Micro Cap Partners, L.P. Letterhead] November 8, 2007
EXHIBIT
99.7
[Micro
Cap Partners, L.P.
Letterhead]
November 8, 2007
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To:
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Home
Holdings, LLC
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Re:
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Equity
Rollover
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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 ▇▇▇▇▇▇, 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 transfer,
contribute and deliver to Parent immediately prior to the Effective Time that
number of Shares in the aggregate as set forth in Exhibit A (the
“Rollover Contribution Shares”) in exchange for a pro rata (in kind and
amount) share of the equity of Parent based on 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 each
Rollover Contribution Share is equal to the Merger Consideration (such share
of
the equity of Parent, the “Subject Equity Securities”), provided that the
undersigned shall not, under any circumstances, be obligated to contribute
to
Parent a number of Shares in excess of the Rollover Contribution
Shares. Any Shares owned by the undersigned and any other Investors
other than the Rollover Contribution Shares shall be converted in the Merger
into the right to receive the Merger Consideration. The undersigned
agrees and acknowledges that ▇▇▇▇▇▇▇▇▇ Partners VI, L.P. and ▇▇▇▇▇▇▇▇▇ Partners
VI Offshore, L.P. (collectively “▇▇▇▇▇▇▇▇▇”) may syndicate a portion of their
Equity Commitment; provided that all such ▇▇▇▇▇▇▇▇▇ 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
at
the Closing 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
▇▇▇▇▇▇▇▇▇ or to any of its affiliates (including limited partners that are
not
banks). Parent hereby agrees to use its reasonable best efforts to
structure the transactions contemplated in this letter to provide that the
Rollover Contribution Shares shall constitute a nontaxable contribution pursuant
to Section 721 of the Code.
The
undersigned’s obligation to transfer, contribute and deliver the Rollover
Contribution Shares to Parent 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 ▇▇▇▇▇▇▇▇▇ 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 contribution and delivery of the
Rollover Contribution Shares 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:
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(i)
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The
undersigned is an “accredited investor” as such term is defined in Rule
501 of the Securities Act.
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(ii)
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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.
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Parent
hereby represents, warrants and covenants to the undersigned as
follows:
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(i)
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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.
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(ii)
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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 ▇▇▇▇▇▇▇▇▇ or any of its affiliates or
any of
the other Investors that are parties to Rollover Agreements or any
Investor that is investing through Vardon Capital Management, LLC
and (b)
the same class as such other equity securities in Parent that are
acquired
by ▇▇▇▇▇▇▇▇▇ or any of its affiliates or any of the other Investors
that
are parties to Rollover Agreements or any Investor that is investing
through Vardon Capital Management,
LLC.
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2
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(iii)
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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.
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(iv)
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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.
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This
letter, and the undersigned’s obligation to transfer, contribute and deliver,
and any restrictions on transfer of, the Rollover Contribution Shares (to the
extent required by the terms hereof) 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.
The
undersigned will not transfer (other than as permitted in the following
sentence), and will have at Closing, the Rollover Contribution
Shares. Prior to the Closing, no Investor shall transfer, directly or
indirectly, its equity interests in Parent or assign its obligation to transfer,
contribute and deliver the Rollover Contribution Shares 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; providedfurther, that ▇▇▇▇▇▇ 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,
▇▇▇▇▇▇▇ 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 value
of
the undersigned’s Rollover Contribution Shares which shall be equal to the
number of such Rollover Contribution Shares multiplied by the value of the
Merger Consideration under the Merger Agreement.
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The
undersigned is hereby executing and performing this letter solely in its
capacity as the owner of the Rollover Contribution Shares, 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 Rollover
Contribution Shares which shall be equal to the number of such Rollover
Contribution Shares multiplied by the value of the Merger Consideration under
the Merger Agreement.
4
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 Purchaser 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.
[Remainder
of page intentionally left blank]
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Very
truly yours,
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MICRO
CAP PARTNERS, L.P.
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By:
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Its
General Partner
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By:
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Palo
Alto Investors,
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Its
Manager
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By:
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/s/ ▇▇▇▇ ▇▇▇▇▇▇ | ||
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Name:
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▇▇▇▇
▇▇▇▇▇▇
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Title:
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Chief
Operating Officer
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[Signature
Page to the Rollover
Agreement]
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▇▇▇▇▇▇
and acknowledged:
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HOME
HOLDINGS, LLC
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By:
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/s/ ▇. ▇▇▇▇▇▇▇ ▇▇▇ | |
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Name:
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▇.
▇▇▇▇▇▇▇ ▇▇▇
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Title:
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President
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[Signature
Page to the Rollover
Agreement]
Exhibit
A
Number
of Shares
Micro
Cap
Partners, L.P. - 300,000 Shares