UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended January 30, 2000
Commission file number 000-12704

WILLIAMS-SONOMA, INC.
(Exact Name of Registrant as Specified in Its Charter)

          CALIFORNIA                                             94-2203880
(State or Other Jurisdiction of                               (I.R.S. Employer
            Incorporation or Organization)                   Identification No.)

3250 VAN NESS AVENUE, SAN FRANCISCO, CA                            94109
(Address of Principal Executive Offices)                         (Zip Code)

Registrant's Telephone Number, Including Area Code (415) 421-7900

Securities registered pursuant to Section 12(b) of the Act: Common Stock
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by checkmark if disclosure of delinquent filers pursuant to

Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

As of March 31, 2000, the approximate aggregate market value of voting stock held by non-affiliates of the Registrant was $1,345,162,000 using the closing sales price on this day of $31.00. It is assumed for purposes of this computation an affiliate includes all persons registered as Registrant insiders with the Securities and Exchange Commission, as well as the Registrant's Associate Stock Incentive Plan.

As of March 31, 2000, 55,554,438 shares of the Registrant's Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the following documents have been incorporated herein by reference:

1) Registrant's Annual Report to Shareholders for the Fiscal Year ended January 30, 2000 (the "1999 Annual Report") in Parts I and II hereof and attached hereto as Exhibit 13;

2) Registrant's Proxy Statement for the 2000 Annual Meeting (the "Proxy Statement") in Part III hereof.


WILLIAMS-SONOMA, INC.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED JANUARY 30, 2000

TABLE OF CONTENTS

                                                                                     PAGE
                                                                                     ----
                                     PART I
Item 1.     Business                                                                   3

Item 2.     Properties                                                                 5

Item 3.     Legal Proceedings                                                          5

Item 4.     Submission of Matters to a Vote of Security Holders                        5

                                     PART II

Item 5.     Market for the Registrant's Common Equity and Related Stockholder          6
            Matters

Item 6.     Selected Financial Data                                                    6

Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations                                                      6

Item 7A.    Quantitative and Qualitative disclosure about market risk                  6

Item 8.     Financial Statements and Supplementary Data                                7

Item 9.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure                                                       7

                                         PART III

Item 10.    Directors and Executive Officers of the Registrant                         8

Item 11.    Executive Compensation                                                     8

Item 12.    Security Ownership of Certain Beneficial Owners and Management             8

Item 13.    Certain Relationships and Related Transactions                             8

                                         PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K            9

2

PART I

ITEM 1. BUSINESS

Williams-Sonoma, Inc. and its subsidiaries (the Company) are specialty retailers of products for the home. The retail segment sells its products through its three retail concepts: Williams-Sonoma, Pottery Barn and Hold Everything. The direct-to-customer segment sells similar products through its five direct-mail catalogs, Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Hold Everything and Chambers, and the Internet (Williams-Sonoma only). Based on net sales in fiscal 1999, retail accounted for 62.8% of the business and direct-to-customer accounted for 37.2%. The principal concepts in both retail and direct-to-customer are Williams-Sonoma and Pottery Barn, which sell cookware essentials and contemporary tableware and home furnishings, respectively. The Pottery Barn Kids catalog was introduced in January 1999. In June 1999, the Company launched its Williams-Sonoma Internet Wedding and Gift Registry web site and in November 1999 the Company launched its Williams-Sonoma e-commerce site.

The Company believes that it is one of the country's largest specialty retailers of products for the home, and that the Company's five merchandising concepts together can fulfill a customer's home-centered needs.

RETAIL STORES

The retail segment has three merchandising concepts: Williams-Sonoma, Pottery Barn and Hold Everything. Williams-Sonoma stores offer a wide selection of culinary and serving equipment, including cookware, cookbooks, cutlery, informal dinnerware, glassware and table linen. In addition, these stores carry a variety of quality foods, including a line of Williams-Sonoma food products, such as gourmet coffees and pasta sauces. Pottery Barn stores feature a large assortment of items in casual home furnishings, flatware and table accessories from around the world that are designed to be combined to create a dynamic look in the home. The Hold Everything concept was developed by the Company to offer innovative solutions to household storage needs by providing efficient organization solutions for every room in the house.

As of January 30, 2000 the Company operated 344 retail stores, located in 39 states and the District of Columbia. This represents 185 Williams-Sonoma, 117 Pottery Barn, 32 Hold Everything, and 10 outlet stores, of which 128 Williams-Sonoma and 100 Pottery Barn stores are large-format. The prototypical 1999 large-format stores range from 5,700 - 8,800 selling square feet for Pottery Barn stores, and 2,700-6,300 selling square feet for Williams-Sonoma stores and enable the Company to more clearly display merchandise. Large-format stores accounted for 76% of retail sales in fiscal 1999 versus 68% of retail sales in fiscal 1998. In fiscal 2000, the Company plans to increase leased square footage by approximately 22%. Planned store openings in fiscal 2000 include the introduction of six Pottery Barn Kids retail locations.

DIRECT-TO-CUSTOMER OPERATIONS

The Company's direct-to-customer business began in 1972 when it introduced its flagship catalog, "A Catalog for Cooks," which markets the Williams-Sonoma brand. Since then, it has expanded its direct-to-customer business to include the four other concepts - Pottery Barn, Pottery Barn Kids, Hold Everything, and Chambers. Of these five merchandising concepts, Pottery Barn has been the major source of sales growth in the direct-to-customer division for the last several years. Fiscal 1999 sales for Pottery Barn Kids, which debuted in January 1999, were more than double the Company's original sales plan. Management believes that the success of the Pottery Barn brand and its extension, Pottery Barn Kids, reflects the Company's continuing investment in product design and quality, and the consumer recognition achieved through the Pottery Barn catalogs and design studio stores. The Company expects to introduce a Pottery Barn Bed and Bath catalog in the second quarter of fiscal 2000.

The Company sends its catalogs to addresses from its proprietary customer list, as well as to names from lists which the Company receives in exchange or rents from other mail order merchandisers, magazines and other companies. In accordance with prevailing industry practice, the Company rents its list to other merchandisers. The Company's customer list is continually updated to include new prospects and eliminate non-responders.

In May 1999, the Company sold the Gardeners Eden catalog to Brookstone, Inc. to allow greater focus on existing company brands and the Internet. As a result of the sale, the Company recognized a $3,962,000 pre-tax gain ($2,437,000 after-tax).

In June 1999 the Company launched its Williams-Sonoma Internet Wedding and Gift Registry web site and in November 1999 the Company launched its Williams-Sonoma e-commerce site. Management expects to add a Pottery Barn e-commerce site in the summer of fiscal 2000.

3

The direct-to-customer business complements the retail business by building customer awareness of a brand and acting as an effective advertising vehicle. In addition, the Company believes that the mail order catalogs and the Internet act as a cost efficient means of testing market acceptance of new products.

SUPPLIERS

The Company purchases its merchandise from numerous foreign and domestic manufacturers and importers, none of which accounted for more than 3% of purchases during fiscal 1999. Approximately 49% of the Company's payments for merchandise were to foreign vendors, most of which are located in Europe and Asia.

MANAGEMENT INFORMATION SYSTEMS

In fiscal 1999, the Company spent approximately $25 million on information systems development, which includes the Internet. In fiscal 2000, the Company is planning to spend approximately $30 million on information systems which will include development of a Pottery Barn e-commerce site.

COMPETITION AND SEASONALITY

The specialty retail business is highly competitive. The Company's specialty retail stores, mail order catalogs and the Internet compete with other retail stores, including specialty stores and department stores, other mail order catalogs and other e-commerce web sites. The substantial sales growth in the direct-to-customer industry within the last decade has encouraged the entry of many new competitors and an increase in competition from established companies. The Company competes on the basis of the quality of its merchandise, service to its customers and its proprietary customer list.

The Company's business is subject to substantial seasonal variations in demand. Historically, a significant portion of the Company's sales and net income have been realized during the period from October through December, and levels of net sales and net income have generally been significantly lower during the period from January through September. The Company believes this is the general pattern associated with the direct-to-customer and retail industries. In anticipation of its peak season, the Company hires a substantial number of additional employees in its retail stores and direct-to-customer processing and distribution areas, and incurs significant fixed catalog production and mailing costs. (See Quarterly Financial Information on page 57 of the 1999 Annual Report which is incorporated herein by reference).

EMPLOYEES

At January 30, 2000, the Company employed approximately 18,000 persons, approximately 4,800 of whom were full-time employees. During the fiscal 1999 peak season the Company hired approximately 7,000 temporary employees in its stores and in its direct-to-customer processing and distribution areas.

4

ITEM 2. PROPERTIES

The Company's corporate offices are located in two facilities in San Francisco, California. The primary headquarters building is security for a mortgage agreement entered into with a bank in 1994. The second corporate office is held under a lease.

Two of the Company's distribution facilities are leased from two partnerships whose partners include directors, executive officers and/or significant shareholders of the Company. (See Note F of the Company's Consolidated Financial Statements).

In fiscal 1998, the Company leased a 750,000 square foot retail distribution facility located in Olive Branch, Mississippi. The lease covers 22.5 years with two optional five-year renewals. Rental payments for the primary term, which commenced in July 1999, are payable at an average annual rate of $3,100,000. In September 1999, the lease was amended to include a 261,000 square-foot expansion. Rent for the expansion commenced in January 2000 and is estimated at an average annual rate of $855,000.

In January 2000, the Company entered into an agreement to lease an additional 1,100,000 square-foot distribution facility in Olive Branch, Mississippi. The lease covers a 23-year term with two optional five-year renewals. Rent will commence upon completion of the facility, currently anticipated to be August 2000. Rental payments for the primary term are estimated to average $4,500,000 annually. These estimated rental payments are subject to adjustment upon completion of construction and finalization of costs.

The Company's net selling area, at January 30, 2000, totaled approximately 1,497,000 square feet of leased space for 344 stores compared to approximately 1,217,000 square feet for 298 stores at the end of the prior year. All of the existing stores are leased by the Company with original lease terms ranging from 3 to 23 years extending through 2022, except for one store lease with a 49-year term extending though 2040. Most store leases require the payment of minimum rentals against percentage rentals based on store sales. Certain leases contain renewal options for periods of up to 20 years. (See Note E of the Company's Consolidated Financial Statements).

In February 2000 the Company purchased a 204,000 square foot office building in San Francisco, California, for the purpose of consolidating certain headquarters staff and to provide for future growth. The purchase price of $80,000,000 was financed by amending the Company's existing letter of credit agreement to add a $75,000,000 revolving line of credit. (See Note C of the Company's Consolidated Financial Statements).

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings against the Company. The Company is, however, involved in routine litigation arising in the ordinary course of its business, and, while the results of the proceedings cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a materially adverse effect on the Company's consolidated financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of the 1999 fiscal year.

5

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Company's common stock is currently traded on the New York Stock Exchange (NYSE) under the ticker symbol "WSM". Information contained under the caption "Common Stock" on page 57 of the 1999 Annual Report is incorporated herein by reference. The closing sales price of the Company's stock in the New York Stock Exchange (NYSE) on March 31, 2000 was $31.00.

SHAREHOLDERS

The number of shareholders of record as of March 31, 2000 was approximately 564. This number excludes shareholders whose stock is held in nominee or street name by brokers.

DIVIDEND POLICY

The Company has never declared or paid a cash dividend on its common stock. In addition, the Company is prohibited from doing so by certain covenants in its bank credit agreement and is limited to a maximum dollar amount as determined in accordance with covenants in its 7.2% Senior Note agreement. (See Note C of the Company's Consolidated Financial Statements).

STOCK SPLITS

There were no stock splits during fiscal year 1999.

ITEM 6. SELECTED FINANCIAL DATA

Information contained under the caption "Five Year Selected Financial Data" on page 37 of the 1999 Annual Report is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information contained under the caption "Management's Discussion and Analysis" on pages 38 - 42 of the 1999 Annual Report is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information contained under the caption "Quantitative and Qualitative Disclosure About Market Risk" on page 41 of the 1999 Annual Report is incorporated herein by reference.

6

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following documents are incorporated by reference to pages 43 through 55 of the 1999 Annual Report to Shareholders filed as Exhibit 13 to this Annual Report on Form 10-K:

Independent Auditors' Report

Consolidated Balance Sheets as of January 30, 2000 and January 31, 1999

Consolidated Statements of Earnings for the years ending January 30, 2000, January 31, 1999 and February 1, 1998

Consolidated Statements of Shareholders' Equity for the years ending January 30, 2000, January 31, 1999 and February 1, 1998

Consolidated Statements of Cash Flows for the years ending January 30, 2000, January 31, 1999 and February 1, 1998

Notes to Consolidated Financial Statements

The unaudited quarterly information contained under the caption "Quarterly Financial Information" on page 56 of the 1999 Annual Report is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

7

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information contained in the table under the caption "Election of Directors" in the Proxy Statement is incorporated herein by reference.

Information contained on page 1 of the Proxy Statement in the last paragraph under the caption "Voting Securities and Principal Shareholders" is incorporated herein by reference.

At each Annual Meeting, directors are elected to serve until the next annual meeting of shareholders or until the election and qualification of their successors. Subject to the amendment approval by the shareholders, the Company's Bylaws provide for not less than seven nor more than thirteen directors, the exact number following the May 31, 2000 Annual Meeting having been fixed by the Board of Directors at eleven.

Executive officers of the Company are elected by the Board of Directors at the annual organizational meeting held immediately following the Annual Meeting and serve at the pleasure of the Board. Information contained in the first table under the caption "Information Concerning Executive Officers" on page 8 of the Proxy Statement is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information relating to the aggregate cash compensation paid by the Company to each of its five most highly-compensated executive officers for the fiscal year ended January 30, 2000, is contained under the caption "Executive Compensation" on pages 9 through 12 of the Proxy Statement and is incorporated herein by reference (except the information contained in the Compensation Committee Report and the Performance Graph).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

a) Information with respect to those persons known to the Company to be beneficial owners of more than 5% of its common stock, as of March 31, 2000, is contained under the caption "Voting Securities and Principal Shareholders" on pages 1 through 4 of the Proxy Statement and is incorporated herein by reference.

b) Information concerning the beneficial ownership of the Company's common stock by its directors, by each executive officer named in the "Summary Compensation Table" set forth on page 9 of the Proxy Statement, and by its directors and officers as a group, as of March 31, 2000, is contained in the tables under the captions "Voting Securities and Principal Shareholders" and "Election of Directors" on pages 1 through 10 of the Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions is contained under the caption "Certain Transactions" on page 7 of the Proxy Statement and is incorporated herein by reference (see Note F of Notes to Consolidated Financial Statements).

8

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Documents filed as part of the Form 10-K: See Item 8 for a list of Financial Statements incorporated herein by reference.

(a)(2) Financial Statement Schedules

DESCRIPTION                                                                 PAGE
-----------                                                                 ----
Independent Auditors' Report on Financial Statement Schedule                 10

Schedule II Valuation and Qualifying Accounts                                11

Schedules other than those referred to above have been omitted because they are not required or are not applicable.

(b) Reports on Form 8-K: No Form 8-K filings were made during the last quarter of the fiscal year ended January 30, 2000.

(c) Exhibits: See Exhibit Index on pages 14 through 19.

9

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders of Williams-Sonoma, Inc.:

We have audited the consolidated financial statements of Williams-Sonoma, Inc. and subsidiaries as of January 30, 2000 and January 31, 1999, and for each of the three fiscal years in the period ended January 30, 2000, and have issued our report thereon dated March 24, 2000; such financial statements and report are included in your 1999 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Williams-Sonoma, Inc. and subsidiaries listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP
-----------------------------------

San Francisco, California
March 24, 2000

10

SCHEDULE II

WILLIAMS-SONOMA, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

              COLUMN A                   COLUMN B      COLUMN C       COLUMN D       COLUMN E
-----------------------------------    ------------  ------------  --------------  ----------
                                                       ADDITIONS
                                        BALANCE AT    CHARGED TO                    BALANCE AT
                                         BEGINNING     COSTS AND                      END OF
             DESCRIPTION                 OF PERIOD     EXPENSES      DEDUCTIONS       PERIOD
-----------------------------------    ------------  ------------  --------------  ----------
Fiscal year ended February 1, 1998:
Allowance for Doubtful Accounts         $  186,000     $  20,000            --     $  206,000

Fiscal year ended January 31, 1999:
Allowance for Doubtful Accounts         $  206,000     $  24,000            --     $  230,000

Fiscal year ended January 30, 2000:
Allowance for Doubtful Accounts         $  230,000     $  20,000            --     $  250,000

11

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WILLIAMS-SONOMA, INC.

