Restoration Hardware 2012 Annual Report Download - page 46

• the creation of any committees of the board or the board of any of our subsidiaries, or delegation of
authority to a committee, except as set forth in committee charters adopted;
• certain actions in respect of liquidation, dissolution or bankruptcy; and
• the entering into of any agreement to do any of the foregoing.
Management Services Agreement
Restoration Hardware, Inc. and Home Holdings entered into a management services agreement as of
June 17, 2008, with Catterton Management Company, LLC, Tower Three Partners LLC and GJK Capital
Advisors, LLC, which agreement was terminated in connection with our initial public offering. Under the
management services agreement, Catterton Management Company, LLC, Tower Three Partners LLC and GJK
Capital Advisors, LLC provided management and advisory service to Restoration Hardware, Inc. and its
affiliates, including general management consulting services, support and analysis with respect to financing
alternatives and strategic planning functions. The aggregate fees paid to Catterton Management Company, LLC
under the agreement were $5.12 million for fiscal 2012; the fees paid to Tower Three Partners LLC under the
agreement were $4.83 million for fiscal 2012; and the fees paid to GJK Capital Advisors, LLC were
$0.94 million for fiscal 2012. The fees paid under the management services agreement in fiscal 2012 were paid
by Restoration Hardware, Inc.
Arrangements with Hierarchy
In connection with the initial public offering, Home Holdings agreed to invest $5 million, consisting of
$2.5 million in an initial tranche and up to $2.5 million in one or more additional tranches, directly or indirectly,
in a newly formed entity named Hierarchy, LLC (“Hierarchy”). If requested by Home Holdings and agreed to by
us, we may make the subsequent investments. Following this $5 million investment, Home Holdings will
indirectly hold approximately a 20% voting interest in Hierarchy. Gary Friedman has a controlling interest in
Hierarchy. We have the right to acquire all or a portion of Home Holdings’ interest in Hierarchy between the
second and third anniversary of the initial public offering, at the greater of then fair market value and the price
paid by Home Holdings. Further, Home Holdings has assigned to us its right of first offer and co-sale right over
the sale by Mr. Friedman of his interests in Hierarchy, its right of first offer over the sale of Hierarchy or any of
its lines of business, and its preemptive rights on issuances of additional interests in Hierarchy. In the event that
the Company acquires interests in and becomes a member of Hierarchy, the Company and any member holding
10% of the outstanding interests in Hierarchy, including Mr. Friedman, will have a right of first offer, and each
such member will have a co-sale right, over any future sale by the Company of its interests in Hierarchy. We
transferred to Hierarchy our minimal apparel-related assets for fair market value. Unless otherwise agreed by
Home Holdings, for two years from the date of the Hierarchy agreements, Hierarchy’s lines of business will be
limited to apparel and apparel related businesses. In addition, Hierarchy will be permanently prohibited from
entering into lines of business in which we are engaged and certain lines of business in which we may become
engaged (other than luggage, which Hierarchy may enter into after such two year period). The agreements among
Hierarchy, Home Holdings, Mr. Friedman and the Company contemplate that we will enter into an agreement to
provide Hierarchy with back office, logistics, supply chain and administrative support, with pricing determined
based on the fair market value of such services. For so long as any transaction with Hierarchy would be deemed a
related party transaction under applicable SEC rules, all transactions between us and Hierarchy will be reviewed
and subject to approval or disapproval by our audit committee, none of the members of which will be affiliated
with Home Holdings.
Employment Agreements
We have entered into employment agreements with our executive officers. For more information regarding
these agreements and our advisory services agreement with Mr. Friedman, see “Executive Compensation—
Employment and Other Agreements.”
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