Document:

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                                                                    EXHIBIT 10.3

                           RESTORATION HARDWARE, INC.
                         NOTICE OF GRANT OF STOCK OPTION

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

               Optionee: Gary G. Friedman

               Grant Date: March 18, 2001

               Vesting Commencement Date: March 18, 2001 (Date employment
commences)

               Exercise Price:  $6.00 per share

               Number of Option Shares:  200,000 shares

               Expiration Date:  March 17, 2011

               Type of Option:  Non-Statutory Stock Option

               Vesting/Exercise Schedule: Subject to the terms of the Stock
               Option Agreement attached as Exhibit A, Optionee shall acquire a
               vested interest in, and 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 vest for any additional Option Shares after
               Optionee's cessation of Service.

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

               No Employment or Service Contract. Nothing in this Notice or in
the attached Stock Option Agreement shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause. This shall not, however, diminish the
Corporation's obligations under Optionee's Compensation and Severance Agreement,
as defined in the Option Agreement attached as Exhibit A, after such agreement
becomes effective.

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

                                    RESTORATION HARDWARE, INC.

                                    By:  /s/ Stephen J. Gordon
                                        ----------------------------------------

                                    Title:  Chairman
                                           -------------------------------------

                                      /s/ Gary G. Friedman
                                    --------------------------------------------
                                    OPTIONEE

                                    Address:    118 Paradise Drive
                                             -----------------------------------

                                                Tiburon, CA 94920
                                    --------------------------------------------

ATTACHMENT
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - EARLY EXERCISE STOCK PURCHASE AGREEMENT

                                       2
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                                    EXHIBIT A

                             STOCK OPTION AGREEMENT

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                                                                       EXHIBIT A

                           RESTORATION HARDWARE, INC.

                             STOCK OPTION AGREEMENT

RECITALS

        A. 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 Board in connection with the
Corporation's grant of an option to Optionee.

        B. 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 at the Exercise Price,
subject to Paragraphs 5 and 6 hereof. The option shall be a Non-Statutory
Option.

               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.

               3. LIMITED TRANSFERABILITY. This option shall be neither

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transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may, in connection
with the Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of the Optionee's immediate family or
to a trust established for the exclusive benefit of the Optionee and/or one or
more such family members. The assigned portion shall be exercisable only by the
person or persons who acquire a proprietary interest in the option pursuant to
such assignment. The terms applicable to the assigned portion shall be the same
as those in effect for this option immediately prior to such assignment.

               4. DATES 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.

               5. CESSATION OF SERVICE. The option term specified in Paragraph 2
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, Disability or Cause) while this option is outstanding,
then, subject to Paragraph 5(d) below, the period for exercising this option
shall be reduced to a six (6)-month period

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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 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) Should Optionee assume the position of the
Corporation's Chief Executive Officer and Optionee's Service be terminated by
the Corporation other than for Cause (as defined in Optionee's Compensation and
Severance Agreement), death or Disability or should Optionee voluntarily
terminate Service for Good Reason (as defined in Optionee's Compensation and
Severance Agreement), death or Disability, this option shall automatically vest
in full and become exercisable for all of the Option Shares as fully vested
shares; provided that to the extent that such option would not have been vested
but for this Paragraph 5(d), it may not be exercised after the earlier of three
(3) months following cessation of Service or the Expiration Date;

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                      (e) 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
(including by reason of Paragraph 5(d))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, to the extent Optionee is not vested in one or more
Option Shares at the time of Optionee's cessation of Service this Option shall
immediately terminate and cease to be outstanding with respect to those shares.

                      (f) 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 that it is outstanding at
the time of a merger, consolidation or other transaction in which the
Corporation's Common Stock ceases to exist, but is not otherwise fully
exercisable, it shall automatically vest in full so that this option shall,
immediately prior to the effective date of such transaction, 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, subject to Paragraph 6(d) below, this option shall not vest on
such an accelerated basis if and to the extent: (i) this option is, in
connection with such transaction, to be assumed by the successor corporation (or
parent thereof) and the Corporation's repurchase rights with respect to the
unvested Option Shares are assigned to such successor corporation

<PAGE>

(or parent thereof) or otherwise continued in full force and effect pursuant to
the terms of the 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 transaction 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 any such transaction, 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 transaction.

