocations. Each year the Company allocates to an employee's pension
account an amount equal to a percentage of eligible compensation. Such
percentage is based upon the employee's age according to the following table:
<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.
10
<PAGE> 14
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. O'Neill, Mr.
Bumgarner, and Mr. McCarthy 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, 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>
Keith E. Bailey............................................. $689,364
John C. Bumgarner, Jr....................................... 267,149
Stephen L. Cropper*......................................... 176,309
Howard E. Janzen............................................ 504,840
Jack D. McCarthy............................................ 175,041
Brian E. O'Neill............................................ 84,346
</TABLE>
- ---------------
* Mr. Cropper terminated his employment with the Company as of December 31,
1998. Mr. Cropper's projected cash balance includes an estimated 1998
allocation and interest to age 65.
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, 1998, the years of credited service under the pension
plan for the executive officers named in the Summary Compensation Table, who are
grandfathered under the final average pay formula, were: Mr. Bailey, 25; Mr.
O'Neill, 24; Mr. Bumgarner, 22; Mr. McCarthy, 12.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL SEVERANCE PLAN
As authorized by the Board of Directors, the Company previously had
separate employment agreements with certain of the executive officers named in
the Summary Compensation Table and certain other individuals. In 1998, the
Company and all but one of the executive officers entered into agreements to
terminate these employment agreements. The agreement with the remaining
executive is for a term of thirty months, renewing monthly on an "evergreen"
basis unless terminated under various termination options.
11
<PAGE> 15
The agreement provides that if the Company terminates the agreement, other
than for cause, as defined, for disability, as defined, or on less than
thirty-months' notice or the executive terminates the agreement for breach by
the Company, including good reason, as defined, then, subject to the duty to
mitigate, the executive shall be entitled to receive damages for breach of the
agreement, consisting of (i) a cash payment equal to the executive's
compensation, including incentive compensation, that would have been paid during
the thirty-month notice period, assuming certain increases; (ii) an increase in
the executive's retirement benefits based upon an additional five years of age
and credited service; (iii) continuation of the executive's participation in
insurance and other fringe benefit plans of the Company, or the provision of
equivalent benefits, for a period of five years; and (iv) payment of an amount
equal to nonvested contributions to certain other benefit plans of the Company.
The Company does not believe that any of such payments would constitute
"parachute payments" as defined in Section 280G of the Code and, therefore,
would not be subject to the excise tax imposed under the Code. However, in the
event the payments are determined to be subject to such tax, the agreement
provides that the Company will pay an additional cash amount sufficient to pay
such tax.
The Company has established The Williams Companies, Inc. Change in Control
Severance Plan, which covers certain employees of the Company, including the
executive officers named in the Summary Compensation Table who do not have an
employment agreement. 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 the product of one week of base salary multiplied
by a participant's years of service. However, if the participant signs a waiver
and release, the severance benefit is equal to the greater of (i) the product of
two weeks of base salary multiplied by a participant's years of service, or (ii)
one hundred fifty 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 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 and restricted stock. Compensation decisions with
respect to those executives named in the Summary Compensation Table are made by
the Committee.
12
<PAGE> 16
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 similar industries 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 1998, the merit increase budget approved
for executive employees was 4.0 percent. This target was arrived at after a
review of survey data indicating that estimated 1998 base salary increases for
executives would range from 4.0 to 4.5 percent. Within this framework, base
salary increases for the Company's executive officers ranged from 0 to 4
percent, excluding adjustment increases. The average 1998 merit increase for
such officers was 3.4 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 bonus arrangement for Mr. Bailey is
discussed elsewhere herein. The other 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 100 percent for executive officers.
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 similar industries, when stretch
performance is achieved. The four components of the award formula are personal
performance, performance to plan, performance to peers and shareholder 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 four 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 four components.
The performance targets for the performance to plan and performance to
peers components are set by the Committee at threshold, plan and stretch levels
at the beginning of each year. The plan 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 plan, the performance factor used to calculate the award is normally 50
percent. Performance above or below plan results in awards representing a linear
increase/decrease from plan to stretch and from plan to threshold depending upon
where actual performance falls. Where results exceed stretch, the performance
factor applied is within the sole discretion of the Committee, although, except
in unusual circumstances, the performance factor may not exceed 100 percent of
the award potential. Except in unusual circumstances, there are no awards for
performance below threshold.
