<PAGE>
                                                                   EXHIBIT 10.49

                           RESTORATION HARDWARE, INC.
                        NOTICE OF GRANT OF STOCK OPTION

        Notice is hereby given of the following option grant (the "Option") to
purchase shares of Common Stock of Restoration Hardware, Inc. (the
"Corporation"):

        Optionee:                  Thomas M. Bazzone

        Grant Date:                July 16, 2001

        Vesting Commencement Date: July 16, 2001

        Exercise Price:            $5.50

        Number of Option Shares:   400,000

        Expiration Date:           July 16, 2011

        Type of Option:            Non-Statutory Option

        Exercise Schedule: The Option shall become exercisable for thirty-three
        and one-third percent (33 1/3%) of the Option Shares upon Optionee's
        completion of each of the three (3) years of Service measured from and
        after the Vesting Commencement Date, with the first such installment to
        become exercisable on the first anniversary of the Vesting Commencement
        Date. In no event shall the Option become exercisable for any additional
        Option Shares after Optionee's cessation of Service.

        Optionee agrees to be bound by the terms of the Option as set forth in
the Stock Option Agreement attached hereto as Exhibit A.

        No Employment or Service Contract. Nothing in this notice or in the
attached Stock Option Agreement shall confer upon Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Service at any time for any
reason, with or without cause.


<PAGE>

        Definitions. All capitalized terms in this notice shall have the meaning
assigned to them in this notice or in the attached Stock Option Agreement.

DATED: July 16, 2001

                                            RESTORATION HARDWARE, INC.

                                            By: /s/ Gary G. Friedman
                                                ________________________________

                                            Title: Chief Executive Officer
                                                   _____________________________


                                                   /s/ Thomas M. Bazzone
                                            ____________________________________
                                            OPTIONEE

                                            Address: ___________________________

                                            ____________________________________

                                            ____________________________________


ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT


                                       2

<PAGE>

                           RESTORATION HARDWARE, INC.
                             STOCK OPTION AGREEMENT

        1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the
Grant Date, an option to purchase up to the number of Option Shares specified in
the Grant Notice subject to the terms and provisions of this Agreement and the
Grant Notice. The Option Shares shall be purchasable from time to time during
the option term specified in Paragraph 2 below at the Exercise Price. All
capitalized terms in this Agreement shall have the meaning assigned to them in
the attached Appendix.

        2. OPTION TERM. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6 below.

        3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. However, this option may, in connection with the
Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of the Optionee's immediate family or to a trust
established for the exclusive benefit of the Optionee and/or one or more such
family members. The assigned portion shall be exercisable only by the person or
persons who acquire a proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for this option immediately prior to such assignment.

        4. DATE OF EXERCISE. This option shall become exercisable for the Option
Shares in one or more installments as specified in the Grant Notice. As the
option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6 below.

        5. CESSATION OF SERVICE. The option term specified in Paragraph 2 above
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:

            (a) Should Optionee cease to remain in Service for any reason (other
than death, Permanent Disability or Misconduct) while this option is
outstanding, then the period for exercising this option shall be reduced to a
three (3)-month period commencing with the date of such cessation of Service,
but in no event shall this option be exercisable at any time after the
Expiration Date.

            (b) Should Optionee die while holding this option, then the personal
representative of Optionee's estate or the person or persons to whom the option
is transferred pursuant to Optionee's will or in accordance with the laws of
inheritance


<PAGE>

shall have the right to exercise this option. Such right shall lapse, and this
option shall cease to be outstanding, upon the earlier of (i) the expiration of
the twelve (12)-month period measured from the date of Optionee's death or (ii)
the Expiration Date.

            (c) Should Optionee cease Service by reason of Permanent Disability
while this option is outstanding, then the period for exercising this option
shall be reduced to a twelve (12)-month period commencing with the date of such
cessation of Service, but in no event shall this option be exercisable at any
time after the Expiration Date.

            (d) During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than the number of vested
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Service, except as otherwise provided in this Agreement. Upon the
expiration of such limited exercise period or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding for any otherwise
exercisable Option Shares for which the option has not been exercised. However,
this option shall, immediately upon Optionee's cessation of Service for any
reason, terminate and cease to be outstanding with respect to any Option Shares
for which this option is not otherwise at that time exercisable.

            (e) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.

