DEF 14A 1 rh-20230207xdef14a.htm DEF 14A

UNITED STATES SECURITIES

AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO

SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO. )

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☐ Preliminary Proxy Statement

☐ Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2))

☒ Definitive Proxy Statement

☐ Definitive Additional Materials

☐ Soliciting Material under §240.14a-12

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CONTENTS
SPECIAL MEETING OF SHAREHOLDERS	2
PROPOSAL RH 2023 STOCK INCENTIVE PLAN	6
EXECUTIVE & DIRECTOR COMPENSATION	18
SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP	46
ADDITIONAL INFORMATION	50
ANNEX A RH 2023 STOCK INCENTIVE PLAN	54

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

February 7, 2023 10:30 a.m. Pacific Time

RH, 15 Koch Road, Corte Madera, CA 94925

Important notice regarding the Special Shareholder Meeting to be held on February 7, 2023 (the “Special Meeting”): The Company’s Notice of Special Meeting of Shareholders, Proxy Statement and its proxy card are available for review online at www.proxyvote.com

RH SHAREHOLDER,

We are holding the Special Meeting for the following purpose, which is more fully described in the proxy statement:

To approve the RH 2023 Stock Incentive Plan.

Only shareholders of record as of the close of business on December 21, 2022, are entitled to notice and to vote at the Special Meeting or any postponement or adjournment thereof. A list of shareholders entitled to vote will be available for inspection at our offices for ten days prior to the Special Meeting. If you would like to view this shareholder list, please contact the Corporate Secretary at (415) 945-4998.

We intend to hold our Special Meeting in person. However, in the event we determine it is not possible or advisable to hold our Special Meeting in person due to health or other considerations related to COVID-19 or other reasons, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. If we take this step, we will announce the decision to do so via a press release and details about how to participate will be posted on our website and filed with the U.S. Securities and Exchange Commission as additional proxy materials. Please monitor our website at ir.rh.com for updated information. As always, we encourage you to vote your shares prior to the Special Meeting.

Each share of common stock that you own represents one vote, and your vote as a shareholder of RH is very important. For questions regarding your stock ownership, you may contact the Corporate Secretary at (415) 945-4998 or, if you are a registered holder, our transfer agent, Computershare Investor Services, by email through their website at www.computershare.com/contactus or by phone at (800) 962-4284 (within the U.S. and Canada) or (781) 575-3120 (outside the U.S. and Canada).

The Board of Directors has approved the proposal described in the accompanying proxy statement and recommends that you vote “FOR” the approval of the RH 2023 Stock Incentive Plan.

By order of the Board of Directors,

Gary Friedman

Chairman & Chief Executive Officer

Your Vote Is Important. Instructions for submitting your proxy are provided in the proxy statement and your proxy card. It is important that your shares be represented and voted at the Special Meeting. Please submit your proxy through the Internet, by telephone, or by completing the enclosed proxy card and returning it in the enclosed envelope. You may revoke your proxy at any time prior to its exercise at the Special Meeting.

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SPECIAL MEETING OF SHAREHOLDERS
PROXY STATEMENT SUMMARY

INFORMATION ABOUT SOLICITATION AND VOTING

The accompanying proxy is solicited on behalf of the Board of Directors of RH (the “Company”) for use at the Company’s Special Meeting of Shareholders (the “Special Meeting”) to be held at the Company’s headquarters located at 15 Koch Road, Corte Madera, CA 94925 on February 7, 2023, at 10:30 a.m. (Pacific Time), and any adjournment or postponement thereof.

We will commence mailing our proxy materials to shareholders on or about December 27, 2022. Our proxy materials are first being made available online on or about December 27, 2022.

ABOUT THE SPECIAL MEETING

What is the purpose of the Special Meeting?

At our Special Meeting, shareholders will vote upon the proposal described in this proxy statement.

What proposal is scheduled to be voted on at the Special Meeting?

Approval of the RH 2023 Stock Incentive Plan (the “2023 Plan”).

What is the recommendation of the Board of Directors on the proposal scheduled to be voted on at the Special Meeting?

The Board of Directors recommends that you vote “FOR” the approval of the 2023 Plan (the “Proposal”).

Could other matters be decided at the Special Meeting?