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

                      (d) Should Optionee assume the position of Chief Executive
Officer of the Corporation and there should occur a Change in Control, this
option, to the extent outstanding at the time but not otherwise fully
exercisable, shall automatically vest in full so that this option shall,
pursuant to Optionee's Compensation and Severance Agreement, become exercisable

<PAGE>

for all the Option Shares then subject to the Option and may be exercised for
any or all of those Option Shares as fully vested shares, whether or not the
option will be assumed by a successor (or parent) or otherwise continued. If the
option is not assumed or otherwise continued following the Change in Control,
this option shall become exercisable for fully vested Option Shares immediately
before the Change in Control.

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

               7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
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.

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               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 Stock
Purchase Agreement or, if applicable, an Early Exercise Stock Purchase Agreement
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 or, if the option is
exercised before all the Option Shares are fully vested, in the form permitted
by the Early Exercise Stock Purchase Agreement:

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

                                    (B) a promissory note payable to the
        Corporation, but only to the extent authorized by the Board in
        accordance with Paragraph 13.

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

<PAGE>

                                    (D) to the extent the option is exercised
        for vested Option Shares, 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 Stock Purchase Agreement
                delivered to the Corporation in connection with the option
                exercise.

                                    (E) Any other form permitted in the Early
        Exercise Stock Purchase Agreement, if applicable.

                             (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.

                             (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

<PAGE>

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 affixed thereto.

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

               10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION
AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS
SPECIFIED IN THE STOCK PURCHASE AGREEMENT OR EARLY STOCK PURCHASE AGREEMENT,
WHICHEVER IS APPLICABLE AT THE TIME OF PURCHASE.

               11. 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 the 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

<PAGE>

non-issuance or sale of the 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 and to timely register the sale of shares under this
Option with the Securities and Exchange Commission on a Form S-8 registration
statement and to timely list the Option Shares on Nasdaq National Market.

               12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, 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.

               13. 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.

               14. FINANCING. The Board may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including the
interest rate, the requirements for collateral and the terms of repayment) shall
be established by the Board in its sole discretion.

               15. ARBITRATION. Any disputes between Optionee and the Company

<PAGE>

shall be resolved pursuant binding arbitration pursuant to the procedures and
terms set forth in Optionee's Compensation and Severance Agreement.

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

<PAGE>

                                   APPENDIX

The following definitions shall be in effect under the Agreement:

A.      AGREEMENT shall mean this Stock Option Agreement.

B.      BOARD shall mean the Corporation's Board of Directors.

C.      CAUSE shall have the meaning assigned to it in Optionee's Compensation
        and Severance Agreement.

D.      CHANGE IN CONTROL shall have the meaning specified in the Compensation
        and Severance Agreement.

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

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

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

H.      COMPENSATION AND SEVERANCE AGREEMENT shall mean that Compensation and
        Severance Agreement attached to the Corporation's letter dated March 15,
        2001 offering employment to Employee as Chief Executive Officer of the
        Corporation, provided that such Agreement has been executed by both
        parties and become effective.

I. DISABILITY shall mean a physical or mental infirmity which either (i)

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impairs Optionee's ability to substantially perform Optionee's duties with the
Corporation for a period of one hundred eighty (180) consecutive days or (ii) is
expected to so impair Optionee for a period of at least one year or (iii)
entitles Optionee to long-term disability benefits under a long-term disability
policy maintained by the Corporation; provided, that Optionee has not returned
to Optionee's full-time employment prior to the Termination Date as stated in
the Notice of Termination.

        J. EARLY EXERCISE STOCK PURCHASE AGREEMENT shall mean the Stock Purchase
Agreement in substantially the form of Exhibit C to the Grant Notice.

        K. 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.

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

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

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

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

<PAGE>

               (a) If the Common Stock is at the time traded on the Nasdaq
        National Market, then the Fair Market Value shall be deemed equal to the
        mean between the high and low 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 selling price for the 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.

               (b) If the Common Stock is at the time listed on any Stock
        Exchange, then the Fair Market Value shall be deemed equal to the mean
        between the high and low selling price per share of Common Stock on the
        date in question on the Stock Exchange determined by the Board to be the
        primary market for the Common Stock, as such price is officially quoted
        in the composite tape of transactions on such exchange. If there is no
        selling price for the 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.

