THE WILLIAMS COMPANIES, INC.
 
                              2002 INCENTIVE PLAN
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                               TABLE OF CONTENTS
 
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ARTICLE 1. EFFECTIVE DATE, OBJECTIVES AND DURATION..........     1
  1.1   Effective Date of the Plan..........................     1
  1.2   Objectives of the Plan..............................     1
  1.3   Duration of the Plan................................     1
ARTICLE 2. DEFINITIONS......................................     1
  2.1   "Affiliate".........................................     1
  2.2   "Award".............................................     1
  2.3   "Award Agreement"...................................     1
  2.4   "CEO"...............................................     1
  2.5   "Code"..............................................     1
  2.6   "Committee" and "Management Committee"..............     1
  2.7   "Common Stock"......................................     1
  2.8   "Covered Employee"..................................     1
  2.9   "Deferred Stock"....................................     2
  2.10  "Director Option"...................................     2
  2.11  "Director Stock Grant"..............................     2
  2.12  "Disability"........................................     2
  2.13  "Dividend Equivalent"...............................     2
  2.14  "Eligible Person"...................................     2
  2.15  "Exchange Act"......................................     2
  2.16  "Fair Market Value".................................     2
  2.17  "Grant Date"........................................     2
  2.18  "Grantee"...........................................     2
  2.19  "Incentive Stock Option"............................     2
  2.20  "including" or "includes"...........................     2
  2.21  "Mature Shares".....................................     2
  2.22  "Non-Employee Director".............................     2
  2.23  "Other Stock-Based Award"...........................     2
  2.24  "Option"............................................     2
  2.25  "Option Price"......................................     3
  2.26  "Option Term".......................................     3
  2.27  "Performance-Based Exception".......................     3
  2.28  "Performance Measures"..............................     3
  2.29  "Performance Period"................................     3
  2.30  "Performance Share" and "Performance Unit"..........     3
  2.31  "Period of Restriction".............................     3
  2.32  "Person"............................................     3
  2.33  "Restricted Shares".................................     3
  2.34  "Rule 16b-3"........................................     3
  2.35  "SEC"...............................................     3
  2.36  "Section 16 Non-Employee Director"..................     3
  2.37  "Section 16 Person".................................     3
  2.38  "Share".............................................     3
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  2.39  "Termination of Affiliation"........................     3
ARTICLE 3. ADMINISTRATION...................................     3
  3.1   Committee...........................................     3
  3.2   Powers of Committee.................................     4
ARTICLE 4. SHARES SUBJECT TO THE PLAN, MAXIMUM AWARDS, AND
  162(M) COMPLIANCE.........................................     6
  4.1   Number of Shares Available for Grants...............     6
  4.2   Adjustments in Authorized Shares and Awards.........     6
  4.3   Compliance with Section 162(m) of the Code..........     7
  4.4   Performance-Based Exception Under Section 162(m)....     7
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS.....     9
  5.1   Eligibility.........................................     9
  5.2   Award Agreement.....................................     9
  5.3   General Terms and Termination of Affiliation........     9
  5.4   Nontransferability of Awards........................     9
  5.5   Cancellation and Rescission of Awards...............     9
  5.6   Stand-Alone, Tandem and Substitute Awards...........    10
  5.7   Compliance with Rule 16b-3..........................    10
  5.8   Deferral of Award Payouts...........................    11
ARTICLE 6. STOCK OPTIONS....................................    11
  6.1   Grant of Options....................................    11
  6.2   Award Agreement.....................................    11
  6.3   Option Price........................................    11
  6.4   Grant of Incentive Stock Options....................    11
  6.5   Payment.............................................    12
ARTICLE 7. RESTRICTED SHARES................................    13
  7.1   Grant of Restricted Shares..........................    13
  7.2   Award Agreement.....................................    13
  7.3   Consideration for Restricted Shares.................    13
  7.4   Effect of Forfeiture................................    13
  7.5   Escrow; Legends.....................................    13
ARTICLE 8. PERFORMANCE UNITS AND PERFORMANCE SHARES.........    13
  8.1   Grant of Performance Units and Performance Shares...    13
  8.2   Value/Performance Goals.............................    14
  8.3   Earning of Performance Units and Performance
     Shares.................................................    14
ARTICLE 9. DEFERRED STOCK...................................    14
  9.1   Grant of Deferred Stock.............................    14
  9.2   Delivery and Limitations............................    14
  9.3   Forfeiture..........................................    15
ARTICLE 10. DIVIDEND EQUIVALENTS............................    15
ARTICLE 11. OTHER STOCK-BASED AWARDS........................    15
ARTICLE 12. CHANGE OF CONTROL...............................    15
  12.1  Acceleration of Exercisability and Lapse of
     Restrictions...........................................    15
  12.2  Definitions.........................................    16
  12.3  Flexibility to Amend................................    17
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ARTICLE 13. NON-EMPLOYEE DIRECTOR AWARDS....................    17
  13.1   Exclusive Means for Non-Employee Director Awards...    17
  13.2   Director Option....................................    17
  13.3   Director Stock Grants..............................    19
  13.4   Election to Receive Director Fees in Shares or
     Deferred Stock in Lieu of Cash.........................    19
  13.5   Deferral Elections.................................    20
  13.6   Insufficient Number of Shares......................    21
  13.7   Non-Forfeitability.................................    21
  13.8   No Duplicate Payments..............................    21
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION........    21
  14.1   Amendment, Modification, and Termination...........    21
  14.2   Awards Previously Granted..........................    21
ARTICLE 15. WITHHOLDING.....................................    22
  15.1   Required Withholding...............................    22
  15.2   Notification under Code Section 83(b)..............    22
ARTICLE 16. ADDITIONAL PROVISIONS...........................    22
  16.1   Successors.........................................    22
  16.2   Gender and Number..................................    23
  16.3   Severability.......................................    23
  16.4   Requirements of Law................................    23
  16.5   Securities Law Compliance..........................    23
  16.6   No Rights as a Stockholder.........................    23
  16.7   Nature of Payments.................................    23
  16.8   Non-Exclusivity of Plan............................    24
  16.9   Governing Law......................................    24
  16.10  Share Certificates.................................    24
  16.11  Unfunded Status of Awards; Creation of Trusts......    24
  16.12  Employment.........................................    24
  16.13  Participation......................................    24
  16.14  Military Service...................................    24
  16.15  Construction.......................................    24
  16.16  Headings...........................................    24
  16.17  Obligations........................................    24
  16.18  No Right to Continue as Director...................    24
  16.19  Stockholder Approval...............................    25
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                          THE WILLIAMS COMPANIES, INC.
 
                              2002 INCENTIVE PLAN
 
                                   ARTICLE 1.
 
                    EFFECTIVE DATE, OBJECTIVES AND DURATION
 
     1.1  Effective Date of the Plan.  The Williams Companies, Inc., a Delaware
corporation (the "Company"), established a stock plan known as The Williams
Companies, Inc. 1996 Stock Plan, as amended, which was duly approved by the
Company's stockholders. The Company amends, restates and renames such plan (as
so amended, the "Plan") as set forth herein effective March 1, 2002 ("Effective
Date"), subject to approval by the Company's stockholders.
 
     1.2  Objectives of the Plan.  The Plan is intended (a) to allow selected
employees and officers of the Company and its Affiliates to acquire or increase
equity ownership in the Company, thereby strengthening their commitment to the
success of the Company and stimulating their efforts on behalf of the Company,
and to assist the Company and its Affiliates in attracting new employees and
officers and retaining existing employees and officers, (b) to provide annual
cash incentive compensation opportunities that are competitive with those of
other major corporations, (c) to optimize the profitability and growth of the
Company and its Affiliates through incentives which are consistent with the
Company's goals, (d) to provide Grantees with an incentive for excellence in
individual performance, (e) to promote teamwork among employees, officers, and
Non-Employee Directors, and (f) to attract and retain highly qualified persons
to serve as Non-Employee Directors and to promote ownership by such Non-Employee
Directors of a greater proprietary interest in the Company, thereby aligning
such Non-Employee Directors' interests more closely with the interests of the
Company's stockholders.
 
     1.3  Duration of the Plan.  The Plan shall commence on the Effective Date
and shall remain in effect, subject to the right of the Board of Directors of
the Company ("Board") to amend or terminate the Plan at any time pursuant to
Article 14 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions.
 
                                   ARTICLE 2.
 
                                  DEFINITIONS
 
     Whenever used in the Plan, the following terms shall have the meanings set
forth below:
 
     2.1  "Affiliate" means any Person that directly or indirectly, through one
or more intermediaries, controls, or is controlled by or is under common control
with the Company.
 
     2.2  "Award" means Options (including non-qualified options, Incentive
Stock Options and Director Options), Restricted Shares, Performance Units (which
may be paid in cash), Performance Shares, Deferred Stock, Dividend Equivalents,
Other Stock-Based Awards, or Director Stock Grants granted under the Plan.
 
     2.3  "Award Agreement" means the written agreement by which an Award shall
be evidenced.
 
     2.4  "CEO" means the Chief Executive Officer of the Company.
 
     2.5  "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to a particular section of the Code include references to
regulations and rulings thereunder and to successor provisions.
 
     2.6  "Committee" and "Management Committee" have the respective meanings
set forth in Article 3.
 
     2.7  "Common Stock" means the common stock, $1.00 par value, of the
Company.
 
     2.8  "Covered Employee" means a Grantee who, as of the date that the value
of an Award is recognizable as income, is one of the group of "covered
employees," within the meaning of Code Section 162(m), with respect to the
Company.
 
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     2.9  "Deferred Stock" means a right, granted under Section 9.1 or Article
13, to receive Shares at the end of a specified deferral period.
 
     2.10  "Director Option" means a non-qualified Option granted to a
Non-Employee Director under Article 13.
 
     2.11  "Director Stock Grant" means Shares granted to a Non-Employee
Director under Section 13.3.
 
     2.12  "Disability" means, unless otherwise defined in an Award Agreement,
or as otherwise determined under procedures established by the Committee for
purposes of the Plan, for purposes of the exercise of an Incentive Stock Option,
a disability within the meaning of Section 22(e)(3) of the Code, and for all
other purposes, disability as defined in the Company's long-term disability plan
in which the Grantee participates or is eligible to participate, as determined
by the Committee.
 
     2.13  "Dividend Equivalent" means a right to receive payments equal to
interest or dividends or property, if and when paid or distributed, on a
specified number of Shares.
 
     2.14  "Eligible Person" means any employee (including any officer) of or
potential employee (including a potential officer) of the Company or an
Affiliate.
 
     2.15  "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to a particular section of the Exchange Act
include references to successor provisions.
 
