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Exhibit 10.39

SEPARATION AGREEMENT AND GENERAL RELEASE

        In consideration of the commitments set forth below, Restoration
Hardware, Inc., a Delaware corporation ("Restoration" or the "Company"), and
Thomas M. Bazzone ("Executive") (collectively "the parties") hereby agree as
follows:

RECITALS

        WHEREAS, Executive is currently employed by the Company as its Executive
Vice President, Chief Operating Officer and Assistant Secretary and is also a
Director of the Company; and

        WHEREAS, Executive and the Company wish to terminate their employment
relationship and officer and director relationship on mutually agreeable terms,
as well as to terminate their relationship whether on an employment or at an
officer or director level at any related or affiliated entities, pursuant to the
terms and conditions of this Separation Agreement and General Release (the
"Agreement");

        NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties agree as follows:

AGREEMENT

        1.    Separation From Employment; Termination of Employment.    The
parties hereby agree that, effective December 19, 2003 ("Separation Date"),
Executive's employment and other relationships with the Company and any related
or affiliated entities shall terminate in accordance with Schedule A hereto;
provided, however, the provisions of the Proprietary Information and Inventions
Agreement between Executive and the Company (the "Proprietary Information
Agreement") shall survive the termination of Executive's employment. Except as
provided by this Agreement, all benefits and perquisites of employment will
cease as of the Separation Date.

        2.    Restoration's Obligations.    In consideration for the promises
made by Executive in this Agreement, Restoration shall provide the following
severance benefits to Executive, in lieu of any rights or benefits Executive
otherwise may have enjoyed as part of his employment relationship:

        2.1    Severance Pay.    Restoration shall continue to pay Executive's
current salary (not including any car allowance but inclusive of Executive's
prior bonus (which amount was an aggregate $50,000)), less applicable
withholdings, on the Company's regular paydays as a severance benefit, the
aggregate gross amount of which shall not exceed $365,000, for the shorter of
(hereinafter, the "Severance Period") (i) one (1) year from the Separation Date
or (ii) the period from the Separation Date until the date Executive is self
employed or employed by or obtains a consulting arrangement with another person
or entity. Executive is obligated, as a material term hereof, to search in good
faith for another executive position consistent with his obligations under
Sections 3.3 and 3.4 below and Executive's continuation of salary will be
subject to early termination if Executive is not seeking employment in good
faith or if Executive repeatedly fails to accept offers of employment that have
comparable salary and benefits to those that have been paid to Executive by the
Company. Within ten (10) days of the date Executive accepts employment or a
consulting arrangement with another person or entity, whether as an independent
contractor or employee, Executive shall advise Restoration of the terms of such
employment arrangement (but not the identity of the employer). Executive
acknowledges and agrees that his failure to abide by the foregoing terms shall
give Restoration the right, at its sole and exclusive option, to stop payments
hereunder and collect back from Executive any payments he received after failing
to meet the foregoing obligations.

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        2.2    Payment of COBRA Premiums.    If Executive makes a timely
election to continue medical coverage under Restoration's group health plan in
accordance with COBRA, Restoration also shall pay Executive's COBRA premiums for
the Severance Period. If Executive wishes to continue his COBRA coverage after
the Severance Period, he may continue this coverage at his own expense by paying
the applicable premiums. If Executive declines COBRA coverage through
Restoration in favor of continued medical coverage through his wife's employer's
group health plan and Executive's wife subsequently elects to continue during
the Severance Period that coverage under COBRA, Restoration shall pay any such
COBRA premiums during such Severance Period, not to exceed an aggregate of
$12,000.

        3.    Executive's Obligations.    

        3.1    Return of Property.    Executive represents and warrants that he
will return to the Company all property of the Company that was in his
possession, including, without limitation, all tangible proprietary information,
documents, books, records, reports, contracts, lists, computer disks (or other
computer- generated files or data), or copies thereof, created on any medium,
prepared or obtained by Executive in the course of or incident to his employment
with the Company. Executive agrees that he will return all such property to the
Company no later than the Separation Date.

