[Vardon Capital Management, LLC Letterhead]
November 8, 2007
To: Home Holdings, LLC
Re: Equity Investment
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger, dated as of the date
hereof (as it may be amended from time to time, the "Merger Agreement"), by and
among Home Holdings, LLC, a Delaware limited liability company ("Parent"), Home
Merger Sub, Inc., a Delaware corporation ("Merger Sub") and Restoration
Hardware, Inc., a Delaware corporation (the "Company"), pursuant to which Merger
Sub, or a permitted assignee of Merger Sub, will be merged into the Company (the
"Merger"), with the Company as the Surviving Corporation. Capitalized terms used
but not defined herein have the meanings ascribed to them in the Merger
Agreement. This letter is being delivered to Parent in connection with the
execution of the Merger Agreement by Xxxxxx, Merger Sub and the Company. For
purposes of this letter, "Investors" means the parties delivering Equity
Commitments (as defined herein) and other investors investing in Parent.
This letter confirms the commitment of the undersigned, subject to the
prior satisfaction or waiver of the conditions set forth herein, to make a cash
investment, on its own behalf or on behalf of investment accounts that the
undersigned manages, in the equity securities of Parent immediately prior to the
Effective Time equal in value to the value of 3,449,055 Shares (the "Aggregate
Investment Amount") for which investment, the undersigned shall receive a pro
rata (in kind and amount) share of the equity of Parent based upon the value of
the aggregate equity contributions of all of the Investors (the "Equity
Commitment") (other than any equity securities or equity equivalents issued or
available for issuance to management and employees) and assuming that the value
of any Shares that are contributed by Investors to Parent on a rollover basis
pursuant to Rollover Agreements are given a value equal to the Merger
Consideration and the value of the Aggregate Investment Amount is equal to the
Merger Consideration value of 3,449,055 Shares (such share of the equity of
Parent, the "Subject Equity Securities"). All Shares owned by any Investors as
of the Effective Time that are not subject to Rollover Agreements shall be
converted in the Merger into the right to receive the Merger Consideration. The
undersigned agrees and acknowledges that Xxxxxxxxx Partners VI, L.P. and
Xxxxxxxxx Partners VI Offshore, L.P. (collectively "Xxxxxxxxx") may syndicate a
portion of their Equity Commitment; provided that all such Xxxxxxxxx investments
in Parent and all other investments in Parent, if any, made by Investors
(meaning investments not in the form of contribution of Rollover Contribution
Shares) in connection with Parent providing adequate financing to acquire the
Shares in the Merger shall be made in the form of cash investments and any such
cash investment for the Subject Equity Securities shall entitle the Investor to
receive a pro rata share of the aggregate Subject Equity Securities assuming
that the value of each Rollover Contribution Share is equal to the Merger
Consideration. In connection with any additional financing that Parent may
obtain to acquire the Shares in the Merger, the undersigned shall also have the
right to co-invest on a pro rata basis in any senior equity security issued by
Parent and in any other senior security issued by Parent to Xxxxxxxxx or to any
of its affiliates (including limited partners that are not banks).
The undersigned's obligation to make the investment in Parent contemplated
hereby is subject to (i) the prior satisfaction or waiver by Parent of the
conditions set forth in Sections 6.1 and 6.3 of the Merger Agreement (other than
Section 6.3(e)), (ii) the terms of this letter including satisfactory agreement
of the undersigned and Xxxxxxxxx on the customary terms of the shareholder's
agreement referenced below, and (iii) the readiness of the Certificate of Merger
for filing pursuant to Section 1.3 of the Merger Agreement. The undersigned's
investment will occur contemporaneously with the Closing and immediately prior
to the Effective Time and the simultaneous issuance to the undersigned of the
Subject Equity Securities.
The undersigned hereby represents, warrants and covenants to Parent as
follows:
(i) The undersigned is an "accredited investor" as such term is
defined in Rule 501 of the Securities Act.