Date: April 26, 2000                   By /s/ W. Howard Lester
                                         -------------------------
                                         Chairman and Chief Executive Officer
                                         Director

Pursuant to the requirements of Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: April 26, 2000               /s/ W. Howard Lester
                                   -----------------------------------
                                   W. Howard Lester
                                   Chairman
                                   Chief Executive Officer
                                   Director

Date: April 26, 2000               /s/ John W. Tate
                                   -----------------------------------
                                   John W. Tate
                                   Senior Vice President
                                   Chief Financial Officer

Date: April 26, 2000               /s/ Sharon McCollam
                                   -----------------------------------
                                   Sharon McCollam
                                   Vice President, Finance

Date: April 26, 2000               /s/ Charles E. Williams
                                   -----------------------------------
                                   Charles E. Williams
                                   Founder and Vice-Chairman
                                   Director

Date: April 26, 2000               /s/ Gary G. Friedman
                                   -----------------------------------
                                   Gary G. Friedman
                                   Chief Merchandising Officer
                                   President-Retail Division
                                   Director

Date: April 26, 2000               /s/ Patrick J. Connolly
                                   -----------------------------------
                                   Patrick J. Connolly
                                   Executive Vice President
                                   General Manager-Catalog
                                   Assistant Secretary and Director

Date: April 26, 2000               /s/ Adrian D.P. Bellamy
                                   -----------------------------------
                                   Adrian D.P. Bellamy
                                   Director

Date: April 26, 2000               /s/ James M. Berry
                                   -----------------------------------
                                   James M. Berry
                                   Director

12

Date: April 26, 2000               /s/ Nathan Bessin
                                   -----------------------------------
                                   Nathan Bessin
                                   Director

Date: April 26, 2000               /s/ Janet Emerson
                                   -----------------------------------
                                   Janet Emerson
                                   Director

Date: April 26, 2000               /s/ James A. McMahan
                                   -----------------------------------
                                   James A. McMahan
                                   Director

Date: April 26, 2000               /s/ John E. Martin
                                   -----------------------------------
                                   John E. Martin
                                   Director


Date: April 26, 2000               /s/ Edward A. Mueller
                                   -----------------------------------
                                   Edward A. Mueller
                                   Director

13

EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE
FISCAL YEAR ENDED JANUARY 30, 2000

EXHIBIT
NUMBER                                    EXHIBIT DESCRIPTION                                PAGE NO.
------                                    -------------------                                --------
  3.1        Restated Articles of Incorporation (incorporated by reference
             to Exhibit 3.1 to the Company's Report on Form 10-Q for the
             period ended October 29, 1995, as filed with the Commission on
             December 12, 1995)

  3.1A       Certificate of Amendment of Restated Articles of Incorporation

  3.2        Restated Bylaws of Registrant (incorporated by reference to
             Exhibit 99.1 to the Company's Report on Form 8-K filed with
             Commission on October 4, 1999)

 10.1        1983 Incentive Stock Option Plan and Form of Agreement
             (incorporated by reference to Exhibit 10.2 to the Company's
             Registration Statement on Form S-1, as filed with the
             Commission on May 25, 1983)

 10.1A       1976 Stock Option Plan and Form of Agreement as amended
             (incorporated by reference to Exhibit 10.20 to the Company's
             Annual Report on Form 10-K for the fiscal year ended January
             31, 1993 as filed with the Commission on May 3, 1993)

 10.1B       Amended and Restated 1993 Stock Option Plan and Form of
             Agreement (incorporated by reference to Exhibit 10.1B to the
             Company's Annual Report on Form 10-K for the fiscal year ended
             February 1, 1998 as filed with the Commission April 22, 1998)

 10.2        Warehouse - distribution facility lease dated July 1, 1983
             between the Lester-McMahan Partnership as lessor and
             incorporated by reference to Exhibit 10.28 to the Company's
             Report on Form 10-Q for the period ended September 30, 1983, as
             filed with the Commission on October 14, 1983)

 10.2A       The Amendment, dated December 1, 1985, to the lease for the
             distribution center, dated July 1, 1983 between the Company as
             lessee and the Lester-McMahan Partnership as lessor
             (incorporated by reference to Exhibit 10.48 to the Company's
             Annual Report on Form 10-K for the fiscal year ended February
             3, 1985, as filed with the Commission on April 26, 1985)

 10.2B       The Sublease, dated as of August 1, 1990, by and between
             Hewson-Memphis Partners and the Company (incorporated by
             reference to Exhibit 10 to the Company's Report on Form 10-Q
             for the period ended October 28, 1990, as filed with the
             Commission on December 12, 1990)

 10.2C       Second Amendment to Lease between the Company and the
             Lester-McMahan Partnership, dated December 1, 1993
             (incorporated by reference to Exhibit 10.27 to the Company's
             Annual Report on Form 10-K for the fiscal year ended January
             30, 1994 as filed with the Commission on April 29, 1994)

 10.2D       Second Amendment to Sublease between the Company and
             Hewson-Memphis Partners, dated September 1, 1994 (incorporated
             by reference to Exhibit 10.38 to the Company's Report on Form
             10-Q for the period ended October 30, 1994 as filed with the
             Commission on December 13, 1994)

 10.2E       Third Amendment to Sublease between the Company and
             Hewson-Memphis Partners, dated October 24, 1995 (incorporated
             by reference to Exhibit 10.2E to the Company's Report on Form
             10-Q for the period ended October 29, 1995 as filed with the
             Commission on December 12, 1995)

 10.3        Memorandum of Understanding between the Company and the State
             of Mississippi, Mississippi Business Finance Corporation,
             Desoto County, Mississippi, the City of Olive Branch,
             Mississippi and Hewson Properties, Inc., dated August 24, 1998
             (incorporated by reference to Exhibit 10.6 to the Company's
             Report on Form 10-Q for the period ended August 2, 1998 as
             filed with the Commission on September 14, 1998)

14

EXHIBIT
NUMBER                                    EXHIBIT DESCRIPTION                                PAGE NO.
------                                    -------------------                                --------
 10.3A       Olive Branch distribution facility lease between the Company as lessee
             and Hewson/Desoto Phase I, L.L.C. as lessor, dated December 1, 1998
             (incorporated by reference to Exhibit 10.3D to the Company's
             Annual Report on Form 10-K for the year ended January 31, 1999,
             as filed with the Commission on April 30, 1999)

 10.3B       First amendment to the Lease Agreement for the Company's
             distribution facility located in Olive Branch, Mississippi,
             dated as of September 1, 1999, between the Company as lessee
             and Hewson/Desoto Phase I, LLC as lessor

 10.4        The lease for the Company's Corporate Offices at 100 North
             Point Street, San Francisco, California dated January 13, 1986,
             between the Company as lessee and Northpoint Investors as
             lessor (incorporated by reference to Exhibit 10.49 to the
             Company's Annual Report on Form 10-K for the year ended
             February 3, 1985, as filed with the Commission on April 26,
             1985)

 10.4A       First amendment to the lease for the Company's Corporate
             Offices at 100 North Point Street, San Francisco, California
             dated January 5, 1996, between the Company as lessee and
             Northpoint Investors as lessor (incorporated by reference to
             Exhibit 10.3 A to the Company's Annual Report on Form 10-K for
             the year ended January 28, 1996, as filed with the Commission
             on April 26, 1996)

 10.5        Williams-Sonoma, Inc. Employee Profit Sharing and Stock Incentive Plan
             effective as of February 1, 1989 (incorporated by reference to Exhibit
             4.2 of the Company's Form S-8 (File No. 33-33693) filed February 22,
             1990)

 10.5A       Williams-Sonoma, Inc. Employee Profit Sharing and Stock Incentive Plan
             Trust Agreement, dated September 20, 1989 (incorporated by reference to
             Exhibit 4.2 of the Company's Form S-8 (File No. 33-33693) filed February
             22, 1990)

 10.5B       Amendment Number One to the Williams-Sonoma, Inc. Employee Profit Sharing
             and Stock Incentive Plan, dated April 27, 1990 (incorporated by reference
             to the Company's Form S-8 (File No. 333-82205) filed July 2, 1999)

 10.5C       Amendment Number Two to the Williams-Sonoma, Inc. Employee Profit Sharing
             and Stock Incentive Plan, dated December 12, 1990 (incorporated by
             reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

 10.5D       Amendment Number Three to the Williams-Sonoma, Inc. Employee Profit
             Sharing and Stock Incentive Plan, dated March 10, 1992 (incorporated by
             reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

 10.5E       Amendment Number Four to the Williams-Sonoma, Inc. Employee Profit
             Sharing and Stock Incentive Plan, dated June 9, 1993 (incorporated by
             reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

 10.5F       Amendment Number Five to the Williams-Sonoma, Inc. Employee Profit
             Sharing and Stock Incentive Plan, dated December 23, 1993 (incorporated
             by reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

 10.5G       Amendment Number Six to the Williams-Sonoma, Inc. Employee Profit Sharing
             and Stock Incentive Plan, dated May 6, 1996 (incorporated by reference to
             the Company's Form S-8 (File No. 333-82205) filed July 2, 1999)

 10.5H       Amendment Number Seven to the Williams-Sonoma, Inc. Employee Profit
             Sharing and Stock Incentive Plan, dated May 1, 1997 (incorporated by
             reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

 10.5I       Amendment Number Eight to the Williams-Sonoma, Inc. Employee Profit
             Sharing and Stock Incentive Plan, dated September 16, 1997 (incorporated
             by reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

15

EXHIBIT
NUMBER                                    EXHIBIT DESCRIPTION                                PAGE NO.
------                                    -------------------                                --------
 10.5J       Amendment Number Nine to the Williams-Sonoma, Inc. Employee Profit
             Sharing and Stock Incentive Plan, dated September 30, 1998 (incorporated
             by reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

 10.5K       Amendment Number Ten to the Williams-Sonoma, Inc. Employee Profit Sharing
             and Stock Incentive Plan, dated December 31, 1998 (incorporated by
             reference to the Company's Form S-8 (File No. 333-82205) filed July 2,
             1999)

 10.6        Purchase and Sale Agreement between the Company and
             Bancroft-Whitney, a division of Thomson Legal Publishing, Inc.,
             dated December 14, 1993 (incorporated by reference to Exhibit
             10.29 to the Company's Annual Report on Form 10-K for the
             fiscal year ended January 30, 1994 as filed with the Commission
             on April 29, 1994)

 10.6A       Indemnity Agreement by the Company in favor of Bank of America,
             NT & SA, dated December 1, 1993 (incorporated by reference to
             Exhibit 10.28 to the Company's Annual Report on Form 10-K for
             the fiscal year ended January 30, 1994 as filed with the
             Commission on April 29, 1994)

 10.7        Note Agreement for $40,000,000 7.2% Senior Notes, dated August
             1, 1995 (incorporated by reference to Exhibit 10.9 to the
             Company's Report on Form 10-Q for the period ended July 30,
             1995 as filed with the Commission on September 12, 1995)

 10.7A       Guaranty Agreement for $40,000,000 Senior Notes, dated August
             1, 1995 (incorporated by reference to Exhibit 10.9A to the
             Company's Report on Form 10-Q for the period ended July 30,
             1995 as filed with the Commission on September 12, 1995)

 10.7B       Intercreditor Agreement for $40,000,000 Senior Notes, dated
             August 1, 1995 (incorporated by reference to Exhibit 10.9B to
             the Company's Report on Form 10-Q for the period ended July 30,
             1995 as filed with the Commission on September 12, 1995)

 10.8        Amended and Restated Standing Loan Agreement between the
             Company and Bank of America, NT & SA, dated June 1, 1997
             (incorporated by reference to Exhibit 10.1 to the Company's
             Report on Form 10-Q for the period ended May 4, 1997 as filed
             with the Commission on June 17, 1997).

 10.9        Credit Agreement between the Company and Bank of America, NT &
             SA, dated June 1, 1997 (incorporated by reference to Exhibit
             10.2 to the Company's Report on Form 10-Q for the period ended
             May 4, 1997 as filed with the Commission on June 17, 1997).

 10.9A       Agreement re: Intercreditor Agreement, dated May 22, 1997
             (incorporated by reference to Exhibit 10.2A to the Company's
             Report on Form 10-Q for the period ended May 4, 1997 as filed
             with the Commission on June 17, 1997).

 10.9B       Continuing Guaranty from Pottery Barn East, Inc. to Bank of
             America, NT & SA, dated June 1, 1997 (incorporated by reference
             to Exhibit 10.2B to the Company's Report on Form 10-Q for the
             period ended May 4, 1997 as filed with the Commission on June
             17, 1997).

 10.9C       Continuing Guaranty from Hold Everything, Inc. to Bank of
             America, NT & SA, dated June 1, 1997 (incorporated by reference
             to Exhibit 10.2C to the Company's Report on Form 10-Q for the
             period ended May 4, 1997 as filed with the Commission on June
             17, 1997).

 10.9D       Continuing Guaranty from Williams-Sonoma Stores, Inc. to Bank
             of America, NT & SA, dated June 1, 1997 (incorporated by
             reference to Exhibit 10.2D to the Company's Report on Form 10-Q
             for the period ended May 4, 1997 as filed with the Commission
             on June 17, 1997).

 10.9E       Continuing Guaranty from Chambers Catalog Company, Inc. to Bank
             of America, NT & SA, dated June 1, 1997 (incorporated by
             reference to Exhibit 10.2E to the Company's Report on Form 10-Q
             for the period ended May 4, 1997 as filed with the Commission
             on June 17, 1997).

16

EXHIBIT
NUMBER                                    EXHIBIT DESCRIPTION                                PAGE NO.
------                                    -------------------                                --------
 10.9F       Continuing Guaranty from Gardeners Eden, Inc. to Bank of America, NT &
             SA, dated June 1, 1997 (incorporated by reference to Exhibit 10.2F to the
             Company's Report on Form 10-Q for the period ended May 4, 1997
             as filed with the Commission on June 17, 1997).

 10.10       Letter of Credit Agreement between the Company and Bank of
             America, NT & SA dated June 1, 1997 (incorporated by reference
             to Exhibit 10.3 to the Company's Report on Form 10-Q for the
             period ended May 4, 1997 as filed with the Commission on June
             17, 1997)

 10.10A      One Bank Guaranty from Pottery Barn East, Inc. to Bank of
             America, NT & SA, dated June 1, 1997 (incorporated by reference
             to Exhibit 10.3A to the Company's Report on Form 10-Q for the
             period ended May 4, 1997 as filed with the Commission on June
             17, 1997).

 10.10B      One Bank Guaranty from Hold Everything, Inc. to Bank of
             America, NT & SA, dated June 1, 1997 (incorporated by reference
             to Exhibit 10.3B to the Company's Report on Form 10-Q for the
             period ended May 4, 1997 as filed with the Commission on June
             17, 1997).

 10.10C      One Bank Guaranty from Williams-Sonoma Stores, Inc. to Bank of
             America, NT & SA, dated June 1, 1997 (incorporated by reference
             to Exhibit 10.3C to the Company's Report on Form 10-Q for the
             period ended May 4, 1997 as filed with the Commission on June
             17, 1997).

 10.10D      One Bank Guaranty from Chambers Catalog Company, Inc. to Bank
             of America, NT & SA, dated June 1, 1997 (incorporated by
             reference to Exhibit 10.3D to the Company's Report on Form 10-Q
             for the period ended May 4, 1997 as filed with the Commission
             on June 17, 1997).

 10.10E      One Bank Guaranty from Gardeners Eden, Inc. to Bank of America,
             NT & SA, dated June 1, 1997 (incorporated by reference to
             Exhibit 10.3E to the Company's Report on Form 10-Q for the
             period ended May 4, 1997 as filed with the Commission on June
             17, 1997).

 10.10F      First Amendment to Syndicated Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated May 29, 1998 (incorporated by reference to
             Exhibit 10.2 to the Company's Report on Form 10-Q for the
             period ended August 2, 1998 as filed with the Commission on
             September 14, 1998).

 10.10G      Second Amendment to Syndicated Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated June 30, 1998 (incorporated by reference to
             Exhibit 10.4 to the Company's Report on Form 10-Q for the
             period ended August 2, 1998 as filed with the Commission on
             September 14, 1998)

 10.10H      Second Amendment to Letter of Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated May 29, 1998 (incorporated by reference to
             Exhibit 10.3 to the Company's Report on Form 10-Q for the
             period ended August 2, 1998 as filed with the Commission on
             September 14, 1998)

 10.10I      Third Amendment to Letter of Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated June 30, 1998 (incorporated by reference to
             Exhibit 10.5 to the Company's Report on Form 10-Q for the
             period ended August 2, 1998 as filed with the Commission on
             September 14, 1998)

 10.10J      Fourth Amendment to Letter of Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated May 26, 1999 (incorporated by reference to
             Exhibit 10.1 to the Company's Report on Form 10-Q for the
             period ended August 1, 1999 as filed with the Commission on
             September 13, 1999)

 10.10K      Third Amendment to Syndicated Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated November 13, 1999 (incorporated by reference
             to Exhibit 10.2 to the Company's Report on Form 10-Q for the
             period ended August 1, 1999 as filed with the Commission on
             September 13, 1999)

17

EXHIBIT
NUMBER                                    EXHIBIT DESCRIPTION                                PAGE NO.
------                                    -------------------                                --------
 10.10L      Guarantee by Williams-Sonoma Stores, LLC in favor of Bank of
             America National Trust and Savings Association, dated November
             13, 1998 (incorporated by reference to Exhibit 10.3 to the
             Company's Report on Form 10-Q for the period ended August 1,
             1999 as filed with the Commission on September 13, 1999)

 10.10M      Fifth Amendment to Letter of Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated September 22, 1999 (incorporated by
             reference to Exhibit 10.1 to the Company's Report on Form 10-Q
             for the period ended October 31, 1999 as filed with the
             Commission on December 13, 1999)

 10.10N      Fourth Amendment to Syndicated Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated September 22, 1999 (incorporated by
             reference to Exhibit 10.2 to the Company's Report on Form 10-Q
             for the period ended October 31, 1999 as filed with the
             Commission on December 13, 1999)

 10.10O      Sixth Amendment to Letter of Credit Agreement between the
             Company and Bank of America National Trust and Savings
             Association, dated October 29, 1999 (incorporated by reference
             to Exhibit 10.3 to the Company's Report on Form 10-Q for the
             period ended October 31, 1999 as filed with the Commission on
             December 13, 1999)

 10.10P      Fifth Amendment to Syndicated Credit Agreement between the Company and
             Bank of America National Trust and Savings Association, dated as of
             February 7, 2000

 10.10Q      Seventh Amendment to Letter of Credit Agreement between the Company and
             Bank of America National Trust and Savings Association, dated as of
             February 7, 2000

 10.10R      Continuing Guaranty from Williams-Sonoma Retail Services, Inc. to Bank of
             America (formerly NT & SA), dated June 1, 1997 entered into as of
             February 7, 2000.

 10.10S      Continuing Guaranty from Williams-Sonoma Direct, Inc. to Bank of America
             (formerly NT & SA), dated June 1, 1997 entered into as of February 7,
             2000.

 10.10T      Continuing Guaranty from Pottery Barn Kids, Inc. to Bank of America
             (formerly NT & SA), dated June 1, 1997 entered into as of February 7,
             2000.

 10.10U      One Bank Guaranty from Williams-Sonoma Retail Services, Inc. to Bank of
             America (formerly NT & SA), dated June 1, 1997 entered into as of
             February 7, 2000.

 10.10V      One Bank Guaranty from Williams-Sonoma Direct, Inc. to Bank of America
             (formerly NT & SA), dated June 1, 1997 entered into as of February 7,
             2000.

 10.10W      One Bank Guaranty from Pottery Barn Kids, Inc. to Bank of America
             (formerly NT & SA), dated June 1, 1997 entered into as of February 7,
             2000.

 10.11       Second Amendment and Restatement of the Williams-Sonoma, Inc.
             Executive Deferral Plan dated November 23, 1998 (incorporated
             by reference to Exhibit 10.11 to the Company's Annual Report on
             Form 10-K for the fiscal year ended January 31, 1999 as filed
             with the Commission on April 30, 1999)

 10.12       Office lease between TJM Properties, L.L.C. and Williams-Sonoma, Inc.,
             dated as of February 13, 1998 (incorporated by reference to Exhibit 10.16
             to the Company's Annual Report on Form 10-K for the fiscal year ended
             February 1, 1998 as filed with the Commission on April 22, 1998)

 10.13       Purchase and sale agreement and Escrow Instructions, dated as
             of December 14, 1999, between the Company and Levi Strauss &
             Co.

 10.14       The lease for an additional Company distribution facility
             located in Olive Branch, Mississippi, dated as of November 15,
             1999, between the Company as lessee and Hewson/Desoto Partners,
             LLC as lessor.

18

EXHIBIT
NUMBER                                    EXHIBIT DESCRIPTION                                PAGE NO.
------                                    -------------------                                --------
 10.14A      Lease Guarantee from Williams-Sonoma Retail Services, Inc in
             favor of Hewson/Desoto Partners, LLC dated as of November 15,
             1999

 11          Statement re computation of per share earnings (Incorporated
             herein by reference to Note G Earnings Per Share on page 51 of
             the Company's Annual Report for the fiscal year ended January
             30, 2000)

 13          Annual Report to security holders

 21          Subsidiaries

 23.1        Independent Auditors' Consent

 27          Financial Data Schedule (FDS) for January 30, 2000

19

EXHIBIT 3.1A

[SEAL/LOGO]
STATE OF CALIFORNIA OFFICE OF THE
SECRETARY OF STATE
[SEAL]

SECRETARY OF STATE

I, BILL JONES, Secretary of State of the State of California, hereby certify:

That the attached transcript of 2 page(s) has been compared with the record on file in this office, of which it purports to be a copy, and that it is full, true and correct.

[SEAL]                                IN WITNESS WHEREOF, I execute this
                                   certificate and affix the Great Seal of
                                     the State of California this day of
                                                 JUN 17 1999

                                               /s/ BILL JONES
                                             Secretary of State


[ ENDORSED o FILED ]
[ IN THE OFFICE OF THE SECRETARY OF STATE ]
[ OF THE STATE OF CALIFORNIA ]
[ JUN 09 1999 ]
[ BILL JONES, SECRETARY OF STATE ]

CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION
OF
WILLIAMS-SONOMA, INC.

