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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended February 1, 1998
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Commission file number 000-12704
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WILLIAMS-SONOMA, INC.
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(Exact Name of Registrant as Specified in Its Charter)
California 94-2203880
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3250 Van Ness Avenue, San Francisco, CA 94109
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 421-7900
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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
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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 March 27, 1998, the approximate aggregate market value of voting
stock held by non-affiliates of the Registrant was $1,173,730,000 using the
closing sales price on this day of $59.75. It is assumed for purposes of this
computation an affiliate includes all persons registered as Registrant
insiders with the Securities and Exchange Commission, as well as the
Registrant's Associate Stock Incentive Plan.
As of March 27, 1998, 26,132,729 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
February 1, 1998 (the "1997 Annual Report") in Parts I and II hereof and
attached hereto as Exhibit 13;
2) Registrant's Proxy Statement for the 1998 Annual Meeting (the "Proxy
Statement") in Part III hereof.
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WILLIAMS-SONOMA, INC.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED FEBRUARY 1, 1998
TABLE OF CONTENTS
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PART I PAGE
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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
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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 276 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 65% of the Company's net
sales during the fiscal year ended February 1, 1998 (Fiscal 1997), 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 and outdoor-related products, in 1982; and Pottery Barn, a retailer of
home furnishings, accessories and housewares, in 1986. 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.
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.
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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 February 1, 1998 the Company operated 276 retail stores, located in 37
states and the District of Columbia. This represents 152 Williams-Sonoma, 88
- - Pottery Barn, 32 Hold Everything, and 4 outlet stores, of which 74
Williams-Sonoma and 54 Pottery Barn stores are large-format. The prototypical
1997 large-format stores range from 5,700-9,000 selling square feet for Pottery
Barn stores, and 2,800-4,600 selling square feet for Williams-Sonoma stores and
enable the Company to more clearly display merchandise. Large-format stores
accounted for 58% of retail sales in fiscal 1997. In fiscal 1998, the Company
plans to increase leased square footage by approximately 21%.
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.
The Company's San Francisco call center, which primarily serviced Pottery Barn,
was previously located in one of the Company's two corporate headquarters
facilities. In order to support the sales growth in Pottery Barn and growth of
the Company's corporate staff, management made the decision in fiscal 1997 to
close this call center and to utilize the space for corporate offices. The call
center was closed in January 1998, and as a result the Company recorded a
fourth quarter pre-tax charge of $2,335,000 for severance and other
employment-related costs associated with the closure. A new call center is
scheduled to open in Oklahoma City, Oklahoma, in the third quarter of fiscal
1998. In the interim, the Company's Las Vegas call center is performing all
functions previously handled by the San Francisco call center. (See Note E to
the Company's Consolidated Financial Statements).
SUPPLIERS
The Company purchases its merchandise from numerous foreign and domestic
manufacturers and importers, none of which accounted for more than 3% of
purchases during fiscal 1997. Approximately 40% of the Company's merchandise is
foreign-sourced. The primary sources for imported merchandise are located in
Europe and Asia.
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MANAGEMENT INFORMATION SYSTEMS
In fiscal 1996, the Board of Directors approved a three-year, $25 million
management information systems initiative, the purpose of which is to support
the continuing growth of the Company. In fiscal 1997, the Company spent
approximately $9 million on development of information systems, including
merchandise planning and inventory management systems. In fiscal 1998, the
Company is planning to spend approximately $10 million on information systems,
including development of a new mail order entry system and implementation of
merchandise planning and inventory management systems.
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 September. 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 48 of the 1997 Annual Report which is incorporated
herein by reference).
EMPLOYEES
At February 1, 1998, the Company employed approximately 12,300 persons,
approximately 3,300 of whom were full-time employees. During the 1997 peak
season, the Company hired approximately 5,100 temporary employees in its stores
and in its mail order processing and distribution areas.
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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 and is
security for a mortgage agreement entered into with a bank in April 1994. The
second corporate office is held under a lease which was amended in January 1996.
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
W. Howard Lester, chairman, chief executive officer and significant shareholder
of the Company and James A. McMahan, director and significant shareholder of the
Company. The construction of the entire facility was financed by the partnership
through the aggregate issuance of $9,200,000 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. (See Note F of the Company's Consolidated Financial
Statements).
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 Messrs. Lester, McMahan and
Robert K. Earley, former Senior Vice President of Distribution. The construction
was financed by the partnership through the sale of $10,550,000, 10.36%
principal amount 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).
On January 2, 1996, the Company entered an agreement to lease a 35,867
square-foot build-to-suit call center in Summerlin, Nevada. The lease covers a
ten-year term with three optional five-year renewals. Rent commenced in August
1996 at an annual basic rent amount of $529,000 for each of the first five years
of the lease and will increase to $598,000 annually for the remaining five
years. In the event that the Company should require more space to support
growth, the agreement includes an option to expand into an additional 17,920
square feet. (See Note E of the Company's Consolidated Financial Statements).
In July 1996, the Company secured an additional 400,232 square foot warehouse in
Memphis, Tennessee to more efficiently process non-conveyable merchandise. The
lease for the warehouse covers a nine-year term with termination rights
available after the third and sixth years, subject to penalty fees. Rent
commenced in July 1996 at a rate of $60,000 a month for the first ten months of
the lease and increased to $92,000 a month for the following 26 months. For the
remainder of the term, the rent will increase based on a rate to be determined
using the Consumer Price Index but not to exceed five percent of the minimum
rental payments. (See Note E of the Company's Consolidated Financial
Statements).
On February 13, 1998, the Company entered into an agreement to lease a 35,862
square-foot build-to-suit call center in Oklahoma City, Oklahoma. The lease
covers a ten-year term with three optional five-year renewals. Rent will
commence in August 1998 at an annual basic rent of $506,000 for each of the
first five years of the lease and will increase to $550,000 annually for the
remaining five years. In the event that the Company should require more space to
support growth, the agreement includes an option to expand into an additional
15,000 square feet. (See Note E of the Company's Consolidated Financial
Statements).
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The Company's net selling area, at February 1, 1998, totaled approximately
1,016,000 square feet of leased space for 276 stores. All of the existing stores
are leased by the Company with original lease terms ranging from eight to
twenty-five years, expiring between 1998 and 2018, 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).
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 1997 fiscal year.
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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 48 of the
1997 Annual Report is incorporated herein by reference. The closing sales price
of the Company's stock in the NASDAQ National Market System on March 27, 1998
was $59.75.
SHAREHOLDERS
The number of shareholders of record as of March 27, 1998 was approximately 518.
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. In
addition, the Company is prohibited from doing so by certain covenants in its
bank credit agreement and is limited to a maximum dollar amount as determined
in accordance with covenants in its 7.2% Senior Note agreement. (See Note C to
the Company's Consolidated Financial Statements).
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.
On March 11, 1998, the Company's Board of Directors declared a 2-for-1 stock
split to be effected as a special distribution of one share of common stock for
each share of the Company's common stock outstanding. The distribution will be
made on May 15, 1998 to shareholders of record on May 4, 1998. (See Note L of
the Company's Consolidated Financial Statements).
ITEM 6. SELECTED FINANCIAL DATA
Information contained under the caption "Five Year Selected Financial Data" on
page 31 of the 1997 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 32 - 35 of the 1997 Annual Report is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are incorporated by reference to pages 36 through 47 of
the 1997 Annual Report to Shareholders filed as Exhibit 13 to this Annual Report
on Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets as of February 1, 1998 and
February 2, 1997
Consolidated Statements of Earnings for the 52-week period ended
February 1, 1998, for the 53-week period ended February 2, 1997 and
for the 52-week period ended January 28, 1996
Consolidated Statements of Shareholders' Equity for the 52-week period
ended February 1, 1998, for the 53-week period ended February 2, 1997
and for the 52-week period ended January 28, 1996
Consolidated Statements of Cash Flows for the 52-week period ended
February 1, 1998, for the 53-week period ended February 2, 1997 and
for the 52-week period ended January 28, 1996
Notes to Consolidated Financial Statements
The unaudited quarterly information contained under the caption "Quarterly
Financial Information" on page 48 of the 1997 Annual Report is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
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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 on page 4 of the Proxy Statement in the last paragraph
under the caption "Voting Securities and Principal Shareholders" 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 following the May 27, 1998 Annual Meeting
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 7 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 February 1, 1998, is contained under the caption "Executive Compensation"
on pages 8 through 12 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 March 27,
1998, is contained under the caption "Voting Securities and Principal
Shareholders" on pages 1 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 8 of the Proxy Statement, and by its
directors and officers as a group, as of March 27, 1998, is contained in
the tables under the captions "Voting Securities and Principal
Shareholders" and "Election of Directors" on pages 1 through 10 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 7 of the Proxy
Statement and is incorporated herein by reference. (See Note F of the Company's
Consolidated Financial Statements).
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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
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Description Page
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Independent Auditors' Report on Financial Statement Schedule 12
Schedule II Valuation and Qualifying Accounts 13
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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 February 1, 1998.
(c) Exhibits: See Exhibit Index on pages 16 through 21.
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[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 February 1, 1998 and February 2, 1997, and for each of
the three fiscal years in the period ended February 1, 1998, and have issued our
report thereon dated March 25, 1998; such financial statements and report are
included in your 1997 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 in Item 14(a)(2). This financial
statement schedule is the responsibility 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
San Francisco, California
March 25, 1998
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SCHEDULE II
WILLIAMS-SONOMA, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
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Column A Column B Column C Column D Column E
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Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
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Period Ended January 28, 1996:
Allowance for Doubtful Accounts $239,000 $119,000 $120,000(A) $238,000
Period Ended February 2, 1997:
Allowance for Doubtful Accounts $238,000 $ 86,000 $138,000(A) $186,000
Period Ended February 1, 1998:
Allowance for Doubtful Accounts $186,000 $ 20,000 -- $206,000
</TABLE>
(A) Consists of direct write-offs charged against the allowance account during
the period.
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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 21, 1998 By /s/W. Howard Lester
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Chairman and Chief Executive
Officer Director
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.
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Date: April 21, 1998 /s/W. Howard Lester
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W. Howard Lester
Chairman Chief
Executive Officer Director
Date: April 21, 1998 /s/Dennis A. Chantland
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Dennis A. Chantland
Executive Vice President
Chief Administrative
Officer Secretary
Date: April 21, 1998 /s/Jerry S. B. Dratler
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Jerry S. B. Dratler
Vice President,
Finance Chief Accounting
Officer
Date: April 21, 1998 /s/Charles E. Williams
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Charles E. Williams
Founder and Vice-Chairman
Director
Date: April 21, 1998 /s/Gary G. Friedman
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Gary G. Friedman
Chief Merchandising Officer
President-Retail Division
Director
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<TABLE>
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Date: April 21, 1998 /s/Patrick J. Connolly
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Patrick J. Connolly
Executive Vice President
General Manager-Catalog
Director
Date: April 21, 1998 /s/Adrian D.P. Bellamy
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Adrian D.P. Bellamy
Director
Date: April 21, 1998 /s/James M. Berry
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James M. Berry
Director
Date: April 21, 1998 /s/Nathan Bessin
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Nathan Bessin
Director
Date: April 21, 1998 /s/Millard S. Drexler
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Millard S. Drexler
Director
Date: April 21, 1998 /s/Janet L. Emerson
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Janet L. Emerson
Director
Date: April 21, 1998 /s/James A. McMahan
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James A. McMahan
Director
Date: April 21, 1998 /s/John E. Martin
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John E. Martin
Director
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EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE
FISCAL YEAR ENDED FEBRUARY 1, 1998
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<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE NO.
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3.1 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 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 Amended and Restated 1993 Stock Option Plan
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)
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)
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<TABLE>
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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 (incorporated by reference to Exhibit 10.3 A to the Company's
Report on Form 10-K for the year ended January 28, 1996, as filed
with the Commission on April 26, 1996)
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)
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)
</TABLE>
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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)
10.5 F Amendment Number Seven to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated May 1, 1997 (incorporated by
reference to Exhibit 10.4 to the Company's Report on Form 10-Q for
the period ended August 3, 1997 as filed with the Commission on
September 16, 1997).
10.6 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)
10.6 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 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>
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10.7 Second Amended and Restated Credit Agreement between the Company and
Bank of America, NT & SA, dated March 29, 1996 (incorporated by
reference to Exhibit 10.6G to the Company's Report on Form 10-K for
the period ended January 28, 1996 as filed with the Commission on
April 26, 1996 )
10.7 A 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)
10.7 B 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)
10.7 C 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)
10.7 D 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)
10.7 E 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)
10.8 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)
10.8 A 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)
10.8 B 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)
10.9 Purchase Agreement for $40,000,000 5.25% Convertible, Subordinated
Notes, dated April 10, 1996 (incorporated by reference to Exhibit
10.10 to the Company's Report on Form 10-K for the period ended
January 28, 1996 as filed with the Commission on April 26, 1996)
</TABLE>
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<PAGE> 20
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10.9 A Indenture for $40,000,000 5.25% Convertible, Subordinated Notes,
dated April 15, 1996 (incorporated by reference to Exhibit 10.10A to
the Company's Report on Form 10-K for the period ended January 28,
1996 as filed with the Commission on April 26, 1996 )
10.9 B Registration Rights Agreement relating to $40,000,000 5.25%
Convertible, Subordinated Notes, dated April 15, 1996 (incorporated
by reference to Exhibit 10.10B to the Company's Report on Form 10-K
for the period ended January 28, 1996 as filed with the Commission on
April 26, 1996 )
10.10 Settlement Agreement and General Release between Williams-Sonoma,
Inc. and Robert K. Earley dated February 14, 1997 (incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form
10-K for the year ended February 2, 1997 as filed with the Commission
on May 1, 1997.
10.11 Amended and Restated Standing Loan Agreement between the Company and
Bank of America, NT & SA, dated June 1, 1997 (incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q for
the period ended May 4, 1997 as filed with the Commission on June 17,
1997).
10.12 Credit Agreement between the Company and Bank of America, NT & SA,
dated June 1, 1997 (incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the period ended May 4, 1997 as
filed with the Commission on June 17, 1997).
10.12 A Agreement re: Intercreditor Agreement, dated May 22, 1997
(incorporated by reference to Exhibit 10.2A to the Company's Report
on Form 10-Q for the period ended May 4, 1997 as filed with the
Commission on June 17, 1997).
10.12 B Continuing Guaranty from Pottery Barn East, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.2B to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.12 C Continuing Guaranty from Hold Everything, Inc. to Bank of America,
NT & SA, dated June 1, 1997 (incorporated by reference to Exhibit
10.2C to the Company's Report on Form 10-Q for the period ended May
4, 1997 as filed with the Commission on June 17, 1997).
10.12 D Continuing Guaranty from Williams-Sonoma Stores, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.2D to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.12 E Continuing Guaranty from Chambers Catalog Company, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.2E to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
</TABLE>
20
<PAGE> 21
<TABLE>
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10.12 F Continuing Guaranty from Gardeners Eden, Inc. to Bank of America,
NT & SA, dated June 1, 1997 (incorporated by reference to Exhibit
10.2F to the Company's Report on Form 10-Q for the period ended May
4, 1997 as filed with the Commission on June 17, 1997).
10.13 Letter of Credit Agreement between the Company and Bank of America,
NT & SA dated June 1, 1997 (incorporated by reference to Exhibit 10.3
to the Company's Report on Form 10-Q for the period ended May 4, 1997
as filed with the Commission on June 17, 1997).
10.13 A One Bank Guaranty from Pottery Barn East, Inc. to Bank of America,
NT & SA, dated June 1, 1997 (incorporated by reference to Exhibit
10.3A to the Company's Report on Form 10-Q for the period ended May
4, 1997 as filed with the Commission on June 17, 1997).
10.13 B One Bank Guaranty from Hold Everything, Inc. to Bank of America, NT
& SA, dated June 1, 1997 (incorporated by reference to Exhibit 10.3B
to the Company's Report on Form 10-Q for the period ended May 4, 1997
as filed with the Commission on June 17, 1997).
10.13 C One Bank Guaranty from Williams-Sonoma Stores, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.3C to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.13 D One Bank Guaranty from Chambers Catalog Company, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.3D to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.13 E One Bank Guaranty from Gardeners Eden, Inc. to Bank of America, NT
& SA, dated June 1, 1997 (incorporated by reference to Exhibit 10.3E
to the Company's Report on Form 10-Q for the period ended May 4, 1997
as filed with the Commission on June 17, 1997).
10.15 First Amendment and Restatement of the Williams-Sonoma, Inc.
Executive Deferral Plan dated November 6, 1997 (incorporated by
reference to Exhibit 10.5 to the Company's Report on Form 10-Q for
the period ended November 2, 1997 as filed with the Commission on
December 17, 1997).
10.16 Office lease between TJM Properties, L.L.C. and
Williams-Sonoma, Inc., dated as of February 13, 1998
11 Statement re computation of per share earnings
13 Annual report to security holders
21 Subsidiaries
23 Independent Auditors' Consent
27.1 Financial Data Schedule for the fiscal year ended February 1, 1998.
27.2 Restated Financial Data Schedules for quarters 1, 2 and 3 of the
fiscal year ended February 1, 1998 (fiscal 1997).
27.3 Restated Financial Data Schedules for the fiscal years ended
February 2, 1997 (fiscal 1996) and January 28, 1996 (fiscal 1995).
27.4 Restated Financial Data Schedules for quarters 1, 2 and 3 of the
fiscal year ended February 2, 1997 (fiscal 1996).
</TABLE>
21
<PAGE> 1
EXHIBIT 10.1B
WILLIAMS-SONOMA, INC.
Amended and Restated 1993 Stock Option Plan
1. Purpose.
The purpose of this Amended and Restated 1993 Stock Option Plan (the
"Plan") of WILLIAMS-SONOMA, INC., a California corporation (the "Company"), is
to secure for the Company and its shareholders the benefits arising from stock
ownership by selected key employees and directors of the Company or any of its
Affiliates (as defined below). The Plan will provide a means whereby such
employees and directors may purchase shares of the common stock of the Company
(or any class of stock into which such common stock is converted or reclassified
as provided in Section 17) (the "Common Stock") pursuant to (i) options which
will qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) "non-incentive" or
"nonqualified" stock options ("nonqualified stock options").
2. Administration.
The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company consisting of two or more
directors of the Company, all of whom shall be (i) "non-employee directors"
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended, and (ii) "outside directors" within the meaning of Section
162(m) of the Code. Any action of the Committee with respect to administration
of the Plan shall be taken by a majority vote or unanimous written consent of
its members.
Subject to the provisions of the Plan, the Committee shall have the
authority (i) to construe and interpret the Plan, (ii) to define the terms used
herein, (iii) to prescribe, amend and rescind rules and regulations relating to
the Plan, (iv) to determine the individuals to whom and the time or times at
which options shall be granted, whether such options will be incentive stock
options or non-qualified stock options, the number of shares to be subject to
each option, the option price, the number of installments, if any, in which each
option may be exercised, and the duration of each option, (v) to approve and
determine the duration of leaves of absence which may be granted to participants
without constituting a termination of their employment for the purposes of the
Plan, (vi) to amend the terms of any outstanding option, with consent of the
option holder, and (vii) to make all other determinations necessary or advisable
for the administration of the Plan. All determinations and interpretations made
by the Committee shall be binding and conclusive on all participants in the Plan
and their legal representatives and beneficiaries.
3. Shares Subject to the Plan.
Subject to adjustment as provided in Section 17, the shares to be
offered under the Plan shall consist of the Company's authorized but unissued
Common Stock, and the aggregate amount of such stock which may be issued upon
exercise of all options under the Plan shall not exceed Two Million Seven
Hundred Fifty Thousand (2,750,000) shares; provided, however, that no officer
(within the meaning of Rule 16a-1 promulgated under the Securities Exchange Act
of 1934, as amended) shall be granted in any fiscal year options to purchase
more than 100,000 shares of Common Stock. If any option granted under the Plan
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject thereto shall again be available for options to
be granted under the Plan.
<PAGE> 2
4. Eligibility and Participation.
All key employees and directors of the Company or any Affiliate shall be
eligible for selection to participate in the Plan. An "Affiliate" shall mean any
parent or subsidiary of the Company as defined in Section 424(e) and (f) of the
Code. An individual who has been granted an option may, if such individual is
otherwise eligible, be granted an additional option or options if the Committee
shall so determine, subject to the other provisions of the Plan. No incentive
stock option may be granted to any person who, at the time the incentive stock
option is granted, is not an employee of the Company. Nonqualified stock options
may be granted to persons who have agreed in writing to become officers or key
employees of the Company or any Affiliate at the time of the grant and who
become officers or key employees of the Company or any Affiliate within 120 days
thereafter. Spouses to whom a nonqualified stock option is transferred pursuant
to a qualified domestic relations order pursuant to Section 11 shall also be
eligible to participate in the Plan with regard to such option, but only to the
extent the original option holder would have been able to participate had such
original option holder continued to hold the option, and to the extent permitted
by the Committee or by the terms of the option agreement.
The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options (whenever
granted) are exercisable for the first time by an option holder during any
calendar year (under all incentive stock option plans of the Company and its
Affiliates) shall not exceed $100,000.
All incentive stock options granted under the Plan shall be granted
within ten years from the original date of adoption of this Plan.
5. Awards to Directors.
Any person who is or becomes a director and who is not an employee of
the Company is referred to herein as an "Eligible Director." During the term of
the Plan, each Eligible Director who becomes for the first time a director of
the Company on or after the 1993 Annual Meeting of Shareholders shall
automatically be granted, on the date he or she first becomes a director, a
nonqualified stock option to purchase 6,750 shares of Common Stock. During the
term of the Plan, each Eligible Director shall also be granted a nonqualified
stock option to purchase 5,250 shares of Common Stock on the date of each annual
meeting of the Company's shareholders at which such Eligible Director is
re-elected to continue to serve on the Company's Board of Directors.
