Audit Committee.1SCHEDULE 14A INFORMATION
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Williams-Sonoma, Inc. - -------------------------------------------------------------------------------- (NameWILLIAMS-SONOMA, INC.
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3250VAN NESS AVENUE SAN FRANCISCO, CALIFORNIAVan Ness AvenueSan Francisco, California 94109NOTICE OF 2003 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,
MEETING DATE: Wednesday, May 28, 2003 TIME: 10:00 a.m. PLACE: 3250 Van Ness Avenue San Francisco, CA 94109 ITEMS OF BUSINESS: 1) The election of the full board of directors. 2) The amendment of the Williams-Sonoma, Inc. Restated Articles of Incorporation, as amended, to restate the provisions governing the company’s authority to indemnify its directors, officers, employees and other agents. 3) The ratification of the selection of Deloitte & Touche LLP as independent auditors for the fiscal year ending February 1, 2004. 4) Such other business as may properly come before the meeting or any adjournment or postponement thereof. WHO CAN VOTE: You may vote if you were a shareholder of record as of March 31, 2003. PROXY VOTING: It is important that your shares be represented and voted at the Annual Meeting. Please mark, sign, date and promptly return the enclosed proxy card in the enclosed envelope. Any proxy may be revoked at any time prior to its exercise at the Annual Meeting. DATE OF MAILING: This notice, the Proxy Statement and the Annual Report are first being mailed to shareholders on or about April 14, 2003.
By Order of the Board of Directors Seth R. Jaffe Secretary TABLE OF CONTENTSWILLIAMS-SONOMA, INC.3250 Van Ness AvenueSan Francisco, California 94109Wednesday, May 26, 1999 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 an amendment to Article IV of the Company's Articles of Incorporation. (3) To ratify the selection of Deloitte & Touche LLP as independent accountants for the fiscal year ending January 30, 2000. (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 30, 1999, 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. A list of such shareholders will be available for inspection at the Annual Meeting by any shareholder and, for 10 days prior to the Annual Meeting, at the Company's offices at the address specified above. Financial and other information concerning the Company is contained in the enclosed Annual Report for the fiscal year ended January 31, 1999. By Order of the Board of Directors, Dennis A. Chantland, Secretary San Francisco, California April 16, 1999 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 26, 1999 This proxy statement (the "Proxy Statement")To Be Held on Wednesday, May 28, 2003GENERAL INFORMATIONOur Board submits this 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"),card for use at the Annual Meeting of Shareholders,of the Company (the "Annual Meeting"),to be held on Wednesday, May26, 1999,28, 2003, and for anyadjournmentsadjournment orpostponementspostponement thereof.TheOur Annual Report tothe shareholders of the CompanyShareholders for the fiscal year endedJanuary 31, 1999,February 2, 2003, includingtheour financial statements ofand other information concerning, the Companyfiscal 2002, 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 16, 1999. A proxy may be revoked by filing withWhat is the
Secretarypurpose of theCompany a writtenAnnual Meeting?Shareholders will vote on the following:
• The election of the full board of directors; • The amendment of our Restated Articles of Incorporation, as amended, to restate the provisions governing the company’s authority to indemnify its directors, officers, employees and other agents; • The ratification of the selection of Deloitte & Touche LLP as independent auditors for the fiscal year ending February 1, 2004; and • Such other business as may properly come before the meeting or any adjournment or postponement thereof, including shareholder proposals. Who may vote?
Only shareholders of record at the close of business on March 31, 2003, are entitled to receive notice of
revocation or a duly executed proxy bearing a later date, or by attendingand to vote at the AnnualMeetingMeeting. This is known as the record date. Each holder of our common stock will be entitled to one vote for each share of our common stock owned as of the record date. As of the record date, there wereXXXXXX shares of our common stock outstanding andvoting in person. Attendanceentitled to vote, held of record byXXX shareholders.How do I vote?
You may vote in person at the Annual Meeting
does not itself revoke an otherwise valid proxy; however, any shareholder who attends such meeting may orally revoke hisor by mailing in the enclosed proxyatcard in the enclosed envelope before the AnnualMeeting and vote in person.Meeting.What if I return my proxy card but do not provide voting instructions?
If a
shareholder specifies a choice on any matter to be acted upon by means of the accompanyingsigned proxyand 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 proxycard is returned without anyspecifications as toindication on how its shares should be voted, votes will be castforFOR the electionof eachof the directors named in this ProxyStatement, in favor ofStatement; FOR the described amendment totheour Restated Articles of Incorporation, as amended; andin favor ofFOR the ratification of the selection of Deloitte & Touche LLP as our independent auditors for theCompany's independent accountants. In addition,fiscal year ending February 1, 2004.How many votes must be present to hold the
proxyholdersAnnual Meeting?A majority of our shareholders as of the record date must be present in person or by proxy at the Annual Meeting to transact business. This is known as a quorum. Your shares that are voted in person or by signed proxy card, including abstentions and broker non-votes, will be included in the calculation of the number of shares considered to be present for purposes of determining whether there is a quorum at the Annual Meeting.
What is a broker non-vote?
The term broker non-vote refers to shares that are held by brokers that are present in person or represented by a proxy at the Annual Meeting but that are not voted because the brokers were prohibited from exercising discretionary authority to vote the shares.
What is cumulative voting?
You have cumulative voting rights only with respect to the election of directors. Cumulative voting rights entitle you to cast as many votes as are equal to the number of shares owned by you as of the record date multiplied by the number of directors to be elected. Your cumulative votes may be cast for one director nominee or distributed among two or more director nominees. To engage in
their sole discretion uponcumulative voting, one or more shareholders of record as of the record date, must nominate a director nominee or nominees before voting begins and must give notice at the Annual Meeting of the intention to cumulate votes before voting begins. If any shareholder gives such notice, then every shareholder entitled to vote may cumulate votes for nominees.How many votes are needed to elect directors?
The nine director nominees receiving the highest number of votes at the Annual Meeting will be elected as directors. This is called a plurality. Your proxy will be voted FOR each of the director nominees unless a signed proxy card is marked “withhold authority” as to a particular nominee or nominees for director. Shares not voted, either by marking “abstain” on your proxy card or otherwise, will have no impact on the election of directors.
How many votes are needed to approve the proposals, other
business asthan the election of directors?Proposal No. 2 (Amendment of our Articles of Incorporation) requires the affirmative vote of a majority of our outstanding shares of common stock. Proposal No. 3 (Ratification of Auditors) requires the affirmative vote of a majority of the votes cast at the Annual Meeting. A signed proxy card marked “abstain” with respect to a proposal will not be voted on that proposal.
Are there any shareholder proposals this year?
No, we did not receive notice, before March 1, 2003, of any shareholder proposals for this year’s Annual Meeting.
What if I want to change my vote(s)?
You may
properly come beforerevoke your proxy prior to themeetingclose of voting at the Annual Meeting by either 1) sending written notice of revocation to our Secretary; 2) sending a signed proxy card bearing a later date to our Secretary; or 3) by attending the Annual Meeting, revoking your proxy andany adjournmentsvoting in person.What does it mean if I receive more than one proxy card?
It means that you have multiple accounts with brokers and/or
postponements thereof. Allour transfer agent. You should vote all of these shares. If you are interested in consolidating your accounts, you may contact your broker or our transfer agent, Wells Fargo Shareowner Services, at 800-468-9716.Who pays the expenses incurred in connection with the solicitation of proxies?
We pay all of the expenses
involvedincurred in preparing, assembling and mailing this Proxy Statement and thematerial 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 hasmaterials enclosed. We retainedthe services ofSkinner & Company to assist in the solicitation of proxies at an estimated cost of$3,500. VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS Only shareholders$5,000. Some ofrecordour officers or employees may solicit proxies personally and by telephone or other means. None of those officers or employees will receive special compensation for such services.2
PROPOSAL 1
ELECTION OF DIRECTORS
What is this proposal?
A proposal to elect our board of directors.
How many members are on our Board?
Our Board consists of nine members who are elected annually.
How often did our Board meet in fiscal 2002?
During fiscal 2002, our Board held a total of eight meetings and did not act by unanimous written consent. Each incumbent director, except James A. McMahan, Heather Reisman and Richard T. Robertson, attended at
the closeleast 75% ofbusiness on March 30, 1999 will be entitledour Board meetings.What would happen if a nominee is unwilling or unable to
notice of and to vote at the Annual Meeting. At the close of business on March 30, 1999, there were 55,808,325 outstanding shares of the Company's common stock (the "Common Stock"), the only class of stock outstanding, held of record by 551 shareholders. The closing sales price for the Common Stock on March 30, 1999, as reported by the New York Stock Exchange (NYSE), was $28.19 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 nominationserve prior to thevoting 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 theAnnualMeeting, each shareholder voting at the election of directors may cumulate their 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 26, 1999, 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.
NUMBER OF SHARES PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1) ------------------------------------ ------------------ -----------W. Howard Lester................................. 5,187,093(2) 9.2% c/o Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 James A. McMahan................................. 5,675,200(3) 10.2% 2237 Colby Avenue Los Angeles, CA 90064 Patrick J. Connolly.............................. 502,272(4) * Gary G. Friedman................................. 831,824(5) 1.5% Dennis A. Chantland.............................. 62,515(6) * Richard Hunter................................... 468(7) * Putnam Investment Management, Inc and Putnam Investments, Inc........................ 5,677,134(8) 10.2% One Post Office Square Boston, MA 02109 AMVESCAP, PLC and group members.................. 3,235,800(9) 5.8% 11 Devonshire Square London EC2M 4YR, England All Executive Officers and Directors as a Group (12 persons)................................... 13,225,977(10) 23.0%- --------------- * Less than 1%. (1) Assumes exercise of stock options beneficially owned by the named individual or entity into shares of the Company's common stock. Based on 55,808,325 shares outstanding as of March 30, 1999. 25 (2) Includes 162,000 and 404,500 shares subject to nonqualified stock options granted under the Company's 1976 Stock Option Plan (the "1976 Plan") and the 1993 Stock Option Plan (the "1993 Plan"), respectively, which are currently exercisable or exercisable within 60 days. Includes 15,303 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 3,486 and 1,081,546 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 13,500 and 51,000 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 47,250 shares subject to nonqualified stock options granted under the 1993 Plan which are currently exercisable or exercisable within 60 days. Also includes 10,992 shares in the Stock Incentive Plan that are allocable to Mr. Connolly and fully vested. Does not include 5,238 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 45,000 and 672,000 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. Also includes 13,574 shares in the Stock Incentive Plan that are allocable to Mr. Friedman and fully vested. (6) Includes 62,000 shares subject to nonqualified stock options granted under the 1993 Plan which are currently exercisable within 60 days. Includes 515 shares in the Stock Incentive Plan that are allocable to Mr. Chantland and fully vested. (7) Includes 468 shares in the Stock Incentive Plan that are allocable to Mr. Hunter and fully vested. (8) The information above and in this footnote is based on share information taken from the Schedule 13G of Putnam Investment Management, Inc. and Putnam Investments, Inc. filed February 11, 1999. Putnam Management, Inc. a registered investment adviser, and Putnam, Inc., its parent company, have shared dispositive power (but no voting power) over 5,677,134 shares of Common Stock. (9) The information above and in this footnote is based on 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., 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 3,235,800 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. (10) Includes 247,500 and 1,424,246 shares subject to nonqualified stock options granted under the 1976 Plan and 1993 Plan, respectively, which are currently exercisable or exercisable within 60 days. Also includes 41,977 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 36 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 January 31, 1999, 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 January 31, 1999 were filed on a timely basis, except that Form 3 reporting John Bronson's appointment as an executive officer of the Company was inadvertently 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 theMeeting?Our 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 Directorshas no reason to believe that any of the nominees will beunableunwilling ordeclineunable to serve as a director.47However, should it occur, the nominations committee would nominate someone to stand for election and your proxies will be voted for such person or persons designated by the proxy holders.How are the directors compensated?
