<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1996
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WILLIAMS-SONOMA, INC.
<TABLE>
<S> <C>
CALIFORNIA 94-2203880
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
3250 VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA 94109
(415) 421-7900
------------------------
<TABLE>
<S> <C>
AGENT FOR SERVICE: COPIES TO:
DENNIS A. CHANTLAND DANIEL G. CHRISTOPHER, ESQ.
Executive Vice President and Irell & Manella LLP
Chief Administrative Officer 1800 Avenue of the Stars, Suite 900
Williams-Sonoma, Inc. Los Angeles, California 90067
3250 Van Ness Avenue (310) 277-1010
San Francisco, California 94109
(415) 421-7900
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of the Registration Statement as determined by
market conditions.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment
plans, please check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SECURITY PRICE(3) FEE(1)
- -----------------------------------------------------------------------------------------------------------
5 1/4% Convertible Subordinated Notes
due 2003............................. $40,000,000 100% $40,000,000 $13,800
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per
share................................ (2) -- -- None
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933, as amended.
(2) Indeterminate number of shares as may become issuable upon conversion of the
Notes, including such shares as may be issued pursuant to antidilution
adjustments.
(3) Exclusive of accrued interest and distributions, if any.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 9, 1996
PROSPECTUS
WILLIAMS-SONOMA, INC.
U.S. $40,000,000 OF 5 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
(INTEREST PAYABLE APRIL 15 AND OCTOBER 15)
This Prospectus relates to the resale of $40,000,000 aggregate principal
amount of 5 1/4% Convertible Subordinated Notes due April 15, 2003 (the
"Notes"), of Williams-Sonoma, Inc., a California corporation (the "Company"),
and the shares ("Shares") of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company which are initially issuable upon conversion of the
Notes. This Prospectus does not cover the original issuance of shares of Common
Stock upon conversion of the Notes. The Notes and Shares may be offered from
time to time by the holders thereof (the "Selling Securityholders"). See "Plan
of Distribution." Information concerning the Selling Securityholders may change
from time to time and, to the extent required, will be set forth in Supplements
to this Prospectus.
The aggregate principal amount of Notes that may be offered by the Selling
Securityholders pursuant to this Prospectus is $40,000,000. As of the date of
this Prospectus, the aggregate principal amount of Notes outstanding is
$40,000,000. The Notes are convertible into Common Stock initially at a
conversion price of $26.10 per share (equivalent to a conversion rate of 38.3142
per U.S. $1,000 principal amount of Notes), subject to adjustment upon the
occurrence of certain events, at any time on or after July 15, 1996, and prior
to the close of business on the maturity date, unless previously redeemed or
repurchased. Interest on the Notes is payable on April 15 and October 15 of each
year, commencing on October 15, 1996, with payment in full of the principal
amount of the Notes due on April 15, 2003.
On or after April 15, 1998, the Notes are redeemable, in whole or in part,
at the option of the Company at the redemption prices set forth herein, plus
accrued interest, provided that the Company may redeem the Notes from April 15,
1998, to April 14, 2000, only if the last reported sale price of the Common
Stock for each of the 30 consecutive Trading Days (as hereinafter defined under
"Description of Notes -- Conversion Rights") ending on the Trading Day prior to
the date of the notice of redemption shall have equalled or exceeded 140% of the
conversion price then in effect. See "Description of Notes -- Optional
Redemption."
The Notes are unsecured obligations of the Company and are subordinated in
the right of payment to all existing and future Senior Debt (as such term is
hereinafter defined under "Description of Notes -- Subordination") of the
Company and effectively subordinated in right of payment to all indebtedness and
other liabilities of the Company's subsidiaries. As of May 26, 1996, the
aggregate amount of outstanding Senior Debt of the Company was approximately $40
million. As of the same date, the Company's subsidiaries had no indebtedness
outstanding for borrowed money, but had guaranteed substantially all of the
Company's Senior Debt. See "Description of Notes -- Subordination."
(continued on following page)
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
FOLLOWING THE SUMMARY HEREIN.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JULY 9, 1996.
<PAGE> 3
(continued from previous page)
All of the Notes were initially issued and sold to Goldman, Sachs & Co.
(the "Initial Purchaser") pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
provided by Section 4(2) thereof. The Notes were sold simultaneously by the
Initial Purchaser in transactions exempt from the registration requirements of
the Securities Act in the United States to persons reasonably believed by the
Initial Purchaser to be Qualified Institutional Buyers as defined in Rule 144A
under the Securities Act, to a limited number of institutional investors that
are accredited institutional investors within the meanings of Rule 501(a) under
the Securities Act, and outside the United States to non-U.S. persons in
offshore transactions in reliance on Regulation S under the Securities Act. The
Notes issued and sold in reliance on Rule 144A are currently eligible for
trading in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") market of the National Association of Securities Dealers, Inc. The
Notes are not expected to remain eligible for trading through the PORTAL market
after the effectiveness of the Registration Statement relating to this
Prospectus. The Company does not intend to apply for listing of the Notes on any
securities exchange or for inclusion of the Notes on any automated quotation
system.
The Selling Securityholders, acting as principals for their own account,
directly, through agents designated from time to time, or through dealers or
underwriters also to be designated, may sell the Notes and Shares from time to
time on terms to be determined at the time of sale. Such dealers may include the
Initial Purchaser. See "Plan of Distribution." The Selling Securityholders and
any broker-dealers, agents or underwriters that participate with the Selling
Securityholders in the distribution of the Notes or Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Notes or Shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act. For information concerning indemnification arrangements between
the Company and the Selling Securityholders, see "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the symbol
"WSGC." On July 5, 1996, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was U.S. $22 5/8 per share.
The Company will not receive any of the proceeds from the resale of the
Notes or Shares. The Company has agreed to bear certain expenses in connection
with the registration and sale of the Notes and Shares being offered by the
Selling Securityholders.
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information........................................................... 2
Documents Incorporated by Reference............................................. 3
Forward-Looking Statements...................................................... 3
Summary......................................................................... 4
Risk Factors.................................................................... 6
The Company..................................................................... 9
Use of Proceeds................................................................. 9
Ratio of Earnings to Fixed Charges.............................................. 9
Selling Securityholders......................................................... 10
Description of Certain Existing Indebtedness.................................... 12
Description of Notes............................................................ 15
Description of Capital Stock.................................................... 28
United States Taxation.......................................................... 29
Plan of Distribution............................................................ 35
Legal Matters................................................................... 36
Experts......................................................................... 36
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its Regional Office at 5757 Wilshire Boulevard, Suite 500,
Los Angeles, California 90036. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock, par
value $.01 per share, is listed on the Nasdaq National Market, and reports,
proxy statements and other information regarding the Company can be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company, the Notes and the Shares, reference is hereby made to the Registration
Statement, including the exhibits filed or incorporated as a part thereof.
Statements contained herein concerning the provisions of any document are not
necessarily complete and in each instance reference is made to the copy of the
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by reference to the copy of the applicable
documents filed with the Commission.
2
<PAGE> 5
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company under the Exchange
Act with the Commission are incorporated herein by reference: (1) the Company's
Annual Report on Form 10-K for the fiscal year ended January 28, 1996; (2) the
Company's Quarterly Report on Form 10-Q for the quarter ended April 28, 1996;
and (3) the description of the Company's Common Stock as set forth in the
Company's registration statement on Form 8-A, filed with the Commission on July
25, 1984, including any amendment or report filed for the purpose of updating
such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities made hereby shall be deemed to be
incorporated in this Prospectus by reference and to be a part hereof from the
date of filing of such documents. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus has been delivered, on the request of such person, a copy of any
and all of the information that has been or may be incorporated by reference in
this Prospectus, other than exhibits thereto. Written or oral requests for such
copies should be directed to Williams-Sonoma, Inc., 3250 Van Ness Avenue, San
Francisco, California 94109, Attention: Investor Relations. The telephone number
is (415) 421-7900.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed
in this Prospectus are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, the Company's ability to improve
planning and control processes and other infrastructure issues, the potential
for construction and other delays in store openings, the Company's dependence on
external funding sources, a limited operating history for the Company's new
large-format stores, the potential for changes in consumer spending patterns,
consumer preferences and overall economic conditions, the Company's dependence
on foreign suppliers and increasing competition in the specialty retail
business. Other factors that could cause actual results to differ materially
from those set forth in such forward-looking statements include the risks and
uncertainties detailed in the Company's most recent Form 10-K and its other
filings with the Commission.
3
<PAGE> 6
SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information contained elsewhere in this Prospectus.
Securities Offered......... U.S. $40,000,000 principal amount of 5 1/4%
Convertible Subordinated Notes due April 15, 2003
(the "Notes"), with interest payable on April 15
and October 15 of each year, commencing on
October 15, 1996.
Issuer..................... Williams-Sonoma, Inc., a California corporation.
Conversion Price........... U.S. $26.10 per share (equivalent to a conversion
rate of 38.3142 shares per U.S. $1,000 principal
amount of Notes), subject to adjustment.
Form and Denomination...... The Notes offered hereby were issued only in
registered form. The Notes were initially issued
in minimum denominations of $1,000, except that
Notes offered other than in reliance on
Regulation S or to Qualified Institutional Buyers
were issued only in certificated form and in
minimum denominations of $250,000 and integral
multiples of $1,000 in excess thereof. The Notes
initially sold by Goldman, Sachs & Co. to
Qualified Institutional Buyers are represented by
Restricted Global Notes (as defined below under
"Description of Notes -- Form and Denomination")
in fully registered form, deposited with a
custodian for and registered in the name of a
nominee of The Depository Trust Company ("DTC").
Beneficial interests in the Restricted Global
Notes are shown on, and transfers thereof will be
effected only through, records maintained by DTC
and its Participants. Except as described herein,
Notes in certificated form will not be issued in
exchange for the Global Notes or interests
therein. See "Description of Notes -- Form and
Denomination."
Convertibility............. The Notes are convertible into shares of Common
Stock of the Company at any time on or after July
15, 1996, and prior to the close of business on
the maturity date, unless previously redeemed or
repurchased, at the conversion price set forth
above. Holders of Notes called for redemption or
repurchase will be entitled to convert the Notes
to and including, but not after, the close of
business on the date fixed for redemption or
repurchase, as the case may be.
Optional Redemption........ The Notes may be redeemed at the option of the
Company on and after April 15, 1998, in whole or
in part, at the redemption prices set forth
herein; provided that the Company may redeem the
Notes from April 15, 1998, to April 14, 2000,
only if the last reported sale price of the
Common Stock for each of the 30 consecutive
Trading Days ending on the Trading Day prior to
the date of the notice of redemption shall have
equalled or exceeded 140% of the conversion price
then in effect. See "Description of
Notes -- Optional Redemption."
Repurchase at Option of
Holders Upon Change in
Control.................. The Notes are repurchasable, in whole or in part,
at the option of the holder upon a Change in
Control (as defined below under "Description of
Notes -- Repurchase at Option of Holders Upon a
Change in Control") at 100% of the principal
amount thereof, plus accrued interest to the
repurchase date. The repurchase price is payable
in cash or, at the option of the Company, in
Common Stock (valued at 95% of
4
<PAGE> 7
the average closing prices of the Common Stock
for the five Trading days immediately preceding
and including the third Trading day prior to the
repurchase date).
Subordination.............. The Notes are subordinated to present and future
Senior Debt (as defined below under "Description
of Notes -- Subordination") of the Company. The
Notes are also effectively subordinated in right
of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of
May 26, 1996, the aggregate amount of outstanding
Senior Debt was approximately U.S. $40 million.
As of the same date, the Company's subsidiaries
had no indebtedness outstanding for borrowed
money but had guaranteed substantially all of the
Senior Debt. The Indenture (as defined below
under "Description of Notes") does not limit the
Company's ability to incur Senior Debt or any
other indebtedness.
Events of Default.......... Events of default include: (a) failure to pay
principal of or premium, if any, on any Note when
due, whether or not such payment is prohibited by
the subordination provisions of the Indenture;
(b) failure to pay any interest on any Note or
coupon when due, continuing for 30 days, whether
or not such payment is prohibited by the
subordination provisions of the Indenture; (c)
default in the Company's obligation to provide
notice of a Change in Control; (d) failure to
perform any other covenant of the Company in the
Indenture, continuing for 120 days after written
notice as provided in the Indenture; (e) any
indebtedness for money borrowed by the Company in
an outstanding principal amount in excess of
$5,000,000 is not paid at final maturity or upon
acceleration thereof and such default in payment
or acceleration is not cured or rescinded within
90 days after written notice as provided in the
Indenture; and (f) certain events of bankruptcy,
insolvency or reorganization.
Listing.................... The Notes have been designated for trading on the
PORTAL System of the National Association of
Securities Dealers, Inc. The Notes are not
expected to remain eligible for trading through
the PORTAL market after the effectiveness of the
Registration Statement relating to this
Prospectus. The Company's Common Stock is quoted
on the Nasdaq National Market under the symbol
"WSGC."
Governing Law.............. The laws of the State of New York, United States of
America.
Indenture.................. Dated as of April 15, 1996, between the Company and
Bankers Trust Company, as trustee.
5
<PAGE> 8
RISK FACTORS
The following risk factors, together with other information set forth in
this Prospectus, should be carefully considered in evaluating the Company and
its business prospects before purchase of the Notes or Shares offered by this
Prospectus. (In this Prospectus, the terms "fiscal year" and "fiscal" refer to
the Company's fiscal year, which is the 52-or 53-week period ending on the
Sunday closest to January 31 of the following calendar year. For example, a
reference to "fiscal 1995" refers to the fiscal year ended January 28, 1996.)
PLANNING, LOGISTICAL AND DISTRIBUTION INFRASTRUCTURE
During the past five fiscal years, the Company has experienced significant
growth in its business with net sales increasing from $312.7 million in fiscal
1991 to $644.7 million in fiscal 1995. The Company's retail sales increased from
$191 million to $394 million between fiscal 1991 and fiscal 1995, and its
catalog sales increased from $113 million to $250 million during the same
period. Between fiscal 1991 and fiscal 1995, the Company's total store selling
area increased from 434,000 sq. ft. to 690,000 sq. ft., and the number of
catalogs mailed increased from 96 million to 132 million. The Company's
planning, logistical and distribution infrastructure did not keep pace with its
growth during this period and contributed to the operational problems incurred
during fiscal 1995. An inability to improve the Company's planning and control
processes or successfully complete the upgrade of the mail order facility or the
construction of the new telemarketing center on schedule will have an adverse
impact on the Company's future financial performance.
DEPENDENCE ON EXTERNAL FUNDING SOURCES
The Company, like other high-growth retailers, relies significantly on
external funding sources to finance its operations and growth. Any unexpected
reduction in cash flow from operations could increase the Company's external
funding requirements to levels above those currently available to it. During
fiscal 1995, as a result of an unexpected reduction in cash flow from operations
and above-plan inventory levels, the Company experienced a significant increase
in its external funding requirements and in response was required to negotiate
several increases to its previous bank line of credit. The Company currently
believes that adequate funding will be provided by operating cash flow combined
with borrowings under the Notes, the Senior Debt and the bank line of credit
available under the Bank Credit Agreement (as defined below under "Description
of Certain Existing Indebtedness -- Bank Credit Agreement"). However, there can
be no assurance that the Company will not experience unexpected cash flow
shortfalls in the future or that any increase in external funding required by
such shortfalls will be available to it.
DEVELOPMENT OF LARGE FORMAT STORES
In fiscal 1994, the Company developed new, large formats for its
Williams-Sonoma and Pottery Barn stores. While the Company's experience during
the 1995 holiday season was favorable, the Company has limited experience with
its large format stores. As of the end of fiscal 1995, the Company had operated
only fifteen large format Williams-Sonoma stores and four large format Pottery
Barn stores for a full fiscal year. There can be no assurances that the expanded
format stores can be operated on a more favorable basis than stores using the
old format.
CATALOG COSTS
The cost of producing and mailing catalogs constitutes a significant part
of the operating expenses for the mail order business. In fiscal 1995, the
Company incurred approximately $68.6 million in catalog production and mailing
expenses. Although the Company attempts to mitigate the impact of increases in
paper costs and postal rates by improving catalog productivity, primarily
through more selective mailings, there can be no assurances that increases in
paper or postal costs will not have an adverse effect on the profitability of
the Company's mail order business.
6
<PAGE> 9
ECONOMIC CONDITIONS; MERCHANDISING TRENDS
The Company's business is sensitive to changes in consumer spending
patterns, consumer preferences and overall economic conditions. Although the
Company was able to consistently increase net sales during the past five years,
there can be no assurance that an economic downturn or a decline in consumer
spending would not have an adverse effect on the Company. Additionally, any
delay or failure by the Company in identifying and responding to emerging trends
could adversely affect consumer acceptance of the Company's merchandise.
FOREIGN SUPPLIERS
Approximately 39% of the Company's merchandise is obtained directly or
indirectly from foreign sources, most of which are located in Europe and Asia.
Accordingly, the Company's operations are subject to the customary risks of
doing business abroad, including fluctuations in the value of currencies, import
duties, quotas, trade sanctions, work stoppage and, in certain parts of the
world, political instability. To date, these factors have not had a material
adverse impact on the Company's operation.
SALES TAX MATTERS
States are becoming increasingly aggressive in their efforts to subject the
operations of mail order vendors to their respective taxes imposed on sales of
tangible personal property. Although the Company believes that it has adequately
provided for sales and use taxes with respect to its operations under existing
law, there can be no assurance as to the effect of actions taken by state tax
authorities on the Company's financial condition or its results of operations.
In addition, legislation was introduced in the U.S. Senate on March 13,
1995, that would authorize each state to require certain out-of-state vendors
who are subject to personal jurisdiction of that state to collect and remit
sales taxes with respect to sales of goods shipped to that state. If legislation
of this type ultimately were enacted and applicable to the Company, the Company
would incur additional administrative expenses in collecting such taxes and may
experience reduced sales to customers in an amount that could adversely affect
the Company. The potential amount of such negative impact cannot currently be
quantified.
LABOR RELATIONS
Although none of its employees are currently covered by collective
bargaining agreements, the Company has recently learned that an effort is
currently underway involving the United Food and Commercial Workers to organize
approximately 600 employees in the Company's catalog order department. To date,
the Company has not received a demand for recognition. The Company cannot
predict whether the effort to organize will be successful and, if so, what
impact it would have on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company depends on the services of certain senior executives and, in
particular, the services of W. Howard Lester, Chairman of the Board and Chief
Executive Officer, Gary Friedman, Chief Merchandising Officer and
President -- Retail Division, Patrick J. Connolly, Executive Vice President and
General Manager -- Catalog Division, and Dennis A. Chantland, Executive Vice
President, Chief Administrative Officer, Secretary and Acting Chief Financial
Officer. The Company does not have employment agreements with any of its senior
executives and does not maintain any key man life insurance. The loss of the
services of Mr. Lester, Mr. Friedman, Mr. Connolly, Mr. Chantland or other key
senior executives could have a material adverse effect on the Company's business
and results of operations.
COMPETITION
The specialty retail business is highly competitive. Increased competition
may adversely affect the Company's future financial performance. Many of the
Company's competitors have greater financial, distribution and marketing
resources than the Company. The recent substantial sales growth in the mail
order
7
<PAGE> 10
catalog industry has encouraged the entry of many new competitors and an
increase in competition from established companies.