The purchase price under each nonqualified stock option granted to
Eligible Directors shall be equal to the fair market value of the stock subject
to the option on the date the option is granted. Options initially granted to
Eligible Directors upon their joining the Board of Directors shall vest and
become exercisable in three equal installments on each anniversary of the grant
date. Options granted annually to Eligible Directors upon their re-election to
the Board of Directors shall vest and become exercisable in one installment six
months after the date of grant. All options granted to Eligible Directors shall
expire ten (10) years from the date of grant.
The Committee may at any time amend or revise the provisions of this
Section 5 but not more than once every six months unless required to comply with
changes in the Code or the Employee Retirement Income Security Act ("ERISA"), or
the rules promulgated under the Code or ERISA.
<PAGE> 3
6. Duration of Options.
Subject to Sections 5 and 16, each option and all rights associated
therewith shall expire on such date as the Committee may determine, and shall be
subject to earlier termination as provided herein; provided, however, that all
stock options shall expire within ten (10) years from the date on which such
options are granted.
7. Purchase Price.
Subject to Sections 5 and 16, the purchase price of the stock covered by
each option shall be determined by the Committee but shall not be less than one
hundred percent (100%) of the fair market value of such stock (as determined
under Section 9) on the date of grant. The purchase price of the shares upon
exercise of an option shall be paid in full at the time of exercise (i) in cash
or by check payable to the order of the Company, (ii) by delivery of shares of
Common Stock of the Company already owned by, and in the possession of the
option holder, or (iii) if authorized by the Committee or if specified in the
option being exercised, (x) by a promissory note made by option holder in favor
of the Company, upon the terms and conditions determined by the Committee
including, to the extent the Committee determines appropriate, a security
interest in the shares issuable upon exercise or other property, or (y) through
a "cashless exercise," in either case complying with applicable law (including,
without limitation, state and federal margin requirements), or any combination
thereof. Shares of Common Stock used to satisfy the exercise price of an option
shall be valued at their fair market value determined (in accordance with
Section 9) on the date of exercise (or if such date is not a business day, as of
the close of the business day immediately preceding such date).
8. Exercise of Options.
In no event shall any option be exercisable earlier than six months
after the date of grant except in the case of the death or disability of the
option holder, in which case such option may be exercisable in accordance with
Section 14. Subject to Section 5, each option granted under this Plan may be
exercisable in full upon the expiration of such six month period or in such
installments during the period prior to its expiration date as the Committee
shall determine. Furthermore, unless otherwise determined by the Committee, if
the option holder shall not in any given installment period purchase all of the
shares which the option holder is entitled to purchase in such installment
period, then the option holder's right to purchase any shares not purchased in
such installment period shall continue until the expiration date or sooner
termination of the option holder's option. No option may be exercised for a
fraction of a share and no partial exercise of any option may be for less than
(i) one hundred (100) shares or (ii) the total number of shares then eligible
for exercise, if less than one hundred (100) shares.
9. Fair Market Value of Common Stock.
The fair market value of a share of Common Stock of the Company shall be
determined for purposes of the Plan by reference to the closing price on the
principal stock exchange on which such shares are then listed or, if such shares
are not then listed on a stock exchange, by reference to the closing price (if
approved for quotation on the NASDAQ National Market System) or the mean between
the bid and asked price (if other over-the-counter issue) of a share as supplied
by the National Association of Securities Dealers, Inc. through NASDAQ (or its
successor in function), in each case as reported by The Wall Street Journal, for
the business day immediately preceding the date on which the option is granted
(which, for all purposes, shall be the date on which the Committee makes the
determination granting the option) or exercised (or, if for any
<PAGE> 4
reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
10. Withholding Tax.
Upon (i) the disposition by an employee or other person of shares of
Common Stock acquired pursuant to the exercise of an incentive stock option
granted pursuant to the Plan within two years of the granting of the incentive
stock option or within one year after exercise of the incentive stock option or
(ii) the exercise of non-qualified stock options, the Company shall have the
right to require such employee or such other person to pay the Company the
amount of any taxes which the Company may be required to withhold with respect
to such shares.
11. Nontransferability.
An incentive stock option granted under the Plan shall, by its terms, be
non-transferable by the option holder, either voluntarily or by operation of
law, otherwise than by will or the laws of descent and distribution, and shall
be exercisable during the option holder's lifetime only by the option holder,
regardless of any community property interest therein of the spouse of the
option holder, or such spouses's successors in interest. If the spouse of the
option holder shall have acquired a community property interest in such option,
the option holder, or the option holder's permitted successors in interest, may
exercise the option on behalf of the spouse of the option holder or such
spouse's successors in interest.
A non-qualified stock option granted under the Plan shall, by its terms,
be non-transferable by the option holder, either voluntarily or by operation of
law, otherwise than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of
ERISA, or the rules thereunder, and shall be exercisable during the option
holder's lifetime only by the option holder or, to the extent permitted by the
Committee or by the terms of the option agreement, the spouse of the option
holder who obtained the option pursuant to such a qualified domestic relations
order described herein or pursuant to Section 14.
12. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules.
At the discretion of the Committee, any option may provide that the
option holder (and any transferee), by accepting such option, represents and
agrees that none of the shares purchased upon exercise of the option will be
acquired with a view to any sale, transfer or distribution of said shares in
violation of the Securities Act of 1933, as amended (the "Securities Act"), and
the rules and regulations promulgated thereunder, or any applicable state "blue
sky" laws, and the person entitled to exercise the same shall furnish evidence
satisfactory to the Company (including a written and signed representation) to
that effect in form and substance satisfactory to the Company, including an
indemnification of the Company in the event of any violation of the Securities
Act or state blue sky laws by such person. The Company shall use its reasonable
efforts to take all necessary and appropriate action to assure that the shares
issuable upon the exercise of any option shall be issued in full compliance with
the Securities Act, state blue sky laws and all applicable licensing
requirements of any principal securities exchange on which shares of the same
class are listed.
13. Termination of Employment.
<PAGE> 5
If a holder of an incentive stock option ceases to be employed by the
Company or any of its Affiliates for any reason other than the option holder's
death or permanent disability (within the meaning of Section 22(e)(3) of the
Code), the option holder's incentive stock option shall be exercisable for a
period of three (3) months after the date the option holder ceases to be an
employee of the Company or such Affiliate (unless by its terms it sooner
expires) to the extent exercisable on the date of such cessation of employment
and shall thereafter expire and be void and of no further force or effect. A
leave of absence approved in writing by the Committee shall not be deemed a
termination of employment for the purposes of this Section 13, but no option may
be exercised during any such leave of absence, except during the first three (3)
months thereof. Termination of employment or other relationship with the Company
by the holder of a nonqualified stock option will have the effect specified in
the individual option agreement, as determined by the Committee. Any option
transferred pursuant to a qualified domestic relations order pursuant to Section
11 shall continue to be subject to the provisions governing the grant to the
original grantee, including without limitation, the provisions governing
exercisability, vesting and termination (which shall be determined by reference
to the employment status of the original grantee), unless the option agreement
or the Committee provides otherwise.
14. Death or Permanent Disability of Option Holder.
If the holder of an incentive stock option dies or becomes permanently
disabled (within the meaning of Section 22(e)(3) of the Code) while the option
holder is employed by the Company or any of its Affiliates, the option holder's
option shall be exercisable for a period of one (1) year after the date of such
death or permanent disability (unless by its terms it sooner expires) to the
extent exercisable on the date of death or permanent disability and shall
thereafter expire and be void and of no further force or effect. During such
period after death, such incentive stock option may, to the extent that it
remained unexercised (but exercisable by the option holder according to such
option's terms) on the date of such death, be exercised by the person or persons
to whom the option holder's rights under the option shall pass by the option
holder's will or by the laws of descent and distribution. The death or
disability of a holder of a nonqualified stock option will have the effect
specified in the individual option agreement, as determined by the Committee.
15. Privileges of Stock Ownership.
No person entitled to exercise any option granted under the Plan shall
have any of the rights or privileges of a shareholder of the Company in respect
of any shares of stock issuable upon exercise of such option until certificates
representing such shares shall have been issued and delivered. No shares shall
be issued and delivered upon the exercise of any option unless and until there
shall have been full compliance with all applicable requirements of the
Securities Act (whether by registration or satisfaction of exemption
conditions), all applicable listing requirements of any national securities
exchange on which shares of the same class are then listed and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery.
16. Special Terms Applicable to Large Shareholders.
Notwithstanding any other provision of this Plan, each incentive stock
option granted to a person possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (or an Affiliate,
as applicable) (a "Large Shareholder") shall (i) have an exercise price of not
less than one hundred and ten percent (110%) of the fair market value of the
stock covered by the option (as determined under Section 9) on the date of grant
and (ii) expire not later than five (5) years from the date of grant.
<PAGE> 6
17. Adjustments.
If the outstanding shares of the Common Stock of the Company (or any
other class of shares or securities which shall have become eligible for grant
under the Plan pursuant to this sentence) are increased or decreased or changed
into or exchanged for a different number or kind of shares or securities of the
Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares as to which options may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares allocated to
unexercised options or portions thereof, which shall have been granted prior to
any such change, shall likewise be made. Any such adjustment in the outstanding
options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the option but with a corresponding adjustment in
the price for each share or other unit of any security covered by the option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all the property or more than eighty percent
(80%) of the then outstanding stock of the Company to another corporation, the
Plan shall terminate, and all options theretofore granted hereunder shall
terminate; provided, however, that notwithstanding the foregoing, the Committee
shall provide in writing in connection with such transaction for any or all of
the following alternatives (separately or in combinations): (i) for the options
theretofore granted to become immediately exercisable notwithstanding the
provisions of Section 8; (ii) for the assumption by the successor corporation of
the options theretofore granted or the substitution by such corporation for such
options and rights of new options and rights covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices; (iii) for the continuance of the
Plan by such successor corporation in which event the Plan and the options
theretofore granted shall continue in the manner and under the terms so
provided; or (iv) for the payment in cash or stock in lieu of and in complete
satisfaction of such options.
Adjustments under this Section 17 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of stock shall be
issued under the Plan on any such adjustment.
18. Amendment and Termination of Plan.
The Committee may at any time suspend or terminate the Plan. The
Committee may also at any time amend or revise the terms of the Plan, provided
that no such amendment or revision shall, unless appropriate shareholder
approval of such amendment or revision is obtained, increase the maximum number
of shares in the aggregate which may be sold pursuant to options granted under
the Plan, except as permitted under the provisions of Section 17, or change the
minimum purchase price of incentive stock options set forth in Sections 7 and
16, or increase the maximum term of incentive stock options provided for in
Sections 6 and 16, or permit the granting of options to anyone other than as
provided in Sections 4 or 5, or otherwise materially increase the benefits
accruing to employees under the Plan.
Notwithstanding the foregoing, no amendment, suspension or termination
of the Plan shall, without specific action of the Committee and the consent of
the option holder, in any way modify,
<PAGE> 7
amend, alter or impair any rights or obligations under any option theretofore
granted under the Plan.
19. Effective Date of Plan.
The Plan, as hereby amended, shall be submitted for approval by the
holders of the outstanding voting stock of the Company within twelve (12) months
from the date the amendments are adopted by the Board of Directors.
<PAGE> 1
Exhibit 10.16
WILLIAMS-SONOMA BUILDING
[NAME OF BUILDING]
OFFICE LEASE
BETWEEN
TJM PROPERTIES, L.L.C. ("LANDLORD")
AND
WILLIAMS-SONOMA, INC. ("TENANT")
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Premises................................................. 1
2. Term..................................................... 2
3.A Construction............................................. 3
3. Preparation for Occupancy................................ 6
4. Rent..................................................... 7
5. Maintenance and Repairs.................................. 7
6. Services................................................. 11
7. Alterations and Improvements............................. 11
8. Inspection............................................... 12
9. Casualty................................................. 12
10. Insurance and Indemnity.................................. 14
11. Condemnation............................................. 17
12. Default.................................................. 18
13. Holdover................................................. 20
14. Assignment and Subletting................................ 20
15. Quiet Enjoyment.......................................... 21
16. Subordination............................................ 21
17. Rules and Regulations.................................... 21
18. Estoppel Certificate..................................... 21
19. Signage; Change of Name.................................. 22
20. Mechanics' Liens......................................... 22
21. Extension................................................ 22
22. Notices.................................................. 23
23. Miscellaneous............................................ 24
24. Brokers.................................................. 27
25. Attachments.............................................. 27
26. Arbitration.............................................. 27
RIDER 1....................................................... 30
RIDER 2....................................................... 35
EXHIBIT A..................................................... 41
EXHIBIT B..................................................... 43
EXHIBIT C..................................................... 47
EXHIBIT D..................................................... 48
EXHIBIT E..................................................... 50
<PAGE> 3
LEASE
THIS LEASE, made as of the thirteenth day of February, 1998, between TJM
PROPERTIES, L.L.C. and/or its assigns, an Oklahoma limited liability company,
having its principal office at 3232 West Britton Road, Suite 250, Oklahoma City,
OK 73120 ("Landlord"), and WILLIAMS-SONOMA, INC., a California corporation
having its principal office at 3250 Van Ness Avenue, San Francisco, CA 94109
("Tenant").
1. Premises
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord all of the space shown on the attached Exhibit A (the "Premises")
consisting of approximately 35,862 square feet of rentable area in a building to
be commonly known as "The Williams-Sonoma Building" (The "Building") situated on
real property located in Commerce Park at Block 9, Lot 1 of Silver Springs
Addition to Oklahoma City, in Oklahoma City, Oklahoma, said property being more
fully described in Exhibit B (the "Land"), together with the use of the
hallways, corridors, lobbies, lavatories, stairways, entrances, exits,
sidewalks, driveways, the parking areas provided for in Section 6 (a) (vi) and
all other areas and facilities of the Building and Land appurtenant thereto as
they may exist from time to time (the "Appurtenances"). Collectively, the
Building, the Land, and the Appurtenances are sometimes referred to in this
Lease as the "Property". The ratio by which the rentable area of the Premises
bears to the rentable area of the Building is referred to herein as the Tenant's
proportionate share ("Proportionate Share") and is one hundred percent (100%).
(b) Subject to the provisions of Paragraph 1(c) below, Landlord warrants
that it and no other person or entity has the right to lease the Premises to
Tenant; Landlord further warrants that the Land and the Building, and the
permitted uses thereof by Tenant, will, at the time possession of the Premises
is delivered to Tenant, comply with all laws, ordinances, orders, rules,
regulations and requirements of all federal, state and municipal governments,
departments, commissions, boards and officers, and all orders, rules and
regulations of the national Board of Fire Underwriters, the local Board of Fire
Underwriters or any other body or
1
<PAGE> 4
bodies exercising similar functions, which may be applicable to the Property,
including the curbs and vaults adjoining the Land (collectively "Applicable
Laws").
(c) Landlord represents and warrants that it has the right to acquire
the Property pursuant to a written agreement between Landlord and Express
Development II, L.L.C. Landlord acknowledges that, in entering into this Lease,
Tenant has relied on Landlord's representations and warranties of its intent to
acquire the Property in a timely manner. Accordingly, the parties agree that
Tenant's obligations under this lease shall be conditioned on the satisfaction
of each and every one of the conditions set forth below on or before March 2,
1998: (i) the closing of the purchase of the Property by Landlord; (ii) the
delivery to Tenant of evidence of financing sufficient to construct the
improvements to be constructed by Landlord pursuant to this Lease; (iii) the
recordation of a "Memorandum of Lease" and the issuance of leasehold title
insurance to Tenant in form and substance acceptable to Tenant and sufficient to
insure the priority of Tenant's interest in this Lease, subject to no monetary
encumbrances other than Landlord's acquisition/construction loan; (iv) the
delivery to Tenant of a fully executed Subordination, Non-Disturbance and
Attornment Agreement, in substantially the form of the agreement attached hereto
as Exhibit "E"; and (v) evidence that Landlord is duly organized and in good
standing in the State of Oklahoma. None of the foregoing conditions may be
waived, either expressly or by implication, except by a written waiver signed by
Tenant. Neither party shall have any further obligations under this Lease in the
event Tenant terminates by reason of the failure of a condition set forth above.
(d) The Premises shall be used for any lawful use consistent with the
other uses in the Park and not in conflict with other uses in place at the time
of sublease in the event Tenant subleases Premises.
2. Term
(a) The term of this Lease is ten (10) years (plus a partial month, if
any, immediately following the Commencement Date if the Commencement Date is
other than the first of the month) and shall commence on the later of August 15,
1998, or such date as the Premises shall be ready for occupancy (as the case may
be, the "Commencement Date"), and end on the later of August 31, 2008, or that
date which is the last day of the one hundred twentieth (120th) full calendar
month after the Commencement Date (as the case may be, the "Expiration Date"),
both dates inclusive constitute the "Original Term", unless the Original Term is
extended as provided
2
<PAGE> 5
in Section 21. The Premises shall be deemed ready for occupancy upon the earlier
of (i) the date an occupancy permit is issued for the Premises, including all
leasehold improvements or (ii) the date Tenant shall commence operations of its
call center business in the Premises. Tenant's preparation of the Premises for
occupancy, installation of telephone equipment and personal property, and
stocking of supplies as provided in Sections 3(b), (c), (d), and (e) below shall
not be deemed a commencing of operations. A "Lease Year" shall be a 12 month
period, the first day of which shall commence on the Commencement Date if it is
the first day of a month, otherwise, on the first day of the next month
following the Commencement Date and each subsequent Lease Year shall begin on
successive anniversaries of the commencement of the first Lease Year. A "Lease
Month" shall be a calendar month, the first of which shall commence on the
Commencement Date if it is the first day of a month, otherwise, on the first day
of the month next following the Commencement Date, and each subsequent Lease
Month shall begin on the first day of a month and shall end on the last day of
such month. "Term", as used in this Lease, shall be deemed to include the
Original Term and any extensions thereof (such extensions, or any of them, being
sometimes referred to as the "Extended Term").
(b) At any time after the Commencement Date, at the request of either
party, both parties shall execute a supplemental agreement to this Lease stating
the commencement Date and the Expiration Date.
3A. Construction
(a) Within twenty (20) days after execution of this Lease, Landlord
shall submit to Tenant the revised plans and specifications (the "Plans and
Specifications") for the Building and Appurtenances (the "Improvements") and the
construction schedule (collectively, the "Construction Documents"). The Plans
and Specifications shall be revised from the plans Tenant has provided Landlord
reflecting a 35,862 square foot building in Las Vegas, Nevada, currently
occupied by Tenant. The Plans and Specifications shall reflect the requirements
needed to comply with all Applicable Laws, including, without limitation the
applicable building codes for the State of Oklahoma and the City of Oklahoma
City, and shall include the following: (i) architectural; (ii) structural; (iii)
mechanical; (iv) plumbing; (v) electrical; (vi) fire/life/safety, including fire
sprinklers; and (vii) landscaping plans and specifications. Tenant shall have
two (2) business days following receipt of the Construction Documents to approve
or disapprove them. Failure by Tenant to respond within said two (2) business
days period shall be deemed
3
<PAGE> 6
approval of the Construction Documents. If the Construction Documents are
disapproved, Tenant shall inform Landlord of the reasons for such disapproval
after which Landlord shall have five (5) business days to submit revised
Construction Documents. Landlord shall not unreasonably refuse to satisfy any
objections of Tenant to the Construction Documents. If Tenant and Landlord are
unable to agree upon the Construction Documents by February 23, 1998, Tenant
shall have the right to terminate this Lease agreement, and thereafter, neither
party shall have any obligation to the other.
(b) The Building shall be constructed strictly in accordance with the
Plans and Specifications and no change shall be made in the Construction
Documents without the approval of Tenant, which approval shall not unreasonably
be withheld, delayed or conditioned. Any request made by Landlord to Tenant to
approve a change in the Construction Documents to which no objection is made
within five (5) business days of receipt of the change requested by Tenant and
Tenant's architect (if Tenant has provided its name and address to Landlord)
shall be deemed approved.
(c) Landlord's architect shall be Richard R. Brown, Associates
(Attention: Rick Brown), 2800 W. Country Club Drive, Suite 220, Oklahoma City,
OK 73116, phone number 405/843-0522 and fax number 405/843-0523. Landlord's
general contractor shall be Van Hoose Construction Co. (Attention: Jeff Van
Hoose), 920 N.W. 60th Street, Oklahoma City, OK 73118, phone number 405-848-0415
and fax number 405/848-3911.
(d) Landlord shall apply for and thereafter diligently pursue the
issuance of a building permit for the Improvements as soon as reasonably
practicable after the approval of Construction Documents. Landlord shall
commence construction of the Improvements in accordance with the Plans and
Specifications and all Applicable Laws by that date which shall be ten (10) days
following the availability of a building permit for the Improvements. Landlord
shall pursue construction of the Improvements without interruption, subject to
Force Majeure Events, in a good and workmanlike manner diligently to completion.
The Improvements shall be deemed substantially completed in accordance with the
Plans and Specifications upon the satisfaction of all of the following
conditions:
(i) Issuance of a certificate of occupancy for the Improvements which
will permit legal occupancy of the entire Improvements and full use of the
Premises by Tenant;
4
<PAGE> 7
(ii) Delivery of a certification by Landlord, Landlord's architect and
general contractor: that the Improvements have been completed with the exception
of punch list items, in accordance with the Plans and Specifications and stating
those respects in which the Improvements remain incomplete; that all utilities
and like services have been connected and are in operation; and that the
Improvements are ready for occupancy and full use of the Premises by Tenant;
(iii) Completion of an inspection of the Improvements by Tenant or
Tenant's architect which confirms completion, with the exception of punch list
items, of the Improvements in accordance with the Plans and Specifications;
provided, however, Tenant shall complete said inspection within fifteen (15)
days of notice by Landlord to Tenant that the Improvements are ready for
inspection. In the event Tenant fails to inspect within said fifteen-day
(15-day) period, then the right of inspection shall be deemed waived.
(e) Landlord shall obtain from each governmental authority having
jurisdiction over the Improvements the Permits necessary to construct, operate
and lawfully occupy the Improvements.
(f) Within sixty (60) days after to the Commencement Date, Landlord
shall discharge or bond over or escrow funds sufficient to satisfy any liens
filed by a contractor, subcontractor, materialman or laborer on the Building or
Premises.