Directors do not receive any cash compensation for their service on our Board or Board committees. As their exclusive compensation relating to Board and Board committee service, directors are awarded stock options. Specifically, we grant each director an option to purchase 13,500 shares of our common stock upon the director’s initial election to our Board, and an option to purchase an additional 10,500 shares of our common stock each time the director is re-elected to our Board. The exercise price of these options is not less than 100% of the fair market value of our stock on the date of the option grant or not less than 110% for an incentive stock option granted to a shareholder with greater than 10% of the voting power of all of our stock.
Are there any family or other special relationships among the members of our Board?
No, there are no family relationships between any director nominee or executive officer and any other director nominee or executive officer. There are no arrangements or understandings between any director nominee or executive officer and any other person pursuant to which he or she has been or will be selected as our director and/or executive officer.
3
Information Regarding the Director Nominees
The following table sets forth information, as of March
26, 1999,31, 2003, with respect to eachperson nominated for election as adirectorwhich has been furnished to the Company by the nominees.nominee. All nominees currently serving on our Board were elected directors at theAnnual Meeting of Shareholdersannual shareholders’ meeting held on May27, 1998.29, 2002. Each director nominee furnished the biographical information set forth below.
AMOUNT AND NATURE OF DIRECTOR BENEFICIAL PERCENT OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP CLASS(1) ------- --- -------------------- -------- ---------- -----------Charles E. Williams... 83 Founder ofDirector Nominee Since Position with the Company and its Vice Chairman 1973 547,125(2) 1.0% since 1986.Business ExperienceW. Howard Lester...... 63Lester1979 Chairman since 1986 Age 67 Chief Executive Officer, 1979 — 2001 Member of the Company since 1986Nominations and Corporate GovernanceCommittee Director of Harold’s Department Stores, Inc. (retail sales) Edward A. Mueller 1999 Chief 1979 5,187,093(3) 9.2%Executive Officer since1979. Director of The Good Guys, Inc., CKE Restaurants, Inc., Harold's Stores, Inc., and Il Fornaio Adrian D.P. Bellamy... 57 Chairman and Director of Airport Group Int'l 1997 25,282(4) * 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........ 68 Executive Vice President of Finance of Belk 1987 68,550(5) * Stores Services since 1995. Director of HCC Insurance Holdings, Inc. since 1993. Nathan Bessin......... 73 Managing Partner of J. Arthur Greenfield & Co., 1983 75,150(5) * Certified Public Accountants since 1978. Director of Mercury General Corp. Patrick J. Connolly... 52 Executive Vice President, General 1983 502,272(6) * Manager -- Catalog and Assistant Secretary of the Company since 1995 and 1983, respectively. Janet Emerson......... 50January 2003Age 55 President and Chief Executive Officer of Ameritech (telecommunications), 2000 — 2002 President of: SBC Int’l Operations (telecommunications), 1999 — 2000 Pacific Bell (telecommunications), 1997 14,998(4) * Learningsmith, Inc.— 1999Southwestern Bell (telecommunications), 1994 — 1997 Charles E. Williams 1973 Founder and Vice Chairman since 1995. Director1986Age 87 Adrian D.P. Bellamy 1997 Chairman of Retail -- Stores, Catalogthe Compensation CommitteeAge 61 Member of the Nominations and Wholesale Divisions, Museum of Fine Arts Boston from 1994-1995 Gary G. Friedman...... 41 Chief Merchandising OfficerCorporate GovernanceCommittee and 1993 831,824(7) 1.5% President -- Retail Stores since 1995. John E. Martin........ 53Audit CommitteeChairman and Director of: The Body Shop Inc. The Body Shop International PLC (personal care products) Gucci Group N.V. (luxury goods) Director of: The Gap, Inc. (clothing) Reckitt Benckiser PLC (household, personal and health products) The Robert Mondavi Corporation (wine) Patrick J. Connolly 1983 Executive Vice President and Chief Marketing Officer Age 57 since 2000 Executive Vice President, General Manager, Catalog, 1995 — 2000 Senior Vice President, Mail Order, 1991 — 1995 Vice President, Mail Order from 1979 — 1990 Michael R. Lynch 2000 Chairman of Diedrich Coffeethe Nominations and1994 235,500(8) * Newriders, Inc. since 1997.Corporate GovernanceAge 51 Committee and Chairman of Audit Committee Member of the Audit Committee Managing Director of The Good Guys,Goldman, Sachs & Co. since 1996(investment banking) James A. McMahan 1979 Chief Executive Officer of McMahan Furniture Stores Age 80 (furniture), 1947 — 1999 Heather M. Reisman 2000 Member of the Audit Committee Age 54 Chairman, Chief Executive Officer, President, Indigo Books & Music, Inc. Chairman(books and music) since August 2001Director and Chief Executive Officer of PepsiCo Casual Restaurants from 1996-1997.Chapters, Inc. (books),2001 Director, President and Chief Executive Officer of Taco Bell, a wholly-owned subsidiaryIndigo Booksand Music, Inc., 1996 — 2001 Director of PepsiCo from 1983-1996. James A. McMahan...... 76 Chief Executive OfficerRogers Cable, Inc. (internet access and videos)Richard T. Robertson 2000 Member of McMahan Furniture 1979 5,675,200(5) 10.2% Storesthe Compensation CommitteeAge 57 President of Warner Bros. Domestic Television Distribution (entertainment) since 1947.1989- --------------- * Less than 1%. (1) Assumes exerciseTHE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF ALL OF THE DIRECTORS LISTED ABOVE.
4
What are the committees of
stock options beneficially owned byour Board?Our Board has the
named individual or entityfollowing committees, withshares oftheCompany's common stock. Based on 55,808,325 shares outstandingfollowing members as of March30, 1999. (2) Includes 1,125 shares31, 2003:
Number of Meetings in Committee and Members Functions of Committee Fiscal 2002 Audit:
Michael R. Lynch, Chairman
Adrian D.P. Bellamy
Heather M. Reisman• Monitors the integrity of financial reports and other financial information prepared by the Company
• Appoints and/or replaces the independent auditors and assesses the independent auditors’ qualifications and independence
• Reviews the performance of the Company’s internal audit function, independent auditors and the Company’s auditing, accounting and financial reporting procedures
• Monitors the Company’s compliance with legal and regulatory requirements6 Compensation:
Adrian D.P. Bellamy, Chairman
Richard T. Robertson• Administers the Company’s compensation plans
• Reviews and recommends officers’ compensation2 Nominations and Corporate
Governance:
Michael R. Lynch, Chairman
Adrian D.P. Bellamy
W. Howard Lester• Establishes corporate governance policies
• Makes recommendations for nominees for directors
• Considers shareholders’ director nominations2 Did all of the committee members attend at least 75% of the meetings in fiscal 2002?
Each committee member attended at least 75% of their respective committee meetings, except that Ms. Reisman attended four of the six Audit Committee meetings and Mr. Robertson attended one of the two Compensation Committee meetings.
Do the committees consist of only independent directors?
All of our Audit Committee members are independent. All of our Compensation Committee members are independent. Other than Mr. Lester, all of our Nominations and Corporate Governance Committee members are independent.
Will the Nominations and Corporate Governance Committee consider nominees recommended by shareholders?
Yes, the Nominations and Corporate Governance Committee will consider nominees recommended by shareholders provided such nominees are submitted pursuant to the procedures and timelines described in the
Stock Incentive Plan that are allocable“Shareholder Proposals” section of this Proxy Statement.Are there any disclosures relating to
Mr. WilliamsCompensation Committee Interlocks andfully vested. (3) Includes 162,000 and 404,500 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 15,303 shares in the Stock Incentive Plan that are allocable to Mr. Lester and fully vested. Does not 58 include 3,486 and 1,081,546 shares owned by Mr. Lester's wife and by trusts established by Mr. Lester for the benefitinsider participation?During fiscal 2002, none of
his children, respectively, in which shares Mr. Lester disclaims any beneficial interest. (4) Includes 14,998 shares subject to nonqualified stock options granted under the 1993 Plan, respectively, which are currently exercisable or exercisable within 60 days. (5) Includes 13,500 and 51,000 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. (6) Includes 47,250 shares subject to nonqualified stock options granted under the 1993 Plan which are currently exercisable or exercisable within 60 days. Also includes 10,992 shares in the Stock Incentive Plan that are allocable to Mr. Connolly and fully vested. Does not include 5,238 shares owned byour executive officers served as atrust established for the benefit of Mr. Connolly's children, in which shares Mr. Connolly disclaims any beneficial interest. (7) Includes 45,000 and 672,000 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. Also includes 13,574 shares in the Stock Incentive Plan that are allocable to Mr. Friedman and fully vested. (8) Includes 55,500 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 membersmember of theBoard.Board of Directors(other than employee directors) are awarded nonqualified stock options annually underor Compensation Committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.5
PROPOSAL 2
AMENDMENT OF OUR RESTATED ARTICLES OF INCORPORATION, AS AMENDED
What is this proposal?
A proposal to amend the
1993 Plan. Eligible directors are each awarded an option to purchase 13,500 sharessecond paragraph ofCommon Stock upon their initial election to the Board and an option to purchase 10,500 sharesArticle V ofCommon 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'sour Restated Articles of Incorporation, as amended. This paragraph, or indemnification provision, provides certain authority to us to indemnify our directors, officers, employees and other agents under California law. The indemnification provision currently reads as follows:
“The Company is authorized to provide indemnification of agents (as defined in Section 317 of the Corporations Code) for breach of duty to the Company and its shareholders through bylaw provisions or through agreements with agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the Corporations Code.” If approved, the indemnification provision would be amended and restated in its entirety to read as follows:
“The Company is authorized to indemnify the directors, officers, employees and other agents (as defined in Section 317 of the Corporations Code) of the Company to the fullest extent permissible under California law.” What does it mean to indemnify a
directorperson?To indemnify a person means to hold them harmless from liability. When we agree to indemnify our directors, officers, employees and other agents, we agree to hold them harmless from liability in any civil, criminal, administrative, investigative or similar proceeding relating to their service on behalf of us. As a general matter, this means paying the reasonable legal fees of these people and certain settlements, judgments and fines that they may become subject to in connection with such a proceeding. Such indemnification is
not liablesubject, however, to limitations under California law and other applicable law.How is the
Company or its shareholders for monetary damages forproposed new indemnification provision different than our current indemnification provision?The current indemnification provision may be deemed to limit our authority to indemnify our directors, officers, employees and other agents to situations involving an alleged breach of
fiduciary duty asduty. However, under California law, adirector. However, the Articles of Incorporationcompany may indemnify such people against claims that do noteliminate a director's liability forinvolve an alleged breach of duty. The proposed new indemnification provision is intended to clarify and ensure that we have theduty of loyalty, acts or omissions not in good faith, certain payments not permittedfullest authority to indemnify such people undertheCaliforniaCorporations Code or transactions in which the director derives an improper personal benefit. The Articles of Incorporation also provide that the Company haslaw, including the authority to indemnify them against claims not involving an alleged breach of duty.Do the indemnification provisions require us to indemnify its directors, officers, employees
and agents beyondor other agents?No. Neither the
circumstances permitted under Section 317 ofcurrent indemnification provision nor theCalifornia Corporations Code. BOARD MEETINGS AND COMMITTEES During the fiscal year ended January 31, 1999 ("fiscal 1998"),proposed new indemnification provision requires us to indemnify any person. A determination as to whether to provide indemnification must be made by the Board of Directors, the shareholders, or as otherwise permitted or mandated by California law. The purpose of theCompany heldnew indemnification provision is to ensure that we have the fullest authority, and thus the maximum flexibility, to provide such indemnification under California law.In what ways do we currently indemnify directors and officers?
