<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 000-12704
WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 94-2203880
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
3250 Van Ness Avenue, San Francisco, CA 94109
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 421-7900
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check [x] 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
As of September 3, 1998, 55,612,581 shares of the Registrant's Common Stock
were outstanding.
<PAGE> 2
WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AUGUST 2, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
August 2, 1998, February 1, 1998, and August 3, 1997
Condensed Consolidated Statements of
Operations Thirteen weeks ended August 2, 1998 and August 3,
1997
Twenty-six weeks ended August 2, 1998 and August 3, 1997
Condensed Consolidated Statements of Cash Flows
Twenty-six weeks ended August 2, 1998 and August 3, 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
August 2, February 1, August 3,
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,896 $ 97,214 $ 27,266
Accounts receivable (net) 18,408 15,238 15,273
Merchandise inventories 152,247 132,451 125,709
Prepaid expenses and other assets 9,333 7,991 10,322
Prepaid catalog expenses 12,485 13,596 6,993
Deferred income taxes 3,680 3,680 4,028
-------- -------- --------
Total current assets 234,049 270,170 189,591
Property and equipment (net) 213,742 201,020 185,256
Investments and other assets (net) 5,823 6,039 6,160
Deferred income taxes -- -- 451
-------- -------- --------
Total assets $453,614 $477,229 $381,458
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,697 $ 58,496 $ 46,120
Accrued expenses 10,362 15,619 12,064
Accrued salaries and benefits 13,666 15,863 13,183
Customer deposits 19,171 19,617 13,672
Income taxes payable 153 17,216 2,900
Current portion of long-term obligations 125 125 125
Other liabilities 5,516 8,710 6,235
-------- -------- --------
Total current liabilities 93,690 135,646 94,299
Deferred lease credits 62,641 56,157 46,318
Deferred tax liability 2,439 2,439 --
Long-term debt and other liabilities 50,587 89,789 89,534
Shareholders' equity 244,257 193,198 151,307
-------- -------- --------
Total liabilities and shareholders' equity $453,614 $477,229 $381,458
======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------- --------------------------
August 2, August 3, August 2, August 3,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $215,262 $182,427 $421,472 $358,962
Costs and expenses:
Cost of goods sold and occupancy 135,248 116,667 263,171 226,694
Selling, general and administrative 73,336 60,662 147,695 124,003
-------- -------- -------- --------
Total costs and expenses 208,584 177,329 410,866 350,697
-------- -------- -------- --------
Earnings from operations 6,678 5,098 10,606 8,265
Interest expense (net) 163 929 452 1,703
-------- -------- -------- --------
Earnings before income taxes 6,515 4,169 10,154 6,562
Income taxes 2,671 1,752 4,163 2,756
-------- -------- -------- --------
Net earnings $ 3,844 $ 2,417 $ 5,991 $ 3,806
======== ======== ======== ========
Earnings per share:
Basic and diluted $ 0.07 $ 0.05 $ 0.11 $ 0.07
Average number of common shares outstanding:
Basic 55,484 51,201 53,587 51,171
Diluted 57,852 *53,604 55,947 *53,356
</TABLE>
* Incremental shares from assumed conversion of convertible debt are
antidilutive for diluted earnings per share and therefore not included.
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
---------------------------
August 2, August 3,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,991 $ 3,806
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Depreciation and amortization 15,571 13,745
Amortization of deferred lease incentives (2,959) (2,173)
Other 151 --
Change in:
Accounts receivable (3,170) (3,355)
Merchandise inventories (19,796) (15,007)
Prepaid catalog expenses 1,111 4,932
Prepaid expenses and other assets (1,342) (1,648)
Accounts payable (13,799) (18,289)
Accrued expenses and other liabilities (10,092) (2,537)
Deferred lease incentives 9,442 8,913
Income taxes payable (17,063) (12,815)
-------- --------
Net cash used in operating activities (35,955) (24,428)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (31,233) (27,751)
Proceeds from landlord for store closure 2,117 --
Other investments -- (506)
-------- --------
Net cash used in investing activities (29,116) (28,257)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit -- 3,900
Repayments under line of credit -- (3,900)
Repayment of long-term obligations (311) (313)
Proceeds from exercise of stock options 6,064 1,462
-------- --------
Net cash provided by financing activities 5,753 1,149
-------- --------
Net decrease in cash and cash equivalents (59,318) (51,536)
Cash and cash equivalents at beginning of period 97,214 78,802
-------- --------
Cash and cash equivalents at end of period $ 37,896 $ 27,266
======== ========
Non-cash financing transaction (see Note B):
Conversion of Convertible Notes to common stock $ 39,004 --
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Twenty-six Weeks Ended August 2, 1998 and August 3, 1997
(Unaudited)
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of August 2, 1998 and August 3,
1997, the condensed consolidated statements of operations for the thirteen and
twenty-six week periods ended August 2, 1998 and August 3, 1997 and the
condensed consolidated statements of cash flows for the twenty-six week periods
ended August 2, 1998 and August 3, 1997 have been prepared by Williams-Sonoma,
Inc., (the Company) without audit. In the opinion of management, the financial
statements include all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at the balance
sheet dates and the results of operations for the thirteen and twenty-six weeks
then ended. These financial statements include Williams-Sonoma, Inc., and its
wholly-owned subsidiaries. Significant intercompany transactions and accounts
have been eliminated. The balance sheet at February 1, 1998, presented herein,
has been derived from the audited balance sheet of the Company included in the
Company's Form 10-K for the fiscal year ended February 1, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report to Shareholders for the fiscal year ended February 1, 1998.
Certain reclassifications have been made to the prior period financial
statements to conform to classifications used in the current period.
The results of operations for the thirteen and twenty-six weeks ended August 2,
1998 are not necessarily indicative of the operating results of the full year.
NOTE B. DEBT
On April 15, 1996, the Company issued 5 1/4% Convertible Subordinated Notes due
April 15, 2003 in the principal amount of $40,000,000 (the "Convertible Notes").
In March 1998, the Company notified the holders of the Convertible Notes of the
Company's intention to redeem the Convertible Notes on April 21, 1998. Prior to
such redemption, substantially all of the Convertible Notes were converted into
approximately 3,064,000 shares of the Company's common stock. As a result, the
Company recorded a net increase to paid-in capital of $39,004,000, representing
$39,999,000 from the conversion of the Convertible Notes, net of $995,000 of
related unamortized debt issuance costs. There was no income statement impact as
a result of this conversion.
On June 1, 1998, the Company renewed its syndicated line of credit facility and
entered into a second amended and restated credit agreement which expires on
May 31, 2001. The amended facility provides for $50,000,000 in cash advances,
and contains certain restrictive loan covenants, including minimum tangible net
worth, a minimum out-of-debt period, fixed charge coverage requirements and a
prohibition on payment of cash dividends. Additionally, the Company has a
one-year $50,000,000 letter-of-credit agreement expiring on May 31, 1999 with
its primary bank.
On August 2, 1998, $50,000,000 and $50,000,000 were available under the
line-of-credit and letter-of-credit facilities, respectively, of which $0 and
$41,602,000 were outstanding, respectively.
<PAGE> 7
NOTE C. EARNINGS PER SHARE
Basic earnings per share is computed as net income divided by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible securities. Prior
year share and earnings per share amounts in these financial statements have
been restated to reflect such presentation.
NOTE D. STOCK SPLIT
A two-for-one stock split was announced on March 12, 1998 and was effected on
May 15, 1998. Prior year share and earnings-per-share amounts have been restated
to give retroactive recognition to this stock split.
NOTE E. NEW ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities, which
requires costs of start-up activities and organization costs to be expensed as
incurred. The SOP requires entities to expense as incurred all start-up and
preopening costs that are not otherwise capitalizable as long-lived assets. The
SOP will be effective for fiscal years beginning after December 15, 1998. The
Company's adoption of the new accounting standard will involve the recognition
of the cumulative effect of the change in accounting principle required by the
SOP as a one-time charge against earnings, net of any related income tax
effect, retroactive to the beginning of the fiscal year of adoption. Management
believes that adoption of this standard will not have a material impact on the
Company's earnings or financial position.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
NET SALES
Net sales consists of the following components (dollars in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 2, 1998 August 3, 1997 August 2, 1998 August 3, 1997
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Sales $141,658 65.8% $116,264 63.7% $270,675 64.2% $222,520 62.0%
Catalog Sales 73,604 34.2% 66,163 36.3% 150,797 35.8% 136,442 38.0%
-------- ---- -------- ---- -------- ---- -------- ----
Total Net Sales $215,262 100.0% $182,427 100.0% $421,472 100.0% $358,962 100.0%
</TABLE>
Net sales for Williams-Sonoma, Inc. and subsidiaries (the Company) for the 13
weeks ended August 2, 1998 (Second Quarter of 1998) were $215,262,000 -- an
increase of $32,835,000 (18.0%) over net sales for the 13 weeks ended August 3,
1997 (Second Quarter of 1997). Net sales for the 26-week period ended August 2,
1998 (Year-to-Date 1998) were $421,472,000, an increase of $62,510,000, or
17.4%, from the 26-week period ended August 3, 1997 (Year-to-Date 1997).
RETAIL SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
(Dollars in thousands) August 2, 1998 August 3, 1997 August 2, 1998 August 3, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total retail sales $ 141,658 $ 116,264 $ 270,675 $ 222,520
Retail growth percentage 21.8% 16.5% 21.6% 16.6%
Comparable store sales growth 5.8% 2.7% 5.4% 1.4%
Number of stores - beginning of period 276 260 276 256
Number of new stores 17 16 25 22
Number of closed stores 8 12 16 14
Number of stores - end of period 285 264 285 264
Store selling area at quarter-end (sq.ft.) 1,098,734 900,361 1,098,734 900,361
Store leased area at quarter-end (sq.ft.) 1,688,314 1,368,748 1,688,314 1,368,748
</TABLE>
Retail sales for the Second Quarter of 1998 increased 21.8% over retail sales
for the Second Quarter of 1997 primarily due to a net increase of 21 stores.
Year-to-Date 1998 retail sales increased 21.6% over the same period of the prior
year. The Company operated 285 stores at the end of the Second Quarter of 1998
as compared to 264 stores at the end of the same period during the prior year.
During the Second Quarter of 1998, the Company opened 17 stores (7 Pottery Barn,
6 Williams-Sonoma, 2 Hold Everything and 2 Clearance Center stores) and closed 8
stores (4 Pottery Barn, 2 Williams-Sonoma and 2 Hold Everything stores). Pottery
Barn, with 30.9% of the locations at the end of the Second Quarter of 1998,
accounted for 70.6% and 68.4% of the growth in retail sales for the Second
Quarter of 1998 and Year-to-Date 1998, respectively.
Comparable store sales are defined as sales from stores whose gross square feet
did not change by more than 20% in the previous twelve months and which have
been open for at least twelve months. Comparable store sales are compared
monthly for purposes of this analysis. 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 5.8% in the Second Quarter of 1998, and 5.4% for Year-to-Date
1998.
<PAGE> 9
The prototypical 1998 large-format stores range from 5,800 - 10,400 selling
square feet (7,000 - 15,200 leased square feet) for Pottery Barn stores and
2,900 - 4,500 selling square feet (4,100 - 6,400 leased square feet) for
Williams-Sonoma stores, and enable the Company to display merchandise more
effectively. At the end of the Second Quarter of 1998, 145 stores (82
Williams-Sonoma and 63 Pottery Barn) were in the large format, comprising 67.6%
of the Company's total selling square footage. Large-format stores accounted for
65.4% and 64.6% of Second Quarter of 1998 and Year-to-Date 1998 total retail
sales, respectively. By the end of fiscal 1998, the Company plans to increase
leased square footage by approximately 21% as compared to leased square footage
as of the 1997 fiscal year-end.
CATALOG SALES
Catalog sales in the Second Quarter of 1998 increased 11.2% as compared to the
Second Quarter of 1997. For Year-to-Date 1998, catalog sales increased 10.5%
over the same period of 1997. The total number of catalogs mailed, as compared
to the same period of the respective prior years, increased 3.8% in the Second
Quarter of 1998 and 17.6% in the Second Quarter of 1997. The increased
circulation in these periods was in markets with stores. Management believes
that the mailing of catalogs into markets with stores builds brand recognition
and supports new store openings. Typically, these mailings generate less revenue
for the catalog division than mailings into non-store markets.
The following table reflects catalog sales growth (decline) percentages by
concept:
<TABLE>
<CAPTION>
Percentage Growth (Decline)
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 2, 1998 August 3, 1997 August 2, 1998 August 3, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Williams-Sonoma (15.1%) 36.8% (6.6%) 27.7%
Pottery Barn 33.8% 27.7% 28.4% 11.9%
Hold Everything 0.3% 29.1% 5.5% 16.5%
Gardeners Eden (7.1%) (9.1%) (15.6%) (6.1%)
Chambers (2.8%) (20.3%) (4.0%) (3.7%)
Total catalog 11.2% 18.7% 10.5% 11.8%
</TABLE>
Combined sales for Williams-Sonoma and Pottery Barn, the Company's primary
concepts, comprised approximately 69.7% and 69.9% of total catalog sales for the
Second Quarter of 1998 and Year-to-Date 1998, respectively. For Pottery Barn,
the number of catalogs mailed in the Second Quarter of 1998 as compared to the
same period of 1997 increased 11.8%. Also contributing to the Second Quarter
1998 sales growth of Pottery Barn was a broadening of the merchandise
assortment. For Williams-Sonoma, the number of catalogs mailed in the Second
Quarter of 1998 decreased 6.9% as compared to the same period of the prior year,
in part reflecting the Company's decision to eliminate the summer book from its
1998 circulation plan. Instead, the Company will mail the spring catalog later
into the spring season and will mail the fall catalog earlier in the fall
season.
COST OF GOODS SOLD AND OCCUPANCY
Cost of goods sold and occupancy expenses expressed as a percent of net sales in
the Second Quarter of 1998 decreased 1.2 percentage points to 62.8% from 64.0%
in the same period of the prior year. Merchandise margin improved 1.1 percentage
points, principally due to a lower cost of merchandise. Occupancy expenses
expressed as a percentage of net sales decreased slightly in the Second Quarter
of 1998 as compared to the same period of the prior year.
<PAGE> 10
For the Year-to-Date 1998, cost of goods sold and occupancy expenses as a
percent of net sales decreased 0.8 percentage points, from 63.2% for the same
period of 1997 to 62.4%. This decrease was primarily due to improved merchandise
margins as a result of lower cost of merchandise.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses expressed as a percent of net sales
increased .8 percentage points to 34.1% in the Second Quarter of 1998 from 33.3%
in the Second Quarter of 1997. The majority of the increase was due to increased
employment costs and lower net shipping income. The reduction in net shipping
income was due in part to the growth of Pottery Barn as compared to the other
concepts. Pottery Barn historically has generated higher merchandise revenue per
order than the other concepts, which typically results in higher shipping
expense expressed as a percent of the shipping income collected.
The Year-to-Date 1998 selling, general and administrative expense rates
increased .5 percentage points over the Year-to-Date 1997. This is primarily due
to increased employment and other general operating costs.
INTEREST EXPENSE
Net interest expense for the Second Quarter of 1998 decreased $766,000 to
$163,000 from $929,000 for the Second Quarter of 1997. This is primarily due to
interest savings as a result of the conversion of the Company's Convertible
Notes in April 1998 (see Note B), and an increase in short-term investment
income. Net interest expense for Year-to-Date 1998 decreased to $452,000 from
$1,703,000 for the same period of the prior year. This is principally
attributable to an increase in short-term investment income. During Year-to-Date
1998, the Company had an average investment balance of $62,104,000, as compared
to $38,213,000 for Year-to-Date 1997.
INCOME TAXES
The Company's effective tax rate was 41.0% for the Second Quarter and
Year-to-Date of 1998 and 42.0% for the Second Quarter and Year-to-Date of 1997.
This rate reflects 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
For Year-to-Date 1998, cash used in operating activities was $35,955,000,
representing an increase of $11,527,000 from the $24,428,000 of cash used in
operating activities for the same period of 1997. This was principally
attributable to increases in merchandise inventories, payment of the Company's
1997 income tax liability, and payment of accrued expenses and other
liabilities, including sales tax liabilities.
Net cash used in investing activities of $29,116,000 was primarily for new
stores. The Company is planning approximately $70,000,000 - $75,000,000 of gross
capital expenditures in 1998, including $10,000,000 for information systems.
For Year-to-Date 1998, cash provided by financing activities was $5,753,000,
comprised primarily of proceeds from exercise of stock options. On April 15,
1996, the Company had issued 5 1/4% Convertible Subordinated Notes due April 15,
2003 in the principal amount of $40,000,000. In March of 1998, the Company
notified the holders of the Convertible Notes of the Company's intention to
redeem the Convertible Notes on April 21, 1998. Prior to such redemption,
substantially all of the Convertible Notes
<PAGE> 11
were converted into approximately 3,064,000 shares of the Company's common
stock. As a result, the Company recorded a net increase to paid-in-capital of
$39,004,000, representing $39,999,000 from the Conversion of the Notes, net of
$995,000 of related unamortized debt issuance costs. See Note B to the condensed
consolidated financial statements.
On June 1, 1998, the Company renewed its syndicated line of credit facility and
entered into a second amended and restated credit agreement which expires on
May 31, 2001. The amended facility provides for $50,000,000 in cash advances,
and contains certain restrictive loan covenants, including minimum tangible net
worth, a minimum out-of-debt period, fixed charge coverage requirements and a
prohibition on payment of cash dividends. Additionally, the Company has a
one-year $50,000,000 letter-of-credit agreement expiring on May 31, 1999 with
its primary bank.
On August 2, 1998, $50,000,000 and $50,000,000 were available under the
line-of-credit and letter-of-credit facilities, respectively, of which $0 and
$41,602,000 were outstanding, respectively.
IMPACT OF INFLATION
The impact of inflation on results of operations has not been significant.
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 information technology ("IT") and non-IT systems
to identify those areas that could be affected by the Year 2000 issue, and has
developed a comprehensive, risk-based plan. This plan addresses both IT and
non-IT systems and products, as well as dependencies on those with whom the
Company does significant business.
In connection with the plan, the Company has completed an inventory and
risk-assessment of its computer systems and related technology, and has begun
the testing and remediation process. The Company expects to complete this
process, including integration testing of its critical business processes, by
mid-1999. However, the Company can not guarantee that its compliant systems will
not encounter difficulties when attempting to interface or interconnect with
third party systems, whether or not those systems are claimed to be "compliant",
and the Company can not guarantee that such failure to interface or interconnect
will not have a materially adverse effect on the Company's operations. The
Company has also completed an inventory and risk assessment of its outside
vendors, and believes the greatest Year 2000 exposure is with its service
providers (customs broker, logistics providers, etc.). The Company is currently
in the process of communicating with these vendors and performing testing to
determine their Year 2000 readiness. The Company believes the Year 2000 risk
with its merchandise suppliers is low because no vendor accounts for more than
3% of purchases and many of the vendors are small artisan manufacturers with
simple business systems. The Company expects to identify any significant
vendor-compliance problems by the first quarter of 1999, and to resolve those
issues by the end of the third quarter. Despite this approach, 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 is using both internal and external resources to complete this
project. In total, the estimated cost for the remediation and testing of
computer applications and related products could range as high as $4.5 million
over the two-year period 1998 through 1999, of which approximately $710,000 has
been incurred to date.
The Company presently believes, with modification to existing software and
converting to new software, the Year 2000 problem will not pose significant
operational risk. While the Company can not accurately predict a "worst case
scenario" with regard to its Year 2000 issues, the 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. The Company is in the
process of assessing these risks and uncertainties and developing appropriate
contingency plans and procedures in an attempt to minimize the effects of such a
scenario.