(g) Landlord shall permit Tenant and its duly authorized agents free
access to the Land and Improvements, provided that Tenant shall not interfere
with the construction of the Improvements, and such access shall be at Tenant's
sole risk and expense. Landlord shall promptly respond to any inquiry from
Tenant for information with respect to the construction of the Improvements.
(h) If Tenant shall give Landlord notice of a defect in the Improvements
or of a departure from the Construction Documents not approved by Tenant, in
accordance with Section 3A Landlord shall, within thirty (30) days of receipt of
such notice, take all necessary steps to cure such defect or departure;
provided, however, in the event such defect or default cannot be cured within
such thirty-day (30-day) period, then the requirements of this paragraph shall
be satisfied if Landlord is diligently and continuously pursuing the cure of
said defect or departure. Further, in the event Landlord should disagree as to
such characterization of such
5
<PAGE> 8
defect or departure, then said dispute shall be resolved under Section 26,
Arbitration, of this Lease.
(i) Landlord shall deliver to Tenant within thirty (30) days after the
Commencement Date the following:
(a) two sets of final as-built plans and specifications; and
(b) a current as-built survey prepared by a surveyor licensed to
practice in the State of Oklahoma to the standard of the "Minimum Standard
Detail Requirements For Land Title Surveys" jointly established and adopted by
ALTA and ACSM in 1962, and with certifications satisfactory to Tenant, showing
the completed Improvements and all easements or other conditions serving or
affecting the Building, Land or Appurtenances.
3. Preparation for Occupancy
(a) On the Commencement Date, Landlord shall deliver possession of the
Premises to Tenant completed in accordance with Tenant's Construction Documents
(as defined and more particularly described in Exhibit C), except for minor
punchlist items which do not interfere with Tenant's use of the Premises, if
any. Tenant shall within thirty (30) days after the date Tenant takes occupancy,
deliver to Landlord a punchlist of any reasonably discoverable items that are
incomplete or defective in the Premises that were required to be installed or
constructed by Landlord, and Landlord shall diligently proceed to repair,
replace or correct all of said items within thirty (30) days after receipt of
the punchlist (except that if any item cannot be repaired, replaced or corrected
within said thirty (30) day period, this period shall be extended for a
reasonable additional time, provided that Landlord commences to repair, replace
or correct such item within said thirty (30) day period and proceeds diligently
thereafter to effect such repair, replacement or correction).
(b) Landlord shall, without charge, permit Tenant access to the Premises
not less than thirty (30) days prior to the Commencement Date for Tenant's
activities related to preparation of the Premises for occupancy including the
installation of furniture systems and other personal property of Tenant. Such
access shall be at Tenant's sole risk and expense and shall not interfere with
Landlord's construction.
(c) Landlord shall, without charge, permit telephone company employees
access to Tenant's telephone equipment room.
6
<PAGE> 9
(d) Landlord shall make available to the Premises at least thirty (30)
days prior to the Commencement Date all electricity and other utilities
necessary to prepare the Premises for occupancy. Tenant shall pay Landlord for
the actual costs of such electricity and of such other utilities based on
Landlord's reasonable estimate within thirty (30) days of the receipt by Tenant
of an invoice therefor.
(e) Tenant shall coordinate the access to the Premises with Landlord's
project manager, Gary Brooks, Beffort-Brooks-Malherbe Property Company,
Corporate Tower, 101 North Robinson, Suite 700, Oklahoma City, OK 73102, phone
405/236-2122, and fax 405/235-1328.
4. Rent
(a) Tenant shall pay an annual Fixed Rent, in equal monthly installments
in advance on the first day of each calendar month during the Term, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Lease Annual Fixed Monthly Annual Rental
Period Rent Installment Rate
- ----------- ------------ ----------- --------------
<S> <C> <C> <C>
Years 1-5 $505,654.20 $42,137.85 $14.10
Years 6-10 $550,481.70 $45,873.48 $15.35
</TABLE>
(b) All rent and other charges not paid within ten (10) days of the
date(s) when due shall bear interest at the rate of one and one-half percent
(1.5%) (the "Default Interest Rate") per month from and after the first (1st)
day following the date(s) said rent and charges become due and the same shall be
regarded as additional rent hereunder. Additionally, in the event any rent is
not paid on or before the tenth (10th) day after the same shall be due and if
Landlord elects to accept such Rent, in addition to the Rent and the interest
set forth herein, Tenant shall pay to Landlord late charges for such late
payment in the amount of $1,000.00 for each payment so delinquent more than ten
(10) days after written notice.
5. Maintenance and Repairs
(a) Landlord covenants that the Premises, Building and Appurtenances
(including plumbing, electrical lines and equipment, lighting, heating,
ventilating and air conditioning systems) shall be in first-class operating
condition on the Commencement Date.
7
<PAGE> 10
(b) Tenant shall conduct its operations in such a manner as to keep the
Premises in good order, condition and repair, (ordinary wear and tear excepted)
and to keep the Premises in a clean, sanitary and safe condition in accordance
with all Applicable Laws governing the use of the Premises by Tenant. Tenant
shall not knowingly permit any waste or nuisance upon or damage or injury to the
Premises or utilities supplied thereto. Tenant agrees that Tenant shall commit
no act which will cause either Tenant or Landlord to be in violation of any
pertinent laws of the State of Oklahoma the County of Oklahoma or any ordinances
of the City of Oklahoma City. Landlord at its expense, subject to the provisions
of Rider 1, shall perform such maintenance, repairs and replacements, structural
or otherwise, as are necessary to keep in good order and repair the
Appurtenances and the exterior of the Building, including the roof and all
Landlord's equipment, and shall also make any repairs or replacements to
Tenant's trade fixtures, installations or other property occasioned by negligent
act or omission of Landlord, its agents, employees or contractors. Subject to
the provisions of Sections 9 and 10 hereof, with the exception of Tenant's right
to terminate the Lease or abate rent, Landlord, at Tenant's expense, shall make
any repairs or replacements to the Building and Appurtenances occasioned by the
negligent act or omission of Tenant, its agents, employees or contractors.
Landlord's maintenance and repairs shall keep the Premises, the Appurtenances
and Building in at least its original condition, reasonable wear and tear
excepted, and all replacement installations shall be at least equal in quality
to the originals. In performing such maintenance, repairs and replacements
Landlord shall use reasonable efforts to minimize any disruption of or
interference with Tenant's business or access to the Premises.
(c) (i)Landlord shall comply with all lawful rules, regulations, orders,
laws, ordinances and legal requirements (including the Occupational Safety and
Health Act, as amended and the Americans With Disabilities Act) and standards
issued thereunder by any governmental authority or fire rating organization
which affect the Premises, Appurtenances, Land, Building, equipment and
improvements or that require repairs, alterations, changes or additions thereto,
including structural repairs, alterations, changes or additions. All boilers and
other pressure vessel equipment, if any, shall be constructed and maintained by
Landlord in accordance with current ASME Standards and Code. Landlord shall use
best efforts to minimize routine inspections, repairs and maintenance during
"Holiday Season."
8
<PAGE> 11
(ii) (A) Landlord represents and warrants to the best of its knowledge,
that there is no Hazardous Material on or under the property as of the
Commencement Date of this Lease. "Hazardous Material" shall mean: (1) asbestos
or asbestos containing material, (2) polychlorinated biphenyls in concentrations
greater than 50 parts per million and (3) any other material, waste or
substance, whether solid, gaseous or liquid, which may pose a hazard to human
health or the environment (a) hazardous substance, waste identified in
accordance with Section 3001 of the Federal Resource Conservation and Recovery
Act of 1976, as amended, and (b) any hazardous substance, waste, or material
identified by statute or regulation of any governmental authority regulating
environmental or health matters but excluding those materials or substances
which are ordinarily and customarily used in business such as toner and cleaning
supplies to the extent they are lawfully and actually used in quantities
consistent with such custom.
(B) Landlord further warrants and covenants that during construction of
the Building such procedures as are legally required to prevent the installation
or use of any Hazardous Material in or on the Property were instituted and
maintained and Landlord shall maintain such procedures throughout the Term. If
any Hazardous Material is discovered in or on the Building during the Term,
which was defined by any governmental authority regulating environmental or
health matters as a Hazardous Material as of the Commencement Date, Landlord
shall, at its sole cost and expense, completely remove all of such Hazardous
Material strictly in accordance with and as required by all Applicable Laws
within thirty (30) days after Landlord is notified of such discovery at no cost
to Tenant unless such Hazardous Materials are brought onto the Property by
Tenant, in which case Tenant shall be responsible for their removal. If
applicable laws do not require the removal of a Hazardous Material, then
Landlord shall institute a maintenance and operation plan implementing
procedures necessary to protect the health, safety and well being of Tenant's
employees, guests and invitees and such other procedures as are required by
Applicable Laws. If the removal of such Hazardous Material cannot be completed
within said thirty (30) day period, this period shall be extended for a
reasonable additional time, provided the removal has been commenced within
thirty (30) days after notice of discovery and proceeds diligently thereafter to
effect such removal; provided however, that if either the presence or removal of
any Hazardous Material will prevent Tenant from carrying on its normal business
operations for a period of more than sixty (60) days, then
9
<PAGE> 12
Tenant may terminate this Lease upon sixty (60) days notice to Landlord. If a
Hazardous Material is discovered in or on the Building, Premises or
Appurtenances during the Term but such Hazardous Material was not defined as
hazardous material by the Commencement Date, then Landlord shall not be
obligated to remove such Hazardous Material at the time of discovery if removal
is not required by the laws but shall be obligated to handle (including
maintain, use, store, repair, preserve and including removal, if removal is
required by the Applicable Laws at a later date) such Hazardous Material all in
accordance with all Applicable Laws. The Rent shall abate equitably based on the
practical nonavailability of any portion of the Premises for the purposes
permitted by this Lease due to the presence or removal of the Hazardous
Material. Upon discovery of Hazardous Material in the Building, Premises or
Appurtenances, Landlord shall promptly deliver notice of the same to Tenant
together with a statement prepared by a reputable environmental consultant or
engineer setting forth the status of the Hazardous Material, the plan and
procedure for handling the same, including removal if required and the time
frame for such plans and procedures.
(C) Landlord shall indemnify, defend Tenant and hold it harmless against
any claims, damages, losses or liabilities (including reasonable attorneys'
fees) incurred by Tenant and arising from any breach of the foregoing
representation and warranty and from the installation, presence or removal of
the Hazardous Material; provided however, the foregoing indemnity shall not
apply to Hazardous Material so determined after installation in or on the
Property, except insofar as any claims, damages, losses or liabilities
(including reasonable attorneys' fees) arise from the actions in connection with
the removal or remediation thereof.
(D) Tenant agrees that it will not place, hold or dispose of any
Hazardous Materials on, under or at the Premises, the Building or the Land and
that it will not knowingly use the Premises or any other portion of the Building
or the Land as a treatment, storage or disposal site (whether permanent or
temporary) for any Hazardous Materials. Tenant further agrees that it will not
cause or allow any asbestos or other Hazardous Materials to be incorporated into
any improvements or alterations which it makes to the Premises. Tenant shall
indemnify, defend Landlord and hold it harmless against any claims, damages,
losses or liabilities (including reasonable attorneys' fees) incurred by
Landlord and arising from any breach of the foregoing agreement, representation
and warranty; provided however, the foregoing indemnity shall not apply to
Hazardous Material so determined after the Commencement Date or
10
<PAGE> 13
after installation in or on the Property, except insofar as any claims, damages,
losses or liabilities (including reasonable attorneys' fees) arise from the
actions in connection with the removal or remediation thereof.
6. Services
Landlord shall furnish to Tenant the following services and facilities:
(i) Access to the Premises 24 hours a day, 7 days a week, with entry to
the Building after normal business hours.
(ii) Removal of ice, snow and debris from all exterior Appurtenances as
may be reasonable under the circumstances.
(iii) On-Site parking properly marked and illuminated to accommodate at
least seven (7) parking spaces for each 1,000 rentable square feet in the
Premises for Tenant's use on an unreserved basis at no cost to Tenant. Landlord
shall provide an additional parking area available for the non-exclusive use of
Tenant immediately adjacent to Tenant's exclusive parking area as shown on the
attached site plan marked "Overflow Parking," at no cost to Tenant. The Overflow
Parking area and Tenant's exclusive parking area combined shall provide a
minimum of thirteen (13) parking spaces per 1,000 square feet of building.
7. Alterations and Improvements
(a) Tenant at its own expense may, without Landlord's prior written
consent, redecorate the Premises (including repainting, adding, replacing or
removing wallcovering, and refinishing millwork) and may, with Landlord's
consent and subject to Landlord's reasonable conditions, make from time to time
such nonstructural and nonpermanent alterations including floorcovering,
additions and improvements in and to the Premises as it may deem necessary or
desirable. Landlord shall cooperate with Tenant in securing any necessary
building and other permits, the cost thereof being borne by Tenant.
Notwithstanding the foregoing, Landlord may choose to make such structural
alterations, improvements or additions as Tenant may request and, upon
completion of the work, (which shall include a reasonable construction
management fee), Tenant shall pay Landlord within thirty (30) days of demand the
cost therefor; provided, however, that Landlord shall, prior to commencing such
work, submit a bid to Tenant for such work and, if so requested by Tenant, two
(2) additional bids from other reputable contractors selected by Landlord.
Landlord and Tenant shall then mutually select the contractor. In addition to
the foregoing, Landlord may elect to use its contractors for electrical,
mechanical, plumbing
11
<PAGE> 14
and sprinkler work, provided, however, that the cost to Tenant for such work
shall not exceed the lowest bid submitted by a qualified and responsible bidder,
which shall include a reasonable construction management fee.
(b) Tenant may, at is option, remove from the Premises any furniture,
furnishings, trade fixtures, business equipment or other personal property which
are not permanently affixed in the Premises and were installed by Tenant at its
expense. Tenant at its expense shall repair any damage caused by such removal to
the reasonable satisfaction of Landlord.
(c) Landlord's consent to such alterations, additions, or improvements,
or Landlord's approval of the plans, specifications, and working drawings for
such alterations, additions, or improvements shall create no responsibility or
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with all Applicable Laws. Tenant shall bear the cost of compliance
with the Americans with Disabilities Act of 1990 and all regulations issued
thereunder or revisions or amendments caused by and arising out of Tenant's
alterations, additions, or improvements, made after the Commencement Date.
8. Inspection
Landlord shall, upon forty-eight (48) hours advance notice to Tenant
(except in an emergency), have the right at all reasonable times to inspect the
Premises and show the same to prospective mortgagees, purchasers and government
employees in their official capacity and at all times to make repairs or
replacements as required by this Lease; provided, however, that Landlord shall
use reasonable efforts not to disturb Tenant's use and occupancy of the
Premises.
9. Casualty
(a) If the Building or the Premises are damaged by fire or any other
casualty, Landlord shall deliver to Tenant notice of, together with a statement
prepared by a reputable contractor setting forth the contractor's estimate of,
the time required to repair the damage (the "Repair Period") within sixty (60)
days after the date of the damage. For purposes of determining the Repair
Period, it shall be deemed to commence on the date of the damage. If the
reasonably estimated cost to repair such damage exceeds fifty (50%) percent of
the replacement cost of the Building, Landlord may terminate this Lease by
giving notice to Tenant. If the Repair Period is determined to be longer than
one hundred eighty (180) days or if Landlord fails to deliver such statement
within sixty (60) days, after the date of the damage, and Tenant determines in
its
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reasonable business judgment that such damage will prevent Tenant from carrying
on its normal business operations for a period of one hundred eighty (180) days
or more, Tenant may elect to terminate this Lease by giving notice to Landlord.
Upon such termination, Tenants shall be afforded a reasonable amount of time and
reasonable opportunity to remove its personality from the Premises, and Tenant's
obligations hereunder, including the obligation to pay the Rent, shall cease as
of the date of termination, provided however, that the Rent shall abate
equitably from the date of the damage. If Tenant is unable to use the Premises
due to the acts or omission of Landlord, then rent shall abate.
(b) If Tenant shall not terminate this Lease: (i) the Rent shall abate
for the period the Premises are untenantable, and thereafter, Tenant shall pay
the Rent for only such portion of the Premises which Tenant in its reasonable
business judgment determines it may occupy; and (ii) all repairs necessary to
restore the Building, the Premises, and the Appurtenances to their original
condition shall be: (A) commenced within sixty (60) days after the occurrence of
such damage; (B) performed in a diligent and workmanlike manner within the time
period estimated by Landlord's contractor with material of at least similar or
equivalent quality as that originally utilized in the construction of the
Building, the Premises, and the Appurtenances; (C) completed by Landlord at its
expense using reasonable efforts to minimize any interference with Tenant's
normal business operations.
(c) If Landlord undertakes but fails to repair and restore the Building,
the Premises, and the Appurtenances as required by this Section 9 within the
time period estimated by Landlord's contractor (which time period shall be
extended one day for each day of delay due to Tenant), Tenant may terminate this
Lease upon thirty (30) days notice to Landlord, provided further, however, that
if Landlord is prevented from completing the repair and restoration within said
period due to causes beyond Landlord's control, including labor disputes, civil
commotion, hostilities, sabotage, weather delays, governmental regulations or
controls (collectively, "Force Majeure Events"), Landlord shall have an
additional period of sixty (60) days to repair or restore. Anything in the
foregoing which may be to the contrary notwithstanding, Force Majeure Events
shall not include shortage of funds (whether due to the insufficiency of
insurance proceeds or otherwise), nor inability to obtain financing nor
inability to obtain materials, labor or services due to Landlord's failure to
provide for such matters in a timely manner. Upon such termination, Tenant's
obligations hereunder, including the obligation to pay the Rent, shall cease as
of the
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expiration of such notice period. Rent shall be apportioned as of the
date of the damage and all prepaid Rent shall be repaid to Tenant.
(d) Anything in the foregoing to the contrary notwithstanding, if the
damage by fire or other casualty occurs within the last year of the Term (as may
be extended by the provisions of this Lease), then if the Repair Period is such
that the balance of the Term after such Repair Period is less than one hundred
eighty (180) days, then either Landlord or Tenant may elect to terminate this
Lease by giving notice to the other, except that Tenant may nullify Landlord's
election by exercising an available option to extend the term of this Lease
within thirty (30) days of Landlord's notice to terminate. Upon such
termination, Tenant shall be afforded a reasonable amount of time and reasonable
opportunity to remove its personality from the Premises, and Tenant's
obligations hereunder, including the obligation to pay the Rent, shall cease as
of the date of termination, provided however, that the Rent shall abate
equitably from the date of the damage.
10. Insurance and Indemnity
(a) Landlord shall, from and after the date hereof, maintain insurance
policies covering the Building, (including Rental Interruption coverage) the
Appurtenances and anything that is, or by operation of this Lease becomes
Landlord's property against loss, damage, or destruction caused by boiler
explosion or machinery breakdown, fire and the perils specified in the standard
extended coverage endorsement, by vandalism and malicious mischief, and by
sprinkler, gas, water, steam, glass breakage and sewer leakage, and shall also
maintain when appropriate builder's risk insurance. Fire and extended coverage
shall equal full replacement cost (valued at the full replacement cost without
deduction for depreciation) of the Building, the Appurtenances and Landlord's
property, exclusive of architectural and engineering fees, excavation, footings
and foundations, but in any event sufficient to prevent application of any
coinsurance provision, and shall include an inflation guard endorsement. Such
policies shall provide for a deductible not greater than $25,000.00 from any
loss and providing Tenant thirty (30) days notice of cancellation. Landlord
shall provide Tenant with certificates evidencing all insurance required
hereunder upon request.
(b) Landlord shall, from and after the date hereof, maintain commercial
general liability insurance policies covering Landlord's liability for all
claims or losses resulting from any injury
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on the Land or Building to property or persons or related thereto in a single
limit of not less than $1,000,000.
(c) At all times during the Term, Tenant will carry and maintain, at
Tenant's expense, the following insurance, in the amounts specified below, with
insurance companies reasonably satisfactory to Landlord:
(i) commercial general liability insurance and personal injury
liability insurance, with a combined single occurrence limit of not less than
$3,000,000.
(ii) insurance covering all of Tenant's equipment, trade
fixtures, appliances, furniture, furnishings, and other personal property from
time to time in, on or upon the Premises, in an amount not less than the full
replacement cost without deduction for depreciation from time to time during the
Term, providing protection against all perils included within the classification
of fire, extended coverage, vandalism, malicious mischief, special extended
peril (all risk), boiler, flood, and sprinkler leakage.
(iii) Business interruption 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 assumed by Tenant pursuant
to this Lease.
(iv) automobile insurance covering owned, non-owned and hired
vehicles in an amount not less than $1,000,000.00 combined single limit.
(d) All policies of insurance which Tenant is obligated to maintain
according to this Lease (other than any policy of workman's compensation
insurance) will name Landlord and Landlord's lenders of which Landlord shall
notify Tenant from time to time, as additional insureds, but only as their
interest may appear. Certificates of Insurance which evidence Tenant's insurance
and evidence of the payment of all premiums of such policies will be delivered
to Landlord prior to Tenant's occupancy of the Premises and from time to time at
Landlord's request made not more often than once per Lease Year. All such
policies maintained by Tenant will provide that they may not be terminated or
amended except after 30 day's prior notice to Landlord. All commercial general
liability, and personal property maintained by Tenant will be written as primary
policies, not contributing with and supplemental to the coverage that Landlord
may carry. Insurance required to be maintained by Tenant under subsections (c)
(i) hereof may be subject to a deductible of up to $100,000.00.
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(e) Landlord and Tenant each waive any and all rights to recover against
the other, or against the officers, directors, shareholders, members, partners,
joint venturers, employees, agents, for any loss or damage to such waiving party
arising from perils covered by property insurance and required to be carried by
such party to the extent of the limits of such policy. Landlord and Tenant shall
cause their respective insurers to issue appropriate waivers of subrogation
rights endorsements to all such property policies of insurance. Tenant agrees to
cause all other occupants of the Premises by, under or through Tenant to execute
and deliver to Landlord such a waiver of subrogation rights endorsement.