     2.16  "Fair Market Value" means (a) with respect to any property other than
Shares, the fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee, and (b)
with respect to Shares, unless otherwise determined in the good faith discretion
of the Committee, as of any date, (i) the closing price on the date of
determination reported in the table entitled "New York Stock Exchange Composite
Transactions" contained in The Wall Street Journal (or an equivalent successor
table) (or, if no sale of Shares was reported for such date, on the most recent
trading day prior to such date on which a sale of Shares was reported); (ii) if
the Shares are not listed on the New York Stock Exchange, the closing price of
the Shares on such other national exchange on which the Shares are principally
traded or as reported by the National Market System, or similar organization, or
if no such quotations are available, the average of the high bid and low asked
quotations in the over-the-counter market as reported by the National Quotation
Bureau Incorporated or similar organizations; or (iii) in the event that there
shall be no public market for the Shares, the fair market value of the Shares as
determined (which determination shall be conclusive) in good faith by the
Committee.
 
     2.17  "Grant Date" means the date on which an Award is granted or, in the
case of a grant to an Eligible Person, such later date as specified in advance
by the Committee.
 
     2.18  "Grantee" means a person who has been granted an Award.
 
     2.19  "Incentive Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code.
 
     2.20  "including" or "includes" means "including, without limitation," or
"includes, without limitation," respectively.
 
     2.21  "Mature Shares" means Shares for which the holder thereof has good
title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.
 
     2.22  "Non-Employee Director" means a member of the Board who is not an
employee of the Company or any Affiliate.
 
     2.23  "Other Stock-Based Award" means a right, granted under Article 11
hereof, that relates to or is valued by reference to Shares or other Awards
relating to Shares.
 
     2.24  "Option" means an option granted under Article 6 or Article 13 of the
Plan.
 
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     2.25  "Option Price" means the price at which a Share may be purchased by a
Grantee pursuant to an Option.
 
     2.26  "Option Term" means the period beginning on the Grant Date of an
Option and ending on the date such Option expires, terminates or is cancelled.
 
     2.27  "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m) contained in Code
Section 162(m)(4)(C) (including the special provisions for options thereunder).
 
     2.28  "Performance Measures" has the meaning set forth in Section 4.4.
 
     2.29  "Performance Period" means the time period during which performance
goals must be met.
 
     2.30  "Performance Share" and "Performance Unit" have the respective
meanings set forth in Article 8.
 
     2.31  "Period of Restriction" means the period during which Restricted
Shares are subject to forfeiture if the conditions specified in the Award
Agreement are not satisfied.
 
     2.32  "Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government instrumentality, division, agency, body or department.
 
     2.33  "Restricted Shares" means Shares that are subject to forfeiture if
the Grantee does not satisfy the conditions specified in the Award Agreement
applicable to such Shares.
 
     2.34  "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the
Exchange Act, as amended from time to time, together with any successor rule.
 
     2.35  "SEC" means the United States Securities and Exchange Commission, or
any successor thereto.
 
     2.36  "Section 16 Non-Employee Director" means a Non-Employee Director who
satisfies the requirements to qualify as a "non-employee director" under Rule
16b-3.
 
     2.37  "Section 16 Person" means a person who is subject to potential
liability under Section 16(b) of the 1934 Act with respect to transactions
involving equity securities of the Company.
 
     2.38  "Share" means a share of Common Stock, and such other securities of
the Company as may be substituted or resubstituted for Shares pursuant to
Section 4.2 hereof.
 
     2.39  "Termination of Affiliation" occurs on the first day on which an
individual is for any reason no longer providing services to the Company or an
Affiliate in the capacity of an employee or officer, or with respect to an
individual who is an employee or officer of an Affiliate, the first day on which
such entity ceases to be an Affiliate of the Company.
 
                                   ARTICLE 3.
 
                                 ADMINISTRATION
 
     3.1  Committee.
 
     (a) Subject to Articles 13 and 14, and to Section 3.2, the Plan shall be
administered by a committee ("Committee"). Except to the extent the Board
reserves administrative powers to itself or appoints a different committee to
administer the Plan, the Committee shall be (i) the Board, with respect to all
Non-Employee Directors, (ii) the Compensation Committee of the Board, with
respect to all executive officers of the Company and any other Eligible Person
with respect to whom it elects to act as the Committee, and (iii) a committee of
directors of the Board consisting of the CEO, with respect to any Eligible
Person other than an executive officer of the Company, provided that if the CEO
is not a member of the Board, the Compensation Committee of the Board shall act
in lieu of the CEO. To the extent the Board considers it desirable to comply
with Rule 16b-3 or meet the Performance-Based Exception, the Committee shall
consist of two or more directors of the Company, all of whom qualify as "outside
directors" within the meaning of Code
 
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Section 162(m) and Section 16 Non-Employee Directors. The number of members of
the Committee shall from time to time be increased or decreased, and shall be
subject to such conditions, in each case as the Board deems appropriate to
permit transactions in Shares pursuant to the Plan to satisfy such conditions of
Rule 16b-3 and the Performance-Based Exception as then in effect.
 
     (b) The Board or the Compensation Committee may appoint and delegate to
another committee ("Management Committee") or to the CEO any or all of the
authority of the Board or the Committee, as applicable, with respect to Awards
to Grantees other than Grantees who are executive officers, Non-Employee
Directors, or are (or are expected to be) Covered Employees and/or are Section
16 Persons at the time any such delegated authority is exercised.
 
     (c) Unless the context requires otherwise, any references herein to
"Committee" include references to the Board, the Management Committee or the
CEO, as applicable.
 
     3.2  Powers of Committee.  Subject to and consistent with the provisions of
the Plan (including Article 13), the Committee has full and final authority and
sole discretion as follows; provided that any such authority or discretion
exercised with respect to a specific Non-Employee Director shall be approved by
the affirmative vote of a majority of the members of the Board, even if not a
quorum, but excluding the Non-Employee Director with respect to whom such
authority or discretion is exercised:
 
          (a) to determine when, to whom and in what types and amounts Awards
     should be granted; provided that grants to Non-Employee Directors shall be
     made solely pursuant to Article 13;
 
          (b) to grant Awards to Eligible Persons in any number, and to
     determine the terms and conditions applicable to each Award (including the
     number of shares or the amount of cash or other property to which an Award
     will relate, any exercise price, grant price or purchase price, any
     limitation or restriction, any schedule for or performance conditions
     relating to the earning of the Award or the lapse of limitations,
     forfeiture restrictions, restrictions on exercisability or transferability,
     any performance goals including those relating to the Company and/or an
     Affiliate and/or any division thereof and/or an individual, and/or vesting
     based on the passage of time, based in each case on such considerations as
     the Committee shall determine);
 
          (c) to determine the benefit payable under any Performance Unit,
     Performance Share, Dividend Equivalent, or Other Stock-Based Award and to
     determine whether any performance or vesting conditions have been
     satisfied;
 
          (d) to determine whether or not specific Awards shall be granted in
     connection with other specific Awards, and if so, whether they shall be
     exercisable cumulatively with, or alternatively to, such other specific
     Awards and all other matters to be determined in connection with an Award;
 
          (e) to determine the Option Term;
 
          (f) to determine the amount, if any, that a Grantee shall pay for
     Restricted Shares, whether to permit or require the payment of cash
     dividends thereon to be deferred and the terms related thereto, when
     Restricted Shares (including Restricted Shares acquired upon the exercise
     of an Option) shall be forfeited and whether such shares shall be held in
     escrow;
 
          (g) to determine whether, to what extent and under what circumstances
     an Award may be settled in, or the exercise price of an Award may be paid
     in, cash, Shares, other Awards or other property, or an Award may be
     accelerated, vested, canceled, forfeited or surrendered or any terms of the
     Award may be waived, and to accelerate the exercisability of, and to
     accelerate or waive any or all of the terms and conditions applicable to,
     any Award or any group of Awards for any reason and at any time;
 
          (h) to determine with respect to Awards granted to Eligible Persons
     whether, to what extent and under what circumstances cash, Shares, other
     Awards, other property and other amounts payable with respect to an Award
     will be deferred either automatically (whether to limit loss of deductions
     pursuant to Code Section 162(m) or otherwise), at the election of the
     Committee or at the election of the Grantee;
 
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          (i) to offer to exchange or buy out any previously granted Award for a
     payment in cash, Shares or other Award;
 
          (j) to construe and interpret the Plan and to make all determinations,
     including factual determinations, necessary or advisable for the
     administration of the Plan;
 
          (k) to make, amend, suspend, waive and rescind rules and regulations
     relating to the Plan;
 
          (l) to appoint such agents as the Committee may deem necessary or
     advisable to administer the Plan;
 
          (m) to determine the terms and conditions of all Award Agreements
     applicable to Eligible Persons (which need not be identical) and, with the
     consent of the Grantee, to amend any such Award Agreement at any time,
     among other things, to permit transfers of such Awards to the extent
     permitted by the Plan; provided that the consent of the Grantee shall not
     be required for any amendment (i) which does not adversely affect the
     rights of the Grantee, or (ii) which is necessary or advisable (as
     determined by the Committee) to carry out the purpose of the Award as a
     result of any new applicable law or change in an existing applicable law,
     or (iii) to the extent the Award Agreement specifically permits amendment
     without consent;
 
          (n) to cancel, with the consent of the Grantee, outstanding Awards and
     to grant new Awards in substitution therefor;
 
          (o) to make such adjustments or modifications to Awards or to adopt
     such sub-plans for Grantees working outside the United States as are
     advisable to fulfill the purposes of the Plan;
 
          (p) to impose such additional terms and conditions upon the grant,
     exercise or retention of Awards as the Committee may, before or
     concurrently with the grant thereof, deem appropriate, including limiting
     the percentage of Awards which may from time to time be exercised by a
     Grantee;
 
          (q) to make adjustments in the terms and conditions of, and the
     criteria in, Awards in recognition of unusual or nonrecurring events
     (including events described in Section 4.2) affecting the Company or an
     Affiliate or the financial statements of the Company or an Affiliate, or,
     except with respect to Awards granted pursuant to Article 13, in response
     to changes in applicable laws, regulations or accounting principles;
     provided, however, that in no event shall such adjustment increase the
     value of an Award for a person expected to be a Covered Employee for whom
     the Committee desires to have the Performance-Based Exception apply;
 
          (r) to correct any defect or supply any omission or reconcile any
     inconsistency, and to construe and interpret the Plan, the rules and
     regulations, and Award Agreement or any other instrument entered into or
     relating to an Award under the Plan; and
 
          (s) to take any other action with respect to any matters relating to
     the Plan for which it is responsible and to make all other decisions and
     determinations as may be required under the terms of the Plan or as the
     Committee may deem necessary or advisable for the administration of the
     Plan.
 
