-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O+j+L6At6CN1WQAbveAxCzJFhLhU2hSwBHd6cnLWhqz9BEgkw6KwXxPisRqVXiJ2 vWU5izWHIWmLBg9EPcqfFA== 0000950149-98-000721.txt : 19980420 0000950149-98-000721.hdr.sgml : 19980420 ACCESSION NUMBER: 0000950149-98-000721 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980527 FILED AS OF DATE: 19980417 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILLIAMS SONOMA INC CENTRAL INDEX KEY: 0000719955 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES [5700] IRS NUMBER: 942203880 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-12704 FILM NUMBER: 98595925 BUSINESS ADDRESS: STREET 1: 100 N POINT ST CITY: SAN FRANCISCO STATE: CA ZIP: 94133 BUSINESS PHONE: 4156168345 MAIL ADDRESS: STREET 1: 100 NORTH POINT STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94133 DEF 14A 1 DEFINITIVE PROXY STATEMENT - WILLIAMS-SONOMA, INC. 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Williams-Sonoma, Inc. --------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) --------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of filing fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: --------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: --------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee was calculated and state how it was determined): --------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: --------------------------------------------------------------------------- (5) Total fee paid: --------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. --------------------------------------------------------------------------- [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: --------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: --------------------------------------------------------------------------- (3) Filing Party: --------------------------------------------------------------------------- (4) Date Filed: --------------------------------------------------------------------------- 2 LOGO --------------------------------------------------------- W I L L I A M S - S O N O M A --------------------------------------------------------- 3250 VAN NESS AVENUE SAN FRANCISCO, CALIFORNIA 94109 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO THE SHAREHOLDERS: The Annual Meeting of Shareholders of Williams-Sonoma, Inc., a California corporation (the "Company"), will be held at the Company's offices, 3250 Van Ness Avenue, San Francisco, California 94109, Wednesday, May 27, 1998, commencing at 10:00 a.m. (Pacific Daylight Time) for the following purposes: (1) To elect ten directors to serve until the next annual meeting of shareholders or until their respective successors shall be elected and qualified. (2) To act on a proposal to approve the amendment to the Amended and Restated 1993 Stock Option Plan. (3) To ratify the selection of Deloitte & Touche LLP as independent accountants for the fiscal year ending January 31, 1999. (4) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. The Board of Directors has fixed the close of business on March 31, 1998, as the record date for the determination of shareholders entitled to notice of and to vote at the meeting or any adjournment or postponement thereof. Financial and other information concerning the Company is contained in the enclosed Annual Report for the fiscal year ended February 1, 1998. By Order of the Board of Directors, Dennis A. Chantland, Secretary San Francisco, California April 17, 1998 WHETHER YOU PLAN TO ATTEND THE MEETING OR NOT, PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED STAMPED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY ORALLY REVOKE THE PROXY AND VOTE IN PERSON EVEN THOUGH YOU HAVE RETURNED YOUR PROXY. 3 WILLIAMS-SONOMA, INC. 3250 VAN NESS AVENUE SAN FRANCISCO, CALIFORNIA 94109 ------------------------------ PROXY STATEMENT ------------------------------ PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON WEDNESDAY, MAY 27, 1998 This proxy statement (the "Proxy Statement") and the enclosed proxy are furnished in connection with the solicitation of proxies by the Board of Directors of Williams-Sonoma, Inc., a California corporation (the "Company"), for use at the Annual Meeting of Shareholders of the Company (the "Annual Meeting"), to be held on Wednesday, May 27, 1998, and any adjournment or postponement thereof. The Annual Report to the shareholders of the Company for the fiscal year ended February 1, 1998, including the financial statements of, and other information concerning the Company, is also enclosed. The Company anticipates that this Proxy Statement and accompanying form of proxy will first be mailed or given to its shareholders on or about April 17, 1998. A proxy may be revoked by filing with the Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. Attendance in person at the Annual Meeting does not itself revoke an otherwise valid proxy; however, any shareholder who attends such meeting may orally revoke his proxy at the Annual Meeting and vote in person. If a shareholder specifies a choice on any matter to be acted upon by means of the accompanying proxy, and the proxy is properly executed and received prior to the Annual Meeting, the proxy will be voted in accordance with the specifications made. If an executed proxy is returned without any specifications as to how shares should be voted, votes will be cast for the election of the directors named in this Proxy Statement, in favor of the amendment to the Amended and Restated 1993 Stock Option Plan, and in favor of the ratification of the selection of Deloitte & Touche LLP as the Company's independent accountants. In addition, the proxyholders will vote in their sole discretion upon such other business as may properly come before the meeting and any adjournments or postponements thereof. All of the expenses involved in preparing, assembling and mailing this Proxy Statement and the material enclosed will be paid by the Company. Copies of solicitation material will be furnished to brokers and others holding common stock of the Company to forward to their principals, and the Company will reimburse them for reasonable expenses in doing so. The Company expects that some of its officers or employees (none of whom will receive special compensation) will solicit proxies personally and by telephone or other means. In addition, the Company has retained the services of Skinner & Company to assist in the solicitation of proxies at an estimated cost of $3,500. VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS Only shareholders of record at the close of business on March 31, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the close of business on March 31, 1998, there were 26,133,009 outstanding shares of the Company's common stock (the "Common Stock"), the only class of stock outstanding. The closing sales price for the Common Stock on March 31, 1998, as reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System, was $57.88 per share. 4 Each share of Common Stock is entitled to one vote, except that shareholders may cumulate their votes for the election of directors. Under California law, no shareholder may cumulate votes unless the candidate's name has been placed in nomination prior to the voting and at least one shareholder at the meeting has given notice of the intention to cumulate votes prior to the voting. If such notice is given, every shareholder present, in person or by proxy, at the meeting may cumulate votes. The accompanying proxy grants authority to the proxyholders to cumulate votes and allocate them in the proxyholders' discretion to one or more nominees, if the proxyholders believe that such action will maximize the number of nominees who will be elected. The proxyholders do not, at this time, intend to give such notice nor to cumulate the votes they may hold pursuant to the proxies solicited in this Proxy Statement unless the required notice by a shareholder is given at the meeting, in which instance such proxyholders intend to vote cumulatively all the proxies held by them in favor of some or all of the nominees for office set forth in this Proxy Statement. If cumulative voting is utilized at the Annual Meeting, each shareholder voting at the election of directors may cumulate his or her votes and cast a number of votes equal to the number of directors to be elected multiplied by the number of shares held. All such votes may be cast for a single candidate or may be distributed among any or all of the candidates. The following table sets forth information as to the beneficial ownership of the Common Stock, as of March 27, 1998, by (a) persons known to the Company to be beneficial owners of more than 5% of the Common Stock, (b) executive officers named in the "Summary Compensation Table" below, and (c) executive officers and directors as a group. Unless otherwise noted, the persons listed below have sole voting and investment power.