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
<PAGE> 12
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.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in
this quarterly report 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, the Company's
dependence on external funding sources, a limited operating history for the
Company's large-format stores, the potential for changes in consumer spending
patterns, consumer preferences and overall economic conditions, the Company's
dependence on foreign suppliers, increasing competition in the specialty retail
business, and the Company's ability to successfully resolve its Year 2000
issues. 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> 13
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1 - 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 material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on May 27, 1998.
(b) At the Company's 1998 Annual Meeting of Shareholders, the shareholders took
the following actions:
(I) The shareholders re-elected each of the following persons by the vote
indicated to serve as a director of the Company until the next Annual
Meeting of Shareholders or until his or her successor is elected and
qualified:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Charles E. Williams 23,650,317 48,599
W. Howard Lester 23,674,647 24,269
James A. McMahan 23,650,618 48,298
Nathan Bessin 23,650,575 48,341
Patrick J. Connolly 23,672,494 26,422
Gary G. Friedman 23,673,191 25,725
James M. Berry 23,653,196 45,720
John E. Martin 23,675,579 23,337
Adrian D.P. Bellamy 23,675,389 23,527
Janet L. Emerson 23,673,540 25,376
</TABLE>
(II) The shareholders approved, by the vote indicated, the amendment to the
Company's Amended and Restated 1993 Stock Option Plan:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
19,710,470 876,720 30,731
</TABLE>
(III) The shareholders ratified by the vote indicated the selection of
Deloitte & Touche LLP as the independent accountants for the
Company's fiscal year ending January 31, 1999:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
23,578,563 115,462 4,891
</TABLE>
<PAGE> 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
10.1 Amendment Number Eight to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated September 16, 1997.
10.2 First Amendment to Syndicated Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated May 29,
1998
10.3 Second Amendment to Letter of Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated May 29,
1998
10.4 Second Amendment to Syndicated Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated June 30,
1998
10.5 Third Amendment to Letter of Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated June 30,
1998
10.6 Memorandum of Understanding between the Company and the State of
Mississippi, Mississippi Business Finance Corporation, Desoto County,
Mississippi, the City of Olive Branch, Mississippi and Hewson
Properties, Inc., dated August 24, 1998
10.7 Reimbursement Agreement between the Company and Hewson Properties,
dated August 17, 1998
11 Statement re computation of per share earnings.
27 Financial Data Schedule.
</TABLE>
(b) There have been no reports on Form 8-K filed during the quarter for which
this report is being filed.
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS-SONOMA, INC.
By: /s/ Dennis A. Chantland
---------------------------------
Dennis A. Chantland
Executive Vice President
Chief Administrative Officer
Secretary
Dated: September 11, 1998
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NUMBER EIGHT TO THE WILLIAMS-SONOMA, INC.
ASSOCIATE STOCK INCENTIVE PLAN
Williams-Sonoma, Inc., a California corporation (the "Company"), hereby
adopts this Amendment Number Eight to the Williams-Sonoma, Inc. Associate Stock
Incentive Plan, with reference to the following facts:
A. The Company maintains the Williams-Sonoma, Inc. Associate Stock
Incentive Plan, formerly referred to as the Williams-Sonoma, Inc. Employee
Profit Sharing and Stock Incentive Plan, (the "Plan").
B. Article XV of the Plan permits the Company to amend the Plan at any
time.
C. The Company desires to amend the Plan as set forth in this Amendment
Number Eight.
NOW THEREFORE, the Plan is hereby amended as follows:
1. Effective August 18, 1997, the vesting schedule in Section 11.06 of the
Plan is hereby amended to provide as follows:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
Less than 1 year 0%
1 Year 20%
2 Years 40%
3 Years 60%
4 Years 80%
5 or more years 100%
</TABLE>
<PAGE> 2
2. Effective as of the date of the execution of this Amendment Number
Eight, Section 13.02 of the Plan is hereby amended in its entirety to provide as
follows:
13.02 Definition of Serious Financial Hardship. A participant shall be
treated as having suffered a Serious Financial Hardship only to the extent
amounts are needed for one of the following:
(1) Expenses for medical care described in Section 213(d) of the Code
incurred by the Participant, the Participant's spouse or any of the
Participant's dependents (as defined in Section 152 of the Code), or
necessary for any of such persons to obtain medical care described in
Section 213(d) of the Code;
(2) Prevention of the eviction of the Participant from Participant's
principal residence or the foreclosure of the mortgage on the Participant's
principal residence;
(3) Payment of tuition, related educational fees, and room and board
expenses for the next 12 months of post-secondary education for the
Participant, or the Participant's spouse, children, or dependents (as
defined in Section 152 of the Code); or
(4) Costs related directly to the purchase of a principal residence
for the Participant (excluding mortgage payments).
-2-
<PAGE> 3
3. In all other respects, the terms and provisions of the Plan are hereby
ratified and declared to be in full force and effect.
IN WITNESS WHEREOF, the Company has executed this Amendment Number Eight
this 16th day of September 1997 to be effective as of the dates set forth above.
WILLIAMS-SONOMA, INC.
By: /s/ G. Andrew Rich
---------------------------------
-3-
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO SYNDICATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of May
29, 1998, is entered into by and among WILLIAMS-SONOMA, INC. (the "Company"),
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and
the Banks (the "Agent"), and the several financial institutions party to the
Credit Agreement (collectively, the "Banks").
RECITALS
A. The Company, Banks, and Agent are parties to a Credit Agreement dated as
of June 1, 1997 (the "Credit Agreement") pursuant to which the Agent and the
Banks have extended certain credit facilities to the Company.
B. The Company has requested that the Banks extend the Expiration Date.
C. The Banks are willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendments to Credit Agreement. The definition of "Expiration Date" in
Section 1.01 of the Credit Agreement shall be amended to read as follows:
"Expiration Date" means June 30, 1998.
3. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Company contained in the
Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
1
<PAGE> 2
4. Effective Date. This Amendment will become effective as of May 29, 1998
(the "Effective Date"), provided that the Agent has received from the Company
and each of the Banks a duly executed original (or, if elected by the Agent, an
executed facsimile copy) of this Amendment.
5. Reservation of Rights. The Company acknowledges and agrees that the
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a Bank or
the Company shall bind such Bank or the Company, respectively, with the same
force and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior drafts
and communications with respect thereto. This Amendment may not be amended
except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent, upon
demand, for all costs and expenses (including allocated costs of in-house
counsel) incurred in connection with the development, preparation, negotiation,
execution and delivery of this Amendment.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By /s/ Leandro J. Balidoy WILLIAMS-SONOMA, INC.
--------------------------
Leandro J. Balidoy
Vice President By /s/ W. Howard Lester
---------------------------------
W. Howard Lester
Chief Executive Officer
By__________________________________
Title_______________________________
BANK OF AMERICA NATIONAL TRUST NATIONSBANK, N. A., successor by
AND SAVINGS ASSOCIATION, as a Bank merger to Nationsbank of Texas, N.A.
By /s/ Hagop V. Bouldoukian By /s/ Michael Shea
-------------------------- --------------------------------
Hagop V. Bouldoukian Michael Shea
Vice President Senior Vice President
3
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT TO LETTER OF CREDIT AGREEMENT
This Amendment dated as of May 29, 1998 is between Bank of America National
Trust and Savings Association (the "Bank") and Williams-Sonoma, Inc. (the
"Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Letter of Credit
Agreement dated as of June 1, 1997 (as previously amended, the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendment. The Agreement is hereby amended as follows: The definition of
"Expiration Date" is amended to read as follows:
"Expiration Date" means June 30, 1998.
3. Representations and Warranties. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that:
(a) There is no event which is, or with notice or lapse of time or
both would be, an event of default under the Agreement;
(b) The representations and warranties in the Agreement are true and
correct as of the date of this Amendment as if made on the date of this
Amendment;
(c) This Amendment is within the Borrower's powers, has been duly
authorized, and does not conflict with any of the Borrower's organizational
papers; and
(d) This Amendment does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
4. Conditions. This Amendment will be effective when the Bank receives the
following items, in form and content acceptable to the Bank: Evidence that the
execution, delivery, and performance by the Borrower of this Amendment and any
instrument or agreement required under this Amendment have been duly authorized;
5. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
-1-
<PAGE> 2
This Amendment is executed as of the date first stated above.
BANK OF AMERICA NATIONAL WILLIAMS-SONOMA, INC.
TRUST AND SAVINGS ASSOCIATION
By /s/ Hagop V. Bouldoukian By /s/ W. Howard Lester
----------------------------- --------------------------------
Hagop V. Bouldoukian W. Howard Lester
Vice President Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 10.4
SECOND AMENDMENT TO SYNDICATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
June 30, 1998, is entered into by and among WILLIAMS-SONOMA, INC. (the
"Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for
itself and the Banks (the "Agent"), and the several financial institutions party
to the Credit Agreement (collectively, the "Banks").
RECITALS
A. The Company, Banks, and Agent are parties to a Credit Agreement dated as
of June 1, 1997 (as previously amended, the "Credit Agreement") pursuant to
which the Agent and the Banks have extended certain credit facilities to the
Company.
B. The Company has requested that the Banks agree to certain amendments of
the Credit Agreement, including a reduction of the Tranche A Commitments.
C. The Banks are willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendments to Credit Agreement.
(a) The definition of "Expiration Date" in Section 1.01 of the Credit
Agreement shall be amended to read as follows:
"Expiration Date" means May 31, 2001.
(b) Schedule 2.01 to the Credit Agreement is amended to read as
follows with respect to Tranche A (the availability of Tranche B has expired):
<TABLE>
<CAPTION>
Bank Tranche A Commitment Pro Rata Share
---- -------------------- --------------
<S> <C> <C>
Bank of America National Trust $33,333,333 66.666666%
and Savings Association
NationsBank, N.A. $16,666,667 33.333334%
Total $50,000,000 100%
</TABLE>
(c) Section 2.11(b) is amended to provide that the Commitment Fee
shall be equal to one-eighth of one percent (0.125%) per annum.
(d) A new Section 5.20 is added as follows:
5.20 Year 2000 Compliance. The Company has conducted a
comprehensive review and assessment of the Company's computer
applications with
1
<PAGE> 2
respect to the "year 2000 problem" (that is, the risk that computer
applications may not be able to properly perform date-sensitive
functions after December 31, 1999) and, based on that review, the
Company does not believe the year 2000 problem will result in a
material adverse change in the Company's business condition (financial
or otherwise), operations, properties or prospects, or ability to
repay the credit.
(e) Section 6.01(a) is amended to provide that the opinion of the
Independent Auditor must not be qualified due to possible failure to take all
appropriate steps to successfully address year 2000 system issues.
(f) Section 6.03 is amended to read as follows:
6.03 Tangible Net Worth. The Company shall maintain on a
consolidated basis, as of each date indicated below, the sum of the
following:
(a) the Company's Tangible Net Worth;
(b) plus the amount paid by the Company after February 1,
1998 to purchase, redeem or otherwise acquire the stock of the
Company, as permitted by paragraph 7.10 below;
(c) minus the amount of the proceeds of any stock sold by
the Company after February 1, 1998;
(d) minus the amount of the proceeds of the conversion of
any debt to stock after February 1, 1998;
equal to at least the amounts indicated for each date specified below:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
April 30, 1998 $180,000,000
July 31, 1998 $180,000,000
October 31, 1998 $180,000,000
January 31, 1999 $210,000,000
April 30, 1999 $210,000,000
July 31, 1999 $210,000,000
October 31, 1999 $210,000,000
January 31, 2000 $255,000,000
April 30, 2000 $255,000,000
July 31, 2000 $255,000,000
October 31, 2000 $255,000,000
January 31, 2001
and thereafter $305,000,000
</TABLE>
(g) A new Section 6.15 is added to the Agreement as follows:
6.15 Fixed Charge Coverage Ratio. The Company will maintain a
Fixed Charge Coverage Ratio of at least 2.25:1.00. "Fixed Charge
Coverage Ratio" means the ratio of:
(a) the sum of net income (or net loss), excluding any tax
credit; plus depreciation, depletion, amortization and other
non-cash charges; plus
2
<PAGE> 3
income tax expense; plus Operating Lease Expense; plus Rent
Expense; plus Interest Expense; to
(b) the sum of Operating Lease Expense; plus Rent Expense;
plus Interest Expense; plus principal payments made on amortizing
long-term debt; plus payments on capital leases; plus principal
amounts which came due during the period on Indebtedness
permitted by Subsection 7.05(g) below (distribution center
financing), to the extent not already included in calculating
this subsection (b).
This ratio will be calculated at the end of each fiscal quarter, using
the results of that quarter and each of the three immediately
preceding quarters. "Operating Lease Expense" means the amount of
regularly scheduled payments due under operating leases covering
personal property. "Rent Expense" means the sum of the following
amounts for leases covering real property: the sum of minimum rent,
plus adjustments/credits for deferred lease rent, plus percentage
rent, plus offsite storage rent. "Interest Expense" means interest on
Indebtedness, calculated in accordance with GAAP.
(h) Subsection (d) of Section 7.01 ("Limitation on Liens") is amended
to read as follows:
(d) Cash collateral and security deposits provided in
connection with operating lease obligations incurred to finance
the acquisition of fixed assets (excluding real property and
excluding security deposits with utility companies); provided
that the amount of such collateral and security deposits must not
exceed Five Million Dollars ($5,000,000) at any time.
(i) New subsections (l) and (m) are added to Section 7.01 ("Limitation
on Liens") as follows:
(l) the interest of a lessor under a capital lease permitted
under Section 7.09.
(m) Liens on real property securing Indebtedness permitted
by Subsection 7.05(g) below (distribution center financing).
(j) Subsection (c) of Section 7.02 ("Disposition of Assets") is
amended to read as follows:
(c) dispositions of assets and relinquishment of rights in
connection with store closings in accordance with the business
plans of the Company and its Subsidiaries, so long as the
aggregate book value of all such assets disposed and rights
relinquished after the date of this Agreement does not exceed
Eight Million Dollars ($8,000,000) per fiscal year (net of any
insurance proceeds).
(k) Subsections (d) and (e) of Section 7.05 ("Limitation on
Indebtedness") are amended to read as follows:
(d) Indebtedness to BofA (or another replacement lender) in
connection with commercial and standby letters of credit issued
for the account
3
<PAGE> 4
of the Company in a principal amount not to exceed Seventy-Five
Million Dollars ($75,000,000) outstanding at any one time;
(e) Indebtedness incurred in connection with leases
permitted pursuant to Subsections 7.09(a) through (d);
(l) New subsections (g) and (h) are added to Section 7.05 ("Limitation
on Indebtedness") as follows:
(g) Additional Indebtedness (including capital leases)
incurred to finance the Company's new distribution center;
provided, however, that the terms of the Indebtedness, in the
reasonable opinion of Majority Banks, are not more restrictive on
the Company than the terms of this Agreement (except that the
Indebtedness may include terms relating to Permitted Liens
securing the Indebtedness); and provided further that, for any
Indebtedness covered by this subparagraph (g) in an amount in
excess of Fifty Million Dollars ($50,000,000) in the aggregate,
the average life of such excess Indebtedness must not be less
than seven years.
(h) Additional Indebtedness not exceeding Five Million
Dollars ($5,000,000) in principal amount outstanding at any one
time.
(m) Subsections (c) and (d) of Section 7.09 ("Lease Obligations") are
amended to read as follows, and a new subsection (e) is added:
(c) leases entered into by the Company or any Subsidiary
after the Closing Date pursuant to sale-leaseback transactions in
an aggregate amount not to exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000) per fiscal year;
(d) capital leases in an aggregate amount not exceeding
Twelve Million Five Hundred Thousand Dollars ($12,500,000)
outstanding at any one time.
(e) capital leases permitted under Subsection 7.05(g).
(n) Section 7.10(d) of the Agreement, which permitted certain
repurchases and redemptions of stock, is hereby deleted. Due to this deletion,
and the expiration of Tranche B, the "Stock Purchase Trigger Date" defined in
section 7.10(d) will not occur. Consequently, the related increase to the
Applicable Margin and the Leverage covenant in Section 6.04 will not apply.
3. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding
4
<PAGE> 5
obligations of the Company, enforceable against it in accordance with its
respective terms, without defense, counterclaim or offset.
(c) All representations and warranties of the Company contained in the
Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of June 30, 1998
(the "Effective Date"), provided that each of the following conditions precedent
is satisfied:
(a) The Agent has received from the Company and each of the Banks a
duly executed original (or, if elected by the Agent, an executed facsimile copy)
of this Amendment, together with a duly executed Guarantor Acknowledgment and
Consent in the form attached hereto (the "Consent").
(b) The Agent has received from the Company and each Guarantor a copy
of a resolution passed by each corporation's board of directors, certified by
the Secretary or an Assistant Secretary of such corporation as being in full
force and effect on the date hereof, authorizing the execution, delivery and
performance of this Amendment or the Consent, as applicable.
5. Reservation of Rights. The Company acknowledges and agrees that the
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Bank Merger. The parties acknowledge that BankAmerica Corporation and
NationsBank Corporation have announced an agreement to merge. In the event that
the merger is consummated, the parties agree to negotiate in good faith to add
an additional Bank to the syndicate.
7. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto
5
<PAGE> 6
either in the form of an executed original or an executed original sent by
facsimile transmission to be followed promptly by mailing of a hard copy
original, and that receipt by the Agent of a facsimile transmitted document
purportedly bearing the signature of a Bank or the Company shall bind such Bank
or the Company, respectively, with the same force and effect as the delivery of
a hard copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior drafts
and communications with respect thereto. This Amendment may not be amended
except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
6
<PAGE> 7
(g) The Company covenants to pay to or reimburse the Agent, upon
demand, for all costs and expenses (including allocated costs of in-house
counsel) incurred in connection with the development, preparation, negotiation,
execution and delivery of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
WILLIAMS-SONOMA, INC.
By /s/ Patrick W. Zetzman
---------------------------
Patrick W. Zetzman
Vice President By /s/ W. Howard Lester
----------------------------------
W. Howard Lester
Chief Executive Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
NATIONSBANK, N. A.,
By /s/ Hagop V. Bouldoukian as successor by merger to Nations
--------------------------- Bank of Texas, N.A.
Hagop V. Bouldoukian
Vice President By /s/ Michael Shea
----------------------------------
Michael Shea
Senior Vice President
7
<PAGE> 8
GUARANTOR ACKNOWLEDGMENT AND CONSENT
The undersigned, each a guarantor with respect to the Company's obligations
to the Agent and the Banks under the Credit Agreement, each hereby (i)
acknowledge and consent to the execution, delivery and performance by Company of
the foregoing Second Amendment to Credit Agreement (the "Amendment"), and (ii)
reaffirm and agree that the respective guaranty to which the undersigned is
party and all other documents and agreements executed and delivered by the
undersigned to the Agent and the Banks in connection with the Credit Agreement
are in full force and effect, without defense, offset or counterclaim.
(Capitalized terms used herein have the meanings specified in the Amendment.)
Dated as of June 30, 1998 WILLIAMS-SONOMA STORES, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
HOLD EVERYTHING, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
CHAMBERS CATALOG
COMPANY, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
GARDENER'S EDEN, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
POTTERY BARN EAST, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
8
<PAGE> 1
EXHIBIT 10.5
THIRD AMENDMENT TO LETTER OF CREDIT AGREEMENT
This Amendment dated as of June 30, 1998 is between Bank of America
National Trust and Savings Association (the "Bank") and Williams-Sonoma, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Letter of Credit
Agreement dated as of June 1, 1997 (as previously amended, the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meanings given to them in the Agreement.
2. Amendment. The Agreement is hereby amended as follows:
2.1 The definition of "Expiration Date" is amended to read as follows:
"Expiration Date" means May 31, 1999.
2.2 In Paragraph 2.2 of the Agreement, the amount "Fifty Million
Dollars ($50,000,000)" is substituted for the amount "Thirty-Five Million
Dollars ($35,000,000)."
