Restoration Hardware 2012 Annual Report Download - page 162

The Company recorded management fees of $3.9 million in selling, general and administrative expenses in
fiscal 2010 and such management fees were paid by the Company as of January 29, 2011.
Executive Loans with Home Holdings
In December 2008, Mr. Friedman entered into a $1.0 million loan with Home Holdings in connection with
the purchase of a 0.3% ownership interest in Home Holdings. The full recourse loan initially bore interest at a
rate of 8.0% per annum. If the interest was not paid in cash on December 31 of each year, such interest was
deemed paid by capitalization and added to the principal amount of the loan. Principal and accrued interest was
due the earlier of December 31, 2018, upon the sale of the Company or upon Mr. Friedman’s termination of
employment. In May 2010, the loan was amended and restated to, among other things, reduce the interest rate to
5.0% per annum, as of the date of the original $1.0 million loan received in December 2008, modify the maturity
date to December 31, 2015, and provide for an additional $5.0 million loan from Home Holdings in connection
with the purchase of an additional 1.7% ownership interest in Home Holdings.
In September 2011, Mr. Friedman repaid the loans owed to Home Holdings, together with accrued interest
thereon, through the reclassification by Home Holdings of Mr. Friedman’s pre-Reorganization Class A units and
Class A-1 units in Home Holdings into an equal number of pre-Reorganization Class A Prime units and Class A-
1 Prime units in Home Holdings, respectively. The Class A Prime units and Class A-1 Prime units, which are not
subject to any future vesting, do not entitle Mr. Friedman to distributions from Home Holdings until after certain
amounts have been distributed to the holders of Class A units, commensurate with the amount of all previously
outstanding principal and interest on the loans. On the date of such repayment, the total principal amount of the
loans, including all accrued interest thereon, was $6,559,877. No prior payments of principal or interest were
made by Mr. Friedman under the loan agreements. The Company completed a valuation analysis regarding the
reclassification of units which resulted in a $6.4 million compensation charge included in selling, general and
administrative expenses on the consolidated statements of operations for fiscal 2011 and reflected as a capital
contribution from Home Holdings through additional paid-in capital. Such compensation charge was calculated
as the total principal amount of the loans, including all accrued interest thereon, as of the repayment date, less the
difference in fair value of the Class A units and Class A-1 units in Home Holdings as compared to the Class A
Prime units and Class A-1 Prime units in Home Holdings.
In May 2010, Mr. Alberini, the Company’s Chief Executive Officer, entered into a $4.0 million loan with
Home Holdings in connection with the purchase of a 1.4% ownership interest in Home Holdings bearing interest
at the rate of 5.0% per annum with a maturity date of ninety days from the original date of such note. The loan to
Mr. Alberini was repaid in full on August 25, 2010.
In April 2011, Ken Dunaj, the Company’s Chief Operating Officer, entered into a $600,000 loan with Home
Holdings. The full recourse loan bears interest at 5.0% per annum and is secured by Mr. Dunaj’s Team
Restoration Ownership Plan units. The loan, together will all interest accrued but unpaid, is due and payable on
the first to occur of (i) December 31, 2015, (ii) ninety days following termination of employment, (iii) the date of
any sale of the Company, (iv) the date of an initial public offering, (v) the date of any acceleration that might
occur as a result of a defined default under the note, or (vi) demand for repayment by Home Holdings.
In September 2011, Mr. Dunaj repaid the loan owed to Home Holdings, together with accrued interest
thereon, through the reclassification by Home Holdings of Mr. Dunaj’s pre-Reorganization Class B units issued
under the Team Resto Ownership Plan into an equal number of pre-Reorganization Class B Prime units under the
Team Resto Ownership Plan. The Class B Prime units are entitled to a lower distribution amount than Class B
units, commensurate with the amount of all previously outstanding principal and interest on the loan. On the date
of such repayment, the total principal amount of the loan, including all accrued interest thereon, was $620,712.
No prior payments of principal or interest were made by Mr. Dunaj under the loan agreement. On the date of
such repayment, Mr. Dunaj surrendered 300,000 of his unvested Class B performance units under the Team
Resto Ownership Plan. The Company undertook a valuation analysis regarding the reclassification of units which
resulted in no compensation charge recorded in connection with the reclassification in the Company’s
consolidated financial statements for fiscal 2011 as it relates to vested awards and over the remaining vesting
periods for currently unvested awards.
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