Exhibit 10.6


 


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 Bazzone

  
	
   

  	
   

  	
   

  
	
  Grant Date:

  	
   

  	
  July 17,
  2003

  
	
   

  	
   

  	
   

  
	
  Vesting
  Commencement Date:

  	
   

  	
  May 1, 2003

  
	
   

  	
   

  	
   

  
	
  Exercise Price:

  	
   

  	
  $3.86

  
	
   

  	
   

  	
   

  
	
  Number of Option
  Shares:

  	
   

  	
  50,000

  
	
   

  	
   

  	
   

  
	
  Expiration Date:

  	
   

  	
  July 17,
  2013

  
	
   

  	
   

  	
   

  
	
  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
understands and agrees that the Option is granted subject to and in accordance
with the terms of the Restoration Hardware, Inc. 1998 Stock Incentive Plan
Amended and Restated on October 9, 2002 (the “Plan”).  Optionee further agrees to be bound by the
terms of the Plan and the terms of the Option as set forth in the Stock Option
Agreement attached hereto as Exhibit A.  A copy of the Plan is available upon request made to the
Secretary of the Corporation at the Corporation’s principal offices.


 


No
Employment or Service Contract.  Nothing in this notice or in the attached Stock Option Agreement
or in the Plan 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.


 

















 


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:

  	
  September 11,
  2003

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RESTORATION
  HARDWARE, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Kevin W. Shahan

  	
   

  
	
   

  	
   

  	
  Kevin W. Shahan

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  VP/CFO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Thomas M. Bazzone

  	
   

  
	
   

  	
  Thomas
  Bazzone, Optionee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
									



 


 


ATTACHMENTS


Exhibit A - Stock Option Agreement


 

















 


EXHIBIT A


 


RESTORATION HARDWARE, INC.

STOCK OPTION AGREEMENT


 


RECITALS


 


A.           The
Board has adopted the Plan for the purpose of retaining the services of
selected Employees, non-employee members of the Board or of the board of
directors of any Parent or Subsidiary and consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).


 


B.             Optionee
is to render valuable services to the Corporation (or a Parent or Subsidiary),
and this Agreement is executed pursuant to, and is intended to carry out the
purposes of, the Plan in connection with the Corporation’s grant of an option
to Optionee.


 


C.             All
capitalized terms in this Agreement shall have the meaning assigned to them in
the attached Appendix.


 


NOW,
THEREFORE, it is hereby agreed as follows:


 


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.  The Option Shares shall be purchasable from
time to time during the option term specified in Paragraph 2 below at the
Exercise Price.


 


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, because this option is designated a
Non-Statutory Option in the Grant Notice, 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 Cause) 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 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 Cause, 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


 


2

















 


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 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.  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.  Should
there be a Change in Control of the Corporation and the Optionee, thereafter,
is subject to an Involuntary Termination by the Corporation, 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 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.


 


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


 


3

















 


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, subject to Applicable Laws:


 


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


 


(B)        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


 


(C)        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.


 


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


 


4

















 


(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 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.         Construction.  This Agreement and the option evidenced hereby
are made and granted pursuant to the Plan and are in all respects limited by
and subject to the terms of the Plan. 
All decisions of the Plan Administrator with respect to any question or
issue arising under the Plan or this Agreement shall be conclusive and binding
on all


 


5

















 


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.


 


14.         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.


 


15.         Excess Shares.  If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may without stockholder approval be issued under the Plan, then this
option shall be void with respect to those excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.


 


6

















 


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   under the Corporation’s 1998 Stock Incentive Plan Amended and
Restated on October 9, 2002.


 


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:

  	
   

  	
   

  
				



 

















 


APPENDIX


 


The following definitions shall be in effect under the
Agreement:


 


A.                                   Agreement
shall mean this Stock Option Agreement.


 


B.                                     Applicable
Laws shall mean the legal requirements relating to the
administration of stock option plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to the granting of stock options and the
issuance of shares of Common Stock to residents therein.


 


C.                                     Board
shall mean the Corporation’s Board of Directors.


 


D.                                    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.


 


E.                                      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 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.


 


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


 


G.                                     Common
Stock shall mean shares of the Corporation’s common stock.


 


H.                                    Corporation
shall mean Restoration Hardware, Inc., a Delaware corporation.


 


I.                                         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.


 


J.                                        Exercise
Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.


 


K.                                    Exercise
Price shall mean the exercise price per Option Share as
specified in the Grant Notice.


 


L.                                      Expiration
Date shall mean the date on which the option expires as
specified in the Grant Notice.


 


M.                                 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


 


2

















 


per share of Common Stock
on the date in question on the Stock Exchange determined by the Plan
Administrator 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.


 


N.                                    Grant
Date shall mean the date of grant of the option as specified in
the Grant Notice.


 


O.                                    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.


 


P.                                      Involuntary
Termination shall mean the termination of the Optionee’s Service
which occurs by reason of:


 


(i)                                     Optionee’s
involuntary dismissal or discharge by the Corporation for reasons other than
Cause; 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.


 


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


 


R.                                     Non-Statutory
Option shall mean an option not intended to satisfy the
requirements of Section 422 of the Code.


 


S.                                      Not for
Cause shall mean termination of Optionee’s Service by the
Company for any reason other than Cause.


 


T.                                     Notice
of Exercise shall mean the notice of exercise in the form attached
hereto as Exhibit I.


