Williams Communications Group, Inc. (fka WCGR)

[jmhollen]

Stock, Equity Lost in Williams Communications' Bankruptcy

May 02, 2002 (Tulsa World - Knight Ridder/Tribune Business News via COMTEX) --
Williams Communications Group Inc.'s slide into bankruptcy wiped out 490 million
shares of stock and more than $2 billion in equity held by 15,500 shareholders.

Common shareholders stand to lose everything they invested in the Tulsa-based
wholesale broadband provider, but company employees and executives also lost
their investments, Williams Communications officials said.

"Guaranteed, all of us (executives and employees) are shareholders. We feel the
impact," said Howard Janzen, the company's chairman, president and chief
executive officer.

Some more than others, according to company documents on file with the
Securities and Exchange Commission.

In the company's annual 10-K filing with the SEC on April 1, Williams
Communications disclosed that five company executives, including Janzen, have
been sheltered from the plummeting stock price by a $13 million program that
forgives executives' loans whose collateral is the value of the executives'
stock.

So, while common shareholders' only recourse for their losses is petitioning the
judge in U.S. Bankruptcy Court for the Southern District of New York, where the
company filed Chapter 11 on April 22, Williams Communications executives have
received $13 million from the company to compensate them for their deteriorating
stock values.

These benefits, which the company calls "the executive retention bonus plan,"
are in the form of 20 percent loan forgiveness per year over five years,
beginning Dec. 31, 2001, and concluding on the same date in 2005. The retention
bonuses were awarded to the executives by the compensation committee of WCG's
board of directors on Jan. 18.

The company's 10-K filing reveals that executives receiving retention bonuses
are guaranteed forgiveness of the outstanding loan balances even if the company
files for bankruptcy.

"The final payment date is Dec. 31, 2005, unless employment is terminated for
reasons other than cause, death or disability or if the agreement is rejected in
any voluntary or involuntary bankruptcy proceedings in which case the executive
can set off his claim for any remaining bonus payments against his outstanding
loan balance," the company discloses in its most recent 10-K filing.

"In essence, (the loan) is forgiven," said WCG General Counsel P. David Newsome
Jr. "Every time a payment comes due, you would exercise your setoff right."

At the compensation committee meeting of Jan. 18, Gerald Carson, WCG's chief
people officer, noted that the outstanding executive loans exceeded the value of
the collateral, which is the stock of WCG and Williams Cos.

(At the spinoff on April 23, 2001, each shareholder of Williams Cos. stock
received 0.82 share of WCG stock. Williams Cos. stock closed at $38.65 and WCG
closed at $4.20 on April 23, 2001.)

Under various Williams Cos. stock option loan programs inherited by WCG at the
spinoff, executives could borrow up to 80 percent of the value of their stock.
The money could be used only to buy company stock, company executives said.

Currently, WCG does not have a stock option loan program, but the company will
complete its obligations under outstanding Williams Cos. plans, executives said.

H. Brian Thompson, chairman of the compensation committee and chief executive
officer of Universal Telecommunications Inc., a private investment and advisory
firm, said the committee felt it had to increase executive compensation.

"Anytime your shares are under water, it's demotivation for people," Thompson
said. "The overhang was such a problem that companies from outside were
approaching our people" with recruiting pitches that included loan forgiveness
bonuses, Thompson said.

"Some of our folks were being recruited heavily," Thompson said. "They're
first-class people."

Some shareholders disagree, calling the bonuses a "free lunch," unethical and an
abuse of common stock investors. Several filed complaints about the retention
bonus plan with the Oklahoma Department of Securities. The department on Friday
launched an investigation into WCG's spinoff from Williams Cos. and related
financial transactions.

The five executives singled out for retention bonuses -- Janzen, Carson, Chief
Financial Officer Scott Schubert, Co-Chief Operating Officer Frank Semple, and
Director of Corporate Development James Dutton -- had outstanding loan balances
of $13.01 million on Dec. 31.

WCG Co-Chief Operating Officer John Bumgarner Jr., with $6.9 million in company
loans outstanding, has more loans than any other company executive, but he is
not included in the retention bonuses because he is retiring later this year,
company officials said.

As of Dec. 31, the outstanding loan balances are: Janzen, $5.6 million;
Schubert, $4 million; Semple, $2.01 million; Carson, $1.16 million, and Dutton,
$238,478.

Bumgarner, Janzen, Schubert, Semple, Carson and Dutton declined comment.

Cary Robinson, who follows the telecom industry for U.S. Bancorp Piper Jaffray
in Minneapolis, said executive compensation at Williams Communications is out of
proportion to the company's financial performance.

"We took no bonuses and a pay cut here to make this company work," Robinson
said. "So they get a $13 million retention bonus and lay off 20 percent of their
work force? How do I get one of those jobs?"

In addition to salaries awarded executive officers, Williams Communications
compensates executives with cash incentive payments, stock options and deferred
stock, the company disclosed in documents filed with the government.

Under the cash incentive program in 2001, Janzen was awarded $269,200 in the
form of 213,651 shares of WCG common stock. The cash incentive program is based
on the company's stock performance during the year, and Janzen's compensation
represents 65 percent of the award target, according to the 10-K filing.

A stock option grant of 200,000 shares also was awarded Janzen by the board of
directors in 2001, and another grant of 66,667 shares was awarded him in
November when the company moved to a three-times-a-year grant cycle, the 10-K
reveals.

Fred Russell, chief executive officer of Fredric E. Russell Investment
Management Co., a Tulsa-based investment firm, said WCG's executive retention
program is an abuse of shareholders.

"When the company is short of cash and headed toward bankruptcy, they are
forgiving loans to executives who anyone would say are well-paid," Russell said.

"As shareholders, however, we do not have to take this lying down. We can
protest undeserved option rewards, excessive cash compensation, arbitrary
forgiveness of multimillion-dollar loans and anything else that suggests a
country club run for a handful of executives."

By D.R. Stewart

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(c) 2002, Tulsa World, Okla. Distributed by Knight Ridder/Tribune Business News.