Restoration Hardware 2015 Annual Report Download - page 29

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It is not possible to predict the effect that these hedging or arbitrage strategies adopted by holders of the Notes or counterparties
to the Bond Hedge and Warrants will have on the market price of our common stock. For example, the SEC and other regulatory and
self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and
take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock).
Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc. of
a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods
following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010. Any changes in government regulations or other factors that affect the manner in
which third parties can engage in hedging strategies, including entering into short sales or swaps on our common stock, could
adversely affect the trading prices and the liquidity of the Notes and/or our common stock.
Taken together, the Bond Hedge and Warrants are intended, but not guaranteed, to offset any actual earnings dilution that could
occur upon delivery of shares of common stock to satisfy to our conversion obligation under the Notes. For the 2020 Notes, the
corresponding Bond Hedge and Warrants are intended to limit the earnings dilution that our stockholders would experience until the
Company’s common stock is above approximately $189.00 per share, the strike price of the 2020 Notes warrant transactions, which
represented a 100% premium over the closing price of our common stock at the time we entered into the Bond Hedge and Warrants
related to the 2020 Notes. For the 2019 Notes, the corresponding Bond Hedge and Warrants are intended to limit the earnings dilution
that our stockholders would experience until the Company’s common stock is above approximately $171.98 per share, the strike price
of the 2019 Notes warrant transactions, which represented a 100% premium over the closing price of our common stock at the time we
entered into the Bond Hedge and Warrants related to the 2019 Notes. However, these transactions are complex, and there can be no
assurance that they will operate as planned.
We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions
described above may have on the price of our common stock. In addition, we do not make any representation that the counterparties to
those transactions will engage in these transactions or activities or that these transactions and activities, once commenced, will not be
discontinued without notice; the counterparties or their affiliates may choose to engage in, or discontinue engaging in, any of these
transactions or activities with or without notice at any time, and their decisions will be in their sole discretion and not within our
control.
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 prices 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 each 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 prices 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.
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.