SEASONALITY
The Company's business is subject to substantial seasonal variations in
demand. In anticipation of its peak season from October through December, the
Company hires a substantial number of additional employees to bolster its staff
in its retail stores and mail order processing and distribution areas, and
incurs significant fixed catalog production and mailing costs. If for any reason
the Company's sales were to be substantially below seasonal norms during the
October through December period, or if the Company could not hire a sufficient
number of qualified employees in these areas during peak periods, the Company's
annual results would be adversely affected.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE NOTES
The obligations of the Company under the Notes are subordinate to all
present and future Senior Debt of the Company and pari passu with obligations to
or rights of the Company's general unsecured creditors. The Notes are also
effectively subordinated in right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of May 26, 1996, the aggregate
amount of outstanding Senior Debt was approximately $40 million. As of the same
date, the Company's subsidiaries had no indebtedness outstanding for borrowed
money but had guaranteed substantially all of the Senior Debt. The Indenture
does not limit the Company's ability to incur Senior Debt or any other
indebtedness. See "Description of Notes -- Subordination."
ABSENCE OF TRADING MARKET
There is no existing trading market for the Notes and there can be no
assurance as to the liquidity of any such market that may develop, the ability
of holders to sell such securities, the price at which the holders of Notes
would be able to sell such securities or whether a trading market, if it
develops, will continue.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Restated Articles of Incorporation authorize the issuance of
preferred stock with designations, rights and preferences determined from time
to time by the Board of Directors, without further action by the stockholders.
These provisions could have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company. See
"Description of Capital Stock -- Preferred Stock" and "-- Certain Charter
Provisions."
8
<PAGE> 11
THE COMPANY
The Company, together with its subsidiaries, is a national specialty
retailer of fine quality cooking and serving equipment, home furnishings and
home and garden accessories, which it markets through approximately 240 retail
stores and five mail order catalogs. The Company believes that it is one of the
country's largest specialty retailers of such equipment, furnishings and
accessories. The Company's retail stores and mail order catalogs accounted for
approximately 61% and 39%, respectively, of the Company's net sales in fiscal
1995.
The Company's objective is to become the leading specialty retailer and
mail order merchandiser of high quality, home-centered merchandise. The Company
offers these products through five concepts, each of which is focused on a
different area of the home: Williams-Sonoma offers culinary and serving
equipment; Pottery Barn features items in casual home furnishings, flatware and
table accessories; Hold Everything offers innovative household storage products;
Gardener's Eden features home gardening equipment and accessories; and Chambers
offers high quality bed and bath products. Together, these concepts help
customers satisfy their home-centered needs from the kitchen and garden to the
bedroom and bath.
Williams-Sonoma, Pottery Barn and Hold Everything market merchandise
through both mail order catalogs and retail stores. The Company believes that
these two methods of distribution complement each other. Both methods contribute
to overall customer awareness of the concept, and the mail order catalogs are an
effective advertising vehicle for the retail stores. Gardener's Eden and
Chambers, presently the two smallest concepts, market merchandise only through
mail order catalogs.
The Company was founded in 1956 in Sonoma, California, by Charles E.
Williams, currently Vice Chairman and a director of the Company. Williams-Sonoma
was one of the first retailers of fine quality cookware in the United States.
Two years later, the Sonoma store was moved to San Francisco. In 1972, the
Company began to offer its Williams-Sonoma kitchen products through mail order
catalogs. The Company expanded into areas of the home-centered business beyond
kitchen products by acquiring Gardener's Eden in 1982, Pottery Barn in 1986 and
California Closet Company, Inc., a direct marketer and installer of customized
closet systems, in 1990. The Company also internally developed Hold Everything
in 1983 and Chambers in 1989. In August 1994, the Company sold California Closet
Company, Inc., which accounted for 2% of sales for the fiscal year ended January
30, 1994.
The Company is a California corporation which was organized in April 1973.
The Company's executive offices are located at 3250 Van Ness Avenue, San
Francisco, California 94109, and its telephone number is (415) 421-7900.
USE OF PROCEEDS
The Notes and the Shares offered by the Selling Securityholders are not
being sold by the Company, and the Company will not receive any proceeds from
the sale thereof.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL QUARTER ENDED
- ---------------------------------------------------------------------------- ---------------------------
JANUARY 28, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 2, APRIL 28, APRIL 30,
1996 1995 1994 1993 1992 1996 1995
- ----------- ----------- ----------- ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
1.22 4.15 3.04 1.33 1.39 .12 .80
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
are divided by fixed charges. For this purpose, earnings consist of net earnings
from continuing operations plus taxes and fixed charges, excluding capitalized
interest, if any. Fixed charges consist of interest expense, capitalized
interest, if any, that portion of rent expense as is representative of the
interest factor and amortization of debt expense and discount or premium.
9
<PAGE> 12
SELLING SECURITYHOLDERS
The Notes were issued and sold by the Company to Goldman, Sachs & Co.
("Initial Purchaser") on April 15, 1996, pursuant to a private placement, and
were acquired by the Selling Securityholders in connection with resale
transactions with the Initial Purchaser pursuant to Rule 144A, Regulation D or
Regulation S under the Securities Act or from other holders acquiring such Notes
from prior holders thereof.
The Selling Securityholders may from time to time offer and sell pursuant
to this Prospectus any or all of the Notes and the Common Stock issued upon
conversion of the Notes. The term Selling Securityholder includes the holders
listed below and the beneficial owners of the Notes and their transferees,
pledgees, donees or other successors.
The following table sets forth information with respect to the record
holders of the Notes as of June 27, 1996. It has been prepared based on
information furnished to the Company by or on behalf of the Selling
Securityholders. Goldman, Sachs & Co. maintains ongoing business relations with
the Company and in connection therewith provides investment banking services to
the Company for which it receives customary fees. None of the other Selling
Securityholders has, or within the past three years has had, any material
relationship with the Company.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
PRINCIPAL PERCENTAGE SHARES OF COMMON
AMOUNT OF OF NOTES THAT MAY STOCK
NAME OF SELLING SECURITYHOLDER NOTES OWNED OUTSTANDING BE SOLD OUTSTANDING(2)
----------------------------------------- ----------- ----------- --------- --------------
<S> <C> <C> <C> <C>
1. Boston Safe Deposit & Trust Co. ..... $ 8,615,000 21.5% 330,077 1.25%
2. Chase Manhattan Bank, N.A. .......... 8,185,000 20.5% 313,602 1.19%
3. Chemical Bank........................ 7,635,000 19.1% 292,529 1.11%
4. Goldman, Sachs & Co. ................ 6,075,000 15.2% 232,759 0.88%
5. Bear Stearns Securities Corp. ....... 1,600,000 4.0% 61,303 0.23%
6. Lehman Brothers, Inc. ............... 1,380,000 3.5% 52,874 0.20%
7. Custodial Trust Company.............. 1,215,000 3.0% 46,552 0.18%
8. SSB -- Custodian..................... 1,040,000 2.6% 39,847 0.15%
9. Northern Trust Co. -- Trust.......... 805,000 2.0% 30,843 0.12%
10. First Tennessee Bank, N.A. .......... 800,000 2.0% 30,651 0.12%
11. Sanwa Bank California................ 535,000 1.3% 20,498 *
12. Morgan Stanley & Co., Inc. .......... 450,000 1.1% 17,241 *
13. Wagner, Stott & Co. ................. 425,000 1.1% 16,284 *
14. Mercantile, Safe Deposit & Trust
Co. ................................... 400,000 1.0% 15,326 *
15. Republic New York Securities
Corp. ................................. 400,000 1.0% 15,326 *
16. Bank of New York..................... 375,000 0.9% 14,368 *
17. Investors Bank & Trust/M.F.
Custody................................ 65,000 0.2% 2,490 *
18. Any other holder of Notes or future
transferee from any such holder.
---------- ---- ------- ---
Total.......................... $40,000,000 100.0% 1,532,570(1) 5.80%
========== ==== ======= ===
</TABLE>
- ---------------
* Less than 0.1%
(1) Due to rounding, this column does not exactly total the aggregate number of
Shares of Common Stock issuable upon conversion of the Notes, which is
1,532,568 (not including such shares as may be issuable pursuant to
anti-dilution assignments).
(2) Percentage of Common Stock Outstanding is calculated using both the number
of shares outstanding and the options outstanding or available for grant as
of May 26, 1996.
10
<PAGE> 13
The per share conversion price and, therefore, the number of Shares of
Common Stock issuable upon conversion of the Notes is subject to adjustment
under certain circumstances. Accordingly, the number of Shares of Common Stock
issuable upon conversion of the Notes may increase or decrease. In addition, the
Selling Securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Notes, since the date on which they
provided the information regarding their Notes, in transactions exempt from the
registration requirements of the Securities Act.
Because the Selling Securityholders may, pursuant to this Prospectus, offer
all or some portion of the Notes or Shares of Common Stock issuable upon
conversion of the Notes, no estimate can be given as to the amount of the Notes
or Shares of Common Stock issuable upon conversion of the Notes that will be
held by the Selling Securityholders upon termination of any such sales. In
addition, since the date on which the Selling Securityholders provided the
information regarding their holdings of Notes, they may have sold, transferred
or otherwise disposed of all or a portion of their Notes in transactions exempt
from the registration requirements of the Securities Act.
11
<PAGE> 14
DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS
BANK CREDIT AGREEMENT
On March 29, 1996, the Company renewed its line of credit with Bank of
America National Trust and Savings Association (the "Bank") and entered into a
Second Amended and Restated Credit Agreement (the "Bank Credit Agreement"). The
Bank Credit Agreement replaced the Amended and Restated Credit Agreement between
the Company and the Bank, dated October 13, 1994. During fiscal 1995, as a
result of an unexpected reduction in cash flow from operations and above-plan
inventory levels, the Company experienced a significant increase in its external
funding requirements and in response was required to negotiate several increases
to its previous bank line of credit.
The Bank Credit Agreement consists of a revolving credit facility for cash
advances and a sub-facility for letters of credit. The Bank Credit Agreement
expires on March 27, 1997 with letters of credit issued thereunder maturing not
later than March 27, 1998. The aggregate principal amount available under the
facility varies according to the seasonal requirements of the Company from a
high of $90,000,000 ($80,000,000 for cash advances) to a low of $60,000,000
($35,000,000 for cash advances). The Company is required to pay interest on
amounts outstanding under the line of credit at the Bank's "Reference Rate"
(currently 8.25%) plus 0.75% or, at the Company's option, at the Bank's
"Offshore Rate" (currently 5.50%) plus 1.50%.
The Company's increased working capital requirements necessitated
additional long-term funding. The sale of the Notes satisfied the requirement
for additional long-term funding and entitled the Company to a reduction in the
margins on the Bank's Reference Rate and Offshore Rate to 0.25% and 1.0%,
respectively.
As of May 26, 1996, there were approximately $7 million of borrowings and
$7 million in letters of credit issued and outstanding under the line of credit
with the Bank.
The Bank Credit Agreement imposes certain covenants and other requirements
on the Company. In general, the affirmative covenants include standard operating
covenants requiring the Company, among other things, to use the loan proceeds
for seasonal inventory growth, capital expenditures and letters of credit,
provide certain financial information to the Bank, maintain the Company's
property in good working condition, maintain customary insurance coverage, and
keep proper books and records.
The Bank Credit Agreement also contains certain negative covenants and
restrictions that, among other things, limit: (i) incurrence of certain
additional indebtedness; (ii) incurrence of certain liens and certain other
encumbrances; (iii) engaging in any business substantially different from the
Company's business as it existed on the date of the Bank Credit Agreement; (iv)
liquidating or dissolving the Company; (v) entering into any consolidation,
merger, joint venture, syndicate or other combination; (vi) leasing or disposing
of all or a substantial part of the Company's assets; (vii) acquiring or
purchasing a business or its assets, (viii) selling or disposing of assets out
of the ordinary course or entering into sale and leaseback agreements; (ix)
capital expenditures; (x) payment of dividends; and (xi) prepayments of
subordinated indebtedness. Covenants in the Bank Credit Agreement also require
minimum levels of consolidated tangible net worth and certain fixed charge
coverage ratios and debt-to-tangible-net-worth ratios. In addition, the Company
must reduce the principal amount outstanding under the revolving credit facility
to zero for a specified 30-day period during the term of the Bank Credit
Agreement.
Events of default under the Bank Credit Agreement include, among other
things: (i) failure to make payments when due; (ii) provision of false or
misleading information; (iii) certain events of insolvency; (iv) entry of
judgments in excess of $1 million above any insurance coverage; (v) any
government action that the Bank believes materially adversely affects the
financial condition of the Company and its subsidiaries or their collective
ability to repay; (vi) a material adverse change in the financial condition,
properties or prospects of the Company and its subsidiaries or in their
collective ability to repay; (vii) certain defaults under other debt
instruments; (viii) certain defaults or violations of the Company's other
agreements with the Bank; and (ix) certain prohibited ERISA events.
12
<PAGE> 15
The obligations of the Company under the Bank Credit Agreement, and certain
other agreements with the Bank, are guaranteed by each of the Company's
subsidiaries up to a maximum principal amount of $120,000,000. Except for assets
on deposit with the Bank, such obligations are not secured by any assets of the
Company or any subsidiary.
SENIOR NOTES
On August 1, 1995, the Company issued and sold in a private placement
$40,000,000 principal amount of 7.2% Senior Notes due August 8, 2005 (the
"Senior Notes"). The Senior Notes bear interest at 7.2% per year, payable
semiannually in arrears on each February 8 and August 8 and at maturity, and
mature on August 8, 2005. As of May 26, 1996, there was approximately
$40,000,000 principal amount outstanding under the Senior Notes.
Under the terms of the related Note Agreement (the "Senior Notes
Agreement"), the Company is required to make mandatory prepayments on each
August 8 (commencing August 8, 1999 and ending August 8, 2004, both inclusive)
in an amount equal to the lesser of (a) $5,714,285 or (b) the principal amount
of the Senior Notes then outstanding. The Company may also prepay the
outstanding Senior Notes, either in whole or in part, by payment of the
principal amount of the Senior Notes, or portion thereof, and accrued interest
thereon to the date of such prepayment, together with a premium equal to the
Make-Whole Amount (as defined in the Senior Notes Agreement).
The payment by the Company of all amounts due with respect to the Senior
Notes and the performance by the Company of its obligations under the Senior
Notes Agreement are guaranteed by all of the Company's subsidiaries. However,
such obligations are not secured by any assets of the Company or any subsidiary.
The Senior Notes Agreement imposes certain covenants and other obligations
on the Company. In general, the affirmative covenants include standard operating
covenants requiring the Company, among other things, to keep in full force and
effect its corporate existence, maintain customary insurance coverage, file all
necessary tax returns and comply with all laws and regulations, maintain the
Company's property in good working condition, and keep proper books and records.
Covenants in the Senior Notes Agreement also require the Company to maintain a
specified level of consolidated tangible net worth and a minimum fixed charge
coverage ratio.
The Senior Notes Agreement also contains certain negative covenants and
restrictions that, among other things, prohibit: (i) engaging in any business
substantially different from the Company's business as it existed on the date of
the Senior Notes Agreement; (ii) incurring certain additional indebtedness;
(iii) incurring liens or other encumbrances; (iv) entering into sale and
leaseback transactions; (v) making dividend payments; (vi) making certain
investments; (vii) entering into any consolidation, merger or other combination;
(viii) selling or disposing of assets out of the ordinary course of business;
(ix) selling, pledging or otherwise disposing of stock of subsidiaries; (x)
issuing guaranties; (xi) repurchasing Senior Notes other than on a pro rata
basis from all Holders; (xii) entering into certain transactions with
affiliates; and (xiii) terminating pension plans.
Events of default under the Senior Notes Agreement include, among other
things: (i) failure to make payments and prepayments when due; (ii) failure to
maintain a specified level of consolidated tangible net worth or minimum fixed
charge coverage ratios; (iii) failure to observe the restrictions on additional
indebtedness, liens, sale and leaseback transactions, dividend payments,
investments, mergers, consolidations or sales of assets; (iv) certain defaults
under other debt instruments; (v) provision of false or misleading information;
(vi) final judgment or judgments for the payment of money outstanding against
the Company or any subsidiary involving an aggregate in excess of $2.5 million;
(vii) failure to maintain the subsidiary guarantees; (viii) appointment of a
custodian, liquidator, trustee or receiver for the Company or a subsidiary in
certain circumstances; (ix) certain insolvency events; and (x) failure by the
Company to observe or perform any obligation under any other provision of the
Senior Notes Agreement if such failure is not remedied within a specified period
of time.
13
<PAGE> 16
MORTGAGE ON PRINCIPAL OFFICES
On March 9, 1994, the Company entered into a Standing Loan Agreement with
the Bank for a $7,000,000 mortgage (the "Loan") due and payable on April 2, 2001
at LIBOR plus 1.25%. The Company subsequently entered into an interest rate swap
agreement with the Bank which fixed the rate at 7.8% per year. Interest and
principal payments are due quarterly on the 1st of each January, April, July and
October. The mortgage is secured by the Company's corporate headquarters (the
"Property") which was purchased by the Company in December 1993.
The relevant agreements impose certain covenants and other requirements on
the Company. The affirmative covenants include standard operating covenants
requiring the Company, among other things, to (i) comply with all laws,
regulations and commitments to governmental authorities; (ii) allow the Bank
access to the Property site for inspection visits; (iii) maintain customary
insurance coverage and such other insurance as the Bank may require; and (iv)
preserve all rights necessary or desirable for operation of the Property and
conduct of the business, and maintain the Property in good condition.
Covenants in the relevant agreements also require the Company to (i) obtain
the Bank's consent prior to entering into a conditional sales contract under
which a seller reserves title or the right of repossession or removal after the
purchased materials are installed on the Property; (ii) pay Bank expenses
incurred in connection with making, disbursement and administration of the Loan;
(iii) provide the Bank with financial and other information; (iv) notify the
Bank of litigation affecting the Company, of notice that the business is not in
compliance with a law, regulation or court order, and of a material adverse
change in the Property's physical condition or the Company's financial condition
or operations that adversely affects the Company's intended use of the Property
or its ability to repay the Loan; (v) indemnify the Bank for liabilities,
claims, actions, damages, costs and expenses involving the Property; and (vi)
perform all acts necessary or advisable to perfect any lien or security interest
provided for in connection with the Loan.
The relevant agreements also contain certain negative covenants and
restrictions that, among other things, restrict the Company's ability to: (i)
engage in any substantially different business activities; (ii) liquidate or
dissolve its business; (iii) lease or dispose all or a substantial part of its
business or assets except in the ordinary course of business and in any event
not in excess of $1,000,000 per fiscal year; and (iv) sell or otherwise dispose
of any assets for less than fair market value or enter into any sale and
leaseback agreement covering any of the Company's fixed or capital assets with
the exception that the Company may enter into sale and leaseback transactions
with an aggregate consideration not exceeding $1,000,000 per fiscal year.
Events of default include, among other things: (i) failure to make payments
when due; (ii) failure to comply with certain covenants; (iii) certain events of
insolvency or bankruptcy; (iv) dissolution or liquidation of the Company; (v)
provision of a false or misleading material representation or warranty; (vi)
failure of the Bank to have an enforceable first lien on, or security interest
in, the Property as security for the Loan (except as agreed by the Bank in
writing); (vii) filing of a lawsuit, entering of judgment or taking of action by
any governmental authority against the Company that materially adversely affects
the Company's use of the Property or the Company's ability to repay the Loan;
(viii) failure of the Company or any affiliate to meet the conditions of, or to
perform any of, the obligations under any other agreement the Company has with
the Bank (or any affiliate) on a credit agreement if it consists of tie failure
to make a payment when due and such action provides the other lender with a
right to accelerate the obligation; and (ix) material adverse change in the
Company's financial condition or any other event which materially impairs the
Company's intended use of the Property or the Company's ability to repay the
Loan.