     Any action of the Committee with respect to the Plan shall be final,
conclusive and binding on all persons, including the Company, its Affiliates,
any Grantee, any person claiming any rights under the plan from or through any
Grantee, and stockholders, except to the extent the Committee may subsequently
modify, or take further action not consistent with, its prior action. If not
specified in the Plan, the time at which the Committee must or may make any
determination shall be determined by the Committee, and any such determination
may thereafter be modified by the Committee. The express grant of any specific
power to the Committee, and the taking of any action by the Committee, shall not
be construed as limiting any power or authority of the Committee. The Committee
may delegate to officers or managers of the Company or any Affiliate the
authority, subject to such terms as the Committee shall determine, to perform
specified functions under the Plan (subject to Sections 4.3 and 5.7(c)).
 
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                                   ARTICLE 4.
 
       SHARES SUBJECT TO THE PLAN, MAXIMUM AWARDS, AND 162(m) COMPLIANCE
 
     4.1  Number of Shares Available for Grants.  Subject to adjustment as
provided in Section 4.2, the number of Shares hereby reserved for delivery under
the Plan shall be the sum of fourteen million (14,000,000) plus (a) the number
of Shares under The Williams Companies, Inc. Stock Plan for Nonofficer Employees
which are available (not subject to outstanding Awards granted thereunder and
not delivered out of the Shares reserved thereunder) as of the date of
stockholder approval of this Plan ("Unused Shares") plus the number of Shares
which become available under such plan after the date of stockholder approval of
this Plan pursuant to forfeiture, termination, application as payment for an
Award or to satisfy tax withholding, lapse or satisfaction of an Award in cash
or property other than Shares ("Returned Shares"), (b) the number of Unused
Shares plus the number of Returned Shares under The Williams International Stock
Plan, (c) the number of Unused Shares plus the number of Returned Shares under
The Williams Companies, Inc. 1996 Stock Plan for Non-Employee Directors, and (d)
the number of Unused Shares plus the number of Returned Shares under The
Williams Companies, Inc. 1996 Stock Plan as in effect immediately prior to its
amendment to become the Plan. The number of Shares available for delivery
pursuant to stock-based Awards other than Options shall not exceed twenty-five
percent (25%) of the total number of Shares deliverable under the Plan. The
number of Shares available for delivery pursuant to Incentive Stock Options
shall be the number determined under the first sentence of this Section 4.1,
reduced by the aggregate number of Returned Shares.
 
     The Committee shall from time to time determine the appropriate methodology
for calculating the number of Shares to which an Award relates pursuant to the
Plan.
 
     If any Shares subject to an Award granted hereunder are forfeited or such
Award otherwise terminates without the delivery of such Shares, the Shares
subject to such Award, to the extent of any such forfeiture or termination,
shall again be available for grant under the Plan. If any Shares subject to an
Award granted hereunder are withheld, applied as payment, or sold and the
proceeds thereof applied as payment in connection with the exercise of an Award
or the withholding or payment of taxes related thereto, such Shares, to the
extent of any such withholding or payment, shall again be available for grant
under the Plan. Shares delivered pursuant to the Plan may be, in whole or in
part, authorized and unissued Shares, or treasury Shares, including Shares
repurchased by the Company for purposes of the Plan.
 
     4.2  Adjustments in Authorized Shares and Awards.  In the event that the
Committee determines that any dividend or other distribution (whether in the
form of cash, Shares, or other property), recapitalization, forward or reverse
stock split, subdivision, consolidation or reduction of capital, reorganization,
merger, consolidation, scheme of arrangement, split-up, spin-off or combination
involving the Company or repurchase or exchange of Shares or other securities of
the Company or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that any adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (a) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(b) the number and type of Shares (or other securities or property) subject to
outstanding Awards, (c) the grant or exercise price with respect to any Award
or, if deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award, (d) the number and kind of Shares of outstanding Restricted
Shares or relating to any other outstanding Award in connection with which
Shares are subject, and (e) the number of Shares with respect to which Awards
may be granted to a Grantee, as set forth in Section 4.3; provided, in each
case, that with respect to Awards of Incentive Stock Options intended to
continue to qualify as Incentive Stock Options after such adjustment, no such
adjustment shall be authorized to the extent that such adjustment would cause
the Plan to violate Section 422(b)(1) of the Code; and provided further that the
number of Shares subject to any Award denominated in Shares shall always be a
whole number.
 
                                       A-6
<PAGE>
 
     4.3  Compliance with Section 162(m) of the Code.  To the extent the
Committee determines that compliance with the Performance-Based Exception is
desirable, the following shall apply:
 
     (a) Section 162(m) Compliance.  All Awards granted to persons the Committee
believes likely to be Covered Employees shall comply with the requirements of
the Performance-Based Exception; provided, however, that to the extent Code
Section 162(m) requires periodic shareholder approval of performance measures,
such approval shall not be required for the continuation of the Plan or as a
condition to grant any Award hereunder after such approval is required. In
addition, in the event that changes are made to Code Section 162(m) to permit
flexibility with respect to the Award or Awards available under the Plan, the
Committee may, subject to this Section 4.3, make any adjustments to such Awards
as it deems appropriate.
 
     (b) Annual Individual Limitations.  During any calendar year, no Grantee
may be granted Awards (other than Awards that cannot be satisfied in Shares)
with respect to more than two million (2,000,000) Shares, subject to adjustment
as provided in Section 4.2. The maximum potential value of Awards to be settled
in cash or property (other than Shares) that may be granted with respect to any
calendar year (or the Company's fiscal year, if the Company's fiscal year is not
the calendar year) to any Grantee expected to be a Covered Employee (regardless
of when such Award is settled) shall not exceed $10,000,000. (Thus, Awards that
accrue over more than one calendar year (or fiscal year) may exceed the one-year
grant limit in the prior sentence at the time of payment or settlement.)
 
     4.4  Performance-Based Exception Under Section 162(m).  Unless and until
the Committee proposes for stockholder vote and stockholders approve a change in
the general performance measures set forth in this Section 4.4, for Awards
(other than Options) designed to qualify for the Performance-Based Exception,
the objective Performance Measure(s) shall be chosen from among the following:
 
          (a) Earnings (either in the aggregate or on a per-share basis);
 
          (b) Net income;
 
          (c) Operating income;
 
          (d) Operating profit;
 
          (e) Cash flow;
 
          (f) Stockholder returns (including return on assets, investments,
     equity, or gross sales) (including income applicable to common stockholders
     or other class of stockholders);
 
          (g) Return measures (including return on assets, equity, or sales);
 
          (h) Earnings before or after either, or any combination of, interest,
     taxes, depreciation or amortization (EBITDA);
 
          (i) Gross revenues;
 
          (j) Share price (including growth measures and total stockholder
     return or attainment by the Shares of a specified value for a specified
     period of time);
 
          (k) Reductions in expense levels in each case, where applicable,
     determined either on a Company-wide basis or in respect of any one or more
     business units;
 
          (l) Net economic value;
 
          (m) Market share;
 
          (n) Annual net income to common stock;
 
          (o) Earnings per share;
 
          (p) Annual cash flow provided by operations;
 
          (q) Changes in annual revenues;
 
                                       A-7
<PAGE>
 
          (r) Strategic business criteria, consisting of one or more objectives
     based on meeting specified revenue, market penetration, geographic business
     expansion goals, objectively identified project milestones, production
     volume levels, cost targets, and goals relating to acquisitions or
     divestitures;
 
          (s) Economic value added;
 
          (t) Sales;
 
          (u) Costs;
 
          (v) Results of customer satisfaction surveys;
 
          (w) Aggregate product price and other product price measures;
 
          (x) Safety record;
 
          (y) Service reliability;
 
          (z) Operating and maintenance cost management;
 
          (aa) Energy production availability performance measures;
 
          (bb) Debt rating; and/or
 
          (cc) Achievement of business or operational goals such as market share
     and/or business development;
 
     provided that subsections (a) through (g) may be measured on a pre- or
     post-tax basis; and provided further that the Committee may, on the Grant
     Date of an Award intended to comply with the Performance-Based Exception,
     and in the case of other grants, at any time, provide that the formula for
     such Award may include or exclude items to measure specific objectives,
     such as losses from discontinued operations, extraordinary gains or losses,
     the cumulative effect of accounting changes, acquisitions or divestitures,
     foreign exchange impacts and any unusual, nonrecurring gain or loss. For
     Awards intended to comply with the Performance-Based Exception, the
     Committee shall set the Performance Measures within the time period
     prescribed by Section 162(m) of the Code. The levels of performance
     required with respect to Performance Measures may be expressed in absolute
     or relative levels and may be based upon a set increase, set positive
     result, maintenance of the status quo, set decrease or set negative result.
     Performance Measures may differ for Awards to different Grantees. The
     Committee shall specify the weighting (which may be the same or different
     for multiple objectives) to be given to each performance objective for
     purposes of determining the final amount payable with respect to any such
     Award. Any one or more of the Performance Measures may apply to the
     Grantee, a department, unit, division or function within the Company or any
     one or more Affiliates; and may apply either alone or relative to the
     performance of other businesses or individuals (including industry or
     general market indices).
 
     The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception may not be adjusted upward (the Committee shall retain the discretion
to adjust such Awards downward). The Committee may not delegate any
responsibility with respect to Awards intended to qualify for the
Performance-Based Exception. All determinations by the Committee as to the
achievement of the Performance Measure(s) shall be in writing prior to payment
of the Award.
 
     In the event that applicable laws change to permit Committee discretion to
alter the governing performance measures without obtaining stockholder approval
of such changes, and still qualify for the Performance-Based Exception, the
Committee shall have sole discretion to make such changes without obtaining
stockholder approval.
 
                                       A-8
<PAGE>
 
                                   ARTICLE 5.
 
                  ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS
 
     5.1  Eligibility.  The Committee may in its discretion grant Awards to any
Eligible Person, whether or not he or she has previously received an Award. Each
Person who, on any date on which an Award is to be granted pursuant to Article
13, is a Non-Employee Director automatically shall be granted an Award pursuant
to Article 13 on such date.
 
     5.2  Award Agreement.  To the extent not set forth in the Plan, the terms
and conditions of each Award shall be set forth in an Award Agreement.
 
     5.3  General Terms and Termination of Affiliation.  The Committee may
impose on any Award or the exercise or settlement thereof, at the date of grant
or, subject to the provisions of Section 14.2, thereafter, such additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee
shall determine, including terms requiring forfeiture, acceleration or pro-rata
acceleration of Awards in the event of a Termination of Affiliation by the
Grantee. Except as may be required under the Delaware General Corporation Law,
Awards may be granted for no consideration other than prior and future services.
Except as otherwise determined by the Committee pursuant to this Section 5.3,
all Awards that have not been exercised subject to a risk of forfeiture, subject
to deferral by the Committee (and not voluntary deferral by the Grantee),
subject to vesting, or have outstanding Performance Periods at the time of a
Termination of Affiliation shall be forfeited to the Company.
 