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

        Q. 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.

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

<PAGE>

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

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

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

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

        W. 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.

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

        Y. STOCK PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.

        Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each

<PAGE>

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.

<PAGE>

                                    EXHIBIT B

                            STOCK PURCHASE AGREEMENT

<PAGE>

                                                                       EXHIBIT B

                           RESTORATION HARDWARE, INC.

                            STOCK PURCHASE AGREEMENT

               AGREEMENT made this __ day of ____, 20__, by and between
Restoration Hardware, Inc., a Delaware corporation, and Gary G. Friedman
("Employee").

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

        A. PURCHASE OF SHARES

               1. PURCHASE. Employee hereby purchases _____ shares of Common
Stock (the "Purchased Shares") at the purchase price of $6.00 per share, subject
to Paragraph A.2. (the "Purchase Price"), and the Corporation hereby sells the
Purchased Shares to Employee at the Purchase Price.

               2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Employee shall pay the Purchase Price for the Purchased Shares.

               3. STOCKHOLDER RIGHTS. Employee (or any successor in interest)
shall have all the rights of a stockholder (including voting, dividend and
liquidation rights) with respect to the Purchased Shares.

               4. REPRESENTATIONS AND WARRANTIES. Employee hereby makes, with
respect to the purchase of the Purchased Shares, the same investment
representation and warranties as are required to be made by investors pursuant
to the Series A and B Preferred Stock Purchase Agreement (the "Preferred
Agreement") applicable to the purchase of preferred stock of the Corporation.
Similarly, the Corporation hereby makes, with respect to the purchase of the
Purchased Shares, the same representations and warranties that it is required to
make under Sections 4.4 and 4.5 of the Preferred Agreement.

        B. GENERAL PROVISIONS

               1. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
shall confer upon Employee 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 Employee)
or of Employee, which rights are hereby expressly reserved by each, to terminate
Employee's Service at any time for any reason, with or without cause; provided
that nothing herein shall diminish Employee's rights to severance and other
benefits to the extent and under the circumstances provided in his Compensation
and Severance Agreement.

               2. EMPLOYEE UNDERTAKING. Employee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions

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<PAGE>

imposed on either Employee or the Purchased Shares pursuant to the provisions of
this Agreement.

               3. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

               4. SUCCESSORS; BINDING AGREEMENT.

               (a) This Agreement shall be binding upon and shall inure to the
benefit of the Corporation and its Successors and Assigns, and the Corporation
shall require any Successors and Assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession or assignment
had taken place.

               (b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by Employee or Employee's beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
Employee's legal personal representative.

               5. NOTICE. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other; provided, that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation. All
notices and communications shall be deemed to have been received on the date of
delivery thereof or on the third business day after the mailing thereof, except
that notice of change of address shall be effective only upon receipt.

               6. SETTLEMENT OF CLAIMS. Except as expressly provided herein, the
Corporation's obligation to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Corporation may have
against Employee or others, provided that all amounts payable hereunder shall be
subject to all applicable tax withholding.

               7. REGISTRATION. If the Corporation is unable to register
Employee's acquisition of the Purchased Shares on a Form S-8 registration
statement, Employee shall have the same registration rights as are required to
be provided to the purchasers of Series B Preferred stock of the Corporation in
the sale of preferred stock.

               8. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Employee and the Corporation. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representation,
oral or

                                       2
<PAGE>

otherwise, express or implied, with respect to the subject matter hereof has
been made by either party that is not expressly set forth in this Agreement.

              9. GOVERNING LAW; ARBITRATION. Any and all disputes relating to
this Agreement shall be resolved by binding arbitration pursuant to the
procedures and terms of Employee's Compensation and Severance Agreement. The
Corporation and Employee understand and agree that this Agreement and its
validity, construction and performance shall be governed by the laws of the
State of California without regard to conflict of law principles.

               10. SEVERABILITY. The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.

                                       3
<PAGE>

               11. ENTIRE AGREEMENT. This Agreement (together with the interim
employment agreement dated March 18, 2001 ("Interim Employment Agreement") and,
if and when they are executed by both parties and become effective, the
Compensation and Severance Agreement and documents referenced herein and in the
Offer Letter) constitutes the entire agreement between the parties hereto and
supersedes all prior agreements, if any, understandings and arrangements, oral
or otherwise, between the parties hereto with respect to the subject matter
hereof.

               IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.

                                    RESTORATION HARDWARE, INC.

                                    By:
                                        ----------------------------------------

                                    Title:
                                           -------------------------------------

                                    Address:
                                             -----------------------------------

                                    --------------------------------------------

                                    --------------------------------------------
                                    EMPLOYEE

                                    Address:
                                             -----------------------------------

                                    --------------------------------------------

                                       4
<PAGE>

                                    APPENDIX

               The following definitions shall be in effect under the Agreement:

               A. AGREEMENT shall mean this Stock Purchase Agreement.

               B. BOARD shall mean the Corporation's Board of Directors.

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

               D. COMPENSATION AND SEVERANCE AGREEMENT shall mean the
compensation and severance agreement attached to the Corporation's letter dated
March 15, 2001 offering employment to Employee as Chief Executive Officer of the
Corporation, provided that such agreement has been executed by both parties and
become effective.

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

               F. OFFER LETTER shall mean the letter from the Corporation dated
March 19, 2001 offering Employee employment with the Corporation as Chief
Executive Officer ("Offer Letter").

               G. 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.

               H. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.

               I. PURCHASED SHARES shall have the meaning assigned to such term
in Paragraph A.1.

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

               K. 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.

                                       5
<PAGE>

               L. SUCCESSORS AND ASSIGNS shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the
Corporation (including this Agreement), whether by operation of law or
otherwise.

                                       6
<PAGE>

                                    EXHIBIT C

                     EARLY EXERCISE STOCK PURCHASE AGREEMENT

                                [NOT APPLICABLE]<PAGE>
                                                                    EXHIBIT 10.4

           AMENDMENT NO. 5 TO THE SIXTH AMENDED AND RESTATED LOAN AND
                               SECURITY AGREEMENT

               This AMENDMENT No. 5 TO THE SIXTH AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "AMENDMENT") is entered into this 1st day of May, 2002
by and among FLEET CAPITAL CORPORATION, as Administrative Agent and as
Collateral Agent, The CIT GROUP/BUSINESS CREDIT, INC., as Co-Administrative
Agent, the syndicate of lenders identified as the Tranche A Lenders in the Loan
Agreement referred to below (the "LENDERS") and RESTORATION HARDWARE, INC. (the
"LEAD BORROWER" and a "BORROWER"), and THE MICHAELS FURNITURE COMPANY, INC. (a
"BORROWER" and, together with the Lead Borrower, the "BORROWERS") (each, an
"AMENDMENT PARTY" and, collectively, the "AMENDMENT PARTIES"), and is made with
reference to the following facts:

                                    RECITALS

               A. WHEREAS, Borrowers, the Administrative Agent, the
Co-Administrative Agent, the Collateral Agent, the Lenders and certain other
lenders (each a "PARTY" and, collectively, the "PARTIES") have previously
entered into that certain Sixth Amended and Restated Loan and Security Agreement
dated as of September 27, 2000 (as amended, modified or supplemented from time
to time, the "LOAN AGREEMENT") and various agreements and instruments collateral
thereto (collectively with the Loan Agreement, the "LOAN DOCUMENTS"). The
Parties also entered into that certain Limited Extension Agreement and Amendment
No. 1 to the Sixth Amended and Restated Loan and Security Agreement, dated as of
February 3, 2001, that certain Amendment No. 2 to the Sixth Amended and Restated
Loan and Security Agreement, dated as of March 2, 2001, that certain Amendment
No. 3 to the Sixth Amended and Restated Loan and Security Agreement, dated as of
March 21, 2001, and that certain Amendment No. 4 to the Sixth Amended and
Restated Loan and Security Agreement, dated as of September 27, 2001. All
capitalized terms used herein, unless otherwise defined herein, shall have the
meanings set forth in the Loan Documents.

               B. WHEREAS, the Amendment Parties desire to amend the Loan
Agreement on the terms and subject to the conditions of this Amendment.

               NOW THEREFORE, in consideration of the foregoing recitals and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Amendment Parties agree as follows:

                                    ARTICLE I
                          AMENDMENTS TO LOAN AGREEMENT

               1.1 Section 2.20(b) of the Loan Agreement is hereby amended by
deleting clause (i) thereof and inserting the following in lieu thereof:

                "(i) The aggregate Stated Amount of all L/C's then outstanding
        (giving effect to the L/C whose issuance is requested) does not exceed
        Twenty-five Million Dollars ($25,000,000)."