No. Pursuant to our Bylaws, the business to be conducted at the Special Meeting is limited to the purpose or purposes stated in the notice of the special meeting. Accordingly, the Proposal is the only matter that will be brought before the Special Meeting.

Who can vote at the Special Meeting?

Shareholders as of the record date for the Special Meeting, the close of business on December 21, 2022 (the “Record Date”), are entitled to vote at the Special Meeting. At the close of business on the Record Date, there were 23,951,191 shares of the Company’s common stock outstanding and entitled to vote.

Shareholder of Record: Shares Registered in Your Name

If, as of the close of business on the Record Date, your shares were registered directly in your name with our transfer agent, Computershare Investor Services, then you are considered the shareholder of record with respect to those shares.

As a shareholder of record, you may vote at the Special Meeting or vote by proxy. Whether or not you plan to attend the Special Meeting, we urge you to vote over the Internet or by telephone, or, if you request paper proxy materials, by filling out and returning the proxy card.

Beneficial Owner: Shares Registered in the Name of a Broker or Nominee

If, as of the close of business on the Record Date, your shares were held in an account with a brokerage firm, bank or other nominee, then you are the beneficial owner of the shares held in street name. As a beneficial owner, you have the right to direct your nominee on how to vote the shares held in your account, and your nominee has enclosed or provided voting instructions for you to use in directing it on how to vote your shares. However, the organization that holds your shares is considered the shareholder of record for purposes of voting at the Special Meeting. Because you are not the shareholder of record, you may not vote your shares at the Special Meeting unless you request and obtain a valid proxy from the organization that holds your shares giving you the right to vote the shares at the Special Meeting.


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How do I vote?

If you are a shareholder of record, you may:

VOTE IN PERSON—we will provide a ballot to shareholders who attend the Special Meeting and wish to vote in person;

VOTE BY MAIL—if you request a paper proxy card, simply complete, sign and date the enclosed proxy card, then follow the instructions on the card; or

VOTE VIA THE INTERNET or VIA TELEPHONE—follow the instructions on the proxy card and have the proxy card available when you access the Internet website or place your telephone call.

Votes submitted via the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on February 6, 2023. Submitting your proxy, whether via the Internet, by telephone or by mail (if you requested a paper proxy card), will not affect your right to vote at the Special Meeting should you decide to attend the meeting.

If you are not a shareholder of record, please refer to the voting instructions provided by your nominee to direct it how to vote your shares.

Your vote is important. Whether or not you plan to attend the Special Meeting, we urge you to vote by proxy to ensure that your vote is counted. You may still attend the Special Meeting if you have already voted by proxy.

What if I return my proxy card directly to the Company, but do not provide voting instructions?

If a signed proxy card is returned to us without any indication of how your shares should be voted on the Proposal, your shares will be voted in accordance with the recommendations of our Board of Directors stated above. Accordingly, if you return a signed proxy card with no indication of your vote on the Proposal, your vote will be cast “FOR” the approval of the 2023 Plan.

Because the Proposal is a non-routine matter (as described below), if you hold your shares in street name and do not vote, your broker does not have discretionary power to vote your shares. As a result, your shares will not be counted in determining the number of shares necessary for approval of the Proposal. Voting results will be tabulated and certified by the inspector of elections appointed for the Special Meeting.

What is the quorum requirement for the Special Meeting?

A majority of our outstanding shares as of the Record Date must be present at the Special Meeting in order to hold the meeting and conduct business. This presence is called a quorum. Your shares are counted as present at the meeting if you are present and vote in person at the meeting or if you have properly submitted a proxy.

How are abstentions treated?

Abstentions (i.e., shares present at the meeting and voted “abstain”) are counted for purposes of determining whether a quorum is present. In determining whether the Proposal received the requisite number of affirmative votes, abstentions are not considered votes cast and will have no effect on the Proposal.

Note that if you are a beneficial holder and do not provide specific voting instructions to your broker, the broker that holds your shares will not be authorized to vote on the Proposal, as it is a non-discretionary item.

Accordingly, we encourage you to provide voting instructions to your broker, whether or not you plan to attend the Special Meeting.


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What is the vote required for the Proposal?