3. Representations and Warranties. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that the representations and
warranties in Article 5 of the Agreement, as applied to the Agreement as amended
hereby, are true and correct as of the date of this Amendment as if made on the
date of this Amendment;
4. Conditions. This Amendment will be effective when the Bank receives the
following items, in form and content acceptable to the Bank:
(a) Evidence that the execution, delivery, and performance by the
Borrower of this Amendment and any instrument or agreement required under
this Amendment have been duly authorized;
(b) A Guarantor Acknowledgment and Consent in the form attached
hereto.
5. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
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<PAGE> 2
This Amendment is executed as of the date first stated above.
BANK OF AMERICA NATIONAL WILLIAMS-SONOMA, INC.
TRUST AND SAVINGS ASSOCIATION
By /s/ Hagop V. Bouldoukian By /s/ W. Howard Lester
-------------------------------- ----------------------------------
Hagop V. Bouldoukian W. Howard Lester
Vice President Chief Executive Officer
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<PAGE> 3
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor with respect to the Borrower's obligations to
the Bank under the Agreement, each hereby (i) acknowledge and consent to the
execution, delivery and performance by the Borrower of the foregoing Third
Amendment to Letter of Credit Agreement, and (ii) reaffirm and agree that the
guaranty to which the undersigned is party is in full force and effect, and
guaranties all of the obligations of the Borrower under the Agreement, as
amended.
Dated as of June 30, 1998 WILLIAMS-SONOMA STORES, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
HOLD EVERYTHING, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
CHAMBERS CATALOG
COMPANY, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
GARDENER'S EDEN, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
POTTERY BARN EAST, INC.
By /s/ Jerry S. B. Dratler
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
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EXHIBIT 10.6
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING (this "MOU") is made this the 24th
day of August, 1998 by and among the STATE OF MISSISSIPPI acting by and through
the MISSISSIPPI DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT ("MDECD"),
MISSISSIPPI BUSINESS FINANCE CORPORATION ("MBFC"), DESOTO COUNTY, MISSISSIPPI
(the "County"), the CITY OF OLIVE BRANCH, MISSISSIPPI (the "City"), HEWSON
PROPERTIES, INC. AND/OR A SUBSIDIARY OR AFFILIATE OF HEWSON PROPERTIES, INC.
("Hewson" or "Builder/Lessor") and WILLIAMS-SONOMA, INC. AND/OR A WHOLLY-OWNED
SUBSIDIARY OF WILLIAMS-SONOMA, INC. ("Williams-Sonoma" or "Lessee/User").
(MDECD, MBFC, the County, and the City will be collectively referred to as the
"Inducers"; Hewson and Williams-Sonoma will be collectively referred to as the
"Companies.")
A. Hewson is desirous of acquiring land and building for lease to
Williams-Sonoma and Williams-Sonoma is desirous of leasing from Hewson and
equipping a warehousing and distribution facility in DeSoto County, Mississippi
(the initial and all planned future phases thereof being collectively called the
"Project"). Upon completion of the initial phase thereof by Hewson and upon
occupancy thereof by Williams-Sonoma in accordance with its lease,
Williams-Sonoma will make significant employment opportunities available in
association with the facility.
B. MDECD has determined that the proposed Project would benefit the
residents of the State by increasing both employment and tax revenues. The
County and City have similarly determined that the proposed Project will improve
the standard of living for the residents of the City and County and the
residents will further benefit through increased employment opportunity and tax
revenue for the City, County and the school district.
C. The parties hereto wish to set forth their mutual understandings
with respect to the proposed Project and to memorialize their respective
willingness to proceed to accomplish said Project.
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The parties therefore agree as follows:
1. Obligations. Each of the Inducers hereby agrees that, in
consideration of the Companies locating the Project, as fully described herein,
with its employment opportunities, capital investment and future tax revenues in
DeSoto County, Mississippi, it will provide the respective inducements or
incentives to be provided by it as set forth herein. Hewson hereby agrees that
(a) in consideration of the Inducers providing said inducements or incentives,
and (b) in consideration of Williams-Sonoma's willingness to lease the first
building and the land on which it is situated ("Phase I") from Hewson as set
forth in EXHIBITS "A," "A-1" AND "A-2," Hewson will acquire the land required
for Phase I and construct on the land the first building as set forth in
EXHIBITS "A," "A-1" AND "A-2" for lease to Williams-Sonoma. Williams-Sonoma
hereby agrees that, in consideration of (1) the Inducers providing said
inducements or incentives, (2) the Mississippi Department of Transportation
constructing the Goodman By-pass as set forth herein and in EXHIBIT "M" hereto,
(3) the City providing fire protection (including water supply and pressure in
accordance with page 1 of the letter (excluding the diesel engine-driven fire
pump referenced in paragraph 1 thereof and the electric motor-driven booster
pump referenced in paragraph 2 thereof) of Security Fire Protection dated August
11, 1998 (the "Security Fire Letter"), a copy of which is attached hereto as
EXHIBIT "P," and (4) upon satisfaction of the conditions set forth in EXHIBITS
"A," "A-1" AND "A-2," and (5) upon electric power and telephone services being
provided to the Project as set forth in EXHIBITS "K" AND "L" AND "L-1" hereto,
Williams-Sonoma will lease Phase I of the Project from Hewson, and will equip
and operate Phase I of the Project as fully described herein.
2. Severability. If any clause, provision or paragraph of this MOU be
held illegal or invalid by any court, the illegality or invalidity of such
clause, provision or paragraph shall not affect any remaining clauses,
provisions or paragraphs hereof, and this MOU shall be construed and enforced as
if such illegal or invalid clause, provision or paragraph had not been contained
herein.
3. MDECD Undertakings:
(a) MDECD agrees to make available to the City, upon application of
the City and Williams-Sonoma, at no cost to the Companies [other than as set out
in Sections 5(a) and 6(h)
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hereof], a low interest loan in the amount of Two Million Dollars
($2,000,000.00) (the "MBIA loan") under the Mississippi Business Investment Act
(the "MBIA") for construction of the non-road infrastructure (the "Non-Road
Infrastructure") detailed in Section 6 below. The MBIA loan, as it relates to
this Project, requires Williams-Sonoma to create and maintain, during the term
of the loan, one (1) net new full-time job for each Fifteen Thousand Dollars
($15,000.00) loaned and a match of at least three (3) to one (1) in private to
public funds. The MBIA is codified in the Mississippi Code as Section 57-61-1 et
seq. Copies of the MBIA guidelines and application have been provided to the
City and the Companies, and by execution of this MOU, the City and the Companies
acknowledge receipt thereof and the application thereof to such funding. In the
event that the amount of the MBIA loan is not sufficient to pay the costs of the
Non-Road Infrastructure as herein described, then subject to the conditions and
restrictions set out in Mississippi Code Section 57-61-1 et seq. and the MBIA
guidelines, MDECD will agree to increase the MBIA loan up to Two Million Five
Hundred Thousand Dollars ($2,500,000.00).
(b) MDECD agrees that no payments shall be due under the MBIA loan for
three (3) years following the date of closing of the MBIA loan, and that the
MBIA loan shall not bear interest during such three-year period. Thereafter, the
MBIA loan shall bear interest at the rate of two percent (2%) per annum, and the
principal and interest of the MBIA loan shall be payable in twenty-four (24)
equal semiannual installments of approximately Ninety-Four Thousand One Hundred
Forty-Six and 94/100 Dollars ($94,146.94) each. The City at its option shall
have the right and privilege to prepay the MBIA loan without premium or penalty.
The State Bond Commission of Mississippi is scheduled to meet on August 26,
1998. It is anticipated that at this meeting the Bond Commission will issue its
Resolution of Necessity to issue bonds which will include the MBIA loan.
Thereafter, it is anticipated that the MDECD bonds will be issued on September
20, 1998, and it is anticipated that loan proceeds will be available to the City
by October 1, 1998. In the event that the City needs funds prior to the funding
of the MBIA loan in order to remain on schedule with respect to the construction
of the Non-Road Infrastructure, Hewson agrees to pay any requisitions submitted
to and approved by City and Hewson prior to the funding of the MBIA loan, and
which are in form and substance reasonably acceptable to Hewson. Hewson agrees
to review any requisitions submitted to it, as aforesaid, within ten (10) days
of its receipt thereof and to submit payment to the City promptly thereafter
with respect to those requisitions approved by Hewson. In no event shall the
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aggregate of all advances made by Hewson hereunder exceed One Hundred Fifty
Thousand Dollars ($150,000.00). City agrees to reimburse Hewson for such
advances, without interest, within ten (10) days after the first meeting of the
Mayor and Board of Aldermen following the funding of the MBIA loan. To the
extent that any cost or expense otherwise qualifies as a proper Project expense,
MDECD agrees that reimbursement thereof to Hewson, in the manner aforesaid, is
permissible. MDECD agrees to coordinate the payment dates of said semiannual
installments with the payment(s) to be made under the Fee in Lieu Agreement (as
hereinafter defined) so that funds will be available to City for said semiannual
payments.
(c) Upon application of the County, MDECD agrees to provide, at no
cost to the Companies, up to Six Million Five Hundred Thousand Dollars
($6,500,000.00) under the Economic Development Highway Act (the "Highway Act")
for the construction or improvements of roads related to the Project in order to
provide adequate access to the Project, including those road projects listed in
Section 5 hereof. The Highway Act, as it relates to this Project, requires a
commitment of private investment by the Companies (jointly and/or severally) in
the Project of a minimum of Fifty Million Dollars ($50,000,000.00), which
investment may include, without limitation, Hewson's capital investment in land
and buildings and the value of equipment (purchased or leased) installed in the
Project by Williams-Sonoma . The Highway Act is codified in the Mississippi Code
as Section 65-4-1 et seq. Further, the Inducers agree to work with the
Mississippi Department of Transportation for the completion of the Goodman
Bypass between Polk Lane and U.S. Highway 78 on or before June 1, 1999.
(d) MDECD acknowledges that it is the agency charged with
responsibility for final approval of Fee in Lieu Agreements (hereinafter
defined) under Section 27-31-104 of the Mississippi Code and does hereby approve
the terms and conditions of the Fee in Lieu Agreement described in Section 5(a)
below.
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4. MBFC Undertakings:
(a) MBFC agrees to work with the Companies to arrange financing for
the Project under various industrial revenue bond financing statutes. MBFC will
also provide access to any state offered incentives for which the Companies may
be eligible.
(b) MBFC and MDECD hereby confirm that MBFC has passed and issued an
inducement resolution dated June 10, 1998, in favor of the Companies authorizing
the issuance of one or more series of bonds to finance the Project (including
the acquisition, construction and equipping of the Project by Hewson and/or by
Williams-Sonoma). MBFC and MDECD acknowledge the current intention of the
Companies that one series of bonds finance Hewson's acquisition and construction
of its building constituting Phase I of the Project, and that another series of
bonds finance Williams-Sonoma's acquisition of equipment for use in operation of
Phase I of the Project.
(c) MBFC or MDECD, as the case may be, agrees to issue, or cause to be
issued, such Certificates of Public Convenience and Necessity as may be
necessary to complete the issuance of bonds to finance the Project.
(d) MBFC and MDECD agree to cooperate with Williams-Sonoma and Hewson
to structure the bond transactions in the manner reasonably requested by each of
the Companies so that each of the Companies may obtain the corporate tax credit
available to it under the Mississippi Rural Economic Development Act with
respect to the initial and all planned future phases of the Project.
(e) Attached as EXHIBIT "B" AND "C," respectively, are illustrations
of the benefits to Hewson relating to exemptions from (a) Mississippi sales
taxes regarding building materials used in the Project, and (b) Mississippi's
contractor's gross receipt tax, and of the benefits to Williams-Sonoma relating
to (1) exemptions for Mississippi's sales and use taxes regarding the purchase
or lease of equipment for the Project, and (2) Mississippi income tax credits
(i) as operator of the Project, and (ii) as a job creator at the Project.
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<PAGE> 6
5. County Undertakings:
(a) County agrees to a ten (10) year ad valorem tax exemption as to
land, project improvements and equipment, pursuant to Section 27-31-101 of the
Mississippi Code, such exemption to be applicable to all County taxes except
that there shall be excluded from such tax exemption (and the Project shall be
subject to payment of) (i) school district taxes at the millage rate from time
to time in effect, and (ii) road and bridge taxes at the millage rate from time
to time in effect. The ten (10) year tax exemption under Section 27-31-101 shall
run separately for each phase of the Project from the time that such phase is
placed in service [as provided in Section 27-31-105(1) of the Mississippi Code].
Furthermore, upon the Project reaching a capital investment (hard and soft
costs) in land, buildings and equipment of One Hundred Million Dollars
($100,000,000.00), County ad valorem taxes shall be fully exempted, and,
pursuant to Section 27-31-104 of the Mississippi Code, the County agrees to
enter into a fee-in-lieu-of-taxes agreement with the owner(s) of the Project
(the "Fee in Lieu Agreement"), for a ten (10) year term in the aggregate taking
into account any exemption period granted and theretofore expired under Section
27-31-101. The amount paid under the Fee in Lieu Agreement shall be determined
in the manner set out in EXHIBIT "D," attached hereto and incorporated herein by
reference. The owner(s) of the Project shall be entitled to enter into a
separate Fee in Lieu Agreement for each phase of the Project, with the ten (10)
year term (aggregated with the exemption period under Section 27-31-101) to run
separately for each phase of the Project from the later of the time such phase
is placed in service or the time when the Companies' capital investment in land,
buildings and equipment reaches One Hundred Million Dollars ($100,000,000.00)
[as provided in Section 27-1-105(2) of the Mississippi Code]. EXHIBIT "D"
contains an illustration of computation of ad valorem taxes, tax exemptions
under Section 27-31-101 and fee in lieu of taxes. The Companies understand that
the Fee in Lieu Agreement is subject to approval by the Mississippi State Tax
Commission (the "Tax Commission") pursuant to Section 27-31-107 of the
Mississippi Code. To that end, County agrees to submit the Fee in Lieu Agreement
to the Tax Commission promptly after the execution of this Memorandum of
Understanding for preliminary approval of the Fee in Lieu Agreement by the Tax
Commission, and, upon the Companies' capital investment in land, buildings and
equipment reaching One Hundred Million Dollars ($100,000,000.00), to diligently
and faithfully pursue the formal approval of the Fee in Lieu Agreement by the
Tax Commission. MDECD agrees to cooperate with the County in seeking the Tax
Commission's preliminary and formal
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<PAGE> 7
approval of the Fee in Lieu Agreement, as aforesaid. Pursuant to Section
27-31-53 of the Mississippi Code, the County also agrees to exempt in perpetuity
all inventory and personal property in transit to the fullest extent permitted
by law (including exemption from school taxes) and to cooperate with the
Companies in designating the Project a "free port warehouse" under said statute
and obtaining the required approval thereof by the Tax Commission.
(b) County agrees to enter into an inter-local agreement with the
City, if necessary, to pay to the City from the amounts received under the Fee
in Lieu Agreement an amount equal to the debt service payments (if any) on the
MBIA loan and to coordinate such payments with the semiannual installments due
by the City under the MBIA loan.
(c) (i) County shall take such action as is necessary at no expense to
the Companies to complete the realignment of Polk Lane and completion
of Polk Lane (complete with curbs, gutters and storm drains) northward
from Goodman Bypass to a point which is one (1) mile north of the
present north right-of-way line of Goodman Road by April 1, 1999, and
to the point where Polk Lane intersects Wildwood Lane (complete with
curbs, gutters and storm drains) by December 31, 1999.
(ii) County shall take such action as is necessary at no expense
to the Companies to install four-way stop signs at the intersection of
Polk Lane and Old Goodman Road, such stop signs to remain in place
until Old Goodman Road is abandoned.
(iii) County shall take such action as is necessary at no expense
to the Companies to complete the extension of existing Wildwood Lane
eastward to extended Polk Lane by December 31, 1999.
(iv) Immediately following completion of Goodman Bypass between
Lamar Avenue and Polk Lane, County shall commence construction and
take such action as is necessary at no expense to the Companies to
widen Hacks Cross Road between Goodman Bypass and Lamar Avenue and
shall complete such work no later than two (2) years from commencement
of said construction.
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(iv) All work to be completed by County under this Section
5(c)(i)-(iii) shall meet or exceed the specifications set out in
EXHIBIT "E," attached hereto.
(d) County agrees (i) to add turning lanes and to widen the shoulders
at the intersections of Hacks Cross Road immediately south of Goodman Road and
of Goodman Road immediately east of Hacks Cross Road, and (ii) to widen the
shoulder of Polk Lane and Goodman Road for traffic heading south on Polk Lane
and turning west onto Goodman Road, in the event that the Mississippi Department
of Transportation fails to complete construction of the Goodman Bypass between
Polk Lane and Hacks Cross Road and the other improvements described in EXHIBIT
"M" attached hereto on or before June 1, 1999. The shoulder and turning lanes
are to be constructed on or before July 1, 1999.
(e) County agrees to acquire, at its cost and expense, sufficient
property adjacent to existing Polk Lane to accommodate the realignment of Polk
Lane as above provided. Presently, it is anticipated that County will acquire
the necessary right-of-way from the Whispering Woods Conference Center property
located to the west of Polk Lane. County, at its cost and expense, shall either
acquire the necessary right-of-way from Whispering Woods for cash or other
consideration acceptable to Whispering Woods or acquire by eminent domain the
necessary right-of-way from Whispering Woods or the landowners located east of
Polk Lane. In any event, County agrees to file a condemnation petition and
thereby commence "quick-take" condemnation proceedings to acquire the required
right-of-way under Sections 11-27-81 through 11-27-91 of Mississippi Code by no
later than September 1, 1998 in the event that County has not theretofore
received a deed to the right-of-way by such date and to use its best efforts to
complete the acquisition of the required right-of-way on or before November 1,
1998. The County's Board of Supervisors approved the foregoing condemnation at
its regularly held meeting on August 17, 1998, during which meeting a quorum was
continuously present.
(f) In the event that the annexation contemplated by Section 6(c) of
this MOU does not occur, County agrees to provide, at no expense to the
Companies, sheriff protection services to the Project at least equal to those
sheriff protection services provided for similar facilities within DeSoto
County.
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6. City Undertakings:
(a) City agrees to make application for the MBIA loan to MDECD, in the
amount of Two Million Dollars ($2,000,000.00), in order to finance the Non-Road
Infrastructure related to the Project on terms as set out in Sections 3(a) and
(b) hereof. If such costs exceed Two Million Dollars ($2,000,000.00), the City
agrees to apply to MBIA for an increase in the amount of the MBIA loan to cover
any cost overruns with respect to the construction of the Non-Road
Infrastructure. In the event that the City is unable to obtain such an increase,
the City shall have no obligation to proceed with construction of the Non-Road
Infrastructure as contemplated herein unless the Companies shall provide, or
cause to be provided, funds to cover such cost overruns from another source. In
the event that the costs to construct the Non-Road Infrastructure are less than
Two Million Dollars ($2,000,000.00), then the City agrees to use the excess
funds to extend the water, sewer and gas lines provided for in this Section 6
further north, to the extent of the excess proceeds and to the extent and in a
manner which are mutually agreeable to the City, Hewson and Williams-Sonoma;
provided, however, that the City shall only be required to extend the water,
sewer and gas lines into areas which are certificated to the City and which are
not subject to any decertification option in favor of Metro DeSoto Utilities
Co., Inc. ("Metro"). At the request and option of the Companies (or either of
them) the City agrees that it shall promptly prepay in full the MBIA loan
provided that the company which makes such request pays to the City (by special
tax or assessment, or otherwise in a manner satisfactory to such Company and the
City) and amount of money equal to such prepayment.
