WILLIAMS SONOMA INC
EMPLOYMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.54
<SEQUENCE>10
<FILENAME>f71839ex10-54.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.54

                                                                  EXECUTION COPY

                              EMPLOYMENT AGREEMENT

        THIS AGREEMENT made as of February 5, 2001, by and between
Williams-Sonoma, Inc., a California corporation, having its principal place of
business at 3520 Van Ness Ave., San Francisco, California 94109 (the "Company"),
and Dale W. Hilpert (the "Executive").

                              W I T N E S S E T H:

        WHEREAS, the Company proposes to employ the Executive as the Company's
Chief Executive Officer; and

        WHEREAS, the Company and the Executive desire to set forth the terms and
conditions of such employment.

        NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the Company and the Executive agree
as follows:

        1. Employment.

            (a) The Company hereby agrees to employ the Executive as its Chief
Executive Officer, and the Executive hereby agrees to accept such employment
with the Company, on the terms and conditions herein contained.

            (b) Except for earlier termination as provided pursuant to this
Agreement, the Executive's employment under this Agreement shall be for a period
commencing on April 2, 2001 (the "Commencement Date"), and ending on March 31,
2006 (the "Employment Period").

            (c) At the next regular meeting of the Company's Board of Directors
("Board"), Executive shall be elected to the Board.

        2. Duties.

            (a) The Executive shall serve during the Employment Period as Chief
Executive Officer of the Company, reporting only to the Board. The Executive
agrees that in

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such offices he shall perform such duties and functions as are commensurate with
his status as Chief Executive Officer of the Company as may from time to time be
determined or directed by the Board. The Executive shall devote substantially
all of his working time, attention, skill, and efforts to the performance of his
duties hereunder; provided, however, that the Executive may serve on the boards
of directors of not more than three (3) other for-profit corporations, if such
service does not conflict with his duties hereunder or his fiduciary duty to the
Company. It is further understood and agreed that nothing herein shall prevent
the Executive from managing his passive personal investments (subject to
applicable Company policies on permissible investments), and (subject to
applicable Company policies) participating in charitable and civic endeavors, so
long as such activities do not interfere in more than a de minimis manner with
the Executive's performance of his duties hereunder. The services to be
performed by the Executive pursuant to the terms of this Agreement shall be
rendered principally at the Company's principal offices; provided, however, that
the Executive agrees to travel for reasonable periods of time for business
purposes whenever such travel is necessary or appropriate to the performance of
his duties hereunder.

            (b) The Executive shall also serve as an officer and director of
subsidiaries and affiliates of the Company without additional compensation.

        3. Compensation and Benefits. As full compensation for his services
hereunder, and subject to all the provisions hereof:

            (a) During the Employment Period, the Company shall pay the
Executive, in accordance with its normal payroll practices and subject to
required withholding, a salary calculated at such rate per annum as may be fixed
by the Compensation Committee of the Board from time to time, but in no event at
a rate of less than $950,000 per annum ("Base Salary").

            (b) During the Employment Period, the Executive shall be eligible to
participate in all bonus, incentive and equity plans that are maintained by the
Company from time to time for its senior executive employees in accordance with
the terms of such plans at the time of participation, provided that compensation
under such plan or plans constitutes "performance based compensation" under
Internal Revenue Code section 162(m). Under the Company's 2001 Incentive Bonus
Plan, Executive shall be eligible to earn a bonus of fifty


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percent (50%) or more, up to a maximum of 120% of his Base Salary, depending
upon the Company's achievement of applicable performance goals. Executive
acknowledges that the 2001 Incentive Bonus Plan is subject to approval by the
Company's shareholders. The 2001 Incentive Bonus Plan is to be presented to the
Company's shareholders at its annual meeting in May, 2001.

            (c) During the Employment Period, the Executive shall be eligible to
participate in all pension, welfare and fringe benefit plans, as well as
perquisites, maintained by the Company from time to time for its senior
executive employees in accordance with their respective terms as in effect from
time to time (other than any special arrangement entered into by contract with
an executive). In the event any such benefit maintained by the Company for
senior executive employees is more favorable to Executive than a specific
benefit provided for in this Agreement, such benefit maintained for senior
executives in general shall apply to Executive. In addition, during the
Executive's active employment during the Employment Period, the Company shall
provide the Executive with life insurance, with its group term life insurance
plan or otherwise, on the life of the Executive for the benefit of his
designated beneficiaries in the amount of $750,000 (increased to $1,000,000 upon
evidence of insurability).