14
<PAGE> 17
DESCRIPTION OF NOTES
The Notes were issued under an indenture, dated as of April 15, 1996 (the
"Indenture"), between the Company and Bankers Trust Company, as trustee (the
"Trustee"), copies of which are available for inspection at the Corporate Trust
Office of the Trustee in the Borough of Manhattan, the City of New York, New
York. Wherever particular defined terms of the Indenture (including the Notes
and the various forms thereof) are referred to, such defined terms are
incorporated herein by reference (the Notes and various terms relating to the
Notes being referred to in the Indenture as "Securities"). References in this
section to the "Company" are solely to Williams-Sonoma, Inc. and not to its
subsidiaries. Parenthetical references to section numbers within and following
certain paragraphs in this section are to provisions of the Indenture. The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the detailed provisions of the Notes and the Indenture, including the
definitions therein of certain terms.
GENERAL
The Notes are unsecured subordinated obligations of the Company, are
limited to U.S. $40,000,000 aggregate principal amount, and will mature on April
15, 2003. Payment in full of the principal amount of the Notes is due on April
15, 2003. The Notes bear interest at 5 1/4% per annum from April 15, 1996,
payable semiannually on April 15 and October 15 of each year, commencing on
October 15, 1996. Interest payable per $1,000 principal amount of Notes for the
period from April 15, 1996 to October 15, 1996 will be $26.25. (sec.sec. 3.1 and
3.7)
The Notes are convertible into Common Stock initially at the conversion
price of $26.10 per share (equivalent to a conversion rate of 38.3142 per U.S.
$1,000 principal amount of Notes), subject to adjustment upon the occurrence of
certain events described under "-- Conversion Rights," at any time on or after
July 15, 1996, and prior to the close of business on the maturity date, unless
previously redeemed or repurchased. (sec.sec. 2.3 and 13.1 )
The Notes are redeemable under the circumstances and at the redemption
prices set forth below under "-- Optional Redemption."
FORM AND DENOMINATION
Except as provided below, Notes sold to Qualified Institutional Buyers
otherwise than in reliance on Regulation S are represented by one or more global
Notes in definitive, fully registered form without interest coupons
(collectively, the "Restricted Global Note") and are deposited with the Trustee
as custodian for DTC and registered in the name of a nominee of DTC. The
Restricted Global Note (and any Notes issued in exchange therefor) is subject to
certain restrictions on transfer set forth therein and in the Indenture and
bears the legend regarding such restrictions set forth under "Notice to
Investors."
Notes issued pursuant to Regulation S ("Regulation S Notes") are
represented by one or more global notes in fully registered form without
interest coupons (collectively, the "Regulation S Global Note" and, together
with the Restricted Global Note, the "Global Notes" or each individually, a
"Global Note") registered in the name of a nominee of DTC and deposited with the
Trustee, for the accounts of the Euroclear System ("Euroclear") and Cedel Bank,
societe anonyme ("CEDEL"). The Regulation S Global Note (and any Notes issued in
exchange therefor) bears the legend set forth in bold type on the cover of the
version of the Offering Circular used in connection with the offering of the
Regulation S Notes.
Beneficial interests in the Restricted Global Note may be transferred to a
person who takes delivery in the form of an interest in a Regulation S Global
Note, only upon receipt by the Trustee of a written certification from the
transferor (in the form provided in the Indenture) to the effect that such
transfer is being made in accordance with Rule 903 or Rule 904 of Regulation S
or Rule 144 under the Securities Act (a "Regulation S Global Note Certificate").
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and will become
an interest in the other Global Note and, accordingly, will
15
<PAGE> 18
thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
Except in the limited circumstances described below under "-- Global
Notes," owners of beneficial interests in Global Notes are not entitled to
receive physical delivery of certificated Notes. The Notes are not issuable in
bearer form.
Restricted Notes initially purchased by Qualified Institutional Buyers were
issued only in certificated form.
The Notes were issued only in fully registered form, without exception. The
Notes were initially issued in minimum denominations of $1,000, except that
Notes offered other than in reliance on Regulation S or to Qualified
Institutional Buyers were issued only in certificated form and in minimum
denominations of $250,000 and integral multiples of $1,000 in excess thereof. No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other government charge payable in connection therewith.
The Company will cause each transfer agent to act as a registrar and will
cause to be kept at the office of each transfer agent a register in which,
subject to such reasonable regulations as it may prescribe, the Company will
provide for the registration of the Notes and registration of transfers of the
Notes. The Company may vary or terminate the appointment of any paying agent,
transfer agent or conversion agent, or appoint additional or other such agents
or approve any change in the office through which any such agent acts, provided
that there shall at all times be a paying agent, a transfer agent and a
conversion agent in the Borough of Manhattan, the City of New York, New York.
The Company will cause notice of any resignation, termination or appointment of
the Trustee or any paying agent, transfer agent or conversion agent, and of any
change in the office through which any such agent will act, to be provided to
Holders of the Notes.
The Company has initially appointed the Trustee at its corporate trust
office as paying agent, transfer agent, registrar and conversion agent for the
Notes. In such capacities, the Trustee is responsible for, among other things,
(i) maintaining a record of the aggregate holdings of Notes represented by the
Regulation S Global Note and the Restricted Global Note and accepting Notes for
exchange and registration of transfer, (ii) ensuring that payments of principal,
premium, if any, and interest in respect of the Notes received by the Trustee
from the Company are duly paid to DTC or its nominees, (iii) transmitting to the
Company any notices from holders, (iv) accepting conversion notices and related
documents, and transmitting the relevant items to the Company and (v) delivering
certificates for Common Stock issued in conversion of the Notes.
GLOBAL NOTES
The following description of the operations and procedures of DTC,
Euroclear and CEDEL is provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
Upon the issuance of the Regulation S Global Note and the Restricted Global
Note, DTC credits, on its internal system, the respective principal amount of
the individual beneficial interests represented by such Global Notes to the
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Notes will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interest of
persons other than participants).
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES UNDER THE
INDENTURE AND THE NOTES. Unless DTC notifies the Company that it is unwilling or
unable to continue as depository for a Global Note, or ceases to be a "Clearing
Agency" registered under the Exchange Act, or announces an intention permanently
to cease business or does in fact do so, or an Event of Default has occurred and
is continuing with respect to a Global Note, owners of beneficial interests in a
Global
16
<PAGE> 19
Note will not be entitled to have any portions of such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Notes in definitive form and will not be considered the owners or Holders of the
Global Note (or any Notes presented thereby) under the Indenture or the Notes.
In addition, no beneficial owner of an interest in a Global Note is able to
transfer that interest except in accordance with DTC's applicable procedures (in
addition to those under the Indenture referred to herein and, if applicable,
those of Euroclear and CEDEL). In the event that owners of beneficial interests
in a Global Note become entitled to receive Notes in definitive form, such Notes
will be issued only in registered form in denominations of U.S. $1,000 and
integral multiples thereof.
Investors may hold their interests in the Regulation S Global Note through
CEDEL or Euroclear, if they are participants in such systems, or indirectly
through organizations which are participants in such systems. CEDEL and
Euroclear will hold interests in the Regulation S Global Note on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositaries, which, in turn, will hold such
interests in the Regulation S Global Note in customer's securities accounts in
the depositaries' names on the books of DTC. Investors may hold their interests
in the Restricted Global Note directly through DTC, if they are participants in
such system, or indirectly through organizations (including Euroclear and CEDEL)
which are participants in such system. All interests in a Global Note, including
those held through Euroclear or CEDEL, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear and CEDEL may also
be subject to the procedures and requirements of such system.
Payments of the principal of, premium, if any, and interest on Global Notes
will be made to DTC or its nominee as the registered owner thereof. Neither the
Company, the Trustee nor any of their respective agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Subject to the following considerations, beneficial interests in the Global
Notes will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity in such interests will therefore settle in immediately
available funds. The Company expects that DTC or its nominee, upon receipt of
any payment of principal or interest in respect of a Global Note representing
any Notes held by it or its nominee, will immediately credit participants'
accounts with payment in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Notes for such Notes as shown
on the records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Notes held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in "street name." Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described above, cross-market transfers between DTC participants, on the
one hand, and Euroclear or CEDEL participants, on the other hand, will be
effected by DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL,
as the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or CEDEL, as the
case may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or CEDEL, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and CEDEL participants may not deliver instructions
directly to the depositaries for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Note from a DTC participant
will be credited, and any such crediting will be reported
17
<PAGE> 20
to the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the DTC settlement date. Cash received on Euroclear or
CEDEL as a result of sales of interests in a Global Note by or through a
Euroclear or CEDEL participant to a DTC participant will be received with value
on the DTC settlement date but will be available in the relevant Euroclear or
CEDEL cash account only as of the business day for Euroclear or CEDEL following
the DTC settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account with DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below under "-- Events of Default") under the
Notes, DTC reserves the right to exchange the Global Notes for legended Notes in
certificated form, and to distribute such notes to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and a "Clearing Agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly ("indirect participants").
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
in order to facilitate transfers of beneficial ownership interests in the Global
Notes among participants of DTC, Euroclear and CEDEL, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee nor
any of their respective agents will have any responsibility for the performance
by DTC, Euroclear and CEDEL, their participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Notes.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the reasons set forth above under "-- Global Notes," or, in the case of a Global
Note held for an account of Euroclear or CEDEL, Euroclear or CEDEL (as the case
may be) is closed for business for 14 continuous days or announces an intention
to cease or permanently ceases business, the Company will issue certificates for
the Notes in definitive, fully registered, non-global form without interest
coupons in exchange for the Regulation S Global Note or Restricted Global Note,
as the case may be.
In the case of certificates for Notes in non-global form issued in exchange
for the Restricted Global Note, such certificates will bear the legend referred
to under "Notice to Investors" (unless the Company determines otherwise in
accordance with applicable law), subject, with respect to such Notes, to the
provisions of such legend. The holder of a Note in non-global form may transfer
such Note, subject to compliance with the provisions of such legend, by
surrendering it at the office or agency maintained by the Company for such
purpose of the Borough of Manhattan, the City of New York, which initially will
be the office of the Trustee. Upon the transfer, exchange or replacement of
Notes bearing the legend, or upon specific request for removal of the legend on
a Note, the Company will deliver only Notes that bear such legend, or will
refuse to remove such legend, as the case may be, unless there is delivered to
the Company such satisfactory evidence, which may include an opinion of counsel,
as may reasonably be required by the Company that neither the legend nor the
restrictions on transfer set forth therein are required to ensure compliance
with the provisions of the
18
<PAGE> 21
Securities Act. Before any Note in non-global form may be transferred to a
person who takes delivery in the form of an interest in any Global Note, the
transferor will be required to provide the Trustee with a Restricted Global Note
Certificate or a Regulation S Global Note Certificate, as the case may be.
Notwithstanding any statement herein, the Company and the Trustee reserve
the right to impose such transfer, certification, exchange or other
requirements, and to require such restrictive legends on certificates evidencing
Notes, as they may determine are necessary to ensure compliance with the
securities laws of the United States and the States therein and any other
applicable laws, to ensure that the Shelf Registration Statement or amendment
covering the Notes and the Common Stock is declared effective by the Commission
or as DTC, Euroclear or CEDEL may require.
REGISTRATION RIGHTS
The Selling Securityholders are entitled to the benefits of a Registration
Rights Agreement, dated as of April 10, 1996, between the Company and the
Initial Purchaser (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, the Company has, at its expense, filed with the
Commission on July 9, 1996, a shelf registration statement on Form S-3, of which
this Prospectus is a part (the "Registration Statement"), with respect to
resales of the Notes and the Shares. The Company has also agreed to use its best
efforts to cause such Registration Statement to be declared effective by the
Commission within 90 days after such Registration Statement was filed and to use
its best efforts to maintain such Registration Statement continuously effective
under the Securities Act until the third annual anniversary of the date of the
effectiveness of the Registration Statement or such earlier date as is provided
in the Registration Rights Agreement.
In the event that the Registration Statement ceases to be effective prior
to the third annual anniversary of the initial effective date of the
Registration Statement or such earlier date as is provided in the Registration
Rights Agreement for a period in excess of 60 days, whether or not consecutive,
during any 12-month period, then the interest rate borne by the Notes will
increase by an additional one-half of one percent (0.50%) per annum on the 61st
day of the applicable 12-month period such Registration Statement ceases to be
effective to but excluding the day on which the Registration Statement again
becomes effective.
CONVERSION RIGHTS
The Holder of any Note has the right, at the Holder's option, to convert
any portion of the principal amount of a Registered Note that is an integral
multiple of $1,000, into shares of Common Stock at any time on or after July 15,
1996 (except that Notes represented by the Regulation S Global Note may be
converted only after the receipt of the Regulation S Global Note), and prior to
the close of business on the maturity date, unless previously redeemed or
repurchased, at a conversion rate of 38.3142 shares per U.S. $1,000 principal
amount of Notes (equivalent to a conversion price of $26.10 per share) (subject
to adjustment as described below). The right to convert a Note called for
redemption or delivered for repurchase will terminate at the close of business
on the redemption date or repurchase date for such Note. (sec.sec. 2.3 and 13.1)
The right of conversion attaching to any Note may be exercised by the
Holder by delivering the Note at the specified office of the Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of which
may be obtained from the Conversion Agent. The conversion date will be the date
on which the Note and the duly signed and completed notice of conversion are so
delivered. As promptly as practicable on or after the conversion date, the
Company will issue and deliver to the Trustee a certificate or certificates for
the number of full shares of Common Stock issuable upon conversion, together
with payment in lieu of any fraction of a share or, at the Company's option,
rounded up to the next whole number of shares; such certificate will be sent by
the Trustee to the Conversion Agent for delivery to the Holder. Any Note
surrendered for conversion during the period from the close of business on any
Regular Record Date to the opening of business on the next succeeding Interest
Payment Date (except Notes called for redemption on a Redemption Date or to be
repurchased on a Repurchase Date during, in each case, such period) must be
accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of such Notes being surrendered
for conversion. In the case of any Note which has been
19
<PAGE> 22
converted after any Regular Record Date but before the next Interest Payment
Date, interest the Stated Maturity of which is on such Interest Payment Date
shall be payable on such Interest Payment Date notwithstanding such conversion,
and such interest shall be paid to the Holder of such Note on such Regular
Record Date. As a result of the foregoing provisions, Holders that surrender
Notes for conversion on a date that is not an Interest Payment Date will not
receive any interest for the period from the Interest Payment Date next
preceding the date of conversion to the date of conversion or for any later
period, even if the Notes are surrendered after a notice of redemption (except
for the payment of interest on Notes called for redemption on a Redemption Date
or to be repurchased on a Repurchase Date between a Regular Record Date and the
Interest Payment Date to which it relates). No other payment or adjustment for
interest, or for any dividends in respect of Common Stock, will be made upon
conversion. Holders of Common Stock issued upon conversion will not be entitled
to receive any dividends payable to holders of Common Stock as of any record
time before the close of business on the conversion date. No fractional shares
will be issued upon conversion but, in lieu thereof, the Company will calculate
an appropriate amount to be paid in cash based on the market price of Common
Stock at the close of business on the day of conversion. Such market price will
be calculated by the Company and shall be deemed to be the average of the daily
Closing Prices per share for the five consecutive Trading Days selected by the
Company commencing not more than 10 Trading Days before, and ending not later
than, the earlier of the day in question and the day before the "ex" date with
respect to an issuance or distribution requiring such computation. The term "ex'
date," when used with respect to any issuance or distribution, means the first
date on which the Common Stock trades without the right to receive such issuance
or distribution. "Closing Price Per Share" means, for any day, the reported last
sales price per share on the Nasdaq National Market. A "Trading Day" is any day
on which the Nasdaq National Market is open for business. (sec.sec. 1.1, 2.3,
3.7, 13.2 and 13.3)
A Holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless the person
requesting such issue has paid to the Company the amount of any such tax or duty
or has established to the satisfaction of the Company that such tax or duty has
been paid. (sec.sec. 13.2 and 13.8)
The conversion rate is subject to adjustment in certain events, including:
(a) dividends (and other distributions) payable in Common Stock on shares of
capital stock of the Company, (b) the issuance to all holders of Common Stock of
rights, options or warrants entitling them to subscribe for or purchase Common
Stock at less than the then current market price (determined as provided in the
Indenture) of Common Stock, (c) subdivisions, combinations and reclassifications
of Common Stock, (d) distributions to all holders of Common Stock of evidences
of indebtedness of the Company, shares of capital stock, cash or assets
(including securities, but excluding those dividends, rights, options, warrants
and distributions referred to above, dividends and distributions paid
exclusively in cash and distributions upon mergers or consolidations to which
the second succeeding paragraph applies), (e) distributions consisting
exclusively of cash (excluding any cash portion of distributions referred to in
(d) above, or cash distributed upon a merger or consolidation to which the
second succeeding paragraph applies) to all holders of Common Stock in an
aggregate amount that, combined together with (i) other such all-cash
distributions made within the preceding 12 months in respect of which no
adjustment has been made and (ii) any cash and the fair market value of other
consideration payable in respect of any tender offer by the Company or any of
its subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then current market price of the
Common Stock and the number of shares of Common Stock then outstanding) on the
record date for such distribution, and (f) the successful completion of a tender
offer made by the Company or any of its subsidiaries for Common Stock which
involves an aggregate consideration that, together with (i) any cash and other
consideration payable in a tender offer by the Company or any of its
subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender offer in respect of which no adjustment has been made
and (ii) the aggregate amount of any such all-cash distributions referred to in
(e) above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer.
20
<PAGE> 23
The Company reserves the right to make such increases in the conversion rate in
addition to those required in the foregoing provisions as it considers to be
advisable in order that any event treated for federal income tax purposes as a
dividend or distribution of stock or issuance of rights or warrants to purchase
or subscribe for stock will not be taxable to the recipients. No adjustment of
the conversion rate will be required to be made until the cumulative adjustments
amount to 1.0% or more of the conversion rate. (sec. 13.4) The Company shall
compute any adjustments to the conversion price pursuant to this paragraph and
will give notice to the Holders of the Notes of any adjustments. (sec. 13.5)
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Note then outstanding will,
without the consent of the Holder of any Note or coupon, become convertible only
into the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock into which such Note was convertible immediately prior thereto
(assuming such holder of Common Stock failed to exercise any rights of election
and that such Note was then convertible). (sec. 13.11)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Notes are
convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to Holders of Notes.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the
Notes and coupons is subordinated in right of payment to the extent set forth in
the Indenture to the prior payment in full of all Senior Debt of the Company.
