IN THE DISTRICT COURT OF TULSA COUNTY STATE OF OKLAHOMA J. WRIGHT WILLIAMSON and THEOPHILUS ) HERBST, JR., Derivatively on Behalf of Nominal ) Defendant THE WILLIAMS COMPANIES, INC., ) ) Case No. CJ 2002-1144 v. ) ) KEITH E. BAILEY, et al. ) ) PHILIP HUMMEL and DOUGLAS MILLER, ) Derivatively on Behalf of Nominal Defendant ) THE WILLIAMS COMPANIES, INC., ) ) Case No. CJ 2002-7335 v. ) ) STEVEN J. MALCOLM, et al. ) ) NOTICE OF SETTLEMENT OF SHAREHOLDER DERIVATIVE LITIGATION TO: ALL SHAREHOLDERS OF THE WILLIAMS COMPANIES, INC. AS OF AUGUST 16, 2006. PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. IF YOU ARE A CURRENT SHAREHOLDER OF THE WILLIAMS COMPANIES, INC., THE SETTLEMENT OF THE ACTIONS DESCRIBED HEREIN COULD AFFECT YOUR RIGHTS. THIS SETTLEMENT IS INTENDED TO BE FOR THE BENEFIT OF THE WILLIAMS COMPANIES, INC. THIS IS NOT A SECURITIES CLASS ACTION AND THERE IS NO SETTLEMENT FUND ON WHICH TO MAKE A CLAIM. THIS NOTICE IS GIVEN pursuant to an Order of the District Court of Tulsa County, State of Oklahoma (the Court ) in the above-captioned putative derivative actions (the Actions ). Plaintiffs brought claims in the Actions and sought to pursue them derivatively on behalf of The Williams Companies, Inc. ( Williams or the Company ). This Notice is given to advise you that a hearing (the Settlement Hearing ) will be held for the Actions on October 24, 2006 at 9:00 a.m. before Judge Rebecca Nightingale at the District Court of Tulsa County, Tulsa County Courthouse, 500 S. Denver, Tulsa, Oklahoma 74103, to: (a) determine the fairness, reasonableness, and adequacy of the terms and conditions of a proposed stipulated settlement between the parties to the Actions (the Settlement ) and whether the Court should finally approve the Settlement and enter a Judgment thereon; and (b) rule upon the agreed-to fee award for Plaintiffs Counsel. No individual shareholder has the right to receive any individual compensation as a result of the settlement of this action. THE FOLLOWING RECITATION DOES NOT CONSTITUTE FINDINGS OF THE COURT. IT IS BASED ON THE STATEMENTS OF THE PARTIES AND SHOULD NOT BE UNDERSTOOD AS AN EXPRESSION OF ANY OPINION OF THE COURT AS TO THE MERITS OF ANY OF THE CLAIMS OR DEFENSES RAISED BY ANY OF THE PARTIES OR THE FAIRNESS OR ADEQUACY OF THE PROPOSED SETTLEMENT. I. BACKGROUND On or about February 27, 2002, plaintiff J. Wright Williamson commenced the action captioned Williamson v. Bailey, et al., Case No. CJ 2002-7335 (the Williamson Action ). In his Petition, Williamson, derivatively on behalf of Williams, asserted claims against certain of the Defendants, all of whom were directors and/or officers of Williams, for, among other things, breaches of fiduciary duties in connection with certain transactions involving Williams former subsidiary Williams Communications Group, Inc. ( WCG ). The Individual Defendants were Keith E. Bailey, Hugh M. Chapman, Glenn A. Cox, Thomas H. Cruikshank, William E. Green, W. R. Howell, James C. Lewis, Charles M. Lillis, George A. Lorch, Frank T. MacInnis, Peter C. Meinig, Gordon R. Parker, Janice D. Stoney, and Joseph H. Williams, present or former directors of Williams; Williams was listed as a nominal defendant. The Williamson Action was based on facts and circumstances related to those alleged in Cali v. The Williams Companies, Inc., Case No. 02-cv-72 (N.D. Okla.) (the Federal Class Action ), a securities fraud class action then-pending in the United States District Court for the Northern District of Oklahoma.