Dennis A. Chantland certifies that:

1. He is the Executive Vice President and the Secretary of Williams-Sonoma, Inc., a California corporation.

2. Article IV of the Restated Articles of Incorporation of this corporation is amended to read in its entirety as follows:

ARTICLE IV

"Notwithstanding that applicable law would otherwise permit action to be taken with the approval of a lesser percentage, each of the following actions shall require the affirmative vote of not less than two-thirds of the outstanding shares of this corporation entitled to vote:

(a) a merger or consolidation of this corporation;

(b) the sale or other disposition by this corporation or a subsidiary of assets that constitute substantially all of the assets of this corporation and its subsidiaries on a consolidated basis; or

(c) the adoption of any plan or proposal for dissolution or liquidation of this corporation;

provided that the provisions of this Article IV shall not apply to any such transaction solely between this corporation and one or more Controlled Entities or between two or more Controlled Entities. "Controlled Entity" means a legal entity of which 50% or more of the outstanding equity entitled to vote is owned, directly or indirectly, by this corporation.

"Notwithstanding any other provision of these Restated Articles of Incorporation or Bylaws of this corporation and notwithstanding that a lesser percentage may be specified by law, these Restated Articles of Incorporation or the Bylaws of this corporation, the affirmative vote of not less than two-thirds of the outstanding shares of this corporation entitled to vote shall be required to amend or repeal, or adopt any provision inconsistent with this Article IV."

3. The foregoing amendment to Articles of Incorporation has been duly approved by the Board of Directors.

4. The foregoing amendment to Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California General Corporation Law. The total number of outstanding shares of the


corporation is 55,808,325. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was not less than two-thirds of the outstanding shares entitled to vote.

The undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge.

Executed at San Francisco, California, this 7th day of June, 1999.

/s/ DENNIS A. CHANTLAND
--------------------------------------
Dennis A. Chantland,
Executive Vice President and Secretary

[SEAL]

-2-

Exhibit 10.3B

FIRST AMENDMENT TO LEASE AGREEMENT

BY AND BETWEEN

HEWSON/DESOTO PHASE I, L.L.C.

AND

WILLIAMS-SONOMA RETAIL DISTRIBUTION CENTER, INC.

DATED: AS OF SEPTEMBER 1, 1999

PREPARED BY:

BAKER, DONELSON, BEARMAN & CALDWELL


2000 FIRST TENNESSEE BUILDING
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103


FIRST AMENDMENT TO LEASE AGREEMENT

THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment"), entered into as of the 1st day of September, 1999, by and between HEWSON/DESOTO PHASE I, L.L.C., an Arizona limited liability company (the "Landlord"), and WILLIAMS-SONOMA RETAIL DISTRIBUTION CENTER, INC., a California corporation (the "Tenant");

W I T N E S S E T H, that:

The Original Lease (as hereinafter defined), as modified by this Amendment, constitutes a financing agreement for the purposes of Sections 57-10-409 and 27-7-22.3 of the Mississippi Code of 1972, as amended.

By means of a Lease Agreement dated as of December 1, 1998 by and between Landlord and Williams-Sonoma, Inc., a California corporation ("Original Tenant"), recorded at Book 79, Page 520 of the Land Deed Records, Chancery Clerk's Office, DeSoto County, Mississippi (the "Original Lease"), Landlord leased to Original Tenant that entire certain parcel of land (the "Property"), containing 66.847 acres, more or less, and the easements and appurtenances thereto, located in the County of DeSoto, State of Mississippi, as described in EXHIBIT "A" attached hereto and made a part hereof, together with the building, and on-site and off-site improvements as described therein (the "Original Improvements") (the Property and the Original Improvements being herein sometimes called the "Original Project"). The Original Project was financed through the issuance of $30,300,000 Taxable Industrial Development Revenue Bonds, Series 1998 (Hewson/DeSoto Phase I, L.L.C. Project) (the "Series 1998 Bonds") by the Mississippi


Business Finance Corporation (the "Issuer"), pursuant to a Loan Agreement dated as of December 1, 1998 between the Issuer and Landlord (the "Original Loan Agreement"). The Bonds were issued pursuant to a Trust Indenture (the "Original Indenture") of even date therewith executed by and between the Issuer and Union Planters National Bank, N.A., as Trustee (the "Original Trustee"), and were secured by a deed of trust of even date therewith and executed by Landlord in favor of the Issuer (the "Original Deed of Trust"), which was assigned by the Issuer to the Original Trustee pursuant to the Indenture. Interests of various parties in the Original Project were subject to the Tenant Estoppel, Subordination, Non-Disturbance and Attornment Agreement (the "Original Non-Disturbance Agreement") of even date therewith by and among the Landlord, the Original Tenant, the Issuer and the Original Trustee. Subsequent to the issuance of the Series 1998 Bonds, the Original Tenant assigned its interests under the Original Lease to the Tenant, a wholly owned subsidiary of Original Tenant, by means of an Assignment of Lease dated as of July 1, 1999 (the "Assignment").

The Rental Commencement Date and Occupancy Commencement Date under the Original Lease occurred on July 6, 1999, the date upon which Tenant commenced actual productive use of the Original Project as a distribution center. Prior to such date, Tenant installed in the Original Project certain fixtures (the "Original Fixtures") and equipment (the "Original Equipment") not subject to the Original Lease.

The parties now wish to amend the Original Lease to provide for an addition to the Original Improvements as described more fully herein. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, for a term equal to the remainder of the Primary Term (as defined in the Original Lease), the Addition to be constructed on the Property, and on-site and

2

off-site improvements, all as described in the 1999 Plans (as defined in the First Supplement to Loan Agreement, as hereinafter defined) attached hereto as EXHIBIT "B" (the "Addition"). Tenant shall, during the course of and upon completion of the construction of the Addition, at the Tenant's sole cost and expense, install in the Addition certain fixtures (the "Addition Fixtures") and equipment (the "Addition Equipment").

The Addition will be financed with the proceeds of the $8,900,000 Taxable Industrial Development Revenue Bonds, Series 1999 (Hewson/DeSoto Phase I, LLC Project) issued by the Issuer pursuant to a First Supplemental Trust Indenture of even date herewith (the "First Supplemental Indenture") by and between the Issuer and First Tennessee Bank National Association as successor trustee (the "Trustee"). Such bonds (the "Series 1999 Bonds") will be Additional Bonds (as defined in the Original Indenture), the proceeds of which will be loaned to the Landlord by Issuer pursuant to the Original Loan Agreement, as modified by a First Supplement to Loan Agreement of even date herewith (the "First Supplement to Loan Agreement"). Landlord represents and warrants that all requirements set forth in the Original Indenture and the Original Loan Agreement for the issuance of Additional Bonds have been satisfied. The Series 1999 Bonds will be secured on a parity with the Series 1998 Bonds. Documents executed to secure the Series 1998 Bonds will be amended to reflect the issuance of the Series 1999 Bonds and to subject the collateral pledged thereunder to a parity lien for holders of Series 1999 Bonds.

Based upon the foregoing, and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant agree to the foregoing

3

recitals and agree to modify the Lease upon the following terms, provisions, conditions and limitations, and the parties respectively covenant and agree to such modifications as follows:

1. Definitions. Unless the context otherwise requires or unless otherwise amended or defined herein, definitions of capitalized terms used in the Original Lease shall be deemed to be amended by, and to have the meanings set forth in, the First Supplemental Indenture and First Supplement to Loan Agreement, and shall be incorporated herein. Capitalized terms used herein which are defined in the Original Lease, which are not amended by the First Supplemental Indenture or First Supplement to Loan Agreement, and which are not otherwise defined herein shall have the meaning set forth in the Original Lease. In addition, definitions set forth in the Recitals of this Amendment are incorporated herein. Furthermore, the following definitions of capitalized terms in the Original Lease shall be amended as follows:

(a)            "Basic Rent" shall mean the sum of Basic Rent (as defined in the
               Original Lease) plus Addition Basic Rent (as defined below in
               Section 2.1.A(c)).

(a)            "Company Payments" shall mean the sum of Company Payments (as
               defined in the Original Lease) plus Addition Company Payments (as
               defined below in Section 2.1.A(c)).

(a)            "Equipment" shall mean the Original Equipment and Addition
               Equipment taken as a whole.

(a)            "Fixtures" shall mean the Original Fixtures and Addition Fixtures
               taken as a whole.

(a)            "Global Basic Rent" shall mean the sum of Global Basic Rent (as
               defined in the Original Lease) plus Addition Global Basic Rent
               (as defined below in Section 2.1.A(a)).

(a)            "Improvements" shall mean the Original Improvements and the
               Addition taken as a whole.

5

(a)            "Project" shall mean the Property, the Original Improvements, and
               the Addition.

(a)            "Rent" shall mean Basic Rent, Addition Basic Rent, Company
               Payments, Addition Company Payments, Additional Rent and Addition
               Additional Rent (as defined below in Section 2.2.A(a)).


        2. Occupancy of the Addition. (a) There shall be added to the Original

Lease immediately following Section 1.2 thereof the following Section 1.2.A:

1.2.A. Occupancy . (a) The parties hereto understand and agree that the Addition is anticipated to be complete and ready for occupancy as evidenced by a Certificate of Occupancy to be issued by the relevant jurisdiction on or about the 10th day of January, 2000 (the "Estimated Addition Completion Date"). Landlord shall exert its best efforts toward the end that the Improvements be completed on or before January 10, 2000. Landlord agrees to give Tenant written notice as to whether or not the Addition will be completed by the Estimated Addition Completion Date as soon as possible, but in any event not later than thirty (30) days prior to the Estimated Addition Completion Date.

(b) Tenant's responsibility for payment of amounts set forth in Sections 2.1.A and 2.2.A hereof shall commence on that date (the "Addition Rental Commencement Date") which is the earliest of (i) ten
(10) business days following receipt by the Tenant of a copy of those items required under Section 3.04 of the First Supplement to Loan Agreement, (ii) that date on which Tenant commences actual productive use (as distinct from installation of Addition Fixtures and Addition Equipment) of the Addition as part of the existing distribution facility, or (iii) April 30, 2000. Tenant's occupancy of the Addition shall commence on that date (the "Addition Occupancy Commencement Date") which is the earlier of (1) ten (10) business days following receipt by the Tenant of a copy of those items required under Section 3.04 of the First Supplement to Loan Agreement or (2) that date on which Tenant commences actual productive use (as distinct from installation of Addition Fixtures and Addition Equipment) of the Addition as part of the existing distribution facility. Notwithstanding anything to the contrary herein, Tenant shall have no obligation to pay Addition Company Payments until after the Addition Occupancy Commencement Date and until after all amounts (if any) due to Tenant under the Agreement and Indemnification of even date herewith (the "Indemnification Agreement") have been paid in full.

6

(c) Tenant's obligation to pay those amounts set forth in Sections 2.1.A and 2.2.A hereof (other than Addition Company Payments) shall arise on the Addition Rental Commencement Date regardless of any disputes which may occur between Landlord and Tenant concerning construction of the Addition, subject to the provisions of paragraph 7.7.A of this Amendment.

(d) The Landlord shall construct or cause to be constructed the Addition substantially in accordance with the 1999 Plans and the 1999 Construction Budget (as defined in the First Supplement to Loan Agreement) attached hereto as Exhibit "C." The Landlord shall obtain all approvals requisite to the construction of the Addition, and shall construct the Addition in material compliance with all federal, State and local laws and regulations. On or before the Addition Occupancy Commencement Date, the Landlord will furnish to the Tenant copies of all required permits and authorizations except those permits and authorizations which Tenant must obtain, authorizing the occupancy and uses of the Addition for the purposes contemplated by the Tenant. The Landlord will take such action and institute such proceedings as shall be necessary to cause and require all contractors and material suppliers to complete their contracts, including the correction of any defective work, and the Landlord agrees that the Tenant may, from time to time, in its own name, or in the name of the Landlord, take such action as may be necessary or advisable, as determined by the Tenant, to assure that the construction of the Addition will proceed in an efficient and workmanlike manner. Any amounts recovered as damages, refunds, adjustments or otherwise in connection with the foregoing (a) shall be paid to the Tenant if the Tenant has corrected, at its own expense, the matter which gave rise to such default or breach, or (b) shall be paid to the Landlord if the Landlord has corrected, at its own expense, the matter which gave rise to such default or breach, or (c) shall be paid to the Landlord if the matter which gave rise to such default or breach has not yet been corrected and if such payment is prior to the Addition Occupancy Commencement Date (in which event Landlord shall thereafter promptly apply such amount to the correction of such matter, with the balance, if any, disposed of as set forth in Section 3.05 of the First Supplement to Loan Agreement), or (d) shall be paid to the Tenant if the matter which gave rise to such default or breach has not yet been corrected and if such payment is after the Addition Occupancy Commencement Date (in which event Tenant shall thereafter promptly apply such amount to the correction of such matter, with the balance, if any, disposed of as set forth in Section 3.2(b) of the Original Lease).

7

(b) There shall be added to the Original Lease immediately following
Section 1.3 thereof the following Section 1.3.A:

1.3.A. Addition Fixtures; Addition Equipment . The parties hereto understand and agree that the Landlord has no responsibility whatsoever regarding the delivery and installation of the Addition Fixtures and Addition Equipment in the Addition, and that the Lease and the Tenant's covenants and agreements contained herein are in no way conditioned upon such delivery or installation.

3. Rental Terms for the Addition. (a) There shall be added to the Original Lease immediately following Section 2.1 thereof the following Section 2.1.A:

2.1.A Addition Rent. (a) From and after the Addition Rental Commencement Date, Tenant shall pay Addition Global Basic Rent, subject to adjustment as provided in Section 2.6.A hereof; "Addition Global Basic Rent" being defined (i) during the portion of the Primary Term remaining after such date as the sum of Addition Basic Rent (as defined below) and Addition Company Payments (as defined below) (provided, however, that Tenant shall have no obligation to pay Addition Company Payments until after the Addition Occupancy Commencement Date and until after all amounts due to Tenant under the Indemnification Agreement have been paid in full); and (ii) during the Option Periods, on the same terms as set forth in Section 2.7 of the Lease (provided, however, that during said Option Periods all Addition Global Basic Rent shall also constitute Addition Company Payments hereunder).

(b) During the portion of the Primary Term remaining after the Addition Rental Commencement Date, the Addition Global Basic Rent shall be payable in the amounts set forth in Exhibit "D" attached hereto (the "Addition Rent Schedule") and made a part hereof, subject to adjustment of the Addition Basic Rent as provided in Section 2.6.A hereof. Any such Addition Basic Rent adjustment will be documented by an amended Exhibit "D," agreed to by the parties, at the time of such adjustment. During any Option Period, the Addition Global Basic Rent shall be determined as set forth in Section 2.7 of the Lease.


(c) From and after the Addition Rental Commencement Date through the end of the Primary Term, and so long as any Series 1999 Bonds remain Outstanding or the Indenture has not been released, Tenant shall timely pay to Trustee in accordance with the terms of the Loan Agreement at First Tennessee Bank National Association, 4385 Poplar Avenue, Memphis, Tennessee 38117, Attention: Corporate Trust Services, or such other person or at such other place as Trustee designates in writing to Tenant, without previous demand therefor and without deduction or offset, the amount of quarterly payments of interest accruing on Outstanding Series 1999 Bonds and semi-annual 1999 Mandatory Sinking Fund Payments (as defined in the First Supplemental Indenture) due on the Series 1999 Bonds (the "Addition Basic Rent"). Attached as part of Exhibit "D" is a schedule of payments of Addition Basic Rent over the term of the Series 1999 Bonds assuming no prepayments and assuming no change in the rate of interest borne by the Series 1999 Bonds as described in Section 2.6.A(b). All payments of Addition Basic Rent by Tenant to Trustee shall be credited against Tenant's obligation to pay Addition Global Basic Rent. Attached as part of Exhibit "D" is a schedule of Addition Company Payments for the portion of the Primary Term remaining after the Addition Rental Commencement Date, assuming no prepayment under Section 2.6.A(a). Provided that all amounts due to Tenant under the Indemnification Agreement have been paid in full, from and after the Addition Occupancy Commencement Date and during the portion of the Primary Term remaining after such date, Tenant shall pay such amounts (the "Addition Company Payments") to Landlord, ? Hewson Properties, Inc. at 4636 E. University Drive, Suite 265, Phoenix, Arizona 85034, or to such other person or place as Landlord designates in writing to Tenant, quarterly (on the same day as quarterly interest payments are due on the Series 1999 Bonds), without previous demand therefor, in an amount equal to one-quarter (_) of the difference between (i) the then applicable Addition Global Basic Rent (as adjusted in Section 2.6.A hereof during the remaining portion of the Primary Term) for the applicable lease year, and (ii) the Addition Basic Rent for the applicable lease year ("lease year" being the successive one (1) year periods). During any Option Period, all Addition Global Basic Rent shall be deemed to be Addition Company Payments for purposes of the Lease, and shall be paid to Landlord quarterly as set forth in this
Section 2.1.A(c).

(d) Notwithstanding any other provision hereof, in the event that the Addition Occupancy Commencement Date occurs on a date other than a quarterly interest payment date on the Series 1999 Bonds, the Addition Company Payments due hereunder shall be prorated for such portion of a quarterly interest period.


(b) There shall be added to the Original Lease immediately following
Section 2.2 thereof the following Section 2.2.A:

2.2.A. Net-Net-Net Lease of Addition. (a) The Original Lease, as modified by this Amendment, constitutes what is commonly known as a "net-net-net lease," it being understood that the Trustee and the Landlord shall receive the Addition Basic Rent and Addition Company Payments, respectively, free and clear of any and all impositions, taxes, liens, charges or expenses of any nature whatsoever in connection with Landlord's ownership and leasing of the Project.

(b) In addition to the Addition Global Basic Rent provided for in
Section 2.1.A hereof, from and after the Addition Rental Commencement Date, the Tenant shall pay to Landlord or to third parties as provided elsewhere (particularly in Sections 2.3.A hereof and 2.4. of the Original Lease) as additional rent ("Addition Additional Rent") all impositions, taxes, payments or fees in lieu of taxes, insurance premiums, operating charges, costs and expenses relating to the Addition which arise or may be contemplated under any provisions of the Lease during the portion of the Primary Term remaining following the Addition Rental Commencement Date and any Option Periods. Upon the failure of Tenant to pay any of such costs, charges or expenses, Landlord shall have the same rights and remedies as otherwise provided in the Lease for the failure of Tenant to pay Addition Basic Rent. It is the intention of the parties hereto that Tenant shall in no event be entitled to any abatement of or reduction in Addition Global Basic Rent payable hereunder except as expressly provided herein. Any present or future law to the contrary shall not alter this agreement of the parties.

Amounts payable by Tenant hereunder shall include, but not be limited to, the following:

(i) Insurance premiums required to maintain the insurance policies attributable to the Addition described in Article IV of the Original Lease;

(i) Expenses of occupying, operating, altering, maintaining and repairing the Addition throughout the term of the Lease; and

(i) All taxes, assessments, fees in lieu of taxes and other governmental charges with respect to the Addition, as set forth in Section 6.2 of the Original Loan Agreement, except as provided in


Section 2.4 of the Original Lease and except as prorated pursuant to Section 2.3.A(a) of this Amendment, and all other expenses and charges (including any asserted by the Issuer or the Trustee, including but not limited to Trustee's regular and extraordinary fees, as to all of which Landlord shall be entitled to prompt reimbursement by Tenant) which during the term of this Lease shall be levied, assessed or imposed by any governmental authority upon or with respect to, or incurred in connection with the ownership, possession, occupation, operation, alteration, maintenance, repair or use of the Addition.