The personal performance assessment for each executive officer is based on
a subjective 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
performance to plan performance factor for 1998 was tied to net income
attributable to Common Stock for the Company's executives and operating profit
and/or revenue of the individual operating companies for executives in these
13
<PAGE> 17
units. The performance to peers performance factor was tied to consolidated
return on equity for the Company's executives and either return on equity,
return on assets, revenue, operating profit or consolidated return on equity of
the individual operating companies for executives in these units. Shareholder
return performance was tied to stock price performance and dividends. 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. Dividend equivalents are paid on deferred
stock. 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. The Company's 1996 Stock Plan, approved by the
stockholders in 1996, permits the Committee to grant different types of
stock-based awards, including deferred stock awards discussed above. The 1996
Stock Plan also provides for stock option awards giving executives the right to
purchase Common Stock over a ten-year period at the market value per share of
the Company's Common Stock, as defined by the 1996 Stock Plan, as of the date
the option is granted. Stock option awards made in March 1998 will cliff vest on
January 20, 2003. These shares have an accelerated vesting feature which
provides that if the average stock price, for five out of 10 consecutive
business days, reaches a level that is 1.61 times the average 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 five years.) The stock option awards granted in July and November
will cliff vest on January 20, 2001. These shares have a similar accelerated
vesting feature which provides that if the average stock price, for five out of
10 consecutive business days, reaches a level that is 1.33 times the average
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.) 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 Committee has established stock option award targets for each level of
management participating in the stock option program. The target levels for
annual stock option grants have been established based on competitive market
practices and range from 50,000 shares for the Chairman, President and Chief
Executive Officer to 1,500 shares for manager-level employees. 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 1996 Stock Plan also 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 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 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 the Company in a way that aligns the
executive's interests with those of the other stockholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
The full Board meets in executive session in November of 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.
14
<PAGE> 18
At Mr. Bailey's request, the Committee did not change Mr. Bailey's base
salary in 1998. Mr. Bailey's 1998 base salary is at the low end of survey data
for similar size companies.
As previously mentioned, a special incentive compensation program has been
designed for Mr. Bailey. As a result, Mr. Bailey does not participate in the
cash bonus and deferred stock programs applicable to other executive officers
previously described. In order to weight Mr. Bailey's base compensation more
heavily in the form of stock, the incentive compensation program approved for
him pays out entirely in restricted stock to the extent earned. The maximum
award potential under the program is equal to 100 percent of base salary. The
award earned in 1998 and paid in January 1999 was 14,742 shares of restricted
stock. This award represents two-thirds of the award potential based on the
level of targeted earnings and stock performance achieved and a subjective
evaluation of Mr. Bailey's performance. The restricted stock awarded to Mr.
Bailey vests in 2002. The restricted stock is forfeited to the extent Mr. Bailey
terminates employment prior to the lapse of the restriction period whether due
to resignation, voluntary retirement without prior Board consent or termination
for cause. The Committee also awarded Mr. Bailey a cash bonus of $300,000 to
supplement his base salary, which is significantly below the market median.
Under Mr. Bailey's leadership and direction, the Company continued to grow both
its energy and communications businesses and introduced performance initiatives
designed to increase efficiency of operations and increase responsiveness to
customer needs. Also in 1998, the Company's Common Stock appreciated in value
approximately 12 percent.
A stock option grant of 50,000 shares was also approved for Mr. Bailey in
1998. 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.
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, except compensation
constituting performance-based compensation, as defined by the Code, is not
subject to the $1 million limit. The Committee generally intends to grant awards
under the 1996 Stock Plan consistent with the terms of Section 162(m) so that
such awards will not be subject to the $1 million limit. In other respects, the
Committee expects to take actions in the future that may be necessary to
preserve the deductibility of executive compensation to the extent reasonably
practicable and consistent with other objectives of 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 $260,000 of Mr. Bailey's compensation,
otherwise deductible for 1998, exceeded the deductibility limit.