            (d) During the Employment Period, the Executive shall be reimbursed
for his out-of-pocket travel and entertainment expenses in accordance with the
Company's normal policy for senior executive officers, including appropriate
documentation.

            (e) The Executive shall be entitled to four weeks vacation for each
fiscal year during the Employment Period to be taken at such time as mutually
convenient to the Executive and the Company. Unused vacation shall be carried
forward according to the Company's policy.

            (f) On each April 30 that occurs during the Employment Period
Executive shall be paid $25,000 as a miscellaneous allowance.

            (g) On the Commencement Date Executive shall be granted a stock
option for an aggregate of 500,000 shares of the Company's common stock at a
price per share of $24.20 (the closing price of the Company's Common Stock on
the New York Stock Exchange on the date it and the Executive reached an
agreement in principle as to his employment by it), exercisable in five equal
cumulative installments, with 1/5th being exercisable on each of the


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first, second, third, fourth and fifth anniversary of the date the Company and
the Executive reached an agreement in principle as to his employment by it. Such
option shall become fully exercisable on death, disability, termination of the
Employment Period by the Company without cause or by the Executive under Section
8 hereof, or a Change in Control as defined in Exhibit A hereto.

            (h) As of the Commencement Date, the Company shall issue to
Executive 250,000 restricted shares of Common Stock of the Company (the
"Restricted Shares"). The Restricted Shares shall be forfeited in their entirety
if prior to March 31, 2004 (1) the Employment Period terminates by reason of the
Executive's resignation (but not including a resignation under Section 8
hereof), (2) the Employment Period is terminated for cause under Section 7
hereof or (3) the performance objectives have not been satisfied. The Restricted
Shares shall vest and become nonforfeitable in their entirety upon the earliest
to occur of (1) March 30, 2004, provided Executive continues to be employed
hereunder on such date and further provided the performance objectives have been
satisfied, (2) Executive's death or Disability (under Section 6), (3) a
termination of Executive's employment by the Company without cause, (4) a
termination of the Employment Period under Section 8 hereof, or (5) a Change in
Control as defined in Exhibit A hereto. As used herein "performance objectives"
shall be as established, for purposes of this Agreement, by the compensation
committee of the Board within 90 days of execution of this Agreement. The
Company may include on the certificates for the Restricted Shares a legend that
refers to the restrictions imposed by this Agreement. Promptly after any
Restricted Shares vest and become nonforfeitable, the Company shall cause a new
certificate or certificates evidencing unrestricted shares of Common Stock of
the Company to be issued without such a legend in exchange for the certificate
evidencing the Restricted Shares. To the extent that the receipt of the
Restricted Shares or the vesting and nonforfeitability thereof results in income
to Executive for federal, state, or local income tax purposes, Executive shall
pay to the Company withholding taxes with respect to such income (in such amount
as determined by Executive, but at least equal to the minimum required amounts)
through the payment of cash or tender of shares of Common Stock (which may
include a portion of the Restricted Shares), as elected by Executive. If shares
of Common Stock are so tendered the value thereof for purpose of such tender
shall be the value of such shares that is used in determining the applicable
income tax. Executive shall have the right to vote, and receive all


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dividends payable in respect of, the Restricted Shares unless and until such
shares are forfeited pursuant to the provisions of this Agreement. The Company
agrees that if, at the time the Restricted Shares become vested and
nonforfeitable, Executive (or other holder of such shares) is not permitted to
sell such shares in the public market by reason of the Securities Act of 1933
and rules promulgated thereunder, then the Company shall upon the demand of
Executive (or such holder) file, and use its best efforts to make effective and
keep effective for at least a one year period, a registration statement with the
Securities and Exchange Commission to permit the lawful sale of such shares in
the public market by Executive (or such holder). Executive agrees not to file an
election under section 83(b) of the Internal Revenue Code.

            (i) On the Commencement Date, the Company shall pay Executive an
amount which would, after taking into account all state, federal and other
income taxes, net Executive $20,000, and the Company shall also reimburse
Executive in accordance with the Company's relocation policy for costs incurred
in relocating to the San Francisco area. In addition, the Company will provide
temporary living expenses in San Francisco and weekend travel costs to and from
New York City until Executive purchases a residence in the area.

            (j) The Company will guarantee the Executive will incur no loss on
the sale of his New York City residence. Accordingly, the Company agrees to pay
Executive the amount, if any, that the net proceeds he receives from the sale
(after deducting commission and other costs of selling) of his current New York
City residence are less than the amount he has invested in such residence,
including his original purchase price plus capital improvements.

