<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 28, 1996
----------------
Commission file number 2-83992
-------
WILLIAMS-SONOMA, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
California 94-2203880
- ------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
3250 Van Ness Avenue, San Francisco, CA 94109
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 421-7900
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
As of April 22, 1996, the approximate aggregate market value of voting
stock held by non-affiliates of the Registrant was $413,107,128 using the
closing sales price on this day of $23.125. It is assumed for purposes of this
computation an affiliate includes all persons registered as Company insiders
with the Securities and Exchange Commission, as well as the Company's Employee
Profit Sharing and Stock Incentive Plan.
As of April 22, 1996, 25,440,140 shares of the Registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents have been incorporated herein by
reference:
1) Registrant's Annual Report to Shareholders for the Fiscal Year ended
January 28, 1996 (the "1995 Annual Report") in Parts I and II hereof and
attached hereto as Exhibit 13;
<PAGE> 2
2) Registrant's Proxy Statement for the 1995 Annual Meeting (the "Proxy
Statement") in Part III hereof.
<PAGE> 3
WILLIAMS-SONOMA, INC.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED JANUARY 28, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C>
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security 7
Holders
PART II
Item 5. Market for the Registrant's Common Equity 8
and Related Stockholder Matters
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants 9
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the 10
Registrant
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial 10
Owners and Management
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules 11
and Reports on Form 8-K
</TABLE>
2
<PAGE> 4
PART I
ITEM 1. BUSINESS
Williams-Sonoma, Inc., together with its subsidiaries (the Company), is a
national specialty retailer of fine quality cooking and serving equipment, home
furnishings and home and garden accessories, which it markets through 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. Retail sales accounted for approximately 61% of the Company's net
sales during the fiscal year ended January 28, 1996 (Fiscal 1995), while mail
order sales accounted for the balance.
The Company offers high quality, home-centered merchandise 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; Gardeners 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.
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: Gardeners Eden, a mail order merchandiser of home
gardening equipment and accessories and housewares, in 1982; Pottery Barn, a
retailer of home furnishings, accessories and housewares, 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,
a retail and mail order merchandiser of innovative household storage products,
and Chambers, a mail order merchandiser of high-quality bed and bath products.
In August 1994 the Company sold California Closet Company, Inc., which accounted
for 2% of sales for the fiscal year ended January 30, 1994 (Fiscal 1993).
MERCHANDISING CONCEPTS
The Company has five merchandising concepts: Williams-Sonoma, Pottery Barn, Hold
Everything, Gardeners Eden, and Chambers. The Company believes that these
specialty concepts together can fulfill a customer's home-centered needs, from
the kitchen and garden to the bedroom and bath.
3
<PAGE> 5
RETAIL STORES
Three of the Company's five merchandising concepts are marketed through retail
stores - Williams-Sonoma, Pottery Barn and Hold Everything. Williams-Sonoma
stores offer a wide selection of culinary and serving equipment, including
cookware, cookbooks, cutlery, informal dinnerware, glassware and table linen. In
addition, these stores carry a variety of quality foods, including a line of
Williams-Sonoma food products, such as gourmet coffees and pasta sauces. Pottery
Barn stores feature a large assortment of items in casual home furnishings,
flatware and table accessories from around the world that are designed to be
combined to create a dynamic look in the home. The Hold Everything concept was
developed by the Company to offer innovative solutions to household storage
needs by providing efficient organization solutions for every room in the house.
As of January 28, 1996 the Company operated 240 retail stores, located in 32
states and the District of Columbia. This represents 139 Williams-Sonoma, 67
Pottery Barn, 32 Hold Everything, and 2 outlet stores. During Fiscal 1995 the
Company opened 34 new large format stores and expanded 9 existing store sites to
the larger format. The 27 larger format Williams-Sonoma stores are, on average,
56% larger than the average Williams-Sonoma store. The 16 large format Pottery
Barn stores are, on average, 268% larger than the average Pottery Barn store.
The Company plans 27 new or expanded large-format stores in Fiscal 1996 -- 14
Williams-Sonoma and 13 Pottery Barn. During Fiscal 1995, the Company closed 1
Williams-Sonoma store, 3 Hold Everything stores and 4 Pottery Barn stores.
MAIL ORDER OPERATIONS
The Company's mail order business began in 1972 when it introduced its flagship
catalog, "A Catalog for Cooks," which markets the Williams-Sonoma concept. Since
then, it has expanded its mail order business to include the four other concepts
- - Pottery Barn, Hold Everything, Gardeners Eden and Chambers. The mail order
business complements the retail business by building customer awareness of a
concept and acting as an effective advertising vehicle. In addition, the Company
believes that the mail order catalogs act as a cost efficient means of testing
market acceptance of new products.
The Company sends its catalogs to addresses from its proprietary customer list,
as well as to names from lists which the Company receives in exchange or rents
from other mail order merchandisers, magazines and other companies. In
accordance with prevailing industry practice, the Company rents its list to
other merchandisers. The Company's customer list is continually updated to
include new prospects and eliminate non-responders.
During the 1994 and 1995 holiday seasons, the Company experienced difficulty in
fulfilling some of its mail orders due to a delay in completing planned upgrades
to the mail order equipment and computer systems in its Memphis facility. In
addition, the increased volume of telephone orders and customer service calls
during the two holiday seasons at times exceeded the handling capacity of the
telemarketing center. The Company expects to resolve these issues by completing
the Memphis upgrades in July 1996 and by building another call center in Las
Vegas, Nevada which will effectively double the Company's ability to process
mail orders.
SUPPLIERS
The Company purchases its merchandise from numerous foreign and domestic
manufacturers and importers, none of which accounted for more than 5% of
purchases during Fiscal 1995. Approximately 39% of the Company's merchandise is
foreign-sourced. The primary sources for imported merchandise are located in
Europe and Asia. The Company relies on long-standing arrangements with many of
its buying agents.
4
<PAGE> 6
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems (MIS) are designed to provide its
management and other personnel with information necessary to control and manage
its business. In 1995, the Company completed several key projects, including the
expansion and upgrade of its automatic call directing phone switch which routes
mail order customer calls, and enhanced merchandise receiving and electronic
forms modules in the stores. In 1996, the Company is in the process of
significantly upgrading the information systems and order processing equipment
in the mail order distribution facility. The upgrade, originally scheduled for
completion in the fall of 1995, is designed to address the problems the Company
experienced in fulfilling customers' mail orders during the last two seasons due
to inadequate equipment and systems. The Company expects to complete the upgrade
in July 1996.
COMPETITION AND SEASONALITY
The specialty retail business is highly competitive. The Company's specialty
retail stores and mail order catalogs compete with other retail stores,
including specialty stores and department stores and other mail order catalogs.
Certain of the Company's competitors have greater financial, distribution and
marketing resources than the Company. The recent substantial sales growth in the
mail order catalog industry has encouraged the entry of many new competitors and
an increase in competition from established companies. The Company competes on
the basis of the quality of its merchandise, service to its customers and its
proprietary customer list.
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and net income have
been realized during the period from October through December, and levels of net
sales and net income have generally been significantly lower during the period
from February through July. The Company believes this is the general pattern
associated with the mail order and retail industries. In anticipation of its
peak season, the Company hires a substantial number of additional employees in
its retail stores and mail order processing and distribution areas, and incurs
significant fixed catalog production and mailing costs. (See Quarterly Financial
Information on page 31 of the 1995 Annual Report which is incorporated herein by
reference).
EMPLOYEES
At January 28, 1996, the Company employed approximately 8,700 persons,
approximately 2,900 of whom were full-time employees. During the 1995 peak
season the Company hired approximately 3,000 temporary employees in its stores
and in its mail order processing and distribution areas.
5
<PAGE> 7
ITEM 2. PROPERTIES
The Company's corporate offices are located in two facilities in San Francisco,
California. The primary headquarters building was purchased in 1993 with plans
to consolidate the entire headquarters staff in the spring of 1995. As a result,
in the fourth quarter of Fiscal 1993 the Company recorded a $3,000,000 reserve
for the estimated cost of sub-leasing the leased space it planned to vacate when
it moved into the new building prior to the expiration of the existing leases.
Sales growth experienced in 1994 and planned growth in Fiscal 1995 required the
Company to retain some of the leased space. Therefore, in the fourth quarter of
Fiscal 1994 the Company reversed $2,000,000 of the lease reserves. In April 1994
the Company entered into a mortgage agreement with a bank, secured by the new
corporate headquarters. The call center and second corporate office is held
under a lease which was amended in January 1996. A third facility was in use as
a call center at the end of the 1995 fiscal year but was subsequently closed and
its employees relocated to the remaining offices.
On January 2, 1996, the Company entered an agreement to lease a 53,787
square-foot build-to-suit call center in Las Vegas, Nevada, which will
approximately double the Company's capacity to process mail orders. The lease
covers a ten-year term with three optional five-year renewal periods. The
Company plans to occupy 35,867 square feet of the building in August 1996 and
has an option for an additional 17,920 square-foot expansion.
In July 1984, the Company began distributing its merchandise through a
centralized leased facility of approximately 243,000 square feet located in
Memphis, Tennessee. In October 1986 an additional 190,000 square feet of
distribution center was constructed. The lessor is a partnership consisting of
two directors and/or officers of the Company. The construction of the entire
facility was financed by the partnership through the aggregate issuance of
$2,900,000 of industrial development bonds. The lease had an initial
non-cancelable term of ten years expiring on June 30, 1994 with two optional
five-year renewals by the Company. In December 1993, the Company exercised the
two five-year renewal options and is now obligated to lease the space until June
30, 2004. In addition, the Company is obligated to renew the lease annually so
long as the bonds which financed the project are outstanding. Effective July 1,
1994, the fixed basic monthly rent is $51,500. In connection with the December
1993 transaction, both the partnership and the Company provided to an
unaffiliated bank an indemnity against certain environmental liabilities.
In August 1990, the Company entered into a lease agreement for an additional
307,000 square feet of distribution space adjacent to its existing Memphis
facility. The lessor is a partnership that includes three directors and/or
officers of the Company. The construction was financed by the partnership
through the sale of $10,550,000 of industrial development bonds. In September
1994 the lease was amended to include an approximately 306,000 square-foot
expansion, financed by the lessor through a $500,000 capital contribution from
its partners and the sale of $9,825,000, 9.01% principal amount of industrial
development bonds. The expansion was completed in October 1995. The amended
lease has an initial, non-cancelable term of fifteen years, with three optional
five-year renewals, and mandatory annual renewals so long as the bonds are
outstanding. (See Note F of the Company's Consolidated Financial Statements).
The Company's net selling area totaled approximately 690,000 square feet of
leased space at January 28, 1996 for 240 stores. All of the existing stores are
leased by the Company with original lease terms ranging from three to
twenty-five years, expiring between 1996 and 2015, except for one store with a
49-year lease term extending through 2040. Most leases for the Company's stores
provide for contingent rent based upon sales. (See Note E of the Company's
Consolidated Financial Statements).
6
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company. The Company
is, however, involved in routine litigation arising in the ordinary course of
its business, and, while the results of the proceedings cannot be predicted with
certainty, the Company believes that the final outcome of such matters will not
have a materially adverse effect on the Company's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the 1995 fiscal year.
7
<PAGE> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's common stock is currently traded on the NASDAQ National Market
System. Information contained under the caption "Common Stock" on page 31 of the
1995 Annual Report is incorporated herein by reference. The closing sales price
of the Company's stock in the NASDAQ National Market System on April 22, 1996
was $23.125.
SHAREHOLDERS
The number of shareholders of record as of April 22, 1996 was approximately 619.
This number excludes shareholders whose stock is held in nominee or street name
by brokers.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its common stock, and
the current policy of its Board of Directors is to retain its earnings to
finance future growth. In addition, the Company is prohibited from paying cash
dividends by certain covenants in its bank credit agreement, its sublease for
the Memphis distribution center, and its 7.2% Senior Notes due 2005.
STOCK SPLITS
In January 1994 the Company declared a 3-for-2 stock split to shareholders of
record as of January 28, 1994. The split was effected on February 18, 1994 with
the issuance of 5,574,594 additional shares.
In August 1994 the Company declared a 3-for-2 stock split to shareholders of
record as of September 7, 1994. The split was effected on September 27, 1994
with the issuance of 8,414,056 additional shares.
ITEM 6. SELECTED FINANCIAL DATA
Information contained under the caption "Five Year Selected Financial Data" on
page 17 of the 1995 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information contained under the caption "Management's Discussion and Analysis"
on pages 18 - 20 of the 1995 Annual Report is incorporated herein by reference.
8
<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are incorporated by reference to pages 21 through 30 of
the 1995 Annual Report to Shareholders filed as Exhibit 13 to this Annual Report
on Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets as of January 28, 1996 and January 29, 1995
Consolidated Statements of Earnings for each of the three fiscal years
in the period ended January 28, 1996
Consolidated Statements of Shareholders' Equity for each of the three
fiscal years in the period ended January 28, 1996
Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended January 28, 1996
Notes to Consolidated Financial Statements
The quarterly information contained under the caption "Quarterly Financial
Information" on page 31 of the 1995 Annual Report is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained in the table under the caption "Election of Directors" in
the Proxy Statement is incorporated herein by reference.
Information contained in the last paragraph under the caption "Voting Securities
and Principal Shareholders" on page 4 of the Proxy Statement is incorporated
herein by reference.
At each Annual Meeting, directors are elected to serve until the next annual
meeting of shareholders or until the election and qualification of their
successors. The Company's Bylaws provide for not less than six nor more than
eleven directors, the exact number having been fixed by the Board of Directors
at ten.
Executive officers of the Company are elected by the Board of Directors at the
annual organizational meeting held immediately following the Annual Meeting and
serve at the pleasure of the Board. Information contained in the first table
under the caption "Information Concerning Executive Officers" on page 8 of the
Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to the aggregate cash compensation paid by the Company to
each of its five most highly compensated executive officers for the fiscal year
ended January 28, 1996, is contained under the caption "Executive Compensation"
on pages 9 through 14 of the Proxy Statement and is incorporated herein by
reference (except the information contained in the Compensation Committee Report
and the Performance Graph).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a) Information with respect to those persons known to the Company to be
beneficial owners of more than 5% of its common stock as of April 22,
1996, is contained under the caption "Voting Securities and Principal
Shareholders" on pages 2 through 4 of the Proxy Statement and is
incorporated herein by reference.
b) Information concerning the beneficial ownership of the Company's common
stock by its directors, by each executive officer named in the "Summary
Compensation Table" set forth on page 9 of the Proxy Statement, and by
its directors and officers as a group, as of April 22, 1996, is
contained in the tables under the captions "Voting Securities and
Principal Shareholders" and "Election of Directors" on pages 1 through 8
of the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions is
contained under the caption "Certain Transactions" on page 8 of the Proxy
Statement and is incorporated herein by reference (see Note F of Notes to
Consolidated Financial Statements).
10
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Documents filed as part of the Form 10-K: See Item 8 for a list of
Financial Statements incorporated herein by reference.
(a)(2) Financial Statement Schedules
Description Page
----------- ----
Independent Auditors' Report on Financial Statement Schedule 12
Schedule II Valuation and Qualifying Accounts 13
Schedules other than those referred to above have been omitted
because they are not required or are not applicable.
(b) Reports on Form 8-K: No Form 8-K filings were made during the last
quarter of the fiscal year ended January 28, 1996.
(c) Exhibits: See Exhibit Index on pages 16 through 19.
11
<PAGE> 13
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT ON FINANCIAL
STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Williams-Sonoma, Inc.
We have audited the consolidated financial statements of Williams-Sonoma, Inc.
and subsidiaries as of January 28, 1996 and January 29, 1995, and for each of
the three fiscal years in the period ended January 28, 1996, and have issued
our report thereon dated April 15, 1996; such financial statements and report
are included in your 1995 Annual Report to Shareholders and are incorporated
herein by reference. Our audits also included the financial statement schedule
of Williams-Sonoma, Inc. and subsidiaries listed on Item 14. This financial
statement schedule is the reponsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
April 15, 1996
12
<PAGE> 14
SCHEDULE II
WILLIAMS-SONOMA, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ----------- --------- -------- ---------- ------
<S> <C> <C> <C> <C>
Period Ended January 30, 1994:
Allowance for Doubtful Accounts $628,000 $ 42,000 $332,000 (A) $338,000
Period Ended January 29, 1995:
Allowance for Doubtful Accounts $338,000 $ 14,000 $113,000 (B) $239,000
Period Ended January 28, 1996:
Allowance for Doubtful Accounts $239,000 $119,000 $120,000 (A) $238,000
</TABLE>
(A) Consists of direct write-offs charged against the allowance account during
the period.
(B) Includes $4,000 of direct write-offs and $109,000 allowance included in the
financial statements of a wholly-owned subsidiary that was sold in August 1994.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
WILLIAMS-SONOMA, INC.
Date: April 26, 1996 By /s/W. Howard Lester
-------------------
Chairman and
Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: April 26, 1996 /s/W. Howard Lester
-------------------
W. Howard Lester
Chairman
Chief Executive Officer
Date: April 26, 1996 /s/Dennis A. Chantland
----------------------
Dennis A. Chantland
Executive Vice President
Chief Administrative Officer
Acting Chief Financial
Officer
Secretary
Date: April 26, 1996 /s/Jerry S. B. Dratler
-------------------
Jerry S. B. Dratler
Vice President
Controller
Chief Accounting Officer
Date: April 26, 1996 /s/Charles E. Williams
----------------------
Charles E. Williams
Vice-Chairman
Director
Date: April 26, 1996 /s/Gary G. Friedman
-------------------
Gary G. Friedman
Executive Vice President
President-Retail Division
Director
Date: April 26, 1996 /s/Patrick J. Connolly
----------------------
Patrick J. Connolly
Executive Vice President
General Manager, Catalog
Director
14
<PAGE> 16
Date: April 26, 1996 /s/James A. McMahan
-------------------
James A. McMahan
Director
Date: April 26, 1996 /s/Nathan Bessin
----------------
Nathan Bessin
Director
Date: April 26, 1996 /s/F. Warren Hellman
--------------------
F. Warren Hellman
Director
Date: April 26, 1996 /s/Millard S. Drexler
---------------------
Millard S. Drexler
Director
Date: April 26, 1996 /s/John Martin
--------------
John Martin
Director
Date: April 26, 1996 /s/ James M. Berry
------------------
James M. Berry
Director
15
<PAGE> 17
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE
FISCAL YEAR ENDED JANUARY 28, 1996
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
3.1 Certificate of Amendment of the Restated Articles of Incorporation,
(incorporated by reference to Exhibit 4.1 to the Company's
registration statement on Form S-2 filed with the Commission on
June 28, 1990 as amended by amendment number 1 on Form S-2 filed
with the Commission on July 17, 1990)
3.1 A Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal
year ended January 31, 1988, as filed with the Commission on April
29, 1988)
3.1 B Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Report on Form 10-Q for the period
ended October 29, 1995, as filed with the Commission on December
12, 1995)
3.2 Restated and Amended Bylaws of Registrant (incorporated by
reference to Exhibit 3.2 to the Company's Report on Form 10-K for
the fiscal year ended January 31, 1988, as filed with the
Commission on April 29, 1988)
10.1 1983 Incentive Stock Option Plan and Form of Agreement
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, as filed with the Commission on
May 25, 1983)
10.1 A 1976 Stock Option Plan and Form of Agreement as amended
(incorporated by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993 as
filed with the Commission on May 3, 1993)
10.1 B 1993 Stock Option Plan approved by the Shareholders at the 1993
Annual Meeting (incorporated by reference to Exhibit 10.22 to the
Company's Report on Form 10-Q for the period ended May 2, 1993 as
filed with the Commission on June 16, 1993)
10.2 Warehouse - distribution facility lease dated July 1, 1983 between
the Lester-McMahan Partnership as lessor and the Company as lessee
(incorporated by reference to Exhibit 10.28 to the Company's Report
on Form 10-Q for the period ended September 30, 1983, as filed with
the Commission on October 14, 1983)
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C> <C>
10.2 A The Amendment, dated December 1, 1985, to the lease for the
distribution center, dated July 1, 1983 between the Company as
lessee and the Lester-McMahan Partnership as lessor (incorporated
by reference to Exhibit 10.48 to the Company's Report on Form 10-K
for the fiscal year ended February 3, 1985, as filed with the
Commission on April 26, 1985)
10.2 B The Sublease, dated as of August 1, 1990, by and between
Hewson-Memphis Partners and the Company (incorporated by reference
to Exhibit 10 to the Company's Report on Form 10-Q for the period
ended October 28, 1990, as filed with the Commission on December
12, 1990)
10.2 C Second Amendment to Lease between the Company and the
Lester-McMahan Partnership, dated December 1, 1993 (incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1994 as filed with the
Commission on April 29, 1994)
10.2 D Second Amendment to Sublease between the Company and
Hewson-Memphis Partners, dated September 1, 1994 (incorporated by
reference to Exhibit 10.38 to the Company's Report on Form 10-Q for
the period ended October 30, 1994 as filed with the Commission on
December 13, 1994)
10.2 E Third Amendment to Sublease between the Company and
Hewson-Memphis Partners, dated October 24, 1995 (incorporated by
reference to Exhibit 10.2E to the Company's Report on Form 10-Q for
the period ended October 29, 1995 as filed with the Commission on
December 12, 1995)
10.3 The lease for the Company's Corporate Offices at 100 North Point
Street, San Francisco, California dated January 13, 1986, between
the Company as lessee and Northpoint Investors as lessor
(incorporated by reference to Exhibit 10.49 to the Company's Report
on Form 10-K for the year ended February 3, 1985, as filed with the
Commission on April 26, 1985)
10.3 A First amendment to the lease for the Company's Corporate Offices
at 100 North Point Street, San Francisco, California dated January
5, 1996, between the Company as lessee and Northpoint Investors as
lessor
10.4 Joint Venture Agreement and Trade Name and Trade Mark Licensing
Agreement, dated May 3, 1988 between the Company and Tokyu
Department Store Co., Ltd. (incorporated by reference to Exhibit
10.1 to the Company's Report on Form 10-Q for the period ended July
31, 1988, as filed with the Commission on September 15, 1988)
</TABLE>
17
<PAGE> 19
<TABLE>
<S> <C> <C>
10.4 A Stock Purchase Agreement dated as of May 15, 1989, by and between
the Company and Tokyu Department Store Co., Ltd. (incorporated by
reference to Exhibit 4.1 to the Company's registration statement on
Form S-2 filed with the Commission on June 28, 1990 as amended by
amendment Number 1 on Form S-2 filed with the Commission on July
17, 1990)
10.5 Williams-Sonoma, Inc. Employee Profit Sharing and Stock Incentive
Plan effective as of February 1, 1989 (incorporated by reference to
Exhibit 4.2 of the Company's Form S-8 (File No. 33-33693) filed
February 22, 1990)
10.5 A Williams-Sonoma, Inc. Employee Profit Sharing and Stock Incentive
Plan Trust Agreement, dated September 20, 1989 (incorporated by
reference to Exhibit 4.2 of the Company's Form S-8 (File No.
33-33693) filed February 22, 1990)
10.5 B Amendment Number One to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated April 27, 1990
(incorporated by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 1991, as
amended by a Form 8 Amendment to Form 10-K, filed with the
Commission on July 26, 1991)
10.5 C Amendment Number Two to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated December 12, 1990
(incorporated by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 1991, as
amended by a Form 8 Amendment to Form 10-K, filed with the
Commission on July 26, 1991)
10.5 D Amendment Number Three to the Williams-Sonoma, Inc. Employee
Profit Sharing and Stock Incentive Plan, dated March 10, 1992
(incorporated by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993 as
filed with the Commission on May 3, 1993)
10.5 E Amendment Number Four to the Williams-Sonoma, Inc. Employee
Profit Sharing and Stock Incentive Plan, dated June 9, 1993
(incorporated by reference to Exhibit 10.24 to the Company's Report
on Form 10-Q for the period ended May 2, 1993 as filed with the
Commission on June 16, 1993)
10.6 Indemnity Agreement by the Company in favor of Bank of America, NT
& SA, dated December 1, 1993 (incorporated by reference to Exhibit
10.28 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 1994 as filed with the Commission on April
29, 1994)
</TABLE>
18
<PAGE> 20
<TABLE>
<S> <C> <C>
10.6 A Standing Loan Agreement and Deed of Trust between the Company and
Bank of America, NT & SA, dated March 9, 1994 (incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1994 as filed with the
Commission on April 29, 1994)
10.6 B Continuing Guaranty from Pottery Barn East Inc. to Bank of
America, NT & SA, dated August 7, 1995 (incorporated by reference to
Exhibit 10.6 F to the Company's Report on Form 10-Q for the period
ended July 30, 1995 as filed with the Commission on September 12,
1995)
10.6 C Continuing Guaranty from Hold Everything, Inc. to Bank of America,
NT & SA, dated August 7, 1995 (incorporated by reference to Exhibit
10.6 G to the Company's Report on Form 10-Q for the period ended
July 30, 1995 as filed with the Commission on September 12, 1995)
10.6 D Continuing Guaranty from Williams-Sonoma Stores, Inc. to Bank of
America, NT & SA, dated August 7, 1995 (incorporated by reference to
Exhibit 10.6 H to the Company's Report on Form 10-Q for the period
ended July 30, 1995 as filed with the Commission on September 12,
1995)
10.6 E Continuing Guaranty from Chambers Catalog Company, Inc. to Bank
of America, NT & SA, dated August 7, 1995 (incorporated by reference
to Exhibit 10.6 I to the Company's Report on Form 10-Q for the
period ended July 30, 1995 as filed with the Commission on
September 12, 1995)
10.6 F Continuing Guaranty from Gardener's Eden, Inc. to Bank of America,
NT & SA, dated August 7, 1995 (incorporated by reference to Exhibit
10.6 J to the Company's Report on Form 10-Q for the period ended
July 30, 1995 as filed with the Commission on September 12, 1995)
10.6 G Second Amended and Restated Credit Agreement between the Company
and Bank of America, NT & SA, dated March 29, 1996
10.7 Purchase and Sale Agreement between the Company and
Bancroft-Whitney, a division of Thomson Legal Publishing, Inc.,
dated December 14, 1993 (incorporated by reference to Exhibit 10.29
to the Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1994 as filed with the Commission on April 29,
1994)
10.7 A Standing Loan Agreement and Deed of Trust between the Company and
Bank of America, NT & SA, dated March 9, 1994 (incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1994 as filed with the
Commission on April 29, 1994)
10.7 B Master Agreement between the Company and Bank of America, NT &
SA, dated March 30, 1994 (incorporated by reference to Exhibit
10.33 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 1994 as filed with the Commission on April
29, 1994)
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C> <C>
10.8 Stock Purchse Agreement between the Company and Bill Levine, dated
August 12, 1994 (incorporated by reference to Exhibit 10.36 to the
Company's Report on Form 10-Q for the period ended July 31, 1994 as
filed with the Commission on September 13, 1994)
10.9 Note Agreement for $40,000,000 7.2% Senior Notes, dated August 1,
1995 (incorporated by reference to Exhibit 10.9 to the Company's
Report on Form 10-Q for the period ended July 30, 1995 as filed
with the Commission on September 12, 1995)
10.9A Guaranty Agreement for $40,000,000 Senior Notes, dated August 1,
1995 (incorporated by reference to Exhibit 10.9A to the Company's
Report on Form 10-Q for the period ended July 30, 1995 as filed
with the Commission on September 12, 1995)
10.9B Intercreditor Agreement for $40,000,000 Senior Notes, dated August
1, 1995 (incorporated by reference to Exhibit 10.9B to the
Company's Report on Form 10-Q for the period ended July 30, 1995 as
filed with the Commission on September 12, 1995)
10.10 Purchase Agreement for $40,000,000 5.25% Convertible, Subordinated
Notes, dated April 10, 1996
10.10 A Indenture for $40,000,000 Convertible, Subordinated Notes, dated
April 15, 1996
10.10 B Registration Rights Agreement relating to $40,000,000 Convertible,
Subordinated Notes, dated April 15, 1996
10.11 Lease dated January 2, 1996, between Howard Hughes Properties,
Limited Partnership, as lessor and the Company as lessee
10.11 A Reimbursement Agreement between Howard Hughes Properties, Limited
Partnership, and the Company, dated December 11, 1995
11 Statement re computation of per share earnings
13 Annual report to security holders
21 Subsidiaries
23 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
20
<PAGE> 1
EXHIBIT 10.3A
FIRST AMENDMENT TO OFFICE LEASE
THIS FIRST AMENDMENT TO OFFICE LEASE (the "First Amendment") is made as
of this 5th day of January, 1996, by and between NORTHPOINT INVESTORS, a
California limited partnership ("Landlord"), and WILLIAMS SONOMA, INC., a
California corporation ("Tenant").
RECITALS:
On January 13, 1986, Landlord and Tenant entered into that certain 100
North Point Office Lease (the "Lease"), under the terms of which Landlord
leased to Tenant, and Tenant leased from Landlord, certain premises comprising
approximately fifty-four thousand nine hundred eighty-nine (54,989) square feet
(the "Premises"), within the building located at 100 North Point Street, San
Francisco, California (the "Building"). The Building and the land contained
within the site commonly known as 100 North Point Street, San Francisco,
California, are hereinafter collectively referred to as the "Property." On
October 11, 1989, Tenant exercised its option to lease the Expansion Premises
in accordance with the provisions of Section 48 of the Lease, and Tenant now
occupies one hundred percent (100%) of the Building. Landlord and Tenant now
desire to amend the Lease to provide for an extension of the Term through May
31, 2001.
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. All defined terms as used in this First Amendment shall have
the same meanings as set forth in the Lease, unless otherwise expressly set
forth herein.
2. Section 1.2 of the Lease is hereby amended to provide that the
Premises comprise approximately fifty-eight thousand three hundred sixty-nine
(58,369) rentable square feet.
3. Section 1.3 of the Lease is hereby amended to provide that the
term shall expire on May 31, 2001. The period commencing June 1, 1996 and
expiring on May 31, 2001 is hereinafter referred to as the "Extended Term."
4. Section 1.4 of the Lease is hereby amended to provide that the
Minimum Monthly Rent payable for the Extended Term shall be in an amount equal
to Sixty-Five Thousand Six Hundred Sixty-Five and 13/100 Dollars ($65,665.13).
5. Section 1.6 of the Lease is hereby amended to provide that
Tenant shall reimburse Landlord for one hundred
<PAGE> 2
percent (100%) of Operating Expenses over the Base Year Operating Expenses.
6. Section 1.7 of the Lease is hereby amended to provide that
Tenant's Address for Notices shall be:
Williams Sonoma, Inc.
3250 Van Ness Avenue
San Francisco, CA 94109
Telephone: 415-421-7900
Telecopy: 415-616-7915
7. Section 8.1 of the Lease is hereby amended to provide that the
Base Year applicable to the Extended Term shall be calendar year 1996 and
during the Extended Term, Tenant shall pay one hundred percent (100%) of the
estimated increase in Operating Expenses over the Extended Term's Base Year.
8. The First Paragraph of Section 8.2 of the Lease is deleted in
its entirety and the following is substituted in the place:
8.2 "Operating Expenses" as used herein shall include all costs of
administration, operation and maintenance of the Property as determined in
accordance with generally accepted accounting practices consistently applied
including but not limited to the following: Taxes and assessments (specified in
Section 9.2 hereof), property and public liability insurance premiums (specified
in Section 10.1 hereof) excluding premiums for earthquake insurance, the cost of
labor, materials and service for the operation and maintenance of the Building,
including license, permit and inspection fees (except for any new construction
or alterations), elevator maintenance and repair service, plumbing service,
costs of maintenance contracts, including maintenance services related to the
heating, ventilation, and air conditioning systems, watchmen, guards and
personnel engaged in administration, operation and maintenance of the Property,
together with payroll taxes, employee compensation insurance, and employee
benefits applicable thereto, supplies, materials, salaries of foremen and
supervisory employees whose duties directly concern the management and operation
of the Property, reasonable management fees calculated at a rate not in excess
of that charged by independent property managers for services not involving
leasing which are comparable to those provided in connection with the management
of the Building, the cost of maintaining and repairing the roadways, sidewalks,
curbs, gutters and parking surfaces located on the Property and in providing
gardening services or personnel to the Property, the cost of repairs and general
maintenance, cost of improvements required by governmental agencies, exclusive
of expenses such as the alteration of premises for the accommodation of a
specific tenant or tenants, and exclusive also for expenditures made for capital
investments or improvements, except that in the event Landlord eliminates or
reduces Operating Expenses
2
<PAGE> 3
as a result of a capital investment or labor-saving devices then the cost of
the capital investment or labor-saving devices will be amortized over the
useful life of the equipment or labor-saving devices but the amortization
charge in any year shall not exceed the annual amount of the Operating Expense
that has been eliminated or the annual reduction in the Operating Expense that
has been reduced.
9. Section 12.1 of the Lease is deleted in its entirety and the
following is substituted in its place:
12.1 Landlord shall furnish to the Premises, at the times and to the
extent required by Tenant in the conduct of its business, the following
services and utilities: (i) heat and air conditioning for the Premises; (ii)
electric current in amounts sufficient for lighting the Premises and powering
business machines and equipment used thereon; (iii) elevator service; (iv)
window cleaning on the exterior surface of the exterior windows; and (v)
replacement of light bulbs and fluorescent tubes in all light fixtures
installed in the Premises.
During the Extended Term, Tenant shall be responsible and pay for one
hundred percent (100%) of the costs of electricity, water, gas and sewer use
charges associated with the Property, and Tenant shall supply and pay for all
janitorial and custodial services to the Premises (including garbage and waste
disposal, and the provision of all necessary custodial and janitorial supplies
and interior window cleaning), all of which costs are specifically excluded
from the Extended Term's Base Year Operating Expenses. To the extent Tenant
requests that Landlord provides for any janitorial or custodial services,
Tenant shall pay Landlord its direct costs (including, without limitation,
wages and salary, employer taxes and costs, fringe benefits and supplies).
10. The first sentence of 12.2 is deleted in its entirety and the
following is substituted in its place:
12.2 Landlord shall also maintain the parking area adjacent to the
Building and the access ways thereto, and shall replace any broken plate glass
windows or doors in the Building unless such breakage is caused through the
fault of Tenant.
11. Section 22.2 of the Lease is hereby amended by the addition of
the following:
Landlord has the remedy described in California
Civil Code Section 1951.4. (Landlord may continue
the Lease in effect after Tenant's breach and
abandonment and recover rent as it becomes due,
if Tenant has the right to sublet or assign,
subject only to reasonable limitations).
3
<PAGE> 4
12. Section 45 of the Lease is hereby amended to provide that
Landlord and Tenant shall each bear their own costs incurred in connection with
this First Amendment, including, without limitation, attorneys' fees,
consultant fees, and brokerage fees and commissions. Landlord shall be fully
responsible for payment of any fees due Colliers Damner Pike in connection with
the execution of this First Amendment. Tenant shall be responsible for the
payment of any commission due to AMB Corporate Real Estate Advisors, Inc. in
connection with Tenant's execution of this First Amendment. Tenant and Landlord
shall indemnify, defend, protect and hold the other party harmless from any and
all claims for commissions for other brokerage services or fees for other
services by reason of any dealings or action of the indemnifying party in
connection with this First Amendment.
13. Section 47 of the Lease is hereby deleted in its entirety.
14. Before, or as soon as reasonably possible following the date of
this First Amendment, Landlord shall, at its sole cost and expense, (a)
retrofit all ceiling-mounted lamps and ballasts throughout the Premises as
specified in the Brayer Lighting, Inc. proposal, dated October 13, 1995
(Exhibit "A" attached hereto); (b) divide the HVAC system serving floors two
and three of the Premises into four (4) zones, comprising two (2) zones per
floor; and (c) cause its electrical contractors, Brayer Electric Company, to
install a motion-sensor lighting control system on floors one, two and three of
the Premises.
15. Before, or as soon as reasonably possible following the date of
this First Amendment (and weather permitting), Tenant, at its sole cost and
expense, shall commence installation of the necessary variable frequency drives
in accordance with the specifications described in the "Alternate Bid" outlined
in the Pacific Coast Trane Service Letter to Wilsey, Bennett Co., dated
October 6, 1995 (Exhibit "B" attached hereto) and installation of a closed-loop
cooling tower as specified in the Pacific Coast Trane Service Letter to Wilsey,
Bennett Co., dated November 6, 1995 (Exhibit "C" attached hereto).
16. On June 1, 1996, Landlord shall provide to Tenant a tenant
improvement allowance (the "Allowance") in an amount of Seven Hundred
Twenty-Nine Thousand Six Hundred Twelve and 50/100 Dollars ($729,612.50). To
the extent Tenant expends money between January 1, 1996 and June 1, 1996 in
connection with the performance by Tenant of the tenant improvements described
in paragraph 14 above or any other tenant improvements, which shall be
performed in accordance with Article 17 of the Lease, Landlord shall fund
against the Allowance the costs incurred by Tenant in connection with such
improvements upon receipt of request therefor from Tenant together with
reasonable supporting documentation evidencing the amounts so spent by Tenant.
Such request or requests for work performed in accordance with Article 17 of
the Lease and paragraph
4
<PAGE> 5
14 of this Amendment shall be cumulated by Tenant and may not be submitted more
often than once each calendar month and shall be payable ten (10) days after
submission to Landlord.
17. In all other respects, the Lease remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment as of the dates set forth below, and it shall be effective as of the
latter of such dates.
TENANT: LANDLORD:
WILLIAMS SONOMA, INC., NORTHPOINT INVESTORS, a
a California corporation California partnership
NP Associates, a California
By: /s/ Dennis A. Chantland By: limited partnership
------------------------------ -----------------------------------
Its: Chief Administrative Officer Its: General Partner
------------------------------ ----------------------------------
Date: 1/16/96 Date: January 5, 1996
---------------------------- ---------------------------------
Wilsey Bennett, Inc., a
By: Delaware corporation
-----------------------------------
Its: General Partner
----------------------------------
By: /s/ William R. Anderson
-----------------------------------
William R. Anderson
Its: Vice President and Treasurer
----------------------------------
5
<PAGE> 1
================================================================================
Exhibit 10.6G
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
BETWEEN
WILLIAMS-SONOMA, INC.
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
DATED MARCH 29, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. FACILITY NO. 1: LINE OF CREDIT FOR ADVANCES............................ 1
1.1 Line of Credit Amount......................................... 1
1.2 Availability Period........................................... 1
1.3 Interest Rate................................................. 1
1.4 Repayment Terms............................................... 2
1.5 Optional Interest Rates....................................... 2
1.6 Offshore Rate................................................. 2
2. FACILITY NO. 2: LETTER OF CREDIT FACILITY.............................. 4
2.1 Letters of Credit............................................. 4
2.2 Amount........................................................ 4
2.3 Other Terms................................................... 4
3. FEES AND EXPENSES...................................................... 5
3.1 Fees.......................................................... 5
3.2 Expenses...................................................... 5
4. DISBURSEMENTS, PAYMENTS AND COSTS...................................... 6
4.1 Requests for Credit........................................... 6
4.2 Disbursements and Payments.................................... 6
4.3 Telephone Authorization....................................... 6
4.4 Direct Debit.................................................. 6
4.5 Banking Days.................................................. 7
4.6 Taxes......................................................... 7
4.7 Additional Costs.............................................. 7
4.8 Interest Calculation.......................................... 8
4.9 Default Rate.................................................. 8
5. CONDITIONS............................................................. 8
5.1 Authorizations................................................ 8
5.2 Insurance..................................................... 8
5.3 Guaranties.................................................... 8
5.4 Other Items................................................... 8
6. REPRESENTATIONS AND WARRANTIES......................................... 8
6.1 Organization of Borrower...................................... 8
6.2 Authorization................................................. 9
6.3 Enforceable Agreement......................................... 9
6.4 Good Standing................................................. 9
6.5 No Conflicts.................................................. 9
6.6 Financial Information......................................... 9
6.7 Lawsuits...................................................... 9
6.8 Permits, Franchises........................................... 9
6.9 No Event of Default........................................... 9
6.10 ERISA Plans................................................... 10
6.11 Location of Borrower.......................................... 10
7. CONVENANTS............................................................. 10
7.1 Use of Proceeds............................................... 11
7.2 Financial Information......................................... 11
7.3 Adjusted Tangible Net Worth................................... 11
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7.4 Debt to Tangible Net Worth...................................... 12
7.5 Fixed Charge Coverage Ratio..................................... 12
7.6 Additional Subordinated Debt.................................... 13
7.7 Other Debts..................................................... 13
7.8 Other Liens..................................................... 14
7.9 Capital Expenditures............................................ 15
7.10 Dividends....................................................... 17
7.11 Out of Debt Period.............................................. 17
7.12 Notices to Bank................................................. 17
7.13 Books and Records............................................... 17
7.14 Audits.......................................................... 18
7.15 Compliance with Laws............................................ 18
7.16 Preservation of Rights.......................................... 18
7.17 Maintenance of Properties....................................... 18
7.18 Cooperation..................................................... 18
7.19 Insurance....................................................... 18
7.20 Additional Negative Covenants................................... 19
7.21 ERISA Plans..................................................... 19
8. DEFAULT.................................................................. 20
8.1 Failure to Pay.................................................. 20
8.2 False Information............................................... 20
8.3 Bankruptcy...................................................... 20
8.4 Receivers....................................................... 20
8.5 Lawsuits........................................................ 21
8.6 Judgments....................................................... 21
8.7 Government Action............................................... 21
8.8 Material Adverse Change......................................... 21
8.9 Cross-default................................................... 21
8.10 Default under Guaranty or Subordination Agreement............... 21
8.11 Other Bank Agreements........................................... 21
8.12 ERISA Plans..................................................... 21
8.13 Default of Certain Covenants.................................... 22
8.14 Other Breach Under Agreement.................................... 22
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS.................................. 22
9.1 GAAP............................................................ 22
9.2 California Law.................................................. 22
9.3 Successors and Assigns.......................................... 22
9.4 Arbitration..................................................... 23
9.5 Severability; Waivers........................................... 25
9.6 Costs........................................................... 25
9.7 Attorneys' Fees................................................. 25
9.8 One Agreement................................................... 25
9.9 Notices......................................................... 26
9.10 Headings........................................................ 26
9.11 Counterparts.................................................... 26
</TABLE>
-ii-
<PAGE> 4
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This Agreement dated as of March 29, 1996, is between Bank of America
National Trust and Savings Association (the "Bank") and Williams-Sonoma, Inc.
(the "Borrower"), and amends and restates in its entirety the Amended and
Restated Credit Agreement dated October 13, 1994, as previously amended.
1. FACILITY NO. 1: LINE OF CREDIT FOR ADVANCES
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank
will provide a line of credit to the Borrower. The maximum amount of
principal which may be outstanding under this Facility 1 at any time
plus the amount of letters of credit and shipside bonds outstanding
under Facility No. 2 (including the drawn and unreimbursed amounts of
the letters of credit) shall not exceed the amounts specified below (the
"Facility 1 Commitment"):
<TABLE>
<CAPTION>
Period Commitment Amount
------ -----------------
<S> <C>
From the date of this
Agreement through 05/06/96 $90,000,000
05/07/96 through 07/01/96 $75,000,000
07/02/96 through 12/23/96 $90,000,000
12/24/96 through the Expiration Date $60,000,000
</TABLE>
(b) In addition, the principal amount of advances
outstanding under this Facility No. 1 shall not exceed the following:
<TABLE>
<CAPTION>
Period Advances Amount
------ ---------------
<S> <C>
From the date of this
Agreement through 05/06/96 $80,000,000
05/07/96 through 07/01/96 $55,000,000
07/02/96 through 12/23/96 $75,000,000
12/24/96 through the Expiration Date $35,000,000
</TABLE>
(c) This is a revolving line of credit for advances. During
the availability period, the Borrower may repay principal amounts and
reborrow them.
(d) Each advance must be for at least One Hundred Thousand
Dollars ($100,000), or for the amount of the remaining available line of
credit, if less.
1.2 Availability Period. The line of credit is available between
the date of this Agreement and March 27, 1997 (the "Expiration Date") unless
the Borrower is in default.
1.3 Interest Rate. Unless the Borrower elects an optional interest
rate as described below, the interest rate is
-1-
<PAGE> 5
the Bank's Reference Rate plus seventy-five one-hundredths of one (0.75)
percentage point; provided, however, that upon fulfillment of the requirements
of Paragraph 7.6 below, the interest rate shall be reduced to the Reference
Rate plus twenty-five one-hundredths (0.25) of one percentage point. The
Reference Rate is the rate of interest publicly announced from time to time by
the Bank in San Francisco, California, as its Reference Rate. The Reference
Rate is set by the Bank based on various factors, including the Bank's costs
and desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans. The Bank may price loans to its
customers at, above, or below the Reference Rate. Any change in the Reference
Rate shall take effect at the opening of business on the day specified in the
public announcement of a change in the Bank's Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on the first day of each
month until payment in full of any principal outstanding under this line
of credit.
(b) The Borrower will repay in full all principal and any
unpaid interest or other charges outstanding under this line of credit
no later than the Expiration Date.
1.5 Optional Interest Rates.
(a) Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the
line of credit bear interest at the following rate during an interest
period agreed to by the Bank and the Borrower: the Offshore Rate plus
one and one-half (1.50) percentage points; provided, however, that upon
fulfillment of the requirements of Paragraph 7.6 below, the interest
rate shall be reduced to the Offshore Rate plus one (1.0) percentage
point.
(b) Each interest rate is a rate per year. Interest will be
paid on the first day of every month and on the last day of each
interest period. At the end of any interest period, the interest rate
will revert to the rate based on the Reference Rate, unless the Borrower
has designated another optional interest rate for the portion.
1.6 Offshore Rate. Designation of an Offshore Rate portion is
subject to the following requirements:
(a) The interest period during which the Offshore Rate will
be in effect will be no longer than one year. The last day of the
interest period will be determined by the Bank using the practices of
the offshore dollar inter-bank market.
-2-
<PAGE> 6
(b) Each Offshore Rate portion will be for an amount not
less than Five Hundred Thousand Dollars ($500,000) for interest periods
of 30 days or longer. For shorter maturities, each Offshore Rate portion
will be for an amount which, when multiplied by the number of days in
the applicable interest period, is not less than fifteen million
(15,000,000) dollar-days.
(c) The "Offshore Rate" means the interest rate determined
by the following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by the Bank
as of the first day of the interest period.)
Grand Cayman Rate
Offshore Rate = ---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate
(rounded upward to the nearest 1/16th of one percent) at which
the Bank's Grand Cayman Branch, Grand Cayman, British West
Indies, would offer U.S. dollar deposits for the applicable
interest period to other major banks in the offshore dollar
inter-bank market.
(ii) "Reserve Percentage" means the total of the
maximum reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve
Board Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and will
include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect
to any portion of the principal balance of the line of credit which is
scheduled to be repaid before the last day of the applicable interest
period.
(e) Any portion of the principal balance of the line of
credit already bearing interest at the Offshore Rate will not be
converted to a different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which
-3-
<PAGE> 7
(i) the additional interest which would have been
payable on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable
by the Bank by placing the amount prepaid on deposit in the
offshore dollar market for a period starting on the date on
which it was prepaid and ending on the last day of the interest
period for such portion.
(g) The Bank will have no obligation to accept an election
for an Offshore Rate portion if any of the following described events
has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore Rate
portion are not available in the offshore Dollar inter-bank
market; or
(ii) the Offshore Rate does not accurately reflect
the cost of an Offshore Rate portion.
2. FACILITY NO. 2: LETTER OF CREDIT FACILITY
2.1 Letters of Credit. At the request of the Borrower, between the
date of this Agreement and the Expiration Date, the Bank will issue for the
account of the Borrower commercial and standby letters of credit and shipside
bonds. Each letter of credit shall have a maximum term no longer than one year.
In addition, each letter of credit shall have a maximum maturity not to extend
beyond March 27, 1998. Each commercial letter of credit will require drafts
payable at sight.
2.2 Amount. In addition to the restrictions stated in paragraph
1.1(a), the amount of the letters of credit and shipside bonds outstanding at
any one time (including the drawn and unreimbursed amounts of the letters of
credit) may not exceed Twenty-Five Million Dollars ($25,000,000) (the "Letter
of Credit Sublimit"). As a further restriction, the amount of standby letters
of credit outstanding at any one time (including the drawn and unreimbursed
amounts of the standby letters of credit) may not exceed Four Million Dollars
($4,000,000). The amount of shipside bonds outstanding at any one time may not
exceed Fifth Thousand Dollars ($50,000).
2.3 Other Terms. The Borrower agrees:
(a) any sum owed to the Bank under a letter of credit or
shipside bond may, at the option of the Bank, be added to the principal
amount outstanding under Facility 1 of this Agreement. The amount will
bear interest and be due as described elsewhere in this Agreement. In
addition, if
-4-
<PAGE> 8
credit is available under Facility 1, the Borrower may request an
advance thereunder to repay the amount owed under the letter of credit,
if the Bank has not theretofore exercised the above-mentioned option.
(b) if the Bank declares an Event of Default under this
Agreement, the Borrower shall, upon demand, prepay and make the Bank
whole for any outstanding letters of credit and shipside bonds.
(c) the issuance of any letter of credit, any amendment to a
letter of credit and any shipside bond is subject to the Bank's written
approval and must be in form and content reasonably satisfactory to the
Bank and in favor of a beneficiary reasonably acceptable to the Bank.
(d) to sign the Bank's application, security agreement and
other standard forms for letters of credit and shipside bonds, and to
pay any issuance and/or other fees that the Bank notifies the Borrower
will be charged for issuing and processing letters of credit and
shipside bonds for the Borrower; provided, however, that certain fees
are set forth on Exhibit A attached hereto.
(e) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other charges.
(f) to pay the Bank a non-refundable fee equal to one
percent (1.0%) per annum of the outstanding undrawn amount of each
standby letter of credit, payable annually in advance, calculated on the
basis of the face amount outstanding on the day the fee is calculated.
3. FEES AND EXPENSES
3.1 Fees. Periodic fee. The Borrower agrees to pay a fee, on the
first day of each calendar quarter, equal to fifteen one-hundredths of one
percent (0.15%) per annum of the weighted average, during the quarter, of the
difference of the Facility 1 Commitment minus the Letter of Credit Sublimit,
payable in advance. This fee is due on the first day of each calendar quarter
until the Expiration Date (including any extended Expiration Date).
3.2 Expenses. The Borrower agrees to reimburse the Bank for any
reasonable expenses it incurs in the preparation of this Agreement and any
agreement or instrument required by this Agreement. Expenses include, but are
not limited to, reasonable attorneys' fees, including any allocated costs of
the Bank's in-house counsel.
-5-
<PAGE> 9
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Requests for Credit. Each request for an extension of credit will
be made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
4.2 Disbursements and Payments. Each disbursement by the Bank and
each payment by the Borrower will be:
(a) made at the Bank's San Francisco Regional Commercial Banking
Office, or other location reasonably selected by the Bank from time to
time after not less than 15 days prior written notice to the Borrower;
(b) made for the account of the Bank's branch selected by the
Bank from time to time;
(c) made in immediately available funds;
(d) evidenced by records kept by the Bank, absent manifest
error. In addition, the Bank may, at its discretion, require the
Borrower to sign one or more promissory notes to evidence the
obligations hereunder, which notes shall be expressly subject to the
terms of this Agreement.
4.3 Telephone Authorization.
(a) The Bank may honor telephone instructions for advances or
repayments or for the designation of optional interest rates given by
any one of the individual signer(s) of this Agreement or a person or
persons authorized by any one of the signer(s) of this Agreement.
(b) Advances will be deposited in and repayments will be
withdrawn from the Borrower's account number 14999-01347, or such other
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone instructions it
reasonably believes are made by a signer of this Agreement or a person
authorized by a signer; provided, however, that the Bank shall not be
indemnified for its own gross negligence or willful misconduct. This
indemnity and excuse will survive this Agreement's termination.
-6-
<PAGE> 10
4.4 Direct Debit.
(a) The Borrower agrees that interest and any fees
will be deducted automatically on the due date from checking account
number 14999-01347.
(b) The Bank will debit the account on the dates
the payments become due. If a due date does not fall on a banking
day, the Bank will debit the account on the first banking day
following the due date.
(c) The Borrower will maintain sufficient funds in the
account on the dates the Bank enters debits authorized by this
Agreement. If there are insufficient funds in the account on the date
the Bank enters any debit authorized by this Agreement, the debit will
be reversed.
4.5 Banking Days. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California. For amounts bearing interest at an offshore rate (if
any), a banking day is a day other than a Saturday or a Sunday on which the Bank
is open for business in California and dealing in offshore dollars. All payments
and disbursements which would be due on a day which is not a banking day will be
due on the next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
4.6 Taxes. The Borrower will not deduct any taxes from any payments
it makes to the Bank. If any government authority imposes any taxes or charges
on any payments made by the Borrower, the Borrower will pay the taxes or
charges. Upon request by the Bank, the Borrower will confirm that it has paid
the taxes by giving the Bank official tax receipts (or notarized copies) within
30 days after the due date. However, the Borrower will not pay the Bank's net
income taxes.
4.7 Additional Costs. The Borrower will pay the Bank, on written
demand, for the Bank's costs or losses arising from any statute or regulation,
or any request or requirement of a regulatory agency which is applicable to all
national banks or a class of all national banks, including the Bank. The written
demand shall set forth in reasonable detail the basis for the demand and the
calculations used by the Bank. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
included the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's
assets and commitments for credit.
-7-
<PAGE> 11
4.8 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
4.9 Default Rate. Upon the occurrence and during the continuation
of any Event of Default under this Agreement, principal amounts outstanding
under this Agreement will at the option of the Bank bear interest at a rate per
annum which is one (1) percentage point higher than the rate of interest
otherwise provided under this Agreement. This will not constitute a waiver of
any default. Installments of principal which are not paid when due under this
Agreement shall continue to bear interest until paid. Any interest, fees or
costs which are not paid when due shall bear interest at the Bank's Reference
Rate plus one (1) percentage point. This may result in compounding of interest.
5. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrower under this Agreement:
5.1 Authorizations. Evidence that the execution, delivery and
performance by the Borrower and each guarantor or subordinating creditor of this
Agreement and any instrument or agreement required under this Agreement have
been duly authorized.
5.2 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
5.3 Guaranties. Guaranties signed by Williams-Sonoma Stores, Inc.;
Pottery Barn East, Inc.; Gardener's Eden, Inc.; Chambers Catalog Company, Inc.;
and Hold Everything, Inc., each in the amount of One Hundred Twenty Million
Dollars ($120,000,000).
5.4 Other Items. Any other items that the Bank reasonably
requires.
6. REPRESENTATIONS AND WARRANTIES
The Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation that:
6.1 Organization of Borrower. The Borrower is a corporation duly
formed and existing under the laws of its state of incorporation.
-8-
<PAGE> 12
6.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
6.3 Enforceable Agreement. This Agreement is a legal, valid and
binding agreement of the Borrower, enforceable against the Borrower in
accordance with its terms, and any instrument or agreement required hereunder,
when executed and delivered, will be similarly legal, valid, binding and
enforceable.
6.4 Good Standing. In each state in which the Borrower does business,
it is properly licensed, in good standing, and, where required, in compliance
with fictitious name statutes, in each instance where failure to comply will
have a material adverse effect on the business of the Borrower and the
guarantors taken as a whole.
6.5 No Conflicts. This Agreement does not conflict with any law,
material agreement or obligation by which the Borrower is bound.
6.6 Financial Information. All financial and other information that
has been or will be supplied to the Bank has been or will be prepared in
accordance with GAAP and presents or will present fairly the financial
condition of the Borrower or any applicable guarantor, subject, however, to
year-end adjustments.
6.7 Lawsuits. The Borrower has no knowledge of any lawsuit, tax claim
or other dispute pending or threatened against the Borrower which, if lost,
would impair the Borrower's financial condition or ability to repay the loan,
except as have been disclosed in writing to the Bank including, without
limitation, disclosure in the financial statements of the Borrower.
6.8 Permits, Franchises. The Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary
to enable it to conduct the business in which it is now engaged, provided that
any failure by the Borrower to have any of the foregoing rights, licenses
and/or privileges shall not constitute a breach of this representation and
warranty if such failure would not materially impact the ability of Borrower to
repay the credit provided under this Agreement.
6.9 No Event of Default. No event has occurred and is continuing or
would result from the extension of credit under this Agreement which
constitutes or would constitute an Event of Default.
-9-
<PAGE> 13
6.10 ERISA Plans.
(a) The Borrower has fulfilled its obligations, if any, under
the minimum funding standards of ERISA and the Code with respect to
each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and has not
incurred any liability with respect to any Plan under Title IV of
ERISA.