(b) In connection with the use of the proceeds of the MBIA loan, City
agrees that each contract entered into by City with each party who successfully
bids such contract with respect to the construction and installation of the
Non-Road Infrastructure shall contain, in addition to all other terms and
conditions as are typically set forth in the standard bid specifications
utilized by the City, terms, conditions and provisions (and the standard
contract used by the City shall be modified as necessary in order to be
consistent with the following provisions) which:
(i) State that time is of the essence of the contract to be
awarded, and that the successful bidder will be expected to take
whatever action may be necessary to perform the work on the schedule
set out in the bid which is submitted pursuant to the bid
specifications.;
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(ii) Set a minimum retainage percentage, at all times until the
final completion of the work, of not less than ten percent (10%);
(iii) Require the successful bidder to constantly and faithfully
execute and complete the work in accordance with course of
construction deadlines which will be inserted in each bid package by
the City Engineer and which establish interim deadlines which the
successful bidder must meet during the completion of the work and will
permit the Companies to more accurately monitor the status of the work
and progress toward completion in a timely manner;
(iv) Impose liquidated damages on the successful bidder in an
amount not less than Two Hundred Dollars ($200.00) per day for each
calendar day beyond the scheduled completion dates set forth in the
schedule of course of construction deadlines that it takes the
successful bidder to meet the scheduled deadline;
(v) Require the successful bidder to provide a proposal for
expediting the work and bringing the work back on schedule in the
event the successful bidder fails to meet a course of construction
deadline;
(vi) Require the City to refund the liquidated damages to the
extent paid by the successful bidder for missing course of
construction deadlines if the successful bidder achieves final
completion of the work on or before the deadline required by the
contract; and
(vii) Require the successful bidder to acknowledge that time is
of the essence and that it is the successful bidder's responsibility
to staff the job in such manner and to take all such action as may be
necessary to comply with the firm and final completion deadlines set
out in the contract.
(c) City shall take such action as is necessary at no expense to the
Companies to annex a tract of approximately nine hundred fifty-four (954) acres
along the eastern boundary of the Metro Olive Branch Airport and running along
the current eastern boundary line of the City of Olive Branch, which 954-acre
tract includes the property (the "Property") and the option property (the
"Option
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Property") described in EXHIBIT "F" and EXHIBIT "F-1," respectively, on
or before August 28, 1998. In the event that such annexation is not accomplished
on or before such date, then subject to the provisions of subsections (j), (k)
and (l) of Section 6, the City shall contract with the Companies to provide
water and sewer service meeting the standards set out in this Section 6, and
fire protection services at least equal to those provided for similar facilities
within the corporate limits of the City of Olive Branch. The time period for
filing objections to the annexation expired on July 20, 1998. No objections were
filed and an interim order was entered foreclosing all rights to object to the
annexation but not ordering the final annexation. Hewson and, to the extent that
it has then committed to acquire any portion of the Property, Williams-Sonoma
agree to close the acquisition of the Property, and Hewson or Williams-Sonoma
agrees to close its acquisition of any portion of the Option Property which it
has then committed to acquire, if any, on or before August 28, 1998. After
closing, the City shall seek entry of a final order completing the annexation
process.
(d) To the extent required in order to provide water and sewer
service, City agrees to make application for and diligently pursue certification
of the Property and Option Property to the Mississippi Public Service Commission
("PSC") for permission to provide water and sewer service to the Property and
the Option Property. Companies understand the City will not provide temporary
water service prior to February 1, 1998.
(e) City shall take such action as is necessary at no expense to the
Companies to provide a high pressure gas line and gas service by April 1, 1999
of sufficient size to provide a minimum of 25,000 cubic feet per hour, to extend
for the entire frontage of the Property and the Option Property along Polk Lane.
(f) City acknowledges and confirms that EXHIBIT "G" sets forth the
current City water and sewer tap fees. City represents that water and sewer tap
fees are charged to all users on a uniform, nondiscriminatory basis. City agrees
to an expedited plan review and approval for any development of the Property
and/or Option Property.
(g) Metro has released its certificated right to provide water and
sewer service to the Project, as described in EXHIBIT "N," attached hereto and
incorporated herein by reference. Based
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upon such release, the City shall take such action as is necessary at no expense
to the Companies [except as provided in Sections 6(h) and 5(b)] to construct a
water plant and to provide water and sewer service (including the installation
of all sewer related infrastructure) to the Project according to the
specifications described in page 1 of the Security Fire Letter (excluding the
diesel engine-driven fire pump referenced in paragraph 1 thereof and the
electric motor-driven booster pump referenced in paragraph 2 thereof) according
to the specifications and according to the deadlines for completion and
installation set forth in (i) that certain letter dated June 19, 1998, from
Joseph F. Lauderdale, P.E., to DeSoto Council, a copy of which is attached
hereto as EXHIBIT "H," and (ii) that certain letter dated June 30, 1998, from
Joseph F. Lauderdale, P.E., to DeSoto Council, a copy of which is attached
hereto as EXHIBIT "H-1." City agrees that the sanitary sewer service to be
provided by the City in accordance with this Section 6(g) shall have a minimum
capacity of six hundred (600) gallons per minute.
(h) City agrees to a ten (10) year ad valorem tax exemption as to
land, project improvements, and equipment, pursuant to Section 27-31-101 of the
Mississippi Code, such exemption to be equal to one hundred percent (100%) of
the ad valorem levy for the Project, except as otherwise provided in EXHIBIT "D"
attached hereto. Such tax exemption shall apply to each phase of the Project,
and such ten (10) year exemption shall run separately for each such phase of the
Project from the time it is placed in service and exempted on the tax rolls.
Pursuant to Section 27-31-53 of the Mississippi Code, the City also agrees to
exempt in perpetuity (including exemption from school taxes, if any) all
inventory and personal property in transit to the fullest extent permitted by
law and to cooperate with the Companies in designating the Project a "free port
warehouse" under said statute and obtaining the required approval thereof by the
Tax Commission.
(i) Companies acknowledge that the City will not waive any fees
associated with the issuance of building permits for the Project. However, the
City does agree to use its best efforts to expedite the approval of the
Companies' requests for the issuance of building permits.
(j) In the event that annexation as described in paragraph 6(c) is not
completed, the City's agreement to provide water and sewer service is further
conditioned upon the timely award of certification to serve water and sewer to
the Property and the Option Property by the PSC. The City
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agrees to file all necessary applications, notices and other required documents
in connection with the requested release of Metro's certificated rights with the
PSC. The agreements of the City in Section 6(g) are conditioned upon the City
experiencing no insurmountable objections or impediments to the release of
Metro's certificated rights, the City incurring no insurmountable impediments or
delays during its bid and contractual process to perform installation and
construction of the Non-Road Infrastructure, the City incurring no
insurmountable impediments or delays in connection with the MBIA loan, and the
City incurring no unusual weather during the time for performance, acts of God,
strikes or insurrection (it being understood, however, that the City will use
best efforts to resist requests from its contractors and subcontractors for
extensions of time for performance due to weather delays).
(k) The agreement to furnish water (other than water in connection
with fire protection services) is further conditioned upon the approval of the
water system by the State of Mississippi and County health departments, as
applicable.
(l) The agreement to furnish sanitary sewer service is further
conditioned upon the timely approval of the sewer system to be installed
pursuant hereto by the Mississippi Department of Environmental Quality,
Pollution Control Division.
(m) City shall take such action as is necessary at no expense to the
Companies to install a left turn signal for traffic turning from Goodman Road
south onto Hacks Cross Road, in the event that the Mississippi Department of
Transportation fails to complete construction of the Goodman Bypass between Polk
Lane and Hacks Cross Road and the other improvements described in EXHIBIT "M"
attached hereto on or before June 1, 1999. The turning signal is to be installed
on or before July 1, 1999.
7. Companies Undertakings:
(a) On the terms and conditions set forth herein and in those certain
letters of intent dated July 1, 1998, copies of which are attached hereto as
EXHIBITS "A," "A-1" AND "A-2," Williams-Sonoma commits to the undertakings set
forth therein.
-13-
<PAGE> 14
(b) Companies agree and understand that a minimum capital investment
(which may take into account Phase I and all planned future phases of the
Project and which may be satisfied by the value of equipment leased) in land,
building and equipment of One Hundred Million Dollars ($100,000,000.00) is
required for the County to enter into the Fee in Lieu Agreement, as set out
herein. In the event that said minimum capital investment is not accomplished,
the sole adverse consequence to the Companies is that the benefits of Section
27-31-104 (a copy of which is attached hereto as EXHIBIT "I") are not available.
(c) Companies agree to cooperate in the application process for the
Highway Act Funds and the MBIA loan, and further, at no expense to the Companies
and without expanding any obligations of the Companies undertaken herein, to
enter into necessary agreements related thereto.
(d) Hewson agrees to use best efforts consistent with time exigencies
to meet development deadlines to take full advantage of the benefits available
as a result of the exemptions from Mississippi sales taxes regarding building
materials used in the Project and the Mississippi contractor's gross receipts
tax.
(e) Hewson agrees to dedicate to the City the property described in
EXHIBIT "O," attached hereto, or such smaller portion thereof as is mutually
agreeable to the City and Hewson, for use by the City as the site for the water
plant described in Section 6(g) of this MOU and other incidental and related
purposes; provided, however, that Hewson shall not be required to dedicate this
property until the conditions precedent to the City's agreement to construct the
water plant have been satisfied and the City stands ready to begin construction
of the water plant on the property to be dedicated under this Section 7(e).
8. Critical Path of Development: The Inducers and the Companies hereby
acknowledge and agree that the Critical Paths of Development, attached hereto as
EXHIBITS "J" AND "J-1" and incorporated herein by reference, set forth the
various interim deadlines and time schedules which must be met in order for the
Non-Road Infrastructure and the construction or improvements of the various road
infrastructure, all as outlined in this MOU, to be completed on or before the
deadlines for completion specified in this MOU. The Inducers and the Companies,
as the case may be, hereby
-14-
<PAGE> 15
agree to satisfy and meet the course of development and deadlines as outlined in
the Critical Path of Development in connection with the completion of their
respective undertakings outlined herein. The Inducers and Companies agree to
cooperate with each other and to use best efforts to cause the suppliers of
electric power and telephone service to supply those services in accordance with
the letters attached hereto as EXHIBITS "K," "L" AND "L-1," respectively, (the
electric power and telephone lines serving the Project and any adjacent
landowners to be located in the right-of-way of Polk Lane), and to cause Goodman
Bypass to be completed between U.S. Highway 78 and Polk Lane in the time and
manner specified in the letter attached hereto as EXHIBIT "M."
9. Amendments. Any amendments to this MOU shall be in writing and
signed by all parties affected by such amendment or their respective successors
and assigns.
10. Applicable Law. This MOU shall be governed by the laws of the
State of Mississippi notwithstanding the fact that one or more of the parties to
this MOU are residents of or are domiciled in a different state.
11. Counterparts. This MOU may be executed in two or more
counterparts, each and all of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
12. Headings. The use of headings and captions in this MOU are solely
for convenience and shall have no legal effect in construing the provisions of
this MOU.
-15-
<PAGE> 16
13. Entire Agreement. This MOU constitutes the entire agreement
between the parties and supersedes all previous agreements, promises, proposals,
representations, understandings and negotiations (whether written or oral)
strictly with respect to the subject matter hereof.
INDUCERS: COMPANIES:
STATE OF MISSISSIPPI acting BUILDER/LESSOR:
by and through the MISSISSIPPI
DEPARTMENT OF ECONOMIC AND HEWSON PROPERTIES, INC.
COMMUNITY DEVELOPMENT
By: /s/James B. Heidel By: /s/ Robert Myers
------------------------------- ---------------------------------
JAMES B. HEIDEL
Title: Executive Director Title: VP/CFO
---------------------------- ------------------------------
LESSEE/USER:
MISSISSIPPI BUSINESS FINANCE WILLIAMS-SONOMA, INC.
CORPORATION
By: /s/James B. Heidel By: /s/ Howard Lester
------------------------------- ---------------------------------
JAMES B. HEIDEL
Title: Title: CEO
---------------------------- ------------------------------
DESOTO COUNTY, MISSISSIPPI
By: /s/ Tommy Lewis
-------------------------------
TOMMY LEWIS
Title: President - Board of Supervisors
----------------------------
CITY OF OLIVE BRANCH, MISSISSIPPI
By: /s/ Samuel P. Rikard
-------------------------------
Title: Mayor
----------------------------
-16-
<PAGE> 17
EXHIBIT "A"
Williams-Sonoma Letter of Intent
A-1
<PAGE> 18
[WILLIAMS-SONOMA, INC. LETTERHEAD]
July 1, 1998
Mississippi Business Investment Program
Department of Economic and Community Development
Post Office Box 849
Jackson, MS 39205
Re: MBIA Application for Hewson Properties Project
Dear Sir/Madam:
As you are aware, Hewson Properties, Inc. ("Hewson Properties") is developing
the first building (of a planned two building distribution facility project)
(the "Project") for ultimate lease to Williams-Sonoma, Inc.
("Williams-Sonoma"). The plan is for this building to be located on a 61 acre
parcel east of the Olive Branch Airport, west of the proposed future Polk Lane,
and north of Goodman Road and the Whispering Woods Golf Course. At the same
time, it is contemplated that Williams-Sonoma will have the right to acquire an
adjacent 61 acre parcel on the situs of a future second building (discussed
below).
The first building will be 750,000 square feet and Hewson Properties has
advised us that it will cost approximately $30,000,000 including land, building
and soft costs. In addition, upon Williams-Sonoma's occupancy of the first
building, Williams-Sonoma will purchase and/or lease approximately $20,000,000
of equipment for the building. Hewson Properties informs us that completion and
occupancy of this first building is scheduled for 6/1/99. Upon its occupancy of
this phase of the Project, Williams-Sonoma expects to employ approximately 235
people on an adjusted full-time basis.
The second building occupies 614,000 square feet and we are informed that it
will cost approximately $24,500,000 including land, building and soft costs. In
addition, if and when Williams-Sonoma occupies the second building,
Williams-Sonoma will purchase and/or lease approximately $11,300,000 of
equipment for the building. While completion and occupancy of this second
building is presently targeted for 6/1/01, Williams-Sonoma's going forward with
implementing plans for this second building (as well as the expansions of this
building and the first building discussed below), as well as definitive
projected occupancy dates, will depend on the continued future growth of
Williams-Sonoma's business. Upon its occupancy of this phase of the Project,
Williams-Sonoma expects to employ an additional approximately 131 people on an
adjusted full-time basis.
<PAGE> 19
Mississippi Business Investment Program
7-1-98
Page two
Subsequent to the completion and stabilization of the first two buildings,
plans call for each building to be expanded as and when Williams-Sonoma's needs
require by 318,000 square feet and 380,000 square feet, respectively. We have
been advised by Hewson Properties that the costs of such expansion will be
approximately $11,100,000 and $13,300,000 respectively, for building and soft
costs. Williams-Sonoma expects that each such expansion will contain between
$7,000,000 and $8,500,000 of equipment to be purchased and/or leased by
Williams-Sonoma. We anticipate that as and when these two expansions go
forward, employment for another 174 people on an adjusted full-time basis will
be provided.
For the purposes of the MBIA program, we anticipate that Hewson Properties will
spend approximately $30,000,000 to develop the first building in the next four
years. Assuming satisfaction of the following conditions, Williams-Sonoma
commits to private investment in equipment and/or the value of equipment leases
for use in the first building of over $20,000,000 in the same period. As well,
again assuming all conditions to Williams-Sonoma's lease and occupancy of the
first building are met, Williams-Sonoma commits to creating and maintaining 134
employees on an adjusted full-time basis for a minimum of 10 years.
The conditions to Williams-Sonoma's lease of the first building include:
1. Satisfactory resolutions of all issues relating to annexation,
utilities, infrastructure, local permits for Williams-Sonoma's
intended use, etc.;
2. The negotiation and documentation of a lease between Hewson
Properties and Williams-Sonoma on terms reasonably acceptable to
Williams-Sonoma (including the treatment of the lease as an
operating lease for Williams-Sonoma's financial accounting
purposes); and
3. Completion and delivery of the first building by Hewson Properties
on schedule and in accordance with plans approved by
Williams-Sonoma.
In addition to conditions similar to the foregoing, Williams-Sonoma's occupancy
of the second building (and any future expansions of the first and second
buildings) is dependent on Williams-Sonoma's continuing need for additional
space to accommodate its business.
<PAGE> 20
Mississippi Business Investment Program
7-1-98
Page three
Without the utilities being provided by the funds of the MBIA program, this
project could not be completed.
Williams-Sonoma will comply with non-discrimination and equal employment
opportunity requirements. We anticipate that Hewson Properties will do likewise.
We look forward to moving ahead on this project and appreciate all of your
assistance.
Sincerely,
/s/ W. HOWARD LESTER
- --------------------------------
W. Howard Lester
Chairman/Chief Executive Officer
Cc: Gary Hewson
Jim Flanagan
HL/ea
<PAGE> 21
EXHIBIT "A-1"
Williams-Sonoma Letter of Intent
A-1 - 1
<PAGE> 22
[WILLIAMS-SONOMA, INC. LETTERHEAD]
July 1, 1998
Mr. Tommy Lewis
President
DeSoto County Board of Supervisors
2535 Highway 51 South
Hernando, MS 38632
Re: DECD Application for Hewson Properties Project
As you are aware, Hewson Properties, Inc. ("Hewson Properties") is developing
the first building (of a planned two building distribution facility project)
(the "Project") for ultimate lease to Williams-Sonoma, Inc.
("Williams-Sonoma"). The plan is for this building to be located on a 61 acre
parcel east of the Olive Branch Airport, west of the proposed future Polk Lane
and north of Goodman Road and the Whispering Woods Golf Course. At the same
time, it is contemplated that Williams-Sonoma will have the right to acquire an
adjacent 61 acre parcel on the situs of a future second building (discussed
below).
The first building will be 750,000 square feet, and Hewson Properties has
advised us that it will cost approximately $30,000,000 including land, building
and soft costs. In addition, upon Williams-Sonoma's occupancy of the first
building, Williams-Sonoma will purchase and/or lease approximately $20,000,000
of equipment for the building. Hewson Properties informs us that completion and
occupancy of this first building is scheduled for 6/1/99. Upon its occupancy of
this phase of the Project, Williams-Sonoma expects to employ approximately 235
people on an adjusted full-time basis.
The second building occupies 614,000 square feet, and we are informed that it
will cost approximately $24,500,000 including land, building and soft costs. In
addition, if and when Williams-Sonoma occupies the second building,
Williams-Sonoma will purchase and/or lease approximately $11,300,000 of
equipment for the building. While completion and occupancy of this second
building is presently targeted for 6/1/01, Williams-Sonoma's going forward with
implementing plans for this second building (as well as the expansions of this
building and the first building discussed below), as well as definitive
projected occupancy dates, will depend on the continued future growth of
Williams-Sonoma's business. Upon its occupancy of this phase of the Project,
Williams-Sonoma expects to employ an additional approximately 131 people on an
adjusted full-time basis.
Subsequent to the completion and stabilization of the first two buildings,
plans call for each building to be expanded as and when Williams-Sonoma's needs
require by 318,000 square feet and 380,000 square feet respectively. We have
been advised by Hewson Properties that the costs of such expansion will be
approximately $11,100,000 and $13,300,000 respectively, for building and soft
costs. Williams-Sonoma expects that each such expansion will contain between
$7,000,000 and $8,500,000 of equipment to be purchased and/or leased by
Williams-Sonoma.
<PAGE> 23
Mr. Tommy Lewis July 1, 1998
DeSoto County Board of Supervisors Page 2 of 2
We anticipate that as and when these two expansions go forward, employment for
another 174 people on an adjusted full-time basis will be provided.