            (k) The Company shall pay Executive a supplemental expense
reimbursement to cover medical costs not covered by the Company's health
insurance of up to $2,500 per calendar year.

            (l) The Company shall pay Executive a monthly car allowance of $500.

            (m) The Company shall reimburse Executive for his legal fees in
connection with the negotiation and review of this agreement in an amount not to
exceed $15,000.

        4. Termination. The Employment Period shall terminate upon the earliest
of the following:


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            (a) the Executive's death;

            (b) the Executive's disability in accordance with Section 6;

            (c) the Executive's termination for cause in accordance with Section
7;

            (d) the termination of the Executive by the Company without cause;

            (e) the termination by the Executive in accordance with Section 8;
or

            (f) the termination of the Executive in accordance with Section 10.

        5. Death. The death of the Executive shall serve to terminate the
Employment Period, in which event the Company shall have no liability or further
obligation except as follows:

            (a) The Company shall pay the Executive's estate (or, if properly
designated under an applicable plan or arrangement, his beneficiary) when
otherwise due any unpaid Base Salary for the period prior to such termination of
the Employment Period, any declared but unpaid bonuses, any declared but unpaid
amounts due under any incentive plan, any accrued vacation pay and any other
unpaid amounts due the Executive under employee benefit, fringe benefit or
incentive plans ("Entitlements").

            (b) The Executive shall have such rights under any employee benefit,
fringe benefit or incentive plan, including any stock option plan, as provided
in such plans and any grants thereunder and including the rights granted under
Section 3(h) regarding Restricted Shares ("Rights").

            (c) The Executive's estate or his designated beneficiary shall be
entitled to receive those benefits afforded by the Company under its then
existing policies to employees who die while employed by the Company.

        6. Disability. If the Company reasonably shall determine that the
Executive has become physically or mentally incapable of performing his material
duties as provided in Section 2 of this Agreement and the Company determines
that such incapacity is likely to last for


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a period of at least 180 days from the onset of such incapacity, the Company
may, at its election at any time after the date of such onset while the
Executive remains incapable of performing his duties, terminate the Executive's
employment hereunder effective immediately by giving the Executive written
notice of such termination. In such event, the Company shall continue the
Executive as an employee on payroll (but not as an officer hereunder) under its
short term disability policy at his same Base Salary for thirteen (13) weeks and
shall continue such payments thereafter provided that he qualifies for the
Company's long term disability policy, and the Company shall have no other
obligation to the Executive or his dependents other than Entitlements, Rights,
accrued vacation pay and amounts due under the Company's long term disability
plan, and any benefits offered by the Company under its then policy to employees
who become disabled while employed by the Company.

        7. Cause.

            (a) If the Board shall determine that there are grounds for
terminating the Employment Period and discharging the Executive for "cause" (as
hereinafter defined), the Company may, at its election at any time within six
months after the Company shall obtain knowledge of the grounds for termination,
give the Executive notice of its intention to terminate the Executive for cause,
stating the grounds for termination and specifying a reasonable date (the
"Meeting Date") on which the Executive shall be given an opportunity if he
desires to discuss such grounds for termination at a meeting of the Board. In
the event of any arbitration in accordance with Section 15 hereof with regard to
the Company's determination of cause, the determination by the Company shall be
given such deference by the arbitrator as he/she deems appropriate.

            (b) If the grounds for termination are those specified in clause
(ii)(X), (iv) or (vi) of paragraph (d) hereof, the Executive shall have a period
of ten days from giving of the notice to cure the neglect, refusal, or breach,
as the case may be, provided that if similar grounds arise again within one year
of such cure, no new notice need be given and the Company, at its option, may
immediately terminate the Executive for cause. The Board shall determine whether
the Executive has effected a cure within the ten-day period. In the event of any
arbitration in


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accordance with Section 15 hereof, the arbitrator shall give such deference to
the Board's determination as he/she deems appropriate.

            (c) If the grounds for termination are those specified in clauses
(i), (ii)(Y), (ii)(Z), (iii) or (v) of paragraph (d) hereof, it is understood
and agreed that no satisfactory cure is available and such termination shall be
effective immediately upon notice by the Company.