PERCENT NUMBER OF SHARES OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS ------------------------------------ ------------------ ------- W. Howard Lester............................... 2,567,352(1) 9.7% c/o Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 James A. McMahan............................... 3,113,275(2) 11.9% 2237 Colby Avenue Los Angeles, CA 90064 Patrick J. Connolly............................ 236,379(3) * c/o Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 Gary G. Friedman............................... 327,705(4) 1.2% c/o Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 Dennis A. Chantland............................ 5,075(5) * c/o Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 Richard Hunter................................. 2,383(6) * c/o Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109
2 5
PERCENT NUMBER OF SHARES OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS ------------------------------------ ------------------ ------- Putnam Investment Management, Inc and Putnam Investments, Inc............................. 2,112,267(7) 8.1% One Post Office Square Boston, MA 02109 AMVESCAP, PLC and group members................ 1,617,900(8) 6.2% 11 Devonshire Square London EC2M 4YR, England All Executive Officers and Directors as a Group (14 persons)................................. 6,706,185(9) 25.0%
- --------------- * Less than 1%. (1) Includes 81,000 and 150,750 shares subject to nonqualified stock options granted under the Company's 1976 Stock Option Plan (the "1976 Plan") and the Amended and Restated 1993 Stock Option Plan (the "1993 Plan"), respectively, which are currently exercisable or exercisable within 60 days. Includes 7,457 shares in the Company's Associate Stock Incentive plan (the "Stock Incentive Plan") that are allocable to Mr. Lester and fully vested. Does not include 1,743 and 542,773 shares owned by Mr. Lester's wife and by trusts established by Mr. Lester for the benefit of his children, respectively, in which shares Mr. Lester disclaims any beneficial interest. (2) Includes 6,750 and 20,250 shares subject to nonqualified stock options granted under the 1976 Plan and the 1993 Plan, respectively, which are currently exercisable or exercisable within 60 days. (3) Includes 7,625 shares subject to nonqualified stock options granted under the 1993 Plan which are currently exercisable or exercisable within 60 days. Also includes 5,284 shares in the Stock Incentive Plan that are allocable to Mr. Connolly and fully vested. Does not include 2,619 shares owned by a trust established for the benefit of Mr. Connolly's children, in which shares Mr. Connolly disclaims any beneficial interest. (4) Includes 22,500 and 248,000 shares subject to nonqualified stock options granted under the 1976 Plan and the 1993 Plan, respectively, and 50,625 shares subject to incentive stock options granted under the 1983 Incentive Stock Option Plan (the "1983 Plan"), which are currently exercisable or exercisable within 60 days. Also includes 6,580 shares in the Stock Incentive Plan that are allocable to Mr. Friedman and fully vested. (5) Includes 5,000 shares owned by a trust established for the joint benefit of Mr. Chantland and his wife and 75 shares in the Stock Incentive Plan that are allocable to Mr. Chantland and fully vested. (6) Includes 2,200 shares subject to nonqualified stock options granted under the 1993 Plan which are currently exercisable or exercisable within 60 days and 183 shares in the Stock Incentive Plan that are allocable to Mr. Hunter and fully vested. (7) The information above and in this footnote is based on the Schedule 13G filed January 16, 1998 by Putnam Investment Management, Inc. and Putnam Investments, Inc. Putnam Management, Inc. a registered investment adviser, and Putnam, Inc., its parent company, have shared dispositive power (but no voting power) over 2,112,267 shares of Common Stock. (8) The information above and in this footnote is based on the Schedule 13G filed February 5, 1998 on behalf of a group by AMVESCAP PLC, a parent holding company. In addition to AMVESCAP PLC, other group members include AVZ, Inc., AIM Management Group, Inc., AMVESCAP Group Services, Inc., 3 6 INVESCO, Inc., INVESCO North American Holdings, Inc., INVESCO Capital Management, Inc., INVESCO Funds Group, Inc., INVESCO Management & Research, Inc. and INVESCO Realty Advisers, Inc. Each member of such group has shared voting and dispositive power over 1,617,900 shares of Common Stock. AVZ, Inc., AIM Management Group, Inc., AMVESCAP Group Services, Inc., INVESCO, Inc. and INVESCO North American Holdings, Inc. are all holding companies. INVESCO Capital Management, Inc., INVESCO Funds Group, Inc., INVESCO Management & Research, Inc. and INVESCO Realty Advisers, Inc. are all investment advisers. (9) Includes 123,750 and 491,825 shares subject to nonqualified stock options granted under the 1976 Plan and 1993 Plan, respectively, and 50,625 shares subject to incentive stock options granted under the 1983 Plan, which are currently exercisable or exercisable within 60 days. Also includes 20,103 shares in the Stock Incentive Plan that are allocable to the executive officers and fully vested. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules promulgated thereunder, directors and certain officers of the Company and persons who beneficially own more than 10% of a registered class of the Company's equity securities are required to file with the Securities and Exchange Commission and the NASDAQ Stock Market and furnish to the Company reports of ownership and changes in ownership of all classes of the Company's equity securities. Based solely on its review of the copies of such reports received by it during or with respect to the fiscal year ended February 1, 1998, and/or written representations from such reporting persons, the Company believes that, except as described below, all reports required to be filed by such reporting persons during or with respect to the fiscal year ended February 1, 1998 were filed on a timely basis. A Form 4 reporting Patrick J. Connolly's sale of 11,800 shares of Common Stock and a Form 4 reporting Richard Hunter's sale of 1,000 shares of Common Stock were inadvertently filed late. A Form 3 registering Adrian D.P. Bellamy as a beneficial owner and a Form 4 reporting Mr. Bellamy's sale of 103 shares of Common Stock were also filed late. PROPOSAL 1 ELECTION OF DIRECTORS At the Annual Meeting, ten directors are to be elected to serve until the next annual meeting of shareholders or until the election and qualification of their successors. The Company's Bylaws provide for not less than six nor more than eleven directors, the exact number of directors following this annual meeting of shareholders having been fixed by the Board of Directors at ten. Under California law, the ten nominees receiving the highest number of affirmative votes of the shares entitled to vote shall be elected directors. Abstentions and broker non-votes will have no effect on the outcome of the vote. Unless otherwise instructed, the proxyholders will vote the proxies received by them for the ten nominees named below. If any of the listed nominees is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for such person or persons as the proxyholders may designate. The Board of Directors has no reason to believe that any of the nominees will be unable or decline to serve as a director. 4 7 The following table sets forth information, as of March 27, 1998, with respect to each person nominated for election as a director, which has been furnished to the Company by the nominees. All nominees, with the exception of Janet Emerson who was appointed by the Board in 1997, were elected directors at the Annual Meeting of Shareholders held on May 28, 1997.
AMOUNT AND NATURE OF PERCENT DIRECTOR BENEFICIAL OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP CLASS - ---------------------------------- --- ----------------------------------- -------- ---------- -------- Charles E. Williams............... 82 Founder of the Company and its Vice 1973 273,373(1) 1.1% Chairman since 1986. W. Howard Lester.................. 62 Chairman of the Company since 1986 1979 2,567,352(2) 9.7% and Chief Executive Officer since 1979. Director of The Good Guys, Inc., CKE Restaurants, Inc. and Harold's Stores, Inc. Adrian D.P. Bellamy............... 56 Chairman and Director of Airport 1997 5,142 * Group Int'l and Gucci Group N.V. Director of The Gap, Inc., Paragon Trade Brands, Inc., The Body Shop, Inc. and Shaman Pharmaceuticals, Inc. Chairman and CEO of DFS Group Ltd. from 1983-1995. James M. Berry.................... 67 Executive Vice President of Finance 1987 29,025(3) * of Belk Stores Services since 1995. Director of HCC Insurance Holdings, Inc. since 1993. Nathan Bessin..................... 72 Managing Partner of J. Arthur 1983 33,825(3) * Greenfield & Co., Certified Public Accountants, since 1978. Director of Mercury General Corp. Patrick J. Connolly............... 51 Executive Vice President, General 1983 236,379(4) * Manager -- Catalog and Assistant Secretary of the Company since 1995 and 1983, respectively. Janet L. Emerson.................. 49 President and Chief Executive 1997 0 * Officer of Learningsmith, Inc. since 1995. Director of Retail -- Stores, Catalog and Wholesale Divisions, Museum of Fine Arts Boston, 1994-1995. Gary G. Friedman.................. 40 Chief Merchandising Officer and 1993 327,705(5) 1.2% President, Retail Stores since 1995. John E. Martin.................... 52 Chairman and Director of Diedrich 1994 112,500(6) * Coffee and Newriders, Inc. since 1997. Director of The Good Guys, Inc. Chairman and Chief Executive Officer of Pepsico Casual Restaurants from 1996-1997. President and Chief Executive Officer of Taco Bell, a wholly-owned subsidiary of PepsiCo from 1983-1996. James A. McMahan.................. 75 Chief Executive Officer of McMahan 1979 3,113,275(3) 11.9% Furniture Stores since 1947.
