Restoration Hardware 2015 Annual Report Download - page 28

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• prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our
stockholders;
• provide that our board of directors is expressly authorized to make, alter or repeal our bylaws; and
• establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that
can be acted upon by stockholders at stockholder meetings.
Our certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the
Delaware General Corporation Law (“DGCL”), and prevents us from engaging in a business combination with a person who acquires
at least 15% of our common stock for a period of three years from the date such person acquired such common stock unless board or
stockholder approval is obtained prior to the acquisition, subject to certain exceptions. These anti-takeover provisions and other
provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our Company, even if
doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and
other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
We do not expect to pay any cash dividends for the foreseeable future.
We do not anticipate that we will pay any cash dividends on shares of our common stock for the foreseeable future. Any
determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of
operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors
deems relevant. Accordingly, realization of a gain on your investment will depend on the appreciation of the price of our common
stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
We expect that our common stock may experience increased trading volatility in connection with our Convertible Notes
Financings.
In June 2015, we issued $250 million of 0.00% convertible senior notes due 2020 and, on July 2, 2015, we issued an additional
$50 million pursuant to the exercise of the over-allotment option granted to the initial purchasers as part of the June 2015 offering
(collectively, the “2020 Notes”). In June 2014, we issued $300 million of 0.00% convertible senior notes due 2019 and, on June 24,
2014, we issued an additional $50 million pursuant to the exercise of the over-allotment option granted to the initial purchasers as part
of the June 2014 offering (the “2019 Notes” and, together with the 2020 Notes, the “Notes”). In connection with each offering of the
Notes, we entered into convertible note hedge transactions with certain counterparties (the “Bond Hedge”) and warrant transactions
(the “Warrants” and together with the Notes and the Bond Hedge, the “Convertible Notes Financings”) with the same counterparties
(the “hedge counterparties”).
We have been advised that, in connection with establishing their initial hedge positions with respect to the Bond Hedge and
Warrants, the hedge counterparties and/or their affiliates would likely purchase shares of our common stock or enter into various
derivative transactions with respect to our common stock concurrently with, or shortly after, the pricing of the Notes, including with
certain investors in the Notes. These hedging activities could increase (or reduce the size of any decrease in) the market price of our
common stock or the Notes.
In addition, we expect that many investors in, including future purchasers of, the Notes may employ, or seek to employ, a
convertible arbitrage strategy with respect to the Notes. Investors would typically implement such a strategy by selling short the
common stock underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes. Investors may
also implement this type of strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common
stock.
Further, investors in the Notes may periodically modify their arbitrage strategies with respect to the Notes or modify their hedge
positions with respect to the Notes from time to time. The hedge counterparties and/or their respective affiliates also may periodically
modify their hedge positions from time to time (and are likely to do so during the conversion period relating to any conversion of the
Notes or following any repurchase of Notes by us on any fundamental repurchase date or otherwise). Such modifications may be
implemented by entering into or unwinding various derivatives with respect to our common stock, and/or by purchasing or selling
shares of our common stock or other securities of the Company in secondary market transactions and/or open market transactions. The
effect, if any, of these transactions and activities on the market price of our common stock or the trading prices of the Notes (which
could affect a noteholder’s ability to convert the Notes or the amount and value of the consideration received upon conversion of the
Notes) will depend in part on market conditions and cannot be ascertained at this time. Any of these activities, however, could
adversely affect the market price of our common stock.