Our Bylaws require us to indemnify and hold harmless any director or officer, or anyone serving at a
totaldirector or officer’s bequest in any capacity with another entity, to the fullest extent authorized under California law. We also carry directors and officers liability insurance that provides coverage for our directors, officers and other persons. We do not currently have any indemnification agreements in effect with any ofseven meetingsour directors, officers or employees.6
Why do we recommend that the indemnification provision be amended?
Our objective is to ensure that we have the authority to provide the maximum possible indemnification to our directors, officers, employees and
actedother agents permitted under California law byunanimous written consent on six occasions. The Boardclarifying and ensuring that our Articles ofDirectors has four standing Committees: Audit, Compensation, InvestmentIncorporation provide such authority. We believe that amending the indemnification provision will provide greater certainty as to our indemnification authority, allow more flexibility in structuring indemnification arrangements andNominatingultimately help us attract andCorporate Governance. During fiscal 1998,retain theAudit Committeehighest quality directors, officers, employees and agents.What vote is required to approve this proposal?
To approve this proposal, a majority of the
Boardoutstanding shares ofDirectors (the "Audit Committee") held two meetings. The Audit Committeeour common stock must vote FOR this proposal. Abstentions and broker non-votes will be counted to determine if there iscurrently compriseda quorum but will not be counted as a vote for or against this proposal. As a result, abstentions and broker non-votes will have the same effect as a vote against this proposal.If approved, when would the amendment become effective?
If approved, the amendment will become effective upon our filing an amendment to our Articles of
Messrs. Bessin (Chairman), McMahan and Berry. The Audit Committee is primarily responsible for reviewingIncorporation, or a restated version of our Articles of Incorporation that reflects this amendment, with theservices performed byCalifornia Secretary of State soon after theCompany's independent accountants and evaluating the Company's accounting principles and its system of internal accounting controls. 69 During the last fiscal year, the Compensation Committee of the Board of Directors (the "Compensation Committee") held six meetings and acted by unanimous written consent on one occasion. The Compensation Committee is currently comprised of Messrs. McMahan (Chairman), Bellamy, Martin and Ms. Emerson. The Compensation Committee is primarily responsible for officers' compensation matters and for administering the Company's stock option plans. The Investment Committee is currently comprised of Messrs. Berry (Chairman), McMahan and Bessin. The Investment Committee was established during fiscal 1998 and has not held a meeting . The Investment Committee is primarily responsible for setting policy regarding investments of the Company's excess cash. The Nominating and Corporate Governance Committee is comprised of Mr. Bellamy (Chairman), Mr. Lester and Ronald M. Loeb, former outside counsel to the Company. The Nominating and Corporate Governance Committee was established during fiscal 1998 and has not held a meeting. The Nominating and Corporate Governance Committee is primarily responsible for determining the qualifications of and selected director nominees and for setting policies regarding the corporate governance responsibilities of the Board and management. 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 January 31, 1999, except directors Adrian Bellamy and John Martin.Annual Meeting.THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THIS AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION, AS AMENDED.
7
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
What is this proposal?
A proposal to ratify the appointment of Deloitte & Touche LLP (“Deloitte”) as our independent auditors for fiscal 2003. The Audit Committee selected Deloitte as our independent auditors for fiscal 2003, subject to ratification by our shareholders.
What relationship does Deloitte currently have with us?
Deloitte audited our financial statements for the last twenty-three years. Based in part upon information provided by Deloitte, the Audit Committee determined that Deloitte is independent under applicable independence standards. Deloitte’s representative will be present at the Annual Meeting and will have the opportunity to make a statement if he or she desires to do so. He or she also will be available to respond to appropriate questions.
What services does Deloitte provide?
Deloitte’s audit services for fiscal 2002 included examination of our consolidated financial statements, review of our consolidated quarterly reports, and audit services related to periodic filings made with the Securities and Exchange Commission. Deloitte also discussed certain matters with our Audit Committee as more fully described in the Audit Committee report below.
What vote is required to approve this proposal?
To approve this proposal, a majority of the shares of common stock voting at the Annual Meeting, either in person or by mail, must vote FOR this proposal. Abstentions and broker non-votes can have the effect of preventing approval of this proposal. Abstentions and broker non-votes will be counted to determine if there is a quorum but will not be counted as a vote for or against this proposal. Therefore, the number of affirmative votes cast for this proposal could be a majority of the votes actually cast but not a majority of the required quorum and the proposal would not be approved.
What will happen if shareholders vote against this proposal?
If shareholders vote against this proposal, we will consider interviewing other independent auditors. There can be no assurance, however, that we will choose to appoint other independent auditors even if this proposal is not passed.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" EACH“FOR” RATIFICATION OF THEABOVE-NAMED NOMINEES. CERTAIN TRANSACTIONS The Company leases two distribution centers in Memphis, Tennessee from two partnerships whose partners include an executive officer/director and a director of the Company. See "Executive Compensation -- Compensation Committee Interlocks and Insider Participation."APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR FISCAL 2003.8
INFORMATION CONCERNING EXECUTIVE OFFICERS
ExecutiveThis table provides certain information about our executive officers. The executive officers
of the Companyare elected bytheour Boardof Directorsand serve at the pleasure ofthe Board. Certain information concerning such executive officers is set forth below:our Board, subject to rights, if any, under employment contracts.
NAME AGE PRESENT POSITION WITH THE COMPANY AND BUSINESS EXPERIENCE ---- --- -----------------------------------------------------------W. Howard Lester.................. 63 Chairman since 1986 and Chief Executive Officer since 1979. Charles E. Williams............... 83 Founder ofName Position with the Company and Business Experience W. Howard Lester * Age 67 Edward A. Mueller * Age 55 Charles E. Williams * Age 87 Laura J. Alber President, Pottery Barn Brands since 2002 Age 34 Executive Vice Chairman since 1986. Dennis A. Chantland............... 56President, Pottery Barn Brand, 2000-2002Senior Vice President, Pottery Barn Catalog and Pottery Barn Kids Retail, 1999-2000 Divisional Vice President, Pottery Barn Catalog, 1997-1999 Director, Pottery Barn Catalog, 1996-1997 James E. Boike Executive Vice President and Chief AdministrativeOperating Officer since1995; and Secretary since 1996 Patrick J. Connolly............... 522001Age 56 Executive Vice President, Premium Brands, 2000-2001 Executive Vice President, Stores and General Manager, Catalog since 1995;Operations, 1997-2000Senior Vice President, -- Mail Order, 1991-1995;Stores, 1995-1997Vice President, -- Mail Order, 1979-1990; and Assistant Secretary since 1983. Gary G. Friedman.................. 41 Chief Merchandising Officer and President, RetailStores,since 1995; Executive1994-1995Vice President, 1993-1995;Merchandise Operations, 1993-1994Patrick J. Connolly * Age 56 Patrick Cowell President, Williams-Sonoma Brand since 2002 Age 53 President, Cowell Development (real estate development) since 1999 President and Chief Executive Officer, Airport Group International (management and development of international airports), 1996-1999 President, Americas and Caribbean, Sun International Hotels and Resorts (hotels and resorts), 1994-1996 Donna H. Isralsky Senior Vice President, -- Stores, 1991-1992;Product Supply Chain and InternationalAge 47 Operations since 1999 Vice President, -- Stores, 1988-1990. Richard C. Hunter................. 54Product Supply Chain, 1996-1999Vice President, Operations, Production and Sourcing of Reebok International Ltd. (athletic apparel), 1994-1996 Ronald M. Loeb Senior Vice President, -- International Operations and DevelopmentGeneral Counsel since1996. John S. Bronson................... 511999Age 70 Retired, 1997-1999 Irell & Manella LLP (law firm), 1959-1997, Senior Partner 1972-1997 Interim Chief Executive Officer, Mattel, Inc. (toys), 2000 Director of Mattel, Inc. Sharon L. McCollam Senior Vice President, -- Human ResourcesChief Financial Officer since1999.2000Age 40 Vice President, Finance, 2000 Chief Financial Officer of Dole Fresh Vegetables, Inc. (food products), 1996-2000 Dean A. Miller Senior Vice President, Global Logistics since 2001 Age 40 Vice President, Retail Distribution, 2001 Vice President, Global Logistics, United Parcel Services (shipper), 1996-2001 710 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following
* Biographical information can be found in the table under the section titled “Information Regarding the Director Nominees.” 9
Executive Compensation
This table sets forth the annual and long-term compensation
of the Company'searned by (i) our Chief Executive Officer anditsformer Chief Executive Officer who served in that position until January 9, 2003; and (ii) the four other most highly compensated executive officerswho served as executiveduring fiscal 2002; (collectively, the “Named Executive Officers”). None of these officers held stock appreciation rights during thefiscal year ended January 31, 1999 and whose total annual salaries and bonuses exceeded $100,000 during such fiscal year.years represented in the tables.Summary Compensation Table
Long Term Compensation Awards Annual Compensation(2) Other Restricted Securities Annual Stock Underlying All Other Name and Principal Position Year(1) Salary($) Bonus($) Compensation($) Awards($) Options(#)(3) Compensation($) W. Howard Lester 2002 $ 904,122 $ XXX $ 65,945 (4) — — $ 11,723 (5) Chairman of the Board of Directors 2001 899,787 400,000 — — 100,000 7,754 2000 893,796 — — — 400,000 10,034 Edward A. Mueller 2002 37,500 — — — 1,021,000 (6) 80 (7) Chief Executive Officer 2001 — — — — 21,000 — (commencing January 13, 2003) 2000 — — — — 21,000 — Laura J. Alber 2002 498,055 XXX — — — 16,800 (8) President, Pottery Barn Brands 2001 407,700 175,000 — — 400,000 7,523 2000 278,291 — — — — 7,319 James E. Boike 2002 600,000 XXX — — — 12,682 (9) Executive Vice President and Chief 2001 544,462 225,000 — — 200,000 5,403 Operating Officer 2000 375,680 — — — 100,000 5,784 Patrick J. Connolly 2002 499,931 XXX — — — 16,492 (10) Executive Vice President, Chief 2001 506,065 140,000 — — 40,000 7,754 Marketing Officer, and Director 2000 482,923 — — — 400,000 9,304 Dale W. Hilpert 2002 950,000 XXX — — — 6,954 (11) Chief Executive Officer 2001 754,038 355,000 25,000 $ 7,725,000 1,000,000 954 (ending January 9, 2003) 2000 — — — — — —
LONG TERM COMPENSATION ANNUAL AWARDS COMPENSATION(2) --------------------- ------------------------ SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($)(9) OPTIONS(#)(1) Rows specified “2002”, “2001” and “2000” represent fiscal years ended February 2, 2003, February 3, 2002 and January 28, 2001, respectively. (2) While the Named Executive Officers enjoy certain perquisites, except as otherwise indicated below, the aggregate value of such perquisites for the fiscal years shown did not exceed or equal the lesser of $50,000 or 10% of each such officer’s salary and bonus for the applicable fiscal year. (3) COMPENSATION($) --------------------------- ------- --------- ------------ --------------------- ---------------W. Howard Lester............................ 1998 681,362 0 100,000 5,789(4)Figures have been adjusted to reflect stock splits. (4) Comprised of $65,945 for use of our airplane for personal business. (5) Comprised of (i) premiums in the amount of $954 paid by us for term life insurance in excess of $50,000 and (ii) our matching contribution of $10,769 under our Associate Stock Incentive Plan, which amounts are subject to vesting. (6) Comprised of (i) an option to purchase 1,000,000 shares of our common stock granted upon Mr. Mueller’s appointment as our Chief Executive Officer 1997 628,978 150,000 240,000 7,445 ChairmanandDirector 1996 498,077 100,000 60,000 7,638 Dennis A. Chantland......................... 1998 419,725 0 230,000 2,696(5) Executive Vice President, 1997 386,892 200,000 230,000 4,038 Chief Administrative Officer(ii) an option to purchase 21,000 shares of our common stock as Mr. Mueller’s compensation as an external director during fiscal 2002.(7) Comprised of premiums in the amount of $80 paid by us for term life insurance in excess of $50,000. (8) Comprised of (i) premiums in the amount of $954 paid by us for term life insurance in excess of $50,000; (ii) our matching contribution of $9,846 under our Associate Stock Incentive Plan, which amounts are subject to vesting; and Secretary 1996 342,244 75,000 50,000 4,930 Patrick J. Connolly......................... 1998 315,696 75,000 100,000 3,274(6) Executive Vice President 1997 286,772 200,000 30,000 2,498(iii) a $6,000 car allowance paid by us.(9) Comprised of (i) premiums in the amount of $954 paid by us for term life insurance in excess of $50,000; (ii) our matching contribution of $5,908 under our Associate Stock Incentive Plan, which amounts are subject to vesting; and General Manager -- Catalog(iii) a $6,000 car allowance paid by us.