THE COMPENSATION COMMITTEE
Thomas H. Cruikshank, Chairman
Glenn A. Cox
William E. Green
Patricia L. Higgins
W. R. Howell
James C. Lewis
Jack A. MacAllister
Gordon R. Parker
15
<PAGE> 19
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the Company's cumulative total
stockholder return on its Common Stock (assuming reinvestment of dividends) with
the cumulative total return of the S&P Corporate-500 Stock Index and the S&P
Natural Gas Index for the period of five fiscal years commencing January 1,
1994:
GRAPH
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
The Williams Co., Inc. 100.00 106.22 191.33 252.15 391.99 437.81
S&P 500 100.00 101.31 139.40 171.40 228.59 293.91
S&P Natural Gas 100.00 100.00 134.93 179.32 211.57 232.16
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of 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
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
NAME AND ADDRESS COMMON STOCK OF CLASS
- ---------------- ------------ --------
<S> <C> <C>
Barrow, Hanley, Mewhinney & Strauss, Inc.(1)................ 27,890,631 6.5%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
Capital Resource and Management Company(1).................. 24,116,810 5.6%
333 South Hope Street
Los Angeles, California 90071
</TABLE>
- ---------------
(1) A filing with the Securities and Exchange Commission on February 12, 1999,
indicates that Barrow, Hanley, Mewhinney & Strauss, Inc. is an Investment
Advisor registered under Section 203 of the Investment Advisors Act of 1940.
(2) A filing with the Securities and Exchange Commission on February 8, 1999,
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 24,116,810 shares of the Company's
16
<PAGE> 20
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 March 15, 1999, the amount of the
Company's 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
UNDERLYING
SHARES OF OPTIONS
COMMON STOCK EXERCISABLE PERCENT
OWNED DIRECTLY WITHIN OF
NAME OF INDIVIDUAL OR GROUP OR INDIRECTLY(1)(2) 60 DAYS(3) TOTAL CLASS
- --------------------------- ------------------- ------------- --------- -------
<S> <C> <C> <C> <C>
Keith E. Bailey.............................. 1,879,906 250,002 2,129,908 *
John C. Bumgarner, Jr. ...................... 974,645 40,000 1,014,645 *
Glenn A. Cox................................. 8,250(4) 36,008 44,258 *
Stephen L. Cropper........................... 238,959 294,606 533,565 *
Thomas H. Cruikshank......................... 7,242 50,006 57,248 *
William E. Green............................. 1,997 4,000 5,997 *
Patricia L. Higgins.......................... 3,954 27,382 31,336 *
W. R. Howell................................. 5,649 8,000 13,649 *
Howard E. Janzen............................. 225,677 180,004 405,681 *
Robert J. LaFortune.......................... 47,737(4) 32,006 79,743 *
James C. Lewis............................... 74,724(4) 5,334 80,058 *
Jack A. MacAllister.......................... 18,323 20,004 38,327 *
Frank T. MacInnis............................ 4,358 2,667 7,025 *
Jack D. McCarthy............................. 210,217 40,000 250,217 *
Peter C. Meinig.............................. 14,534(4) 30,008 44,542 *
Brian E. O'Neill............................. 123,293 294,404 417,697 *
Kay A. Orr................................... 5,719 44,006 49,725 *
Gordon R. Parker............................. 23,137 50,006 73,143 *
Joseph H. Williams........................... 557,422(4) 24,008 581,430 *
All directors and executive officers as a
group (23 persons)......................... 4,859,665 1,869,297 6,728,962 2.0%
</TABLE>
- ---------------
* Less than 1 percent.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 597,332, including 174,782 over which he has sole
voting and investment power; Mr. Bumgarner, 390,835, including 220,739 over
which he has sole voting and investment power; Mr. Janzen, 142,594,
including 57,855 over which he has sole voting and investment power; and Mr.
O'Neill, 62,527, including 12,677 over which he has sole voting and
investment power.
