Pottery Barn 2010 Annual Report Download - page 183

collateralized by the distribution facility and require us to maintain certain financial covenants. As of January 30,
2011, $8,338,000 was outstanding under the Partnership 2 industrial development bonds.
We made annual rental payments of approximately $2,567,000, $2,582,000 and $2,577,000 plus applicable taxes,
insurance and maintenance expenses in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The term of the
lease automatically renews on an annual basis until these bonds are fully repaid in August 2015.
Prior to December 2010, the two partnerships described above qualified as variable interest entities and were
consolidated by us due to their related party relationship and our obligation to renew the leases until the bonds
were fully repaid. As of December 2010, however, the bonds on the distribution center leased from Partnership 1
were fully repaid and, accordingly, this facility is no longer consolidated by us. As such, as of January 30, 2011,
our consolidated balance sheet includes $12,414,000 in assets (primarily buildings), $8,338,000 in debt and
$4,076,000 in other long-term liabilities related solely to the consolidation of the Partnership 2 distribution
facility.
Corporate Aircraft Transactions
On May 16, 2008, we entered into an Aircraft Lease Agreement (the “Lease Agreement”) with a limited liability
company (the “LLC”) owned by W. Howard Lester, our former Chief Executive Officer and Chairman of the
Board of Directors, for use of a Bombardier Global 5000 owned by the LLC. This transaction was approved by
our Board of Directors.
Under the terms of the Lease Agreement, in exchange for use of the aircraft, we will pay the LLC $375,000 for
each of the 36 months of the lease term through May 15, 2011. We are also responsible for all use-related costs
associated with the aircraft, including fixed costs such as crew salaries and benefits, insurance and hangar costs,
and all direct operating costs. Closing costs associated with the Lease Agreement were divided evenly between
us and the LLC, and each party paid its own attorney and advisor fees. During fiscal 2010, fiscal 2009 and fiscal
2008, we paid a total of $4,500,000, $4,500,000 and $3,185,000 to the LLC, respectively.
In conjunction with the Retirement and Consulting Agreement entered into between us and Mr. Lester on
January 25, 2010, the aircraft agreement will continue pursuant to its terms through May 2011. Additionally,
Mr. Lester, under the agreement, agreed to give us an option to purchase this aircraft at the expiration of the lease
term for $32,000,000. On January 3, 2011, we provided notice under the agreement of our intent to exercise the
option to purchase the aircraft at the end of the lease term. However, on or prior to the end of the lease term, we
expect to instead enter into an agreement to lease the aircraft from a third party on terms no less favorable than
those in the current lease.
Indemnification Agreements
We have indemnification agreements with our directors and executive officers. These agreements, among other
things, require us to indemnify each director and executive officer to the fullest extent permitted by California
law, including coverage of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by
the director or executive officer in any action or proceeding, including any action or proceeding by or in right of
us, arising out of the person’s services as a director or executive officer.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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 SEC. Based upon (i) copies of Section 16(a) reports that we received from such
persons for their fiscal 2010 transactions and (ii) information provided to us by them, we believe that all
reporting requirements under Section 16(a) were met in a timely manner by the persons who were executive
officers, members of the Board of Directors or greater than 10% shareholders during such fiscal year, except a
late Form 3 was filed for Richard Harvey and a late Form 4 was filed for each of Richard Harvey and Seth Jaffe.
87
Proxy