     5.4  Nontransferability of Awards.
 
     (a) Each Award and each right under any Award shall be exercisable only by
the Grantee during the Grantee's lifetime, or, if permissible under applicable
law, by the Grantee's guardian or legal representative or by a transferee
receiving such Award pursuant to a qualified domestic relations order (a "QDRO")
as defined in the Code or Title I of the Employee Retirement Income Security Act
of 1974 as amended, or the rules thereunder.
 
     (b) No Award (prior to the time, if applicable, Shares are delivered in
respect of such Award), and no right under any Award, may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Grantee otherwise than by will or by the laws of descent and distribution (or in
the case of Restricted Shares, to the Company) or pursuant to a QDRO, and any
such purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
 
     (c) Notwithstanding subsections (a) and (b) above, to the extent provided
in the Award Agreement, Director Options, Deferred Stock, and Awards other than
Incentive Stock Options, may be transferred to one or more trusts or persons
during the lifetime of the Grantee in connection with the Grantee's estate
planning, and may be exercised by such transferee in accordance with the terms
of such Award. If so determined by the Committee, a Grantee may, in the manner
established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the Grantee, and to receive any distribution with respect
to any Award upon the death of the Grantee. A transferee, beneficiary, guardian,
legal representative or other person claiming any rights under the Plan from or
through any Grantee shall be subject to and consistent with the provisions of
the Plan and any applicable Award Agreement, except to the extent the Plan and
Award Agreement otherwise provide with respect to such persons, and to any
additional restrictions or limitations deemed necessary or appropriate by the
Committee.
 
     (d) Nothing herein shall be construed as requiring the Committee to honor a
QDRO except to the extent required under applicable law.
 
     5.5  Cancellation and Rescission of Awards.  Unless the Award Agreement
specifies otherwise, the Committee may cancel, rescind, suspend, withhold, or
otherwise limit or restrict any unexercised Award at any time if the Grantee is
not in compliance with all applicable provisions of the Award Agreement and the
Plan or if the Grantee has a Termination of Affiliation.
 
                                       A-9
<PAGE>
 
     5.6  Stand-Alone, Tandem and Substitute Awards.
 
     (a) Awards granted under the Plan may, in the discretion of the Committee,
be granted either alone or in addition to, in tandem with, or in substitution
for, any other Award granted under the Plan or any award granted under The
Williams Companies, Inc. Stock Plan for Nonofficer Employees or The Williams
International Stock Plan, or any other plan of the Company or any Affiliate;
provided that if the stand-alone, tandem or substitute Award is intended to
qualify for the Performance-Based Exception, it must separately satisfy the
requirements of the Performance-Based Exception. In connection with the
Company's acquisition, however effected, of another corporation or entity (the
"Acquired Entity") or the assets thereof, the Committee may, at its discretion,
grant Awards ("Substitute Awards") associated with the stock or other equity
interest in such Acquired Entity ("Acquired Entity Award") held by a Grantee
immediately prior to such Acquisition in order to preserve for Grantee the
economic value of all or a portion of such Acquired Entity Award at such price
as the Committee determines necessary to achieve preservation of economic value.
If an Award is granted in substitution for another Award or any non-Plan award
or benefit, the Committee shall require the surrender of such other Award or
non-Plan award or benefit in consideration for the grant of the new Award.
Awards granted in addition to or in tandem with other Awards or non-Plan awards
or benefits may be granted either at the same time as or at a different time
from the grant of such other Awards or non-Plan awards or benefits. The Option
Price of any Option or the purchase price of any other Award conferring a right
to purchase Shares:
 
          (i) If granted in substitution for an outstanding Award or non-Plan
     award or benefit, shall be either not less than the Fair Market Value of
     Shares at the date such substitute Award is granted or not less than such
     Fair Market Value at that date reduced to reflect the Fair Market Value of
     the Award or award required to be surrendered by the Grantee as a condition
     to receipt of a substitute Award; or
 
          (ii) If granted retroactively in tandem with an outstanding Award or
     an award granted under another plan, shall be either not less than the Fair
     Market Value of Shares at the date of grant of the later Award or the Fair
     Market Value of Shares at the date of grant of the earlier Award or award
     granted under such other plan.
 
     (b) The Committee may, in its discretion and on such terms and conditions
as the Committee considers appropriate in the circumstances, grant Awards under
the Plan in substitution for stock and stock-based Awards held by employees of
another corporation who become employees of the Company or an Affiliate as the
result of a merger or consolidation of the employing corporation with the
Company or an Affiliate or the acquisition by the Company or an Affiliate of
property or stock of the employing corporation.
 
     5.7  Compliance with Rule 16b-3.
 
     (a) Six-Month Holding Period Advice.  Unless a Grantee could otherwise
dispose of or exercise a derivative security or dispose of Shares delivered
under the Plan without incurring liability under Section 16(b) of the Exchange
Act, the Committee may advise or require a Grantee to comply with the following
in order to avoid incurring liability under Section 16(b): (i) at least six
months must elapse from the date of acquisition of a derivative security under
the Plan to the date of disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security, and (ii) Shares
granted or awarded under the Plan other than upon exercise or conversion of a
derivative security must be held for at least six months from the date of grant
of an Award.
 
     (b) Reformation to Comply with Exchange Act Rules.  To the extent the
Committee determines that a grant or other transaction by a Section 16 Person
should comply with applicable provisions of Rule 16b-3 (except for transactions
exempted under alternative Exchange Act rules), the Committee shall take such
actions as necessary to make such grant or other transaction so comply, and if
any provision of this Plan or any Award Agreement relating to a given Award does
not comply with the requirements of Rule 16b-3 as then applicable to any such
grant or transaction, such provision will be construed or deemed amended, if the
Committee so determines, to the extent necessary to conform to the then
applicable requirements of Rule 16b-3.
 
                                       A-10
<PAGE>
 
     (c) Rule 16b-3 Administration.  Any function relating to a Section 16
Person shall be performed solely by the Committee or the Board if necessary to
ensure compliance with applicable requirements of Rule 16b-3, to the extent the
Committee determines that such compliance is desired. Each member of the
Committee or person acting on behalf of the Committee shall be entitled to, in
good faith, rely or act upon any report or other information furnished to him by
any officer, manager or other employee of the Company or any Affiliate, the
Company's independent certified public accountants or any executive compensation
consultant or attorney or other professional retained by the Company to assist
in the administration of the Plan.
 
     5.8  Deferral of Award Payouts.  The Committee may permit or require a
Grantee to defer receipt of the payment of cash or the delivery of Shares that
would otherwise be due by virtue of the exercise of an Option, the lapse or
waiver of restrictions with respect to Restricted Shares, the satisfaction of
any requirements or goals with respect to Performance Units or Performance
Shares, the lapse or waiver of the deferral period for Deferred Stock, or the
lapse or waiver of restrictions with respect to Other Stock-Based Awards. If any
such deferral is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals. Except as
otherwise provided in an Award Agreement, any payment or any Shares that are
subject to such deferral shall be made or delivered to the Grantee upon the
Grantee's Termination of Affiliation.
 
                                   ARTICLE 6.
 
                                 STOCK OPTIONS
 
     6.1  Grant of Options.  Subject to and consistent with the provisions of
the Plan, Options may be granted to any Eligible Person in such number, and upon
such terms, and at any time and from time to time as shall be determined by the
Committee.
 
     6.2  Award Agreement.  Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the Option Term, the number of
Shares to which the Option pertains, the time or times at which such Option
shall be exercisable and such other provisions as the Committee shall determine.
 
     6.3  Option Price.  The Option Price of an Option under this Plan shall be
determined in the sole discretion of the Committee, and shall be at least equal
to 100% of the Fair Market Value of a Share on the Grant Date. Subject to the
adjustment allowed under Section 4.2, neither the Committee nor the Board shall
have the authority or discretion to change the Option Price of any outstanding
Option.
 
     6.4  Grant of Incentive Stock Options.  At the time of the grant of any
Option, the Committee may in its discretion designate that such Option shall be
made subject to additional restrictions to permit it to qualify as an Incentive
Stock Option. Any Option designated as an Incentive Stock Option:
 
          (a) shall be granted only to an employee of the Company or a
     Subsidiary Corporation (as defined below);
 
          (b) shall have an Option Price of not less than 100% of the Fair
     Market Value of a Share on the Grant Date, and, if granted to a person who
     owns capital stock (including stock treated as owned under Section 424(d)
     of the Code) possessing more than 10% of the total combined voting power of
     all classes of capital stock of the Company or any Subsidiary Corporation
     (a "10% Owner"), have an Option Price not less than 110% of the Fair Market
     Value of a Share on its Grant Date;
 
          (c) shall be for a period of not more than 10 years (five years if the
     Grantee is a 10% Owner) from its Grant Date, and shall be subject to
     earlier termination as provided herein or in the applicable Award
     Agreement;
 
          (d) shall not have an aggregate Fair Market Value (as of the Grant
     Date) of the Shares with respect to which Incentive Stock Options (whether
     granted under the Plan or any other stock option plan of the Grantee's
     employer or any parent or Subsidiary Corporation ("Other Plans")) are
     exercisable for the first time by such Grantee during any calendar year
     ("Current Grant"), determined in accordance with the provisions of Section
     422 of the Code, which exceeds $100,000 (the "$100,000 Limit");
 
                                       A-11
<PAGE>
 
          (e) shall, if the aggregate Fair Market Value of the Shares
     (determined on the Grant Date) with respect to the Current Grant and all
     Incentive Stock Options previously granted under the Plan and any Other
     Plans which are exercisable for the first time during a calendar year
     ("Prior Grants") would exceed the $100,000 Limit, be exercisable as
     follows:
 
             (i) the portion of the Current Grant which would, when added to any
        Prior Grants, be exercisable with respect to Shares which would have an
        aggregate Fair Market Value (determined as of the respective Grant Date
        for such options) in excess of the $100,000 Limit shall, notwithstanding
        the terms of the Current Grant, be exercisable for the first time by the
        Grantee in the first subsequent calendar year or years in which it could
        be exercisable for the first time by the Grantee when added to all Prior
        Grants without exceeding the $100,000 Limit; and
 
             (ii) if, viewed as of the date of the Current Grant, any portion of
        a Current Grant could not be exercised under the preceding provisions of
        this Section during any calendar year commencing with the calendar year
        in which it is first exercisable through and including the last calendar
        year in which it may by its terms be exercised, such portion of the
        Current Grant shall not be an Incentive Stock Option, but shall be
        exercisable as a separate option at such date or dates as are provided
        in the Current Grant;
 
          (f) shall be granted within 10 years from the earlier of the date this
     amendment and restatement is adopted by the Board or the date the Plan is
     approved by the stockholders of the Company;
 
          (g) shall require the Grantee to notify the Committee of any
     disposition of any Shares delivered pursuant to the exercise of the
     Incentive Stock Option under the circumstances described in Section 421(b)
     of the Code (relating to holding periods and certain disqualifying
     dispositions) ("Disqualifying Disposition"), within 10 days of such a
     Disqualifying Disposition; and
 
          (h) shall by its terms not be assignable or transferable other than by
     will or the laws of descent and distribution and may be exercised, during
     the Grantee's lifetime, only by the Grantee; provided, however, that the
     Grantee may, to the extent provided in the Plan in any manner specified by
     the Committee, designate in writing a beneficiary to exercise his or her
     Incentive Stock Option after the Grantee's death.
 
