Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On October 18, 2020, the board of directors of RH granted Gary Friedman, the Chairman and Chief Executive Officer of RH, a new multi-year stock option award. The new award (the “2020 award”) contains essentially the same terms and conditions as the last multi-year award granted to Mr. Friedman in 2017 (the “2017 award”) by utilizing both time-based service period requirements and performance-based metrics.
The 2020 award covers 700,000 shares of common stock and has an exercise price of $385.30 per share which was the market price for RH’s stock effective on the grant date. As was the case for the 2017 award, the 2020 award may be exercised at any time but the selling restrictions on the underlying shares only lapse upon the achievement of both time-based service requirements and stock price performance-based metrics as described further below.
The time-based restrictions of the 2020 award are measured over a four-year performance year period which will begin in May 2021, on the anniversary of the grant of the 2017 award. The time-based restrictions will lapse on each of the anniversary dates from May 2022 through May 2025 if (i) Mr. Friedman remains employed at the end of such service year by RH with the authority, duties, or responsibilities of a chief executive officer at such date and (ii) the stock price performance-based metrics have been achieved in such year as described below.
The stock price performance-based restrictions of the 2020 award are measured annually over the performance year period and may lapse as to only one-quarter of the award in each of the first four performance years, with the first performance year beginning in May 2021. The stock price performance-based metrics for the 2020 award are set at $500 per share, $650 per share and $800 per share. With respect to any given performance year, if the “twenty day average trading price” for RH common stock exceeds $500 per share, $650 per share, or $800 per share during such performance year, then the selling restrictions will lapse as to 58,333 shares, 58,333 share, and 58,334 shares, respectively, on the last day of such performance year, if Mr. Friedman remains in service with RH at such date.
Any selling restrictions that have not lapsed in any performance year during the first four performance years may be achieved in a successive performance year through the end of the eighth performance year which ends in May 2029, provided Mr. Friedman continues to satisfy the service requirement through the date the performance target is achieved. Any selling restrictions that have not lapsed by the end of the eighth performance year will thereafter only lapse on the 20th anniversary of May 2021.
RH issued a press release announcing the grant of the 2020 award on October 21, 2020 that is available on the investor relations section of its website. A copy of such press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The foregoing summary of the terms of the 2020 award does not purport to be complete and is qualified in its entirety by reference to the Notice of Stock Option Award and Stock Option Award Agreement with respect to the 2020 award, a copy of which is attached as Exhibit 10.1 hereto and is incorporated herein by reference.