(10) Comprised of (i) premiums in the amount of $954 paid by us for term life insurance in excess of $50,000; (ii) our matching contribution of $9,538 under our Associate Stock Incentive Plan, which amounts are subject to vesting; and Director 1996 229,080 75,000 30,000 7,478 Gary G. Friedman............................ 1998 465,539 0 230,000 3,214(7) Chief Merchandising Officer, 1997 455,253 100,000 180,000 1,109 President -- Retail Division(iii) a $6,000 car allowance paid by us.(11) Comprised of (i) premiums in the amount of $954 paid by us for term life insurance in excess of $50,000; and Director 1996 399,580 75,000 40,000 1,226 Richard C. Hunter........................... 1998 236,847 0 20,000 815(8) Senior Vice President, 1997 303,037 70,000 22,000 1,527 International Operations and Development 1996 41,237 0 100,000 167(ii) a $6,000 car allowance paid by us.- --------------- (1) Rows specified "1998," "1997" and "1996" represent fiscal years ended January 31, 1999, February 1, 1998 and February 2, 1997 respectively. (2) 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. (3) Figures have been adjusted to reflect the 2-for-1 stock split10
Option Grants in
May 1998 (the "Stock Split"). (4) Comprised of premiums paid by the Company for term life insurance and benefits received under the Company's executive supplemental medical plan of $4,914 and $875, respectively. (5) Comprised of premiums paid by the Company for term life insurance and benefits received under the Company's executive supplemental medical plan of $1,338 and $1,358, respectively. (6) Comprised of premiums paid by the Company for term life insurance and benefits received under the Company's executive supplemental medical plan of $2,016 and $1,258, respectively. (7) Comprised of premiums paid by the Company for term life insurance and benefits received under the Company's executive supplemental medical plan of $714 and $2,500, respectively. (8) Comprised of premiums paid by the Company for term life insurance and benefits received under the Company's executive supplemental medical plan of $805 and $10, respectively. (9) Amounts represent bonuses earned during each fiscal year. 811 OPTION GRANTS IN LAST FISCAL YEAR The followingFiscal 2002This table sets forth
thecertain informationnoted forregarding allgrants ofstockoptionsoption grants made to theChiefNamed ExecutiveOfficer and each of the other executive officers namedOfficers during fiscal 2002.
Individual Grants Potential Realizable Value at Assumed Annual Number of Percentage of Rates of Stock Price Securities Total Options Appreciation for Option? Underlying Granted to Exercise or Term Options Employees in Base Price Expiration Name Granted(#) Fiscal Year(%) ($/Sh) Date 5%($) 10%($) Edward A. Mueller 1,000,000 29.7 % $ 26.00 1/13/2013 $ 16,351,260 $ 41,437,304 21,000 .06 32.80 5/29/2012 433,183 1,097,770
(1) The 5% and 10% assumed rates of appreciation are required by the Securities and Exchange Commission and do not represent our estimate or projection of the future of our stock price. Aggregate Option Exercises in the
Summary Compensation Table during the fiscal year ended January 31, 1999:
INDIVIDUAL GRANTS --------------------------------------------------------- POTENTIAL REALIZABLE VALUE NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------- NAME GRANTED(#)(1) FISCAL YEAR(%) ($/SH)(1) DATE 5%($) 10%($) ---- ------------- -------------- ----------- ---------- ------------ ------------W. Howard Lester............. 100,000 7.5 27.56 3/10/08 1,733,234 4,392,354 Dennis A. Chantland.......... 80,000 6.0 27.56 3/10/08 1,386,587 3,513,883 150,000 11.2 21.56 9/7/08 2,034,081 5,154,761 Patrick J. Connolly.......... 50,000 3.8 27.56 3/10/08 866,617 2,196,177 50,000 3.8 21.56 9/7/08 678,027 1,718,254 Gary G. Friedman............. 80,000 6.0 27.56 3/10/08 1,386,587 3,513,883 150,000 11.2 21.56 9/7/08 2,034,081 5,154,761 Richard C. Hunter............ 20,000 1.5 27.56 3/10/08 346,647 878,471- --------------- (1) All of these options, except for certain options granted to Messrs. ChantlandLast Fiscal Year andFriedman were repriced to $19.31 in October 1998 as noted in the Report on Repricing of Options/SAR's. Figures have been adjusted to reflect stock splits. AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE The followingFiscal Year-End Option ValueThis table sets forth information with respect to the Named Executive Officers’ exercise of stock options during
thefiscalyear ended January 31, 19992002 and the fiscal year-end value of unexercised options held at the end of fiscal 2002.
Number of Securities Underlying Unexercised Value of Unexercised Options at Fiscal In-the-Money Options at Shares Year-End(#) Fiscal Year-End($)(2) Acquired on Value Name Exercise(#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable W. Howard Lester 324,000 $ 9,632,520 2,190,000 260,000 $ 35,784,500 $ 3,018,200 Edward A. Mueller — — 90,000 1,000,000 366,600 — Laura J. Alber 157,360 2,887,970 162,200 374,300 1,797,334 4,183,360 James E. Boike — — 278,000 52,000 3,026,620 687,720 Patrick J. Connolly 34,500 759,334 616,000 220,000 7,670,080 2,231,320 Dale W. Hilpert 90,000 1,039,171 910,000 — 10,565,100 —
(1) Figures have been adjusted to reflect stock splits. (2) Represents the difference between the closing market price of our common stock on January 31, 2003 ($23.67 per share) and the exercise price of the options. What are the terms of the employment, termination of employment and change-in-control agreements with our Named Executive Officers?
Laura J. Alber
We entered into an employment agreement with Ms. Laura J. Alber, effective as of March 19, 2001, relating to her employment as the Executive Vice President of Pottery Barn. The initial term of the agreement expires March 19, 2004, with automatic extension for additional one-year terms, until the agreement is terminated by Ms. Alber or by us. We committed in the agreement to pay Ms. Alber an annual base salary of not less than $400,000. If we terminate Ms. Alber’s employment without “cause” (as defined in the agreement), or if she terminates her employment with us for “good reason” (as defined in the agreement) she would be entitled to receive continuation of her base salary and health insurance coverage for up to three years, so long as she does not breach certain post-termination obligations as described in the agreement. Ms. Alber was elected President, Pottery Barn Brands effective February 11, 2002.
James E. Boike
We entered into an agreement with Mr. James E. Boike, our Executive Vice President, Chief Operating Officer, effective as of May 8, 2001, pursuant to which we agreed to pay to Mr. Boike a “guaranteed spread” on certain unvested stock options owned by Mr. Boike. The guaranteed spreads are subject to a cap, and the
11
spreads and the cap are dependent on whether Mr. Boike’s employment terminates after the first or after the second year of the agreement.Dale W. Hilpert
We entered into a separation agreement with Mr. Dale W. Hilpert, our former Chief Executive Officer, pursuant to which Mr. Hilpert left our company as of January 9, 2003. Pursuant to the agreement, we accelerated the vesting of Mr. Hilpert’s unvested stock options and released our repurchase right on Mr. Hilpert’s restricted shares of our common stock. We also agreed to pay Mr. Hilpert a bonus based on our performance in 2002. Our Compensation Committee, using a pre-determined formula linked to our performance in 2002, set Mr. Hilpert’s bonus at $XXX.
Committee Reports
The following reports by our Compensation Committee and our Audit Committee covering fiscal 2002 shall not be deemed to be (i) “soliciting material”; (ii) to be “filed” with the Securities and Exchange Commission; (iii) subject to Regulations 14A or 14C of the Securities Exchange Act; or (iv) subject to the liabilities of Section 18 of the Securities Exchange Act. The reports shall not be deemed incorporated by reference into any other company filing under the Securities Exchange Act or the Securities Act.
COMPENSATION COMMITTEE REPORT
General
We are responsible for setting the company’s policy on executive compensation. We determine the compensation paid to the company’s executive officers, including the Chief Executive Officer, and
each of the other executive officers named in the Summary Compensation Table:
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2) OPTIONS VALUE --------------------------- --------------------------- NAME EXERCISED(#)(1) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- --------------- -------------- ----------- ------------- ----------- -------------W. Howard Lester....... 0 $ 0 475,500 359,000 $13,679,604 $7,088,712 Dennis A. Chantland.... 186,000 3,468,075 0 524,000 0 9,944,272 Patrick J. Connolly.... 237,250 6,245,057 19,250 156,000 543,534 2,808,048 Gary G. Friedman....... 101,250 2,612,382 631,000 444,000 17,115,368 8,143,332 Richard C. Hunter...... 44,400 693,811 0 97,600 0 1,637,933- --------------- (1) Figures have been adjustedprovide assistance and recommendations with respect toreflect Stock Splits (2) Represents the difference between the closing market price of the Company's common stock on January 29, 1999 ($34.69 per share) and the exercise price of the options. 912 REPORT ON REPRICING OF OPTIONS Options held by Named Officers were repriced in the fiscal year ended January 31, 1999 as set forth below(1).
