Restoration Hardware 2014 Annual Report Download - page 40

purchase the Notes, to pay special interest, if any, due on the Notes, or to pay the amount of cash due upon
conversion, we will be in default under the indenture, which in turn may result in the acceleration of other
indebtedness we may then have. If the repayment of the other indebtedness were to be accelerated, we may not
have sufficient funds to repay that indebtedness and to purchase the Notes or to pay the amount of cash due upon
conversion.
The fundamental change provisions of the Notes and the terms of the Bond Hedge and Warrants may delay or
hinder an otherwise beneficial takeover attempt of us.
The fundamental change purchase rights allow holders of Notes to require us to purchase all or a portion of
their Notes upon the occurrence of a fundamental change. The provisions of the indenture governing the Notes
requiring an increase to the conversion rate for conversions in connection with a make-whole fundamental
change, including certain corporate transactions such as a change in control, may result in a change in the value
of the Notes. Additionally, upon certain change of control transactions, the offsetting Bond Hedge and Warrants
that we entered into at the time we issued the Notes may be exercised and/or terminated early. As a result of
these provisions, we may be required to make payments to, or renegotiate terms with, holders of the Notes and/or
the hedge counterparties.
These features of the Notes and the Bond Hedge and Warrants, including the financial implications of any
renegotiation of the above-mentioned provisions, could have the effect of delaying or preventing a change of
control, whether or not it is desired by, or beneficial to, our stockholders, and may result in the acquisition of us
being on terms less favorable to our stockholders than it would otherwise be, or could require us to pay a portion
of the consideration available in such a transaction to holders of the Notes or Warrants or the counterparties to
the Bond Hedge.
Our management has broad discretion over the use of the proceeds to us from the Convertible Notes
Financing and might not apply the proceeds of the Convertible Notes Financing in ways that yield significant
returns.
Our management has broad discretion to use the net proceeds from the Convertible Notes Financing.
Management used a portion of the net proceeds from the Convertible Notes Financing for the cost of the Bond
Hedge, after such cost was offset by the proceeds of Warrants, and to repay a portion of the outstanding amount
under the Restoration Hardware, Inc. revolving line of credit and term loan. The remaining proceeds are available
to management to use for general corporate purposes, including to fund our real estate business initiative related
to the development of our next generation Galleries. However, management has not allocated the remaining net
proceeds for any specific purposes. Our management might not be able to yield a significant return, if any, on
any investment of the remaining net proceeds.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We leased approximately 1,103,000 gross square feet for 57 Legacy Galleries, 7 larger format Galleries,
3 Baby & Child Galleries and 17 outlet stores that were open as of January 31, 2015. We also lease
approximately 45,000 square feet for offsite storage. The initial lease term of our retail stores is generally 10 to
15 years. Certain leases contain renewal options for up to 25 years.
Most leases for our retail stores provide for a minimum rent, typically including escalating rent increases. In
addition, certain leases have a percentage rent based upon sales after minimum thresholds are achieved. Leases
generally require us to pay insurance, utilities, real estate taxes and repair and maintenance expenses.
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