Exhibit 10.7


 


RESTORATION HARDWARE, INC.
2004 SENIOR EXECUTIVE BONUS PLAN


 


SECTION
1

ESTABLISHMENT AND PURPOSE


 


1.1           Purpose.  Restoration Hardware, Inc. hereby
establishes the Restoration Hardware, Inc. 2004 Senior Executive Bonus Plan
(the “Plan”).  The Plan is intended to
increase stockholder value and the success of the Company by motivating key
executives (a) to perform to the best of their abilities, and (b) to
achieve the Company’s objectives.  The
Plan’s goals are to be achieved by providing such executives with incentive
awards based on the achievement of goals relating to performance of the Company
and its individual business units.  The
Plan is intended to qualify as performance-based compensation under Code
Section 162(m).


 


1.2           Effective
Date.  The Plan shall be
effective upon approval of a majority of the shares of the Company’s common
stock which are present in person or by proxy and entitled to vote at the 2004
Annual Meeting of Stockholders.  As long
as the Plan remains in effect, it shall be resubmitted to stockholders as
necessary to enable the Plan to continue to qualify as performance-based
compensation under Code Section 162(m).


 


SECTION
2

DEFINITIONS


 


The following
words and phrases shall have the following meanings unless a different meaning
is plainly required by the context:


 


2.1           “Actual Award”
means as to any Plan Year, the actual award (if any) payable to a Participant
for the Plan Year.  The Actual Award is
determined by the Payout Formula for the Plan Year, subject to the Committee’s
authority under Section 3.5 to reduce the award otherwise determined by
the Payout Formula.


 


2.2           “Base Salary”
means as to any Plan Year, 100% of the Participant’s annualized salary rate on
the last day of the Plan Year.  Such
Base Salary shall be before both (a) deductions for taxes or benefits, and
(b) deferrals of compensation pursuant to Company-sponsored plans.


 


2.3           Beneficiary shall mean the person(s) or
entity(ies) designated to receive payment of an Actual Award in the event of a
Participant’s death in accordance with Section 4.5 of the Plan.  The Beneficiary designation shall be
effective when it is submitted in writing to and acknowledged by the Committee
during the Participant’s lifetime on the Beneficiary Designation form provided
in Appendix A of the Plan.  The
submission of a new Beneficiary Designation form shall cancel all prior
Beneficiary Designations.


 


2.4           “Board”
means the Company’s Board of Directors.


 


2.5           “Code”
means the Internal Revenue Code of 1986, as amended.  Reference to a specific Section of the Code shall include such
Section, any valid regulation promulgated


 


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thereunder,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such Section or regulation.


 


2.6           “Committee”
means the committee appointed by the Board to administer the Plan.  The Committee shall consist of no fewer than
two members of the Board.  The members
of the Committee shall be appointed by, and serve at the pleasure of, the
Board.  Each member of the Committee
shall qualify as an “outside director” under Code Section 162(m).


 


2.7           “Company”
means Restoration Hardware, Inc., a Delaware corporation.


 


2.8           “Determination
Date” means as to any Plan Year, (a) the first day of the Plan
Year, or (b) if later, the latest date possible which will not jeopardize
the Plan’s qualification as performance-based compensation under Code
Section 162(m).


 


2.9           “Disability”
means a permanent and total disability determined in accordance with uniform
and nondiscriminatory standards adopted by the Committee from time to time.


 


2.10         “Maximum
Award” means as to any Participant for any Plan Year,
two million ($2,000,000) dollars. 
The Maximum Award is the maximum amount which may be paid to a
Participant for any Plan Year.


 


2.11         “Participant”
means as to any Plan Year, an officer of the Company who has been selected by
the Committee for participation in the Plan for that Plan Year.


 


2.12         “Payout
Formula” means as to any Plan Year, the formula or payout matrix
established by the Committee pursuant to Section 3.4, below, in order to
determine the Actual Awards (if any) to be paid to Participants.  The formula or matrix may differ from
Participant to Participant.