"Senior Debt" means the principal of and interest on, and all other amounts
(including, without limitation, collection expenses, attorney's fees and late
charges) owing with respect to, the following, whether direct or indirect,
absolute or contingent, secured or unsecured, due or to become due, outstanding
at the date of execution of this Indenture or thereafter incurred or created:
(a) indebtedness of the Company for money borrowed or evidenced by a note or
similar instrument or written agreement given in connection with the acquisition
of any businesses, properties or assets, including securities, (b) indebtedness
of the Company to banks, insurance companies or other financial institutions
evidenced by notes or other written obligations (including bank overdrafts), (c)
indebtedness of the Company evidenced by notes, debentures, bonds or other
securities issued under the provisions of an indenture or similar instrument,
(d) indebtedness of others of the kinds described in the preceding clauses (a),
(b) and (c) that the Company has assumed, guaranteed or otherwise assured the
payment thereof, directly or indirectly, (e) obligations of the Company as
lessee under leases required to be capitalized on the balance sheet of the
lessee under United States generally accepted accounting principles and/or (f)
deferrals, renewals, extensions and refundings of, or bonds, debentures, notes
or other evidences of indebtedness issued in exchange for, or amendments,
modifications or supplements to, or covenants and other obligations of the
Company in connection with, the indebtedness described in the preceding clauses
(a) through (e) whether or not there is any notice to or consent of the Holders
of Notes; except (i) indebtedness and advances among the Company and its direct
and indirect Subsidiaries, and (ii) any particular indebtedness, deferral,
renewal, extension or refunding, if it is expressly stated in the governing
terms or in the assumption thereof that the indebtedness involved is not Senior
Debt. (sec.sec. 1.1, 14.1 and 14.2)
No payment on account of principal, premium, if any, or interest on, the
Notes or any coupon may be made if there shall have occurred (i) a default in
the payment of principal, premium, if any, or interest (including a default
under any repurchase or redemption obligation) with respect to any Senior Debt
or (ii) any other event of default with respect to any Senior Debt, permitting
the holders thereof to accelerate the maturity thereof, and such event of
default shall not have been cured or waived or shall not have ceased to exist
after written notice of such event of default shall have been given to the
Company and the Trustee by any
21
<PAGE> 24
holder of Senior Debt. Upon any acceleration of the principal due on the Notes
or payment or distribution of assets of the Company to creditors upon any
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any and interest due on all Senior Debt must be paid
in full before the Holders of the Notes are entitled to receive any payment. By
reason of such subordination, in the event of insolvency, creditors of the
Company who are holders of Senior Debt may recover more, ratably, than the
Holders of the Notes, and such subordination may result in a reduction or
elimination of payments to the Holders of the Notes. (sec. 14.2)
As of May 26, 1996, the aggregate principal amount of outstanding Senior
Debt was approximately $40 million. In addition, the Notes are structurally
subordinated to all indebtedness and other liabilities (including trade payables
and lease obligations) of the Company's subsidiaries, as any right of the
Company to receive any assets of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company itself is recognized as a creditor of such subsidiary, in which
case the claims of the Company would still be subordinate to any security
interest in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. As of May 26, 1996, the Company's
subsidiaries had no indebtedness outstanding for borrowed money but had
guaranteed substantially all of the Senior Debt.
The Indenture does not limit the Company's ability to incur Senior Debt or
any other indebtedness.
OPTIONAL REDEMPTION
The Notes may not be redeemed prior to April 15, 1998. Thereafter, the
Notes may be redeemed, in whole or in part, at the option of the Company, upon
not less than 30 nor more than 60 days' prior notice as provided under
"-- Notices" below, at the redemption prices set forth below; provided, that the
Company may redeem the Notes from April 15, 1998, to April 14, 2000, only if the
last reported sale price of the Common Stock for each of the 30 consecutive
Trading Days ending on the Trading Day prior to the date of the notice of
redemption shall have equalled or exceeded 140% of the conversion price then in
effect.
The redemption prices (expressed as a percentage of principal amount) are
as follows for the 12-month period beginning on April 15 of the following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---------------------------------------------------------- ----------
<S> <C>
1998...................................................... 103.75
1999...................................................... 103.00
2000...................................................... 102.25
2001...................................................... 101.50
2002...................................................... 100.75
</TABLE>
and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date of redemption. (sec.sec.
2.3, Article XII)
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control (as defined below) occurs, each Holder of Notes
shall have the right, at the Holder's option, to require the Company to
repurchase all of such Holder's Notes, or any portion of the principal amount
thereof that is equal to $1,000 or an integral multiple of $1,000 in excess
thereof, on the date (the "Repurchase Date") that is 45 days after the date of
the Company Notice (as defined below), at a price equal to 100% of the principal
amount of the Notes to be repurchased (the "Repurchase Price"), together with
interest accrued to the Repurchase Date. (sec. 15.1)
The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock, the fair market value of which
Common Stock shall be equal to 95% of the average of the closing prices of the
Common Stock for the five consecutive Trading Days ending on and including the
third Trading Day preceding the Repurchase Date; provided that payment may not
be made in Common
22
<PAGE> 25
Stock unless such shares are listed on a national securities exchange or traded
on the Nasdaq National Market at the time of payment. (sec. 15.1)
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change in Control
and of the repurchase right arising as a result thereof. The Company Notice
shall be sufficiently given to Holders of Notes if in writing and mailed, first
class postage prepaid, to each Holder of a Note affected by such event, at the
address of such Holder. The Company must also deliver a copy of the Company
Notice to the Trustee. To exercise the repurchase right, a Holder of Notes must
deliver on or before the 30th day after the date of the Company Notice
irrevocable written notice to the Trustee of the Holder's exercise of such
right, together with the Notes with respect to which the right is being
exercised. At least two business days prior to the Repurchase Date, the Company
must publish a notice in the manner described above specifying whether the
Company will pay the Repurchase Price in cash or in Common Stock. (sec. 15.2)
A Change in Control shall be deemed to have occurred at such time after the
original issuance of the Notes as there shall occur:
(1) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling
such Person to exercise 50% or more of the total voting power of all shares
of capital stock of the Company entitled to vote generally in elections of
directors, other than any such acquisition by the Company, any subsidiary
of the Company or any employee benefit plan of the Company; or
(2) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another person into the Company, or
any sale or transfer of all or substantially all of the assets of the
Company to another Person (other than a merger (x) which does not result in
any reclassification, conversion, exchange or cancellation of outstanding
Common Stock of the Company or (y) which is effected solely to change the
jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock into solely Common Stock);
provided, however, that a Change in Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any five
Trading Days within the period of 10 consecutive Trading Days ending immediately
after the later of the Change in Control or the public announcement of the
Change in Control (in the case of a Change in Control under clause (i) above) or
ending immediately before the Change in Control (in the case of a Change in
Control under clause (ii) above) shall equal or exceed 105% of the Conversion
Price of the Notes in effect on each such Trading Day, or (b) all of the
consideration (excluding cash payments for fractional shares) in the transaction
or transactions constituting the Change in Control consists of Common Stock
traded on a national securities exchange or quoted on the Nasdaq National Market
and as a result of such transaction or transactions the Notes become convertible
solely into such Common Stock. "Beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act,
as in effect on the date of original execution of the Indenture. (sec. 15.3)
Any repurchase in connection with a Change in Control would, absent a
waiver from the holders of Senior Debt, be blocked by the subordination
provisions of the Notes. See "-- Subordination." Failure by the Company to
repurchase the Notes when required would result in an Event of Default with
respect to the Notes whether or not such repurchase is permitted by the
subordination provisions. See "-- Events of Default."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect Holders.
23
<PAGE> 26
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer, sell, lease or otherwise dispose of
all or substantially all of its properties and assets to any Person (other than
a wholly-owned subsidiary), and the Company may not permit any Person (other
than a wholly-owned subsidiary) to consolidate with or merge into any the
Company or convey, transfer, sell, lease or otherwise dispose of all or
substantially all of its properties and assets to the Company, unless (a) the
Person formed by such consolidation or into which the Company is merged or the
Person to which the properties and assets of the Company are so transferred or
leased is a corporation, limited liability company, partnership or trust
organized and existing under the laws of the United States, any State thereof or
the District of Columbia and has expressly assumed the due and punctual payment
of the principal of, premium, if any, and interest on the Notes and coupons and
the performance of the other covenants of the Company under the Indenture, (b)
immediately after giving effect to such transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing, and (c) the Company has provided
to the Trustee an Officer's Certificate and Opinion of Counsel as provided in
the Indenture. (sec. 8.1)
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (a) failure to pay
principal or Redemption Price of any Note when due, whether or not such payment
is prohibited by the subordination provisions of the Indenture; (b) failure to
pay any interest (including Liquidated Damages) on any Note or coupon when due,
continuing for 30 days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (c) default in the Company's
obligation to provide notice of a Change in Control; (d) failure to perform any
other covenant or warranty of the Company in the Indenture, continuing for 120
days after written notice to the Company by the Trustee as provided in the
Indenture; (e) any indebtedness for money borrowed by the Company in an
outstanding principal amount in excess of $5,000,000 is not paid at final
maturity or upon acceleration thereof and such default in payment or
acceleration is not cured or rescinded within 90 days after written notice as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization. (sec. 5.1) Subject to the provisions of the Indenture relating
to the duties of the Trustee, in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (sec. 6.3) Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (sec. 5.12)
If an Event of Default (other than an Event of Default specified in
subsections (a), (b), and (f) above) occurs and is continuing, the Trustee
shall, at the written request of the Holders of not less than 25% in aggregate
principal amount of the Outstanding Notes, by notice in writing to the Company,
declare the principal of all the Notes to be due and payable immediately, and
upon any such declaration such principal and any accrued interest and any unpaid
Liquidated Damages thereon will become immediately due and payable. If an Event
of Default specified in subsections (a) or (b) occurs and is continuing, the
Holder of any Outstanding Note may, by notice in writing to the Company (with a
copy to the Trustee), declare the principal of such Note to be due and payable
immediately, and upon any such declaration such principal and (subject to
Indenture) any accrued interest and Liquidated Damages thereon will become
immediately due and payable. If an Event of Default specified in subsection (f)
occurs and is continuing, the principal and any accrued interest, together with
any Liquidated Damages thereon, on all of the Notes then Outstanding shall ipso
facto become due and payable immediately without any declaration or other Act on
the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of Outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the nonpayment
of accelerated principal and interest have been cured or waived as provided in
the Indenture. (sec. 5.2)
24
<PAGE> 27
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (sec. 5.7) However, such limitations do not apply to a suit instituted by
a Holder of a Note for the enforcement of payment of the principal of, premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Note or of the right to convert such Note in accordance with the
Indenture. (sec. 5.8)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (sec. 11.9)
MEETINGS, MODIFICATION AND WAIVER
The Indenture contains provisions for convening meetings of the Holders of
Notes to consider matters affecting their interests. (Article X)
Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, either (i) with the written consent of
the Holders of not less than a majority in aggregate principal amount of the
Notes at the time Outstanding or (ii) by the adoption of a Resolution, at a
meeting of Holders of the Notes at which a quorum is present, by the Holders of
at least 66 2/3% in aggregate principal amount of the Outstanding Notes
represented at such meeting. However, no such modification or amendment may,
without the consent of the Holder of each Outstanding Note affected thereby, (a)
change the Stated Maturity of the principal of, or any installment of interest
on, any Note, (b) reduce the principal amount of, or the premium, if any, or
rate of interest on, any Note, (c) reduce the amount payable upon redemption or
repurchase, (d) modify the provisions with respect to the repurchase right of
the Holders in a manner adverse to the Holders, (e) change the coin or currency
of payment of principal of, premium, if any, or interest on, any Note or coupon,
(f) impair the right to institute suit for the enforcement of any payment on or
with respect to any Note or coupon, (g) adversely affect the right to convert
Notes, (h) modify the subordination provisions in a manner adverse to the
Holders of the Notes, (i) reduce the above-stated percentage of Outstanding
Notes necessary to modify or amend the Indenture, (j) reduce the percentage of
aggregate principal amount of Outstanding Notes necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (k) reduce the percentage in aggregate principal amount of Outstanding
Notes required for the adoption of a Resolution or the quorum required at any
meeting of Holders of Notes at which a Resolution is adopted, or (l) modify the
obligation of the Company to deliver information required under Rule 144A to
permit resales of Notes and Common Stock issuable upon conversion thereof in the
event the Company ceases to be subject to certain reporting requirements under
the United States securities laws (sec.sec. 9.2 and 5.13). The quorum at any
meeting called to adopt a Resolution will be persons holding or representing a
majority in aggregate principal amount of the Notes at the time Outstanding and,
at any reconvened meeting adjourned for lack of a quorum, 25% of such aggregate
principal amount. (sec. 10.4)
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (sec. 11.11) The Holders of a majority in aggregate principal
amount of the Outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal, premium, if any, or interest.
(sec. 5.13)
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as security registrar and
transfer agent, acting through its Corporate Trust Office in the City of New
York. The Company reserves the right to vary or terminate the appointment of the
security registrar or of any transfer agent or to appoint additional or other
transfer agents or to approve any change in the office through which any
security registrar or any transfer agent acts. (sec.sec. 3.5 and 11.2)
25
<PAGE> 28
PURCHASE AND CANCELLATION
The Company or any subsidiary may at any time and from time to time
purchase Notes at any price in the open market or otherwise.
All Securities and coupons surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered to the Trustee shall be cancelled promptly by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in the Indenture. Unless otherwise requested by the
Company and confirmed in writing, the Trustee shall, from time to time but not
less than once annually, destroy all cancelled Securities and coupons and
deliver to the Company a certificate of destruction, which certificate shall
specify the number, principal amount and, in the case of Securities, the form of
each cancelled Security and coupon so destroyed. (sec. 3.9)
TITLE
The Company and the Trustee may treat the registered owner (as reflected in
the Security Register) of any Note as the absolute owner thereof (whether or not
such Note shall be overdue) for the purpose of making payment and for all other
purposes.
NOTICES
Notice to Holders of the Notes will be given by mail to the addresses of
such Holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of the first such publication or on the
date of such mailing, as the case may be. (sec.sec. 1.1 and 1.5)
Notice of a redemption of Notes will be given at least once not less than
30 nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the Holder upon delivery to the Trustee or to a
transfer agent outside the United States of the mutilated Notes or evidence of
the loss, theft or destruction thereof satisfactory to the Company and the
Trustee. In the case of a lost, stolen or destroyed Note, indemnity satisfactory
to the Trustee and the Company may be required at the expense of the Holder of
such Note before a replacement Note will be issued. (sec. 3.6)
PAYMENT OF STAMP AND OTHER TAXES
The Company shall pay all stamp and other duties, if any, which may be
imposed by the United States or the United Kingdom or any political subdivision
thereof or taxing authority thereof or therein with respect to the issuance of
the Notes. The Company will not be required to make any payment with respect to
any other tax, assessment or governmental charge imposed by any government or
any political subdivision thereof or taxing authority therein.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (a) all outstanding Notes have become due and payable or
will become due and payable at their scheduled maturity within one year, (b) all
outstanding Notes are scheduled for redemption within one year or (c) all
outstanding Notes are delivered to the Trustee for conversion in accordance with
the Indenture and in the case of (a) or (b) above, the Company has deposited
with the Trustee an amount sufficient to pay and discharge the entire
indebtedness on all outstanding Notes on the date of their scheduled maturity or
the scheduled date of redemption. (Section 4.1)
26
<PAGE> 29
GOVERNING LAW
The Indenture, the Notes and the coupons will be governed by and construed
in accordance with the laws of the State of New York, United States of America.
(sec. 1.10)
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity. (sec.sec. 6.1 and 6.3)
27
<PAGE> 30
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 126,562,500 shares of Common
Stock, $.01 par value per share, and 7,500,000 shares of Preferred Stock, $.01
par value per share. As of May 26, 1996, there were 25,463,123 shares of Common
Stock outstanding held by 601 holders of record. There are no shares of
Preferred Stock outstanding. In addition, as of May 26, 1996 the Company had
options outstanding, or available for grant, to purchase 953,572 shares of
Common Stock pursuant to its stock option plans.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders, and upon giving the
notice required by law, may cumulate votes in the election of directors. Subject
to contractual restrictions on dividends and to preferences which may be granted
to holders of Preferred Stock, each holder of Common Stock is entitled to share
ratably in distributions to shareholders and to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, each holder of Common Stock is entitled to share ratably in all assets
remaining after payments of liabilities and the liquidation preference of
outstanding Preferred Stock, if any. Holders of Common Stock have no conversion,
preemptive rights or other rights to subscribe for additional shares of Common
Stock, and there are no redemption rights or sinking fund provisions with
respect to the Common Stock. The outstanding shares of Common Stock are, and the
shares issuable upon conversion will be, when issued upon conversion, validly
issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors, without further action by the holders of Common
Stock and subject to any limitations prescribed by law, may issue shares of
Preferred Stock in one or more series and may fix or alter the rights,
preferences, privileges and restrictions, including voting rights, redemption
provisions (including sinking fund provisions), dividend rights, dividend rates,
liquidation preferences and conversion rights, and the description and number of
shares constituting wholly unissued shares of Preferred Stock. The Board of
Directors, without further shareholder approval but subject to any limitations
prescribed by law, can issue Preferred Stock with voting and conversion rights
which could adversely affect the voting power of the holders of Common Stock. No
shares of Preferred Stock presently are outstanding, and the Company currently
has no plans to issue shares of Preferred Stock. The issuance of shares of
Preferred Stock under certain circumstances could have the effect of delaying or
preventing a change of control or other corporate action.
CERTAIN CHARTER PROVISIONS
The Company's Restated Articles of Incorporation authorize the issuance of
preferred stock with designations, rights and preferences determined from time
to time by the Board of Directors, without further action by the shareholders.
These provisions could have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company.
The Company's Restated Articles of Incorporation require that any merger,
consolidation, dissolution or sale of all or substantially all the assets of the
Company must be approved by the affirmative vote of two-thirds of the
outstanding shares of capital stock entitled to vote thereon. The requirement of
a super-majority vote to approve certain corporate transactions could enable a
minority of the Company's shareholders to exercise veto powers over such
transactions.
The Company has also included in its Restated Articles of Incorporation
provisions to eliminate the personal liability of its directors to the Company
or its stockholders for monetary damages to the fullest extent permitted under
California law. The Restated Articles of Incorporation also authorize the
Company to provide indemnification of its directors, officers and other agents
for breaches of duty to the Company or its stockholders through bylaw provisions
or agreements in excess of the indemnification otherwise permitted by Section
317 of the California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
The Company's Amended and Restated Bylaws grant the
28
<PAGE> 31
Company the power to indemnify, advance expenses to, and purchase and maintain
insurance for its directors and officers to the fullest extent permitted by
under California law. The Company does not have any indemnification agreements
with any of its directors or officers.
TRANSFER AGENT
The transfer agent for the Common Stock is Chemical Mellon Shareholder
Services, L.L.C.
UNITED STATES TAXATION
The following is a summary of certain United States federal income and
estate tax considerations relating to the purchase, ownership and disposition of
Notes and of Common Stock into which the Notes may be converted, but does not
purport to be a complete analysis of all the potential tax considerations
relating thereto. This summary is based on laws, regulations, rulings and
decisions now in effect (or, in the case of certain United States Treasury
Regulations ("Treasury Regulations"), now in proposed form), all of which are
subject to change. This summary deals only with holders that will hold Notes and
Common Stock into which Notes may be converted as "capital assets" (within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code") ) and does not address tax considerations applicable to investors that
may be subject to special tax rules, such as banks, tax-exempt organizations,
insurance companies, dealers in securities or currencies, persons that will hold
Notes as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes, or persons that have a "functional currency"
other than the U.S. dollar. The Company has not sought any ruling from the
Internal Revenue Service with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the
Internal Revenue Service will agree with such statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF NOTES OR SHARES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
UNITED STATES HOLDER
As used herein, the term "United States Holder" means the beneficial owner
of a Note or Common Stock that for United States federal income tax purposes is
(i) a citizen or resident of the United States, (ii) treated as a domestic
corporation or domestic partnership, or (iii) an estate or trust other than a
"foreign estate" or "foreign trust" as defined in Section 7701(a)(31 ) of the
Code.
Payment of Interest
Interest on a Note generally will be includable in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United States
federal income tax purposes.
Sale, Exchange or Redemption of the Notes
Except as discussed below under "-- Market Discount," upon the sale,
exchange or redemption of a Note, a United States Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest income, which is taxable as ordinary income) and (ii) such
Holder's adjusted tax basis in the Note. A United States Holder's adjusted tax
basis in a Note generally will equal the cost of the Note to such Holder, less
any principal payments received by such Holder. Such capital gain or loss will
be long-term capital gain or loss if the United States Holder's holding period
in the Note is more than one year at the time of sale, exchange or redemption.
