Restoration Hardware 2014 Annual Report Download - page 39

Upon conversion of the Notes, investors in the Notes will, at our election, receive shares of our common
stock, cash, or a combination of cash and shares of our common stock, based upon the volume weighted average
prices of our common stock for each of the 45 trading days during the applicable cash settlement averaging
period. This period means, for Notes with a conversion date occurring on or after the 50th scheduled trading day
before the maturity date, the 45 consecutive trading-day period beginning on, and including, the 47th scheduled
trading day prior to the maturity date (or, if such scheduled trading day is not a trading day, the immediately
following trading day), and in all other instances, the 45 consecutive trading day period beginning on, and
including, the third trading day immediately following the related conversion date. Accordingly, if the price of
our common stock decreases during this period, the amount and/or value of consideration investors in the Notes
receive will be adversely affected. Upon conversion of the Notes, we expect to settle the Notes with a
combination of cash and shares of common stock with a minimum cash payment of $1,000 per Note.
Furthermore, because we may settle all or a portion of our conversion obligation in cash, the conversion of Notes
may significantly reduce our liquidity.
We may issue additional shares of our common stock or instruments convertible into shares of our common
stock, including in connection with the conversion of the Notes, and thereby materially and adversely affect
the market price of our common stock and the trading price of the Notes.
We are not restricted from issuing additional shares of our common stock or other instruments convertible
into, or exchangeable or exercisable for, shares of our common stock during the life of the Notes. If we issue
additional shares of our common stock or instruments convertible into shares of our common stock, it may
materially and adversely affect the market price of our common stock and, in turn, the trading price of the Notes.
In addition, the conversion of some or all of the Notes may dilute the ownership interests of existing holders of
our common stock, and any sales in the public market of any shares of our common stock issuable upon such
conversion of the Notes could adversely affect prevailing market prices of our common stock. In addition, the
anticipated conversion of the Notes could depress the market price of our common stock.
Holders may not be able to convert their Notes prior to March 15, 2019, and the trading price of the Notes
could be less than the value of the amount of cash and the number of shares of our common stock, if any, into
which such Notes could otherwise be converted.
Prior to March 15, 2019, a holder may convert a note only if one or more specified conditions are met. If
such conditions are not met, holders will not be able to convert their Notes until March 15, 2019 and may not be
able to receive the amount of cash and the value of the number of shares of our common stock, if any, into which
the Notes would otherwise be convertible at such time. In addition, for these and other reasons, the trading price
of the Notes could be substantially less than the value of the amount of cash and the number of shares of our
common stock, if any, into which the Notes would otherwise be convertible.
We may not have the ability to raise the funds necessary to pay the amount of cash due upon conversion of the
Notes or the fundamental change purchase price due when a holder submits its Notes for purchase upon the
occurrence of a fundamental change.
Upon the occurrence of a fundamental change, holders may require us to purchase, for cash, all or a portion
of their Notes. In addition, if a holder converts its Notes, we will generally pay such holder an amount of cash
before delivering to such holder any shares of our common stock.
There can be no assurance that we will have sufficient financial resources, or will be able to arrange
financing, to pay the fundamental change purchase price if holders submit their Notes for purchase by us upon
the occurrence of a fundamental change or to pay the amount of cash due if holders surrender their Notes for
conversion. In addition, agreements governing any debt may restrict our ability to make each of the required cash
payments even if we have sufficient funds to make them. Furthermore, our ability to purchase the Notes or to pay
cash upon the conversion of the Notes may be limited by law or regulatory authority. In addition, if we fail to
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