On or about May 3, 2002, plaintiff Theophilus Herbst, Jr. commenced the action captioned Herbst v. Bailey, et al., Case No. CJ 2002-2505 (the Herbst Action ). The Herbst Action was substantially similar to the Williamson Action. The Individual Defendants were Keith E. Bailey, Hugh M. Chapman, Glenn A. Cox, Thomas H. Cruikshank, William E. Green, W. R. Howell, James C. Lewis, Charles M. Lillis, George A. Lorch, Frank T. MacInnis, Peter C. Meinig, Gordon R. Parker, Janice D. Stoney, and Joseph H. Williams, present or former directors of Williams; Williams was listed as a nominal defendant. Accordingly, by an Order dated August 1, 2002, the Court consolidated the Williamson and Herbst Actions and stayed the consolidated action pending resolution of the motion to dismiss in the Federal Class Action. On or about December 26, 2002, plaintiff Philip Hummel commenced the action captioned Hummel v. Malcolm, et al., Case No. CJ 2002-7335 (the Hummel Action ). The Individual Defendants were Steven J. Malcolm, Keith E. Bailey, Hugh M. Chapman, Glenn A. Cox, Thomas H. Cruikshank, William E. Green, Ira D. Hall, William R. Howell, James C. Lewis, Charles M. Lillis, George A. Lorch, Frank T. MacInnis, Gordon R. Parker, Janice D. Stoney, and Joseph H. Williams, present or former directors of Williams; Williams was listed as a nominal defendant. In his Petition, Hummel, derivatively on behalf of Williams, asserted claims against certain of the Defendants, all of whom were directors and/or officers of Williams, for, among other things, breaches of fiduciary duties in connection with certain energy trading transactions. The Hummel Action was based on facts and circumstances related to those alleged in the Federal Class Action. On or about December 26, 2002, plaintiff Douglas Miller commenced the action captioned Miller v. Malcolm, et al., Case No. CJ 2002-7337 (the Miller Action ). The Individual Defendants were Steven J. Malcolm, Keith E. Bailey, Hugh M. Chapman, Glenn A. Cox, Thomas H. Cruikshank, William E. Green, Ira D. Hall, William R. Howell, James C. Lewis, Charles M. Lillis, George A. Lorch, Frank T. MacInnis, Gordon R. Parker, Janice D. Stoney, and Joseph H. Williams, present or former directors of Williams; Williams was listed as a nominal defendant. The Miller Action was substantially similar to the Hummel Action. Accordingly, by an Order dated July 29, 2003, the Court consolidated the Hummel and Miller Actions and stayed the consolidated action pending resolution of the motion to dismiss in the Federal Class Action. The parties remained in contact during the duration of the stays of the Actions. Following arms-length negotiations, the parties came to an agreement to settle the Actions as set forth herein, as reflected in the Stipulation of Settlement between the parties filed in these Actions on August 16, 2006 (the Stipulation ). II. THE PARTIES POSITIONS REGARDING THE DESIRABILITY OF THE PROPOSED SETTLEMENT Defendants have denied and continue to deny each and all of the claims and contentions alleged by Plaintiffs in the Actions. Defendants expressly have denied and continue to deny all charges of wrongdoing or liability against them arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Actions. Defendants also have denied and continue to deny, inter alia, the allegation that Plaintiffs or Williams have suffered damages, that Defendants breached their fiduciary duties, or that Plaintiffs or Williams were harmed by the conduct alleged in the Actions. Defendants also state they acted in good faith and in a manner to be in the best interests of Williams and its stockholders at all times relevant hereto. Defendants also believe that the Actions lack merit. Defendants are entering into the Settlement solely in order to avoid further expense, inconvenience, risk and delay and to permit the continued operation of their affairs unhindered by expensive litigation and by distraction and diversion of Williams executive personnel, and thereby to put to rest all controversy with respect to the Released Claims (as defined herein). Based on Plaintiffs counsel s investigation of the facts and their legal analysis, Plaintiffs believe that the claims asserted in the Actions have merit. However, Plaintiffs recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Actions against the Individual Defendants through trial and inevitable appeals. Plaintiffs also have taken into account the uncertain outcome and the risk of any litigation, especially in complex derivative litigation such as the Actions, as well as the difficulties and delays inherent in such litigation. Plaintiffs are also mindful of the inherent problems of proof concerning, and the possible defenses to, the alleged violations asserted in the Actions. Plaintiffs believe that the Settlement confers substantial benefits upon Williams and Williams stockholders. III. THE TERMS OF THE PROPOSED SETTLEMENT A. Definitions The following terms have the meanings specified below: 1. Current Williams Shareholder means any person who owned Williams common stock as of August 16, 2006 and who continues to hold Williams common stock as of the date of the Settlement Hearing (as defined herein). 2