(ii) None of the information supplied in writing by the undersigned
for inclusion or incorporation by reference in the Proxy
Statement or Schedule 13E-3 will cause a breach of the
representation and warranty of Parent set forth in Section 4.4 of
the Merger Agreement. In that regard, the undersigned shall
provide Parent such information concerning the undersigned as it
may reasonably request.
Parent hereby represents, warrants and covenants to the undersigned as
follows:
(i) Parent is a legal entity duly organized, validly existing and in
good standing under the Laws of its jurisdiction of organization
and has all requisite corporate or similar power and authority to
own, lease and operate its properties and assets and to carry on
its business as presently conducted.
(ii) The Subject Equity Securities shall be (a) on contractual and
structural parity as to voting rights, liquidation preference,
rights to dividends and distributions (other than with respect to
rights that are customarily afforded to a majority stockholder)
with the other equity securities in Parent that are acquired by
Xxxxxxxxx or any of its affiliates or any of the other Investors
that are parties to Rollover Agreements and (b) shall be the same
class as such other equity securities in Parent that are acquired
by Xxxxxxxxx or any of its affiliates or any of the other
Investors that are parties to Rollover Agreements.
(iii) Parent has all requisite corporate power and authority to enter
into this agreement and to consummate the transactions
contemplated by this agreement, and the execution and delivery of
this agreement and the consummation of the transactions
contemplated by this agreement have been duly and validly
authorized by the board of directors of Parent and by any other
approvals required for this agreement to be binding upon Parent
including approvals of any requisite managing members,
stockholders or owners of limited liability interests.
(iv) Upon issuance, the Subject Equity Securities shall be duly
authorized, validly issued, fully paid and nonassessable and not
be subject to or issued in violation of any option, call, right
of first offer or refusal, preemptive right, subscription right
or any similar right under any provision of the DGCL or the
certificate of incorporation or bylaws of Parent.
This letter, and the undersigned's obligation to make the investment
contemplated hereby, will terminate and be of no further force and effect (a) at
the election of the undersigned, upon an Adverse Recommendation Change made by
the Board of Directors (or the Independent Committee) or (b) automatically,
without any action of the parties hereto, on the earliest to occur of (i) the
Effective Time (assuming that the undersigned has performed its obligations
hereunder prior to the Effective Time), (ii) expiration or termination of the
Merger Agreement in accordance with its terms, and (iii) June 30, 2008.
Prior to the Closing, no Investor shall transfer, directly or indirectly,
its right to acquire the equity interests in Parent pursuant to this letter,
except for such transfers or assignments to one or more affiliated funds or
affiliated entities (other than portfolio companies) or as approved by Parent;
provided, that, except to the extent otherwise agreed to by Parent, any such
assignment shall not relieve the undersigned of its obligations under this
letter; provided further, that Parent agrees and acknowledges that nothing
contained herein shall in any way prohibit the undersigned from entering into
and fulfilling its obligations in accordance with that certain Stockholder
Voting Agreement dated the date hereof by and between the Company and the
undersigned.
Parent and the undersigned hereby acknowledge and agree that the parties
shall, on or prior to the Closing Date, enter into a customary shareholders
agreement (the terms of which will be subject to mutual agreement of the
parties) which shall contain customary provisions including, but not limited to,
registration rights, "side-by-side" rights, drag along and tag along rights,
dilution protection, and minority protection covenants as to discriminatory
treatment of minority investors.
