Pottery Barn 2007 Annual Report Download - page 111

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occurs. We currently recognize and will continue to recognize compensation expense relating to the eligible
awards over the vesting period of the restricted stock units, even though they are underwater and do not fully
provide the intended incentive and retention benefits to our employees.
Any incremental compensation expense resulting from fluctuations in our stock price during the period of the
exchange program that are related to the restricted stock units will be recognized ratably over the vesting period
of the restricted stock units. In the event that any of the restricted stock units are forfeited prior to their vesting
due to termination of employment, the compensation expense for the forfeited restricted stock units will not be
recognized.
How many eligible awards will be exchanged and how many restricted stock units will be granted in the
exchange program?
Because the decision whether to participate in the exchange program is completely voluntary, we are not able to
predict which or how many employees will elect to participate, how many eligible awards will be surrendered for
exchange, and therefore how many restricted stock units may be issued. As indicated above, the members of our
Board of Directors and our named executive officers as of the start of the exchange program are not eligible to
participate in the exchange program.
What is the impact of the exchange program on the company’s shareholders?
Although we are unable to predict the precise impact of the exchange program on our shareholders because we
are unable to predict how many or which employees will exchange their eligible awards, we have designed the
proposed exchange program in a manner intended to ensure that the value of the restricted stock units granted in
the exchange program is approximately equal to or less than the value of the eligible awards surrendered. The
exchange program is intended to restore competitive and appropriate equity incentives for our employees, reduce
our existing overhang and recapture value for compensation expense already being incurred.
What vote is required to approve this proposal?
To approve this proposal, a majority of the shares represented and voting at the Annual Meeting and a majority
of the quorum required to transact business at the Annual Meeting must vote “FOR” this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE
APPROVAL OF THE EQUITY AWARD EXCHANGE PROGRAM.
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