Document:

Exhibit
10.2

 

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:

  	
   

  	
  Stephen J. Gordon

  
	
   

  	
   

  	
   

  
	
  Grant Date:

  	
   

  	
  May 24, 2004

  
	
   

  	
   

  	
   

  
	
  Vesting Commencement
  Date:

  	
   

  	
  May 24, 2004

  
	
   

  	
   

  	
   

  
	
  Exercise Price:

  	
   

  	
  $7.00

  
	
   

  	
   

  	
   

  
	
  Number of Option
  Shares:

  	
   

  	
  42,855

  
	
   

  	
   

  	
   

  
	
  Expiration Date:

  	
   

  	
  May 23, 2014

  
	
   

  	
   

  	
   

  
	
  Type of Option:

  	
   

  	
  Incentive Stock Option

  

 

Exercise Schedule:  The Option shall become exercisable for
one-third (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: May 24, 2004

 

 

	
   

  	
  RESTORATION HARDWARE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Gary Friedman

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  President and
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Optionee

  
	
   

  	
   

  
	
   

  	
  /s/
  S. J. Gordon

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
					

 

ATTACHMENTS

Exhibit A - Stock Option Agreement

 

 

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, if this option is designated a
Non-Statutory Option in the Grant Notice, then 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. 
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)  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

 

2

 

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.

 

(b)  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.

 

(c)  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.

 

(d)  Termination of Service Not for Cause or
Termination for Good Reason.  In the
event the Optionee’s Service is terminated (i) by the Corporation Not for
Cause or (ii) by the Optionee for Good Reason, this option automatically
shall become vested and exercisable immediately prior to such termination of
Service for all of the Option Shares at the time represented by this
option.  The Optionee’s termination
shall be for “Good Reason” if the Optionee provides written notice to the Chief
Executive Officer of the Corporation and the Board of the Good Reason within
thirty (30) days of the event constituting Good Reason and provides the
Corporation with a period of twenty (20) days to cure the event constituting
Good Reason and the Corporation fails to cure the Good Reason within that
period.  For purposes of this Agreement,
“Good Reason” shall mean either (x) a material reduction in the Optionee’s
base salary, or (y) a relocation of the 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 the Optionee’s consent.  Notwithstanding the foregoing, in order to
avoid the payment of excise tax imposed by Section 4999 of the Code, the
Corporation may, in accordance with Section 3(b) of the Employment
Agreement entered into between the Optionee and Corporation, dated as of
May 24, 2004, reduce the payments or benefits to the Optionee (within the
meaning of Section 280G(b)(2) of the Code).  Such reduction may apply
to cash payments, vesting acceleration
pursuant to this Section 6(d) and other benefits received by the Optionee
which could result in the acceleration of vesting of only a portion or none of
then unvested Option Shares.

 

(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

 

3

 

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 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.

 

4

 

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

 

5

 

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 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.

 

16.         Additional Terms Applicable to an
Incentive Option.  In the
event this option is designated an Incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:

 

(a)  This option shall cease to qualify for
favorable tax treatment as an Incentive Option if (and to the extent) this
option is exercised for one or more Option Shares:  (A) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Permanent
Disability; or (B) more than twelve (12) months after the date
Optionee ceases to be an Employee by reason of Permanent Disability.

 

(b)  No installment under this option shall
qualify for favorable tax treatment as an Incentive Option if (and to the
extent) the aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which such installment first becomes exercisable hereunder
would, when added to the aggregate value (determined as of the respective date
or dates of grant) of Common Stock or other securities for which this option or
any other Incentive Options granted to Optionee prior to the Grant Date
(whether under the Plan or any other option plan of the Corporation or any
Parent or Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate.  Should such One Hundred Thousand Dollar
($100,000) limitation be exceeded in any calendar year, this option shall
nevertheless become exercisable for the excess shares in such calendar year as
a Non-Statutory Option.

 

6

 

(c)  Should the exercisability of this option be
accelerated upon a Change in Control transaction, then this option shall
qualify for favorable tax treatment as an Incentive Option only to the extent
the aggregate Fair Market Value (determined at the Grant Date) of Common Stock
for which this option first becomes exercisable in the calendar year in which
the Change in Control occurs does not, when added to the aggregate value
(determined as of the respective date or dates of grant) of the Common Stock or
other securities for which this option or one or more other Incentive Options
granted to Optionee prior to the Grant Date (whether under the Plan or any
other option plan of the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate.  Should the
applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Change in Control, the option may nevertheless be
exercised for the excess shares in such calendar year as a Non-Statutory
Option.

 

(d)  Should Optionee hold, in addition to this
option, one or more other options to purchase Common Stock which become exercisable
for the first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.

 

END OF AGREEMENT

 

7

 

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
                          ,
2004 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.