For the purposes of the DECD program, we anticipate that Hewson Properties will
spend approximately $30,000,000 to develop the first building in the next four
years. Assuming satisfaction of the following conditions, Williams-Sonoma
commits to provide investment in equipment and/or the value of equipment leases
for use in the first building of over $20,000,000 in the same period. Of
course, these amounts (totaling approximately $50,000,000) are solely for the
first building, and these amounts would be substantially increased (by
approximately $35,800,000) if, as presently anticipated, plans for the second
building proceed to realizations within this same four-year (4) period.
The conditions to Williams-Sonoma's lease of the first building include:
1. satisfactory resolutions of all issues relating to annexation, utilities,
infrastructure, local permits for Williams-Sonoma's intended use, etc.
2. the negotiation and documentation of a lease between Hewson Properties and
Williams-Sonoma on terms reasonably acceptable to Williams-Sonoma (including
the treatment of the lease as an operating lease for Williams-Sonoma's
financial accounting purposes); and
3. completion and delivery of the first building by Hewson Properties on
schedule and in accordance with plans approved by Williams-Sonoma.
In addition to conditions similar to the foregoing, Williams-Sonoma's occupancy
of the second building (and any future expansions of the first and second
buildings) is dependent on Williams-Sonoma's continuing need for additional
space to accommodate its business.
The Project Description attached as Exhibit "A" will meet the needs of the
planned project assuming the satisfaction of the foregoing conditions and
assuming the specifics and timing of each part of the design are acceptable to
Williams-Sonoma.
We look forward to moving ahead on this project and appreciate all of your
assistance.
Sincerely,
/s/ W. HOWARD LESTER
- --------------------
W. Howard Lester
Attachment: Exhibit "A":-For DECD Letter of Intent
Project Description
cc: Gary Hewson
Jim Flanagan
<PAGE> 24
EXHIBIT "A"
FOR DECD LETTER OF INTENT
PROJECT DESCRIPTION
DeSoto County in coordination with Hawson Properties, Inc. is applying for an
Economic Development Highway Program Grant for construction of roadway
improvements along Polk Lane, Stateline Road, and Hack's Cross Road. Hewson
Properties, Inc. is acquiring the property consisting of approximately 61 acres
with the intention of constructing a building, of approximately 750,000 square
feet and leasing that building to Williams-Sonoma, Inc. At the same time, it is
contemplated that Williams-Sonoma, Inc. will have the right to purchase an
adjacent parcel of approximately 61 acres, to provide room for an approximately
614,000 square foot future building to meet Williams-Sonoma's future needs if
its business continues to grow. The Economic Development Highway Program was
established by the State of Mississippi to promote industrial development
throughout the state. The program provides funds for construction and/or
improvements of highways in areas that demonstrate actual and immediate
potential for creation or expansion of major industries. The highway or highway
segments to be constructed must be necessary to ensure adequate and appropriate
access to a proposed company project for purposes of encouraging its location or
expansion within a political subdivision.
This project is also being constructed with other factors in mind such as the
corridor's relationship to existing neighborhoods and businesses. The objective
of the project is to improve traffic and safety throughout the area while being
consistent with neighborhood improvement strategies.
The improvements include constructing Polk Lane to a four-lane undivided
roadway from Goodman Road northward approximately 2.2 miles to the Tennessee
State Line. Stateline Road will be constructed to a four-lane undivided roadway
from the proposed extension of Polk Lane westward 1.0 mile to Hack's Cross
Road. Hack's Cross Road will be widened to a five-lane undivided roadway from
Mississippi Highway 78 to the Mississippi Highway 302 bypass project that is
currently under construction by the Mississippi Department of Transportation.
Improvements on these sections of roadway shall consist of clearing
right-of-way, grading, drainage improvements, base, paving, curb and gutter,
erosion control, striping, and signage. All design criteria will meet the
Department of State Aid Road Construction Design Standards.
This project shall be designed and constructed in phases to allow for initial
concentration on those phases of roadway set forth as priorities by
Williams-Sonoma, Inc., as the intended tenant.
7/1/98
<PAGE> 25
EXHIBIT "A-2"
Williams-Sonoma Letter of Intent
A-2 - 1
<PAGE> 26
[WILLIAMS-SONOMA, INC. LETTERHEAD]
July 1, 1998
Mayor Samuel Rikard
City of Olive Branch
9189 Pigeon Roost
Olive Branch, MS 38854
Honorable Mayor Rikard:
This letter is respectfully submitted in fulfillment of the requirements of the
Mississippi Department of Economic Development, Mississippi Business Investment
Act (MBIA) Program. The program is designed to promote business and economic
development through job producing programs and by providing loans and grants to
cities and counties to finance improvements. The program requires that any
private company desiring assistance from a city of a county shall submit a
letter of intent to locate, expand, or build a facility entirely or partially
within the city or county.
As required by the MBIA program, the following sets forth the intention of
Williams-Sonoma, Inc. ("Williams-Sonoma") to locate a distribution facility in
Olive Branch, DeSoto County, Mississippi, subject to the satisfaction of the
following conditions:
i) Satisfactory resolutions of all issues relating to annexation,
utilities, infrastructure, local permits for Williams-Sonoma's
intended use, etc.;
ii) the negotiation and documentation of a lease between Hewson
Properties, Inc. ("Hewson Properties") and Williams-Sonoma on terms
reasonably acceptable to Williams-Sonoma (including the treatment of
the lease as an operating lease for Williams-Sonoma's financial
accounting purposes); and
iii) Completion and delivery of the first building by Hewson Properties on
schedule and in accordance with plans approved by Williams-Sonoma.
This project is eligible for MBIA assistance as a "job producing facility."
<PAGE> 27
Mayor Rikard
7-1-98
Page two
o A commitment regarding the number of net new full-time equivalent
jobs to be created and maintained by the Project.
It is Williams-Sonoma's hope that, as and when fully implemented, the
Project will cause the creation of 540 net new full-time equivalent
jobs as a result of the loan made pursuant to the Mississippi
Business Investment Act. For the purposes of the MBIA loan, however,
Williams-Sonoma agrees to create and maintain a minimum of 134
full-time equivalent jobs for the ten (10) year duration of the MBIA
loan, provided that the conditions set forth above have been
satisfied. The average wages, excluding fringe benefits, for these
jobs is anticipated to be $10 per hour. The 134 full-time equivalent
jobs are anticipated to be created by the end of the fourth year
following the date of the closing of the loan.
o An acknowledgment of understanding that penalties may be imposed on
the Private Company, pursuant to the Act and Guidelines, if the
Private Company fails to create and maintain the number of jobs
specified in the application.
Williams-Sonoma acknowledges that if the conditions set forth above
have been satisfied and Williams-Sonoma fails to create and maintain
the 134 full-time equivalent jobs specified in this letter of intent,
it shall be liable as follows: (a) an interest charge increase equal
to the current New York Prime Interest Rate plus two percent (2%) for
the remainder of the loan, or (b) prepayment of the outstanding loan
amount incurred by the City of Olive Branch for the project's
benefit. The penalties or a portion thereof may be waived by DECD if
Williams-Sonoma's failure to satisfy the job creation requirement is
due to circumstances outside its control. The penalties or portion
thereof shall be payable in such installments as DECD deems
appropriate.
o Current employment levels at the Project site and statewide
employment of the Private Company.
<PAGE> 28
Mayor Rikard
7-1-98
Page three
Employment at the project site is zero.
Williams-Sonoma currently employs 15 people statewide.
o The estimated dollar costs of the Project and a
description of the private parties investment in the
Project and any public or other private sources of
funding.
As you are aware, Hewson Properties is developing the
first building of a two building distribution facility
project (the "Project") for ultimate lease to
Williams-Sonoma. The plan is for this building to be
located on a 61 acre parcel east of the Olive Branch
Airport, west of the proposed future Polk Lane, and
north of Goodman Road and the Whispering Woods Golf
Course. At the same time, it is contemplated that
Williams-Sonoma will have the right to acquire an
adjacent 61 acre parcel, as the situs of a future
second building (described below).
The first building will be 750,000 square feet and
Hewson Properties has advised us that it will cost
approximately $30,000,000 including land, building and
soft costs. In addition, upon Williams-Sonoma's
occupancy of the first building, Williams-Sonoma will
purchase and/or lease approximately $20,000,000 of
equipment for the building. Hewson Properties informs
us that completion and occupancy of this first
building is scheduled for 6/1/99. Upon its occupancy
of this phase of the Project, Williams-Sonoma expects
to employ approximately 235 people on an adjusted
full-time basis.
The second building occupies 614,000 square feet and we
are informed that it will cost approximately
$24,500,000 including land, building and soft costs. In
addition, if and when Williams-Sonoma occupies the
second building, Williams-Sonoma will purchase and/or
lease approximately $11,300,000 of equipment for the
building. While completion and occupancy of this second
building is presently targeted for 6/1/01,
Williams-Sonoma's going forward with implementing plans
for this second building (as well as the expansions of
this building and the first building discussed), as
well as definitive projected occupancy dates, will
depend on the continued future
<PAGE> 29
Mayor Rikard
7-1-98
Page four
growth of Williams-Sonoma's business. Upon its
occupancy of this phase of the Project,
Williams-Sonoma expects to employ an additional
approximately 131 people on an adjusted full-time
basis.
Subsequent to the completion and stabilization of the
first two buildings, plans call for each building to be
expanded as and when Williams-Sonoma's needs require
by 318,000 square feet and 380,000 square feet
respectively. We have been advised by Hewson
Properties that the costs of such expansion will be
approximately $11,100,000 and $13,300,000
respectively, for building and soft costs.
Williams-Sonoma expects that each such expansion will
contain between $7,000,000 and $8,500,000 of equipment
to be purchased and/or leased by Williams-Sonoma. We
anticipate that as and when these two expansions go
forward, employment for another 174 people on an
adjusted full-time basis will be provided.
The total estimated project cost for the first
building alone (including equipment therein) (but not
including the second building or future expansions of
the first and second buildings or equipment therein)
is expected to be approximately $50,000,000. For the
purpose of the MBIA loan and the Economic Development
Highway Program Grant, assuming satisfaction of the
conditions set forth above, upon occupancy of the
first building, Williams-Sonoma commits to expend
approximately $20,000,000 in equipment lease payments,
machinery, and equipment for the project with the
balance of the project costs to be financed by the
project developer and Williams-Sonoma's anticipated
landlord, Hewson Properties. Other project costs
(i.e., necessary public infrastructure) will be met
with an MBIA loan totaling $2,000,000 and an Economic
Development Highway Grant totaling $6,500,000.
o The time schedule for implementation and completion of
the Project, evidencing an expeditious completion of
the Project.
Williams-Sonoma is informed that Hewson Properties
expects to begin work on the first building of the
project in June 1998 and expects the first building to
be completed by June 1, 1999. If
<PAGE> 30
Mayor Rikard
7-1-98
Page five
Williams-Sonoma continues to grow at its current rate, it is
anticipated that Williams-Sonoma will want to take occupancy of
the second building by June 1, 2001.
o A verifiable statement that the Project could not be
completed without the infusion of the requested public
funds.
Hewson Properties has advised Williams-Sonoma that
without the infusion of MBIA funds, the completion of
the project would not be feasible.
A statement of intention to operate the Project for a time period equal to
the term of the loan to the Local Sponsor.
o Assuming satisfaction of the conditions set forth above,
Williams-Sonoma intends to operate its Olive Branch, DeSoto
County facility for at least the ten (10) year duration of the
loan.
o Any commitment to pay rental on the Project or to make loan
payments to the Local Sponsor.
o The City of Olive Branch will repay the MBIA loan. Neither Hewson
Properties nor Williams-Sonoma intends to pay rental or make loan
payments to the City of Olive Branch.
o A statement that the specific improvements are necessary for the
efficient and cost effective operation of the Project, together
with supporting financial and engineering documentation.
o The proceeds of the MBIA loan will be used for the construction
of non-road infrastructure improvements to serve the facility.
MBIA funds are necessary for the efficient and costs effective
operation of the project.
o A notarized statement of willingness to grant a lien on the facility for
which the improvements are being provided or to otherwise collateralize the
loan. Such lien may be foreclosed in the event that the Private Company
fails to operate the Project in accordance with the terms of any agreements
among the parties involved in the financing of the project.
<PAGE> 31
Mayor Rikard
7-1-98
Page six
o The improvements proposed by this project will be publicly owned
infrastructure. Neither Hewson Properties nor Williams-Sonoma will
make loan payments to repay the MBIA loan and, accordingly, neither
Hewson Properties nor Williams-Sonoma will grant any liens on the
facility with respect to such loan.
o A statement of willingness to comply with non-discrimination and equal
employment opportunity requirements.
o Williams-Sonoma will comply with all applicable federal and state laws
governing non-discrimination and equal employment opportunity.
Williams-Sonoma anticipates that Hewson Properties will provide a
similar undertaking.
o Evidence that there will be a Private Match of at least three dollars
($3.00) for every one dollar ($1.00) of MBI assistance.
o The private match ratio is approximately 25 to 1 for the first
building. Other funds -- $30,000,000, Hewson Properties land, building
and soft costs, plus $20,000,000 Williams-Sonoma equipment expense.
(Additionally, Economic Development Highway Program will be requested
to provide $6,500,000) and MBIA funds - $2,000,000.
o Evidence the proposed project will create at least one (1) net new
full-time equivalent job for every fifteen thousand dollars ($15,000)
either loaned or granted for the Project.
o For the purposes of the MBIA loan and this letter of intent, upon
satisfaction of the conditions set forth above with respect to the
first building, Williams-Sonoma commits to create and maintain 134
jobs on an adjusted full-time basis for a minimum of ten (10) years
after its initial project occupancy. This equals one (1) net new
full-time job for every $15,000 loaned.
o From and after its initial project occupancy, job creation will be
documented by Williams-Sonoma by annually submitting a report entitled
"Statement of Job Creation" to the Mississippi Department of Economic
and Community Development.
<PAGE> 32
Mayor Rickard
7-1-98
Page seven
o The actual number of full-time equivalent jobs may well exceed the
minimum commitment. If the second building and further expansions of
the first and second building are realized as anticipated,
approximately 540 full-time equivalent jobs are expected to be
generated by the Project.
Thank you for your willingness to participate in the MBIA program and for your
cooperation and assistance in making this project become a reality.
If additional information is required, please feel free to contact me at your
convenience.
Sincerely,
/s/ HOWARD LESTER
- ---------------------------------------
W. Howard Lester
HL/ea
<PAGE> 33
EXHIBIT "B"
Illustrations of State Tax Benefits to Hewson
B-1
<PAGE> 34
EXHIBIT B
State Tax Benefits to
Hewson Properties, Inc.
(a) Mississippi Sales and Use Taxes
A Mississippi sales tax exemption is available for Project purchases
financed with the proceeds of certain bonds issued by the Mississippi Business
Finance Corporation (the "MBFC"). Such exemption constitutes a full exemption
from Mississippi sales and use taxes otherwise due on bond financed Project
purchases (the "Sales Tax Exemption"). The applicable Mississippi sales and
use tax rates are generally seven percent (7%), with a special rate of one and
one-half percent (1 1/2%) relating to certain manufacturing machinery.
(b) Mississippi Contractors' Tax
No exemption is available from the Mississippi contractors' tax. The
contractors' tax is imposed at a rate of three and one-half percent (3 1/2%) on
the construction contract price of a contract where total compensation exceeds
$10,000, with a special rate of one and one-half percent (1 1/2%) for amounts
representing sale of manufacturing machinery; the contractors' tax does not
apply to additions to property which retains its identity as personal property.
However, although Mississippi law provides no statutory exemption from the
contractors' tax, it is possible to minimize the contractors' tax using a
direct purchase approach. Under this approach, a "labor only" construction
contract is negotiated with the construction company or contractor (the
"Contractor") by which the building materials are to be directly purchased by
the party borrowing the bond proceeds (the "Company"). Since no part of the
construction contract involves the acquisition of materials, the contractors'
tax base would be lowered by the cost of building materials purchased directly
by the Company, and therefore the contractors' tax liability will be reduced. A
contractors' tax would still be imposed at the rate of three and one-half
percent (3 1/2%) on the gross compensation paid to the Contractor for labor
under the construction contract. The Company may assert the Sales Tax Exemption
to realize total relief from Mississippi sales taxes on the purchase of
building materials.
Mississippi sales tax is not imposed on contractors' purchases of
component materials which are subject to the contractors' tax. In other words,
such transactions will not be subject to both taxes. In summary, the building
material purchases, which would otherwise be subject to the three and one-half
percent (3 1/2%) contractors' tax, from which there is no exemption, will be
treated as transactions subject to sales tax, (i.e., purchases by the Company),
against which the Sales Tax Exemption may be utilized. Therefore, the net effect
of this method is that the Company will enjoy a tax savings of three and
one-half percent (3 1/2%) on the building materials utilized in the project.
<PAGE> 35
EXHIBIT "C"
Illustrations of State Tax Benefits to Williams-Sonoma
C-1
<PAGE> 36
EXHIBIT C
State Tax Benefits to
Williams-Sonoma, Inc.
(1) Mississippi Sales and Use Taxes
A Mississippi sales tax exemption is available for project purchases
financed with the proceeds of certain bonds issued by the Mississippi Business
Finance Corporation (the "MBFC"). Such exemption constitutes a full exemption
from Mississippi sales and use taxes otherwise due on bond financed project
purchases and certain leasing transactions (the "Sales Tax Exemption"). The
applicable Mississippi sales and use tax rates are generally seven percent
(7%), with a special rate of one and one-half percent (1-1/2%) relating to
certain manufacturing machinery.
(2) Mississippi Income Tax Credits
(i) Operator of the Project
A company financing certain qualified projects, including warehouses and
distribution centers, under Mississippi Rural Economic Development Assistance
Program administered by the Mississippi Business Finance Corporation receives
credits on Mississippi corporate income taxes. Such credits are based on a
function of the company's project-related debt service on bonds issued under
the program (the "RED Bonds"). The annual debt service for a project includes
all costs associated with the issuance of bonds, letters of credit, annual
service fees, and principal and interest payments. The lease between the Hewson
entity which own the land and real property ("Hewson") and Williams-Sonoma,
Inc. or its affiliate ("Williams-Sonoma") will be drafted to provide that the
lease payments payable by Williams-Sonoma which are allocable to the debt
service on the RED Bonds will generate the income tax credits and
Williams-Sonoma, as the operator of the facility, will utilize the income tax
credits.
Williams-Sonoma will receive a credit against its Mississippi corporate
income tax based upon the amount of debt service it pays with respect to RED
Bonds (both in the form of rent, with respect to the RED Bonds issued to
finance the cost of the land and real property, and direct payments of debt
service by Williams-Sonoma with respect to RED Bonds issued to finance the
machinery and equipment); provided, the amount of the credit is limited to a
maximum of eighty percent (80%) of its Mississippi income tax liability in each
tax year.
If the annual debt service payments exceed the Mississippi income tax
credits available for utilization in a tax year, Williams-Sonoma may carry
forward the unused credits for application in succeeding years not to exceed
three (3) years following the year in which the credits were earned.
(ii) Project Job Creation
A job tax credit is available upon application for certain types of
businesses, including
<PAGE> 37
warehouses and distribution centers, for the creation of new jobs. The amount
of the credit is a function of the number of the net new jobs created. The
amount of the credit available for a project in DeSoto County is Five Hundred
Dollars ($500.00) annually for each net new full-time employee job for five (5)
years beginning with year two (2) and continuing through year six (6) after the
creation of the job.