            (d) For purposes of this Section 7 and Section 9 hereof, the term
"cause" shall mean:

                (i) the conviction (or plea of guilty or nolo contendere) of the
Executive of any felony, or of any crime involving fraud, dishonesty or
misappropriation, or moral turpitude or, if any of the foregoing involves the
Company or any subsidiary or affiliate (collectively the "Control Group"), the
commission of any of the foregoing (other than good faith disputes involving
expense account items);

                (ii) the Executive's (X) continued willful neglect of his duties
and responsibilities under this Agreement; (Y) grossly negligent conduct in
connection with his duties and responsibilities under this Agreement; or (Z)
gross negligence in connection with his handling of the assets of the Company or
any other member of the Control Group;

                (iii) the Executive's willful misconduct with regard to the
Control Group;

                (iv) the Executive's refusal to follow the written direction of
the Board with regard to the Executive's responsibilities as set forth herein;

                (v) the Executive's willful failure to comply with the covenants
in Section 12 hereof; or

                (vi) material breach of any of the provision of this Agreement
by the Executive.

            (e) If the Company shall terminate the Executive's employment
pursuant to this Section 7, it shall have no further liability or obligation
hereunder except as follows:


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                (i) The Company shall promptly pay the Executive his then
current Base Salary through the effective date of such termination plus any
accrued vacation pay;

                (ii) The Executive shall receive the benefits, if any, and have
the rights afforded by the Company under its then existing policies to employees
whose employment is terminated for cause or under the specific terms of any
welfare, pension, fringe benefit or incentive plan.

        8. Good Reason. In the event that the Company shall (i) fail to continue
the appointment of the Executive as Chief Executive Officer of the Company, or
(ii) reduce the Executive's annual salary below the Base Salary, or (iii)
materially diminish the duties and responsibilities of the Executive as Chief
Executive Officer, assign to the Executive duties and responsibilities
inconsistent with his positions, or materially diminish his authority, or (iv)
locate the Executive at other than at the Company's principal executive office,
or (v) relocate the Company's principal executive office outside the San
Francisco metropolitan area, or (vi) breach any payment provision of this
Agreement (to the extent not disputed in good faith) or any other material
provision of this Agreement (each of the foregoing hereinafter referred to as a
"Triggering Event"), then the Executive may give notice to the Company of his
election to terminate the Employment Period pursuant to this Section 8,
effective thirty (30) days from the date of such notice, unless the Company
shall have cured within such thirty (30) day period the default giving rise to
his notice of election to terminate. Such notice from the Executive shall state
the Triggering Event which provides the grounds for his termination, and such
notice must be given, if at all, within 90 days of the date the Executive
obtains knowledge of the Triggering Event referred to as providing such grounds
for termination. Within the 30 day period specified in the Executive's notice to
the Company, the Company shall have the opportunity to cure the default involved
in the Triggering Event specified by the Executive. If the Employment Period is
terminated pursuant to this Section 8, the Company shall have no liability or
further obligation hereunder except as provided in Section 9 hereof. If the
Executive does not give notice to the Company of his election to terminate
within 90 days following the occurrence of a Triggering Event, then the
Executive shall be deemed to have waived his right to terminate the Employment
Period based on such Triggering Event, but such waiver shall not prejudice his
right to terminate


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pursuant to this Section 8 based on the occurrence of another Triggering Event
occurring subsequent in time, whether of the same or a different type.

        9. Termination. In the event of a termination of the Employment Period
pursuant to Section 8 hereof, or in the event the Company shall terminate the
Employment Period without cause, then, except as provided in Section 10 hereof,
the Company shall have no obligation to the Executive except as follows:

            (a) The Executive shall receive his Entitlements and have his
Rights. Thereafter, and during the period until the earliest of (i) the
Severance Period Termination Date, as hereinafter defined, (ii) the Executive's
death, or (iii) the Executive's violation of the post employment requirements of
Section 12 hereof, following the date of such termination (hereinafter referred
to as the "Severance Period"), the Company shall make payments to the Executive,
either bi-weekly or monthly as the Company shall elect, calculated at the annual
rate of Base Salary which the Executive was receiving pursuant to Section 3(a)
hereof immediately prior to such termination. As used herein, the "Severance
Period Termination Date" shall mean that date which is the later of March 31,
2006 or the second anniversary of the date of termination of Executive's
employment with the Company.

            (b) During the Severance Period the Executive shall not be an
employee and shall not be entitled to receive any fringes, perquisites or
benefits from the Company, except the Company shall pay the premiums for his and
his dependents' health coverage under COBRA until the earliest of (i) such time
as he commences other employment or (ii) such time as he or a dependent, as the
case may be, is no longer entitled to COBRA coverage.