Notwithstanding anything that may be expressed or implied in this letter,
Parent, by its acceptance of the benefits of this agreement, covenants, agrees
and acknowledges (i) that no Person other than the undersigned and its
successors and permitted assigns shall have any obligation hereunder, (ii) that,
notwithstanding that the undersigned or its successors or permitted assigns may
be a partnership or limited liability company, no recourse hereunder or under
any documents or instruments delivered in connection herewith shall be had
against any former, current or future director, officer, agent, affiliate (as
defined in the Merger Agreement), employee, general or limited partner, member,
manager or stockholder of the undersigned or any of its successors or permitted
assigns or any former, current or future director, officer, agent, affiliate,
employee, general or limited partner, member, manager, stockholder, heir,
legatee, beneficiary, xxxxxxx or estate of any of the foregoing, whether by the
enforcement of any assessment or by any legal or equitable proceeding, or by
virtue of any statute, regulation or other applicable Law, it being expressly
agreed and acknowledged that no personal liability whatsoever shall attach to,
be imposed on or otherwise be incurred by any former, current or future
director, officer, agent, affiliate, employee, general or limited partner,
member, manager or stockholder of the undersigned or any former, current or
future director, officer, agent, affiliate, employee, general or limited
partner, member, manager, stockholder, heir, legatee, beneficiary, devisee or
estate of any of the foregoing, as such, for any obligations of the undersigned
or any of its successors or permitted assigns under this letter or any documents
or instrument delivered in connection herewith or for any claim based on, in
respect of, or by reason of such obligation or their creation, and (iii) that
the maximum aggregate liability of the undersigned in connection with this
letter shall be limited to the Aggregate Investment Amount.
The undersigned is hereby executing and performing this letter solely in
its capacity on its own behalf as an investor or on behalf of investment
accounts that the undersigned manages, and nothing in this letter shall limit or
restrict any partner, member, director, officer, employee or affiliate of the
undersigned who is or becomes during the term hereof a member of the Board of
Directors or an officer of the Company or any of its Subsidiaries from acting,
omitting to act or refraining from taking any action, solely in such person's
capacity as a member of the Board of Directors or as an officer of the Company
(or as an officer or director of any of the Company's Subsidiaries) consistent
with his or her fiduciary duties in such capacity under applicable law.
This letter shall not be assignable by Parent without the undersigned's
prior written consent, except that Parent may assign this letter, without the
undersigned's prior written consent, to any person to which Parent assigns any
of its rights and obligations under the Merger Agreement.
The parties hereto acknowledge that the Company is an express third party
beneficiary of this letter. This letter will inure to the benefit of and be
enforceable by the Company, and this letter may not be amended, modified or
waived in a manner adverse to the Company in any material respect without the
prior written consent of the Company.
Money damages would not be a sufficient remedy for any breach of this
letter by the undersigned and Parent shall be entitled to equitable relief,
including injunction and specific performance, as a remedy for any such breach;
provided, however that under no circumstances shall the undersigned's maximum
liability for any reason exceed the aggregate value of the undersigned's
Aggregate Investment Amount.
Parent shall reimburse the undersigned for all reasonable out-of-pocket
costs and expenses incurred in connection with the transactions contemplated
hereunder in an amount not to exceed $50,000. Such costs and expenses shall be
reimbursed promptly by the Parent upon submission by the undersigned of an
itemized expense report.
This letter may be executed in counterparts. This letter and any related
dispute shall be governed by, and construed and interpreted in accordance with,
the laws of the State of Delaware applicable to contracts executed in and to be
performed in that State. Each of the parties hereto irrevocably agrees that any
legal action or proceeding with respect to this letter and the rights and
obligations arising hereunder, or for recognition and enforcement of any
judgment in respect of this letter and the rights and obligations arising
hereunder brought by the other parties hereto or its successors or assigns,
shall be brought and determined exclusively in the Delaware Court of Chancery,
or in the event (but only in the event) that such court does not have subject
matter jurisdiction over such action or proceeding, in the United States
District Court for the District of Delaware.
EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LETTER OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
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Very truly yours,
VARDON CAPITAL MANAGEMENT, LLC
By:
-----------------------------
Name: Xxxxxxx X. Xxxx, Xx.
Title: Managing Member
Xxxxxx and acknowledged:
HOME HOLDINGS, LLC
By:
---------------------------
Name: Xxxx Xxxxxxxxxx
Title: Secretary