(b) No reportable event has occurred under Section 4043(c) of
ERISA for which the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any
Plan has been taken and no notice of intent to terminate a Plan has
been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under
Section 4042 of ERISA, and no event has occurred or condition exists
which might constitute grounds for the commencement of such a
proceeding.
(e) The following terms have the meanings indicated for
purposes of this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(ii) "ERISA" means the Employee Retirement Income Act of
1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan
maintained or contributed to by the Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
6.11 Location of Borrower. The Borrower's place of business (or, if
the Borrower has more than one place of business, its chief executive office)
is located at the address listed under the Borrower's signature on this
Agreement, unless otherwise indicated by the Borrower in a notice to the Bank
pursuant to paragraph 9.9 of this Agreement.
7. COVENANTS
The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full, unless the Bank waives
compliance in writing:
-10-
<PAGE> 14
7.1 Use of Proceeds. To use the credit provided under this Agreement
only to finance seasonal inventory growth and a portion of the Borrower's
capital expenditures program; facilitate the Borrower's merchandise importation
program; and obtain letters of credit in the ordinary course of business.
7.2 Financial Information. To provide the following financial
information and statements and such additional information as requested by the
Bank from time to time:
(a) Within 120 days of the Borrower's fiscal year end, the
Borrower's annual financial statements. The financial statements shall
include at least the Borrower's balance sheet, statement of income and
retained earnings and statement of cash flow. These financial statements
must be audited (with an unqualified opinion) by a Certified Public
Accountant ("CPA") acceptable to the Bank. The statements shall be
prepared on a consolidated basis and shall include operating statements
reflecting the profitability of each of the Borrower's and guarantors'
business divisions, substantially in the form previously supplied by the
Borrower to the Bank (the "Operating Statements"). The statements shall
be accompanied by a copy of the Borrower's Form 10-K as filed with the
Securities and Exchange Commission.
(b) Within 60 days after the end of each fiscal quarter of the
Borrower:
(i) Copies of the Borrower's Form 10-Q Quarterly
Report; and
(ii) A compliance certificate substantially in the
form set forth on Exhibit B attached hereto, executed by any
of the Chief Executive Officer, President, Chief Administrative
Officer or Chief Financial Officer of the Borrower.
(c) Within 30 days of each month's end, the Borrower's monthly
financial statements. These financial statements may be Borrower
prepared. The statements shall be prepared on a consolidated basis and
shall include the Operating Statements.
(d) As soon as available, copies of all management letters or
reports and any other reports submitted to the Borrower by the
Borrower's CPA.
7.3 Adjusted Tangible Net Worth. To maintain on a consolidated basis,
as of each date indicated below, Adjusted Tangible Net Worth, exclusive of the
proceeds of any stock sold by the Borrower after the date of this Agreement and
exclusive of
-11-
<PAGE> 15
the proceeds of the conversion of any debt to stock, equal to at least the
amounts indicated for each date specified below:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
04/28/96 $115,000,000
07/28/96 113,000,000
10/27/96 113,000,000
12/29/96 133,000,000
</TABLE>
"Tangible Net Worth" means the gross book value of the Borrower's assets
(excluding Intangibles and monies due from affiliates, officers, directors or
shareholders of the Borrower) less total liabilities, including but not limited
to accrued and deferred income taxes, and any reserves against assets.
"Intangibles" means goodwill, patents, trademarks, favorable lease rights,
trade names, organization expense, treasury stock, unamortized debt discount
and expense, deferred research and development costs, deferred marketing
expenses (not including any prepaid catalog expenses), and other like
intangibles. "Adjusted Tangible Net Worth" shall be equal to Tangible Net
Worth, except that the amount of Intangibles shall be assumed to be One Million
Five Hundred Thousand Dollars ($1,500,000).
7.4 Debt to Tangible Net Worth. To maintain on a consolidated basis,
as of each date indicated below, a ratio of total liabilities to Tangible Net
Worth, as defined above (exclusive of the proceeds of any stock sold by the
Borrower after the date of this Agreement and exclusive of the proceeds of the
conversion of any debt to stock) not exceeding the amounts indicated for each
date specified below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
04/28/96 1.95:1
07/28/96 2.35:1
10/27/96 2.65:1
12/29/96 1.85:1
</TABLE>
"Total liabilities" means the sum of current liabilities plus long term
liabilities, including (a) the amount of tax credits booked by the Borrower as
negative liabilities; (b) deferred lease incentives; and (c) subordinated debt.
7.5 Fixed Charge Coverage Ratio. To maintain on a consolidated basis
as of the end of each fiscal quarter a Fixed Charge Coverage Ratio of at least
the amount indicated below:
<TABLE>
<CAPTION>
Period Ending Ratio
------------- -----
<S> <C>
4/28/96 1.15:1
7/28/96 1.15:1
10/27/96 1.25:1
2/2/97 1.25:1
</TABLE>
-12-
<PAGE> 16
"Fixed Charge Coverage Ratio" means the ratio of Adjusted EBIT to the sum of
positive income tax expense, interest expense, rent expense and the current
portion of long-term liabilities. "Adjusted EBIT" means the sum of net income,
plus income taxes, plus interest expense, depreciation, amortization (excluding
amortization of deferred lease incentives), and rent expense; provided,
however, that income taxes will be added to net income only to the extent that
they were deducted in determining net income. This ratio will be calculated at
the end of each fiscal quarter, using the results of that quarter and each of
the 3 immediately preceding quarters. The current portion of long term
liabilities will be measured as of the quarter end and will, for the purposes
of this covenant, exclude outstandings under Facility 1. For purposes of this
paragraph, "rent expense" shall include, but not be limited to, operating lease
expense, minimum rent, deferred lease rent, percentage rent, offsite storage,
and other rent and lease expense.
7.6 Additional Subordinated Debt. To obtain, no later than May 6,
1996, not less than Thirty Eight Million Dollars ($38,000,000) net cash
proceeds from the sale of stock or the issuance of a loan subordinated to the
Borrower's obligations to the Bank. The terms and conditions of such loan must
be reasonably acceptable to the Bank.
7.7 Other Debts. Not to have outstanding or incur (and not permit any
guarantor to have outstanding or incur) any direct or contingent debts or
capital lease obligations (excluding real property leases and excluding
obligations to the Bank), or become liable for the debts of others without the
Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit terms.
(b) Endorsing negotiable instruments received in the ordinary
course of business.
(c) Obtaining or executing surety bonds or other similar
undertakings in the ordinary course of business.
(d) Debts, lines of credit and leases in existence on the date
of this Agreement disclosed in writing to the Bank including, without
limitation, any disclosure in the financial statements of the
Borrower; and including the existing privately placed unsecured senior
term loan in the initial principal amount of up to Forty Million
Dollars ($40,000,000), due August 8, 2005 (the "Private Placement").
(e) Guaranties by Williams-Sonoma Stores, Inc.; The Pottery
Barn East, Inc.; Gardener's Eden, Inc.; Hold Everything, Inc.; and
Chambers Catalog
-13-
<PAGE> 17
Company, Inc., of the obligations of the Borrower under the Private
Placement.
(f) The subordinated loan referred to in Paragraph 7.6 above.
7.8 Other Liens. Not to create, assume, or allow any security
interest or lien (including judicial liens) on property the Borrower or any
guarantor now or later owns, except:
(a) Liens for taxes not yet delinquent.
(b) Liens outstanding on the date of this Agreement disclosed
in writing to the Bank, including, without limitation, any disclosure
in the financial statements of the Borrower.
(c) Liens in favor of the Bank.
(d) Cash collateral and security deposits provided in
connection with operating lease obligations incurred to finance the
acquisition of fixed assets (excluding real property and excluding
security deposits with utility companies); provided that the amount of
such collateral and security deposits must not exceed Three Million
Dollars ($3,000,000) at any time.
(e) liens for property taxes and assessments or governmental
charges for levies and liens securing claims or demands of mechanics
and materialmen, provided that payment thereof is not at the time
delinquent.
(f) liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which shall not have
expired, or in respect of which Borrower or a guarantor shall at the
time in good faith be prosecuting an appeal or proceeding for a review
and in respect of which a stay of execution pending such appeal or
proceeding for review shall have been secured within 30 days after the
entry of such judgment or award.
(g) liens incidental to the conduct of business or the
ownership of properties and assets (including liens in connection with
worker's compensation, unemployment insurance and other like laws,
warehousemen's and attorneys' liens and statutory landlords' liens) and
liens to secure the performance of bids, tenders or trade contracts, or
to secure statutory obligations, surety or appeal bonds or other liens
of like general nature and not incurred in connection with the borrowing
of money, provided in each case, the obligation secured is not overdue
or, if overdue, is being contested in good faith by appropriate actions
or proceedings.
-14-
<PAGE> 18
(h) survey and title exceptions, encumbrances, easements,
encroachments, covenants or reservations, or rights of others for
rights-of-way, utilities and other similar purposes, or zoning or other
restrictions as to the use of real properties, which do not in any event
materially impair their use in the operation of the business of the
Borrower and the guarantors.
(i) unperfected liens arising by operation of law under Article
2 of the Uniform Commercial Code in favor of unpaid sellers or prepaying
buyers of goods relating to amounts that are not past due in accordance
with their respective terms of sale.
7.9 Capital Expenditures. Not to exceed the following limits with
regard to Capital Expenditures, measured in the aggregate for the Borrower and
all guarantors. "Capital Expenditures" means amounts spent or obligations
incurred to acquire fixed assets consisting of either real or personal
property. If a fixed asset consisting of personal property is obtained through
an operating lease or capital lease, then the purchase price of the fixed asset
shall be considered a Capital Expenditure in the accounting period in which the
asset is first acquired. Leases of real property and capitalized interest shall
not be included as Capital Expenditures. "Landlord Allowance" means a cash
payment received or to be received from a landlord for leasehold improvements.
The limits are as follows:
(a) Capital Expenditures to be made during the fiscal year
ending February 2, 1997, with respect to capital projects that will be
completed during the fiscal year ending February 2, 1997 shall not
exceed Thirty Million Dollars ($30,000,000) in the aggregate. In
calculating the amount of Capital Expenditures for this subparagraph (a)
only, the following shall apply:
(i) There will be excluded from the amount of Capital
Expenditures an amount up to Five Million Dollars ($5,000,000)
with respect to fixed assets acquired through operating leases.
(ii) Amounts expended on or before January 28, 1996
(not exceeding Six Million Four Hundred Thousand Dollars
($6,400,000) will not be included in the calculation of Capital
Expenditures.
(iii) The amount of the Capital Expenditure for a
particular net fixed asset which is replacing an existing asset
will be reduced by the amount which is realized by the Borrower
from disposing of the old asset (including the amount of the
original stated value of the old asset, if the asset was
obtained through an operating lease which is being cancelled);
-15-
<PAGE> 19
provided that the Capital Expenditure shall not be reduced to
less than zero.
(iv) The amount of Landlord Allowances with respect to
a particular fixed asset will be deducted from the amount of the
Capital Expenditure for such asset.
(v) A limit on Capital Expenditures to be made during
the fiscal year ending January 31, 1998, has not yet been agreed
upon between the Bank and the Borrower. However, it is the
intention of the parties that if the Borrower does not use the
entire Thirty Million Dollars ($30,000,000) of Capital
Expenditures permitted by this paragraph (a) for the fiscal year
ending February 2, 1997, then up to Four Million Dollars
($4,000,000) of the unused portion will be carried forward into
the next fiscal year, and the limitation for that fiscal year to
be agreed between the Bank and the Borrower is intended to
reflect such amount carried forward. Nothing in this paragraph
shall be deemed to be a commitment to renew this Agreement past
the Expiration Date.
(b) During the two fiscal quarters ending July 28, 1996, the
Borrower shall not commit to Capital Expenditures to be incurred during
the fiscal year ending January 31, 1998 that exceed Eleven Million
Dollars ($11,000,000) in the aggregate. In calculating the amount of
Capital Expenditures for this subparagraph (b) only, the following shall
apply:
(i) The amount of the Capital Expenditure will not be
reduced by the amount received on disposing of an old asset.
(ii) The amount of Landlord Allowances with respect to
a particular fixed asset will be deducted from the amount of the
Capital Expenditure for such asset.
(c) Capital Expenditures to be made during the fiscal year
ending February 2, 1997, with respect to capital projects that will be
completed during the fiscal year ending January 31, 1998, shall not
exceed Eleven Million Dollars ($11,000,000) in the aggregate. In
calculating the amount of Capital Expenditures for this subparagraph (c)
only, the following shall apply:
(i) The amount of the Capital Expenditure will not be
reduced by the amount received on disposing of an old asset.
-16-
<PAGE> 20
(ii) The amount of Landlord Allowances with respect
to a particular fixed asset will not be deducted from the amount
of the Capital Expenditure for such asset.
7.10 Dividends. Not to declare or pay any dividends on any of its
shares, and not to purchase, redeem or otherwise acquire for value any of its
shares, except:
(a) dividends payable in its capital stock; and
(b) the Borrower may purchase stock from its employees for a
consideration not exceeding Two Million Dollars ($2,000,000) in the
aggregate during any fiscal year.
7.11 Out of Debt Period. The Borrower shall have no advances
(excluding the undrawn amount of letters of credit) outstanding under Facility
1 for a period of at least 30 consecutive days during the 75 day period from
December 16 through February 28 of each year.
7.12 Notices to Bank. To promptly notify the Bank in writing upon
becoming aware of:
(a) the commencement of any lawsuit where the amount
claimed is over One Million Dollars ($1,000,000) against the
Borrower or any guarantor.
(b) any substantial dispute between the Borrower or any
guarantor and any government authority, the adverse determination of
which would materially impair the Borrower's or any guarantor's
financial condition or ability to repay its obligations under this
Agreement or any guaranty pursuant hereto.
(c) any Event of Default or an event which with notice or
lapse of time, or both, would become an Event of Default.
(d) any material adverse change in the Borrower's or any
guarantor's financial condition or operations.
(e) any change in the Borrower's name, legal structure,
place of business, or chief executive office if the Borrower has more
than one place of business;
(f) any default under any obligation for borrowed money, any
purchase money obligation or any other material lease, commitment,
contract, instrument or obligation.
7.13 Books and Records. To maintain adequate books and records for
the Borrower and guarantors on a consolidated basis.
-17-
<PAGE> 21
7.14 Audits. To allow the Bank and its agents to inspect the
Borrower's and each guarantor's property and examine, audit and make copies of
books and records at any reasonable time during normal business hours and upon
reasonable prior written notice. If any of the Borrower's or guarantor's
properties, books or records are in the possession of a third party, the
Borrower authorizes that third party (not including Borrower's or guarantor's
attorneys) to permit the Bank or its agents to have access to perform
inspections or audits and to respond to the Bank's requests for information
concerning such properties, books and records, provided the Bank notifies the
Borrower before any such inspections and offers the Borrower an opportunity to
be present at such inspections.
7.15 Compliance with Laws. To comply (and cause each guarantor to
comply) with the laws (including any fictitious name statute), regulations, and
orders of any government body with authority over the Borrower's or such
guarantor's business and which are applicable to the Borrower's or such
guarantor's business, and where failure to comply would result in a material
adverse change in Borrower's and the guarantor's financial condition, operations
or ability to repay the obligations under this Agreement.
7.16 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower and each guarantor now has which are
necessary for the conduct of Borrower's or guarantor's business; provided that
any failure by the Borrower or any guarantor to have any of the foregoing
rights, licenses and/or privileges shall not constitute a breach of this
representation and warranty if such failure would not materially impact the
collective ability of Borrower and the guarantors to repay the credit provided
under this Agreement.
7.17 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's and each guarantor's properties in good
working condition subject, however, to the limitations on Capital Expenditures
in this Agreement.
7.18 Cooperation. To take any action reasonably requested by the
Bank to carry out the provisions of this Agreement.
7.19 Insurance.
(a) General Business Insurance. To maintain (and cause
each guarantor to maintain) insurance as is usual for the business it
is in.
(b) Evidence of Insurance. Upon the request of the Bank,
to deliver to the Bank a copy of each insurance
-18-
<PAGE> 22
policy, or, if permitted by the Bank, a certificate of insurance
listing all insurance in force.
7.20 Additional Negative Covenants. Not to, (and not permit any
guarantor to), without the Bank's written consent:
(a) engage in any business activities substantially
different from the Borrower's or any guarantor's present business.
(b) liquidate or dissolve the Borrower's or any guarantor's
business.
(c) enter into any consolidation, merger, pool, joint
venture, syndicate, or other combination, except within the consolidated
group of the Borrower and the guarantors, provided that with respect to
any such consolidation or merger involving the Borrower, the Borrower
shall be the surviving entity.
(d) lease, dispose of all or a substantial part of the
Borrower's or any guarantor's business or the Borrower's or any
guarantor's assets except (i) in the ordinary course of business; (ii)
obsolete or worn out assets or assets no longer used or useful in the
business of the Borrower or any guarantor; and (iii) an additional
aggregate amount not exceeding One Million Dollars ($1,000,000) per
fiscal year in the aggregate for the Borrower and all guarantors
disposed in arm's length transactions.
(e) acquire or purchase a business or its assets.
(f) enter into any sale and leaseback agreement covering any
of its fixed or capital assets; provided, however, that Borrower and
guarantors may enter into sale and leaseback transactions with an
aggregate consideration not exceeding One Million Dollars ($1,000,000)
per fiscal year.
(g) voluntarily suspend its business for more than 4 days
in any 30-day period.
(h) make any prepayment under any subordinated indebtedness
or the Private Placement except with the consent of the Bank; or agree
to any material amendment of any such subordinated indebtedness or the
Private Placement.
7.21 ERISA Plans. To give prompt written notice to the Bank of:
-19-
<PAGE> 23
(a) The occurrence of any reportable event under Section
4043(c) of ERISA for which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from
a Plan or the filing of any notice of intent to terminate under Section
4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan
under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a
Plan under Section 4042 of ERISA.
8. DEFAULT
If any of the following events (each an "Event of Default") occurs and
is continuing, the Bank may do one or more of the following: declare the
Borrower in default, stop making any additional credit available to the
Borrower, and require the Borrower to repay its entire debt immediately and
without prior notice. If a bankruptcy petition is filed with respect to the
Borrower, the entire debt outstanding under this Agreement will automatically be
due immediately.
8.1 Failure to Pay. The Borrower fails to pay: (i) within three
(3) banking days of the date due, any interest on the principal amount of loans
made hereunder; (ii) when due, any installment of principal, or (iii) within
five (5) banking days after written demand, any other sum due under this
Agreement in accordance with the terms of this Agreement.
8.2 False Information. The Borrower or any guarantor has delivered
to the Bank information or representation which proves to be false or
misleading in any material respect as of when delivered.
8.3 Bankruptcy. The Borrower or any guarantor files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower or any guarantor
(unless any such petition is dismissed within a period of 60 days after the
filing thereof, and Borrower or such guarantor shall not have consented thereto
prior to the expiration of such 60-day period), or the Borrower or any
guarantor makes a general assignment for the benefit of creditors.
8.4 Receivers. A receiver or similar official is appointed for the
Borrower's or any guarantor's business (unless such appointment is set aside or
withdrawn or ceases to be in effect within 60 days after the filing or
appointment), or the business is terminated.
-20-
<PAGE> 24
8.5 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one
or more trade creditors against the Borrower or any guarantor in an aggregate
amount of Eight Million Dollars ($8,000,000) or more in excess of any insurance
coverage.
8.6 Judgments. Any judgments or arbitration awards are entered
against the Borrower or any guarantor, or the Borrower or any guarantor enters
into any settlement agreements with respect to any litigation or arbitration,
in an aggregate amount of One Million Dollars ($1,000,000) or more in excess of
any insurance coverage, and such judgment or judgments shall not have been
vacated or discharged, or stayed or bonded pending appeal within 60 days of its
entry; provided, however, that if at any time the judgment is executable, then
an immediate Event of Default shall occur.
8.7 Government Action. Any government authority takes action that
the Bank reasonably believes materially impairs the Borrower's and any
guarantor's financial condition or their collective ability to repay.
8.8 Material Adverse Change. A material adverse change occurs in
the financial condition, properties or prospects, of the Borrower and the
guarantors and which impairs their collective ability to repay the loan.
8.9 Cross-default. Any default occurs under any agreement in
connection with any indebtedness for borrowed money the Borrower or any
guarantor has obtained from anyone else or which the Borrower (or any
guarantor) has guaranteed if the default consists of failing to make a payment
when due or gives the other lender the right to accelerate the obligation after
the expiration of any applicable notice, grace or cure periods.
8.10 Default under Guaranty or Subordination Agreement. Any
guaranty or subordination required by this Agreement is violated, revoked or no
longer in effect.
8.11 Other Bank Agreements. The Borrower or any guarantor fails to
meet the conditions of, or fails to perform any obligation under any other
agreement the Borrower or any guarantor has with the Bank or any affiliate of
the Bank; provided, however, that if the agreement in question is of a type
other than an agreement for borrowed money or an interest rate swap or other
interest rate protection agreement, then there shall be no Event of Default
under this Agreement unless the failure to comply with the other agreement
continues without cure for 15 calendar days after the Borrower or any guarantor
becomes aware of such failure.
8.12 ERISA Plans. The occurrence of any one or more of the
following events with respect to the Borrower, provided such event or events
could reasonably be expected, in the judgment of
-21-
<PAGE> 25
the Bank, to subject the Borrower to any tax, penalty or liability (or any
combination of the foregoing) which, in the aggregate, could have a material
adverse effect on the financial condition of the Borrower with respect to a
Plan:
(a) A reportable event shall occur with respect to a Plan which
is, in the reasonable judgment of the Bank likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or the Borrower's full or partial withdrawal from a
Plan.
8.13 Default of Certain Covenants. The Borrower or any guarantor
defaults under any of the provisions of Paragraphs 7.1, 7.3 through 7.11, or
7.20 of this Agreement.
8.14 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article; provided, however, that
there shall be no Event of Default under this Paragraph unless the failure to
comply continues without cure for 15 calendar days after the Borrower or any
guarantor becomes aware of such failure.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied; provided,
however, that if there shall be a change in GAAP so as to affect the premises
on which the financial covenants are predicated, then in addition to the
financial statements prepared in accordance with GAAP, the Borrower will
provide a reconciliation calculating the financial covenants under the
provisions of GAAP as in effect on the date of this Agreement, and the
Borrower's compliance with the financial covenants will be measured based on
such unchanged provisions of GAAP.
9.2 California Law. This Agreement is governed by California law.
9.3 Successors and Assigns. This Agreement is binding on the
Borrower's and the Bank's successors and assignees. The Borrower agrees that it
may not assign this Agreement without the Bank's prior consent. The Bank may
sell participation in or assign this loan, and may exchange financial
information about the Borrower with actual or potential participants or
assignees provided such actual or potential participants or assignees shall
agree in writing to treat all non-public financial information exchanged as
confidential. If a participation is sold or the
-22-
<PAGE> 26
loan is assigned and the Bank shall have provided Borrower with written notice
thereof and the identity of the purchaser, the purchaser will have the right of
set-off against the Borrower. The Bank acknowledges and agrees that it will
nevertheless remain liable to fund loans and issue letters of credit hereunder
notwithstanding any participation/assignment of its interest hereunder.
9.4 Arbitration.
(a) This paragraph concerns the resolution of any
controversies or claims between the Borrower and the Bank, including but
not limited to those that arise from:
(i) This Agreement (including any renewals,
extensions or modifications of this Agreement);
(ii) Any document, agreement or procedure related to
or delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any
business conducted between the Borrower and the Bank, including
claims for injury to persons, property or business interests
(torts), which arise out of the transactions contemplated by
this Agreement.
(b) At the request of the Borrower or the Bank, any such
controversies or claims will be settled by arbitration in accordance
with the United States Arbitration Act. The United States Arbitration
Act will apply even though this Agreement provides that it is governed
by California law.
(c) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject to its commercial
rules of arbitration.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this paragraph is
the equivalent of the filing of a lawsuit, and any claim or controversy
which may be arbitrated under this paragraph is subject to any
applicable statute of limitations. The arbitrators will have the
authority to decide whether any such claim or controversy is barred by
the statute of limitations and, if so, to dismiss the arbitration on
that basis.
(e) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to resolve any such
dispute.
-23-
<PAGE> 27
(f) The decision that results from an arbitration proceeding
may be submitted to any authorized court of law to be confirmed and
enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation to the Bank
secured by real property located in California. In this case, both the
Borrower and the Bank must consent to submission of the claim or
controversy to arbitration. If both parties do not consent to
arbitration, the controversy or claim will be settled as follows:
(i) The Borrower and the Bank will designate a
referee (or a panel of referees) selected under the auspices of
the American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of
referees) will be appointed by a court as provided in California
Code of Civil Procedure Section 638 and the following related
sections;
(iii) The referee (or the presiding referee of the
panel) will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment in the
court that appointed the referee, in accordance with the
provisions of California Code of Civil Procedure Sections 644
and 645.
(h) This provision does not limit the right of the Borrower
or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after
the arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing
-24-
<PAGE> 28
of a court action, does not constitute a waiver of the right of the
Borrower or the Bank, including the suing party, to submit the
controversy or claim to arbitration if the other party contests the
lawsuit. However, if the controversy or claim arises from or relates to
an obligation to the Bank which is secured by real property located in
California at the time of the proposed submission to arbitration, this
right is limited according to the provision above requiring the consent
of both the Borrower and the Bank to seek resolution through
arbitration.
(j) If the Bank forecloses against any real property
securing this Agreement, the Bank has the option to exercise the power
of sale under the deed of trust or mortgage, or to proceed by judicial
foreclosure.
9.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
9.6 Costs. If the Bank incurs any expenses in connection with
administering or enforcing this Agreement, or if the Bank takes collection
action under this Agreement, it is entitled to costs and reasonable attorneys'
fees, including any allocated costs of in-house counsel.
9.7 Attorneys' Fees. In the event of a lawsuit or arbitration
proceeding, the prevailing party is entitled to recover costs and reasonable
attorneys' fees incurred in connection with the lawsuit or arbitration
proceeding, as determined by the court or arbitrator. In the event that any
case is commenced by or against the Borrower under the Bankruptcy Code (Title
11, United States Code) or any similar or successor statute, the Bank is
entitled to recover costs and reasonable attorneys' fees incurred by the Bank
related to the preservation, protection, or enforcement of any rights of the
Bank in such a case. As used in this paragraph, "attorneys' fees" includes the
allocated costs of the Bank's in-house counsel.
9.8 One Agreement. This Agreement and any related security or
other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements
between the Bank and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between
the Bank and the Borrower concerning this credit; and
-25-
<PAGE> 29
(c) are intended by the Bank and the Borrower as the final,
complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.9 Notices. All notices required under this Agreement shall be
personally delivered, faxed or sent by first class mail, postage prepaid, to
the addresses on the signature page of this Agreement, or to such other
addresses as the Bank and the Borrower may specify from time to time in
writing. Notice shall be effective upon receipt if personally delivered or
faxed, or three (3) banking days after deposited in first class mail, postage
prepaid.
9.10 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
9.11 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so
-26-
<PAGE> 30
executed, shall be deemed an original but all such counterparts shall
constitute but one and the same agreement.
This Agreement is executed as of the date stated at the top of the first page.
Bank of America National Williams-Sonoma, Inc.
Trust and Savings Association
By /s/ Hagop V. Bouldoukian By /s/ W. Howard Lester
---------------------------- -----------------------------
Hagop V. Bouldoukian W. Howard Lester
Vice President Chairman and Chief Executive
Officer
By ______________________________
Typed Name ______________________
Title ___________________________
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
San Francisco Commercial 3250 Van Ness Avenue
Banking #1499 San Francisco, CA 94109
345 Montgomery Street Attn: Chief Financial Officer
San Francisco, CA 94104 Fax: (415) 616-8359
Attn: Hagop V. Bouldoukian
Fax: (415) 622-1878
[Attach Exhibit A - Commercial L/C and Shipside Bonds fees]
[Attach Exhibit B - Compliance Certificate]
-27-
<PAGE> 31
EXHIBIT "A"
Section 2.3(d): Letter of Credit Fees:
- Issuance: 1/16%, $50 minimum
- Amendment: 1/8th%, $50 minimum
- Negotiations: 3/16%, $75 minimum
- Discrepancy: $40
- Shipside bonds: Standard.
<PAGE> 32
EXHIBIT "B"
Williams-Sonoma, Inc.
Compliance Certificate
----------------------
[Financial Statement]
Date: ____________, 199__
Reference is made to that certain Second Amended and Restated Credit Agreement,
dated as of March 29, 1996 (as extended, renewed, amended, or restated from time
to time, the "Credit Agreement") between Williams-Sonoma, Inc. ("Borrower") and
Bank of America National Trust and Savings Association ("Bank"). Unless
otherwise defined herein, capitalized terms used herein have the respective
meanings assigned to them in the Credit Agreement. This Compliance Certificate
is being delivered in accordance with Paragraph 7.2(c) of the Credit Agreement
to certify as to compliance with the terms and provisions thereof as of [insert
date of financial statements as referenced above].
The undersigned hereby certifies as follows:
1. To the best of the undersigned's knowledge, Borrower has, as of the
date of this Compliance Certificate, observed, performed, or satisfied
all of the covenants and other agreements, and satisfied every condition
of the Credit Agreement to be observed, performed, or satisfied by
Borrower, and the undersigned has no knowledge of any Event of Default.
Each representation and warranty of Borrower contained in the Credit
Agreement is true and correct as of the date of this Compliance
Certificate.
2. The Tangible Net Worth, Leverage, Fixed Charge Coverage and Capital
Expenditures calculations set forth on Schedule 1 hereto are true and
accurate on and as of the date of the financial statements noted above.
IN WITNESS WHEREOF, the undersigned have executed this Compliance Certificate
as of ________________, 199__.
WILLIAMS-SONOMA, INC.
By __________________________
Title _______________________
<PAGE> 33
[Sample]
SCHEDULE 1
to the Compliance Certificate
1. TANGIBLE NET WORTH (Section 7.3):
Date: ____________
Covenant: ____________
Actual: ____________
2. DEBT TO TANGIBLE NET WORTH (Section 7.4):
Date: ____________
Covenant: ____________
Actual: ____________
3. FIXED CHARGE COVERAGE (Section 7.5): Rolling four-quarter detailed
calculations, including components of definition, per attached example
("Fixed Charge Coverage Appendix").
Date: ____________
Covenant: ____________
Actual: ____________
4. CAPITAL EXPENDITURES (Section 7.9):
Section 7.9(a): Capital Expenditures not to exceed $30,000,000 for
the fiscal year ending February 2, 1997.
Reporting Period: January 29, 1996 through __________________ (date of
attached financial statements)
Actual: ___________
Section 7.9(a)(i): Operating leases for the acquisition of up to
$5,000,000 in fixed assets to be excluded from
calculation of the $30,000,000 Capital Expenditures
covenant (Section 7.9[a]).
Reporting Period: January 29, 1996 through __________________ (date of
attached financial statements)
Actual: ___________
Section 7.9(b): During the two fiscal quarters ending July 28, 1996,
Borrower shall not commit to Capital Expenditures, to
be incurred during the fiscal year ending January 31,
1998, in excess of $11,000,000.
Reporting Period: January 29, 1996 through __________________ (date of
attached financial statements)
Actual: ___________
Section 7.9(c): Capital Expenditures to be made during the fiscal
year ending February 2, 1997, with respect to capital
projects that will be completed during the fiscal
year ending January 31, 1998, shall not exceed
$11,000,000.
Reporting Period: January 29, 1996 through __________________ (date of
attached financial statements)
Actual: ___________
<PAGE> 34
FIXED CHARGE COVERAGE APPENDIX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IQ Q Q Q TOTALS
(the most recent
fiscal quarter)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THE SUM OF:
net income
income taxes*
interest expense
depreciation
amortization**
rent expense***
- --------------------------------------------------------------------------------
(A) numerator SUM OF ADJUSTED
totals EBIT FIGURES
(4 QUARTERS)
- --------------------------------------------------------------------------------
DIVIDED BY THE
SUM OF:
positive income
tax expense
interest expense
rent expense***
current portion
long term debt
- --------------------------------------------------------------------------------
(B) denominator SUM OF FIXED
totals CHARGES
(4 QUARTERS)
- --------------------------------------------------------------------------------
(A) DIVIDED BY (B) ROLLING 4
QUARTER FCC
RATIO
- --------------------------------------------------------------------------------
</TABLE>
* Added only to the extent that they were deducted in determining net
income
** Amortization expense, as defined for purposes of calculating this
covenant in Paragraph 7.5 of the Credit Agreement, excludes
amortization of Deferred Lease Incentives.
*** Rent expense shall include, but not be limited to:
* minimum rent
* deferred lease rent
* percentage rent
* offsite storage
* other rent and lease expense
* operating lease expense
<PAGE> 35
================================================================================
[LOGO] BANK OF AMERICA CORPORATE RESOLUTIONS TO OBTAIN CREDIT
- --------------------------------------------------------------------------------
RESOLVED, that this corporation, Williams-Sonoma, Inc., may:
1. borrow money from BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("Bank");
2. obtain for the account of this corporation commercial and
standby letters of credit issued by Bank;
3. obtain for the account of this corporation Bank's acceptance of
drafts and other instruments; and
4. discount with or sell to Bank notes, acceptances, drafts,
receivables and other evidences of indebtedness, and assign or
otherwise transfer to Bank any security interest or lien for
such obligations;
from time to time, in such amount or amounts as in the judgement of the
Authorized Officers (as hereinafter defined) this corporation may require (the
credit facilities described in the first part of this resolution are
collectively referred to herein as the "Credit Facilities"), provided, however,
that the aggregate principal amount outstanding at any one time under the
Credit Facilities authorized by this resolution shall not exceed sum of One
Hundred Million Dollars ($100,000,000), which sum shall be in addition to such
other amount or amounts as otherwise may be authorized.
RESOLVED FURTHER, that the Authorized Officers are hereby authorized
and directed, as security for any obligation or obligations of this corporation
to Bank, whether arising pursuant to these Resolutions or otherwise, to grant
in favor of Bank a security interest in or lien on any real or personal
property belonging to or under the control of this corporation.
RESOLVED FURTHER, that
1. If only one signature is obtained, any one of the
following:
a.
b.
c.
d.
e.
f.
2. If two signature are obtained, any one of the following:
a.
b.
c.
d.
e.
f.
together with any one of the following:
g.
h.
i.
j.
k.
l.
of this corporation, acting individually or in any combination as may be set
forth above (the "Authorized Officers"), are hereby authorized and directed, in
the name of this corporation, to execute and deliver to Bank, and Bank is
requested to accept:
a. the notes, credit agreements, advance account agreements,
acceptance agreements, letter of credit applications and agreements, purchase
agreements or other instruments, agreements and documents which evidence the
obligations of this corporation under the Credit Facilities obtained or to be
obtained pursuant to these resolutions;
b. any and all security agreements, deeds of trust, mortgages,
financing statements, fixture filings or other instruments, agreements and
documents with respect to any security interest or lien authorized to be given
pursuant to these resolutions; and
c. any other instruments, agreements and documents as Bank may
require and the Authorized Officers may approve.
- --------------------------------------------------------------------------------
-1-
<PAGE> 36
- --------------------------------------------------------------------------------
RESOLVED FURTHER, that the Authorized Officers are hereby authorized
and directed, in the name of this corporation, to endorse, assign to Bank, and
deliver to Bank, any and all notes, acceptances, drafts, receivables and other
evidences of indebtedness discounted with or sold to Bank, together with any
security interest or lien for such obligations, and to guarantee the payment of
the same to Bank.
RESOLVED FURTHER, that any and all of the instruments, agreements and
documents referred to above may contain such recitals, covenants, agreements
and other provisions as Bank may require and the Authorized Officers may
approve, and the execution of such instruments, agreements and documents by the
Authorized Officers shall be conclusive evidence of such approval, and that the
Authorized Officers are authorized from time to time to execute renewals or
extensions of any and all such instruments, agreements and documents.
RESOLVED FURTHER, that Bank is authorized to act upon the foregoing
resolutions until written notice of revocation is received by Bank, and that
the authority hereby granted shall apply with equal force and effect to the
successors in office of the Authorized Officers.
CORPORATE SECRETARY'S CERTIFICATE
I, Dennis A. Chantland, Secretary of Williams-Sonoma, Inc., a
corporation organized and existing under the laws of the State of California
(the "Corporation"), hereby certify that the foregoing is a full, true and
correct copy of resolutions of the Board of Directors of the Corporation, duly
and regularly adopted by the Board of Directors of the Corporation in all
respects as required by law and the by-laws of the Corporation on
__________________, at a meeting at which a quorum of the Board of Directors of
the Corporation was present and the requisite number of such directors voted in
favor of said resolutions, or by the unanimous consent in writing of all
members of the Board of Directors of the Corporation to the adoption of said
resolutions.
I further certify that said resolutions are still in full force and
effect and have not been amended or revoked, and that the specimen signatures
appearing below are the signatures of the officers authorized to sign for the
Corporation by virtue of such resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as Secretary of the
Corporation, and affixed the corporate seal of the Corporation, on
________________.
AUTHORIZED SIGNATURES:
X X
- ------------------------------ ------------------------------
Dennis A. Chantland, Secretary
of Williams-Sonoma, Inc.
X a California Corporation
- ------------------------------
X Affix Corporate Seal Here.
- ------------------------------
X
- ------------------------------
X
- ------------------------------
X
- ------------------------------
- --------------------------------------------------------------------------------
-2-
<PAGE> 1
Exhibit 10.10
WILLIAMS-SONOMA, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTES DUE APRIL 15, 2003
PURCHASE AGREEMENT
April 10, 1996
Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Williams-Sonoma, Inc., a California corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you (the "Purchaser") an aggregate of U.S.$40,000,000 principal amount of the
5 1/4% Convertible Subordinated Notes due April 15, 2003, convertible into
Common Stock, par value $0.01 per share (the "Stock"), of the Company, specified
above (the "Securities"). As used herein, the term "Purchaser" shall be deemed
to include Goldman Sachs International ("GSI"), who is acting as your selling
agent in making certain resales of the Securities pursuant to Section 3.
The Purchaser and other holders (including subsequent transferees) of
Securities will be entitled to the benefits of the registration rights
agreement, to be dated as of the Time of Delivery (as defined below) (the
"Registration Rights Agreement") between the Company and the Purchaser, in the
form attached hereto as Exhibit B. Pursuant to the Registration Rights
Agreement, the Company will agree to file with the United States Securities and
Exchange Commission (the "Commission") under the circumstances set forth therein
a shelf registration statement pursuant to Rule 415 under the Securities Act
relating to the resale of (i) such Securities and (ii) the shares of Stock
initially issuable upon conversion of the Securities by holders thereof, and to
use its best efforts to cause such shelf registration statement to be declared
effective.
1. The Company represents and warrants to, and agrees with, the
Purchaser that:
(a) An offering circular dated April 10, 1996 (the "Offering
Circular", including the international supplement thereto, any
reference herein to which term shall be deemed to refer to and include
the Company's Annual Report to Shareholders on Form 10-K for the fiscal
year ended January 29, 1995 and Quarterly Report on Form 10-Q for the
quarter ended October 29, 1995, attached to and made a part of the
Offering Circular, and the other Appendices thereto) has been prepared
in connection with the offering of the Securities and the shares of
Stock issuable upon conversion thereof. Any reference to the Offering
Circular shall be deemed to refer to and include the Company's most
recent Annual Report on Form 10-K and all subsequent documents filed
with the Commission pursuant to Section 13(a), 13(c) or 15(d) of the
United
<PAGE> 2
States Securities Exchange Act of 1934, as amended (the "Exchange Act")
on or prior to the date of the Offering Circular and any reference to
the Offering Circular, as amended or supplemented, as of any specified
date, shall be deemed to include (i) any documents filed with the
Commission pursuant to Section 13(a), 13(c) or 15(d) of the Exchange
Act after the date of the Offering Circular and prior to such specified
date and any Additional Issuer Information (as defined in Section 5(g))
furnished by the Company prior to the completion of the distribution of
the Securities; and all documents filed under the Exchange Act and so
deemed to be included in the Offering Circular or any amendment or
supplement thereto are hereinafter called the "Exchange Act Reports".
The Exchange Act Reports, when they were or are filed with the
Commission, conformed or will conform in all material respects to the
applicable requirements of the Exchange Act and the applicable rules
and regulations of the Commission thereunder. The Offering Circular and
any amendments or supplements thereto and the Exchange Act Reports did
not and will not, as of their respective dates, contain an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by you expressly for
use therein;
(b) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited consolidated financial statements
of the Company included in the Offering Circular any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Offering Circular; and, since
the respective dates as of which information is given in the Offering
Circular, there has not been any material change in the capital stock
or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development which in the opinion of the
Company is reasonably likely to result in a prospective material
adverse change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of
the Company and its subsidiaries taken as a whole, otherwise than as
set forth or contemplated in the Offering Circular;
(c) The Company and its subsidiaries have good and marketable
title (legal or equitable, as applicable) to all real and personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Offering
Circular or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
-2-
<PAGE> 3
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of California, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Offering
Circular, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(e) The Company has an authorized capitalization as set forth in
the Offering Circular, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued and are
fully paid and non-assessable; the shares of Stock initially issuable
upon conversion of the Securities have been duly and validly authorized
and reserved for issuance and, when issued and delivered in accordance
with the provisions of the Securities and the Indenture referred to
below, will be duly and validly issued, fully paid and non-assessable
and will conform to the description of the Stock contained in the
Offering Circular;
(f) The Securities have been duly authorized by the Company and,
when issued and delivered pursuant to this Agreement and the Indenture
(hereinafter defined), will have been duly executed, authenticated,
issued and delivered and will constitute valid and legally binding
obligations of the Company, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles, and will be entitled to the benefits provided by the
Indenture to be dated as of April 15, 1996 (the "Indenture") between
the Company and Bankers Trust Company, as trustee (the "Trustee"),
under which they are to be issued, which will be substantially in the
form previously delivered to you; the Indenture has been duly
authorized and, when executed and delivered by the parties thereto,
will constitute a valid and legally binding instrument, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and the Securities and the Indenture will conform to the
descriptions thereof in the Offering Circular and will be in
substantially the form previously delivered to you;
(g) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale
of the Securities) will violate or result in a violation of Section 7
of the Exchange Act, or any regulation promulgated thereunder,
including, without limitation, Regulations G, T, U, and X of the Board
of Governors of the Federal Reserve System;
(h) Prior to the date hereof, neither the Company nor any of its
affiliates has taken any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company in connection with the offering of the Securities;
-3-
<PAGE> 4
(i) The issue and sale of the Securities, and the compliance by
the Company with all of the provisions of the Securities, the
Indenture, the Registration Rights Agreement and this Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Articles of Incorporation or By-laws of the Company
or any United States statute or any order, rule or regulation of any
United States court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties;
and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Securities or the
consummation by the Company of the transactions contemplated by this
Agreement, the Registration Rights Agreement or the Indenture, except
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Securities
by the Purchaser;
(j) Except as disclosed in the Offering Circular, neither the
Company nor any of its subsidiaries is in violation of its Articles of
Incorporation or By-laws or in default in the performance or observance
of any material obligation, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by
which it or any of its properties may be bound;
(k) The statements set forth in the Offering Circular under the
captions "Description of Notes" and "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities, the capital stock of the Company and the documents and laws
therein described, and under the captions "Notice to Investors",
"United States Taxation" and "Offer and Resale", insofar as they
purport to describe the provisions of the laws and documents referred
to therein, are accurate and complete;
(l) Other than as set forth in the Offering Circular, there are
no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate reasonably be expected to have a material adverse
effect on the current consolidated financial position, shareholders'
equity or results of operations of the Company and its subsidiaries
and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(m) The Company is subject to Section 13 or 15(d) of the Exchange
Act;
-4-
<PAGE> 5
(n) When the Securities are issued and delivered pursuant to this
Agreement, such Securities will not be of the same class (within the
meaning of Rule 144A under the Securities Act) as securities which are
listed on a national securities exchange registered under Section 6 of
the Exchange Act, or quoted in a U.S. automated inter-dealer quotation
system;
(o) The Company is not, and after giving effect to the offering
and sale of the Securities, will not be an "investment company", or an
entity "controlled" by an "investment company", as such terms are
defined in the United States Investment Company Act of 1940, as amended
(the "Investment Company Act");
(p) Neither the Company nor any person acting on its behalf has
offered or sold the Securities by means of any general solicitation or
general advertising within the meaning of Rule 502(c) under the
Securities Act or, with respect to Securities sold outside the United
States to non-U.S. persons (as defined in Rule 902 under the Securities
Act), by means of any directed selling efforts within the meaning of
Rule 902 under the Securities Act and the Company, any affiliate of the
Company and any person acting on its or their behalf has complied with
and will implement the "offering restriction" within the meaning of
such Rule 902;
(q) Within the preceding six months, neither the Company nor any
other person acting on behalf of the Company has offered or sold to any
person any Securities, or any securities of the same or a similar class
as the Securities, other than Securities offered or sold to the
Purchaser hereunder. The Company will take reasonable precautions
designed to insure that any offer or sale, direct or indirect, in the
United States or to any U.S. person (as defined in Rule 902 under the
Securities Act) of any Securities or any substantially similar security
issued by the Company, within six months subsequent to the date on
which the distribution of the Securities has been completed (as
notified to the Company by Goldman, Sachs & Co.), is made under
restrictions and other circumstances reasonably designed not to affect
the status of the offer and sale of the Securities in the United States
and to U.S. persons contemplated by this Agreement as transactions
exempt from the registration provisions of the Securities Act;
(r) It is not necessary in connection with the offer, sale and
delivery of the Securities to the Purchaser, or in connection with the
initial resale of the Securities by the Purchaser in accordance with
this Agreement, to register the Securities under the Securities Act or
to qualify the Indenture under the Trust Indenture Act of 1939, as
amended (the "TIA");
(s) The Securities have been designated PORTAL eligible
securities in accordance with the rules and regulations of the National
Association of Securities Dealers, Inc.;
(t) The Company has all corporate power to enter into this
Agreement and the Registration Rights Agreement. This Agreement has
been and, as of the Time of Delivery, the Registration Rights Agreement
will have been, duly authorized, executed and delivered by the Company
and upon such execution by the Company (assuming
-5-
<PAGE> 6
the due authorization, execution and delivery of such agreements by the
other parties thereto) this Agreement and the Registration Rights
Agreement will constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with the terms
hereof or thereof, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles, and except as the enforcement of indemnification and
contribution provisions hereof and thereof may be limited by applicable
law;
(u) There are no persons with registration rights or other
similar rights to have any securities of the Company (other than the
Securities) registered under any Securities Act registration statement;
(v) None of the holders of outstanding shares of capital stock of
the Company and no other person has or will have any preemptive or
other rights to purchase, subscribe for or otherwise acquire (i) the
shares of Stock to be issued upon conversion of the Securities or any
rights to such shares or (ii) as a result of or in connection with the
transactions contemplated by the Indenture, this Agreement or the
Registration Rights Agreement, any other capital stock of the Company
or rights thereto;
(w) Each of the directors and officers of the Company listed in
Schedule I hereto has entered into a written agreement with the Company
in the form of Exhibit A hereto (each such agreement, a "Lock-up
Agreement"), and executed originals of each Lockup Agreement have been
delivered to you;
(x) The Company and its subsidiaries directly or indirectly own
free of adverse claims as to title such trademarks (and goodwill
appertaining thereto) as are necessary to conduct the business of the
Company as described in the Offering Circular; except as described in
the Offering Circular, there are no pending or threatened claims by
others that the Company or its subsidiaries is infringing or otherwise
violating any valid trademarks or trademark rights of others which
individually or in the aggregate could reasonably be expected to have a
material adverse effect on the Company and its subsidiaries taken as a
whole; and, to the best of the Company's knowledge, there are no
infringements of any of the Company's or its subsidiaries' trademarks
which individually or in the aggregate could reasonably be expected to
have a material adverse effect on the Company and its subsidiaries
taken as a whole;
(y) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes; and
(z) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants with respect to the Company and its subsidiaries as
required by the Securities Act and the rules and regulations of the
Commission thereunder.
-6-
<PAGE> 7
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase
from the Company, at a purchase price of 97.5% of the principal amount thereof,
plus accrued interest, if any, from April 15, 1996 to the Time of Delivery
hereunder, U.S.$40,000,000 principal amount of Securities.
3. The Purchaser proposes to offer the Securities for sale upon the
terms and conditions set forth in this Agreement and the Offering Circular and
the Purchaser hereby represents and warrants to, and agrees with the Company
that:
(a) It will offer and sell the Securities only to: (i) persons who
it reasonably believes are "qualified institutional buyers" ("QIBs")
within the meaning of Rule 144A under the Securities Act in
transactions meeting the requirements of Rule 144A, (ii) institutions
which it reasonably believes are "accredited investors" ("Institutional
Accredited Investors") within the meaning of Rule 501 under the
Securities Act or, (iii) upon the terms and conditions set forth in
Annex I to this Agreement;
(b) It is an Institutional Accredited Investor; and
(c) It will not offer or sell the Securities by any form of
general solicitation or general advertising, including but not limited
to the methods described in Rule 502(c) under the Securities Act.
4. (a) The Securities to be purchased will be represented (i) in the
case of Securities purchased by Goldman, Sachs & Co. (except in the case of
Securities to be acquired by Institutional Accredited Investors), by one or more
definitive global Securities in book-entry form which will be deposited by or on
behalf of the Company with The Depository Trust Company ("DTC") or its
designated custodian and (ii) in the case of Securities purchased by GSI, by one
or more definitive global Securities in book-entry form which will be deposited
by or on behalf of the Company with DTC or its designated custodian for the
benefit of Morgan Guaranty Trust Company of New York (Brussels office), as
operator of the Euroclear System, or Cedel Bank, Societe Anonyme, or both, for
credit to the account of GSI, unless otherwise directed by GSI. The Company will
deliver the Securities to Goldman, Sachs & Co., for its account, against payment
by or on behalf of the Purchaser of the purchase price therefor by certified or
official bank check or checks, or by wire transfer, payable to the order of the
Company in Federal (same day) funds, by causing DTC to credit the Securities to
the respective accounts of Goldman, Sachs & Co. and GSI, as the case may be, at
DTC. The Company will cause the certificates representing the Securities to be
made available to Goldman, Sachs & Co. for checking at least twenty-four hours
prior to the Time of Delivery (as defined below) at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be 9:30 a.m., New York City time, on April 15, 1996
or such other time and date as the Purchaser and the Company may agree upon in
writing, and is herein called the "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Purchaser pursuant to Section 7(j) hereof, will be
-7-
<PAGE> 8
delivered at the offices of Sullivan & Cromwell, 444 South Flower Street, Los
Angeles, California 90071 (the "Closing Location"), and the Securities will be
delivered at the Designated Office, all at the Time of Delivery. A meeting will
be held at the Closing Location at 1:00 p.m., Los Angeles time, on the Business
Day next preceding the Time of Delivery, at which meeting the final drafts of
the documents to be delivered pursuant to the preceding sentence will be
available for review by the parties hereto. For the purposes of this Section 4,
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City or Los
Angeles, California are generally authorized or obligated by law or executive
order to close.
5. The Company agrees with the Purchaser:
(a) To prepare the Offering Circular in a form approved by you; to make
no amendment or supplement to the Offering Circular which shall be reasonably
disapproved by you promptly after reasonable notice thereof; and to furnish you
with copies thereof;
(b) To furnish you with nine copies of the Offering Circular and each
amendment or supplement thereto signed by an authorized officer of the Company
with the independent accountants' report(s) in the Offering Circular, and any
amendment or supplement containing amendments to the financial statements
covered by such report(s), signed by the accountants, and additional copies
thereof in such quantities as you may from time to time reasonably request, and
if, at any time prior to the expiration of nine months after the date of the
Offering Circular, any event shall have occurred as a result of which the
Offering Circular as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Offering Circular is delivered, not misleading,
or, if for any other reason it shall be necessary or desirable during such same
period to amend or supplement the Offering Circular, to notify you and upon your
request to prepare and furnish without charge to you and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Offering Circular or a supplement to the Offering Circular which will
correct such statement or omission or effect such compliance;
(c) (i) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Offering Circular, not
to offer, sell, contract to sell or otherwise dispose of any Stock (other than
upon conversion of the Securities), any securities of the Company substantially
similar to the Securities or the Stock or any securities of the Company
convertible into or exchangeable or exercisable for shares of Stock or
substantially similar securities, except (a) pursuant to the Company's stock
option or purchase plans existing as of the date hereof or other options granted
by the Company to employees or (b) as consideration for acquisitions of
businesses, properties or assets, provided that (except with respect to an
aggregate of not more than 50,000 shares of Common Stock issued in consideration
of all such acquisitions) the offerees, purchasers or other transferees of any
such shares shall agree in writing to restrictions substantially identical to
those contained in this subsection; and (ii) that it will use reasonable efforts
to cause each person who has entered into a Lock-up Agreement to comply
therewith, will not grant any waivers or consents to non-compliance therewith
and will enforce its rights under each such
-8-
<PAGE> 9
agreement; in each case unless and to the extent that it shall have obtained
your prior written consent;
(d) To use its best efforts to have the shares of Stock issuable upon
conversion of the Securities accepted for quotation on the Nasdaq National
Market prior to the time the definitive Securities become available for
delivery;
(e) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the Offering
Circular under the caption "Use of Proceeds";
(f) Not to be or become, at any time prior to the expiration of three
years after the Time of Delivery, an open-end investment company, unit
investment trust, closed-end investment company or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act;
(g) At any time when the Company is not subject to Section 13 or 15(d)
of the Exchange Act, for the benefit of holders from time to time of Securities
and the Stock issuable upon conversion thereof, to furnish at its expense, upon
request, to holders of Securities and the Stock issuable upon conversion thereof
and prospective purchasers of Securities and the Stock issuable upon conversion
thereof securities information (the "Additional Issuer Information") satisfying
the requirements of subsection (d)(4)(i) of Rule 144A under the Securities Act;
(h) To use its best efforts to cause the Securities sold in reliance on
Rule 144A to be eligible for the PORTAL trading system of the National
Association of Securities Dealers, Inc.;
(i) To file with the Commission, not later than 15 days after the Time
of Delivery, five copies of a notice on Form D under the Securities Act (one of
which will be manually signed by a person duly authorized by the Company); to
otherwise comply with the requirements of Rule 503 under the Securities Act; and
to furnish promptly to you evidence of each such required timely filing
(including a copy thereof);
(j) To furnish to the holders of the Securities as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, shareholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the date of the
Offering Circular), consolidated summary financial information of the Company
and its subsidiaries for such quarter in reasonable detail;
(k) During a period of five years from the date of the Offering
Circular, to furnish to you copies of all reports or other communications
(financial or other) furnished to shareholders of the Company, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any securities exchange
on which the Securities or any class of securities of the Company is listed; and
(ii) such additional information concerning the business and financial condition
of the Company as you
-9-
<PAGE> 10
may from time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its shareholders generally
or to the Commission);
(l) During the period of three years after the Time of Delivery, the
Company will not, and will not permit any of its "affiliates" (as defined in
Rule 144 under the Securities Act) to, resell any of the Securities which
constitute "restricted securities" under Rule 144 that have been reacquired by
any of them;
(m) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the Stock issuable upon
conversion thereof for offering and sale under the securities laws of such
United States jurisdictions as you may request and to comply with such laws so
as to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of such Securities
and the Stock issuable upon conversion thereof, provided that in connection
therewith the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction;
(n) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of Stock upon conversion of the Securities; and
(o) Until such time as any Security or any Stock issuable upon
conversion thereof is registered under the Securities Act pursuant to the
Registration Rights Agreement and transferred pursuant to such registration, to
include a legend on the Securities and the Stock issuable upon the conversion
thereof to the effect set forth under "Notice to Investors".