            (c) The Company shall provide the Executive, at no cost to the
Executive, with out-placement at a level commensurate with the Executive's
position.

            (d) The Executive shall not be required to mitigate the amount of
any payment provided for in the second sentence of paragraph (a) or in paragraph
(b) by seeking other employment nor shall any amounts to be received by the
Executive hereunder be reduced by any other compensation earned.


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            (e) The Company shall be entitled to withhold from any payments made
to the Executive under this Section 9 any amounts required to be withheld by
applicable federal, state or local tax law.

        10. Change in Control. In the event of a Change in Control, as defined
in Exhibit A hereto, the Executive shall have the right to terminate the
Employment Period by written notice given within the thirty (30) day period
following three (3) months after such Change in Control. Such Employment Period
shall cease upon the giving of such notice. In such event, or in the event the
Company shall terminate the Executive's employment without cause or the
Executive shall terminate his employment for Good Reason during the two year
period after the Change in Control, the Company shall have no obligation to the
Executive except as follows:

            (a) The Executive shall receive all amounts and benefits under
Section 9 hereof as if he had terminated his employment for Good Reason pursuant
to Section 8 hereof, except that subparts (ii) and (iii) of paragraph (a) of
Section 9 shall not apply; provided, however, that all such amounts shall be
payable as a lump sum, without adjustment for the time value of money, within
five business days of the date of termination of the Employment Period (the
"Section 9(a) Payment").

            (b) Upon a Change in Control, the forfeiture period with regard to
the Restricted Stock shall terminate and such shares shall become immediately
vested as provided in Section 3 (h) above.

            (c) In addition to any payments to which the Executive may be
entitled pursuant to the provisions of paragraph (a) of this section, if the
Section 9(a) Payment is less than 3 multiplied by the sum of (A) and (B), where
(A) equals Executive's Base Salary (at the rate payable immediately prior to
such Change in Control) and (B) equals the bonus payable under the Management
Team Executive Plan (or any successor or similar plan) at target in the year of
the termination of the Employment Period (the "Change-in-Control Amount"), then
the Company shall make a lump sum cash payment of the difference between the
Change-in-Control Amount and the Section 9(a) Payments to Executive within five
business days of the date of the termination of the Employment Period.


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        11. Gross-up.

            (a) In the event that the Executive shall become entitled to the
payments and/or benefits provided by Section 10 or any other amounts (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company (including any stock, stock option or Restricted
Shares), any person whose actions result in a change of ownership covered by
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")
or any person affiliated with the Company or such person) (collectively the
"Company Payments"), and such Company Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may
hereafter be imposed), the Company shall pay to the Executive at the time
specified in paragraph (d) below an additional amount (the "Gross-up Payment")
such that the net amount retained by the Executive, after deduction of any
Excise Tax on the Company Payments and any federal, state and local income tax
and Excise Tax upon the Gross-up Payment provided for by this paragraph (a), but
before deduction for any federal, state or local income tax on the Company
Payments, shall be equal to the Company Payments.

            (b) For purposes of determining whether any of the Company Payments
and Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and the amount of such Excise Tax, (a) the Total Payments shall be
treated as "parachute payments" within the meaning of section 280G(b)(2) of the
Code, and all "parachute payments" in excess of the "base amount" (as defined
under Code Section 280G(b)(3)) shall be treated as subject to the Excise Tax,
unless and except to the extent that, in the opinion of the Company's
independent certified public accountants appointed prior to any change in
ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by
such accountants (the "Accountants") such Total Payments (in whole or in part)
either do not constitute "parachute payments", represent reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the "base amount" or are otherwise not subject to the Excise
Tax, and (b) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.



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            (c) For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's residence
for the calendar year in which the Company Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year. In the event that the Excise
Tax is subsequently determined by the Accountants to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the prior Gross-up
Payment attributable to such reduction net of any federal, state, or local
income tax incurred on the original receipt of such portion of the prior
Gross-up Payment (after taking into account the tax benefit, if any, that the
Executive receives on such repayment) (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal and state and local income tax
imposed on the portion of the Gross-up Payment being repaid by the Executive if
such repayment results in a reduction in Excise Tax or a federal and state and
local income tax deduction), plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Gross-up Payment to be refunded to
the Company has been paid to any federal, state or local tax authority,
repayment thereof (and related amounts) shall not be required until actual
refund or credit of such portion has been made to the Executive, and interest
payable to the Company shall not exceed the interest received or credited to the
Executive by such tax authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the course of action to be
pursued (and the method of allocating the expense thereof) if the Executive's
claim for refund or credit is denied.