The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to approve the Proposal. Because the vote for the Proposal is considered to be a non-routine matter under the rules of the NYSE, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for the Proposal, brokers will not be permitted to exercise their voting authority with respect to the Proposal. Abstentions are not considered votes cast and will have no effect on the Proposal.

How can I get electronic access to the proxy materials?

The Company’s proxy materials are available at ir.rh.com. This website address is included for reference only. The information contained on the Company’s website is not incorporated by reference into this proxy statement.

Who is paying for this proxy solicitation?

The Company is paying the costs of the solicitation of proxies. Proxies may be solicited on behalf of the Company by our directors, officers, associates (we refer to our employees as “associates”) or agents in person or by telephone, facsimile or other electronic means. We will also reimburse brokerage firms and other custodians, nominees and fiduciaries, upon request, for their reasonable expenses incurred in sending proxies and proxy materials to beneficial owners of our common stock. We have retained the services of Alliance Advisors LLC (“Alliance”) to assist in the solicitation of proxies for a fee of approximately $26,000 plus reasonable out-of-pocket expenses. We may engage Alliance for additional solicitation work and incur fees greater than $26,000 depending on a variety of factors, including preliminary voting results and recommendations from Institutional Shareholder Services. As part of its engagement agreement, the Company has also agreed to certain indemnification provisions with Alliance.

What does it mean if I receive more than one proxy card?

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

How can I change my vote after submitting my proxy?

A shareholder who has given a proxy may revoke it at any time before it is exercised at the meeting by:

Delivering to the Corporate Secretary of the Company (by any means, including facsimile) a written notice stating that the proxy is revoked;

Signing and delivering a proxy bearing a later date;

Voting again over the Internet or by telephone; or

Attending and voting at the Special Meeting (although attendance at the meeting will not, by itself, revoke a proxy).

Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to revoke a proxy, you must contact that firm to revoke any prior voting instructions.

Where can I find the voting results?

The final voting results will be tallied by the inspector of elections and filed with the SEC in a Current Report on Form 8-K within four business days of the Special Meeting.


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PROPOSAL

APPROVAL OF THE RH 2023 STOCK INCENTIVE PLAN

We are asking shareholders to approve the 2023 Plan.

We have previously awarded equity compensation under the Restoration Hardware Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”), which expired on November 1, 2022. The last day on which grants could be made under the 2012 Plan was October 31, 2022. On December 14, 2022, our Board of Directors, at the recommendation of the compensation committee, approved the 2023 Plan, subject to approval by our shareholders at the Special Meeting. If shareholders approve the 2023 Plan, it will become effective on the date of the Special Meeting. Outstanding awards under the 2012 Plan will remain outstanding and subject to the terms of the 2012 Plan and the respective award agreements, until the vesting, expiration or lapse of such awards in accordance with their terms.

Approval of the 2023 Plan is intended to enable us to continue granting stock-based incentive awards, which our Board of Directors believes is a critical element of our compensation program and vital to our continued ability to attract and retain skilled people in our competitive industry. We use stock-based awards to align the financial interests of award recipients with those of the Company’s shareholders. We believe that providing an equity stake in the future success of our business encourages and motivates award recipients to strive to achieve our business goals and to increase shareholder value.

Accordingly, we believe approving the 2023 Plan is in the best interest of our shareholders.

Given that the 2012 Plan expired on November 1, 2022, if the Proposal is not approved by our shareholders, we generally will not be able to continue to issue stock-based incentive compensation to our directors, employees, consultants and other service providers subject to certain exceptional circumstances such as inducement awards for new hires. As a result, we would lose an important compensation tool that enables us to compete for, incentivize and retain employees, directors, consultants and other service providers. Without a stock incentive plan, we would be forced to consider cash replacement alternatives to provide a market-competitive total compensation package necessary to retain and motivate talent critical to our future successes. These cash replacement alternatives could, among other things, reduce the cash available for growth and development and reduce the incentive opportunities of employees, consultants and other service providers. In short, if the Proposal is not approved by our shareholders, we believe our ability to attract and retain key talent in the competitive market for human capital would be significantly and negatively impacted, and this could affect our long-term success.

Accordingly, in this Proposal, shareholders are being asked to approve the 2023 Plan.

