Pottery Barn 2007 Annual Report Download - page 104

What are the material terms of the exchange program?
The material terms of the exchange program include eligibility, the exchange ratios to be applied to eligible
awards and the vesting schedule to apply to restricted stock units issued pursuant to the exchange program. These
terms are summarized in the following questions and answers, and described in further detail below.
Who will be eligible to participate in the exchange program?
If approved by the shareholders, the exchange program will be open to all United States-based employees, except
as described below, who are employed by us as of the start of the exchange program and remain employees
through the date the exchange program ends. Certain additional eligibility criteria are discussed further below.
Who will not be eligible to participate in the exchange program?
The members of our Board of Directors and our named executive officers as of the start of the exchange program
will not be eligible to participate in the exchange program. In addition, employees based outside of the United
States will not be eligible to participate in the exchange program.
How will the exchange ratios be determined?
As described in further detail below, the exchange ratios of shares subject to eligible awards surrendered to
restricted stock units issued will be determined in a manner intended to result in the issuance of restricted stock
units that have a fair value approximately equal to, or less than, the fair value of the eligible awards they replace.
The exchange ratios will be established shortly before the start of the exchange program and will depend on the
original exercise price of the eligible award and the then current fair value of the award (calculated using a
Black-Scholes model), as described further below. The exchange program will not be a one-for-one exchange.
Instead, the participants will receive restricted stock units covering a lesser number of shares than are covered by
the exchanged eligible awards. The exchange ratios will be established by grouping together eligible awards with
similar exercise prices and assigning an appropriate exchange ratio to each grouping.
How will the restricted stock units vest?
Each restricted stock unit issued in the exchange program will represent a right to receive one share of our
common stock on a specified future date if the restricted stock unit vests during the participant’s continued
employment. None of the restricted stock units will be vested on the date of grant. The restricted stock units will
be subject to a new vesting schedule, determined on a grant-by-grant basis, based on the vesting schedule of the
eligible awards that the restricted stock units replace. As described in further detail below, the restricted stock
units will be scheduled to vest on an annual basis and will vest ratably over the remaining vesting schedule
(rounded up to the next full year) of the exchanged award. No restricted stock units will be scheduled to vest
earlier than one-year from their date of grant, and no restricted stock units will be scheduled to vest earlier than
the vesting dates of the exchanged awards. The annual vesting date will be the anniversary of the date of grant of
the restricted stock units.
When will the exchange program begin?
If approved by shareholders, the exchange program will begin within 12 months of the date shareholders approve
the program. Within this timeframe, the actual start date will be determined by the company. However, even if
the shareholders approve the proposal, the company may later determine not to implement the exchange
program. If the exchange program does not commence within 12 months of shareholder approval, the company
will consider any exchange program to be a new one, requiring new shareholder approval.
14