NUMBER OF SECURITIES MARKET PRICE LENGTH OF ORIGINAL UNDERLYING OF STOCK EXERCISE PRICE TERM REMAINING OPTIONS AT TIME OF AT TIME OF AT DATE OF REPRICED OR REPRICING OR REPRICING OR NEW EXERCISE REPRICING OR NAME DATE AMENDED AMENDMENT AMENDMENT PRICE($) AMENDMENT ---- ------- ------------ ------------ -------------- ------------ ------------------W. Howard Lester.......... 10/7/98 100,000 19.31 27.56 19.31 9 years, 6 months Dennis A. Chantland....... 10/7/98 90,000 19.31 21.56 19.31 10 years 10/7/98 80,000 19.31 27.56 19.31 9 years, 6 months Patrick J. Connolly....... 10/7/98 50,000 19.31 27.56 19.31 9 years, 6 months 10/7/98 50,000 19.31 21.56 19.31 10 years Gary G. Friedman.......... 10/7/98 80,000 19.31 27.56 19.31 9 years, 6 months 10/7/98 90,000 19.31 21.56 19.31 10 years Richard C. Hunter......... 10/7/98 20,000 19.31 27.56 19.31 9 years, 6 months- --------------- (1) The Board of Directors and Compensation Committee view options as essential to the effort to attract and retain key employees. In order to ensure that the options fulfilled their purpose, in October 1998, the Board and Committee determined to lower the exercise price for all outstanding options granted on or after June 27, 1997 to $19.31 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 executivecompensationpolicy and determining the compensation paid to executive officers of the Company. The Compensation Committee is currentlyplans. We are comprised of the directors named belowalland none ofwhom areus has ever served as an officer of the company. Each member of our Compensation Committee is independent under the rules of The New York Stock Exchange as currently in effect and is a non-employeeDirectors. The Company'sdirector under Section 16(b) of the Securities Exchange Act of 1934.What is the philosophy of executive compensation?
We believe that executive officers and other key employees should have a significant stake in the company’s stock performance and that compensation programs should link executive compensation to shareholder value. For this reason, our executive officer compensation programs are designed to enable the
Companycompany to attract, retain, motivate and reward highly qualifiedexecutivesexecutive officers while maintaining strong and direct links between executive pay, individual performance, theCompany'scompany’s financial performance and shareholder returns.The Compensation Committee believesDo we compare the company’s compensation practices to those of other companies?
Yes. We believe that
officers and other key employees should have a significant stake intheCompany's stock price performance under programs which link executivecompensationto shareholder return. Notably, the Chief Executive Officer, Mr. Lester, beneficially owns 5,187,093 shares (including options which are currently exercisable or exercisable within 60 days) representing 9.2%practices ofthe shares of Common Stock as of March 26, 1999. Mr. Lester (together with the undersigned Mr. McMahan) purchased 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 ofmany different companiesbothwithinand outsidethe retail industry are relevant to establishing the company’s compensation programs and executive compensation fortalented executives. Accordingly,each year. Specifically, we strive to ensure that theCommittee considers bothcompany’s compensation programs and executive compensation are competitive, taking into account: (i) pay practicesatof 8 retailers of comparable sizewhowhich are part of the Center for Research in Security Prices("CRSP")Index for NASDAQ Retail Trade Stocks, one of the indices used in thePerformance Graph, as well asperformance graph below; and (ii) pay practices at other companies considered comparable in each year, based ontheindustry, revenues and otherfactors (together,factors. We refer to these companies collectively as “comparable companies.” For fiscal 2002, we used 27 specialty retail companies as the"Compara- 1013 ble Companies") when assessingcomparable companies. In addition, thecompetitiveness of the Company's compensation programs. The Committeecompany utilizes an independent executive compensationadvisorconsultant hired by management for the purpose of meeting with us to provide information oncompetitivethe competitiveness of the company’s compensationlevels. The Committee considersprograms.12
What are the components of executive compensation?
We consider three major elements in
itsour compensation program: (i) basesalaries,salary, (ii) annualcashincentive opportunities and (iii) long-termincentives via stock options. Baseincentives.How are base salaries
are generally targeted atdetermined?We expect and confirm that the
median levelscompany’s executive officers’ base salaries fall within the third quartile (i.e., the top 50th to 75th percentile) ofthe Comparable Companies,comparable companies, adjusting, as appropriate, to reflect differences in each particular executive officer’s responsibilities, experience andactual salaries are adjusted forindividualperformance andcontributions to theCompany'scompany’s success.In May 1997,We review and set theCommitteecompany’s executive officers’ base salaries, including those of the Named Executive Officers, on an annual basis. This review occurred in February 2002 to confirm appropriate base salaries for fiscal 2002. For all new executives who joined the company after the February 2002 review, we reviewedtheand approved base salariesof itsin connection with their hire date.How are annual incentives determined?
The company promotes outstanding performance by rewarding executive officers
includingfor achieving specific performance objectives with an annual cash bonus. The company pays bonuses only when thenamedcompany exceeds a minimum corporate earnings objective as established by us in the first quarter of each fiscal year. Bonuses to executiveofficers.officers are based on a pre-determined formula linked to the company’s performance. The executive officers’ base salaries and the bonus target together place annual cash compensation within the third quartile of comparable companies.What are the criteria considered in awarding annual incentives?
Key performance criteria for evaluating executive officers include business and financial objectives, people and organizational goals, and other relevant factors as determined by us with input from the company’s senior management. These criteria change from year to year. In the first quarter of each fiscal year, we review a performance report that summarizes management’s view regarding whether, and to what extent, the key performance criteria were attained. The performance report also discusses any other significant but unforeseen factors that may have positively or negatively affected the company’s performance.
We verify the company’s actual earnings for each performance period, review management’s recommendation for the resulting aggregate bonus awards and approve the aggregate amount. We also review and approve the individual recommendations for our executive officers, and the company’s Chief Executive Officer approves the recommendations for all other eligible employees below the executive officer level.
Based on the
Company'scompany’s performance in fiscalyear 1997, base salary increases2002 and certain brand specific metrics, incentive bonuses weregrantedpaid to thefollowing executives effective April 13, 1998.Named Executive Officers, as follows:
FROM TO -------- --------Mr. Lester............................. $650,000 $679,200 Mr. Friedman........................... $450,000 $470,200 Mr. Chantland.......................... $400,000 $418,000 Mr. Connolly........................... $300,000 $313,500
Mr. Lester $ XXX Mr. Mueller $ 0 Ms. Alber $ XXX Mr. Boike $ XXX Mr. Connolly $ XXX Mr. Hilpert $ XXX How is long-term incentive compensation determined?
The
secondthird component of theCompany'scompany’s executive compensation programisconsists of annual stock option grants. We continue to believe that stock option grants are important for motivating executive officers (and other employees) to increase shareholder value over theProfit Incentive Plan, which rewards participants for extraordinary results based onlong term. Although we did not grant any stock options to any named executive officers (other than to Mr. Mueller upon his appointment as theannual financial performance of the Company. Based on the Company's performancecompany’s Chief Executive Officer) in fiscalyear 1997, the following bonus awards were2002, we concluded that stock options may be granted totheexecutiveofficers. These bonuses include a special one-time bonus of $100,000 eachofficers in fiscal 2003. We believe that stock option grants toMessrs. Friedman, Chantland and Connolly in recognition of their extraordinary efforts during fiscal year 1997.
BONUS AWARD -----------Mr. Lester....................................... $150,000 Mr. Friedman..................................... $100,000 Mr. Chantland.................................... $200,000 Mr. Connolly..................................... $200,000Stock 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 otherexecutive officers reflect competitive practicesfor Comparable Companiesat comparable companies and the company’s assessment oftheirindividual contributions.In 1998, Mr. Lester was granted options to purchase 100,000 shares, Mr. Chantland was granted options to purchase 230,000 shares, Mr. Friedman was granted options to purchase 230,000 shares, Mr. Connolly was granted options to purchase 100,000 shares and13
Under the
other executive officer was granted ancompany’s existing stock optionfor 20,000 shares in recognitionplans, the exercise price oftheir contributions during 1997 and to further link a significant portion of their compensation to shareholder returns. Allall stock optionswere granted with an exercise price equal tois not less than 100% of the fair market value ofone share of Common Stockthe stock on the date of thegrant. The Committee believesoption grant or not less than 110% for an incentive stock option granted to a shareholder with greater than 10% of the voting power of all company stock. Options granted pursuant to the company’s stock option plans generally vest in five equal annual installments. It is the company’s policy not to reprice stock options in the event that thekey officersfair market value of theCompany have provided excellent services and been diligent in their commitment to the Company. Although the Company'scommon stockprice did not necessarily reflect the quality of their efforts, the Committee believes that stock ownership by such officers provides an important incentive for their continued efforts and diligence. In order to ensure that options fulfilled their purpose of helping the Company attract and retain key employees, in October 1998 the Board of Directors and the Committee determined to lowerfalls below the exercise pricefor allof theCompany's outstandingstock optionsgranted between June 27, 1997andOctober 7, 1998 (exceptto not engage in a stock option exchange program.How is the Chief Executive Officer compensated?
Edward A. Mueller was hired as Chief Executive Officer effective January 13, 2003. We determined Mr. Mueller’s compensation package based, in part, on a review of the compensation paid to chief executive officers of comparable companies, the compensation packages we have historically paid to our chief executive officer and our general compensation philosophy as described above. Mr. Mueller’s package for 2002 includes salary of $975,000, a potential bonus, and the grant of a stock option to purchase 1,000,000 shares of our common stock under the Williams-Sonoma, Inc. 2001 Stock Option Plan. The bonus portion of Mr. Mueller’s compensation is based on a formula linked to the company’s earnings performance and Mr. Mueller’s individual performance.
Dale W. Hilpert served as Chief Executive Officer from April 2, 2001, through January 9, 2003. Mr. Hilpert earned an annual salary of $950,000 in fiscal 2002. Mr. Hilpert’s salary was based, in part, on a review of the compensation paid to chief executive officers of comparable companies, the compensation packages we have historically paid to our chief executive officer and our general compensation philosophy as described above. In accordance with the terms of Mr. Hilpert’s separation agreement with the company, the company (i) accelerated the vesting of 800,000 unvested stock options held by
Messrs. Chantland 1114Mr. Hilpert; (ii) released its repurchase right on 500,000 restricted shares of company common stock held by Mr. Hilpert; andFriedman) with an exercise price greater than $19.31(iii) agreed to$19.31,pay Mr. Hilpert his full bonus for theCompany's closing priceyear. Using a pre-determined formula linked to the company’s performance in fiscal 2002, we set Mr. Hilpert’s potential fiscal 2002 bonus at $XXX.How does the
time the action was taken. The Omnibus Budget and Reconciliation Act of 1993 amended Section 162(m) of theCompensation Committee address Internal Revenue CodeandSection 162(m)?Internal Revenue Code Section 162(m) could, depending on future compensation levels,
result in limits onlimit theCompany'scompany’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 ofperformance-based“performance-based” compensation. Based on19982002 compensation levels, no such limits on the deductibility of compensationappliedwere applicable for anyofficer of the Company. The Company hasofficer. We have not adopted a policy specifically prohibiting compensation at a level that would limit deductions. Whilethe Compensation Committeewe cannot predict how the deductibility limit may impactthe Company'sour compensation program in future years,the Compensation Committee intendswe intend to maintain an approach to executive compensationwhichthat strongly links pay to performance.TheBased on this approachshould preserveand with the intent of preserving the deductibility ofthe Company'sexecutive compensation,while maintaining highly motivational compensation programs which supportin 2001, we recommended, and theCompany business objectivesBoard andstrategiesshareholders approved, the Williams-Sonoma, Inc. 2001 Stock Option Plan andreinforcethecreationWilliams-Sonoma, Inc. 2001 Incentive Bonus Plan.Who Prepared this Report?