6. The Company covenants and agrees with the Purchaser that the Company
will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants and all other expenses of the
Company in connection with the issue and listing of the Securities and the Stock
issuable upon conversion thereof, the preparation and delivery of the Securities
in temporary and definitive forms, the preparation and printing of the Offering
Circular and any amendments and supplements thereto and the mailing and
delivering of copies thereof to the Purchaser and dealers; (ii) the cost of
printing or producing this Agreement, the Indenture, the Registration Rights
Agreement, any Blue Sky and Legal Investment Memoranda, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iii) the fees and
expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of counsel for the Trustee and any such agent in connection with
the Indenture and the Securities; (iv) all fees, expenses and charges in
connection with the qualification of the Securities for trading in the PORTAL
System of the National Association of Securities Dealers, Inc., the listing of
the Stock issuable upon conversion of the Securities on the Nasdaq National
Market System and any other listing of the Securities and the Stock issuable
upon conversion thereof on any exchange or quotation service; (v) the fees and
expenses of DTC and any other depositary used in connection with the Securities
and of any transfer or conversion agent or registrar for the Securities or the
Stock issuable upon conversion of the Securities; (vi) fees, if any, charged by
securities rating services for rating the Securities;
-10-
<PAGE> 11
(vii) all expenses in connection with the qualification of the Securities and
the shares of Stock issuable upon the conversion of the Securities for offering
and sale under state securities laws as provided in Section 5(m) hereof,
including the fees and disbursements of counsel for the Purchaser in connection
with the Blue Sky and legal investment surveys; and (viii) all other costs and
expenses incident to the performance of the Company's obligations hereunder
which are not otherwise specifically provided for in this Section including any
expenses incurred in connection with complying with Section 5(g) hereof; and to
indemnify and hold harmless the Purchaser from any documentary stamp or similar
issue tax and any related interest or penalties on the issue, sale or delivery
of the Securities to the Purchaser which are or may be due. It is understood,
however, that, except as provided in this Section and Sections 8 and 10 hereof,
the Purchaser will pay all of its own costs and expenses, including the fees of
its counsel, transfer taxes on resale of any of the Securities by it, and any
advertising expenses connected with any offers it may make.
7. The obligations of the Purchaser hereunder shall be subject, in its
discretion, to the condition that all representations and warranties and other
statements of the Company herein are, at and as of the Time of Delivery, true
and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) Sullivan & Cromwell, counsel for the Purchaser, shall have
furnished to you such opinion or opinions, dated the Time of Delivery, with
respect to the incorporation of the Company, the validity of the Indenture, the
Securities, the shares of Stock issuable upon conversion of the Securities, the
Offering Circular and other related matters as you may reasonably request, and
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(b) Irell & Manella LLP, United States counsel for the Company, shall
have furnished to you their written opinion or opinions, dated the Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
California, with corporate power and authority to own its properties
and conduct its business as described in the Offering Circular;
(ii) The Company has an authorized capitalization as set forth in
the Offering Circular, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued and, to
such counsel's knowledge, are fully paid and non-assessable; the shares
of Stock initially issuable upon conversion of the Securities have been
duly and validly authorized and reserved for issuance and, when issued
and delivered in accordance with the provisions of the Securities and
the Indenture, will be duly and validly issued, fully paid and
non-assessable and will conform to the description of the Stock
contained in the Offering Circular;
-11-
<PAGE> 12
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each of the jurisdictions listed on Schedule I to such counsel's
opinion;
(iv) Each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly
authorized and issued, to such counsel's knowledge, are fully paid and
non-assessable, and are owned directly or indirectly by the Company,
free and clear of any perfected security interest (such counsel being
entitled to rely in respect of the opinion in this clause upon opinions
of local counsel and in respect of matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that such counsel
shall state that they believe that both you and they are justified in
relying upon such opinions and certificates);
(v) To such counsel's knowledge and other than as set forth in the
Offering Circular, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or
of which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate reasonably be
expected to have a material adverse effect on the current consolidated
financial position, shareholders' equity or results of operations of
the Company and its subsidiaries taken as a whole; and, to such
counsel's knowledge, no such proceedings are threatened by governmental
authorities or by others;
(vi) This Agreement, the Registration Rights Agreement and the
Indenture have each been duly authorized, executed and delivered by the
Company; the Securities have been duly authorized, executed,
authenticated, issued and delivered by the Company; and the Securities
and the Indenture conform to the descriptions thereof in the Offering
Circular;
(vii) Based on and subject to the analysis and qualifications set
forth in the Schedule attached to such opinion, in any action or
proceeding arising out of or relating to the Registration Rights
Agreement, the Securities or the Indenture (collectively, the
"Documents"), in any court of the State of California or in any federal
court sitting in California, such court should recognize and give
effect to the governing laws provisions of the Documents wherein the
parties thereto agree that the Documents shall be governed by, and
construed in accordance with, the laws of the State of New York.
However, if a court were to hold that the Documents are governed by,
and are to be construed in accordance with, the laws of the State of
California, each Document would be, under the laws of the State of
California, the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
-12-
<PAGE> 13
(viii) While general in nature, the statements set forth in the
Offering Circular under the caption "United States Taxation," insofar
as they purport to describe the provisions of the laws and documents
referred to therein, accurately describe the material tax consequences
to holders of the Securities;
(ix) The issue and sale of the Securities, the issuance of the
Stock upon conversion of the Securities and the compliance by the
Company with all of the provisions of the Securities, the Indenture,
the Registration Rights Agreement and this Agreement and the
consummation of the transactions herein and therein contemplated will
not result in any violation of the provisions of the Articles of
Incorporation or Bylaws of the Company or to such counsel's knowledge
any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties, nor will such action,
to such counsel's knowledge, conflict with or result in a breach or
violation of any of the terms or provisions of, or to such counsel's
knowledge constitute a default under, any material indenture, mortgage,
deed of trust, loan agreement or other material agreement or instrument
known to such counsel to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any of its
subsidiaries is subject;
(x) To such counsel's knowledge, no consent, approval,
authorization, order, registration or qualification of or with any
court or governmental agency or body of the United States of America or
any political subdivision thereof is required for the issue and sale of
the Securities, the issuance of the Stock upon conversion of the
Securities or the consummation of the transactions contemplated by this
Agreement, the Registration Rights Agreement or the Indenture, except
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Securities
by the Purchaser;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or By-laws or to such
counsel's knowledge in default in the performance or observance of any
obligation, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties may be
bound, the default of which would have a material adverse effect on the
Company or on the ability of any of the parties hereto to consummate
any of the transactions contemplated hereby;
(xii) The statements set forth in the Offering Circular under the
caption "Description of the Notes" and "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities, the capital stock of the Company and the documents and laws
therein described and under the captions "Notice to Investors" and
"Offer and Resale", insofar as they purport to describe the provisions
of the laws and documents referred to therein, are accurate and
complete in all material respects;
-13-
<PAGE> 14
(xiii) No registration of the Securities under the Securities Act,
and no qualification of an indenture under the TIA with respect
thereto, is required for the offer and sale by the Company and the
offer and initial resale of the Securities by the Purchaser in the
manner contemplated by this Agreement;
(xiv) The Exchange Act Reports (other than the financial statements
and related schedules therein, as to which such counsel need express no
opinion), when they were filed with the Commission, complied as to form
in all material respects with the requirements of the Exchange Act, and
the rules and regulations of the Commission thereunder; and to such
counsel's knowledge, none of such documents, when they were so filed,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such
documents were so filed, not misleading, except to the extent that any
matters covered by any such Exchange Act Report were described
differently in any subsequently filed Exchange Act Report or in the
Offering Circular (and with respect to any such matters, such counsel
may express no view);
(xv) To such counsel's knowledge neither the Offering Circular nor
any further amendments or supplements thereto made by the Company prior
to the Time of Delivery (other than the financial statements therein,
as to which such counsel need express no opinion) contained as of its
date or contains as of the Time of Delivery an untrue statement of a
material fact or omitted or omits, as the case may be, to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and
(xvi) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act.
Such counsel may state that the foregoing opinions are limited to the Federal
laws of the United States and the laws of the State of California.
(c) Owen, Wickersham & Erickson, P.C., special trademark counsel for
the Company, shall have furnished to you their written opinion, dated the Time
of Delivery, in form and substance satisfactory to you, to the effect that the
Company and its subsidiaries directly or indirectly own free of adverse claims
as to title such trademarks and servicemarks (and goodwill appertaining thereto)
as are necessary to conduct the business of the Company as described in the
Offering Circular, such counsel is not aware of any pending or threatened claim
by others that the Company or its subsidiaries is infringing or otherwise
violating any valid trademarks or servicemarks or trademark or servicemark
rights of others which could materially affect the Company and its subsidiaries;
and such counsel is not aware of any infringement of any of the Company's or its
subsidiaries' trademarks or servicemarks which could affect materially the
Company and its subsidiaries;
(d) On the date of the Offering Circular prior to the execution of this
Agreement, and also at the Time of Delivery, Deloitte & Touche LLP shall have
furnished to you a letter or letters, dated the respective date of delivery
thereof, in form and substance satisfactory to
-14-
<PAGE> 15
you, to the effect set forth in Annex II hereto and as to such other matters as
you may reasonably request;
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements of the
Company included in the Offering Circular any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Offering Circular,
and (ii) since the respective dates as of which information is given in the
Offering Circular there shall not have been any material change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any change,
or any development involving a prospective change, in or affecting the general
affairs, management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Offering Circular, the effect of which, in any such case
described in clause (i) or (ii), is in your judgment so material and adverse as
to make it impracticable or inadvisable to proceed with the offering or the
delivery of the Securities on the terms and in the manner contemplated in this
Agreement and in the Offering Circular;
(f) On or after the date hereof, (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Securities Act, and (ii) no
such organization shall have publicly announced that it has under surveillance
or review, with possible negative implications, its rating of any of the
Company's debt securities;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market; (ii) a
suspension or material limitation in trading in the Company's securities on the
Nasdaq National Market; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York or California State
authorities; (iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency or war,
if the effect of any event specified in this clause (iv) in your judgment makes
it impracticable or inadvisable to proceed with the offering or the delivery of
the Securities on the terms and in the manner contemplated in the Offering
Circular;
(h) The Securities have been designated for trading on PORTAL;
(i) Each Lock-up Agreement shall have been duly executed and delivered
to the Company and you and there shall have occurred no breach of any Lock-up
Agreement; and
(j) The Company shall have furnished or caused to be furnished to you
at the Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of the Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to the Time of
Delivery, as to the matters set forth in subsection (d) of this Section and as
to such other matters as you may reasonably request.
-15-
<PAGE> 16
8. (a) The Company will indemnify and hold harmless each Purchaser
against any losses, claims, damages or liabilities, joint or several, to which
such Purchaser may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Offering Circular, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, and will periodically reimburse each Purchaser for any legal or
other expenses reasonably incurred by such Purchaser in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Offering Circular or any such amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by any Purchaser through Goldman, Sachs & Co. expressly for use
therein.
(b) Each Purchaser will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Offering Circular, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Circular or
any such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Purchaser through Goldman, Sachs &
Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it of any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other
-16-
<PAGE> 17
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Purchaser on
the other from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Purchaser on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Purchaser on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Purchaser, in each case as set forth
in the Offering Circular. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the Purchaser
on the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Purchaser agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), no
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and distributed
to investors exceeds the amount of any damages which such Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
-17-
<PAGE> 18
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Purchaser within the meaning of the Securities Act; and the obligations of the
Purchaser under this Section 8 shall be in addition to any liability which the
Purchaser may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Securities Act.
9. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the Purchaser, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by the Purchaser
or any controlling person of the Purchaser, or the Company or any officer or
director or controlling person of the Company, and shall survive delivery of and
payment for the Securities.
10. If for any reason the Securities are not delivered by or on behalf
of the Company as provided herein, the Company will reimburse the Purchaser for
all out-of-pocket expenses, including fees, disbursements and expenses of
counsel, reasonably incurred by the Purchaser in making preparations for the
purchase, sale and delivery of the Securities, but the Company shall then be
under no further liability to the Purchaser except as provided in Sections 6 and
8 hereof.
11. All statements, requests, notices and agreements hereunder shall be
in writing, and if to the Purchaser shall be delivered or sent by mail, telex or
facsimile transmission to you at 85 Broad Street, New York, New York 10004,
Attention: Registration Department; and if to the Company shall be delivered or
sent by mail, telex or facsimile transmission to the address of the Company set
forth in the Offering Circular, Attention: Chief Financial Officer. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
12. This Agreement shall be binding upon, and inure solely to the
benefit of, the Purchaser, the Company and, to the extent provided in Sections 8
and 9 hereof, the officers and directors of the Company and each person who
controls the Company or any Purchaser, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from the Purchaser shall be deemed a successor or assign by reason
merely of such purchase.
13. Time shall be of the essence of this Agreement.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
15. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
-18-
<PAGE> 19
If the foregoing is in accordance with your understanding, please sign
and return to us four counterparts hereof, and upon the acceptance hereof by
you, this letter and such acceptance hereof shall constitute a binding agreement
between the Purchaser and the Company.
Very truly yours,
WILLIAMS-SONOMA, INC.
By:
----------------------------
Name:
Title:
Accepted as of the date hereof:
- -------------------------------
(Goldman, Sachs & Co.)
-19-
<PAGE> 1
EXECUTION COPY
Exhibit 10.10A
WILLIAMS-SONOMA, INC.
ISSUER
AND
BANKERS TRUST COMPANY
TRUSTEE
--------------------
INDENTURE
Dated as of April 15, 1996
--------------------
U.S. $40,000,000
5 1/4% CONVERTIBLE SUBORDINATED NOTES
DUE APRIL 15, 2003
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS ......................................................................... 1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 Definitions.............................................................. 1
SECTION 1.2 Compliance Certificates and Opinions;
Form of Documents Delivered to Trustee................................... 9
SECTION 1.3 Acts of Holders of Securities............................................ 10
SECTION 1.4 Notices, Etc............................................................. 12
SECTION 1.5 Notice to Holders of Securities; Waiver.................................. 13
SECTION 1.6 Effect of Headings and Table of Contents................................. 13
SECTION 1.7 Successors and Assigns................................................... 13
SECTION 1.8 Separability Clause...................................................... 13
SECTION 1.9 Benefits of Indenture.................................................... 13
SECTION 1.10 Governing Law............................................................ 14
SECTION 1.11 Legal Holidays........................................................... 14
SECTION 1.12 Conflict with Trust Indenture Act........................................ 14
ARTICLE II
SECURITY FORMS
SECTION 2.1 Forms Generally.......................................................... 14
SECTION 2.2 Form of Face of Security................................................. 16
SECTION 2.3 Form of Reverse of Security.............................................. 20
SECTION 2.4 Form of Trustee's Certificate of Authentication.......................... 26
ARTICLE III
THE SECURITIES
SECTION 3.1 Title and Terms.......................................................... 26
SECTION 3.2 Denominations............................................................ 27
SECTION 3.3 Execution, Authentication, Delivery and Dating........................... 27
SECTION 3.4 Temporary Securities..................................................... 28
SECTION 3.5 Registration, Registration of Transfer
and Exchange; Restrictions on Transfer................................... 28
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities.......................... 33
SECTION 3.7 Payment of Interest, Interest Rights Preserved........................... 33
SECTION 3.8 Persons Deemed Owners.................................................... 35
SECTION 3.9 Cancellation............................................................. 35
SECTION 3.10 Computation of Interest.................................................. 35
SECTION 3.11 CUSIP Numbers............................................................ 35
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture.................................. 36
SECTION 4.2 Application of Trust Money............................................... 37
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default........................................................ 37
SECTION 5.2 Acceleration of Maturity; Rescission
and Annulment............................................................ 38
SECTION 5.3 Collection of Indebtedness and Suits
for Enforcement by Trustee............................................... 39
SECTION 5.4 Trustee May File Proofs of Claim......................................... 40
SECTION 5.5 Trustee May Enforce Claims Without
Possession of Securities................................................. 41
SECTION 5.6 Application of Money Collected........................................... 41
SECTION 5.7 Limitation on Suits...................................................... 41
SECTION 5.8 Unconditional Right of Holders to Receive
Principal and Interest and to Convert.................................... 42
SECTION 5.9 Restoration of Rights and Remedies....................................... 42
SECTION 5.10 Rights and Remedies Cumulative........................................... 43
SECTION 5.11 Delay or Omission Not Waiver............................................. 43
SECTION 5.12 Control by Holders of Securities......................................... 43
SECTION 5.13 Waiver of Past Defaults.................................................. 43
SECTION 5.14 Undertaking for Costs.................................................... 44
SECTION 5.15 Waiver of Stay or Extension Laws......................................... 44
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI
THE TRUSTEE
SECTION 6.1 Certain Duties and Responsibilities...................................... 44
SECTION 6.2 Notice of Defaults....................................................... 45
SECTION 6.3 Certain Rights of Trustee................................................ 46
SECTION 6.4 Not Responsible for Recitals or
Issuance of Securities................................................... 47
SECTION 6.5 May Hold Securities, Act as Trustee Under
Other Indentures......................................................... 47
SECTION 6.6 Money Held in Trust...................................................... 47
SECTION 6.7 Compensation and Indemnification of
Trustee and Its Prior Claims............................................. 47
SECTION 6.8 Corporate Trustee Required; Eligibility.................................. 48
SECTION 6.9 Resignation and Removal; Appointment of Successor........................ 48
SECTION 6.10 Acceptance of Appointment by Successor................................... 49
SECTION 6.11 Appointment of Co-Trustee or Separate Trustee............................ 50
SECTION 6.12 Merger, Conversion, Consolidation or Succession to
Business................................................................. 51
SECTION 6.13 Authenticating Agent..................................................... 51
SECTION 6.14 Disqualification; Conflicting Interests.................................. 52
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1 Company to Furnish Trustee Names and
Addresses of Holders..................................................... 52
SECTION 7.2 Preservation of Information; Communications
to Holders............................................................... 53
SECTION 7.3 Reports by the Company................................................... 53
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1 Company May Consolidate, Etc., Only on
Certain Terms............................................................ 53
SECTION 8.2 Successor Substituted.................................................... 54
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent
of Holders of Securities................................................. 54
SECTION 9.2 Supplemental Indentures with Consent of
Holders of Securities.................................................... 55
SECTION 9.3 Trustee Protected........................................................ 56
SECTION 9.4 Execution of Supplemental Indentures..................................... 56
SECTION 9.5 Effect of Supplemental Indentures........................................ 57
SECTION 9.6 Reference in Securities to Supplemental Indentures....................... 57
SECTION 9.7 Notice of Supplemental Indentures........................................ 57
ARTICLE X
MEETINGS OF HOLDERS OF SECURITIES
SECTION 10.1 Purposes for Which Meetings May Be Called................................ 57
SECTION 10.2 Call, Notice and Place of Meetings....................................... 57
SECTION 10.3 Persons Entitled to Vote at Meetings..................................... 58
SECTION 10.4 Quorum; Action........................................................... 58
SECTION 10.5 Determination of Voting Rights; Conduct
and Adjournment of Meetings.............................................. 59
SECTION 10.6 Counting Votes and Recording Action of Meetings.......................... 59
ARTICLE XI
COVENANTS
SECTION 11.1 Payment of Principal and Interest........................................ 60
SECTION 11.2 Maintenance of Offices or Agencies....................................... 60
SECTION 11.3 Money for Security Payments To Be Held in Trust.......................... 61
SECTION 11.4 Corporate Existence...................................................... 62
SECTION 11.5 Maintenance of Properties................................................ 62
SECTION 11.6 Compliance with Laws..................................................... 62
SECTION 11.7 Payment of Taxes and Other Claims........................................ 63
SECTION 11.8 Delivery of Certain Information.......................................... 63
SECTION 11.9 Statement by Officers as to Default...................................... 63
SECTION 11.10 Resale of Certain Securities............................................. 64
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 11.11 Waiver of Certain Covenants.............................................. 64
SECTION 11.12 Registration Rights...................................................... 64
SECTION 11.13 Book-Entry System........................................................ 65
ARTICLE XII
REDEMPTION OF SECURITIES
SECTION 12.1 Right of Redemption...................................................... 65
SECTION 12.2 Applicability of Article................................................. 65
SECTION 12.3 Election to Redeem; Notice to Trustee.................................... 66
SECTION 12.4 Notice of Redemption..................................................... 66
SECTION 12.5 Deposit of Redemption Price.............................................. 66
SECTION 12.6 Securities Payable on Redemption Date.................................... 67
ARTICLE XIII
CONVERSION OF SECURITIES
SECTION 13.1 Conversion Privilege and Conversion Rate................................. 67
SECTION 13.2 Exercise of Conversion Privilege......................................... 68
SECTION 13.3 Fractions of Common Shares............................................... 69
SECTION 13.4 Adjustment of Conversion Rate............................................ 69
SECTION 13.5 Notice of Adjustments of Conversion Rate................................. 73
SECTION 13.6 Notice of Certain Corporate Action....................................... 73
SECTION 13.7 Company to Reserve Common Shares......................................... 74
SECTION 13.8 Taxes on Conversions..................................................... 74
SECTION 13.9 Covenant as to Common Shares............................................. 75
SECTION 13.10 Cancellation of Converted Securities..................................... 75
SECTION 13.11 Provision in Case of Consolidation,
Merger or Conveyance of Assets........................................... 75
SECTION 13.12 Responsibility of Trustee for Conversion Provisions...................... 76
ARTICLE XIV
SUBORDINATION
SECTION 14.1 Securities Subordinate to Senior Debt.................................... 76
SECTION 14.2 Payment Over of Proceeds Upon Dissolution, Etc........................... 76
SECTION 14.3 No Payment When Senior Debt in Default................................... 78
SECTION 14.4 Payment Permitted If No Default.......................................... 78
SECTION 14.5 Subrogation to Rights of Holders of Senior Debt.......................... 78
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
v
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 14.6 Provisions Solely to Define Relative Rights.............................. 79
SECTION 14.7 Trustee to Effectuate Subordination...................................... 79
SECTION 14.8 No Waiver of Subordination Provisions.................................... 79
SECTION 14.9 Notice to Trustee........................................................ 80
SECTION 14.10 Reliance on Judicial Order or Certificate
of Liquidating Agent..................................................... 80
SECTION 14.11 Trustee Not Fiduciary for Holders of Senior Debt......................... 81
SECTION 14.12 Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights......................................... 81
SECTION 14.13 Article Applicable to Paying Agents...................................... 81
SECTION 14.14 Subsidiaries............................................................. 81
SECTION 14.15 Rescission............................................................... 81
SECTION 14.16 Payment.................................................................. 81
ARTICLE XV
REPURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDER UPON A CHANGE IN CONTROL
SECTION 15.1 Right to Require Repurchase.............................................. 82
SECTION 15.2 Notices; Method of Exercising Repurchase Right, Etc...................... 82
SECTION 15.3 Certain Definitions...................................................... 85
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
vi
<PAGE> 8
INDENTURE, dated as of April 15, 1996, between WILLIAMS-SONOMA, INC., a
California corporation (herein called the "Company"), and BANKERS TRUST COMPANY,
a New York banking corporation, as Trustee hereunder (herein called the
"Trustee").
RECITALS
The Company has duly authorized the creation of an issue of its 5 1/4%
Convertible Subordinated Notes due April 15, 2003 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company in accordance with their and its terms, have been
done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) Unless the context otherwise requires, any reference to an
"Article" or a "Section," or to an "Annex," refers to an Article or
Section of, or an Annex attached to, this Indenture, as the case may
be;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles in the United States prevailing at the time of
any relevant computation hereunder; and
(4) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision; provided, however
that where such words are used in any form of Security, form of notice
or form of certificate, such words shall refer only to the
<PAGE> 9
particular form of Security, form of notice or form of certificate, as
the case may be, in which such words are contained.
"Act," when used with respect to any Holder of a Security, has the
meaning specified in Section 1.3.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Members" has the meaning specified in Section 3.5.
"Applicable Procedures" has the meaning specified in Section 3.5.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.13 to act on behalf of the Trustee to authenticate
Securities.
"Authorized Newspaper" means a newspaper, in an official language of
the country of publication or in the English language, customarily published on
each Business Day, whether or not published on Saturdays, Sundays or holidays,
and of general circulation in the place in connection with which the term is
used or in the financial community of such place. Where successive publications
are required to be made in Authorized Newspapers, the successive publications
may be made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any Business Day.
"Board of Directors," when used with reference to the Company, means
the board of directors of the Company, or any committee of the board of
directors of the Company, empowered to act for the Company, as the case may be,
with respect to this Indenture.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant Secretary
of the Company, as the case may be, to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
shall have been delivered to the Trustee.
"Business Day" means, with respect to any particular place of payment,
place of conversion or any other place, as the case may be, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any such day on which
banking institutions in The City of New York, New York or in such particular
place are authorized or obligated by law or executive order to close. If any day
on which any delivery, request, surrender, payment or other action is required
or permitted hereunder to be taken by or on behalf of a Holder is not a Business
Day in any place where such action is permitted hereunder to be taken, then such
actions may be taken at such or any other permitted place on the next succeeding
Business Day at such place with the same force and effect as if taken at the
same time on such day that is not a business day at such place.
"CEDEL" means Cedel Bank Societe Anonyme.
-2-
<PAGE> 10
"Change in Control" has the meaning specified in Section 15.3.
"Closing Price Per Share" means, with respect to the Common Shares of
the Company, for any day, the reported last sales price regular way per share on
such day or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in either case (i) on
the principal (as determined by the Company's Board of Directors) national
securities exchange on which the Common Shares are listed or admitted to trading
or (ii) if not listed or admitted to trading on any national securities
exchange, on the Nasdaq National Market or (iii) if the Common Shares are not
listed or admitted to trading on any national securities exchange or quoted on
such National Market, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Commission" means the U.S. Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under applicable law, then
the body performing such duties at such time.
"Common Shares" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company and which is not subject to redemption by the Company. However, subject
to the provisions of Section 13.12, shares issuable on conversion of Securities
shall include only shares of the class designated as Common Shares of the
Company at the date of this instrument or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which are not subject to redemption by the Company; provided, however, that
if at any time there shall be more than one such resulting class, the shares of
each such class then so issuable shall be substantially in the proportion which
the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Chief Executive Officer, its President, or any Vice President, and by any one of
its Chief Financial Officer, Treasurer, any Assistant Treasurer, its Secretary
or any Assistant Secretary, and delivered to the Trustee.
"Constituent Person" has the meaning specified in Section 13.11.
"Conversion Agent" means any Person authorized by the Company to
convert Securities in accordance with Article XIII.
-3-
<PAGE> 11
"Conversion Price" and "Conversion Rate" have the meanings specified in
Section 13.1 hereof, as adjusted in accordance with Section 13.4.
"Conversion Securities" means the securities delivered on conversion of
Securities (or any securities successor thereto), together with any securities
successor thereto to those so delivered on conversions.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered (which at the date of this Indenture is located at 4 Albany Street,
New York, New York 10006), Attention: Corporate Market Services.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depository" means, with respect to the Securities issued in whole or
in part in the form of one or more Global Securities, the clearing agency
registered under the Exchange Act, specified for that purpose as contemplated by
Section 2.1 or any successor clearing agency registered under the Exchange Act
as contemplated by Section 2.1.
"Dollar" or "U.S.$" means a dollar or other equivalent unit in such
coin or currency of the United States as at the time shall be legal tender for
the payment of public and private debts.
"DTC" means The Depository Trust Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, including any successor or amendatory statutes.
"Euroclear" means the Euroclear System.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the U.S. Securities Exchange Act of 1934
(including any successor act thereto), as it may be amended from time to time,
and (unless the context otherwise requires) includes the rules and regulations
of the Commission promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.3(g).
"Global Security" means any of the Restricted Global Security and the
Regulation S Global Security.
"Holder" means, with respect to any Security, a Person in whose name
such Security is registered in the Security Register.
"IAI Letter" has the meaning specified in Section 2.1.
-4-
<PAGE> 12
"Indebtedness" means obligations (other than nonrecourse obligations)
of, or guaranteed or assumed by, the Company for borrowed money, including
obligations evidenced by bonds, debentures, notes or other similar instruments
and reimbursement and cash collateralization of letters of credit, bankers'
acceptances, interest rate hedge and currency hedge agreements.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
including, for all purposes of this instrument and any such supplemental
indenture, the Annexes attached to this instrument.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Liquidated Damages" has the meaning specified in Section 11.12.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, exercise of the repurchase right set forth in
Article XV or otherwise.
"Non-Conversion Period" has the meaning specified in Section 2.3.
"Non-Electing Share" has the meaning specified in Section 13.11.
"Officer," when used with reference to the Company, means the Chairman
of the Board, the Chief Executive Officer, the President, the Chief Financial
Officer, the Treasurer, the Controller, an Assistant Treasurer, an Assistant
Controller, the Secretary, an Assistant Secretary or any Vice President of the
Company.
"Officers' Certificate," when used with reference to the Company, means
a written certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, the Chief Financial Officer or any Vice
President of the Company and by any one of the Treasurer, the Controller, an
Assistant Treasurer, an Assistant Controller, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee; provided, however, that,
for purposes of Section 11.9, an "Officers' Certificate" means a written
certificate signed by the principal executive, financial or accounting officer
of the Company and any one of the other Officers referred to above and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of independent counsel
selected by the Company, which counsel shall be reasonably acceptable to the
Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
-5-
<PAGE> 13
(ii) Securities for the payment or redemption of which money
in the necessary amount has been theretofore deposited with the Trustee
or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities, provided that if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 3.6
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities are present at a meeting of Holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in conclusively relying upon any such determination as to the presence of a
quorum or upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, company, partnership, joint
venture, association, joint-stock company, trust, estate, unincorporated
organization or other legal entity or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Qualified Institutional Buyer" has the meaning specified in Rule 144A.
"Record Date" means any Regular Record Date or Special Record Date.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
-6-
<PAGE> 14
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" has the meaning specified in Section
11.12.
"Regular Record Date" for interest payable in respect of any Security
on any Interest Payment Date means the April 1 or October 1 (whether or not a
Business Day) next preceding the relevant Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act (including
any successor regulation thereto), as it may be amended from time to time.
"Regulation S Global Security" has the meaning specified in Section
2.1.
"Repurchase Date" has the meaning specified in Section 15.1.
"Repurchase Price" has the meaning specified in Section 15.1.
"Responsible Officer," when used with respect to the Trustee, shall
mean any officer of the Trustee within the Corporate Trust Office including any
Vice President, Managing Director, Assistant Vice President, Secretary,
Assistant Secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge and familiarity with the
particular subject.
"Restricted Global Security" has the meaning specified in Section 2.1.
"Restricted Period" has the meaning specified in Section 2.1.
"Restricted Securities" has the meaning specified in Section 2.1.
"Rule 144" means Rule 144 under the Securities Act (including any
successor rule thereto), as the same may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (including any
successor rule thereto), as the same may be amended from time to time.
"Rule 144A Information" has the meaning specified in Section 11.8.
"Securities" has the meaning ascribed to it in the first paragraph
under the caption "Recitals."
"Securities Act" means the Securities Act of 1933 (including any
successor act thereto), as it may be amended from time to time, and (unless the
context otherwise requires) includes the rules and regulations of the Commission
promulgated thereunder.
"Securities Payment" has the meaning specified in Section 14.2.
-7-
<PAGE> 15
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5.
"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 Securities; 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.
"Shelf Registration Statement" has the meaning specified in Section
11.12.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trading Days" means (i) if the Common Shares are listed or admitted
for trading on any national securities exchange, days on which such national
securities exchange is open for business or (ii) if the Common Shares are not
listed or admitted for trading on any national securities exchange, days on
which trades may be made on the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices on which the Common
Shares are quoted or (iii) if the Common Shares are not listed or admitted to
trading on any national securities exchange or quoted on such National Market or
similar system, days on which
-8-
<PAGE> 16
the Common Shares are traded regular way in the over-the-counter market and for
which a closing bid and a closing asked price for the Common Shares are
available.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the United States Trust Indenture Act of
1939 (including any successor act thereto), as it may be amended from time to
time, and (unless the context otherwise requires) includes the rules and
regulations of the Commission thereunder.
"U.S. Depository" means DTC until a successor U.S. Depository shall
have become such pursuant to the applicable provisions of this Indenture, and
thereafter "U.S. Depository" shall mean such successor U.S. Depository.
"United States person" means a citizen or resident of the United
States, a domestic partnership, a domestic corporation or any estate or trust
the income of which is subject to United States federal income taxation
regardless of its source.
"Unrestricted Securities" has the meaning specified in Section 2.1.
"Vice President," when used with respect to the Company, means any Vice
President, whether or not designated by a number or a word or words added before
or after the title "Vice President."
"Western Europe" means Austria, Belgium, Denmark, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom.
SECTION 1.2 Compliance Certificates and Opinions;
Form of Documents Delivered to Trustee.
(a) Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
-9-
<PAGE> 17
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
(b) In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Officer or Officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.3 Acts of Holders of Securities.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Indenture to be given or
taken by Holders of Securities may be embodied in and evidenced by (1) one or
more instruments of substantially similar tenor signed by such Holders in person
or by agent or proxy duly appointed in writing, (2) the record of Holders of
Securities voting in favor thereof, either in person or by proxies duly
appointed in writing, at any meeting of Holders of Securities duly called and
held in accordance with the provisions of Article X or (3) a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and record (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders of Securities signing such instrument or instruments and so
voting at such meeting. Proof of execution of any such instrument or of a
writing appointing any such agent or proxy, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and
-10-
<PAGE> 18
(subject to Section 6.1) conclusive in favor of the Trustee and the Company if
made in the manner provided in this Section. The record of any meeting of
Holders of Securities shall be proved in the manner provided in Section 10.6.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgements of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority.
(c) The ownership of Securities shall be proven by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next paragraph. If any record date is set pursuant to this paragraph, the
Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the Company
from setting a new record date for any action for which a record date has
previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be canceled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Company, at its own expense,
shall cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Trustee in writing and to each
Holder of Securities in the manner set forth in Section 1.5.
(f) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration
referred to in Section 5.2, (iii) any request to institute proceedings referred
to in Section 5.7(2) or (iv) any direction referred to in Section 5.12. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
-11-
<PAGE> 19
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new record date for any action (whereupon the record date
previously set shall automatically and without any action by any Person be
canceled and of no effect), nor shall anything in this paragraph be construed to
render ineffective any action taken by Holders of the requisite principal amount
of Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Trustee, at the Company's
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Company in writing and to
each Holder of Securities in the manner set forth in Section 1.5.
(g) With respect to any record date set pursuant to this Section, the
party hereto that sets such record date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities in the manner set forth in Section 1.5, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this Section, the party hereto that
set such record date shall be deemed to have initially designated the 180th day
after such record date as the Expiration Date with respect thereto, subject to
its right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 1.4 Notices, Etc.
Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of Holders of Securities or other document
provided or permitted by this Indenture to be made upon, given or furnished to,
or filed with,
(1) the Trustee by any Holder of Securities or by the Company
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee and received at
its Corporate Trust Office, Attention: Corporate Market Services, or
(2) the Company by the Trustee or by any Holder of Securities
shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing, mailed, first-class postage
prepaid, or telexed or telecopied and confirmed by mail, first-class
postage prepaid, or delivered by hand or overnight courier, addressed
to the Company at 3250 Van Ness Avenue, San Francisco, California
94109, telephone no.: (415) 421-7900; telecopy no.: (415) 616-8359,
Attention: Chief Financial Officer, or at any other address previously
furnished in writing to the Trustee by the Company.
Except for a notice to the Trustee, which is deemed given only when
received, if a notice or communication is mailed in the manner provided above,
it is duly given, whether or not the addressee receives it.
-12-
<PAGE> 20
Any request, demand, authorization, direction, notice, consent,
election or waiver required or permitted under this Indenture shall be in the
English language, except that any published notice may be in an official
language of the country of publication.
SECTION 1.5 Notice to Holders of Securities; Waiver.
Except as otherwise provided herein, where this Indenture provides for
notice to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his registered
address as recorded in the Security Register. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Holder entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 1.6 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.7 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its respective successors and assigns, whether so expressed or not.
SECTION 1.8 Separability Clause.
In case any provision in this Indenture or the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.9 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors and
assigns hereunder, the holders of Senior Debt of the Company and the Holders of
Securities and, solely with respect to this Article I and Sections 11.8, 13.8,
and 13.9, the holders of Conversion Securities, any benefit or legal or
equitable right, remedy or claim under this Indenture.
This Article I and Sections 11.8, 13.8 and 13.9 shall not be amended or
modified, and neither compliance by the Company with, nor any default by it
under, such Article or any such
-13-
<PAGE> 21
Sections, shall be waived, in any manner that adversely affects the interest of
any holder of a Conversion Security at the time outstanding without such
Holder's consent.
SECTION 1.10 Governing Law.
THIS 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.
SECTION 1.11 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Repurchase Date or Stated Maturity of any Security or the last day on which a
Holder of a Security has a right to convert his Security shall not be a Business
Day, then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal or delivery for conversion of such
Security need not be made on or by such day, but may be made on or by the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date, Repurchase Date, or at the Stated
Maturity or by such last day for conversion, as the case may be; provided,
however, that in the case that payment is made on such succeeding Business Day,
no interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or
last day for conversion, as the case may be.
SECTION 1.12 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture (or would be required to be a part of and govern this
Indenture if this Indenture were required to be qualified under the Trust
Indenture Act), the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
ARTICLE II
SECURITY FORMS
SECTION 2.1 Forms Generally.
The Securities shall be in substantially the forms set forth in this
Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or Depository thereof, the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations thereunder, or as may, consistently
herewith, be determined by the Officers executing such Securities, as evidenced
by their execution thereof. The Company shall approve the form of the Securities
and any notation, legend or endorsement on the Securities.
-14-
<PAGE> 22
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Securities may be listed, all as determined by the Officers
executing such Securities as evidenced by their execution thereof.
In certain cases described elsewhere herein, the legends set forth in
the first four paragraphs of Section 2.2 may be omitted from Securities issued
hereunder.
Securities offered and sold in their initial distribution in reliance
on Regulation S shall be initially represented by one or more Regulation S
Global Notes issued in fully registered form without interest coupons,
substantially in the form of Security set forth in Sections 2.2 and 2.3, with
such applicable legends as are provided for in Section 2.2. Such Regulation S
Global Security shall be registered in the name of the U.S. Depository or its
nominee and deposited with the Trustee, at its New York office, as custodian for
the U.S. Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided, for credit to the respective accounts at the
U.S. Depository of the depositories for Morgan Guaranty Trust Company of New
York, Brussels office, as operator of Euroclear, or CEDEL. Until such time as
the Restricted Period shall have terminated, investors may hold beneficial
interests in such global Notes only through Euroclear and CEDEL, unless delivery
of such beneficial interest shall be made through the Restricted Global Note in
accordance with the certification requirements discussed below in Section
3.5(b)(3). After such time as the Restricted Period shall have terminated, such
certification requirements shall no longer be required for such transfers. As
used herein, the term "Restricted Period" means the period up to (but not
including) the 40th day following the later of (i) the day that Goldman, Sachs &
Co., as initial purchaser of the Securities, advises the Company and the Trustee
of the day on which the Securities are first offered to persons other than
distributors (as defined in Regulation S) in reliance on Regulation S and (ii)
April 15, 1996. The Regulation S Global Security following the Restricted Period
and all other Securities that are not Restricted Securities shall collectively
be referred to herein as the "Unrestricted Securities."
Securities offered and sold in their initial distribution in reliance
on Rule 144A shall be issued in the form of one or more Global Securities
(collectively, the "Restricted Global Security") in fully registered form
without interest coupons, substantially in the form of Security set forth in
Sections 2.2 and 2.3, with such applicable legends as are provided for in
Section 2.2, except as otherwise permitted herein. Such Global Security shall be
registered in the name of the U.S. Depository or its nominee and deposited with
the Trustee, at its New York office, as custodian for the U.S. Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Restricted Global Security may
be increased or decreased from time to time by adjustments made on the records
of the Trustee, as custodian for the U.S. Depository, in connection with a
corresponding decrease or increase in the aggregate principal amount of the
Regulation S Global Security, as hereinafter provided. The Restricted Global
Security and all other Securities evidencing the debt, or any portion of the
debt, initially evidenced by such Global Security, other than Securities
transferred or exchanged upon certification as provided in Section 3.5(b)(2) or
(4), shall collectively be referred to herein as the "Restricted Securities."
The Securities will be issued only in registered form. The Securities
will be issued in minimum denominations of $1,000, as provided in Section 3.2,
except that Securities offered other than in reliance on Regulation S or to
Qualified Institutional Buyers will be issued only in definitive certificated
form and will be issued initially in minimum denominations of $250,000
-15-
<PAGE> 23
and integral multiples of $1,000 in excess thereof. Such Securities (i.e.,
Securities sold to Institutional Accredited Investors) will also be considered
to be Restricted Securities hereunder, and will be subject to restrictions on
transfer in accordance with a form of Letter for Institutional Accredited
Investors (the "IAI Letter"), that such investors will be required to sign, the
form of which is attached hereto as Annex D.
SECTION 2.2 Form of Face of Security.
[INCLUDE IF SECURITY IS A REGULATION S GLOBAL SECURITY -- 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.]
[INCLUDE IF SECURITY IS A RESTRICTED SECURITY -- 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.
-16-
<PAGE> 24
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.]
[INCLUDE IF SECURITY IS A GLOBAL SECURITY -- 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.]
[INCLUDE IF SECURITY IS A GLOBAL SECURITY AND THE DEPOSITORY TRUST
COMPANY IS THE U.S. DEPOSITORY -- 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.]
-17-
<PAGE> 25
WILLIAMS-SONOMA, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTES
DUE APRIL 15, 2003
No. _________ U.S.$
CUSIP No.: ___________________
Common Code: _________________
ISIN: ________________________
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
_______________, or registered assigns, the principal sum of _____________ 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] [Regulation
S] Global Security,] -- [omit from Non-Global Securities] 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
-18-
<PAGE> 26
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.
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:
-19-
<PAGE> 27
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
SECTION 2.3 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.
-20-
<PAGE> 28
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 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
-21-
<PAGE> 29
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.
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
-22-
<PAGE> 30
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.
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
-23-
<PAGE> 31
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.
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
-24-
<PAGE> 32
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 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.
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:
------
-25-
<PAGE> 33
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.
SECTION 2.4 Form of 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
ARTICLE III
THE SECURITIES
SECTION 3.1 Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to U.S.$40,000,000, except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Sections 3.4, 3.5,
3.6, 9.5, or 13.2.
The Securities shall be known and designated as the "5 1/4% Convertible
Subordinated Notes due April 15, 2003" of the Company. Their Stated Maturity
shall be April 15, 2003 and they shall bear interest at the rate of 5 1/4% per
annum from April 15, 1996 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable
semi-annually in arrears on April 15 and October 15 of each year, commencing
October 15, 1996, and at Maturity, until the principal thereof 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 principal of and interest on the Securities shall be payable 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 Corporate Trust Office of the Trustee 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 applicable thereto, at any other office
of the Trustee or any Paying Agent outside The City of New York; provided,
however, that upon application (including wire payment instructions) by the
Holder to the Trustee not later than 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,
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
-26-
<PAGE> 34
as such address shall appear in the Security Register. Unless such designation
is revoked, any such designation made by such Holder with respect to such
Security will remain in effect with respect to any future payments with respect
to such Security payable to such Holder. The Company will pay any administrative
costs imposed by banks in connection with making such payments, upon application
by the relevant Holder. Notwithstanding the second sentence of this paragraph,
each payment of principal and interest in respect of a Global Security will be
made in accordance with the procedures of the U.S. Depository as then in effect.
The Securities shall be redeemable at the Company's option, in whole or
in part, under the circumstances and at the Redemption Prices specified in the
form of Securities set forth in Sections 2.2 and 2.3.
The Securities shall be convertible as provided in Article XIII.
The Securities shall be subordinated in right of payment to Senior Debt
of the Company as provided in Article XIV.
The Securities shall be subject to repurchase by the Company at the
option of the Holders as provided in Article XV.
SECTION 3.2 Denominations.
The Securities shall be issuable only in registered form without
coupons and, except as provided in Section 2.1, only in denominations of $1,000
and any integral multiple of $1,000 in excess thereof.
SECTION 3.3 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by any one of
its Chairman of the Board, its Chief Executive Officer, its President, or any
one of its Vice Presidents, under a facsimile of its corporate seal reproduced
thereon attested by its Secretary or one of its Assistant Secretaries. Any such
signature may be manual or facsimile.
Securities bearing the manual or facsimile signature of individuals who
were at any time the proper Officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as in this Indenture provided and not otherwise. In connection with
any Company Order for authentication, a compliance certificate and Opinion of
Counsel pursuant to Section 1.2 shall not be required.
Each Security shall be dated the date of its authentication.
-27-
<PAGE> 35
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or the Authenticating Agent by manual signature of an
authorized signatory, and such certificate upon such Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder.
SECTION 3.4 Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the Officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 11.2, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 3.5 Registration, Registration of Transfer and Exchange; Restrictions on
Transfer.
(a) The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 11.2 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided. Upon surrender for registration of
transfer of any Security at an office or agency of the Company designated
pursuant to Section 11.2 for such purpose, and subject to the other provisions
of this Section 3.5, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denominations and of a like aggregate principal amount.
At the option of the Holder, and subject to the other provisions of
this Section 3.5, Securities may be exchanged for other Securities of any
authorized denominations and of a like aggregate principal amount, upon
surrender of the Securities to be exchanged at such office or agency. Whenever
any Securities are so surrendered for exchange, and subject to the other
provisions of this Section 3.5, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, the Securities which the Holder
making the exchange is entitled to receive.
-28-
<PAGE> 36
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and subject to the other provisions of this Section 3.5, entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 3.4, 13.2 or 15.2(f) not involving any transfer
and subject to Section 13.9.
(b) Notwithstanding any other provisions of this Indenture or the
Securities (but subject to Section 2.1), transfers of a Global Security, in
whole or in part, transfers and exchanges of interests therein of the kinds
described in clauses (2), (3), (4) and (5) below and exchanges of interests in
Global Securities, and transfers or exchanges of other Securities as described
in clause (6) below, shall be made only in accordance with this Section 3.5(b).
Transfers and exchanges subject to this Section 3.5 shall also be subject to the
other provisions of this Indenture that are not inconsistent with this Section
3.5.
(1) Limitation on Transfers of a Global Security. A Global
Security may not be transferred, in whole or in part, to any Person
other than the U.S. Depository or a nominee thereof, and no such
transfer to any such other Person may be registered; provided that this
clause (1) shall not prohibit any transfer of a Security that is issued
in exchange for a Global Security but is not itself a Global Security.
No transfer of a Security to any Person shall be effective under this
Indenture or the Securities unless and until such Security has been
registered in the name of such Person. Nothing in this Section
3.5(b)(1) shall prohibit or render ineffective any transfer of a
beneficial interest in a Global Security effected in accordance with
the other provisions of this Section 3.5(b).
(2) Restricted Global Security to Regulation S Global
Security. If the holder of a beneficial interest in the Restricted
Global Security wishes at any time to transfer such interest to a
Person who wishes to take delivery thereof in the form of a beneficial
interest in the Regulation S Global Security, such transfer may be
effected, subject to the rules and procedures of the U.S. Depository,
Euroclear and CEDEL, in each case to the extent applicable (the
"Applicable Procedures"), only in accordance with this Section
3.5(b)(2). Upon receipt by the Trustee, as Security Registrar, at its
office in The City of New York of (A) written instructions given in
accordance with the Applicable Procedures from an Agent Member
directing the Trustee to credit or cause to be credited to a specified
Agent Member's account a beneficial interest in the Regulation S Global
Security in a principal amount equal to that of the beneficial interest
in the Restricted Global Security to be so transferred, (B) a written
order given in accordance with the Applicable Procedures containing
information regarding the account of the Agent Member (and, if
applicable, the Euroclear or CEDEL account, as the case may be) to be
-29-
<PAGE> 37
credited with, and the account of the Agent Member to be debited for,
such beneficial interest and (C) a certificate in substantially the
form set forth in Annex B given by the holder of such beneficial
interest, the Trustee, as Security Registrar, shall instruct the U.S.
Depository to reduce the principal amount of the Restricted Global
Security, and to increase the principal amount of the Regulation S
Global Security, by the principal amount of the beneficial interest in
the Restricted Global Security to be so transferred, and to credit or
cause to be credited to the account of the Person specified in such
instructions (which during the Restricted Period shall be the Agent
Member for Euroclear or CEDEL or both, as the case may be) a beneficial
interest in the Regulation S Global Security having a principal amount
equal to the amount by which the principal amount of the Restricted
Global Security was reduced upon such transfer.
(3) Regulation S Global Security to Restricted Global
Security. If during the Restricted Period the holder of a beneficial
interest in the Regulation S Global Security wishes to transfer such
interest to a Person who wishes to take delivery thereof in the form of
a beneficial interest in the Restricted Global Security, such transfer
may be effected, subject to the Applicable Procedures, only in
accordance with this Section 3.5(b)(3). Upon receipt by the Trustee, as
Security Registrar, at its office in The City of New York of (A)
written instructions given in accordance with the Applicable Procedures
from an Agent Member directing the Trustee to credit or cause to be
credited to a specified Agent Member's account a beneficial interest in
the Restricted Global Security in a principal amount equal to that of
the beneficial interest in the Regulation S Global Security to be so
transferred, (B) a written order given in accordance with the
Applicable Procedures containing information regarding the account of
the Agent Member to be credited with, and the account of the Agent
Member (and, if applicable, the Euroclear or CEDEL account, as the case
may be) to be debited for, such beneficial interest and (C) a
certificate in substantially the form set forth in Annex C given by the
holder of such beneficial interest, the Trustee, as Security Registrar,
shall instruct the U.S. Depository to reduce the principal amount of
the Regulation S Global Security and to increase the principal amount
of the Restricted Global Security, by the principal amount of the
beneficial interest in the Regulation S Global Security to be so
transferred, and to credit or cause to be credited to the account of
the Person specified in such instructions a beneficial interest in the
Restricted Global Security having a principal amount equal to the
amount by which the principal amount of the Regulation S Global
Security, as the case may be, was reduced upon such transfer.
(4) Exchanges. In the event that a Restricted Global Security
or any portion thereof is exchanged for a Regulation S Global Security
or Securities other than Global Securities, such other Securities may
in turn be exchanged (on transfer or otherwise) for Securities that are
not Global Securities or for beneficial interests in a Global Security
(if any is then outstanding) only in accordance with such procedures,
which shall be substantially consistent with the provisions of clauses
(1) through (3) above and (5) below (including the certification
requirements intended to insure that transfers and exchanges of
beneficial interests in a Global Security comply with Rule 144A, Rule
144 or Regulation S, as the case may be) and any Applicable Procedures,
as may be from time to time adopted by the Company and the Trustee.
(5) Interests in Regulation S Global Security to be Held
Through Euroclear or CEDEL. Until the termination of the Restricted
Period, interests in the Regulation S
-30-
<PAGE> 38
Global Security may be held only through Agent Members acting for and
on behalf of Euroclear and CEDEL, provided that this Clause (5) shall
not prohibit any transfer in accordance with Section 3.5(b)(3) hereof.
(6) Securities originally issued to Institutional Accredited
Investors. Securities may be issued other than in reliance on Rule 144A
or Regulation S, and such Securities will be issued only in definitive
certificated form and, initially, only in minimum denominations of
$250,000 and integral multiples of $1,000 in excess thereof. Such
Securities (i.e., Securities sold to Institutional Accredited
Investors) will be considered to be Restricted Securities hereunder,
and will be subject to restrictions on transfer in accordance with the
IAI Letter. The IAI Letter permits transfers to be made only: (i)
pursuant to Rule 144A, (ii) pursuant to Regulation S, (iii) pursuant to
Rule 144 (if available) or (iv) pursuant to an effective registration
statement under the Securities Act. Therefore, transfers of Securities
by an Institutional Accredited Investor may not be made to another
Institutional Accredited Investor in reliance upon an exemption from
securities registration under the Securities Act (for example in a
purported private transaction), except as provided in the preceding
sentence. In case a Security held by an Institutional Accredited
Investor is to be transferred in a transaction in which the purchaser
wishes to receive an interest in a Global Security, clauses (4) and (5)
above shall be applicable. Furthermore, in case a Security held by an
Institutional Accredited Investor is to be transferred (whether during
or after the Restricted Period) in a transaction exempt (i) pursuant to
Rule 144A, then the transferor shall deliver a certificate
substantially in the form of Annex C hereto, or (ii) pursuant to
Regulation S, then the transferor shall deliver a certificate
substantially in the form of Annex B hereto, in each case with such
changes in the second paragraph thereof as are appropriate to reflect
the facts and circumstances, including that the Holder will be
transferring a Security in the form of a definitive registered
certificate. (However, a transfer or exchange that does not involve any
change in beneficial ownership shall not be considered to be a transfer
that triggers these certification requirements.) The Company may vary
these procedures or impose other reasonable procedures to ensure
compliance with the agreement of such Holder contained in its IAI
Letter.
(c) Each Restricted Security and Global Security issued hereunder
shall, upon issuance, bear the legends required by Section 2.2 to be applied to
such a Security and such required legends shall not be removed from such
Security except as provided in the next sentence or paragraph (d) of this
Section 3.5. The legend required for a Restricted Security may be removed from a
Security if there is delivered to the Company such satisfactory evidence, which
may include an opinion of independent counsel licensed to practice law in the
State of New York, as may be reasonably required by the Company that neither
such legend nor the restrictions on transfer set forth therein are required to
ensure that transfers of such Security will not violate the registration
requirements of the Securities Act. Upon provision of such satisfactory
evidence, the Trustee, at the written direction of the Company, shall
authenticate and deliver in exchange for such Security another Security or
Securities having an equal aggregate principal amount that does not bear such
legend. If such a legend required for a Restricted Security has been removed
from a Security as provided above, no other Security issued in exchange for all
or any part of such Security shall bear such legend, unless the Company has
reasonable cause to believe that such other Security is a "restricted security"
within the meaning of Rule 144 and instructs the Trustee in writing to cause a
legend to appear thereon.
-31-
<PAGE> 39
(d) The provisions of clauses (1), (2), (3) and (4) below shall apply
only to Global Securities:
(1) Each Global Security authenticated under this Indenture
shall be registered in the name of the U.S. Depository or a nominee
thereof and delivered to such U.S. Depository or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a
single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture or
the Securities, no Global Security may be exchanged in whole or in part
for Securities registered, and no transfer of a Global Security in
whole or in part may be registered, in the name of any Person other
than the U.S. Depository or a nominee thereof unless (A) the U.S.
Depository (i) has notified the Company that it is unwilling or unable
to continue as U.S. Depository for such Global Security or (ii) has
ceased to be a clearing agency registered under the Exchange Act, (B)
in the case of a Global Security held for an account of Euroclear or
CEDEL, Euroclear or CEDEL, as the case may be, (i) is closed for
business for a continuous period of 14 days (other than by reason of
statutory or other holidays) or (ii) announces an intention permanently
to cease business or does in fact do so, (C) there shall have occurred
and be continuing an Event of Default with respect to such Global
Security or (D) a request for certificates has been made upon 60 days'
prior written notice given to the Trustee in accordance with the U.S.
Depository's customary procedures and a copy of such notice has been
received by the Company from the Trustee. Any Global Security exchanged
pursuant to clause (A) or (B) above shall be so exchanged in whole and
not in part and any Global Security exchanged pursuant to clause (C) or
(D) above may be exchanged in whole or from time to time in part as
directed by the U.S. Depository. Any Security issued in exchange for a
Global Security or any portion thereof shall be a Global Security,
provided that any such Security so issued that is registered in the
name of a Person other than the U.S. Depository or a nominee thereof
shall not be a Global Security.
(3) Securities issued in exchange for a Global Security or any
portion thereof pursuant to clause (2) above shall be issued in
definitive, fully registered form, without interest coupons, shall have
an aggregate principal amount equal to that of such Global Security or
portion thereof to be so exchanged, shall be registered in such names
and be in such authorized denominations as the U.S. Depository shall
designate and shall bear any legends required hereunder. Any Global
Security to be exchanged in whole shall be surrendered by the U.S.
Depository to the Trustee, as Security Registrar. With regard to any
Global Security to be exchanged in part, either such Global Security
shall be so surrendered for exchange or, if the Trustee is acting as
custodian for the U.S. Depository or its nominee with respect to such
Global Security, the principal amount thereof shall be reduced, by an
amount equal to the portion thereof to be so exchanged, by means of an
appropriate adjustment made on the records of the Trustee. Upon any
such surrender or adjustment, the Trustee shall authenticate and make
available for delivery the Security issuable on such exchange to or
upon the written order of the U.S. Depository or an authorized
representative thereof.
(4) In the event of the occurrence of any of the events
specified in clause (2) above, the Company will promptly make available
to the Trustee a reasonable supply of certificated Securities in
definitive, fully registered form, without interest coupons.
-32-
<PAGE> 40
(5) Neither any members of, or participants in, the U.S.
Depository ("Agent Members") nor any other Persons on whose behalf
Agent Members may act (including Euroclear and CEDEL and account
holders and participants therein) shall have any rights under this
Indenture with respect to any Global Security, or under any Global
Security, and the U.S. Depository or such nominee, as the case may be,
may be treated by the Company, the Trustee and any agent of the Company
or the Trustee as the absolute owner and holder of such Global Security
for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the U.S. Depository or such
nominee, as the case may be, or impair, as between the U.S. Depository,
its Agent Members and any other person on whose behalf an Agent Member
may act, the operation of customary practices of such Persons governing
the exercise of the rights of a holder of any Security.
SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and make available for delivery
in exchange therefor a new Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and make
available for delivery, in lieu of any such destroyed, lost or stolen Security,
a new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
A Holder shall bear the cost to the Company of replacing a mutilated,
destroyed, stolen or lost Security. Upon the issuance of any new Security under
this Section, the Company also may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Trustee)
connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
-33-
<PAGE> 41
SECTION 3.7 Payment of Interest, Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of Securities at such Holder's address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special Record Date
and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest 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, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 3.5,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is
-34-
<PAGE> 42
prior to such Interest Payment Date), interest whose Stated Maturity is on such
Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest (whether or not punctually
paid or duly provided for) shall be paid to the Person in whose name such
Security (or one or more Predecessor Securities) is registered at the close of
business on such Regular Record Date. Except as otherwise expressly provided in
the immediately preceding sentence, in the case of any Security which is
converted, interest whose Stated Maturity is after the date of conversion of
such Security shall not be payable.
SECTION 3.8 Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee shall treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Sections 3.5 and 3.7) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 3.9 Cancellation.
All Securities 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 shall be canceled promptly by the Trustee. The Company may at any time
deliver to the Trustee for cancellation any Securities previously authenticated
and delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly canceled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities canceled as provided in this Section 3.9 except as expressly
permitted by this Indenture. All canceled Securities and any certificates in
connection therewith shall be held by the Trustee in accordance with its
customary practices until destroyed by the Trustee; provided, however, that the
Trustee shall not be required to destroy such Securities. The Company may not
issue new Securities to replace Securities it has paid in full or delivered to
the Trustee for cancellation.
SECTION 3.10 Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 3.11 CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" and "CINS"
numbers (if then generally in use), and the Trustee shall use CUSIP numbers or
CINS numbers, as the case may be, in notices of redemption, repurchase or
exchange as a convenience to the Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of redemption,
repurchase or exchange and that reliance may be placed only on the other
identification numbers printed on the Securities.
-35-
<PAGE> 43
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of conversion, or replacement of Securities
herein expressly provided for and any right to receive the payment of principal
of, or interest on, such Securities or Liquidated Damages under the ninth
paragraph on the reverse of the form of Securities set forth in Section 2.3),
and the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 3.6 and (ii) Securities for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 11.3) have been delivered to the Trustee
for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation (other than Securities referred to in clauses (i) and
(ii) of clause (1)(A) above)
(i) have become due and payable, or
(ii) will have become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds (immediately available
to the Holders in the case of clause (i)) in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for principal and
interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with, and that any consents required under any document evidencing
and/or securing Senior Debt have been obtained and are in full force and effect.
-36-
<PAGE> 44
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7 and, if money shall
have been deposited with the Trustee pursuant to clause (1)(B) of this Section
4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of
Section 11.3 shall survive. Funds held in trust pursuant to this Section are not
subject to the provisions of Article XIV.
SECTION 4.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 11.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee.
All moneys deposited with the Trustee pursuant to Section 4.1 (and held
by it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default.
"Event of Default," whenever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article XIV or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest (including any Liquidated
Damages) upon any Security when it becomes due and payable, whether or not such
payment is prohibited pursuant to Article XIV hereof, and continuance of such
default for a period of 30 days; or
(2) default in the payment of the principal or Redemption Price of any
Security at its Maturity, whether or not such payment is prohibited pursuant to
Article XIV hereof; or
(3) default in the Company's obligation to provide notice of a Change
in Control as provided by Section 15.2; or
(4) default in the performance, or breach, of any covenant of the
Company in this Indenture (other than a covenant a default in whose performance
or whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 120 days after there has
been given, by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder; or
-37-
<PAGE> 45
(5) Indebtedness of the Company for borrowed money in an outstanding
principal amount in excess of $5,000,000 in the aggregate, whether such
Indebtedness now exists or shall hereafter be created, is not paid at final
maturity (either upon its stated maturity or upon acceleration thereof) and such
default in payment or acceleration has not been cured or rescinded within a
period of 90 days after there shall have been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Securities a
written notice specifying such default and requiring the Company to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" hereunder;
provided, however, that the Trustee shall have no obligation, either express or
implied, to give any notice, make any demand, make any collection, initiate any
judicial proceeding, file any proofs of claim or take any action as a result of
an Event of Default described in this clause (5), unless and until the Trustee
has received written notice of such Event of Default from the Company, a Holder
of a Security or a holder of Indebtedness of the Company;
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under the Bankruptcy Code or any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a decree or
order adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company under any applicable Federal or State law, or
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days; or
(7) the commencement by the Company of a voluntary case or proceeding
under the Bankruptcy Code or any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or State law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.1(1), (2), (6) and (7)) occurs and is continuing, then and in every
such case the Trustee shall, at the written request of the Holders of not less
than 25% in aggregate principal amount of the Outstanding Securities, or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Securities shall directly, by notice in writing to the Company, declare the
principal of all the Securities to be due and payable immediately, and upon any
such declaration such principal and any accrued interest and any unpaid
Liquidated Damages thereon shall become immediately due and payable. If an Event
of Default specified in Section 5.1(1) or (2) occurs and is continuing,
-38-
<PAGE> 46
the Holder of any Outstanding Security may, by notice in writing to the Company
(with a copy to the Trustee), declare the principal of such Security to be due
and payable immediately, and upon any such declaration such principal and
(subject to Section 3.7) any accrued interest and Liquidated Damages thereon
shall become immediately due and payable. If an Event of Default specified in
Sections 5.1(6) and (7) occurs and is continuing, the principal and any accrued
interest, together with any Liquidated Damages thereon, on all of the Securities
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 such declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article V provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(A) all overdue interest and any Liquidated Damages thereon on
all Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and any interest thereon at
the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at a rate of 5 1/4% per annum, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the principal
of, and any interest on, Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in Section
5.13.
No such rescission or annulment shall affect any subsequent default or impair
any right consequent thereon.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period of
30 days,
or
(2) default is made in the payment of the principal of any Security at
the Maturity thereof,
-39-
<PAGE> 47
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and on
any overdue interest, at a rate of 5 1/4% per annum, and in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 5.4 Trustee May File Proofs of Claim.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or either of
their creditors, the Trustee (irrespective of whether the principal of, and any
interest on, the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand on the Company for the payment of overdue principal or
interest) shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(1) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Securities and to file
such other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee and each predecessor
Trustee, its agents and counsel) and of the Holders of Securities allowed in
such judicial proceeding, and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claim and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Securities by his acceptance thereof to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders of Securities, to pay to the Trustee any amount
due to it for the reasonable compensation, expenses, disbursements and advances
of the Trustee, and each predecessor Trustee, its agents and counsel and any
other amounts due the Trustee under Section 6.7.
-40-
<PAGE> 48
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
any plan of reorganization, arrangement, adjustment, or composition affecting
the Securities or the rights of any Holder thereof or to authorize the Trustee
to vote in respect of the claim of any Holder of a Security in any such
proceeding; provided, however, that the Trustee may, on behalf of such Holders,
vote for the election of a trustee in bankruptcy or similar official and be a
member of a creditors' or other similar committee.
(b) If, as of the third day prior to the bar date for filing proofs of
claim in connection with any bankruptcy, reorganization or similar judicial
proceeding relative to the Company or any other obligor upon the Securities or
the property of the Company or of such other obligor, the Trustee has failed to
file such proofs of claim under subparagraph (a) of this Section for any and all
amounts owing and unpaid in respect of the Securities, the holders of Senior
Debt shall be entitled and empowered to file proofs of claim on behalf of the
Trustee in accordance with sub- paragraph (a) of this Section.
SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, and each predecessor Trustee, its
agents and counsel, be for the ratable benefit of the Holders of the Securities
in respect of which judgment has been recovered.
SECTION 5.6 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article V shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.7;
SECOND: Subject to Article XIV, to the payment of the amounts then due
and unpaid for principal of and interest (including Liquidated Damages,
if any) on the Securities in respect of which or for the benefit of
which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such
Securities for principal and interest, respectively; and
THIRD: Subject to Article XIV, any remaining amounts shall be repaid to
the Company.
SECTION 5.7 Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
-41-
<PAGE> 49
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) 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 in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of the Holders, each representing
less than a majority in aggregate principal amount of the Outstanding
Securities, the Trustee in its sole discretion may determine what action, if
any, shall be taken, notwithstanding any other provisions of this Indenture, and
shall have no liability to any person for such action or inaction.
SECTION 5.8 Unconditional Right of Holders to Receive Principal and Interest and
to Convert.
Notwithstanding any other provision in this Indenture, but subject to
the provisions of Article XIV, the Holder of any Security shall have the right,
which is absolute and unconditional, to receive payment of the principal of and
(subject to Section 3.7) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption or
repurchase, on the Redemption Date or Repurchase Date, as the case may be), and
to convert such Security in accordance with Article XIII, provided, that such
Holder delivers the conversion notice required by Section 13.2, and to institute
suit for the enforcement of any such payment and right to convert, and such
rights shall not be impaired without the consent of such Holder.
SECTION 5.9 Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders of Securities shall be restored severally and respectively to
their former positions
-42-
<PAGE> 50
hereunder and thereafter all rights and remedies of the Trustee and such Holders
shall continue as though no such proceeding had been instituted.
SECTION 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders of Securities is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Article V or by law
to the Trustee or to the Holders of Securities may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders
of Securities, as the case may be.
SECTION 5.12 Control by Holders of Securities.
The Holders of a majority in principal amount of the Outstanding
Securities shall, subject to Section 6.3(e), 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, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee shall not be obligated to follow any direction which
may involve it in personal liability or which may be unduly prejudicial to
Holders not joining therein, and
(3) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction or this Indenture.
SECTION 5.13 Waiver of Past Defaults.
The Holders, either (a) through the written consent of not less than a
majority in principal amount of the Outstanding Securities, 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 at least 66-2/3% in aggregate
principal amount of the Outstanding Securities represented at such meeting, may
on behalf of the Holders of all the Securities waive any past default hereunder
and its consequences, except a default (1) in the payment of the principal of or
interest on any Security, or (2) in respect of a covenant or provision hereof
which under Article IX cannot be modified or amended without the consent of the
Holders of each Outstanding Security affected.
-43-
<PAGE> 51
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 5.14 shall not apply to any suit instituted by
the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the Outstanding Securities, or to any suit
instituted by any Holder of any Security for the enforcement of the payment of
the principal of or interest on any Security on or after the respective Stated
Maturity or Maturities expressed in such Security (or, in the case of redemption
or repurchase, on or after the Redemption Date or the Repurchase Date, as the
case may be) or for the enforcement of the right to convert any Security in
accordance with Article XIII.
SECTION 5.15 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1 Certain Duties and Responsibilities.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default,
-44-
<PAGE> 52
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the
effect of paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or indemnity satisfactory to it against such risk or
liability is not assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 6.2 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the
Trustee shall give to all Holders of Securities, in the manner provided in
Section 1.5, notice of such default hereunder actually known to a Responsible
Officer of the Trustee, unless such default shall have been cured or waived;
provided, however, that in the case of any default of the character specified in
Section 5.1(4), no such notice to Holders of Securities shall be given until at
least 30 days after the occurrence of such default. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default.
-45-
<PAGE> 53
SECTION 6.3 Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may conclusively rely and shall be protected in acting
or refraining from acting upon any resolution, Officers' Certificate, other
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors of the Company shall be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officers' Certificate or an Opinion of Counsel;
(d) the Trustee may consult with counsel (at the expense of the
Company) and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders of Securities pursuant to this Indenture, unless such Holders
shall have offered to the Trustee security or indemnity satisfactory to it
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent, attorney, custodian or
nominee appointed with due care by it hereunder;
(h) the Trustee shall not be deemed to have notice of any Event of
Default under Section 5.1 unless a Responsible Officer of the Trustee shall have
actual knowledge thereof; and
-46-
<PAGE> 54
(i) in the event that the Trustee is also acting as authenticating
agent, conversion agent, payment agent or securities registrar hereunder, the
rights and protections afforded to the Trustee pursuant to this Article VI shall
also be afforded to the Trustee in such capacities.
SECTION 6.4 Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities (except the
Trustee's certificates of authentication) shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
SECTION 6.5 May Hold Securities, Act as Trustee Under Other Indentures.
The Trustee, any Authenticating Agent, any Paying Agent, any Conversion
Agent or any other agent of the Company or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Conversion Agent or such other agent.
The Trustee may become and act as trustee under other indentures under
which other securities, or certificates of interest or participation in other
Securities, of the Company are outstanding in the same manner as if it were not
Trustee hereunder.
SECTION 6.6 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company in writing.
SECTION 6.7 Compensation and Indemnification of Trustee and Its Prior Claims.
The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) and the Company covenants and agrees to pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by or on behalf of it in accordance
with any of the provisions of this Indenture (including the reasonable
compensation and the expenses and disbursements of its counsel and of all agents
and other Persons not regularly in its employ), except to the extent that any
such expense, disbursement or advance is due to its negligence or bad faith. The
Company also covenants to indemnify the Trustee and its directors, officers,
employees and agents for, and to hold the Trustee and its directors, officers,
employees and agents harmless against, any loss, liability or expense incurred
by the Trustee or its directors, officers, employees and agents, arising out of
or in connection with the acceptance or administration of this Indenture or the
trusts hereunder or the performance of the Trustee's duties hereunder, including
the costs and expenses of defending the Trustee or its directors, officers,
employees and agents against or investigating any claim or liability in the
premises, except to the extent that any such loss, liability or expense was due
to the Trustee's negligence or bad faith. The obligations of the Company under
this Section 6.7 to compensate and indemnify the Trustee
-47-
<PAGE> 55
and its directors, officers, employees and agents and to pay or reimburse the
Trustee and its directors, officers, employees and agents for expenses,
disbursements and advances shall constitute additional indebtedness hereunder
and shall survive the satisfaction and discharge of this Indenture or the
earlier resignation and removal of the Trustee. The Trustee shall have a lien
prior to the Securities on all money or property held or collected by the
Trustee including, without limitation, all money or property held or collected
by the Trustee in trust to pay the principal of, or interest on, or any other
amounts on any Securities, and such lien shall survive the satisfaction and
discharge of the Indenture and any other termination of the Indenture including
any termination under any bankruptcy law. When the Trustee incurs expenses or
renders services in connection with an Event of Default specified in Sections
5.1(6) or (7), the Holders by their acceptance of the Securities hereby agree
that such expenses and the compensation for such services are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or similar law.
"Trustee" for purposes of this Section 6.7 shall include any predecessor
Trustee, but the negligence or bad faith of any Trustee shall not affect the
indemnification of any other Trustee.
SECTION 6.8 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof, or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least U.S.$50,000,000, subject to supervision or examination by Federal or
State authority, in good standing and having an established place of business in
The City of New York. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 6.9 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee required
by this Section 6.9 shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders of
a majority in principal amount of the Outstanding Securities, delivered to the
Trustee and the Company.
(d) If at any time:
-48-
<PAGE> 56
(1) the Trustee shall cease to be eligible under Section 6.8
and shall fail to resign after written request therefor by the Company or by any
Holder of a Security who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been
a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee and
shall comply with the applicable requirements of this Section 6.9. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of this Section 6.9, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner required by this Section 6.9, any Holder
of a Security who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders of
Securities in the manner provided in Section 1.5. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
Notwithstanding the replacement of the Trustee pursuant to this Section
6.9, the Company's obligations under Section 6.7 shall continue for the benefit
of the retiring Trustee.
The retiring Trustee shall not be liable for the acts or omissions of
any successor Trustee hereunder.
SECTION 6.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on the request of the Company or the
Successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver
-49-
<PAGE> 57
an instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder. Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
Upon the acceptance of appointment by any successor Trustee, all fees,
charges and expenses of the retiring Trustee shall become immediately due and
payable upon the rendering of a statement thereof.
SECTION 6.11 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the trust may at the time be located, the Trustee shall have
the power and may execute and deliver all instruments to appoint one or more
Persons reasonably acceptable to the Company to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, and to vest in such
Person or Persons, in such capacity and for the benefit of the Security Holders,
such title to the Securities, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Trustee may consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 6.9 and no notice to Security Holders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.9 hereof. All fees, charges and expenses of any co-trustee or separate
trustee appointed pursuant to this Section 6.11 shall be paid by the Company.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed,
the Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties and obligations,
(including the holding of title to the trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trust or co-trustee, but solely at the direction of the
Trustee;
(ii) the Trustee shall not be personally liable by reason of any
act or omission of any separate trustee or co-trustee (subject to the
provisions of Section 6.1 hereof);
(iii) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
-50-
<PAGE> 58
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Indenture,
specifically including every provision of this Indenture relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 6.13 Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents acceptable to
the Company with respect to the Securities which shall be authorized to act on
behalf of the Trustee to authenticate Securities issued upon exchange or
substitution pursuant to this Indenture. Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder, and every reference
in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall at all
times be a corporation organized and doing business under the laws of the United
States of America or any State thereof and authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
U.S.$50,000,000 or its equivalent in another currency or composite currencies
and subject to supervision or examination by government authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section 6.13, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.13, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.13.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding
-51-
<PAGE> 59
to the corporate agency or corporate trust business of an Authenticating Agent,
shall continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section 6.13, without the execution or filing of
any paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.13, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section 6.13.
If an Authenticating Agent is appointed with respect to the Securities
pursuant to this Section 6.13, the Securities may have endorsed thereon, in
addition to or in lieu of the Trustee's certification of authentication, an
alternative certificate of authentication in the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
DATED: BANKERS TRUST COMPANY, as Trustee
By [Authenticating Agent or
authorized representative],
as Authenticating Agent
By:
-------------------------
Authorized Signatory
SECTION 6.14 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
-52-
<PAGE> 60
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1 Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after the Regular Record Date,
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Securities as of such Regular Record Date, and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 7.2 Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it pursuant to Section
7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act for holders of securities issued under an indenture
qualified pursuant to the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act or the Code.
SECTION 7.3 Reports by the Company.
(a) The Company shall file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations
prescribe) which the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. In the event the Company is not subject
to Section 13 or 15(d) of the Exchange Act, it shall file with the Trustee upon
request the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
-53-
<PAGE> 61
(b) The Company shall file with the Trustee such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants provided for in this Indenture as may be
requested from time to time by the Trustee.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1 Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not amalgamate or consolidate with or merge into any
other Person or, directly or indirectly, convey, transfer, sell or 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 shall not
permit any Person (other than a wholly owned Subsidiary of the Company) to
amalgamate or consolidate with or merge into the Company or convey, transfer,
sell or lease all or substantially all of its properties and assets to the
Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer, sell or lease all or substantially all of its
properties and assets to any Person, the Person formed by such amalgamation or
consolidation or into which the Company is merged or the Person which acquires
by conveyance, transfer or sale, or which leases, all or substantially all of
the properties and assets of the Company shall be a corporation, partnership or
trust, shall be organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, the due and punctual payment of the principal of and interest
(including Liquidated Damages payable, if any, pursuant to Section 11.12) on all
of the Securities, as applicable, and the performance or observance of every
covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Section 13.12;
(2) 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 happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer, sale or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 8.2 Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer, sale or lease of all or the
properties and assets of the Company in accordance with Section 8.1, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the
-54-
<PAGE> 62
Company herein, and thereafter the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Holders of Securities.
Without the consent of any Holders of Securities, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, for any of the
following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants and obligations of the Company
herein and in the Securities as permitted by this Indenture; or
(2) to add to the covenants of the Company for the benefit of the
Holders of Securities, or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities; or
(4) to modify the restrictions on, and procedures for, resale and other
transfers of the Securities to the extent required by any change in applicable
law or regulation (or the interpretation thereof) or in practice relating to the
resale or transfer of restricted securities generally; or
(5) to make provision with respect to the conversion rights of Holders
of Securities pursuant to Section 13.12; or
(6) to accommodate the issuance, if any, of Securities in book-entry or
definitive form and matters related thereto which do not adversely affect the
interest of the Holders of Securities; or
(7) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(8) to cure any ambiguity, to correct or supplement any provision
herein, which may be inconsistent with any other provision herein or which is
otherwise defective, or to make any other provisions with respect to matters or
questions arising under this Indenture as the Company and the Trustee may deem
necessary or desirable, provided, such action pursuant to this clause (8) shall
not adversely affect the interests of the Holders of Securities in any material
respect.
Upon Company Request, accompanied by a Board Resolution authorizing the
execution of any such supplemental indenture, and subject to and upon receipt by
the Trustee of the documents described in Section 9.4 hereof, the Trustee shall
join with the Company in the
-55-
<PAGE> 63
execution of any supplemental indenture authorized or permitted by the terms of
this Indenture and any further appropriate agreements and stipulations which may
be therein contained.
SECTION 9.2 Supplemental Indentures with Consent of Holders of Securities.
With either (a) the written consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Securities, by the Act
of said Holders delivered to the Company and the Trustee, 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 (subject to Section 9.4),
the Company, when authorized by a Board Resolution, and the Trustee may enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or of modifying in any manner the rights of the Holders of
Securities under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent or affirmative vote of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the rate
of interest payable thereon or any premium payable upon redemption or mandatory
repurchase thereof, or change the coin or currency in which any Security or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption or repurchase, on or after the Redemption Date or
Repurchase Date, as the case may be) or, except as permitted by Section 13.12,
adversely affect the right to convert any Security as provided in Article XIII,
or modify the provisions of this Indenture with respect to the subordination of
the Securities in a manner adverse to the Holders of Securities, or
(2) reduce the requirements of Section 10.4 for quorum or voting, or
reduce the percentage in aggregate principal amount of the Outstanding
Securities the consent of whose Holders is required for any such supplemental
indenture or the consent of whose Holders is required for any waiver provided
for in this Indenture, or
(3) modify the obligation of the Company to maintain an office or
agency in The City of New York pursuant to Section 11.2, or
(4) modify any of the provisions of this Section, Section 5.13 or
Section 11.11, except to increase any percentage contained herein or therein or
to provide that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security affected
thereby, or
(5) modify any of the provisions of Sections 11.6, 11.8, 11.10 or
11.12, or
(6) modify any provisions of Article XIII, XIV or XV in a manner
adverse to the Holders.
It shall not be necessary for any Act of Holders of Securities under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
-56-
<PAGE> 64
SECTION 9.3 Trustee Protected.
If, in the opinion of the Trustee hereunder, any document required to
be executed pursuant to the terms of Section 9.2 hereof adversely affects any
right, duty, immunity or indemnity with respect to it under this Indenture, the
Trustee in its discretion may decline to execute such document.
SECTION 9.4 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture and an Officers' Certificate to the
effect that all conditions precedent have been satisfied. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.5 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.6 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company and the
Trustee, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 9.7 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2, the Company
shall give notice to all Holders of Securities, in the manner provided in
Section 1.5, of such fact, setting forth in general terms the substance of such
supplemental indenture. Any failure of the Company to give such notice, or any
defect therein, shall not in any way impair or affect the validity of any such
supplemental indenture.
-57-
<PAGE> 65
ARTICLE X
MEETINGS OF HOLDERS OF SECURITIES
SECTION 10.1 Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities may be called at any time and from
time to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities.
SECTION 10.2 Call, Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of Holders of Securities
for any purpose specified in Section 10.1, to be held at such time and at such
place in The City of New York as the Trustee shall determine. Notice of every
meeting of Holders of Securities, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be given, in the manner provided in Section 1.5, not less than 21 nor more
than 180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or
the Holders of at least 10% in aggregate principal amount of the Outstanding
Securities shall have requested the Trustee to call a meeting of the Holders of
Securities for any purpose specified in Section 10.1, by written request setting
forth in reasonable detail the action proposed to be taken at the meeting, and
the Trustee shall not have made the first publication of the notice of such
meeting within 21 days after receipt of such request or shall not thereafter
proceed to cause the meeting to be held as provided herein, then the Company or
the Holders of Securities in the amount specified, as the case may be, may
determine the time and the place in The City of New York for such meeting and
may call such meeting for such purposes by giving notice thereof as provided in
paragraph (a) of this Section.
SECTION 10.3 Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities, a
Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a
Person appointed by an instrument in writing as proxy for a Holder or Holders of
one or more Outstanding Securities by such Holder or Holders. The only Persons
who shall be entitled to be present or to speak at any meeting of Holders shall
be the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 10.4 Quorum; Action.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further
-58-
<PAGE> 66
adjourned for a period not less than 10 days as determined by the chairman of
the meeting prior to the adjournment of such adjourned meeting (subject to
repeated applications of this sentence). Notice of the reconvening of any
adjourned meeting shall be given as provided in Section 10.2(a), except that
such notice need be given only once not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage of the principal amount
of the Outstanding Securities which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned
for a lack of a quorum, the persons entitled to vote 25% in aggregate principal
amount of the Outstanding Securities at the time shall constitute a quorum for
the taking of any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid, any resolution and all matters (except as
limited by the proviso to Section 9.2) shall be effectively passed and decided
if passed or decided by the Persons entitled to vote not less than 66 2/3% in
aggregate principal amount of Outstanding Securities represented and voting at
such meeting.
Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not present or represented at the meeting.
SECTION 10.5 Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(a) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities in regard to proof of the holding of Securities and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities shall be proved in
the manner specified in Section 1.3 and the appointment of any proxy shall be
proved in the manner specified in Section 1.3. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 10.3 or other proof.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman (which may be the Trustee) of the meeting, unless the meeting shall
have been called by the Company or by Holders of Securities as provided in
Section 10.2(b), in which case the Company or the Holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall be
elected by vote of the Persons entitled to vote a majority in principal amount
of the Outstanding Securities represented at the meeting.
(c) At any meeting, each Holder of a Security or proxy shall be
entitled to one vote for each U.S.$1,000 principal amount of Securities held or
represented by him; provided, however, that no vote shall be cast or counted at
any meeting in respect of any Security challenged as not Outstanding and ruled
by the chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote, except as a Holder of a Security or proxy.
-59-
<PAGE> 67
(d) Any meeting of Holders of Securities duly called pursuant to
Section 10.2 at which a quorum is present may be adjourned from time to time by
Persons entitled to vote a majority in principal amount of the Outstanding
Securities represented at the meeting, and the meeting may be held as so
adjourned without further notice.
SECTION 10.6 Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amounts and serial numbers of the Outstanding Securities held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record, at least in duplicate, of the proceedings of each meeting of Holders of
Securities shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more Persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 10.2 and, if
applicable, Section 10.4. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
ARTICLE XI
COVENANTS
SECTION 11.1 Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and interest
on the Securities in accordance with the terms of the Securities and this
Indenture.
SECTION 11.2 Maintenance of Offices or Agencies.
The Company hereby appoints the Corporate Trust Office of the Trustee
as its agent in The City of New York where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange, where conversion notices, certificates and other items
required to be delivered to effect conversion may be delivered and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served.
The Company hereby appoints the principal corporate trust office of the
Trustee as Paying Agent for the payment of principal of and interest on the
Securities and as Conversion Agent for the Conversion of any of the Securities
in accordance with Article XIII, and appoints the office of the Trustee as
transfer agent where Securities may be surrendered for registration of transfer
or exchange.
-60-
<PAGE> 68
The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents with or without
cause for any or all of such purposes; provided, however, that until all of the
Securities have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of and interest on the Securities have been made
available for payment and either paid or returned to the Company pursuant to the
provisions of Section 11.3, the Company will maintain (i) in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where Securities may be surrendered for
conversion and where notices and demands to or upon the Company, in respect of
the Securities and this Indenture may be served, and (ii) subject to any laws or
regulations applicable thereto, in any city in a Western European country, an
office or agency where Securities may be presented and surrendered for payment
and where Securities may be presented for registration of transfer or exchange
or conversion thereof. The Company will give prompt written notice to the
Trustee, and will give notice to Holders of Securities in the manner specified
in Section 1.5, of the appointment or termination of any such agents and of the
location and any change in the location of any such office or agency.
If at any time the Company shall fail to maintain any such required
office or agency, or shall fail to furnish the Trustee with the address thereof,
presentations and surrenders may be made and notices and demands may be served
on and Securities may be surrendered for conversion to the Corporate Trust
Office of the Trustee, and the Company hereby appoints the same as its agent to
receive such respective presentations, surrenders, notices and demands.
SECTION 11.3 Money for Security Payments To Be Held in Trust.
If the Company at any time shall act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided and the Company will promptly notify the Trustee of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to or on each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of any failure so to act.
The Company will cause each Paying Agent other than the Trustee or
affiliate of the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of or interest on Securities in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee written notice of any default by the
Company (or any other obligor upon the securities) in the making of any
payment of principal or interest; and
-61-
<PAGE> 69
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on
(together with any Liquidated Damages in respect thereof) any Security and
remaining unclaimed for two years after such principal or interest (together
with any Liquidated Damages in respect thereof) has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as a general unsecured creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before making any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company, and provided, further, that any such publication
shall not relieve the Trustee or any Paying Agent of their obligation to pay any
amounts to the Company in the manner provided in this Section 11.3.
SECTION 11.4 Corporate Existence.
Subject to Article VIII, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 11.5 Maintenance of Properties.
The Company will cause all material properties used or useful in the
conduct of its business or the business of any Subsidiary to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made (subject, however, to any limitations on
expenditures in any document evidencing and/or securing Senior Debt) all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section 11.5 shall prevent
the Company from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, in the judgment of the Company,
-62-
<PAGE> 70
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 11.6 Compliance with Laws.
The Company will comply, and cause each Subsidiary to comply, with the
requirements of all applicable laws, ordinances, rules, regulations, and
requirements of any governmental authority (including, without limitation, ERISA
and the rules and regulations thereunder), except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings or
where the failure to comply would not have a material adverse effect upon the
Company and its Subsidiaries taken as a whole.
SECTION 11.7 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 11.8 Delivery of Certain Information.
The Company will use its best efforts to be, at all times, prior to
April 15, 1999, subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act or is exempt from such requirements pursuant to Rule 12g3-2(b)
under the Exchange Act. At any time when the Company is not subject to Section
13 or 15(d) of the Exchange Act or is exempt therefrom, 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 be 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 such security designated by any such Holder or
holder, as the case may be, to the extent required to permit compliance by such
holder with Rule 144A under the Securities Act (or any successor provision
thereto) in connection with the resale of such Security by such Holder;
provided, however, that the Company shall not be required to furnish such
information in connection with any request made on or after the date which is
three years from the later of (i) the date such a security (or any predecessor
security) was acquired from the Company or (ii) the date such a security (or any
predecessor security) was last acquired from the Company or an "affiliate" of
the Company within the meaning of Rule 144 under the Securities Act (or any
successor provision thereto); and provided, further, that the Company shall not
be required to furnish such information at any time to a prospective purchaser
located outside the United States who is not a "U.S. Person" within the meaning
of Regulation S under the Securities Act if such Security may then be sold to
such prospective purchaser in accordance with Rule 904 under the Securities Act
(or any successor provision thereto). "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).
-63-
<PAGE> 71
SECTION 11.9 Statement by Officers as to Default.
The Company shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Company an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the Officers
signing such certificate, with a view to determining whether any default exists
in the performance and observance of any of the terms, provisions and conditions
of this Indenture and whether the Company has observed, performed and fulfilled
its obligations under this Indenture. If the Officers signing the Certificate
know of such a default, the Officers' Certificate shall describe such default
and its status with particularity. The Company shall also promptly notify the
Trustee if the Company's fiscal year is changed so that the end thereof is on
any date other than the then current fiscal year end date.
The Company will also deliver to the Trustee, forthwith upon any
Officer becoming aware of any Event of Default, an Officers' Certificate
specifying with particularity such default or Event of Default and further
stating what action the Company has taken, is taking or proposes to take with
respect thereto.
Any notice required to be given under this Section 11.9 shall be
delivered to the Trustee at its Corporate Trust Office and need not comply with
Section 1.4.
SECTION 11.10 Resale of Certain Securities.
During the period beginning on April 15, 1996 and ending on April 15,
1999, the Company will not, and will not permit any of its "affiliates" (as
defined under Rule 144 under the Securities Act or any successor provision
thereto) to, resell (x) any Securities which constitute "restricted securities"
under Rule 144 or (y) any securities into which such Securities have been
converted under this Indenture, which constitute "restricted securities" under
Rule 144 that in either case have been reacquired by any of them. The Trustee
shall have no responsibility in respect of the Company's performance of its
agreement in the preceding sentence.
SECTION 11.11 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 11.5 or 11.6 if before the time for
such compliance the Holders of at least a majority in principal amount of the
Outstanding Securities (or such lesser amount as shall have acted at a meeting
pursuant to the provisions of this Indenture) shall either waive such compliance
in such instance or generally waive compliance with such covenant or condition,
but no such waiver shall extend to or affect such covenant or condition except
to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such covenant or condition shall remain in full force and effect.
SECTION 11.12 Registration Rights.
The holders of the Securities and the Common Shares issuable upon
conversion thereof are entitled to the benefits of a Registration Rights
Agreement, 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
-64-
<PAGE> 72
holders from time to time of the Securities and the Common Shares issuable upon
conversion thereof that it will, at its expense, (i) 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, (ii)
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 (iii) use its best efforts to maintain such
Shelf Registration Statement continuously effective under the Securities Act
until the third annual 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 the Securities 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 on 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.
Whenever in this Indenture there is mentioned, in any context, 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 provided for in this Section to the extent that, in such
context, Liquidated Damages are, were or would be payable in respect thereof
pursuant to the provisions of this Section and express mention of the payment of
Liquidated Damages (if applicable) in any provisions hereof shall not be
construed as excluding Liquidated Damages in those provisions hereof where such
express mention is not made.
SECTION 11.13 Book-Entry System.
If the Securities cease to trade in the U.S. Depository's book-entry
settlement system, the Company covenants and agrees that it shall use reasonable
efforts to make such other book-entry arrangements that it determines are
reasonable for the Securities.
-65-
<PAGE> 73
ARTICLE XII
REDEMPTION OF SECURITIES
SECTION 12.1 Right of Redemption.
The Securities shall be redeemable at the Company's option, in whole or
in part, under the circumstances and at the Redemption Prices specified in the
form of Securities set forth in Sections 2.2 and 2.3.
SECTION 12.2 Applicability of Article.
Redemption of Securities at the election of the Company, as permitted
or required by any provision of the Securities or this Indenture, shall be made
in accordance with such provision and this Article XII.
SECTION 12.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 12.1 shall be evidenced by a Board Resolution. In the case of any
redemption at the election of the Company of all of the Securities, the Company
shall, at least 60 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee in writing of such Redemption Date. If the Securities are to be redeemed
pursuant to an election of the Company which is subject to a condition specified
in the forms of Securities set forth in Section 2.2, the Company shall furnish
the Trustee with (a) an Officers' Certificate stating that the Company is
entitled to effect such redemption and setting forth a statement of facts
demonstrating the same and (b) an Opinion of Counsel to the effect that the
Company is entitled to effect such redemption, and such redemption is not
otherwise in violation of any provisions of Senior Debt.
SECTION 12.4 Notice of Redemption.
Notice of redemption shall be given in the manner provided in Section
1.5 to the Holders of Securities to be redeemed. Notice shall be given at least
once not less than 30 nor more than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price, and the amount of accrued interest,
if any,
(3) that on the Redemption Date the Redemption Price, and
accrued interest, if any, will become due and payable, and that
interest thereon shall cease to accrue on and after said date,
(4) the Conversion Date, the date on which the right to
convert the Securities will terminate and the places where the
Securities may be surrendered for conversion, and
-66-
<PAGE> 74
(5) the place or places where the Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name of and at the expense of the Company, and such notice, when
given to the Holders, shall be irrevocable.
SECTION 12.5 Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as Paying Agent,
segregate and hold in trust as provided in Section 11.3) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities which
are to be redeemed on that date other than any Securities called for redemption
on that date which have been converted prior to the date of such deposit.
If any Security called for redemption is converted, any money deposited
with the Trustee or with a Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 3.7) be paid to the Company on Company Request or, if
then held by the Company, shall be discharged from such trust.
SECTION 12.6 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price herein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, the Holder of such
Security shall be paid the Redemption Price, together with accrued interest to
the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 3.7.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate of interest borne by the Security.
ARTICLE XIII
CONVERSION OF SECURITIES
SECTION 13.1 Conversion Privilege and Conversion Rate.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which is $1,000 or any integral multiple of $1,000 in excess
thereof, may be converted at any time after the Non-
-67-
<PAGE> 75
Conversion Period (as such term is defined in Section 2.3 hereof) at the
principal amount thereof, or of such portion thereof, into fully paid and
nonassessable Common Shares of the Company (calculated as to each conversion to
the nearest 1/100 of a share) at the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion. Such conversion right shall
expire at the close of business on April 15, 2003; subject, in the case of
conversion of a Global Security, to any applicable book-entry procedures of the
Depository for such conversion. In case a Security or portion thereof is called
for redemption at the election of the Company or is delivered for repurchase at
the option of the Holder, such conversion right in respect of the Security or
portion thereof so called shall expire at the close of business on the
Redemption Date or the Repurchase Date, unless the Company defaults in making
the payment due upon redemption or the repurchase, as the case may be (subject
as aforesaid to any applicable book-entry procedures).
The rate at which Common Shares shall be delivered upon conversion
(herein called the "Conversion Rate") shall be initially 38.3142 Common Shares
for each U.S.$1,000 principal amount of Securities. The Conversion Rate shall be
adjusted in certain instances as provided in this Article 13. The price at which
Common Shares shall be delivered upon conversion (herein called the "Conversion
Price") shall at any time be equal to U.S. $1,000 divided by the then applicable
Conversion Rate (and rounded to the nearest cent).
SECTION 13.2 Exercise of Conversion Privilege.
In order to exercise the conversion privilege with respect to any
Security or portion thereof, the Holder of any Security to be converted or any
other person acting on its behalf shall surrender such Security, duly endorsed
or assigned to the Company or in blank at any office or agency of the Company
maintained for that purpose pursuant to Section 11.2, accompanied by a duly
signed conversion notice substantially in the form set forth in Annex A stating
that the Holder elects to convert such Security or, if less than the entire
principal amount thereof is to be converted, the portion thereof to be
converted. Alternatively, if such security is represented by a Global Security,
conversion may be effected by written order given to the Trustee in accordance
with the applicable procedures of the U.S. Depository then in effect. Each
Security surrendered for conversion (in whole or in part) during the period from
the close of business on any Regular Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date shall
(except in the case of any Security or portion thereof which has been called for
redemption on a Redemption Date or repurchase on a Repurchase Date occurring
within such period) be accompanied by payment in New York Clearing House funds
or other funds acceptable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of such Security
(or part thereof as the case may be) being surrendered for conversion. The
interest so payable on such Interest Payment Date in respect of such Security
(or portion thereof, as the case may be) surrendered for conversion shall be
paid to the Holder of such Security as of such Regular Record Date. Interest
payable in respect of any Security surrendered for conversion on or after an
Interest Payment Date shall be paid to the Holder of such Security as of the
next preceding Regular Record Date, notwithstanding the exercise of the right of
conversion. Except as provided in this paragraph and subject to the last
paragraph of Section 3.7, no cash payment or adjustment shall be made on account
of any cash dividends on the Common Shares issued upon conversion or, if the
date of conversion is not an Interest Payment Date, on account of any interest
accrued from the Interest Payment Date next preceding the conversion date, in
respect of any Security (or part thereof, as the case may be) surrendered for
conversion.
-68-
<PAGE> 76
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Shares issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Shares at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and deliver, out of its authorized but previously unissued Shares of
Common Stock, at the office of such Conversion Agent a certificate or
certificates for the number of full shares of newly issued Common Shares
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 13.3.
All Common Shares delivered upon such conversion of Restricted
Securities shall bear a restrictive legend substantially in the form of the
legend required to be set forth on the Restricted Securities pursuant to Section
2.2 and shall be subject to the restrictions on transfer provided in such
legend. Neither the Trustee nor any agent maintained for the purpose of such
conversion shall have any responsibility for the inclusion or content of any
such restrictive legend on such Common Shares; provided, however, that the
Trustee or any agent maintained for the purpose of such conversion shall have
provided, to the Company or to the Company's transfer agent for such Common
Shares, prior to or concurrently with a request to the Company to deliver to
such agent maintained for the purpose of such conversion certificates for such
Common Shares, written notice that the Securities delivered for conversion are
Restricted Securities.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security.
If Common Shares to be issued upon conversion of a Security, or
Securities to be issued upon conversion of a Security in part only, are to be
registered in a name other than that of the Holder of such Security, the
Security Registrar shall, prior to the conversion of such Security, record in
the Security Register the transfer of that portion of the Security to be so
converted in the name of the person in whose name such Common Shares or
Securities are to be registered.
SECTION 13.3 Fractions of Common Shares.
No fractional Common Shares or scrip certificates in respect thereof
shall be issued upon conversion of any Security or Securities. If more than one
Security shall be surrendered for conversion at one time by the same Holder, the
number of full shares which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Securities so
surrendered. Instead of any fractional Common Shares which would otherwise be
issuable upon conversion of any Security or Securities, the Company shall pay a
cash adjustment in respect of such fraction (calculated to the nearest 1/100 of
a share) in an amount in Dollars equal to the same fraction of the current
market price per Common Share (calculated in accordance with Section 13.4(8)
below) at the close of business on the day of conversion, or alternatively the
Company shall round up the conversion transaction to the next higher whole
share.
-69-
<PAGE> 77
SECTION 13.4 Adjustment of Conversion Rate.
The Conversion Rate shall be subject to adjustments from time to time
as follows:
(1) In case at any time after the date hereof, the Company shall pay or
make a dividend or other distribution on all or any portion of its Common Shares
or shall pay or make a dividend or other distribution on any other class of
capital stock of the Company which dividend or distribution includes Common
Shares, the Conversion Rate in effect at the opening of business on the day
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
Common Shares outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such increase to become effective immediately after the opening of business on
the day following the date fixed for such determination. For the purposes of
this paragraph (1), the number of Common Shares at any time outstanding shall
not include shares held in the treasury of the Company but shall include shares
issuable in respect of scrip certificates, if any, issued in lieu of fractions
of Common Shares.
(2) In case at any time after the date hereof, the Company shall pay or
make a dividend or other distribution on all of its Common Shares consisting of,
or shall otherwise issue to all holders of its Common Shares, rights, warrants
or options (not being available on an equivalent basis to Holders of the
Securities upon conversion) entitling the holders of its Common Shares to
subscribe for or purchase Common Shares at a price per share less than the
current market price per share (determined as provided in paragraph (8) of this
Section 13.4) of the Common Shares on the date fixed for the determination of
shareholders entitled to receive such rights, warrants or options (other than
pursuant to a dividend reinvestment plan), the Conversion Rate in effect at the
opening of business on the day following the date fixed for such determination
shall be increased by dividing such Conversion Rate by a fraction of which the
numerator shall be the number of Common Shares outstanding at the close of
business on the date fixed for such determination plus the number of Common
Shares which the aggregate of the offering price of the total number of Common
Shares so offered for subscription or purchase would purchase at such current
market price and the denominator shall be the number of Common Shares
outstanding at the close of business on the date fixed for such determination
plus the number of Common Shares so offered for subscription or purchase, such
increase to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
paragraph (2), the number of Common Shares at any time outstanding shall not
include shares held in the treasury of the Company but will include shares
issuable in respect of scrip certificates, if any, issued in lieu of fractions
of Common Shares. The Company will not issue any rights or warrants in respect
of Common Shares held in the treasury of the Company (or, if rights or warrants
are issued in respect of all of the Common Shares of the Company, will not
exercise any such rights or warrants in respect of Common Shares held in the
treasury of the Company).
(3) In case at any time after the date hereof, all or any portion of
the Common Shares outstanding shall be subdivided into a greater number of
Common Shares, the Conversion Rate in effect at the opening of business on the
day following the day upon which such subdivision becomes effective shall be
proportionately increased, and, conversely in case at any time after the date
hereof, all or any portion of the Common Shares outstanding shall each be
combined into
-70-
<PAGE> 78
a smaller number of Common Shares, the Conversion Rate in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately reduced, such increase or reduction, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(4) In case at any time after the date hereof, the Company shall, by
dividend or otherwise, distribute to all holders of its Common Shares evidences
of its indebtedness or assets (including securities, but excluding any rights,
warrants or options referred to in paragraph (2) of this Section 13.4, any
dividend or distribution paid exclusively in cash and any dividend or
distribution referred to in paragraph (1) of this Section 13.4), the Conversion
Rate shall be increased so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
receive such distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in paragraph (8) of this
Section 13.4) of the Common Shares on the date fixed for such determination less
the then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution filed with
the Trustee) of the portion of the assets or evidences of indebtedness so
distributed applicable to one Common Share and the denominator shall be such
current market price per share of the Common Shares, such adjustment to become
effective immediately prior to the opening of business on the day following the
date fixed for the determination of shareholders entitled to receive such
distribution.
(5) In case at any time after the date hereof, the Company shall, by
dividend or otherwise, make a distribution to all holders of its Common Shares
consisting exclusively of cash (excluding any cash that is distributed upon a
merger or consolidation or a sale or transfer of all or substantially all of the
assets of the Company to which Section 13.11 applies or as part of a
distribution referred to in paragraph (4) of this Section 13.4) in an aggregate
amount that, combined together with (I) the aggregate amount of any other
distributions to all holders of its Common Shares made exclusively in cash
within the 12 months preceding the date of payment of such distribution and in
respect of which no adjustment pursuant to this paragraph (5) has been made and
(II) the aggregate of any cash plus the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and described in a
Board Resolution filed with the Trustee) of consideration payable in respect of
any tender offer by the Company or any of its Subsidiaries for all or any
portion of the Common Shares concluded within the 12 months preceding the date
of payment of such distribution and in respect of which no adjustment pursuant
to paragraph (6) of this Section 13.4 has been made, exceeds 10% of the product
of the current market price per share of the Common Shares on the date for the
determination of holders of Common Shares entitled to receive such distribution
times the number of Common Shares outstanding on such date, then, and in each
such case, immediately after the close of business on such date for
determination, the Conversion Rate shall be increased so that the same shall
equal the rate determined by dividing the Conversion Rate in effect immediately
prior to the close of business on the date fixed for determination of the
shareholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 13.4) of the Common
Shares on the date fixed for such determination less an amount equal to the
quotient of (x) the excess of such combined amount over such 10% and (y) the
number of Common Shares outstanding on such date for determination and (ii) the
denominator of which shall be equal to the current market
-71-
<PAGE> 79
price per share (determined as provided in paragraph (8) of this Section 13.4)
of the Common Shares on such date for determination.
(6) In case a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Common Shares shall expire and such
tender or exchange offer (as amended upon the expiration thereof) shall require
the payment to shareholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares (as defined
below)) of an aggregate consideration having a fair market value (as determined
by the Board of Directors, whose determination shall be conclusive and described
in a Board Resolution filed with the Trustee) that combined together with (I)
the aggregate of the cash plus the fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer, by the
Company or any Subsidiary for all or any portion of the Common Shares expiring
within the 12 months preceding the expiration of such tender or exchange offer
and in respect of which no adjustment, pursuant to this paragraph (6) has been
made and (II) the aggregate amount of any distributions to all holders of the
Company's Common Shares made exclusively in cash within 12 months preceding the
expiration of such tender or exchange offer and in respect of which no
adjustment pursuant to paragraph (5) of this Section 13.4 has been made, exceeds
10% of the product of the current market price per share of the Common Shares
(determined as provided in paragraph (8) of this Section 13.4) as of the last
time (the "Expiration Time") tenders or exchanges could have been made pursuant
to such tender or exchange offer (as it may be amended) times the number of
Common Shares outstanding (including any tendered or exchanged shares) on the
Expiration Time, then, and in each such case, immediately prior to the opening
of business on the day after the date of the Expiration Time, the Conversion
Rate shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate immediately prior to the close of business on the
date of the Expiration Time by a fraction (i) the numerator of which shall be
equal to (A) the product of (I) the current market price per share of the Common
Shares (determined as provided in paragraph (8) of this Section 13.4) on the
date of the Expiration Time and (II) the number of shares of Common Shares
outstanding (including any tendered or exchanged shares) on the date of the
Expiration Time less (B) the amount of cash plus the fair market value
(determined as aforesaid) of the aggregate consideration payable to shareholders
based on the acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares, and (ii) the denominator of which shall be equal to
the product of (A) the current market price per share of the Common Shares
(determined as provided in paragraph (8) of this Section 13.4) as of the
Expiration Time and (B) the number of Common Shares outstanding (including any
tendered or exchanged shares) as of the Expiration Time less the number of all
shares validly tendered or exchanged and not withdrawn as of the Expiration Time
(the shares deemed so accepted up to any such maximum, being referred to as the
"Purchased Shares").
(7) The reclassification of Common Shares into securities other than
Common Shares (other than any reclassification upon a consolidation or merger to
which Section 13.11 applies) shall be deemed to involve (a) a distribution of
such securities other than Common Shares to all holders of Common Shares (and
the effective date of such reclassification shall be deemed to be "the date
fixed for the determination of shareholders entitled to receive such
distribution" and "the date fixed for such determination" within the meaning of
paragraph (4) of this Section 13.4), and (b) a subdivision or combination, as
the case may be, of the number of Common Shares outstanding immediately prior to
such reclassification into the number of Common Shares
-72-
<PAGE> 80
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (3) of this Section 13.4).
(8) For the purpose of any computation under paragraphs (2), (4), (5)
or (6) of this Section 13.4, the current market price per share of Common Shares
on any date 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 20 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 the
issuance or distribution requiring such computation. For purposes of this
paragraph, the term "'ex' date," when used with respect to any issuance or
distribution, means the first date on which the Common Shares trades regular way
on the applicable securities exchange or in the applicable securities market
without the right to receive such issuance or distribution.
(9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(9)) would require an increase or decrease of at least one percent in such rate;
provided, however, that any adjustments which by reason of this paragraph (9)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. In the case of any adjustment deferred pursuant to
this paragraph (9), the Company shall make appropriate elections under the
Treasury Regulations promulgated pursuant to Section 305 of the Internal Revenue
Code of 1986, as amended.
(10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to those
required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 13.4, as
it considers to be advisable in order to avoid or diminish any income tax to any
holders of Common Shares resulting from any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for stock or from any
event treated as such for United States federal income tax purposes or for any
other reasons. The Company shall have the power to resolve any ambiguity or
correct any error in this paragraph (10) and its actions in so doing shall be
final and conclusive.
SECTION 13.5 Notice of Adjustments of Conversion Rate.
Whenever the Conversion Rate is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Rate in
accordance with Section 13.4 and shall prepare a certificate signed by the
Treasurer of the Company setting forth the adjusted Conversion Rate and showing
in reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith promptly be filed with the Trustee and with each
Conversion Agent; and
(2) a notice stating that the Conversion Rate has been adjusted and
setting forth the adjusted Conversion Rate shall forthwith be prepared, and as
soon as practicable after it is prepared, such notice shall be provided by the
Company to all Holders in accordance with Section 1.5.
-73-
<PAGE> 81
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate, except to exhibit the same
to any Holder of Securities desiring inspection thereof at its office during
normal business hours.
SECTION 13.6 Notice of Certain Corporate Action.
In case:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Shares payable otherwise than in cash out
of funds from which such dividend or other distribution is properly
payable; or
(2) the Company shall authorize the granting to the holders of
its Common Shares of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or
(3) of any reclassification of the Common Shares of the
Company (other than a subdivision or combination of its outstanding
Common Shares), or of any consolidation, merger or share exchange to
which the Company is a party and for which approval of any shareholders
of the Company is required, or of any tender offer by the Company or
any Subsidiary for all or any portion of the Common Shares, or of the
conveyance, transfer, sale or lease of all or substantially all of the
assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 11.2, and shall
cause to be provided to all Holders in accordance with Section 1.5, at least 20
days (or 10 days in any case specified in clause (1) or (2) above) prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the
effective date as of which the holders of Common Shares of record to be entitled
to such dividend, distribution, rights or warrants are to be determined, or (y)
the date on which such reclassification, consolidation, merger, share exchange,
conveyance, transfer, sale, lease, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, conveyance, transfer,
sale, lease, dissolution, liquidation or winding up. Neither the failure to give
such notice or the notice referred to in the following paragraph nor any defect
therein shall affect the legality or validity of the proceedings described in
clauses (1) through (4) of this Section 13.6. If at the time the Trustee shall
not be the Conversion Agent, a copy of such notice and any notice referred to in
the following paragraph shall also forthwith be filed by the Company with the
Trustee.
The Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Securities pursuant to Section 11.2, and shall
cause to be provided to all Holders in accordance with Section 1.5, notice of
any tender offer by the Company or any Subsidiary for
-74-
<PAGE> 82
all or any portion of the Common Shares at or about the time that such notice of
tender offer is provided to the public generally.
SECTION 13.7 Company to Reserve Common Shares.
The Company shall at all times while any Securities are Outstanding
reserve and keep available, free from preemptive rights, out of its authorized
but previously unissued Common Shares, for the purpose of effecting the
conversion of Securities, the full number of Common Shares then issuable upon
the conversion of all such Outstanding Securities.
SECTION 13.8 Taxes on Conversions.
Except as provided in the next sentence, the Company will pay any and
all transfer, stamp, documentary and other similar taxes and duties that may be
payable in respect of the issue or delivery of Common Shares on conversion of
Securities pursuant hereto. A Holder delivering a Security for conversion will
be required to pay any tax or duty which may be payable in respect of any
transfer involved in the issue and delivery of Common Shares in a name other
than that of the Holder of the Security or Securities to be converted, and no
such issue or delivery shall be made unless and until 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.
SECTION 13.9 Covenant as to Common Shares.
The Company covenants that all Common Shares which may be delivered
upon conversion of Securities will be newly issued shares and upon such
delivery, will have been fully paid and nonassessable and, except as provided in
Section 13.8, the Company will pay all taxes, liens and charges with respect to
the issue thereof.
SECTION 13.10 Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 3.9.
SECTION 13.11 Provision in Case of Consolidation, Merger or Conveyance of
Assets.
In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding Common Shares of the Company (other than
cancellation of Common Shares of the Company held by such other Person)) or any
sale or transfer of all or substantially all of the assets of the Company, the
Person formed by such consolidation or resulting from such merger or which
acquires such assets, as the case may be, shall execute and deliver to the
Trustee a supplemental indenture executed in accordance with Article IX
providing that the Holder of each Security then Outstanding shall have the right
thereafter, during the period such Security shall be convertible as specified in
Section 13.1, to convert such Security 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 Common Shares of the Company into
which such Security might have been converted immediately prior to such
consolidation, merger, sale or transfer, assuming such holder
-75-
<PAGE> 83
of Common Shares of the Company (i) is not a Person with which the Company
amalgamated or consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer (provided that if the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer is
not the same for each Common Share of the Company held immediately prior to such
consolidation, merger, sale or transfer by other than a Constituent Person or an
Affiliate thereof and in respect of which such rights of election shall not have
been exercised ("Non-Electing Share"), then for the purpose of this Section
13.11 the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by the holders of each Non-electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-Electing Shares). Such supplemental indenture shall provide
for adjustments which, for events subsequent to the effective date of such
supplemental indenture, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Article. The above provisions of this
Section 13.11 shall similarly apply to successive consolidations, mergers, sales
or transfer. Notice of the execution of such a supplemental indenture shall be
given by the Company to the Holder of each Security as provided in Section 1.5
promptly upon such execution.
Neither the Trustee nor any Paying Agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or other securities or property or cash receivable by Holders of
Securities upon the conversion of their Securities after any such consolidation,
merger, sale or transfer or to any such adjustment, but may accept as conclusive
evidence of the correctness of any such provisions, and shall be protected in
relying upon, an Opinion of Counsel with respect thereto, which the Company
shall cause to be furnished to the Trustee upon request.
SECTION 13.12 Responsibility of Trustee for Conversion Provisions.
The Trustee, subject to the provisions of Section 6.1, and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Rate, or with respect to the nature, extent or
amount of any such adjustment when made, or with respect to the method employed,
or herein or in any supplemental indenture provided to be employed, in making
the same, or whether a supplemental indenture need be entered into. Neither the
Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent
shall be accountable with respect to the validity or value (or the kind or
amount) of any Common Shares, or of any other securities or property or cash,
which may at any time be issued or delivered upon the conversion of any
Security; and it or they do not make any representation with respect thereto.