29
<PAGE> 32
Market Discount
Purchasers of Notes may be affected by the market discount provisions of
sections 1276 through 1278 of the Code. Under the market discount rules, if a
Note is purchased at a market discount (i.e, at a price below its stated
redemption price at maturity) in excess of a statutorily-defined de minimis
amount and the Purchaser subsequently recognizes gain upon a disposition or
retirement of the Note, the lesser of (i) the gain recognized or (ii) the
portion of the market discount that accrued on a ratable basis while such holder
held the Note (or, if elected, on constant interest rate basis) generally will
be treated as ordinary income at the time of the disposition. Moreover, accrued
market discount on a Note may be taxable to an investor to the extent of
appreciation at the time of certain otherwise non-taxable transactions (e.g.,
gifts). In addition, unless the Purchaser elects to include market discount in
income as it accrues, a purchaser of a market discount debt instrument may be
required to defer a portion of any otherwise deductible interest expense on
indebtedness incurred or maintained to purchase or carry such debt instrument
until the holder disposes of the debt instrument in a taxable transaction.
Amortizable Bond Premium
If a United States Holder purchases a Note for a premium (i.e. for an
amount that is greater than the amount payable at maturity) that exceeds the
value of the conversion privilege, such Holder will be considered to have
purchased such Note with "amortizable bond premium" equal in amount to such
excess. Such a United States Holder may elect (in accordance with Section 171 of
the Code) to amortize such premium (as an offset to interest income on the
Note), using a constant yield method. The amount of amortizable bond premium and
the term over which it is to be amortized are determined with reference to the
amount payable on maturity or, if it results in a smaller premium attributable
to the period ending on an earlier redemption date, with reference to the amount
payable on the earlier redemption date. Under regulations recently proposed by
the United States Treasury Department, a United States Holder who purchases a
Note sixty or more days after such regulations are finalized, would in
determining the amortizable amount take into account the Company's right to call
the Notes only if exercise of the call would increase such United States
Holder's yield on the Note. A Holder who elects to amortize bond premium must
reduce his tax basis in the Note by the amount of the premium amortized in any
year. An election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the taxpayer and may be
revoked only with the consent of the Internal Revenue Service with respect to
debt instruments acquired after revocation.
Conversion of the Notes
A United States Holder generally will not recognize any income, gain or
loss upon conversion of a Note into Common Stock except with respect to cash
received in lieu of a fractional Share of Common Stock. Such Holder's tax basis
in the Common Stock received on conversion of a Note will be the same as such
Holder's adjusted tax basis in the Note at the time of conversion (reduced by
any basis allocable to a fractional share interest), and the holding period for
the Common Stock received on conversion will generally include the holding
period of the Note converted.
Any accrued market discount not previously taken into income prior to a
conversion of a Note would (under Treasury Regulations not yet issued) carry
over to the Common Stock received on conversion and be treated as ordinary
income to the extent of any gain recognized on a subsequent disposition of the
Common Stock.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the United States
Holder's adjusted tax basis in the fractional share).
30
<PAGE> 33
Dividends
Dividends paid on the Common Stock generally will be includable in the
income of a United States Holder as ordinary income to the extent of the
Company's current or accumulated earnings and profits.
If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the antidilution provisions of the Indenture, the
conversion price of the Notes is decreased, or (ii) the conversion price of the
Notes is decreased at the discretion of the Company, such decrease in conversion
price may be deemed to be the payment of a taxable dividend to United States
Holders of Notes (pursuant to Section 305 of the Code). Such Holders of Notes
could therefore have taxable income as a result of an event pursuant to which
they received no cash or property.
Sale of Common Stock
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (ii) such Holder's adjusted tax basis in the Common Stock. Such
capital gain or loss will be long-term if the United States Holder's holding
period in the Common Stock is more than one year at the time of the sale or
exchange. Gain on the sale or exchange of the Common Stock may, however, be
ordinary income to the extent of any market discount accrued on the Notes at the
time of conversion into Common stock. A United States Holder's basis and holding
period in and the effect of market discount on Common Stock received upon
conversion of a Note are discussed above under "-- Conversion of the Notes."
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock to certain noncorporate United States
Holders, and a 31% backup withholding tax may apply to such payments if the
United States Holder (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner required, (ii) is notified by
the Internal Revenue Service (the "IRS") that he has failed to report payments
of interest and dividends properly, or (iii) under certain circumstances, fails
to certify that he has not been notified by the IRS that he is subject to backup
withholding for failure to report interest and dividend payments. Any amounts
withheld under the backup withholding rules from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax and may entitle the Holder to a refund, provided that the required
information is furnished to the IRS.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any beneficial
owner of a Note or Common Stock that is not a United States Holder.
Payment of Interest
Payment of interest on a Note or coupon by the Company or any Paying Agent
to a Non-United States Holder will qualify for the "portfolio interest
exemption" and therefore will not be subject to United States federal income tax
or withholding tax, provided that such interest income is not effectively
connected with a United States trade or business of the Non-United States Holder
and provided that the Non-United States Holder (i) does not actually or
constructively own 10% or more of the combined voting power of all classes of
stock of the Company entitled to vote, (ii) is not a controlled foreign
corporation related to the Company actually or constructively through stock
ownership, (iii) is not a bank receiving interest on a loan entered into in the
ordinary course of business and (iv) either (a) provides a Form W-8 (or a
suitable substitute form)
31
<PAGE> 34
signed under penalties of perjury that includes its name and address and
certifies as to its non-United States status in compliance with applicable law
and regulations, or (b) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business holds the Note and provides a statement to the Company or
its agent under penalties of perjury in which it certifies that such a Form W-8
(or a suitable substitute) has been received by it from the Non-United States
Holder or qualifying intermediary and furnishes the Company or its agent with a
copy thereof.
Except to the extent that an applicable treaty otherwise provides, a
Non-United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the Non-United States
Holder. Effectively connected interest received by a corporate Non-United States
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate).
Even though such effectively connected interest is subject to income tax, and
may be subject to the branch profits tax, it is not subject to withholding tax
if the Holder delivers to the payor IRS Form 4224, or, under proposed
regulations, a revised Form W-8.
Interest income of a Non-United States Holder that is not effectively
connected with a United States trade or business and that does not qualify for
the portfolio interest exemption described above will generally be subject to a
withholding tax at a 30% rate (or, if applicable, a lower treaty rate).
Sale, Exchange or Redemption of the Notes
A Non-United States Holder of a Note or coupon will generally not be
subject to United States federal income tax or withholding tax on any gain
realized on the sale, exchange or redemption of the Note or coupon (including
the receipt of cash in lieu of fractional shares upon conversion of a Note into
Common Stock) unless (1) the gain is effectively connected with a United States
trade or business of the Non-United States Holder, (2) in the case of a
Non-United States Holder who is an individual, such Holder is present in the
United States for a period or periods aggregating 183 days or more during the
taxable year of the disposition, and either such Holder has a "tax home" in the
United States or the disposition is attributable to an office or other fixed
place of business maintained by such Holder in the United States, (3) the Holder
is subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates, or (4) the Company is a United States real property
holding corporation (see discussion under "United States Foreign Investment in
Real Property Tax Act" below).
Conversion of the Notes
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Note into Common Stock by a Non-United States
Holder except with respect to the receipt of cash in lieu of fractional shares
by Non-United States Holders upon conversion of a Note where any of the
conditions described above under "Non-United States Holders -- Sale, Exchange or
Redemption of the Notes" is satisfied.
Sale or Exchange of Common Stock
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Common Stock
unless any of the conditions described above under "Non-United States
Holders -- Sale, Exchange or Redemption of the Notes" is satisfied.
Dividends
Dividends paid (or deemed paid, as described above under "United States
Holders -- Dividends") on Common Stock to a Non-United States Holder (excluding
dividends that are effectively connected with the conduct of a trade or business
in the United States by such Holder and are taxable as described below) will be
subject to United States federal withholding tax at a 30% rate (or lower rate
provided under any applicable income tax treaty). Except to the extent that an
applicable tax treaty otherwise provides, a Non-United States Holder will be
taxed in the same manner as a United States Holder on dividends paid (or deemed
paid) that
32
<PAGE> 35
are effectively connected with the conduct of a trade or business in the United
States by the Non-United States Holder. If such Non-United States Holder is a
foreign corporation, it may also be subject to a United States branch profits
tax on such effectively connected income at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty. Even though such effectively
connected dividends are subject to income tax, and may be subject to the branch
profits tax, they will not be subject to U.S. withholding tax if the Holder
delivers to the payor IRS Form 4224, or, under proposed regulations, a revised
Form W-8.
Death of a Non-United States Holder
A Note or coupon held by an individual who is not a citizen or resident of
the United States at the time of death will not be includable in the decedent's
gross estate for United States estate tax purposes, provided that such Holder or
beneficial owner did not at the time of death actually or constructively own 10%
or more of the combined voting power of all classes of stock of the Company
entitled to vote, and provided that, at the time of death, payments with respect
to such Note or coupon would not have been effectively connected with the
conduct by such Non-United States Holder of a trade or business within the
United States.
Common Stock actually or beneficially held (other than through a foreign
corporation) by a Non-United States Holder at the time of his or her death (or
previously transferred subject to certain retained rights or powers) will be
subject to United States federal estate tax unless otherwise provided by an
applicable estate tax treaty.
Information Reporting and Backup Withholding Tax
United States information reporting requirements and backup withholding tax
will not apply to payments on a Note to a Non-United States Holder if the
statement described in "Non-United States Holders -- Payment of Interest" is
duly provided by such Holder, provided that the payor does not have actual
knowledge that the Holder is a United States person.
Information reporting requirements and backup withholding tax will not
apply. to any payment of the proceeds of the sale of a Note or coupon or any
payment of the proceeds of the sale of Common Stock effected outside the United
States by a foreign office of a "broker" (as defined in applicable Treasury
Regulations), unless such broker (i) is a United States person, (ii) derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (iii) is a controlled foreign corporation as to
the United States. Payment of the proceeds of any such sale effected outside the
United States by a foreign office of any broker that is described in (i), (ii)
or (iii) of the preceding sentence will not be subject to backup withholding
tax, but will be subject to information reporting requirements unless such
broker has documentary evidence in its records that the beneficial owner is a
Non-United States Holder and certain other conditions are met, or the beneficial
owner otherwise establishes an exemption. Payment of the proceeds of any such
sale to or through the United States office of a broker is subject to
information reporting and backup withholding requirements, unless the beneficial
owner of the Note or coupon provides the statement described in "Non-United
States Holders -- Payment of Interest" or otherwise establishes an exemption.
Under current law, dividends on Common Stock held by a Non-United States
Holder if paid to an address outside the United States, will not be subject to
the information reporting and backup withholding requirements described in this
section. Under proposed regulations, however, such dividends would be subject to
information reporting and backup withholding unless the beneficial owner
furnished a Form W-8 to the withholding agent.
Proposed regulations issued by the United States Department of the Treasury
would, if adopted in their current form, provide prospectively alternate
procedures for establishing exemption from the information reporting and backup
withholding requirements.
United States Foreign Investment in Real Property Tax Act
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"), any
person who acquires a "United States real property interest" (as described
below) from a foreign person must deduct and withhold a tax equal to 10% of the
amount realized by the foreign transferor. In addition, a foreign person who
disposes of
33
<PAGE> 36
a United States real property interest generally is required to recognize gain
or loss that is subject to United States federal income tax. A "United States
real property interest" generally includes any interest (other than an interest
solely as a creditor) in a United States corporation unless it is established
under specific procedures that the corporation is not (and was not for the prior
five-year period) a "United States real property holding corporation". The
Company does not believe that it is a United States real property holding
corporation as of the date hereof, although it has not conducted or obtained an
appraisal of its assets to determine whether it is now or will be a United
States real property holding corporation. If it is not established that the
Company is not a United States real property holding corporation, then, unless
an exemption applies, both the Common Stock and the Notes would be treated as
United States real property interests. As discussed below, however, an exemption
should apply to the Common Stock and the Notes except with respect to a
Non-United States Holder whose beneficial ownership of Common Stock or Notes
exceeds 5% of the total fair market value of the Common Stock.
An interest in a United States corporation generally will not be treated as
a United States real property interest if, at any time during the calendar year,
any class of stock of the corporation is "regularly traded" on an established
securities market (the "regularly-traded exemption"). The Company believes that
the Company's Common Stock is regularly traded on an established securities
market within the meaning of the applicable regulations, although there can be
no assurance that the Common Stock will remain regularly traded. The remainder
of this discussion assumes that the Common Stock is and will remain regularly
traded on an established securities market.
The regularly-traded exemption is not available to a regularly traded
interest (such as the Common Stock) if such interest is owned by a person who
beneficially owns (actually or constructively) more than 5% of the total fair
market value of that class of interests at any time during the five-year period
ending on the date of disposition of such interest or other applicable
determination date. Accordingly, except with respect to a sale or other
disposition of Common Stock by a Non-United States Holder whose aggregate
beneficial ownership has exceeded that 5% threshold, no withholding or income
taxation under the FIRPTA rules should be required with respect to the sale,
exchange or other disposition of Common Stock by a Non-United States Holder.
The regularly-traded exemption will apply to a "non-regularly traded class
of interests" in a United States corporation that is convertible into a
regularly traded class of interests in the corporation unless, on the date such
non-regularly traded interest was acquired by its present holder, such interest
had a fair market value greater than the fair market value on that date of 5% of
the regularly traded class of the corporation's stock into which it is
convertible. (Interests of a nonregularly traded class acquired over a period of
time will be aggregated and valued as of the date of the subsequent acquisition
for purposes of applying the 5% test described above.) Accordingly, except with
respect to the sale, exchange, conversion or redemption of the Notes by a
Non-United States Holder whose aggregate actual or constructive ownership of
such Notes on an applicable determination date had a fair market value greater
than 5% of the Common Stock, no withholding or income taxation under the FIRPTA
rules should be required with respect to the sale, exchange, conversion or
redemption of Notes by a Non-United States Holder. The foregoing discussion
assumes that the Notes constitute interests that are nonregularly traded
interests convertible into a regularly traded class of interests. Although not
currently anticipated, if the Notes were to become regularly traded, the
regularly-traded exemption might not apply to Notes owned by a person who
beneficially owns (actually or constructively) more than 5% of the total fair
market value of the Notes at any time during the five year period ending on the
date of disposition of the Notes or other applicable determination date.
Any investor that may approach or exceed any of the 5% ownership thresholds
discussed above, either alone or in conjunction with related persons, should
consult its own tax advisor concerning the United States tax consequences that
may result. A Non-United States Holder who sells or otherwise disposes of Notes
may be required to inform its transferee whether such Notes constitute a United
States real property interest.
34
<PAGE> 37
PLAN OF DISTRIBUTION
This Prospectus relates to the resale of $40,000,000 of Notes issued on
April 15, 1996, and the resale of the shares (the "Shares") of Common Stock
issuable upon conversion of Notes. This Prospectus does not cover the initial
issuance of shares of Common Stock upon conversion of the Notes. The Notes and
Shares may be offered from time to time by the Selling Securityholders.
The Selling Securityholders, acting as principals for their own account,
may sell all or a portion of the Notes or Shares from time to time on any
exchange on which such securities are listed on terms to be determined at the
times of such sales. The Selling Securityholders may also make private sales
directly or through a broker or brokers. Alternatively, any of the Selling
Securityholders may from time to time offer the Notes or Shares which may be
offered hereby and beneficially owned by them through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
commissions or concessions from the Selling Securityholders and the purchasers
of the Notes or Shares for whom they may act as agent. To the extent required,
the aggregate principal amount of Notes and number of Shares of Common Stock to
be sold hereby, the names of the Selling Securityholders, the purchase price,
the name of any such agent, dealer or underwriter and any applicable
commissions, discounts or other terms constituting compensation with respect to
a particular offer will be set forth in an accompanying Prospectus Supplement.
The aggregate proceeds to the Selling Securityholders from the sale of the Notes
or Shares of Common Stock offered by them hereby will be the purchase price of
such Notes or Shares of Common Stock less discounts and commissions, if any. The
Company will not receive any of the proceeds from the resale of the Notes or
Shares offered hereby.
The Notes and the Shares may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees of commissions in
connection therewith.
The outstanding Common Stock is listed for trading on the Nasdaq National
Market, and the Company currently intends to apply for listing of the Shares on
the Nasdaq National Market. The Notes are currently eligible for trading in the
PORTAL market of the National Association of Securities Dealers, Inc. The Notes
are not expected to remain eligible for trading through the PORTAL market after
the effectiveness of the Registration Statement relating to this Prospectus. The
Company does not intend to apply for listing of the Notes on any securities
exchange or for inclusion of the Notes on any automated quotation system. There
is no assurance as to development or liquidity of any trading market that may
develop for the Notes.
Goldman, Sachs & Co. has engaged in transactions with and performed various
investment banking and other services for the Company in the past, and may do so
from time to time in the future.
In order to comply with the securities laws of certain states, if
applicable, the Notes and Shares offered hereby will be sold in such
jurisdiction only through registered or licensed brokers or dealers. In
addition, in certain states the Notes or Shares offered hereby may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with.
The Selling Securityholders and any brokers-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or Shares of Common Stock offered hereby may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions or discounts received by such broker-dealers, agents or underwriters
and any profit on the resale of the Notes or Shares of Common Stock offered
hereby and purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company and the Selling Securityholders have agreed to indemnify each
other against certain liabilities arising under the Securities Act. The Company
has agreed to pay all expenses incident to the offer and sale of the Notes and
Shares offered hereby by the Selling Securityholders to the public, other than
the brokers's commissions and underwriting discounts and commissions.
35
<PAGE> 38
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by the law firm of Irell & Manella LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of Williams-Sonoma, Inc. and subsidiaries as of January 28, 1996, and
January 29, 1995, and for the three fiscal years in the period ending January
28, 1996, incorporated in this Prospectus by reference from the Annual Report on
Form 10-K of the Company for the fiscal year ended January 28, 1996, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports dated April 15, 1996, which are incorporated herein by reference, and
have been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
36
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Company in connection with the distribution
of securities being registered, are estimated as follows:
<TABLE>
<S> <C>
S.E.C. Registration Fee.................................................... $13,800
Accounting Fees and Expenses............................................... 7,500
Legal Fees and Expenses.................................................... 10,000
Printing Expenses.......................................................... 4,000
-------
Total............................................................ $34,800
</TABLE>
The Selling Stockholders will be responsible for all selling commissions,
transfer taxes and related charges in connection with the offer and sale of the
Notes and Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law and Section 7.06 of
the Company's bylaws ("Bylaws") provide for the indemnification of directors,
officers and "agents" (as defined in Section 317 of the California General
Corporation Law) under certain circumstances. The Bylaws grant the Company the
power to indemnify its directors, officers and "agents" under certain
circumstances to the extent permitted by California law against certain
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of their
positions as directors, officers or "agents." Pursuant to California law and the
Company's Bylaws, the Company is required to indemnify directors, officers and
"agents" against expenses actually and reasonably incurred to the extent that
such party is successful on the merits in defense of certain proceedings.
Section 204(a)(11) of the California General Corporation Law provides for
the indemnification, subject to certain limitations, of directors, officers and
"agents" for breach of their duty to a corporation and its shareholders in
excess of that expressly permitted by Section 317 of the California General
Corporation Law. On December 6, 1988, the Company's Articles of Incorporation
were amended implementing Section 204(a)(11) of the California General
Corporation Law.
Section 317 of the California General Corporation Law also provides that a
corporation shall have the power to purchase and maintain insurance on behalf of
any agent of the corporation against any liabilities asserted against or
incurred by the agent in such capacity. The Company maintains a director's and
officer's liability insurance policy insuring the Company's directors and
officers against certain liabilities and expenses incurred by them in their
capacities as such, and insuring the Company under certain circumstances in the
event that indemnification payments are made by the Company to such directors
and officers.