5 8 - --------------- * Less than 1%. (1) Includes 373 shares in the Stock Incentive Plan that are allocable to Mr. Williams and fully vested. (2) Includes 81,000 and 150,750 shares subject to nonqualified stock options granted under the 1976 Plan and the 1993 Plan, respectively, which are currently exercisable or exercisable within 60 days. Includes 7,457 shares in the Stock Incentive Plan that are allocable to Mr. Lester and fully vested. Does not include 1,743 and 542,773 shares owned by Mr. Lester's wife and by trusts established by Mr. Lester for the benefit of his children, respectively, in which shares Mr. Lester disclaims any beneficial interest. (3) Includes 6,750 and 20,250 shares subject to nonqualified stock options granted under the 1976 Plan and the 1993 Plan, respectively, which are currently exercisable or exercisable within 60 days. (4) Includes 7,625 shares subject to nonqualified stock options granted under the 1993 Plan which are currently exercisable or exercisable within 60 days. Also includes 5,284 shares in the Stock Incentive Plan that are allocable to Mr. Connolly and fully vested. Does not include 2,619 shares owned by a trust established for the benefit of Mr. Connolly's children, in which shares Mr. Connolly disclaims any beneficial interest. (5) Includes 22,500 and 248,000 shares subject to nonqualified stock options granted under the 1976 Plan and the 1993 Plan, respectively, and 50,625 shares subject to incentive stock options granted under the 1983 Plan, which are currently exercisable or exercisable within 60 days. Also includes 6,580 shares in the Stock Incentive Plan that are allocable to Mr. Friedman and fully vested. (6) Includes 22,500 shares subject to nonqualified stock options granted under the 1993 Plan which are currently exercisable or exercisable within 60 days. COMPENSATION OF DIRECTORS The Company's directors do not receive any cash compensation for services provided as members of the Board. Directors (other than employee directors) are awarded nonqualified stock options annually under the 1993 Plan. Eligible directors are each awarded an option to purchase 6,750 shares of Common Stock upon their initial election to the Board and an option to purchase 5,250 shares of Common Stock each time they are re-elected to the Board. The exercise price of these options is fixed at the fair market value of the Common Stock on the date of the relevant annual meeting. INDEMNIFICATION Under the Company's Articles of Incorporation, a director is not liable to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director. However, the Articles of Incorporation do not eliminate a director's liability for breach of the duty of loyalty, acts or omissions not in good faith, certain payments not permitted under the California Corporations Code or transactions in which the director derives an improper personal benefit. The Articles of Incorporation also provide that the Company has the authority to indemnify its directors, officers, employees and agents beyond the circumstances permitted under Section 317 of the California Corporations Code. BOARD MEETINGS AND COMMITTEES The Board of Directors of the Company held a total of four meetings during the fiscal year ended February 1, 1998. The Board of Directors has two standing Committees: Audit and Compensation. Two new committees -- the "Investment Committee" and the "Nominating and Corporate Governance Commit- 6 9 tee" -- were established but have yet to hold their first meeting. The Investment Committee is comprised of Messrs. Berry (Chairman), McMahan and Bessin. The Nominating and Corporate Governance Committee is comprised of Mr. Bellamy (Chairman), Ms. Emerson and Mr. Lester. During the last fiscal year, the Audit Committee of the Board of Directors (the "Audit Committee") met twice. The Audit Committee is currently comprised of Messrs. Bessin (Chairman), McMahan and Berry. The Audit Committee is primarily responsible for reviewing the services performed by the Company's independent accountants and evaluating the Company's accounting principles and its system of internal accounting controls. During the last fiscal year, the Compensation Committee of the Board of Directors (the "Compensation Committee") met twice. The Compensation Committee is currently comprised of Messrs. McMahan (Chairman), Drexler and Martin and Ms. Emerson. The Compensation Committee is primarily responsible for officers' compensation matters and for administering the Company's stock option plans. No director attended fewer than 75% of all meetings of the Board of Directors and the committees upon which such director served during the fiscal year ended February 1, 1998. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE ABOVE-NAMED NOMINEES. CERTAIN TRANSACTIONS The Company leases two distribution centers in Memphis, Tennessee from two partnerships whose partners include an executive officer/director, a former executive officer and a director of the Company. See "Executive Compensation -- Compensation Committee Interlocks and Insider Participation." INFORMATION CONCERNING EXECUTIVE OFFICERS Executive officers of the Company are elected by the Board of Directors and serve at the pleasure of the Board. Certain information concerning such executive officers is set forth below:
NAME AGE PRESENT POSITION WITH THE COMPANY AND BUSINESS EXPERIENCE ---- --- --------------------------------------------------------- W. Howard Lester.................. 62 Chairman since 1986 and Chief Executive Officer since 1979. Charles E. Williams............... 82 Founder of the Company and Vice Chairman since 1986. Dennis A. Chantland............... 55 Executive Vice President and Chief Administrative Officer since 1995; and Secretary since 1996. Patrick J. Connolly............... 51 Executive Vice President and General Manager, Catalog since 1995; Senior Vice President -- Mail Order, 1991-1995; Vice President -- Mail Order, 1979-1990; and Assistant Secretary since 1983. Gary G. Friedman.................. 40 Chief Merchandising Officer and President, Retail Stores since 1995; Executive Vice President 1993-1995; Senior Vice President -- Stores, 1991-1992; and Vice President -- Stores, 1988-1990. Richard C. Hunter................. 53 Senior Vice President-International Operations and Development since 1996. G. Andrew Rich.................... 50 Senior Vice President -- Human Resources since 1995.
7 10 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth the annual and long-term compensation of the Company's Chief Executive Officer and its four other most highly compensated executive officers who served as executive officers during the fiscal year ended February 1, 1998 and whose total annual salaries and bonuses exceeded $100,000 during such fiscal year.