Neither the Trustee, subject to the provisions of Section 6.1, nor any
Conversion Agent shall be responsible for any failure of the Company to make any
cash payment or to issue, transfer or deliver any Common Shares or share
certificates or other securities or property or cash upon the surrender of any
Security for the purpose of conversion; and the Trustee, subject to the
provisions of Section 6.1, and any Conversion Agent shall not be responsible for
any failure of the Company to comply with any of the covenants of the Company
contained in this Article.
-76-
<PAGE> 84
ARTICLE XIV
SUBORDINATION
SECTION 14.1 Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article IV), the indebtedness represented by the Securities, and the payment of
the principal of, interest on and all other amounts, if any, owing with respect
to each and all of the Securities are hereby expressly made subordinate and
subject in right of payment to the prior payment in full in cash or other
immediately available funds of all Senior Debt of the Company.
SECTION 14.2 Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event specified in (a), (b) or (c) above (each such event, if any, herein
sometimes referred to as a "Proceeding") the holders of Senior Debt shall be
entitled to receive payment in full of all amounts due or to become due on or in
respect of all Senior Debt, in cash or other immediately available funds or
provision shall be made for such payment in cash or other immediately available
funds or otherwise in a manner satisfactory to each holder of Senior Debt with
respect to its indebtedness, before the Holders of the Securities are entitled
to receive any payment or distribution of any kind or character, whether (a) in
cash, property or securities, on account of principal of, interest on or any
other amount, if any, owing with respect to the Securities or on account of any
purchase or other acquisition of Securities by the Company or any Subsidiary of
the Company, (b) by way of cancellation, forgiveness or offset of the
indebtedness evidenced by the Securities against any indebtedness owed by a
Holder to the Company or (c) payable or deliverable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Securities (all such payments, distributions, purchases and acquisitions herein
referred to, individually and collectively, as a "Securities Payment"), and to
that end the holders of all Senior Debt shall be entitled to receive, for
application to the payment thereof, any Securities Payment which may be payable
or deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
Securities Payment before all Senior Debt is paid in full in cash or other
immediately available funds or otherwise in a manner satisfactory to each holder
of Senior Debt with respect to its indebtedness, and if such fact shall, at or
prior to the time of such Securities Payment, have been made actually known to a
Responsible Officer of the Trustee or, as the case may be, such Holder, then and
in such event such Securities Payment shall be paid over or delivered forthwith
to the trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee, agent or other Person making payment or distribution of assets of the
Company for application to the payment of all Senior Debt, to the extent
necessary
-77-
<PAGE> 85
to pay all Senior Debt in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.
For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include a payment or distribution of stock or securities
of the Company provided for by a plan of reorganization or readjustment giving
effect to these subordination provisions authorized by an order or decree of a
court of competent jurisdiction in a reorganization proceeding under any
applicable bankruptcy law or of any other corporation provided for by such plan
of reorganization or readjustment which stock or securities are subordinated in
right of payment to all then outstanding Senior Debt to substantially the same
extent as the Securities are so subordinated as provided in this Article, which
shall require that (i) the final maturity of any such subordinated securities
shall exceed the term of the Senior Debt provided for by such plan of
reorganization or readjustment, and there shall not be any scheduled principal
payment in respect of such subordinated securities prior to that of such Senior
Debt and (ii) such subordinated securities shall be unsecured and unguaranteed.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance, transfer, sale or lease of all or substantially all of its
properties and assets to another Person upon the terms and conditions set forth
in Article VIII shall not be deemed a Proceeding for the purposes of this
Section if the Person formed by such consolidation or into which the Company is
merged or the Person which acquires by conveyance, transfer, sale or lease such
properties and assets, as the case may be, shall, as a part of such
consolidation, merger, conveyance, transfer, sale or lease comply with the
conditions set forth in Article VIII.
SECTION 14.3 No Payment When Senior Debt in Default.
In the event that any Securities are declared or otherwise shall become
due and payable before their Stated Maturity (including by reason of a Change in
Control), then and in such event the holders of the Senior Debt outstanding at
the time such Securities so become due and payable shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Debt in cash or other immediately available funds or otherwise in a
manner satisfactory to the holders of such Senior Debt, before the Holders of
the Securities are entitled to receive any Securities Payment.
In the event and during the continuation of any default in the payment
of any amount owing in respect of any Senior Debt beyond any applicable grace
period with respect thereto, or in the event that any event of default with
respect to any Senior Debt shall have occurred and be continuing permitting the
holders of such Senior Debt (or a trustee or other representative on behalf of
the holders thereof) to declare such Senior Debt due and payable prior to the
date on which it would otherwise have become due and payable, unless and until
such event of default shall have been cured or waived or shall have ceased to
exist and such acceleration shall have been rescinded or annulled, or in the
event any judicial proceeding shall be pending with respect to any such default
in payment or event of default, then no Securities Payment shall be made.
In the event that, notwithstanding the foregoing, the Company shall
make any Securities Payment to the Trustee or any Holder prohibited by the
foregoing provisions of this Section, and if (i) such fact shall, at or prior to
the time of such Securities Payment, have been made actually known to a
Responsible Officer of the Trustee or, as the case may be, such Holder or (ii)
the
-78-
<PAGE> 86
Securities have been accelerated, then and in such event such Securities Payment
shall be paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any Securities
Payment with respect to which Section 14.2 would be applicable.
SECTION 14.4 Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any proceeding referred to in Section 14.2 or under the
conditions described in Section 14.3, from making Securities Payments, or (b)
the application by the Trustee of any money deposited with it hereunder to
Securities Payments or the retention of such Securities Payment by the Holders,
if, at the time of such application by the Trustee, it did not have actual
knowledge that such Securities Payment would have been prohibited by the
provisions of this Article.
SECTION 14.5 Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all amounts due or to become due on
or in respect of Senior Debt, in cash or other immediately available funds or
otherwise in a manner satisfactory to the holders of Senior Debt, the Holders of
the Securities shall be subrogated to the rights of the holders of such Senior
Debt to receive payments and distributions of cash, property and securities
applicable to the Senior Debt until the principal of and interest on the
Securities shall be paid in full. For purposes of such subrogation, no payments
or distributions to the holders of the Senior Debt of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Debt by
Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Debt and the Holders of the Securities,
be deemed to be a payment or distribution by the Company to or on account of the
Senior Debt.
SECTION 14.6 Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Debt on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as among the Company, the creditors of the Company other
than holders of Senior Debt and the Holders of the Securities, the obligation of
the Company, which is absolute and unconditional (and which, subject to the
rights under this Article of the holders of Senior Debt, is intended to rank
equally with all other general obligations of the Company), to pay to the
Holders of the Securities the principal of and interest on the Securities as and
when the same shall become due and payable in accordance with their terms; or
(b) affect the relative rights against the Company of the Holders of the
Securities and creditors of the Company other than the holders of Senior Debt;
or (c) prevent the Trustee or the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article of the holders of
Senior Debt to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
-79-
<PAGE> 87
SECTION 14.7 Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 14.8 No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders of the Securities, without
incurring responsibility to the Holders of the Securities and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior Debt, do any
one or more of the following: (i) change the manner, place or terms of payment
or the time of payment of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner Senior Debt or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any Person liable in any manner for the
collection of Senior Debt; and (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
SECTION 14.9 Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Debt or from any trustee therefor or
representative thereof; and, prior to the receipt of any such written notice,
the Trustee shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received the notice
provided for in this Section at least two Business Days prior to the date upon
which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of, the principal of or interest on
any Security), then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within two
Business Days prior to such date.
-80-
<PAGE> 88
The Trustee shall be entitled to rely conclusively on the delivery to
it of a written notice, and proof of ownership acceptable to the Trustee, by a
Person representing himself to be a holder of Senior Debt (or a trustee therefor
or representative thereof) to establish that such notice has been given by a
holder of Senior Debt (or a trustee therefor or representative thereof). In the
event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior Debt to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such Person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Senior Debt held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution and
any other facts pertinent to the rights of such Person under this Article, and
if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.
SECTION 14.10 Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee and the Holders of the Securities shall be entitled
to rely upon any order or decree entered by any court of competent jurisdiction
in which such Proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 14.11 Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and shall not be liable to any such holders if it shall
in good faith and absent gross negligence or willful misconduct, mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
Person cash, property or securities to which any holders of Senior Debt shall be
entitled by virtue of this Article or otherwise.
SECTION 14.12 Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights .
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Debt which may at
any time be held by it, to the same extent as any other holder of Senior Debt,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.7.
SECTION 14.13 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including
-81-
<PAGE> 89
such Paying Agent within its meaning as fully for all intents and purposes as if
such Paying Agent were named in this Article in addition to or in place of the
Trustee; provided, however, that Sections 14.9 and 14.12 shall not apply to the
Company or any Affiliate of the Company if it or such Affiliate acts as Paying
Agent.
SECTION 14.14 Subsidiaries.
No payment, distribution of assets or other action may be taken by any
Subsidiary of the Company with respect to the Securities if the Company would be
prohibited by this Article 14 from taking such action.
SECTION 14.15 Rescission.
The provisions of this Article 14 shall continue to be effective or be
reinstated, as the case may be, if at any time any payment in respect of any of
the Senior Debt is rescinded or must otherwise be returned by the holder thereof
upon the insolvency, bankruptcy or reorganization of the Company or otherwise,
all as though such payment had not been made.
SECTION 14.16 Payment.
For purposes of this Article XIV, "payment in full" of Senior Debt
shall mean prior payment in full (including payment of reimbursement obligations
under letters of credit) of such Senior Debt (including all interest accruing
after the commencement of any bankruptcy or similar proceeding, whether or not a
claim for post-petition interest is allowed as a claim in any such proceeding)
in cash or other immediately available funds and termination, cash
collateralization or replacement of contingent obligations (including all
letters of credit issued thereunder but excluding only any unasserted indemnity
obligations) and termination of all commitments thereunder.
ARTICLE XV
REPURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDER UPON A CHANGE IN CONTROL
SECTION 15.1 Right to Require Repurchase.
In the event that a Change in Control (as hereinafter defined) shall
occur, then each Holder shall have the right, at the Holder's option, to require
the Company to repurchase, and upon the exercise of such right the Company shall
repurchase, all of such Holder's Securities, or any portion of the principal
amount thereof that is equal to U.S.$1,000 or any integral multiple of
U.S.$1,000 in excess thereof, on the date (the "Repurchase Date") that is 45
days after the date of the Company Notice (as defined in Section 15.2) at a
purchase price equal to 100% of the principal amount of the Securities to be
repurchased (the "Repurchase Price") plus interest accrued to the Repurchase
Date; provided, however, that installments of interest on Securities whose
Stated Maturity is on or prior to the Repurchase Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such on the relevant Record Date according to their terms and the provisions of
Section 3.7. Such right to require the repurchase of the Securities shall not
continue after a discharge of the Company from its
-82-
<PAGE> 90
obligations with respect to the Securities in accordance with Article IV, unless
a Change in Control shall have occurred prior to such discharge. At the option
of the Company, the Repurchase Price may be paid in cash or, except as otherwise
provided in Section 15.2(j), by delivery of shares 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 Section, 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 Indenture 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
Indenture shall not be construed as excluding the Repurchase Price in those
provisions of this Indenture when such express mention is not made.
SECTION 15.2 Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for redemption all
of the Outstanding Securities, on or before the 30th day after the occurrence of
a Change in Control, the Company or, at the request and expense of the Company,
the Trustee, shall give to all Holders of Securities, in the manner provided in
Section 1.5, notice (the "Company Notice") of the occurrence of the Change in
Control and of the repurchase right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a repurchase
right to the Trustee.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price,
(4) a description of the procedure which a Holder must follow
to exercise a repurchase right, and the place or places where such
Securities are to be surrendered for payment of the Repurchase Price
and accrued interest, if any,
(5) that on the Repurchase Date the Repurchase Price, and
accrued interest, if any, will become due and payable upon each such
Security designated by the Holder to be repurchased, and that interest
thereon shall cease to accrue on and after said date,
(6) the Conversion Rate then in effect, the date on which the
right to convert the principal amount of the Securities to be
repurchased will terminate and the place or places where such
Securities may be surrendered for conversion, and
(7) the place or places that the certificate required by
Section 2.3 shall be delivered, and the form of such certificate.
-83-
<PAGE> 91
In addition, at least two Business Days preceding the Repurchase Date,
the Company shall give to all Holders of the Securities, in the manner provided
in Section 1.5, notice specifying whether the Repurchase Price will be payable
in cash or Common Shares and shall deliver a copy of such notice to the Trustee.
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article
are inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the
Trustee or any Paying Agent on or before the 30th day after the date of the
Company Notice (i) written notice of the Holder's exercise of such right, which
notice shall set forth the name of the Holder, the principal amount of the
Securities to be repurchased (and, if any Security is to repurchased in part,
the serial number thereof, the portion of the principal amount thereof to be
repurchased and the name of the Person in which the portion thereof to remain
Outstanding after such repurchase is to be registered) and a statement that an
election to exercise the repurchase right is being made thereby, and, in the
event that the Repurchase Price shall be paid in Common Shares, the name or
names (with addresses) in which the certificate or certificates for Common
Shares shall be issued, and (ii) the Securities with respect to which the
repurchase right is being exercised. Such written notice shall be irrevocable,
except that the right of the Holder to convert the Securities with respect to
which the repurchase right is being exercised shall continue until the close of
business on the Repurchase Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the Trustee
or the Paying Agent the Repurchase Price in cash or Common Shares, as provided
above, for payment to the Holder on the Repurchase Date or, if Common Shares are
to be paid, as promptly after the Repurchase Date as practicable, together with
accrued and unpaid interest to the Repurchase Date payable with respect to the
Securities as to which the purchase right has been exercised; provided, however,
that installments of interest that mature on or prior to the Repurchase Date
shall be payable in cash, in the case of Securities, to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Regular Record Date, in each case according to
the terms and provisions of Article Three.
(d) If any Security (or portion thereof) surrendered for repurchase
shall not be so paid on the Repurchase Date, the principal amount of such
Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
the rate of 5 1/4% per annum, and each Security shall remain convertible into
Common Shares until the principal of such Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security
-84-
<PAGE> 92
without service charge, a new Security or Securities, containing identical terms
and conditions, each in an authorized denomination in aggregate principal amount
equal to and in exchange for the unrepurchased portion of the principal of the
Security so surrendered.
(f) Any issuance of Common Shares in respect of the Repurchase Price
shall be deemed to have been effected immediately prior to the close of business
on the Repurchase Date and the Person or Persons in whose name or names any
certificate or certificates for Common Shares shall be issuable upon such
repurchase shall be deemed to have become on the Repurchase Date the holder or
holders of record of the shares represented thereby; provided, however, that any
surrender for repurchase on a date when the stock transfer books of the Company
shall be closed shall constitute the Person or Persons in whose name or names
the certificate or certificates for such shares are to be issued as the
recordholder or holders thereof for all purposes at the opening of business on
the next succeeding day on which such stock transfer books are open. No payment
or adjustment shall be made for dividends or distributions on any Common Shares
issued upon repurchase of any Security declared prior to the Repurchase Date.
(g) No fractions of shares shall be issued upon repurchase of
Securities. If more than one Security shall be repurchased from the same Holder
and the Repurchase Price shall be payable in Common Shares, the number of full
shares which shall be issuable upon such repurchase shall be computed on the
basis of the aggregate principal amount of the Securities so repurchased.
Instead of any fractional Common Share which would otherwise be issuable on the
repurchase of any Security or Securities, the Company will deliver to the
applicable Holder its check for the current market value of such fractional
share. The current market value of a fraction of a share is determined by
multiplying the current market price of a full share by the fraction, and
rounding the result to the nearest cent. For purposes of this Section, the
current market price of a Common Share is the Closing Price Per Share of the
Common Shares on the last Trading Day prior to the Repurchase Date.
(h) Any issuance and delivery of certificates for Common Shares on
repurchase of Securities shall be made without charge to the Holder of
Securities being repurchased for such certificates or for any tax or duty in
respect of the issuance or delivery of such certificates or the securities
represented thereby; provided, however, that the Company shall not be required
to pay any tax or duty which may be payable in respect of (i) income of the
Holder or (ii) any transfer involved in the issuance or delivery of certificates
for Common Shares in a name other than that of the Holder of the Securities
being repurchased, and no such issuance or delivery shall be made unless and
until the Person requesting such issuance or delivery 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.
(i) If any Common Shares to be issued upon repurchase of Securities
hereunder require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon repurchase, the Company covenants that it will in good faith and
as expeditiously as possible endeavor to secure such registration or approval,
as the case may be; provided, however, that nothing in this Section shall be
deemed to affect in any way the obligations of the Company to repurchase
Securities as provided in this Article and if such registration is not completed
or does not become effective or such approval is not obtained prior to the
Repurchase Date, the Repurchase Price shall be paid in cash.
-85-
<PAGE> 93
(j) The Company covenants that all Common Shares which may be issued
upon repurchase of Securities will upon issue be duly and validly issued and
fully paid and non-assessable.
SECTION 15.3 Certain Definitions.
For purposes of this Article XV,
(a) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Commission pursuant to the Exchange Act;
(b) a "Change in Control" shall be deemed to have occurred at the time,
after the original issuance of the Securities, of:
(i) 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 the elections of directors (any shares of voting
stock of which such person or group is the beneficial owner that are
not then outstanding being deemed outstanding for purposes of
calculating such percentage) other than any such acquisition by the
Company, any Subsidiary of the Company or any employee benefit plan of
the Company; or
(ii) 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 Shares 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
Common Shares into solely Common Shares);
provided, however, that a Change in Control shall not be deemed to have occurred
if either (x) the Closing Price Per Share of the Common Shares for any five
Trading Days within the period of 10 consecutive Trading Days ending immediately
after the later of the date of the Change in Control or the date of the public
announcement of the Change in Control (in the case of a Change in Control under
Clause (i) above) or the period of 10 consecutive Trading Days ending
immediately prior to the date of 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 in effect on such trading day or (y) all of the consideration (excluding
cash payments for fractional shares) to be paid for the Common Shares in a
transaction or transactions constituting the Change in Control as described in
Clause (ii) above consists of shares 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 Securities become convertible solely into
such common stock; and
(c) the term "Person" shall include any syndicate or group which would
be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as in
effect on the date of the original execution of this Indenture.
-86-
<PAGE> 94
----------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
WILLIAMS-SONOMA, INC.
By
--------------------------------------
Name:
Title:
[SEAL]
Attest:
- -------------------------------
Name:
-------------------------
Title:
-------------------------
-------------------------
BANKERS TRUST COMPANY, not in its
individual capacity but solely as Trustee
By
--------------------------------------
Name:
Title:
[SEAL]
Attest:
- -------------------------------
Name:
-------------------------
Title:
-------------------------
-------------------------
-87-
<PAGE> 95
STATE OF _____________ )
: ss.:
COUNTY OF _______________ )
On the ___ day of April 1996, before me personally came ______________,
to me known, who, being by me duly sworn, did depose and say that he is
______________________ of Williams-Sonoma, Inc., one of the corporations
described in and which executed the foregoing instrument; that he/she knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation; and that he/she signed his name thereto by like authority.
-------------------------------------
Notary Public
STATE OF ___________ )
: ss.:
COUNTY OF _____________ )
On the ___ day of April 1996, before me personally came ______________,
to me known, who, being by me duly sworn, did depose and say that he/she is
______________________ of Bankers Trust Company, one of the corporations
described in and which executed the foregoing instrument; that he/she knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation; and that he/she signed his name thereto by like authority.
-------------------------------------
Notary Public
-88-
<PAGE> 1
Exhibit 10.10B
WILLIAMS-SONOMA, INC.
5 1/4% CONVERTIBLE SUBORDINATED NOTES DUE APRIL 15, 2003
REGISTRATION RIGHTS AGREEMENT
Dated as of
April 10, 1996
Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Williams-Sonoma, Inc., a California corporation (the "Company"),
proposes to issue and sell to Goldman, Sachs & Co. (the "Purchaser") upon the
terms set forth in a purchase agreement dated April 10, 1996 (the "Purchase
Agreement") between the Purchaser and the Company, its 5 1/4% Convertible
Subordinated Notes Due April 15, 2003 (the "Securities"). As an inducement to
the Purchaser to enter into the Purchase Agreement and in satisfaction of a
condition to the obligations of the Purchaser thereunder, the Company agrees
with the Purchaser, (i) for the benefit of the Purchaser and (ii) for the
benefit of the holders from time to time of the Securities and the Common Stock,
par value $0.01 per share (the "Stock"), of the Company issuable upon conversion
of the Securities (collectively, the "Registrable Securities"), including the
Purchaser (each of the foregoing a "Holder" and, together, the "Holders"), as
follows:
1. DEFINITIONS. Capitalized terms used herein without definition shall
have their respective meanings set forth in or pursuant to the Purchase
Agreement or the Offering Circular, dated April 10, 1996, in respect of the
Securities. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" or "Securities Act" means the United States Securities Act of
1933, as amended.
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Commission" means the United States Securities and Exchange
Commission.
"DTC" means The Depository Trust Company.
<PAGE> 2
"Effectiveness Period" has the meaning set forth in Section 2(b)
hereof.
"Exchange Act" means the United States Securities and Exchange Act of
1934, as amended.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering,
if any, as set forth in Section 6 hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" means the prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities.
"Shelf Registration" means a registration effected pursuant to Section
2 hereof.
"Shelf Registration Statement" means a shelf registration statement of
the Company pursuant to the provisions of Section 2 hereof filed with the
Commission which covers some or all of the Registrable Securities, as
applicable, on an appropriate form under Rule 415 under the Act, or any similar
rule that may be adopted by the Commission, amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"underwriter" means any underwriter of Registrable Securities in
connection with an offering thereof under a Shelf Registration Statement.
2. SHELF REGISTRATION. (a) The Company shall, within 90 days following
the date of original issuance (the "Issue Date") of the Securities, file with
the Commission a Shelf Registration Statement relating to the offer and sale of
the Registrable Securities by the Holders from time to time in accordance with
the methods of distribution elected by such Holders and set forth in such Shelf
Registration Statement and, thereafter, shall use its best efforts to cause such
Shelf Registration Statement to be declared effective under the Act within 90
calendar days after the date of filing of such Shelf Registration Statement;
provided, however, that no Holder shall be entitled to have the Registrable
Securities held by it covered by such Shelf Registration unless such Holder is
in compliance with Section 3(m) hereof.
(b) The Company shall use its best efforts:
(i) To keep the Shelf Registration Statement continuously
effective in order to permit the Prospectus forming part thereof to be
usable by Holders for a period of three years from the date the Shelf
Registration Statement is declared effective or such shorter period
that will terminate upon the earlier of the following: (A) when all the
-2-
<PAGE> 3
Securities covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement, (B) when all shares of
Stock issued upon conversion of any such Securities that had not been
sold pursuant to the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement and (C) when, in the
written opinion of independent counsel to the Company, all outstanding
Registrable Securities held by persons that are not affiliates of the
Company may be resold without registration under the Act pursuant to
Rule 144(k) under the Act or any successor provision thereto (in any
such case, such period being called the "Effectiveness Period"); and
(ii) After the effectiveness of the Shelf Registration Statement,
promptly upon the request of any Holder, to take any action reasonably
necessary to register the sale of any Registrable Securities of such
Holder and to identify such Holder as a selling securityholder.
The Company shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if the Company
voluntarily takes any action that would result in Holders of Registrable
Securities covered thereby not being able to offer and sell any such Registrable
Securities during that period, unless (i) such action in required by applicable
law, or (ii) the continued effectiveness of the Shelf Registration Statement
would require the Company to disclose a material financing, acquisition or other
corporate transaction, and the Board of Directors shall have determined in good
faith that such disclosure is not in the best interests of the Company and its
stockholders, and, in the case of clause (i) above, the Company thereafter
promptly complies with the requirements of paragraph 3(i) below.
3. REGISTRATION PROCEDURES. In connection with any Shelf Registration
Statement, the following provisions shall apply:
(a) The Company shall furnish to the Purchaser, prior to the
filing thereof with the Commission, a copy of any Shelf Registration
Statement, and each amendment thereof and each amendment or supplement,
if any, to the Prospectus included therein and shall use its best
efforts to reflect in each such document, when so filed with the
Commission, such comments as the Purchaser reasonably may propose.
(b) The Company shall take such action as may be necessary so
that (i) any Shelf Registration Statement and any amendment thereto and
any Prospectus forming part thereof and any amendment or supplement
thereto (and each report or other document incorporated therein by
reference in each case) complies in all material respects with the
Securities Act and the Exchange Act and the respective rules and
regulations thereunder, (ii) any Shelf Registration Statement and any
amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (iii) any Prospectus forming part of any
Shelf Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or
omit to state a material fact necessary in
-3-
<PAGE> 4
order to make the statements, in the light of the circumstances under
which they were made, not misleading.
(c) (1) The Company shall advise the Purchaser and, in the case
of clause (i), the Holders and, if requested by the Purchaser or any
such Holder, confirm such advice in writing:
(i) when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf
Registration Statement or any post-effective amendment thereto
has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise the Purchaser and the Holders and,
if requested by the Purchaser or any such Holder, confirm such advice
in writing of:
(i) the issuance by the Commission of any stop order
suspending effectiveness of the Shelf Registration Statement or
the initiation of any proceedings for that purpose;
(ii) the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation
of any proceeding for such purpose; and
(iii) the happening of any event that requires the making of
any changes in the Shelf Registration Statement or the Prospectus
so that, as of such date, the Shelf Registration Statement and
the Prospectus do not contain an untrue statement of a material
fact and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein (in
the case of the Prospectus, in light of the circumstances under
which they were made) not misleading (which advice shall be
accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company shall use its best efforts to prevent the
issuance, and if issued to obtain the withdrawal, of any order
suspending the effectiveness of any Shelf Registration Statement at the
earliest possible time.
(e) The Company shall furnish to each Holder of Registrable
Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing,
all reports, other documents and exhibits (including those incorporated
by reference).
(f) The Company shall, during the Effectiveness Period, deliver
to each Holder of Registrable Securities included within the coverage
of any Shelf Registration Statement,
-4-
<PAGE> 5
without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement
and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents (except during the continuance of any
event described in Section 3(c)(2)(iii)) to the use of the Prospectus
or any amendment or supplement thereto by each of the selling Holders
of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by the Prospectus or any amendment
or supplement thereto during the Shelf Registration Period.
(g) Prior to any offering of Registrable Securities pursuant to
any Shelf Registration Statement, the Company shall register or qualify
or cooperate with the Holders of Registrable Securities included
therein and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions as
any such Holders reasonably request in writing and do any and all other
acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the Registrable Securities covered by such Shelf
Registration Statement; provided, however, that in no event shall the
Company be obligated to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise
be required to so qualify but for this Section 3(g) or (ii) file any
general consent to service of process in any jurisdiction where it is
not as of the date hereof then so subject.
(h) Unless any Registrable Securities shall be in book-entry only
form, the Company shall cooperate with the Holders of Registrable
Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to
any Shelf Registration Statement free of any restrictive legends and in
such permitted denominations and registered in such names as Holders
may request in connection with the sale of Registrable Securities
pursuant to such Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by paragraph
3(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Shelf Registration Statement or an amendment or
supplement to the related Prospectus or file any other required
document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the Prospectus will not
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. If the
Company notifies the Holders of the occurrence of any event
contemplated by paragraph 3(c)(2)(iii) above, the Holders shall suspend
the use of the Prospectus until the requisite changes to the Prospectus
have been made.
(j) Not later than the effective date of any Shelf Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities registered under such Shelf Registration Statement.
(k) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to their security
-5-
<PAGE> 6
holders or otherwise provide in accordance with Section 11(a) of the
Securities Act as soon as practicable after the effective date of the
applicable Shelf Registration Statement an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act.
(l) The Company shall cause the Indenture and the Securities to
be qualified under the Trust Indenture Act in a timely manner.
(m) The Company may require each Holder of Registrable Securities
to be sold pursuant to any Shelf Registration Statement to furnish to
the Company such information regarding the Holder and the distribution
of such Registrable Securities as may be required by applicable law or
regulation for inclusion in such Shelf Registration Statement and the
Company may exclude from such registration the Registrable Securities
of any Holder that fails to furnish such information within a
reasonable time after receiving such request.
(n) The Company shall, if requested, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to a
Shelf Registration Statement, such information as the Managing
Underwriters reasonably agree should be included therein and to which
the Company does not reasonably object and shall make all required
filings of such Prospectus supplement or post-effective amendment as
soon as practicable after they are notified of the matters to be
included or incorporated in such Prospectus supplement or
post-effective amendment.
(o) The Company shall enter into such customary agreements
(including underwriting agreements in customary form) to take all other
appropriate actions in order to expedite or facilitate the registration
or the disposition of the Registrable Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the same
to contain indemnification provisions and procedures substantially
identical to those set forth in Section 5 (or such other provisions and
procedures acceptable to the Managing Underwriters, if any) with
respect to all parties to be indemnified pursuant to Section 5.
(p) The Company shall:
(i) make reasonably available for inspection by the Holders
of Registrable Securities to be registered thereunder, any
underwriter participating in any disposition pursuant to such
Shelf Registration Statement, and any attorney, accountant or
other agent retained by such Holders or any such underwriter all
relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries;
(ii) cause the Company's officers, directors and employees to
make reasonably available for inspection all relevant information
reasonably requested by such Holders or any such underwriter,
attorney, accountant or agent in connection with any such Shelf
Registration Statement, in each case, as is customary for similar
due diligence examinations; provided, however, that any
-6-
<PAGE> 7
information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such
information shall be kept confidential by such Holders or any
such underwriter, attorney, accountant or agent, unless such
disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the
public generally or through a third party without an accompanying
obligation of confidentiality; and provided further that the
foregoing inspection and information gathering shall, to the
greatest extent possible, be coordinated on behalf of the Holders
and the other parties entitled thereto by one counsel designated
by and on behalf of such Holders and other parties;
(iii) make such representations and warranties to the Holders
of Registrable Securities registered thereunder and the
underwriters, if any, in form, substance and scope as are
customarily made by the Company to underwriters in primary
underwritten offerings and covering matters including, but not
limited to, those set forth in the Purchase Agreement;
(iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Managing
Underwriters, if any) addressed to each selling Holder and the
underwriters, if any, covering such matters as are customarily
covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders and
underwriters (it being agreed that the matters to be covered by
such opinion or written statement by such counsel delivered in
connection with such opinions shall include in customary form,
without limitation, as of the date of the opinion and as of the
effective date of the Shelf Registration Statement or most recent
post-effective amendment thereto, as the case may be, the absence
from such Shelf Registration Statement and the prospectus
included therein, as then amended or supplemented, including the
documents incorporated by reference therein, of an untrue
statement of a material fact or the omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading;
(v) obtain "cold comfort" letters and updates thereof from
the independent public accountants of the Company (and, if
necessary, any other independent public accountants of any
subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or
are required to be, included in the Shelf Registration
Statement), addressed to each such Holder of Registrable
Securities registered thereunder and the underwriters, if any, in
customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with primary
underwritten offerings;
(vi) deliver such documents and certificates as may be
reasonably requested by any such Holders and the Managing
Underwriters, if any, including those to evidence compliance with
Section 3(i) and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Company.
-7-
<PAGE> 8
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 3(p) shall be performed at each closing under any
underwritten offering to the extent required thereunder.
(q) The Company will use its best efforts to cause the Securities
and the Stock issuable upon conversion thereof to be listed for
quotation on the Nasdaq National Market or other stock exchange or
trading system on which the Stock primarily trades on or prior to the
effective date of any Shelf Registration Statement hereunder.
(r) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities or participate
as a member of an underwriting syndicate or selling group or "assist in
the distribution" (within the meaning of the Rules of Fair Practice and
the By-Laws of the National Association of Securities Dealers, Inc.
("NASD")) thereof, whether as a Holder of such Registrable Securities
or as an underwriter, a placement or sales agent or a broker or dealer
in respect thereof, or otherwise, assist such broker-dealer in
complying with the requirements of such Rules and By-Laws, including,
without limitation, by (A) such Rules or By-Laws, including Schedule E
thereto, shall so require, engaging a "qualified independent
underwriter" (as defined in Schedule E) to participate in the
preparation of the Shelf Registration Statement relating to such
Registrable Securities and to exercise usual standards of due diligence
in respect thereto, (B) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof and (C) providing such information to such
broker-dealer as may be required in order for such broker-dealer to
comply with the requirements of the Rules of Fair Practice of the NASD.
(s) The Company shall use its best efforts to take all other
steps necessary to effect the registration, offering and sale of the
Registrable Securities covered by the Shelf Registration Statement
contemplated hereby.
4. REGISTRATION EXPENSES. Except as otherwise provided in Section 6,
the Company shall bear all fees and expenses incurred in connection with the
performance of its obligations under Sections 2 and 3 hereof and shall bear or
reimburse the Holders for the reasonable fees and disbursements of one firm of
counsel designated by the Company and reasonably acceptable to the Holders of a
majority of the Registrable Securities covered by the Shelf Registration
Statement to act as counsel therefor in connection therewith.
5. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with any Shelf
Registration Statement, the Company shall indemnify and hold harmless the
Purchaser, each Holder, each underwriter who participates in an offering of
Registrable Securities, each person, if any, who controls any of such parties
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and each of their respective directors, officers, employees,
trustees and agents, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, including any amounts paid in settlement of any
investigation, litigation, proceeding or claim, joint or several, as
incurred, arising out of any untrue statement or alleged untrue
-8-
<PAGE> 9
statement of a material fact contained in any Shelf Registration
Statement (or any amendment thereto) covering Registrable Securities,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, that the Company shall not be liable under
this clause (i) for any settlement of any action effected without its
written consent, which consent shall not be unreasonably withheld; and
(ii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by the
Holders, such Holder or any underwriter (except to the extent otherwise
expressly provided in Section 5(c) hereof)), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any court or governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under
subparagraph (i) of this Section 5(a);
provided that this indemnity shall not apply to any loss, liability, claim,
damage or expense to the extent arising out of an untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by the Purchaser, such Holder
or any underwriter in writing expressly for use in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto). Any amounts advanced by the Company to an indemnified party
pursuant to this Section 5 as a result of such losses shall be returned to the
Company if it shall be finally determined by such a court in a judgment not
subject to appeal or final review that such indemnified party was not entitled
to indemnification by the Company.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Purchaser, each underwriter who participates in
an offering of Registrable Securities and the other selling Holders and each of
their respective directors, officers (including each officer of the Company who
signed the Shelf Registration Statement), employees, trustees and agents and
each Person, if any, who controls the Company, the Purchaser, any underwriter or
any other selling Holder within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any and all loss, liability,
claim, damage and expense whatsoever described in the indemnity contained in
Section 5(a)(i) and (ii) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Shelf Registration Statement (or any amendment thereto) or any Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such selling Holder expressly
for use in the Shelf Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto); provided, however, that, no
such Holder shall be
-9-
<PAGE> 10
liable for any claims hereunder in excess of the amount of net proceeds received
by such Holder from the sale of Registrable Securities pursuant to the Shelf
Registration Statement.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all papers served on such
indemnified party, but failure to so notify an indemnifying party shall not
relieve it of any liability which it may have to the indemnified party otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of any such action. If an
indemnifying party so elects within a reasonable time after receipt of such
notice, such indemnifying party, jointly with any other indemnifying party, may
assume the defense of such action with counsel chosen by it and approved by the
indemnified party or parties defendant in such action, provided that if any such
indemnified party reasonably determines that there may be legal defenses
available to such indemnified party which are different from or in addition to
those available to such indemnifying party or that representation of such
indemnifying party and any indemnified party by the same counsel would present a
conflict of interest, then such indemnifying party or parties shall not be
entitled to assume such defense. If an indemnifying party is not entitled to
assume the defense of such action as a result of the proviso to the preceding
sentence, counsel for such indemnifying party shall be entitled to conduct the
defense of such indemnifying party and counsel for each indemnified party or
parties shall be entitled to conduct the defense of such indemnified party or
parties. If an indemnifying party assumes the defense of an action in accordance
with and as permitted by the provisions of this paragraph, such indemnifying
party shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action. In no
event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from its own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity provision agreement provided for in this
Section 5 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, the Purchaser and
the Holders shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company, the Purchaser and the Holders, as incurred; provided
that no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person that was not guilty of such fraudulent misrepresentation. As between the
Company, the Purchaser and the Holders, such parties shall contribute to such
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect the relative fault of the Company, on the one hand, and
the Purchaser and the Holders, on the other hand, with respect to the statements
or omissions which resulted in such loss, liability, claim, damage or expense,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Purchaser and the Holders, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the
-10-
<PAGE> 11
Company, on the one hand, or by or on behalf of the Purchaser or the Holders, on
the other, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. the Company,
the Purchaser and the Holders of the Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 5 were to be
determined by pro rata allocation or by any other method of allocation that does
not take into account the relevant equitable considerations. For purposes of
this Section 5(d), each director, officer, employee, trustee, agent and Person,
if any, who controls the Purchaser or a Holder within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Purchaser or such Holder, and each director,
officer, employee, trustee and agent of the Company, and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
the Company. No party shall be liable for contribution with respect to any
action, suit, proceeding or claim settled without its written consent.
6. UNDERWRITTEN OFFERING. The Holders of Registrable Securities covered
by the Shelf Registration Statement who desire to do so may sell such
Registrable Securities in an underwritten offering. In any such underwritten
offering, the investment banker or bankers and manager or managers that will
administer the offering will be selected by, and the underwriting arrangements
with respect thereto will be approved by the Holders of a majority of the
Registrable Securities to be included in such offering; provided, however, that
(i) such investment bankers and managers and underwriting arrangements must be
reasonably satisfactory to the Company and (ii) the Company shall not be
obligated to arrange for more than one underwritten offering during the
Effectiveness Period. No Holder may participate in any underwritten offering
contemplated hereby unless such Holder (a) agrees to sell such Holder's
Registrable Securities in accordance with any approved underwriting
arrangements, (b) completes and executes all reasonable questionnaires, powers
of attorney, indemnities, underwriting agreements, lock-up letters and other
documents required under the terms of such approved underwriting arrangements
and (c) at least 20% of the outstanding Registrable Securities are included in
such underwritten offering. The Holders participating in any underwritten
offering shall be responsible for any expenses customarily borne by selling
securityholders, including underwriting discounts and commissions and fees and
expenses of counsel to the selling securityholders and shall reimburse the
Company for the fees and disbursements of their counsel, their independent
public accountants and any printing expenses incurred in connection with such
underwritten offerings. Notwithstanding the foregoing or the provisions of
Section 3(n) hereof, upon receipt of a request from the Managing Underwriter or
a representative of Holders of a majority of the Registrable Securities
outstanding to prepare and file an amendment or supplement to the Shelf
Registration Statement and Prospectus in connection with an underwritten
offering, the Company may delay the filing of any such amendment or supplement
for up to 90 days if the Company in good faith has a valid business reason for
such delay.
7. MISCELLANEOUS.
(a) Other Registration Rights. The Company may grant registration
rights that would permit any Person that is a third party the right to
piggy-back on any Shelf Registration Statement, provided that if the Managing
Underwriter, if any, of such offering delivers an
-11-
<PAGE> 12
opinion to the selling Holders that the total amount of securities which they
and the holders of such piggy-back rights intend to include in any Shelf
Registration Statement is so large as to materially adversely affect the success
of such offering (including the price at which such securities can be sold),
then only the amount, the number or kind of securities to be offered for the
account of holders of such piggy-back rights will be reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, number or kind recommended by the Managing Underwriter
prior to any reduction in the amount of Registrable Securities to be included.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, qualified, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Purchaser.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section
6(c);
(2) if to the Purchaser, initially at the address set forth in
the Purchase Agreement;
and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly given when
received.
The Purchaser or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties and the
Holders, including, without the need for an express assignment or any consent by
the Company thereto, subsequent Holders of Registrable Securities. The Company
hereby agrees to extend the benefits of this Agreement to any Holder of
Registrable Securities and any such Holder may specifically enforce the
provisions of this Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
-12-
<PAGE> 13
(g) Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
-13-
<PAGE> 14
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
WILLIAMS-SONOMA, INC.
By:
-------------------------------
Name:
Title:
The foregoing Registration Rights Agreement is hereby confirmed and accepted as
of the date first above written.
- -------------------------------
(Goldman, Sachs & Co.)
-14-
<PAGE> 1
EXHIBIT 10.11
STANDARD FORM OFFICE LEASE
THIS LEASE is made as of the 2nd day of January, 1996, by and between
Landlord and Tenant.
W I T N E S S E T H:
1. Terms and Definitions.
For the purposes of this Lease, the following terms shall have the
following definitions and meanings:
(a) LANDLORD: HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP, a Delaware
limited partnership.
(b) LANDLORD'S ADDRESS:
Howard Hughes Corporation
1635 Village Center Circle
Suite 140
Las Vegas, Nevada 89134
Attn: Barbara Helgren
(c) TENANT: WILLIAMS-SONOMA, INC., a California corporation.
(d) TENANT'S ADDRESS: Copy to:
Williams-Sonoma, Inc. Irell & Manella
3250 Van Ness Avenue 1800 Avenue of the Stars, #900
San Francisco, California 94109 Los Angeles, California 90067
Attn: Mr. Patrick Connolly Attn: Sandra G. Kanengeiser, Esq.
(e) PREMISES ADDRESS: 10,000 Covington Cross Drive, Las Vegas, Nevada
(subject to confirmation upon receipt of a building permit for the
Improvements).
(f) PREMISES: Those certain premises defined in Subparagraph 2(a)
hereinbelow.
(g) APPROXIMATE RENTABLE SQUARE FEET WITHIN IMPROVEMENTS: 35,867.
(h) TERM: Ten (10) Lease Years, with three (3) five (5) year options to
extend.
(i) IMPROVEMENTS: Those improvements constructed by Landlord as set
forth in the Work Letter.
(j) ESTIMATED COMMENCEMENT DATE: August 1, 1996.
(k) COMMENCEMENT DATE: Subject to Tenant Delays, as defined in the Work
Letter Agreement, the date upon which the Improvements have been
substantially completed as determined by Landlord's architect or space
planner. The Improvements shall be deemed substantially completed upon (i)
completion of the Improvements other than the Punch List Items, (ii)
receipt of a Certificate of Occupancy or Temporary Certificate of Occupancy
(or its equivalent) for the Improvements and (iii) Tenant's receipt of
written notice from Landlord specifying the date upon which Landlord
projects that the Improvements will be substantially completed, which
notice
<PAGE> 2
shall be delivered by Landlord at least five (5) business days, but no more
than thirty (30) days, prior to the projected date for substantial
completion.
(l) ANNUAL BASIC RENT; MONTHLY BASIC RENT:
Lease Years Annual Basic Rent Monthly Basic Rent
1-5 $529,396.92 $44,116.41
6-10 $598,261.56 $49,855.13
(m) OPERATING EXPENSES ALLOWANCE: Operating Expenses for calendar year
1996. In the event the Landlord has not incurred Operating Expenses during
the entire 1996 calendar year, then Landlord will annualize those Operating
Expenses incurred during the partial calendar year in order to determine
the Operating Expenses Allowance.
(n) PERMITTED USE: Any use permitted by applicable law which is
consistent with other uses then existing within The Crossing Business
Center in Las Vegas, Nevada (the "PROJECT") and subject to Paragraph 8
below.
(o) BROKERS: CB Commercial Real Estate Services.
(p) LANDLORD'S CONSTRUCTION REPRESENTATIVE: Frank Beck.
(q) TENANT'S CONSTRUCTION REPRESENTATIVE: Susan Browne.
(r) LEASE YEAR: A period of twelve (12) consecutive months, the first
such period commencing on the Commencement Date and consecutive periods
beginning on each consecutive anniversary thereof.
(s) EXHIBITS: "A" through "G" inclusive, which Exhibits are attached to
this Lease and are incorporated herein by this reference.
2. Premises Leased.
(a) Initial Premises. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the parcel of real property legally described
on Exhibit "A" attached hereto and outlined on the Site Plan attached
hereto as Exhibit "B", and all improvements from time to time located
thereon, including the Improvements to be constructed by Landlord as
described in the Work Letter Agreement attached hereto as Exhibit "C" (the
"PREMISES"), said Premises being agreed, for the purposes of this Lease, to
have the number of rentable square feet as designated in Subparagraph 1(g)
(subject to adjustment as provided in Exhibit "D" attached hereto). Upon
the Commencement Date, Landlord and Tenant shall compile a list of
incomplete and/or corrective Improvement items (collectively, "PUNCH LIST
ITEMS"), which items Landlord shall complete and/or correct promptly
thereafter and Landlord shall remain responsible for the completion and/or
correction of such items. In addition, Landlord shall be responsible, at
Landlord's sole cost and expense, for any latent defects in the
Improvements and for any other defects disclosed in writing by Tenant to
Landlord within the first year after the Commencement Date. Landlord shall
construct the Improvements in compliance with all laws in effect at the
time of construction.
The parties hereto agree that said letting and hiring is upon and
subject to the terms, covenants and conditions herein set forth and Tenant
covenants as a material part of the consideration for this Lease to keep
and perform each and all of said terms, covenants and conditions by it to
be kept and performed and that this Lease is made upon the condition of
such performance.
(b) Expansion Premises. Tenant shall have the option ("EXPANSION
OPTION") to cause Landlord to expand the Premises to accommodate an
additional 17,920 rentable square feet of improved space, together with
parking areas for an additional 135
-2-
<PAGE> 3
cars, in the location depicted on Exhibit "B" attached hereto and described
in Exhibit "A" attached hereto (the "EXPANSION PREMISES"). The Expansion
Option shall not, at Landlord's election, be exercisable if Tenant is in
default under Paragraph 25 of this Lease at the time Tenant attempts to
exercise the Expansion Option. The Expansion Option is personal to the
Tenant named in Subparagraph 1(c) ("ORIGINAL TENANT") or to any "Affiliate
Assignee" (as that term is defined in Paragraph 26 below) and may not be
exercised by any other person or entity. In order to exercise the Expansion
Option, Tenant must deliver written notice ("EXPANSION NOTICE") thereof to
Landlord prior to the expiration of the third (3rd) Lease Year. Upon
Tenant's timely exercise of the Expansion Option, Landlord shall cause the
construction of the Expansion Premises in accordance with the terms of the
Work Letter Agreement, except that: (i) the Preliminary Plans prepared
pursuant to Paragraph 2.2 of the Work Letter Agreement shall be based upon
the preliminary plans for the original Improvements; (ii) the Allowance
shall be the product of $25.00 per rentable square foot of the improvements
to be constructed for the Expansion Premises multiplied by a fraction, the
numerator of which is the number of months remaining in the initial Term
following the Estimated Commencement Date for the Expansion Premises, and
the denominator of which is one hundred twenty (120); (iii) the schedule
set forth in Paragraph 6 of the Work Letter Agreement will be modified as
mutually agreed by Landlord and Tenant in good faith as soon as reasonably
possible after the date of Landlord's receipt of the Expansion Notice and
(iv) Paragraph 7.2 of the Work Letter Agreement shall not apply to
construction of the Expansion Premises. Subject to applicable laws, the
Base Improvements provided by Landlord for the Expansion Premises shall be
substantially the same as the Base Improvements provided by Landlord for
the original Improvements. The Estimated Commencement Date for the
Expansion Premises will be twelve (12) months following the date of
Landlord's receipt of the Expansion Notice; provided, however, that upon
request from Tenant, Landlord shall use commercially reasonable efforts to
accelerate construction of improvements in the Expansion Premises. The
actual Commencement Date for Tenant's lease of the Expansion Premises will
be the date upon which the Expansion Premises has been substantially
completed as determined by Landlord's architect or space planner (as
substantial completion is defined in Subparagraph 1(k) above and subject to
acceleration for Tenant Delays). The Term of Tenant's lease of the
Expansion Premises shall be co-terminous with the Term of Tenant's lease of
the original Premises. Effective upon the Commencement Date for the
Expansion Premises, (i) the Expansion Premises shall become a portion of
the Premises for all purposes under this Lease, (ii) Annual Basic Rent
shall be increased by an amount equal to the product of the then-current
Annual Basic Rent (on a rentable square foot basis) multiplied by the
rentable square footage contained in the improvements to be constructed for
the Expansion Premises and (iii) the Operating Expenses Allowance shall be
increased by an amount equal to the product of the Operating Expenses
Allowance (on a rentable square foot basis) multiplied by the rentable
square footage contained in the improvements to be constructed for the
Expansion Premises.
(c) Service Facilities. Landlord reserves the right, and Tenant shall
have no right, of access to the Service Facilities, as defined in
Subparagraph 14(a)(ii).
3. Term.
(a) Initial Term. The Term of this Lease shall be for the period
designated in Subparagraph 1(h) commencing on the Commencement Date, and
ending on the expiration of such period, unless such Term shall be sooner
terminated or extended as hereinafter provided. The Commencement Date and
the date upon which the Term of this Lease shall end shall be determined in
accordance with the provisions of Subparagraph 1(k) and said dates will be
specified in Landlord's Notice of Lease Term Dates ("NOTICE"), in the form
of Exhibit "E" attached hereto, and shall be served upon Tenant as provided
in Paragraph 9, after Landlord delivers or tenders possession of the
Premises to Tenant and Tenant has accepted possession of the Premises in
accordance with the terms of this Lease. The Notice shall be binding upon
Tenant unless Tenant objects to the Notice in writing, served upon Landlord
as provided for in Paragraph 9 hereof, within ten (10) business days of
Tenant's receipt of the Notice.
-3-
<PAGE> 4
(b) Options to Extend.
(i) Option Rights. Landlord hereby grants to Tenant three (3)
options ("EXTENSION OPTIONS") to extend the Lease Term for periods of five
(5) years each ("OPTION TERMS"). The Extension Option shall not, at
Landlord's election, be exercisable if Tenant is in default under Paragraph
25 of this Lease after expiration of applicable cure periods at the time
Tenant attempts to exercise the Extension Option or, following such
exercise, prior to the commencement of the Option Term. The Extension
Option is personal to the Original Tenant or any assignee of the Original
Tenant's entire interest in this Lease where such assignment is permitted
pursuant to Paragraph 26 below and may not be exercised by any other person
or entity. Provided Tenant has properly and timely exercised an Extension
Option, the then current Term shall be extended for the period specified
above, and all terms, covenants and conditions of this Lease shall remain
unmodified and in full force and effect except that Annual Basic Rent
payable by Tenant during the Option Term shall be adjusted as set forth in
Subparagraph 2(b)(ii). In no event shall Tenant be entitled to exercise the
second (2nd) Extension Option unless Tenant has properly and timely
exercised the first Extension Option and in no event shall Tenant be
entitled to exercise the third (3rd) Extension Option unless Tenant has
properly and timely exercised the first and second (2nd) Extension Options.
In no event shall Tenant be entitled to extend the Lease Term beyond the
third (3rd) Option Term.
(ii) Option Rent. The Annual Basic Rent payable by Tenant during
the Option Term (the "OPTION RENT") shall be one hundred percent (100%) of
the "Fair Market Rental Rate" for the Premises; however, the Annual Basic
Rent for the Option Term shall not be below the Annual Basic Rent payable
for the Lease Year immediately preceding the Option Term. The term "FAIR
MARKET RENTAL RATE" shall mean the annual amount that a willing,
non-equity, third-party tenant would pay and a willing, comparable landlord
would accept, on a non-renewal basis, at arm's length, for space
unencumbered by any other tenant's expansion rights, which space is
comparable to the Premises and similarly improved in projects of comparable
age, size and quality in Las Vegas, Nevada, including The Crossing Business
Center ("COMPARABLE PROJECTS"), giving appropriate consideration to
appropriate concessions and to all economic terms, such as annual rental
rates, escalation clauses (including type, such as net, base year or
expense stop), abatement provisions reflecting free rent, if any, parking
terms and availability, length of lease term, size and location of premises
being leased, and other generally acceptable terms and conditions for the
tenancy of the space in question (but without any deduction for the absence
of an obligation of the landlord to pay a brokerage commission if a
comparable transaction does not include such an obligation). The parties
agree that if Landlord is not obligated to pay a broker's commission in
connection with an Extension Option, that the Fair Market Rental Rate shall
reflect that Landlord will be entitled to retain fifty percent (50%) of the
savings resulting from the fact that no such commission (calculated at the
rate then generally paid for comparable transactions in Comparable
Projects) is paid and that Tenant is entitled to the remaining fifty
percent (50%) of the savings from the fact that no such commission is being
paid.
(iii) Exercise of Options. The Extension Options shall be exercised
by Tenant, if at all, only in the following manner: (A) Tenant shall
deliver written notice to Landlord not more than fifteen (15) months nor
less than eleven (11) months prior to the expiration of the initial Term
(or preceding Option Term, as applicable) stating that Tenant is interested
in exercising the Extension Option, (B) Landlord, after receipt of Tenant's
notice, shall deliver notice (the "OPTION RENT NOTICE") to Tenant within
forty-five (45) days after Landlord's receipt of such notice from Tenant
setting forth Landlord's initial determination of the Option Rent, which
shall be applicable to this Lease during the Option Term; and (C) if Tenant
wishes to exercise the Extension Option, Tenant shall, on or before the
date occurring thirty (30) days after Tenant's receipt of the Option Rent
-4-
<PAGE> 5
Notice, exercise the Extension Option by delivering written notice thereof
to Landlord, and upon, and concurrent with, such exercise, Tenant may, at
its option, object in writing to the Option Rent contained in the Option
Rent Notice, in which case the parties shall follow the procedure, and the
Option Rent shall be determined, as set forth in Subparagraph 2(b)(iv)
below.
(iv) Determination of Option Rent. In the event Tenant timely
objects in writing to the Option Rent initially determined by Landlord,
Landlord and Tenant shall attempt to agree upon the Option Rent using their
best good-faith efforts. If Landlord and Tenant fail to reach agreement
within forty-five (45) days following Tenant's objection to the Option Rent
(the "OUTSIDE AGREEMENT DATE"), then each party shall submit to the other
party a separate written determination of the Option Rent within five (5)
days after the Outside Agreement Date, and such determinations shall be
submitted to arbitration in accordance with clauses (A) through (G) below.
Failure of Tenant or Landlord to submit a written determination of the
Option Rent within such five (5) day period shall conclusively be deemed to
be the non-determining party's approval of the Option Rent submitted within
such five (5) day period by the other party.
(A) Each party shall, within ten (10) days following the
Outside Agreement Date, appoint a licensed, disinterested M.A.I.
Appraiser having substantial experience with comparable buildings in
Las Vegas, Nevada (a "QUALIFIED APPRAISER") and give written notice of
such appointment to the other. If either party fails to notify the
other of the appointment of its Qualified Appraiser within the time
period specified above, then the Qualified Appraiser appointed shall be
the sole appraiser to determine the Option Rent;
(B) In the event two (2) Qualified Appraisers are chosen as
herein provided, the Qualified Appraisers so chosen shall meet within
ten (10) business days after they are appointed as aforesaid, and, if
within ten (10) business days after such first meeting, the two (2)
Qualified Appraisers fail to come to a mutual determination as to the
appropriate Option Rent, they themselves shall appoint a third
Qualified Appraiser, who shall be a competent and disinterested person
with qualifications similar to those required of the first two (2)
Qualified Appraisers as herein provided. In the event the first two (2)
Qualified Appraisers fail to agree upon and select a third Qualified
Appraiser within ten (10) days after the expiration of said ten (10)
day period, the third Qualified Appraiser shall be selected by any
judge with authority under Nevada law and the parties shall not raise
any questions or objections as to such judge's full power,
jurisdiction, and authority to select said Qualified Appraiser;
(C) Within ten (10) days after appointment of the third
Qualified Appraiser, each of the three (3) Qualified Appraisers
selected shall state in writing his or her respective opinion as to the
appropriate Option Rent, supported by the reasons therefor with
counterpart copies to each party;
(D) The Qualified Appraisers shall arrange for a simultaneous
exchange of such determinations promptly. The opinion as to the Option
Rent which is the furthest from the middle value shall be excluded and
the Option Rent for purposes hereof shall be the average of the
remaining two (2) opinions and shall constitute the decision of the
Qualified Appraisers and be final and binding on Landlord and Tenant;
provided, however, that if both other opinions are equally distant in
opposite directions from the middle value, then the middle value shall
constitute the Option Rent. The Qualified Appraisers shall give written
notice to the parties stating their determination, and shall furnish to
each
-5-
<PAGE> 6
party a signed copy of such determination. The Qualified Appraisers
shall have no power to modify the provisions of this Lease.
(E) In the event of a failure, refusal or inability of any
Qualified Appraiser to act, a successor shall be appointed by the party
who originally appointed the Qualified Appraiser, but in the case of
the third Qualified Appraiser, the third Qualified Appraiser's
successor shall be appointed in the same manner as provided for
appointment of the third Qualified Appraiser. Each party shall pay the
fees and expenses of the party's own Qualified Appraiser and shall
share equally the fees and expenses of the third Qualified Appraiser
and all other expenses of the appraisal.
