Pottery Barn 2009 Annual Report Download - page 160

members and affiliates, are not permitted to enter into a related party transaction with us unless (i) the transaction
is approved or ratified by our Audit and Finance Committee or the disinterested members of our Board or (ii) the
transaction involves the service of one of our executive officers or directors or any related compensation, is
reportable under Item 402 of Regulation S-K and is approved by our Compensation Committee.
For the purposes of our related party transaction policy, “related party transaction” means any transaction in
which the amount involved exceeds $120,000 in any calendar year and in which any of our executive officers,
directors, director nominees and principal shareholders, as well as their immediate family members and affiliates,
had, has or will have a direct or indirect material interest, other than transactions available to all of our
employees.
It is our policy to approve related party transactions only when it has been determined that such transaction is in,
or is not inconsistent with, our best interests and those of our shareholders, including situations where we may
obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from
alternative sources or when the transaction is on terms comparable to those that could be obtained in arm’s length
dealings with an unrelated third party.
Memphis-based Distribution Facilities
Our Memphis-based distribution facilities include an operating lease entered into in July 1983 for a distribution
facility in Memphis, Tennessee. The lessor is a general partnership (“Partnership 1”) comprised of W. Howard
Lester, our Chairman of the Board of Directors and Chief Executive Officer, and James A. McMahan, a Director
Emeritus and a significant shareholder. Partnership 1 does not have operations separate from the leasing of this
distribution facility and does not have lease agreements with any unrelated third parties.
Partnership 1 financed the construction of this distribution facility through the sale of a total of $9,200,000 of
industrial development bonds in 1983 and 1985. Annual principal payments and monthly interest payments are
required through maturity in December 2010. The Partnership 1 industrial development bonds are collateralized
by the distribution facility and the individual partners guarantee the bond repayments. As of January 31, 2010,
$175,000 was outstanding under the Partnership 1 industrial development bonds.
We made annual rental payments in fiscal 2009, fiscal 2008 and fiscal 2007 of approximately $618,000, plus
interest on the bonds calculated at a variable rate determined monthly (approximately 1.8% as of January 31,
2010), applicable taxes, insurance and maintenance expenses. The term of the lease automatically renews on an
annual basis until the bonds are fully repaid in December 2010, at which time we intend to enter into a new short-
term lease agreement on this facility.
Our other Memphis-based distribution facility includes an operating lease entered into in August 1990 for
another distribution facility that is adjoined to the Partnership 1 facility in Memphis, Tennessee. The lessor is a
general partnership (“Partnership 2”) comprised of W. Howard Lester, James A. McMahan and two unrelated
parties. Partnership 2 does not have operations separate from the leasing of this distribution facility and does not
have lease agreements with any unrelated third parties.
Partnership 2 financed the construction of this distribution facility and related addition through the sale of a total
of $24,000,000 of industrial development bonds in 1990 and 1994. Quarterly interest and annual principal
payments are required through maturity in August 2015. The Partnership 2 industrial development bonds are
collateralized by the distribution facility and require us to maintain certain financial covenants. As of January 31,
2010, $9,625,000 was outstanding under the Partnership 2 industrial development bonds.
We made annual rental payments of approximately $2,582,000, $2,577,000 and $2,591,000 plus applicable taxes,
insurance and maintenance expenses in fiscal 2009, fiscal 2008 and fiscal 2007, respectively. The term of the
lease automatically renews on an annual basis until these bonds are fully repaid in August 2015.
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