LONG TERM COMPENSATION AWARDS ANNUAL ------------- COMPENSATION(3) SECURITIES NAME AND ------------------------ UNDERLYING ALL OTHER PRINCIPAL POSITION(1) YEAR(2) SALARY($) BONUS($)(11) OPTIONS(#)(4) COMPENSATION($) --------------------- ------- --------- ------------ ------------- --------------- W. Howard Lester....................... 1997 628,978 150,000 120,000 7,445(5) Chief Executive Officer, 1996 498,077 100,000 30,000 7,638 Chairman and Director 1995 471,210 0 20,000 10,451 Dennis A. Chantland.................... 1997 386,892 200,000 115,000 4,038(6) Executive Vice President, 1996 342,244 75,000 25,000 4,930 Chief Administrative Officer and 1995 31,250 0 100,000 183 Secretary Patrick J. Connolly.................... 1997 286,772 200,000 15,000 2,498(7) Executive Vice President 1996 229,080 75,000 15,000 7,478 and General Manager -- Catalog and 1995 224,009 0 10,000 4,325 Director Gary G. Friedman....................... 1997 455,253 100,000 90,000 1,109(8) Chief Merchandising Officer, 1996 399,580 75,000 20,000 1,226 President Retail -- Division and 1995 386,119 0 50,000 4,823 Director Richard C. Hunter...................... 1997 303,037 70,000 11,000 1,527(9) Senior Vice President, 1996 41,237 0 50,000 167(10) International Operations and 1995 0 0 0 0 Development
- --------------- (1) None of the executives named in this table held any shares of restricted stock of the Company as of February 1, 1998. (2) Rows specified "1997," "1996" and "1995" represent fiscal years ended February 1, 1998, February 2, 1997, and January 28, 1996, respectively. (3) While the named executive officers enjoy certain perquisites, the aggregate value of such perquisites for the fiscal years shown did not exceed the lesser of $50,000 or 10% of such officer's salary and bonus for the applicable year. (4) Figures have been adjusted to reflect the 3-for-2 stock splits in February 1994 and September 1994 (the "Stock Splits"). (5) Comprised of premiums paid by the Company for term life insurance in excess of $50,000 and benefits received under the Company's executive supplemental medical plan of $4,914 and $2,531, respectively. (6) Comprised of premiums paid by the Company for term life insurance in excess of $50,000 and benefits received under the Company's executive supplemental medical plan of $1,136 and $2,902, respectively. (7) Comprised of premiums paid by the Company for term life insurance in excess of $50,000 and benefits received under the Company's executive supplemental medical plan of $2,016 and $482, respectively. (8) Comprised of premiums paid by the Company for term life insurance in excess of $50,000 and benefits received under the Company's executive supplemental medical plan of $714 and $395, respectively. 8 11 (9) Comprised of premiums paid by the Company for term life insurance in excess of $50,000 and benefits received under the Company's executive supplemental medical plan of $1,446 and $81, respectively. (10) Benefits received under the Company's executive supplemental medical plan of $167. (11) Amounts represent bonuses earned during each fiscal year. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth the information noted for all grants of stock options made to the Chief Executive Officer and each of the other executive officers named in the Summary Compensation Table during the fiscal year ended February 1, 1998:
INDIVIDUAL GRANTS - --------------------------------------------------------------------------------------- NUMBER OF POTENTIAL REALIZABLE VALUE AT SECURITIES PERCENTAGE OF ASSUMED ANNUAL RATES OF UNDERLYING TOTAL OPTIONS STOCK PRICE APPRECIATION OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------- NAME (#) FISCAL YEAR (%) ($/SH) DATE 5% ($) 10% ($) ---- ---------- --------------- ----------- ---------- ------------- ------------- W. Howard Lester.............. 120,000 17.6 28.13 3/12/07 2,122,519 5,378,881 Chief Executive Officer, Chairman and Director Dennis A. Chantland........... 115,000 16.9 28.13 3/12/07 2,034,081 5,154,761 Executive Vice President, Chief Administrative Officer and Secretary Patrick J. Connolly........... 15,000 2.2 28.13 3/12/07 265,315 672,360 Executive Vice President, General Manager -- Catalog and Director Gary G. Friedman.............. 90,000 13.2 28.13 3/12/07 1,591,890 4,034,161 Chief Merchandising Officer, President -- Retail Division and Director Richard C. Hunter............. 11,000 1.6 28.13 3/12/07 194,564 493,064 Senior Vice President -- International Operations and Development
9 12 AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE The following table sets forth the fiscal year-end value of unexercised options held by the Chief Executive Officer and each of the other executive officers named in the Summary Compensation Table:
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR-END (#)(1) AT FISCAL YEAR-END ($) OPTIONS VALUE --------------------------- --------------------------- NAME EXERCISED (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ------------- ------------ ----------- ------------- ----------- ------------- W. Howard Lester......... 0 0 180,500 186,750 $6,036,281 $3,348,658 Chief Executive Officer, Chairman and Director Dennis A. Chantland...... 0 0 45,000 195,000 1,079,085 3,520,410 Executive Vice President, Chief Administrative Officer and Secretary Patrick J. Connolly...... 0 0 111,625 44,625 3,943,499 934,645 Executive Vice President, General Manager-Catalog and Director Gary G. Friedman......... 101,000 3,370,923 263,625 209,500 7,835,902 4,649,449 Chief Merchandising Officer, President-Retail Division and Director Richard C. Hunter........ 0 0 10,000 51,000 156,830 786,138 Senior Vice President, International Operations and Development
- --------------- (1) Figures have been adjusted to reflect the Stock Splits. EXECUTIVE EMPLOYMENT AGREEMENTS The Company does not have employment agreements with any of its executive officers. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee is responsible for setting executive compensation policy and determining the compensation paid to executive officers of the Company. The Compensation Committee is currently comprised of the directors named below, all of whom are non-employee Directors. The Company's executive compensation programs are designed to enable the Company to attract, retain, motivate and reward highly qualified executives while maintaining strong and direct links between executive pay, individual performance, the Company's financial performance and shareholder returns. The Compensation Committee believes that officers and other key employees should have a significant stake in the Company's stock price performance under programs which link executive compensation to shareholder return. Notably, the Chief Executive Officer, Mr. Lester, beneficially owns 2,567,352 shares (including options which are currently exercisable or exercisable within 60 days) representing 9.7% of the outstanding shares of Common Stock as of March 27, l998. Mr. Lester (together with the undersigned Mr. McMahan) purchased 10 13 the Company from its founder Charles E. Williams in 1979. The Company first offered stock to the public in 1983. The Company competes with a number of different companies, both within and outside the retail industry, for talented executives. Accordingly, the Committee considers both pay practices at retailers of comparable size who are part of the Center for Research in Security Prices ("CRSP") Index for NASDAQ Retail Trade Stocks, one of the indices used in the Performance Graph, as well as pay practices at other companies considered comparable based on the industry, revenues and other factors (together, the "Comparable Companies") when assessing the competitiveness of the Company's compensation programs. The Committee utilizes an independent executive compensation advisor for information on competitive compensation levels. The Committee considers three major elements in its compensation program: base salaries, annual cash incentive opportunities, and long-term incentives via stock options. Base salaries are generally targeted at the median levels of the Comparable Companies, and actual salaries are adjusted for individual performance and contributions to the Company's success. Based on the Company's performance in fiscal year 1996, base salary increases were granted to the following executives effective April 14, 1997.
FROM TO ---- -- Mr. Lester............................. $500,000 $650,000 Mr. Friedman........................... $400,000 $450,000 Mr. Chantland.......................... $325,000 $400,000 Mr. Connolly........................... $225,000 $300,000
The second component of the Company's executive compensation program is the Profit Incentive Plan, which rewards participants for extraordinary results based on the annual financial performance of the Company. Based on the Company's performance in fiscal year 1997, bonus awards were granted to the following officers as follows:
BONUS AWARD ----------- Mr. Lester....................................... $150,000 Mr. Friedman..................................... $100,000 Mr. Chantland.................................... $200,000 Mr. Connolly..................................... $200,000
Stock ownership and the link to shareholder value is an integral part of the Company's executive compensation program. Accordingly, the number of stock options granted to the Chief Executive Officer and other executive officers reflects competitive practices for Comparable Companies and the assessment of their individual contributions. In 1997, Mr. Lester was granted an option for 120,000 shares, Mr. Chantland was granted an option for 115,000 shares, Mr. Friedman was granted an option for 90,000 shares and Mr. Connolly was granted an option for 15,000 shares in recognition of their contributions during 1996 and to further link a significant portion of their compensation to shareholder returns. Grants to the other three executive officers averaged 7,000 shares. All stock options were granted with an exercise price equal to the fair market value of one share of Common Stock on the date of the grant. The Omnibus Budget and Reconciliation Act of 1993 amended Section 162(m) of the Internal Revenue Code and could, depending on future compensation levels, result in limits on the Company's ability to deduct compensation in excess of $1,000,000 paid to certain executive officers. Exceptions to this deductibility limit may be made for various forms of performance-based compensation. Based on 1997 compensation levels, no 11 14 such limits on the deductibility of compensation applied for any officer of the Company. The Company has not adopted a policy specifically prohibiting compensation at a level that would limit deductions. While the Compensation Committee cannot predict how the deductibility limit may impact the Company's compensation program in future years, the Compensation Committee intends to maintain an approach to executive compensation which strongly links pay to performance. The approach should preserve the deductibility of the Company's executive compensation while maintaining highly motivational compensation programs which support the Company business objectives and strategies and reinforce the creation of shareholder value. Respectfully submitted, James A. McMahan Millard S. Drexler Janet L. Emerson John E. Martin Members of the Compensation Committee 12 15 PERFORMANCE GRAPH COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS OF THE COMPANY, CRSP* INDEX FOR THE NASDAQ STOCK MARKET (U.S. COMPANIES), AND CRSP INDEX FOR NASDAQ RETAIL TRADE STOCKS