(f) Tenant shall not do anything in or about the Premises which would
cause an increase in the insurance rates above the rate in effect for Tenant's
lawful use of the Premises as general office use for any policies of insurance
carried by Landlord covering the Building or the Premises. If, as the result of
any failure by Tenant to comply with the terms of this Section 10(f), the
insurance rates applicable to any policy of insurance carried by Landlord
covering the Building or the Premises shall be increased, Tenant agrees to pay
Landlord, as additional rent, within 30 days after Landlord's demand therefor,
the increment in cost of the premiums for such insurance above the cost which
Landlord would have paid absent Tenant's actions due solely to Tenant's actions.
This additional rent shall be computed exclusive of the computation in Rider 1,
and the liability hereunder, shall accrue notwithstanding Rider 1. A schedule or
rule book issued by the Insurance Services Office, Inc. or any other comparable
insurance rating organization, or the rating procedures or rules of Landlord's
insurance companies shall be evidence of any items and charges which make up the
insurance rates and premiums for the Premises and the Building. Landlord agrees
that Tenant's use of the Premises for the uses set forth in this Lease shall not
subject Tenant to any obligation for payment of increased insurance rates
pursuant to this Section.
(g) Tenant indemnifies and agrees to defend and hold harmless Landlord
and its agents, licensees, employees and contractors from all claims or losses
(other than those for which liability is waived by express provision in this
Lease) resulting from any injury in or upon the Land or Building to property or
persons due to any negligence or intentional or willful acts or omissions of
Tenant, its agents, licensees, employees or contractors, including, without
limitation, reasonable attorneys' fees and costs. Landlord indemnifies and
agrees to defend and hold harmless Tenant and its agents, licensees, employees
and contractors from all claims and
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losses (other than those for which liability is waived by express provision in
this Lease) resulting from any injury in or upon the Land or the Building to
property or persons due to any negligence intentional or willful acts or
omissions of Landlord, its agents, licensees, employees or contractors,
including, without limitation, reasonable attorneys' fees and costs. Neither
party's indemnification of the other party as provided in this Section 10 shall
be applicable with respect to claims resulting in whole or in part from the
willful acts or omissions or the breach of this Lease by the other party, or
acts or omissions for which a party is strictly liable, nor shall either party
in any event be liable to the other for indirect or consequential damages.
11. Condemnation
(a) If all of the Land, the Building, the Premises or the, Parking Area,
Appurtenances shall be condemned for public use, whether such use be temporary
or otherwise, or damaged by any public use, including damage resulting from the
alteration of the location or grade of any street or public way, or voluntarily
transferred to a public or quasi-public body in lieu of condemnation (any of
which occurrences is hereafter referred to as a "taking"), this Lease shall
terminate as of the date of taking and the Rent shall be adjusted to the date of
termination. If a portion of the Building, the Premises or the Appurtenances
shall be taken, and if Tenant determines, in its reasonable business judgment,
that the taking will prevent Tenant from carrying on its normal business
operations for a period of ninety (90) days or more, Tenant may elect to
terminate this Lease by giving notice to Landlord. Upon such termination,
Tenant's obligations hereunder, including the obligation to pay the Rent, shall
cease as of the date of taking.
(b) If Tenant shall not terminate this Lease: (i) the Rent shall abate
for the period the Premises are untenantable, and, thereafter, Tenant shall pay
the Rent for only such portion of the Premises which Tenant, in its reasonable
business judgment, determines it may occupy; and, (ii) all repairs necessary to
restore the Building, the Premises and the Appurtenances as nearly as possible
to their original condition shall be : (A) commenced within sixty (60) days
after the actual taking; (B) performed in a reasonably diligent and workmanlike
manner with material of at least similar or equivalent quality as that
originally utilized in the construction of the Building, the Premises and the
Appurtenances; and, (C) completed by Landlord at its expense using reasonable
efforts to minimize any interference with Tenant's normal business operations.
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(c) If Landlord undertakes but fails to repair and restore the Building,
the Premises, and the Appurtenances as required by this Section 11 within one
hundred eighty (180) days from the date of the taking (which 180-day period
shall be extended one day for each day of delay due to Tenant), and if Tenant
determines, in its reasonable business judgment, that such failure will prevent
Tenant from carrying on its normal business operations for a period of one
hundred eighty (180) days or more from the date of the taking, then Tenant may
terminate this Lease upon thirty (30) days notice to Landlord. Upon such
termination, Tenant's obligations hereunder, including the obligation to pay the
Rent, shall cease as of the expiration of such notice period. Rent shall be
apportioned as of the date of the taking and all prepaid Rent shall be repaid to
Tenant.
(d) Tenant shall not be entitled to any portion of Landlord's award or
settlement resulting from the taking of its fee interest, provided that nothing
contained herein shall be construed in any way to restrict or limit Tenant from
asserting a claim for any damages resulting from the taking of its leasehold or
any moving expenses, or otherwise permitted by law.
12. Default
(a) If Tenant shall default in the payment of the Rent and additional
rent and such default shall continue for ten (10) days after notice therefor
from Landlord or if Tenant shall default in the performance of any of its other
obligations under this Lease and such default shall continue for thirty (30)
days after notice from Landlord specifying Tenant's default (except that if such
default cannot be cured within said thirty (30) day period, this period shall be
extended for a reasonable additional time, provided that Tenant commences to
cure such default within the thirty-day (30 day) period and proceeds diligently
thereafter to effect such cure) or if Tenant shall be adjudged bankrupt or shall
make an assignment for the benefit of creditors, or if a receiver of any
property of Tenant in or upon the Premises shall be appointed in any action,
suit or proceeding by or against Tenant and is not removed within thirty (30)
days after appointment, then, in addition to any other remedies available to
Landlord at law or in equity, Landlord shall have the immediate option to
terminate this Lease and all rights of Tenant hereunder by giving Tenant notice
of such election to terminate. 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
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(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 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) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing necessary to compensate Landlord for all detriment
caused by Tenant's failure to perform its obligations under the Lease or which
in the ordinary course of things would be likely to result therefrom, including,
but not limited to, costs to repair, remodel, and relet Premises. (Such as
brokerage fees, legal fees, etc.)
Landlord shall use reasonable efforts to mitigate its damages in the
event of Tenant's default.
As used in subparagraphs (i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at the Default Interest Rate. As used in
subparagraph (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
Kansas City at the time of award plus one percent (1%) (the "Discount Rate").
(b) If Landlord shall default in the performance of any of its
obligations, agreements or covenants under this Lease, and such default shall
continue for thirty (30) days after written notice from Tenant specifying
Landlord's default (except that if such default cannot be cured within said
thirty (30) day period, this period shall be extended for a reasonable
additional time, provided that Landlord commences to cure such default within
the thirty (30) day period and proceeds diligently thereafter to effect such
cure), then, in addition to other remedies available to Tenant at law or in
equity, Tenant may, without prejudice to any of its other rights under this
Lease or without waiving any claim for damages for such breach: (1) withhold
payment of the Rent due and to accrue hereunder (to the extent necessary to
cover the costs reasonably estimated by Tenant to cure such default) so long as
Landlord remains in default, subject to the arbitration provisions in Section 26
if Landlord disputes such default or the cost to cure such default; (2) proceed
judicially or otherwise, either at law or in equity, to enforce any rights and
remedies which Tenant may have under this Lease or at law; or (3) to cure such
default for the account of Landlord and any amount paid or any contractual
liability incurred by Tenant in so doing may
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be, subject to the arbitration provisions of Section 26 if Landlord disputes
such default or the cost to cure such default, deducted by Tenant from the next
or any succeeding payment of the Rent due hereunder. Tenant shall act reasonably
in curing such default and in incurring costs to effect such cure. Tenant may
correct such default prior to the expiration of the thirty (30) day period upon
giving notice to Landlord that the curing of such default prior to the
expiration of such will materially interfere with Tenant's operations in the
Building.
13. Holdover
Any holding over after the expiration of the Term or extensions thereof,
shall be deemed and construed to be a tenancy from month to month and shall not
be construed to be a renewal and extension of the Lease, and shall otherwise be
on the terms and conditions herein specified so far as applicable. The Fixed
Rent payable during the holding over shall be equal to one hundred fifty (150%)
of the Fixed Rent paid for the last full month of the Term. In addition, the
Tenant shall hold the Landlord harmless from any and all actual damages to new
tenant resulting from Tenant's holdover.
14. Assignment and Subletting
Tenant may assign this Lease or sublet the Premises in whole or in part
at any time during the Term with the prior written consent of Landlord given in
accordance with Section 22, Notices, of this Lease which consent shall not be
unreasonably withheld or delayed. In such event, Tenant shall notify Landlord
thereof and shall remain primarily liable for the faithful performance of all of
the covenants, terms and conditions hereof on Tenant's part to be performed.
Landlord agrees that if Tenant assigns this Lease and the assignee defaults and
fails to cure such default within the applicable grace period, Tenant shall have
the right to recover possession of the Premises by curing the assignee's default
within a reasonable time. Notwithstanding the foregoing, Tenant may, without
Landlord's consent, assign or sublet the Premises to any company controlled by,
in control of, or under common control with Tenant or to a transferree by reason
of the merger, consolidation or sale of substantially all the assets of Tenant.
In such event, Tenant shall notify Landlord thereof and shall remain responsible
for the faithful performance of all of the covenants, terms and conditions
hereof on Tenant's part to be performed. In the event Tenant assigns or sublets
the Premises with Landlord's consent to other than a company controlled by, in
control of, or under common control with Tenant, Tenant shall pay to Landlord
fifty percent (50%) of any rent or additional rent received by Tenant in excess
of the Fixed Rent, additional
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rent, costs of subletting or assigning this Lease (amortized with interest at
the Prime Rate as published from time to time in the Wall Street Journal) or any
other sum payable under this Lease (the "Excess Rent").
15. Quiet Enjoyment
So long as Tenant is not in default beyond the applicable grace periods
in the payment of the Rent or in the performance of any other covenant or
agreement herein contained, Landlord covenants that Tenant may peaceably and
quietly have, hold, occupy and enjoy the Premises.
16. Subordination
Tenant agrees that this Lease and its interest in the Premises may, at
Landlord's option, be made subordinate to any mortgages or underlying leases now
or hereafter covering the Premises, provided, however, that such subordination
shall be contingent upon Tenant's receipt of a non-disturbance agreement in form
reasonably acceptable to it, providing that so long as Tenant shall not be in
default under the Lease beyond the applicable grace periods, Tenant shall not be
disturbed in its occupancy of the Premises and this Lease shall continue in full
force and effect. The form of the Non-Disturbance Agreement shall be
substantially the same as the attached Exhibit E.
17. Rules and Regulations
Tenant shall abide by and observe the rules and regulations attached
hereto as Exhibit D, as well as such other reasonable rules and regulations as
may be promulgated from time to time by Landlord, provided the same are not
inconsistent with the provisions of this Lease, and apply uniformly to all
tenants and occupants of the Building, and provided further that a copy thereof
is received by Tenant.
18. Estoppel Certificate
Tenant shall, at any time and from time to time, upon not less than
fifteen (15) business days prior notice from Landlord, deliver to Landlord a
statement in writing (a) certifying that this Lease is unmodified and to
Tenant's knowledge, in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified and
stating the modifications); (b) stating the dates to which the Rent has been
paid by Tenant; (c) stating whether or not Tenant has knowledge that Landlord is
in default in the performance of any covenant, agreement or condition contained
in this Lease, and, if Tenant has knowledge of such a default, specifying each
such default; (d) stating the address to which notices to Tenant shall be
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sent and (e) such other statements of facts as shall be reasonably required
concerning this Lease or Tenant's tenancy hereunder, which statement shall be to
the best of Tenant's knowledge. Landlord shall, at any time and from time to
time upon not less than fifteen (15) business days prior notice from Tenant,
deliver to Tenant an estoppel certificate, in substance and form similar to that
described above, relative to the status of this Lease and any ground lease,
underlying lease or mortgage encumbering the Building or Land.
19. Signage; Change of Name
Tenant shall not place or cause to be placed on the outside of the
Building, inside the common areas of the Building, or on the Land, any signs,
notices or other media of advertising, unless approved by Landlord.
20. Mechanics' Liens
Tenant shall discharge by payment, bond or otherwise, mechanics' liens
filed against the Building for work, labor, services or materials claimed to
have been performed at or furnished to the Premises for or on behalf of Tenant,
except when the mechanics' liens are filed by a contractor, subcontractor,
materialman or laborer of Landlord, in which event Landlord shall discharge the
liens by payment, bond or otherwise. If, however, Tenant notifies Landlord in
writing that Tenant refuses to pay any such claim and desires to contest the
same, unless required by notice to Tenant from the holder of a first mortgage on
the Building, Tenant shall not be required to discharge such lien but shall
diligently prosecute the contest thereof to final judgment and decision, and
shall pay any judgment that may be rendered on account thereof, and shall cause
said property to be freed and discharged from any lien or charge adjudged
against the same; provided, however, in no event shall the time to discharge
settlement extend beyond the Term or extensions as provided herein.
21. Extension
(a) Provided that Tenant is not in default of any of the terms and
conditions of this Lease beyond any applicable grace period, Tenant may extend
the Original "Term for up to two (2) periods of five (5) years each upon the
same terms and conditions contained herein, except for the Fixed Rent specified
below, by giving notice to Landlord of its intention to extend at least six (6)
months prior to the Expiration Date, and thereupon the Term and the Expiration
Date shall be so extended without any further action by either party. The Fixed
Rent for Option Period One (1) shall be Sixteen and 60/100 dollars ($16.60) per
rentable square foot per annum; for
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Option Period Two (2) shall be Seventeen and 85/100 dollars ($17.85) per
rentable square foot per annum.
22. Notices
All notices, demands or other communications (notices) permitted or
required to be given hereunder shall be in writing and, shall be deemed given on
the date of actual receipt. Notices shall be given by certified mail, return
receipt requested or through a national delivery service. Notices shall be
addressed as follows:
(a) if to Landlord, to:
TJM PROPERTIES, L.L.C.
3232 West Britton Road
Suite 250
Oklahoma City, OK 73120
Attention: F. Barry Tapp
Telephone:(405) 752-7522
Facsimile: (405) 749-9924
with a copy to:
Virgil L. Holden
Attorney at Law
P. O. Box 1594
Norman, OK 73070
2321 Westpark Drive
Norman, OK 73069
Telephone: (405) 364-329-9603
Facsimile: (405) 364-2414
and to:
Beffort Brooks Malherbe Property Company
Corporate Tower
101 North Robinson
Suite 700
Oklahoma City, OK 73102
Attention: Gary Brooks
Telephone: (405) 236-2122
Facsimile: (405) 235-1328
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and
(b) if to Tenant, to:
WILLIAMS-SONOMA, INC.
3250 Van Ness Avenue
San Francisco, CA 94109
Attention: Susi Browne
Director, Facilities
3250 Van Ness Avenue
San Francisco, CA 94109
Telephone: 415/616-8659
Facsimile: 415/439-8673
with a copy to:
IRELL MANELLA
Attention: Sandra G. Kanengiser, Esq.
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90057-4276
with a copy sent to Tenant at the Premises.
Landlord and Tenant may from time to time by notice to the other
designate such other place or places for the receipt of future notices. The
inability to deliver because of a changed address of which no notice was given
or rejection or other refusal to accept any notice shall be deemed to be the
receipt of the notice as of the date of such inability to deliver or rejection
or refusal to accept.
Notices may also be given by facsimile ("Business Hours"); provided,
however, the original of a facsimile notice must be sent by overnight courier to
the receiving party on the same day that the facsimile is sent and will not be
deemed received on the date of the facsimile transmission unless the original
notice is received by the other party on the first business day following the
facsimile transmission, and the party sending a facsimile notice shall use its
best efforts to notify the receiving party by telephone during Business Hours on
such date that a facsimile notice has been sent.
23. Miscellaneous
(a) The language of this Lease shall be construed according to its
normal and usual meaning and not strictly for or against either Landlord or
Tenant.
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(b) No remedy or election given by any provision in this Lease shall be
deemed exclusive unless so indicated, but each shall, wherever possible, be
cumulative in addition to all other remedies in law or equity which either party
may have arising out of the default of the other party and failure to cure such
default within the applicable grace period.
(c) Failure of either party to cure a default of the other under this
Lease shall not render such non-defaulting party in any way liable therefor, or
relieve the defaulting party from any of its obligations hereunder.
(d) The acceptance of possession of the Premises by Tenant shall not be
deemed a waiver of any of the obligations under this Lease to be performed by
Landlord under Section 3.
(e) Subject to Landlord's approval, not to be unreasonably withheld,
Tenant may deal with any person, firm or corporation for services, supplies,
materials, labor, equipment, transportation, tools, machinery and any other
similar or dissimilar services or items in connect ion with the alteration,
improvements or maintenance of the Premises.
(f) "Rentable" area, "usable" area and "storage" area when used in this
Lease shall mean an area measured in accordance with ANSI 765.1-1980 as
published by BOMA International.
(g) Upon any termination or expiration of this Lease, Tenant shall
surrender the Premises in the same condition as existed at the Commencement Date
and free of excess debris, except for normal wear and tear and damage caused by
the elements, any casualty required to be insured under Section 9(a), or any
cause beyond Tenant's control. Any of Tenant's personal property not removed the
day following the Expiration Date shall be deemed abandoned. Except a otherwise
provided in this Lease, all improvements, alterations, additions and fixtures,
other than Tenant's personalty, which have been made or installed by either
Landlord or Tenant upon the Premises shall become Landlord's property upon the
installation thereof and shall remain as Landlord's property and shall be
surrendered with the Premises or as a part thereof.
(h) If any clause or provision of this Lease is or becomes illegal,
invalid, or unenforceable because of present or future laws or any rule or
regulation of any governmental body or entity, effective during the Term, the
intention of the parties hereto is that the remaining parts of this Lease shall
not be affected thereby.
(i) As used in this Lease, any list of one (1) or more items preceded by
the word "including" shall not be deemed limited to the stated items but shall
be deemed without limitation.
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(j) This Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective executors, distributees, heirs,
representatives, successors and assigns.
(k) This Lease contains the entire agreement of the parties and may not
be modified except by an agreement in writing signed by both parties.
(l) The captions appearing within the body of this Lease have been
inserted as a matter of convenience and for reference only and in no way define,
limit or enlarge the scope or meaning of this Lease or of any provision hereof.
(m) This Lease has been executed in several counterparts, all of which
constitute one and the same instrument.
(n) Landlord and Tenant shall not unreasonably withhold, delay or
condition any consent or approval which this Lease requires.
(o) The use of the neuter singular pronoun to refer to either party
shall be deemed a proper reference even though it may be an individual,
partnership, corporation or a group of two or more individuals or corporations.
The necessary grammatical changes required to make the provisions of this Lease
apply in the plural number where there is more than one Landlord or Tenant and
to either corporations, associations, partnerships or individuals, males or
females, shall in all instances be assumed as though in each carefully
expressed.
(q) In any action or proceeding which Landlord or Tenant may be required
to prosecute to enforce its respective rights hereunder, the unsuccessful party
agrees to pay all costs incurred by the prevailing party therein, including
reasonable attorneys' fees.
(r) If Landlord should sell or otherwise transfer Landlord's interest in
the Land or Building, or if the same should be sold or transferred by operation
of law or otherwise, Tenant agrees that provided that the transferee shall have
assumed the Landlord's obligation under the Lease Landlord shall thereafter have
no liability to Tenant under this Lease, except for such liability as may have
accrued prior to the date of such sale or transfer.
(s) Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent, or of partnership, or of joint venture between the parties hereof, the
sole relationship being that of landlord and tenant.
(t) Tenant's personal property and trade fixtures, if any, shall be
separately listed for assessment purposes and/or for taxation purposes. Tenant
shall promptly pay all taxes levied thereon.
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<PAGE> 29
(u) Nothing in this Lease (express or implied) is intended to or shall
be construed to confer upon or give any person or entity, other than the parties
hereto, any right or remedy under or by reason or this Lease or the
representations or agreements contained herein.
(v) The laws of the State of Oklahoma shall govern the validity,
performance and enforcement of this Lease.
(w) Any assent or waiver, expressed or implied by the Landlord to any
breach by Tenant of any covenant or condition herein contained, shall operate as
assent or waiver only in the specific instance and shall not be construed as an
assent or waiver of any such consent or condition generally or of any subsequent
breach of the covenants and conditions thereof.
24. Brokers
Tenant warrants and represents that it has not dealt with any real
estate broker or agent in connection with this Lease or its negotiation except
Mr. John Yandle, C. B. Commercial, San Jose, California, and Beffort Brooks
Malherbe Property Company. Tenant shall indemnify and hold Landlord harmless
from any cost, expense or liability (including costs of suit and reasonable
attorney's fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant. Landlord is solely responsible for commission per
Letter of Intent.
25. Attachments
Rider 1, Rider 2, Exhibits A, B, C, D, and E are attached to this Lease
and made a part hereof.
26. Arbitration
Except as specifically provided for herein, if a dispute arises between
Landlord and Tenant relating to this Lease, then the dispute shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association as provided in Section (a) below prior to either party
pursuing other available remedies.
(a) (i) Within ten (10) business days after notice from one party to the
other that a dispute has arisen, Landlord and Tenant shall each appoint a person
as arbitrator from a list of arbitrators provided by the American Arbitration
Association. The arbitrators appointed shall
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<PAGE> 30
jointly appoint a third person and such three arbitrators shall as promptly as
possible resolve the dispute, provided, however, that
(A) if one party fails to appoint an arbitrator within the ten
(10) business day period as aforesaid, the arbitrator appointed by the other
party shall proceed to resolve the dispute and shall render his or her decision
and award in writing within thirty (30) days after the expiration of said 10
business day period; and
(B) if the two arbitrators are appointed by the parties and shall
be unable to agree, within ten (10) days after the appointment of the second of
them, upon the appointment of a third arbitrator, they shall give written notice
to the parties of such failure to agree, and, if the parties fail to agree upon
the selection of such third arbitrator within ten (10) business days after the
arbitrators appointed by the parties give notice as aforesaid, then within five
(5) business days thereafter either of the parties upon notice to the other
party may request such appointment by the American Arbitration Association (or
any successor organization), or in its absence, refusal, failure or inability to
act, may apply to a court having competent jurisdiction for a court appointment
of such arbitrator.