 

 

Date                                          ,
20    

 

 

	
   

  	
   

  
	
   

  	
  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 that the Optionee has been convicted of a felony involving fraud or
dishonesty, or the termination is evidenced by a resolution adopted in good
faith by a majority of the Board to the effect that the Optionee (i)
intentionally and continually failed substantially to perform his reasonably
assigned duties with the Corporation, which failure continued for a period of
at least thirty (30) days after a written notice of demand for substantial
performance has been delivered to the Optionee specifying the manner in which
the Optionee has failed substantially to perform, or (ii) intentionally engaged
in conduct which is demonstrably and materially injurious to the Corporation;
provided, that no termination of the Optionee’s employment shall be for Cause
as set forth in clause (ii) above until there shall have been delivered to the
Optionee a copy of a written notice setting forth the conduct set forth in
clause (ii) and specifying the particulars thereof in detail.  No act, nor failure to act, shall be
considered “intentional” unless the Optionee has acted, or failed to act, with
a lack of good faith and with a lack of reasonable belief that the Optionee’s
action or failure to act was in the best interest of the Corporation.

 

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

 

A-1

 

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

 

A-2

 

(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 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.                                      Incentive
Option shall mean an option which satisfies the requirements of
Section 422 of the Code.

 

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 the Optionee’s Service by the
Corporation for reasons other than for 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.

 

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 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.

 

A-3

 

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-4Exhibit 10.4

 

 

 

May
13, 2004

 

 

Murray
Jukes

2933
Pebble Beach Circle

Fairfield,
CA  94534

 

 

 

Dear
Murray:

 

On
behalf of the entire Restoration Hardware team, I am pleased to confirm our
offer to you for the position of Vice President, Corporate Controller. We are
confident that you will find Restoration Hardware to be an exciting and
challenging environment in which to work. This letter will confirm the most
important details of our offer to you and supersedes any prior representations
or agreements, whether written or oral.

 

Your
starting salary will be $190,000 on an annualized basis, paid bi-weekly on
every other Friday.  You will also be
eligible to participate in the Management Incentive Program.  Currently, your target level of payout under
the plan is between 20% and 40%, with final payout dependent upon your
individual performance.  You will
receive full plan details upon your arrival.

 

As
a full-time employee of Restoration Hardware, you will be eligible to
participate in a number of Company-sponsored benefits, including medical,
dental, vision, life and long term disability insurance coverage. You and your
dependents (if any) will become eligible for health insurance benefits on the
first of the month following your date of hire. While the Company pays a
significant portion of the premium for these benefits, we ask that employees
share some of the cost as well.

 

At
time of hire, you will begin earning paid vacation at the rate of 15 days per
year. You will also be eligible for a 40% employee discount on Restoration
merchandise. Upon meeting length of service and other eligibility requirements,
you will also be able to participate in the Company’s 401(k) plan.

 

Upon
final approval of the Board of Directors of Restoration Hardware, Inc., a stock
option grant for 20,000 shares of stock will be granted to you, enabling you to
participate, as an owner, in the growth and success of Restoration Hardware.
The grant date, option exercise price and vesting schedule and other terms will
be in accordance with the administrative guidelines of the stock option plan
and the applicable stock option plan.

 

Details
of all of these programs will be provided to you at time of hire or when you
become eligible for the particular benefit.

 

 

 

 

The
language that follows reflects our standard and legally required offer letter
language. We don’t mean for it to come across as impersonal, but rather, as
sound and necessary information for you to know from the outset of your working
relationship with us. The relationship between you and Restoration Hardware is
called “at-will employment.”  This means
that employment with the Company is for no specific period of time. As a
result, either you or Restoration Hardware are free to terminate your employment
relationship at any time for any reason, with or without cause. This is the
full and complete agreement between us on this term. Although your job duties,
title, compensation, benefits or the Company’s policies, practices and
procedures may change from time to time, the “at-will” nature of your
employment may only be changed in an express writing signed by you and the
Chief Executive Officer of the Company.

 

Finally,
your employment is contingent on you executing a Proprietary Information and
Inventions Agreement and providing the Company with legal proof of your
identity and authorization to work in the United States at time of hire.

 

I
am enclosing two copies of this letter. Please sign and return one copy to me
on your first day of work and keep the other copy for your files.

 

We
look forward to you joining the “Resto” team on June 1, 2004 and contributing
to our growth and success.

 

Sincerely,

 

	
  /s/ Pat McKay

  
	
   

  
	
  Pat McKay

  
	
  CFO

  

 

                I understand and agree to the
terms of this offer of employment:

 

	
   

  	
  Signature

  	
  /s/ Murray Jukes

  

 

	
   

  	
  Date

  	
  5/18/04

  

 

 

Cc:          Employee’s Personnel File

 

 

2

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