If at any time during the term of the Lease under the laws of the State of Mississippi or any political subdivision thereof in which the Addition is situated, a tax or excise on rents or other tax, however described, is levied or assessed by said State or political subdivision against Landlord or the rentals set forth in Section 2.1.A hereof, Tenant covenants to pay and discharge such tax or excise on rents or other tax, but only to the extent of the amount thereof which is lawfully assessed or imposed upon Landlord and which was so assessed or imposed as a direct result of Landlord's interest in the Addition, or of this Amendment or of the rentals accruing hereunder, it being the intention of the parties hereto that all sums payable by Tenant hereunder (including, without limitation, Addition Basic Rent, Addition Company Payments, Addition Additional Rent and all other sums due hereunder) shall be paid to Landlord absolutely net without offset of any kind or deduction of any nature whatsoever except as expressly provided in this Amendment with respect to Addition Company Payments. Any payment or discharge by Tenant of any tax or excise on rents or other tax referred to in the preceding sentence shall not be deemed to be Addition Additional Rent. Nothing in this Amendment shall be construed to require Tenant to pay any franchise, estate, inheritance, succession, capital levy or transfer tax of Landlord, or any income, excess profits or revenue tax or any other tax or impost charged or levied against Landlord upon the rentals payable by Tenant under this Amendment, except to the extent hereinabove provided. In the case of any assessment for public improvement wherein the cost of the public improvement is permitted to be paid in installments, then and in such event only, such installments falling due during the term of this Amendment shall be paid by Tenant, and all such installments falling due subsequent to the term of this Amendment shall be paid by Landlord, notwithstanding the provisions of Section 2.3.A hereof. For the purpose of the foregoing sentence, an installment is due on the last day prior to the date upon which such an installment becomes delinquent.

Upon the occurrence and continuation of an event of default hereunder (an "Event of Default"), the Landlord may require the Tenant to deposit with the Trustee (or Landlord if there is no Trustee) in an escrow account bearing interest


for the benefit of Tenant (i) an amount equal to (A) all taxes which are due and payable which Tenant is obligated to pay under this Section, including accrued ad valorem taxes, if any, or, in the alternative all amounts due as payments or fees in lieu of taxes, with respect to the Addition plus (B) any then delinquent insurance premiums allocable to the Addition with respect to the insurance required under Section 4.1 of the Original Lease, and (ii) thereafter, each month, an amount equal to one-twelfth (1/12th) of the annual charges for taxes to be paid under this Section 2.2.A and insurance premiums.

Tenant covenants to cooperate fully with Landlord in taking any actions necessary to apply for and receive ad valorem tax relief for the Addition, including, but not limited to, meeting the requirements of Mississippi Code Section 27-31-101 and Section 27-31-104. Tenant expressly acknowledges that no right of offset with respect to payment of Addition Basic Rent to the Trustee or the payment of other amounts (except Addition Company Payments) hereunder shall arise in the event of the loss of ad valorem tax relief. Landlord agrees that, so long as Tenant is not in default hereunder, if any actions on the part of Landlord result in the occurrence of an event of default under the Loan Agreement or leads to a foreclosure on the Deed of Trust or any other event the result of which is the loss of ad valorem tax relief under the Loan Agreement, Landlord will indemnify Tenant to the extent Tenant is required under this Section 2.2.A to pay ad valorem taxes in excess of the payments in lieu of taxes which otherwise would have been paid by Tenant hereunder.

(c) Tenant agrees, within six (6) months following the earlier of
(i) the Addition Occupancy Commencement Date or (ii) the date of issuance of the Series 1999 Bonds, the Tenant will certify in writing to the Landlord as to the number of jobs created or, if prior to the Addition Occupancy Commencement Date, anticipated to be created, as a result of the Addition.

(d) Tenant will reimburse Landlord with respect to certain environmental inspection matters as follows:

(i) On an annual basis, Tenant will reimburse Landlord for the costs of a "walk-through" inspection of the Addition by a qualified environmental engineer reasonably acceptable to Tenant.

(ii) If such inspection yields evidence of any potential environmental hazards related to Tenant's use and occupancy of the Addition, Tenant will reimburse Landlord for such additional environmental inspections and reports as are deemed reasonably necessary by such engineer.


(c) There shall be added to the Original Lease immediately following
Section 2.3 thereof the following Section 2.3.A:

2.3.A Proration of Addition Taxes . (a) The taxes, fees in lieu of taxes, and other charges and expenses with respect to the Addition, described in Section 2.2.A(a) hereof, shall be prorated when appropriate between Landlord and Tenant in order that all of such taxes and other charges and expenses allocable to the Addition which relate to the period subsequent to the termination of the term of the Lease shall be borne by Landlord and in order that all of such taxes and other charges and expenses allocable to the Addition which relate to the term of the Lease shall be borne by Tenant. Such proration shall be computed in accordance with generally accepted accrual accounting principles and Landlord and Tenant shall each indemnify and hold the other harmless from any taxes and other charges and expenses relating to their respective periods of responsibility which may have become a charge upon the other.

(b) Tenant shall not enter into any non-terminable contracts or agreements with respect to the Addition extending beyond the term of the Lease without the prior written consent of Landlord, which consent Landlord may not withhold unreasonably and arbitrarily.

(d) There shall be added to the Original Lease immediately following
Section 2.6 thereof the following Section 2.6.A:


2.6.A Addition Global Basic Rent Adjustment . (a) The parties hereto contemplate that the Costs of the Addition provided for hereunder will equal the aggregate sum of Eight Million Nine Hundred Thousand Dollars ($8,900,000.00) (such amount being herein also sometimes called the "Addition Target Cost"). If the Addition is completed for less than the Addition Target Cost (resulting in the transfer of such surplus amount of Series 1999 Bond proceeds from the 1999 Accounts (as defined in the First Supplemental Indenture) within the Acquisition Fund to the Bond Fund (each as defined in the Original Loan Agreement) under Section 5.01(b) of the First Supplemental Indenture, the application of such amount by the Trustee under Section 3.01(d) of the First Supplemental Indenture to the redemption of Series 1999 Bonds at par pro rata at the earliest possible date and the corresponding reduction in the amount of principal and interest payments due on the Series 1999 Bonds), the Addition Global Basic Rent during the portion of the Primary Term remaining after the Addition Occupancy Commencement Date shall be reduced as follows: (1) Addition Basic Rent during such period shall be reduced proportionately, and (2) quarterly Addition Company Payments shall be reduced by an amount equal to (x) the product of one-half percent (0.5%) times such surplus amount of Series 1999 Bond proceeds divided by (y) four (4).

(b) The Series 1999 Bonds are subject to an interest rate increase on July 1, 2009, or if such day is not a business day, the next succeeding business day (the "1999 Rate Adjustment Date"), as provided in Section 2.02 of the First Supplemental Indenture, up to a maximum of thirteen percent (13%) per annum. Landlord and Tenant agree that, upon receiving notice from the Trustee that such an increase in rate has occurred, the Addition Basic Rent component of the Addition Global Basic Rent during the remaining portion of the Primary Term shall be increased accordingly.

(c) Following the occurrence of any circumstances set forth in
Section 6.9 of the Original Loan Agreement requiring or permitting the partial prepayment of Series 1999 Bonds, such amounts will be used to redeem Series 1999 Bonds as provided in Section 3.01(e) of the First Supplemental Indenture. If any such redemption occurs during the portion of the Primary Term remaining after the Addition Occupancy Commencement Date, the Addition Basic Rent component of the Addition Global Basic Rent during such period shall be reduced proportionately.

4. Right of Offset. There shall be added to the Original Lease immediately following Section 7.7 thereof the following Section 7.7.A:


7.7.A Right of Offset. So long as Tenant has not exercised any right to terminate the Lease as set forth in Section 10.24(a) of the Original Lease, any breach by Landlord of any term or provision hereof shall, in addition to those rights set forth in Section 10.24(a) of the Original Lease, give Tenant the right to offset sums due Tenant from Landlord as a result thereof against sums payable hereunder to Landlord as Addition Company Payments. In addition, Tenant shall have the right to offset Addition Company Payments owed to Landlord hereunder against sums owed Tenant from time to time pursuant to the Indemnification Agreement (as defined in Section 1.2.A of this Amendment). So long as any Series 1999 Bonds remain Outstanding, or the Indenture has not been released, then notwithstanding a breach by Landlord, Tenant shall remain liable for the payment of all Addition Basic Rent to the Trustee and payment of other amounts (except Addition Company Payments) hereunder until termination of the Lease by Tenant as provided in the Original Lease.

5. Reaffirmation of Provisions of Articles III, IV, V and VI of the Original Lease. Subject to the last sentence of this paragraph, the Landlord and the Tenant reaffirm, ratify and restate the provisions of Articles III, IV, V and VI of the Original Lease relating to insurance, financial covenants, damage, destruction and condemnation and other provisions included therein, and agree that such provisions shall be equally applicable to the Addition and Addition Basic Rent payable hereunder. References in said Articles to "Occupancy Commencement Date" shall, with respect to the Addition, be deemed to refer to the Addition Occupancy Commencement Date. References therein to "Completion Date" shall, if the applicable damage, destruction or condemnation relates only to the Addition and occurs after the Completion Date, be deemed to refer to the 1999 Completion Date. References in Section 6.4 of the Original Lease to "Tenant" shall be deemed to refer to the Original Tenant.

6. Notices. Section 10.2 of the Original Lease is amended by deleting subsection (iii) and inserting in lieu thereof the following:


"(iii) To Trustee, at First Tennessee Bank National Association, 4385 Poplar Avenue, Memphis, Tennessee 38117, Attention: Corporate Trust Services."

7. Benefits of the Act. There shall be added to the Original Lease immediately following Section 10.10 thereof the following Section 10.10.A:

10.10.A Benefits of the Act. Landlord and Tenant acknowledge that the Series 1999 Bonds are being issued pursuant to the provisions of
Section 57-10-401 et seq. of the Mississippi Code of 1972, as amended (the "Act"), so that Tenant may obtain certain benefits provided by the Act as set forth in Section 4.05 of the First Supplement to Loan Agreement. Tenant hereby acknowledges and accepts the obligations set forth in Section 4.05 of the First Supplement to Loan Agreement on its behalf, and said Section is hereby incorporated herein by reference. In order to comply with the requirements of Section 57-10-409 of the Act, Tenant hereby covenants and agrees as follows:

(a) The Original Lease as amended by this Amendment may be assigned by Tenant (other than to an affiliate thereof) only upon the prior written consent of the Issuer following the adoption of a resolution by the Issuer to such effect.

(b) Upon a default by Tenant in the payment of Addition Basic Rent hereunder, the Trustee, on behalf of the Issuer, may exercise the rights and remedies available under the Indenture and the Loan Agreement, including, but not limited to, acceleration of the Bonds, foreclosure of the Deed of Trust and termination of the Lease.

8. Miscellaneous. (a) All references in the Original Lease to sections in Article I or II shall be deemed to refer to the corresponding sections added by this Amendment as well. By way of example and not limitation, the reference in the second line of Section 2.4(a) of the


Original Lease to "Section 2.2(a) above" shall be deemed to refer to "Section 2.2(a) of the Original Lease and Section 2.2.A(a) of the Amendment."

(b) The Original Lease shall be deemed amended in all other respects necessary to subject the Addition to its terms, and to make the Addition part of the Project.

(c) Landlord and Tenant reaffirm all terms and provisions of the Original Lease not expressly amended hereby, and make all representations and warranties set forth therein as of the date hereof. Except as set forth in this Amendment, the Original Lease shall be unchanged and remains in full force and effect.

(d) This Amendment may be executed in any number of counterparts, each of which shall be an original and the counterparts shall constitute but one and the same instrument.

(e) This Amendment is to be governed and construed in accordance with the internal laws of the State of Mississippi, without regard to principles of conflicts of laws.


9. Joinder of Original Tenant. Williams-Sonoma, Inc., as Original Tenant under the Original Lease, joins herein to acknowledge and agree that, notwithstanding the Assignment, it remains jointly and severally liable for the performance of the obligations created by the Original Lease, and is jointly and severally liable for the performance of the obligations created by this Amendment.

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

HEWSON/DESOTO PHASE I, L.L.C., an
Arizona limited liability company

BY: HEWSON PROPERTIES, INC., a
California corporation

By:  /s/s Gary J. Hewson
   ----------------------------------
   Gary J. Hewson, Chief Executive
   Officer

LANDLORD

WILLIAMS-SONOMA RETAIL DISTRIBUTION
CENTER, INC., a California corporation

By:  /s/ Jerry Owens
   -------------------------------------
Title:  VP Operation
      ----------------------------------

TENANT

WILLIAMS-SONOMA, INC., a California
corporation

By:

Title:

ORIGINAL TENANT


STATE OF TENNESSEE
COUNTY OF SHELBY

Personally appeared before me, TONYA S. COCHRAN, the undersigned authority in and for the said county and state, on this the 7th day of September, 1999, within my jurisdiction, the within-named GARY J. HEWSON, who acknowledged himself to be Chief Executive Officer of HEWSON PROPERTIES, INC., a California corporation, which corporation is the manager of HEWSON/DESOTO PHASE I, L.L.C., an Arizona limited liability company (the "Maker"), and that for and on behalf of said corporation and as its act and deed as manager of the Maker and for and on behalf of the Maker and as its act and deed, he executed and delivered the foregoing instrument after having been duly authorized so to do.


Notary Public

My Commission Expires:


STATE OF TENNESSEE
COUNTY OF SHELBY

Personally appeared before me, TONYA S. COCHRAN, the undersigned authority in and for the said county and state, on this the 7th day of September, 1999, within my jurisdiction, the within-named JERRY E. OWENS, who acknowledged that he is Vice-President and Assistant Secretary of WILLIAMS-SONOMA RETAIL DISTRIBUTION CENTER, INC. and that for and on behalf of the said corporation, and as its act and deed, he executed and delivered the above and foregoing instrument, after first having been duly authorized by said corporation to do so.


Notary Public

My Commission Expires:



STATE OF TENNESSEE
COUNTY OF SHELBY

Personally appeared before me, TONYA S. COCHRAN, the undersigned authority in and for the said county and state, on this the 7th day of September, 1999, within my jurisdiction, the within-named DUANE WEEKS, who acknowledged that he is Senior Vice-President of WILLIAMS-SONOMA, INC., a California corporation, and that for and on behalf of the said corporation, and as its act and deed, he executed and delivered the above and foregoing instrument, after first having been duly authorized by said corporation to do so.


Notary Public

My Commission Expires:



EXHIBIT "A"

Real Property Description

TRACT I:

LOCATED IN DESOTO COUNTY, MISSISSIPPI:

BEING A SURVEY OF PART OF THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER, PART OF THE SOUTHWEST QUARTER OF THE NORTHEAST QUARTER, PART OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER AND PART OF THE NORTHEAST QUARTER OF THE NORTHEAST QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89 degrees32'11"W ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF
80.00 FEET TO A POINT; THENCE S00 degrees31'04"E ALONG A LINE THAT IS
80.00 FEET WEST OF AND PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 491.49 FEET TO THE POINT OF BEGINNING; THENCE CONTINUING S00 degrees31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL TO THE EAST LINE OF SAID SECTION 25 A DISTANCE OF 1485.00 FEET TO A POINT; THENCE S89 degrees13'30"W A DISTANCE OF 1957.52 FEET TO A POINT; THENCE N00 degrees46'30"W A DISTANCE OF 1484.99 FEET TO A POINT; THENCE N89 degrees13'30"E A DISTANCE OF 1964.19 FEET TO THE POINT OF BEGINNING AND CONTAINING 2,911,841 SQUARE FEET OR 66.847 ACRES.

TRACT II:

THE RIGHTS BENEFITTING THE FOREGOING TRACT I CREATED BY (A) THAT CERTAIN RECIPROCAL STORM WATER DRAINAGE AGREEMENT BY AND BETWEEN HEWSON/DESOTO SOUTH, LLC AND HEWSON/DESOTO PHASE I, LLC DATED AS OF THE 1ST DAY OF DECEMBER, 1998, (B) THAT CERTAIN RECIPROCAL STORM WATER DETENTION AND DRAINAGE AGREEMENT BY AND BETWEEN HEWSON/DESOTO PHASE I, LLC AND WILLIAMS-SONOMA, INC. DATED AS OF THE 1ST DAY OF DECEMBER, 1998, (C) THAT CERTAIN RECIPROCAL CONNECTOR EASEMENT AGREEMENT BY AND BETWEEN HEWSON/DESOTO PHASE I, L.L.C. AND WILLIAMS-SONOMA, INC. DATED AS OF DECEMBER 1, 1998 AND (D) THAT CERTAIN PARKING EASEMENT AGREEMENT BY AND BETWEEN HEWSON/DESOTO PHASE I, L.L.C. AND WILLIAMS-SONOMA, INC. DATED AS OF DECEMBER 1, 1998, EACH RECORDED IN THE OFFICE OF THE CHANCERY CLERK, DESOTO COUNTY, MISSISSIPPI ON DECEMBER 11, 1998.


EXHIBIT "B"

Plans for Addition Building and Improvements

See Attached

2

RETAIL DISTRIBUTION CAMPUS, BUILDING ADDITION,
WILLIAMS-SONOMA, OLIVE BRANCH, MS
Parcel Two 260,640 S.F. Building Expansion Plans by H&M Design Services, P.C.