As of December 21, 2022, the closing price of our common stock was $264.47, as reported by the NYSE.


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CERTAIN COMPENSATION AND GOVERNANCE PRACTICES CONCERNING EQUITY AWARDS

The Company has instituted a number of investor friendly practices in connection with its use of stock-based incentive awards.

Certain Equity Award Practices

The Company recognizes the dilutive impact of stock-based incentive awards on our shareholders. We strive to balance the impact of dilution with our need to attract and retain talent. In addition, we rely on a number of other measures to address the dilutive effects of equity awards including: (i) use of longer term vesting with respect to many equity awards, a large number of which have a seven year vesting measurement period, (ii) avoiding mechanistic or formulaic grant practices that may create expectations around annual refresh grants that are not linked to market and business conditions, and (iii) repurchase of shares under our share repurchase programs as an offsetting mechanism to reduce dilution from equity awards.

Equity “Burn” Rate. The aggregate equity burn rate is a measurement of how quickly the Company is granting stock-based incentive awards in relation to shares outstanding and is calculated based on the number of awards granted during the year, divided by the weighted average shares of common stock outstanding. This formulation of burn rate is on a “gross” basis and does not factor in the return of shares to the pool available for grant in connection with associate departures. The Company’s gross burn rate in 2021 was 0.8%, and the average three-year gross burn rate (from 2019 to 2021) was 4.23%, which is far below the applicable 5.34% burn rate used by Institutional Shareholder Services (ISS) with respect to certain companies deemed by ISS to be in a comparable category.

Certain Plan Terms and Conditions. The 2023 Plan includes a number of features that will further align the interests of award recipients and the Company’s shareholders, including terms and conditions that we believe reflect sound compensation and corporate governance practices. These provisions include the following:

Shareholder Approval Required for Additional Shares. Unlike the 2012 Plan, the 2023 Plan does not contain an annual “evergreen” provision that provides for automatic increases of shares of our common stock authorized for issuance under the plan. The 2023 Plan authorizes a fixed share reserve. Therefore, we would have to obtain shareholder approval to increase the 2023 Plan’s share reserve.

No Discount Stock Options or Stock Appreciation Rights. All stock options and stock appreciation rights (“SAR”) will be granted with an exercise price equal to or greater than the fair market value of our common stock on the date the stock option or SAR is granted.

No Repricing of Stock Options or Stock Appreciation Rights. Unlike the 2012 Plan, the 2023 Plan prohibits, without shareholder approval, actions to reprice, replace, or repurchase options or SARs when the exercise price per share of an option or SAR exceeds the fair market value of the underlying shares.

Transferability. The 2023 Plan will allow for the transfer of awards under the 2023 Plan only (i) by will, (ii) by the laws of descent and distribution and (iii) for awards other than incentive stock options, to the extent authorized by the administrator.


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Share Repurchase Programs

In recent years, we have maintained active share repurchase programs as a means of creating shareholder value for our investors.

Share Repurchase Programs Offset Dilution. Share repurchases are an important component of our overall capital allocation strategy. We have attempted to be good stewards of capital and we strive to allocate capital in a manner that is in the long-term interest of our investors. We believe that our share repurchase programs have been a key component of our overall shareholder returns including the substantial increases in our share price from $24 per share at the time of our initial public offering and we expect that the ongoing use of share repurchases will be an important element of our ongoing strategy. Share repurchases also have the effect of offsetting dilution related to stock-based incentive awards. We are conscious that equity awards can be an important incentive for our leadership team in their efforts to drive shareholder returns while at the same time being mindful that share repurchases can be a means of offsetting dilution related to equity grants.

Five Year Share Repurchase Program Impact on Dilution. Our share repurchase programs have more than compensated for the impact of stock option and restricted stock unit issuances and dilution related to the 2012 Plan. We have maintained a robust share repurchase program over the past five years and have been opportunistic buyers of a significant number of shares of our common stock. Our shareholders understand the power of share repurchase programs as a valuable tool to drive shareholder returns and mitigate dilution. Our share repurchases have supported not only a return of capital to shareholders but also a complete offset to any shareholder dilution related to our equity awards over this time period. As shown below, over the past five years we completed substantial share repurchases which more than offset the dilutive effect of our equity awards granted during that time.