The Compensation Committee, comprised of
shareholder value. Respectfully submitted, James A. McMahanAdrian D.P. Bellamy,Janet Emerson John E. Martin MembersChairman of theCompensationCommittee,1215and Richard T. Robertson, prepared this report.14
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS OF THE COMPANY,This graph compares the cumulative total shareholder return for our common stock with those for the CRSP Index for the New York Stock Exchange and the CRSP Index for the NASDAQ Retail Trade Stocks, our peer index group. Our peer group includes over 150 companies. The cumulative total return listed below assumed an initial investment of $100 and reinvestment of dividends. The graph shows historical stock price performance (including reinvestment of dividends) and is not necessarily indicative of future performance.
Comparison of Five-Year Cumulative Total Returns of the Company,
CRSP*INDEX FOR THEIndex for the NYSESTOCK MARKETStock Market (U.S.COMPANIES), ANDCompanies) andCRSPINDEX FORIndex for NASDAQRETAIL TRADE STOCKSRetail Trade Stocks
2/1/98 1/31/99 1/30/00 1/28/01 2/3/02 2/2/03 Williams-Sonoma, Inc. 100.0 163.0 148.0 119.5 210.4 222.4 NYSE Stock Market 100.0 121.0 123.3 136.2 123.5 100.7 NASDAQ Retail Trade 100.0 122.0 97.8 71.6 89.6 72.9 Notes:
WILLIAMS-SONOMA, INC. NYSE STOCK MARKET NASDAQ RETAIL TRADE --------------------- ----------------- -------------------'1/30/94' 100.00 100.00 100.00 '1/29/95' 137.40 99.90 89.70 '1/28/96' 89.40 133.50 98.70 '2/2/97' 182.50 168.30 123.60 '2/1/98' 245.60 213.10 144.20 '1/31/99' 400.20 258.20 176.20A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. 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 2/1/98.
* Center for Research in Security Prices, The University of Chicago, Graduate School of Business. 15
AUDIT COMMITTEE REPORT
Who serves on the
previous trading day. C. IfAudit Committee?During the
monthly interval, basedentire fiscal 2002, Heather M. Reisman and Michael R. Lynch served on the Audit Committee. Edward A. Mueller served as Chairman of the Audit Committee from February 4, 2002 until his election as our Chief Executive Officer beginning January 13, 2003. Each member of the Audit Committee is (or was during his membership) independent under the rules of The New York Stock Exchange as currently in effect. Mr. Lynch was appointed Chairman of the Audit Committee, until the appointment of a successor chairman, as of February 10, 2003. Adrian D.P. Bellamy was appointed to the Audit Committee as of February 11, 2003.What is the role of the Audit Committee?
Our role is detailed in the Audit Committee Charter, which was amended and restated by our Board of Directors on April 2, 2003, and is attached to this Proxy Statement as Exhibit A. Specifically, we:
• Serve as an independent and objective party to monitor the company’s financial reporting process and internal control system; • Review and appraise the company’s independent auditors and internal audit department; and • Provide an open avenue of communication among the independent auditors, financial and senior management, the internal audit department, and the Board. How do we meet our responsibilities?
We perform the following functions:
• Monitor the integrity of the company’s financial reports and other company financial information; • Appoint and/or replace the independent auditors, pre-approve all audit and non-audit services of the independent auditors and assess their qualifications and independence; • Review the performance of the company’s internal audit function, the company’s auditing, accounting and financial reporting procedures and independent auditors; • Monitor the company’s compliance with legal and regulatory requirements; and • Retain independent legal, accounting or other advisors, when necessary and appropriate. How did we perform our responsibilities in fiscal
year-end,2002?During fiscal 2002, we did the following:
• Reviewed and discussed the company’s audited financial statements with management; • Reviewed and discussed the company’s periodic filings on Forms 10-K and 10-Q with management; • Reviewed and discussed all company earnings press releases, sales releases and guidance releases with management; • Met with Deloitte & Touche LLP, our independent auditors, with and without management present, to discuss the overall quality of the internal and external audit process and the financial reporting process; and • Confirmed Deloitte’s independence from the company and management based on the following: (i) no member of Deloitte’s audit team is or has been employed by the company in a financial reporting oversight role, and (ii) our review of audit and non-audit fees and the written disclosures and letter from Deloitte as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committee), as modified and supplemented. 16
What matters did we discuss with Deloitte?
During fiscal 2002, we discussed the following, among other things, with Deloitte:
• Deloitte’s responsibilities and matters relating to their independence; • Any significant issues arising during the audit and any other matters relating to the conduct of the audit of the company’s financial statements; and • Matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communications with Audit Committees), including the quality of the company’s accounting principles, the soundness of significant judgments and the clarity of disclosures in the company’s financial statements. What is our policy regarding pre-approval of audit and non-audit services performed by Deloitte?
All services, whether audit or non-audit services, performed by Deloitte must be pre-approved by us or a designated member of our committee, whose decisions must be reported to us at our next meeting. Pre-approval must be obtained before Deloitte performs the services but cannot be obtained more than a year before performance begins. Approval can be for general classes of permitted services such as “annual audit services” or “tax consulting services.” A written engagement letter, including a description of the permitted services, the dates of the engagement and the fees for such services, must be approved in accordance with these procedures before performance begins.
Did we review the fees paid to Deloitte for fiscal 2002?
Yes, we reviewed and discussed the fees paid to Deloitte during fiscal 2002 for audit and non-audit related services, which are described in detail below. We determined that the provision of non-audit services are compatible with Deloitte’s independence.
Did we review the company’s audited financial statements for fiscal 2002?
Yes and we recommended to the Board that the company’s audited financial statements be included in the company’s Annual Report on Form 10-K for fiscal 2002 for filing with the Securities and Exchange Commission.
Who prepared this report?
This report was prepared by members of the Audit Committee, during fiscal 2002, Michael R. Lynch, Heather M. Reisman and Edward A. Mueller (who served until he resigned from the Audit Committee upon his appointment as the company’s Chief Executive Officer beginning January 13, 2003).
AUDIT AND RELATED FEES
During fiscal 2002, Deloitte did not perform any prohibited non-audit services for the company, including financial and systems design and implementation.
Audit fees
Deloitte billed approximately (i) $448,000 during fiscal 2002 and (ii) $329,000 during fiscal 2001, for professional services to audit our consolidated financial statements included in our Annual Report on Form 10-K and to review the company’s condensed, consolidated financial statements included in our Quarterly Reports on Forms 10-Q.
Audit-related fees
Deloitte billed approximately (i) $212,000 during fiscal 2002 and (ii) $71,500 during fiscal 2001, for audit related services.
17
Tax fees
Deloitte billed approximately (i) $19,000 during fiscal 2002 and $73,600 during fiscal 2001, for tax compliance services; (ii) $0 during fiscal 2002 and fiscal 2001, for tax preparation services; (iii) $100,000 during fiscal 2002 and $438,000 during fiscal 2001, for tax consulting services; and (iv) $28,000 during fiscal 2002 and $0 during fiscal 2001, for tax software license fees.
All other fees
Deloitte billed approximately (i) $0 during fiscal 2002 and (ii) $201,400 during fiscal 2001, for non-audit services. In addition, Deloitte Consulting, a
trading day,subsidiary of Deloitte and Touche LLP, billed approximately $341,000 for fiscal 2001.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2002, we employed Kirk Lester as a financial analyst. Mr. Kirk Lester is the
preceding trading day is used. D. The index levelson of our Chairman Mr. W. Howard Lester. Mr. Kirk Lester earned $XX, and received standard employee benefits, forall series was set to $100.00 on 1/28/94. * Centerhis services during the year.Our operating leases include an operating lease entered into in July 1983 for
Research in Security Prices, The University of Chicago, Graduate School of Business. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's warehouse anda distributioncenter is locatedfacility in Memphis, Tennessee. Thewarehouse and distribution center consists of three separate facilities -- one for mail order operations, one for retail store 1316 operations and a third facility which processes non-conveyable merchandise-the first two of which are leased from two partnerships whose partners include directors, an 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. Thelessor is a general partnership (“Partnership 1”) comprised of W. Howard Lester, ChairmanChief Executive Officerof the Board and a significant shareholder ofthe Company,ours, and James A. McMahan, a director and significant shareholder ofthe Companyours. Partnership 1 does not have operations separate from leasing of this distribution facility to us andmember of the Compensation and Audit Committees. The partnershipdoes not have lease agreements with any unrelated third parties.Partnership 1 financed the construction of this distribution facility through the sale of
$6,300,000a total of $9,200,000 of Industrial Development Bonds in 1983 and 1985. Annual principalamount of industrial development bonds due June 2008.payments and monthly interest payments are required through maturity in December 2010. Thelease had an initial, non-cancelable term of ten years expiring on June 30, 1994, with two optional five-year renewalsPartnership 1 Industrial Development Bonds are collateralized by theCompany. In December 1985,distribution facility and thepartnership financedindividual partners guarantee theconstructionbond repayments. As ofan additional 190,000 square feetFebruary 2, 2003, $3,214,000 was outstanding under the Partnership 1 Industrial Development Bonds.The operating lease for this distribution facility requires us to pay annual rent 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,$618,000 plus interest on the bonds(a floatingcalculated at a variable rateequal to 55% of the prime rate of a designated bank)determined monthly (2.5% in February 2, 2003), applicable taxes, insurance and maintenance expenses.In connection withAlthough theDecember 1993 transaction, bothcurrent term of thepartnership andlease expires in August 2004, we are obligated to renew theCompany provided tooperating lease until these bonds are fully repaid.We have an
unaffiliated bank an indemnity against certain environmental liabilities. Retail Store Facility Inoperating lease entered into in August 1990the Company entered into a separate agreement to lease a secondfor another distributioncenter, consisting of approximately 307,000 square feet, adjacent to the existing distribution centerfacility in Memphis, Tennessee. The lessor is a general partnershipthat includes Messrs.(“Partnership 2”) comprised of W. Howard Lester, James A. McMahan andMcMahan. The partnershiptwo unrelated parties. Partnership 2 does not have operations separate from leasing this distribution facility to us and does not have lease agreements with any unrelated third parties.Partnership 2 financed the construction of
thethis distributioncenterfacility and related addition through the sale of$10,550,000 (bearinga total of $24,000,000 of Industrial Development Bonds in 1990 and 1994. Quarterly interestof 10.36%)and annual principalamount 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 expansionpayments are required througha $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 duematurity in August 2015. TheamendedPartnership 2 Industrial Development Bonds are collateralized by the distribution facility and require us to maintain certain financial covenants. As of February 2, 2003, $16,157,000 was outstanding under the Partnership 2 Industrial Development Bonds.The operating lease
has an initial, non-cancelable termfor this distribution facility requires us to pay annual rent of15 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 quarterapproximately $2,700,000, plus applicable taxes, insurance and maintenance expenses.Both facilities were constructed to the Company's specifications. After the option periods, the Company isThis operating lease has a term of 15 years expiring in August 2006, with three optional five-year renewal periods. We are, however, obligated to reneweachthe leaseannually so long asuntil the bondswhich financedare fully repaid.On March 4, 2002, our Board authorized management to obtain information, conduct negotiations, and enter into appropriate agreements with the
specific projects remain outstanding. The leases qualify as operating leases for accounting purposes. The Company believesintent to pursue potential acquisitions of the distribution facilities currently leased from Partnerships 1 and 2 prior to the end of fiscal 2002. In January 2003, management concluded that thefacility leases areacquisition of such distribution facilities would not be beneficial to us from both an operational and financial standpoint. Therefore, the distribution facilities were not acquired.18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and holders of more than 10% of our common stock to file reports regarding their ownership and changes in ownership of our stock with the U.S. Securities and Exchange Commission. Based on
terms notheir filings with the Securities and Exchange Commission and information provided to us by them, we believe that during fiscal 2002, our directors, officers and 10% shareholders complied with all Section 16(a) filing requirements, except that Mr. Mueller filed a Form 4 reporting the option grant in connection with his hiring one day late and Mr. Connolly reported a sale of 40,000 shares late.SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
This table sets forth information regarding the ownership of our common stock, as of March 31, 2003, by:
• each person known to us to own more than 5% of our outstanding common stock; • each director nominee; • each of our officers; and • all current executive officers and directors as a group. Unless otherwise noted, the persons listed below have sole voting and investment power. Unless otherwise noted, the address of each shareholder noted in the following table is c/o Williams-Sonoma, Inc., 3250 Van
19
Ness Avenue, San Francisco, CA 94109. Each director and executive officer furnished the information as to his or her ownership of common stock as of March 31, 2003.