4. Possession.
Tenant agrees that in the event of the inability of Landlord to deliver
possession of the Premises to Tenant on the Estimated Commencement Date, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, except as expressly provided in
Paragraph 7.2 of Exhibit "C".
5. Annual Basic Rent.
Tenant agrees to pay Landlord as Annual Basic Rent for the Premises the
Annual Basic Rent designated in Subparagraph 1(l) in twelve (12) equal monthly
installments, each in advance on the first day of each and every calendar month
during the Term, except that the first full month's rent shall be paid upon the
execution hereof. In the event the Term of this Lease commences or ends on a day
other than the first day of a calendar month, then the rental for such periods
shall be prorated in the proportion that the number of days this Lease is in
effect during such periods bears to thirty (30), and such rental shall be paid
at the commencement of such periods. In addition to said Annual Basic Rent,
Tenant agrees to pay the amount of the rental adjustments as additional rent
when hereinafter provided in this Lease. Said Annual Basic Rent, additional
rent, and rental adjustments shall be paid to Landlord, without any prior demand
therefor and without any deduction or offset whatsoever (except as expressly
provided in this Lease), in lawful money of the United States of America, which
shall be legal tender at the time of payment, at the address of Landlord
designated in Subparagraph 1(b) or to such other person or at such other place
as Landlord may from time to time designate in writing. Further, all charges to
be paid by Tenant hereunder, including, without limitation, payments for
Operating Expenses and repairs shall be considered additional rent for the
purposes of this Lease, and the word "RENT" in this Lease shall include such
additional rent unless the context specifically or clearly implies that only the
Annual Basic Rent is referenced.
6. Rental Adjustment.
(a) For the purposes of this Subparagraph 6(a), the following terms are
defined as follows:
Operating Expenses Allowance. Operating Expenses Allowance shall mean
that portion of the Operating Expenses which Landlord has included in the
Annual Basic Rent and which amount is set forth in Subparagraph 1(m) above.
Operating Expenses. Operating Expenses shall consist of all direct
costs of operation and maintenance of the Premises, as determined by
standard accounting practices, consistently applied, including the
following costs by way of illustration, but not limitation: real property
taxes and assessments and any taxes or assessments hereafter imposed in
lieu thereof; rent taxes, gross receipt taxes (whether assessed against
Landlord or assessed against Tenant and collected by Landlord, or both);
relamping; the net cost and expense of insurance obtained by Landlord under
Paragraph 21(d) below (provided, however, that such insurance may be
obtained by Landlord for the entirety of The Crossing Business Center in
which case Landlord shall reasonably prorate the cost and expense of such
insurance to each separate building within The Crossing Business Center
project based upon square footage of either land or improvements); security
(but
-6-
<PAGE> 7
nothing contained herein shall be deemed to require Landlord to provide
security); labor; the cost (fully amortized over useful life in accordance
with generally accepted accounting principles together with interest at the
rate of Landlord's cost of borrowing unsecured funds, as of the date of
installation of the Improvements or commencement of the replacement or
repair, on the unamortized balance) of (a) any capital improvements made to
the Premises by the Landlord, with Tenant's consent, which are designed to
reduce other Operating Expenses by an amount at least equal to the
amortized cost of such improvement, or made to the Premises by Landlord to
comply with any governmental law or regulation that was not applicable to
the Improvements at the time they were constructed, or (b) replacement or
repair of any building equipment (but not repair or replacement of the
roof, any exterior or other load bearing walls or the foundation of the
Improvements) needed to operate the Premises at the same quality levels as
prior to the replacement or repair; costs incurred in the management of the
Premises (including without limitation supplies, wages and salaries of
employees used in the management, operation and maintenance of the
Premises, and payroll taxes and similar governmental charges with respect
thereto, management office rental (which shall be reasonably allocated to
all projects managed from such office) and a management fee not to exceed
four percent (4%) of Landlord's gross revenues from the Premises) but
Operating Expenses shall not include a parking management fee if Landlord
hires a third party to manage parking; supplies, materials, equipment,
tools, repair and maintenance of those portions of the Premises for which
Landlord is responsible to clean, repair and maintain pursuant to this
Lease, including the obligations of Landlord under Subparagraphs 15(b) and
18(a) (but not any costs attributable to repairs made by Landlord pursuant
to Paragraph 2(a)); rental of personal property used in maintenance; costs
and expenses of gardening and landscaping; maintenance of signs (other than
Tenant's signs); personal property taxes levied on or attributable to
personal property used in connection with the Premises; assessments against
the Premises pursuant to CC&Rs; and costs and expenses of repairs,
resurfacing, repairing, maintenance, painting, lighting, cleaning
(including cleaning of exterior windows), and similar items related to the
Premises (including, without limitation, the parking areas).
Notwithstanding anything to the contrary contained in this Lease or the
CC&Rs, in no event shall Operating Expenses include any costs related to
common areas of the Project. To the extent that the cost of any repairs or
maintenance (but not any start-up corrections attributable to new
construction) performed during the 1996 base year is covered by warranties
or guaranties, then for any period of time during the Term in which such
warranties or guaranties are not in effect, the cost of such repairs and
maintenance shall be included in the 1996 base year Operating Expenses for
purposes of computing Tenant's obligations under Paragraph 6(b) below. In
addition, if Landlord elects to carry a type of insurance as an Operating
Expense, and if such type of insurance was not carried during the 1996 base
year, then during such periods that such new type of insurance premiums are
so included in a comparison year, Operating Expenses for the 1996 base year
shall be deemed to be increased by the amount of the premium for comparable
coverage which would have been payable had the coverage been carried during
the 1996 base year. Further, the same treatment shall be applied to
material elements of Operating Expenses which are added voluntarily by
Landlord to Operating Expenses on or after January 1, 1997, and the
inclusion of such amounts in Operating Expenses for the 1996 base year
shall only include the amount Landlord would have incurred had such items
been included in Operating Expenses during the 1996 base year, with any
increases being an additional Operating Expense payable by Tenant pursuant
to Paragraph 6(b) below. Real property taxes for the 1996 base year shall
be calculated as if the initial Improvements were complete throughout the
entire year. Finally, Operating Expenses shall not include the following:
(i) bad debt expenses and interest, principal, points and fees on
debts (except in connection with the financing of items which may be
included in Operating Expenses) or amortization on any mortgage or
mortgages or any other debt instrument encumbering the Premises;
(ii) real estate brokers' leasing commissions;
-7-
<PAGE> 8
(iii) the cost of providing any service to the extent directly
paid by Tenant;
(iv) any costs expressly excluded from Operating Expenses
elsewhere in this Lease;
(v) costs of any items (including, but not limited to, costs
incurred by Landlord for the repair of damage to the Premises) to the
extent Landlord receives reimbursement from insurance proceeds or from a
third party, except that any commercially reasonable deductible amount
under any insurance policy shall be included within Operating Expenses;
(vi) costs of capital improvements, except those expressly set
forth in the definition of Operating Expenses above;
(vii) rentals and other related expenses for leasing equipment
(except when needed in connection with normal repairs and maintenance of
the Premises) which if purchased, rather than rented, would constitute a
capital improvement not includable in Operating Expenses pursuant to this
Lease;
(viii) depreciation, amortization and interest payments, except as
specifically included in Operating Expenses pursuant to the terms of this
Lease and except on materials, tools, supplies and vendor-type equipment
purchased by Landlord to enable Landlord to supply services Landlord might
otherwise contract for with a third party, where such depreciation,
amortization and interest payments would otherwise have been included in
the charge for such third party's services, all as determined in accordance
with generally accepted accounting principles, consistently applied, and
when depreciation or amortization is permitted or required, the item shall
be amortized over its reasonably anticipated useful life;
(ix) costs incurred by Landlord for alterations (including
structural additions), repairs (including, without limitation, capital
repairs resulting from casualty but including in Operating Expenses
insurance deductibles expended for such repairs), equipment and tools which
are of a capital nature and/or which are considered capital improvements or
replacements under generally accepted accounting principles, consistently
applied, except as specifically includable in Operating Expenses pursuant
to the terms of this Lease;
(x) Landlord's general corporate overhead and general and
administrative expenses;
(xi) advertising and promotional expenditures;
(xii) janitorial costs, electric power costs or other utility
costs to the extent Tenant pays such costs directly pursuant to Paragraph
18 below;
(xiii) tax penalties incurred as a result of Landlord's
negligence, inability or unwillingness to make payments or file returns
when due;
(xiv) costs arising from Landlord's charitable or political
contributions;
(xv) costs necessitated by or resulting from the negligence of
Landlord, or any of its agents, employees or independent contractors;
(xvi) any ground lease rental;
(xvii) all costs associated with any hazardous waste remediation;
(xviii) any reserves; and
-8-
<PAGE> 9
(xix) overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services for the
Premises (other than a management fee) to the extent the same exceeds the
cost of such goods and/or services generally charged by unaffiliated third
parties on a competitive basis.
As used herein, the term "REAL PROPERTY TAXES" shall include any form
of assessment, license fee, license tax, business license fee, commercial rental
tax, levy, charge, penalty, tax or similar imposition imposed by any authority
having the direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
or special assessment district thereof, as against any legal or equitable
interest of Landlord in the Premises, including, but not limited to, the
following:
(i) any tax on Landlord's "right" to rent or "right" to other
income from the Premises or as against Landlord's business of leasing the
Premises;
(ii) any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real estate tax, recognizing
that real property taxes shall also include any governmental assessments or
contributions towards a governmentally required cost/sharing agreement for
the purpose of augmenting or improving the quality of services and
amenities normally provided by governmental agencies, and it is the
intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of this Lease,
including, without limitation, those calculated to increase tax increments
to governmental agencies or to pay for such services as fire protection,
street, sidewalk and road maintenance, refuse removal or other governmental
services which may have been formerly provided without charge to property
owners or occupants;
(iii) any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or the rent payable hereunder,
including, without limitation, any gross income tax or excise tax levied by
the State, city or federal government, or any political subdivision
thereof, with respect to the receipt of such rent, or upon or with respect
to the possession, leasing, operating, management, maintenance, alteration,
repair, use or occupancy by Tenant of the Premises, or any portion thereof;
(iv) any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises (but not any
documents requested by Landlord);
(v) any assessment, fee, levy or charge by any governmental
agency related to any transportation plan, fund or system instituted within
the geographic area of which the Premises are a part (provided that all
assessments which may be paid in installments shall be included in
Operating Expenses under the assumption that such assessments are paid by
Landlord in the maximum number of installments permitted by law whether or
not such assessments are actually paid in installments); or
(vi) reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine
or reduce real property taxes, but only to the extent of the reduction
reasonably anticipated by Landlord as a result of such proceedings.
Notwithstanding any provision of this Subparagraph 6(a) expressed or
implied to the contrary, "real property taxes" shall not include Landlord's
federal or state income, franchise, inheritance or estate taxes.
-9-
<PAGE> 10
(b) By the first day of March of each calendar year during the Term of
this Lease, or as soon thereafter as is reasonably possible (but in any event
prior to July 1) Landlord shall deliver to Tenant a statement, itemized on a
line item basis ("ESTIMATE STATEMENT"), wherein Landlord shall estimate the
Operating Expenses for the current calendar year, and the amount, if any, by
which the Operating Expenses are in excess of the Operating Expenses Allowance.
Provided, however, if Landlord determines that the Operating Expenses for such
current calendar year are greater than that set forth in the Estimate Statement,
then Landlord may deliver on the first day of June, September, or December, as
appropriate, a revised Estimate Statement and Tenant shall pay to Landlord,
within thirty (30) days of the delivery of such revised Estimate Statement, the
difference between such revised Estimate Statement and the original Estimate
Statement for the portion of the current calendar year which has then expired,
and Tenant shall pay during the balance of such current calendar year through
February of the succeeding calendar year a fraction of the balance of such
difference as would fully amortize such excess over the remaining months of the
then current calendar year through and including February of the succeeding
calendar year. If the Operating Expenses estimated in the Estimate Statement
exceed the Operating Expenses Allowance, then such excess amount shall be
divided into twelve (12) equal monthly installments and Tenant shall pay to
Landlord, concurrently with the regular monthly rent payment next due following
the receipt of such statement, an amount equal to one (1) monthly installment
multiplied by the number of months from January in the calendar year in which
said statement is submitted (or, from the calendar month of the Commencement
Date for the first year of the Term) to the month of such payment, both months
inclusive. Subsequent installments shall be paid concurrently with the regular
monthly rent payments for the balance of the calendar year and shall continue
until the next calendar year's Estimate Statement is rendered. By the first day
of March of each succeeding calendar year during the Term of this Lease or as
soon thereafter as is reasonably possible (but in any event prior to July 1),
Landlord shall deliver to Tenant a statement ("ACTUAL STATEMENT") wherein
Landlord shall state the actual Operating Expenses for the preceding calendar
year. If the Actual Statement reveals a greater increase in Operating Expenses
than was estimated by Landlord in the Estimate Statement delivered as provided
herein, then upon receipt of the Actual Statement from Landlord, Tenant shall
pay a lump sum equal to said total increase over the Operating Expenses
Allowance, less the total of the monthly installments of increases set forth on
the Estimate Statement which were paid in the previous calendar year. If, in any
calendar year, Operating Expenses are less than the preceding calendar year,
then upon receipt of Landlord's Actual Statement, any overpayment made by Tenant
on the monthly installment basis provided above shall be credited toward the
next monthly rent falling due and the monthly installment of Operating Expenses
to be paid pursuant to the then current Estimate Statement shall be adjusted to
reflect such lower expenses for the most recent calendar year, or if this Lease
has been terminated, such excess shall be credited against any amount which
Tenant owes Landlord pursuant to this Lease and, to the extent all amounts which
Tenant owes Landlord pursuant to this Lease have been paid, Landlord shall
promptly pay such excess to Tenant. Any delay or failure by Landlord in
delivering any estimate or statement pursuant to this Subparagraph 6(b) shall
not constitute a waiver of its right to require an increase in rent nor shall it
relieve Tenant of its obligations pursuant to this Subparagraph 6(b), except
that (i) the failure of Landlord to deliver to Tenant the Actual Statement for
any calendar year by that date which is two (2) years after the last day of such
calendar year shall preclude Landlord from enforcing its rights under this
Paragraph 6 against Tenant only with respect to those Operating Expenses for
which Landlord or Landlord's employees, agents or contractors (including,
without limitation, any person or entity that manages the Premises for Landlord)
was solely responsible for the determination and calculation thereof, and (ii)
Tenant shall not be obligated to make any payments based on such estimate or
statement until thirty (30) days after receipt of such estimate or statement.
Tenant or an independent certified public accountant (which accountant is a
member of a nationally or regionally recognized accounting firm) designated by
Tenant may, after reasonable notice to Landlord and at reasonable times, inspect
and photocopy Landlord's records relating to Operating Expenses at Landlord's
offices or wherever records are located, provided that Tenant is not then in
default after expiration of all applicable cure periods (or if Landlord contends
that Tenant is in default, no good faith dispute exists between Landlord and
-10-
<PAGE> 11
Tenant as to whether Tenant is in default) and provided further that Tenant and
such accountant shall, and each of them shall, use their commercially reasonable
efforts to cause their respective agents and employees to, maintain all
information contained in Landlord's records in strict confidence.
Notwithstanding the foregoing, Tenant shall only have the right to review
Landlord's records one (1) time during any twelve (12) month period. In the
event Tenant shall dispute the amount set forth in the Actual Statement
described above in this Subparagraph 6(b), Tenant shall have the right not later
than eighteen (18) months following receipt of such Actual Statement to cause
Landlord's books and records with respect to the preceding calendar year to be
audited by a certified public accountant mutually acceptable to Landlord and
Tenant. The amounts payable under this Subparagraph 6(b) by Landlord to Tenant
or by Tenant to Landlord as the case may be shall be appropriately adjusted on
the basis of such audit plus interest from the date of payment until the date of
adjustment at the "Interest Rate". The term "INTEREST RATE" means the lesser of
(a) the "Prime Rate" or "Reference Rate" announced from time to time by Bank of
America (or such reasonable comparable national banking institution as is
selected by Landlord in the event Bank of America ceases to exist or to publish
a Prime Rate or Reference Rate), plus two percent (2%), or (b) the maximum rate
permitted by law. If such audit discloses a liability for further refund by
Landlord to Tenant in excess of five percent (5%) of the Operating Expenses for
any calendar year, the cost of such audit shall be borne by Landlord; otherwise
the cost of such audit shall be borne by Tenant. If Tenant shall not request an
audit in accordance with the provisions of this Subparagraph 6(b) within
eighteen (18) months of receipt of Landlord's Actual Statement, such Actual
Statement shall be conclusively binding upon Landlord and Tenant.
Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Operating Expenses for the year in which
this Lease terminates, Tenant shall pay, within thirty (30) days after receipt
of written notice, any increase due over the estimated expenses paid and
conversely any overpayment made in the event the estimated expenses paid exceed
actual expenses shall be credited against any amount which Tenant owes Landlord
pursuant to this Lease and, to the extent all amounts which Tenant owes Landlord
pursuant to this Lease have been paid, Landlord shall promptly refund such
overpayment to Tenant.
Notwithstanding anything contained in this Paragraph 6, Tenant shall
not be entitled to any credit or payment from Landlord in the event that
Operating Expenses are less than the Operating Expenses Allowance for any
calendar year.
7. Security Deposit.
Intentionally Omitted.
8. Use.
(a) Tenant shall use the Premises for the use specified in
Subparagraph 1(n), and shall not use or permit the Premises to be used for
any other purpose. Notwithstanding anything to the contrary contained
herein, in no event shall any portion of the Premises be used for gaming
purposes including, without limitation, slot machines or other gaming
equipment. Tenant shall not use or occupy the Premises in violation of such
Rules and Regulations as Landlord may from time to time reasonably adopt
for the safety, care and cleanliness of the Premises or The Crossing
Business Center, or of any recorded covenants, conditions and restrictions
("CC&RS") recorded as of the date of this Lease and affecting the Premises
or of any law or of the Certificate of Occupancy issued for the Premises,
and shall, upon five (5) days written notice from Landlord, discontinue any
use of the Premises which is in violation of any CC&Rs or is declared by
any governmental authority having jurisdiction to be a violation of any law
or of said Certificate of Occupancy. Landlord agrees that any Rules and
Regulations or CC&Rs added to the Premises after the date of this Lease, or
any modification to the existing Rules and Regulations or CC&Rs after the
date of this Lease, shall not increase Tenant's obligations under this
Lease nor decrease Tenant's rights under this Lease. Tenant shall not
install any radio or television antenna, loudspeaker or other device on the
roof or
-11-
<PAGE> 12
exterior walls of the Premises without Landlord's consent, which shall not
be unreasonably withheld. Subject to Landlord's repair obligations under
Paragraph 15(b) below, Tenant shall comply with any direction of any
governmental authority having jurisdiction which shall, by reason of the
nature of Tenant's use or occupancy of the Premises, impose any duty upon
Tenant or Landlord with respect to the Premises or with respect to the use
or occupation thereof. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage
or any other insurance policy covering the Premises and/or property located
therein and shall comply with all rules, orders, regulations and
requirements of any applicable fire rating bureau or any other organization
performing a similar function, to the extent such rules, orders,
regulations and requirements apply to the interior of the Improvements.
Tenant shall promptly upon demand reimburse Landlord as additional rent for
any additional premium charged for such policy by reason of Tenant's
failure to comply with the provisions of this Paragraph 8. Tenant shall not
do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of other tenants or occupants of
The Crossing Business Center, or injure or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall not commit or suffer to be committed any
waste in or upon the Premises and shall keep the Premises in first class
repair and appearance, ordinary wear and tear excepted. Tenant shall not
place a load upon the Premises exceeding the average pounds of live load
per square foot of floor area specified for the Premises by Landlord's
architect, with the partitions to be considered part of the live load.
Landlord reserves the right to prescribe the weight and position of all
safes, files and heavy equipment which Tenant desires to place in the
Premises so as to distribute properly the weight thereof.
(b) Landlord represents and warrants to Tenant that (i) Tenant's
use of the Premises on a 24-hour per day, 7-day per week basis is not
prohibited by any document of record, (ii) easements recorded on the
Premises as of the date of this Lease shall not interfere with the
Improvements contemplated in Exhibit "C" and (iii) any easements
voluntarily added by Landlord to the Premises after the date of this Lease
shall not interfere with any Improvements in parking of Tenant. Landlord
shall defend, indemnify and hold Tenant harmless against and from any and
all costs, expenses, liabilities and claims arising from the breach of the
foregoing representations and warranties.
9. Payments and Notices.
(a) All rents and other sums payable by Tenant to Landlord
hereunder shall be paid to Landlord at the address designated by Landlord
in Subparagraph 1(b) above or at such other places as Landlord may
hereafter designate in writing. Any notice required or permitted to be
given hereunder must be in writing and may be given by personal delivery or
by mail, and if given by mail shall be deemed sufficiently given if sent by
registered or certified mail addressed to Tenant at the address designated
in Subparagraph 1(d) or to Landlord at both of the addressees designated in
Subparagraph 1(b). Either party may by written notice to the other specify
a different address for notice purposes. If more than one person or entity
constitutes the "Tenant" under this Lease, service of any notice upon any
one of said person or entities shall be deemed as service upon all of said
persons or entities.
(b) Tenant acknowledges that the late payment by Tenant to Landlord
of any sums due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such costs being extremely
difficult and impractical to fix. Such costs include, without limitation,
processing and accounting charges, and late charges that may be imposed on
Landlord by the terms of any encumbrance and note secured by any
encumbrance covering the Premises. Therefore, if any monthly installment of
Annual Basic Rent is not received by Landlord by the date when due, or if
Tenant fails to pay any other sum of money due hereunder and such failure
continues for ten (10) days after written notice thereof by Landlord,
Tenant shall pay to Landlord, as additional rent, the sum of five percent
(5%) of the overdue amount as a late charge.
-12-
<PAGE> 13
Such overdue amount shall also bear interest, as additional rent, at the
maximum rate permissible by law calculated, as appropriate, from the date
either (a) the monthly installment of Annual Basic Rent is due, or (b) ten
(10) days after receipt of said notice, until the date of payment to
Landlord. Landlord's acceptance of any late charge or interest shall not
constitute a waiver of Tenant's default with respect to the overdue amount
or prevent Landlord from exercising any of the other rights and remedies
available to Landlord under this Lease or any law now or hereafter in
effect.
10. Brokers.
The parties recognize that the brokers who negotiated this Lease are
the brokers whose names are stated in Subparagraph 1(o), and agree that Landlord
shall be solely responsible for the payment of brokerage commissions to said
brokers, and that Tenant shall not have responsibility therefor. As part of the
consideration for the granting of this Lease, each party represents and warrants
to the other that to such party's knowledge no other broker, agent or finder
negotiated or was instrumental in negotiating or consummating this Lease and
that such party knows of no other real estate broker, agent or finder who is, or
might be, entitled to a commission or compensation in connection with this
Lease. Any broker, agent or finder of either party whom such party has failed to
disclose herein shall be paid by the non-disclosing party. Each party shall hold
the other harmless from all damages and indemnify the other for all said damages
paid or incurred by the other resulting from any claims that may be asserted
against such party by any broker, agent or finder undisclosed herein.
11. Holding Over.
If Tenant holds over after the expiration or earlier termination of the
Term hereof without the express written consent of Landlord, Tenant shall become
a tenant at sufferance only, at a rental rate equal to one hundred fifty percent
(150%) of the Annual Basic Rent which would be applicable to the Premises upon
the date of such expiration (subject to adjustment as provided in Paragraph 6
hereof and prorated on a daily basis), and otherwise subject to the terms,
covenants and conditions herein specified, so far as applicable. Acceptance by
Landlord of rent after such expiration or earlier termination shall not
constitute a holdover hereunder or result in a renewal. The foregoing provisions
of this Paragraph 11 are in addition to and do not affect Landlord's right of
re-entry or any rights of Landlord hereunder or as otherwise provided by law. If
Tenant fails to surrender the Premises upon the expiration or earlier
termination of this Lease despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss or liability, including
without limitation, any claim made by any succeeding tenant founded on or
resulting from such failure to surrender.
12. Taxes on Tenant's Property.
Tenant shall be liable for and shall pay at least ten (10) days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based upon such
increased assessments which Landlord shall have the right to do regardless of
the validity thereof, but only upon prior notice to Tenant and under proper
protest if requested by Tenant, Tenant shall upon demand repay to Landlord the
taxes levied against Landlord, or the proportion of such taxes resulting from
such increase in the assessment; provided that in any such event, at Tenant's
sole cost and expense, Tenant shall have the right, in the name of Landlord and
with Landlord's full cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes so paid under protest, any
amount so recovered to belong to Tenant.
13. Condition of Premises.
Intentionally Omitted.
-13-
<PAGE> 14
14. Alterations.
The parties acknowledge that this Paragraph 14 shall apply only to
Changes made after the Commencement Date, that the design and construction of
the initial Improvements shall be governed by the Work Letter Agreement attached
hereto as Exhibit "C" and that this Paragraph 14 shall not apply to the design
and construction of the initial Improvements.
(a) Tenant may, at any time and from time to time during the Term
of this Lease but subject to Landlord's approval pursuant to Subparagraph
14(b), at its sole cost and expense, make alterations, additions,
installations, substitutions, improvements and decorations (hereinafter
collectively called "CHANGES") in and to the Premises, on the following
conditions, and providing such Changes will not result in a violation of or
require a change in the Certificate of Occupancy (or its equivalent)
applicable to the Premises:
(i) The outside appearance, character or permitted use of the
Premises shall not be affected, and no Changes shall weaken or impair
the structural strength or, in the reasonable opinion of Landlord,
lessen the value of the Premises or create the potential for unusual
expenses to be incurred upon the removal of Changes and the restoration
of the Premises upon the termination of this Lease.
(ii) The proper functioning of any of the mechanical,
electrical, sanitary and other service systems or installations of the
Premises ("SERVICE FACILITIES") shall not be adversely affected and
there shall be no construction which might interfere with Landlord's
free access to the Service Facilities or interfere with the moving of
Landlord's equipment to or from the enclosures containing the Service
Facilities.
(iii) In performing the work involved in making such Changes,
Tenant shall be bound by and observe all of the conditions and
covenants contained in this Paragraph 14.
(iv) All work shall be done at such times and in such manner
as Landlord from time to time may reasonably designate.
(v) Tenant shall not be permitted to install and make part of
the Premises any materials, fixtures or equipment which are subject to
liens, conditional sales contracts or chattel mortgages.
(vi) At the date upon which the Term of this Lease shall end,
or the date of any earlier termination of this Lease, Tenant shall on
Landlord's written request (which request must be made, if at all, at
the time of Landlord's consent to the Change) restore the Premises to
their condition prior to the making of any Changes permitted by this
Paragraph 14, reasonable wear and tear excepted.
Notwithstanding the foregoing, Tenant may make Changes which do not
affect the Service Facilities of the Improvements, the exterior appearance
of the Improvements, or structural aspects of the Improvements which cost
One Hundred Thousand Dollars ($100,000.00) or less ("COSMETIC CHANGES")
upon at least fifteen (15) days prior written notice to Landlord, but
without the necessity of obtaining Landlord's prior written consent
thereto.
(b) Before proceeding with any Change (exclusive of Cosmetic
Changes), Tenant shall submit to Landlord, for Landlord's written approval,
plans and specifications, including any applicable mechanical, electrical
and plumbing drawings, for the work to be done. Landlord's approval shall
not be unreasonably withheld. If Landlord shall disapprove of any of
Tenant's plans, Tenant shall be advised of the reasons for such
disapproval. In any event, Tenant agrees to pay to Landlord, as additional
rent, the actual and reasonable cost of Landlord's third party consultants
for review of such
-14-
<PAGE> 15
plans and specifications, immediately upon receipt of invoices either from
Landlord or such consultants. Any Change for which approval has been
received shall be performed in accordance with the approved plans and
specifications, and no amendments or additions to such plans and
specifications shall be made without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Following construction of
the work, Tenant shall prepare or cause to be prepared, at Tenant's
expense, a "record set" of as-built plans reflecting the actual
construction of the work.
(c) After Landlord's written approval has been sent to Tenant,
Tenant shall enter into an agreement for the performance of the work to be
done pursuant to this Paragraph 14 with a contractor reasonably approved by
Landlord. All subcontractors used by the contractor shall be subject to
Landlord's approval, which approval shall not be unreasonably withheld or
delayed. Tenant's contractors shall obtain on behalf of Tenant and at
Tenant's sole cost and expense, (i) all necessary governmental permits and
certificates for the commencement and prosecution of Tenant's Changes and
for final approval thereof upon completion, and (ii) for Changes reasonably
expected to cost in excess of One Hundred Thousand Dollars ($100,000.00), a
completion and lien indemnity bond, or other surety, satisfactory to
Landlord, for the Changes. In the event Tenant shall request any changes in
the work to be performed after the submission of the plans referred to in
this Paragraph 14, such changes shall be subject to the same approvals and
notices as the Changes initially submitted by Tenant.
(d) If Tenant requests Landlord to act as general contractor for
any Changes, and if Landlord agrees to so act as general contractor, Tenant
shall pay to Landlord for Landlord's services in connection with the work
performed pursuant to this Paragraph 14, a fee equal to fifteen percent
(15%) of the total cost of the Changes, and Landlord's reasonable overhead
related thereto. If Landlord does not perform as such general contractor,
in addition to the requirement that Tenant pay the actual and reasonable
cost of Landlord's third-party consultants as specified in Paragraph 14(b)
above, Tenant shall pay to Landlord, as additional rent, an hourly fee
reasonably determined by Landlord for any personnel of Landlord or its
affiliates who are involved in overseeing and/or reviewing Tenant's Change.
(e) All Changes and the performance thereof shall at all times
comply with (i) all laws, rules, orders, ordinances, directions,
regulations and requirements of all governmental authorities, agencies,
offices, departments, bureaus and boards having jurisdiction thereof, (ii)
all rules, orders, directions, regulations and requirements of any
applicable fire rating bureau, or of any similar insurance body or bodies,
and (iii) all rules and regulations of Landlord, and Tenant shall cause
Changes to be performed in compliance therewith and in good and first class
workmanlike manner, using materials and equipment at least equal in quality
to the original installations of the Premises. Changes shall be performed
in such manner as not to delay or impose any additional expense upon
Landlord in construction, maintenance or operation of the Premises, and
shall be performed by contractors or mechanics approved by Landlord
pursuant to this Paragraph 14, who shall coordinate their work in
cooperation with any other work being performed by Landlord with respect to
the Premises. Throughout the performance of Changes, Tenant, at its
expense, shall carry, or cause its contractors to carry, worker's
compensation insurance in statutory limits, and general liability insurance
for any occurrence in or about the Premises, of which Landlord and its
managing agent shall be named as additional parties insured, in such limits
as Landlord may reasonably prescribe. Such policies shall comply with
Paragraph 21(b) hereof.
(f) Tenant further covenants and agrees that any mechanic's lien
filed against the Premises for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within thirty (30) days after the filing
thereof, at the cost and expense of Tenant. All permanently installed
alterations, decorations, additions or improvements upon the Premises, made
by either party, including (without limiting the generality of the
foregoing) all wallcovering, built-in cabinet work, paneling and the like,
shall, unless Landlord elects otherwise, become the property of Landlord,
and shall remain upon, and
-15-
<PAGE> 16
be surrendered with the Premises, as a part thereof, at the end of the Term
hereof, except that Landlord may by written notice to Tenant, given
concurrently with Landlord's consent to the Change, require Tenant to
remove all partitions, counters, railings and the like installed by Tenant,
and Tenant shall repair any damage to the Premises arising from such
removal and if Tenant fails to so remove such items at the end of the Term,
Tenant shall pay to the Landlord all of Landlord's costs of such removal
and repair.
(g) All articles of personal property and all business and trade
fixtures, machinery and equipment, furniture and movable partitions owned
by Tenant or installed by Tenant at its expense in the Premises shall be
and remain the property of Tenant and may be removed by Tenant at any time
during the lease Term, provided that Tenant shall repair any damage caused
by such removal. If Tenant shall fail to remove all of its effects from
said Premises upon termination of this Lease for any cause whatsoever,
Landlord may, at its option, remove the same in any manner that Landlord
shall choose, and store said effects without liability to Tenant for loss
thereof, and Tenant agrees to pay Landlord upon demand any and all expenses
incurred in such removal, including court costs and reasonable attorney's
fees and storage charges on such effects for any length of time that the
same shall be in Landlord's possession or Landlord may, at its option,
without notice, but subject to the rights of equipment lessors (where
Landlord has been notified of such rights) sell said effects, or any of the
same, at private sale and without legal process, for such price as Landlord
may obtain and apply the proceeds of such sale to any amounts due under
this Lease from Tenant to Landlord and to the expense incident to the
removal and sale of said effects.
(h) Nothing contained in this Paragraph 14 shall be deemed to
relieve Tenant of any duty, obligation or liability with respect to making
any repair, replacement or improvement or complying with any laws, order or
requirement of any government or other authority and nothing contained in
this Paragraph 14 shall be deemed or construed to impose upon Landlord any
obligation, responsibility or liability whatsoever, for the care,
supervision or repair of the Premises or any part thereof other than as
otherwise provided in this Lease.
15. Repairs.
(a) Subject to Subparagraph 15(b), Tenant shall, when and if needed
or whenever reasonably requested by Landlord to do so, at Tenant's sole
cost and expense, maintain and make all repairs to the Premises and every
part thereof, to keep, maintain and preserve the Premises in the same
condition as when received, excepting ordinary wear and tear. Any such
maintenance and repairs shall be performed by Landlord's designated
contractor, or by a contractor reasonably approved by Landlord, at Tenant's
option. Tenant shall upon the expiration or sooner termination of the Term
hereof surrender the Premises to Landlord in the same condition as when
received, reasonable wear and tear excepted. Except as provided elsewhere
in this Lease, Landlord shall have no obligation to alter, remodel,
improve, repair, decorate or paint the Premises or any part thereof, and
the parties hereto affirm that Landlord has made no representations to
Tenant respecting the condition of the Premises except as specifically
herein set forth.
(b) Anything contained in Subparagraph 15(a) above to the contrary
notwithstanding, Landlord shall, as an Operating Expense (to the extent
permitted by Paragraph 6 above and otherwise at Landlord's sole cost and
expense), repair and maintain in good condition those portions of the
Premises consisting of the "Base Improvements," as described in the Work
Letter Agreement, and all areas of the Premises located outside of the
Improvements (including, without limitation, parking areas), unless such
maintenance and repairs are caused in part or in whole by the neglect,
fault of or omission of any duty by Tenant, its agents, servants, employees
or invitees, in which case Tenant shall pay to Landlord as additional rent,
the reasonable cost of such maintenance and repairs. Landlord shall not be
liable for any failure to make any such repairs, or to perform any
maintenance unless such failure shall persist for an unreasonable time
(under the circumstances) after written notice of the need of such repairs
or maintenance is given to Landlord by Tenant and Landlord shall use
commercially reasonable efforts to
-16-
<PAGE> 17
minimize any interference or interruption in Tenant's business resulting
from any such repairs or maintenance. Landlord agrees not to make any
repairs within the Improvements during the months of November and December,
except where such repairs are required by law to be made at that time,
required by an emergency or otherwise requested by Tenant. Except as
provided in Paragraph 15(c) below and in Paragraph 22 and in Paragraph
25(e) hereof, there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or
to any portion of the Premises or in or to fixtures, appurtenances and
equipment therein. Except as provided in Paragraph 15(c) below, Tenant
waives the right to make repairs at Landlord's expense under any law,
statute or ordinance now or hereafter in effect.
(c) If Tenant provides notice to Landlord of an event or
circumstance which requires the action of Landlord with respect to repairs
and/or maintenance as set forth in Paragraph 15(b) above, and Landlord
fails to provide such action as required by the terms of this Lease, then
Tenant may proceed to take the required action upon delivery of an
additional ten (10) business days notice (or immediately after notice in
the case of an emergency) to Landlord specifying that Tenant is taking such
required action, and if such action was required under the terms of this
Lease to be taken by Landlord, then Tenant shall be entitled to prompt
reimbursement by Landlord of Tenant's reasonable costs and expenses in
taking such action plus interest at the Interest Rate. In the event Tenant
takes such action, and such work will affect the Service Facilities,
structural integrity of the Improvements or exterior appearance of the
Improvements, Tenant shall use only those contractors used by Landlord in
the Improvements for such work unless such contractors are unwilling or
unable to perform such work, in which event Tenant may utilize the services
of any other qualified contractor which normally and regularly performs
similar work in comparable first-class projects in Las Vegas, Nevada.
Further, if Landlord does not deliver a detailed written objection to
Tenant, within thirty (30) days after receipt of an invoice by Tenant of
its costs of taking action which Tenant claims should have been taken by
Landlord, and if such invoice from Tenant sets forth a reasonably
particularized breakdown of its costs and expenses in connection with
taking such action on behalf of Landlord, then Tenant shall be entitled to
deduct from Monthly Basic Rent payable by Tenant under this Lease, the
amount set forth in such invoice together with interest at the Interest
Rate. If, however, Landlord delivers to Tenant within thirty (30) days
after receipt of Tenant's invoice, a written objection to the payment of
such invoice, setting forth with reasonable particularity Landlord's
reasons for its claim that such action did not have to be taken by Landlord
pursuant to the terms of this Lease or that the charges are excessive (in
which case Landlord shall pay the amount it contends would not have been
excessive), then Tenant shall not be entitled to such deduction from Rent,
but as Tenant's sole remedy, Tenant may proceed to institute legal
proceedings against Landlord to collect the amount set forth in the subject
invoice. In the event Tenant prevails in such legal proceedings against
Landlord and receives a final judgment against Landlord, then Landlord
shall pay such judgment to Tenant within thirty (30) days of such judgment
being entered. If such judgment is not so paid when due, then Tenant shall
be entitled to deduct from Monthly Basic Rent next due and payable by
Tenant the amount of such final judgment, together with interest, at the
Interest Rate from the date of entry of such judgment until the date of
such deduction.
16. Liens.
Tenant shall not knowingly permit any mechanic's, materialmen's or
other liens to be filed against the real property of which the Premises form a
part nor against the Tenant's leasehold interest in the Premises. Landlord shall
have the right at all reasonable times to post and keep posted on the Premises
any notices which it deems necessary for protection from such liens. If any such
liens are filed and are not discharged by Tenant by bond or otherwise within
thirty (30) days after the filing thereof, Landlord may, without waiving its
rights and remedies based on such breach of Tenant and without releasing Tenant
from any of its obligations, cause such liens to be released by any means it
shall deem proper, including payment in satisfaction of the claim giving rise to
such lien. Tenant shall pay to Landlord at once, upon notice by
-17-
<PAGE> 18
Landlord, any sum paid by Landlord to remove such liens, together with interest
at the maximum rate per annum permitted by law from the date of such payment by
Landlord.
17. Entry by Landlord.
Subject to Landlord's agreement to minimize any disturbance of Tenant's
use of the Premises by exercise of the following rights, Landlord reserves and
shall at any and all times have the right to enter the Premises upon reasonable
notice to Tenant (except that no notice shall be required in the case of an
emergency) to inspect the same, to supply any service to be provided by Landlord
to Tenant hereunder, to submit said Premises to prospective purchasers
accompanied by Landlord or, during the last nine (9) months of the Term of this
Lease, to prospective tenants accompanied by Landlord, to post notices of
nonresponsibility, or to repair the Premises, all without being deemed guilty of
any eviction of Tenant, and may, in order to carry out such purposes, erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, provided that the business of Tenant
shall be interfered with as little as is reasonably practicable. Except as
expressly provided to the contrary in this Lease, Tenant hereby waives any claim
for damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults and safe, and
Landlord shall have the means which Landlord may deem proper to open said doors
in an emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise, shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction of Tenant from the
Premises or any portion thereof. It is understood and agreed that no provision
of this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decoration except as otherwise expressly agreed herein to be
performed by Landlord. Landlord shall, in the exercise of its rights under this
Paragraph 17, use commercially reasonable efforts to minimize any disturbance of
Tenant's use and possession of the Premises and to provide as much notice to
Tenant as may be reasonably possible prior to any such exercise of Landlord's
rights under this Paragraph 17.
18. Utilities and Services.
(a) Cleaning and Maintenance. During the Term, Tenant shall, at its
own expense, keep all interior portions of the Premises in a neat and clean
condition, including, but not limited to, removal of debris and garbage
from the Premises with a refuse removal company reasonably approved by
Landlord and cleaning of all interior windows and window frames of the
Premises. Tenant shall separately contract at its sole expense for
janitorial services for all interior portions of the Premises with
reputable, bonded janitorial contractors in accordance with the maintenance
standards set forth in this Lease. Landlord shall keep the exterior
portions of the Premises in a neat and clean condition.
(b) Utilities. During the Term, Tenant shall provide in the
Premises at its own expense, water, gas, electricity, sewer, and other
necessary utilities and services, and Tenant shall make payment directly to
the entities providing such utilities and services. Landlord, at Landlord's
sole cost and expense, shall pay any fees necessary to bring utilities to
the Leased Premises for construction of the Base Improvements; provided,
however, that any utility fees incurred in connection with the Tenant
Improvements (including, without limitation, any sewer connection fees)
shall be a Work Cost charged to the Allowance.
(c) Interruption of Utilities. Tenant agrees that, except as
provided in Paragraph 15(c) above and Paragraph 19 and Paragraph 25(e)
below, Landlord shall not be liable for damages, by abatement of rent or
otherwise, for failure, delay, diminution or interruption of any utilities
or services for any reason, and such failure, delay, diminution or
interruption shall never be deemed to constitute an eviction or disturbance
of Tenant's use and possession of the Premises or relieve Tenant from
paying rent or performing any of its obligations under this Lease.
Furthermore, except as provided in Paragraph 19
-18-
<PAGE> 19
below, Landlord shall not be liable under any circumstances for a loss of,
or injury to, property or for any injury to, or interference with, Tenant's
business, including, without limitation, loss of profits, however
occurring, through or in connection with or incidental to any such failure,
delay, diminution or interruption of such utilities or services.
19. Indemnification.
Tenant hereby agrees to defend, indemnify and hold Landlord harmless
against and from any and all loss, cost, liability, damage or expense including,
but not limited to, penalties, fines, attorneys' fees and costs (collectively,
"CLAIMS") arising from Tenant's use of the Premises or the conduct of its
business or from any activity, work, or thing done, permitted or suffered by
Tenant, its agents, contractors, employees or invitees in or about the Premises.
Notwithstanding the foregoing, Tenant shall not be required to defend, indemnify
and hold Landlord harmless from any Claims to any person, property or entity to
the extent resulting from the negligence or willful misconduct of Landlord or
its agents, employees or licensees in connection with Landlord's activities at
the Premises (except for damage to the Tenant Improvements and Tenant's personal
property, trade fixtures, furniture and equipment in the Premises, to the extent
Tenant is required to obtain the requisite insurance coverage pursuant to this
Lease). The Claims for which Tenant is not required to defend, indemnify and
hold Landlord harmless pursuant to the immediately preceding sentence may be
referred to herein as "OVERRIDDEN CLAIMS." Landlord hereby indemnifies, agrees
to defend and holds Tenant harmless from any Overridden Claims, provided that
with respect to Base Improvements, because Landlord is required to maintain
insurance on the Base Improvements and Tenant compensates Landlord for such
insurance as part of Operating Expenses and because of the existence of waivers
of subrogation set forth in Paragraph 21(g) below, Landlord hereby indemnifies,
agrees to defend and holds Tenant harmless from any Claims to the Base
Improvements to the extent that such Claim is covered by such insurance, even if
resulting from the negligent acts, omissions or willful misconduct of Tenant or
those of its agents, employees or licenses. Similarly, since Tenant must carry
insurance pursuant to Paragraph 21(a) below to cover its personal property
within the Premises and the Tenant Improvements, Tenant hereby indemnifies and
holds Landlord harmless from any Claim to any property within the Improvements,
to the extent such Claim is covered by such insurance, even if resulting from
the negligent acts, omissions or willful misconduct of Landlord or those of its
agents, employees or licensees. In case any action or proceeding may be brought
against Landlord or Tenant by reason of any such Claim, Landlord or Tenant (as
the case may be) upon notice from the other hereby agrees to defend the same at
their expense by counsel reasonably approved in writing by the other.
20. Damage to Tenant's Property.
Except as provided elsewhere in this Lease to the contrary, Landlord or
its agents shall not be liable for any damage to property entrusted to employees
of Landlord or Landlord's manager, nor for loss of or damage to any property by
theft or otherwise, nor for any injury or damage to person or property resulting
from fire, explosion, falling plaster, steam, gas, electricity, water or rain
which may leak from any part of the Premises or from the pipes, appliances or
plumbing works therein or from the roof, street or sub-surface or from any other
place or resulting from dampness or any other patent or latent cause whatsoever.
Landlord or its agents shall not be liable for interference with the light or
other incorporeal hereditaments. Tenant shall give prompt notice to Landlord in
case of fire or accidents in the Premises or of defects therein or in the
fixtures or equipment located therein.
21. Insurance.
(a) Tenant at its sole cost and expense shall, during the entire
Term hereof, obtain, maintain and keep in full force and effect, the
following insurance:
(i) Property insurance including fire, extended coverage,
vandalism, malicious mischief and all risks coverage upon property of
every description and kind owned by Tenant and located in the Premises
or for which Tenant is legally liable or installed by or on behalf of
Tenant including, without limitation, leasehold improvements,
alterations, furniture, fixtures and any other
-19-
<PAGE> 20
personal property, in an amount not less than eighty percent (80%) of
the full replacement cost thereof.
(ii) A policy of Comprehensive Liability Insurance coverage to
include personal injury, broad form property damage,
premises/operations, owner's protective coverage, host liquor liability
insurance, blanket contractual liability, products and completed
operations liability and owned/non-owned auto liability, in limits not
less than Two Million Dollars ($2,000,000) inclusive. Such policy shall
name Landlord, Landlord's managing agent and Landlord's mortgagees as
additional insureds and shall contain the following provision:
"Such insurance as afforded by this policy for the benefit of
Landlord shall be primary as respects any claims, losses or
liabilities arising out of the use of the Premises by the
Tenant or by Tenant's operation and any insurance carried by
Landlord shall be excess and non-contributing."
(iii) Loss of income and extra expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of
earnings attributable to all perils commonly insured against by prudent
tenants or attributable to prevention of access to the Premises as a
result of such perils.
(iv) Any other form or forms of insurance as Tenant or
Landlord or the mortgagees of Landlord may reasonably require from time
to time in form, in amounts and for insurance risks against which a
prudent tenant would protect itself, but in no event shall (A) such
increased amounts of insurance or such other reasonable types of
insurance be in excess of that required by landlords of comparable
projects in Las Vegas, Nevada nor (B) Landlord require an increase in
the insurance limits described in this Paragraph (a) above during the
first five (5) years of the Term.
(b) All policies shall be taken out with insurers reasonably
acceptable to Landlord and in form satisfactory from time to time to
Landlord. Tenant agrees that certificates of insurance or, if required by
Landlord or the mortgagees of Landlord, certified copies of each such
insurance policy, will be delivered to Landlord as soon as practicable
after the placing of the required insurance, but in no event later than ten
(10) days after Tenant takes possession of all or any part of the Premises,
including possession taken under Paragraph 4 hereof. All policies shall
contain an undertaking by the insurers to notify Landlord and the
mortgagees of Landlord in writing not less than thirty (30) days prior to
any material change, reduction in coverage, cancellation, or other
termination thereof.
(c) In the event of damage to or destruction of the Premises
entitling either party to terminate this Lease pursuant to Paragraph 22
hereof, Tenant will immediately pay to Landlord all of Tenant's insurance
proceeds relating to leasehold improvements and alterations (but not to
Tenant's trade fixtures, equipment, furniture or other personal property)
in the Improvements.
(d) Landlord covenants and agrees that throughout the Term, it will
insure the Premises (including the Base Improvements, but excluding any
property with respect to which Tenant is obligated to insure pursuant to
the provisions of Subparagraph 21(a) above) against damage by fire and
standard extended coverage perils and public liability insurance in such
reasonable amounts (but not less than eighty percent (80%) of replacement
cost as to property insurance) with such reasonable deductibles as would be
carried by a prudent owner of a similar building in Las Vegas, Nevada.
Landlord may, but shall not be obligated to, take out and carry any other
form or forms of insurance as it or the mortgagees of Landlord may
reasonably determine advisable. Notwithstanding any contribution by Tenant
to the cost of insurance premiums with respect to the Premises, as provided
herein, Tenant acknowledges that it has no right to receive any proceeds
from any such insurance policies carried by Landlord, although Landlord
shall
-20-
<PAGE> 21
use such proceeds in the repair and reconstruction of the Premises unless
Landlord elects to terminate this Lease pursuant to Paragraph 22. Landlord
will not carry insurance of any kind on Tenant's furniture or furnishings
or on any equipment of Tenant under this Lease, and except as provided in
Paragraph 19 above, Landlord shall not be obligated to repair any damage
thereto or replace the same.
(e) Tenant shall promptly comply with all reasonable requirements
of the insurance authority or of any insurer now or hereafter in effect
relating to the Premises.
(f) If any insurance policy carried by Landlord, as provided by
Subparagraph 21(d) above, shall be canceled or cancellation shall be
threatened or the coverage thereunder reduced or threatened to be reduced,
in any way by reason of the use or occupation of the Premises or any part
thereof by Tenant or by any assignee or subtenant of Tenant or by anyone
permitted by Tenant to be upon the Premises and, if Tenant fails to remedy
the condition giving rise to cancellation, threatened cancellation or
reduction of coverage within forty-eight (48) hours after written notice
thereof, Landlord may, at its option enter upon the Premises and attempt to
remedy such condition and Tenant shall forthwith pay the cost thereof to
Landlord as additional rent. Landlord shall not be liable for any damage or
injury caused to any property of Tenant or of others located in the
Premises as a result of such entry. In the event that Landlord shall be
unable to remedy such condition, then Landlord shall have all of the
remedies provided for in this Lease in the event of a default by Tenant.
Notwithstanding the foregoing provisions of this Subparagraph 21(f), if
Tenant fails to remedy as aforesaid, Tenant shall be in default of its
obligations hereunder and Landlord shall have no obligation to attempt to
remedy such default.
(g) Any policy or policies of fire, extended coverage or similar
casualty insurance, which either party obtains in connection with the
Premises and the insurance required to be obtained by Tenant pursuant to
the provisions of Subparagraph 21(a)(iii) above shall include a clause or
endorsement denying the insurer any rights of subrogation against the other
party to the extent rights have been waived by the insured prior to the
occurrence of injury or loss. Landlord and Tenant waive any rights of
recovery against the other for injury or loss due to hazards covered by
insurance containing such a waiver of subrogation clause or endorsement to
the extent of the injury or loss covered thereby.
22. Damage or Destruction.
(a) (i) In the event the Premises are damaged by fire or other
perils covered by insurance required to be carried by Landlord under this
Lease and if the damage thereto is such that the Premises may be repaired,
reconstructed or restored within a period of two hundred seventy (270) days
from the date Landlord learns of the necessity for repairs as a result of
the damage, Landlord shall commence and proceed diligently with the work of
repair, reconstruction and restoration and this Lease shall continue in
full force and effect. If such work of repair, reconstruction and
restoration is such as to require a period longer than such two hundred
seventy (270) day period or if Paragraph 22(e) below applies, Landlord
either may elect to so repair, reconstruct or restore the Premises and this
Lease shall continue in full force and effect or Landlord may elect not to
repair, reconstruct or restore the Premises and this Lease shall in such
event terminate. Under any of the conditions of this Subparagraph 22(a),
Landlord shall give written notice ("DAMAGE NOTICE") to Tenant of its
intention within sixty (60) days from the date Landlord learns of the
necessity for repairs as a result of the damage. Upon the occurrence of any
damage to the Premises, Tenant shall assign to Landlord (or to any party
designated by Landlord) all insurance proceeds payable to Tenant under
Tenant's insurance for the leasehold improvements and alterations to the
extent required to repair the damage; provided, however, that if the cost
of such repair by Landlord exceeds the amount of insurance proceeds
received by Landlord from Tenant's insurance carrier, as assigned by
Tenant, the
-21-
<PAGE> 22
cost of such repairs shall be paid by Tenant to Landlord prior to
Landlord's repair of the damage. In the event Landlord elects not to
restore the Premises, this Lease shall be deemed to have terminated as
of the date of such destruction.
(ii) If Landlord does not elect to terminate this Lease
pursuant to Landlord's termination right as provided in Paragraph
22(a)(i) above, and the repairs cannot, in the reasonable opinion of
Landlord as stated in the Damage Notice, be completed within two
hundred seventy (270) days after being commenced (which 270-day period
shall not be subject to extension as a result of any Force Majeure),
Tenant may elect, no earlier than sixty (60) days after the date of
Tenant's receipt of the Damage Notice and not later than ninety (90)
days after the date of Tenant's receipt of the Damage Notice, to
terminate this Lease by written notice to Landlord effective as of the
date specified in the notice, which date shall not be more than sixty
(60) days after the date such notice is given by Tenant. Furthermore,
if neither Landlord nor Tenant have terminated this Lease, and the
repairs are not actually completed within such 270-day period, Tenant
shall have the right to terminate this Lease within five (5) business
days of the end of such period and thereafter during the first five (5)
business days of each calendar month following the end of such period
until such time as the repairs are complete, by notice to Landlord (the
"DAMAGE TERMINATION NOTICE"), effective as of a date set forth in the
Damage Termination Notice (the "DAMAGE TERMINATION DATE"), which Damage
Termination Date shall not be less than five (5) business days
following the end of such period or each such month, as the case may
be. Notwithstanding the foregoing, if Tenant delivers a Damage
Termination Notice to Landlord, then Landlord shall have the right to
suspend the occurrence of the Damage Termination Date for a period
ending thirty (30) days after the Damage Termination Date set forth in
the Damage Termination Notice by delivering to Tenant, within five (5)
business days of Landlord's receipt of the Damage Termination Notice, a
certificate of Landlord's contractor responsible for the repair of the
damage certifying that it is such contractor's good faith judgment that
the repairs shall be substantially completed within thirty (30) days
after the Damage Termination Date. If repairs shall be substantially
completed prior to the expiration of such thirty-day period, then the
Damage Termination Notice shall be of no force or effect, but if the
repairs shall not be substantially completed within such thirty-day
period, then this Lease shall terminate upon the expiration of such
thirty-day period. At any time, from time to time, after the date
occurring sixty (60) days after the date of the damage, Tenant may
request that Landlord inform Tenant of Landlord's reasonable opinion of
the date of completion of the repairs and Landlord shall respond to
such request within five (5) business days.
(b) Upon any termination of this Lease under any of the provisions
of this Paragraph 22, the parties shall be released thereby without further
obligation to the other from the date possession of the Premises is
surrendered to Landlord except for items which have theretofore accrued and
are then unpaid.
(c) In the event of repair, reconstruction and restoration by
Landlord as herein provided, the rent provided to be paid under this Lease
shall be abated proportionately with the degree to which Tenant's use of
the Premises is impaired during the period of such repair, reconstruction
or restoration. Except as provided in Paragraph 19 to the contrary, Tenant
shall not be entitled to any compensation or damages for loss in the use of
the whole or any part of the Premises and/or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
(d) Tenant shall not be released from any of its obligations under
this Lease except to the extent and upon the conditions expressly stated in
this Paragraph 22.
(e) In the event that damage is due to any cause other than fire or
other peril covered by extended coverage insurance or required to be
insured by Landlord under Paragraph 21(d) above, Landlord may elect to
terminate this Lease.
-22-
<PAGE> 23
(f) It is hereby understood that if Landlord is obligated to or
elects to repair or restore as herein provided, Landlord shall be obligated
to make repairs or restoration only of those portions of the Premises (i)
which were originally provided at Landlord's expense or (ii) which were
required to be insured by Landlord hereunder or (iii) for which Landlord
has received insurance proceeds from insurance required to be carried by
Tenant hereunder or (iv) which were damaged as a result of the negligence
or willful misconduct of Landlord or of its agents, contractors or
employees (provided that this Subparagraph (f) is not intended to, and
shall not, relieve Tenant's insurance carriers of their obligations, to the
extent such carriers are required to pay for the cost of repair of any such
damage), and the repair and restoration of all other items shall be the
obligation of Tenant.