                                                                                                Final
Sheet #      Prepared by:  Sheet Title                                             Date     Revision Date
---------------------------------------------------------------------------------------------------------
Cover        H-M           Drawing Index                                           8/20/99
---------------------------------------------------------------------------------------------------------
CE - 1.0     RSM           Grading & Drainage Plan                                 8/17/99
---------------------------------------------------------------------------------------------------------
A - 1.0      H-M           Site Concrete Paving Plan                               8/20/99
---------------------------------------------------------------------------------------------------------
A - 1.1      H-M           Building Additional Floor Plan                          7/22/99       8/20/99
---------------------------------------------------------------------------------------------------------
A - 1.2      H-M           Enlarged Area Floor Plans                               8/20/99
---------------------------------------------------------------------------------------------------------
A - 2.1      H-M           Room Finish & Door Schedules/Details                    7/22/99       8/20/99
---------------------------------------------------------------------------------------------------------
A - 3.1      H-M           Building Addition Elevations                            7/22/99       8/20/99
---------------------------------------------------------------------------------------------------------
A - 3.2      H-M           Tilt-Up Wall Panel Elevations                           7/22/99
---------------------------------------------------------------------------------------------------------
A - 3.3      H-M           Tilt-Up Wall Panel Elevations                           7/22/99       8/20/99
---------------------------------------------------------------------------------------------------------
A - 3.4      H-M           Tilt-Up Wall Panel Elevations                           7/22/99
---------------------------------------------------------------------------------------------------------
A - 4.1      H-M           Wall Sections                                           7/22/99
---------------------------------------------------------------------------------------------------------
A - 4.2      H-M           Wall Sections                                           8/20/99
---------------------------------------------------------------------------------------------------------
A - 5.1      H-M           Architectural Details                                   7/22/99       8/20/99
---------------------------------------------------------------------------------------------------------
A - 7.1      H-M           Building Addition Roof Plan                             7/22/99
---------------------------------------------------------------------------------------------------------
A - 7.2      H-M           Flashing Detail                                         7/22/99
---------------------------------------------------------------------------------------------------------
A - 8.1      H-M           Roof Opening Plan (Section "A")                         7/22/99
---------------------------------------------------------------------------------------------------------
A - 8.2      H-M           Roof Opening Plan (Section "B")                         7/22/99
---------------------------------------------------------------------------------------------------------
C - 1.1      H-M           Building Addition Foundation Plan                       7/22/99
---------------------------------------------------------------------------------------------------------
C - 2.1      H-M           Foundation Sections and Details                         7/22/99
---------------------------------------------------------------------------------------------------------
C - 2.2      H-M           Misc. Plans & Details                                   8/20/99
---------------------------------------------------------------------------------------------------------
S - 1.1      H-M           Building Addition Roof Framing Plan                     7/22/99
---------------------------------------------------------------------------------------------------------
S - 2.1      H-M           Framing Sections & Details                              7/22/99
---------------------------------------------------------------------------------------------------------
M - 1.1      H-M           Site Utilities Plan                                     8/20/99
---------------------------------------------------------------------------------------------------------
M - 3.1      H-M           Building Additional Plumbing Plans                      8/20/99
---------------------------------------------------------------------------------------------------------
M - 3.2      H-M           Enlarged Area Plumbing Plans                            8/20/99
---------------------------------------------------------------------------------------------------------
M - 4.1      H-M           Building Addtion HVAC Plan                              8/20/99
---------------------------------------------------------------------------------------------------------
M - 4.2      H-M           HVAC Details, Schedules & Notes                         8/20/99
---------------------------------------------------------------------------------------------------------
M - 5.1      H-M           Fire Protection Sprinkler Requirement Plan              8/18/99
---------------------------------------------------------------------------------------------------------
E - 1.1      H-M           Electrical Site Plan                                    8/12/99
---------------------------------------------------------------------------------------------------------
E - 2.1      H-M           Lighting Plan (Section "A")                              8/2/99
---------------------------------------------------------------------------------------------------------
E - 2.2      H-M           Lighting Plan (Section "B")                              8/3/99
---------------------------------------------------------------------------------------------------------
E - 2.3      H-M           Luminaire Schedule & Mounting Detail                    8/11/99
---------------------------------------------------------------------------------------------------------
E - 3.1      H-M           Power Plan (Section "A")                                8/12/99
---------------------------------------------------------------------------------------------------------
E - 3.2      H-M           Power Plan (Section "B")                                8/12/99
---------------------------------------------------------------------------------------------------------
E - 4.1      H-M           One Line Diagram                                        8/12/99
---------------------------------------------------------------------------------------------------------
E - 4.2      H-M           Fan Control Panel Schedule                              8/13/99
---------------------------------------------------------------------------------------------------------
E - 4.3      H-M           Panelboard Schedules                                    8/16/99
---------------------------------------------------------------------------------------------------------
E - 5.1      H-M           Systems Plan (Section "A")                              8/20/99
---------------------------------------------------------------------------------------------------------
E - 5.2      H-M           Systems Plan (Section "B")                              8/20/99
---------------------------------------------------------------------------------------------------------


EXHIBIT "C"

1999 Construction Budget

See Attached

C-1

               EXHIBIT "C" TO FIRST AMENDMENT TO LEASE AGREEMENT

                                   PHASE TWO

COST PROJECTION - WILLIAMS-SONOMA PROJECT                               09/02/99

ASSUMPTIONS:
-- ------- ------- ------- ------- ----- --------- ---------    ----------

     - ADDITION TO EXISTING OLIVE BRANCH DISTRIBUTION BUILDING
     - 6 MONTH DEVELOPMENT TIMEFRAME
     - 9.25% RATE FOR CAPITALIZED INTEREST FUND

     BOND ISSUANCE WILL BE: $8,898,599
-- ------- ------- ------- ------- ----- --------- ---------    ----------
SUMMARY SQUARE FOOTAGE                                260,640 S.F.


                                                       % OF
HARD COSTS:                                PER S.F.    TOTAL       TOTAL
                                           --------   ------     ----------
SHELL BUILDING & SITEWORK -                  27.24     87.1%     7,100,798
GROSS RECEIPTS TAX SAVINGS (est.)            (0.38)    -1.2%      (100,703)
GRADING & STORM DRAINAGE                      0.35      1.1%        82,262
PAYMENT & PERFORMANCE BOND                    0.18      0.6%        45,957
TENANT IMPROVEMENTS -                         0.00      0.0%             0

LAND - INCLUDED IN PRIOR ISSUANCE             0.00      0.0%             0

SOFT COSTS:

ARCHITECTURAL & ENGINEERING -                 0.96      2.8%       247,963
PERMITS & UTILITY FEES -                      0.06      0.2%        22,000
EARNED INTEREST (5.0%)                       (0.28)    -0.8%       (68,482)
EQUITY FINANCING INTEREST (8.0%)              0.00      0.0%           970
PROPERTY TAX -                                0.01      0.0%         2,000
INSURANCE -                                   0.08      0.2%        21,000
LEGAL & ACCOUNTING -                          0.26      0.8%        67,000
DEVELOPER'S OVERHEAD (3%)*                    1.00      2.9%       260,000
TITLE RECORD -                                0.05      0.1%        13,000
APPRAISALS/CONSULTANTS/TOXICS-                0.21      0.6%        54,200
TRAVEL                                        0.15      0.4%        40,000
CONTINGENCY (5% OF HARD COSTS)                1.57      4.0%       368,916
                                         --------- --------     ----------
TOTAL DEPOSIT TO PROJ. CONSTR. FUND          31.29     91.6%     8,154,871
TOTAL UNDERWRITER'S DISCOUNT                  0.43      1.3%       111,250
UNDERWRITER'S & BOND COUNSEL                  0.21      0.8%        55,000
BOND ISSUANCE FEES                            0.18      0.5%        43,000
DEPOSIT TO CAPITALIZED INTEREST FUND          2.05      6.0%       534,478
                                         --------- ---------    ----------
  TOTAL USES                                 34.14    100.0%     8,398,599
-- ------- ------- ------- ------- ----- --------- ---------    ----------

* Developer's Overhead will be 3% of the final amount of the Series 1999 Bond after redemption of excess proceeds.

C-2

EXHIBIT "C"

COST PROJECTION SUPPORT SCHEDULE

            BREAKDOWN                              ARCH. & ENGINEER

Proposal Amount          7,193,060         Owens Contract             199,953
Less: Site Grading         (92,262)        Will-Hayes                   3,000
                         ---------         Reaves & Sweeney Civil      15,000
Net Total Building Cost  7,100,798         Topo, ALTA, etc.            20,000
                                           Landscape Design                 0
                                           Other                       10,000
                                                                      -------
                                           Total                      247,953

                                                      CONSULTANTS

             SITEWORK                      Construction consultant      6,000
                                           Appraisal                    7,200
Site Grading                92,262         Soils                        3,000
                                           Phase One                        0
                                           Consulting Fees              5,000
                                           Sprinkler consultants        3,000
                                           Construction testing        30,000
                                                                      -------
                                           Total                       54,200
              LEGAL

Tax Attorney                 3,000
Reviewing Bond Attorney     25,000                  BOND ISSUANCE FEES
Lease Counsel               20,000
Construction Contracts       6,000         Financial Advisor            7,000
Arch & Eng Contract          3,000         Validation                     500
Accounting & Tax Prep       10,000         Trustee & Counsel Fees       9,000
W-S Lease & Bond Counsel         0         POS/Official Statement       5,500
                         ---------         Issuer's Fee                15,000
Total                       67,000         Miscellaneous Fees           6,000
                                                                      -------
Underwriter's Counsel       21,000         Total                       43,000
Bond Counsel                34,000

C-3

WILLIAMS-SONOMA CASH FLOW PROJECTIONS

CONSTRUCTION AND LEASEUP INTEREST CARRY -

                                                                        MONTH
                                  --------------------------------------------------------------------------------------
                                     1        2          3           4           5           6          7         8
                                  ------   -------   ---------   ---------   ---------   ---------  ---------  ---------
SOURCES OF FUNDS:                 Jul-99    Aug-99     Sep-99     Oct-99      Nov-99      Dec-99    Jan-2000   Feb-2000    TOTALS
-----------------                 ------   -------   ---------   ---------   ---------   ---------  ---------  ---------  ---------
MEMBER LOAN TO LLC                29,100    57,294    (115,391)                                                                   0

CUMULATIVE LLC FUNDING            29,100   116,384           0           0           0           0          0          0          0
                                  ------   -------   ---------   ---------   ---------   ---------  ---------  ---------  ---------
BOND FINANCING                         0         0   6,598,589           0           0           0          0          0
CUMULATIVE BOND FUNDING                0         0   6,598,589           0           0           0          0          0  6,598,589
                                  ------   -------   ---------   ---------   ---------   ---------  ---------  ---------  ---------
TOTAL SOURCES OF FUNDS            29,100    57,294   6,732,205           0           0           0          0          0  6,598,589
                                  ------   -------   ---------   ---------   ---------   ---------  ---------  ---------  ---------

USES OF FUNDS:

SHELL BUILDING & SITEWORK -                          2,130,238   1,426,150   1,420,180   1,420,188    710,080             7,000,798
GROSS RECEIPTS TAX SAVINGS (est.)                                                                    (100,703)            ( 100,703)
GRADING & STORM DRAINAGE                                92,282                                                               92,282
PAYMENT & PERFORMANCE BOND                              45,957                                                               45,957
TENANT IMPROVEMENTS -                                                                                                             0

LAND - INCLUDED IN PRIOR ISSUANCE                                                                                                 0

SOFT COSTS:

ARCHITECTURAL & ENGINEERING -                                      123,977     123,977                                      247,853
PERMITS & UTILITY FEES -                    22,000                                                                           22,000
EARNED INTEREST (50%)                                  (26,655)    (19,650)    (13,090)     (5,752)    (3,099)              (68,482)
EQUITY FINANCING INTEREST (8.0%)               194         776                                                                  970
PROPERTY TAX -                               2,000                                                                            2,000
INSURANCE -                                 21,000                                                                           21,000
LEGAL & ACCOUNTING -              13,400    13,400      13,400      13,400      13,400                                       67,000
DEVELOPER'S OVERHEAD (3%)                                                                  250,000                          250,000
TITLE RECORD -                              13,000                                                                           13,000
APPRAISAL/CONSULTANTS/TOXICS -     9,033     9,033       9,033       9,033       9,033       9,033                           54,200
TRAVEL -                           6,667     6,667       6,667       6,667       6,667       6,667                           40,000
CONTINGENCY (5% OF HARD COSTS)         0         0     113,423      71,008      71,008      30,469                          358,916
                                  ------   -------   ---------   ---------   ---------   ---------  ---------  ---------  ---------
TOTAL MONTHLY DRAWS FROM PROJ
CON. FUND                         29,100    37,294   2,365,103   1,524,358   1,631,154   1,761,118    836,747          0  8,154,871
TOTAL UNDERWRITER'S DISCOUNT                           111,250                                                              111,250
PURCHASER'S & BOND COUNSEL                              55,000                                                               55,000
BOND ISSUANCE FEES                                      43,000                                                               43,000
DEPOSIT TO CAPITALIZED
INTEREST FUND                                          534,478                                                              534,478
                                  ------   -------   ---------   ---------   ---------   ---------  ---------  ---------  ---------
TOTAL USES                        29,100    37,294   3,128,830   1,624,358   1,631,154   1,761,116    636,747          0  8,898,699
CUMULATIVE BALANCE                29,100   116,394   2,501,487   4,125,854   5,757,008   7,310,124  8,154,871  8,154,871
PER S.F. UNIT COST                  0.11      0.45        9.00       16.83       22.09       28.84      31.29      31.29
BOND INTEREST (9.75%)                                   50,302      68,593      68,593      68,593     68,593     68,593    393,269
FINANCING INTEREST ON
LOAN (8.0%)                          194       776                                                                              970

C-4

EXHIBIT "D"

Addition Rent Schedule

See Attached


EXHIBIT "D"

                                                                                                GLOBAL
    LEASE                                                      BASIC          COMPANY           BASIC
    QRTS     DATE         INTEREST          SINK FUND          RENT           PAYMENT           RENT
---------------------------------------------------------------------------------------------------------
       0   01/01/00       $274,417                 $0        $274,417         $11,125           $285,542
       1   04/01/00       $205,813                 $0        $205,813         $11,125           $216,938
       2   07/01/00       $205,813            $65,000        $270,813         $11,125           $281,938
       3   10/01/00       $204,309                 $0        $204,309         $11,125           $215,434
       4   01/01/01       $204,309            $70,000        $274,309         $11,125           $285,434
       5   04/01/01       $202,691                 $0        $202,691         $11,125           $213,816
       6   07/01/01       $202,691            $70,000        $272,691         $11,125           $283,816
       7   10/01/01       $201,072                 $0        $201,072         $11,125           $212,197
       8   01/01/02       $201,072            $75,000        $276,072         $11,125           $287,197
       9   04/01/02       $199,338                 $0        $199,338         $11,125           $210,463
      10   07/01/02       $199,338            $75,000        $274,338         $11,125           $285,463
      11   10/01/02       $197,603                 $0        $197,603         $11,125           $208,728
      12   01/01/03       $197,603            $85,000        $282,603         $11,125           $293,728
      13   04/01/03       $195,638                 $0        $195,638         $11,125           $206,763
      14   07/01/03       $195,638            $85,000        $280,638         $11,125           $291,763
      15   10/01/03       $193,672                 $0        $193,672         $11,125           $204,797
      16   01/01/04       $193,672            $90,000        $283,672         $11,125           $294,797
      17   04/01/04       $191,591                 $0        $191,591         $11,125           $202,716
      18   07/01/04       $191,591            $95,000        $286,591         $11,125           $297,716
      19   10/01/04       $189,394                 $0        $189,394         $11,125           $200,519
      20   01/01/05       $189,394           $100,000        $289,394         $11,125           $300,519
      21   04/01/05       $187,081                 $0        $187,081         $11,125           $198,206
      22   07/01/05       $187,081           $105,000        $292,081         $11,125           $303,206
      23   10/01/05       $184,653                 $0        $184,653         $11,125           $195,778
      24   01/01/06       $184,653           $105,000        $289,653         $11,125           $300,778
      25   04/01/06       $182,225                 $0        $182,225         $11,125           $193,350
      26   07/01/06       $182,225           $110,000        $292,225         $11,125           $303,350
      27   10/01/06       $179,681                 $0        $179,681         $11,125           $190,806
      28   01/01/07       $179,681           $120,000        $299,681         $11,125           $310,806
      29   04/01/07       $176,906                 $0        $176,906         $11,125           $188,031
      30   07/01/07       $176,906           $125,000        $301,906         $11,125           $313,031
      31   10/01/07       $174,016                 $0        $174,016         $11,125           $185,141
      32   01/01/08       $174,016           $130,000        $304,016         $11,125           $315,141
      33   04/01/08       $171,009                 $0        $171,009         $11,125           $182,134
      34   07/01/08       $171,009           $135,000        $306,009         $11,125           $317,134
      35   10/01/08       $167,888                 $0        $167,888         $11,125           $179,013
      36   01/01/09       $167,888           $140,000        $307,888         $11,125           $319,013


EXHIBIT "D"

                                                                                                GLOBAL
    LEASE                                                      BASIC          COMPANY           BASIC
    QRTS     DATE         INTEREST          SINK FUND          RENT           PAYMENT           RENT
---------------------------------------------------------------------------------------------------------
      37   04/01/09       $164,650                 $0        $164,650         $11,125           $175,775
      38   07/01/09       $164,650           $145,000        $309,650         $11,125           $320,775
      39   10/01/09       $161,297                 $0        $161,297         $11,125           $172,422
      40   01/01/10       $161,297           $155,000        $316,297         $11,125           $327,422
      41   04/01/10       $157,713                 $0        $157,713         $11,125           $168,838
      42   07/01/10       $157,713           $160,000        $317,713         $11,125           $328,838
      43   10/01/10       $154,013                 $0        $154,013         $11,125           $165,138
      44   01/01/11       $154,013           $170,000        $324,013         $11,125           $335,138
      45   04/01/11       $150,081                 $0        $150,081         $11,125           $161,206
      46   07/01/11       $150,081           $180,000        $330,081         $11,125           $341,206
      47   10/01/11       $145,919                 $0        $145,919         $11,125           $157,044
      48   01/01/12       $145,919           $180,000        $325,919         $11,125           $337,044
      49   04/01/12       $141,756                 $0        $141,756         $11,125           $152,881
      50   07/01/12       $141,756           $190,000        $331,756         $11,125           $342,881
      51   10/01/12       $137,363                 $0        $137,363         $11,125           $148,488
      52   01/01/13       $137,363           $205,000        $342,363         $11,125           $353,488
      53   04/01/13       $132,622                 $0        $132,622         $11,125           $143,747
      54   07/01/13       $132,622           $210,000        $342,622         $11,125           $353,747
      55   10/01/13       $127,766                 $0        $127,766         $11,125           $138,891
      56   01/01/14       $127,766           $220,000        $347,766         $11,125           $358,891
      57   04/01/14       $122,678                 $0        $122,678         $11,125           $133,803
      58   07/01/14       $122,678           $230,000        $352,678         $11,125           $363,803
      59   10/01/14       $117,359                 $0        $117,359         $11,125           $128,484
      60   01/01/15       $117,359           $240,000        $357,359         $11,125           $368,484
      61   04/01/15       $111,809                 $0        $111,809         $11,125           $122,934
      62   07/01/15       $111,809           $250,000        $361,809         $11,125           $372,934
      63   10/01/15       $106,028                 $0        $106,028         $11,125           $117,153
      64   01/01/16       $106,028           $270,000        $376,028         $11,125           $387,153
      65   04/01/16        $99,784                 $0         $99,784         $11,125           $110,909
      66   07/01/16        $99,784           $280,000        $379,784         $11,125           $390,909
      67   10/01/16        $93,309                 $0         $93,309         $11,125           $104,434
      68   01/01/17        $93,309           $285,000        $378,309         $11,125           $389,434
      69   04/01/17        $86,719                 $0         $86,719         $11,125            $97,844
      70   07/01/17        $86,719           $305,000        $391,719         $11,125           $402,844
      71   10/01/17        $79,666                 $0         $79,666         $11,125            $90,791
      72   01/01/18        $79,666           $315,000        $394,666         $11,125           $405,791
      73   04/01/18        $72,381                 $0         $72,381         $11,125            $83,506


EXHIBIT "D"

                                                                                                GLOBAL
    LEASE                                                      BASIC          COMPANY           BASIC
    QRTS     DATE         INTEREST          SINK FUND          RENT           PAYMENT           RENT
---------------------------------------------------------------------------------------------------------
      74   07/01/18        $72,381           $335,000        $407,381         $11,125           $418,506
      75   10/01/18        $64,634                 $0         $64,634         $11,125            $75,759
      76   01/01/19        $64,634           $345,000        $409,634         $11,125           $420,759
      77   04/01/19        $56,656                 $0         $56,656         $11,125            $67,781
      78   07/01/19        $56,656           $365,000        $421,656         $11,125           $432,781
      79   10/01/19        $48,216                 $0         $48,216         $11,125            $59,341
      80   01/01/20        $48,216           $380,000        $428,216         $11,125           $439,341
      81   04/01/20        $39,428                 $0         $39,428         $11,125            $50,553
      82   07/01/20        $39,428           $400,000        $439,428         $11,125           $450,553
      83   10/01/20        $30,178                 $0         $30,178         $11,125            $41,303
      84   01/01/21        $30,178           $415,000        $445,178         $11,125           $456,303
      85   04/01/21        $20,581                 $0         $20,581         $11,125            $31,706
      86   07/01/21        $20,581           $435,000        $455,581         $11,125           $466,706
      87   10/01/21        $10,522                 $0         $10,522         $11,125            $21,647
      88   01/01/22        $10,522           $455,000        $465,522              $0           $465,522


                       $12,349,829         $8,900,000     $21,249,829        $979,000        $22,228,829


EXHIBIT 10.10P

FIFTH AMENDMENT TO SYNDICATED CREDIT AGREEMENT

THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of February 7, 2000, is entered into by and among WILLIAMS-SONOMA, INC. (the "Company"), BANK OF AMERICA, N.A. (formerly known as Bank of America National Trust and Savings Association), as agent for itself and the Banks (the "Agent"), and the several financial institutions party to the Credit Agreement (collectively, the "Banks").