(2) Includes shares held under the terms of compensation plans over which
directors have no voting or investment power as follows: Thomas H.
Cruikshank, 5,442; Patricia L. Higgins, 3,954; James C. Lewis, 5,052; Jack
A. MacAllister, 3,278; Peter C. Meinig, 5,084; and Kay A. Orr, 2,879.
(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 the
Company's Stock Plans. Shares subject to option cannot be voted.
(4) Includes shares held in trust as follows: Mr. Cox, 8,250 shares; Mr.
LaFortune, 43,194 shares; Mr. Lewis, 18,100 shares; Mr. Meinig, 6,450
shares; and Mr. Williams, 24,600 shares. Each individual has voting and
investment power over such shares.
No director or officer of the Company owns beneficially any securities of
the Company's subsidiaries other than directors' qualifying shares.
17
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK OPTION LOAN PROGRAM
1996 STOCK PLAN AND 1996 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
The stock option loan programs for the 1996 Stock Plan and the 1996 Stock
Plan for Non-Employee Directors 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 which 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.
1996 STOCK PLAN AND 1996 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1998 3/26/99
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Keith E. Bailey...................... 6.28% $ 50,641.92 $ 171,408.39 $ 163,638.66
Keith E. Bailey...................... 6.58% $ 71,656.20 $ 232,131.21 $ 221,137.41
Keith E. Bailey...................... 6.42% $ 67,585.89 $ 266,050.00 $ 253,737.67
Keith E. Bailey...................... 6.80% $ 191,433.87 $ 601,327.51 $ 571,956.88
Keith E. Bailey...................... 5.68% $ 406,609.84 $ 1,472,720.00 $ 1,450,662.80
Keith E. Bailey...................... 5.57% $1,026,811.18 $ 3,770,204.37 $ 3,734,758.29
Keith E. Bailey...................... 5.47% $1,649,718.42 $ 6,143,571.06 $ 6,109,696.70
Total...................... $3,464,457.32 $12,657,412.54 $12,505,588.41
Gary R. Belitz....................... 5.70% $ 56,325.48 $ 347,443.79 $ 333,761.10
Gary R. Belitz....................... 4.47% $ 25,296.52 $ 189,609.48 $ 190,602.86
Gary R. Belitz....................... 4.67% $ 14,785.44 $ 0 $ 172,441.95
Total...................... $ 96,407.44 $ 537,053.27 $ 696,805.91
John C. Bumgarner, Jr. .............. 5.91% $ 203,927.62 $ 1,218,159.86 $ 1,166,014.00
John C. Bumgarner, Jr. .............. 5.42% $ 559,102.89 $ 3,500,299.27 $ 3,481,917.80
Total...................... $ 763,030.51 $ 4,718,459.13 $ 4,647,931.80
Stephen L. Cropper................... 5.57% $ 465,564.11 $ 1,703,827.48 $ 0
Total...................... $ 465,564.11 $ 1,703,827.48 $ 0
James R. Herbster.................... 6.74% $ 17,864.37 $ 56,582.87 $ 53,842.04
James R. Herbster.................... 6.49% $ 119,416.00 $ 391,883.22 $ 373,561.85
James R. Herbster.................... 5.93% $ 77,115.43 $ 274,453.74 $ 263,677.46
Total...................... $ 214,395.80 $ 722,919.83 $ 691,081.35
Howard E. Janzen..................... 5.70% $ 80,997.64 $ 489,974.28 $ 479,957.89
Howard E. Janzen..................... 5.69% $ 87,092.51 $ 320,823.16 $ 310,181.16
Howard E. Janzen..................... 5.77% $ 38,864.87 $ 139,207.01 $ 136,523.74
Howard E. Janzen..................... 4.71% $ 106,851.10 $ 0 $ 456,706.17
Total...................... $ 313,806.12 $ 950,004.45 $ 1,383,368.96
James C. Lewis....................... 6.02% $ 35,661.18 $ 992,377.98 $ 0
James C. Lewis....................... 5.57% $ 185,868.67 $ 681,548.58 $ 0
Total...................... $ 221,529.85 $ 992,377.98(1) $ 0
Jack D. McCarthy..................... 6.23% $ 321,312.50 $ 1,095,763.30 $ 1,046,466.04
Jack D. McCarthy..................... 6.42% $ 265,031.98 $ 878,651.17 $ 837,988.75
Jack D. McCarthy..................... 5.59% $ 158,676.74 $ 696,532.02 $ 675,593.72
Jack D. McCarthy..................... 4.83% $ 301,392.00 $ 0 $ 1,249,156.02