(g) Notwithstanding anything to the contrary contained in this
Paragraph 22, Landlord shall not have any obligations whatsoever to repair,
reconstruct or restore the Premises when the damage resulting from any
casualty covered under this Paragraph 22 occurs during the last twelve (12)
months of the Term of this Lease or any Option Term unless Tenant
exercises, in accordance with Paragraph 3(b)(iii), an available Extension
Option to extend the then current Term for the upcoming Option Term on or
before the date which is sixty (60) days after the date of Tenant's receipt
of the Damage Notice.
(h) The provisions of this Lease, including this Paragraph 22,
constitute an express agreement between Landlord and Tenant with respect to
any and all damage to, or destruction of, all or any part of the Premises,
and any statute or regulation with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement
between the parties, and any other statute or regulation, now or hereafter
in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises.
23. Eminent Domain.
(a) In case the whole of the Premises, or such part thereof as
shall substantially interfere with Tenant's use and occupancy thereof
(including, without limitation, the parking areas of the Premises), shall
be taken for any public or quasi-public purpose by any lawful power or
authority by exercise of the right of appropriation, condemnation or
eminent domain, or sold to prevent such taking, Tenant shall have the right
to terminate this Lease effective as of the date possession is required to
be surrendered to said authority. Tenant shall not assert any claim against
Landlord or the taking authority for any compensation because of such
taking and, except as provided in this Paragraph 23(a) below, Landlord
shall be entitled to receive the entire amount of any award without
deduction for any estate or interest of Tenant. In the event the amount of
property or the type of estate taken shall not interfere with the conduct
of Tenant's business, Landlord shall be entitled to the entire amount of
the award without deduction for any estate or interest of Tenant and
Landlord shall promptly proceed to restore the Premises to substantially
their same condition prior to such partial taking, and a proportionate
allowance shall be made to Tenant for the rent corresponding to the time
during which, and to the part of the Premises of which, Tenant shall be so
deprived on account of such taking and restoration. Nothing contained in
this Paragraph shall be deemed to give Landlord any interest in any award
separately made to Tenant for the taking of personal property and trade
fixtures belonging to Tenant or for moving costs incurred by Tenant in
relocating Tenant's business or any other item Tenant is entitled to
recover under law or at equity provided that Landlord and Tenant shall each
be entitled to receive fifty percent (50%) of the "bonus value" of the
leasehold estate in connection therewith, which bonus value shall be equal
to the sum paid by the condemning authority as the award for compensation
for taking the leasehold created by this Lease.
(b) In the event of taking of the Premises or any part thereof for
temporary use, (i) this Lease shall be and remain unaffected thereby and
rent shall not abate, and (ii) Tenant shall be entitled to receive for
itself such portion or portions of any award made for such use with respect
to the period of the taking which is within the
-23-
<PAGE> 24
Term, provided that if such taking shall remain in force at the expiration
or earlier termination of this Lease, Tenant shall then pay to Landlord a
sum equal to the reasonable cost of performing Tenant's obligations under
Paragraph 34 with respect to surrender of the Premises and upon such
payment shall be excused from such obligations. For purposes of this
Subparagraph 23(b), a temporary taking shall be defined as a taking for a
period of one hundred eighty (180) days or less.
24. Bankruptcy.
If Tenant shall file a petition in bankruptcy under federal bankruptcy
law as then in effect, or if Tenant is adjudicated a bankrupt in involuntary
bankruptcy proceedings and such adjudication shall not have been vacated within
thirty (30) days from the date thereof, or if a receiver or trustee be appointed
of Tenant's property and the order appointing such receiver or trustee not be
set aside or vacated within thirty (30) days after the entry thereof, or if
Tenant shall assign Tenant's estate or effects for the benefit of creditors, or
if this Lease shall otherwise by operation of law pass to any persons other than
Tenant, then and in any such event Landlord may, if Landlord so elects, with or
without notice of such election and with or without entry or action by Landlord,
forthwith terminate this Lease, and notwithstanding any other provisions of this
Lease, Landlord, in addition to any and all rights and remedies allowed by law
or equity, shall upon such termination be entitled to recover damages in the
amount provided in Subparagraph 25(b) below and neither Tenant nor any person
claiming through or under Tenant or by virtue of any statute or order of any
court shall be entitled to possession of the Premises but shall forthwith quit
and surrender the Premises to Landlord. Nothing herein contained shall limit or
prejudice the right of Landlord to prove and obtain as damages by reason of any
such termination an amount equal to the maximum allowed by any statute or rule
of law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of damages recoverable under the provisions of this
Paragraph 24.
25. Defaults and Remedies.
(a) After the passage in full of the cure periods described below,
the occurrence of any one or more of the following events shall constitute
a default hereunder by Tenant:
(i) The abandonment of the Premises by Tenant.
(ii) The failure by Tenant to make any payment of rent or
additional rent or any other payment required to be made by Tenant
hereunder, as and when due, where such failure shall continue for a
period of five (5) business days after written notice thereof from
Landlord to Tenant; provided however, that any such notice shall be in
lieu of, and not in addition to, any notice required under Nevada law.
(iii) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed
or performed by Tenant, other than as specified in Subparagraph
25(a)(i) or (ii) above, where such failure shall continue for a period
of thirty (30) days after written notice thereof from Landlord to
Tenant; provided, however, that any such notice shall be in lieu of and
not in addition to, any notice required under Nevada law; provided,
further, that if the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, then Tenant
shall not be deemed to be in default if Tenant shall commence such cure
within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion.
(iv) (1) The making by Tenant of any general assignment for
the benefit of creditors; (2) the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days); (3) the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets
located
-24-
<PAGE> 25
at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within sixty (60) days; or (4) the
attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease where such seizure is not discharged within sixty (60) days.
(b) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord at law or in equity, including,
without limitation, Landlord's right to continue the Lease in effect after
Tenant's breach and abandonment and recover rent as it becomes due,
Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder. In the event that Landlord shall elect to so
terminate this Lease then Landlord may recover from Tenant:
(i) the worth at the time of award of any unpaid rent which
had been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds
the amount of such rental loss that Tenant proves could be reasonably
avoided; plus
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom.
As used in Subparagraphs 25(b)(i) and (ii) above, the "worth at the
time of award" is computed by allowing interest at the maximum rate
permitted by law per annum. As used in Subparagraph 25(b)(iii) above, the
"worth at the time of award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
(c) In the event of any such default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, to re-enter the
Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant for such period of time as may be
required by applicable law after which time Landlord may dispose of such
property in accordance with applicable law. No re-entry or taking
possession of the Premises by Landlord pursuant to this Subparagraph 25(c)
shall be construed as an election to terminate this Lease unless a written
notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction.
(d) All rights, options and remedies of Landlord contained in this
Lease shall be construed and held to be cumulative, and no one of them
shall be exclusive of the other, and Landlord shall have the right to
pursue any one or all of such remedies or any other remedy or relief which
may be provided by law, whether or not stated in this Lease. No waiver of
any default of Tenant hereunder shall be implied from any acceptance by
Landlord of any rent or other payments due hereunder or any omission by
Landlord to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect defaults other
than as specified in said waiver. The consent or approval of Landlord to or
of any act by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render unnecessary Landlord's consent or approval to or
of any subsequent similar acts by Tenant.
(e) (i) Notwithstanding anything to the contrary set forth in this
Lease, Landlord shall not be in default in the performance of any
obligation
-25-
<PAGE> 26
required to be performed by Landlord pursuant to this Lease unless Landlord
fails to perform such obligation within thirty (30) days after the receipt
of notice from Tenant specifying in detail Landlord's failure to perform;
provided, however, if the nature of Landlord's obligation is such that more
than thirty (30) days are required for its performance, then Landlord shall
not be in default under this Lease if it shall commence such performance
within such thirty (30) day period and shall thereafter diligently pursue
the same to completion. Upon any such default by Landlord under this Lease,
Tenant may, except as otherwise specifically provided in this Lease to the
contrary, exercise any of its rights provided at law or in equity.
(ii) In the event that Tenant is prevented from using, and does not
use, the Improvements or any portion thereof, as a result of any repair,
maintenance or alteration performed by Landlord, or which Landlord failed
to perform, after the Commencement Date and required by the Lease, which
substantially interferes with Tenant's use of the Premises (an "ABATEMENT
EVENT"), then Tenant shall give Landlord notice of such Abatement Event,
and if such Abatement Event continues for five (5) consecutive days after
the giving of any such notice or ten (10) days after the giving of any such
notices in any twelve (12) month period (the "ELIGIBILITY PERIOD"), then
the Monthly Basic Rent and Tenant's obligation to pay any Operating
Expenses shall be abated or reduced, as the case may be, after expiration
of the Eligibility Period for such time that Tenant continues to be so
prevented from using, and does not use, the Premises or a portion thereof,
in the proportion that the rentable area of the portion of the Improvements
that Tenant is prevented from using, and does not use, bears to the total
rentable area of the Improvements; provided, however, in the event that
Tenant is prevented from using, and does not use, a portion of the
Improvements for a period of time in excess of the Eligibility Period and
the remaining portion of the Improvements is not sufficient to allow Tenant
to effectively conduct its business therein, and if Tenant does not conduct
its business from such remaining portion, then for such time after
expiration of the Eligibility Period during which Tenant is so prevented
from effectively conducting its business therein, the Monthly Basic Rent
and Tenant's obligation to pay for Operating Expenses shall be abated for
such time as Tenant continues to be so prevented from using, and does not
use, the Improvements. If, however, Tenant reoccupies any portion of the
Improvements during such period, the rent allocable to such reoccupied
portion, based on the proportion that the rentable area of such reoccupied
portion of the Improvements bears to the total rentable area of the
Improvements, shall be payable by Tenant from the date Tenant reoccupies
such portion of the Improvements. To the extent Tenant is entitled to
abatement without regard to the Eligibility Period, because of an event
described in Paragraphs 22 or 23 of this Lease, then the Eligibility Period
shall not be applicable.
26. Assignment and Subletting.
Tenant shall not voluntarily assign or encumber its interest in this
Lease or in the Premises, or sublease all or any part of the Premises, or allow
any other person or entity to occupy or use all or any part of the Premises,
without first obtaining Landlord's prior written consent, which shall not be
unreasonably withheld. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable, at Landlord's election, and
shall constitute a default. For purposes hereof, in the event Tenant is a
partnership, a withdrawal or change of partners, or change of ownership of
partners, owning more than a fifty percent (50%) interest in the partnership, or
if Tenant is a closely held corporation (i.e., a corporation which is not
publicly traded), any transfer of fifty percent (50%) or more of its stock,
shall constitute a voluntary assignment and shall be subject to these
provisions. A change of partners owning less than fifty percent (50%) interest
in a partnership, or a transfer of less than fifty percent (50%) of a
corporation's stock, may also be deemed to constitute a voluntary assignment
subject to these provisions (but not where the corporation is publicly traded)
if it results in a change of control of the partnership or corporation. No
consent to an assignment, encumbrance, or sublease shall constitute a further
waiver of the provisions of this Paragraph. Tenant shall notify Landlord in
-26-
<PAGE> 27
writing of Tenant's intent to assign this Lease, or encumber, or sublease
Tenant's interest in the Premises, the name of the proposed assignee or
sublessee, information concerning the financial responsibility of the proposed
assignee or sublessee and the terms of the proposed assignment or subletting,
and Landlord shall, within fifteen (15) days of receipt of such written notice,
and additional information reasonably requested by Landlord concerning the
proposed assignee's or sublessee's financial responsibility, elect one of the
following:
(a) Consent to such proposed assignment, encumbrance or sublease;
or
(b) Refuse such consent, which refusal shall be on reasonable
grounds.
Without limiting Landlord's grounds for disapproval, Landlord's
disapproval shall be deemed reasonable if it is based on Landlord's analysis
that (x) the proposed assignee's or sublessee's credit, character and reputation
is not consistent with the quality of the Project or (y) the assignee or
sublessee's use and occupancy of the Premises will be inconsistent with
Subparagraph 1(n) and Paragraph 8 of the Lease. As a condition for granting its
consent to any assignment, encumbrance or sublease, Landlord may require that
the assignee or sublessee remit directly to Landlord, on a monthly basis, all
monies due to Landlord as provided in this Paragraph 26 below. In the event that
Landlord shall consent to an assignment or sublease under the provisions of this
Paragraph 26, Tenant shall pay Landlord's reasonable processing costs and
attorneys' fees incurred in giving such consent, not to exceed One Thousand Five
Hundred Dollars ($1,500.00) during the initial ten (10) year Term. If for any
proposed assignment or sublease Tenant receives rent or other consideration,
whether cash or any other form whatsoever, either initially or over the term of
the assignment or sublease, in excess of the rent called for hereunder, or, in
case of the sublease of a portion of the Premises, in excess of such rent fairly
allocable to such portion, after appropriate adjustments to assure that all
other payments called for hereunder are taken into account, and after deducting
any reasonable out-of-pocket costs incurred by Tenant in connection with such
assignment or sublease, Tenant shall pay to Landlord as additional rent
hereunder fifty percent (50%) of the excess value of each such payment of rent
or other consideration received by Tenant promptly after its receipt. Landlord's
waiver or consent to any assignment or subletting shall not relieve Tenant from
any obligation under this Lease. Occupancy of all or part of the Premises by
parent, subsidiary, or affiliated companies of Tenant shall not be deemed an
assignment or subletting. In addition, notwithstanding anything to the contrary
contained in this Lease, neither (i) an assignment of Tenant's interest under
this Lease to a transferee of all or substantially all of the assets of Tenant,
(ii) an assignment of Tenant's interest under this Lease to a transferee which
is the resulting entity of a merger, reorganization or consolidation of Tenant
with another entity, nor (iii) an assignment or subletting of all or a portion
of the Premises to an affiliate of Tenant (an entity which is controlled by,
controls or is under common control with Tenant), shall require Landlord's
consent nor shall result in an obligation of Tenant to share any consideration
from such transaction with Landlord, provided that Tenant notifies Landlord of
any such assignment or sublease and promptly supplies Landlord with any
documents or information reasonably requested by Landlord regarding such
transfer or transferee and that such assignment or sublease is not a subterfuge
by Tenant to avoid its obligations under this Lease. Any assignee of Tenant's
interest under this Lease for which Landlord's consent is not required as
provided in this Paragraph 26 above may be referred to herein as an "AFFILIATE
ASSIGNEE."
27. Quiet Enjoyment.
Landlord covenants and agrees with Tenant that upon Tenant paying the
rent required under this Lease and paying all other charges and performing all
of the covenants and provisions aforesaid on Tenant's part to be observed and
performed under this Lease, Tenant shall and may peaceably and quietly have,
hold and enjoy the Premises in accordance with this Lease, free from any person
claiming by, through or under Landlord.
28. Subordination.
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any first mortgagee with a lien on the Premises or any ground lessor
with respect to the Premises, this Lease shall be subject and subordinate at all
times to: (a) all ground leases or underlying leases which may now
-27-
<PAGE> 28
exist or hereafter be executed affecting the Premises or the land upon which the
Premises are situated or both, (b) the lien of any mortgage or deed of trust
which may now exist or hereafter be executed in any amount for which the
Premises, land, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security, and (c) any CC&Rs (as
defined in Paragraph 8) affecting the Premises provided that any CC&Rs added to
the Premises after the date of this Lease, or any modification to the existing
CC&Rs after the date of this Lease, shall not increase Tenant's obligations
under this Lease nor decrease Tenant's rights under this Lease. Notwithstanding
the foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease. Landlord hereby agrees to provide Tenant with commercially
reasonable non-disturbance and attornment agreements which expressly honor
provisions in this Lease concerning the application of insurance and
condemnation proceeds from any mortgage holders or deed of trust beneficiaries
who later come into existence at any time prior to expiration of the Term in
consideration of, and as a condition precedent to, Tenant's agreement to
subordinate its interest to such mortgage or deed of trust. In the event that
any ground lease or underlying lease terminates for any reason or any mortgage
or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Tenant shall, if requested by the ground lessor, mortgagee or
beneficiary, as applicable, attorn to and become the Tenant of the successor in
interest to Landlord and in such event Tenant's right to possession of the
Premises shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay the rent and all other amounts required to be paid to Landlord
pursuant to the terms hereof and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms.
Tenant hereby waives its rights under any current or future law which gives or
purports to give Tenant any right to terminate or otherwise adversely affect
this Lease and the obligations of Tenant hereunder in the event of any such
foreclosure proceeding or sale. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form reasonably requested by
Landlord, any additional documents evidencing Tenant's agreement to attorn as
set forth in this Paragraph 28 and the priority or subordination of this Lease
with respect to any such CC&Rs, ground leases or underlying leases or the lien
of any such mortgage or deed of trust.
29. Estoppel Certificate.
Within ten (10) business days following any written request which
Landlord may make from time to time, Tenant shall execute and deliver to
Landlord a statement, in a form substantially similar to the form of Exhibit "F"
attached hereto, certifying: (i) the Commencement Date of this Lease; (ii) the
fact that this Lease is unmodified and in full force and effect (or, if there
have been modifications hereto, that this Lease is in full force and effect, as
modified, and stating the date and nature of such modifications); (iii) the date
to which the rental and other sums payable under this Lease have been paid; (iv)
the fact that, to Tenant's actual knowledge, there are no current defaults under
this Lease by either Landlord or Tenant except as specified in Tenant's
statement; and (v) such other matters reasonably requested by Landlord. Landlord
and Tenant intend that any statement delivered pursuant to this Paragraph 29 may
be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser
of the Premises or any interest therein, including Tenant's interest. In
connection with a proposed assignment or sublease by Tenant, or any other
transfer of substantially all of Tenant's assets or stock, Landlord hereby
agrees to provide to Tenant an estoppel certificate signed by Landlord,
containing the same types of information, and within the same period of time as
set forth in this Paragraph 29(a) above, with such changes as are reasonably
necessary to reflect that the estoppel certificate is being granted and signed
by Landlord to Tenant, rather than from Tenant to Landlord or a lender.
30. Building Planning.
Intentionally Omitted.
31. Rules and Regulations.
Tenant shall faithfully observe and comply with all reasonable rules
and regulations from time to time put into effect by Landlord as it deems
reasonably necessary or appropriate in its sole discretion (the "RULES AND
REGULATIONS"). Landlord shall apply any such Rules and Regulations on a
non-discriminatory basis and Landlord agrees that any such Rules
-28-
<PAGE> 29
and Regulations shall not deprive Tenant of rights expressly provided to Tenant
under this Lease nor increase any obligations of Tenant under this Lease.
32. Choice of Law.
This Lease shall be governed by and construed pursuant to the laws of
the State of Nevada.
33. Successors and Assigns.
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
34. Surrender of Premises.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all alterations and additions thereto
broom- clean, in good order, repair and condition, reasonable wear and tear
excepted, and shall comply with the provisions of Subparagraphs 14(g). The
delivery of keys to any employee of Landlord or to Landlord's agent or any
employee thereof shall not be sufficient to constitute a termination of this
Lease or a surrender of the Premises.
35. Professional Fees.
In the event that Landlord should bring suit for the possession of the
Premises, for the recovery of any sum due under this Lease, or because of the
breach of any provisions of this Lease, or for any other relief against Tenant
hereunder, or should either party bring suit against the other with respect to
matters arising from or growing out of this Lease, then all reasonable,
out-of-pocket costs and expenses, including without limitation, professional
fees such as appraisers', accountants' and attorneys' fees, incurred by the
prevailing party therein shall be paid by the other party.
36. Performance by Tenant.
Intentionally Omitted.
37. Mortgage and Senior Lessor Protection.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release of
such obligations or a termination of this Lease unless (a) Tenant has given
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises and to the lessor under any master or ground
Lease covering the Premises or any interest therein whose identity and address
shall have been furnished to Tenant in writing, and (b) Tenant offers such
beneficiary, mortgagee or lessor a reasonable opportunity to cure the default,
which cure period shall not extend for more than sixty (60) days beyond the
thirty (30) day cure period provided to Landlord pursuant to Paragraph 25(e)(i)
above. However, this Paragraph 37 is not intended to, and shall not, extend any
of the time periods for rental abatement specified in Paragraph 25(e)(ii) above.
38. Definition of Landlord.
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title to,
or a lessee's interest in a ground lease of, the Premises. In the event of any
transfer, assignment or other conveyance or transfers of any such title or
interest, and assumption of Landlord's obligations under this Lease by the
assignee/transferee, Landlord herein named (and in case of any subsequent
transfers or conveyances, the then grantor) shall be automatically freed and
relieved from and after the date
-29-
<PAGE> 30
of such transfer, assignment or conveyance of all liability as respects the
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed and, without further agreement, the
transferee of such title or interest shall have assumed and agreed to observe
and perform any and all obligations of Landlord hereunder, during its ownership
of the Premises. Landlord may transfer its interest in the Premises without the
consent of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
39. Waiver.
The failure of Landlord to seek redress for violation of, or to insist
upon strict performance of, any term, covenant or condition of this Lease or the
Rules and Regulations shall not be deemed a waiver of such violation or prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation, nor shall any custom or
practice which may become established between the parties in the administration
of the terms hereof be deemed a waiver of, or in any way affect, the right of
Landlord to insist upon the performance by Tenant in strict accordance with said
terms. The subsequent acceptance of rent hereunder by Landlord shall not be
deemed to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, other than the failure of Tenant to pay the particular
rent so accepted, regardless of Landlord's knowledge of such preceding breach at
the time of acceptance of such rent.
40. Identification of Tenant.
Unless the provisions of Paragraph 54 hereinbelow are applicable to
this Lease, if more than one entity executes this Lease as Tenant, (a) each of
them is jointly and severally liable for the keeping, observing and performing
of all of the terms, covenants, conditions, provisions and agreement of this
Lease to be kept, observed and performed by Tenant, and (b) the term "Tenant" as
used in this Lease shall mean and include each of them jointly and severally and
the act of or notice from, or notice or refund to, or the signature of, any one
or more of them, with respect to the tenancy or this Lease, including, but not
limited to, any renewal, extension, expiration, termination or modification of
this Lease, shall be binding upon each and all of the entities executing this
Lease as Tenant with the same force and effect as if each and all of them had so
acted or so given or so received such notice or refund or so signed.
41. Parking and Transportation.
(a) Tenant shall have the right to use all parking areas located
upon the Premises, subject to such parking rules and regulations as
Landlord deems reasonably necessary or appropriate in its sole discretion
for the operation of said parking. Landlord may refuse to permit any person
who violates with unreasonable frequency the parking rules and regulations
to park in the parking areas, and any violation of the rules shall subject
the car to removal. Tenant agrees to use its best efforts to acquaint all
employees and visitors with the parking rules and regulations. Landlord
shall have no responsibility for damage to cars in the parking areas,
except as provided in Paragraph 19.
(b) Tenant agrees that it will cooperate in governmentally required
programs to reduce peak levels of commuter traffic. Such programs may begin
prior to the Commencement Date and may include, but shall not be limited
to, an annual survey of commuter practices; designation of an employee of
Tenant as a contact for transportation management purposes; assembly of
commuter information from Tenant's employees; carpools; vanpools and other
ridesharing programs; public and private transit programs; and flexible
work hours.
(c) Upon reasonable advance notice to Landlord, Landlord shall make
available to Tenant temporary parking areas containing no more than seven
(7) parking spaces for each one thousand (1,000) rentable square feet of
the Improvements (including the improvements constructed on the Expansion
Premises, if applicable) upon any undeveloped land owned by Landlord within
The Crossing Business Center that is suitable for providing temporary
parking. Any preparation of such undeveloped land for such parking shall be
subject to Landlord's reasonable approval and shall be at Tenant's
-30-
<PAGE> 31
sole cost and expense. Tenant's use of such temporary parking areas shall
not exceed forty-five (45) days during any calendar year. The temporary
parking areas will be deemed to constitute a portion of the Premises during
the period of Tenant's use thereof for purposes of Paragraph 19. If
Landlord no longer has undeveloped land within The Crossing Business Center
suitable for providing temporary parking, then any additional parking that
Tenant may need in excess of the parking available upon the Premises must
be satisfied by utilizing the public streets adjacent to the Premises.
Landlord makes no representation as to the availability of unimproved land
within The Crossing Business Center for temporary parking or the
availability of any parking on the adjacent public streets; however, if (i)
undeveloped land within The Crossing Business Center suitable for providing
temporary parking is not available and (ii) either (A) parking is
prohibited by law on the adjacent public streets during the period of
Tenant's temporary parking requirement or (B) Tenant reasonably determines
that six (6) parking spaces for each one thousand (1,000) rentable square
feet of the Improvements is not available on those portions of the adjacent
public streets designated on Exhibit "G" during the period of Tenant's
temporary parking requirement, Landlord shall provide Tenant with a
temporary parking area for such period at some other location within
reasonable proximity to the Premises and if a shuttle vehicle is required
in order to provide transportation for Tenant's employees to and from such
other parking location, Landlord shall promptly reimburse Tenant for the
cost of operating such shuttle vehicle during such temporary period. The
provisions of this Paragraph 41(c) shall apply only to the Original Tenant,
any Affiliate Assignee and any other assignee of Tenant's entire interest
in this Lease which is permitted pursuant to the provisions of Paragraph 26
above, but only where such other assignee does not have a need for
temporary parking requirements which are greater than those of the Original
Tenant.
(d) All parking provided to Tenant under this Paragraph 41 shall be
free of charge during the initial Term and during any Option Term, except
that Tenant shall be responsible for any tax or other governmental
assessment imposed on Tenant's parking.
42. Terms and Headings.
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. Words used in any gender include other genders.
The Paragraph headings of this Lease are not a part of this Lease and shall have
no effect upon the construction or interpretation of any part hereof.
43. Examination of Lease.
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for Lease, and it is not
effective as a Lease or otherwise until execution by and delivery to both
Landlord and Tenant.
44. Time.
Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.
45. Prior Agreement; Amendments.
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior agreement
or understanding, oral or written, express or implied, pertaining to any such
matter shall be effective for any purpose. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest. The parties acknowledge that
all prior agreements, representations and negotiations are deemed superseded by
the execution of this Lease to the extent they are not incorporated herein.
-31-
<PAGE> 32
46. Severability.
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
and such other provisions shall remain in full force and effect.
47. Recording.
Neither Landlord nor Tenant shall record this Lease nor a short form
memorandum thereof without the consent of the other and if such recording
occurs, it shall be at the sole cost and expense of the party requesting the
recording, specifically including any documentary transfer taxes.
48. Limitation on Liability.
The obligations of Landlord under this Lease do not constitute personal
obligations of the individual partners, directors, officers or shareholders of
Landlord, and Tenant shall not seek recourse against the individual partners,
directors, officers or shareholders of Landlord or any of their personal assets
for satisfaction of any liability in respect to this Lease. Any liability of
Landlord under this Lease shall be limited to Landlord's interest in the
Premises, but in no event shall such interest be deemed to be less than One
Million One Hundred Twenty- Five Thousand Dollars ($1,125,000.00) for purposes
of this Paragraph 48.
49. Riders.
Clauses, plats, exhibits and riders, if any, affixed to this Lease are
a part hereof.
50. Signs.
Tenant shall not place any sign within any area of the Premises which
is visible from outside the Premises without Landlord's prior written consent.
Landlord's consent shall not be unreasonably withheld, provided that any such
signage shall comply with Landlord's standard graphics package for the Project
and no building-top signage shall be permitted. Landlord shall have the right to
remove any sign which has not been previously approved in writing.
51. Modification for Lender.
If in connection with obtaining construction, interim or permanent
financing for the Premises, the lender shall request reasonable modifications in
this Lease as a condition to such financing, Tenant will not unreasonably
withhold, delay or defer its consent thereto, provided that such modifications
do not increase the obligations of Tenant hereunder in any way and do not
adversely affect the leasehold interest hereby created or Tenant's rights
hereunder.
52. Accord and Satisfaction.
No payment by Tenant or receipt by Landlord of a lesser amount than the
rent payment herein stipulated shall be deemed to be other than on account of
the rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or pursue any other remedy provided in
this Lease. Tenant agrees that each of the foregoing covenants and agreements
shall be applicable to any covenant or agreement whether expressly contained in
this Lease or imposed by any statute or at common law.
53. Financial Statements.
If required in connection with a prospective sale or financing of the
Premises at any time during the term of this Lease, Tenant shall, upon thirty
(30) days prior written notice from Landlord, provide Landlord with a current
financial statement and financial statements of the two (2) years prior to the
current financial statement year. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant. If Tenant is not publicly
-32-
<PAGE> 33
held, Landlord shall keep, and shall direct any prospective purchaser or lender
to keep, such financial statements confidential except to the extent disclosure
is required to any accountants or other consultants retained by Landlord or such
prospective purchaser or lender.
54. Tenant as Corporation.
If Tenant executes this Lease as a corporation, then Tenant represents
and warrants that the individuals executing this Lease on Tenant's behalf are
duly authorized to execute and deliver this Lease on its behalf in accordance
with a duly adopted resolution of the board of directors of Tenant, a copy of
which is to be delivered to Landlord upon request, and in accordance with the
By-Laws of Tenant.
55. No Partnership or Joint Venture.
Nothing in this Lease shall be deemed to constitute Landlord and Tenant
as partners or joint venturers. It is the express intent of the parties hereto
that their relationship with regard to this Lease be and remain that of landlord
and tenant.
56. Force Majeure.
Any prevention, delay or stoppage due to strikes, lockouts, labor
disputes, acts of God, inability to obtain services, labor, or materials or
reasonable substitutes therefor, governmental actions, civil commotions, fire or
other casualty, and other causes beyond the reasonable control of the party
obligated to perform (collectively, the "FORCE MAJEURE"), except with respect to
(i) the obligations imposed with regard to rent and other charges to be paid by
Tenant or any monetary obligations to be paid by Landlord pursuant to this
Lease, and (ii) Landlord's obligations to make timely payments of the Allowance
pursuant to the Work Letter Agreement, notwithstanding anything to the contrary
contained in this Lease, shall excuse the performance of such party for a period
equal to any such prevention, delay or stoppage and, therefore, if this Lease
specifies a time period for performance of an obligation of either party, that
time period shall be extended by the period of any delay in such party's
performance caused by a Force Majeure.
IN WITNESS WHEREOF, the parties have executed this Lease the day and
year first above written.
TENANT: LANDLORD:
WILLIAMS-SONOMA, INC., a California HOWARD HUGHES PROPERTIES,
corporation LIMITED PARTNERSHIP, a Delaware
limited partnership
By: _______________________________
Print Name:____________________ By: THE HOWARD HUGHES
Print Title:___________________ CORPORATION (formerly known
as Summa Corporation), a Delaware
corporation, its sole general partner
By: _________________________________
Print Name:______________________
Print Title:_____________________
-33-
<PAGE> 34
EXHIBIT "A"
LEGAL DESCRIPTION OF PREMISES
(To be attached)
EXHIBIT "A"
-1-
<PAGE> 35
EXHIBIT "A"
-2-
<PAGE> 36
EXHIBIT "A"
-3-
<PAGE> 37
EXHIBIT "A"
-4-
<PAGE> 38
EXHIBIT "A"
-5-
<PAGE> 39
EXHIBIT "A"
-6-
<PAGE> 40
EXHIBIT "B"
SITE PLAN
[Site Plan needs to depict the Premises
and the Expansion Premises]
EXHIBIT "B"
-1-
<PAGE> 41
EXHIBIT "C"
WORK LETTER AGREEMENT
This Work Letter Agreement supplements the Office Lease (the "LEASE")
dated concurrently herewith, by and between Landlord and Tenant, covering
certain premises described in the Lease (the "PREMISES"). All terms not defined
herein shall have the same meaning as set forth in the Lease.
1. Construction of Base Improvements and Tenant Improvements.
Landlord shall construct, through its designated contractor, the "BASE
IMPROVEMENTS" described on Schedule 1 attached hereto. In addition, Landlord
shall construct, through its designated contractor, all other portions of the
building to be occupied by Tenant pursuant to the Lease (collectively, the
"TENANT IMPROVEMENTS") in accordance with the Final Plans for the Tenant
Improvements approved by Landlord and Tenant pursuant to Paragraph 2 below. The
Base Improvements and Tenant Improvements are collectively referred to as the
"IMPROVEMENTS." All Improvements shall be constructed pursuant to this Work
Letter Agreement and shall be performed only by Landlord's designated
contractor.
2. Plans and Specifications for Improvements.
2.1 All plans and specifications, and approvals or disapprovals thereof
for the Tenant Improvements shall be submitted in accordance with the schedule
set forth in Paragraph 6 below.
2.2 Tenant shall retain an architect reasonably approved by Landlord to
prepare and deliver to Landlord for approval preliminary plans for the Tenant
Improvements based upon Tenant's Outline Specifications dated September 25, 1995
(the "PRELIMINARY PLANS"). If Landlord shall disapprove of any portion of the
Preliminary Plans, Landlord shall advise Tenant of such revisions, and reasons
therefor, as are reasonably required by Landlord for the purpose of obtaining
approval. Tenant shall then submit to Landlord, for Landlord's approval, a
redesign of the Preliminary Plans, incorporating the revisions required by
Landlord and such modifications thereof as are suggested by Tenant, said
modifications to be subsequently approved by Landlord prior to Tenant's
submission of Final Plans.
2.3 Tenant shall cause its architect to prepare from the approved
Preliminary Plans complete architectural plans, drawings and specifications for
the Tenant Improvements and, utilizing Landlord's designated mechanical,
electrical and structural engineers, complete engineered and cross coordinated
mechanical, electrical and structural working drawings for the Tenant
Improvements. Such complete plans, drawings and specifications are referred to
herein as the "FINAL PLANS". All items shown on the Final Plans other than the
Base Improvements shall be considered to be Tenant Improvements. Tenant shall
submit the Final Plans for the approval of Landlord in the same manner as
provided in Subparagraph 2.2 above for approval by Landlord of the Preliminary
Plans.
2.4 Tenant acknowledges that, unless specifically shown as Landlord's
responsibility on the Final Plans, the Improvements shall not include, and
Landlord shall not be responsible for, the design, construction or installation
of, various nonstructural items which Tenant may find desirable for the Premises
including, without limitation, furniture, trade fixtures, office equipment,
telephone, telecommunications and data equipment and systems, plantscaping,
artwork or cabling required in connection with any of these items and Tenant may
enter the Premises to install these items as provided in, and subject to,
Paragraph 5 below.
3. Allowance for Work and Work Cost.
3.1 Landlord shall construct the Base Improvements at Landlord's cost.
Tenant shall receive from Landlord an allowance (the "ALLOWANCE") of $896,675.00
(i.e., $25.00 per rentable square foot multiplied by 35,867 rentable square feet
of the Improvements), which
EXHIBIT "C"
-1-
<PAGE> 42
Allowance shall be used solely for Work Costs for the Tenant Improvements. All
Tenant Improvements, whether or not the cost thereof is covered by the
Allowance, shall become the property of Landlord upon expiration or earlier
termination of the Lease and shall remain on the Premises at all times during
the Term of this Lease. Tenant shall be entitled to no payment or rent reduction
for any part of the Allowance not used by Tenant. Tenant shall have the option,
exercisable by written notice to Landlord at any time prior to the time Tenant
would otherwise be required to pay any excess Work Costs to Landlord pursuant to
Paragraph 3.7 below, to increase the amount of the Allowance by up to Ten
Dollars ($10.00) per rentable square foot of the Improvements. If Tenant
exercises such option, the Monthly Basic Rent shall be increased by an amount
calculated to fully amortize the amount by which the Allowance is so increased,
based upon equal monthly payments of principal and interest, with interest
imputed at the rate of twelve percent (12%) per annum on the outstanding
principal balance, over a ten (10) year amortization period commencing as of the
Commencement Date (or, as to the Expansion Premises, over the period from the
commencement of Tenant's lease of the Expansion Premises until the expiration of
the initial ten (10) year initial Term).
3.2 As used herein, "WORK COSTS" mean (i) all out-of-pocket fees and
expenses incurred by Landlord in connection with the design and construction of
the Tenant Improvements, including, without limitation, architectural and
engineering fees for the preparation of the Preliminary Plans and Final Plans,
(ii) the actual contractor costs and charges for material and labor,
contractor's profit, overhead and general conditions incurred by Landlord in
having the Tenant Improvements constructed in accordance with the Final Plans,
(iii) Governmental agency plan check, permit and other fees and sales and use
taxes, (iv) testing and inspection costs, (v) any paint touch-up or repair work
necessary due to Tenant's move into the Premises, and (vi) all other reasonable
costs expended or to be expended by Landlord in the construction of the Tenant
Improvements.
3.3 As promptly as practicable following Tenant's approval of the Final
Plans, Landlord shall submit to Tenant a written estimate of the Work Costs for
the Tenant Improvements. Thereupon, Tenant shall either approve the estimate or
disapprove specific items and submit to Landlord proposed revisions of Final
Plans to reflect the deletion of and/or substitution for such disapproved items.
Any such deletions and/or substitutions to the Final Plans will be processed in
accordance with Subparagraphs 3.8 and 3.9 below. Upon Tenant's final written
approval of said estimate, such approved estimate to be referred to herein as
the "WORK COST STATEMENT", Landlord shall have the right to purchase special
materials requiring extended delivery time as set forth on the Final Plans and
to commence the construction of the items included in said Work Cost Statement
pursuant to Paragraph 4 hereof.
3.4 The contractor cost of improvements shall be the sum of the actual
cost to Landlord's contractor, plus a contractor's fee for profit, overhead and
general conditions. The fee for profit shall not exceed five point five percent
(5.5%) of all other items under the contract and overhead and general conditions
shall be allocated by Landlord to the Base Improvements and the Tenant
Improvements based upon their respective costs. Wherever practicable, Landlord
shall cause its contractor to obtain a minimum of three (3) bids.
3.5 If any amendment or supplement to the Final Plans shall require
changes in the Base Improvements, the increased cost of the Base Improvements
caused by such changes shall be charged as a Work Cost. The cost thereof shall
include all direct architectural and/or engineering fees and expenses in
connection therewith.
3.6 Landlord's written estimate of the Work Costs shall include a
reasonable contingency to allow for changes in the Tenant Improvements and/or
other unforeseen costs and expenses arising after Tenant's approval thereof.
3.7 In the event that the Work Cost Statement exceeds the Allowance (as
may be increased by Tenant pursuant to Paragraph 3.1 above), Tenant shall pay
fifty percent (50%) of the excess to Landlord within five (5) business days of
its delivery of final written approval of the Work Cost Statement. The remaining
fifty percent (50%) of any such excess shall be paid by Tenant to Landlord, as
additional rent, within five (5) business days after the Commencement Date.
EXHIBIT "C"
-2-
<PAGE> 43
3.8 In the event that changes to the Final Plans are requested by
Tenant and approved by Landlord or required by any governmental agency
subsequent to Landlord's approval thereof, the changes shall be incorporated
into the work by means of change order.
3.9 Any change orders to the approved Final Plans which are requested
by Tenant and approved by Landlord or required by any governmental agency shall
be forwarded to Landlord for approval and costing. Tenant shall be given a
written cost estimate for the completion of said change order which must be
approved and paid for by Tenant prior to the commencement of work; provided,
however, that Landlord shall pay the cost of the change to the extent of any
remaining Allowance (as may be increased as provided in Paragraph 3.1 above).
3.10 Except as provided in Paragraph 3.7 hereof, Tenant shall pay
Landlord all amounts due under this Work Letter Agreement within five (5)
business days of billing. Should Tenant reasonably dispute the amount of any
billing, Tenant shall make payment on all portions which are not disputed. Any
unpaid portions, whether undisputed or disputed on which Landlord ultimately
prevails, shall bear interest from the due date at the Interest Rate.
3.11 The parties acknowledge that the Allowance shall not be charged
for any costs required to correct any errors or omissions of Landlord or the
general contractor retained by Landlord or for any costs resulting from the
negligence or willful misconduct of Landlord or the general contractor retained
by Landlord.
4. Construction.
4.1 Following Tenant's approval of Landlord's Work Cost estimate,
Tenant's payment of any amount by which such estimate exceeds the Allowance (as
provided in, and subject to, Paragraph 3.7 above) and receipt by Landlord of all
relevant governmental agency approvals and permits, Landlord shall cause its
general contractor to commence the construction of the Improvements. Landlord
and/or such general contractor shall have the right to cause all or any portion
of such work to be performed by one or more subcontractors. Landlord shall
furnish Tenant with a schedule setting forth the projected completion dates
therefor and showing the deadlines for any actions required to be taken by
Tenant during such construction, and Landlord may from time to time during the
prosecution of the Improvements modify or amend such schedule due to delays
encountered by Landlord; provided, however, that this sentence is not intended
to, and shall not, supersede Paragraphs 7.2 and 7.3 below. Landlord shall
endeavor to meet such schedule (as the same may be modified or amended). Except
as provided in Paragraphs 7.2 and 7.3 below, Landlord shall not be liable for
any direct or indirect damages as a result of delays in construction.
4.2 If Tenant shall request any change in the Final Plans ("CHANGE
ORDER"), Tenant shall cause the architect to prepare and submit to Landlord a
revised set of the Final Plans prepared in accordance with Subparagraph 2.3
above, for Landlord's approval. Any approved Change Orders shall initiate a new
written estimate of Work Costs which must be approved by Tenant pursuant to the
procedures set forth in Subparagraph 3.3 above. In order to account for
Landlord's administrative services, Landlord shall be entitled to add an
administrative charge to the Work Cost in an amount equal to five percent (5%)
of any additional costs resulting from a Change Order in excess of Fifty
Thousand Dollars ($50,000.00). No such fee shall be charged for Change Orders of
less than Fifty Thousand Dollars ($50,000.00). Any delay in the construction of
Improvements as a result of any Change Orders requested by Tenant shall be a
Tenant Delay (as defined in Paragraph 7 below).
4.3 In connection with the construction of the Improvements, each
party shall be entitled to rely upon the other party's construction
representative who shall be as follows: Landlord's Construction Representative:
Frank Beck, Tenant's Construction Representative: Susan Brown. Each respective
construction representative shall have the authority to make binding commitments
relative to the Improvements on behalf of the party appointing such construction
representative. All inquiries of Tenant pertaining to construction of the
Improvements shall be directed in writing to Landlord's Construction
Representative. A party may designate a substitute construction representative
by giving written notice to the other party
EXHIBIT "C"
-3-
<PAGE> 44
at any time. Any representatives of Tenant who desire to visit the Premises
during construction of the Improvements must obtain the prior consent of
Landlord and the general contractor.
5. Decorating by Tenant.
Landlord shall make the Premises reasonably available to Tenant during
the last thirty (30) days of construction of the Improvements for the purpose of
decorating, furnishing and moving into the Premises and installation of Tenant's
telephone system and cabling. Such early entry by Tenant shall be subject to
scheduling by Landlord and such rules and regulations as Landlord may establish
in order to minimize any interference in Landlord's completion of the
Improvements. If at any time such entry shall cause or threaten a delay in the
construction of the Improvements, Landlord may terminate Tenant's right to such
early entry. Prior to Tenant's entry, Tenant shall deliver evidence to Landlord
that Tenant has obtained the insurance required under Paragraph 21 of the Lease.
Tenant shall be responsible for any damage to the Improvements caused by
Tenant's entry.
6. Schedule.
Preparation and approval of the Preliminary Plans, Final Plans and the
Work Cost Statement shall proceed as indicated below.
<TABLE>
<CAPTION>
Action Responsibility Due Date
------ -------------- --------
<S> <C> <C> <C>
(i) Submission and approval of the Landlord and Tenant To be prepared by
Preliminary Plans Tenant's architect and
approved by Landlord
and Tenant based upon
regularly scheduled
meetings during
January, 1996.
(ii) Submission of Final Plans to Tenant January 31, 1996
Landlord
(iii) Delivery of written notice Landlord Three (3) business days
approving or disapproving Final after (ii)
Plans
(iv) Submission, if necessary, of Tenant Five (5) business days
redesign of Final Plans after (iii)
(v) Delivery of written notice of final Landlord Three (3) business days
approval of Final Plans (if (iv) is after (iv)
necessary)
(vi) Submission of Work Cost estimate Landlord Two (2) business days
to Tenant after Landlord's
approval of Final Plans
(vii) Delivery of written notice of final Tenant Two (2) business days
approval of Work Cost Statement after (vi)
</TABLE>
7. Delays.
7.1 Notwithstanding the Estimated Commencement Date provided in
Subparagraph 1(j) of the Lease, Tenant's obligation for the payment of rent as
defined within the Lease shall not commence until the actual Commencement Date
as defined in Subparagraph 1(k) of the Lease; provided, however, that if
Landlord shall be delayed in substantially completing the Improvements as a
result of any of the following ("TENANT DELAYS"):
EXHIBIT "C"
-4-
<PAGE> 45
(i) Tenant's failure to complete any action item which is the
responsibility of Tenant on or before the due date specified in Paragraph 6
above, or
(ii) Tenant's changes to Final Plans after the final submission
date in Subparagraph 6(vii) above, or Tenant's approval thereof, whichever
is earlier, or
(iii) Any delay caused by Tenant's entry pursuant to Paragraph 5,
or
(iv) Any delay of Tenant in making payment to Landlord for
Tenant's share of Work Cost as provided in Subparagraph 3.7 above, or
(v) Any other delay caused by Tenant,
then the Term of the Lease shall nevertheless commence and the Commencement Date
shall be the date it would have been had the delay not occurred.
7.2 The term "OUTSIDE DATE" shall mean August 1, 1996; provided,
however, that such August 1, 1996 date shall be extended on a day-for-day basis
to the extent that Landlord is delayed in substantially completing the
Improvements as a result of any Tenant Delays and/or Force Majeure. In the event
that the Commencement Date does not occur on or before the Outside Date (as so
extended), then (i) Tenant's obligation to pay Monthly Basic Rent shall not
commence until the Commencement Date, (ii) for each day after the Outside Date
(as so extended) in which the Commencement Date has not occurred, (a) Tenant's
first obligations to pay Monthly Basic Rent shall be abated for two days and (b)
the date of expiration of the initial Term shall be extended for two (2) days.
By way of example only, and not as limitation upon the foregoing, if there are
ten (10) days of Force Majeure delays and five (5) days of Tenant Delays and if
the Commencement Date occurs on August 20, 1996, then the Outside Date shall be
August 15, 1996, Tenant's obligation to pay Monthly Basic Rent shall be abated
until August 30, 1996 and the initial Term shall expire on August 30, 2006.
7.3 The term "OUTSIDE TRAINING DATE" shall mean September 1, 1996;
provided, however, that such September 1, 1996 date shall be extended on a
day-for-day basis to the extent that Landlord is delayed in substantially
completing the Improvements as a result of any Tenant Delays and/or Force
Majeure. In the event that the Commencement Date does not occur on or before the
Outside Training Date (as so extended), then in addition to Tenant's rights
under Paragraph 7.2 above, (i) Landlord shall reimburse Tenant, within thirty
(30) days after Landlord's receipt of a reasonably particularized invoice and
other evidence of payment reasonably requested by Landlord, for the excess
("TRAINING EXCESS") of any actual, out-of-pocket costs incurred by Tenant in
order to train Tenant's employees who will be working from the Premises as of
the Commencement Date over and above the amount of actual, out-of-pocket
expenses Tenant would have incurred in order to train such employees had the
Commencement Date occurred on or before the Outside Training Date (as so
extended), and (ii) the date of expiration of the Initial Term shall be extended
(in addition to the extension described in Subparagraph 7.2(ii)(b) above) for a
sufficient number of days so that the Monthly Basic Rent paid by Tenant for the
Premises during such extension shall be equivalent to the amount of the Training
Excess so paid by Landlord.
EXHIBIT "C"
-5-
<PAGE> 46
TENANT: LANDLORD:
WILLIAMS-SONOMA, INC., a California HOWARD HUGHES PROPERTIES,
corporation LIMITED PARTNERSHIP, a Delaware
limited partnership
By: _______________________________
Print Name:____________________ By: THE HOWARD HUGHES
Print Title:___________________ CORPORATION (formerly known
as Summa Corporation), a Delaware
corporation, its sole general partner
By: _________________________________
Print Name:
Print Title:
EXHIBIT "C"
-6-
<PAGE> 47
SCHEDULE 1
DESCRIPTION OF BASE IMPROVEMENTS
The following is a description of Base Improvements for the Premises. Any items
not specifically identified are intended to be included with the Tenant
Improvements. Reference the attached plans and elevations which approximate the
contemplated base building design.
Sitework
- Parking will be provided for approximately 245 cars. Paving sections
will be installed as recommended in the geotechnical report.
- Handicapped parking will be provided adjacent to the main entrance.
- Utilities will be brought to the building with all necessary fees paid
to obtain a TCO for the base building. Sewer connection fees are paid
when fixtures are designed and installed. Sewer connection fees will be
paid as part of the Tenant Improvements.
- A secondary source for telephone was requested by Tenant and the second
service will be installed with the Base Improvements but paid for as
part of the Tenant Improvements.
- The emergency generator will be sized and accounted for with the Tenant
Improvements. Allowances will be made with the Base Improvements to
support the generator location at the northwest corner of Phase I. All
costs to support the generator are part of the Tenant Improvements.
- Site lighting shall meet code with a minimum 1 fc in the parking lot
area.
- The transformer will be located unscreened adjacent to the generator.
- A concrete patio and adjacent landscaped area will be located at the
rear of the building.
- A monument sign meeting Summerlin guidelines will be designed and
installed at a single location at the building entrance.
Base Building
- The structure is to be tilt-up concrete panels with glass area as shown
on the attached elevations.
- The roof system will be an unpainted wood panelized system with 16'
clear to the bottom of the trusses. Roofing will be a 4-ply built-up
roof with 3-1/2" of rigid insulation to eliminate batt insulation in
the space.
- The roof system will be designed to support 5 ton units throughout the
building.
- Roof insulation will be designed to meet the Energy Guide requirements
and to meet the local design standards. The roof insulation is
anticipated to be rigid insulation. Wall insulation will be installed
as a part of the Tenant Improvements. This will accommodate the need to
install facilities in the exterior walls.
- Window coverings will be designed and installed with the Tenant
Improvements.
- 4' x 8' skylights will be installed throughout the call center.
- A canopy will be provided at the main entrance.
- Other than bringing primary service into the building, no in-slab
facilities have been identified for Tenant Improvements.
SCHEDULE 1
-1-
<PAGE> 48
EXHIBIT "D"
RENTABLE SQUARE FEET
1. The term "RENTABLE SQUARE FEET" of the Improvements as used in the
Lease shall be deemed to mean the Construction Area of the Improvements as
determined in accordance with the Method for Measuring Floor Area in Office
Buildings, ANSI Z65.1-1980 (the "BOMA STANDARD").
2. For purposes of establishing the initial Annual Basic Rent and
Monthly Basic Rent as shown in Paragraph 1 of the Lease and the amount of the
Allowance, the number of rentable square feet of the Improvements is deemed to
be as set forth in Subparagraph 1(g) of the Lease. Within ninety (90) days
following the Commencement Date, Landlord's architect will redetermine the
actual number of rentable square feet of the Improvements, based upon the
criteria set forth in Paragraph 1 above, and thereupon Annual Basic Rent,
Monthly Basic Rent and the Allowance shall be retroactively adjusted
accordingly.
EXHIBIT "D"
-1-
<PAGE> 49
EXHIBIT "E"
SAMPLE FORM OF
NOTICE OF LEASE TERM DATES
TO:________________________ Date: _________________
Re: Lease dated __________________________, 19__ between HOWARD HUGHES
PROPERTIES, LIMITED PARTNERSHIP, a Delaware limited partnership, Landlord, and
WILLIAMS-SONOMA, INC., a California corporation, Tenant, concerning Premises
located at __________ Covington Cross Drive, Las Vegas, Nevada ____________.
Gentlemen:
In accordance with the subject Lease, we wish to advise and/or confirm
as follows:
1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the subject Lease.
2. That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the subject Lease, the Term of said
Lease shall commence as of __________ for a term of ten (10), ending on
___________________, with one (1) option to extend for five (5) years.
3. That in accordance with the subject Lease, rental commenced to
accrue on_________________________.
4. If the commencement date of the subject Lease is other than the
first day of the month, the first billing will contain a pro rata adjustment.
Each billing thereafter, with the exception of the final billing, shall be for
the full amount of the monthly installment as provided for in said Lease.
5. Rent is due and payable in advance on the first day of each and
every month during the term of said Lease. Your rent checks should be made
payable to __________________________________ at ____________________________.
AGREED AND ACCEPTED
TENANT: LANDLORD:
WILLIAMS-SONOMA, INC., a California HOWARD HUGHES PROPERTIES,
corporation LIMITED PARTNERSHIP, a Delaware
limited partnership
By: _______________________________
Print Name:____________________ By: THE HOWARD HUGHES
Print Title:___________________ CORPORATION (formerly known
as Summa Corporation), a Delaware
corporation, its sole general partner
By: _________________________________
Print Name:______________________
Print Title:_____________________
EXHIBIT "E"
-1-
<PAGE> 50
EXHIBIT "F"
SAMPLE FORM OF ESTOPPEL CERTIFICATE
The undersigned, HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP, a
Delaware limited partnership ("LANDLORD"), with a mailing address c/o
___________________________________, _______________________________, and
WILLIAMS-SONOMA, INC., a California corporation ("TENANT"), hereby certify to
_____________________________________, a _________________________________ as
follows:
1. Attached hereto is a true, correct and complete copy of that
certain lease dated __________, 19__ between Landlord and Tenant (the "LEASE"),
which demises premises located at _________________________________. The Lease
is now in full force and effect and has not been amended, modified or
supplemented, except as set forth in paragraph 4 below.
2. The term of the Lease commenced on __________, 19__.
3. The term of the Lease shall expire on __________, 19__.
4. The Lease has: (Initial one)
( ) not been amended, modified, supplemented, extended, renewed or
assigned.
( ) been amended, modified, supplemented, extended, renewed or assigned
by the following described agreements, copies of which are attached hereto:_____
_______________________________________________________________________________.
5. Tenant is now in possession of said premises.
6. Tenant and Landlord acknowledge that the Lease will be assigned to
__________________________ and no modification, adjustment, revision or
cancellation of the lease or amendments thereto shall be effective unless
written consent by _____________________ is obtained, and that until further
notice, payments under the Lease may continue as heretofore.
7. The amount of fixed monthly rent is $_______________.
8. The amount of security deposits (if any) is $____________. No other
security deposits have been made.
9. Tenant is paying the full lease rental, which has been paid in full
as of the date hereof. No rent under the Lease has been paid more than thirty
(30) days in advance of its due date.
10. All known work required to be performed by Landlord under the Lease
has been completed.
11. To Tenant's actual knowledge, there are no defaults on the part of
the Landlord or Tenant under the Lease.
12. To Tenant's actual knowledge, Tenant has no defense as to its
obligations under the Lease and claims no set-off or counterclaim against
Landlord.
13. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies except as
provided in the Lease.
All provisions of the Lease and amendments thereto (if any) referred to
above are hereby ratified.
EXHIBIT "F"
-1-
<PAGE> 51
The foregoing certification is made with the knowledge that ___________
_______________ is about to fund a loan to Landlord or purchase the demised
premises from Landlord, and that ________________________ is relying upon the
representations herein made in connection with such transaction.