RECITALS

A. The Company, Banks, and Agent are parties to a Credit Agreement dated as of June 1, 1997 (as previously amended, the "Credit Agreement") pursuant to which the Agent and the Banks have extended certain credit facilities to the Company.

B. The L/C Agreement (as defined in the Credit Agreement) is being amended to add a facility for up to $75,000,000 in cash advances by BofA to the Company.

C. The Banks are willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment.

NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement.

2. Amendments to Credit Agreement.

(a) Section 7.05(i) is hereby amended and restated as follows:

(i) Additional indebtedness to BofA (or another replacement lender) in principal amount not to exceed $75,000,000) outstanding at any one time;

(b) All references to the L/C Agreement in the Credit Agreement shall be deemed to refer to the L/C Agreement as amended as described in Recital B above. In particular, the pro rata sharing provisions in paragraph 2.15(d) shall be deemed to apply to all credit outstanding under the L/C Agreement, as amended.

3. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Banks as follows:

(a) No Default or Event of Default has occurred and is continuing.

(b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset.

1

(c) All representations and warranties of the Company contained in the Credit Agreement are true and correct.

(d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person.

4. Miscellaneous.

(a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement.

(b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment.

(c) This Amendment shall be governed by and construed in accordance with the law of the State of California.

(d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one document (and any other document required herein) may be delivered by any party thereto to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent.

(e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement.

(f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively.

(g) The Company covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Agreement.

2

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

BANK OF AMERICA, N.A., as Agent              WILLIAMS-SONOMA, INC.


By /s/ PATRICK W. ZETZMAN                    By /s/ JOHN W. TATE
   -----------------------------                --------------------------
       PATRICK W. ZETZMAN                           JOHN W. TATE
Title    Vice President                         Chief Financial Officer
       -------------------------

BANK OF AMERICA, N.A., as a Bank             THE BANK OF NEW YORK

By /s/ GINGER TRIMBLE                        By
   -----------------------------                 -------------------------
       GINGER TRIMBLE
Title  Vice President                        Title
      --------------------------                   ----------------------

3

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

BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
WILLIAMS-SONOMA, INC.

By
  --------------------------------      By
Title                                     --------------------------------
      ----------------------------      Title
                                             -----------------------------
                                        By
                                          --------------------------------
                                        Title
                                             -----------------------------
BANK OF AMERICA, N.A.; as a Bank

THE BANK OF NEW YORK

By

  --------------------------------      By  /s/ CHARLOTTE SOHN FUIKS
Title                                     --------------------------------
                                                CHARLOTTE SOHN FUIKS
      ----------------------------      Title V.P.
                                             -----------------------------


GUARANTOR ACKNOWLEDGMENT
AND CONSENT

The undersigned, each a guarantor with respect to the Company's obligations under the Credit Agreement, each hereby (i) acknowledge and consent to the execution, delivery and performance by the Company of the foregoing Fifth Amendment to Syndicated Credit Agreement, and (ii) reaffirm and agree that the guaranty to which the undersigned is party is in full force and effect, and guaranties all of the obligations of the Company under the Agreement, as amended.

Dated as of February 7, 2000       WILLIAMS-SONOMA STORES, INC.

                                   By /s/ JOHN W. TATE
                                     -------------------------------------
                                     John W. Tate
                                     Chief Financial Officer


                                   HOLD EVERYTHING, INC.

                                   By /s/ JOHN W. TATE
                                     -------------------------------------
                                     John W. Tate
                                     Chief Financial Officer


                                   CHAMBERS CATALOG
                                   COMPANY, INC.

                                   By /s/ JOHN W. TATE
                                     -------------------------------------
                                     John W. Tate
                                     Chief Financial Officer


                                   POTTERY BARN, INC., formerly known
                                   as POTTERY BARN EAST, INC.

                                   By /s/ JOHN W. TATE
                                     -------------------------------------
                                     John W. Tate
                                     Chief Financial Officer


                                   WILLIAMS-SONOMA STORES, LLC

                                   By Williams-Sonoma, Inc., its sole
                                   member

                                   By /s/ JOHN W. TATE
                                     -------------------------------------
                                     John W. Tate
                                     Chief Financial Officer

4

POTTERY BARN KIDS, INC.

By /s/ JOHN W. TATE
  -------------------------------------
  John W. Tate
  Chief Financial Officer

WILLIAMS-SONOMA DIRECT, INC.

By /s/ JOHN W. TATE
  -------------------------------------
  John W. Tate
  Chief Financial Officer

WILLIAMS-SONOMA RETAIL
SERVICES, INC.

By /s/ JOHN W. TATE
  -------------------------------------
  John W. Tate
  Chief Financial Officer

5

EXHIBIT 10.10Q

SEVENTH AMENDMENT TO LETTER OF CREDIT AGREEMENT

This amendment dated as of February 7, 2000, is between Bank of America, N.A., formerly known as Bank of America National Trust and Savings Association (the "Bank") and Williams-Sonoma, Inc. (the "Borrower").

RECITALS

A. The Bank and the Borrower entered into a certain Letter of Credit Agreement dated as of June 1, 1997 (as previously amended, the "Agreement").

B. The Bank and the Borrower desire to amend the Agreement.

AGREEMENT

1. Definitions. Capitalized terms used but not defined to this Amendment shall have the meanings given to them in the Agreement.

2. Amendment. Article 2A, which was added to the Agreement by the Fifth Amendment, is a amended and restarted in its entirety as follow:

2A.1 Line of Credit Amount. From the effective date of the Seventh Amendment to this Agreement until May 31, 2001 (the "Revolver Expiration Date"), the Bank will provide a line of credit to the Borrower. The amount of the line of credit (the "Revolver Commitment") is $75,000,000. This is a revolving line of credit providing for cash advances. During the availability period, the Borrower may repay principal amounts and reborrow them. The Borrower agrees not to permit the outstanding principal balance of advances under the line of credit to exceed the Revolver Commitment. Amounts advanced under this line of credit shall be used to fund the acquisition of an office building to be occupied by the Borrower and its subsidiaries and for related expenses.

2A.2 Interest Rate. Unless the Borrower elects an optional interest rate as described below, principal amounts outstanding under this line of credit shall bear interest at the Base Rate (as defined in the Syndicated Credit Agreement) plus the Applicable Margin (as defined below).

2A.3 Repayment Terms. The Borrower will pay interest on each Payment Date, as defined in the Syndicated Credit Agreement, until payment in full of any principal outstanding under this line of credit. The Borrower will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than the Revolver Expiration Date. Any interest period for an optional interest rate (as described below) shall expire no later than the Revolver Expiration Date.

2A.4 Optional Interest Rates. Instead of the interest based on the Base Rate, the Borrower may elect to have all or portions of the principal amount outstanding under this facility bear interest at the London Rate plus the Applicable Margin or the Cayman Rate plus the Applicable Margin. The London Rate and Cayman Rate shall have the meanings as defined in the Syndicated Credit Agreement.


2A.5 Fees. On the effective date of the Seventh Amendment to this Agreement, the Borrower shall pay to the Bank under Facility 2, a commitment fee equal to 0.100% of the Revolver Commitment.

2A.6 Applicable Margin and Fee. The Applicable Margin shall be the following amounts per annum:

           Applicable Margin
      (in basis points per annum)

Base Rate +         London/Cayman Rate +
-----------         --------------------
     0                       87.5

The Applicable Margin with respect to London and Cayman Rates shall be increased above the amounts stated in the foregoing table in the following cases: (a) During any period in which the principal amount outstanding under this facility exceeds 33% of the Revolver Commitment, the Applicable Margin shall be increased by 12.5 basis points; and (b) during any period in which the principal amount outstanding under this facility exceeds 66% of the Revolver Commitment, the Applicable Margin shall be increased by 25.0 basis points.

2A.7 Incorporation of Terms. The terms and conditions specified in paragraphs 2.04(a), (b) and (c), 2.12 and Article 3 of the Syndicated Credit Agreement are incorporated by reference as though fully set forth in this Agreement; provided, however, that each reference to the Agent in such paragraphs shall be deemed to refer to the Bank in its individual capacity as a lender; and provide that the terms "Base Rate Loan," "Cayman Rate Loan" and "London Rate Loan" shall refer to amounts outstanding under this Agreement which are bearing interest at the respective interest rates.

2A.8 Default Rate. While any Event of Default exists or after acceleration, the Borrower shall, at the Bank's option, pay interest at a rate which is two (2.0) percentage points higher than the rate which would otherwise apply under this Agreement.

3. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that the representations and warranties in Article 5 of the Agreement, as applied to the Agreement as amended hereby, are true and correct as of the date of this Amendment as if made on the date of this Amendment.

4. Conditions. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank:

(a) Evidence that the execution, delivery, and performance by the Borrower of this Amendment and any instrument or agreement required under this Amendment have been duly authorized;

(b) A Guarantor Acknowledgment and Consent in the form attached hereto.

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(c) An amendment from the Banks party to the Syndicated Credit Agreement (as defined in the Agreement).

5. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect.

This Amendment is executed as of the date first stated above.

BANK OF AMERICA, N.A.                        WILLIAMS-SONOMA, INC.


By /s/ GINGER TRIMBLE                        By /s/ JOHN W. TATE
   ------------------------------              -----------------------------
                                               John W. Tate
Title: Vice President                          Chief Financial Officer
       --------------------------

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GUARANTOR ACKNOWLEDGMENT
AND CONSENT

The undersigned, each a guarantor with respect to the Borrower's obligations to the Bank under the Agreement, each hereby (i) acknowledge and consent to the execution, delivery and performance by the Borrower of the foregoing Seventh Amendment to the Letter of Credit Agreement, and (ii) reaffirm and agree that the guaranty to which the undersigned is party is in full force and effect, and guaranties all of the obligations of the Borrower under the Agreement, as amended.

Dated as of February 7, 2000       WILLIAMS-SONOMA STORES, INC.

                                   By /s/ JOHN W. TATE
                                      -------------------------------------
                                      John W. Tate
                                      Chief Financial Officer


                                   HOLD EVERYTHING, INC.

                                   By /s/ JOHN W. TATE
                                      -------------------------------------
                                      John W. Tate
                                      Chief Financial Officer


                                   CHAMBERS CATALOG COMPANY, INC.

                                   By /s/ JOHN W. TATE
                                      -------------------------------------
                                      John W. Tate
                                      Chief Financial Officer


                                   POTTERY BARN, INC., formerly known
                                   as POTTERY BARN EAST, INC.

                                   By /s/ JOHN W. TATE
                                      -------------------------------------
                                      John W. Tate
                                      Chief Financial Officer


                                   WILLIAMS-SONOMA STORES, LLC

                                   By Williams-Sonoma, Inc., its sole
                                   Member

                                   By /s/ JOHN W. TATE
                                      -------------------------------------
                                      John W. Tate
                                      Chief Financial Officer

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POTTERY BARN KIDS, INC.

By /s/ JOHN W. TATE
   -----------------------------
       John W. Tate
       Chief Financial Officer

WILLIAMS-SONOMA DIRECT, INC.

By /s/ JOHN W. TATE
   -----------------------------
       John W. Tate
       Chief Financial Officer

WILLIAMS-SONOMA RETAIL SERVICES, INC.

By /s/ JOHN W. TATE
   -----------------------------
       John W. Tate

       Chief Financial Officer


EXHIBIT 10.10R

GUARANTY

This Guaranty is entered into as of February 7, 2000, by Williams-Sonoma Retail Services, Inc. (the "Guarantor"), in favor of Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association), as agent for the financial institutions from time to time party to that certain Credit Agreement dated as of June 1, 1997 (the "Banks") (in such capacity, the "Agent") and such Banks.

Recitals

A. Williams-Sonoma, Inc. (the "Company"), the Agent and the Banks entered into a Credit Agreement dated as of June 1, 1997. The Credit Agreement as now in effect or hereafter extended, renewed, modified, supplemented, amended or restated is hereinafter called the "Credit Agreement".

B. The Banks are willing to make certain Loans to the Company as provided in the Credit Agreement on the condition (among others) that the Guarantor enter into this Guaranty.

C. The Guarantor as a Subsidiary of the Company will derive substantial and direct benefits (which benefits are hereby acknowledged by the Guarantor) from the Loans and other benefits to be provided to the Company under the Credit Agreement.

D. In order to induce the Banks to make such Loans available to the Company as provided in the Credit Agreement, and for other valuable consideration, the Guarantor issues this Guaranty.

1. Definitions. Unless otherwise defined herein, capitalized terms used in this Guaranty have the meanings given to them from time to time in the Credit Agreement.

2. Guaranty.

2.1 Guaranty. The Guarantor hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment or performance when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all of the Obligations. This Guaranty constitutes a guaranty of payment and performance when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that the Agent or any Bank exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Company (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. The Agent or any Bank may permit the indebtedness of the Company to the Agent or any Bank to include indebtedness other than the Obligations, and may apply any amounts received from any source, other than from the Guarantor, to that portion of Company's indebtedness to the Agent or any Bank which is not a part of the Obligations.

2.2 Obligations Independent. The obligations hereunder are independent of the obligations of the Company, and a separate action or actions may be brought and prosecuted against the Guarantor whether action is brought against the Company or whether the Company be joined in any such action or actions.

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2.3 Authorization of Renewals, Etc. The Guarantor authorizes the Agent and each Bank, without notice or demand and without affecting its liability hereunder, from time to time,

(a) to renew, compromise, extend, accelerate or otherwise change the time for payment, or otherwise change the terms, of the Obligations, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Credit Agreement or any other Loan Document;

(b) to receive and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) to apply such security and direct the order or manner of sale thereof as the Agent, or any Bank, as the case may be, in its or their discretion may determine; and

(d) to release or substitute any one or more of any endorsers or guarantors of the Obligations.

The Guarantor further agrees the performance or occurrence of any of the acts or events described in clauses (a), (b), (c), and (d) above with respect to indebtedness or other obligations of the Company, other than the Obligations, to the Agent or any Bank, shall not affect the liability of the Guarantor hereunder.

2.4 Waiver of Certain Rights. The Guarantor waives any right to require the Agent or any Bank:

(a) to proceed against the Company or any other Person;

(b) to proceed against or exhaust any security for the Obligations or any other indebtedness of the Company to the Agent or any Bank; or

(c) to pursue any other remedy in the Agent's or any such Bank's power whatsoever.

2.5 Waiver of Certain Defenses. The Guarantor waives any defense arising by reason of any claim that the Guarantor's obligations exceed or are more burdensome than those of the Company. The Guarantor waives all fights and defenses arising out of an election of remedies by the Agent or any Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for the Obligations, has destroyed the Guarantor's rights of subrogation and reimbursement against the Company by operation of Section 580d of the California Code of Civil Procedure (if applicable) or otherwise. The Guarantor waives any benefit of, and any right to participate in, any security or other guaranty now or hereafter held by the Agent or any Bank securing the Obligations.

2.6 Waiver of Presentments, Etc. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest notices of

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dishonor and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Obligations or any other indebtedness of Company to the Agent or any Bank.

2.7 Information Relating to Company. The Guarantor acknowledges and agrees that it shall have the sole responsibility, for obtaining from the Company such information concerning the Company's financial condition or business operations as the Guarantor may require, and that neither the Agent nor any Bank has any duty at any time to disclose to the Guarantor any information relating to the business operations or financial condition of the Company.

2.8 Right of Setoff. In addition to any rights and remedies of the Banks provided by law, if Guarantor has failed to make any payment due hereunder upon demand, each Bank is authorized at any time and from time to time, without prior notice to the Guarantor, any such notice being waived by the Guarantor to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Guarantor against any and all obligations of the Guarantor now or hereafter existing under this Guaranty or any other Loan Document, irrespective of whether or not the Agent or such Bank shall have made demand under this Guaranty or any other Loan Document and although such obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Guarantor and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 2.8 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have.

2.9 Subordination. Any obligations of the Company to the Guarantor, now or hereafter existing, including, but not limited to, obligations to the Guarantor as subrogee of the Agent or any Bank or resulting from the Guarantor's performance under this Guaranty, are hereby fully subordinated in priority of payment to the Obligations and all other indebtedness of the Company to the Agent or any Bank.

2.10 Reinstatement of Guaranty. If any payment or transfer of any interest in property by the Company to the Agent or any Bank in fulfillment of any Obligation is rescinded or must at any time (including after the return or cancellation of this Guaranty) be returned, in whole or in part, by the Agent or any Bank to the Company or any other Person, upon the insolvency, bankruptcy or reorganization of the Company or otherwise, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior return or cancellation.

2.11 Powers. It is not necessary for the Agent or any Bank to inquire into the powers of the Company or of the officers, directors, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.

2.12 Taxes. (a) Subject to compliance with Section 9.10 of the Credit Agreement, any and all payments by the Guarantor to each Bank or the Agent under this

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Guaranty shall be made free and clear of, and without deduction or withholding for, any Taxes, Other Taxes or Further Taxes. In addition, the Guarantor shall pay all Other Taxes.

(b) If the Guarantor shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then:

(i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Bank or the Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made;

(ii) the Guarantor shall make such deductions and withholdings;

(iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv) the Guarantor shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

(c) The Guarantor agrees to indemnify and hold harmless each Bank and the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor.

(d) Within 30 days after the date of any payment by the Guarantor of Taxes, Other Taxes or Further Taxes, the Guarantor shall furnish to each Bank or the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Bank or the Agent.

(e) For purposes of this Section, (i) "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office; (4) "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Guaranty; and (iii) "Further Taxes" means any and all present or future taxes, levies. assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net

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income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to this Section.

3. Representations and Warranties. The Guarantor represents and warrants to the Agent and each Bank as follows:

3.1 Existence and Power. The Guarantor (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization: (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under, this Guaranty and any other Loan Document to which it is a party; (c) is duly qualified as a foreign limited liability company, and licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case, to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Guarantor, its parent and affiliates, taken as a whole; (b) a material impairment of the ability of the Guarantor to perform its obligations under this Guaranty; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty and any other Loan Document to which it is a party.

3.2 Authorization; No Contravention. The execution, delivery and performance by the Guarantor of this Guaranty and any other Loan Document to which it is party, have been duly authorized, and do not and will not (a) contravene the terms of any of the Guarantor's Organization Documents; (b) violate or result in any breach or contravention of, or the creation of any lien under, any document evidencing any Contractual Obligation to which the Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Guarantor or its property is subject; or (c) violate any Requirement of Law.