        6. SPECIAL ACCELERATION OF OPTION.

            (a) Change in Control.

                (i) This option to the extent outstanding at the time of a
Change in Control transaction but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of such Change in Control, become exercisable for all of the
Option Shares at the time subject to this option and may be exercised for any or
all of those Option Shares as fully vested shares of Common Stock. However, this
option shall not become exercisable on such an accelerated basis if and to the
extent: (i) this option is, in connection with the Change in Control, to be
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control
transaction; or (ii) this option is to be replaced with a cash incentive program
of the successor corporation which preserves the spread existing at the time of
the Change in Control on the Option Shares for which this option is not
otherwise at that time exercisable (the excess of the Fair Market Value of those
Option Shares over the aggregate Exercise Price payable for such shares) and
provides for subsequent payout in accordance with the same option
exercise/vesting schedule set forth in the Grant Notice.

                (ii) Immediately following the Change in Control, this option
shall terminate and cease to be outstanding, except to the extent assumed by the

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successor corporation (or parent thereof) or otherwise continued in full force
and effect pursuant to the terms of the Change in Control transaction.

                (iii) If this option is assumed in connection with a Change in
Control (or otherwise continued in full force and effect), then this option
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities or other property which would have
been issuable to Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control, and
appropriate adjustments shall also be made to the Exercise Price, provided the
aggregate Exercise Price shall remain the same.

            (b) Termination of Service Not for Cause.

                (i) In the event the Optionee's Service is terminated by the
Corporation Not for Cause, this option automatically shall become vested and
exercisable for the Option Shares at the time represented by this Option which
would have vested within one (1) year measured from the termination of the
Optionee's Service.

            (c) Involuntary Termination of Service. If a Change in Control
materially affects the Optionee's employment, responsibilities or compensation
such that Optionee's Service is terminated by reason of:

                (i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct; or

                (ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation which materially reduces Optionee's
duties and responsibilities or the level of management to which Optionee
reports, (B) a reduction in Optionee's level of compensation (including base
salary, fringe benefits and target bonus under any corporate-performance based
bonus or incentive programs), or (C) a relocation of such Optionee's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without Optionee's
consent,

this option automatically shall become vested and exercisable for the Option
Shares at the time represented by this option which would have vested within one
(1) year measured from the termination of the Optionee's Service.

            (d) This option may also be subject to acceleration in accordance
with the terms of any special addendum attached to this Agreement.

            (e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.


<PAGE>

        7. ADJUSTMENT IN OPTION SHARES.

        Should any change be made to Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(i) the total number and/or class of securities subject to this option and (ii)
the Exercise Price in order to reflect such change and thereby preclude a
dilution or enlargement of benefits hereunder.

        8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.

        9. MANNER OF EXERCISING OPTION.

            (a) In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the following
actions:

                (i) Execute and deliver to the Corporation a Notice of Exercise
for the Option Shares for which the option is exercised;

                (ii) Pay the aggregate Exercise Price for the purchased shares
in one or more of the following forms:

                    (A) Cash or check made payable to the Corporation; or

                    (B) A promissory note payable to the Corporation, but only
to the extent authorized by the Board in accordance with Paragraph 13 below; or

                    (C) Shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting purposes
and valued at their Fair Market Value on the Exercise Date; or

                    (D) Through a special sale and remittance procedure pursuant
to which Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable instructions (I) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Exercise Price payable for the purchased
shares plus all applicable federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise and (II)
to the Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.


<PAGE>

Except to the extent the sale and remittance procedure is utilized in connection
with the option exercise, payment of the Exercise Price must accompany the
Notice of Exercise delivered to the Corporation in connection with the option
exercise;

                (iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have the
right to exercise this option; and

                (iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction of
all federal, state and local income and employment tax withholding requirements
applicable to the option exercise.

            (b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends, if any, affixed thereto.

            (c) In no event may this option be exercised for any fractional
shares of Common Stock.

        10.COMPLIANCE WITH LAWS AND REGULATIONS.

            (a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock may be listed for trading at the time of such
exercise and issuance.

            (b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of Common Stock as to which such approval shall not have been obtained. The
Corporation, however, shall use its best efforts to obtain all such approvals.

        11.SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraphs 3 and 6 above, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.

        12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be

<PAGE>

deemed effective upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.