2. Defendants means Keith E. Bailey, Hugh M. Chapman, Glenn A. Cox, Thomas H. Cruikshank, William E. Green, Ira D. Hall, William R. Howell, James C. Lewis, Charles M. Lillis, George A. Lorch, Steven J. Malcolm, Frank T. MacInnis, Peter C. Meinig, Gordon R. Parker, Janice D. Stoney, and Joseph H. Williams. 3. Effective Date means the first date by which all of the events and conditions specified in Section VIII of the Stipulation have been met and have occurred. 4. Final means: (a) the date of final affirmance on an appeal of the Judgment, the expiration of the time for a petition for or a denial of a petition for review of the Judgment and, if review is granted, the date of final affirmance of the Judgment following review pursuant to that grant; or (b) the date of final dismissal of any appeal from the Judgment or the final dismissal of any proceeding on petition to review the Judgment; or (c) if no appeal is filed, the expiration date of the time for the filing or noticing of any appeal from the Court s Judgment approving the Order substantially in the form attached to the Stipulation as Exhibit C. Any proceeding or order, or any appeal or petition for review pertaining solely to any application for attorneys fees or expenses, shall not in any way delay or preclude the Judgment from becoming final. 5. Judgment means the judgment to be rendered by the Court, substantially in the form attached to the Stipulation as Exhibit C. 6. Person means an individual, corporation, limited liability company, professional corporation, limited liability partnership, partnership, limited partnership, association, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and their spouses, heirs, predecessors, successors, representatives and/or assignees. 7. Plaintiffs Counsel means Schiffrin & Barroway, LLP, and Eric L. Zagar, 280 King of Prussia Road, Radnor, Pennsylvania 19087. 8. Related Persons means each of a Defendant s or Williams past or present directors, officers, executive officers, managers, employees, partners, members, principals, agents, representatives, attorneys, insurers, reinsurers, excess insurers, advisors, investment advisors, auditors, accountants, predecessors, successors, parents, subsidiaries, divisions, joint ventures, joint venturers, present or former spouses, immediate family members, heirs, executors, estates, related or affiliated entities, any person or entity in which any Defendant or Williams has or had a majority interest, or which is or was related to or affiliated with any Related Person, or any trust of which any Defendant or Williams is the settler or which is for the benefit of Williams or any Defendant and/or member(s) of their family. 9. Released Claims means and includes any and all claims (including Unknown Claims, as defined below), actions, causes of action, allegations, demands, rights, and liabilities of every nature and description whatsoever, known or unknown, whether or not concealed or hidden, at law or in equity (including but not limited to, any claims for damages, interest, attorneys fees, expert or consulting fees, and any other costs, expenses or liability whatsoever), fixed or contingent, accrued or unaccrued, liquidated or unliquidated, matured or unmatured, including but not limited to claims for negligence, gross negligence, recklessness, breach of duty of care and breach of duty of loyalty, breach of fiduciary duty, fraud, misrepresentation, mismanagement, breach of contract, violations of any state or federal statutes, rules or regulations, that have been or could have been asserted directly or indirectly, against the Defendants or any of their Related Persons in the Actions or in any other forum or proceeding by Williams or one or more Williams stockholders (including all record and beneficial owners) derivatively on behalf of Williams, in any way relating to or arising out of or in connection with any of the claims, facts, allegations, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act which were or could have been alleged or asserted in the Actions. 10. Released Persons means each and all of the Defendants and the Related Persons. 11. Settling Parties means, collectively, each of the Defendants and Plaintiffs on their own behalf, and/or derivatively on behalf of Williams. 12. Unknown Claims means any claims or causes of action which any Settling Party does not know or suspect to exist in his, her, or its favor at the time of the release of the other Settling Parties which, if known by him, her, or it might have affected his, her, or its settlement with and release of the other Settling Parties. With respect to any and all Released Claims, the Settling Parties stipulate and agree that, upon the Effective Date, the Settling Parties shall be deemed to have, and by operation of the Judgment shall have, expressly waived, the provisions, rights and benefits of California Civil Code 1542. The Settling Parties shall be deemed to have, and by operation of the Judgment shall have, expressly waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, that is similar, comparable or equivalent to California Civil Code 1542, which provides: 3