In 2022, the Company has continued to repurchase shares pursuant to its share repurchase program and has once again repurchased substantially more shares than it awarded through equity grants during the year.


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SUMMARY OF THE 2023 PLAN

We have established the 2023 Plan terms and conditions in order to provide equity incentive awards to our associates as part of the operation of our business.

Background

Equity is an important element of compensation. We operate in a highly competitive market for talent. Our corporate headquarters is located in the San Francisco Bay Area, and we compete for executive talent with many other companies that offer equity incentives as a key element of their compensation programs.

As a result, we believe that having a sufficient number of shares available for grant to our associates as part of our equity compensation is a critical element of our overall compensation approach.

We have sized the 2023 Plan in terms of share availability with the objective that it should be sufficient for our needs for the next three to five years of equity awards and possibly longer. The 4,000,000 shares authorized under the 2023 Plan takes into account that upon expiration of the 2012 Plan there were approximately 1.6 million shares that lapsed under the plan. Accordingly, we carried over such unused share balance into the 2023 Plan together with approximately 2.4 million incremental shares resulting in a 2023 Plan size of 4,000,000 authorized shares.

We have determined the size of the 2023 Plan taking into account a range of factors including our historical equity grant practices as well as anticipated future needs of our business. The exact rate at which we use shares under the 2023 Plan will depend upon a range of variables including the rate of our growth in expanding the business internationally as well as other factors such as the degree to which we acquire other businesses. We recently have acquired several other businesses and may in the future add additional complementary businesses that fit within our overall strategic direction as we continue to climb the luxury mountain. In addition, we have not made refresh equity awards to most of our personnel since April 2020 and so we anticipate some level of catch up award activity in light of the cadence of our recent grants.

Certain Plan Terms and Conditions

The following summary of the 2023 Plan provided herein sets forth the principal features of the 2023 Plan. This summary does not purport to be a complete description of all of the provisions of the 2023 Plan. It is qualified in its entirety by reference to the full text of the 2023 Plan, a copy of which is attached as Annex A to this proxy statement.

General. The 2023 Plan permits the Company to issue stock options (incentive and/or non-qualified), SARs, restricted stock, restricted stock units and other equity and cash awards.

Eligibility. Employees, non-employee directors and consultants of the Company and its subsidiaries would be eligible to receive awards under the 2023 Plan. As of December 21, 2022, we had approximately 5,500 employees, 7 non-employee directors and approximately 2,301 consultants who would have been eligible to be selected to receive awards under the 2023 Plan. Such persons are eligible to participate in the 2023 Plan on the basis that such participation provides an incentive, through ownership of our common stock, to continue in service to us and any parent and subsidiary corporations, and to help us compete effectively with other enterprises for the services of qualified persons.


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Share Reserve. The maximum number of shares of common stock that may be issued pursuant to the 2023 Plan is (i) 4,000,000, plus (ii) any shares of our common stock covered by any outstanding award granted under the 2012 Plan (or a portion of such award) that will be added to the 2023 Plan’s authorized share limit if such award (or a portion of such award) is forfeited, is canceled or expires (whether voluntarily or involuntarily) without the issuance of shares of our common stock or if the shares underlying such award (or a portion of such award) that are surrendered or withheld in payment of the award’s exercise or purchase price or in satisfaction of tax withholding obligations with respect to an award would be deemed not to have been issued for purposes of determining the maximum number of shares of our common stock that may be issued under the 2023 Plan had such award been an award granted under the 2023 Plan. We determined the 4,000,000 share number by considering the number of available but unused shares under the 2012 Plan at the 2012 Plan’s expiration (which 1,607,508 shares were no longer available for grant under the 2012 Plan upon its expiration) and our expected use of the 2023 Plan in connection with the growth of our business. As of November 1, 2022, when the 2012 Plan expired, there were (i) options to purchase approximately 4,472,856 shares of our common stock outstanding under the 2012 Plan, (ii) no SARs covering any shares outstanding under the 2012 Plan, (iii) awards other than options and SARs covering an aggregate of 24,390 shares outstanding under the 2012 Plan, and (iv) approximately 1,607,508 shares that remained available for future awards under the 2012 Plan. The weighted average exercise price of all options outstanding as of November 1, 2022 was approximately $157.54 and the weighted average remaining term of such options was approximately 4.82 years.