        13.FINANCING. The Board may, in its absolute discretion and without any
obligation to do so, permit Optionee to pay the Exercise Price for the purchased
Option Shares by delivering a full-recourse promissory note payable to the
Corporation. The terms of any such promissory note (including the interest rate,
the requirements for collateral and the terms of repayment) shall be established
by the Board in its sole discretion provided, however, that such promissory note
shall bear interest at a market rate based on the rate environment at the date
the Option is exercised and take into account the credit standing of the
Optionee. Further, such market rate shall be determined so as not to (i) be less
than the minimum rate required by the federal tax laws to avoid the imputation
of interest income to the Corporation and compensation income to the Optionee
and (ii) result in an accounting compensation charge to the Corporation.

        14.CONSTRUCTION. All decisions of the Board with respect to any question
or issue arising under this Agreement shall be conclusive and binding on all
persons having an interest in this option. For purposes of this Agreement,
whenever the context requires, the singular number shall include the plural, and
vice versa.

        15.GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.

<PAGE>

                                    EXHIBIT I
                               NOTICE OF EXERCISE

        I hereby notify Restoration Hardware, Inc. (the "Corporation") that I
elect to purchase ____________ shares of the Corporation's common stock (the
"Purchased Shares") at the option exercise price of $___________ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
on _____________, 200_.

        Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.

_____________________, 20__
Date

                                            ____________________________________
                                            Optionee

                                            Address: ___________________________

                                            ____________________________________



Print name in exact
manner it is to
appear on the stock
certificate:                                ____________________________________

Address to which
certificate is to be
sent, if different
from address above:                         ____________________________________

                                            ____________________________________

Social Security Number:                     ____________________________________

Employee Number:                            ____________________________________

<PAGE>

                                    APPENDIX

        The following definitions shall be in effect under the Agreement:

        A. AGREEMENT shall mean this Stock Option Agreement.

        B. BOARD shall mean the Corporation's Board of Directors and, except
with regard to the definition of Cause and Change in Control below, shall
include any committee of the Board of Directors or Officer of the Corporation to
which the Board of Directors has delegated its authority under this Agreement.

        C. CAUSE shall mean (i) there is a serious failure by Optionee to follow
a specific, lawful direction or order of the Board; (ii) there is a serious
neglect of duty by Optionee; (iii) Optionee exhibits persistent deficiencies in
performance or gross incompetence; (iv) Optionee is convicted of, or pleads
guilty or "no contest" to, a felony involving dishonesty, intentional misconduct
or breach of trust or moral turpitude; (v) Optionee dies; (vi) Optionee is
involved in fraud, misappropriation of trade secrets or embezzlement related to
the business or property of the Corporation (or any Parent or Subsidiary); (vii)
Optionee commits a material and serious act of dishonesty or misconduct that is
incompatible with service to the Corporation (or any Parent or Subsidiary) or
which causes discredit or would reasonably tend to cause discredit to fall upon
the Corporation (or any Parent or Subsidiary) or any of its affiliates; or
(viii) Optionee breaches any material term of the Offer Letter dated June 26,
2001 and signed by Optionee.

        D. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:

            (i) A merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction; or

            (ii) The sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation; or

            (iii) The acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders; or

            (iv) A change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members


<PAGE>

ceases, by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time the Board
approved such election or nomination.

        E. CODE shall mean the Internal Revenue Code of 1986, as amended.

        F. COMMON STOCK shall mean shares of the Corporation's common stock.

        G. CORPORATION shall mean Restoration Hardware, Inc., a Delaware
corporation.

        H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

        I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.

        J. EXERCISE PRICE shall mean the exercise price per Option Share as
specified in the Grant Notice.

        K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.

        L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

            (i) If Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be deemed equal to the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for Common Stock on the
date in question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which a closing selling price is reported; or

            (ii) If Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be deemed equal to the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Board to be the primary market for Common Stock, as such price
is officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.


<PAGE>

        M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.

        N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

        O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).

        P. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

        Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Section 422 of the Code.

        R. NOT FOR CAUSE shall mean termination of Optionee's Service by the
Company for any reason other than Cause.

        S. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.

        T. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.

        U. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.

        V. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

        W. PERMANENT DISABILITY shall mean the inability of Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.


<PAGE>

        X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.

        Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.

        Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.