        In the event that the Excise Tax is later determined by the Accountant
or the Internal Revenue Service to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess (plus any interest or penalties payable with respect to
such excess) at the time that the amount of such excess is finally determined.


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            (d) The Gross-up Payment or portion thereof provided for in
paragraph (c) above shall be paid not later than the thirtieth day following an
event occurring which subjects the Executive to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or portion thereof cannot
be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the
Accountant, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in Code Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to paragraph
(c) hereof, as soon as the amount thereof can reasonably be determined, but in
no event later than the ninetieth day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).

            (e) The Company shall be responsible for all charges of the
Accountant.

        12. Confidential Information; Nondisparagement.

            (a) In consideration of the covenants by the Company contained
herein, the Executive undertakes and agrees that during the Employment Period
and thereafter he shall hold in a fiduciary capacity for the benefit of the
Control Group all secret or confidential information, knowledge, or data
relating to the Control Group or its business (which shall be defined as all
such information, knowledge, and data coming to the Executive's attention by
virtue of his employment at the Company except that which is otherwise public
knowledge or known within the Company's industry). During such period, the
Executive shall not, without prior written consent of the Company, unless
compelled pursuant to the order of a court or other body having jurisdiction
over such matter or unless required by lawful process or subpoena, communicate
or divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. The foregoing shall not limit the disclosure
by the Executive of such information in the course of the performance of his
duties as Chief Executive Officer so long as such disclosure is in good faith.


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            (b) During the Employment Period and thereafter while the Executive
is receiving any amounts pursuant to Section 9(a) or Section 10 hereof, the
Executive shall not make any statements or comments (i) to any form of media or
likely to come to the attention of any form of media of a negative nature that
reasonably could be considered to have an adverse impact on the business or
reputation of the Control Group, the Board or any senior officer of the Control
Group, or (ii) to any employee of the Control Group or to any supplier or
customer of the Control Group of a negative nature that reasonably could be
considered to have an adverse impact on the business or reputation of the
Control Group or the Board or any senior officer of the Control Group, provided
that in no event shall the foregoing limitation apply to (i) compliance with
legal process or subpoena, (ii) statements in response to inquiry from a court
or regulatory body, (iii) in rebuttal of media stories with regard to the
Executive, (iv) to a possible future employer in connection with employment
discussions, or (v) in response to inquiry from the Board.

            (c) Notwithstanding any other provision of this Agreement, in the
event of a breach or threatened breach by the Executive of any provision of this
Section, the Executive and the Company agree that the Company shall be entitled
to injunctive and declaratory relief from a court of competent jurisdiction to
restrain the Executive from committing such breach of the Agreement. Nothing in
this Agreement shall be construed as prohibiting the Company from pursuing any
other remedy or remedies including, without limitation, the recovery of damages.

            (d) The provisions of this section shall survive the expiration of
this Agreement or the termination of the Agreement for any reason.

        13. Indemnification. The Company agrees that the Executive shall be
entitled to the benefits of the indemnity provisions set forth in the By-laws
from time to time in accordance with their terms both during his employment and
thereafter with regard to his actions as an officer or director of the Company
and that the Company shall enter into an indemnification agreement with the
Executive in the form of its standard indemnification agreement with executive
officers. In addition, the Company agrees to continue in effect for the benefit
of the Executive during the Employment Period directors' and officers' liability
insurance of the type and in the amount currently maintained by the Company to
the extent such insurance is available


                                       15
<PAGE>   16

at a premium cost which the Company considers reasonable and, thereafter, with
regard to his prior activities as an officer or director, such insurance as is
maintained for active directors and officers.

        14. Assignment. This Employment Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
heirs (in the case of the Executive) and permitted assigns. This Agreement is
personal to the Executive and neither this Agreement nor any rights hereunder
may be assigned by the Executive. No rights or obligations of the Company under
this Employment Agreement may be assigned or transferred by the Company except
that such rights or obligations may be assigned or transferred pursuant to a
merger or consolidation in which the Company is not the continuing entity, or
pursuant to a sale of all or substantially all of the assets of the Company,
provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Employment Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale as described in the
preceding sentence, it shall use its best efforts to cause such assignee or
transferee to expressly assume the liabilities, obligations, and duties of the
Company hereunder.