                                       1
<PAGE>

               1.2 Section 5.10(c) of the Loan Agreement is hereby amended by
adding the following at the end thereof:

                "; provided that the first such appraisal in calendar year 2002
        shall be conducted as of May 15, 2002."

               1.3 Section 5.12(d) of the Loan Agreement is hereby amended by
deleting clause (ii) thereof and inserting the following in lieu thereof:

                "(ii) For the fiscal year ending February 1, 2003 ("Fiscal Year
        2002"): Seventeen Million Dollars ($17,000,000.00) plus the amount
        allowed for Fiscal Year 2001 but not expended in such year, plus Fifty
        Percent (50%) of the amount by which the Borrowers' actual Consolidated
        EBITDA for Fiscal Year 2001 exceeds Sixteen Million Dollars
        ($16,000,000.00)."

                                   ARTICLE II
                         CONFIRMATION OF LOAN DOCUMENTS

               The Guarantor, by its execution and delivery of this Amendment,
irrevocably and unconditionally ratifies and confirms that it consents to the
terms and conditions of the Loan Agreement as it has been amended by this
Amendment and that each Loan Document to which the Guarantor is a party shall
continue in full force and effect in accordance with its terms, and is and shall
continue to be applicable to all of the Guarantor's obligations. The Guarantor
acknowledges and agrees that (i) notwithstanding the conditions to effectiveness
set forth in this Amendment, the Guarantor is not required by the terms of the
Loan Agreement or any other Loan Document to consent to the amendments to the
Loan Agreement effected pursuant to this Amendment and (ii) nothing in the Loan
Agreement, this Amendment or any other Loan Document shall be deemed to require
the consent of the Guarantor to any future amendments to the Loan Agreement.

                                   ARTICLE III
                               CONDITION PRECEDENT

               This Amendment shall become effective upon the execution and
delivery to the Administrative Agent of counterparts hereof by the Borrowers,
the Guarantor, the Lenders, the Collateral Agent, the Administrative Agent and
the Co-Administrative Agent.

                                   ARTICLE IV
                                  MISCELLANEOUS

               4.1 Each of the Borrowers and the Guarantor reaffirms and
restates the representations and warranties set forth in Article IV of the Loan
Agreement, as amended by this Amendment (the "AMENDED AGREEMENT"), and, after
giving effect to the transactions contemplated herein, all such representations
and warranties shall be true and correct in all material respects on and as of
the date hereof (except insofar as such representations and warranties expressly
relate to an earlier date).

                                       2
<PAGE>

               4.2 Each of the Borrowers and the Guarantor warrants and
represents (which warranty and representation shall survive the execution and
delivery hereof) that:

               (a) It has the corporate power and authority to execute and
deliver this Amendment, and to carry out the terms and provisions of this
Amendment and the Amended Agreement and the transactions contemplated hereby and
thereby, and has taken or caused to be taken all necessary corporate action to
authorize the execution and delivery of this Amendment and the performance of
this Amendment and the Amended Agreement and the transactions contemplated
hereby and thereby;

               (b) No consent of any other person (including, without
limitation, its shareholders or creditors), and no action of, or filing with any
governmental or public body or authority is required to authorize, or is
otherwise required in connection with the execution and delivery of this
Amendment and the performance of this Amendment and the Amended Agreement;

               (c) The execution and delivery of this Amendment and the
performance of this Amendment and the Amended Agreement will not violate any
law, statute or regulation, or any order or decree of any court or governmental
instrumentality, or conflict with, or result in the breach of, or constitute a
default under any contractual obligation; and

               (d) This Amendment has been duly executed and delivered by a duly
authorized officer, and this Amendment and the Amended Agreement constitute a
legal, valid and binding obligation of it, enforceable in accordance with their
terms, subject to laws affecting the enforcement of creditors' rights generally
and the exercise of judicial discretion in accordance with general principles of
equity.