II-1
<PAGE> 40
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------------------------------------------------------------------------
<C> <S>
4.1 Indenture dated as of April 15, 1996, between the Company and Bankers Trust
Company, as Trustee, in respect of the 5 1/4% Convertible Subordinated
Notes due 2003(1)
4.1A Cross Reference Sheet
4.2 Form of 5 1/4% Convertible Subordinated Notes due 2003
4.3 Registration Rights Agreement dated as of April 15, 1996, between the Company
and Goldman, Sachs & Co.(1)
5.1 Legal Opinion of Irell & Manella LLP
12.1 Computation of earnings to fixed charges
23.1 Consent of Irell & Manella LLP (included in legal opinion filed as Exhibit
5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included on pages II-4 and II-5 of this Registration
Statement)
25.1 Statement of Eligibility and Qualification Under the Trust Indenture Act of
1939 of a Corporation Designated to Act as Trustee on Form T-1.
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibits 10.10A and 10.10B to the Company's
Annual Report on Form 10-K for the period ended January 28, 1996 as filed
with the Commission on April 19, 1996.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Act of 1934) that is incorporated by reference
II-2
<PAGE> 41
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, on the 9th day of
July, 1996.
WILLIAMS-SONOMA, INC.
By: /s/ DENNIS A. CHANTLAND
--------------------------------------
Dennis A. Chantland
Executive Vice President, Chief
Administrative Officer, Acting Chief
Financial Officer and Secretary
(principal financial officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints W. Howard Lester, Patrick J. Connolly and
Dennis A. Chantland, or any of them, his attorneys-in-fact and agents, each with
full power of substitution for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting each of said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with this
Registration Statement, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that any of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- --------------------------------------- --------------
<C> <S> <C>
/s/ W. HOWARD LESTER Chairman of the Board and Chief July 9, 1996
- ----------------------------------- Executive Officer (principal
W. Howard Lester executive officer)
/s/ DENNIS A. CHANTLAND Executive Vice President, Chief July 9, 1996
- ----------------------------------- Administrative Officer, Acting Chief
Dennis A. Chantland Financial Officer and Secretary
(principal financial officer)
/s/ PATRICK J. CONNOLLY Director and Senior Vice President July 9, 1996
- -----------------------------------
Patrick J. Connolly
/s/ GARY G. FRIEDMAN Director and Executive Vice President July 9, 1996
- -----------------------------------
Gary G. Friedman
</TABLE>
II-4
<PAGE> 43
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- --------------------------------------- --------------
<C> <S> <C>
/s/ CHARLES E. WILLIAMS Vice Chairman and Director July 9, 1996
- -----------------------------------
Charles E. Williams
/s/ JAMES M. BERRY Director July 9, 1996
- -----------------------------------
James M. Berry
/s/ NATHAN BESSIN Director July 9, 1996
- -----------------------------------
Nathan Bessin
/s/ MILLARD S. DREXLER Director July 9, 1996
- -----------------------------------
Millard S. Drexler
/s/ F. WARREN HELLMAN Director July 9, 1996
- -----------------------------------
F. Warren Hellman
/s/ JAMES A. MCMAHAN Director July 9, 1996
- -----------------------------------
James A. McMahan
/s/ JOHN E. MARTIN Director July 9, 1996
- -----------------------------------
John E. Martin
</TABLE>
II-5
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ --------------------------------------------------------------------- ------------
<C> <S> <C>
4.1 Indenture dated as of April 15, 1996, between the Company and Bankers
Trust Company, as Trustee, in respect of the 5 1/4% Convertible
Subordinated Notes due 2003(1).....................................
4.1A Cross Reference Sheet................................................
4.2 Form of 5 1/4% Convertible Subordinated Notes due 2003...............
4.3 Registration Rights Agreement dated as of April 15, 1996, between the
Company and Goldman, Sachs & Co.(1)................................
5.1 Legal Opinion of Irell & Manella LLP.................................
12.1 Computation of Earnings to Fixed Charges.............................
23.1 Consent of Irell & Manella LLP (included in legal opinion filed as
Exhibit 5.1).......................................................
23.2 Consent of Deloitte & Touche LLP.....................................
24.1 Power of Attorney (included on pages II-4 and II-5 of this
Registration Statement)............................................
25.1 Statement of Eligibility and Qualification Under the Trust Indenture
Act of 1939 of a Corporation Designated to Act as Trustee on Form
T-1................................................................
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibits 10.10A and 10.10B to the Company's
Annual Report on Form 10-K for the period ended January 28, 1996 as filed
with the Commission on April 19, 1996.
<PAGE> 1
EXHIBIT 4.1A
Cross Reference Sheet
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Sections Section
Section 310(a)(1) ......................................... 6.8
(a)(2)......................................... 6.8
(a)(3)......................................... Not Applicable
(a)(4)......................................... Not Applicable
(b) ......................................... 6.13
6.9
Section 311(a) ......................................... 6.14
(b) ......................................... 6.14
Section 312(a) ......................................... 7.1
7.2(a)
(b) ......................................... 7.2(b)
(c) ......................................... 7.2(c)
Section 313(a) ......................................... 7.3(a)
(a)(4)......................................... 1.1
11.9
(b) ......................................... 7.3(a)
(c) ......................................... 7.3(a)
(d) ......................................... 7.3(b)
Section 314(a) ......................................... 7.4
(b) ......................................... Not Applicable
(c)(1)......................................... 1.2
(c)(2)......................................... 1.2
(c)(3)......................................... Not Applicable
(d) ......................................... Not Applicable
(e) ......................................... 1.2
Section 315(a) ......................................... 6.1
(b) ......................................... 6.2
(c) ......................................... 6.1
(d) ......................................... 6.1
(e) ......................................... 5.14
Section 316(a) ......................................... 1.1
(a)(1)(A)...................................... 5.2
5.12
(a)(1)(B)...................................... 5.13
(a)(2) ....................................... Not Applicable
(b) ........................................ 5.8
(c) ........................................ 1.4(g)
4.1A-i
<PAGE> 2
Trust Indenture Indenture
Act Sections Section
Section317(a)(1) ............................................... 5.3
(a)(2) ........................ ...................... 5.4
(b) ............................................... 11.3
Section318(a) ............................................... 1.13
- -----------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of this Indenture.
4.1A-ii
<PAGE> 1
EXHIBIT 4.2
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY AND ANY COMMON SHARES
ISSUABLE UPON ITS CONVERSION MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. SECURITIES
MAY ONLY BE SOLD IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE
FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE. EACH PURCHASER OF
THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF WILLIAMS-SONOMA,
INC. THAT (A) THIS SECURITY AND ANY COMMON SHARES ISSUABLE UPON ITS CONVERSION
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (II) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (III) UNLESS PREVIOUSLY AGREED WITH THE COMPANY, TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (IV) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES, AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE.
CONVERSION OF THIS SECURITY IS SUBJECT TO CERTIFICATION AND OTHER
REQUIREMENTS, AND ANY SECURITIES ISSUED ON SUCH CONVERSION WILL BE SUBJECT TO
THE TRANSFER RESTRICTIONS REFERRED TO ABOVE.
THIS NOTE, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION AND
ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO
MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF
THIS NOTE AND ANY SUCH SHARES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR
REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE
RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS NOTE
AND ANY SUCH SHARES SHALL BE DEEMED, BY THE ACCEPTANCE OF THIS NOTE AND ANY
SUCH SHARES, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.
4.2-i
<PAGE> 2
WILLIAMS-SONOMA, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTES
DUE APRIL 15, 2003
No. R-3 U.S.$3,500,000
CUSIP No. 969904AB7
WILLIAMS-SONOMA, INC., a California corporation (herein called the
"Company," which term includes any successor Person under the Indenture referred
to on the reverse hereof), for value received, hereby promises to pay to
Goldman, Sachs & Co., or registered assigns, the principal sum of three million
five hundred thousand U.S. Dollars on April 15, 2003, and to pay interest
thereon from April 15, 1996 or from the most recent Interest Payment Date (as
defined below) to which interest has been paid or duly provided for,
semi-annually in arrears on April 15 and October 15 in each year, commencing on
October 15, 1996, and at Maturity at the rate of 5 1/4% per annum, until the
principal hereof is paid or made available for payment, provided that any amount
of such principal or interest that is overdue shall bear interest at the rate of
5 1/4% per annum (to the extent that payment of such interest shall be legally
enforceable), from the date such amount is due until it is paid or made
available for payment, and such interest on any overdue amount shall be payable
on demand. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 1 or October 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice thereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
Payment of the principal of and interest on this Security will be made
in immediately available funds and in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts, at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York or, at the option of
the Holder and subject to any fiscal or other laws and regulations, at any other
office or agency maintained by the Company for such purpose; provided, however,
that upon written application (including wire payment instructions) by the
Holder to the Security Registrar not later than the 10th day immediately
preceding the relevant Regular Record Date, such Holder
4.2-ii
<PAGE> 3
may receive payment by wire transfer to a U.S. Dollar account (such transfers to
be made only to Holders of an aggregate principal amount in excess of U.S.
$2,000,000) maintained by the payee with a bank in The City of New York; and,
provided, further, that, subject to the preceding proviso, payment of interest
may, at the option of the Company, be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register;
and, provided, further, that payment of principal of, or interest on this
Security and payment of any Liquidated Damages (as defined on the reverse
hereof) may be made at an office or agency of the Corporate Trust Office of the
Trustee in The City of New York, if (but only if) payment of the full amount of
such principal, interest or Liquidated Damages, as the case may be, at all
offices outside the United States maintained for such purpose by the Company in
accordance with the Indenture is illegal or effectively precluded because of
exchange controls or other similar restrictions on the full payment or receipt
of such amounts in United States Dollars, as determined by the Company. Unless
such designation is revoked, any such designation made by the Holder with
respect to this Security will remain in effect with respect to future payments
with respect to this Security payable to the Holder. The Company will pay any
administrative costs imposed by banks in connection with making any such
payments upon application of such Holder for reimbursement. If this Security is
a Global Security, then, notwithstanding the second sentence of this paragraph,
each such payment will be made in accordance with the procedures of the U.S.
Depository as then in effect.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by the manual signature of one of
its authorized signatories, this Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
4.2-iii
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Security to be duly executed
under its corporate seal.
WILLIAMS-SONOMA, INC.
[Corporate Seal]
By
-----------------------------------
Title:
Attest:
- ----------------------
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
Dated: BANKERS TRUST COMPANY, as
Trustee
By:______________________________
Authorized Signatory
4.2-iv
<PAGE> 5
Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company designated as its "5 1/4% Convertible Subordinated Notes due April 15,
2003" (herein called the "Securities"), limited in aggregate principal amount to
U.S.$40,000,000, issued and to be issued under an Indenture, dated as of April
15, 1996 (herein called the ("Indenture") between the Company and Bankers Trust
Company, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which the Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the Holders of Senior Debt of the Company and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
No sinking fund is provided for in the Securities. The Securities may
not be redeemed at the option of the Company prior to April 15, 1998.
Thereafter, the Securities may be redeemed at the option of the Company, in
whole or in part, at the Redemption Prices set forth below; provided, that the
Company may redeem the Securities from April 15, 1998 to April 14, 2000 only if
the last reported sale price of the Common Shares for each of the 30 consecutive
Trading Days ending on the Trading Day prior to the date of the notice of
redemption shall have equalled or exceeded 140% of the Conversion Price then in
effect.
The Redemption Prices (expressed as a percentage of principal amount)
are as follows for the 12-month period beginning on April 15 of the following
years:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
1998 103.75
1999 103.00
2000 102.25
2001 101.50
2002 100.75
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date.
Notice of redemption (which notice shall be irrevocable) will be given
by first-class mail to Holders of Securities at their registered addresses as
recorded in the Security Register. Notice will be given not more than 60 nor
less than 30 days prior to the Redemption Date, as provided in the Indenture.
In any case where the due date for the payment of the principal of or
interest, including Liquidated Damages, on any Security or the last day on which
a Holder of a Security has a right to convert his Security shall be at any place
of payment or place of conversion, as the case may be, a day on which banking
institutions at such place of payment or place of conversion are authorized or
obligated by law or executive order to close, then payment of principal or
interest, including Liquidated Damages, or delivery for conversion of such
Security need not be made on
4.2-v
<PAGE> 6
or by such date at such place but may be made on or by the next succeeding day
at such place which is not a day on which banking institutions are authorized or
obligated by law or executive order to close, with the same force and effect as
if made on the date for such payment or the date fixed for redemption or
repurchase, or at the Stated Maturity or by such last day for conversion, and no
interest shall accrue for the period after such date.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his option, at any time after July
15, 1996 (the "Non-Conversion Period") and prior to the close of business on
April 15, 2003, or in case this Security is called for redemption or the Holder
hereof has exercised its right to require the Company to repurchase this
Security, then in respect of this Security until and including, but (unless the
Company defaults in making the payment due upon redemption or repurchase, as the
case may be) not after, the close of business on the Redemption Date or the
Repurchase Date, as the case may be, to convert this Security into newly issued
fully paid and nonassessable Common Shares of the Company at an initial
Conversion Rate equal to 38.3142 Common Shares per U.S.$1,000 principal amount
of Securities (or at the current adjusted Conversion Rate if an adjustment has
been made as provided in the Indenture) by surrender of this Security, and also
a duly executed conversion notice, substantially in the form provided in Annex A
of the Indenture (including the tax certification contained in such notice), to
the Company, subject to any laws or regulations applicable thereto and subject
to the right of the Company to terminate the appointment of the Conversion Agent
(as defined below), at the principal corporate trust office of the Trustee in
The City of New York or at such other offices or agencies outside the United
States that the Company may designate (each a "Conversion Agent"). No payment or
adjustment is to be made on conversion for cash dividends on the Common Shares
issued on conversion or, if the date of conversion is not an Interest Payment
Date, interest accrued hereon from the Interest Payment Date next preceding the
date of conversion. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest
(calculated to the nearest 1/100th of a share) the Company shall pay a cash
adjustment as provided in the Indenture, or alternatively the Company shall
round up the conversion transaction to the next higher whole share. In addition,
the Indenture provides that in case of certain consolidations or mergers to
which the Company is a party or the sale or transfer of all or substantially all
of the assets of the Company, the Indenture shall be amended, without the
consent of any Holders of Securities, so that this Security, if then
Outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon consolidation, merger, sale
or transfer by a holder of the number of Common Shares of the Company into which
this Security might have been converted immediately prior to such consolidation,
merger, sale or transfer (assuming such holder of Common Shares failed to
exercise any rights of election and received per share the kind and amount
received per share by a plurality of Non-Electing Shares). Adjustments in the
Conversion Rate of less than one percent of such price will not be required, but
any adjustment that would otherwise be required to be made will be carried
forward and taken into account in the computation of any subsequent adjustment.
Notwithstanding any provision hereof, no securities will be delivered
on conversion of this Security or any portion hereof unless the certification
and other requirements described in the Indenture are satisfied.
4.2-vi
<PAGE> 7
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security or the holder of Common Shares issued upon conversion thereof, the
Company will promptly furnish or cause to he furnished Rule 144A Information (as
defined below) to such Holder of Restricted Securities or such holder of Common
Shares issued upon conversion of Restricted Securities, or to a prospective
purchaser of any such security designated by any such Holder or holder, as the
case may be, to the extent required to permit compliance by any such holder with
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act").
"Rule 144A Information" shall be such information as is specified pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).
The Holder of this Security and the Common Shares of the Company
issuable upon conversion thereof is entitled to the benefits of a Registration
Rights Agreement (subject to the provisions thereof), dated as of April 10,
1996, between the Company and Goldman, Sachs & Co. (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, the Company has
agreed for the benefit of the Holders from time to time of the Securities and
the Common Shares issuable upon conversion thereof that it will, at its expense,
(a) within 90 days after the date of issuance of the original Securities, file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Securities and the Common Shares
issuable upon conversion thereof, (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission within 90 days
after the date on which the Shelf Registration Statement is filed, and (c) use
its best efforts to maintain such Shelf Registration Statement continuously
effective under the Securities Act, until the third anniversary of the date of
the effectiveness of the Shelf Registration Statement or such earlier date as is
provided in the Registration Rights Agreement.
If (i) on or prior to 90 days following the date of original issuance
of the Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 90th day following the filing of such
Shelf Registration Statement, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on this Security from and including the day following such
Registration Default to but excluding the day on which such Registration Default
has been cured. Liquidated Damages will be paid semi-annually in arrears, with
the first semi-annual payment due on the first interest payment date in respect
of the Securities following the date on which such Liquidated Damages begin to
accrue, and will accrue at a rate per annum equal to an additional one-quarter
of one percent (0.25%) of the principal amount of the Securities to and
including the 90th day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
day following such Registration Default. In the event that the Shelf
Registration Statement ceases to be effective prior to the third annual
anniversary of the initial effective date of the Shelf Registration Statement or
such earlier date as is provided in the Registration Rights Agreement for a
period in excess of 60 days, whether or not consecutive, during any 12-month
period, then the interest rate borne by the Securities shall increase by an
additional one-half of one percent (0.50%) per annum from the 61st day of the
applicable 12-month period such Shelf Registration Statement ceases to be
effective to but excluding the day on which the Shelf Registration Statement
again becomes effective.
4.2-vii
<PAGE> 8
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security such mention shall be deemed to include mention of the payment of
Liquidated Damages payable as described in the preceding paragraph to the extent
that, in such context, Liquidated Damages are, were or would be payable in
respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
The Holder of this Security, by its acceptance thereof, agrees to be
bound by the terms of the Registration Rights Agreement relating to the
Securities and the Common Shares issuable upon conversion thereof.
If a Change in Control occurs, the Holder of this Security shall have
the right, at the Holder's option in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000) for cash at
a Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, except as otherwise provided in the Indenture, by
delivery of Common Shares having a fair market value equal to the Repurchase
Price; provided that payment may not be made in Common Shares unless at the time
of payment such stock is listed on a national securities exchange or quoted on
the Nasdaq National Market. For purposes of this paragraph, the fair market
value of shares of Common Shares shall be determined by the Company and shall be
equal to 95% of the average of the Closing Prices Per Share for the five
consecutive Trading Days ending on and including the third Trading Day
immediately preceding the Repurchase Date. Whenever in this Security there is a
reference, in any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Security to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Security shall not be construed as excluding the
Repurchase Price in those provisions of this Security when such express mention
is not made.
The indebtedness evidenced by this Security is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all amounts then or thereafter to become
due on all Senior Debt of the Company, and this Security is issued subject to
such provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on its behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee its attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable to the extent, in the manner
and with the effect provided in the Indenture. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest, all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
4.2-viii
<PAGE> 9
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with either (a) the written consent of
the Holders of a majority in principal amount of the Securities at the time
outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of
the Outstanding Securities at which a quorum is present by the Holders of
66-2/3% in aggregate principal amount of the Outstanding Securities represented
at such meeting. The Indenture also contains provisions permitting the Holders
of specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, the Holders of not
less than 25% in aggregate principal amount of the Outstanding Securities shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default and offered the Trustee indemnity satisfactory to it and
the Trustee shall not have received from the Holders of a majority in principal
amount of the Securities Outstanding a direction inconsistent with such request
and shall have failed to institute any such proceedings for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof or interest hereon (including any Liquidated
Damages) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligations of the Company, which
are absolute and unconditional, to pay the principal of and interest (including
Liquidated Damages) on this Security at the times, places and rate, and in the
coin or currency, herein prescribed or to convert this Security as provided in
the Indenture.
The Securities are issuable only in fully registered form, without
exception, and, except as provided in Section 2.1 of the Indenture, in
denominations of $1,000 and any integral multiples of $1,000 in excess thereof.