In addition, if an award under the 2023 Plan pursuant to which shares are issuable is forfeited, expires or terminates, then the shares underlying such award will be available for future issuance under the 2023 Plan.

To the extent not prohibited by applicable laws, any shares covered by an award that are surrendered or withheld in payment of the award’s exercise or purchase price, or in satisfaction of tax withholding obligations with respect to an award, will be deemed not to have been issued for purposes of determining the maximum number of shares that may be issued under the 2023 Plan, unless otherwise determined by the plan administrator. SARs payable in shares will reduce the maximum aggregate number of shares which may be issued under the 2012 Plan only by the net number of actual shares issued to the award recipient upon exercise of the SAR.

As described below under the heading “Certain Adjustments,” the plan administrator will adjust the share limit if it determines that a dividend, recapitalization, stock split, merger, consolidation or other similar corporate transaction or event equitably requires an adjustment. The plan administrator may issue awards in settlement or assumption of, or in substitution for, outstanding awards in connection with the Company or its subsidiary acquiring another entity, an interest in another entity or an additional interest in connection with a merger, stock purchase, asset purchase or other form of transaction, and the shares underlying such awards will not be counted against the share limit. Additionally, available shares under a shareholder approved plan of an acquired company, as appropriately adjusted to reflect such acquisition, may be used for awards under the 2023 Plan and will not be counted against the share limit, except as required by the rules of any applicable stock exchange.

Administration. Our Board of Directors, or a committee of our Board of Directors, will administer the 2023 Plan. To the extent permitted by applicable law, our Board of Directors or a committee of our Board of Directors may also authorize one or more officers or other employees to administer the 2023 Plan with respect to awards to employees or consultants who are neither directors nor officers. The administrator may determine and interpret the terms and conditions of the awards, including the employees, directors and consultants who will receive awards, the exercise price, the number of shares subject to each such award, the vesting schedule and exercisability of the awards, the restrictions on transferability of awards and the form of consideration payable upon exercise.


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Except in connection with equity restructurings and other situations in which share adjustments are specifically authorized, the 2023 Plan will prohibit repricing of any outstanding stock option or SAR awards without the prior approval of our shareholders. Specifically, without prior affirmative approval of Company’s shareholders, the Company may not (a) reduce the per share exercise price of an option or base amount of a SAR previously awarded to any Grantee, (b) cancel, surrender, replace or otherwise exchange any outstanding option or SAR where the fair market value of a share of our common stock underlying such option or SAR is less than its per share exercise price or base amount for a new stock option or SAR, another award, cash, shares or other securities or (c) take any other action that is considered a “repricing” for purposes of the shareholder approval rules of the applicable securities exchange or inter-dealer quotation system on which the our shares of common stock are listed or quoted.

Stock Options. The 2023 Plan will allow for the grant of incentive stock options that qualify under Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) only to our employees and employees of any parent or subsidiary of ours. Non-qualified stock options may be granted to our employees, directors and consultants and those of any parent or subsidiary of ours. The exercise price of all options granted under the 2023 Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any employee who owns more than 10% of the voting power of all classes of our outstanding stock or any parent or subsidiary corporation as of the grant date, the term must not exceed five years, and the exercise price must equal at least 110% of the fair market value on the grant date. After the continuous service of an employee, director or consultant terminates, he or she may exercise his or her option, to the extent vested, for the period of time specified in the option agreement. However, an option may not be exercised later than the expiration of its term.

Stock Appreciation Rights. The 2023 Plan will allow for the grant of SARs. SARs allow the recipient to receive the appreciation in the fair market value of our common stock between the date of grant and the exercise date. The administrator will determine the terms of SARs, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the base appreciation amount for the cash or shares to be issued pursuant to the exercise of a SAR will be no less than 100% of the fair market value per share on the date of grant. After the continuous service of an employee, director or consultant terminates, he or she may exercise his or her SAR, to the extent vested, only to the extent provided in the SAR agreement.

