Restoration Hardware 2012 Annual Report Download - page 158

The fair value of each performance-based unit granted in fiscal 2011 was estimated on the date of grant
using a Monte Carlo method with the following weighted-average assumptions:
Expected volatility 56%
Expected life (years) 0.8
Risk-free interest rate 0.21%
Dividend yield —
The Company recognizes expense associated with the units when it becomes probable that the performance
condition will be met. Once it becomes probable that a participant will vest, the Company recognizes
compensation expense equal to the number of shares which have vested multiplied by the fair value of the related
shares measured at the grant date. In connection with its initial public offering, the Company recorded $0.8
million related to the vested performance-based units, which is included in selling, general and administrative
expenses on the consolidated statements of operations.
2012 Equity Replacement Plan
In connection with the Reorganization, the Board of Directors adopted the Restoration Hardware 2012
Equity Replacement Plan (the “Replacement Plan”), and outstanding units under the Team Resto Ownership Plan
were replaced with vested and unvested shares of common stock under the Replacement Plan, in some cases
subject to selling restrictions.
A portion of the shares issued under the Replacement Plan, which are fully vested, are subject to resale
restrictions whereby the holder may not sell the shares until the earlier of 20 years after the initial public offering,
or: (i) with respect to 818,209 of these shares, such resale restrictions will lapse over time in accordance with the
dates set forth in the applicable award agreement, and (ii) with respect to 1,523,041 of these shares, such resale
restrictions will lapse on the date after the initial public offering on which the price of the Company’s common
stock reaches a 10-day average closing price per share of $46.50 for at least 10 consecutive trading days.
The Company recorded a non-cash compensation charge at the Reorganization of $39.1 million related to
the awards granted under the Replacement Plan which is included in selling, general and administrative expenses
on the consolidated statements of operations.
A portion of the shares issued under the Replacement Plan are unvested restricted shares issued to
Carlos Alberini, the Company’s Chief Executive Officer, and Gary Friedman, who serves as the Company’s
Creator and Curator, in replacement of certain of their performance-based units granted under the Team Resto
Ownership Plan. With respect to the 1,331,548 shares received by Mr. Alberini and Mr. Friedman in replacement
of certain of their performance-based units, such shares begin to vest during the 36-month period following the
initial public offering when the price of the Company’s common stock reaches a 10-day average closing price per
share of $31.00 for at least 10 consecutive trading days, and such shares shall fully vest when the price of the
Company’s common stock reaches a 10-day average closing price per share of $46.50 for at least 10 consecutive
trading days (with proportional vesting in between). In addition, with respect to the 512,580 shares received by
Mr. Alberini and Mr. Friedman in replacement of certain of their performance-based units, such shares shall
begin to vest during the 36-month period following the initial public offering when the 10-day average closing
price of the Company’s common stock exceeds the initial public offering price of $24.00 per share for at least 10
consecutive trading days, and such shares shall fully vest when the 10-day average closing price of the
Company’s common stock reaches a price per share of $31.00 for at least 10 consecutive trading days (with
proportional vesting in between) during the period.
In connection with Mr. Friedman’s resignation and new role as the Creator and Curator, 1,185,511 shares of
unvested stock he received in replacement of certain performance-based units will be marked to market every
period until the required vesting criteria are met in accordance with Financial Accounting Standards Board
Accounting Standards Codification Topic 718.
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