Pottery Barn 2007 Annual Report Download - page 108

Although the exchange ratios cannot be determined now, we can provide an example if we make certain
assumptions regarding the start date of the offer, the fair value of the eligible awards, and the fair market value of
our common stock. For example, if we began the exchange program on December 10, 2008, which would allow
us to include in the exchange program a substantial percentage of our outstanding underwater awards, our then-
applicable 52-week high would be $30.51 (assuming our stock price does not rise above that price between now
and December 10, 2008). As a result, only options and SSARs with an exercise price above $30.51 per share and
that were granted at least 20 months prior to the anticipated end of the exchange program would be eligible for
the exchange program. If, at the time we set the exchange ratios, the fair market value of our common stock was
$26.50 per share, then based on the above method of determining the exchange ratio, the following exchange
ratios would apply:
If the Exercise Price of an Eligible Award is:
The Exchange Ratio Would Be
(Eligible Awards to Restricted Stock Units):
$30.52 - $33.06 5.1-to-1
$33.07 - $34.88 5.3-to-1
$34.89 - $35.58 4.3-to-1
$35.59 - $38.83 4.8-to-1
$38.84 - $39.76 4.1-to-1
$39.77 - $41.07 4.3-to-1
Above $41.07 4.6-to-1
The total number of restricted stock units a participating employee will receive with respect to a surrendered
eligible award will be determined by converting the number of shares underlying the surrendered award
according to the applicable exchange ratio and rounding down to the nearest whole share. The exchange ratios
will be applied on a grant-by-grant basis.
For purposes of example only, if a participant exchanged an eligible award of 480 shares subject to an option
with an exercise price of $35.69 per share and the exchange ratio was 1 restricted stock unit for every 4.8 shares,
he or she would receive 100 restricted stock units in exchange for the surrendered eligible award (480 divided by
4.8). If the participant also exchanged another eligible award of 820 shares subject to an option with an exercise
price of $39.05 per share and the exchange ratio was 1 restricted stock unit for every 4.1 shares, he or she would
receive 200 restricted stock units in exchange for the surrendered eligible award (820 divided by 4.1).
Continuing this example, if we assume that all currently eligible options and SSARs remain outstanding and the
award holders remain eligible to participate, the following table summarizes information regarding the eligible
awards and the restricted stock units that would be granted in the exchange:
Exercise Prices of Eligible Awards
Number of
Shares
Underlying
Eligible Awards
Weighted
Average
Exercise Price
of Eligible
Awards
Weighted Average
Remaining Life of
Eligible Awards
(Years) Exchange Ratio
Maximum
Number of New
Restricted
Stock Units
That May Be
Granted
$30.52 - $33.06 ............. 532,085 $32.18 5.35 5.1-to-1 104,330
$33.07 - $34.88 ............. 142,350 $33.65 7.51 5.3-to-1 26,858
$34.89 - $35.58 ............. 1,110,050 $34.89 8.27 4.3-to-1 258,151
$35.59 - $38.83 ............. 121,100 $36.36 6.02 4.8-to-1 25,229
$38.84 - $39.76 ............. 709,400 $38.85 6.49 4.1-to-1 173,024
$39.77 - $41.07 ............. 736,670 $40.41 7.25 4.3-to-1 171,318
Above $41.07 ............. 174,350 $42.72 6.82 4.6-to-1 37,902
Total ................. 3,526,005 796,812
After the exchange as presented in this example (assuming all eligible awards are tendered and without including
any grants after March 31, 2008), there will be 7,790,449 shares available for grant, 6,056,639 options and
SSARs outstanding and 1,668,612 full value awards outstanding. These outstanding options and SSARs would
have a weighted average exercise price of $22.47 and a weighted average remaining term of 5.07.
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