        3.2    Confidential Information.    Executive acknowledges his
continuing obligation to protect the confidentiality of the Company's
confidential and proprietary information under the Proprietary Information
Agreement, which agreement shall remain in full force and effect according to
its terms notwithstanding any provision hereof.

        3.3    Non-Competition.    To preserve and protect the assets of
Restoration, including the goodwill and customers of Restoration and/or its
affiliates, and to preserve and protect the goodwill and business interests of
Restoration in the future, and in consideration of the severance and benefits
provided to Executive under this Agreement, Executive agrees that, for a period
of one (1) year from the Separation Date (the "Restricted Period"), Executive
will not directly or indirectly engage in, or have any ownership interest in, or
participate in the financing operation, management or control of, any person,
firm, corporation or business that engages in the Restricted Business of
Restoration. "Restricted Business of Restoration" means any business engaged in
by (i) a retail company, including without limitation, a subsidiary or business
unit of such company, where an aggregate of 25% or more of its revenue
(including revenue of any subsidiary or business unit) is derived from the home
furnishings business, including without limitation, lighting, floor covering,
furniture, hardware and tools, or hard goods business or (ii) a manufacturer,
supplier or other vendor that has a material vendor relationship with the
Company. In connection with Executive's potential employment or a consulting
arrangement with another person or entity, whether as an independent contractor
or employee, upon the specific written request of Executive, the Company agrees
to provide Executive in writing its position as to whether or not such person or
entity engages in the Restricted Business of Restoration.

        3.4    Non-Solicitation.    In consideration of the severance and
benefits provided to Executive under this Agreement, Executive agrees that,
during the Restricted Period, Executive shall not, without the prior written
consent of Restoration, directly or indirectly, including, without limitation,
as a sole proprietor, member of a partnership, stockholder or investor, officer
or director of a corporation, or as an employee, associate, consultant,
independent contractor or agent of any person, partnership, corporation or other
business organization or entity (i) solicit or endeavor to entice away from
Restoration any person or entity who is or, during the then most recent 8-month
period, was employed by, or had served as an agent or key consultant of,
Restoration, (ii) solicit or endeavor to entice away from Restoration any person
or entity who is or was, within the then most recent 8-month period, a customer
of Restoration, or (iii) attempt to solicit any business that is related to the
business of Restoration or any business that is competitive

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with Restoration. Furthermore, during the Restricted Period, Executive shall
not, for himself or for any other entity, hire or employ any person who is or,
during the then most recent 8-month period, was employed by, or had served as an
agent or key consultant of, Restoration.

        4.    No Claims Filed.    Executive represents that he does not have
pending against the Company or any employee, agent, official, or director of the
Company any claim, charge, or action in or within any federal, state, or local
court or administrative agency. Executive agrees, to the extent necessary to
effectuate the provisions of this Agreement, within eight (8) days after the
execution of this Agreement, to cause to be dismissed, withdrawn or discontinued
all complaints or proceedings instituted by Executive against the Company with
any state or federal administrative agency or judicial body, with copies of
relevant documents delivered to the Company within the same time period.