 


U.                                    Option
Shares shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.


 


V.                                     Optionee
shall mean the person to whom the option is granted as specified in the Grant
Notice.


 


3

















 


W.                                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.


 


X.                                    Permanent
Disability shall mean that the Optionee is unable to carry out
the responsibilities and functions of the position held by the Optionee by
reason of any physical or mental impairment for more than 120 days in any
twelve-month period.


 


Y.                                     Plan
shall mean the Corporation’s 1998 Stock Incentive Plan Amended and Restated on
October 9, 2002.


 


Z.                                     Plan
Administrator shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.


 


AA.                         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.


 


BB.                             Stock
Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.


 


CC.                             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.


 


4

















 


EXHIBIT A


RESTORATION HARDWARE, INC.

STOCK OPTION AGREEMENT


 


RECITALS


 


D.            The
Board has adopted the Plan for the purpose of retaining the services of
selected Employees, non-employee members of the Board or of the board of
directors of any Parent or Subsidiary and consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).


 


E.              Optionee
is to render valuable services to the Corporation (or a Parent or Subsidiary),
and this Agreement is executed pursuant to, and is intended to carry out the purposes
of, the Plan in connection with the Corporation’s grant of an option to
Optionee.


 


F.              All
capitalized terms in this Agreement shall have the meaning assigned to them in
the attached Appendix.


 


NOW,
THEREFORE, it is hereby agreed as follows:


 


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.  The Option Shares shall be purchasable from
time to time during the option term specified in Paragraph 2 below at the
Exercise Price.


 


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, because this option is designated a
Non-Statutory Option in the Grant Notice, 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

















 


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 Cause) 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 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 Cause, 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


 


6

















 


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 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.  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.  Should
there be a Change in Control of the Corporation and the Optionee, thereafter,
is subject to an Involuntary Termination by the Corporation, 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
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.


 


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


 


7

















 


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, subject to Applicable Laws:


 


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


 


(B)        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


 


(C)        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.


 


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


 


8

















 


(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 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.         Construction.  This Agreement and the option evidenced
hereby are made and granted pursuant to the Plan and are in all respects
limited by and subject to the terms of the Plan.  All decisions of the Plan Administrator with respect to any
question or issue arising under the Plan or this Agreement shall be conclusive
and binding on all


 


9

















 


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.


 


14.         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.


 


15.         Excess
Shares.  If the Option
Shares covered by this Agreement exceed, as of the Grant Date, the number of
shares of Common Stock which may without stockholder approval be issued under
the Plan, then this option shall be void with respect to those excess shares,
unless stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock issuable under the Plan is obtained in accordance with
the provisions of the Plan.


 


10

















 


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   under the Corporation’s 1998 Stock Incentive Plan Amended and
Restated on October 9, 2002.


 


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:

  	
   

  	
   

  
				



 

















 


APPENDIX


 


The
following definitions shall be in effect under the Agreement:


 


A.                                   Agreement
shall mean this Stock Option Agreement.


 


B.                                     Applicable
Laws shall mean the legal requirements relating to the
administration of stock option plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to the granting of stock options and the
issuance of shares of Common Stock to residents therein.


 


C.                                     Board
shall mean the Corporation’s Board of Directors.


 


D.                                    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.


 


E.                                      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


 


A-1

















 


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 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.


 


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


 


G.                                     Common
Stock shall mean shares of the Corporation’s common stock.


 


H.                                    Corporation
shall mean Restoration Hardware, Inc., a Delaware corporation.


 


I.                                         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.


 


J.                                        Exercise
Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.


 


K.                                    Exercise
Price shall mean the exercise price per Option Share as
specified in the Grant Notice.


 


L.                                      Expiration
Date shall mean the date on which the option expires as
specified in the Grant Notice.


 


M.                                 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


 


A-2

















 


per share of Common Stock
on the date in question on the Stock Exchange determined by the Plan
Administrator 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.


 


N.                                    Grant
Date shall mean the date of grant of the option as specified in
the Grant Notice.


 


O.                                    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.


 


P.                                      Involuntary
Termination shall mean the termination of the Optionee’s Service
which occurs by reason of:


 


(i)                                     Optionee’s
involuntary dismissal or discharge by the Corporation for reasons other than
Cause; 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.


 


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


 


R.                                     Non-Statutory
Option shall mean an option not intended to satisfy the
requirements of Section 422 of the Code.


 


S.                                      Not for
Cause shall mean termination of Optionee’s Service by the
Company for any reason other than Cause.


 


T.                                     Notice
of Exercise shall mean the notice of exercise in the form attached
hereto as Exhibit I.


 


U.                                    Option
Shares shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.


 


V.                                     Optionee
shall mean the person to whom the option is granted as specified in the Grant
Notice.


 


A-3

















 


W.                                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.


 


X.                                    Permanent
Disability shall mean that the Optionee is unable to carry out
the responsibilities and functions of the position held by the Optionee by
reason of any physical or mental impairment for more than 120 days in any
twelve-month period.


 


Y.                                     Plan
shall mean the Corporation’s 1998 Stock Incentive Plan Amended and Restated on
October 9, 2002.


 


Z.                                     Plan
Administrator shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.


 


AA.                         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.


 


BB.                             Stock
Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.


 


CC.                             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.


 


A-4