Restricted Stock Awards. The 2023 Plan will allow for the grant of restricted stock. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant. The administrator may impose whatever conditions on vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

Restricted Stock Units. The 2023 Plan will allow for the grant of restricted stock units. Restricted stock units are awards that will result in payment to a recipient at the end of a specified period only if the vesting criteria established by the administrator are achieved or the award otherwise vests. The administrator may impose whatever conditions to vesting, or restrictions and conditions to payment that it determines to be appropriate. The administrator may set restrictions based on the achievement of specific performance goals or on the continuation of service or employment. Payments of earned restricted stock units may be made, in the administrator’s discretion, in cash, with shares of our common stock or other securities, or a combination thereof.


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Terms of Awards. Subject to the terms of the 2023 Plan, the administrator will determine the provisions, terms, and conditions of each award including, but not limited to, the award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares, or other consideration) upon settlement of the award, payment contingencies, and satisfaction of any performance criteria.

Transferability of Awards. Incentive stock options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the award recipient, only by the award recipient. Awards other than incentive stock options will be allowed to be transferred (i) by will or by the laws of descent and distribution, (ii) during the lifetime of the award recipient, to the extent and in the manner authorized by the administrator, but only to the extent such transfers are made in accordance with applicable laws to family members, to family trusts, to family controlled entities, to charitable organizations, and pursuant to domestic relations orders or agreements, in all cases without payment for such transfers to the award recipient and (iii) as otherwise expressly permitted by the administrator and in accordance with applicable laws.

Certain Adjustments. Subject to any required action by the Company’s shareholders, applicable laws and the change in control provisions as discussed below, (i) the number and kind of shares or other securities or property covered by any outstanding award, (ii) the number and kind of shares that have been authorized for issuance under the 2023 Plan, (iii) the exercise price, base amount or purchase price of any outstanding award and (iv) any other terms that the administrator determines require adjustment, will be proportionately adjusted for: (A) any increase or decrease in the number of issued shares of our common stock resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, or similar transaction affecting the shares; (B) any other increase or decrease in the number of issued shares of our common stock effected without receipt of consideration by the Company; or (C) any other transaction with respect to the shares of our common stock, including any distribution of cash, securities or other property to shareholders (other than a normal cash dividend), a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete), a “corporate transaction” as defined in Section 424 of the Code or any similar transaction. Such adjustments to outstanding awards will be effected in a manner that is intended to preclude the enlargement or diminution of rights and benefits under such awards. Except as the administrator determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, will affect, and no adjustment will be made with respect to, the number or price of shares of our common stock subject to an award.


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Changes in Control. The 2023 Plan provides that in the event of a change in control, as such term is defined in the 2023 Plan, all outstanding awards will be treated in the manner described in the definitive transaction agreement (or, if there is no such agreement, in the manner determined by the administrator). The treatment specified in the definitive transaction agreement or as determined by the administrator may include one or more of the following: (i) cancellation of the awards for no consideration; (ii) assumption or substitution of the awards with adjustments as to the number or kind of shares or other securities or property and applicable exercise price, base amount, or purchase price; (iii) acceleration of vesting of the awards; (iv) the cancellation of the vested awards, together with a payment to the grantees holding such vested awards so canceled of an amount based upon the consideration being paid per share in connection with such change in control in cash or, in the sole discretion of the Administrator, in the form of such other consideration necessary for a grantee to receive property, cash or securities (or a combination thereof) as the grantee would have been entitled to receive upon such change in control, if the grantee had been, immediately prior to such change in control, the holder of the number of shares covered by the award at such time, less any applicable exercise price or base amount; provided, however, that holders of vested options and vested SARs shall be entitled to such consideration only if the per-share consideration exceeds the applicable exercise price or base amount, and to the extent that the per-share consideration is less than or equal to the applicable exercise price or base amount, such vested options and vested SARs shall be cancelled for no consideration; or (v) the replacement of the awards with a cash incentive program that preserves the value of the awards so replaced (determined as of such change in control).

Plan Amendments and Termination. The 2023 Plan will automatically terminate ten years following the date it becomes effective, unless we terminate it sooner. In addition, our Board of Directors has the authority to amend, suspend or terminate the 2023 Plan, subject to shareholder approval in the event such approval is required by law. No amendment, suspension or termination of the 2023 Plan or any award shall materially adversely affect the rights under any outstanding award without the holder’s written consent. However, an amendment that may cause an incentive stock option to become a non-qualified stock option or the administrator considers necessary or advisable to comply with applicable laws will not be treated as materially adversely affecting the rights under any outstanding award.