<PAGE> 38
EXHIBIT "D"
Illustration of Ad Valorem Taxes, Tax Exemption and Fee in Lieu of Taxes
D-1
<PAGE> 39
EXHIBIT "D"
FEE IN LIEU OF TAX ILLUSTRATION
A. CURRENT MILLAGE RATES
- County Millage Rates
- 84.78 Total County Mills
- 48.40 School Mills
- 7.04 Road and Bridge Mills
- City Millage Rates:
- 25.5 Total City Mills
- School Millage 48.40
-------------------- = ----- = 57%
Total County Millage 84.78
B. AD VALOREM TAXES WITHOUT EXEMPTION
- Assumption -- $100,000,000 appraised value of project*
- $100,000,000 x 15% = $15,000,000 x 0.08478 = $1,271,700 Total
Co. Tax
- $100,000,000 x 15% = $15,000,000 x 0.02550 = $ 382,500 Total
City Tax
C. EXEMPTION UNDER Section 27-35-101
- County taxes under Section 101 exemption:
- $100,000,000 (project assumed value) x 15% = $15,000,000 x 0.05544
(school, road & bridge) = $831,600**
- City taxes under Section 101 exemption will be zero (0).
D. CRITERIA IN FEE IN LIEU DETERMINATION
Upon attainment of the $100,000,000 capital investment threshold referred
to in the Memorandum of Understanding, the County and the Companies will
enter into Fee in Lieu Agreements. Under Section 27-31-104 of Mississippi
Code, fee-in-lieu payments to the County cannot be less than 1/3 of the
taxes otherwise payable to the County. Based upon the assumed appraised
value indicated above:
Taxes Fee-in-Lieu
----- -----------
DeSoto County 1,271,700 x 1/3 = 423,900
================================================================================
* Note -- The assumed appraised value of $100,000,000 is for purposes of
illustration only, and shall not be deemed to be a stipulated
or agreed appraised value.
** Note -- During the first three (3) years following the closing of the
MBIA loan there will be no debt service payments on the MBIA
loan, [Section 3(b) of the Memorandum of Understanding]. After
such three-year period, in the event that the Companies
shall not have attained the $100,000,000 capital investment
threshold referred to in the Memorandum of Understanding, the
exemption from County taxes will be decreased by the amount
of $188,293.89, representing annual debt service on the MBIA
loan; and the County will enter into an interlocal agreement
with the City of Olive Branch pursuant to which it will pay
this sum to the City.
================================================================================
<PAGE> 40
Moreover, the fee-in-lieu payments to the County must be set at a level
sufficient to pay (a) road and bridge taxes, (8.23% of the County
millage), (b) the city of Olive Branch, pursuant to an interlocal
agreement, an amount equal to the debt service payments, if any, on the
MBIA loan, and (c) to the school district its pro rata share of the
fee-in-lieu payments (57% of the fee-in-lieu payment):
County fee-in-lieu payments (based upon assumed $100,000,000
appraised value and annual MBIA debt service payment of
$188,293.89);
<TABLE>
<S> <C>
Road and bridge $104,724.26
Payment to City for MBIA debt service 188,293.89***
School district at 57% 388,419.67
-----------
$681,438.02
(City taxes shall remain fully exempt under Section 101.)
</TABLE>
E. COMMITMENT OF CITY OF OLIVE BRANCH
At such time as the Project is put in service and the Companies apply for
an exemption from ad valorem taxes, the city of Olive Branch commits that
it will fully exempt City taxes for a ten (10) year term; provided that
DeSoto County shall simultaneously enter into an interlocal agreement with
the City pursuant to which the County shall pay to the City an amount
equal to the annual debt service payments (if any) on the MBIA loan.
F. COMMITMENT OF DESOTO COUNTY
Until such time as the investment in the Project (as described in the
Memorandum of Understanding) equals or exceeds $100,000,000, DeSoto County
commits that it will exempt the Project from County ad valorem taxes except for
school, road and bridge taxes (currently 48.40 mills and 7.04 mills,
respectively) and except for an amount equal to the annual debt service (if any)
on the MBIA loan. After the investment in the Project equals or exceeds
$100,000,000, DeSoto County will enter into Fee in Lieu Agreements with the
Companies pursuant to which they will pay for a ten (10) year term (aggregated
with the exemption period under Section 27-31-101) fees in lieu of taxes equal
to the sum of (a) 8.23% of the amount of the total County taxes which would
have been payable in absence of any exemption or Fee in Lieu Agreement (the
"Road and Bridge Component"); plus (b) an amount equal to the debt service
payments, if any, on the MBIA loan (the "Debt Service Component"), plus (c)
such amount as is required in order to provide a payment to the DeSoto County
school district equal to 57% of the total fee in lieu of payments to DeSoto
County (the "School Component"); provided, however, that in no event shall the
fees in lieu of taxes payable to the County hereunder be less than one-third
(1/3) of the amount of taxes which would have been payable to the County in
absence of any exemption of Fee in Lieu Agreement. DeSoto County agrees to
enter into an interlocal agreement with City of Olive Branch providing for
payment by the County to the City of the Debt Service Component. The fee in
lieu of taxes shall be determined annually in the manner hereinabove set out to
reflect changes in millage rates, appraised value and debt service payments due
during such year.
================================================================================
*** Note -- In any year when there is no debt service due on the
MBIA loan or the debt service is less than set out in the
illustration, the fee-in-lieu payment shall be adjusted to
reflect such actual debt service payment.
================================================================================
- 2 -
<PAGE> 41
E-1
EXHIBIT "E"
Road Configurations and Specifications
The County shall extend Polk Lane from Goodman Road to State Line Road with
completion prior to April 1, 1999. The County shall provide a minimum 80'-0"
wide right-of-way along the 48'-0" wide road (four lane) for electrical lines
and underground utilities, including water, sewer, telephone and natural gas.
The road shall have concrete curb and gutters, bermed landscaping, concrete
sidewalks, pylon sign, storm drainage, and road way lighting at a coverage of
1/2 FC average. The roadway shall be constructed on 12" crushed stone base or 8"
soil cement base, 3" asphalt binder course and 1.5" asphalt wearing surface.
Existing Polk Lane through the Property and the Option Property must be
terminated and right-of-way abandoned by September 1, 1998 to allow construction
to commence on the proposed building. This includes termination of any utilities
which might conflict with the proposed building.
E-1
<PAGE> 42
EXHIBIT "F"
Property
PARCEL I
LOCATED IN DESOTO COUNTY, MISSISSIPPI:
BEING A SURVEY OF PART OF THE NORTHEAST QUARTER OF THE SOUTHEAST QUARTER, PART
OF THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, PART OF THE SOUTHWEST QUARTER
OF THE NORTHEAST QUARTER AND PART OF THE SOUTHEAST QUARTER OF THE NORTHEAST
QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89(Degree)32'11"W
ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF 80.00 FEET TO A POINT;
THENCE S00(Degree)31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL
TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 1976.49 FEET TO THE POINT OF
BEGINNING; THENCE CONTINUING S00(Degree)31'04"E ALONG A LINE THAT IS 80.00 FEET
WEST OF AND PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 1550.00
FEET TO A POINT; THENCE S89(Degree)29'39"W A DISTANCE OF 1950.59 FEET TO A FOUND
IRON PIN; THENCE N00(Degree)46'30"W A DISTANCE OF 1540.82 FEET TO A POINT;
THENCE N89(Degree)13'30"E A DISTANCE OF 1957.52 FEET TO THE POINT OF BEGINNING
AND CONTAINING 3,019,801 SQUARE FEET OR 69.325 ACRES.
[A PORTION OF THIS PARCEL I WILL BE CONVEYED TO THE CITY FOR USE IN
CONNECTION WITH THE WATER PLANT THE CITY IS CONSTRUCTING WITH THE
PROCEEDS OF THE MBIA LOAN. THE PORTION TO BE CONVEYED IS MORE
PARTICULARLY DESCRIBED IN EXHIBIT "O" TO THIS MOU.]
F-1
<PAGE> 43
PARCEL II
LOCATED IN DESOTO COUNTY, MISSISSIPPI:
BEING A SURVEY OF PART OF THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER, PART
OF THE SOUTHWEST QUARTER OF THE NORTHEAST QUARTER, PART OF THE NORTHWEST QUARTER
OF THE NORTHEAST QUARTER AND PART OF THE NORTHEAST QUARTER OF THE NORTHEAST
QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89(Degree)32'11"W
ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF 80.00 FEET TO A POINT;
THENCE S00(Degree)31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL
TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 491.49 FEET TO THE POINT OF
BEGINNING; THENCE CONTINUING S00(Degree)31'04"E ALONG A LINE THAT IS 80.00 FEET
WEST OF AND PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 1485.00
FEET TO A POINT; THENCE S89(Degree)13'30"W A DISTANCE OF 1957.52 FEET TO A
POINT; THENCE N00(Degree)46'30"W A DISTANCE OF 1484.99 FEET TO A POINT; THENCE
N89(Degree)13'30"E A DISTANCE OF 1964.19 FEET TO THE POINT OF BEGINNING AND
CONTAINING 2,911,841 SQUARE FEET OR 66.847 ACRES.
[PARCEL II DESCRIBES THE REAL PROPERTY UPON WHICH PHASE I IS TO BE
CONSTRUCTED.]
F-2
<PAGE> 44
EXHIBIT "F-1"
Option Property
PARCEL I
LOCATED IN DESOTO COUNTY, MISSISSIPPI:
BEING A SURVEY OF PART OF THE NORTHEAST QUARTER OF THE NORTHEAST
QUARTER, PART OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER, SECTION 25,
TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI AND PART OF THE
SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER AND PART OF THE SOUTHEAST QUARTER OF
THE SOUTHEAST QUARTER, SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY
MISSISSIPPI AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89(Degree)32'11"W
ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF 80.00 FEET TO THE POINT OF
BEGINNING; THENCE S00(Degree)31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND
PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 491.49 FEET TO A
POINT; THENCE S89(Degree)13'30"W A DISTANCE OF 1964.19 FEET TO A POINT; THENCE
N00(Degree)46'30"W A DISTANCE OF 1351.48 FEET TO A POINT; THENCE
N89(Degree)13'30"E A DISTANCE OF 1965.03 FEET TO A POINT; THENCE
S00(Degree)51'56"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL TO THE
EAST LINE OF SAID SECTION 24 A DISTANCE OF 860.00 FEET TO THE POINT OF BEGINNING
AND CONTAINING 2,656,423 SQUARE FEET OR 60.983 ACRES.
[THIS PARCEL I OF THE OPTION PROPERTY DESCRIBES THE REAL PROPERTY
UPON WHICH THE SECOND BUILDING (AS DESCRIBED IN EXHIBITS "A', "A-1"
AND "A-2" TO THIS MOU) WILL BE CONSTRUCTED IN THE FUTURE.]
F-1-1
<PAGE> 45
PARCEL II
LOCATED IN DESOTO COUNTY, MISSISSIPPI:
BEING A SURVEY OF PART OF THE SOUTHEAST QUARTER OF THE SOUTHEAST
QUARTER, PART OF THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER, PART OF THE
NORTHWEST QUARTER OF THE SOUTHEAST QUARTER AND PART OF THE NORTHEAST QUARTER OF
THE SOUTHEAST QUARTER, SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY
MISSISSIPPI AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHEAST CORNER OF SAID SECTION 24; THENCE S89(Degree)32'11"W
ALONG THE SOUTH LINE OF SAID SECTION 24 A DISTANCE OF 80.00 FEET TO A POINT;
THENCE N01(Degree)51'56"W ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL
TO THE EAST LINE OF SAID SECTION 24 A DISTANCE OF 860.00 FEET TO THE POINT OF
BEGINNING; THENCE S89(Degree)13'30"W A DISTANCE OF 1965.03 FEET TO A POINT;
THENCE N00(Degree)46'30"W A DISTANCE OF 1509.28 FEET TO A POINT; THENCE
N89(Degree)28'56"E A DISTANCE OF 1962.68 FEET TO A POINT; THENCE
S00(Degree)51'56"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL TO THE
EAST LINE OF SAID SECTION 24 A DISTANCE OF 1500.47 FEET TO THE POINT OF
BEGINNING AND CONTAINING 2,955,335 SQUARE FEET OR 67.845 ACRES.
F-1-2
<PAGE> 46
EXHIBIT "G"
Water and Sewer Tap Fees
G-1
<PAGE> 47
[SEAL]
Office of Public Utilities
FEE SCHEDULE
Effective Date 1/1/98
<TABLE>
<CAPTION>
RESIDENTIAL TAP FEES
- --------------------
<S> <C>
Sewer $550.00 Cedar Crest:--------Sewer $750.00
Water $550.00 Water $550.00
Gas $300.00 Gas $300.00
Total $1400.00 Total $1600.00
Bell Ridge Brayborne-----------Sewer $400.00
Sewer $750.00 Water $400.00
Water $550.00 Gas $300.00
Gas $300.00 Total $1100.00
Total $1600.00
Fox Creek----Sewer (no sewer) Fairhaven Estates---Sewer $550.00
Water $500.00 Water $550.00
Gas $300.00 Gas $300.00
Total $800.00 Total $1400.00
</TABLE>
(note): The minimum water bill for Fox Creek and Brayborne will be $17.60 per
month.
Sewer Tap Fee for Wedgewood/South Manor/Gwyck ------------------------$550.00
DO NOT CHARGE SALES TAX ON RESIDENTIAL CUSTOMERS
- --------------------------------------------------------------------------------
COMMERCIAL & INDUSTRIAL FEES (7% sales tax)
- -------------------------------------------
<TABLE>
<CAPTION>
(Tap Fee) (Meter) (Tax on Meter) (Total)
<S> <C> <C> <C> <C>
Water 3/4" meter $550.00 $ 25.99 $ 1.82 $577.81
1" meter $550.00 $ 69.50 $ 4.87 $624.37
1-1/2" meter $550.00 $179.60 $12.57 $742.17
2" meter $550.00 $318.00 $15.26 $783.26
3" meter $550.00 $412.93 $28.91 $991.83
</TABLE>
THESE PRICES ARE FOR THE FIRST 100 FEET ONLY. ANY ADDITIONAL FOOTAGE IS PRICED
AT .50 PER RUNNING FOOT.
9189 Pigeon Roost Road - Olive Branch, Mississippi 38654
Phone: (601) 895-5209 - FAX (601) 895-5215
Commercial and industrial tap fees
Sewer $550.00
Gas 300.00
<PAGE> 48
EXHIBIT "H"
Lauderdale Letter Dated June 19, 1998
H-1
<PAGE> 49
JOSEPH F. LAUDERDALE P.E.L.S.
9123 PIDGEON ROOST AVENUE
OLIVE BRANCH, MISSISSIPPI 38654
601-895-0422
June 19, 1998
Gary Snyder
8925 E. Goodman
Olive Branch, Ms. 38654
RE: Additional details on water and sewer service to the
Williams-Sonoma Site in Olive Branch
Dear Gary:
This letter is to confirm water and sewer service as per your letter of
commitment to the Hewson Co. for the Williams-Sonoma project. At this time, the
plans are to provide water service to the site by February 1, 1999. The amount
of water is estimated to be 600 gal. per minute. Provide the 300,000 gal. ground
storage tank by April 1, 1999. This tank could be filled with water and the
300,000 gallons of water available for fire protection for the new building at
this time. And provide the elevated tank by July 1, 1999. Also provide for sewer
service by April 1, 1999. As we have talked about before, there are several
things that will need to take place in the next 60 days in order to meet these
dates. You have pointed out many of the items in your letter. In addition to
approvals, releases, completion of the plans, funding and weather, I will need
to start the bidding process. I have projected the following bidding process for
the project. Approval by the Olive Branch Board on July 7, 1998 to bid the
utility work. At that point the earliest bid opening by State law would be the
City board meeting on August 18. The bids would be approved on Sept. 1, 1998.
The contractor then has 30 days to sign the contracts, order material and begin
work on Oct. 1. This means that the approvals, releases, accepting a contractors
bid and funding must all fall in place by Sept. 1 or the Board can not sign a
contract for the work. At this time any delays in the above mentioned bidding
outline will delay the final completion dates. I am proceeding with the
completion of the plans to meet these bid dates. If you have any questions,
please let me know.
Sincerely,
/s/ JOSEPH F. LAUDERDALE
- -------------------------
Joseph F. Lauderdale P.E.
Olive Branch City Engineer
<PAGE> 50
EXHIBIT "H-1"
Lauderdale Letter Dated June 30, 1998
H-1 - 1
<PAGE> 51
JOSEPH F. LAUDERDALE P.E.L.S.
9123 PIDGEON ROOST AVENUE
OLIVE BRANCH, MISSISSIPPI 38654
601-895-0422
June 30, 1998
DeSoto Council
Hernando, Mississippi 38632
Re: Williams-Sonoma Project
Dear Jim:
I have received your letter concerning the ground storage tanks for the
Williams-Sonoma Project. Because of the volume of water needed for the
project, a water plant will need to be constructed on the property. Within the
scope of a water plant package a ground storage tank is needed to provide for
the mixing of chlorine, and soda ash. Also the two surface pumps that provide
for the pumping power of the plant will be connected to the ground storage
tank. The elevated tank connected to the plant will provide for the storage of
extra water for the system for backup fire protection in the area. Enclosed is
a copy of the plant design. If you have any questions, please let me know.
Sincerely,
/s/ JOSEPH F. LAUDERDALE
- -------------------------
Joseph F. Lauderdale P.E.
<PAGE> 52
MAP OF WATER PLANT LAYOUT
<PAGE> 53
EXHIBIT "I"
Mississippi Code Section 27-31-104
(Fee in Lieu of Taxes)
I-1
<PAGE> 54
EXHIBIT "J"
Critical Path of Development for Non-Road Infrastructure
J-1
<PAGE> 55
PROJECT SCHEDULE OF UTILITY CONTRACTS FOR THE POLK LANE & GOODMAN ROAD
PROJECTS & WILLIAMS-SONOMA FOR THE CITY OF OLIVE BRANCH, MISSISSIPPI
JULY 21, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
PROJECT NAME BID DATE CONTRACT BEGIN PART 1 PART 2 COMPLETION FINAL REMARKS
DATE CONSTRUCTION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Elevated Tank August 18 September 1 October 1 December 25 April 1 May 1 June 1
Ground Storage Tank August 18 September 1 October 1 December 1 January 10 February 1 February 7
Water Well August 18 September 1 October 1 December 1 January 10 March 15 April 1
Water Plant August 18 September 1 October 1 December 15 January 1 February 1 February 1
Water Mains August 18 September 1 October 1 December 1 January 10 January 15 February 1
Gas Services City Crews City Crews February 1 N/A N/A April 1 April 1
High Pressure Gas September 15 October 6 November 6 January 1 May 15 July 1 July 1
Sewer Main September 15 October 6 November 6 January N/A March 15 April 1
====================================================================================================================================
</TABLE>
Prepared by J.F. Lauderdale
<PAGE> 56
EXHIBIT "J-1"
Critical Path of Development for Roads
J-1-1
<PAGE> 57
CRITICAL PATH SCHEDULE FOR COUNTY - REVISED
7/29/98
<TABLE>
<CAPTION>
Survey Design Acquisition Award Start Construction
Completion Completion Completion Advertise Contract Construction Completion
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
South Polk Lane Completed 7/31/98 8/15/98 10/1/98 11/1/98 12/1/98 4/1/99
Hacks Cross Completed 9/15/98 1/12/99 3/15/99 4/1/99 5/17/99 12/31/99
North Polk Lane 9/10/98 11/2/98 N/A 1/4/99 2/4/99 5/2/99 12/31/99
and Wildwood
</TABLE>
Polk Lane Realignment to be completed by 8/7/98.
<PAGE> 58
EXHIBIT "K"
Letter Regarding Provision of Electric Power
K-1
<PAGE> 59
[THE HEWSON COMPANY LETTERHEAD]
July 28, 1998
Mr. W. Kevin Doddridge
Northcentral Mississippi Electric Power Association
P.O. Box 405
Byhalia, MS 38611
RE: Electric Power Service to Williams-Sonoma Site on Polk Lane
Dear Mr. Doddridge:
This letter shall serve as an agreement between Hewson Properties, Inc.