DATED: ______________, 19__
TENANT: LANDLORD:
WILLIAMS-SONOMA, INC., a California HOWARD HUGHES PROPERTIES,
corporation LIMITED PARTNERSHIP, a Delaware
limited partnership
By: _______________________________
Print Name:____________________ By: THE HOWARD HUGHES
Print Title:___________________ CORPORATION (formerly known
as Summa Corporation), a Delaware
corporation, its sole general partner
By: _________________________________
Print Name:______________________
Print Title:_____________________
EXHIBIT "F"
-2-
<PAGE> 52
EXHIBIT "G"
PUBLIC STREET PARKING AREAS
EXHIBIT "G"
-1-
<PAGE> 53
STANDARD FORM LEASE
BY AND BETWEEN
HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
"LANDLORD"
AND
WILLIAMS-SONOMA, INC.,
A CALIFORNIA CORPORATION
"TENANT"
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH PAGE
- --------- ----
<S> <C> <C>
1. Terms and Definitions.......................................... 1
2. Premises Leased................................................ 2
3. Term........................................................... 3
4. Possession..................................................... 6
5. Annual Basic Rent.............................................. 6
6. Rental Adjustment.............................................. 6
7. Security Deposit............................................... 11
8. Use............................................................ 11
9. Payments and Notices........................................... 12
10. Brokers........................................................ 13
11. Holding Over................................................... 13
12. Taxes on Tenant's Property..................................... 13
13. Condition of Premises.......................................... 13
14. Alterations.................................................... 14
15. Repairs........................................................ 16
16. Liens.......................................................... 17
17. Entry by Landlord.............................................. 18
18. Utilities and Services......................................... 18
19. Indemnification................................................ 19
20. Damage to Tenant's Property.................................... 19
21. Insurance...................................................... 19
22. Damage or Destruction.......................................... 21
23. Eminent Domain................................................. 23
24. Bankruptcy..................................................... 24
25. Defaults and Remedies.......................................... 24
26. Assignment and Subletting...................................... 26
27. Quiet Enjoyment................................................ 27
28. Subordination.................................................. 27
29. Estoppel Certificate........................................... 28
30. Building Planning.............................................. 28
31. Rules and Regulations.......................................... 28
32. Choice of Law.................................................. 29
33. Successors and Assigns......................................... 29
34. Surrender of Premises.......................................... 29
35. Professional Fees.............................................. 29
36. Performance by Tenant.......................................... 29
37. Mortgage and Senior Lessor Protection.......................... 29
38. Definition of Landlord......................................... 29
39. Waiver......................................................... 30
40. Identification of Tenant....................................... 30
41. Parking and Transportation..................................... 30
42. Terms and Headings............................................. 31
43. Examination of Lease........................................... 31
44. Time........................................................... 31
45. Prior Agreement; Amendments.................................... 31
46. Severability................................................... 32
47. Recording...................................................... 32
48. Limitation on Liability........................................ 32
49. Riders......................................................... 32
50. Signs.......................................................... 32
51. Modification for Lender........................................ 32
52. Accord and Satisfaction........................................ 32
53. Financial Statements........................................... 32
</TABLE>
-i-
<PAGE> 55
<TABLE>
<S> <C> <C>
54. Tenant as Corporation.......................................... 33
55. No Partnership or Joint Venture................................ 33
56. Force Majeure.................................................. 33
</TABLE>
<TABLE>
<CAPTION>
Principal Reference
Exhibit in Paragraph
- ------- ------------
<S> <C> <C>
"A" Legal Description of Premises 2(a)
"B" Site Plan Showing Initial Premises and Expansion 2(a)
Premises
"C" Work Letter Agreement 2(a)
"D" Rentable Square Feet 2(a)
"E" Sample Form of Notice of Lease Term Dates 13
"F" Sample Form of Tenant Estoppel Certificate 29
"G" Public Street Parking Areas 41
</TABLE>
-ii-
<PAGE> 56
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Abatement Event.............................................................25
Actual Statement............................................................10
Affiliate Assignee..........................................................27
Allowance............................................................Exhibit C
Annual Basic Rent; Monthly Basic Rent........................................2
Approximate Rentable Square Feet within Improvements.........................1
Base Improvements....................................................Exhibit C
BOMA Standard........................................................Exhibit D
Brokers......................................................................2
CC&Rs.......................................................................11
Change Order.........................................................Exhibit C
Changes.....................................................................13
Claims......................................................................18
Commencement Date............................................................1
Comparable Projects..........................................................4
Cosmetic Changes............................................................14
Damage Notice...............................................................21
Damage Termination Date.....................................................21
Damage Termination Notice...................................................21
Eligibility Period..........................................................25
Estimate Statement...........................................................9
Estimated Commencement Date..................................................1
Exhibits.....................................................................2
Expansion Notice.............................................................3
Expansion Option.............................................................2
Expansion Premises...........................................................2
Extension Options............................................................3
Fair Market Rental Rate......................................................4
Final Plans..........................................................Exhibit C
Force Majeure...............................................................32
Improvements.................................................................1
Interest Rate...............................................................10
Landlord.....................................................................1
Landlord's Address...........................................................1
Landlord's Construction Representative.......................................2
Lease Year...................................................................2
Notice.......................................................................3
Operating Expenses Allowance.................................................2
Option Rent..................................................................4
Option Rent Notice...........................................................4
Option Terms.................................................................4
Original Tenant..............................................................3
Outside Agreement Date.......................................................5
Outside Date.................................................................5
Outside Training Date........................................................5
Overridden Claims...........................................................18
Permitted Use................................................................2
Preliminary Plans....................................................Exhibit C
Premises.....................................................................1
Premises Address.............................................................1
Project......................................................................2
Punch List Items.............................................................2
Qualified Appraiser..........................................................5
real property taxes..........................................................8
rentable square feet.................................................Exhibit D
Rules and Regulations.......................................................28
Service Facilities..........................................................14
Tenant.......................................................................1
Tenant Delays........................................................Exhibit C
Tenant Improvements..................................................Exhibit C
Tenant's Address.............................................................1
Tenant's Construction Representative.........................................2
Term.........................................................................1
Training Excess..............................................................5
Work Cost Statement..................................................Exhibit C
Work Costs...........................................................Exhibit C
</TABLE>
-iii-
<PAGE> 57
-iv-
<PAGE> 1
EXHIBIT 10.11A
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT (this "Agreement") is made as of the 11th
day of December, 1995 by and between Howard Hughes Properties, Limited
Partnership, a Delaware limited partnership ("HHP") and Williams-Sonoma,
Incorporated, a California corporation ("User").
R E C I T A L S:
A. HHP and User have entered into negotiations for a build to suit
lease by User of approximately thirty-five thousand (35,000) square feet
located at The Crossing Business Center, Las Vegas, Nevada, as depicted in
Exhibit "A" (the "Premises").
B. It is contemplated by the parties hereto that HHP will
construct all improvements ("Improvements") on the Premises.
C. To facilitate construction of the Improvements, User has
requested that HHP engage various consultants to perform work related to and
associated with the preparation of plans and specifications ("Plans") of the
Improvements.
D. In the event User and HHP fail to execute a lease agreement
with respect to the Premises, User desires to reimburse HHP for all costs
associated with the preparation of the Plans.
<PAGE> 2
A G R E E M E N T
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Consultants. HHP may engage all consultants ("Consultants"),
including without limitation, architects and other design engineers, which HHP,
in its reasonable discretion, deems necessary to facilitate preparation of the
Plans. Subject to Paragraph 2 below, User agrees to pay all costs and expenses
incurred by HHP with respect to the Consultants provided that such costs and
expenses have been (i) expended pursuant to a budget approved in writing in
advance by User; or (ii) approved in writing in advance by User on a case by
case basis ("Total Costs").
2. Reimbursement. In the event HHP and User do not execute and
enter into a lease agreement for the Premises on or before April 1, 1996 (the
"Execution Date"), then within thirty (30) days of receipt of written demand
(the "Demand Notice") from HHP setting forth the Total Costs, User shall pay to
HHP, in cash, an amount equal to the Total Costs. The Demand Notice shall
include copies of all Consultant invoices in HHP's possession. With respect to
the first One Hundred Thousand Dollars ($100,000) of Total Costs, HHP and User
shall each pay one half (1/2) of the amount of such Total Costs. User further
agrees to pay all Total Costs in excess of One Hundred Thousand Dollars
($100,000) not to exceed Twenty
-2-
<PAGE> 3
Thousand Dollars ($20,000). In no event shall User's share of the Total Costs
exceed Seventy Thousands Dollars ($70,000). In no event shall HHP's obligation
hereunder for the Total Costs exceed Fifty Thousand Dollars ($50,000).
3. Restriction on Leasing. Until the earlier of execution of the
lease agreement or the termination of negotiations thereof, HHP shall not
advertise, market, or enter into any negotiations whatsoever with any other
party with respect to the Premises.
4. Refund. HHP agrees to refund to User any and all monies paid
by user to HHP pursuant to Section 2 hereof, provided, that within ninety (90)
days after the Execution Date, User and HHP have mutually executed a lease with
respect to the Premises.
5. Notices. All notices, demands, requests, consents, approvals
or other communications (for the purposes of this Section 4 collectively called
"Notices") required or permitted to be given hereunder or which are given with
respect to this Agreement shall be in writing and shall be delivered by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
To HHP: HOWARD HUGHES PROPERTIES,
LIMITED PARTNERSHIP
1231 Town Center Drive, Suite 200
Las Vegas, Nevada 89134
Attention: Vice President Leasing
& Sales, Commercial and
Industrial Division
-3-
<PAGE> 4
To USER: WILLIAMS-SONOMA, INCORPORATED
3250 Van Ness Avenue
San Francisco, California 94109
Attention: Mr. Patrick Connolly,
Senior Vice President
Marketing & Mail Order Operations
6. Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the laws of
the State of Nevada applicable to agreements made and to be performed wholly
within the State of Nevada.
7. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior understandings, if any, with respect thereto. This
Agreement may not be modified, changed or supplemented, nor may any obligations
hereunder be waived, except by written instrument signed by all parties hereto
or by their agents duly authorized in writing or as otherwise expressly stated
herein. The parties do not intend to confer any benefit hereunder on any
person, firm or corporation other than the parties hereto.
8. Waivers; Extensions. No waiver of any breach of any agreement
or provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof or of any other agreement or provision herein
contained. No extension of time for performance of any obligation or acts shall
be deemed an extension or the time performance of any other obligations or acts.
9. Non-Waiver of Rights. No failure or delay of either party in
the exercise of any right given to such party
-4-
<PAGE> 5
hereunder shall constitute a waiver thereof unless the time specified herein
for exercise of such right has expired, nor shall any single or partial
exercise or any right preclude any other or further exercise thereof or of any
other right. The waiver of any breach hereunder shall not be deemed to be
waiver of any other or any subsequent breach hereof.
10. Exhibits. Each of the Exhibits referred to herein and attached
hereto is an integral part of this Agreement and is incorporated herein by this
reference.
11. Partial Invalidity. The determination that any covenant,
agreement, condition or provision of this Agreement is invalid shall not effect
the enforceability of the remaining covenants, agreements, conditions or
provisions hereof and, in the event of any such determination, this Agreement
shall be construed as if such invalid covenant, agreement, condition or
provision were not included herein.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HOWARD HUGHES PROPERTIES,
LIMITED PARTNERSHIP, a
Delaware limited partnership
By: THE HOWARD HUGHES
CORPORATION (formerly known
as Summa Corporation), a
Delaware corporation, its
sole general partner
By: /s/ Robert E. Morrison
---------------------------
Print Name: Robert E. Morrison
------------------
Print Title: Sr. V.P.
-----------------
THE ABOVE IS HEREBY AGREED
TO AND CONFIRMED THIS 8TH
DAY OF DECEMBER, 1995
WILLIAMS-SONOMA, INCORPORATED
a California Corporation
By: /s/ Pat Connolly
----------------------------
Print Name: Pat Connolly
--------------------
Print Title: Sr. V.P. Mail Order
-------------------
-6-
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
21
<PAGE> 2
EXHIBIT 11: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 1996 January 29, 1995 January 30, 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net earnings $ 2,536,000 $19,572,000 $11,221,000
----------- ----------- -----------
Average shares of common
stock outstanding during
period 25,362,000 25,155,000 25,015,000
Incremental shares from
assumed exercise of stock
options (primary) 776,000 972,000 479,000
----------- ----------- -----------
26,138,000 26,127,000 25,494,000
----------- ----------- -----------
Primary earnings per share $0.10 $0.75 $0.44
===== ===== =====
Average shares of common
stock outstanding during
period 25,362,000 25,155,000 25,015,000
Incremental shares from
assumed exercise of stock
options (fully diluted) 792,000 1,001,000 539,000
----------- ----------- -----------
26,154,000 26,156,000 25,554,000
----------- ----------- -----------
Fully diluted earnings per
share $0.10 $0.75 $0.44
===== ===== =====
</TABLE>
Note: Amounts have been restated to reflect the 3-for-2 stock splits in
February 1994 and September 1994.
22
<PAGE> 1
EXHIBIT 13
1995 ANNUAL REPORT TO SHAREHOLDERS
This is available as a separate document. It is included as Exhibit 13
only in the electronic filing format.
23
<PAGE> 2
EXHIBIT 13: 1995 ANNUAL REPORT TO SHAREHOLDERS
24
<PAGE> 3
EXHIBIT 13
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
CORPORATE PROFILE
WILLIAMS-SONOMA, INC. operates high-quality, service-oriented retail concepts
focused on the home: Williams-Sonoma professional-style cooking and related
products, Pottery Barn casual home decor, Hold Everything organizational
solutions, Gardeners Eden garden-related merchandise and Chambers luxury linens.
Each concept is marketed throughout the United States via direct mail catalogs,
with mailings totaling 132 million catalogs in 1995. The company operates 240
Williams-Sonoma, Pottery Barn and Hold Everything stores in 32 states and
Washington, D.C. (A joint venture with Tokyu Department Store handles direct
mail and 12 stores in Japan.) Williams-Sonoma, Inc. common stock is quoted on
the NASDAQ National Market System under the symbol WSGC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal Year
Dollars in thousands 1995 1994 1993 1992 1991
except per share data -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $644,653 $528,543 $410,056 $344,944 $312,654
Net Earnings 2,536 19,572 11,221 1,799 1,611
Net Earnings Per Share .10 .75 .44 .07 .06
Total Assets $319,096 $217,878 $167,604 $147,087 $138,120
Working Capital 39,076 49,506 40,405 32,909 29,050
Stockholders' Equity $121,653 $118,216 $ 95,311 $ 83,540 $ 79,546
</TABLE>
1
<PAGE> 4
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
52 Weeks Ended
January 28 January 29 January 30 January 31 February 2
Dollars in thousands except percentages, 1996 1995 1994 1993 1992
per share amounts and retail stores data ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Result of Operations
Net Sales $ 644,653 $ 528,543 $ 410,056 $ 344,944 $ 312,654
Earnings before income taxes 4,373 33,435 19,398 3,048 2,731
Net earnings 2,536 19,572 11,221 1,799 1,611
Primary and fully diluted
net earnings per share(1) $ .10 $ .75 $ .44 $ .07 $ .06
Financial Position
Working capital $ 39,076 $ 49,506 $ 40,405 $ 32,909 $ 29,050
Long-term debt 46,757 6,781 587 723 1,144
Total assets 319,096 217,878 167,604 147,087 138,120
Shareholders' equity per share (book value)(1) $ 4.78 $ 4.70 $ 3.80 $ 3.34 $ 3.25
Catalog Sales
Catalogs mailed in year 131,800 126,833 99,807 94,326 95,618
Catalog sales growth 16.2% 55.0% 23.9% (.2%) (3.8%)
Catalog sales as percent of total sales 38.8% 40.8% 33.9% 32.4% 36.0%
Number of orders filled during year 2,828 2,729 1,921 1,749 1,996
Retail Stores
Number of stores at year-end 240 214 209 213 189
Comparable store sales growth 3.4% 16.5% 13.8% 2.1% 0.5%
Store selling area at year-end (sq. ft.) 690,256 537,969 487,883 493,434 433,958
</TABLE>
(1) Per share amounts have been restated to reflect the 3-for-2 stock splits in
February 1994 and September 1994.
<PAGE> 5
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
NET SALES
Net sales consist of the following components:
<TABLE>
<CAPTION>
52 Weeks Ended
January 28 January 29 January 30
Dollars in thousands 1996 % Total 1995 % Total 1994 % Total
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Catalog sales $250,372 39% $215,458 41% $139,038 34%
Retail sales 394,281 61% 307,327 58% 260,572 64%
California Closet revenue -- -- 5,758 1% 10,446 2%
-------- --- -------- --- -------- ---
Total net sales $644,653 100% $528,543 100% $410,056 100%
======== === ======== === ======== ===
</TABLE>
Net sales for Williams-Sonoma , Inc. and subsidiaries ( the Company) for the
fiscal year ended January 28,1996 (fiscal 1995) increased $116,110,000 (22%)
compared to net sales for the fiscal year ended January 29,1995 (fiscal 1994).
Net sales for fiscal 1994 increased 29% over net sales for the fiscal year ended
January 30, 1994 (fiscal 1993). In August of 1994 the Company sold California
Closet Company, Inc., a wholly-owned subsidiary which markets custom home closet
systems, primarily through a network of franchise stores. The Company does not
expect the sale of this business to significantly impact future net sales.
Catalog sales in fiscal 1995 and 1994 increased 16% and 55%, respectively,
over those of the prior year. The Company attributes most of the growth in
catalog sales to the "re-merchandising" of the Pottery Barn concept in 1992 and
the change in the Williams-Sonoma catalog format in 1994. The change from the
smaller digest format to a larger format improved the productivity of the
Williams-Sonoma catalog. The number of catalogs mailed increased 4% and 27% in
fiscal 1995 and fiscal 1994, respectively. Pottery Barn accounted for 78% of the
catalog sales growth in fiscal 1995 and 42% in fiscal 1994. Williams-Sonoma
accounted for 11% of the catalog sales growth in fiscal 1995 and 32% in fiscal
1994.
<TABLE>
<CAPTION>
52 Weeks Ended
January 28 January 29 January 30
Dollars in thousands 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Retail sales $394,281 $307,327 $260,572
Total net sales $644,653 $528,543 $410,056
Retail growth percentage 28.3% 17.9% 16.6%
Comparable store sales growth 3.4% 16.5% 13.8%
Number of stores - beginning of year 214 209 213
Number of new stores 34 11 --
Number of closed stores 8 6 4
--- --- ---
Number of stores - end of year 240 214 209
Number of remodeled or expanded stores 10 9 2
</TABLE>
Retail sales in fiscal 1995 increased 28% over retail sales in fiscal 1994. The
increase is primarily due to the opening of 34 new stores (20 Williams-Sonoma
and 14 Pottery Barn) and the remodeling of 10 stores (8 Williams-Sonoma and 2
Pottery Barn). Growth in comparable stores sales accounted for 3.4 percentage
points of the growth in fiscal 1995. Retail sales in fiscal 1994 grew 18% over
the prior fiscal year. 16.5 percentage points of this growth is attributable to
comparable stores sales growth. The balance of the growth reflects a net
increase of 5 stores in fiscal 1994. Pottery Barn, with 28% of the store
locations at the end of fiscal 1995, accounted for 50% and 39% of the retail
sales growth in fiscal 1995 and 1994, respectively.
The new Williams-Sonoma and Pottery Barn stores opened during fiscal 1994
and fiscal 1995 have approximately 34% and 215% more selling square feet,
respectively, than the existing stores. The larger format stores enable the
Company to more clearly display merchandise. The Company plans to open 27 new or
expanded large format stores in fiscal 1996-13 Pottery Barn and 14
Williams-Sonoma.
<PAGE> 6
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
Comparable stores are defined as those whose gross square feet did not
change by more than 20% in the previous twelve months and which have been open
for at least twelve months. Comparable store sales are compared monthly for
purposes of this analysis. The exclusion of expanded stores from the comparable
store sales computation may depress comparable store sales growth in fiscal
1996.
COST OF GOODS SOLD AND OCCUPANCY
Cost of goods sold and occupancy expense expressed as a percentage of net sales
in fiscal 1995 increased 3.8 percentage points to 63.7% from 59.9% in fiscal
1994. Gross margins were adversely affected by higher occupancy expenses, a
promotional program initiated in the fourth fiscal quarter to reduce excess
inventory, a reserve established at year-end for excess inventory and
higher-than-planned shortage results. Higher occupancy expenses were partly
attributable to the cost of temporary off-site storage facilities for inventory.
Excess inventory was due to the combined effect of above-plan inventory
purchases and delayed retail store openings. In fiscal 1994, double-digit
comparable store sales growth, dramatic growth in catalog sales (which have a
higher gross margin than retail sales) and new stores were responsible for a 2.4
percentage point reduction in cost of goods sold and occupancy expense expressed
as a percentage of total net sales.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense expressed as a percentage of net
sales increased 1.5 percentage points in fiscal 1995 to 35.0% from 33.5% in
fiscal 1994. Approximately half of the rate increase is due to an increase in
miscellaneous income and expense, which is primarily due to the fact that fiscal
1994 includes the reversal of a reserve (discussed below). The balance of the
increase is generally attributable to higher operating expenses in most areas of
the business. Operational and execution problems at the Company's distribution
and telemarketing facilities also contributed significantly to the increase.
Sales volumes exceeded the capacity of these facilities during the peak holiday
season for October through December. As a result, the Company was required to
hire substantially more seasonal employees than normal.
In December of 1993 the Company purchased a headquarters building with plans
to consolidate the headquarters staff in the building. In the fourth quarter of
fiscal 1993 the Company established a $3,000,000 reserve for the estimated cost
of vacating leased office space prior to the expiration of the leases. Sales
growth experienced in fiscal 1994 and planned growth in fiscal 1995 required the
Company to retain some of the leased office space it planned to sublease.
Therefore, in the fourth quarter of fiscal 1994 the Company reversed $2,000,000
of the lease reserve established in 1993.
INTEREST EXPENSE
Average month-end short-term borrowings increased 262% from $12,977,000 in
fiscal 1994 to $47,033,000 in fiscal 1995 due to the growth in merchandise
inventories, new store construction, and the expansion and upgrade of the
Memphis distribution center. On August 8,1995, the Company issued $40,000,000 in
principal amount of 10-year unsecured 7.2% Senior Notes. In December 1993, the
Company purchased a new headquarters building with working capital and then
secured a seven-year, $7 million, 7.8% mortgage on the building in April 1994.
The Company's weighted average interest rate on short-term borrowings increased
to 7.0 % in fiscal 1995 from 6.3% in fiscal 1994. Net interest expense in fiscal
1995 increased $3,218,000 from the prior year.
INCOME TAXES
The Company's effective tax rate was 42.0% for fiscal 1995 - an increase of 0.5
percentage points from fiscal 1994. This is a result of the higher aggregate
state tax rates based on the mix of retail sales and catalog sales in the
various states where the Company has sales or conducts business.
LIQUIDITY
Working capital at January 28, 1996, declined by $10,430,000 over that at
January 29, 1995. Net cash provided by operating activities declined from
$21,729,000 in fiscal 1994 to $2,353,000 in fiscal 1995. The decline is
primarily attributable to the decline in net income of $17,036,000 in fiscal
1995 and the increase in accounts receivable and merchandise inventories, which
was largely offset by increases in deferred lease incentives, accounts payable,
and accrued expenses and other liabilities. The increase in
<PAGE> 7
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
merchandise inventories is due principally to increased sales activity,
above-plan inventory purchases and delayed retail store openings. The increase
in accounts receivable is attributable to landlord construction allowances for
stores opened in the second half of fiscal 1995. Deferred lease incentives
represent landlord new store construction allowances that are amortized over the
life of the store lease. Cash used in investing activities was a record
$85,774,000 in fiscal 1995. $53,951,000 was spent on new and remodeled stores,
and $16,666,000 on the expansion and upgrade of the Memphis distribution center.
The Company financed the above activities through a $40,000,000 private
placement of 7.2% senior notes (Senior Notes) due August 8, 2005, and a
$29,600,000 increase in net bank borrowings. The Company's existing credit
agreement was renewed on March 29, 1996, with a 360-day, combined line of credit
and letter of credit facility. The aggregate principal amount available under
the renewed line of credit varies according to seasonal requirements from a high
of $90 million ($80 million for cash advances) to a low of $60 million ($35
million for cash advances). This represents a lower overall commitment of funds
for the Company than was available in fiscal 1995 under the prior credit
agreement. The new agreement replaces the Company's prior credit agreement,
dated October 13, 1994, which had been amended during fiscal 1995 to increase
the maximum combined borrowing limit under the line of credit and letter of
credit facilities from $90 million to $110 million. Additional amendments to the
October agreement modified the terms of certain financial ratios in favor of the
Company and waived the Company's failure to comply with certain covenants,
including the thirty-day "out of debt period," during which no borrowings were
permitted under the line of credit facility.
On April 15, 1996, the Company issued $40,000,000 principal amount of 5.25%
convertible notes (Convertible Notes) due April 15, 2003. The Convertible Notes
will be convertible at any time on or after July 15, 1996, into shares of the
Company's common stock at a conversion price of $26.10 per share (or 38.3 shares
per $1,000 principal amount).
IMPACT OF INFLATION
The impact of inflation on results of operations has not been significant.
SEASONALITY
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and net income have
been realized during the period from October through December, and levels of net
sales and net income have generally been significantly lower during the period
from February through July. The Company believes this is the general pattern
associated with the mail-order and retail industries. In anticipation of its
peak season, the Company hires a substantial number of additional employees in
its retail stores and mail-order processing and distribution areas, and incurs
significant fixed catalog production and mailing costs.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in
this Annual Report to Shareholders 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 Securities and Exchange Commission.
<PAGE> 8
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
52 Weeks Ended
Dollars and shares in thousands, January 28 January 29 January 30
except per share amounts 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $644,653 $528,543 $410,056
Costs and expenses
Cost of goods sold and occupancy 410,335 316,827 255,650
Selling, general and administrative 225,418 176,972 133,835
Interest expense-net 4,527 1,309 1,173
-------- -------- --------
Earnings before income taxes 4,373 33,435 19,398
Income taxes 1,837 13,863 8,177
-------- -------- --------
Net earnings $ 2,536 $ 19,572 $ 11,221
======== ======== ========
Primary and fully diluted earnings per share $ .10 $ .75 $ .44
Average number of common shares outstanding
Primary 26,138 26,127 25,494
Fully diluted 26,154 26,156 25,554
</TABLE>
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained
Dollars and shares in thousands Shares Amount Earnings Total
------------------------ --------- --------
<S> <C> <C> <C> <C>
Balance at January 31, 1993 24,998 $ 43,533 $ 40,007 $ 83,540
Issuance pursuant to stock option plans and tax
benefit from sale of optioned stock by employees 88 550 - 550
Net earnings - - 11,221 11,221
------ -------- --------- --------
Balance at January 30, 1994 25,086 44,083 51,228 95,311
Issuance pursuant to stock option plans and tax
benefit from sale of optioned stock by employees 256 3,333 - 3,333
Net earnings - - 19,572 19,572
------ -------- --------- --------
Balance at January 29, 1995 25,342 47,416 70,800 118,216
Issuance pursuant to stock option plans and tax
benefit from sale of optioned stock by employees 84 901 - 901
Net earnings - - 2,536 2,536
------ -------- --------- --------
Balance at January 28, 1996 25,427 $ 48,317 $ 73,336 $121,653
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 9
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
January 28 January 29
Dollars in thousands 1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,166 $ 17,481
Accounts receivable (less allowance for doubtful
accounts of $238 and $239) 13,157 5,394
Merchandise inventories 121,603 87,949
Prepaid expenses and other assets 6,506 5,849
Prepaid catalog expenses 15,613 11,205
Deferred income taxes 139 259
-------- --------
Total current assets 161,184 128,137
Property and equipment-net 147,302 79,395
Investments and other assets (less accumulated amortization
of $755 and $1,000) 6,570 6,325
Deferred income taxes 4,040 4,021
-------- --------
$319,096 $217,878
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 58,295 $ 49,357
Accrued expenses 8,323 4,407
Accrued salaries and benefits 8,666 8,138
Income taxes payable 1,947 8,329
Line of credit 29,600 --
Current portion of long-term obligations 125 141
Customer deposits 9,587 5,631
Other liabilities 5,565 2,628
-------- --------
Total current liabilities 122,108 78,631
Deferred lease credits 28,578 14,250
Long-term debt 46,757 6,781
Shareholders' equity
Preferred stock, $.01 par value,
authorized 7,500,000 shares, none issued -- --
Common stock, $.01 par value, authorized 126,562,500 shares,
issued and outstanding 25,426,890 and 25,342,077 shares 48,317 47,416
Retained earnings 73,336 70,800
Total shareholders' equity 121,653 118,216
-------- --------
$319,096 $217,878
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 10
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 Weeks Ended
January 28 January 29 January 30
Dollars in thousands 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,536 $ 19,572 $11,221
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 16,476 11,632 11,190
Store closing reserve (208) (445) (119)
Reserve for termination of corporate headquarters leases - (2,000) 3,000
Reserve for California Closet Company, Inc. - - (392)
Amortization of deferred lease incentives (1,950) (1,122) (988)
Change in allowance for doubtful accounts (1) 10 (290)
Change in deferred rents (57) 290 (188)
Change in deferred income taxes 101 1,305 (2,535)
Loss on disposal of assets 948 1,329 355
Tax benefit from sale of optioned stock by employees 343 2,167 177
Change in:
Accounts receivable (7,613) (2,443) 625
Merchandise inventories (33,654) (18,510) (7,195)
Prepaid catalog expenses (4,408) (5,487) (809)
Prepaid expenses and other assets (657) (3,216) (271)
Accounts payable 8,389 14,298 (437)
Accrued expenses and other liabilities 11,783 3,998 5,247
Deferred lease incentives 16,707 1,622 115
Income taxes payable (6,382) (1,271) 8,876
--------- --------- -------
Net cash provided by operating activities 2,353 21,729 27,582
Cash flows from investing activities:
Purchase of property and equipment (86,513) (30,145) (13,955)
Proceeds from the sale of property and equipment 797 - -
Other (58) 87 133
--------- --------- -------
Net cash used in investing activities (85,774) (30,058) (13,822)
Cash flows from financing activities:
Change in cash overdrafts 549 7,095 2,699
Borrowings under line of credit 226,600 120,400 72,500
Repayments under line of credit (197,000) (120,400) 81,200)
Proceeds from issuance of long-term debt 40,000 7,000 -
Repayments of long-term debt (141) (208) (284)
Proceeds from exercise of stock options 558 1,166 373
Debt issuance costs (460) - -
--------- --------- -------
Net cash provided by financing activities 70,106 15,053 (5,912)
Net increase (decrease) in cash and cash equivalents (13,315) 6,724 7,848
Cash and cash equivalents at beginning of year 17,481 10,757 2,909
--------- --------- -------
Cash and cash equivalents at end of year $ 4,166 $ 17,481 $10,757
========= ========= =======
</TABLE>
In 1994 in a non-cash transaction, the Company received a $2,100,000 note as
partial proceeds from the sale of a subsidiary.
See Notes to Consolidated Financial Statements.
<PAGE> 11
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and its subsidiaries are specialty retailers of products for the
home, which are merchandised through five direct-mail catalogs and three retail
businesses: Williams-Sonoma, Pottery Barn, Hold Everything, Chambers (catalog
only) and Gardeners Eden (catalog only). Based on net sales, retail accounts for
61.2% of the business and catalog accounts for 38.8%. The principal concepts in
both retail and catalog are Williams-Sonoma and Pottery Barn, which sell
cookware essentials and contemporary tableware and home furnishings,
respectively. The catalogs reach customers throughout the United States, while
the three retail businesses currently operate 240 stores in 32 states. These
consolidated financial statements include Williams-Sonoma, Inc. and its
subsidiaries. Significant intercompany transactions and accounts have been
eliminated.
Cash equivalents consist of short-term investments with original maturities
of 90 days or less.
Merchandise inventories are stated at the lower of cost (moving
weighted-average method) or market. Approximately 39% of the Company's
merchandise is foreign-sourced. The primary sources for imported merchandise are
located in Europe and Asia. At January 28, 1996, a small portion of $122 million
of inventory is in excess of current requirements based on the recent level of
sales. Management has developed a program to reduce this inventory to desired
levels over the near term and has established a reserve in anticipation of
expected losses on its disposition. Should this program not be successful,
additional amounts may be required to be accrued and carrying amounts of
inventories may need to be reduced.
Prepaid catalog expenses consist of the cost to produce, print and
distribute catalogs. Such costs are amortized over the expected sales life of
each catalog. Typically, over 90% of the cost of a catalog is amortized in the
first four months. At January 28, 1996, and January 29, 1995, $15,613,000 and
$11,205,000, respectively, of prepaid advertising was reported as assets.
Prepaid catalog expenses amounted to $78,131,000, $62,816,000 and $42,998,000 in
fiscal 1995, 1994 and 1993, respectively.
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated remaining useful lives of the
assets ranging from 3 to 39 years. Amortization of improvements to leased
properties is based upon the remaining term of the applicable lease or the
estimated useful lives of such assets, whichever is shorter.
Investments and other assets include non-current receivables, long-term
deposits, and lease rights and interests which are being amortized over the life
of the respective leases (5 to 49 years).
Deferred lease incentives include construction allowances received from
landlords, which are amortized on a straight-line basis over the initial lease
term. For leases which contain fixed escalations of the minimum annual lease
payment during the original term of the lease, the Company recognizes rental
expense on a straight-line basis and records the difference between rent expense
and the amount currently payable as deferred lease incentives.
New accounting pronouncements: In 1995, the Financial Standards Board
issued SFAS NO. 123, "Accounting for Stock-Based Compensation," whose accounting
and disclosure provisions must be adopted in 1996. The new standard defines a
fair value method of accounting for stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period,
which is usually the vesting period.
The new standard encourages, but does not require, adoption of the fair
value method of accounting for employee stock-based transactions. SFAS NO. 123
permits companies to continue to account for such transactions under Accounting
Principles Board Opinion (APBO) NO. 25, "Accounting for Stock Issued to
Employees," but requires a pro forma net income and earnings per share as if the
company had applied the new method of accounting. Williams-Sonoma, Inc. has
elected to continue to account for stock-based compensation under APBO NO. 25
and will adopt the disclosure requirements of SFAS NO. 123 in 1996.
In 1996, the Company will be subject to the provisions of Statement of
Financial Accounting Standards NO. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of." SFAS NO. 121
establishes recognition and measurement criteria for impairment losses when a
company no longer expects to recover the carrying value of a long-lived asset.
Based on management's evaluation of long-lived assets, the Company does not
expect the adoption of SFAS NO. 121 in 1996 to have a material effect on the
Company's operating results or financial position.
<PAGE> 12
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
Earnings per share: Primary and fully diluted earnings per share were
computed based on the weighted average number of common shares outstanding
during the year plus common stock equivalents consisting of shares subject to
stock options. Earnings per share, number of shares and stock options for all
periods have been restated to reflect a 3-for-2 stock split in February 1994 and
September 1994.
Management estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain items in the prior years' consolidated financial
statements have been reclassified to conform to the fiscal 1995 presentation.
Note B
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following: January 28 January 29
Dollars in thousands 1996 1995
---------- ----------
<S> <C> <C>
Land and buildings $ 11,008 $ 8,041
Leasehold improvements 113,040 69,474
Fixtures and equipment 70,278 45,008
Construction in progress 16,707 8,104
-------- --------
211,033 130,627
Less accumulated depreciation and amortization 63,731 51,232
-------- --------
Total property and equipment-net $147,302 $ 79,395
======== ========
</TABLE>
Note C
BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt consists of the following: January 28 January 29
Dollars in thousands 1996 1995
---------- ----------
<S> <C> <C>
Senior Notes $ 40,000 --
Mortgage 6,780 $ 6,922
Other 102 --
-------- --------
46,882 6,922
Less current maturities 125 141
-------- --------
Total long-term debt $ 46,757 $ 6,781
======== ========
</TABLE>
On August 8, 1995, the Company issued $40,000,000 principal amount of Senior
Notes to reduce the Company's dependency on short-term bank borrowings and to
fund new store and corporate infrastructure expansion. The Senior Notes are due
on August 8, 2005, and interest is payable semi-annually at 7.2%. Annual
principal payments of $5,714,000 begin on August 8, 1999, and continue through
August 8, 2004. The remaining principal amount is due and payable upon maturity.
The Senior Notes contain certain restrictive loan covenants, including minimum
net worth requirements, fixed charge coverage ratios and limitations on current
and funded debt. The Company was in compliance with these covenants at January
28, 1996.
On April 1, 1994, the Company entered into an agreement with a bank for a
$7,000,000 mortgage at LIBOR plus 1.25%. The Company then fixed the mortgage
interest rate at 7.8% for the full term by entering into an interest rate swap
agreement with the bank. Interest and principal payments are due quarterly
through March 2001. The mortgage is secured by the new corporate headquarters
building purchased by the Company in December 1993.
On March 29, 1996, the Company renewed its line of credit and entered into a
second amended and restated credit agreement. The new agreement consists of a
single revolving credit facility for cash advances maturing March 27, 1997, and
letters of credit
<PAGE> 13
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
maturing March 29, 1998. The aggregate amount under the facility varies during
the year, from a minimum of $60,000,000 (with a maximum of $35,000,000 in the
form of cash advances) up to $90,000,000 (with a maximum of $80,000,000 in the
form of cash advances). The Company has a choice of interest rates between the
bank's reference rate plus .25% or the offshore dollar cost of funds plus 1.0%.
The agreement contains certain restrictive loan covenants, including minimum
debt-to-equity ratios, minimum tangible net worth, restrictions on capital
expenditures and a prohibition on payment of cash dividends. This new bank
agreement replaces the October 13, 1994 bank agreement which had been amended to
increase the borrowing limit under the line of credit and letter of credit
facility to $110,000,000 during the peak holiday season. Additional amendments
to the October agreement modified the terms of certain financial ratios in favor
of the Company and waived the Company's failure to comply with certain
covenants. At January 28, 1996, $45,000,000 and $25,000,000 was available in
line of credit and letter of credit facilities, respectively, of which
$29,600,000 and $9,956,000 was outstanding, respectively. The Company had the
choice of borrowing at either the bank's reference rate, or the offshore rate
plus .875%.
On April 15, 1996, the Company issued $40,000,000 principal amount of 5.25%
convertible, subordinated notes (Convertible Notes) due April 15, 2003. Net
proceeds from the transaction amounted to $38,739,000 and will be used to
provide the Company with a long-term source of working capital. Interest is
payable semi-annually beginning in October 1996. The Convertible Notes are
convertible into shares of common stock at any time on or after July 15, 1996,
at a conversion price of $26.10 per share (equivalent to a conversion rate of
38.3 shares per $1,000 principal amount). The conversion price is subject to
adjustment in certain events, including stock splits and stock dividends. Except
as discussed below, the Convertible Notes are redeemable at the option of the
Company in the form of cash or common stock, on or after April 15, 1998, in
whole or in part, at redemption prices (expressed as a percentage of principal
amount) ranging from 103.75% to 100% in the last year. For the period April 15,
1998, through April 14, 2000, redemption may not occur unless the ratio of the
stock price to the conversion price has achieved a minimum as defined in the
agreement. In the event of a change in control, holders of the Convertible Notes
may, at their option, require the Company to repurchase all or any portion of
the principal amount. The agreement does not restrict the Company from incurring
additional indebtedness.
Interest expense was $4,703,000, $1,509,000 and $1,210,000 for fiscal 1995,
1994 and 1993, respectively, excluding capitalized interest of $663,000 in
fiscal 1995. Interest paid was $3,805,000, $1,505,000 and $1,198,000 for the
same periods.
Accounts payable at January 28, 1996, and January 29, 1995, includes cash
overdrafts of $17,285,000 and $16,736,000, respectively, for checks issued and
not presented to the bank for payment.
As of April 15, 1996, the Company's debt, including the Convertible Notes,
is scheduled to mature as follows: $125,000 in each of fiscal years 1996, 1997
and 1998, $5,840,000 in each of fiscal years 1999 and 2000, and $74,827,000
thereafter.
Note D
INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes consists of the following: 52 Weeks Ended
January 28 January 29 January 30
Dollars in thousands 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current payable
Federal $1,338 $10,910 $ 7,467
State 397 1,648 3,245
------ ------- -------
1,735 12,558 10,712
Deferred
Federal 193 1,067 (1,534)
State (91) 238 (1,001)
------ ------- -------
102 1,305 (2,535)
------ ------- -------
$1,837 $13,863 $ 8,177
====== ======= =======
</TABLE>
<PAGE> 14
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
Income taxes paid were $10,453,000, $11,535,000 and $1,962,000 for fiscal 1995,
1994 and 1993, respectively. A reconciliation of income taxes at the federal
statutory corporate rate to the effective rate is as follows:
<TABLE>
<CAPTION>
52 Weeks Ended
January 28 January 29 January 30
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes at the statutory rate 35.0% 35.0% 35.0%
State income tax rate, less federal benefit 6.5% 5.9% 6.2%
Other .5% .6% 1.0%
---- ---- ----
42.0% 41.5% 42.2%
</TABLE>
Significant components of the Company's deferred tax accounts are as follows:
<TABLE>
<CAPTION>
January 28, 1996 January 29, 1995
Dollars in thousands Deferred Tax Assets Deferred Tax Liabilities Deferred Tax Assets Deferred Tax Liabilities
---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C>
Current:
Compensation $ 1,662 -- $ 1,195 --
Inventory 4,056 -- 2,315 --
Reserves 771 -- 695 --
Other 331 $ 123 713 $ 82
Deferred catalog costs -- 6,558 -- 4,577
-------- -------- -------- --------
Total current 6,820 6,681 4,918 4,659
-------- -------- -------- --------
Non-Current:
Depreciation 5,059 -- 4,495 --
Deferred rent 859 -- 859 --
Deferred lease incentives -- 1,878 -- 1,333
Capital loss 5,160 -- 5,160 --
Valuation allowance (5,160) -- (5,160) --
-------- -------- -------- --------
Total non-current 5,918 1,878 5,354 1,333
-------- -------- -------- --------
Total $ 12,738 $ 8,559 $ 10,272 $ 5,992
======== ======== ======== ========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. The Company has
established a valuation allowance as of January 28, 1996, and January 29, 1995,
due to the uncertainty of realizing future tax benefits from its capital loss
carryforwards.
Note E
LEASES
The Company leases store locations and its warehouses and certain equipment
under operating leases for original terms ranging from 3 to 25 years extending
through 2015, except for one store lease with a 49-year term extending through
2040. Most store leases require the payment of minimum rentals against
percentage rentals based on store sales. Certain leases contain renewal options
for periods of up to 20 years.
In December 1993 the Company purchased a headquarters building with plans to
consolidate the headquarters staff in the building. In the fourth quarter of
fiscal 1993 the Company established a $3,000,000 reserve for the estimated cost
of vacating leased office space prior to the expiration of the leases. Sales
growth experienced in fiscal 1994 and planned growth in fiscal 1995 required the
Company to retain some of the leased office space it planned to sublease.
Therefore, in the fourth quarter of fiscal 1994 the Company reversed $2,000,000
of the lease reserve established in 1993.
On January 2, 1996, the Company entered into an agreement to lease a
53,787-square-foot build-to-suit call center in Summerlin, Nevada. The lease
covers a ten-year term with three optional five-year renewals. The Company plans
to occupy 35,867 square feet
<PAGE> 15
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
of the building in August 1996 and expects to complete a 17,920-square-foot
expansion for use in fiscal 1997. Rent is expected to commence in August 1996 at
an annual basic rent amount of $529,000 for each of the first five years of the
lease and increasing to $598,000 annually for the remaining five years.
Total rental expense for all operating leases was as follows:
<TABLE>
<CAPTION>
52 Weeks Ended
January 28 January 29 January 30
Dollars in thousands 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rent expense $27,462 $21,766 $20,812
Contingent rent expense 2,261 2,407 1,230
------- ------- -------
Total rent expense $29,723 $24,173 $22,042
======= ======= =======
</TABLE>
The aggregate minimum annual rental payments under noncancelable operating
leases in effect at January 28, 1996, were as follows:
<TABLE>
<CAPTION>
Dollars in thousands
<S> <C>
Fiscal 1996 $ 34,702
Fiscal 1997 32,523
Fiscal 1998 30,557
Fiscal 1999 27,850
Fiscal 2000 26,577
Later years 128,233
--------
Total minimum lease commitment $280,442
========
</TABLE>
Note F
RELATED PARTY LEASE TRANSACTIONS
The Company's warehouse and distribution center is located in Memphis,
Tennessee, and leased from two partnerships whose partners include directors,
executive officers and/or significant shareholders of the Company. The
distribution center consists of two separate facilities-one for mail-order
operations and one for retail store operations.
Mail-Order Operating Facility
In July 1984, the Company entered into an agreement to lease a
243,000-square-foot distribution center. The lessor is a partnership comprised
of W. Howard Lester, chairman, chief executive officer and significant
shareholder of the Company, and James A. McMahan, a director and significant
shareholder of the Company and member of the Compensation Committee. The
partnership financed the construction through the sale of $6,300,000 principal
amount of industrial development bonds due June 2008. The lease had an initial,
noncancelable term of ten years expiring on June 30, 1994, with two optional
five-year renewals by the Company. In December 1985, the partnership financed
the construction of an additional 190,000 square feet of space through the sale
of $2,900,000 principal amount of industrial development bonds due 2010. The
Company's lease with the partnership was amended to include additional rent plus
interest on the new bonds for the same lease term as the original lease. In
December 1993, the Company exercised the two five-year renewal options and is
now obligated to lease the space until June 30, 2004. Effective July 1, 1994,
the fixed basic monthly rent is $51,500. Rental payments consist of the basic
monthly rent, plus interest on the bonds (a floating rate equal to 55% of the
prime rate of a designated bank), applicable taxes, insurance and maintenance
expenses. In connection with the December 1993 transaction, both the partnership
and the Company provided to an unaffiliated bank an indemnity against certain
environmental liabilities.
<PAGE> 16
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
Retail Store Operating Facility
In August 1990, the Company entered into a separate agreement to lease a second
distribution center, consisting of approximately 307,000 square feet adjacent to
the existing distribution center in Memphis, Tennessee. The lessor is a
partnership that includes Messrs. Lester, McMahan and Robert K. Earley, Senior
Vice President of Distribution. The partnership financed the construction of the
distribution center through the sale of $10,550,000, 10.36% principal amount of
industrial development bonds due in August 2015.
In September 1994, this lease was amended to include an approximately
306,000-square-foot expansion of the facility. The expansion was completed in
October 1995. The lessor financed the construction of the expansion through a
$500,000 capital contribution from its partners and the sale of $9,825,000,
9.01% principal amount of industrial development bonds due in August 2015. The
amended lease has an initial, noncancelable term of 15 years beginning in August
1991 and ending in July 2006, with three optional five-year renewals. Rentals
(including interest on the bonds, sinking fund payments and fees) for the
primary term are payable at an average rate of $711,000 per quarter plus
applicable taxes, insurance and maintenance expenses.
Both facilities (including the 1994 expansion) are constructed to the
Company's specifications. After the option periods, the Company is obligated to
renew each lease annually so long as the bonds which financed the specific
projects remain outstanding. The facility leases qualify as operating leases for
accounting purposes. The Company believes that the facility leases are on terms
no less favorable than the Company could have obtained from third parties in
arm's-length transactions.
Note G
STOCK OPTIONS
The Company's 1993 Stock Option Plan (the 1993 Plan), which provides for grants
of incentive and non-qualified stock options up to an aggregate of 2,250,000
shares, was approved and adopted in 1993. The 1993 Plan replaces the 1976
non-qualified plan which was terminated and the 1983 Incentive Stock Option
Plan, which expired on March 27, 1993. Options granted under the 1976 and 1983
Plans remain in force until they are exercised or expire. All incentive stock
option grants made under the 1993 Plan have a maximum term of ten years, except
those issued to 10% shareholders which have a term of five years. The exercise
price of all incentive stock options shall be 100% of the fair market value of
the stock at the option grant date or 110% for a 10% shareholder. The exercise
price for non-qualified options shall not be less than 75% of the fair market
value of the stock at the option grant date.
Total options exercisable in all plans were 722,573 and 500,605 as of
January 28, 1996, and January 29, 1995, respectively.
The following table reflects the activity under the Company's stock option
plans:
<TABLE>
<CAPTION>
Options Average Price Per Share
1993 Plan 1983 Plan 1976 Plan Total 1993 Plan 1983 Plan 1976 Plan Total
--------- --------- --------- ----- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 31, 1993 - 536,332 367,200 903,532 - $ 5.12 $ 4.71 $ 4.95
Granted 587,365 - 135,000 722,365 $ 9.99 - 5.28 9.11
Exercised - 81,484 6,750 88,234 - 4.14 5.89 4.27
Canceled 8,325 47,633 - 55,958 7.11 5.77 - 5.97
--------- ------- ------- --------- ------- ------- ------- -------
Balance at
January 30, 1994 579,040 407,215 495,450 1,481,705 10.04 5.24 4.85 6.98
Granted 279,075 - - 279,075 21.84 - - 21.84
Exercised 14,985 159,910 81,250 256,145 7.11 4.37 4.48 4.57
Canceled 7,067 3,564 - 10,631 11.38 9.99 - 10.91
--------- ------- ------- --------- ------- ------- ------- -------
Balance at
January 29, 1995 836,063 243,741 414,200 1,494,004 14.02 5.75 4.92 10.14
Granted 414,150 - - 414,150 18.92 - - 18.92
Exercised 16,783 63,508 4,500 84,791 7.11 6.53 5.28 6.58
Canceled 119,405 10,440 2,430 132,275 18.83 7.23 5.11 17.66
--------- ------- ------- --------- ------- ------- ------- -------
Balance at
January 28, 1996 1,114,025 169,793 407,270 1,691,088 $ 15.43 $ 5.36 $ 4.91 $ 11.88
</TABLE>
<PAGE> 17
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
Note H
EMPLOYEE PROFIT SHARING AND STOCK INCENTIVE PLAN
In fiscal 1989, the Company established a defined contribution retirement plan,
which is qualified under the Internal Revenue Code 401(a) and 401(k), for
eligible employees. The amount of the annual profit sharing contribution is
determined by the Board of Directors subject to limitations based upon
resolutions adopted by the directors.
The plan permits employees to make salary deferral contributions in
accordance with Internal Revenue Code Section 401(k) regulations. The fund
options were determined by the Administrative Committee and represent a money
market reserve fund, a balanced mutual fund portfolio and Williams-Sonoma, Inc.
stock. The Company matches a portion of the employee's contributions invested in
Williams-Sonoma, Inc. stock under a predetermined formula. The Company's
contributions under this plan vest on behalf of the employee over a five-year
period.
The Company's contributions to the plan for fiscal 1994 and 1993 were
$770,000, and $602,000, respectively. No contributions were made in fiscal 1995.
Note I
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of the estimated fair value
of financial instruments. The carrying value of cash and cash equivalents,
accounts receivable, investments, accounts payable and debt approximates their
estimated fair values at January 28, 1996, and January 29, 1995.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and the Shareholders of Williams-Sonoma, Inc.:
We have audited the accompanying consolidated balance sheets of Williams-Sonoma,
Inc. and subsidiaries (the Company) as of January 28, 1996, and January 29,
1995, and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three fiscal years in the period ending January
28, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Williams-Sonoma, Inc. and
subsidiaries as of January 28, 1996, and January 29, 1995, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ending January 28, 1996, in conformity with generally accepted accounting
principles.
/s/ DELOTTE & TOUCHE LLP
-------------------------
San Francisco, California
April 15, 1996
<PAGE> 18
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Fiscal 1995, dollars in thousands Quarter Ended
except per share amounts April 30 July 30 October 29 January 28
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 118,160 $ 127,733 $ 138,363 $ 260,397
Gross profit 44,382 43,628 48,130 98,178
Earnings (loss) before income taxes (552) (1,404) (6,230) 12,559
--------- --------- --------- ---------
Net earnings (loss) (326) (814) (3,669) 7,345
========= ========= ========= =========
Primary and fully diluted
earnings (loss) per share(1) $ (.01) $ (.03) $ (.14) $ .28
<CAPTION>
Fiscal 1994, dollars in thousands Quarter Ended
except per share amounts May 1 July 31 October 30 January 29
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 102,842 $ 108,014 $ 113,443 $ 204,244
Gross profit 39,390 40,858 42,984 88,484
Earnings before income taxes 3,082 3,669 3,928 22,756
--------- --------- --------- ---------
Net earnings 1,788 2,124 2,282 13,378
========= ========= ========= =========
Primary and fully diluted
earnings per share(1) $ .07 $ .08 $ .09 $ .51
</TABLE>
Note: The fourth quarter ended January 28, 1996, includes an after-tax charge to
net earnings of $1,679,000 ($.06 per share) primarily related to the reserves
established for inventory. The fourth quarter ended January 28, 1995, includes
an after-tax credit to net earnings of $1,170,000 ($.04 per share) related to
the reserve established in fiscal 1993 for the cost of vacating the headquarters
buildings prior to termination of the leases. (See Management's Discussion and
Analysis - Cost of Goods Sold and Occupancy and Selling, General and
Administrative.)
(1) These amounts have been restated to reflect the 3-for-2 stock splits in
February 1994 and September 1994.
COMMON STOCK
Williams-Sonoma's common stock is traded on the Over-The-Counter Market under
the NASDAQ symbol WSGC. The following table sets forth the high and low closing
sales prices in the NASDAQ National Market System for the periods indicated.
On April 12, 1996, there were 619 shareholders of record, excluding
shareholders whose stock is held in nominee or street name by brokers. The
Company's present policy is to retain its earnings to finance future growth, and
it does not intend to pay cash dividends. In addition, the Company's bank line
of credit prohibits payment of cash dividends (see Note C of Notes to
Consolidated Financial Statements).
<TABLE>
<CAPTION>
Fiscal 1995 High Low
------ ------
<S> <C> <C>
1st Quarter 28 17 7/8
2nd Quarter 24 1/2 16 3/4
3rd Quarter 23 1/8 15 13/16
4th Quarter 21 5/8 13 3/4
<CAPTION>
Fiscal 1994(1) High Low
------ ------
<S> <C> <C>
1st Quarter 26 1/4 15 3/4
2nd Quarter 23 7/8 18 3/4
3rd Quarter 34 1/2 21 3/8
4th Quarter 34 3/4 23 7/8
</TABLE>
(1) These amounts have been restated to reflect the 3-for-2 stock splits in
February 1994 and September 1994.
<PAGE> 19
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
W. Howard Lester
Director
Chairman of the Board
and Chief Executive Officer of the Company
Charles E. Williams
Director
Founder and
Vice Chairman of the
Board of the Company
James M. Berry
Director
Vice Chairman (Retired)
and Director of NCNB Texas
Nathan Bessin
Director
Managing Partner
J. Arthur Greenfield and
Company, Certified
Public Accountants
Dennis A. Chantland
Executive Vice President,
Chief Administrative
Officer and Secretary
of the Company
Patrick J. Connolly
Director
Executive Vice President
of the Company
General Manager, Catalog
Millard S. Drexler
Director
Chief Executive Officer
and President
The GAP, Inc.
Robert K. Earley
Senior Vice President
of the Company,
Distribution
Gary Friedman
Director
Chief Merchandising
Officer of the Company
and President, Retail
Division
F. Warren Hellman
Director
Partner, Hellman and
Friedman
John E. Martin
Director
Chairman and Chief
Executive Officer
Taco Bell Corporation
Worldwide
James A. McMahan
Director
Chief Executive Officer
McMahan Furniture
Company
G. Andrew Rich
Senior Vice President
of the Company,
Human Resources
CORPORATE INFORMATION
Corporate Headquarters
Williams-Sonoma, Inc.
3250 Van Ness Avenue
San Francisco, CA 94109
Distribution Center
4300 Concorde Road
Memphis, TN 38118
Transfer Agent
Chemical Mellon Shareholder Services
50 California Street
10th Floor
San Francisco, CA 94111
Independent Auditors
Deloitte & Touche LLP
San Francisco, CA
Trademarks
A Catalog for Cooks,
Gardeners Eden,
Hold Everything,
Pottery Barn and
Chambers are
trademarks of
Williams-Sonoma, Inc.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF WILLIAMS-SONOMA, INC. AS OF
FISCAL YEAR ENDED JANUARY 28, 1996
23
<PAGE> 2
EXHIBIT 21: SUBSIDIARIES OF WILLIAMS-SONOMA, INC.
AS OF FISCAL YEAR END JANUARY 28, 1996
<TABLE>
<CAPTION>
Subsidiary Name State/Date of Incorporation
- --------------- ---------------------------
<S> <C>
Williams-Sonoma Stores, Inc. California, October 29, 1984
Gardener's Eden, Inc. California, October 29, 1984
The Pottery Barn East, Inc. California, August 18, 1986
Hold Everything, Inc. California, September 30, 1986
Chambers Catalog Company, Inc. California, February 1, 1995
</TABLE>
24
<PAGE> 1
EXHIBIT 23
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-89801, No. 33-28490, No. 33-33693, No. 33-60787, and No. 33-65656 on Form S-8
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
April 24, 1996
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> JAN-28-1996
<CASH> 4,166,000
<SECURITIES> 0
<RECEIVABLES> 13,395,000
<ALLOWANCES> 238,000
<INVENTORY> 121,603,000
<CURRENT-ASSETS> 161,184,000
<PP&E> 211,033,000
<DEPRECIATION> 63,731,000
<TOTAL-ASSETS> 319,096,000
<CURRENT-LIABILITIES> 122,108,000
<BONDS> 46,757,000
0
0
<COMMON> 11,466,000
<OTHER-SE> 110,187,000
<TOTAL-LIABILITY-AND-EQUITY> 319,096,000
<SALES> 644,653,000
<TOTAL-REVENUES> 644,653,000
<CGS> 410,335,000
<TOTAL-COSTS> 225,418,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,527,000
<INCOME-PRETAX> 4,373,000
<INCOME-TAX> 1,837,000
<INCOME-CONTINUING> 2,536,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,536,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