 


2.13         “Performance Goals” means the goal(s) (or
combined goal(s)) determined by the Committee (in its discretion) to be
applicable to a Participant for a Plan Year. 
As determined by the Committee, the Performance Goals applicable to each
Participant shall provide for a targeted level or levels of achievement using
one or more of the following measures: 
(a) increase in share price, (b) earnings per share, (c) total
stockholder return, (d) operating margin, (e) gross margin, (f) return on equity,
(g) return on assets, (h) return on investment, (i) operating income, (j) net
operating income, (k) pre-tax profit, (l) cash flow, (m) revenue, (n) expenses,
(o) earnings before interest, taxes and depreciation, (p) economic value added
and (q) market share.  The
Performance Goals may be applicable to the Company and/or any of its
subsidiaries or individual business units and may differ from Participant to
Participant.


 


2.14         “Plan Year”
means the fiscal year of the Company beginning in 2005 and each succeeding
fiscal year of the Company.


 


2.15         “Target Award”
means the target award payable under the Plan to a Participant for the Plan
Year, expressed as a percentage of his or her Base Salary or an amount, as
determined by the Committee in accordance with Section 3.3.


 


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SECTION
3

SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS


 


3.1           Selection of
Participants.  On or prior to
the Determination Date, the Committee, in its sole discretion, shall select the
officers of the Company who shall be Participants for the Plan Year.  In selecting Participants, the Committee
shall choose officers who are likely to have a significant impact on the
performance of the Company.  Participation
in the Plan is in the sole discretion of the Committee, and on a Plan Year by
Plan Year basis.  Accordingly, an
officer who is a Participant for a given Plan Year in no way is guaranteed or
assured of being selected for participation in any subsequent Plan Year or
Years.


 


3.2           Determination
of Performance Goals.  On or
prior to the Determination Date, the Committee, in its sole discretion, shall
establish the Performance Goals for each Participant for the Plan Year.  Such Performance Goals shall be set forth in
writing.


 


3.3           Determination
of Target Awards.  On or
prior to the Determination Date, the Committee, in its sole discretion, shall
establish a Target Award for each Participant. 
Each Participant’s Target Award shall be determined by the Committee in
its sole discretion, and each Target Award shall be set forth in writing.


 


3.4           Determination
of Payout Formula or Formulae. 
On or prior to the Determination Date, the Committee, in its sole
discretion, shall establish a Payout Formula or Formulae for purposes of
determining the Actual Award (if any) payable to each Participant.  Each Payout Formula shall (a) be in writing,
(b) be based on a comparison of actual performance to the Performance Goals,
(c) provide for the payment of a Participant’s Target Award if the Performance
Goals for the Plan Year are achieved, and (d) provide for an Actual Award
greater than or less than the Participant’s Target Award, depending upon the
extent to which actual performance exceeds or falls below the Performance
Goals.  Notwithstanding the preceding, no
participant’s Actual Award under the Plan may exceed the Maximum Award.


 


3.5           Determination
of Actual Awards.  After the
end of each Plan Year, the Committee shall certify in writing the extent to
which the Performance Goals applicable to each Participant for the Plan Year
were achieved or exceeded.  The Actual
Award for each Participant shall be determined by applying the Payout Formula
to the level of actual performance which has been certified by the
Committee.  Notwithstanding any contrary
provision of the Plan, (a) the Committee, in its sole discretion, may
eliminate or reduce the Actual Award payable to any Participant below that
which otherwise would be payable under the Payout Formula, (b) if a
Participant terminates employment with the Company prior to the date the Actual
Award for the Plan Year is paid, the Committee shall reduce his or her Actual
Award proportionately based on the date of termination (and subject to further
reduction or elimination under clause (a) of this sentence).


 


SECTION
4

PAYMENT OF AWARDS


 


4.1           Right to
Receive Payment.  Each Actual
Award that may become payable under the Plan shall be paid solely from the
general assets of the Company.  Nothing
in this Plan shall


 


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be
construed to create a trust or to establish or evidence any Participant’s claim
of any right other than as an unsecured general creditor with respect to any
payment to which he or she may be entitled.


 


4.2           Timing of
Payment.  Payment of each
Actual Award shall be made within three calendar months after the end of the
Plan Year during which the Award was earned.


