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EXHIBIT 10.37
RESTORATION HARDWARE, INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Board in connection with the
Corporation's grant of an option to Optionee.
B. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price,
subject to Paragraphs 5 and 6 hereof. The option shall be a Non-Statutory
Option.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may, in connection
with the Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of the Optionee's immediate family or
to a trust established for the exclusive benefit of the Optionee and/or one or
more such family members. The assigned portion shall be exercisable only by the
person or persons who acquire a proprietary interest in the option pursuant to
such assignment. The terms applicable to the assigned portion shall be the same
as those in effect for this option immediately prior to such assignment.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any
reason (other than death, Disability or Cause) while this option is outstanding,
then, subject to Paragraph 5(d) below, the period for exercising this option
shall be reduced to a six (6)-month period
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commencing with the date of such cessation of Service, but in no event shall
this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while holding this option, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or in accordance with the
laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability
while this option is outstanding, then the period for exercising this option
shall be reduced to a twelve (12)-month period commencing with the date of such
cessation of Service, but in no event shall this option be exercisable at any
time after the Expiration Date.
(d) Should Optionee assume the position of the
Corporation's Chief Executive Officer and Optionee's Service be terminated by
the Corporation other than for Cause (as defined in Optionee's Compensation and
Severance Agreement), death or Disability or should Optionee voluntarily
terminate Service for Good Reason (as defined in Optionee's Compensation and
Severance Agreement), death or Disability, this option shall automatically vest
in full and become exercisable for all of the Option Shares as fully vested
shares; provided that to the extent that such option would not have been vested
but for this Paragraph 5(d), it may not be exercised after the earlier of three
(3) months following cessation of Service or the Expiration Date;
(e) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for more than
the number of vested Option Shares for which the option is exercisable
(including by reason of Paragraph 5(d))at the time of Optionee's cessation of
Service. Upon the expiration of such limited exercise period or (if earlier)
upon the Expiration Date, this option shall terminate and cease to be
outstanding for any otherwise exercisable Option Shares for which the option has
not been exercised. However, to the extent Optionee is not vested in one or more
Option Shares at the time of Optionee's cessation of Service this Option shall
immediately terminate and cease to be outstanding with respect to those shares.
(f) Should Optionee's Service be terminated for Cause, then
this option shall terminate immediately and cease to remain outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) This option to the extent that it is outstanding at
the time of a merger, consolidation or other transaction in which the
Corporation's Common Stock ceases to exist, but is not otherwise fully
exercisable, it shall automatically vest in full so that this option shall,
immediately prior to the effective date of such transaction, become exercisable
for all of the Option Shares at the time subject to this option and may be
exercised for any or all of those Option Shares as fully vested shares of Common
Stock. However, subject to Paragraph 6(d) below, this option shall not vest on
such an accelerated basis if and to the extent: (i) this option is, in
connection with such transaction, to be assumed by the successor corporation (or
parent thereof) and the Corporation's repurchase rights with respect to the
unvested Option Shares are assigned to such successor corporation
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(or parent thereof) or otherwise continued in full force and effect pursuant to
the terms of the transaction or (ii) this option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing at the time of the transaction on the Option Shares for which this
option is not otherwise at that time exercisable (the excess of the Fair Market
Value of those Option Shares over the aggregate Exercise Price payable for such
shares) and provides for subsequent payout in accordance with the same option
exercise/vesting schedule set forth in the Grant Notice.
(b) Immediately following any such transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in full force
and effect pursuant to the terms of the transaction.
(c) If this option is assumed in connection with such a
transaction (or otherwise continued in full force and effect), then this option
shall be appropriately adjusted, immediately after such transaction, to apply to
the number and class of securities or other property which would have been
issuable to Optionee in consummation of such transaction had the option been
exercised immediately prior thereto, and appropriate adjustments shall also be
made to the Exercise Price, provided the aggregate Exercise Price shall remain
the same.