3.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Guarantor of this Guaranty or any other Loan Document to which it is a party.

3.4 Binding Effect. This Guaranty and each other Loan Document to which the Guarantor is a party constitute the legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

3.5 Regulated Entities. None of the Guarantor, any Person controlling the Guarantor or any Subsidiary of the Guarantor is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any

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state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur or guarantee Indebtedness.

4. Miscellaneous

4.1 Application of Payments on Guaranty. All payments required to be made by the Guarantor hereunder shall, unless otherwise expressly provided herein, be made to the Agent for the account of the Banks at the Agent's Payment Office. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Payments received from the Guarantor shall, unless otherwise expressly provided herein, be applied to costs, fees, or other expenses due under the Loan Documents, any interest (including interest due under subsection 2.10(c) of the Credit Agreement, any principal due under the Loan Documents and any other Obligations, in such order as the Agent, with the consent of or at the request of the Majority Banks, shall determine.

4.2 Assignments, Participations, Confidentiality. Any Bank may from time to time, without notice to the Guarantor and without affecting the Guarantor's obligations hereunder, transfer its interest in the Obligations to Participants and Assignees as provided in the Credit Agreement. The Guarantor agrees that each such transfer will give rise to a direct obligation of the Guarantor to each such Participant and Assignee and that each such Participant and Assignee shall have the same rights and benefits under this Guaranty as it would have if it were a Bank party to the Credit Agreement and this Guaranty. The Guarantor, the Agent and each Bank agree that the provisions of Section 10.09 of the Credit Agreement shall apply to all information identified as "confidential" or "secret" by the Guarantor and provided to the Agent or such Bank by the Guarantor or any Subsidiary of the Guarantor under this Guaranty or any other Loan Document to which the Guarantor is a party.

4.3 Loan Document. This Guaranty is a Loan Document executed and delivered pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. Without limiting the generality of the foregoing, the provisions of Sections 1.02 and 1.03 of the Credit Agreement shall apply to the interpretation and administration of this Guaranty as if such provisions were incorporated herein, with all references to the "Agreement" in such Sections being deemed to be references to this Guaranty.

4.4 Waivers: Writing Required. No delay or omission by the Agent or any Bank to exercise any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Guaranty shall be deemed a waiver of any other breach or default. Any amendment or waiver of any provision of this Guaranty must be in writing and signed by the Guarantor and the Agent, with the written consent of the Majority Banks or all of the Banks, in accordance with the terms of Section 10.01 of the Credit Agreement

4.5 Remedies. All rights and remedies provided in this Guaranty and any instrument or agreement referred to herein are cumulative and are not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

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4.6 Costs and Expenses. The Guarantor agrees to pay or reimburse the Agent and each Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Guaranty (including in connection with any "workout" or restructuring regarding amounts due under this Guaranty, and including in any Insolvency Proceeding or appellate proceeding).

4.7 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement referred to herein shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement referred to herein.

4.8 Governing Law and Jurisdiction. (a) THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT, THE GUARANTOR AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTOR, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GUARANTOR, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. THE GUARANTOR, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

4.9 Waiver of Jury Trial. THE GUARANTOR, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR

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THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS.

4.10 Entire Agreement. This Guaranty (a) integrates all the terms and conditions mentioned herein or incidental hereto, (b) supersedes all oral negotiations and prior writings with respect to the subject matter hereof, and
(c) is intended by the parties as the final expression of the agreement With respect to the terms and conditions set forth in this Guaranty and any such instrument, agreement and document and as the complete and exclusive statement of the terms agreed to by the parties.

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly authorized officers as of the day and year first above written.

WILLIAMS-SONOMA RETAIL SERVICES, INC.

By /s/ JOHN W. TATE
  ---------------------------------------
  John W. Tate, Chief Financial, Officer

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EXHIBIT 10.10S

GUARANTY

This Guaranty is entered into as of February 7, 2000, by Williams-Sonoma Direct, Inc. (the "Guarantor"), in favor of Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association), as agent for the financial institutions from time to time party to that certain Credit Agreement dated as of June 1, 1997 (the "Banks") (in such capacity, the "Agent") and such Banks.

Recitals

A. Williams-Sonoma, Inc. (the "Company"), the Agent and the Banks entered into a Credit Agreement dated as of June 1, 1997. The Credit Agreement as now in effect or hereafter extended, renewed, modified, supplemented, amended or restated is hereinafter called the "Credit Agreement".

B. The Banks are willing to make certain Loans to the Company as provided in the Credit Agreement on the condition (among others) that the Guarantor enter into this Guaranty.

C. The Guarantor as a Subsidiary of the Company will derive substantial and direct benefits (which benefits are hereby acknowledged by the Guarantor) from the Loans and other benefits to be provided to the Company under the Credit Agreement.

D. In order to induce the Banks to make such Loans available to the Company as provided in the Credit Agreement, and for other valuable consideration, the Guarantor issues this Guaranty.

1. Definitions. Unless otherwise defined herein, capitalized terms used in this Guaranty have the meanings given to them from time to time in the Credit Agreement.

2. Guaranty.

2.1 Guaranty. The Guarantor hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment or performance when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all of the Obligations. This Guaranty constitutes a guaranty of payment and performance when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that the Agent or any Bank exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Company (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. The Agent or any Bank may permit the indebtedness of the Company to the Agent or any Bank to include indebtedness other than the Obligations, and may apply any amounts received from any source, other than from the Guarantor, to that portion of Company's indebtedness to the Agent or any Bank which is not a part of the Obligations.

2.2 Obligations Independent. The obligations hereunder are independent of the obligations of the Company, and a separate action or actions may be brought and prosecuted against the Guarantor whether action is brought against the Company or whether the Company be joined in any such action or actions.

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2.3 Authorization of Renewals, Etc. The Guarantor authorizes the Agent and each Bank, without notice or demand and without affecting its liability hereunder, from time to time,

(a) to renew, compromise, extend, accelerate or otherwise change the time for payment, or otherwise change the terms, of the Obligations, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Credit Agreement or any other Loan Document;

(b) to receive and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) to apply such security and direct the order or manner of sale thereof as the Agent, or any Bank, as the case may be, in its or their discretion may determine; and

(d) to release or substitute any one or more of any endorsers or guarantors of the Obligations.

The Guarantor further agrees the performance or occurrence of any of the acts or events described in clauses (a), (b), (c), and (d) above with respect to indebtedness or other obligations of the Company, other than the Obligations, to the Agent or any Bank, shall not affect the liability of the Guarantor hereunder.

2.4 Waiver of Certain Rights. The Guarantor waives any right to require the Agent or any Bank:

(a) to proceed against the Company or any other Person;

(b) to proceed against or exhaust any security for the Obligations or any other indebtedness of the Company to the Agent or any Bank; or

(c) to pursue any other remedy in the Agent's or any such Bank's power whatsoever.

2.5 Waiver of Certain Defenses. The Guarantor waives any defense arising by reason of any claim that the Guarantor's obligations exceed or are more burdensome than those of the Company. The Guarantor waives all fights and defenses arising out of an election of remedies by the Agent or any Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for the Obligations, has destroyed the Guarantor's rights of subrogation and reimbursement against the Company by operation of Section 580d of the California Code of Civil Procedure (if applicable) or otherwise. The Guarantor waives any benefit of, and any right to participate in, any security or other guaranty now or hereafter held by the Agent or any Bank securing the Obligations.

2.6 Waiver of Presentments, Etc. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest notices of

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dishonor and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Obligations or any other indebtedness of Company to the Agent or any Bank.

2.7 Information Relating to Company. The Guarantor acknowledges and agrees that it shall have the sole responsibility, for obtaining from the Company such information concerning the Company's financial condition or business operations as the Guarantor may require, and that neither the Agent nor any Bank has any duty at any time to disclose to the Guarantor any information relating to the business operations or financial condition of the Company.

2.8 Right of Setoff. In addition to any rights and remedies of the Banks provided by law, if Guarantor has failed to make any payment due hereunder upon demand, each Bank is authorized at any time and from time to time, without prior notice to the Guarantor, any such notice being waived by the Guarantor to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Guarantor against any and all obligations of the Guarantor now or hereafter existing under this Guaranty or any other Loan Document, irrespective of whether or not the Agent or such Bank shall have made demand under this Guaranty or any other Loan Document and although such obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Guarantor and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 2.8 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have.

2.9 Subordination. Any obligations of the Company to the Guarantor, now or hereafter existing, including, but not limited to, obligations to the Guarantor as subrogee of the Agent or any Bank or resulting from the Guarantor's performance under this Guaranty, are hereby fully subordinated in priority of payment to the Obligations and all other indebtedness of the Company to the Agent or any Bank.

2.10 Reinstatement of Guaranty. If any payment or transfer of any interest in property by the Company to the Agent or any Bank in fulfillment of any Obligation is rescinded or must at any time (including after the return or cancellation of this Guaranty) be returned, in whole or in part, by the Agent or any Bank to the Company or any other Person, upon the insolvency, bankruptcy or reorganization of the Company or otherwise, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior return or cancellation.

2.11 Powers. It is not necessary for the Agent or any Bank to inquire into the powers of the Company or of the officers, directors, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.

2.12 Taxes. (a) Subject to compliance with Section 9.10 of the Credit Agreement, any and all payments by the Guarantor to each Bank or the Agent under this

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Guaranty shall be made free and clear of, and without deduction or withholding for, any Taxes, Other Taxes or Further Taxes. In addition, the Guarantor shall pay all Other Taxes.

(b) If the Guarantor shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then:

(i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Bank or the Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made;

(ii) the Guarantor shall make such deductions and withholdings;

(iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv) the Guarantor shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

(c) The Guarantor agrees to indemnify and hold harmless each Bank and the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor.

(d) Within 30 days after the date of any payment by the Guarantor of Taxes, Other Taxes or Further Taxes, the Guarantor shall furnish to each Bank or the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Bank or the Agent.

(e) For purposes of this Section, (i) "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office; (4) "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Guaranty; and (iii) "Further Taxes" means any and all present or future taxes, levies. assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net

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income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to this Section.

3. Representations and Warranties. The Guarantor represents and warrants to the Agent and each Bank as follows:

3.1 Existence and Power. The Guarantor (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization: (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under, this Guaranty and any other Loan Document to which it is a party; (c) is duly qualified as a foreign limited liability company, and licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case, to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Guarantor, its parent and affiliates, taken as a whole; (b) a material impairment of the ability of the Guarantor to perform its obligations under this Guaranty; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty and any other Loan Document to which it is a party.

3.2 Authorization; No Contravention. The execution, delivery and performance by the Guarantor of this Guaranty and any other Loan Document to which it is party, have been duly authorized, and do not and will not (a) contravene the terms of any of the Guarantor's Organization Documents; (b) violate or result in any breach or contravention of, or the creation of any lien under, any document evidencing any Contractual Obligation to which the Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Guarantor or its property is subject; or (c) violate any Requirement of Law.

3.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Guarantor of this Guaranty or any other Loan Document to which it is a party.

3.4 Binding Effect. This Guaranty and each other Loan Document to which the Guarantor is a party constitute the legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

3.5 Regulated Entities. None of the Guarantor, any Person controlling the Guarantor or any Subsidiary of the Guarantor is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any

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state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur or guarantee Indebtedness.

4. Miscellaneous

4.1 Application of Payments on Guaranty. All payments required to be made by the Guarantor hereunder shall, unless otherwise expressly provided herein, be made to the Agent for the account of the Banks at the Agent's Payment Office. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Payments received from the Guarantor shall, unless otherwise expressly provided herein, be applied to costs, fees, or other expenses due under the Loan Documents, any interest (including interest due under subsection 2.10(c) of the Credit Agreement, any principal due under the Loan Documents and any other Obligations, in such order as the Agent, with the consent of or at the request of the Majority Banks, shall determine.

4.2 Assignments, Participations, Confidentiality. Any Bank may from time to time, without notice to the Guarantor and without affecting the Guarantor's obligations hereunder, transfer its interest in the Obligations to Participants and Assignees as provided in the Credit Agreement. The Guarantor agrees that each such transfer will give rise to a direct obligation of the Guarantor to each such Participant and Assignee and that each such Participant and Assignee shall have the same rights and benefits under this Guaranty as it would have if it were a Bank party to the Credit Agreement and this Guaranty. The Guarantor, the Agent and each Bank agree that the provisions of Section 10.09 of the Credit Agreement shall apply to all information identified as "confidential" or "secret" by the Guarantor and provided to the Agent or such Bank by the Guarantor or any Subsidiary of the Guarantor under this Guaranty or any other Loan Document to which the Guarantor is a party.

4.3 Loan Document. This Guaranty is a Loan Document executed and delivered pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. Without limiting the generality of the foregoing, the provisions of Sections 1.02 and 1.03 of the Credit Agreement shall apply to the interpretation and administration of this Guaranty as if such provisions were incorporated herein, with all references to the "Agreement" in such Sections being deemed to be references to this Guaranty.

4.4 Waivers: Writing Required. No delay or omission by the Agent or any Bank to exercise any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Guaranty shall be deemed a waiver of any other breach or default. Any amendment or waiver of any provision of this Guaranty must be in writing and signed by the Guarantor and the Agent, with the written consent of the Majority Banks or all of the Banks, in accordance with the terms of Section 10.01 of the Credit Agreement

4.5 Remedies. All rights and remedies provided in this Guaranty and any instrument or agreement referred to herein are cumulative and are not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

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4.6 Costs and Expenses. The Guarantor agrees to pay or reimburse the Agent and each Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Guaranty (including in connection with any "workout" or restructuring regarding amounts due under this Guaranty, and including in any Insolvency Proceeding or appellate proceeding).

4.7 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement referred to herein shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement referred to herein.

4.8 Governing Law and Jurisdiction. (a) THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT, THE GUARANTOR AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTOR, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GUARANTOR, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. THE GUARANTOR, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

4.9 Waiver of Jury Trial. THE GUARANTOR, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR

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THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS.

4.10 Entire Agreement. This Guaranty (a) integrates all the terms and conditions mentioned herein or incidental hereto, (b) supersedes all oral negotiations and prior writings with respect to the subject matter hereof, and
(c) is intended by the parties as the final expression of the agreement With respect to the terms and conditions set forth in this Guaranty and any such instrument, agreement and document and as the complete and exclusive statement of the terms agreed to by the parties.

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly authorized officers as of the day and year first above written.

WILLIAMS-SONOMA DIRECT, INC.

By /s/ JOHN W. TATE
  ---------------------------------------
  John W. Tate, Chief Financial, Officer

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EXHIBIT 10.10T

GUARANTY

This Guaranty is entered into as of February 7, 2000, by Pottery Barn Kids, Inc. (the "Guarantor"), in favor of Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association), as agent for the financial institutions from time to time party to that certain Credit Agreement dated as of June 1, 1997 (the "Banks") (in such capacity, the "Agent") and such Banks.

Recitals

A. Williams-Sonoma, Inc. (the "Company"), the Agent and the Banks entered into a Credit Agreement dated as of June 1, 1997. The Credit Agreement as now in effect or hereafter extended, renewed, modified, supplemented, amended or restated is hereinafter called the "Credit Agreement".

B. The Banks are willing to make certain Loans to the Company as provided in the Credit Agreement on the condition (among others) that the Guarantor enter into this Guaranty.

C. The Guarantor as a Subsidiary of the Company will derive substantial and direct benefits (which benefits are hereby acknowledged by the Guarantor) from the Loans and other benefits to be provided to the Company under the Credit Agreement.

D. In order to induce the Banks to make such Loans available to the Company as provided in the Credit Agreement, and for other valuable consideration, the Guarantor issues this Guaranty.

1. Definitions. Unless otherwise defined herein, capitalized terms used in this Guaranty have the meanings given to them from time to time in the Credit Agreement.

2. Guaranty.

2.1 Guaranty. The Guarantor hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment or performance when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all of the Obligations. This Guaranty constitutes a guaranty of payment and performance when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that the Agent or any Bank exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Company (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. The Agent or any Bank may permit the indebtedness of the Company to the Agent or any Bank to include indebtedness other than the Obligations, and may apply any amounts received from any source, other than from the Guarantor, to that portion of Company's indebtedness to the Agent or any Bank which is not a part of the Obligations.

2.2 Obligations Independent. The obligations hereunder are independent of the obligations of the Company, and a separate action or actions may be brought and prosecuted against the Guarantor whether action is brought against the Company or whether the Company be joined in any such action or actions.

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2.3 Authorization of Renewals, Etc. The Guarantor authorizes the Agent and each Bank, without notice or demand and without affecting its liability hereunder, from time to time,

(a) to renew, compromise, extend, accelerate or otherwise change the time for payment, or otherwise change the terms, of the Obligations, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Credit Agreement or any other Loan Document;

(b) to receive and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) to apply such security and direct the order or manner of sale thereof as the Agent, or any Bank, as the case may be, in its or their discretion may determine; and

(d) to release or substitute any one or more of any endorsers or guarantors of the Obligations.

The Guarantor further agrees the performance or occurrence of any of the acts or events described in clauses (a), (b), (c), and (d) above with respect to indebtedness or other obligations of the Company, other than the Obligations, to the Agent or any Bank, shall not affect the liability of the Guarantor hereunder.

2.4 Waiver of Certain Rights. The Guarantor waives any right to require the Agent or any Bank:

(a) to proceed against the Company or any other Person;

(b) to proceed against or exhaust any security for the Obligations or any other indebtedness of the Company to the Agent or any Bank; or

(c) to pursue any other remedy in the Agent's or any such Bank's power whatsoever.

2.5 Waiver of Certain Defenses. The Guarantor waives any defense arising by reason of any claim that the Guarantor's obligations exceed or are more burdensome than those of the Company. The Guarantor waives all fights and defenses arising out of an election of remedies by the Agent or any Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for the Obligations, has destroyed the Guarantor's rights of subrogation and reimbursement against the Company by operation of Section 580d of the California Code of Civil Procedure (if applicable) or otherwise. The Guarantor waives any benefit of, and any right to participate in, any security or other guaranty now or hereafter held by the Agent or any Bank securing the Obligations.

2.6 Waiver of Presentments, Etc. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest notices of

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dishonor and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Obligations or any other indebtedness of Company to the Agent or any Bank.

2.7 Information Relating to Company. The Guarantor acknowledges and agrees that it shall have the sole responsibility, for obtaining from the Company such information concerning the Company's financial condition or business operations as the Guarantor may require, and that neither the Agent nor any Bank has any duty at any time to disclose to the Guarantor any information relating to the business operations or financial condition of the Company.

2.8 Right of Setoff. In addition to any rights and remedies of the Banks provided by law, if Guarantor has failed to make any payment due hereunder upon demand, each Bank is authorized at any time and from time to time, without prior notice to the Guarantor, any such notice being waived by the Guarantor to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Guarantor against any and all obligations of the Guarantor now or hereafter existing under this Guaranty or any other Loan Document, irrespective of whether or not the Agent or such Bank shall have made demand under this Guaranty or any other Loan Document and although such obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Guarantor and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 2.8 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have.

2.9 Subordination. Any obligations of the Company to the Guarantor, now or hereafter existing, including, but not limited to, obligations to the Guarantor as subrogee of the Agent or any Bank or resulting from the Guarantor's performance under this Guaranty, are hereby fully subordinated in priority of payment to the Obligations and all other indebtedness of the Company to the Agent or any Bank.