(ii) Each arbitrator shall be a qualified person who shall have had at
least ten (10) years experience in the County of Oklahoma in a calling connected
with the matter of the dispute. In addition to meeting the foregoing
requirements, the third arbitrator shall be impartial.
(iii) The arbitration shall be conducted in Oklahoma City in accordance
with the then prevailing rules of the American Arbitration Association (or any
successor organization) applicable to the subject matter of the particular
dispute. The arbitrators, if more than one, shall render their decision and
award in writing, upon the concurrence of at least two of their number, within
30 days after the appointment of the third arbitrator. Such decision and award
or the decision and award of the single arbitrator as provided above, shall be
final and conclusive on the parties and counterpart copies thereof shall be
delivered to each of the parties. In rendering such decision and award, the
arbitrators shall not add to, subtract from or otherwise modify the provisions
of this Lease. Judgment may be had on the decision and award of the arbitrators
so rendered in any court of competent jurisdiction.
(iv) Each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator and all
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<PAGE> 31
other expenses of the arbitration (other than the
fees and disbursements of attorneys or witnesses for each party) shall be borne
by the parties equally.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Lease.
TJM PROPERTIES, L.L.C.
(LANDLORD)
By /s/ F. BARRY TAPP
-----------------------------------------
F. Barry Tapp
-------------------------------------------
(Print Name)
Member Manager
-------------------------------------------
(Title)
WILLIAMS-SONOMA, INC.
(TENANT)
By /s/ PAT CONNOLLY
-----------------------------------------
Pat Connolly
-------------------------------------------
(Print Name)
Executive V.P and General Manager Catalogue
-------------------------------------------
(Title)
29
<PAGE> 32
RIDER 1
Attached To And Made Part Of Lease Dated As Of February 13, 1998.
Made Between
TMJ PROPERTIES, L.L.C. (Landlord)
and
WILLIAMS-SONOMA, INC. (Tenant)
Expense Contribution
The Fixed Rent does not anticipate increases in taxes on the Building, the Land
or any improvements situated thereon (together hereinafter referred to as the
"Property") and increases in the cost of managing, maintaining, operating and
repairing the same. Therefore, in order that the Rent payable throughout the
Term shall reflect any such increases, the parties agree as hereinafter in this
Rider set forth.
(a) During the Term, Tenant shall pay Landlord as additional rent any amount
equal to Tenant's proportionate share of the sum of (i) the total real estate
taxes (as hereinafter defined) and (ii) the total operating expenses actually
and reasonably incurred by Landlord during each calendar year during the Term,
in excess of $2.00 times the Rentable area of the Building (such excess
hereinafter referred to as the "Excess Expenses").
(b) Tenant shall, at its expense, be responsible, throughout the Original Term,
and any extensions thereof, for the following:
(i) The costs and expenses for cleaning and janitor service to the
common areas of the Building and the Premises of Tenant, including janitor
equipment and supplies and rubbish removal, in general accordance with the
specifications set forth in this Lease.
(ii) The costs of utilities serving the Premises, Building, Land, and
Appurtenances thereto, and including electricity for interior and exterior
lighting, plugs, outlets, and heating, ventilating and air-conditioning systems
serving the Building, water and sewer charges, and fuel oil, natural gas, and
steam charges, if any, used by the heating, ventilating and air-conditioning
systems serving the Building.
(iii) The costs and expenses of repairing and maintaining the restrooms,
lobbies, hallways and other interior areas of the Premises, the mechanical,
electrical, heating, ventilating
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<PAGE> 33
and air conditioning equipment and plumbing systems servicing the Building, and
the Appurtenances.
(c) Landlord's "Operating expenses" are defined as those direct expenses
actually incurred on an accrual basis to manage, maintain, operate and repair
the Building and the Appurtenances in a manner deemed reasonable and appropriate
and for the best interests of Tenant, including the following:
(i) The costs and expenses of repairing, and maintaining the
non-structural elements of the roof and building exterior.
(ii) The costs and expenses of removing snow, ice and debris from the
exterior appurtenances, the non-capital repairs made to paving, curbing,
walkways, landscaping (including replanting and replacing flowers and other
plantings), and maintaining exterior lighting systems.
(iii) Reasonable management fees not to exceed three and one-half
percent (3 -1/2%) of the base rental income of the Building, and labor costs for
maintenance staff under the grade of building manager, including wages,
salaries, fringe benefits, worker's compensation, disability benefits, social
security, insurance, payroll taxes, unemployment taxes and contributions and
health and welfare benefits.
(iv) Property, casualty and liability insurance, including Rent
Interruption Insurance, required to be carried by Landlord pursuant to the
provisions of this Lease.
(v) Any other reasonable costs necessary to and customarily incurred in
the operation of a Class A office building in the general vicinity of the
Building, including the cost of rental equipment used intermittently for the
repair and maintenance of the Building and the Appurtenances, personal property,
sales and excise taxes, and license and permit fees.
(vi) Upon completion of Building "B" in the Commerce Park Development,
the common area expenses associated with the maintenance of the Overflow Parking
Area and the Expansion Overflow Parking Area shall be shared equitably with the
Commerce Park Development.
Operating expenses shall not include expenses for any capital
improvements or capital items or the replacement of a capital item or of a major
component of a capital item or major repairs to a capital item in lieu of
replacement; the cost of rental equipment used regularly for the repair and
maintenance of the Building that is customarily owned by landlords of Class A
office
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<PAGE> 34
buildings (which, when purchased, would be a capital equipment item);
depreciation; expenses for which Landlord is entitled to be reimbursed or
indemnified (either by an insurer, condemnor, tenant, contractor who is
obligated under any warranty or guaranty, or otherwise); expenses incurred in
leasing or procuring tenants (including lease commissions, advertising expenses
and expenses of renovating space for tenants); legal expenses arising out of the
construction, operation, use, leasing, occupation or maintenance of the Building
or Land or the enforcement of the provisions of any agreements affecting the
Land or the Building; interest or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying lease or leases; wages,
salaries or other compensation paid to any executive employees above the grade
of building manager; wages, salaries or other compensation paid for clerks or
attendants in concessions or newsstands operated by Landlord; expenses in
connection with maintaining and operating any parking facility operated by
Landlord that generates parking fee income; the cost of any work or service
performed for or facilities furnished to a tenant at the tenant's cost; the cost
of correcting defects (latent or otherwise) in the construction of the Building
or in the building equipment, except that conditions (not occasioned by
construction defects) resulting from ordinary wear and tear shall not be deemed
defects; the cost of installing, operating and maintaining a specialty
improvement (unless such specialty improvements results in a cost savings to the
Building and Appurtenances, in which case the cost may be including in operating
expenses but only to the extent of the cost savings) including an observatory or
broadcasting, cafeteria or dining facility or club, or athletic or recreational
club (unless such athletic or recreational club is provided without charge to
all tenants of the Building); and any cost or expense representing an amount
paid to a related or affiliated person or entity which is in excess of the
amount which would reasonably have been paid in the absence of such
relationship, costs of environmental testing, remediation not caused by Tenant;
and reserves.
(d) "Real estate taxes" are defined as all real estate taxes and assessments
(except as hereinafter provided) that are levied or assessed against the
Property or any taxes which shall be levied on the rentals of the Building in
lieu of or in addition to any such real estate taxes. The tax during any
calendar year in respect to which Tenant is obligated to pay its proportionate
share of an increase in real estate taxes shall be subject to adjustment to take
into account the final determination in the event that real estate taxes are
contested. In no event shall Tenant be obligated to pay any interest or
penalties imposed upon Landlord for late payment or otherwise.
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<PAGE> 35
(e) Following the end of the calendar year in which the Commencement Date occurs
and each calendar year thereafter during the Term, Landlord shall cause its
actual Excess Expenses for the Building and Land to be certified by an officer
of Landlord, who shall prepare an itemized statement of the operating expenses
for the previous calendar year, together with, following the end of the calendar
year after which the Commencement Date occurs, a computation of the Excess
Expenses and additional rent due, if any, and who shall certify that the
statement fairly and accurately presents the Operating Expenses for such
calendar year, determined in accordance with generally accepted accounting
principles, consistently applied. No later than one hundred twenty (120) days
after the end of each calendar year during the Term (the "Statement Due Date"),
Tenant shall be furnished a copy of the statement, and, within thirty (30) days
after its receipt (except as provided below) Tenant shall pay Landlord the
additional rent specified in the statement. If Tenant has not received a
statement by the end of the calendar year in which the statement is due from
Landlord, it shall be conclusively presumed that Landlord has waived its claim
against Tenant for Tenant's proportionate share of Excess Expenses that would
have been set forth in such statement.
(f) In order to provide for reasonably current payments on account of the Excess
Expenses, Tenant shall pay as additional rent, Landlord's reasonable estimate of
its Proportionate Share of the Excess Expenses in twelve (12) monthly equal
installments, commencing on the first day of the month following the month in
which Tenant receives the notice of such estimate. No new estimate of the Excess
Expenses shall be effective until one year after Tenant's receipt of the
preceding estimate, and Tenant shall pay as additional rent any estimated
increase in such cost commencing on the first day of the month following the
month in which Tenant receives such estimate. Notwithstanding the foregoing, if
Tenant has not received the statement of actual operating expenses by the end of
the calendar year in which the statement is due from Landlord, then Tenant shall
not be obligated to pay any additional rent based on Landlord's estimate of
Excess Expenses until such statement is received. If Tenant's Proportionate
Share of the Excess Expenses for the previous calendar year exceeds the
aggregate of the monthly payments made by Tenant for such year, if any, Tenant
shall within thirty (30) days after the receipt of the statement, tender to
Landlord an amount equal to such excess as additional rent. If such aggregate of
the estimated monthly payments exceeds the Tenant's Proportionate Share of the
Excess Expenses for such calendar year, then Landlord shall, together with the
statement, tender
33
<PAGE> 36
to Tenant an amount equal to such difference or such difference shall be a
credit against the next and each successive payment of Rent becoming due until
such credit is exhausted. The obligations of Tenant and Landlord to make
payments or credits required by this Rider shall survive the Expiration Date.
(g) Landlord shall, at Tenant's request, forward copies of all records
reasonably necessary for Tenant to verify the accuracy of the statement of
Excess Expenses. Further, Landlord shall, at Tenant's request, make available to
Tenant for inspection and examination, all the books and records that relate to
such statement of Excess Expenses. However, if the books and records are not
made available at Landlord's offices upon reasonable request by Tenant during
Landlord's business hours, then the additional rent due in that year shall, in
no event, be due and payable earlier than 20 days after Tenant's request is
honored. Tenant shall have the right to cause and Landlord shall permit audits
to be made of the statement and such books and records by Tenant's auditors or
by independent auditors or accountants of Tenant's choosing. Any statement
period used as a base year for the purpose of calculating Excess Expenses may be
audited at any time; an audit of any statement must begin no more than six (6)
months after Tenant's receipt of such statement from Landlord. Landlord shall
cooperate with such auditors and accountants and shall promptly (but in no event
later than ten business days after request) make such additional records of
Landlord as they shall reasonably request available for examination at the
Landlord's offices. If the results of such audit indicate the statement for any
calendar year overstated Operating Expenses for such calendar year by five
percent (5%) or more, Landlord shall pay Tenant the reasonable cost of such
audit in addition to any overpayment made by Tenant within 10 days of demand
therefor. A report of the findings of the auditors or accountants shall be
provided to both Landlord and Tenant and shall be binding and conclusive upon
Landlord and Tenant.
(h) Landlord shall use best efforts to operate the Building and the
Appurtenances at costs comparable for similar types of Class A office buildings
in Oklahoma City, and at the same time keep operating expenses at a reasonable
minimum. Without limiting the generality of the foregoing, Landlord and Tenant
acknowledge that during the Term costs necessary to provide the same general
level of services provided during the first calendar year may thereafter
increase.
34
<PAGE> 37
RIDER 2
Attached To And Made Part Of Lease Dated As Of February 13, 1998.
Made Between
TMJ PROPERTIES, L.L.C. (Landlord)
and
WILLIAMS-SONOMA, INC. (Tenant)
Expansion Premises. Tenant shall have the option (Expansion Option") to
cause Landlord to expand the Premises to accommodate an additional 15,000
rentable square feet of improved space, together with Overflow Parking (minimum
of thirteen (13) parking spaces per 1,000 square feet of building), 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 12
of this Lease at the time Tenant attempts to exercise the Expansion Option. 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 this Lease. Subject to Applicable Laws, the 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 that term is defined in this Lease. 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, and (ii) annual Fixed Rent shall
be increased by an amount equal to the product of the then-current Annual Fixed
Rent (on a rentable square foot basis) multiplied by the rentable square footage
35
<PAGE> 38
contained in the improvements constructed for the Expansion Premises. The
then-current Annual Fixed Rent shall be adjusted for construction cost increases
from January 1, 1998 to the date that Tenant notifies Landlord of its intention
to exercise the Expansion Option under this Section. The index used to determine
the construction cost increases shall be the United States Bureau of Labor
Statistics Consumer Price Index for Urban Wage Earners and Clerical Workers
(Revised Series). The CPI for a specific date shall be deemed to mean the CPI
published on that date or, if not published on that date, the most recent
publication of the CPI prior to such date. If publication of the CPI shall be
discontinued, "CPI" shall be such other source as is most nearly comparable to
the CPI as defined above. Fixed Rent for the Expansion Space may also be
adjusted based on increases and/or decreases in the prime rate charged by
NationsBank, N.A. from the date this lease was executed to the date Tenant
notifies Landlord of its intention to exercise this Expansion Option.
Delay in Delivery. The term "Outside Date" shall mean August 15, 1998;
provided, however, that such August 15, 1998 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 Tenant not executing the Lease by
February 9, 1998, 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 Fixed Rent shall not commence until
the commencement Date, (ii) for each week after the Outside Date (as so
extended) in which the Commencement Date has not occurred, (a) Tenant's first
obligations to pay Monthly Fixed Rent shall be reduced by the sum of $20,000 and
(b) the date of expiration of the initial Term shall be extended for two (2)
weeks.
The term "Outside Training Date" shall mean September 1, 1998; provided,
however, that such September 1, 1998 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 Tenant not executing the Lease by February 9, 1998,
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 preceding paragraph, (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
36
<PAGE> 39
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 the preceding paragraph) for a sufficient number of days
so that the monthly Fixed Rent paid by Tenant for the Premises during such
extension shall be equivalent to the amount of the Training Excess so paid by
Landlord.
Notwithstanding the foregoing, in the event the portion of the Building
designed for training (including adequate restroom facilities) in the Tenant's
floor plans is made available prior to September 1, 1998, then in that event
Landlord shall not be required to reimburse Tenant for the Training Excess of
any actual, out-of-pocket cost incurred by Tenant.
37
<PAGE> 40
EXHIBIT A
[MAP OF SITE PLAN]
36
<PAGE> 41
[COON ENGINEERING, INC. LETTERHEAD]
EXHIBIT "B"
LEGAL DESCRIPTION
FOR
WILLIAMS-SONOMA
AND
OVERFLOW PARKING
PHASE II
AT
SILVER SPRINGS CROSSING
OKLAHOMA CITY, OKLAHOMA
A part of Lots Two (2) and Three (3), Block Nine (9), and a part of Lot One
(1), Block Four (4), Silver Springs Crossing Section 2, an addition to the City
of Oklahoma City, Oklahoma County, Oklahoma as recorded on Page 60 and 69 in
Book 53 of Plats and being more particularly described as follows:
Commencing at the Northeast corner of said Lot Three (3), thence along the
north line of said Lot 3, said line also being the south right of way line of
Northwest Eighty-Eighth (88th) Street, North 78 degrees 31' 47" West a distance
of 198.72 feet and thence South 11 degrees 28' 13" West a distance of 148.59
feet to the Point of Beginning; thence from said Point of Beginning South 00
degrees 00' 39" East a distance of 448.47 feet; thence South 40 degrees 37' 23"
West a distance of 183.25 feet; thence north 11 degrees 28' 13" East a distance
of 599.53 feet to the Point of Beginning containing 26,572 square feet or 0.61
acres more or less.
37
<PAGE> 42
[MAP OF WILLIAMS-SONOMA & OVERFLOW PARKING PHASE II AT SILVER SPRINGS CROSSING
OKLAHOMA CITY, OKLAHOMA]
38
<PAGE> 43
[MAP OF OVERFLOW PARKING PHASE II AT SILVER SPRINGS CROSSING
OKLAHOMA CITY, OKLAHOMA]
39
<PAGE> 44
[MAP OF OVERFLOW PARKING PHASE II AT SILVER SPRINGS CROSSING
OKLAHOMA CITY, OKLAHOMA]
40
<PAGE> 45
[COON ENGINEERING, INC. LETTERHEAD]
EXHIBIT "B"
LEGAL DESCRIPTION
FOR
WILLIAMS-SONOMA
CATALOG STORE
AT
SILVER SPRINGS CROSSING
OKLAHOMA CITY, OKLAHOMA
A part of Lots One (1), Two (2) and Three (3), Block Nine (9), and a part of
Lot One (1), Block Four (4), Silver Springs Crossing Section 2, an addition to
the City of Oklahoma City, Oklahoma County, Oklahoma as recorded on Page 60 and
69 in Book 53 of Plats and being more particularly described as follows:
Commencing at the Northeast corner of said Lot Three (3), thence along the
north line of said Lot 3, said line also being the south right of way line of
Northwest Eighty-Eighth (88th) Street, North 78 degrees 31'47" West a distance
of 198.72 feet and thence South 11 degrees 28'13" West a distance of 318.07
feet to the Point of Beginning; thence from said Point of Beginning South 11
degrees 28'13" West a distance of 430.04 feet; thence South 89 degrees 59'21"
West a distance of 383.17 feet; thence North 00 degrees 00'39" West a distance
of 421.44 feet; thence North 89 degrees 59'21" East a distance of 468.76 feet
to the Point of Beginning containing 179,467 square feet or 4.12 acres more or
less.
41
<PAGE> 46
[Map of Williams Sonoma Catalog Store at Silver Springs
Crossing Oklahoma City, Oklahoma]
42
<PAGE> 47
[CEI LOGO]
EXHIBIT "B"
LEGAL DESCRIPTION
FOR
OVERFLOW PARKING
AT
SILVER SPRINGS CROSSING
OKLAHOMA CITY, OKLAHOMA
A part of Lots One (1), Two (2) and Three (3), Block Nine (9), Silver Springs
Crossing Section 2, an addition to the City of Oklahoma City, Oklahoma County,
Oklahoma as recorded on Page 60 in Book 53 of Plats and being more particularly
described as follows:
Commencing at the Northeast corner of said Lot Three (3), thence along the north
line of said Lot 3, said line also being the south right of way line of
Northwest Eighty-Eighth (88th) Street, North 78 degrees 31' 47" West a distance
of 198.72 feet to the Point of Beginning on the south right of way line of
Northwest Eighty-Eighth (88th); thence from said Point of Beginning South 11
degrees 28' 13" West a distance of 318.07 feet; thence South 89 degrees 59' 21"
West a distance of 468.76 feet; thence North 00 degrees 00' 39" West a distance
of 82.93 feet to a point on the south right of way line of Northwest
Eighty-Eighth (88th) Street, continuing along said right-of-way line the
following five calls; thence round a non-tangent curve to the left having a
central angle of 29 degrees 20' 54", a radius of 351.15 feet, an arc distance of
179.87 feet, a chord bearing of North 53 degrees 11' 14" Each with a distance of
177.90 feet; thence North 38 degrees 30' 47" East a distance of 96.03 feet;
thence around a non-tangent curve to the right having a central angle of 22
degrees 33' 41", a radius of 204.98 feet, an arc distance of 80.72 feet, a chord
bearing of North 49 degrees 47' 38" East with a distance of 80.20 feet; thence
around a non-tangent curve to the left having a central angle of 25 degrees 11'
18", a radius of 146.00 feet, an arc distance of 64.18 feet, a chord bearing of
North 70 degrees 00' 32" East with a distance of 63.67 feet; thence around a
non-tangent curve to the right having a central angle of 22 degrees 31' 37" a
radius of 204.98 feet, an arc distance of 80.59 feet, a chord bearing of South
89 degrees 47' 36" East with a distance of 80.08 feet; thence South 78 degrees
31' 47" East a distance of 131.27 feet to the Point of Beginning containing
128,066 square feet or 2.94 acres more or less.
43
<PAGE> 48
[MAP FOR OVERFLOW PARKING AT SILVER SPRINGS CROSSING OKLAHOMA CITY, OKLAHOMA]
44
<PAGE> 49
INSERT EXHIBIT "C" HERE (TENANT'S CONSTRUCTION DOCUMENTS)
47
<PAGE> 50
EXHIBIT D
Attached To And Made part Of Lease Dated As Of February 13, 1998.
Made Between TJM PROPERTIES, L.L.C. (Landlord)
and
WILLIAMS-SONOMA, INC. (Tenant)
RULES & REGULATIONS
Tenant shall abide by and observe the following rules and regulations as well as
other reasonable rules and regulations as may be promulgated from time to time
by Landlord for the operation, safety, security and maintenance of the Building.
A copy of any new rules and regulations shall be provided by Landlord to Tenant.
1. Nothing shall be placed in the Premises which may be visible from the
exterior of the Building (including window treatments) without the prior written
consent of Landlord.
2. No additional or replacement locks shall be placed on any door of the
Premises and Tenant shall not permit duplicate keys to be made. Additional keys
shall be procured by Landlord for Tenant at Tenant's expense. Tenant shall be
solely responsible for the security of keys to the Premises. All keys furnished
to Tenant shall be surrendered to Landlord at the termination of the term.
3. Tenant shall not install or operate any steam or internal combustion
engine, boiler, machinery, or air conditioning apparatus in or about the
Premises or carry on any mechanical business therein. Landlord shall provide
vending machines.
4. The rest room fixtures shall not be used for purposes other than
those for which they were constructed.