(d) Should Optionee assume the position of Chief Executive
Officer of the Corporation and there should occur a Change in Control, this
option, to the extent outstanding at the time but not otherwise fully
exercisable, shall automatically vest in full so that this option shall,
pursuant to Optionee's Compensation and Severance Agreement, become exercisable
for all the Option Shares then subject to the Option and may be exercised for
any or all of those Option Shares as fully vested shares, whether or not the
option will be assumed by a successor (or parent) or otherwise continued. If the
option is not assumed or otherwise continued following the Change in Control,
this option shall become exercisable for fully vested Option Shares immediately
before the Change in Control.
(e) This Agreement shall not in any way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have
any stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
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9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Stock
Purchase Agreement or, if applicable, an Early Exercise Stock Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms or, if the option is
exercised before all the Option Shares are fully vested, in the form permitted
by the Early Exercise Stock Purchase Agreement:
(A) cash or check made payable to the
Corporation; or
(B) a promissory note payable to the
Corporation, but only to the extent authorized by the Board in accordance
with Paragraph 13.
(C) shares of Common Stock held by Optionee
(or any other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising the
option) shall concurrently provide irrevocable instructions (I) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (II) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is utilized
in connection with the option exercise, payment of the Exercise
Price must accompany the Stock Purchase Agreement delivered to the
Corporation in connection with the option exercise.
(E) Any other form permitted in the Early
Exercise Stock Purchase Agreement, if applicable.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
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(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION
AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS
SPECIFIED IN THE STOCK PURCHASE AGREEMENT OR EARLY STOCK PURCHASE AGREEMENT,
WHICHEVER IS APPLICABLE AT THE TIME OF PURCHASE.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval
from any regulatory body having authority deemed by the Corporation to be
necessary to the lawful issuance and sale of any Common Stock pursuant to this
option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Corporation, however, shall use its best efforts to
obtain all such approvals and to timely register the sale of shares under this
Option with the Securities and Exchange Commission on a Form S-8 registration
statement and to timely list the Option Shares on Nasdaq National Market.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. FINANCING. The Board may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including the
interest rate, the requirements for collateral and the terms of repayment) shall
be established by the Board in its sole discretion.
15. ARBITRATION. Any disputes between Optionee and the Company
shall be resolved pursuant binding arbitration pursuant to the procedures and
terms set forth in Optionee's Compensation and Severance Agreement.
16. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
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APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CAUSE shall have the meaning assigned to it in Optionee's
Compensation and Severance Agreement.
D. CHANGE IN CONTROL shall have the meaning specified in the
Compensation and Severance Agreement.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean shares of the Corporation's common stock.
G. CORPORATION shall mean Restoration Hardware, Inc., a Delaware
corporation.
H. COMPENSATION AND SEVERANCE AGREEMENT shall mean that Compensation
and Severance Agreement attached to the Corporation's letter dated
March 15, 2001 offering employment to Employee as Chief Executive
Officer of the Corporation, provided that such Agreement has been
executed by both parties and become effective.
I. DISABILITY shall mean a physical or mental infirmity which either (i)
impairs Optionee's ability to substantially perform Optionee's duties with the
Corporation for a period of one hundred eighty (180) consecutive days or (ii) is
expected to so impair Optionee for a period of at least one year or (iii)
entitles Optionee to long-term disability benefits under a long-term disability
policy maintained by the Corporation; provided, that Optionee has not returned
to Optionee's full-time employment prior to the Termination Date as stated in
the Notice of Termination.
J. EARLY EXERCISE STOCK PURCHASE AGREEMENT shall mean the Stock Purchase
Agreement in substantially the form of Exhibit C to the Grant Notice.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
M. EXERCISE PRICE shall mean the exercise price per Option Share as
specified in the Grant Notice.
N. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
O. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
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(a) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to the
mean between the high and low selling price per share of Common Stock on
the date in question, as the price is reported by the National
Association of Securities Dealers on the Nasdaq National Market. If there
is no selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(b) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the mean
between the high and low selling price per share of Common Stock on the
date in question on the Stock Exchange determined by the Board to be the
primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
X. XXXXX DATE shall mean the date of grant of the option as specified in
the Grant Notice.
X. XXXXX NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
U. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
V. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
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W. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
X. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
Y. STOCK PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
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