("Hewson") and Northcentral Mississippi Electric Power Association
("Northcentral") regarding the site located north of Goodman Road, south of
Desoto Road, east of Olive Branch Airport and west of Polk Lane.
The following terms are agreed upon between the two parties.
1. Northcentral shall remove the existing power lines and poles running along
the east side of Polk Lane from the point 2,200 feet north of Goodman Road
where the road bends to the west to the point where new, permanent Polk
Lane will intersect with Desoto Road. This removal shall take place prior
to August 15, 1998.
2. Northcentral shall abandon the easement that presently exists on the
property that Hewson has under contract with Dunavant Properties.
3. Northcentral will provide temporary lines along the west side of temporary
Polk Lane prior to August 15, 1998 to serve those residents north of the
point 2,200 feet north of Goodman Road where the road bends to the west.
4. Northcentral will construct permanent lines within an easement provided by
Hewson Properties prior to April 1, 1999 as practical. These lines must
have be overhead, high-voltage lines installed for distribution to various
plots. This service should be a minimum of 400 amperes at 25kv.
5. An easement (15) fifteen feet in width parallel to and adjoining the
county road right of way will be provided along the west side of the road,
outside the road right of way. Poles will be located as close as practical
to the road right of way.
Please sign below to acknowledge Northcentral's consent to the above terms.
Sincerely,
/s/ STEVEN R. SCHWARZ
- ------------------------
Steven R. Schwarz
Project Manager
Consent: Northcentral Mississippi Electric Power Association
By: Tom Harwood
----------------------
Its: Director of Operations
----------------------
<PAGE> 60
EXHIBIT "L"
Letter Regarding Provision of Telephone Service
L-1
<PAGE> 61
[HEWSON LETTERHEAD]
July 28, 1998
Mr. Charles Edwards
Project Engineer
Century Telephone
7045 Cockrum Street
Olive Branch, MS 38654
RE: Telephone Service to Williams-Sonoma Site on Polk Lane
Dear Mr. Edwards,
This letter shall serve as an agreement between Hewson Properties, Inc.
("Hewson") and Century Telephone ("Century") regarding the site located north of
Goodman Road, south of Desoto Road, east of Olive Branch Airport and west of
Polk Lane.
The following terms are agreed upon between the two parties.
1. Century shall abandon the existing telephone lines running along the east
side of Polk Lane from the point 2,200 feet north of Goodman Road where
the road bends to the west to the point where now, permanent Polk Lane
will intersect with Desoto Road. This removal shall take simultaneously
with the completion of item #2.
2. Within three days of the installation of temporary power poles and lines
along the temporary Polk Lane by Northern Mississippi Power, Century
Telephone shall provide temporary telephone lines along the west side of
temporary Polk Lane to serve those residents north of the point 2,200 feet
north of Goodman Road where the road bends to the west.
3. Century shall construct permanent lines within the new, permanent Polk
Lane right-of-way prior to April 1, 1999. These lines must have the
capacity to serve Williams-Sonoma the necessary lines and fiberoptics
previously discussed with Century Telephone.
Please sign below to acknowledge Century's consent to the above terms.
Sincerely,
/s/ STEVEN R. SCHWARZ
- ------------------------
Steven R. Schwarz
Project Manager
Consent: Century Telephone
By: [SIG] 8-5-98
-------------------------
Its: District Mgr.
-------------------------
<PAGE> 62
EXHIBIT "L-1"
Letter Regarding Telephone Service Specifications
L-1-1
<PAGE> 63
[WILLIAMS-SONOMA, INC. LETTERHEAD]
ENGINEERING DEPARTMENT
DATE: August 14, 1998
Mr. Steven Schwarz
The Hewson Company
4636 E. University Drive
Phoenix, AZ 85034
RE: TELEPHONE SERVICE REQUIREMENTS - PROPOSED OLIVE BRANCH D.C.
Steven,
Please confirm that the following has been discussed between your company and
Century Telephone for the service into the proposed D.C. in Olive Branch:
Per discussion with David Dickey on 8/14/98 - SRS
100 POTS Lines
9 T1 Lines
2 Sources of Fiber (preferably in a sonet ring)
All service to be installed no later than April 1, 1999. SRS
/s/ RICK WEEDEN
- ---------------------
Rick Weeden
Engineering
(901)546-7398
Confirmed:
/s/ STEVEN R. SCHWARZ
----------------------------
Steven R. Schwarz
Project Manager
The Hewson Company
<PAGE> 64
EXHIBIT "M"
Letter of Mississippi Department of Transportation
Concerning Completion of Goodman Bypass
M-1
<PAGE> 65
[MISSISSIPPI DEPARTMENT OF TRANSPORTATION LETTERHEAD]
August 14, 1998
Mr. Roy B. Braswell
Mississippi Department of Economic
and Community Development
Jackson, Mississippi
Dear Mr. Braswell:
This letter is written concerning your inquiry on the SR 302 project in Olive
Branch. It is the intent of MDOT to work with the contractor to ensure the
completion of SR 302 from Polk Lane to Hacks Cross Road by June 30, 1999. The
new intersection of SR 302 and Hacks Cross Road will be signalized by the same
date.
This will give adequate access from Polk Lane to US 78 via Hacks Cross Road. A
traffic signal will be installed on US 178 by June 30, 1999, to enhance the
access.
MDOT will cooperate with the County in placing the proper traffic control
devices at the intersection of Old Goodman Road and Polk Lane. It is the intent
of MDOT to work with the contractor to ensure the completion of SR 302 from
Hacks Cross Road to US 78 by December 31, 1999.
We trust this provide the level of assurance you need for discussion with your
clients.
Sincerely,
/s/ James H. Kopf
James H. Kopf
Chief Engineer
JHK/cc
pc: District Engineer
Central Files
<PAGE> 66
EXHIBIT "N"
Letter of Metro DeSoto Company Releasing Certificated Rights
N-1
<PAGE> 67
[SEAL OF OLIVE BRANCH, MISSISSIPPI]
Office of the Mayor
August 11, 1998
Mr. Brian U. Ray, Executive Director
Mississippi Public Service Commission
P.O. Box 1174
Jackson, MS 39215-1174
Dear Mr. Ray:
The City of Olive Branch, Mississippi, has recently annexed an area
certificated to Metro DeSoto Company. The area in question is a portion of the
area certificated to Metro DeSoto Company by order of the Mississippi Public
Service Commission in Cause No. U-4136 for water and U-4137 for sewer.
It is our desire to cancel and release the portion of the Certificates of
Public Convenience and Necessity for a portion of the area which is being
annexed.
Enclosed are the following items supporting our request:
1. A metes and bounds description of the area to be canceled.
2. A map showing corporate boundaries of the City, franchise area of Metro
DeSoto, and area to be canceled.
3. A Resolution from the Board of Directors of Metro DeSoto Company
releasing the area to the City.
We respectfully request that the Commission cancel the Certificates of Public
Convenience and Necessity for the area described.
Respectfully,
City of Olive Branch
By: /s/ Samuel P. Rikard
----------------------------------
Samuel P. Rikard, Mayor
<PAGE> 68
Metro DeSoto Company
By: [SIG]
--------------------------------------
Senior Vice President
<PAGE> 69
OVERALL
PROPERTY DESCRIPTION
BEING A SURVEY OF PART OF THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, PART
OF THE NORTHEAST QUARTER OF THE SOUTHEAST QUARTER, PART OF THE SOUTHWEST
QUARTER OF THE SOUTHEAST QUARTER, AND THE SOUTHEAST QUARTER OF THE SOUTHEAST
QUARTER, SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND PART OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER, THE NORTHEAST
QUARTER OF THE NORTHEAST QUARTER, PART OF THE SOUTHWEST QUARTER OF THE
NORTHEAST QUARTER, THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER, PART OF THE
NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, AND PART OF THE NORTHEAST QUARTER
OF THE SOUTHEAST QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO
COUNTY MISSISSIPPI AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S00(DEGREES)
31'04"E ALONG THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 3526.43 FEET TO A
POINT; THENCE S89(DEGREES) 29'39"W PASSING THROUGH AN IRON PIN AT 40.00 FEET, A
TOTAL DISTANCE OF 2030.59 FEET TO A FOUND IRON PIN; THENCE N00(DEGREES) 46'30"W
A DISTANCE OF 5886.57 FEET TO A POINT; THENCE N89(DEGREES) 28'56"E A DISTANCE OF
2042.68 FEET TO A POINT ON THE EAST LINE OF SAID SECTION 24; THENCE S00(DEGREES)
51'56"E ALONG THE EAST LINE OF SAID SECTION 24 A DISTANCE OF 2360.54 FEET TO THE
POINT OF BEGINNING AND CONTAINING 12,014,357 SQUARE FEET OR 275.812 ACRES.
<PAGE> 70
[MAP OF PROJECT]
<PAGE> 71
RESOLUTIONS OF METRO DESOTO UTILITIES CO., INC.
BE IT RESOLVED, that the Board of Directors of Metro DeSoto Utilities Co.,
Inc. has determined that it is in the best interest of the Company to, and does
hereby authorize and approve the release from the area in Desoto County which
is certificated to Metro DeSoto Utilities Co., Inc. that portion of such
certificated area as is described in EXHIBIT "A" attached to these resolutions
and made a part hereof, such release to be effective as to water and sewer
services.
BE IT FURTHER RESOLVED, that Jimmie D. Williams, the Senior Vice President
of the Company, be, and he is hereby authorized and empowered in behalf of the
Company, to execute and deliver any and all such instruments and documents as
may be necessary to effectuate the decertification of the land in EXHIBIT "A"
from the area certificated to the Company.
I, Andrea S. Bienstock, do hereby certify that I am Secretary/Assistant of
Metro DeSoto Utilities Co., Inc., a corporation organized and existing under
the laws of the State of Mississippi, and that as such Secretary/Assistant
Secretary, I am keeper of its corporate records. I further certify that the
above and foregoing is a true, correct and exact copy of the Resolutions
unanimously passed at a special meeting of the Board of Directors of the
corporation held on the 10th day of August, 1998, in strict accordance with law
and the charter and bylaws of the corporation, at which meeting a quorum was
continuously present, and that said Resolutions are not in full force and
effect and have been spread upon the minute book of the corporation.
I further certify that Jimmie D. Williams is the Senior Vice President of
Metro DeSoto Utilities Co., Inc.
Dated this 14th day of August, 1998.
/s/ ANDREA S. BIENSTOCK
----------------------------------
Andrea S. Bienstock, Assistant Secretary
Metro DeSoto Utilities Co., Inc.
<PAGE> 72
EXHIBIT "A"
OVERALL
PROPERTY DESCRIPTION
BEING A SURVEY OF PART OF THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, PART
OF THE NORTHEAST QUARTER OF THE SOUTHEAST QUARTER, PART OF THE SOUTHWEST
QUARTER OF THE SOUTHEAST QUARTER, AND THE SOUTHEAST QUARTER OF THE SOUTHEAST
QUARTER, SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND PART OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER, THE NORTHEAST
QUARTER OF THE NORTHEAST QUARTER, PART OF THE SOUTHWEST QUARTER OF THE
NORTHEAST QUARTER, THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER, PART OF THE
NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, AND PART OF THE NORTHEAST QUARTER
OF THE SOUTHEAST QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO
COUNTY MISSISSIPPI AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S00 DEGREES 31'
04"E ALONG THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 3526.43 FEET TO A
POINT; THENCE S89 DEGREES 29'39"W PASSING THROUGH AN IRON PIN AT 40.00 FEET, A
TOTAL DISTANCE OF 2030.59 FEET TO A FOUND IRON PIN; THENCE N00 DEGREES 46'30"W
A DISTANCE OF 5886.57 FEET TO A POINT; THENCE N89 DEGREES 28'56"E A DISTANCE OF
2042.68 FEET TO A POINT OF THE EAST LINE OF SAID SECTION 24; THENCE S00 DEGREES
51'56"E ALONG THE EAST LINE OF SAID SECTION 24 A DISTANCE OF 2360.54 FEET TO
THE POINT OF BEGINNING AND CONTAINING 12,014,357 SQUARE FEET OR 275.812 ACRES.
<PAGE> 73
CITY OF OLIVE BRANCH, MISSISSIPPI
August 13, 1998
Mr. Jim Stock
Belz Enterprises Real Estate & Investment
100 Peabody Place, Suite 1400
Memphis, TN 38103
RE: DECERTIFICATION OF WILLIAM-SONOMA PROJECT AND RELATED PROPERTY
Dear Jim:
This letter is to confirm the understanding between Metro DeSoto Utilities
Co., Inc. ("Metro") and the City of Olive Branch, Mississippi ("City") regarding
the release and cancellation of the Certificates of Public Convenience and
Necessity (the "Certificates") of Metro to provide water and sewer services to
the approximately 275-acre tract (the "Property") described in EXHIBIT "A",
attached hereto and incorporated herein by reference.
1. Metro agrees to sign and deliver to the City that certain letter
from the City to the Executive Director of the Mississippi Public Service
Commission ("Commission") dated August 11, 1998, requesting the release and
cancellation of the Certificates (the "Decertification Letter"), the
original of which was previously delivered to Metro.
2. Metro agrees to assist the City in obtaining the approval of the
Commission to release and cancel the Certificates and to take such other
actions as are reasonably requested by the City in connection therewith.
3. In consideration of Metro's assistance pursuant to Paragraphs (1)
and (2) above, the City agrees to enter into an Economic Development
Agreement with Metro which will provide that, in the event any portion of
the Property is ever developed and occupied by any user (whether by lease
or otherwise) other than Williams-Sonoma, Inc. or a wholly owned subsidiary
of William-Sonoma Inc. ("Williams-Sonoma"), the City shall deliver written
notice thereof to Metro. Within thirty (30) days of its receipt of such
notice, Metro shall notify the City in writing whether Metro desires to
recertify the portion of the Property occupied or to be occupied by such
non-Williams-Sonoma user. If Metro notifies the City that it desires to
recertify such portion of the Property in the name of Metro, then the City
shall take all such steps as are reasonably required in order to cause the
Commission to decertify the City's right to provide water and sewer service
to the portion of the Property occupied or to be occupied by the
non-Williams-Sonoma user.
<PAGE> 74
4. Metro understands and agrees that any portion of the Property which
is initially used by Williams-Sonoma (whether as owner or lessee thereof)
shall not be subject to Metro's option to obtain recertification; it being
understood that any portion of the Property so used by Williams-Sonoma
shall be and remain at all times certificated to the City.
If the terms and conditions as outlined herein are acceptable to Metro,
please indicate your acceptance thereof by signing a copy of this letter in the
space provided below and returning the signed copy to me. Additionally, please
send me the Decertification Letter signed by Metro, together with the
Resolutions and other Exhibits referenced therein, so that we may initiate the
decertification process. Shortly, we will begin drafting the Economic
Development Agreement between Metro and the City which incorporates the general
terms and conditions outlined herein.
Thank you,
Sincerely,
CITY OF OLIVE BRANCH, MISSISSIPPI
By: /s/ SAMUEL P. RIKARD
-------------------------------
Samuel P. Rikard, Mayor
Accepted this 14th day of August, 1998:
METRO DESOTO UTILITIES CO., INC.
By: [SIG]
----------------------------------
Title:
----------------------------------
<PAGE> 75
EXHIBIT "A"
OVERALL
PROPERTY DESCRIPTION
BEING A SURVEY OF PART OF THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, PART
OF THE NORTHEAST QUARTER OF THE SOUTHEAST QUARTER, PART OF THE SOUTHWEST
QUARTER OF THE SOUTHEAST QUARTER, AND THE SOUTHEAST QUARTER OF THE SOUTHEAST
QUARTER, SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND PART OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER, THE NORTHEAST
QUARTER OF THE NORTHEAST QUARTER, PART OF THE SOUTHWEST QUARTER OF THE NORTHEAST
QUARTER, THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER, PART OF THE NORTHWEST
QUARTER OF THE SOUTHEAST QUARTER, AND PART OF THE NORTHEAST QUARTER OF THE
SOUTHEAST QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY
MISSISSIPPI AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE SOUTH 00 DEGREES
31' 04" EAST ALONG THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 3526.43 FEET
TO A POINT; THENCE SOUTH 89 DEGREES 29' 39" WEST PASSING THROUGH AN IRON PIN AT
40.00 FEET, A TOTAL DISTANCE OF 2030.59 FEET TO A FOUND IRON PIN; THENCE NORTH
00 DEGREES 46' 30" WEST A DISTANCE OF 5886.57 FEET TO A POINT; THENCE NORTH 89
DEGREES 28' 56" EAST A DISTANCE OF 2042.68 FEET TO A POINT ON THE EAST LINE OF
SAID SECTION 24; THENCE SOUTH 00 DEGREES 51' 56" EAST ALONG THE EAST LINE OF
SAID SECTION 24 A DISTANCE OF 2360.54 FEET TO THE POINT OF BEGINNING AND
CONTAINING 12,014,357 SQUARE FEET OR 275.812 ACRES.
<PAGE> 76
EXHIBIT "O"
Land to be Dedicated for Water Plant
O-1
<PAGE> 77
JOSEPH F. LAUDERDALE P.E.L.S.
9123 PIDGEON ROOST AVENUE
OLIVE BRANCH, MISSISSIPPI 38654
601-895-0422
August 14, 1998
DESCRIPTION OF A 0.72 ACRE PARCEL FOR THE WILLIAMS-SONOMA
WATER PLANT SITE LOCATED IN PART OF THE SOUTHEAST QUARTER OF
SECTION 25; TOWNSHIP 1 SOUTH; RANGE 6 WEST; DESOTO COUNTY,
MISSISSIPPI
Beginning at the northeast corner of Section 25; Township 1 South, Range 6
West; thence south 0 31' 04" east 3526.43 feet along the east line of said
section to a point; thence west 80.0 feet along the south line of the proposed
Williams-Sonoma tract to the point of beginning of the following lot: thence
south 89 29' 39" west 210.0 feet along said south property line to a point;
thence north 0 31' 04" west 150.0 feet to a point; thence north 89 29' 39" east
210.0 feet to a point in the west right of way of new Polk Lane; thence south 0
31' 04" east 150.0 feet to the point of beginning and containing 0.72 acres
more or less. All bearings are true north. Included is also a 15 foot wide
utility easement granted to the City of Olive Branch along and adjacent to the
west right of way line for new Polk Lane and being along the east side of the
proposed 275.81 acre Hewson Properties and/or Williams-Sonoma tract.
J. F. Lauderdale L.S.
<PAGE> 78
EXHIBIT "P"
Letter of Security Fire Protection Company, Inc.
O-2
<PAGE> 79
[SECURITY FIRE LOGO]
August 11, 1998
Owens Engineering Company, Inc.
50 Security Drive
Jackson, TN 38305
Attn: Allen Brown
Re: Williams-Sonoma
Olive Branch, MS
Dear Allen:
Confirming our earlier telephone conversation, in a letter to Gary Hewson dated
June 22, 1998, The City of Olive Branch proposed improvements to the water
supply infrastructure to accommodate the fire protection system. A summary of
these proposed improvements is as follows:
1. The City will construct a 300,000 gallon ground storage water tank on
site. This tank will be used to supply the 2,500 gpm diesel engine driven
fire pump and will provide sufficient capacity for the maximum anticipated
sprinkler system demand of 2,600 gpm.
2. The City will also construct an elevated water storage tank adjacent to
the site, complete with a 16-inch water main from the tank to the south
property line. This supply will be capable of providing a minimum of 20
psig at 4,000 gpm at the site. Although not stated, it is also assumed
that this supply will maintain a static pressure of approximately 65 psig
for consistency with the existing gravity fed water supplies for both the
Metro Industrial Park and The City of Olive Branch.