Amount and Nature of Percent of Name and Address of Beneficial Owner Position with Company Beneficial Ownership Class(1) James A. McMahan Director XX (2) XX % 2237 Colby Avenue
Los Angeles, CA 90064W. Howard Lester Chairman XX (3) XX % American Express Financial Corporation — 8,492,192 (4) XX % 200 AXP Financial Center
Minneapolis, MN 55474Capital Group International, Inc. — 4,136,980 (5) XX % 11100 Santa Monica Boulevard
15th Floor
Los Angeles, CA 90025-3384Patrick J. Connolly Executive Vice President, XX (6) XX % Chief Marketing Officer, and Director Charles E. Williams Founder and XX X % Vice Chairman Dale W. Hilpert Former Chief Executive XX (7) X Officer Laura J. Alber President, XX (8) X Pottery Barn Brands James E. Boike Executive Vice President and XX (9) X Chief Operating Officer Adrian D.P. Bellamy Director XX (10) X Richard T. Robertson Director XX (11) X Edward A. Mueller Chief Executive Officer and XX (12) X Director Michael R. Lynch Director XX (13) X Heather M. Reisman Director XX (14) X All current executive officers and directors as a group (17 persons) — XX (15) XX % * Less than 1%.
(1) Assumes exercise of stock options beneficially owned by the named individual or entity into shares of the Company’s Common Stock. Based on XXX shares outstanding as of March 31, 2003. (2) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (3) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (4) The information above and in this footnote is based on share information taken from the Schedule 13G of American Express Financial Corporation, filed February 13, 2003. American Express Financial Corporation, a parent holding company and registered investment advisor, has shared dispositive power of 8,492,192 shares of common stock and shared voting power over 4,425,930 shares of common stock. (5) The information above and in this footnote is based on share information taken from the Schedule 13G of Capital Group International, Inc., filed February 11, 2003. Capital Group International, Inc., a parent holding company of a group of investment management companies, has sole dispositive power over 4,136,980 shares of common stock and sole voting power over 3,374,860 shares of common stock. (6) Includes (i) XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003, and (ii) XXX shares owned by a trust established for the benefit of Mr. Connolly’s children. 20
established for the benefit of Mr. Connolly’s children, in which shares Mr. Connolly disclaims any beneficial interest.
(7) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (8) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (9) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003.
(10) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (11) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (12) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003 and 4,400 shares held by Mr. Robertson’s spouse. (13) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (14) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (15) Includes XXX shares subject to nonqualified stock options, which are currently exercisable or exercisable within 60 days as of March 31, 2003. (16) Includes XXX shares subject to nonqualified stock options which are currently exercisable or exercisable within 60 days as of March 31, 2003. 21
SHAREHOLDER PROPOSALS
Shareholder proposals must comply with two sets of requirements. First, shareholder proposals must comply with our Restated Bylaws. Under our Restated Bylaws, a shareholder must give advance notice to our Secretary of any business, including nominations of candidates for our Board, that the shareholder wishes to bring before our Annual Meeting. To be timely, the notice must be received by our Secretary not less
favorablethan 45 days nor more than 75 days prior to the first anniversary of the date of the mailing of proxy materials for the preceding year’s Annual Meeting of shareholders. If the date of the Annual Meeting changes by more than 30 days from the anniversary of the preceding year’s Annual Meeting, notice by the shareholder must be delivered not later than theCompany could have obtained from third parties in arm's-length transactions. 1417 PROPOSAL 2 APPROVAL OF AMENDMENT AND RESTATEMENT OF ARTICLE IV OF THE ARTICLES OF INCORPORATION BACKGROUND On March 15, 1999,close of business on theBoard of Directors approved an amendment and restatement of Article IV ("Article IV")later of theCompany's Restated Articles90th day prior to such Annual Meeting and the 10th day following the day on which public announcement ofIncorporation (the "Article IV Amendment"), and directedtheArticle IV Amendmentdate of such meeting is first made by us. With respect tobe submitteda shareholder’s nomination of a candidate for our Board, the shareholder notice to theshareholders for their approval atSecretary must contain certain information as set forth in our Restated Bylaws about both theAnnual Meeting. DESCRIPTION OF THE PROPOSED ARTICLE IV AMENDMENT As currently in effect, Article IV requiresnominee and theapproval of two-thirds ofshareholder making theCompany's outstanding shares entitled to vote for the following actions: (a) a merger or consolidation of the Company or a subsidiary; (b) the sale or other disposition by the Company or a subsidiary of substantially all of the assets of the Company or a subsidiary; or (c) the adoption of any plan or proposal for dissolution or liquidation of the Company. By its terms, Article IV does not applynomination. With respect to any other business that the shareholder proposes, the shareholder notice must contain a brief description of suchtransaction solely betweenbusiness, theCompany and another corporation of which 50% or more of the outstanding shares entitled to vote are owned, directly or indirectly, by the Company. The effect of Article IV is to require a two-thirds supermajority approval of the Company's outstanding shares in instances where the California General Corporation Law (the "CGCL") requires either the approval of a lesser proportion of the Company's shares or no shareholder approval at all. Under the CGCL, the approval of a majority of the Company's outstanding shares entitled to vote is generally required to approve a merger or consolidation of the Company, the sale by the Company of substantially all of its assets, or the voluntary winding up and dissolution of the Company. The CGCL generally does not require the Company to obtain the approval of its shareholdersreasons forthe merger or consolidation of a subsidiary of the Company, or the sale by a subsidiary of substantially all of its assets. Article IV was adopted by the Company's Board of Directors and shareholders in 1984 as an anti-takeover or defensive measure against an unwanted or coercive attempt to acquire the Company. In particular, Article IV was designed to discourage in advance hostile tender offers by persons attempting to acquire, with a view towards a subsequentconducting such businesscombination, only that portion of the Company's stock necessary to obtain control and force the business combination. However, Article IV, may have the negative effect of delaying or impeding certain common corporate transactions that are unrelated to a hostile takeover of the Company. First, Article IV would require two-thirds supermajority approval of the Company's shareholders before any subsidiary, regardless of its size, could sell substantially all of its assets. However, Article IV would permit, without a shareholder vote, the sale by the Company of all of the stock of a subsidiary unless such subsidiary constituted substantially all of the Company's assets. Second, Article IV would require the Company to obtain the approval of two-thirds of its outstanding shares before the Company could make any acquisition, regardless of its size, via a "subsidiary merger," a commonly employed acquisition structure. (Under this structure, a newly-formed subsidiary of the acquiror merges with the target, with the shareholders of the target receiving cash and/or the acquiror's securities in the merger and the target becoming a wholly-owned subsidiary of the acquiror.) Absent Article IV, such a transaction would not ordinarily require approval of the Company's shareholders. New York Stock Exchange rules would require shareholder approval if, in such transaction, the Company was to issue enough of its stock to increase its outstanding shares or voting power by 1518 20%; however, the vote required would be a majority of the shares present and votingat the meeting,not two-thirds of the outstanding shares. The Board of Directors believes it is in the best interests of the Company and its shareholders to amend and restate Article IV to eliminate the negative effects discussed above. The Article IV Amendment would eliminate the requirement that the Company obtain the approval of two-thirds of its outstanding shares in the case of (i) the merger or consolidation of a subsidiary, or (ii) the sale oras well as certain otherdisposition of substantially all of the assets of a subsidiary where such assets do not constitute substantially all of the assets of the Company and its subsidiaries on a consolidated basis. Therefore, the Article IV Amendment will enhance management's ability to effect various corporate transactions involving a subsidiary of the Company by eliminating the need for a shareholder vote, except where such vote would otherwise be required under the CGCL or the rules of the New York Stock Exchange. As stated above, by its current terms Article IV excludes from its coverage transactions solely between the Company and another corporation of which 50% or more of the outstanding shares entitled to vote are owned, directly or indirectly, by the Company. The Article IV Amendment would also modify Article IV to exclude from Article IV's coverage transactions solely between the Company and one or more controlled entities or between two or more controlled entities, with "controlled entity" definedinformation asa legal entity of which 50% or more of the outstanding equity entitled to vote is owned, directly or indirectly, by the Company. The Board of Directors believes this modification is necessary to clarify the intent of the existing exclusion. Under the CGCL, if a California corporation with 100 or more shareholders of record files, on or after January 1, 1989, an amendment to its articles of incorporation containing a supermajority voting provision such as Article IV, then the supermajority voting provision ceases to be effective after two years unless readopted by the same shareholder vote specified in the supermajority voting provision. The Company does not believe that this readoption requirement would apply to Article IV if it is amended as described above, because Article IV was originally adopted prior to January 1, 1989. However, if Article IV is amended as described above, it is possible that a shareholder of the Company or a third party will assert that Article IV will need to be readopted every two years by the affirmative vote of at least two-thirds of the Company's outstanding shares entitled to vote or otherwise cease to be effective. The full text of Article IV, as amended and restated by the Article IV Amendment, isset forth inAppendix Aour Restated Bylaws.Secondly, pursuant to
thisRule 14a-8 under the Securities Exchange Act of 1934, shareholder proposals for our 2004 Annual Meeting must be received by our Secretary no later than December 17, 2003 since the ProxyStatement. REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS Under the terms of Article IV, the Article IV Amendment requires the affirmative vote of 66 2/3% of the outstanding shares of the Company's Common Stock. For purposes of calculating the votes for and against the proposal, abstentions and broker non-votes will be treated as votes against the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF ARTICLE IV. 1619 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 accountantsStatement for thefiscal year ending January 30, 2000, 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.2003 Annual Meeting was mailed on April 14, 2003. In the event thatthe selection of Deloitte & Touche as independent accountants for the fiscal year ending January 30, 2000, 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 matterswe elect tobe 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 2000hold our next Annual Meeting at a different time ofShareholders and included inyear than theCompany's proxy statement for such meetingtime of year of this Annual Meeting, shareholder proposals must be received by us within a reasonable time before our solicitation is made. Shareholder nominations of directors are not shareholder proposals within the meaning of Rule 14a-8 and are not eligible for inclusion in our proxy statement.If we do not have notice of a matter to come before the 2003 Annual Meeting by the earlier of March 15, 2003 or the date specified in the first paragraph of this section (or, in the event the next Annual Meeting is held at a different time of year as described in such paragraph, then by the date described in such paragraph), our proxy for such meeting will confer discretionary authority to vote for such matter.