5. Tenant shall not make noises, cause disturbances or vibrations or use
any electrical or electronic devices or other devices that emit sound or other
waves or disturbances or create odors, and shall not place or install any
musical instrument or equipment or any similar
48
<PAGE> 51
device outside the Building without the prior approval of Landlord. The use
thereof, if permitted, shall be subject to the control of the Landlord to the
end that others shall not be disturbed or annoyed.
6. No animals (except animal assistants to the disabled), birds,
bicycles or other vehicles shall be allowed in any part of the Building without
the prior consent of Landlord.
7. Tenant shall not accumulate or store on the Premises any waste paper,
discarded records, books, paper files, sweepings, rags, rubbish or other
combustible matter.
8. Tenant shall not exhibit, sell or offer to sell, use, rent or
exchange any item or service in or from the Premises unless within the permitted
use of the Premises as set forth in the Lease.
9. Landlord reserves the right to exclude from the Building all
disorderly persons, persons under the influence of alcohol or a controlled
substance, idlers and peddlers, solicitors, and persons entering in crowds or in
such unusual numbers as to cause inconvenience to the tenants of the Building.
10. Any parking spaces included in the Lease shall be used only for the
personal automobiles of Tenant and its employees and guests (including pickup
trucks and vans but excluding trucks, motor homes and the like). Landlord
reserves the right to designate locations for one or more of such parking
spaces. Upon Landlord's request, Tenant shall promptly furnish Landlord the
names, vehicle descriptions and vehicle license numbers of each authorized user
of Tenant's parking spaces. Landlord reserves the right to tow illegally parked
vehicles at the expense of the vehicle owner.
11. Tenant shall comply with all terms, conditions and covenants of the
Lease in connection with its use and occupancy of the Premises.
12. All deliveries to the Premises shall be made during business hours.
13. The Tenant shall not do or permit anything to be done in the Lease
Premises or bring or keep anything therein which will in any way increase the
rate of fire insurance on the Building or on property kept therein or obstruct
or interfere with the laws relating to fire or with any regulations of the fire
department or with the insurance policy upon the Building or any part thereof or
conflict with any of the rules or ordinances of the Board of Health of Oklahoma
City.
49
<PAGE> 52
EXHIBIT "E"
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
(CHOOSE FROM BOLDED LANGUAGE IN BRACKETS)
This Subordination, Non-Disturbance and Attornment Agreement (this
"Agreement") dated February 23, 1998, is made among Williams-Sonoma, Inc.
("Tenant"), TJM Properties, L.L.C. ("Landlord"), and Local Federal Bank, F.S.B.,
("Mortgagee").
WHEREAS, Mortgagee is the owner of a promissory note (herein, as it may
have been or may be from time to time renewed, extended, amended or
supplemented, called the "Note") dated February 23, 1998, executed by TJM
Properties, L.L.C. payable to the order of Local Federal Bank, F.S.B., in the
principal amount of $3,590,000, bearing interest and payable as therein
provided, secured by, among other things, a Deed of Trust (herein, as it may
have been or may be from time to time renewed, extended, amended or
supplemented, called the "Mortgage"), recorded in Volume 7252, Page 148, real
property records of Oklahoma County, OK, covering, among other property, the
land (the "Land") described in Exhibit "A" which is attached hereto and
incorporated herein by reference, and the improvements ("Improvements") thereon
(such Land and Improvements being herein together called the "Property");
WHEREAS, Tenant is the tenant under a lease which, including all
amendments and supplements thereto, is described as follows:
Williams-Sonoma Building
- ------------------------------------------------------------------------------
(herein, as it may from time to time be renewed, extended, amended or
supplemented, called the "Lease"), covering a portion of the Property (said
portion being herein referred to as the "Premises"); and
WHEREAS, the term "Landlord" as used herein means the present landlord
under the Lease or, if the landlord's interest is transferred in any manner, the
successor(s) or assign(s) occupying the position of landlord under the Lease at
the time in question:
THEREFORE, in consideration of the mutual agreements herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Subordination. Tenant agrees and covenants that the Lease and the
rights of Tenant thereunder, all of Tenant's right, title and interest in and to
the property covered by the Lease, and any lease thereafter executed by Tenant
covering any part of the Property, are and shall be subordinate and inferior to
(a) the Mortgage and the rights of Mortgagee thereunder, and all right, title
and interest of Mortgagee in the Property, and (b) all other security documents
now or hereafter securing payment of any indebtedness of the Landlord (or any
prior landlord) to Mortgagee which cover or affect the Property (the "Security
Documents"). This Agreement is not intended and shall not be construed to
subordinate the Lease to any mortgage, deed of trust or other security document
other than those referred to in the preceding sentence, securing the
indebtedness to Mortgagee. Without limitation of any other provision hereof,
Mortgagee may, at its option and without joinder or further consent of Tenant,
Landlord, or anyone else, at any time after the date hereof subordinate the lien
of the Mortgage (or any other lien or security interest held by Mortgagee which
covers or affects the Property) to the Lease by executing an instrument which is
intended for that purpose and which specifies such subordination; and, in the
event of any such election by Mortgagee to subordinate, Tenant will execute any
documents required to evidence such subordination; provided however,
notwithstanding that the Lease may by unilateral subordination by Mortgagee
hereafter be made superior to the lien of the Mortgage, the provisions of the
Mortgage relative to the rights of Mortgagee with respect to proceeds arising
from an eminent domain taking (including a voluntary conveyance by Landlord)
and/or insurance payable by reason of damage to or destruction of the Premises
shall be prior and superior to and shall control over any contrary provisions in
the Lease.
2. Non-Disturbance. Mortgagee agrees that so long as the Tenant is not
in default in the payment of rent, additional rent, or other payments or in the
performance of any of the other terms, covenants or conditions of the Lease on
Tenant's part to be performed (beyond the period, if any, specified in the Lease
within which Tenant may cure such default),
(a) Tenant's possession of the Premises under the Lease shall
not be disturbed or interfered with by Mortgagee in the exercise of any
of its rights under the Mortgage, including any foreclosure or
conveyance in lieu of foreclosure, and
(b) Mortgagee will not join Tenant as a party defendant for the
purpose of terminating Tenant's interest and estate under the Lease in
any proceeding for foreclosure of the Mortgage.
50
<PAGE> 53
3. Attornment.
(a) Tenant covenants and agrees that in the event of foreclosure
of the Mortgage, whether by power of sale or by court action, or upon a
transfer of the Property by conveyance in lieu of foreclosure (the
purchaser at foreclosure or the transferee in lieu of foreclosure,
including Mortgagee if it is such purchaser or transferee, being herein
called "New Owner:"), Tenant shall attorn to the New Owner as Tenant's
new landlord, and agrees that the Lease shall continue in full force and
effect as a direct lease between Tenant and New Owner upon all of the
terms, covenants, conditions and agreements set forth in the Lease and
this Agreement, except for provisions which are impossible for Mortgagee
to perform; provided, however, that in no event shall the New Owner be:
(i) liable for any act, omission, default,
misrepresentation, or breach of warranty, of any previous landlord
(including Landlord) or obligations accruing prior to New Owner's actual
ownership of the property;
(ii) subject to any offset, defense, claim or
counterclaim which Tenant might be entitled to assert against any
previous landlord (including Landlord);
(iii) bound by any payment of rent, additional rent or
other payments, made by Tenant to any previous landlord (including
Landlord) for more than one (1) month in advance;
(iv) bound by any amendment, or modification of the
Lease hereafter made, (including Landlord) under the Lease to any
assignment or sublease hereafter granted, without the written consent of
Mortgagee; or
(v) liable for any deposit that Tenant may have given to
any previous landlord (including Landlord) which has not, as such, been
transferred to New Owner.
(b) The provisions of this Agreement regarding attornment by
Tenant shall be self-operative and effective without the necessity of
execution of any new lease or other document on the part of any party
hereto or the respective heirs, legal representatives, successors or
assigns of any such party. Tenant agrees, however, to execute and
deliver at any time and from time to time, upon the request of Landlord
or of any holder(s) of any of the indebtedness or other obligations
secured by the Mortgage, any instrument or certificate reasonably may be
necessary to appropriate in any such foreclosure proceeding or otherwise
to evidence such attornment, including, if requested, a new lease of the
Premises on the same terms and conditions as the Lease for the then
unexpired term of the Lease.
4. Estoppel Certificate. Tenant agrees to execute and deliver from time
to time, upon the request of Landlord or of any holder(s) of any of the
indebtedness or other obligations secured by the Mortgage, a certificate
regarding the status of the Lease, consisting of statements, if true (or it not,
specifying why not), (a) that the Lease is in full force and effect, (b) the
date through which rentals have been paid, (c) the date of the commencement of
the term of the Lease, (d) the nature of any amendments or modifications of the
Lease (e) that to Tenant's knowledge no default, or state of facts which with
the passage of time or notice (or both) would constitute a default, exists under
the Lease, and (f) such other matters as may be reasonably requested.
5. Acknowledgement and Agreement by Tenant. Tenant acknowledges and
agrees as follows:
(a) Tenant acknowledges that Landlord will execute and deliver
to Mortgagee in connection with the financing of the Property [AN
ASSIGNMENT OF LEASES AND RENTS ASSIGNING ABSOLUTELY THE RENT AND ALL
OTHER SUMS DUE UNDER THE LEASE] [A COLLATERAL ASSIGNMENT OF LEASES AND
RENTS, AND ALL OTHER SUMS DUE UNDER THE LEASE TO MORTGAGEE AS ADDITIONAL
SECURITY]. Tenant hereby expressly consents to such (absolute
assignment) (collateral assignment) and agrees that such assignment
shall, in all respects, be superior to any interest Tenant has in the
Lease or the Property, subject to the provisions of this Agreement.
Tenant shall not prepay any rents or other sums due under the lease for
more than one (1) month in advance of the due date therefor. Tenant
acknowledges that Mortgagee will rely upon this instrument in connection
with such financing.
(b) Mortgagee, in making any disbursements to landlord, is under
no obligation or duty to oversee or direct the application of the
Proceeds of such disbursements, and such proceeds may be used by
Landlord for purposes other than improvement of the Property.
(c) From and after the date hereof, in the event of any act or
omission by Landlord which would give Tenant the right, either
immediately or after the lapse of time, to terminate the Lease or to
claim a partial or total eviction, Tenant will not exercise any such
right (I) until it has given written notice of such act or omission to
the Mortgagee; and (ii) until the same period of time as is given to
Landlord under the Lease to cure such act or omission shall have elapsed
following such giving of notice to Mortgagee and following the time when
Mortgagee shall have
51
<PAGE> 54
become entitled under the Mortgage to remedy the same, but in any event
30 days after receipt of such notice during which period of time
Mortgagee shall be permitted to cure or remedy such default, act, or
omission; provided, however, that Mortgagee shall have no duty or
obligation to cure or remedy and breach or default. It is specifically
agreed that Tenant shall not, as to Mortgagee, require cure of any such
default which is personal to Landlord and therefore not susceptible to
cure by Mortgagee.
(d) In the event that Mortgagee notifies Tenant of a default
under the Mortgage, Note, or Security Documents and demands that Tenant
pay its rent and all other sums due under the Lease directly to
Mortgagee, Tenant shall honor such demand and pay the full amount of its
rent and all other sums due under the Lease directly to Mortgagee or as
otherwise required pursuant to such notice beginning with the payment
next due after such notice of default, without inquiry as to whether a
default actually exists under the Mortgage, Security documents or
otherwise in connection with the Note, and notwithstanding any contrary
instructions of or demands from Landlord, and without any liability to
Landlord for making such payment to Mortgagee.
(e) Tenant shall send a copy of any notice or statement of
Landlord's default under the Lease to Mortgagee at the same time such
notice or statement is sent to Landlord.
(f) Tenant has no right or option of any nature whatsoever,
whether pursuant to the Lease or otherwise, to purchase the Premises or
the Property, or any portion thereof or any interest therein, and to the
extent that Tenant has had, or hereafter acquires, any such right or
option, same is hereby acknowledged to be subject and subordinate to the
Mortgage and is hereby waived and released as against Mortgagee.
(g) This Agreement satisfies any condition or requirement in the
Lease relating to the granting of a non-disturbance agreement with
respect to the subject Mortgage only and Tenant waives any requirement
to the contrary in the Lease.
(h) Mortgagee and any New Owner shall have no obligation nor
incur any liability with respect to the erection or completion of the
improvements in which the Premises are located or for completion of the
Premises or any improvements for Tenant's use and occupancy, either at
the commencement of the term of the Lease or upon any renewal or
extension thereof or upon the addition of additional space, pursuant to
any expansion rights contained in the Lease.
(i) Mortgagee and any New owner shall have no obligation nor
incur any liability with respect to any warranties of any nature
whatsoever, whether pursuant to the Lease or otherwise, including,
without limitation, any warranties respecting use, compliance with
zoning, Landlord's title, landlord's authority, habitability, fitness
for purpose or possession.
(j) In the event that Mortgagee or any New Owner shall acquire
title to the Premises or the Property, Mortgagee or such New Owner shall
have no obligation, nor incur any liability, beyond Mortgagee's or New
Owner's then equity interest, if any, in the Property or the Premises,
and Tenant shall look exclusively to such equity interest of Mortgagee
or New Owner, if any, for the payment and discharge of any obligations
imposed upon Mortgagee or New Owner hereunder or under the Lease or for
recovery of any judgment from Mortgagee, or New Owner, and in no event
shall Mortgagee, New Owner, nor any of their respective officers,
directors, shareholders, agents, representatives, servants, employees or
partners ever be personally liable for such judgement.
(k) Nothing herein contained is intended, nor shall it be
construed, to abridge or adversely affect any right or remedy of
Landlord under the Lease in the event of any default by Tenant in the
payment of rent and/or any other sums due under the Lease or in the
performance of any of the other terms, covenants or conditions of the
Lease on Tenant's part to be performed.
(l) Landlord has not agreed to any abatement of rent or other
sums or period of "free rent" for the Premises unless same is
specifically provided in the Lease, and Tenant agrees that in the event
Mortgagee, or any New Owner becomes the owner of the Property, no
agreement for abatement of rent or any other sum not specifically
provided in the Lease will be binding on Mortgagee or New Owner.
6. Acknowledgement and Agreement by Landlord. Landlord, as landlord
under the Lease and grantor under the Mortgage, acknowledges and agrees for
itself and its heirs, representatives, successors and assigns, that: (a) this
Agreement does not constitute a waiver by Mortgagee of any of its rights under
the Mortgage, Note, or Security Documents, or in any way release landlord from
its obligations to comply with the terms, provisions, conditions, covenants,
agreements and clauses of the Mortgage, Note, and Security Documents; (b) the
provisions of the Mortgage, Note, or Security Documents remain in full force and
effect and must be complied with by Landlord; and (c) Tenant is hereby
authorized to pay its rent and all other sums due under the Lease directly to
Mortgagee upon receipt of a notice as set forth in paragraph 5(d) above from
Mortgagee and that
52
<PAGE> 55
Tenant is not obligated to inquire as to whether a default actually exists under
the Mortgage, Security Documents or otherwise in connection with the Note.
Landlord hereby releases and discharges Tenant of and from any liability to
Landlord resulting from Tenant's payment to Mortgagee in accordance with this
Agreement. Landlord represents and warrants to Mortgagee that a true and
complete copy of the Lease has been delivered by landlord to Mortgagee.
7. Lease Status. Landlord and Tenant certify to Mortgagee that neither
Landlord nor Tenant has knowledge of any default on the part of the other under
the Lease, that the Lease is bonafide and contains all of the agreements of the
parties thereto with respect to the letting of the Premises and that all of the
agreements and provisions therein contained are in full force and effect.
8. Notices. All notices, requests, consents, demands and other
communications required or which any party desires to give hereunder shall be in
writing and shall be deemed sufficiently given or furnished if delivered by
personal delivery, by telegram, telex, or facsimile, by expedited delivery
service with proof of delivery, or by registered or certified United States
mail, postage prepaid, at the addresses specified at the end of this Agreement
(unless changed by similar notice in writing given by the particular party whose
address is to be changed). Any such notice or communication shall be deemed to
have been given either at the time of personal delivery or, in the case of
delivery service or mail, as of the date first attempted delivery at the address
and in the manner provided herein, or, in the case of telegram, telex or
facsimile, upon receipt. Notwithstanding the foregoing, no notice of change of
address shall be effective except upon receipt. This Paragraph 8 shall not be
construed in any way to affect or impair any waiver of notice or demand provided
in this Agreement or in the lease or in any document evidencing, securing or
pertaining to the loan evidenced by the Note or to require giving of notice or
demand to or upon any person in any situation or for any reason.
9. Miscellaneous.
(a) This Agreement supersedes any inconsistence provision of the
Lease.
(b) Nothing contained in this Agreement shall be construed to
derogate from or in any way impair or affect the lien, security interest
or provisions of the Mortgage, Note, or Security documents.
(c) This Agreement shall inure to the benefit of the parties
hereto, their respective successors and permitted assigns, and any New
Owner, and its heirs personal representatives, successors and assigns;
provided however, that in the event of the assignment or transfer of the
interest of Mortgagee, all obligations and liabilities of the assigning
Mortgagee under this Agreement shall terminate, and thereupon all such
obligations and liabilities shall be the responsibility of the party to
whom mortgagee's interest is assigned or transferred.
(d) THIS AGREEMENT AND ITS VALIDITY, ENFORCEMENT AND
INTERPRETATION SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
OKLAHOMA AND APPLICABLE UNITED STATES FEDERAL LAW EXCEPT ONLY
TO THE EXTENT, IF ANY, THAT THE LAWS OF THE STATE IN WHICH THE
PROEPRTY IS LOCATED NECESSARILY CONTROL.
(e) The words "herein", "hereof", "hereunder" and other similar
compounds of the word "here" as used in this Agreement refer to this
entire Agreement and not to any particular section or provision.
(f) This Agreement may not be modified orally or in any manner
other than by an agreement in writing signed by the parties hereto or
their respective successors in interest.
(g) If any provision of the Agreement shall be held to be
invalid, illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not apply to or affect any other
provision hereof, but this Agreement shall be construed as if such
invalidity, illegality, or unenforceability did not exist.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
ADDRESS OF MORTGAGEE: MORTGAGEE:
- --------------------- ----------
LOCAL FEDERAL BANK, F.S.B. LOCAL FEDERAL BANK, F.S.B.
- -------------------------------- -------------------------------------
3601 N.W. 63rd St. By: /s/ Paul Lienhard
- -------------------------------- -------------------------------------
Okla. City, Okla. 73116 Name: Paul Lienhard
- -------------------------------- -----------------------------------
Attention: Paul Lienhard Title: Senior Vice President
----------------------- ----------------------------------
53
<PAGE> 56
ADDRESS OF TENANT: TENANT:
- ------------------ -------
3250 Van Ness Avenue
- -------------------------------- -------------------------------------
San Francisco, CA 94109 By: /s/ PAT CONNOLLY
- -------------------------------- -------------------------------------
Name: Pat Connolly
- -------------------------------- -----------------------------------
Attention: Susi Browne Title: Executive V.P. General Manager
----------------------- ----------------------------------
Catalogue
----------------------------------
ADDRESS OF LANDLORD: LANDLORD:
- -------------------- ---------
3232 W. Britton Rd TJM Properties L.L.C.
- -------------------------------- -------------------------------------
Suite 250 By: /s/ F. BARRY TAPP
- -------------------------------- -------------------------------------
Oklahoma, OK 73120 Name: F. Barry Tapp
- -------------------------------- -----------------------------------
Attention: F. Barry Tapp Title: Manager Member
----------------------- ----------------------------------
54
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Net Weighted Average Per-Share
Earnings Shares Amount
----------- ----------- -----------
<S> <C> <C> <C>
Fiscal year ended February 1, 1998:
Basic $41,347,000 25,648,000 $ 1.61
===========
Effect of assumed conversion of Convertible Notes 1,239,000 1,533,000
Effect of dilutive stock options -- 1,152,000
----------- -----------
Diluted $42,586,000 28,333,000 $ 1.50
=========== =========== ===========
Fiscal year ended February 2, 1997:
Basic $22,742,000 25,463,000 $ 0.89
===========
Effect of assumed conversion of Convertible Notes 981,000 1,215,000
Effect of dilutive stock options -- 823,000
----------- -----------
Diluted $23,723,000 27,501,000 $ 0.86
=========== =========== ===========
Fiscal year ended January 28, 1996:
Basic $ 2,536,000 25,362,000 $ 0.10
Effect of dilutive stock options -- 776,000
----------- -----------
Diluted $ 2,536,000 26,138,000 $ 0.10
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13
WILLIAMS-SONOMA, INC.
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dollars and amounts in thousands except
percentages, per-share amounts and retail
stores data Feb. 1, 1998 Feb. 2, 1997(2) Jan. 28, 1996 Jan. 29, 1995 Jan. 30, 1994
------------ --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Net sales $ 933,257 $ 811,758 $ 644,653 $ 528,543 $ 410,056
Earnings before income taxes 70,022 39,197 4,373 33,435 19,398
Net earnings 41,347 22,742 2,536 19,572 11,221
Basic earnings per-share(1) 1.61 .89 .10 .78 .45
Diluted earnings per-share(1) 1.50 .86 .10 .75 .44
Financial position
Working capital 134,524 96,568 39,076 49,506 40,405
Long-term debt and other liabilities 89,789 89,319 46,757 6,781 587
Total assets 477,229 404,417 319,096 217,878 167,604
Shareholders' equity per-share
(book value)(1) $ 7.48 $ 5.72 $ 4.78 $ 4.70 $ 3.80
Debt-to-equity ratio 46.5% 61.2% 38.4% 5.7% .6%
Retail stores
Store count
Williams-Sonoma 152 145 139 120 113
Classic 78 89 97 105 113
Grande Cuisine 74 56 42 15 --
Pottery Barn 88 76 67 57 57
Classic 34 43 47 53 57
Design Studio 54 33 20 4 --
Hold Everything 32 32 32 35 37
Outlets 4 3 2 2 2
Number of stores at year-end 276 256 240 214 209
Comparable store sales growth 2.8% 4.6% 3.4% 16.5% 13.8%
Store selling area at year-end (sq. ft.) 1,015,778 839,112 690,256 537,969 487,883
Gross leasable area at year-end (sq. ft.) 1,553,137 1,264,531 1,023,003 746,683 690,635
Catalog sales
Catalogs mailed in year 154,475 136,489 131,800 126,833 99,807
Catalog sales growth 11.2% 19.1% 16.2% 55.0% 23.9%
Catalog sales as percent of total sales 35.5% 36.7% 38.8% 40.8% 33.9%
Pro forma earnings per-share adjusted to
reflect declared stock split (Note L):
Basic earnings per-share $ .81 $ .45 $ .05 $ .39 $ .22
Diluted earnings per-share $ .75 $ .43 $ .05 $ .37 $ .22
</TABLE>
(1) Per-share amounts have been restated to reflect the adoption of SFAS NO.