     For purposes of this Section 6.4, "Subsidiary Corporation" means a
corporation other than the Company in an unbroken chain of corporations
beginning with the Company if, at the time of granting the Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. Notwithstanding the
foregoing and Section 3.2, the Committee may, without the consent of the
Grantee, at any time before the exercise of an Option (whether or not an
Incentive Stock Option), take any action necessary to prevent such Option from
being treated as an Incentive Stock Option.
 
     6.5  Payment.  Except as otherwise provided by the Committee in an Award
Agreement, Options shall be exercised by the delivery of a written notice of
exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment for the Shares
made by any one or more of the following means, subject to the approval of the
Committee:
 
          (a) cash, personal check or wire transfer;
 
          (b) Mature Shares, valued at their Fair Market Value on the date of
     exercise;
 
          (c) with the approval of the Committee, Restricted Shares held by the
     Grantee for at least six months prior to the exercise of the Option, each
     such share valued at the Fair Market Value of a Share on the date of
     exercise; or
 
          (d) subject to applicable law, pursuant to procedures previously
     approved by the Company, through the sale of the Shares acquired on
     exercise of the Option through a broker-dealer to whom the Grantee has
     submitted an irrevocable notice of exercise and irrevocable instructions to
     deliver promptly to the Company the amount of sale or loan proceeds
     sufficient to pay for such Shares, together with, if requested
 
                                       A-12
<PAGE>
 
     by the Company, the amount of federal, state, local or foreign withholding
     taxes payable by Grantee by reason of such exercise.
 
     The Committee may in its discretion specify that, if any Restricted Shares
     ("Tendered Restricted Shares") are used to pay the Option Price, (x) all
     the Shares acquired on exercise of the Option shall be subject to the same
     restrictions as the Tendered Restricted Shares, determined as of the date
     of exercise of the Option, or (y) a number of Shares acquired on exercise
     of the Option equal to the number of Tendered Restricted Shares shall be
     subject to the same restrictions as the Tendered Restricted Shares,
     determined as of the date of exercise of the Option.
 
                                   ARTICLE 7.
 
                               RESTRICTED SHARES
 
     7.1  Grant of Restricted Shares.  Subject to and consistent with the
provisions of the Plan, the Committee, at any time and from time to time, may
grant Restricted Shares to any Eligible Person in such amounts as the Committee
shall determine.
 
     7.2  Award Agreement.  Each grant of Restricted Shares shall be evidenced
by an Award Agreement that shall specify the Period(s) of Restriction, the
number of Restricted Shares granted, and such other provisions as the Committee
shall determine. The Committee may impose such conditions and/or restrictions on
any Restricted Shares granted pursuant to the Plan as it may deem advisable,
including restrictions based upon the achievement of specific performance goals,
time-based restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable securities laws; provided that such
conditions and/or restrictions may lapse, if so determined by the Committee, in
the event of the Grantee's Termination of Affiliation due to death, disability,
normal or approved early retirement, or involuntary termination by the Company
or an Affiliate without "cause".
 
     7.3  Consideration for Restricted Shares.  The Committee shall determine
the amount, if any, that a Grantee shall pay for Restricted Shares, subject to
the following sentence. Except with respect to Restricted Shares that are
treasury shares, for which no payment need be required, the Committee shall
require the Grantee to pay at least the par value of a Share for each Restricted
Share. Such payment shall be made in full by the Grantee before the delivery of
the Shares and in any event no later than 10 business days after the Grant Date
for such Shares.
 
     7.4  Effect of Forfeiture.  If Restricted Shares are forfeited, and if the
Grantee was required to pay for such shares or acquired such Restricted Shares
upon the exercise of an Option, the Grantee shall be deemed to have resold such
Restricted Shares to the Company at a price equal to the lesser of (x) the
amount paid by the Grantee for such Restricted Shares, or (y) the Fair Market
Value of a Share on the date of such forfeiture. The Company shall pay to the
Grantee the deemed sale price as soon as is administratively practical. Such
Restricted Shares shall cease to be outstanding, and shall no longer confer on
the Grantee thereof any rights as a stockholder of the Company, from and after
the date of the event causing the forfeiture, whether or not the Grantee accepts
the Company's tender of payment for such Restricted Shares.
 
     7.5  Escrow; Legends.  The Committee may provide that the certificates for
any Restricted Shares (x) shall be held (together with a stock power executed in
blank by the Grantee) in escrow by the Secretary of the Company until such
Restricted Shares become nonforfeitable or are forfeited or (y) shall bear an
appropriate legend restricting the transfer of such Restricted Shares. If any
Restricted Shares become nonforfeitable, the Company shall cause certificates
for such shares to be delivered without such legend.
 
                                   ARTICLE 8.
 
                    PERFORMANCE UNITS AND PERFORMANCE SHARES
 
     8.1  Grant of Performance Units and Performance Shares.  Subject to and
consistent with the provisions of the Plan, Performance Units or Performance
Shares may be granted to any Eligible Person in
 
                                       A-13
<PAGE>
 
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee.
 
     8.2  Value/Performance Goals.  The Committee shall set performance goals in
its discretion which, depending on the extent to which they are met, will
determine the number or value of Performance Units or Performance Shares that
will be paid to the Grantee. With respect to Covered Employees and to the extent
the Committee deems it appropriate to comply with Section 162(m) of the Code,
all performance goals shall be objective Performance Measures satisfying the
requirements for the Performance-Based Exception, and shall be set by the
Committee within the time period prescribed by Section 162(m) of the Code and
related regulations.
 
          (a) Performance Unit.  Each Performance Unit shall have an initial
     value that is established by the Committee at the time of grant.
 
          (b) Performance Share.  Each Performance Share shall have an initial
     value equal to the Fair Market Value of a Share on the date of grant.
 
     8.3  Earning of Performance Units and Performance Shares.  After the
applicable Performance Period has ended, the holder of Performance Units or
Performance Shares shall be entitled to payment based on the level of
achievement of performance goals set by the Committee. If a Performance Unit or
Performance Share Award is intended to comply with the
 
     Performance-Based Exception, the Committee shall certify the level of
achievement of the performance goals in writing before the Award is settled.
 
     At the discretion of the Committee, the settlement of Performance Units or
Performance Shares may be in cash, Shares of equivalent value, or in some
combination thereof, as set forth in the Award Agreement.
 
     If a Grantee is promoted, demoted or transferred to a different business
unit of the Company during a Performance Period, then, to the extent the
Committee determines the performance goals or Performance Period are no longer
appropriate, the Committee may adjust, change, eliminate or cancel the
performance goals or the applicable Performance Period as it deems appropriate
in order to make them appropriate and comparable to the initial performance
goals or Performance Period.
 
     At the discretion of the Committee, a Grantee may be entitled to receive
any dividends or Dividend Equivalents declared with respect to Shares
deliverable in connection with grants of Performance Units or Performance Shares
which have been earned, but not yet delivered to the Grantee. In addition, a
Grantee may, at the discretion of the Committee, be entitled to exercise his or
her voting rights with respect to such Shares.
 
                                   ARTICLE 9.
 
                                 DEFERRED STOCK
 
     9.1  Grant of Deferred Stock.  Subject to and consistent with the
provisions of the Plan, the Committee, at any time and from time to time, may
grant Deferred Stock to any Eligible Person, in such amount and upon such terms
as the Committee shall determine.
 
     9.2  Delivery and Limitations.  Delivery of Shares will occur upon
expiration of the deferral period specified for the Award of Deferred Stock by
the Committee. In addition, an Award of Deferred Stock shall be subject to such
limitations as the Committee may impose, which limitations may lapse at the
expiration of the deferral period or at other specified times, separately or in
combination, in installments or otherwise, as the Committee shall determine at
the time of grant or thereafter. A Grantee awarded Deferred Stock will have no
voting rights and will have no rights to receive dividends in respect of
Deferred Stock, unless and only to the extent that the Committee shall award
Dividend Equivalents in respect of such Deferred Stock.
 
                                       A-14
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     9.3  Forfeiture.  Except as otherwise determined by the Committee, upon
Termination of Affiliation during the applicable deferral period, Deferred Stock
that is at that time subject to deferral (other than a deferral at the election
of the Grantee) shall be forfeited.
 
                                  ARTICLE 10.
 
                              DIVIDEND EQUIVALENTS
 
     The Committee is authorized to grant Awards of Dividend Equivalents alone
or in conjunction with other Awards. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Shares or additional Awards or otherwise
reinvested.
 
                                  ARTICLE 11.
 
                            OTHER STOCK-BASED AWARDS
 
     The Committee is authorized, subject to limitations under applicable law,
to grant such other Awards that are denominated or payable in, valued in whole
or in part by reference to, or otherwise based on, or related to, Shares, as
deemed by the Committee to be consistent with the purposes of the Plan including
Shares awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debt securities or other rights convertible or
exchangeable into Shares, Awards valued by reference to the value of securities
of or the performance of specified Affiliates, and Awards payable in securities
of Affiliates. Subject to and consistent with the provisions of the Plan, the
Committee shall determine the terms and conditions of such Awards. Except as
provided by the Committee, Shares delivered pursuant to a purchase right granted
under this Article 11 shall be purchased for such consideration, paid for by
such methods and in such forms, including cash, Shares, outstanding Awards or
other property, as the Committee shall determine.
 
                                  ARTICLE 12.
 