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. B. Corporate Governance Enhancement. Plaintiffs contend, and the Defendants do not contest, that due in part to the filing of the Actions, Williams has implemented and/or agreed to implement the following corporate governance and internal control enhancements: a. All committees of Williams Board of Directors ( Board ) are now comprised of non-management, independent directors; b. Williams has adopted a set of Corporate Governance Guidelines; c. Williams has adopted a Code of Ethics for senior officers; d. Williams has revised its all-employee Code of Business Conduct; e. All Board committee charters have been revised to ensure they are compliant with Securities and Exchange Commission ( SEC ) and New York Stock Exchange requirements; f. The Board has implemented a formal evaluation process; g. Williams has implemented a formal CEO evaluation process; h. Williams has established a program for new director orientation, which includes private meetings with senior management for each business segment; i. Williams has formalized and documented its disclosure controls and procedures; j. The Board has appointed a Lead Director who is independent of management; k. Williams non-management directors meet regularly without the CEO present; l. The Board meets privately with the CEO at least six times per year; m. The Board has established procedures for communications to non-management directors and the Lead Director; n. The Lead Director works with the CEO and Corporate Secretary to establish the agendas for regular Board meetings; o. Williams has adopted rules of conduct for both in-house and outside counsel who practice before the SEC; p. Williams has established a disclosure committee to ensure full and timely disclosure of information in all public filings; q. Williams has established a policy that all directors attend its annual meeting of shareholders; r. Williams has established procedures for shareholder nomination of directors; s. Williams has adopted a mandatory retirement age for directors; t. Williams has implemented a process for reviewing corporate strategy; u. Williams has adopted a requirement for annual individual director evaluations; v. Williams has adopted a director resignation policy; w. Williams has adopted a policy limiting directors to service on five public boards, including Williams Board; 4
x. Williams seeks annual shareholder ratification for the appointment of its independent auditors; y. Williams has adopted stock ownership guidelines for directors and executive officers; z. Williams directors participate in initial orientation upon election to the Board and in periodic continuing education thereafter; aa. bb. cc. dd. ee. ff. Williams Director of Internal Audit serves as the Company s Chief Compliance Officer and is responsible for overseeing the Company s compliance programs; Williams has implemented and documented policies and procedures for compliance with Federal Energy Regulatory Commission ( FERC ) rules and regulations, including the appointment of a FERC Compliance Officer for energy trading, who reports to the FERC Compliance Officer for the Company, who in turn reports to the Chief Compliance Officer; Williams Audit Committee meets regularly with the Director of Internal Audit outside the presence of the CEO; The Audit Committee meets as needed with the Company s outside auditors and the Company s General Counsel outside the presence of management; The Audit Committee reviews all earnings releases, Form 10-Q s and Form 10-K s prior to release; The Chairman of Williams Compensation Committee meets with the CEO annually to provide an evaluation. C. Dismissal with Prejudice and Releases On October 24, 2006 at 9:00 a.m. at the District Court of Tulsa County, Tulsa County Courthouse, 500 S. Denver, Tulsa, Oklahoma 74103, before the Honorable Rebecca Nightingale, the Court will hold a Settlement Hearing to consider the approval of the Settlement on the terms set forth above and in the Stipulation. If the Court approves the Settlement and enters the Judgment (substantially in the form attached to the Stipulation as Exhibit C), all Released Claims relating to Defendants and Related Persons will be compromised, settled, released, discharged and dismissed with prejudice. Additionally, at the Settlement Hearing, Plaintiffs Counsel will request that the Court approve their proposed Fees and Expenses (as defined below). IV. PLAINTIFFS ATTORNEYS FEES AND REIMBURSEMENT OF EXPENSES Plaintiffs Counsel will apply to the Court for an award of reasonable attorneys fees and expenses not to exceed in the aggregate one million two hundred thousand dollars (the Fees and Expenses ). Any such Fees and Expenses as are awarded by the Court to Plaintiffs Counsel shall be paid