        5.    Executive's Release of Claims.    Executive completely releases
and forever discharges Restoration, its affiliated, directly or indirectly
related, and subsidiary companies (specifically including but not limited to The
Michaels Furniture Company, Inc., a California corporation), and its and their
present and former directors, officers, agents and employees (specifically
including but not limited to Gary G. Friedman, the Chief Executive Officer of
Restoration), and all of their respective heirs, estates, representatives,
successors and assigns (collectively, the "Released Parties"), from all claims,
rights, demands, actions, obligations, liabilities, and causes of action of
every kind and character, known or unknown, mature or unmatured, arising from
any act or omission or condition occurring on or prior to the signing of this
Agreement, whether based on tort or contract (express or implied), or any
federal, state, or local law, statute, or regulation, or any other theory of
recovery, including all claims for compensation or bonuses, and whether for
compensatory, punitive, or any other form of damages, which he may now have, has
ever had, or may in the future have, including but not limited to all claims
arising from Executive's employment with the Company or his separation from the
Company. This release includes, but is not limited to, any claims arising under
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Americans with Disabilities Act of
1990, the Fair Labor Standards Act, the WARN Act, the California Fair Employment
and Housing Act, the California Labor Code (including its section 201, et seq.,
and section 1100, et seq.), the California Business and Professions Code
(including its section 17200, et seq.), or any other claims for violation of any
federal, state, or municipal statutes, and any and all claims for attorneys'
fees and costs.

        6.    Company's Release of Claims.    In consideration for Executive's
release pursuant to Section 5 of this Agreement, the Company agrees to waive and
release and promises never to assert any claims or causes of action, whether or
not now known, against Executive or any of his heirs, executors, administrators,
assigns and successors (collectively, "Executive's Released Parties"), with
respect to any matter arising out of the scope of Executive's employment or the
termination of that employment.

        7.    Section 1542 Waiver.    It is understood and agreed that this a
full and final release covering all known, unknown, anticipated, and
unanticipated injuries, debts, claims, or damages which may have arisen or may
be connected with the employment of Executive by the Company, or his separation
from employment with the Company. Each of the Company and Executive hereby
waives any and all rights or claims which it or he may now or in the future have
against the Released Parties or Executive Released Parties, as applicable, under
the terms of Section 1542 of the California Civil Code, which provides as
follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

        8.    Taxes.    The Company makes no representations or warranties to
Executive regarding the tax consequences of the payments described above. The
Company will issue a W-2 and/or Form 1099 as it

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deems appropriate. While the Company intends to withhold applicable taxes in
connection with its payments to Executive under this Agreement, Executive agrees
that he is exclusively responsible for the payment of any federal, state or
other taxes that may be assessed on these payments and further agrees to
indemnify, defend and hold harmless the Company against any taxes resulting from
or arising out of a dispute over the purported failure of the Company to
withhold sufficient wage-related taxes associated with the payments.

        9.    Confidentiality.    Executive understands and agrees that this
Agreement and each of its terms, and the negotiations surrounding it, are
confidential and shall not be disclosed to any entity or person, for any reason,
at any time, without the prior written consent of the Company, unless required
by law. Notwithstanding the foregoing, Executive may disclose the terms of this
Agreement to legal, financial, and tax advisors, provided that Executive advises
those to whom he makes any such disclosures that the information is confidential
and require that they agree to maintain the confidentiality of such information.

        10.    Indemnification.    Notwithstanding the terms of Section 5 of
this Agreement, all rights of indemnification previously provided by the Company
to Executive pursuant to the Company's Second Amended and Restated Certificate
of Incorporation, as amended, Amended and Restated Bylaws, and/or other charter
documents of the Company, and/or pursuant to that certain Indemnification
Agreement between Executive and the Company (the "Indemnification Agreement"),
shall continue in full force and effect in accordance with their terms following
the date of this Agreement.

        11.    Nondisparagement.    Executive agrees that he will not make or
publish any statements that would disparage the Company, its affiliated,
related, and subsidiary entities, or its present or former shareholders,
officers, directors, agents, and employees. The Company's directors and officers
agree not to disparage Executive in any manner likely to be harmful to
Executive's reputation. Notwithstanding the terms of this Section 11, the
parties acknowledge and agree that the Company shall not violate the terms
hereof if, in accordance with applicable law or the rules and regulations
promulgated under the Securities Exchange Act of 1934, as amended, or the
Securities Act of 1933, as amended, the Company makes a copy of this Agreement
publicly available, whether by filing a copy of this Agreement with the
Securities and Exchange Commission or otherwise.