                               CHANGE OF CONTROL
 
     12.1  Acceleration of Exercisability and Lapse of Restrictions.  If, within
two (2) years following a Change of Control, a Grantee has a Termination of
Affiliation with the Company and the Company's Affiliates (excluding any
transfer to the Company or its Affiliates) voluntarily for Good Reason, or
involuntarily (other than due to Cause, death, Disability, or Retirement) the
following acceleration provisions shall apply to Awards other than Awards
granted under Article 13:
 
          (a) All outstanding Awards pursuant to which the Grantee may have
     rights the exercise of which is restricted or limited shall become fully
     exercisable, except to the extent otherwise provided in Section 5.7(a);
     unless the right to lapse restrictions or limitations is waived or deferred
     by a Grantee prior to such lapse, all restrictions or limitations
     (including risks of forfeiture) on outstanding Awards subject to
     restrictions or limitations under the Plan shall lapse; and all performance
     criteria and other conditions to payment of Awards under which payments of
     cash, Shares or other property are subject to conditions shall be deemed to
     be achieved or fulfilled and shall be waived by the Company, except to the
     extent otherwise provided in Section 5.7(a); and
 
          (b) In the event that any Award is subject to limitations under
     Section 5.7(a) at the time of a Change of Control, then, solely for the
     purpose of determining the rights of the Grantee with respect to such
     Award, a Change of Control will be deemed to occur at the close of business
     on the first business day following the date on which the limitations on
     such Award under Section 5.7(a) have expired. In addition, notwithstanding
     any other provision of the Plan or any outstanding Award Agreement, Awards
     in the form of nonqualified stock options which are accelerated under this
     Section 12.1 shall be exercisable after a Grantee's Termination of
     Affiliation for a period equal to the lesser of (i) the remaining term of
     each nonqualified option; or (ii) eighteen (18) months.
 
                                       A-15
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     12.2  Definitions.  For purposes of this Article 12, the following terms
shall have the meanings set forth below:
 
          (a) "Cause" means, unless otherwise defined in an Award Agreement,
     from and after the occurrence of a Change of Control, the occurrence of any
     one or more of the following, as determined in the good faith and
     reasonable judgment of the Committee: (i) willful failure by a Grantee to
     substantially perform his or her duties (as they existed immediately prior
     to a Change of Control), other than any such failure resulting from a
     Disability, or (ii) gross negligence or willful misconduct of the Grantee
     which results in a significantly adverse effect upon the Company or an
     Affiliate, or (iii) willful violation or disregard of the code of business
     conduct or other published policy of the Company or an Affiliate by the
     Grantee, or (iv) Grantee's conviction of a crime involving an act of fraud,
     embezzlement, theft, or any other act constituting a felony involving moral
     turpitude or causing material harm, financial or otherwise, to the Company
     or an Affiliate.
 
          (b) "Change of Control" means, unless otherwise defined in an Award
     Agreement, the occurrence of any one or more of the following:
 
             (i) any Person, other than the Company or a Related Party, is or
        becomes the "beneficial owner" (as defined in Rule 13d-3 under the
        Exchange Act), directly or indirectly, of securities of the Company
        representing 15% or more of the total voting power of all the then
        outstanding Voting Securities; or
 
             (ii) any Person, other than the Company or a Related Party,
        purchases or otherwise acquires, under a tender offer, securities
        representing 15% or more of the total voting power of all the then
        outstanding Voting Securities; or
 
             (iii) individuals (a) who as of the Effective Date constitute the
        Board or (b) who thereafter are elected to the Board and whose election,
        or nomination for election, to the Board was approved by a vote of at
        least two-thirds (2/3) of the directors then still in office who either
        were directors as of the Effective Date or whose election or nomination
        for election was previously so approved, cease for any reason to
        constitute a majority thereof; or
 
             (iv) the consummation of a merger, consolidation, recapitalization
        or reorganization of the Company or an acquisition by the Company, other
        than any such transaction which would result in the Voting Securities
        outstanding immediately prior thereto continuing to represent (either by
        remaining outstanding or by being converted into voting securities of
        the surviving entity) at least 65% of the total voting power represented
        by the Voting Securities of such surviving entity outstanding
        immediately after such transaction if the voting rights of each Voting
        Security relative to the other Voting Securities were not altered in
        such transaction; or
 
             (v) the stockholders of the Company approve a plan of complete
        liquidation of the Company or an agreement for the sale or disposition
        by the Company of all or substantially all of the Company's assets other
        than any such transaction which would result in a Related Party owning
        or acquiring more than 50% of the assets owned by the Company
        immediately prior to the transaction; or
 
             (vi) the Board adopts a resolution to the effect that a Change of
        Control has occurred.
 
          (c) "Good Reason" means, unless otherwise defined in an Award
     Agreement, the occurrence, within two years following a Change of Control
     and without a Grantee's prior written consent, of any one or more of the
     following:
 
             (i) a material change in the Grantee's duties from those assigned
        to the Grantee immediately prior to a Change of Control, unless
        associated with a bona fide promotion of the Grantee and a commensurate
        increase in the Grantee's compensation, in which case the Grantee shall
        be deemed to consent, or
 
             (ii) a significant reduction in the authority and responsibility
        assigned to the Grantee, or
 
                                       A-16
<PAGE>
 
             (iii) the removal of the Grantee from, or failure to reelect the
        Grantee to, any corporate office of the Company or an Affiliate to which
        the Grantee may have been elected and was occupying immediately prior to
        a Change of Control, unless associated with a bona fide promotion of the
        Grantee and a commensurate increase in the Grantee's compensation or in
        connection with the election of the Grantee to a corresponding or higher
        office of the Company or any Affiliate, in each which case the Grantee
        shall be deemed to consent, or
 
             (iv) reduction of a Grantee's base salary, or
 
             (v) termination of any of the incentive compensation plans in which
        the Grantee shall be participating at the time of a Change of Control,
        unless such plan is replaced by a successor plan providing incentive
        opportunities and awards at least as favorable to the Grantee as those
        provided in the plan being terminated, or
 
             (vi) amendment of any of the incentive compensation plans in which
        the Grantee shall be participating at the time of a Change of Control so
        as to provide for incentive opportunities and awards less favorable to
        the Grantee than those provided in the plan being amended, or
 
             (vii) failure by the Company or an Affiliate to continue the
        Grantee as a participant in any of the incentive compensation plans in
        which the Grantee is participating immediately prior to a Change of
        Control on a basis comparable to the basis on which other similarly
        situated employees participate in such plan, or
 
             (viii) except in relation to a wage freeze applicable to all
        employees of the Company or an Affiliate, modification of the
        administration of any of the incentive compensation plans so as to
        adversely affect the level of incentive opportunities or awards actually
        received by the Grantee, or
 
             (ix) a requirement by the Company or an Affiliate that the
        Grantee's principal duties be performed at a location more than fifty
        (50) miles from the location where the Grantee was employed immediately
        preceding the Change of Control, except for travel reasonably required
        in the performance of the Grantee's duties.
 
          (d) "Related Party" means: (i) a majority-owned subsidiary of the
     Company; or (ii) an employee or group of employees of the Company or any
     majority-owned subsidiary of the Company; or (iii) a trustee or other
     fiduciary holding securities under an employee benefit plan of the Company
     or any majority-owned subsidiary of the Company; or (iv) a corporation
     owned directly or indirectly by the stockholders of the Company in
     substantially the same proportion as their ownership of the Voting Power.
 
          (e) "Retirement" shall have the meaning ascribed to such term in the
     Company's governing tax-qualified retirement plan applicable, or if no such
     plan is applicable to the Grantee, at the discretion of the Committee.
 
          (f) "Voting Securities" means any securities of the Company which
     carry the right to vote generally in the election of directors.
 
     12.3  Flexibility to Amend.  The provisions of this Article 12 and any
Award Agreement may be modified at any time prior to a Change in Control,
without the consent of the Grantee or the Company's stockholders in order to
cause the Change in Control provisions applicable to Awards to conform with the
Company's policies regarding treatment of compensation upon a Change in Control.
 
                                  ARTICLE 13.
 
                          NON-EMPLOYEE DIRECTOR AWARDS
 
     13.1  Exclusive Means for Non-Employee Director Awards.  Awards to
Non-Employee Directors shall be made solely pursuant to this Article 13.
 
     13.2  Director Option.  Subject to adjustment as provided in Section 4.2,
each Non-Employee Director shall be automatically granted a Director Option for
6,000 Shares on the date of the regularly scheduled Board
 
                                       A-17
<PAGE>
 
meeting in January of each year; provided that if no meeting is held in January,
the Grant Date for such Director Option shall be January 31. Notwithstanding the
foregoing, the Board may, in its discretion exercised at any time prior to the
date a Director Option is granted for a year, provide that the Director Option
for such year shall be granted in installments, so that only a portion (which
portion shall be the same for each Non-Employee Director) of the Director Option
shall be granted in January of such year, and the remaining portion or portions
shall be granted at such time or times in such year as the Board may specify at
the time it determines to grant the Director Option in installments. A person
who becomes a Non-Employee Director after the January Board meeting in any year
(or after the end of January if there is a no January Board meeting) shall be
granted a prorated Director Option for such year. The Grant Date for such
prorated Director Option shall be the date of the first regularly scheduled
meeting of the Board occurring in the earliest of May, September, or January
after such person becomes a Non-Employee Director (or the last day of such
earliest month if there is no regularly scheduled Board meeting in such earliest
month). The number of Shares subject to such prorated Director Option shall be
6,000 multiplied by a fraction, the numerator of which is the number of full and
partial months elapsing between the date such person became a Non-Employee
Director and December 31 of the year in which such person became a Non-Employee
Director, and the denominator of which is twelve. Such prorated Director Option
shall be for a whole number of Shares determined by rounding up to the next
higher whole number of Shares any fractional portion of a Share equal to or in
excess of one-half Share (and otherwise rounding down to the next lower whole
number of Shares). In the event the Board has determined that the Director
Option for a year shall be granted in installments, the Board shall make
appropriate provision for prorating installments with respect to Non-Employee
Directors entitled to a prorated Director Option, consistent with the preceding
provisions of this Section 13.2.
 
          (a) Non-Employee Director Status.  A person must be a Non-Employee
     Director on the Grant Date of a Director Option (or any installment
     thereof) in order to be granted such Director Option (or installment
     thereof).
 
          (b) Option Price.  The Option Price for each Director Option shall be
     100 percent of the Fair Market Value of a Share on the Grant Date. Subject
     to the adjustment allowed under Section 4.2, the Board shall not have the
     authority or discretion to change the Option Price of any outstanding
     Director Option.
 
          (c) Director Option Term.  The Option Term of each Director Option
     shall expire the earlier of (i) the tenth anniversary of the Grant Date or
     (ii) the fifth anniversary of the date the Grantee ceases to serve as a
     Non-Employee Director.
 
          (d) Vesting and Exercisability.  Each Director Option shall be fully
     vested and exercisable at any time, or from time to time, throughout the
     Option Term.
 