As provided in the Indenture and subject to certain limitations and satisfaction
of certain requirements therein set forth, Securities are exchangeable for a
like aggregate principal amount of securities of the same or a different
authorized denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations and
satisfaction of certain requirements therein set forth, the transfer of this
Security is registrable on the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form
4.2-ix
<PAGE> 10
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to recover
any tax or other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of transfer
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered, as the owner thereof for
all purposes, whether or not such Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
4.2-x
<PAGE> 11
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 15.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it
or an amount in cash or, at the Company's election, Common Stock valued as set
forth in the Indenture, equal to 100% of the principal amount hereof, plus
interest accrued to the Repurchase Date, as provided in the Indenture.
Dated:
--------------------------
---------------------------------
Signature
---------------------------------
Signature Guaranteed
Principal amount to be repurchased: ________________
Remaining principal amount following such repurchase: _____________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
4.2-xi
<PAGE> 12
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY AND ANY COMMON SHARES
ISSUABLE UPON ITS CONVERSION MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. SECURITIES
MAY ONLY BE SOLD IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE
FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE. EACH PURCHASER OF
THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF WILLIAMS-SONOMA,
INC. THAT (A) THIS SECURITY AND ANY COMMON SHARES ISSUABLE UPON ITS CONVERSION
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (II) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (III) UNLESS PREVIOUSLY AGREED WITH THE COMPANY, TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (IV) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES, AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE.
CONVERSION OF THIS SECURITY IS SUBJECT TO CERTIFICATION AND OTHER
REQUIREMENTS, AND ANY SECURITIES ISSUED ON SUCH CONVERSION WILL BE SUBJECT TO
THE TRANSFER RESTRICTIONS REFERRED TO ABOVE.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITORY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO. (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE THEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
4.2-xii
<PAGE> 13
WILLIAMS-SONOMA, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTES
DUE APRIL 15, 2003
No. R-2 U.S.$31,725,000
CUSIP No. 969904AA9
WILLIAMS-SONOMA, INC., a California corporation (herein called the
"Company," which term includes any successor Person under the Indenture referred
to on the reverse hereof), for value received, hereby promises to pay to CEDE &
CO.), or registered assigns, the principal sum of thirty-one million seven
hundred twenty-five thousand U.S. Dollars, or such other amount (not to exceed
forty million dollars ($40,000,000) when taken together with all of the
Company's 5 1/4% Convertible Subordinated Notes due April 15, 2003 issued and
outstanding in definitive certificated form or in the form of another Global
Security) as may from time to time represent the principal amount of the
Company's 5 1/4% Convertible Subordinated Notes due April 15, 2003 in respect of
which beneficial interests are held through the U.S. Depositary in the form of a
Restricted Global Security, on April 15, 2003, and to pay interest thereon from
April 15, 1996 or from the most recent Interest Payment Date (as defined below)
to which interest has been paid or duly provided for, semi-annually in arrears
on April 15 and October 15 in each year, commencing on October 15, 1996, and at
Maturity at the rate of 5 1/4% per annum, until the principal hereof is paid or
made available for payment, provided that any amount of such principal or
interest that is overdue shall bear interest at the rate of 5 1/4% per annum (to
the extent that payment of such interest shall be legally enforceable), from the
date such amount is due until it is paid or made available for payment, and such
interest on any overdue amount shall be payable on demand. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the April
1 or October 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice thereof shall be given to Holders of Securities
not less than 10 days prior
4.2-xiii
<PAGE> 14
to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Security will be made
in immediately available funds and in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts, at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York or, at the option of
the Holder and subject to any fiscal or other laws and regulations, at any other
office or agency maintained by the Company for such purpose; provided, however,
that upon written application (including wire payment instructions) by the
Holder to the Security Registrar not later than the 10th day immediately
preceding the relevant Regular Record Date, such Holder may receive payment by
wire transfer to a U.S. Dollar account (such transfers to be made only to
Holders of an aggregate principal amount in excess of U.S. $2,000,000)
maintained by the payee with a bank in The City of New York; and, provided,
further, that, subject to the preceding proviso, payment of interest may, at the
option of the Company, be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register; and,
provided, further, that payment of principal of, or interest on this Security
and payment of any Liquidated Damages (as defined on the reverse hereof) may be
made at an office or agency of the Corporate Trust Office of the Trustee in The
City of New York, if (but only if) payment of the full amount of such principal,
interest or Liquidated Damages, as the case may be, at all offices outside the
United States maintained for such purpose by the Company in accordance with the
Indenture is illegal or effectively precluded because of exchange controls or
other similar restrictions on the full payment or receipt of such amounts in
United States Dollars, as determined by the Company. Unless such designation is
revoked, any such designation made by the Holder with respect to this Security
will remain in effect with respect to future payments with respect to this
Security payable to the Holder. The Company will pay any administrative costs
imposed by banks in connection with making any such payments upon application of
such Holder for reimbursement. If this Security is a Global Security, then,
notwithstanding the second sentence of this paragraph, each such payment will be
made in accordance with the procedures of the U.S. Depository as then in effect.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by the manual signature of one of
its authorized signatories, this Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
4.2-xiv
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
WILLIAMS-SONOMA, INC.
[Corporate Seal]
By
--------------------------------
Title:
Attest:
- ----------------------
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
Dated: BANKERS TRUST COMPANY, as
Trustee
By:
------------------------------
Authorized Signatory
4.2-xv
<PAGE> 16
Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company designated as its "5 1/4% Convertible Subordinated Notes due April 15,
2003" (herein called the "Securities"), limited in aggregate principal amount to
U.S.$40,000,000, issued and to be issued under an Indenture, dated as of April
15, 1996 (herein called the ("Indenture") between the Company and Bankers Trust
Company, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which the Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the Holders of Senior Debt of the Company and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
No sinking fund is provided for in the Securities. The Securities may
not be redeemed at the option of the Company prior to April 15, 1998.
Thereafter, the Securities may be redeemed at the option of the Company, in
whole or in part, at the Redemption Prices set forth below; provided, that the
Company may redeem the Securities from April 15, 1998 to April 14, 2000 only if
the last reported sale price of the Common Shares for each of the 30 consecutive
Trading Days ending on the Trading Day prior to the date of the notice of
redemption shall have equalled or exceeded 140% of the Conversion Price then in
effect.
The Redemption Prices (expressed as a percentage of principal amount)
are as follows for the 12-month period beginning on April 15 of the following
years:
<TABLE>
<CAPTION>
Redemption
Year Price
<S> <C>
1998 103.75
1999 103.00
2000 102.25
2001 101.50
2002 100.75
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date.
Notice of redemption (which notice shall be irrevocable) will be given
by first-class mail to Holders of Securities at their registered addresses as
recorded in the Security Register. Notice will be given not more than 60 nor
less than 30 days prior to the Redemption Date, as provided in the Indenture.
In any case where the due date for the payment of the principal of or
interest, including Liquidated Damages, on any Security or the last day on which
a Holder of a Security has a right to convert his Security shall be at any place
of payment or place of conversion, as the case may be, a day on which banking
institutions at such place of payment or place of conversion are authorized or
obligated by law or executive order to close, then payment of principal or
interest, including Liquidated Damages, or delivery for conversion of such
Security need not be made on
4.2-xvi
<PAGE> 17
or by such date at such place but may be made on or by the next succeeding day
at such place which is not a day on which banking institutions are authorized or
obligated by law or executive order to close, with the same force and effect as
if made on the date for such payment or the date fixed for redemption or
repurchase, or at the Stated Maturity or by such last day for conversion, and no
interest shall accrue for the period after such date.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his option, at any time after July
15, 1996 (the "Non-Conversion Period") and prior to the close of business on
April 15, 2003, or in case this Security is called for redemption or the Holder
hereof has exercised its right to require the Company to repurchase this
Security, then in respect of this Security until and including, but (unless the
Company defaults in making the payment due upon redemption or repurchase, as the
case may be) not after, the close of business on the Redemption Date or the
Repurchase Date, as the case may be, to convert this Security into newly issued
fully paid and nonassessable Common Shares of the Company at an initial
Conversion Rate equal to 38.3142 Common Shares per U.S.$1,000 principal amount
of Securities (or at the current adjusted Conversion Rate if an adjustment has
been made as provided in the Indenture) by surrender of this Security, and also
a duly executed conversion notice, substantially in the form provided in Annex A
of the Indenture (including the tax certification contained in such notice), to
the Company, subject to any laws or regulations applicable thereto and subject
to the right of the Company to terminate the appointment of the Conversion Agent
(as defined below), at the principal corporate trust office of the Trustee in
The City of New York or at such other offices or agencies outside the United
States that the Company may designate (each a "Conversion Agent"). No payment or
adjustment is to be made on conversion for cash dividends on the Common Shares
issued on conversion or, if the date of conversion is not an Interest Payment
Date, interest accrued hereon from the Interest Payment Date next preceding the
date of conversion. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest
(calculated to the nearest 1/100th of a share) the Company shall pay a cash
adjustment as provided in the Indenture, or alternatively the Company shall
round up the conversion transaction to the next higher whole share. In addition,
the Indenture provides that in case of certain consolidations or mergers to
which the Company is a party or the sale or transfer of all or substantially all
of the assets of the Company, the Indenture shall be amended, without the
consent of any Holders of Securities, so that this Security, if then
Outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon consolidation, merger, sale
or transfer by a holder of the number of Common Shares of the Company into which
this Security might have been converted immediately prior to such consolidation,
merger, sale or transfer (assuming such holder of Common Shares failed to
exercise any rights of election and received per share the kind and amount
received per share by a plurality of Non-Electing Shares). Adjustments in the
Conversion Rate of less than one percent of such price will not be required, but
any adjustment that would otherwise be required to be made will be carried
forward and taken into account in the computation of any subsequent adjustment.
Notwithstanding any provision hereof, no securities will be delivered
on conversion of this Security or any portion hereof unless the certification
and other requirements described in the Indenture are satisfied.
4.2-xvii
<PAGE> 18
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security or the holder of Common Shares issued upon conversion thereof, the
Company will promptly furnish or cause to he furnished Rule 144A Information (as
defined below) to such Holder of Restricted Securities or such holder of Common
Shares issued upon conversion of Restricted Securities, or to a prospective
purchaser of any such security designated by any such Holder or holder, as the
case may be, to the extent required to permit compliance by any such holder with
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act").
"Rule 144A Information" shall be such information as is specified pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).
The Holder of this Security and the Common Shares of the Company
issuable upon conversion thereof is entitled to the benefits of a Registration
Rights Agreement (subject to the provisions thereof), dated as of April 10,
1996, between the Company and Goldman, Sachs & Co. (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, the Company has
agreed for the benefit of the Holders from time to time of the Securities and
the Common Shares issuable upon conversion thereof that it will, at its expense,
(a) within 90 days after the date of issuance of the original Securities, file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Securities and the Common Shares
issuable upon conversion thereof, (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission within 90 days
after the date on which the Shelf Registration Statement is filed, and (c) use
its best efforts to maintain such Shelf Registration Statement continuously
effective under the Securities Act, until the third anniversary of the date of
the effectiveness of the Shelf Registration Statement or such earlier date as is
provided in the Registration Rights Agreement.
If (i) on or prior to 90 days following the date of original issuance
of the Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 90th day following the filing of such
Shelf Registration Statement, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on this Security from and including the day following such
Registration Default to but excluding the day on which such Registration Default
has been cured. Liquidated Damages will be paid semi-annually in arrears, with
the first semi-annual payment due on the first interest payment date in respect
of the Securities following the date on which such Liquidated Damages begin to
accrue, and will accrue at a rate per annum equal to an additional one-quarter
of one percent (0.25%) of the principal amount of the Securities to and
including the 90th day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
day following such Registration Default. In the event that the Shelf
Registration Statement ceases to be effective prior to the third annual
anniversary of the initial effective date of the Shelf Registration Statement or
such earlier date as is provided in the Registration Rights Agreement for a
period in excess of 60 days, whether or not consecutive, during any 12-month
period, then the interest rate borne by the Securities shall increase by an
additional one-half of one percent (0.50%) per annum from the 61st day of the
applicable 12-month period such Shelf Registration Statement ceases to be
effective to but excluding the day on which the Shelf Registration Statement
again becomes effective.
4.2-xviii
<PAGE> 19
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security such mention shall be deemed to include mention of the payment of
Liquidated Damages payable as described in the preceding paragraph to the extent
that, in such context, Liquidated Damages are, were or would be payable in
respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
The Holder of this Security, by its acceptance thereof, agrees to be
bound by the terms of the Registration Rights Agreement relating to the
Securities and the Common Shares issuable upon conversion thereof.
If a Change in Control occurs, the Holder of this Security shall have
the right, at the Holder's option in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000) for cash at
a Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, except as otherwise provided in the Indenture, by
delivery of Common Shares having a fair market value equal to the Repurchase
Price; provided that payment may not be made in Common Shares unless at the time
of payment such stock is listed on a national securities exchange or quoted on
the Nasdaq National Market. For purposes of this paragraph, the fair market
value of shares of Common Shares shall be determined by the Company and shall be
equal to 95% of the average of the Closing Prices Per Share for the five
consecutive Trading Days ending on and including the third Trading Day
immediately preceding the Repurchase Date. Whenever in this Security there is a
reference, in any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Security to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Security shall not be construed as excluding the
Repurchase Price in those provisions of this Security when such express mention
is not made.
The indebtedness evidenced by this Security is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all amounts then or thereafter to become
due on all Senior Debt of the Company, and this Security is issued subject to
such provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on its behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee its attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable to the extent, in the manner
and with the effect provided in the Indenture. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest, all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
4.2-xix
<PAGE> 20
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with either (a) the written consent of
the Holders of a majority in principal amount of the Securities at the time
outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of
the Outstanding Securities at which a quorum is present by the Holders of 66-
2/3% in aggregate principal amount of the Outstanding Securities represented at
such meeting. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, the Holders of not
less than 25% in aggregate principal amount of the Outstanding Securities shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default and offered the Trustee indemnity satisfactory to it and
the Trustee shall not have received from the Holders of a majority in principal
amount of the Securities Outstanding a direction inconsistent with such request
and shall have failed to institute any such proceedings for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof or interest hereon (including any Liquidated
Damages) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligations of the Company, which
are absolute and unconditional, to pay the principal of and interest (including
Liquidated Damages) on this Security at the times, places and rate, and in the
coin or currency, herein prescribed or to convert this Security as provided in
the Indenture.
The Securities are issuable only in fully registered form, without
exception, and, except as provided in Section 2.1 of the Indenture, in
denominations of $1,000 and any integral multiples of $1,000 in excess thereof.
As provided in the Indenture and subject to certain limitations and satisfaction
of certain requirements therein set forth, Securities are exchangeable for a
like aggregate principal amount of securities of the same or a different
authorized denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations and
satisfaction of certain requirements therein set forth, the transfer of this
Security is registrable on the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form
4.2-xx
<PAGE> 21
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment Section of a sum sufficient to
recover any tax or other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of transfer
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered, as the owner thereof for
all purposes, whether or not such Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
4.2-xxi
<PAGE> 22
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 15.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it
or an amount in cash or, at the Company's election, Common Stock valued as
set forth in the Indenture, equal to 100% of the principal amount hereof, plus
interest accrued to the Repurchase Date, as provided in the Indenture.
Dated:
----------------------------
----------------------------
Signature
----------------------------
Signature Guaranteed
Principal amount to be repurchased:______________________
Remaining principal amount following such repurchase: ____________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
4.2-xxii
<PAGE> 23
THIS SECURITY IS A REGULATION S GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE REFERRED TO HEREINAFTER. EXCEPT IN THE CIRCUMSTANCES DESCRIBED IN
SECTION 3.5(b) OF THE INDENTURE, NO TRANSFER OR EXCHANGE OF AN INTEREST IN THIS
REGULATION S GLOBAL SECURITY MAY BE MADE FOR AN INTEREST IN THE RESTRICTED
GLOBAL SECURITY DURING THE RESTRICTED PERIOD.
THIS SECURITY IS A GLOBAL SECURITY REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR
IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR
IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITORY
OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO. (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE THEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
WILLIAMS-SONOMA, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTES
DUE APRIL 15, 2003
No. R-1 U.S.$4,775,000
CUSIP No. U96982AA8
Common Code: 006560865
ISIN: USU96982AA84
WILLIAMS-SONOMA, INC., a California corporation (herein called the
"Company," which term includes any successor Person under the Indenture referred
to on the reverse hereof), for value received, hereby promises to pay to CEDE &
CO., or registered assigns, the principal sum of four million seven hundred
seventy-five thousand U.S. Dollars, or such other amount (not to exceed forty
million dollars ($40,000,000) when taken together with all of the Company's 5
1/4% Convertible Subordinated Notes due April 15, 2003 issued and outstanding in
definitive certificated form or in the form of another Global Security) as may
from time to time represent the principal amount of the Company's 5 1/4%
Convertible Subordinated Notes due April 15, 2003 in respect of which beneficial
interests are held through the U.S. Depositary in the form of a Regulation S
Global Security, on April 15, 2003, and to pay interest thereon from April 15,
1996
4.2-xxiii
<PAGE> 24
or from the most recent Interest Payment Date (as defined below) to which
interest has been paid or duly provided for, semi-annually in arrears on April
15 and October 15 in each year, commencing on October 15, 1996, and at Maturity
at the rate of 5 1/4% per annum, until the principal hereof is paid or made
available for payment, provided that any amount of such principal or interest
that is overdue shall bear interest at the rate of 5 1/4% per annum (to the
extent that payment of such interest shall be legally enforceable), from the
date such amount is due until it is paid or made available for payment, and such
interest on any overdue amount shall be payable on demand. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the April
1 or October 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice thereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.
Payment of the principal of and interest on this Security will be made
in immediately available funds and in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts, at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York or, at the option of
the Holder and subject to any fiscal or other laws and regulations, at any other
office or agency maintained by the Company for such purpose; provided, however,
that upon written application (including wire payment instructions) by the
Holder to the Security Registrar not later than the 10th day immediately
preceding the relevant Regular Record Date, such Holder may receive payment by
wire transfer to a U.S. Dollar account (such transfers to be made only to
Holders of an aggregate principal amount in excess of U.S. $2,000,000)
maintained by the payee with a bank in The City of New York; and, provided,
further, that, subject to the preceding proviso, payment of interest may, at the
option of the Company, be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register; and,
provided, further, that payment of principal of, or interest on this Security
and payment of any Liquidated Damages (as defined on the reverse hereof) may be
made at an office or agency of the Corporate Trust Office of the Trustee in The
City of New York, if (but only if) payment of the full amount of such principal,
interest or Liquidated Damages, as the case may be, at all offices outside the
United States maintained for such purpose by the Company in accordance with the
Indenture is illegal or effectively precluded because of exchange controls or
other similar restrictions on the full payment or receipt of such amounts in
United States Dollars, as determined by the Company. Unless such designation is
revoked, any such designation made by the Holder with respect to this Security
will remain in effect with respect to future payments with respect to this
Security payable to the Holder. The Company will pay any administrative costs
imposed by banks in connection with making any such payments upon application of
such Holder for reimbursement. If this Security is a Global Security, then,
notwithstanding the second sentence of this paragraph, each such payment will be
made in accordance with the procedures of the U.S. Depository as then in effect.
4.2-xxiv
<PAGE> 25
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by the manual signature of one of
its authorized signatories, this Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
WILLIAMS-SONOMA, INC.