               4.3 The Loan Documents, subject to the foregoing terms and
conditions provided by this Amendment, constitute the complete agreement of the
Parties with respect to the subject matters referred to herein and supersede all
prior or contemporaneous negotiations, promises, agreements, or representations,
all of which have become merged and finally integrated into the Loan Documents
and this Amendment. No agreements or undertakings varying, modifying, amending,
extending, discharging or terminating the same shall be binding upon any Party
unless in writing signed by a duly authorized official or agent thereof. No
waiver by any Party of any breach hereunder shall be deemed a waiver of any
other or subsequent breach.

               4.4 Each Borrower agrees to pay, on demand, all attorneys' fees
and costs incurred in connection with the negotiation, documentation, and
execution of this Amendment. If any legal action or proceeding shall be
commenced at any time by any Party in connection with its interpretation or
enforcement, the prevailing Party or Parties in such action or proceeding shall
be entitled to reimbursement of its reasonable attorneys' fees and costs in
connection therewith, in addition to all other relief to which the prevailing
Party or Parties may be entitled. Each of the Amendment Parties waives its right
to a trial by jury in any action to enforce, defend, or interpret, or otherwise
concerning this Amendment.

                                       3
<PAGE>

               4.5 Except as herein expressly amended, the Loan Agreement is
ratified and confirmed in all respects and shall remain in full force and effect
in accordance with its terms.

               4.6 This Amendment and all rights and obligations hereunder,
including matters of construction, validity, and performance, shall be governed
by and construed under the laws of the Commonwealth of Massachusetts and shall
inure to the benefit of and binding upon the successors, heirs and assigns of
the Parties.

               4.7 All references to the Loan Agreement contained in the Loan
Agreement and the other Loan Documents and the other documents and instruments
delivered pursuant to or in connection therewith shall mean the Loan Agreement,
as amended hereby and as may in the future be amended, restated, supplemented or
modified from time to time.

               4.8 This Amendment may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.

               4.9 Delivery of an executed counterpart of a signature page to
this Amendment by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment.

                  (remainder of page intentionally left blank)

                                       4
<PAGE>

               IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.

RESTORATION HARDWARE, INC.                 THE MICHAELS FURNITURE COMPANY, INC.
(the "Lead Borrower" and a "Borrower")     (a "Borrower")

By:  /s/ Kevin W. Shahan                   By:  /s/ Thomas M. Bazzone
   ------------------------------------       ----------------------------------

Name: Kevin W. Shahan                      Name: Thomas M. Bazzone
     ----------------------------------         --------------------------------

Title:  VP/CFO                             Title:  EVP & COO
      ---------------------------------          -------------------------------

FLEET CAPITAL CORPORATION                  THE CIT GROUP/BUSINESS CREDIT, INC.
(the "Administrative Agent")               (the "Co-Administrative Agent")

By:  /s/ Matthew R. Van Steenhuyse         By:  /s/ James J. Karnowski
   ------------------------------------       ----------------------------------

Name: Matthew R. Van Steenhuyse            Name: James J. Karnowski
     ----------------------------------         --------------------------------

Title:  Senior Vice President              Title:    V.P.
      -----------------------------              -------------------------------

FLEET CAPITAL CORPORATION                  FLEET CAPITAL CORPORATION
(a "Collateral Agent")                     (a "Lender")

By:  /s/ Matthew R. Van Steenhuyse         By:  /s/ Matthew R. Van Steenhuyse
   ------------------------------------       ----------------------------------

Name: Matthew R. Van Steenhuyse            Name: Matthew R. Van Steenhuyse
     ----------------------------------         --------------------------------

Title:  Senior Vice President              Title: Senior Vice President
      ---------------------------------          -------------------------------

THE CIT GROUP/BUSINESS CREDIT, INC.
(a "Lender")

By:  /s/ James J. Karnowski
---------------------------------------

Name: James J. Karnowski
     ----------------------------------

Title:    V.P.
      ---------------------------------

      Signature Pages to Amendment No. 5 to the Sixth Amended and Restated
                           Loan and Security Agreement

                                      S-1
<PAGE>

Acknowledged and Agreed:
RESTORATION HARDWARE CANADA, INCORPORATED
(the "Guarantor")

By: /s/ Kevin W. Shahan
   ------------------------------------

Name: Kevin W. Shahan
     ----------------------------------

Title: Secretary
      ---------------------------------

      Signature Pages to Amendment No. 5 to the Sixth Amended and Restated
                           Loan and Security Agreement

                                      S-2

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