          (e) Method of Exercise.  A Grantee may exercise a Director Option, in
     whole or in part, during the Option Term, by giving written notice of
     exercise to the Human Resources Department of the Company, specifying the
     Director Option to be exercised and the number of Shares to be purchased,
     and paying in full the exercise price by any one or any combination of the
     following means:
 
             (i) in cash, personal check or wire transfer;
 
             (ii) by surrendering Mature Shares having a Fair Market Value at
        the time of exercise equal to the Option Price for Shares being
        acquired; or
 
             (iii) subject to applicable law, pursuant to procedures previously
        approved by the Company, through the sale of the Shares acquired on
        exercise of the Option through a broker-dealer to whom the Grantee has
        submitted an irrevocable notice of exercise and irrevocable instructions
        to deliver promptly to the Company the amount of sale or loan proceeds
        sufficient to pay for such Shares.
 
          (f) Exercise of Director Option for Deferred Stock.  A Non-Employee
     Director who makes a Deferral Election in accordance with Section 13.5 and
     who pays the Option Price with Mature Shares may exercise his or her option
     for an equal number of shares of Deferred Stock in lieu of Shares.
 
                                       A-18
<PAGE>
 
     13.3  Director Stock Grants.
 
     (a) Automatic Annual Stock Grant.  Subject to adjustment as provided in
Section 4.2, each Non-Employee Director automatically shall be granted fully
vested Shares ("Director Stock Grant") valued at twenty thousand dollars at the
close of business on the day of each Annual Meeting of Company stockholders at
which a class of directors is elected or reelected by the Company's
stockholders; provided the Grantee is a Non-Employee Director at the conclusion
of such Annual Meeting. The number of Shares will be determined by dividing
twenty thousand dollars by the Fair Market Value of a Share on the date of the
Annual Meeting of Company stockholders, and rounding up to the next higher whole
number of Shares any fractional portion of a Share equal to or in excess of
one-half Share, and otherwise rounding down to the next lower whole number of
Shares. Each Non-Employee Director who first becomes a Non-Employee Director
after the conclusion of such Annual Meeting and prior to August 1 of any year
shall automatically receive a full Director Stock Grant in December of such
year. The number of Shares will be determined by dividing twenty thousand
dollars by the Fair Market Value of a Share on the last business day in December
of such year and rounding up to the next higher whole number of Shares any
fractional portion of a Share equal to or in excess of one-half Share, and
otherwise rounding down to the next lower whole number of Shares.
 
     (b) Prorated Director Stock Grant.  Subject to adjustment as provided in
Section 4.2, each Non-Employee Director who first becomes a Non-Employee
Director on or after August 1 and on or before December 31 of any calendar year
automatically shall receive a prorated Director Stock Grant in December of such
year. The number of Shares in such prorated Director Stock Grant shall be
determined by multiplying twenty thousand dollars by a fraction, the numerator
of which is the number of full and fractional months such Non-Employee
Director's service as a Non-Employee Director in such calendar year, and the
denominator of which is six, the prorated amount, and dividing the prorated
amount by the Fair Market Value of a Share on the last business day in December
of such year. Such prorated Director Stock Grant shall be for a whole number of
Shares determined by rounding up to the next higher whole number of Shares any
fractional portion of a Share equal to or in excess of one-half Share (and
otherwise rounding down to the next lower whole number of Shares).
 
     (c) Election to Defer Shares Under Director Stock Grant.  A Non-Employee
Director who makes a Deferral Election in accordance with Section 13.5 shall
receive all or part (as he or she elects) of the Shares to be delivered pursuant
to a Director Stock Grant in the form of an equal number of shares of Deferred
Stock in lieu of delivery of Shares under Section 13.3(a).
 
     13.4  Election to Receive Director Fees in Shares or Deferred Stock in Lieu
of Cash.
 
     (a) Payment of Director Fees in Shares.  A Non-Employee Director may elect
("Share Election") to be paid all or a portion of the cash fees earned in his or
her capacity as a Non-Employee Director (including annual retainer fees, meeting
fees, fees for service on a Board committee, fees for service as chairman of a
Board committee, and any other fees paid to directors) ("Director Fees") in the
form of Shares in lieu of cash. A Share Election may be made at any time prior
to the date Director Fees would otherwise have been paid in cash, subject to
such restrictions and advance filing requirements as the Company may impose.
Share Elections made pursuant to The Williams Companies, Inc. 1996 Stock Plan
for Non-Employee Directors that were in effect on the date stockholders approve
this Plan shall remain in effect under this Plan, subject to the remainder of
this Section 13.4(a). Each Share Election shall be irrevocable, shall specify
the portion of the Director Fees to be paid in the form of Shares and shall
remain in effect with respect to future Director Fees until the Non-Employee
Director revokes or changes such Share Election. Any such revocation or change
shall have prospective application only. Shares delivered pursuant to a Share
Election shall be the whole number of Shares determined by dividing the amount
of Director Fees to be paid in Shares by the Fair Market Value of a Share on the
date such Director Fees would otherwise be paid (rounding up to the next higher
whole number of Shares any fractional portion of a Share equal to or in excess
of one-half Share, and otherwise rounding down to the next lower whole number of
Shares).
 
     (b) Payment of Director Fees in Deferred Stock.  A Non-Employee Director
who makes a Deferral Election in accordance with Section 13.5 shall receive all
or part (as he or she elects) of his or her Director Fees in the form of a
number of shares of Deferred Stock equal to the quotient (rounding up to the
next higher
 
                                       A-19
<PAGE>
 
whole number of shares, any fractional portion of a Share equal to or in excess
of one-half Share, and otherwise rounding down to the next lower whole number of
Shares) of the amount of Director Fees to be paid in the form of Deferred Stock
divided by the Fair Market Value of a Share on the date such Director Fees would
otherwise be paid in cash.
 
     13.5  Deferral Elections.  Each member of the Board who is a Non-Employee
Director may make an election ("Deferral Election") to be paid any or all of the
following ("Deferrable Amounts") in the form of Deferred Stock in lieu of cash
or Shares, as applicable: (i) shares to be delivered on exercise of a Director
Option as provided in Section 13.2(e); (ii) Director Stock Grants as provided in
Section 13.3; (iii) Director Fees as provided in 13.4(a); or (iv) Dividend
Equivalents on Deferred Stock, as provided in Section 13.5(d).
 
     (a) Timing of Deferral Elections.  An initial Deferral Election must be
filed with the Human Resources Department of the Company no later than December
31 of the year preceding the calendar year in which the Deferrable Amounts to
which the Deferral Election applies would otherwise be paid or delivered,
subject to such restrictions and advance filing requirements as the Company may
impose; provided that any newly elected or appointed Non-Employee Director may
file a Deferral Election not later than 30 days after the date such person first
became a Non-Employee Director (or at such later time in the year of such
election or appointment as the Company shall permit). A Deferral Election shall
be irrevocable as of the filing deadline and shall only apply with respect to
Deferrable Amounts otherwise payable after the filing of such election. Each
Deferral Election (including a deferral election filed under The Williams
Companies, Inc. 1996 Stock Plan for Non-Employee Directors that was in effect
with respect to 2002 Deferrable Amounts on the date stockholders approved this
Plan) shall remain in effect with respect to subsequently earned Deferrable
Amounts unless the Non-Employee Director revokes or changes such Deferral
Election. Any such revocation or change shall have prospective application only.
 
     (b) Content of Deferral Elections.  A Deferral Election must specify the
following:
 
          (i) The number of Shares acquired on exercise of a Director Option or
     under a Director Stock Grant to be paid in Deferred Stock, or the dollar
     amount or percentage of Director Fees to be paid in Deferred Stock;
 
          (ii) the date such Deferred Stock shall be paid (subject to such
     limitations as may be specified by counsel to the Company); and
 
          (iii) whether Dividend Equivalents on Deferred Stock are to be paid in
     cash or deposited in the form of Deferred Stock to the Non-Employee
     Director's Deferral Account (as defined in Section 13.5(c)), to be paid at
     the time the Deferred Stock to which they relate are paid.
 
     (c) Deferral Account.  The Company shall establish an account ("Deferral
Account") on its books for each Non-Employee Director who makes a Deferral
Election. A number of shares of Deferred Stock (determined in the case of a
Deferrable Amount otherwise payable in cash, by dividing the amount of cash to
be deferred by the Fair Market Value of a Share on the date such cash would
otherwise be paid, and rounding up to the next higher whole number of Shares any
fractional portion of a Share equal to or in excess of one-half Share, and
otherwise rounding down to the next lower whole number of Shares) shall be
credited to the Non-Employee Director's Deferral Account as of each date a
Deferrable Amount subject to a Deferral Election would otherwise be paid.
Deferral Accounts shall be maintained for recordkeeping purposes only and the
Company shall not be obligated to segregate or set aside assets representing
securities or other amounts credited to Deferral Accounts. The obligation to
make distributions of securities or other amounts credited to Deferral Accounts
shall be an unfunded unsecured obligation of the Company.
 
     (d) Crediting of Dividend Equivalents.  Whenever dividends are paid or
distributions made with respect to Shares, Dividend Equivalents shall be
credited to Deferral Accounts on all Deferred Stock credited thereto as of the
record date for such dividend or distribution. If the Non-Employee Director has
elected cash payment of Dividend Equivalents pursuant to Section 13.5(b), such
Dividend Equivalents shall be paid in cash on the payment date of the dividend
or distribution. Otherwise, such Dividend Equivalents shall be credited to the
Deferral Account in the form of additional Deferred Stock in a number determined
by dividing the aggregate value of such Dividend Equivalents by the Fair Market
Value of a Share at the payment date of
 
                                       A-20
<PAGE>
 
the dividend or distribution (rounding up to the next higher whole number of
Shares any fractional portion of a Share equal to or in excess of one-half
Share, and otherwise rounding down to the next lower whole number of Shares).
 
     (e) Settlement of Deferral Accounts.  The Company shall settle a
Non-Employee Director's Deferral Account by delivering to the holder thereof
(which may be the Non-Employee Director or his or her beneficiary) a number of
Shares equal to the whole number of Deferred Stock then credited to such
Deferral Account (or a specified portion in the event of any partial
settlement); provided that if less than the value of a whole Share remains in
the Deferral Account at the time of any such distribution, the number of Shares
distributed shall be rounded up to the next higher whole number of Shares if the
fractional portion of a Share remaining is equal to or in excess of one-half
Share, and otherwise shall be rounded down to the next lower whole number of
Shares. Such settlement shall be made at the time or times specified in the
applicable Deferral Election; provided that a Non-Employee Director may further
defer settlement of the Deferral Account by filing a new Deferral Election if
counsel to the Company determines that such further deferral likely would not
trigger immediate taxation of amounts otherwise distributable from such Deferral
Account under applicable federal income tax laws and regulations.
 