[Corporate Seal]
By
------------------------------------
Title:
Attest:
- ----------------------
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
Dated: BANKERS TRUST COMPANY, as
Trustee
By:______________________________
Authorized Signatory
4.2-xxv
<PAGE> 26
Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company designated as its "5 1/4% Convertible Subordinated Notes due April 15,
2003" (herein called the "Securities"), limited in aggregate principal amount to
U.S.$40,000,000, issued and to be issued under an Indenture, dated as of April
15, 1996 (herein called the ("Indenture") between the Company and Bankers Trust
Company, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which the Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the Holders of Senior Debt of the Company and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
No sinking fund is provided for in the Securities. The Securities may
not be redeemed at the option of the Company prior to April 15, 1998.
Thereafter, the Securities may be redeemed at the option of the Company, in
whole or in part, at the Redemption Prices set forth below; provided, that the
Company may redeem the Securities from April 15, 1998 to April 14, 2000 only if
the last reported sale price of the Common Shares for each of the 30 consecutive
Trading Days ending on the Trading Day prior to the date of the notice of
redemption shall have equalled or exceeded 140% of the Conversion Price then in
effect.
The Redemption Prices (expressed as a percentage of principal amount)
are as follows for the 12-month period beginning on April 15 of the following
years:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
1998 103.75
1999 103.00
2000 102.25
2001 101.50
2002 100.75
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date.
Notice of redemption (which notice shall be irrevocable) will be given
by first-class mail to Holders of Securities at their registered addresses as
recorded in the Security Register. Notice will be given not more than 60 nor
less than 30 days prior to the Redemption Date, as provided in the Indenture.
In any case where the due date for the payment of the principal of or
interest, including Liquidated Damages, on any Security or the last day on which
a Holder of a Security has a right to convert his Security shall be at any place
of payment or place of conversion, as the case may be, a day on which banking
institutions at such place of payment or place of conversion are authorized or
obligated by law or executive order to close, then payment of principal or
interest, including Liquidated Damages, or delivery for conversion of such
Security need not be made on
4.2-xxvi
<PAGE> 27
or by such date at such place but may be made on or by the next succeeding day
at such place which is not a day on which banking institutions are authorized or
obligated by law or executive order to close, with the same force and effect as
if made on the date for such payment or the date fixed for redemption or
repurchase, or at the Stated Maturity or by such last day for conversion, and no
interest shall accrue for the period after such date.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his option, at any time after July
15, 1996 (the "Non-Conversion Period") and prior to the close of business on
April 15, 2003, or in case this Security is called for redemption or the Holder
hereof has exercised its right to require the Company to repurchase this
Security, then in respect of this Security until and including, but (unless the
Company defaults in making the payment due upon redemption or repurchase, as the
case may be) not after, the close of business on the Redemption Date or the
Repurchase Date, as the case may be, to convert this Security into newly issued
fully paid and nonassessable Common Shares of the Company at an initial
Conversion Rate equal to 38.3142 Common Shares per U.S.$1,000 principal amount
of Securities (or at the current adjusted Conversion Rate if an adjustment has
been made as provided in the Indenture) by surrender of this Security, and also
a duly executed conversion notice, substantially in the form provided in Annex A
of the Indenture (including the tax certification contained in such notice), to
the Company, subject to any laws or regulations applicable thereto and subject
to the right of the Company to terminate the appointment of the Conversion Agent
(as defined below), at the principal corporate trust office of the Trustee in
The City of New York or at such other offices or agencies outside the United
States that the Company may designate (each a "Conversion Agent"). No payment or
adjustment is to be made on conversion for cash dividends on the Common Shares
issued on conversion or, if the date of conversion is not an Interest Payment
Date, interest accrued hereon from the Interest Payment Date next preceding the
date of conversion. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest
(calculated to the nearest 1/100th of a share) the Company shall pay a cash
adjustment as provided in the Indenture, or alternatively the Company shall
round up the conversion transaction to the next higher whole share. In addition,
the Indenture provides that in case of certain consolidations or mergers to
which the Company is a party or the sale or transfer of all or substantially all
of the assets of the Company, the Indenture shall be amended, without the
consent of any Holders of Securities, so that this Security, if then
Outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon consolidation, merger, sale
or transfer by a holder of the number of Common Shares of the Company into which
this Security might have been converted immediately prior to such consolidation,
merger, sale or transfer (assuming such holder of Common Shares failed to
exercise any rights of election and received per share the kind and amount
received per share by a plurality of Non-Electing Shares). Adjustments in the
Conversion Rate of less than one percent of such price will not be required, but
any adjustment that would otherwise be required to be made will be carried
forward and taken into account in the computation of any subsequent adjustment.
Notwithstanding any provision hereof, no securities will be delivered
on conversion of this Security or any portion hereof unless the certification
and other requirements described in the Indenture are satisfied.
4.2-xxvii
<PAGE> 28
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security or the holder of Common Shares issued upon conversion thereof, the
Company will promptly furnish or cause to he furnished Rule 144A Information (as
defined below) to such Holder of Restricted Securities or such holder of Common
Shares issued upon conversion of Restricted Securities, or to a prospective
purchaser of any such security designated by any such Holder or holder, as the
case may be, to the extent required to permit compliance by any such holder with
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act").
"Rule 144A Information" shall be such information as is specified pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).
The Holder of this Security and the Common Shares of the Company
issuable upon conversion thereof is entitled to the benefits of a Registration
Rights Agreement (subject to the provisions thereof), dated as of April 10,
1996, between the Company and Goldman, Sachs & Co. (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, the Company has
agreed for the benefit of the Holders from time to time of the Securities and
the Common Shares issuable upon conversion thereof that it will, at its expense,
(a) within 90 days after the date of issuance of the original Securities, file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Securities and the Common Shares
issuable upon conversion thereof, (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission within 90 days
after the date on which the Shelf Registration Statement is filed, and (c) use
its best efforts to maintain such Shelf Registration Statement continuously
effective under the Securities Act, until the third anniversary of the date of
the effectiveness of the Shelf Registration Statement or such earlier date as is
provided in the Registration Rights Agreement.
If (i) on or prior to 90 days following the date of original issuance
of the Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 90th day following the filing of such
Shelf Registration Statement, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on this Security from and including the day following such
Registration Default to but excluding the day on which such Registration Default
has been cured. Liquidated Damages will be paid semi-annually in arrears, with
the first semi-annual payment due on the first interest payment date in respect
of the Securities following the date on which such Liquidated Damages begin to
accrue, and will accrue at a rate per annum equal to an additional one-quarter
of one percent (0.25%) of the principal amount of the Securities to and
including the 90th day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
day following such Registration Default. In the event that the Shelf
Registration Statement ceases to be effective prior to the third annual
anniversary of the initial effective date of the Shelf Registration Statement or
such earlier date as is provided in the Registration Rights Agreement for a
period in excess of 60 days, whether or not consecutive, during any 12-month
period, then the interest rate borne by the Securities shall increase by an
additional one-half of one percent (0.50%) per annum from the 61st day of the
applicable 12-month period such Shelf Registration Statement ceases to be
effective to but excluding the day on which the Shelf Registration Statement
again becomes effective.
4.2-xxviii
<PAGE> 29
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security such mention shall be deemed to include mention of the payment of
Liquidated Damages payable as described in the preceding paragraph to the extent
that, in such context, Liquidated Damages are, were or would be payable in
respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
The Holder of this Security, by its acceptance thereof, agrees to be
bound by the terms of the Registration Rights Agreement relating to the
Securities and the Common Shares issuable upon conversion thereof.
If a Change in Control occurs, the Holder of this Security shall have
the right, at the Holder's option in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000) for cash at
a Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, except as otherwise provided in the Indenture, by
delivery of Common Shares having a fair market value equal to the Repurchase
Price; provided that payment may not be made in Common Shares unless at the time
of payment such stock is listed on a national securities exchange or quoted on
the Nasdaq National Market. For purposes of this paragraph, the fair market
value of shares of Common Shares shall be determined by the Company and shall be
equal to 95% of the average of the Closing Prices Per Share for the five
consecutive Trading Days ending on and including the third Trading Day
immediately preceding the Repurchase Date. Whenever in this Security there is a
reference, in any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Security to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Security shall not be construed as excluding the
Repurchase Price in those provisions of this Security when such express mention
is not made.
The indebtedness evidenced by this Security is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all amounts then or thereafter to become
due on all Senior Debt of the Company, and this Security is issued subject to
such provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on its behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee its attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable to the extent, in the manner
and with the effect provided in the Indenture. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest, all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
4.2-xxix
<PAGE> 30
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with either (a) the written consent of
the Holders of a majority in principal amount of the Securities at the time
outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of
the Outstanding Securities at which a quorum is present by the Holders of 66-
2/3% in aggregate principal amount of the Outstanding Securities represented at
such meeting. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, the Holders of not
less than 25% in aggregate principal amount of the Outstanding Securities shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default and offered the Trustee indemnity satisfactory to it and
the Trustee shall not have received from the Holders of a majority in principal
amount of the Securities Outstanding a direction inconsistent with such request
and shall have failed to institute any such proceedings for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof or interest hereon (including any Liquidated
Damages) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligations of the Company, which
are absolute and unconditional, to pay the principal of and interest (including
Liquidated Damages) on this Security at the times, places and rate, and in the
coin or currency, herein prescribed or to convert this Security as provided in
the Indenture.
The Securities are issuable only in fully registered form, without
exception, and, except as provided in Section 2.1 of the Indenture, in
denominations of $1,000 and any integral multiples of $1,000 in excess thereof.
As provided in the Indenture and subject to certain limitations and satisfaction
of certain requirements therein set forth, Securities are exchangeable for a
like aggregate principal amount of securities of the same or a different
authorized denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations and
satisfaction of certain requirements therein set forth, the transfer of this
Security is registrable on the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form
4.2-xxx
<PAGE> 31
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to recover
any tax or other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of transfer
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered, as the owner thereof for
all purposes, whether or not such Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
4.2-xxxi
<PAGE> 32
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 15.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it
or an amount in cash or, at the Company's election, Common Stock valued as set
forth in the Indenture, equal to 100% of the principal amount hereof, plus
interest accrued to the Repurchase Date, as provided in the Indenture.
Dated:
-------------------------------
--------------------------------------
Signature
--------------------------------------
Signature Guaranteed
Principal amount to be repurchased: _____________________
Remaining principal amount following such repurchase: __________________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
4.2-xxxii
<PAGE> 1
EXHIBIT 5.1
July 9, 1996
Williams-Sonoma, Inc.
3250 Van Ness Avenue
San Francisco, California 94109
Ladies and Gentlemen:
We have acted as counsel to Williams-Sonoma, Inc. (the "Company"), a
California corporation, in connection with its registration for resale of
$40,000,000 of its 5 1/4% Convertible Subordinated Notes due 2003 (the "Notes")
and up to 1,532,567 shares of Common Stock issuable upon conversion of the Notes
(the "Common Stock") as described in the Company's Registration Statement on
Form S-3, filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended ("Registration Statement").
We are familiar with the corporate proceedings taken by the Company in
connection with the issuance and sale of the Notes and the authorization of the
Common Stock. It is our opinion that the Notes have been duly authorized and are
legally and validly issued and that the Common Stock, when issued in accordance
with the terms of the Notes, will be duly authorized, legally and validly
issued, fully paid and non-assessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
This opinion is furnished to you in connection with the registration of the
resale of the Notes and the Common Stock, is solely for your benefit and may not
be relied upon by, nor copies delivered to, any other person or entity without
our prior written consent.
Sincerely,
/s/ IRELL & MANELLA LLP
IRELL & MANELLA LLP
<PAGE> 1
EXHIBIT 12.1
Computation of Earnings to Fixed Charges
<TABLE>
<CAPTION>
(in thousands)
Fiscal Year Ended Fiscal Quarter Ended
----------------- --------------------
January January January January February April April
28, 1996 29,1995 30,1994 31, 1993 2, 1992 28, 1996 30, 1995
-------- ------- ------- -------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED
CHARGES
Income (loss) from continuing
operations .................... 4,373 33,435 19,398 3,048 2,731 (4,100) (552)
before income taxes
Capital Interest .............. (663) -- -- -- -- -- --
Fixed charges ................. 17,084 10,631 9,529 9,182 7,065 4,646 2,801
------- ------- ------- ------- ------- ------- -------
20,794 44,066 28,927 12,230 9,796 546 2,249
======= ======= ======= ======= ======= ======= =======
FIXED CHARGES
Interest and expense on ....... 4,527 1,309 1,173 1,583 682 1,541 350
indebtedness
Capitalized Interest .......... 663 -- -- -- -- -- --
One-third of rental expense for
operating leases............... 11,894 9,322 8,356 7,599 6,383 3,105 2,451
------- ------- ------- ------- ------- ------- -------
17,084 10,631 9,529 9,182 7,065 4,646 2,801
======= ======= ======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED
CHARGES ..................... 1.22 4.15 3.04 1.33 1.39 .12 .80
======= ======= ======= ======= ======= ======= =======
</TABLE>
12.1-i
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Form S-3 of
Williams-Sonoma, Inc. of our reports dated April 15, 1996, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Williams-Sonoma,
Inc. for the fiscal year ended January 28, 1996.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Francisco, California
July 8, 1996
<PAGE> 1
EXHIBIT 25.1
-----------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b)(2) ___________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
---------------------------------
WILLIAMS SONOMA, INC.
(Exact name of obligor as specified in the charter)
CALIFORNIA 94-2203880
(State or other jurisdiction (I.R.S.employer
of incorporation or organization) identification No.)
3250 VAN NESS AVENUE 94109
SAN FRANCISCO, CALIFORNIA (Zip Code)
(Address of principal executive offices)
------------------------------
SUBORDINATED DEBT SECURITIES
(Title of the indenture securities)
<PAGE> 2
-2-
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
NAME ADDRESS
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 3. -15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers Trust
Company dated August 7, 1990 and Certificate of Amendment
of the Organization Certificate of Bankers Trust Company
dated June 21, 1995 - Incorporated herein by reference to
Exhibit 1 filed with Form T-1 Statement, Registration No.
33-65171.
EXHIBIT 2 - Certificate of Authority to commence business
Incorporated herein by reference to Exhibit 2 filed with
Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate
trust powers - Incorporated herein by reference to Exhibit
2 filed with Form T-1 Statement, Registration No.
33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, dated as
amended on October 19, 1995. - Incorporated herein by
reference to Exhibit 4 filed with Form T-1 Statement,
Registration No. 33-65171.
<PAGE> 3
-3-
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by Section
321(b) of the Act. - Incorporated herein by reference to
Exhibit 4 filed with Form T-1 Statement, Registration No.
22-18864.
EXHIBIT 7 - A copy of the latest report of condition of Bankers
Trust Company dated as of March 31, 1996.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the 2nd day
of July, 1996.
BANKERS TRUST COMPANY
By: Jacqueline Bartnick
------------------------------------
Jacqueline Bartnick
Assistant Vice President
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 3/31/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS MARCH 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
---------------
| C400 |
-----------------------
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ............................... | 0081 1,145,000 |1.a.
b. Interest-bearing balances(2) ........................................................ | 0071 1,403,000 |1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .......................... | 1754 0 |2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)...................... | 1773 3,535,000 |2.b.
3 Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// |
a. Federal funds sold .................................................................. | 0276 3,190,000 |3.a.
b. Securities purchased under agreements to resell ..................................... | 0277 2,242,000 |3.b.
4. Loans and lease financing receivables: | ///////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 24,678,000 | ///////////////// |4.a.
b. LESS: Allowance for loan and lease losses.......................RCFD 3123 938,000 | ///////////////// |4.b.
c. LESS: Allocated transfer risk reserve ..........................RCFD 3128 0 | ///////////////// |4.c.
d. Loans and leases, net of unearned income, | ///////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) .............................. | 2125 23,740,000 |4.d.
5. Assets held in trading accounts ........................................................ | 3545 32,261,000 |5.
6. Premises and fixed assets (including capitalized leases) ............................... | 2145 857,000 |6.
7. Other real estate owned (from Schedule RC-M) ........................................... | 2150 247,000 |7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) | 2130 253,000 |8.
9. Customers' liability to this bank on acceptances outstanding ........................... | 2155 402,000 |9.
10. Intangible assets (from Schedule RC-M) ................................................. | 2143 12,000 |10.
11. Other assets (from Schedule RC-F) ...................................................... | 2160 11,579,000 |11.
12. Total assets (sum of items 1 through 11) ............................................... | 2170 80,866,000 |12.
-----------------------
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 3/31/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State ZIP: New York, NY 10006 12
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
SCHEDULE RC--CONTINUED
<TABLE>
<CAPTION>
--------------------------
Dollar Amounts in Thousands | //////// Bil Mil Thou|
- ----------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
LIABILITIES | ////////////////// |
13. Deposits: | ////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) | RCON 2200 7,327,000 |13.a.
(1) Noninterest-bearing(1) ..................RCON 6631 2,132,000.......... | ////////////////// |13.a.(1)
(2) Interest-bearing ........................RCON 6636 5,195,000.......... | ////////////////// |13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E | ////////////////// |
part II) | RCFN 2200 18,575,000 |13.b.
(1) Noninterest-bearing .....................RCFN 6631 552,000 | ////////////////// |13.b.(1)
(2) Interest-bearing ........................RCFN 6636 18,023,000 | ////////////////// |13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase in | ////////////////// |
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// |
a. Federal funds purchased ......................................................... | RCFD 0278 2,324,000 |14.a.
b. Securities sold under agreements to repurchase .................................. | RCFD 0279 651,000 |14.b.
15. a. Demand notes issued to the U.S. Treasury ........................................ | RCON 2840 0 |15.a.
b. Trading liabilities ............................................................. | RCFD 3548 18,807,000 |15.b.
16. Other borrowed money: | ////////////////// |
a. With original maturity of one year or less ...................................... | RCFD 2332 13,784,000 |16.a.
b. With original maturity of more than one year .................................... | RCFD 2333 3,462,000 |16.b.
17. Mortgage indebtedness and obligations under capitalized leases ..................... | RCFD 2910 34,000 |17.
18. Bank's liability on acceptances executed and outstanding ........................... | RCFD 2920 415,000 |18.
19. Subordinated notes and debentures .................................................. | RCFD 3200 1,227,000 |19.
20. Other liabilities (from Schedule RC-G) ............................................. | RCFD 2930 9,724,000 |20.
21. Total liabilities (sum of items 13 through 20) ..................................... | RCFD 2948 76,330,000 |21.
| ////////////////// |
22. Limited-life preferred stock and related surplus ................................... | RCFD 3282 0 |22.
EQUITY CAPITAL | ////////////////// |
23. Perpetual preferred stock and related surplus ...................................... | RCFD 3838 500,000 |23.
24. Common stock ....................................................................... | RCFD 3230 1,002,000 |24.
25. Surplus (exclude all surplus related to preferred stock) ........................... | RCFD 3839 528,000 |25.
26. a. Undivided profits and capital reserves .......................................... | RCFD 3632 2,879,000 |26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities .......... | RCFD 8434 ( 8,000) |26.b.
27. Cumulative foreign currency translation adjustments ................................ | RCFD 3284 ( 365,000) |27.
28. Total equity capital (sum of items 23 through 27) .................................. | RCFD 3210 4,536,000 |28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | ////////////////// |
and 28) ............................................................................ | RCFD 3300 80,866,000 |29.
--------------------------
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
<TABLE>
<S> <C> <C> <C>
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
------------
auditors as of any date during 1994 .................................................... | RCFD 6724 2
------------------------------
</TABLE>
1 = Independent audit of the bank conducted in accordance
with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company
conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which
submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in
accordance with generally accepted auditing standards by
a certified public accounting firm (may be required by state
chartering authority)
4 = Directors' examination of the bank performed by other
external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external
auditors
6 = Compilation of the bank's financial statements by external
auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- -----------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