MEASUREMENT PERIOD 'WILLIAMS-SONOMA, NASDAQ STOCK NASDAQ RETAIL (FISCAL YEAR COVERED) INC.' MARKET TRADE 1/31/93 100.00 100.00 100.00 1/30/94 294.30 114.40 106.40 1/29/95 404.40 110.30 95.40 1/28/96 263.20 152.40 105.00 2/2/97 537.00 203.30 131.50 2/1/98 722.80 240.40 153.80
NOTES: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. D. The index level for all series was set to $100.00 on 1/31/93. * Center for Research in Security Prices, The University of Chicago, Graduate School of Business. 13 16 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's warehouse and distribution center is located in Memphis, Tennessee. The warehouse and distribution center consists of three separate facilities -- one for mail order operations, one for retail store operations and one which processes non-conveyable merchandise -- the first two of which are leased from two partnerships whose partners include directors, an executive officer, a former executive officer and significant shareholders of the Company. The third facility is leased from a third party. Mail Order Facility In July 1984, the Company entered into an agreement to lease a 243,000 square foot distribution center from a partnership. The lessor is a partnership comprised of W. Howard Lester, Chairman, Chief Executive Officer and significant shareholder of the Company, and James A. McMahan, a director and significant shareholder of the Company and member of the Compensation and Audit Committees. The partnership financed the construction through the sale of $6,300,000 principal amount of industrial development bonds due June 2008. The lease had an initial, non-cancelable term of ten years expiring on June 30, 1994, with two optional five-year renewals by the Company. In December 1985, the partnership financed the construction of an additional 190,000 square feet of space through the sale of $2,900,000 principal amount of industrial development bonds due 2010. The Company's lease with the partnership was amended to include additional rent plus interest on the new bonds for the same lease term as the original lease. In December 1993, the Company exercised the two five-year renewal options and is now obligated to lease the space until June 30, 2004. Effective July 1, 1994, the fixed basic monthly rent is $51,500. Rental payments consist of basic monthly rent, plus interest on the bonds (a floating rate equal to 55% of the prime rate of a designated bank), applicable taxes, insurance and maintenance expenses. In connection with the December 1993 transaction, both the partnership and the Company provided to an unaffiliated bank an indemnity against certain environmental liabilities. Retail Store Facility In August 1990, the Company entered into a separate agreement to lease a second distribution center, consisting of approximately 307,000 square feet, adjacent to the existing distribution center in Memphis, Tennessee. The lessor is a partnership that includes Messrs. Lester and McMahan and Mr. Robert K. Earley, former Senior Vice President of Distribution. The partnership financed the construction of the distribution center through the sale of $10,550,000 (bearing interest of 10.36%) principal amount of industrial development bonds due in August 2015. In September 1994, this lease was amended to include an approximately 306,000 square-foot expansion of the facility. The expansion was completed in October 1995. The lessor financed the construction of the expansion through a $500,000 capital contribution from its partners and the sale of $9,825,000 (bearing interest of 9.01%) principal amount of industrial development bonds due in August 2015. The amended lease has an initial, non-cancelable term of 15 years beginning August 1991 and ending in July 2006, with three optional five-year renewals. Rentals (including interest on the bonds, sinking fund payments, and fees) for the primary term are payable at an average rate of $711,000 per quarter plus applicable taxes, insurance and maintenance expenses. Both facilities (including the expansions) were constructed to the Company's specifications. After the option periods, the Company is obligated to renew each lease annually so long as the bonds which financed the specific projects remain outstanding. The leases qualify as operating leases for accounting purposes. The 14 17 Company believes that the facility leases are on terms no less favorable than the Company could have obtained from third parties in arm's-length transactions. PROPOSAL 2 APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK OPTION PLAN The Company believes that officers and other key employees should have a significant stake in the Company's stock price performance under programs which link compensation to shareholder return. As a result, stock option grants are an integral part of the Company's compensation program. The Company currently relies on a single plan -- the 1993 Plan -- for these grants and has less than 283,000 shares of Common Stock remaining under the plan for future grants. Rather than adopting a new stock option plan at the present time, the Company proposes to increase the number of shares available for grant under the existing plan from 2,750,000 shares of Common Stock to 4,250,000 shares of Common Stock, an increase of 1,500,000 shares or approximately 55%. The full text of the amended plan is attached as Exhibit A to this Proxy Statement. The attached copy of the plan is restated to reflect the proposed amendment as well as all prior amendments. SUMMARY DESCRIPTION OF THE PLAN Shares Subject to the 1993 Plan. The plan currently authorizes the Company to issue a maximum of 2,750,000 shares of Common Stock upon the exercise of stock options granted under the plan. As a result of options previously granted under the plan, the Company has issued approximately 374,000 shares of Common Stock through option exercises and reserved approximately 2,093,000 shares of Common Stock for outstanding options. There are less than 283,000 shares of Common Stock presently remaining under the plan for future option grants, although some additional shares may become available to the extent options expire unexercised. The amended plan would increase the maximum number of shares issuable by 1,500,000 shares (or approximately 55%) to a total of 4,250,000 shares. Types of Awards. The Company may award two types of options under the plan: (i) options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code and (ii) nonqualified stock options. The plan does not permit the award of "phantom stock," "stock appreciation rights" or other similar awards. Administration. The plan is administered by a committee (the "Committee") composed of two or more directors of the Company. The Committee has the authority to (i) select the recipients of awards, (ii) fix the terms of all awards, (iii) construe, interpret and prescribe rules for the plan and (iv) make all other determinations necessary or advisable for the administration of the plan. The plan restricts Committee membership to persons who are both "non-employee directors" as defined by rules promulgated under Section 16 of the Securities Exchange Act of 1934 and "outside directors" as defined by regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Section 162(m) Regulations"). Eligibility and Participation. All directors, executives and other key employees of the Company or any of its Affiliates (as defined in the plan) are eligible for selection to participate in the plan. There are approximately 110 individuals currently eligible to participate in the plan. Stock options are awarded to non-employee directors (as defined in the plan) in accordance with a formula (discussed below). Under the 15 18 applicable tax rules, the Committee may only grant incentive stock options to employees of the Company or its Affiliates. Duration of Options. The Committee generally determines the duration of each option, but no option may have a term of more than ten years. No incentive stock option is exercisable for more than three months after termination of the option holder's employment unless the termination is due to death or disability. In that case, an incentive stock option is exercisable for no more than one year after the option holder's death or disability. Duration and Amendment of the Plan. The Committee may continue to grant stock options under the plan until the earlier of (i) March 17, 2003 (ten years from the original date of adoption) or (ii) all the stock available under the plan has been issued. The Committee may amend or suspend the plan at any time, but shareholder approval is required for amendments which (i) increase the maximum number of shares available for grant under the plan, (ii) change the minimum exercise price of incentive stock options, (iii) permit the grant of options to persons other than employees or directors or (iv) materially increase the benefits accruing to employees under the plan. Exercise Price. Options granted under the plan are subject to minimum exercise prices based on the fair market value of a share of Common Stock on the date of grant. The minimum exercise price for incentive and nonqualified stock options is 100% of the fair market value of a share of Common Stock on the date of grant. The exercise price of an option must be paid in full either in cash or with shares of Common Stock valued at fair market value. The Committee may permit "cashless exercises" and authorize payment with a secured promissory note. Other Terms. Options granted under the plan are only exercised by the original recipient and are not transferable, except by will or the laws of descent and distribution or, in the case of nonqualified stock options, pursuant to a qualified domestic relations order. Options are generally exercisable in such installments as the Committee decides, but not within six months of the date of grant, except in cases of death or disability of the option holder or dissolution, liquidation, reorganization, merger or consolidation of the Company. Awards to Directors. The Company's directors do not receive any cash compensation for services provided as a member of the Board. Directors (other than employee directors) are automatically awarded nonqualified stock options annually under the plan. Eligible directors are awarded an option to purchase 6,750 shares of Common Stock upon their initial election to the Board and an option to purchase 5,250 shares of Common Stock each time they are re-elected to the Board. Options initially granted to eligible directors upon their joining the Board of Directors shall vest and become exercisable in three equal installments on each anniversary of the grant date. Options granted annually to eligible directors upon their re-election to the Board of Directors shall vest and become exercisable in one installment six months after the date of grant. All options granted to eligible directors shall expire ten (10) years from the date of grant. The Committee is authorized to amend the terms and number of future option awards to eligible directors without further shareholder approval, but not more than once every six months unless required to comply with changes in certain laws. Special Terms Applicable to Large Shareholders. In addition to the other restrictions contained in the plan, the plan requires that incentive stock options granted to persons possessing more than 10% of the total combined voting power of all classes of stock of the Company (i) have an exercise price of not less than 110% of the fair market value of a share of Common Stock on the date of grant and (ii) expire not later than five years from the date of grant. 