Shareholder proposals should be sent to the Secretary,
of the Company atWilliams-Sonoma, Inc., 3250 Van Ness Avenue, San Francisco, California94109, on or before December 16, 1999.94109.AVAILABILITY OF REPORT ON FORM 10-K
A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORMcopy of our Annual Report on Form 10-K,FOR FISCAL YEAR 1998 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 Avenueincluding the financial statements and financial statement schedules, for fiscal 2002 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 San Francisco, California
94109 By OrderApril 14, 200322
EXHIBIT A
Williams-Sonoma, Inc.
Audit Committee Charter(as amended April 2, 2003)PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors
Dennis A. Chantland, Secretary San Francisco, California April 16, 1999 1720 APPENDIX A AMENDMENT AND RESTATEMENT OF ARTICLE IV OF THE COMPANY'S RESTATED ARTICLES OF INCORPORATION ARTICLE IV Notwithstanding that applicable law would otherwise permit actionin fulfilling its oversight responsibilities by: (1) monitoring the integrity of the financial reports and other financial information provided by Williams-Sonoma, Inc. (the “Company”) to any governing body or the public, (2) appointing and/or replacing the Company’s independent auditor and assessing the independent auditor’s qualifications and independence, (3) reviewing the performance of the Company’s internal audit function and independent auditors, and the Company’s auditing, accounting, and financial reporting processes in general, and (4) monitoring the Company’s compliance with legal and regulatory requirements.Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to, the Company’s policies, procedures, and practices at all levels. The Audit Committee’s primary duties and responsibilities are to:
• Serve as an independent and objective party to monitor the Company’s financial reporting process and internal control system. • Review and appraise the audit efforts of the Company’s independent auditor and internal audit department, including obtaining and reviewing a report from the Company’s independent auditor at least annually regarding the adequacy of internal controls, among other things. • Provide an open avenue of communication among the independent auditors, financial and senior management, the internal audit department, and the Board of Directors. The Audit Committee shall prepare the report required by the rules of the Securities and Exchange Commission (the “Commission”) to be
taken withincluded in theapprovalCompany’s annual proxy statement.FORMATION
The Board of
a lesser percentage, eachDirectors of Williams-Sonoma, Inc. has established the Audit Committee pursuant to Section 311 of thefollowing actionsGeneral Corporation Law of the State of California and Article III of the Company’s Restated Bylaws.COMPOSITION
The Audit Committee shall
require the affirmative votebe comprised of not less thantwo-thirdsthree independent members of theoutstanding sharesCompany’s Board of Directors. Subject to the foregoing, the exact number of members of the Audit Committee shall be fixed and may be changed from time to time by resolution duly adopted by the Board of Directors. Audit Committee members shall not simultaneously serve on the audit committees of more than two other public companies. The members of the Audit Committee shall be appointed by the Board on the recommendation of the Nominations and Corporate Governance Committee. Audit Committee members may be replaced by the Board.The members of the Audit Committee shall meet the independence and experience requirements of the New York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations of the Commission. At least one member of the Audit Committee shall be an “audit committee financial expert” as defined by the Commission; provided, however, that it shall be sufficient for at least one member of the Audit Committee to have equivalent expertise, as determined by the Board, if permitted by the New York Stock Exchange Listing Standards.
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The members of the Audit Committee shall be elected by the Board of Directors until their successors shall be duly elected and qualified. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint or replace the independent auditor (subject, if applicable, to shareholder ratification). The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Audit Committee.
The Audit Committee shall preapprove all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act, which services are approved by the Audit Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant preapprovals shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and reassess the adequacy of this
corporation entitledCharter annually and recommend any proposed changes tovote: (a) a mergerthe Board for approval. The Audit Committee shall annually review the Audit Committee’s own performance.In addition to the responsibilities outlined elsewhere in this Charter, the Audit Committee shall perform such other specific functions as the Company’s Board of Directors may from time to time direct, and make such investigations and reviews of the Company and its operations as the Chief Executive Officer or
consolidationthe Board ofthis corporation; (b)Directors may from time to time request.The Audit Committee, to the
saleextent it deems necessary or appropriate, shall:Financial Statement and Disclosure Matters
Review and discuss with management and the independent auditor the annual audited financial statements, including disclosures made in management’s discussion and analysis, and recommend to the Board whether the audited financial statements and management’s discussion and analysis should be included in the Company’s Form 10-K.
Review and discuss with management and the independent auditor the Company’s quarterly financial statements prior to the filing of its Form 10-Q, including the results of the independent auditor’s review of the quarterly financial statements.
Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls and any special steps adopted in light of significant deficiencies in internal controls.
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Review and discuss quarterly reports from the independent auditors on:
All critical accounting policies and practices to be used. All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor. Other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences. Discuss with management the Company’s earnings press releases, including the proposed use of any “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be made).
Discuss with management and the independent auditor the effect on the Company’s financial statements of regulatory and accounting initiatives as well as off-balance sheet arrangements, contractual obligations and contingent liabilities and commitments.
Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.
Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
Review disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other
disposition by this corporation oremployees who have asubsidiary of assets that constitute substantially allsignificant role in the Company’s internal controls.Oversight of the
assetsCompany’s Relationship with the Independent AuditorReview and evaluate the lead partner of
this corporationthe independent auditor team.Obtain and review a report from the independent auditor at least annually regarding (a) the independent auditor’s internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the independent auditor and the Company. Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, and taking into account the opinions of management and internal auditors. The Audit Committee shall present its conclusions with respect to the independent auditor to the Board.
Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.
Recommend to the Board policies for the Company’s hiring of employees or former employees of the independent auditor who participated in any capacity in the audit of the Company.
Consider discussing with the national office of the independent auditor material issues on which they were consulted by the Company’s audit team and matters of audit quality and consistency.
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Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
Oversight of the Company’s Internal Audit Function
Review the appointment and replacement of the senior internal auditing executive.
Review the significant reports to management prepared by the internal auditing department and management’s responses and subsequent follow-up on the responses.
Discuss with the independent auditor and management the internal audit department responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit.
Oversight of the Company’s Information Technology Systems to Support the Company’s Internal Controls
Discuss with the senior information technology executive and the Company’s Chief Financial Officer and Chief Accounting Officer at least once each year the sufficiency of company systems to support effective internal controls and any recommended changes in the information technology department’s priorities and projects planned for improving such systems.
Review reports to management, if any, prepared by the Company’s information technology department relating to systems’ integrity and security, and subsequent follow-up on the responses.
Compliance Oversight Responsibilities
Obtain from the independent auditor assurance that Section 10A(b) of the Exchange Act (relating to audit discoveries of illegal acts) has not applied.
Obtain reports from management, the Company’s senior internal auditing executive and the independent auditor that the Company and its
subsidiariessubsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Business Conduct and Ethics. Review reports and disclosures of insider and affiliated party transactions. Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Business Conduct and Ethics.Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
Discuss with management and the independent auditor any correspondence with regulators or governmental agencies and any published reports which raise material issues regarding the Company’s financial statements or accounting policies.
Discuss with the Company’s General Counsel legal matters that may have a material impact on
a consolidated basis;the financial statements or(c)theadoptionCompany’s compliance policies.Limitation of
anyAudit Committee’s RoleWhile the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or
proposal for dissolutionconduct audits orliquidationto determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities ofthis corporation; provided thatmanagement and the independent auditor.26
MEETINGS
A. The Audit Committee shall keep regular minutes of its meetings. Meetings and actions of the Audit Committee shall be governed by, and held and taken in accordance with, the provisions of
thisArticleIV shall not apply to any such transaction solely between this corporation and one or more Controlled Entities or between two or more Controlled Entities. "Controlled Entity" means a legal entity of which 50% or moreIII, Section 3.9 of theoutstanding equity entitled to vote is owned, directly or indirectly, by this corporation. Notwithstanding any other provision of theseCompany’s RestatedArticles of Incorporation or the Bylaws of this corporation and notwithstanding that a lesser percentage may be specified by law, these Restated Articles of Incorporation or the Bylaws of this corporation, the affirmative vote ofBylaws.B. The Audit Committee shall meet as often as it determines, but not less frequently than
two-thirds offour times per year.C. The Audit Committee shall meet at least annually with management, the
outstanding shares of this corporation entitled to vote shall be required to amendinternal auditors, and the independent auditors in separate executive sessions. The Audit Committee may request any officer orrepeal, or adopt any provision inconsistent with this Article IV. 1821 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 Stockemployee of the Companyheld of record byor theundersigned on March 30, 1999, at the 1999 Annual Meeting of ShareholdersCompany’s outside counsel or independent auditor to attend a meeting of theCompany,Audit Committee or tobe held on Wednesday, May 26, 1999 at 10:00 a.m. (Pacific Daylight Time) at 3250 Van Ness Avenue, San Francisco, California 94109, andmeet with anyadjournmentsmembers of, orpostponements thereof. The Proxy when properly signed will be voted inconsultants to, themanner 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-22
Please mark your votes as indicated in /X/ this example. The Board of Directors recommends a vote "FOR" Items 1, 2 and 3. FOR AGAINST ABSTAIN 1. ELECTION OF DIRECTORS FOR the election as WITHHOLD 2. Proposal to approve the amendment and / / / / / / directors of all nomi- AUTHORITY restatement of Article IV of the nees listed (except as to vote for all Articles of Incorporation. marked to the contrary). nominees listed. FOR AGAINST ABSTAIN / / / / 3. Proposed to ratify the selection of / / / / / / Deloitte & Touche LLP as independent accountants for the 1999 fiscal year. (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through that 4. In their discretion, the Proxyholders are authorized to vote nominee's name in the list below): upon such other business as may properly come before this meeting, or any adjournments or postponements thereof. 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 NOTE: 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 Prince Name(s) Signature(s)____________________________________________________________________________________________ Date ____________, 1999 Please sign exactly as your name or names on this proxy and return it promptly in the enclosed envelope. - --------------------------------------------------------------------------------------------------------------------------------- - FOLD AND DETACH HERE-
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