 


4.3           Form of
Payment.  Each Actual Award
normally shall be paid in cash (or its equivalent) in a single lump sum.  However, the Committee, in its sole
discretion, may declare any Actual Award, in whole or in part, payable in the
form of a restricted stock bonus granted under the Company’s 1998 Stock
Incentive Plan or successor equity compensation plan.  The number of shares granted shall be determined by dividing the
cash amount of the Actual Award by the fair market value of a share of Company
common stock on the date that the cash payment otherwise would have been
made.  For this purpose, “fair market
value” shall be defined as provided in the Company’s 1998 Stock Incentive Plan
or successor equity compensation plan.


 


4.4           Other
Deferral of Actual Awards.  The
Committee may establish one or more programs under the Plan to permit selected
Participants the opportunity to elect to defer receipt of Actual Awards.  The Committee may establish the election
procedures, the timing of such elections, the mechanisms for payments of, and
accrual of interest or other earnings, if any, on amounts so deferred, and such
other terms, conditions, rules and procedures that the Committee deems
advisable for the administration of any such deferral program.


 


4.5           Payment in the Event of Death.  If a Participant dies prior to the payment
of an Actual Award earned by him or her for a Plan Year, the Actual Award shall
be paid to the Participant’s Beneficiary.  If a Participant fails to designate a
Beneficiary or if each person designated as a Beneficiary predeceases the
Participant or dies prior to distribution of the Participant’s benefits, then
the Committee shall direct the distribution of such benefits to the Participant’s
estate.


 


SECTION
5

ADMINISTRATION


 


5.1           Committee is
the Administrator.  The Plan
shall be administered by the Committee.


 


5.2           Committee
Authority.  The Committee
shall have all discretion and authority necessary or appropriate to administer
the Plan and to interpret the provisions of the Plan, consistent with
qualification of the Plan as performance-based compensation under Code
Section 162(m).  Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration or application of the Plan shall be final,
conclusive, and binding upon all persons, and shall be given the maximum
deference permitted by law.


 


5.3           Tax
Withholding.  The Company
shall withhold all applicable taxes from any payment, including any non-U.S.,
federal, state, and local taxes.


 


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SECTION
6

GENERAL PROVISION


 


6.1           Nonassignability.  A Participant shall have no right to assign
or transfer any interest under this Plan.


 


6.2           No Effect on
Employment.  The
establishment and subsequent operation of the Plan, including eligibility as a
Participant, shall not be construed as conferring any legal or other rights
upon any Participant for the continuation of his or her employment for any Plan
Year or any other period.  Generally,
employment with the Company is on an at will basis only.  Except as may be provided in an employment
contract with the Participant, the Company expressly reserves the right, which
may be exercised at any time during a Plan Year, to terminate any individual’s
employment without cause and without regard to the effect such termination
might have upon the Participant’s receipt of an Actual Award under the Plan.


 


6.3           No Individual Liability.  In addition to such other rights of indemnification
as they may have as members of the Board or as officers or employees of the
Company, members of the Board and any officers or employees of the Company to
whom authority to act for the Board, the Committee or the Company is delegated
shall be defended and indemnified by the Company to the extent permitted by law
on an after-tax basis against all reasonable expenses, including attorneys’
fees, actually and necessarily incurred in connection with the defense of any
claim, investigation, action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by the Company) or paid by them in satisfaction of a judgment in any
such claim, investigation, action, suit or proceeding, except in relation to
matters as to which it shall be adjudged in such claim, investigation, action,
suit or proceeding that such person is liable for gross negligence, bad faith
or intentional misconduct; provided, however, that within thirty (30) days
after the institution of such claim, investigation, action, suit or proceeding,
such person shall offer to the Company, in writing, the opportunity at the
Company’s expense to defend the same.


 


6.4           Severability; Governing Law.  If any provision of the Plan is found to be
invalid or unenforceable, such provision shall not affect the other provisions
of the Plan, and the Plan shall be construed in all respects as if such invalid
provision has been omitted.  The
provisions of the Plan shall be governed by and construed in accordance with
the laws of the Sate of California, without giving effect to any choice of law
rule that would cause the application of the laws of any jurisdiction other
than the internal laws of the State of California.


 


6.5           Affiliates
of the Company.  Requirements
referring to employment with the Company or payment of awards may, in the Committee’s
discretion, be performed through the Company or any affiliate of the Company.