16 19 FEDERAL INCOME TAX CONSEQUENCES Nonqualified Stock Options. Under current federal income tax law, the grant of a nonqualified stock option has no tax effect on the Company or the option holder. If the shares received on exercise of an option are not subject to restrictions on transfer or risk of forfeiture imposed by the Committee, the exercise of a nonqualified stock option will result in ordinary income to the option holder equal to the excess of the fair market value of the shares at the time of exercise over the option price. The amount taxed to the option holder as ordinary income is treated as earned income. The option holder's tax basis in the shares will be equal to the aggregate exercise price paid by the option holder plus the amount of taxable income recognized upon the exercise of the option. Upon any subsequent disposition of the shares, any further gain or loss recognized by the option holder will be treated as capital gain or loss. Any capital gain will be long-term capital gain if the shares are held for more than eighteen months after exercise, mid-term capital gain if the shares are held for more than one year but up to eighteen months after exercise and short-term capital gain if the shares are held for one year or less after exercise. Capital losses will be long-term if the holding period is more than one year and short-term otherwise. The Company will normally be allowed, at the time of recognition of ordinary income by the option holder upon exercise, to take a deduction for federal income tax purposes in an amount equal to such recognized income. Incentive Stock Options. The federal income tax consequences associated with incentive stock options are generally more favorable to the optionee and less favorable to the employer than those associated with nonqualified stock options. Under current federal income tax law, the grant of an incentive stock option does not result in income to the optionee or in a deduction for the Company at the time of the grant. The exercise of an incentive stock option will not result in income for the option holder if the option holder (i) does not dispose of the shares within two years after the date of grant nor within one year after exercise and (ii) is an employee of the Company or any of its Affiliates from the date of grant until three months before the exercise date. If these requirements are met, the basis of the shares upon later disposition would be the option price. Any gain will be taxed to the option holder as long-term capital gain if the holding period for the stock is more than eighteen months and mid-term capital gain otherwise. The Company will not be entitled to a deduction. The excess of the market value on the exercise date over the option price is an item of tax preference, potentially subject to the alternative minimum tax. If the option holder disposes of the shares prior to the expiration of either of the holding periods described above, the option holder would have compensation taxable as ordinary income, and the Company would be entitled to a deduction equal to the lesser of the fair market value of the shares on the exercise date minus the option price or the amount realized on disposition minus the option price. If the price realized in any such premature sale of the shares exceeds the fair market value of the shares on the exercise date, the excess will be treated as long-term, mid-term or short-term capital gain depending on the option holder's holding period for the shares. VOTE REQUIRED Under the Company's Bylaws and the terms of the plan, the amended plan must be approved by the shareholders holding (i) a majority of shares present, or represented, and voting at the Annual Meeting, and (ii) a majority of the required quorum. For this purpose, abstentions and broker non-votes will have no effect on the outcome of the vote unless such shares are necessary to satisfy the quorum requirement, in which case abstentions and broker non-votes will have the effect of a vote against the proposal. A majority of the shares entitled to vote, represented in person or by proxy, constitutes a quorum. The Company believes that shareholder approval in accordance with its Bylaws will also satisfy the shareholder approval requirement of the Section 162(m) Regulations. 17 20 Furthermore, because the directors would benefit from the amended plan, under Section 310 of the California Corporations Code, the person asserting the validity of the grant of an option to a director under the amended plan would have the burden of proving that such grant was just and reasonable as to the Company at the time that the grant was authorized, approved or ratified, unless the amended plan is approved by shareholders holding (a) a majority of shares present, or represented, and voting at the Annual Meeting, with the shares owned by the directors not being entitled to vote thereon, and (b) a majority of the required quorum, which, in this case, is the majority of outstanding shares other than the shares owned by the directors. For this purpose, abstentions and broker non-votes will have no effect on the outcome of the vote unless such shares are necessary to satisfy the quorum requirement, in which case such abstentions and broker non-votes will have the effect of a vote against the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK OPTION PLAN. PROPOSAL 3 RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS As recommended by its Audit Committee, the Board of Directors has selected Deloitte & Touche LLP as independent accountants for the fiscal year ending January 31, 1999, subject to ratification by the shareholders. Deloitte & Touche LLP, formerly known as Touche Ross & Co., has audited the Company's financial statements since the fiscal year ended March 31, 1980. It is expected that their representative will be present at the meeting and will have the opportunity to make a statement if he or she desires to do so. The representative will be available to respond to appropriate questions. In the event that the selection of Deloitte & Touche as independent accountants for the fiscal year ending January 31, 1999, is not ratified by the shareholders, the Board of Directors will select other independent accountants. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THIS REAPPOINTMENT. OTHER MATTERS The Company knows of no other matters to be acted upon at the meeting other than those referred to in the accompanying notice of the meeting. However, if any other matter should properly come before the meeting, holders of the proxies solicited hereby will vote thereon in their discretion. PROPOSALS OF SHAREHOLDERS Proposals intended to be presented by shareholders at the 1999 Annual Meeting of Shareholders and included in the Company's proxy statement for such meeting must be received by the Secretary of the Company at 3250 Van Ness Avenue, San Francisco, California 94109, on or before December 17, 1998. 18 21 AVAILABILITY OF REPORT ON FORM 10-K A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE UPON WRITTEN REQUEST AND WITHOUT CHARGE TO ANY SHAREHOLDER BY WRITING TO: Secretary Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, California 94109 By Order of the Board of Directors Dennis A. Chantland, Secretary San Francisco, California April 17, 1998 19 22 EXHIBIT A WILLIAMS-SONOMA, INC. AMENDED AND RESTATED 1993 STOCK OPTION PLAN 1. PURPOSE. The purpose of this Amended and Restated 1993 Stock Option Plan (the "PLAN") of WILLIAMS-SONOMA, INC., a California corporation (the "COMPANY"), is to secure for the Company and its shareholders the benefits arising from stock ownership by selected key employees and directors of the Company or any of its Affiliates (as defined below). The Plan will provide a means whereby such employees and directors may purchase shares of the common stock of the Company (or any class of stock into which such common stock is converted or reclassified as provided in Section 17) (the "COMMON STOCK") pursuant to (i) options which will qualify as "INCENTIVE STOCK OPTIONS" under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"), and (ii) "non-incentive" or "nonqualified" stock options ("NONQUALIFIED STOCK OPTIONS"). 2. ADMINISTRATION. The Plan shall be administered by a committee (the "COMMITTEE") appointed by the Board of Directors of the Company consisting of two or more directors of the Company, all of whom shall be (i) "non-employee directors" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and (ii) "outside directors' within the meaning of Section 162(m) of the Code. Any action of the Committee with respect to administration of the Plan shall be taken by a majority vote or unanimous written consent of its members. Subject to the provisions of the Plan, the Committee shall have the authority (i) to construe and interpret the Plan, (ii) to define the terms used herein, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, (iv) to determine the individuals to whom and the time or times at which options shall be granted, whether such options will be incentive stock options or non-qualified stock options, the number of shares to be subject to each option, the option price, the number of installments, if any, in which each option may be exercised, and the duration of each option, (v) to approve and determine the duration of leaves of absence which may be granted to participants without constituting a termination of their employment for the purposes of the Plan, (vi) to amend the terms of any outstanding option, with consent of the option holder, and (vii) to make all other determinations necessary or advisable for the administration of the Plan. All determinations and interpretations made by the Committee shall be binding and conclusive on all participants in the Plan and their legal representatives and beneficiaries. 3. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in Section 17, the shares to be offered under the Plan shall consist of the Company's authorized but unissued Common Stock, and the aggregate amount of such stock which may be issued upon exercise of all options under the Plan shall not exceed Four Million Two Hundred Fifty Thousand (4,250,000) shares; provided, however, that no officer (within the meaning of Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as amended) shall be granted in any fiscal year options to purchase more than 200,000 shares of Common Stock. If any option granted under the Plan shall 20 23 expire or terminate for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options to be granted under the Plan. 4. ELIGIBILITY AND PARTICIPATION. All key employees and directors of the Company or any Affiliate shall be eligible for selection to participate in the Plan. An "AFFILIATE" shall mean any parent or subsidiary of the Company as defined in Section 424(e) and (f) of the Code. An individual who has been granted an option may, if such individual is otherwise eligible, be granted an additional option or options if the Committee shall so determine, subject to the other provisions of the Plan. No incentive stock option may be granted to any person who, at the time the incentive stock option is granted, is not an employee of the Company. Nonqualified stock options may be granted to persons who have agreed in writing to become officers or key employees of the Company or any Affiliate at the time of the grant and who become officers or key employees of the Company or any Affiliate within 120 days thereafter. Spouses to whom a nonqualified stock option is transferred pursuant to a qualified domestic relations order pursuant to Section 11 shall also be eligible to participate in the Plan with regard to such option, but only to the extent the original option holder would have been able to participate had such original option holder continued to hold the option, and to the extent permitted by the Committee or by the terms of the option agreement. The aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options (whenever granted) are exercisable for the first time by an option holder during any calendar year (under all incentive stock option plans of the Company and its Affiliates) shall not exceed $100,000. All incentive stock options granted under the Plan shall be granted within ten years from the original date of adoption of this Plan. 5. AWARDS TO DIRECTORS. Any person who is or becomes a director and who is not an employee of the Company is referred to herein as an "ELIGIBLE DIRECTOR". During the term of the Plan, each Eligible Director who becomes for the first time a director of the Company on or after the 1993 Annual Meeting of Shareholders shall automatically be granted, on the date he or she first becomes a director, a nonqualified stock option to purchase 6,750 shares of Common Stock. During the term of the Plan, each Eligible Director shall also be granted a nonqualified stock option to purchase 5,250 shares of Common Stock on the date of each annual meeting of the Company's shareholders at which such Eligible Director is re-elected to continue to serve on the Company's Board of Directors. The purchase price under each nonqualified stock option granted to Eligible Directors shall be equal to the fair market value of the stock subject to the option on the date the option is granted. Options initially granted to Eligible Directors upon their joining the Board of Directors shall vest and become exercisable in three equal installments on each anniversary of the grant date. Options granted annually to Eligible Directors upon their re-election to the Board of Directors shall vest and become exercisable in one installment six months after the date of grant. All options granted to Eligible Directors shall expire ten (10) years from the date of grant. The Committee may at any time amend or revise the provisions of this Section 5 but not more than once every six months unless required to comply with changes in the Code or the Employee Retirement Income Security Act ("ERISA"), or the rules promulgated under the Code or ERISA. 21 24 6. DURATION OF OPTIONS. Subject to Sections 5 and 16, each option and all rights associated therewith shall expire on such date as the Committee may determine, and shall be subject to earlier termination as provided herein; provided, however, that all stock options shall expire within ten (10) years from the date on which such options are granted. 7. PURCHASE PRICE. Subject to Sections 5 and 16, the purchase price of the stock covered by each option shall be determined by the Committee but shall not be less than one hundred percent (100%) of the fair market value of such stock (as determined under Section 9) on the date of grant. The purchase price of the shares upon exercise of an option shall be paid in full at the time of exercise (i) in cash or by check payable to the order of the Company, (ii) by delivery of shares of Common Stock of the Company already owned by, and in the possession of the option holder, or (iii) if authorized by the Committee or if specified in the option being exercised, (x) by a promissory note made by option holder in favor of the Company, upon the terms and conditions determined by the Committee including, to the extent the Committee determines appropriate, a security interest in the shares issuable upon exercise or other property, or (y) through a "cashless exercise," in either case complying with applicable law (including, without limitation, state and federal margin requirements), or any combination thereof. Shares of Common Stock used to satisfy the exercise price of an option shall be valued at their fair market value determined (in accordance with Section 9) on the date of exercise (or if such date is not a business day, as of the close of the business day immediately preceding such date). 8. EXERCISE OF OPTIONS. In no event shall any option be exercisable earlier than six months after the date of grant except in the case of the death or disability of the option holder, in which case such option may be exercisable in accordance with Section 14. Subject to Section 5, each option granted under this Plan may be exercisable in full upon the expiration of such six month period or in such installments during the period prior to its expiration date as the Committee shall determine. Furthermore, unless otherwise determined by the Committee, if the option holder shall not in any given installment period purchase all of the shares which the option holder is entitled to purchase in such installment period, then the option holder's right to purchase any shares not purchased in such installment period shall continue until the expiration date or sooner termination of the option holder's option. No option may be exercised for a fraction of a share and no partial exercise of any option may be for less than (i) one hundred (100) shares or (ii) the total number of shares then eligible for exercise, if less than one hundred (100) shares. 9. FAIR MARKET VALUE OF COMMON STOCK. The fair market value of a share of Common Stock of the Company shall be determined for purposes of the Plan by reference to the closing price on the principal stock exchange on which such shares are then listed or, if such shares are not then listed on a stock exchange, by reference to the closing price (if approved for quotation on the NASDAQ National Market System) or the mean between the bid and asked price (if other over-the-counter issue) of a share as supplied by the National Association of Securities Dealers, Inc. through NASDAQ (or its successor in function), in each case as reported by The Wall Street Journal, for the business day immediately preceding the date on which the option is granted (which, for all purposes, shall be the date on which the Committee makes the determination granting the option) or exercised (or, if for any reason no 22 25 such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof). 10. WITHHOLDING TAX. Upon (i) the disposition by an employee or other person of shares of Common Stock acquired pursuant to the exercise of an incentive stock option granted pursuant to the Plan within two years of the granting of the incentive stock option or within one year after exercise of the incentive stock option or (ii) the exercise of non-qualified stock options, the Company shall have the right to require such employee or such other person to pay the Company the amount of any taxes which the Company may be required to withhold with respect to such shares. 11. NONTRANSFERABILITY. An incentive stock option granted under the Plan shall, by its terms, be non-transferable by the option holder, either voluntarily or by operation of law, otherwise than by will or the laws of descent and distribution, and shall be exercisable during the option holder's lifetime only by the option holder, regardless of any community property interest therein of the spouse of the option holder, or such spouses's successors in interest. If the spouse of the option holder shall have acquired a community property interest in such option, the option holder, or the option holder's permitted successors in interest, may exercise the option on behalf of the spouse of the option holder or such spouse's successors in interest. A non-qualified stock option granted under the Plan shall, by its terms, be non-transferable by the option holder, either voluntarily or by operation of law, otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the rules thereunder, and shall be exercisable during the option holder's lifetime only by the option holder or, to the extent permitted by the Committee or by the terms of the option agreement, the spouse of the option holder who obtained the option pursuant to such a qualified domestic relations order described herein or pursuant to Section 14. 