128 in fiscal 1997 and the 3-for-2 stock splits in February 1994 and
September 1994.
(2) The year ended February 2, 1997, includes 53 weeks.
<PAGE> 2
WILLIAMS-SONOMA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
NET SALES
Net sales consist of the following components:
<TABLE>
<CAPTION>
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended
Dollars in thousands Feb. 1, 1998 % Total Feb. 2, 1997 % Total Jan. 28, 1996 % Total
------------ ------- ------------ ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Retail sales $601,738 64.5% $513,592 63.3% $394,281 61.2%
Catalog sales 331,519 35.5% 298,166 36.7% 250,372 38.8%
Total net sales $933,257 100.0% $811,758 100.0% $644,653 100.0%
</TABLE>
Net sales for Williams-Sonoma, Inc. and subsidiaries (the company) for the 52
weeks ended February 1, 1998 (fiscal 1997) were $933,257,000 - an increase of
$121,499,000 or 15% over net sales for the 53 weeks ended February 2, 1997
(fiscal 1996). Net sales for fiscal 1996 increased 26% over net sales for the 52
weeks ended January 28, 1996 (fiscal 1995).
RETAIL SALES
<TABLE>
<CAPTION>
Year Ended
Dollars in thousands Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Retail sales $601,738 $513,592 $394,281
Retail growth percentage 17.2% 30.3% 28.3%
Comparable store sales growth 2.8% 4.6% 3.4%
Number of stores - beginning of year 256 240 214
Number of new stores 44 30 43
Number of closed stores 24 14 17
Number of stores at year-end 276 256 240
Store selling area at year-end (sq. ft.) 1,015,778 839,112 690,256
</TABLE>
Retail sales for fiscal 1997 increased 17% over retail sales for fiscal 1996
primarily due to new store openings. During fiscal 1997, the company opened 44
stores (18 large-format Williams-Sonoma, 21 large-format Pottery Barn, 3 Hold
Everything and 2 outlets), and closed 24 smaller stores (11 Williams-Sonoma, 9
Pottery Barn, 3 Hold Everything and 1 outlet). Pottery Barn, with 32% of the
store locations at the end of fiscal 1997, accounted for 72% and 61% of retail
sales growth in fiscal 1997 and fiscal 1996, respectively. Retail sales in
fiscal 1996 increased 30% over retail sales in fiscal 1995, principally due to a
net increase of 16 stores.
Comparable store sales are defined as sales from stores whose gross square
feet did not change by more than 20% in the previous 12 months and which have
been open for at least 12 months. Comparable store sales are compared monthly
for purposes of this analysis. In any given period, the set of stores comprising
comparable stores may be different than the comparable stores in the previous
period, depending on store opening and closing activity. Comparable store sales
grew 2.8% in fiscal 1997 and 4.6% in fiscal 1996.
The prototypical 1997 large-format stores range from 5,700 - 9,000 selling
square feet (7,700 - 16,400 leased square feet) for Pottery Barn stores and
2,800 - 4,600 selling square feet (4,200 - 6,200 leased square feet) for
Williams-Sonoma, and are intended to enable the company to display merchandise
more effectively. As of the end of fiscal 1997, 128 stores (74 Williams-Sonoma
and 54 Pottery Barn) were in the large format, comprising 64.6% of the company's
total selling square footage. Large-format stores accounted for 58% of retail
sales in fiscal 1997, as compared to 34% in fiscal 1995. Large-format stores
accounted for 50% of comparable store sales in fiscal 1997, as compared to 30%
in fiscal 1996 and 5% in fiscal 1995. In 1998, the company plans to increase
leased square footage by approximately 21%.
<PAGE> 3
WILLIAMS-SONOMA, INC.
CATALOG SALES
Catalog sales in fiscal 1997 and fiscal 1996 increased 11.2% and 19.1%,
respectively, over those of the prior year. The total number of catalogs mailed
in these periods increased 13.2% in fiscal 1997, and 3.6% in fiscal 1996. The
majority of the increased circulation in fiscal 1997 and fiscal 1996 was in
markets with stores. The purpose of this strategy is to build brand recognition
and support new store openings. Typically, mailings into these areas generate
less revenue for the catalog division than mailings into non-store markets.
The following table reflects catalog-sales growth (loss) percentages by concept:
<TABLE>
<CAPTION>
Year Ended
Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Williams-Sonoma 13.0% 13.4% 5.8%
Pottery Barn 18.1% 27.6% 40.0%
Hold Everything 11.7% 12.3% 14.1%
Gardeners Eden (5.3%) 8.7% (4.0%)
Chambers (7.8%) 22.7% 1.2%
Total catalog 11.2% 19.1% 16.2%
</TABLE>
Combined sales for Williams-Sonoma and Pottery Barn, the company's primary
concepts, were 70.2% of total catalog sales in fiscal 1997. Pottery Barn, which
represented 43.4% of total catalog sales in fiscal 1997, accounted for 66.1% of
total catalog sales growth in fiscal 1997 and 55.2% in fiscal 1996. This
reflects the company's development of the Pottery Barn assortment over the last
several years and the enhanced consumer brand recognition achieved through the
Pottery Barn catalog and Design Studio stores. Other factors contributing to
catalog sales growth were an improved in-stock position and a reduction in
Pottery Barn merchandise returns.
In 1997, the company continued to explore changes to the merchandise content
and mailing strategies for its Gardeners Eden and Chambers catalogs.
COST OF GOODS SOLD AND OCCUPANCY
Cost of goods sold and occupancy expenses expressed as a percent of net sales in
fiscal 1997 declined 1.1 percentage points to 59.7% from 60.8% in fiscal 1996.
Merchandise margin improved 1.1 percentage points, principally due to lower cost
of merchandise. Occupancy expenses expressed as a percentage of net sales
remained flat. The Las Vegas call center opened in the third quarter of fiscal
1996. Increases in the occupancy expense rate in the Las Vegas call center were
offset by improvements in the corporate and Memphis distribution-center
occupancy-expense rates as a result of increased sales volume.
In fiscal 1996, cost of goods sold and occupancy expenses expressed as a
percent of net sales decreased 2.9 percentage points from the prior year.
Merchandise margin improved 3.0 percentage points, as compared to fiscal 1995,
primarily as a result of markdowns taken in the fourth quarter of fiscal 1995 to
reduce overstocks and slow-moving items. Occupancy expense as a percent of net
sales remained relatively flat as compared to fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses expressed as a percent of net sales
declined 1.4 percentage points in fiscal 1997 to 32.4% from 33.8% in fiscal
1996. Almost half of the improvement is due to lower advertising expense rates
in the catalog and retail divisions. The remainder of the decrease is primarily
attributable to lower employment rates and lower shipping expense rates for the
catalog division and lower corporate employment rates as a result of increased
sales volume. In fiscal 1996, selling, general and administrative expenses as a
percent of net sales decreased 1.2 percentage points to 33.8% from 35.0% in
fiscal 1995. The majority of the improvement was attributable to lower
advertising expense rates.
The company's San Francisco call center, which primarily serviced Pottery
Barn, was previously located in one of the company's two corporate headquarters
facilities. In order to support the sales growth in Pottery Barn and growth of
the company's corporate staff, management made the decision in fiscal 1997 to
close this call center and to utilize the space for corporate offices. The call
center was closed in January of 1998, and as a result the company recorded a
fourth quarter pre-tax charge of $2,335,000 for severance and other
employment-related costs associated with the closure. A new call center is
scheduled to open in Oklahoma City, Oklahoma, in the third quarter of 1998.
<PAGE> 4
WILLIAMS-SONOMA, INC.
YEAR 2000 COMPLIANCE
As is the case with most other companies using computers in their operations,
the company is in the process of addressing the "Year 2000" problem. The company
has conducted a review of its computer systems to identify those areas that
could be affected by the Year 2000 issue and is developing an implementation
strategy.
In addition, the company is in the process of communicating with those with
whom it does significant business, to determine their Year 2000 readiness and
the extent to which the company is vulnerable to any third-party Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the company is reliant will be converted timely, or that a failure by
another company to convert would not have a materially adverse effect on the
company.
The company will utilize both internal and external resources to reprogram or
replace, and test all of its systems for Year 2000 compliance. The company
expects to complete the project by mid-1999. The estimated cost for the
remediation and testing of computer applications could range as high as $4.5
million over the two year period from 1998 to 1999. The company presently
believes, with modification to existing software and converting to new software,
the Year 2000 problem will not pose significant operational risk. Failure by the
company and/or vendors to complete Year 2000 compliance work in a timely manner
could have a materially adverse effect on the company's operations.
INTEREST EXPENSE
Net interest expense decreased $1,175,000, from $4,965,000 in fiscal 1996 to
$3,790,000 in fiscal 1997, primarily as a result of increased interest income.
The increase in investment income is principally due to the $78,802,000 of cash
and equivalents with which the company started fiscal 1997. Such cash enabled
the company to fund substantially all of its operating and investing
requirements with a minimum of short-term debt. As a result, the average
short-term investment balance in fiscal 1997 was approximately $35,290,000, as
compared to average short-term borrowings of $12,186,000 in fiscal 1996. Net
interest expense in fiscal 1996 increased $438,000 over net interest expense in
fiscal 1995.
INCOME TAXES
The company's effective tax rate was 41.0% for fiscal 1997, as compared to 42%
in fiscal 1996 and fiscal 1995. These rates reflect the effect of aggregate
state tax rates based on the mix of retail sales and catalog sales in the
various states in which the company has sales or conducts business.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in fiscal 1997 was $75,873,000, a
decrease of $34,869,000 from the $110,742,000 of cash generated by operating
activities in fiscal 1996. The majority of the change is due to the change in
inventory levels. The company's inventory levels at the beginning of fiscal 1996
were in excess of the company's requirements based on planned sales growth. As a
result, in the first two quarters of 1996 the company was liquidating
inventories to reduce overstocks and slow-moving items. At the start of fiscal
1997, due to improved merchandise planning and control, the company was in the
more typical position of building inventories in response to growth and seasonal
requirements. Merchandise levels in fiscal 1998 are expected to remain at the
current ratio of inventory to forecasted sales, and inventory on hand will
continue to increase in response to higher sales and new stores.
<PAGE> 5
WILLIAMS-SONOMA, INC.
Net cash used in investing activities for fiscal 1997 was $59,146,000.
Approximately $46,684,000 was spent on new stores, and approximately $8,948,000
was used for information systems. The company is planning approximately
$70,000,000 to $75,000,000 of gross capital expenditures in fiscal 1998,
including $10,000,000 for information systems.
Cash provided by financing activities in fiscal 1997 was $1,685,000, most of
which was provided through exercises of stock options. Cash provided by
financing activities for fiscal 1996 was $9,906,000, and included the
replacement of certain short-term borrowings with long-term debt. On April 15,
1996, the company sold $40,000,000 of 5.25% convertible, subordinated notes due
2003 ("Convertible Notes"). The Convertible Notes are convertible 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). Proceeds from the notes were used primarily
to reduce bank borrowings. The company has notified the holders of the
Convertible Notes of its intention to redeem the Convertible Notes in April
1998, and the company anticipates that substantially all of the Convertible
Notes will be converted into common stock at that time.
The company has a 364-day syndicated line-of-credit facility expiring on May
29, 1998, which provides for $60,000,000 to $90,000,000 in cash advances,
depending on seasonal requirements. The agreement contains certain restrictive
loan covenants, including minimum tangible net worth, a minimum out-of-debt
period, and a prohibition on payment of cash dividends. Additionally, the
company has a $35,000,000 letter-of-credit agreement with its lead bank. The
company is currently in negotiations with its banks, and expects to replace this
facility with a new agreement having similar terms prior to the May 29, 1998,
expiration date.
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 September. The company believes this is the general
pattern associated with the catalog and retail industries. In anticipation of
its peak season, the company hires a substantial number of additional employees
in its retail stores and catalog 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
continue to improve planning and control processes and other infrastructure
issues; the potential for construction and other delays in store openings; 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 annual report on Form 10-K and its other filings with the
Securities and Exchange Commission.
<PAGE> 6
WILLIAMS-SONOMA, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Dollars and shares in thousands, Year Ended
except per-share amounts Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Net sales $933,257 $811,758 $644,653
Costs and expenses
Cost of goods sold and occupancy 556,776 493,179 410,335
Selling, general and administrative 302,669 274,417 225,418
Interest expense - net 3,790 4,965 4,527
Earnings before income taxes 70,022 39,197 4,373
Income taxes 28,675 16,455 1,837
Net earnings 41,347 22,742 2,536
Basic earnings per-share 1.61 .89 .10
Diluted earnings per-share 1.50 .86 .10
Average number of common shares outstanding
Basic 25,648 25,463 25,362
Diluted 28,333 27,501 26,138
Pro forma earnings per-share adjusted to reflect
declared stock split (Note L):
Basic earnings per-share .81 .45 .05
Diluted earnings per-share $ .75 $ .43 $ .05
Average number of common shares outstanding
Basic 51,297 50,927 50,724
Diluted 56,666 55,001 52,276
</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 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 85 901 -- 901
Net earnings -- -- 2,536 2,536
Balance at January 28, 1996 25,427 48,317 73,336 121,653
Issuance pursuant to stock option plans and tax
benefit from sale of optioned stock by employees 117 1,643 -- 1,643
Net earnings -- -- 22,742 22,742
Balance at February 2, 1997 25,544 49,960 96,078 146,038
Issuance pursuant to stock option plans and tax
benefit from sale of optioned stock by employees 296 5,813 -- 5,813
Net earnings -- -- 41,347 41,347
Balance at February 1, 1998 25,840 $ 55,773 $137,425 $193,198
</TABLE>
<PAGE> 7
WILLIAMS-SONOMA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dollars in thousands, except share amounts Feb. 1, 1998 Feb. 2, 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 97,214 $ 78,802
Accounts receivable (less allowance for doubtful
accounts of $206 and $186) 15,238 11,918
Merchandise inventories 132,451 110,702
Prepaid expenses and other assets 7,991 8,674
Prepaid catalog expenses 13,596 11,925
Deferred income taxes 3,680 4,028
Total current assets 270,170 226,049
Property and equipment - net 201,020 172,093
Investments and other assets (less accumulated
amortization of $1,448 and $1,076) 6,039 5,824
Deferred income taxes -- 451
Total assets $477,229 $404,417
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 58,496 $ 64,409
Accrued expenses 15,619 12,514
Accrued salaries and benefits 15,863 16,116
Customer deposits 19,617 13,801
Income taxes payable 17,216 15,715
Current portion of long-term obligations 125 125
Other liabilities 8,710 6,801
Total current liabilities 135,646 129,481
Deferred lease credits 56,157 39,579
Long-term debt and other liabilities 89,789 89,319
Deferred tax liability 2,439 --
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, 25,840,359 and 25,543,887 shares,
respectively 55,773 49,960
Retained earnings 137,425 96,078
Total shareholders' equity 193,198 146,038
Total liabilities and shareholders' equity $477,229 $404,417
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 8
WILLIAMS-SONOMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
Dollars in thousands Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 41,347 $ 22,742 $ 2,536
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 28,871 24,332 16,476
Loss (gain) on disposal of assets and store closing reserve (132) 1,826 740
Amortization of deferred lease incentives (4,853) (3,462) (1,950)
Change in deferred income taxes 3,238 (300) 101
Tax benefit from sale of optioned stock by employees 3,507 619 343
Reserve for closure of San Francisco call center 2,335 -- --
Other 687 -- --
Change in:
Accounts receivable (3,320) 1,239 (7,614)
Merchandise inventories (21,749) 10,901 (33,654)
Prepaid catalog expenses (1,671) 3,688 (4,408)
Prepaid expenses and other assets 683 (2,168) (657)
Accounts payable (5,913) 6,114 8,938
Accrued expenses and other liabilities 9,911 16,980 11,783
Deferred lease incentives 21,431 14,463 16,650
Income taxes payable 1,501 13,768 (6,382)
Net cash provided by operating activities 75,873 110,742 2,902
Cash flows from investing activities:
Purchase of property and equipment (59,299) (47,627) (86,513)
Other 153 1,615 739
Net cash used in investing activities (59,146) (46,012) (85,774)
Cash flows from financing activities:
Borrowings under line-of-credit 41,000 192,480 226,600
Repayments under line-of-credit (41,000) (222,080) (197,000)
Proceeds from issuance of long-term debt -- 40,000 40,000
Debt issuance costs -- (1,393) (460)
Repayments of long-term debt (621) (125) (141)
Proceeds from exercise of stock options 2,306 1,024 558
Net cash provided by financing activities 1,685 9,906 69,557
Net increase (decrease) in cash and cash equivalents 18,412 74,636 (13,315)
Cash and cash equivalents at beginning of year 78,802 4,166 17,481
Cash and cash equivalents at end of year $ 97,214 $ 78,802 $ 4,166
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 9
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
64.5% of the business and catalog accounts for 35.5%. 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 276 stores in 37 states and
Washington D.C. These consolidated financial statements include Williams-Sonoma,
Inc. and its subsidiaries. Significant intercompany transactions and accounts
have been eliminated.
The company's fiscal year ends on the Sunday closest to January 31, based on
a 52/53-week year. Fiscal years 1997, 1996 and 1995 ended on February 1, 1998,
February 2, 1997, and January 28, 1996, respectively. The years ended February
1, 1998, February 2, 1997, and January 28, 1996, include 52 weeks, 53 weeks and
52 weeks respectively.
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 40% of the company's
merchandise is foreign-sourced, primarily from Europe and Asia.
Prepaid catalog expenses consist of the cost to produce, print and distribute
catalogs. Such costs are amortized over the expected sales volume of each
catalog. Typically, over 90% of the cost of a catalog is amortized in the first
four months. At February 1, 1998, and February 2, 1997, $13,596,000 and
$11,925,000, respectively, of prepaid advertising was reported as current
assets. Catalog advertising expenses amounted to $94,169,000, $87,699,000 and
$78,131,000 in fiscal 1997, 1996 and 1995, 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 49 years. Amortization of improvements to leased
properties is based upon the shorter of the remaining term of the applicable
lease or the estimated useful lives of such assets. In 1996, the company adopted
the provisions of Statement of Financial Accounting Standards NO. 121 (SFAS 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, as of
February 1, 1998, there is no impairment of long-lived assets.
Investments and other assets include long-term deposits, lease rights and
interests, which are being amortized over the life of the respective leases (5
to 49 years), and debt-issuance costs which are amortized over the life of the
debt.
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.
The company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion (APB) NO.
25, Accounting for Stock Issued to Employees.
Impact of new accounting standards: In June 1997, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards NO. 130
"Reporting Comprehensive Income", which requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources; and NO. 131 "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the company's consolidated
financial position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997.
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.
<PAGE> 10
WILLIAMS-SONOMA, INC.
Reclassifications: Certain items in the prior years' consolidated financial
statements have been reclassified to conform to the fiscal 1997 presentation.
NOTE B: PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Dollars in thousands Feb. 1, 1998 Feb. 2, 1997
------------ ------------
<S> <C> <C>
Land and buildings $ 11,046 $ 11,046
Leasehold improvements 169,280 138,465
Fixtures and equipment 116,033 99,518
Construction in progress 9,910 6,988
306,269 256,017
Less accumulated depreciation and amortization 105,249 83,924
Total property and equipment - net $201,020 $172,093
</TABLE>
NOTE C: BORROWING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Dollars in thousands Feb. 1, 1998 Feb. 2, 1997
------------ ------------
<S> <C> <C>
Convertible notes $40,000 $ 40,000
Senior notes 40,000 40,000
Mortgage 6,530 6,654
Obligations under capital leases and other liabilities 3,384 2,790
89,914 89,444
Less current maturities 125 125
Total long-term debt $89,789 $ 89,319
</TABLE>
On April 15, 1996, the company issued $40,000,000 principal amount of 5.25%
convertible, subordinated notes due April 15, 2003 (Convertible Notes). Net
proceeds from the transaction amounted to $38,607,000 and were used to provide
the company with a long-term source of working capital. Interest is payable
semi-annually and began October 1996. The Convertible Notes are convertible into
shares of common stock 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. The company has
notified the holders of the Convertible Notes of its intentions to redeem the
Convertible Notes in April 1998, and the company anticipates that substantially
all of the Convertible Notes will be converted into common stock at that time.
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.
<PAGE> 11
WILLIAMS-SONOMA, INC.
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.
The company has a 364-day syndicated line-of-credit facility expiring on May
29, 1998, which provides for $60,000,000 to $90,000,000 in cash advances,
depending on seasonal requirements. The agreement contains certain restrictive
loan covenants, including minimum tangible net worth, a minimum out-of-debt
period and a prohibition on payment of cash dividends. Additionally, the company
has a $35,000,000 letter-of-credit agreement with its lead bank. The company is
currently in negotiations with its banks and expects to replace this facility
with a new agreement having similar terms prior to the May 29, 1998 expiration
date.
At February 1, 1998, $60,000,000 and $35,000,000 were available in
line-of-credit and letter-of-credit facilities, respectively, of which $0 and
$24,370,000 were outstanding, respectively.
Interest expense was $5,705,000, $5,795,000 and $4,703,000 for fiscal 1997,
1996 and 1995, respectively, excluding capitalized interest of $348,000 in
fiscal 1997, $695,000 in fiscal 1996 and $663,000 in fiscal 1995. Interest paid
was $5,828,000, $5,404,000 and $3,805,000 for the same periods.