        15. Arbitration. Any claim or controversy between the parties which the
parties are unable to resolve themselves, including any claim arising out of
Executive's employment or the termination of that employment, and including any
claim arising out of, connected with, or related to the formation,
interpretation, performance or breach of this Agreement, and any claim or
dispute as to whether a claim is subject to arbitration, shall be submitted to
and resolved exclusively by expedited arbitration by a single arbitrator in
accordance with the following procedures:

            (a) In the event of a claim or controversy subject to this
arbitration provision, the complaining party shall promptly send written notice
to the other party identifying the matter in dispute and the proposed remedy.
Following the giving of such notice, the parties shall meet and attempt in good
faith to resolve the matter. In the event the parties are unable to resolve the
matter within 21 calendar days, the parties shall submit the controversy to a
mutually-selected


                                       16
<PAGE>   17


mediator and attempt in good faith to resolve the matter through mediation. If
the controversy is not resolved through mediation, the parties shall meet and
attempt in good faith to select a single arbitrator acceptable to both parties.
If a single arbitrator is not selected by mutual consent within 10 business days
following the failure to resolve the controversy by mediation, an arbitrator
shall be selected from a list of nine persons each of whom shall be an attorney
who is either engaged in the active practice of law or a recognized arbitrator
and who, in either event, is experienced in serving as an arbitrator in disputes
between employers and Executives, which list shall be provided by the main San
Francisco office of the American Arbitration Association ("AAA"). If, within
three business days of the parties' receipt of such list, the parties are unable
to agree upon an arbitrator from the list, then the parties shall each strike
names alternatively from the list, with the first to strike being determined by
the flip of a coin. After each party has had four strikes, the remaining name on
the list shall be the arbitrator. If such person is unable to serve for any
reason, the parties shall repeat this process until an arbitrator is selected.

            (b) Unless the parties agree otherwise, within 120 calendar days of
the selection of the arbitrator, a hearing shall be conducted before such
arbitrator at a time and a place in the city of San Francisco agreed upon by the
parties. In the event the parties are unable to agree upon the time or place of
the arbitration, the time and place within the city of San Francisco shall be
designated by the arbitrator after consultation with the parties. Within 30
calendar days of the conclusion of the arbitration hearing, the arbitrator shall
issue an award, accompanied by a written decision explaining the basis for the
arbitrator's award.

            (c) In any arbitration hereunder, the Company shall pay all
administrative fees of the arbitration and all fees of the arbitrator, except
that Executive may, if he wishes, pay up to one-half of those amounts. Each
party shall pay its own attorneys' fees, costs, and expenses, unless the
arbitrator orders otherwise. The prevailing party in such arbitration, as
determined by the arbitrator, and in any enforcement or other court proceedings,
shall be entitled, to the extent permitted by law, to reimbursement from the
other party for all of the prevailing party's costs (including but not limited
to the arbitrator's compensation), expenses, and attorneys' fees. The arbitrator
shall have no authority to add to or to modify this Agreement, shall apply all
applicable law, and shall have no lesser and no greater remedial authority than
would a court of law resolving the same claim or controversy. The arbitrator
shall, upon an appropriate motion,


                                       17
<PAGE>   18

dismiss any claim without an evidentiary hearing if the party bringing the
motion establishes that it would be entitled to summary judgement if the matter
had been pursued in court litigation. The parties shall be entitled to
reasonable discovery subject to the discretion of the arbitrator.

            (d) The decision of the arbitrator shall be final, binding, and
non-appealable, except as otherwise permitted by law, and may be enforced as a
final judgment in any court of competent jurisdiction.

            (e) This Agreement to resolve any disputes by arbitration shall
extend to claims against any parent, subsidiary, or affiliate of the Company,
and, when acting within such capacity, any officer, director, shareholder,
employee or agent of the Company, or of any of the above, and shall apply as
well to claims arising out of state and federal statutes and local ordinances as
well as to claims arising under the common law or under this Agreement. This
Agreement, however, shall not apply to claims for workers' compensation or
unemployment compensation benefits.

            (f) Notwithstanding the foregoing, and unless otherwise agreed
between the parties, either party may, in an appropriate matter, apply to a
court for provisional relief, including a temporary restraining order or
preliminary injunction, on the ground that the arbitration award to which the
applicant may be entitled may be rendered ineffectual without provisional
relief.