 


SECTION
7

AMENDMENT AND TERMINATION


 


7.1           Amendment
and Termination.  The Board
may amend or terminate the Plan at any time and for any reason; provided,
however, that if and to the extent required to ensure the Plan’s


 


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qualification under Code
Section 162(m), any such amendment shall be subject to stockholder approval.


 


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RESTORATION HARDWARE, INC.

2004 SENIOR EXECUTIVE BONUS PLAN


 


APPENDIX
A


 


BENEFICIARY
DESIGNATION FORM


 


Participant’s Name:


 


Spouse’s Name:


 


Address:


 


Plan Year:


 


In the event of my death prior to the payment
of my Actual Award, if any, and in lieu of disposing of my interest(1) in the
Actual Award by my will or the laws of intestate succession, I hereby designate
the following persons as Primary Beneficiary(ies) and Contingent
Beneficiary(ies) of my interest in the Actual Award (please attach additional sheets
if necessary):


 


	
   

  	
  Primary Beneficiary(ies) (Select
  only one of the three alternatives)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  o  
  (a)    Individuals and/or
  Charities

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  %

  Share

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1)

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2)

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3)

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  	
   

  



 












(1)           A married Participant whose Actual Award is community
property may dispose only of his or her own interest in the Actual Award.  In such cases, the Participant’s spouse may
(a) consent to the Participant’s designation by signing the Spousal Consent or
(b) designate the Participant or any other person(s) as the beneficiary(ies) of
his or her interest in the Actual Award on a separate Beneficiary Designation. 


 


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  o  
  (b)    Residuary Testamentary
  Trust

  	
   

  
	
   

  	
  In trust, to
  the trustee of the trust named as the beneficiary of the residue of my
  probate estate.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  o  
  (c)    Living Trust

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The

  	
   

  	
  Trust, dated

  	
   

  	
   

  
	
   

  	
   

  	
  (print name of trust)

  	
   

  	
  (fill in date trust was established)

  	
   

  



 


	
   

  	
  Contingent Beneficiary(ies) (Select
  only one of the three alternatives)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  o  
  (a)    Individuals and/or
  Charities

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  %

  Share

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1)

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2)

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3)

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  	
   

  



 


	
   

  	
  o  
  (b)    Residuary Testamentary
  Trust

  	
   

  
	
   

  	
  In trust, to
  the trustee of the trust named as the beneficiary of the residue of my
  probate estate.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  o  
  (c)    Living Trust

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The

  	
   

  	
  Trust, dated

  	
   

  	
   

  
	
   

  	
   

  	
  (print name of trust)

  	
   

  	
  (fill in date trust was established)

  	
   

  



 


Should all the individual Primary
Beneficiary(ies) fail to survive me or if the trust named as the Primary
Beneficiary does not exist at my death (or no will of mine containing a
residuary


 


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trust is admitted to probate
within six months of my death), the Contingent Beneficiary(ies) shall be
entitled to my interest in the Actual Award in the shares indicated.  Should any individual beneficiary fail to
survive me or a charity named as a beneficiary no longer exists at my death,
such beneficiary’s share shall be divided among the remaining named Primary or
Contingent Beneficiaries, as appropriate, in proportion to the percentage
shares I have allocated to them.  This
Beneficiary Designation is effective until I file another such designation with
the Committee and such designation is acknowledged by the Committee during my
lifetime.  Any previous Beneficiary
Designations are hereby revoked.


 


	
  Submitted
  by:

  	
   

  	
  Accepted by:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  o 
  Participant  o 
  Participant’s Spouse

  	
   

  	
  Restoration Hardware, Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
								



 


 


Spousal Consent for
any Actual Award that is Community Property (necessary if separate beneficiary
designation is not filed by Spouse):


 


I hereby consent to this Beneficiary Designation and agree that this
designation of beneficiaries provided herein shall apply to my community
property interest in any Actual Award payable to my spouse in connection with
his or her employment with Restoration Hardware, Inc.


 


	
   

  	
   

  	
   

  
	
  (Signature of Spouse)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
				



 


 


Spousal Consent for
any Actual Award that is not Community Property
(necessary
if beneficiary is other than Spouse):


 


I hereby consent to this Beneficiary Designation.


 


	
   

  	
   

  	
   

  
	
  (Signature of Spouse)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
				



 


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