12. SHARES TO BE ISSUED IN COMPLIANCE WITH FEDERAL SECURITIES LAWS AND EXCHANGE RULES. At the discretion of the Committee, any option may provide that the option holder (and any transferee), by accepting such option, represents and agrees that none of the shares purchased upon exercise of the option will be acquired with a view to any sale, transfer or distribution of said shares in violation of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and the rules and regulations promulgated thereunder, or any applicable state "blue sky' laws, and the person entitled to exercise the same shall furnish evidence satisfactory to the Company (including a written and signed representation) to that effect in form and substance satisfactory to the Company, including an indemnification of the Company in the event of any violation of the Securities Act or state blue sky laws by such person. The Company shall use its reasonable efforts to take all necessary and appropriate action to assure that the shares issuable upon the exercise of any option shall be issued in full compliance with the Securities Act, state blue sky laws and all applicable licensing requirements of any principal securities exchange on which shares of the same class are listed. 13. TERMINATION OF EMPLOYMENT. If a holder of an incentive stock option ceases to be employed by the Company or any of its Affiliates for any reason other than the option holder's death or permanent disability (within the meaning of Sec- 23 26 tion 22(e)(3) of the Code), the option holder's incentive stock option shall be exercisable for a period of three (3) months after the date the option holder ceases to be an employee of the Company or such Affiliate (unless by its terms it sooner expires) to the extent exercisable on the date of such cessation of employment and shall thereafter expire and be void and of no further force or effect. A leave of absence approved in writing by the Committee shall not be deemed a termination of employment for the purposes of this Section 13, but no option may be exercised during any such leave of absence, except during the first three (3) months thereof. Termination of employment or other relationship with the Company by the holder of a nonqualified stock option will have the effect specified in the individual option agreement, as determined by the Committee. Any option transferred pursuant to a qualified domestic relations order pursuant to Section 11 shall continue to be subject to the provisions governing the grant to the original grantee, including without limitation, the provisions governing exercisability, vesting and termination (which shall be determined by reference to the employment status of the original grantee), unless the option agreement or the Committee provides otherwise. 14. DEATH OR PERMANENT DISABILITY OF OPTION HOLDER. If the holder of an incentive stock option dies or becomes permanently disabled (within the meaning of Section 22(e)(3) of the Code) while the option holder is employed by the Company or any of its Affiliates, the option holder's option shall be exercisable for a period of one (1) year after the date of such death or permanent disability (unless by its terms it sooner expires) to the extent exercisable on the date of death or permanent disability and shall thereafter expire and be void and of no further force or effect. During such period after death, such incentive stock option may, to the extent that it remained unexercised (but exercisable by the option holder according to such option's terms) on the date of such death, be exercised by the person or persons to whom the option holder's rights under the option shall pass by the option holder's will or by the laws of descent and distribution. The death or disability of a holder of a nonqualified stock option will have the effect specified in the individual option agreement, as determined by the Committee. 15. PRIVILEGES OF STOCK OWNERSHIP. No person entitled to exercise any option granted under the Plan shall have any of the rights or privileges of a shareholder of the Company in respect of any shares of stock issuable upon exercise of such option until certificates representing such shares shall have been issued and delivered. No shares shall be issued and delivered upon the exercise of any option unless and until there shall have been full compliance with all applicable requirements of the Securities Act (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of any national securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. 16. SPECIAL TERMS APPLICABLE TO SIGNIFICANT SHAREHOLDERS. Notwithstanding any other provision of this Plan, each incentive stock option granted to a person possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (or an Affiliate, as applicable) shall (i) have an exercise price of not less than one hundred and ten percent (110%) of the fair market value of the stock covered by the option (as determined under Section 9) on the date of grant and (ii) expire not later than five (5) years from the date of grant. 24 27 17. ADJUSTMENTS. If the outstanding shares of the Common Stock of the Company (or any other class of shares or securities which shall have become eligible for grant under the Plan pursuant to this sentence) are increased or decreased or changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares as to which options may be granted under this Plan. A corresponding adjustment changing the number or kind of shares allocated to unexercised options or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in the outstanding options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the option but with a corresponding adjustment in the price for each share or other unit of any security covered by the option. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all the property or more than eighty percent (80%) of the then outstanding stock of the Company to another corporation, the Plan shall terminate, and all options theretofore granted hereunder shall terminate; provided, however, that notwithstanding the foregoing, the Committee shall provide in writing in connection with such transaction for any or all of the following alternatives (separately or in combinations): (i) for the options theretofore granted to become immediately exercisable notwithstanding the provisions of Section 8; (ii) for the assumption by the successor corporation of the options theretofore granted or the substitution by such corporation for such options and rights of new options and rights covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (iii) for the continuance of the Plan by such successor corporation in which event the Plan and the options theretofore granted shall continue in the manner and under the terms so provided; or (iv) for the payment in cash or stock in lieu of and in complete satisfaction of such options. Adjustments under this Section 17 shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of stock shall be issued under the Plan on any such adjustment. 18. AMENDMENT AND TERMINATION OF PLAN. The Committee may at any time suspend or terminate the Plan. The Committee may also at any time amend or revise the terms of the Plan, provided that no such amendment or revision shall, unless appropriate shareholder approval of such amendment or revision is obtained, increase the maximum number of shares in the aggregate which may be sold pursuant to options granted under the Plan, except as permitted under the provisions of Section 17, or change the minimum purchase price of incentive stock options set forth in Sections 7 and 16, or increase the maximum term of incentive stock options provided for in Sections 6 and 16, or permit the granting of options to anyone other than as provided in Sections 4 or 5, or otherwise materially increase the benefits accruing to employees under the Plan. Notwithstanding the foregoing, no amendment, suspension or termination of the Plan shall, without specific action of the Committee and the consent of the option holder, in any way modify, amend, alter or impair any rights or obligations under any option theretofore granted under the Plan. 25 28 19. EFFECTIVE DATE OF PLAN. The Plan, as hereby amended, shall be submitted for approval by the holders of the outstanding voting stock of the Company within twelve (12) months from the date the amendments are adopted by the Board of Directors. 26 29 PROXY WILLIAMS-SONOMA, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned shareholder of Williams-Sonoma, Inc. (the "Company") hereby appoints W. Howard Lester and Dennis A. Chantland, and each of them, with full power of substitution to each, true and lawful attorneys, agents and proxyholders of the undersigned, and hereby authorizes them to represent and vote, as specified herein, all shares of Common Stock of the Company held of record by the undersigned on March 31, 1998, at the 1998 Annual Meeting of Shareholders of the Company, to be held on Wednesday, May 27, 1998 at 10:00 a.m. (Pacific Daylight Time) at 3250 Van Ness Avenue, San Francisco, California 94109, and any adjournment or postponements thereof. The Proxy when properly signed will be voted in the manner directed on this Proxy by the undersigned. If no direction is made, this Proxy will be voted for the election of the named directors, FOR proposal 2, FOR proposal 3, and in the manner described in item 4 of this Proxy. (PLEASE DATE AND SIGN ON REVERSE SIDE.) --------------- SEE REVERSE SIDE --------------- - -------------------------------------------------------------------------------- - FOLD AND DETACH HERE - 30 Please mark your votes as indicated in this example /X/ THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3. 1. ELECTION OF DIRECTORS FOR THE ELECTION AS WITHHOLD DIRECTORS OF ALL NOMI- AUTHORITY NEES LISTED (EXCEPT AS TO VOTE FOR ALL MARKED TO THE CONTRARY). NOMINEES LISTED. / / / / (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through that nominee's name in the list below): Charles E. Williams Patrick J. Connolly James M. Berry W. Howard Lester Gary G. Friedman John E. Martin James A. McMahan Adrian D.P. Bellamy Janet L. Emerson Nathan Bessin 2. Proposal to approve the amendment to the Amended and Restated 1993 Stock Option Plan. FOR AGAINST ABSTAIN / / / / / / 3. Proposal to ratify the selection of Deloitte & Touche LLP as independent accountants for the 1998 fiscal year. FOR AGAINST ABSTAIN / / / / / / 4. In their discretion, the Proxyholders are authorized to vote upon such other business as may properly come before this meeting, or any adjournments or postponements thereof. NOTE: When stock has been issued in the name of two or more persons, all should sign. When signing as attorney, administrator, trustee or guardian, give full title as such. A corporation should have the name signed by its president or other authorized officer, with the office held designated. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders, the Proxy Statement and the Annual Report for the 1997 Fiscal Year furnished herewith. - ------------------------------------------------------------------------------- Please Print Name(s) Signature(s) Date , 1998 -------------------------------------------- ------------ Please sign exactly as your name or names appear on this proxy and return it promptly in the enclosed envelope. - -------------------------------------------------------------------------------- - FOLD AND DETACH HERE - -----END PRIVACY-ENHANCED MESSAGE-----