Certain Interests of Directors and Officers. In considering the recommendation of the Board of Directors with respect to the approval of the 2023 Plan, shareholders should be aware that, as discussed above, directors and officers are eligible to receive awards under the 2023 Plan. The Board of Directors recognizes that approval of this proposal may benefit our directors and their successors.

CERTAIN U.S. FEDERAL TAX CONSEQUENCES

The following summary of U.S. federal taxes applicable to awards that may be provided under the 2023 Plan and the disposition of shares acquired pursuant to the exercise or settlement of such awards, based on provisions of the Code and the regulations thereunder in effect on the date of this proxy statement. This summary is not intended to be a complete statement of applicable law, nor does it address foreign, state, local, and payroll tax considerations. This summary assumes that all awards described in the summary are exempt from, or comply with, the requirement of Section 409A of the Code. Moreover, the U.S. federal income tax consequences to any particular participant may differ from those described herein by reason of, among other things, the particular circumstances of such participant.


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Non-Qualified Stock Options. The grant of a non-qualified stock option under the 2023 Plan generally will not result in any U.S. Federal income tax consequences to the award recipient or to the Company. Upon exercise of a non-qualified stock option, the award recipient is generally subject to income taxes at the rate applicable to ordinary compensation income on the difference between the option exercise price and the fair market value of the shares on the date of exercise. This income is generally subject to withholding for U.S. Federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by the award recipient, subject to possible limitations imposed by Section 162(m) or Section 280G of the Code. Any gain or loss on the award recipient’s subsequent disposition of the shares of the Company’s common stock will receive long or short-term capital gain or loss treatment, depending on whether the shares are held for more than one year following exercise. The Company does not receive a tax deduction for any such gain.

Incentive Stock Options. The grant of an incentive stock option under the 2023 Plan will not result in any U.S. Federal income tax consequences to the award recipient or to the Company. An award recipient recognizes no U.S. Federal taxable income upon exercising an incentive stock option (subject to the alternative minimum tax rules discussed below), and the Company receives no deduction at the time of exercise. In the event of a disposition of stock acquired upon exercise of an incentive stock option, the tax consequences depend upon how long the award recipient has held the shares of the Company’s common stock. If the award recipient does not dispose of the shares within two years after the incentive stock option was granted, nor within one year after the incentive stock option was exercised, the award recipient will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and the exercise price. The Company is not entitled to any deduction under these circumstances.

If the award recipient fails to satisfy either of the foregoing holding periods, the award recipient must recognize ordinary income in the year of the disposition, which is referred to as a “disqualifying disposition.” The amount of such ordinary income generally is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or (ii) the difference between the fair market value of the stock on the exercise date and the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long or short-term capital gain, depending on whether the stock was held for more than one year. The Company, in the year of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary income recognized by the award recipient, subject to possible limitations imposed by Section 162(m) and Section 280G of the Code.

The “spread” under an incentive stock option—i.e., the difference between the fair market value of the shares at exercise and the exercise price—is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax. If an award recipient’s alternative minimum tax liability exceeds such award recipient’s regular income tax liability, the award recipient will owe the larger amount of taxes. In order to avoid the application of alternative minimum tax with respect to incentive stock options, the award recipient must sell the shares within the same calendar year in which the incentive stock options are exercised. However, such a sale of shares within the same year of exercise will constitute a disqualifying disposition, as described above.

Restricted Stock. The grant of restricted stock will generally subject the recipient to ordinary compensation income on the difference between the amount paid for such stock and the fair market value of the shares on the date that the restrictions lapse. This income is generally subject to withholding for U.S. Federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized by the recipient, subject to possible limitations imposed by Section 162(m) and Section 280G of the Code. Any gain or loss on the recipient’s subsequent disposition of the shares will receive long or short-term capital gain or loss treatment depending on how long the stock has been held since the restrictions lapsed. The Company does not receive a tax deduction for any such gain.


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SEC Form DEF 14A filed by RH