Accounts payable at February 1, 1998, and February 2, 1997, includes cash
overdrafts of $16,640,000 and $15,465,000, respectively, for checks issued and
not presented to the bank for payment.
As of February 1, 1998, the company's debt, including the Convertible Notes
and assuming they are not converted, is scheduled to mature as follows: $125,000
in fiscal year 1998, $6,906,000 in fiscal 1999, $6,243,000 in fiscal 2000,
$12,054,000 in fiscal 2001, $5,878,000 in fiscal 2002 and $58,708,000
thereafter.
NOTE D: INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended
Dollars in thousands Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Current payable
Federal $20,261 $ 12,020 $ 1,338
State 5,176 4,735 397
Total current 25,437 16,755 1,735
Deferred
Federal 2,609 146 193
State 629 (446) (91)
Total deferred 3,238 (300) 102
Total provision $28,675 $ 16,455 $ 1,837
</TABLE>
Income taxes paid were $20,702,000, $3,510,000 and $10,453,000 in fiscal 1997,
1996 and 1995, respectively. A reconciliation of income taxes at the federal
statutory corporate rate to the effective rate is as follows:
<TABLE>
<CAPTION>
Year Ended
Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Federal income taxes at the statutory rate 35.0% 35.0% 35.0%
State income tax rate, less federal benefit 5.5% 6.5% 6.5%
Other .5% .5% .5%
41.0% 42.0% 42.0%
</TABLE>
<PAGE> 12
WILLIAMS-SONOMA, INC.
Significant components of the company's deferred tax accounts are as follows:
<TABLE>
<CAPTION>
Feb. 1, 1998 Feb. 2, 1997
Dollars in thousands Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Current:
Compensation $ 3,607 -- $ 2,116 --
Inventory 3,026 -- 2,719 --
Accrued liabilities 2,738 $ 185 4,204 $ 62
Deferred catalog costs -- 5,506 -- 4,949
Total current 9,371 5,691 9,039 5,011
Non-current:
Depreciation 160 -- 2,352 --
Deferred rent 752 -- 741 --
Deferred lease incentives -- 3,351 -- 2,642
Capital loss 5,160 -- 5,160 --
Valuation allowance (5,160) -- (5,160) --
Total non-current 912 3,351 3,093 2,642
Total $ 10,283 $ 9,042 $ 12,132 $ 7,653
</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 a
valuation allowance as of February 1, 1998, and February 2, 1997, due to the
uncertainty of realizing future tax benefits from its capital loss
carryforwards.
NOTE E: LEASES
The company leases store locations, its warehouses, call centers and certain
equipment under operating and capital leases for original terms ranging from 3
to 25 years extending through 2018, 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.
On January 2, 1996, the company entered into an agreement to lease a
35,867-square-foot build-to-suit call center in Summerlin, Nevada. The lease
covers a ten-year term with three optional five-year renewals. Rent commenced in
August 1996 at an annual basic rent amount of $529,000 for each of the first
five years of the lease and will increase to $598,000 annually for the remaining
five years. In the event that the company should require more space to support
growth, the agreement includes an option to expand into an additional 17,920
square feet.
In July 1996, the company secured an additional 400,232-square-foot warehouse
in Memphis, Tennessee, to more efficiently process non-conveyable merchandise.
The lease for the warehouse covers a nine-year term with termination rights
available after the third and sixth years, subject to penalty fees. Rent
commenced in July 1996 at a rate of $60,000 a month for the first ten months of
the lease and increased to $92,000 a month for the following 26 months. For the
remainder of the term, the rent will increase based on a rate to be determined
using the Consumer Price Index but not to exceed five percent of the minimum
rental payments.
On February 13, 1998 the company entered into an agreement to lease a 35,862
square-foot build-to-suit call center in Oklahoma City, Oklahoma. The lease
covers a ten-year term with three optional five-year renewals. Rent will
commence in August 1998 at an annual basic rent of $506,000 for each of the
first five years of the lease, and will increase to $550,000 annually for the
remaining five years. These minimum rental payments have been included in the
following table. In the event that the company should require more space to
support growth, the agreement includes an option to expand into an additional
15,000 square feet.
<PAGE> 13
WILLIAMS-SONOMA, INC.
Total rental expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Year Ended
Dollars in thousands Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Minimum rent expense, stores $39,011 $ 33,133 $ 27,462
Equipment rent 6,767 6,065 5,957
Contingent rent expense 2,004 3,932 2,261
Total rent expense $47,782 $ 43,130 $ 35,680
</TABLE>
The aggregate minimum annual rental payments under noncancelable operating
leases in effect at February 1, 1998, were as follow:
<TABLE>
<CAPTION>
Dollars in thousands
<S> <C>
Fiscal 1998 $ 46,870
Fiscal 1999 43,953
Fiscal 2000 41,641
Fiscal 2001 39,676
Fiscal 2002 37,740
Later years 200,192
Total minimum lease commitment $410,072
</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 and Audit
Committees. 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.
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, former 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
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.
<PAGE> 14
WILLIAMS-SONOMA, INC.
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: EARNINGS PER-SHARE
In 1997, the company adopted the provisions of Statement of Financial Accounting
Standards NO. 128 (SFAS 128), "Earnings per-share". SFAS 128 requires dual
presentation of two earnings per-share (EPS) amounts, basic EPS and diluted EPS,
on the face of all income statements instead of primary and fully diluted EPS.
Basic EPS excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if options to issue common
stock were exercised or the Convertible Notes were converted into common stock.
EPS for all periods presented has been restated to reflect the adoption of SFAS
128.
The following is a reconciliation of net income (numerator) and the number of
shares (denominator) used in the basic and diluted EPS computations:
<TABLE>
<CAPTION>
Dollars and amounts in thousands Weighted
except per-share amounts Net Average Per-Share
Earnings Shares Amount
-------- ------ ------
<S> <C> <C> <C>
1997:
Basic $41,347 25,648 $ 1.61
Effect of assumed conversion of Convertible Notes 1,239 1,533
Effect of dilutive stock options -- 1,152
Diluted 42,586 28,333 1.50
1996:
Basic 22,742 25,463 0.89
Effect of assumed conversion of Convertible Notes 981 1,215
Effect of dilutive stock options -- 823
Diluted 23,723 27,501 0.86
1995:
Basic 2,536 25,362 0.10
Effect of dilutive stock options -- 776
Diluted $ 2,536 26,138 $ 0.10
</TABLE>
Options for which the exercise price was greater than the average market price
of common shares for the period were not included in the computation of diluted
earnings per-share. These options to purchase shares were as follows:
<TABLE>
<CAPTION>
Year Ended
Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Options to purchase shares of
common stock 7,500 11,500 591,865
Exercise prices $ 42.75 - $ 49.00 $ 33.38 - $ 36.38 $ 18.00 - $ 22.17
Expiration dates June 2007 - Jan. 2008 Nov. 2006 - Dec. 2006 Mar. 2004 - Oct. 2005
</TABLE>
<PAGE> 15
WILLIAMS-SONOMA, INC.
NOTE H: 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 and amended for an additional 500,000
shares in 1997. 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.
The following table reflects the aggregate activity under the company's stock
option plans:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- --------------
<S> <C> <C>
Balance at January 29, 1995 1,494,004 $10.14
Granted (weighted average fair value of $9.83) 414,150 18.92
Exercised 84,791 6.58
Canceled 132,275 17.66
Balance at January 28, 1996 1,691,088 11.88
Granted (weighted average fair value of $11.18) 514,450 21.48
Exercised 117,177 9.32
Canceled 108,202 17.19
Balance at February 2, 1997 1,980,159 14.24
Granted (weighted average fair value of $19.40) 682,350 30.02
Exercised 296,691 7.54
Canceled 77,763 19.39
Balance at February 1, 1998 2,288,055 19.64
Exercisable, year-end 1995 722,573 8.32
Exercisable, year-end 1996 884,218 10.25
Exercisable, year-end 1997 969,799 $13.42
</TABLE>
Options to purchase 589,824 shares were available for grant at year-end 1997.
The company continues to account for its stock-based awards using the intrinsic
value method in accordance with APB NO. 25, "Accounting for Stock Issued to
Employees," and its related interpretations. Accordingly, no compensation
expense has been recognized in the financial statements for employee stock
arrangements.
Statement of Financial Accounting Standards NO. 123, "Accounting for
Stock-Based Compensation" (SFAS NO. 123), requires the disclosure of pro forma
net earnings and earnings per-share as if the company had adopted the fair value
method as of the beginning of fiscal 1995. Under SFAS NO. 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
The company's calculations are based on a single-option valuation approach
and forfeitures are recognized as they occur. However, the impact of outstanding
unvested stock options granted prior to 1995 has been excluded from the pro
forma calculation, accordingly, the 1995, 1996 and 1997 pro forma adjustments
are not indicative of future period pro forma adjustments. Had compensation cost
been determined consistent with SFAS NO. 123, the company's net earnings and
earnings per-share would have been changed to the pro forma amounts indicated on
the following page:
<PAGE> 16
WILLIAMS-SONOMA, INC.
<TABLE>
<CAPTION>
Year Ended
Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Net earnings
As reported $41,347 $22,742 $2,536
Pro forma - basic 38,639 21,647 2,091
Pro forma - diluted 39,878 22,627 2,091
Basic earnings per-share
As reported 1.61 .89 .10
Pro forma 1.51 .85 .08
Diluted earnings per-share
As reported 1.50 .86 .10
Pro forma $ 1.42 $ .83 $ .08
</TABLE>
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
Year Ended
Feb. 1, 1998 Feb. 2, 1997 Jan. 28, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Dividend yield - - -
Volatility 61.0% 50.0% 50.0%
Risk-free interest 6.49% 6.26% 6.33%
Expected term (years) 6.0 5.0 5.0
</TABLE>
The following table summarizes information about fixed stock options outstanding
at February 1, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Number Average Average Number Average
Outstanding Contractual Exercise Exercisable at Exercise
Range of exercise prices Feb. 1, 1998 Life (Years) Price Feb. 1, 1998 Price
------------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C>
$ 3.85 - $ 5.28 251,991 2.96 $ 4.64 225,466 $ 4.57
$ 5.89 - $14.75 475,535 5.50 10.68 381,748 10.61
$18.00 - $18.81 448,510 7.70 18.33 158,410 18.45
$20.13 - $26.88 420,565 7.63 22.95 173,325 22.57
$28.13 - $49.00 691,454 9.15 30.05 30,850 35.69
$ 3.85 - $49.00 2,288,055 7.15 $19.64 969,799 $13.42
</TABLE>
NOTE I: ASSOCIATE STOCK INCENTIVE PLAN
In fiscal 1989, the company established a defined contribution retirement
plan for eligible employees, which is intended to be qualified under Internal
Revenue Code Sections 401(a) and 401(k). The plan permits employees to make
salary deferral contributions in accordance with Internal Revenue Code Section
401(k). Each participant may choose to have his salary deferral contributions
and earnings thereon invested in one or more of a money market reserve fund, a
balanced mutual fund, or a fund investing in stock of the company. All amounts
contributed by the company are invested in stock of the company. In fiscal 1997,
the company amended the plan in the following respects:
The company changed the name of the plan from the "Williams-Sonoma, Inc.
Employee Profit Sharing and Stock Incentive Plan" to the "Williams-Sonoma,
Inc. Associate Stock Incentive Plan."
The company amended the plan's eligibility rules so that all associates
other than "limited employees" will be eligible to participate after 30 days
of service and reaching the age of 21 years. "Limited Employees" will still
need to complete 1,000 hours of service in a year, and reach the age of 21
years.
The company increased its matching contributions from 50% to 100% of the
first 6% of a participant's pay which the participant elects to contribute as
salary deferral contributions. The company announced that it no longer
intends to make
<PAGE> 17
WILLIAMS-SONOMA, INC.
profit-sharing contributions to the plan. In fiscal 1996, the company accrued a
profit-sharing contribution of $720,000. In fiscal 1997, in conjunction with
amendments to the plan, the company elected not to make a profit-sharing
contribution. There was no profit-sharing contribution in fiscal 1995.
The company amended the plan's vesting schedule so that the company's
contributions vest over a five-year period rather than a six-year period.
NOTE J: 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 February 1, 1998, and February 2, 1997.
NOTE K: COMMITMENTS AND CONTINGENCIES
The company is party to various legal proceedings arising from normal business
activities. Management believes that the resolution of these matters will not
have an adverse material effect on the company's financial condition.
NOTE L: SUBSEQUENT EVENT - STOCK SPLIT
On March 11, 1998, the company's board of directors declared a two-for-one stock
split to be effected as a special distribution of one share of common stock for
each share of the company's common stock outstanding. The distribution will be
made to stockholders of record on May 4, 1998. Pro forma earnings per-share
amounts giving effect to this split have been presented in the accompanying
consolidated statements of earnings.
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 February 1, 1998 and
February 2, 1997, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three fiscal years in the
period ending February 1, 1998. 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 February 1, 1998, and February 2, 1997, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ending February 1, 1998, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 25, 1998
<PAGE> 18
WILLIAMS-SONOMA, INC.
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal 1997
Dollars in thousands, Quarter Ended
except per-share amounts May 4 August 3 November 2 February 1
----- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $176,535 $182,427 $203,863 $370,432
Gross profit 66,508 65,760 77,338 166,875
Earnings before income taxes 2,392 4,169 5,595 57,865
Net earnings(2) 1,388 2,417 3,245 34,296
Basic earnings per-share(1) .05 .09 .13 1.33
Diluted earnings per-share(1) $ .05 $ .09 $ .12 $ 1.21
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996
Dollars in thousands, Quarter Ended
except per-share amounts April 28 July 28 October 27 February 2
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $157,396 $155,499 $171,154 $327,708
Gross profit 54,621 53,855 62,632 147,472
Earnings (loss) before income taxes (4,100) (1,072) 398 43,971
Net earnings (loss) (2,378) (622) 231 25,512
Basic earnings (loss) per-share(1) (.09) (.02) .01 1.00
Diluted earnings (loss) per-share(1) $ (.09) $ (.02) $ .01 $ .92
</TABLE>
(1) The sum of the quarterly basic earnings per-share does not agree to the
year-to-date amount due to rounding differences. The sum of the quarterly
diluted earnings per-share amounts does not agree to the year-to-date
amount due to the effect of assumed conversion of the Convertible Notes in
the fourth quarter and year-to-date. Per-share amounts have been restated
to reflect the adoption of SFAS NO. 128 in fiscal 1997.
(2) The fourth quarter ended February 1, 1998, includes an after-tax change to
net earnings of $1,378,000 ($.05 per-share) related to the reserve for the
closure of the San Francisco call center.
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
prices in the NASDAQ National Market System for the periods indicated.
On March 13, 1998, there were 517 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 1997 High Low
---- ---
<S> <C> <C>
1st Quarter 33 25 3/16
2nd Quarter 45 1/2 30 1/16
3rd Quarter 49 3/4 36 1/2
4th Quarter 46 1/16 36 1/2
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996 High Low
---- ---
<S> <C> <C>
1st Quarter 23 3/16 13 3/4
2nd Quarter 29 1/4 18 3/16
3rd Quarter 31 18 1/4
4th Quarter 36 1/2 26 7/8
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF WILLIAMS-SONOMA, INC.
AS OF FISCAL YEAR END FEBRUARY 1, 1998
<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>
<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, No. 33-65656, No. 333-48247
and No. 333-39811 on Form S-8, and No. 333-07851 on Form S-3 of Williams-Sonoma,
Inc. of our reports dated March 25, 1998, appearing in and incorporated by
reference in the Annual Report on Form 10-K of Williams-Sonoma, Inc. for the
fiscal year ended February 1, 1998.
/s/Deloitte & Touche LLP
San Francisco, California
April 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS FOR THE YEAR ENDED FEBRUARY 1, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719955
<NAME> WILLIAMS-SONOMA, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> FEB-01-1998
<CASH> 97,214
<SECURITIES> 0
<RECEIVABLES> 15,238
<ALLOWANCES> 0
<INVENTORY> 132,451
<CURRENT-ASSETS> 270,170
<PP&E> 306,269
<DEPRECIATION> 105,249
<TOTAL-ASSETS> 477,229
<CURRENT-LIABILITIES> 135,646
<BONDS> 89,789
0
0
<COMMON> 11,466
<OTHER-SE> 181,732
<TOTAL-LIABILITY-AND-EQUITY> 477,229
<SALES> 933,257
<TOTAL-REVENUES> 933,257
<CGS> 556,776
<TOTAL-COSTS> 859,445
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,790
<INCOME-PRETAX> 70,022
<INCOME-TAX> 28,675
<INCOME-CONTINUING> 41,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,347
<EPS-PRIMARY> 1.61<F1>
<EPS-DILUTED> 1.50
<FN>
<F1>For purposes of this exhibit, primary means basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED QUARTERLY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FINANCIAL STATEMENTS FOR QUARTERS 1, 2 & 3 OF FISCAL YEAR 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> FEB-01-1998 FEB-01-1998 FEB-01-1998
<PERIOD-START> FEB-03-1997 MAY-05-1997 AUG-04-1997
<PERIOD-END> MAY-04-1997 AUG-03-1997 NOV-02-1997
<CASH> 26,664 27,266 3,624
<SECURITIES> 0 0 0
<RECEIVABLES> 14,625 15,273 25,768
<ALLOWANCES> 0 0 0
<INVENTORY> 128,935 125,709 169,792
<CURRENT-ASSETS> 193,046 189,591 229,405
<PP&E> 263,734 280,215 295,265
<DEPRECIATION> 89,742 94,959 100,531
<TOTAL-ASSETS> 373,591 381,458 430,827
<CURRENT-LIABILITIES> 94,704 94,299 129,715
<BONDS> 86,498 86,467 86,436
0 0 0
0 0 0
<COMMON> 11,466 11,466 11,466
<OTHER-SE> 136,263 139,841 143,678
<TOTAL-LIABILITY-AND-EQUITY> 373,591 381,458 430,827
<SALES> 176,535 182,427 203,863
<TOTAL-REVENUES> 176,535 182,427 203,863
<CGS> 110,027 116,667 126,525
<TOTAL-COSTS> 173,369 177,329 196,983
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 774 929 1,285
<INCOME-PRETAX> 2,392 4,169 5,595
<INCOME-TAX> 1,004 1,752 2,350
<INCOME-CONTINUING> 1,388 2,417 3,245
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,388 2,417 3,245
<EPS-PRIMARY> .05<F1> .09<F1> .13<F1>
<EPS-DILUTED> .05 .09 .12
<FN>
<F1>For purposes of this exhibit, primary means basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 2, 1997 AND JANUARY
28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000719955
<NAME> WILLIAMS-SONOMA, INC.
<MULTIPLIER> 1000
<CAPTION>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> FEB-02-1997 JAN-28-1996
<PERIOD-START> JAN-29-1996 JAN-30-1995
<PERIOD-END> FEB-02-1997 JAN-28-1996
<CASH> 78,802 4,166
<SECURITIES> 0 0
<RECEIVABLES> 11,918 13,157
<ALLOWANCES> 0 0
<INVENTORY> 110,702 121,603
<CURRENT-ASSETS> 226,049 161,184
<PP&E> 256,017 211,033
<DEPRECIATION> 83,924 63,731
<TOTAL-ASSETS> 404,417 319,096
<CURRENT-LIABILITIES> 129,481 122,108
<BONDS> 89,319 46,757
0 0
0 0
<COMMON> 11,466 11,466
<OTHER-SE> 134,572 110,187
<TOTAL-LIABILITY-AND-EQUITY> 404,417 319,096
<SALES> 811,758 644,653
<TOTAL-REVENUES> 811,758 644,653
<CGS> 493,179 410,335
<TOTAL-COSTS> 767,596 225,418
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,965 4,527
<INCOME-PRETAX> 39,197 4,373
<INCOME-TAX> 16,455 1,837
<INCOME-CONTINUING> 22,742 2,536
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,742 2,536
<EPS-PRIMARY> .89<F1> .10<F1>
<EPS-DILUTED> .86 .10
<FN>
<F1> FOR PURPOSES OF THIS EXHIBIT PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED QUARTERLY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FINANCIAL STATEMENTS FOR QUARTERS 1, 2 & 3 OF FISCAL YEAR 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<CIK> 0000719955
<NAME> WILLIAMS-SONOMA, INC.
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> FEB-02-1997 FEB-02-1997 FEB-02-1997
<PERIOD-START> JAN-29-1996 APR-29-1996 JUL-29-1996
<PERIOD-END> APR-28-1996 JUL-28-1996 OCT-27-1996
<CASH> 2,930 6,176 2,882
<SECURITIES> 0 0 0
<RECEIVABLES> 13,824 9,737 17,038
<ALLOWANCES> 0 0 0
<INVENTORY> 113,440 101,284 119,016
<CURRENT-ASSETS> 152,782 141,635 166,989
<PP&E> 222,392 236,330 247,228
<DEPRECIATION> 68,014 72,877 78,561
<TOTAL-ASSETS> 318,717 316,995 347,214
<CURRENT-LIABILITIES> 81,979 77,720 100,302
<BONDS> 40,000 86,854 86,884
0 0 0
0 0 0
<COMMON> 48,393 11,466 11,466
<OTHER-SE> 70,959 107,742 108,234
<TOTAL-LIABILITY-AND-EQUITY> 318,717 316,995 347,214
<SALES> 157,396 155,499 171,154
<TOTAL-REVENUES> 157,396 155,499 171,154
<CGS> 102,775 101,644 108,522
<TOTAL-COSTS> 159,955 155,095 169,439
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,541 1,476 1,317
<INCOME-PRETAX> (4,100) (1,072) 398
<INCOME-TAX> (1,722) (450) 167
<INCOME-CONTINUING> (2,378) (622) 231
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (2,378) (622) 231
<EPS-PRIMARY> (.09)<F1> (.02)<F1> .01<F1>
<EPS-DILUTED> (.09) (.02) .01
<FN>
<F1>For purposes of this exhibit, primary means basic.
</FN>
</TABLE>