by Defendants insurer. The Fees and Expenses include fees and expenses incurred by Plaintiffs Counsel in connection with the prosecution and settlement of the Actions. V. YOUR RIGHT TO BE HEARD AT THE HEARING If you are a Current Williams Shareholder, your rights may be affected by the Settlement. Any Current Williams Shareholder who objects to: (a) the Settlement or any of its terms, (b) the dismissal of the Actions, (c) the Judgment to be entered approving the Settlement, or (d) the application by Plaintiffs Counsel for Fees and Expenses, or who otherwise wishes to be heard, may appear in person or through counsel at the Settlement Hearing and present evidence or argument that may be proper and relevant; provided, however, that no person other than counsel for Plaintiffs and Defendants shall be heard and no papers, briefs, pleadings or other documents submitted by any such person shall be received and considered by the Court (unless the Court in its discretion shall thereafter otherwise direct, upon application of such person and for good cause shown), unless not later than fourteen (14) days prior to the Settlement Hearing such person: (i) files with the Tulsa County Court Clerk, Tulsa County Courthouse, Second Floor, 500 S. Denver, Tulsa, OK 74103-3832, a written objection containing (1) the name of the case and case number; (2) the Person s name, address and telephone number; (3) the number of shares of Williams common stock the Person owns; (4) the date(s) of purchase of such shares, and a statement as to whether the Person will own such shares as of the date of the Settlement Hearing; (5) a detailed statement of the basis for the Person s objections to or comments upon the Settlement, Plaintiffs Counsel s request for attorneys fees and reimbursement of expenses, or any other matter before the Court; (6) any supporting papers, including all documents and writings that the 5
person desires the Court to consider; (7) a representation as to whether the Person intends to appear at the Settlement Hearing; (8) a representation as to whether the Person plans on calling any witness(es) at the Settlement Hearing; and (9) the identities of any witness(es) the Person plans to call at the Settlement Hearing; and (ii) on or before the date of such filing, serves the same documents by first-class mail upon the following counsel of record: Eric L. Zagar, Esquire Graydon Dean Luthey, Jr., Esquire Schiffrin & Barroway, LLP Hall, Estill, Hardwick, Gable, 280 King of Prussia Road Golden & Nelson, P.C. Radnor, PA 19087 320 S. Boston Avenue, Suite 400 Tulsa, OK 74103 Counsel for Plaintiffs Counsel for Defendants Unless the Court otherwise directs, no person shall be entitled to object to the approval of the Settlement, to any Judgment entered thereon, to any award of Fees and Expenses, or to otherwise to be heard, except by serving and filing a written objection and supporting papers and documents as prescribed above. Any person who fails to object in the manner and within the time prescribed above shall be deemed to have waived the right to object (including the right to appeal) and forever shall be barred, in this proceeding or in any other proceeding, from raising such objection and will be barred for all time by the Final Judgment and Order of Dismissal of the Court from ever asserting any of the Released Claims in any manner. VI. SCOPE OF THIS NOTICE The foregoing descriptions of the Actions, the Settlement Hearing, the proceedings to be held, the activities leading to the Settlement, the terms of the Settlement, the conditions of Settlement, and other matters described herein do not purport to be all inclusive. Accordingly, you are referred to the Complaints and the Stipulation, filed with the Court Clerk, which may be examined during regular business hours at the offices of the Tulsa County Court Clerk, Tulsa County Courthouse, Second Floor, 500 S. Denver, Tulsa, OK 74103-3832. VII. QUESTIONS REGARDING THE PROPOSED SETTLEMENT If you have questions regarding the proposed Settlement, please do not call or write the Court. Questions may be directed to: Eric L. Zagar, Esquire Schiffrin & Barroway, LLP 280 King of Prussia Road Radnor, PA 19087 (610) 667-7706 Counsel for Plaintiffs VIII. NOTICE TO BROKERAGE FIRMS & OTHER NOMINEES Brokerage firms and other nominees for beneficial owners of Company common stock are requested to forward all such persons a copy of this Notice within seven (7) days after receiving this Notice. On request by any such brokerage firm or other nominee, additional copies of this Notice may be obtained without charge by sending a written request to The Williams Companies, Inc. Derivative Litigation, c/o The Garden City Group, Inc., Notice Administrator, P.O. Box 9000 #6464, Merrick, NY 11566-9000. Brokerage firms and other nominees will be reimbursed for documented reasonable and actual out-of-pocket expenses incurred in providing copies of this Notice to beneficial owners or providing a list of the names and addresses of beneficial owners to the above address. 6