     13.6  Insufficient Number of Shares.  If at any date insufficient Shares
are available under the Plan for the automatic grant of Director Options or
Director Stock Grants, or the delivery of Shares in lieu of cash payment of
Director Fees, or crediting Deferred Stock pursuant to a Deferral Election, (a)
Director Options under Section 13.2 and Director Stock Grants under Section 13.3
automatically shall be granted proportionately to each Non-Employee Director
eligible for such a grant to the extent Shares are then available (provided that
no Director Option shall be granted with respect to a fractional number of
Shares), and (b) then, if any Shares remain available, Director Fees elected to
be received in Shares shall be paid in the form of Shares or deferred in the
form of Deferred Stock proportionately among Non-Employee Directors then
eligible to participate to the extent Shares are then available.
 
     13.7  Non-Forfeitability.  The interest of each Non-Employee Director in
Director Options, Director Stock Grants or Deferred Stock (and any Deferral
Account relating thereto) granted or delivered under the Plan at all times shall
be non-forfeitable.
 
     13.8  No Duplicate Payments.  No payments or Awards shall be made or
granted under this Plan with respect to any services as a Non-Employee Director
if a payment or award has been or will be made for the same services under The
Williams Companies, Inc. 1996 Stock Plan for Non-Employee Directors.
 
                                  ARTICLE 14.
 
                    AMENDMENT, MODIFICATION, AND TERMINATION
 
     14.1 Amendment, Modification, and Termination.  Subject to Section 14.2,
the Board may, at any time and from time to time, alter, amend, suspend,
discontinue or terminate the Plan in whole or in part without the approval of
the Company's stockholders, except that (a) any amendment or alteration shall be
subject to the approval of the Company's stockholders if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Shares may then be
listed or quoted, and (b) the Board may otherwise, in its discretion, determine
to submit other such amendments or alterations to stockholders for approval.
 
     14.2 Awards Previously Granted.  Except as otherwise specifically permitted
in the Plan or an Award Agreement, no termination, amendment, or modification of
the Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the written consent of the Grantee of such Award;
provided that Article 12 may be removed, amended or modified at any time prior
to a Change of Control without the consent of any Grantee.
 
                                       A-21
<PAGE>
 
                                  ARTICLE 15.
 
                                  WITHHOLDING
 
     15.1  Required Withholding
 
     (a) Mandatory Tax Withholding.
 
          (i) Whenever, under the Plan, Shares are to be delivered upon exercise
     or payment of an Award, upon Restricted Shares becoming nonforfeitable,
     upon payment of cash, or any other event with respect to rights and
     benefits hereunder, the Company or any Affiliate shall be entitled to
     require (A) that the Grantee remit an amount in cash, or in the Company's
     discretion, in Mature Shares, sufficient to satisfy all of the employer's
     federal, state, and local tax withholding requirements related thereto but
     no more than the minimum amount necessary to satisfy such amounts
     ("Required Withholding"), (B) the withholding of such Required Withholding
     from compensation otherwise due to the Grantee or from any Shares due to
     the Grantee under the Plan or (C) any combination of the foregoing.
 
          (ii) Any Grantee who makes a Disqualifying Disposition (as defined in
     Section 6.4(g)) or an election under Section 83(b) of the Code shall remit
     to the Company an amount sufficient to satisfy all resulting Required
     Withholding; provided that, in lieu of or in addition to the foregoing, the
     Company and/or an Affiliate shall have the right to withhold such Required
     Withholding from compensation otherwise due to the Grantee or from any
     Shares or other payment due to the Grantee under the Plan.
 
     (b) Elective Excess Withholding.
 
          (i) Subject to the following subsection and with the Committee's prior
     approval, a Grantee (other than a Non-Employee Director) may elect to remit
     (or attest to the ownership of) Mature Shares upon the exercise or
     settlement of an Award or upon Restricted Shares becoming non-forfeitable
     (each, a "Taxable Event") having a Fair Market Value equal to an amount
     greater than the Required Withholding for the Taxable Event but not to
     exceed the estimated total amount of such Grantee's tax liability ("Excess
     Withholding") with respect to the Taxable Event.
 
          (ii) Each Excess Withholding election shall be subject to the
     following conditions:
 
             (A) any Grantee's election shall be subject to the Committee's
        discretion to revoke the Grantee's right to elect Excess Withholding at
        any time before the Grantee's election if the Committee has reserved the
        right to do so in the Award Agreement;
 
             (B) the Grantee's election must be made before the date (the "Tax
        Date") on which the amount of tax to be withheld is determined; and
 
             (C) the Grantee's election shall be irrevocable.
 
     15.2 Notification under Code Section 83(b).  If the Grantee, in connection
with the exercise of any Option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such Grantee's
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such election within 10
days of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations issued
under Section 83(b) of the Code. The Committee may, in connection with the grant
of an Award or at any time thereafter, prohibit a Grantee from making the
election described above.
 
                                  ARTICLE 16.
 
                             ADDITIONAL PROVISIONS
 
     16.1  Successors.  All obligations of the Company under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise of all or substantially
all of the business and/or assets of the Company.
 
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     16.2  Gender and Number.  Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
 
     16.3  Severability.  If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or part
of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.
 
     16.4  Requirements of Law.  The granting of Awards and the delivery of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. Notwithstanding any provision of the
Plan or any Award, Grantees shall not be entitled to exercise, or receive
benefits under, any Award, and the Company (and any Affiliate) shall not be
obligated to deliver any Shares or deliver benefits to a Grantee, if such
exercise or delivery would constitute a violation by the Grantee or the Company
of any applicable law or regulation.
 
     16.5  Securities Law Compliance.
 
     (a) If the Committee deems it necessary to comply with any applicable
securities law, or the requirements of any stock exchange upon which Shares may
be listed, the Committee may impose any restriction on Shares acquired pursuant
to Awards under the Plan as it may deem advisable. All certificates for Shares
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the SEC,
any stock exchange upon which Shares are then listed, any applicable securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. If so requested
by the Company, the Grantee shall make a written representation to the Company
that he or she will not sell or offer to sell any Shares unless a registration
statement shall be in effect with respect to such Shares under the Securities
Act of 1993, as amended, and any applicable state securities law or unless he or
she shall have furnished to the Company, in form and substance satisfactory to
the Company, that such registration is not required.
 
     (b) If the Committee determines that the exercise or nonforfeitability of,
or delivery of benefits pursuant to, any Award would violate any applicable
provision of securities laws or the listing requirements of any national
securities exchange or national market system on which are listed any of the
Company's equity securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as applicable, but the Company shall use all
reasonable efforts to cause such exercise, nonforfeitability or delivery to
comply with all such provisions at the earliest practicable date.
 
     16.6  No Rights as a Stockholder.  No Grantee (except as expressly provided
in Article 13) shall have any rights as a stockholder of the Company with
respect to the Shares (other than Restricted Shares) which may be deliverable
upon exercise or payment of such Award until such Shares have been delivered to
him or her. Restricted Shares, whether held by a Grantee or in escrow by the
Secretary of the Company, shall confer on the Grantee all rights of a
stockholder of the Company, except as otherwise provided in the Plan or Award
Agreement. At the time of a grant of Restricted Shares, the Committee may
require the payment of cash dividends thereon to be deferred and, if the
Committee so determines, reinvested in additional Restricted Shares. Stock
dividends and deferred cash dividends issued with respect to Restricted Shares
shall be subject to the same restrictions and other terms as apply to the
Restricted Shares with respect to which such dividends are issued. The Committee
may in its discretion provide for payment of interest on deferred cash
dividends.
 
     16.7  Nature of Payments.  Unless otherwise specified in the Award
Agreement, Awards shall be special incentive payments to the Grantee and shall
not be taken into account in computing the amount of salary or compensation of
the Grantee for purposes of determining any pension, retirement, death or other
benefit under (a) any pension, retirement, profit-sharing, bonus, insurance or
other employee benefit plan of the Company or any Affiliate, except as such plan
shall otherwise expressly provide, or (b) any agreement
 
                                       A-23
<PAGE>
 
between (i) the Company or any Affiliate and (ii) the Grantee, except as such
agreement shall otherwise expressly provide.
 
     16.8  Non-Exclusivity of Plan.  Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements for employees or Non-Employee Directors as it
may deem desirable.
 
     16.9  Governing Law.  The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware,
other than its laws respecting choice of law.
 
     16.10  Share Certificates.  All certificates for Shares delivered under the
terms of the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under federal or state
securities laws, rules and regulations thereunder, and the rules of any national
securities laws, rules and regulations thereunder, and the rules of any national
securities exchange or automated quotation system on which Shares are listed or
quoted. The Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions or any other
restrictions or limitations that may be applicable to Shares. In addition,
during any period in which Awards or Shares are subject to restrictions or
limitations under the terms of the Plan or any Award Agreement, or during any
period during which delivery or receipt of an Award or Shares has been deferred
by the Committee or a Grantee, the Committee may require any Grantee to enter
into an agreement providing that certificates representing Shares deliverable or
delivered pursuant to an Award shall remain in the physical custody of the
Company or such other person as the Committee may designate.
 
     16.11  Unfunded Status of Awards; Creation of Trusts.  The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award Agreement shall give any such Grantee any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Shares or other property pursuant to any Award which trusts or
other arrangements shall be consistent with the "unfunded" status of the Plan
unless the Committee otherwise determines.
 
     16.12  Employment.  Nothing in the Plan or an Award Agreement shall
interfere with or limit in any way the right of the Company or any Affiliate to
terminate any Grantee's employment at any time, nor confer upon any Grantee the
right to continue in the employ or as an officer of the Company or any
Affiliate.
 
     16.13  Participation.  No employee or officer shall have the right to be
selected to receive an Award under this Plan or, having been so selected, to be
selected to receive a future Award.
 
     16.14  Military Service.  Awards shall be administered in accordance with
Section 414(u) of the Code and the Uniformed Services Employment and
Reemployment Rights Act of 1994.
 
     16.15  Construction.  The following rules of construction will apply to the
Plan: (a) the word "or" is disjunctive but not necessarily exclusive, and (b)
words in the singular include the plural, words in the plural include the
singular, and words in the neuter gender include the masculine and feminine
genders and words in the masculine or feminine gender include the other neuter
genders.
 
     16.16  Headings.  The headings of articles and sections are included solely
for convenience of reference, and if there is any conflict between such headings
and the text of this Plan, the text shall control.
 
     16.17  Obligations.  Unless otherwise specified in the Award Agreement, the
obligation to deliver, pay or transfer any amount of money or other property
pursuant to Awards under this Plan shall be the sole obligation of a Grantee's
employer; provided that the obligation to deliver or transfer any Shares
pursuant to Awards under this Plan shall be the sole obligation of the Company.
 
     16.18  No Right to Continue as Director.  Nothing in the Plan or any Award
Agreement shall confer upon any Non-Employee Director the right to continue to
serve as a director of the Company.
 
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<PAGE>
 
     16.19  Stockholder Approval.  No Awards payable in Shares shall be granted
prior to the date the Company's stockholders approve the amended and restated
Plan.