            (g) Any arbitration hereunder shall be conducted in accordance with
the employment rules and procedures of the AAA then in effect; provided,
however, that, in the event of any inconsistency between the rules and
procedures of the AAA and the terms of this Agreement, the terms of this
Agreement shall prevail.

            (h) If any of the provisions of this Section 15 are determined to be
unlawful or otherwise unenforceable, in whole or in part, such determination
shall not affect the validity of the remainder of this Section 15, and this
Section 15 shall be reformed to the extent necessary to carry out its provisions
to the greatest extent possible and to insure that the resolution of all
conflicts between the parties, including those arising out of statutory claims,
shall be resolved by neutral, binding arbitration. If a court should find that
the provisions of this Section 15 are not


                                       18
<PAGE>   19


absolutely binding, then the parties intend any arbitration decision and award
to be fully admissible in evidence in any subsequent action, given great weight
by any finder of fact, and treated as determinative to the maximum extent
permitted by law.

        16. Notice. Any notice to either party hereunder shall be in writing,
and shall be deemed to be sufficiently given to or served on such party, for all
purposes, if the same shall be personally delivered to such party, or sent to
such party by registered mail, postage prepaid, at, in the case of the Company,
the address first given above and, in the case of the Executive, his principal
residence address as shown in the records of the Company. Notices to the Company
shall be addressed to the General Counsel. Either party hereto may change the
address to which notices are to be sent to such party hereunder by written
notice of such new address given to the other party hereto. Notices shall be
deemed given when received if delivered personally or three days after mailing
if mailed as aforesaid.

        17. Applicable Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California applicable
to contracts to be performed therein.

        18. Miscellaneous.

            (a) This Agreement represents the entire understanding of the
parties hereto, supersede any prior understandings or agreements between the
parties, and the terms and provisions of this Agreement may not be modified or
amended except in a writing signed by both parties.

            (b) No waiver by either party of any breach by the other party of
any condition or provision contained in this Agreement to be fulfilled or
performed by such other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Except to the extent otherwise specifically provided herein, any waiver must be
in writing and signed by the Executive or an authorized officer of the Company,
as the case may be.

        19. Beneficiary. The Executive shall be entitled to select (and change,
to the extent permitted under any applicable law) a beneficiary or beneficiaries
to receive any compensation


                                       19
<PAGE>   20

or benefit payable under this Agreement following his death by giving the
Company written notice thereof in accordance with applicable Company policies.
In the event of the Executive's death or a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative.

        IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

                                            WILLIAMS-SONOMA, INC.



                                            By: ________________________________


                                                ________________________________
                                                Dale W. Hilpert


                                       20
<PAGE>   21


                                    Exhibit A

        Change in Control of the Company shall mean any of the following: (i)(A)
the making of a tender or exchange offer by any person or entity or group of
associated persons or entities (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) (a "Person") (other than the
Company or its subsidiaries) for shares of Common Stock pursuant to which
purchases are made of securities representing at least fifty percent (50%) of
the total combined voting power of the Company's then issued and outstanding
voting securities; (B) the merger or consolidation of the Company with, or the
sale or disposition of all or substantially all of the assets of the Company, to
any Person other than (a) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) fifty percent (50%) or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation; or (b) a merger or capitalization effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly (as determined under
Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities
representing fifty percent (50%) or more of the combined voting power of the
voting securities of the Company; (C) if, at any time within a two-year period
following the acquisition by any Person of direct or indirect beneficial
ownership (as determined under Rule 13d-3 promulgated under the Securities
Exchange Act of 1934), in the aggregate, of securities of the Company
representing forty percent (40%) or more of the total combined voting power of
the Company's then issued and outstanding voting securities, the persons who at
the time of such acquisition constitute the Board cease for any reason
whatsoever to constitute a majority of the Board; (D) the acquisition of direct
or indirect beneficial ownership (as determined under Rule 13d-3 promulgated
under the Securities Exchange Act of 1934), in the aggregate, of securities of
the Company representing fifty percent (50%) or more of the total combined
voting power of the Company's then issued and outstanding voting securities by
any Person acting in concert as of the date of this Agreement; or (E) the
approval by the shareholders of the Company of any plan or proposal for the
complete liquidation or dissolution of the Company or for the sale of all or
substantially all of the assets of the Company; or (ii) during any period of not
more than two (2) consecutive years, individuals


<PAGE>   22



who at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into agreement
with the Company to effect a transaction described in clause (i)) whose election
by the Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof.

                                      # # #


                                       2
</TEXT>
</DOCUMENT>