This tank will be used to supply the 2,500 gpm electric motor driven
booster pump. The combined elevated water tank and booster pump assembly
will sufficient for both the maximum anticipated sprinkler system demand
of 2,600 gpm as well as the maximum fire pump flow capability of 3,750
gpm.
The ground storage water tank will be in service by April 1, 1999, whereas the
elevated tank will be in service by July 1, 1999. Accordingly, at least
initially, the ground storage tank and diesel pump will be set up as the
primary supply.
<PAGE> 80
Mr. Allen Brown
Owens Engineering Company August 11, 1998
Page 2
The above described water supply improvements are adequate in volume and
pressure to accommodate the K25 method ESFR design established by Factory
Mutual guidelines for storage up to and including 40 feet in buildings with
ceiling heights not exceeding 45 feet.
I trust this information is satisfactory for your needs. However, should you
have any questions or require additional information, please do not hesitate to
contact me.
Cordially,
SECURITY FIRE PROTECTION COMPANY, INC.
/s/ DAVID L. DIXON
David L. Dixon
Executive Vice President
cc: Curtis Cain
Steven Schwartz
<PAGE> 1
EXHIBIT 10.7
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT (the "AGREEMENT"), made and entered into
this the 17th day of August, 1998, by and between WILLIAMS-SONOMA, INC., a
California corporation ("WILLIAMS-SONOMA"), and HEWSON PROPERTIES, INC., a
California corporation ("HEWSON");
W I T N E S S E T H:
WHEREAS, Hewson, as Purchaser, and C. Greg Robinson, Robinson Family
Investment, L.P. and Central States Investment Co., collectively as Seller, have
made and entered into that certain Agreement to Purchase Land dated May 19,
1998, as amended (the "PURCHASE AGREEMENT"), regarding the purchase and sale of
approximately 198.15 acres of real property located in DeSoto County,
Mississippi, described in Exhibits "A," "B" and "C" hereto, and option to
purchase up to an additional approximately 67.845 acres of real property
adjacent thereto, being more particularly described in Exhibit "D," attached
hereto, all of such exhibits being incorporated herein by reference
(collectively the "PROPERTY");
WHEREAS, Hewson desires to acquire or to allow Williams-Sonoma to
purchase those portions of the Property (the "WILLIAMS-SONOMA SITE"), which are
described in Exhibits "B" and "C," hereto, in order to construct thereon a total
of two (2) distribution and warehouse facilities containing one million one
hundred thousand (1,100,000) square feet each, and related amenities (the
"IMPROVEMENTS") (the Williams-Sonoma Site and Improvements being herein
sometimes collectively called the "PROJECT");
WHEREAS, Williams-Sonoma and Hewson have entered into preliminary
negotiations regarding arrangements whereby Williams-Sonoma will lease from
Hewson the property described in Exhibit "B" (the "PHASE 1 SITE") upon which the
first phase of the proposed Project will be constructed and by separate lease
agreement containing an assignable option to purchase also lease from Hewson the
property described in Exhibit "C" (the "PHASE 2 SITE") upon which the second
phase of the proposed Project will be constructed, but definitive lease
agreements have not been entered into between Hewson and Williams-Sonoma as of
the date of this Agreement;
WHEREAS, in order to meet the distribution needs of Williams-Sonoma,
the first phase of the Project must be completed by approximately June 1, 1999
and, to that end, Hewson has expended, and expects to expend, its own funds in
anticipation of definitive lease agreements being entered into by and between
Williams-Sonoma and Hewson;
WHEREAS, Williams-Sonoma and Hewson have agreed that, if satisfactory
definitive lease agreements are not entered into by and between Williams-Sonoma
and Hewson on or before October 15, 1998, Hewson will have the right to "Put"
the Project and the Williams-Sonoma Site to Williams-Sonoma and to require
Williams-
<PAGE> 2
Sonoma to reimburse Hewson for its Costs, as that term is defined below, and
Williams-Sonoma will have a "Call" to acquire the Project and the
Williams-Sonoma Site from Hewson in consideration of Williams-Sonoma's
reimbursement of all of Hewson's Costs, all on the terms and subject to the
conditions set forth more particularly below; and
WHEREAS, Williams-Sonoma and Hewson desire to enter into this
Agreement to outline the terms and conditions for the "Put" and the "Call", as
aforesaid;
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed by the parties as follows:
Section 1. Reimbursable Costs. Williams-Sonoma hereby agrees to
reimburse Hewson for one hundred percent (100%) of all of the out-of-pocket
acquisition and development costs (collectively, the "COSTS") incurred by Hewson
in connection with the Project, subject to the criteria set forth herein and to
the provisions of Section 2 below. The Costs to be reimbursed include, without
limitation, the land purchase price for the Williams-Sonoma Site, all other sums
paid by Hewson under the Purchase Agreement with respect to the Williams-Sonoma
Site, all environmental assessment, wetland study, geotechnical tests, survey
and other due diligence costs expended in connection with the acquisition of the
Williams-Sonoma Site, all reasonable and necessary travel costs for Hewson
employees and consultants, reasonable legal fees and expenses, architectural and
engineering fees and expenses, costs and expenses incurred by or imposed upon
Hewson pursuant to or in connection with the Memorandum of Understanding (the
"MEMORANDUM OF UNDERSTANDING") to be entered into among the Mississippi
Department of Economic and Community Development, Mississippi Business Finance
Corporation, DeSoto County, Mississippi, City of Olive Branch, Mississippi,
Williams-Sonoma and Hewson, or in connection with the transactions referred to
therein, and any and all other out-of-pocket costs incurred by Hewson which
Hewson would not have incurred but for the Project, including, but not limited
to, those costs referred to in that certain letter of H + M Construction Co.,
Inc. dated June 30, 1998, a copy of which is attached hereto as Exhibit "E" and
incorporated herein by reference, together with interest from the date any such
costs or expenses are paid by Hewson until reimbursed by Williams-Sonoma at the
rate of nine percent (9%) per annum (the "Rate"); provided, however, that in no
event (whether pursuant to "Put" or "Call" as hereinafter defined) shall Costs
exceed Sixteen Million Seven Hundred Thousand Dollars ($16,700,000).
Section 2. Put and Call Rights. Williams-Sonoma and Hewson understand
and agree that the "Put" and "Call" provided for herein will only come into
effect in the event that a definitive lease agreement by and between
Williams-Sonoma and Hewson for the use and occupancy of the Phase 1 Site
containing approximately 750,000 square feet has not been signed on or
-2-
<PAGE> 3
before October 15, 1998, and a definitive lease agreement for the leasing with
an assignable option to purchase the real property constituting the Phase 2 Site
has not been signed on or before October 15, 1998, the terms of such lease
agreements to be satisfactory in all respects to Williams-Sonoma and Hewson
(together, the "PUT/CALL CONDITIONS"). The parties agree to work together in
good faith to negotiate a market-rate lease for the Williams-Sonoma Site that
will qualify as an operating lease for financial accounting statement purposes
(an "operating lease") with the final execution form of the lease to be
negotiated on or before September 4, 1998. In the event that the Put/Call
Conditions have not been satisfied on or before October 15, 1998, then, at any
time after October 15, 1998 and prior to the earlier of December 20, 1998, or
the date on which the Put/Call Conditions have been satisfied, Hewson will have
the right to require Williams-Sonoma to reimburse Hewson for its Costs by
notifying Williams-Sonoma of its election to put the Project and the
Williams-Sonoma Site to Williams-Sonoma (the "Put"); and at any time after
October 15, 1998 and prior to the earlier of December 15, 1998, or the date on
which the Put/Call Conditions have been satisfied, Williams-Sonoma will have the
right to require Hewson to transfer and convey all of Hewson's right, title and
interest in and to the Project and the Williams-Sonoma Site and all rights
associated therewith to Williams-Sonoma or its assignee, in which event
Williams-Sonoma shall reimburse Hewson for its Costs (the "CALL"). In the event
that the Put or the Call is exercised, Hewson shall provide Williams-Sonoma with
an itemization of the Costs in reasonable detail together with such supporting
documentation as is reasonably requested by Williams-Sonoma. Concurrently with
the payment by Williams-Sonoma of the Costs, Hewson shall execute and deliver to
Williams-Sonoma such documents and instruments, in recordable form where
necessary, and physical transfers, as are necessary or appropriate to transfer,
convey and assign to Williams-Sonoma or its assignee, free and clear of all
liens, claims and encumbrances (except for such easements, conditions and
restrictions as may have been reasonably and necessarily granted or reserved in
connection with the roads, utilities and improvements referred to in the
Memorandum of Understanding and except for mechanics' and materialmen's liens
relating to Costs that are not then payable), all right, title and interest of
Hewson in and to the Project and the Williams-Sonoma Site and all rights
associated therewith, including without limitation all rights of Hewson under
the Purchase Agreement, the Memorandum of Understanding and all contracts,
permits and other property, tangible or intangible, relating to the Project or
the Williams-Sonoma Site (subject, in the case of the Memorandum of
Understanding and such contracts and permits, to the rights, claims and defenses
of any other person or entity who is a party thereto) (the "TRANSFER"). The
Transfer and reimbursement provided for hereunder shall take place as soon as
possible, but in any event within 30 days, after exercise of the Put or the
Call. Williams-Sonoma or its assignee shall have the right to dispose of the
assets so transferred or to utilize them to complete the Project. Upon any sale
of the assets following the Transfer, the net proceeds shall be retained by
Williams-Sonoma or its assignee.
Section 3. Merger Clause. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and may not
be amended except by written instrument executed by Williams-Sonoma and Hewson.
-3-
<PAGE> 4
Section 4. Section Headings. The section headings are inserted for
convenience only and are in no way intended to describe, interpret, define, or
limit the scope or content of this Agreement or any provision hereof.
Section 5. Choice of Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of California without
regard to principles of conflict of laws. In any litigation or similar
proceeding in connection with this Agreement, the prevailing party shall be
entitled to payment of its legal fees and costs.
Section 6. Assignment. This Agreement may not be assigned by either
party without the prior written consent of the other, which consent shall not be
unreasonably withheld; provided, however, that in the event the Put or the Call
is exercised, Williams-Sonoma shall have the right to assign its rights with
respect to the assets that are the subject of the Transfer. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
Section 7. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
instrument.
Section 8. Notice. All notices and other communications to be given
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) on the date of service, if personally served, (b) three business days
after being sent by U.S. certified or registered mail, return receipt requested,
postage prepaid, or (c) on the next business day, if by facsimile transmission,
properly addressed to the party at the following address: (1) Notices to
Williams-Sonoma: 3250 Van Ness Avenue, San Francisco, California 94109, Attn:
Chief Executive Officer, Facsimile No. (415) 616-8359; (2) Notices to Hewson:
4636 E. University
-4-
<PAGE> 5
Drive, Suite 265, Phoenix, Arizona 85034, Attn.: Gary J. Hewson, Facsimile No.
(602) 829-1771. Such addresses may be changed from time to time by written
notice provided hereunder.
HEWSON PROPERTIES, INC.
By:/s/ Robert Myers
---------------------------------
Title: Robert Myers VP/CFO
------------------------------
WILLIAMS-SONOMA, INC.
By: /s/ W. Howard Lester
---------------------------------
Title: CEO
------------------------------
-5-
<PAGE> 6
EXHIBIT "A"
PARCEL 1
PROPERTY DESCRIPTION
BEING A SURVEY OF PART OF THE NORTHEAST QUARTER OF THE SOUTHEAST QUARTER, PART
OF THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, PART OF THE SOUTHWEST QUARTER
OF THE NORTHEAST QUARTER AND PART OF THE SOUTHEAST QUARTER OF THE NORTHEAST
QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89(degree)32'11"W
ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF 80.00 FEET TO A POINT;
THENCE S00(degree)31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL
TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 1976.49 FEET TO THE POINT OF
BEGINNING; THENCE CONTINUING S00(degree)31'04"E ALONG A LINE THAT IS 80.00 FEET
WEST OF AND PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 1550.00
FEET TO A POINT; THENCE S89(degree)29'39"W A DISTANCE OF 1950.59 FEET TO A FOUND
IRON PIN; THENCE N00(degree)46'30"W A DISTANCE OF 1540.82 FEET TO A POINT;
THENCE N89(degree)13'30"E A DISTANCE OF 1957.52 FEET TO THE POINT OF BEGINNING
AND CONTAINING 3,019,801 SQUARE FEET OR 69.325 ACRES.
A-1
<PAGE> 7
EXHIBIT "B"
PHASE 1 SITE
PARCEL 2
PROPERTY DESCRIPTION
BEING A SURVEY OF PART OF THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER, PART
OF THE SOUTHWEST QUARTER OF THE NORTHEAST QUARTER, PART OF THE NORTHWEST QUARTER
OF THE NORTHEAST QUARTER AND PART OF THE NORTHEAST QUARTER OF THE NORTHEAST
QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89(degree)32'11"W
ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF 80.00 FEET TO A POINT;
THENCE S00(degree)31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL
TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 491.49 FEET TO THE POINT OF
BEGINNING; THENCE CONTINUING S00(degree)31'04"E ALONG A LINE THAT IS 80.00 FEET
WEST OF AND PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 1485.00
FEET TO A POINT; THENCE S89(degree)13'30"W A DISTANCE OF 1957.52 FEET TO A
POINT; THENCE N00(degree)46'30"W A DISTANCE OF 1484.99 FEET TO A POINT; THENCE
N89(degree)13'30"E A DISTANCE OF 1964.19 FEET TO THE POINT OF BEGINNING AND
CONTAINING 2,911,841 SQUARE FEET OR 66.847 ACRES.
B-1
<PAGE> 8
EXHIBIT "C"
PHASE 2 SITE
PARCEL 3
PROPERTY DESCRIPTION
BEING A SURVEY OF PART OF THE NORTHEAST QUARTER OF THE NORTHEAST QUARTER, PART
OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER, SECTION 25, TOWNSHIP 1 SOUTH,
RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI AND PART OF THE SOUTHWEST QUARTER OF THE
SOUTHEAST QUARTER AND PART OF THE SOUTHEAST QUARTER OF THE SOUTHEAST QUARTER,
SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI AND BEING
MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89(degree)32'11"W
ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF 80.00 FEET TO A POINT OF
BEGINNING; THENCE S00(degree)31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND
PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 491.49 FEET TO THE
POINT; THENCE S89(degree)13'30"W A DISTANCE OF 1964.19 FEET TO A POINT; THENCE
N00(degree)46'30"W A DISTANCE OF 1351.48 FEET TO A POINT; THENCE
N89(degree)13'30"E A DISTANCE OF 1965.03 FEET TO A POINT; THENCE
S00(degree)51'56"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL TO THE
EAST LINE OF SAID SECTION 24 A DISTANCE OF 860.00 FEET TO THE POINT OF BEGINNING
AND CONTAINING 2,656,423 SQUARE FEET OR 60.983 ACRES.
C-1
<PAGE> 9
EXHIBIT "D"
OPTION PARCEL
PROPERTY DESCRIPTION
BEING A SURVEY OF PART OF THE SOUTHEAST QUARTER OF THE SOUTHEAST QUARTER, PART
OF THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER, PART TO THE NORTHWEST QUARTER
OF THE SOUTHEAST QUARTER AND PART OF THE NORTHEAST QUARTER OF THE SOUTHEAST
QUARTER, SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI
AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHEAST CORNER OF SAID SECTION 24; THENCE S89(degree)32'11"W
ALONG THE SOUTH LINE OF SAID SECTION 24 A DISTANCE OF 80.00 FEET TO A POINT;
THENCE N01(degree)51'56"W ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL
TO THE EAST LINE OF SAID SECTION 24 A DISTANCE OF 860.00 FEET TO THE POINT OF
BEGINNING; THENCE S89(degree)13'30"W A DISTANCE OF 1965.03 FEET TO A POINT;
THENCE N00(degree)46'30"W A DISTANCE OF 1509.28 FEET TO A POINT; THENCE
N89(degree)28'56"E A DISTANCE OF 1962.68 FEET TO THE POINT; THENCE
S00(degree)51'56"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL TO THE
EAST LINE OF SAID SECTION 24 A DISTANCE OF 1500.47 FEET TO THE POINT OF
BEGINNING AND CONTAINING 2,955,355 SQUARE FEET OR 67.845 ACRES.
D-1
<PAGE> 10
EXHIBIT "E"
[H & M CONSTRUCTION CO., INC. LETTERHEAD]
JUNE 30, 1998
MR. Gary Hewson
THE HEWSON COMPANY
4636 East University Drive, Suite 265
Phoenix, Arizona 85034
Dear Mr. Hewson:
Please acknowledge your acceptance and approval of the following by signing in
the space indicated below.
Please be advised that it is the intention of Hewson Properties Inc. ("Hewson")
to enter into a contract with H and M Construction Co., Inc. ("H & M") for the
design and construction of an approximately 700,000 square foot distribution
facility, located in Olive Branch, Mississippi, for Williams-Sonoma.
H & M is authorized to proceed with the grading and roadway culverts of the
Williams-Sonoma jobsite, in an amount not to exceed $1,003,900. This item of
grading and roadway culverts in addition to previous authorization to proceed
with clearing and grubbing not to exceed $70,000.
H & M is further authorized to proceed with architectural and engineering
building design services. These services will be 3% of construction cost. The
initial authorization to proceed with design is not to exceed $200,000 prior to
execution of final contract.
In the event this contract is not consummated, Hewson agrees to reimburse
H & M for all reasonable costs associated with the aforementioned project
incurred and committed while operating under this letter of intent, and
Hewson's directions.
Sincerely yours, ACCEPTED and APPROVED this
day of July 1998
H AND M CONSTRUCTION CO., INC.
HEWSON PROPERTIES, INC.
/s/ LARRY F. BECKER
Larry F. Becker
President BY:
--------------------------
TITLE:
-----------------------
E-1
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<PAGE> 2
EXHIBIT 11: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Net Weighted Average Per-Share
Earnings Shares Amount
-------- ------ ------
<S> <C> <C> <C>
Thirteen weeks ended August 2, 1998:
Basic $3,844,000 55,484,075 $ 0.07
Effect of dilutive stock options -- 2,368,251 ========
---------- ----------
Diluted $3,844,000 57,852,326 $ 0.07
========== ========== ========
Thirteen weeks ended August 3, 1997:
Basic $2,417,000 51,200,628 $ 0.05
Effect of dilutive stock options -- 2,403,326 ========
---------- ----------
Diluted $2,417,000 53,603,954 $ 0.05
========== ========== ========
Twenty-six weeks ended August 2, 1998:
Basic $5,991,000 53,587,300 $ 0.11
Effect of dilutive stock options -- 2,359,770 ========
---------- ----------
Diluted $5,991,000 55,947,070 $ 0.11
========== ========== ========
Twenty-six weeks ended August 3, 1997:
Basic $3,806,000 51,171,362 $ 0.07
Effect of dilutive stock options -- 2,184,974 ========
---------- ----------
Diluted $3,806,000 53,356,336 $ 0.07
========== ========== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-02-1998
<PERIOD-END> AUG-02-1998
<CASH> 37,896
<SECURITIES> 0
<RECEIVABLES> 18,408
<ALLOWANCES> 0
<INVENTORY> 152,247
<CURRENT-ASSETS> 234,049
<PP&E> 329,913
<DEPRECIATION> 116,172
<TOTAL-ASSETS> 453,614
<CURRENT-LIABILITIES> 93,690
<BONDS> 47,962
0
0
<COMMON> 11,466
<OTHER-SE> 232,791
<TOTAL-LIABILITY-AND-EQUITY> 453,614
<SALES> 421,472
<TOTAL-REVENUES> 421,472
<CGS> 263,171
<TOTAL-COSTS> 410,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 452
<INCOME-PRETAX> 10,154
<INCOME-TAX> 4,163
<INCOME-CONTINUING> 5,991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,991
<EPS-PRIMARY> 0.11<F1>
<EPS-DILUTED> 0.11
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