Total...................... $1,046,413.21 $ 2,670,946.49 $ 3,809,204.53
</TABLE>
18
<PAGE> 22
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1998 3/26/99
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
William von Glahn.................... 5.83% $ 73,234.13 $ 443,131.32 $ 424,404.83
William von Glahn.................... 5.91% $ 6,240.96 $ 37,280.31 $ 35,684.46
William von Glahn.................... 6.23% $ 23,624.16 $ 134,274.72 $ 128,233.84
William von Glahn.................... 5.54% $ 57,553.07 $ 363,159.38 $ 350,755.59
William von Glahn.................... 5.59% $ 40,712.08 $ 188,969.29 $ 183,315.68
William von Glahn.................... 5.39% $ 11,985.14 $ 103,834.04 $ 100,834.00
William von Glahn.................... 5.48% $ 76,281.60 $ 474,170.89 $ 469,921.40
William von Glahn.................... 5.57% $ 55,608.44 $ 203,845.60 $ 202,594.25
William von Glahn.................... 5.54% $ 113,547.84 $ 417,448.38 $ 415,208.53
Total...................... $ 458,787.41 $ 2,366,113.93 $ 2,310,952.58
Grand Total.......................... $7,044,391.77 $27,319,115.10 $26,044,933.54
</TABLE>
- ---------------
(1) The $992,377.98 loan was paid in full prior to making the $681,548.58 loan,
therefore the largest amount due during 1998 is $992,377.98 and not the sum
of the two loans.
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 1999. 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 1999.
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 1998, the Company is not aware of any late filings.
STOCKHOLDER PROPOSALS FOR 2000
In order for a stockholder proposal to be considered for inclusion in the
Company's 2000 Proxy Statement, such proposal must be received by the Company no
later than December 1, 1999. The proposal should be addressed to the Secretary,
The Williams Companies, 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
19
<PAGE> 23
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.
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 29, 1999
20
<PAGE> 24
THE WILLIAMS COMPANIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 20, 1999
P
R The undersigned stockholder of The Williams Companies,
O Inc., hereby appoints KEITH E. BAILEY, JACK D. McCARTHY and WILLIAM G.
X VON GLAHN, jointly and severally with full power of substitution,
Y as proxies to represent and to vote all of the shares of Common Stock
the undersigned is entitled to vote at the Annual Meeting of
Stockholders of The Williams Companies, Inc. to be held on the 20th day
of May 1999 and at any and all adjournments thereof, on all matters
coming before said meeting.
Election of Directors. Nominees: (change of address/comments)
Jack A. MacAllister ______________________________
Frank T. Macinnis ______________________________
Peter C. Meinig ______________________________
______________________________
(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.
THE PROXY CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THIS CARD.
-----------
SEE REVERSE
SIDE
-----------
o FOLD AND DETACH HERE o
<PAGE> 25
Command Financial Press Corp.--New York (212)274-0070 Rev 1.0 3/22/99
14042 Proxy, 2
Williams Companies--Proxy Card (First Chicago/Regular)--1296
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PLEASE MARK YOUR 1296
VOTES AS IN
[X] 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 PROPOSAL 1 AND 2.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN
1. ELECTION OF 2. Ratification of Ernst &
DIRECTORS. [ ] [ ] Young LLP as auditors [ ] [ ] [ ]
(See Reverse) for 1999.
3. In the discretion of one or more of said proxies upon any other business as may
properly come before the Meeting or any adjournments thereof.
For, except vote withheld from the following nominee(s):
- ---------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Change of address. [ ]
see reverse side.
The signer hereby revokes all proxies
SIGNATURE(S) DATE 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>