        12.    Nonadmission.    The parties understand and agree that the
furnishing of the consideration for this Agreement shall not be deemed or
construed at any time or for any purpose as an admission of liability by the
Company or by Executive.

        13.    Integration.    The parties agree that the terms of this
Agreement, including Schedule A hereto, represent the entire understanding
between the parties regarding their subject matter, supersede and replace any
and all prior agreements and understandings between them (including without
limitation the Executive's offer of employment from the Company dated June 26,
2001) (except as otherwise provided herein in connection with the Proprietary
Information Agreement and the Indemnification Agreement), and only can be
modified in a writing executed by the party or parties to be bound thereby and
may not be contradicted by evidence of any prior or contemporaneous agreement,
except that, notwithstanding the terms of this Section 13, this Agreement shall
not supersede, replace, modify or amend Executive's stock option agreements with
the Company.

        14.    Severability.    If any provision of this Agreement, or its
application to any person, place, or circumstance, is held by an arbitrator or a
court of competent jurisdiction to be invalid, unenforceable, or void, such
provision shall be enforced to the greatest extent permitted by law, and the
remainder of this Agreement and such provision as applied to other persons,
places, and circumstances shall remain in full force and effect.

        15.    Arbitration.    All claims that the parties have against each
other, in any way related to the subject matter, interpretation, application, or
alleged breach of this Agreement ("Arbitrable Claims")

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shall be resolved by arbitration. Arbitration shall be final and binding upon
the parties and shall be the exclusive remedy for all Arbitrable Claims.
Arbitration of Arbitrable Claims shall be in accordance with the National Rules
for the Resolution of Employment Disputes of the American Arbitration
Association, as amended. Either party may bring an action in court to compel
arbitration under this Agreement or to enforce an arbitration award.
Additionally, either party shall have the right to seek provisional remedies or
interim relief from a court of competent jurisdiction for any claim or
controversy arising out of related to violations of the confidentiality
provisions of this Agreement. Otherwise, neither party shall initiate or
prosecute any lawsuit or administrative action in any way related to any
Arbitrable Claim. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY
JURY IN REGARD TO ARBITRABLE CLAIMS.

        16.    Governing Law.    This Agreement shall be governed by and
construed in accordance with the law of the State of California.

        17.    Counterparts; Facsimiles.    This Agreement may be executed in
counterparts, and each counterpart shall have the same force and effect as an
original and shall constitute an effective, binding Agreement on the part of
each of the undersigned. This Agreement may be executed by facsimile signature
with the same force and effect as if all original signatures were set forth in a
single document.

        18.    Acknowledgements.    The parties acknowledge and agree that:
(a) they have been advised to and have had the opportunity to consult counsel in
regard to this Agreement; (b) they have read and understand the Agreement and
they are fully aware of its legal effect; and (c) they are entering into this
Agreement freely and voluntarily, and based on each party's own judgment and not
on any representations or promises made by the other party, other than those
contained in this Agreement.

        IN WITNESS WHEREOF, the parties hereto has caused this Agreement to be
duly executed.

COMPANY:   EXECUTIVE:
Restoration Hardware, Inc.
 
Thomas M. Bazzone
By:
/s/  GARY FRIEDMAN      

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By:
/s/  THOMAS M. BAZZONE      

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Name: Gary Friedman     Thomas M. Bazzone Title: CEO       DATED: 12/2/2003  
DATED: 12/2/03

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Schedule A

        Effective as of the Separation Date, the Company hereby terminates
Executive "Not for Cause," as such term is defined and set forth in Executive's
stock option agreements with the Company. In connection with such termination,
Executive hereby voluntarily resigns effective immediately from all director and
other positions with the Company and any related or affiliated entities and any
employment with the Company shall cease as of the Separation Date.

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QuickLinks

Exhibit 10.39

SEPARATION AGREEMENT AND GENERAL RELEASE
RECITALS
AGREEMENT
Schedule A