2.10 Reinstatement of Guaranty. If any payment or transfer of any interest in property by the Company to the Agent or any Bank in fulfillment of any Obligation is rescinded or must at any time (including after the return or cancellation of this Guaranty) be returned, in whole or in part, by the Agent or any Bank to the Company or any other Person, upon the insolvency, bankruptcy or reorganization of the Company or otherwise, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior return or cancellation.

2.11 Powers. It is not necessary for the Agent or any Bank to inquire into the powers of the Company or of the officers, directors, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.

2.12 Taxes. (a) Subject to compliance with Section 9.10 of the Credit Agreement, any and all payments by the Guarantor to each Bank or the Agent under this

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Guaranty shall be made free and clear of, and without deduction or withholding for, any Taxes, Other Taxes or Further Taxes. In addition, the Guarantor shall pay all Other Taxes.

(b) If the Guarantor shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then:

(i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Bank or the Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made;

(ii) the Guarantor shall make such deductions and withholdings;

(iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv) the Guarantor shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

(c) The Guarantor agrees to indemnify and hold harmless each Bank and the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor.

(d) Within 30 days after the date of any payment by the Guarantor of Taxes, Other Taxes or Further Taxes, the Guarantor shall furnish to each Bank or the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Bank or the Agent.

(e) For purposes of this Section, (i) "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office; (4) "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Guaranty; and (iii) "Further Taxes" means any and all present or future taxes, levies. assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net

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income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to this Section.

3. Representations and Warranties. The Guarantor represents and warrants to the Agent and each Bank as follows:

3.1 Existence and Power. The Guarantor (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization: (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under, this Guaranty and any other Loan Document to which it is a party; (c) is duly qualified as a foreign limited liability company, and licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case, to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Guarantor, its parent and affiliates, taken as a whole; (b) a material impairment of the ability of the Guarantor to perform its obligations under this Guaranty; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty and any other Loan Document to which it is a party.

3.2 Authorization; No Contravention. The execution, delivery and performance by the Guarantor of this Guaranty and any other Loan Document to which it is party, have been duly authorized, and do not and will not (a) contravene the terms of any of the Guarantor's Organization Documents; (b) violate or result in any breach or contravention of, or the creation of any lien under, any document evidencing any Contractual Obligation to which the Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Guarantor or its property is subject; or (c) violate any Requirement of Law.

3.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Guarantor of this Guaranty or any other Loan Document to which it is a party.

3.4 Binding Effect. This Guaranty and each other Loan Document to which the Guarantor is a party constitute the legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

3.5 Regulated Entities. None of the Guarantor, any Person controlling the Guarantor or any Subsidiary of the Guarantor is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any

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state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur or guarantee Indebtedness.

4. Miscellaneous

4.1 Application of Payments on Guaranty. All payments required to be made by the Guarantor hereunder shall, unless otherwise expressly provided herein, be made to the Agent for the account of the Banks at the Agent's Payment Office. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Payments received from the Guarantor shall, unless otherwise expressly provided herein, be applied to costs, fees, or other expenses due under the Loan Documents, any interest (including interest due under subsection 2.10(c) of the Credit Agreement, any principal due under the Loan Documents and any other Obligations, in such order as the Agent, with the consent of or at the request of the Majority Banks, shall determine.

4.2 Assignments, Participations, Confidentiality. Any Bank may from time to time, without notice to the Guarantor and without affecting the Guarantor's obligations hereunder, transfer its interest in the Obligations to Participants and Assignees as provided in the Credit Agreement. The Guarantor agrees that each such transfer will give rise to a direct obligation of the Guarantor to each such Participant and Assignee and that each such Participant and Assignee shall have the same rights and benefits under this Guaranty as it would have if it were a Bank party to the Credit Agreement and this Guaranty. The Guarantor, the Agent and each Bank agree that the provisions of Section 10.09 of the Credit Agreement shall apply to all information identified as "confidential" or "secret" by the Guarantor and provided to the Agent or such Bank by the Guarantor or any Subsidiary of the Guarantor under this Guaranty or any other Loan Document to which the Guarantor is a party.

4.3 Loan Document. This Guaranty is a Loan Document executed and delivered pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. Without limiting the generality of the foregoing, the provisions of Sections 1.02 and 1.03 of the Credit Agreement shall apply to the interpretation and administration of this Guaranty as if such provisions were incorporated herein, with all references to the "Agreement" in such Sections being deemed to be references to this Guaranty.

4.4 Waivers: Writing Required. No delay or omission by the Agent or any Bank to exercise any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Guaranty shall be deemed a waiver of any other breach or default. Any amendment or waiver of any provision of this Guaranty must be in writing and signed by the Guarantor and the Agent, with the written consent of the Majority Banks or all of the Banks, in accordance with the terms of Section 10.01 of the Credit Agreement

4.5 Remedies. All rights and remedies provided in this Guaranty and any instrument or agreement referred to herein are cumulative and are not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

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4.6 Costs and Expenses. The Guarantor agrees to pay or reimburse the Agent and each Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Guaranty (including in connection with any "workout" or restructuring regarding amounts due under this Guaranty, and including in any Insolvency Proceeding or appellate proceeding).

4.7 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement referred to herein shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement referred to herein.

4.8 Governing Law and Jurisdiction. (a) THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT, THE GUARANTOR AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTOR, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GUARANTOR, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. THE GUARANTOR, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

4.9 Waiver of Jury Trial. THE GUARANTOR, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR

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THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS.

4.10 Entire Agreement. This Guaranty (a) integrates all the terms and conditions mentioned herein or incidental hereto, (b) supersedes all oral negotiations and prior writings with respect to the subject matter hereof, and
(c) is intended by the parties as the final expression of the agreement With respect to the terms and conditions set forth in this Guaranty and any such instrument, agreement and document and as the complete and exclusive statement of the terms agreed to by the parties.

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly authorized officers as of the day and year first above written.

POTTERY BARN KIDS, INC.

By /s/ JOHN W. TATE
  ---------------------------------------
  John W. Tate, Chief Financial, Officer

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EXHIBIT 10.10U

ONE BANK GUARANTY

This Guaranty is entered into as of February 7, 2000, by Williams-Sonoma Retail Services, Inc. (the "Guarantor"), in favor of Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association - the "Bank").

Recitals

A. Williams-Sonoma, Inc. (the "Company") and the Bank entered into a Letter of Credit Agreement dated as of June 1, 1997. The Letter of Credit Agreement as now in effect or hereafter extended, renewed, modified, supplemented, amended or restated is hereinafter called the "Credit Agreement".

B. The Bank is willing to issue letters of credit for the account of the Company as provided in the Credit Agreement on the condition (among others) that the Guarantor enter into this Guaranty.

C. The Guarantor as a Subsidiary of the Company will derive substantial and direct benefits (which benefits are hereby acknowledged by the Guarantor) from the letters of credit to be issued for the account of the Company under the Credit Agreement.

D. In order to induce the Bank to make such letters of credit available to the Company as provided in the Credit Agreement, and for other valuable consideration, the Guarantor issues this Guaranty.

1. Definitions. Unless otherwise defined herein, capitalized terms used in this Guaranty have the meanings given to them from time to time in the Credit Agreement, or, as applicable, in the Syndicated Credit Agreement (as defined in the Credit Agreement).

2. Guaranty.

2.1 Guaranty. The Guarantor hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment or performance when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all of the obligations of the Company to the Bank under the Credit Agreement and under the letters of credit issued pursuant to the Credit Agreement (the "Obligations'). This Guaranty constitutes a guaranty of payment and performance when due and not of collections and the Guarantor specifically agrees that it shall not be necessary or required that the Bank exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Company (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. The Bank may permit the indebtedness of the Company to the Bank to include indebtedness other than the Obligations, and may apply any amounts received from any source, other than from the Guarantor, to that portion of Company's indebtedness to the Bank which is not a part of the Obligations.

2.2 Obligations Independent. The obligations hereunder are independent of the obligations of the Company, and a separate action or actions may be brought and prosecuted against the Guarantor whether action is brought against the Company or whether the Company be joined in any such action or actions.

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2.3 Authorization of Renewals, Etc. The Guarantor authorizes the Bank, without notice or demand and without affecting its liability hereunder, from time to time:

(a) to renew, compromise, extend, accelerate or otherwise change the time for payment or otherwise change the terms, of the Obligations, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Credit Agreement or any letter of credit;

(b) to receive and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) to apply such security and direct the order or manner of sale thereof as the Bank in its discretion may determine; and

(d) to release or substitute any one or more of any endorsers or guarantors of the Obligations.

The Guarantor further agrees the performance or occurrence of any of the acts or events described in clauses (a), (b), (c), and (d) above with respect to indebtedness or other obligations of the Company, other than the Obligations, to the Bank, shall not affect the liability of the Guarantor hereunder.

2.4 Waiver of Certain Rights. The Guarantor waives any right to require the Bank:

(a) to proceed against the Company or any other Person;

(b) to proceed against or exhaust any security for the Obligations or any other indebtedness of the Company to the Bank; or

(c) to pursue any other remedy in the Bank's power whatsoever.

2.5 Waiver of Certain Defenses. The Guarantor waives any defense arising by reason of any claim that the Guarantor's obligations exceed or are more burdensome than those of the Company. The Guarantor waives all rights and defenses arising out of an election of remedies by the Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for the Obligations, has destroyed the Guarantor's rights of subrogation and reimbursement against the Company by operation of Section 580d of the California Code of Civil Procedure (if applicable) or otherwise. The Guarantor waives any benefit of, and any right to participate in, any security or other guaranty now or hereafter held by the Bank securing the Obligations.

2.6 Waiver of Presentments, Etc. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Obligations or any other indebtedness of Company to the Bank.

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2.7 Information Relating to Company. The Guarantor acknowledges and agrees that it shall have the sole responsibility for obtaining from the Company such information concerning the Company's financial condition or business operations as the Guarantor may require, and that the Bank does not have any duty at any time to disclose to the Guarantor any information relating to the business operations or financial condition of the Company.

2.8 Right of Setoff. In addition to any rights and remedies of the Bank provided by law, if Guarantor has failed to make any payment due hereunder upon demand, the Bank is authorized at any time and from time to time, without prior notice to the Guarantor, any such notice being waived by the Guarantor to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Guarantor against any and all obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not the Bank shall have made demand under this Guaranty and although such obligations may be contingent or unmatured. The Bank agrees promptly to notify the Guarantor after any such set-off and application made by the Bank: provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this Section 2-8 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have.

2.9 Subordination. Any obligations of the Company to the Guarantor, now or hereafter existing, including, but not limited to, obligations to the Guarantor as subrogee of the Bank or resulting from the Guarantor's performance under this Guaranty, are hereby fully subordinated in priority of payment to the Obligations and all other indebtedness of the Company to the Bank.

2.10 Reinstatement of Guaranty, If any payment or transfer of any interest in property by the Company to the Bank in fulfillment of any Obligation is rescinded or must at any time (including after the return or cancellation of this Guaranty) be returned, in whole or in part, by the Bank to the Company or any other Person, upon the insolvency, bankruptcy or reorganization of the Company or otherwise, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior return or cancellation.

2.11 Powers. It is not necessary for the Bank to inquire into the powers of the Company or of the officers, directors, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers. shall be guaranteed hereunder.

2.12 Taxes. (a) Subject to compliance with Section 9.10 of the Syndicated Credit Agreement, any and all payments by the Guarantor to the Bank under this Guaranty shall be made free and clear of, and without deduction or withholding for, any Taxes, Other Taxes or Further Taxes. In addition, the Guarantor shall pay all Other Taxes.

(b) If the Guarantor shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to the Bank, then:

(1) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings

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applicable to additional sums payable under this Section), the Bank receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made;

(ii) the Guarantor shall make such deductions and withholdings;

(iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv) the Guarantor shall also pay to the Bank, at the time interest is paid, Further Taxes in the amount that the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

(c) The Guarantor agrees to indemnify and hold harmless the Bank for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor.

(d) Within 30 days after the date of any payment by the Guarantor of Taxes, Other Taxes or Further Taxes, the Guarantor shall furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank.

(e) For purposes of this Section, (i) "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges. and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office; (ii) "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Guaranty; and (iii) "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to this Section.

3. Representations and Warranties, The Guarantor represents and warrants to the Bank as follows:

3.1 Existence and Power. The Guarantor (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under, this Guaranty; (c) is duly qualified as a foreign limited liability

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company, and licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case, to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Guarantor, its parent and affiliates, taken as a whole; (b) a material impairment of the ability of the Guarantor to perform its obligations under this Guaranty; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty.

3.2 Authorization; No Contravention. The execution, delivery and performance by the Guarantor of this Guaranty have been duly authorized, and do not and will not (a) contravene the terms of any of the Guarantor's Organization Documents; (b) Violate or result in any breach or contravention of, or the creation of any lien under, any document evidencing any Contractual Obligation to which the Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Guarantor or its property is subject; or
(c) violate any Requirement of Law.

3.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Guarantor of this Guaranty.

3.4 Binding Effect. This Guaranty constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

3.5 Regulated Entities. None of the Guarantor, any Person controlling the Guarantor or any Subsidiary of the Guarantor is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur or guarantee Indebtedness.

4. Miscellaneous

4.1 Application of Payments on Guaranty. All payments required to be made by the Guarantor hereunder shall, unless otherwise expressly provided herein, be made to the Bank at the Bank's office. Payments received from the Guarantor shall, unless otherwise expressly provided herein, be applied to interest, principal, costs, fees, or other expenses due under the Credit Agreement in such order as the Bank shall determine.

4.2 Assignments, Participations, Confidentiality. The Bank may from time to time, without notice to the Guarantor and without affecting the Guarantor's obligations hereunder, transfer its interest in the Obligations to participants and assignees as provided in the Credit Agreement. The Guarantor agrees that each such transfer will give rise to a direct

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obligation of the Guarantor to each such participant and assignee and that each such participant and assignee shall have the same rights and benefits under this Guaranty as it would have if it were a Bank party to the Credit Agreement and this Guaranty. The Guarantor and the Bank agree that the provisions of Section 10.09 of the Syndicated Credit Agreement shall apply to all information identified as "confidential" or "secret" by the Guarantor and provided to the Bank by the Guarantor or any Subsidiary of the Guarantor under this Guaranty or any other Loan Document to which the Guarantor is a party.

4.3 Loan Document. This Guaranty is executed and delivered pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. Without limiting the generality of the foregoing, the provisions of Sections 1.02 and 1.03 of the Syndicated Credit Agreement shall apply to the interpretation and administration of this Guaranty as if such provisions were incorporated herein, with all references to the "Agreement" in such Sections being deemed to be references to this Guaranty.

4.4 Waivers; Writing Required. No delay or omission by the Bank to exercise any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Guaranty shall be deemed a waiver of any other breach or default. Any amendment or waiver of any provision of this Guaranty must be in writing and signed by the Guarantor and the Bank.

4.5 Remedies. All rights and remedies provided in this Guaranty and any instrument or agreement referred to herein are cumulative and are not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

4.6 Costs and Expenses. The Guarantor agrees to pay or reimburse the Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Guaranty (including in connection with any "workout" or restructuring regarding amounts due under this Guaranty, and including in any Insolvency Proceeding or appellate proceeding).

4.7 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement referred to herein shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement referred to herein.

4.8 Governing Law and Jurisdiction. (a) THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE GUARANTOR AND THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTOR AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-

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EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GUARANTOR AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING. WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. THE GUARANTOR AND THE BANK EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

4.9 Waiver of Jury Trial. THE GUARANTOR AND THE BANK EACH WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT To A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.

4.10 Entire Agreement. This Guaranty (a) integrates all the terms and conditions mentioned herein or incidental hereto, (b) supersedes all oral negotiations and prior writings with respect to the subject matter hereof, and
(c) is intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and any such instrument, agreement and document and as the complete and exclusive statement of the terms agreed to by the parties.

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly authorized officers as of the day and year first above written.

WILLIAMS-SONOMA RETAIL SERVICES, INC.

By  /s/ JOHN W. TATE
  ---------------------------------------
  John W. Tate, Chief Financial Officer

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EXHIBIT 10.10V

ONE BANK GUARANTY

This Guaranty is entered into as of February 7, 2000, by Williams-Sonoma Direct, Inc. (the "Guarantor"), in favor of Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association - the "Bank").

Recitals

A. Williams-Sonoma, Inc. (the "Company") and the Bank entered into a Letter of Credit Agreement dated as of June 1, 1997. The Letter of Credit Agreement as now in effect or hereafter extended, renewed, modified, supplemented, amended or restated is hereinafter called the "Credit Agreement".

B. The Bank is willing to issue letters of credit for the account of the Company as provided in the Credit Agreement on the condition (among others) that the Guarantor enter into this Guaranty.

C. The Guarantor as a Subsidiary of the Company will derive substantial and direct benefits (which benefits are hereby acknowledged by the Guarantor) from the letters of credit to be issued for the account of the Company under the Credit Agreement.

D. In order to induce the Bank to make such letters of credit available to the Company as provided in the Credit Agreement, and for other valuable consideration, the Guarantor issues this Guaranty.

1. Definitions. Unless otherwise defined herein, capitalized terms used in this Guaranty have the meanings given to them from time to time in the Credit Agreement, or, as applicable, in the Syndicated Credit Agreement (as defined in the Credit Agreement).

2. Guaranty.

2.1 Guaranty. The Guarantor hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment or performance when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all of the obligations of the Company to the Bank under the Credit Agreement and under the letters of credit issued pursuant to the Credit Agreement (the "Obligations'). This Guaranty constitutes a guaranty of payment and performance when due and not of collections and the Guarantor specifically agrees that it shall not be necessary or required that the Bank exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Company (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. The Bank may permit the indebtedness of the Company to the Bank to include indebtedness other than the Obligations, and may apply any amounts received from any source, other than from the Guarantor, to that portion of Company's indebtedness to the Bank which is not a part of the Obligations.

2.2 Obligations Independent. The obligations hereunder are independent of the obligations of the Company, and a separate action or actions may be brought and prosecuted against the Guarantor whether action is brought against the Company or whether the Company be joined in any such action or actions.

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2.3 Authorization of Renewals, Etc. The Guarantor authorizes the Bank, without notice or demand and without affecting its liability hereunder, from time to time:

(a) to renew, compromise, extend, accelerate or otherwise change the time for payment or otherwise change the terms, of the Obligations, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Credit Agreement or any letter of credit;

(b) to receive and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) to apply such security and direct the order or manner of sale thereof as the Bank in its discretion may determine; and

(d) to release or substitute any one or more of any endorsers or guarantors of the Obligations.

The Guarantor further agrees the performance or occurrence of any of the acts or events described in clauses (a), (b), (c), and (d) above with respect to indebtedness or other obligations of the Company, other than the Obligations, to the Bank, shall not affect the liability of the Guarantor hereunder.

2.4 Waiver of Certain Rights. The Guarantor waives any right to require the Bank:

(a) to proceed against the Company or any other Person;

(b) to proceed against or exhaust any security for the Obligations or any other indebtedness of the Company to the Bank; or

(c) to pursue any other remedy in the Bank's power whatsoever.

2.5 Waiver of Certain Defenses. The Guarantor waives any defense arising by reason of any claim that the Guarantor's obligations exceed or are more burdensome than those of the Company. The Guarantor waives all rights and defenses arising out of an election of remedies by the Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for the Obligations, has destroyed the Guarantor's rights of subrogation and reimbursement against the Company by operation of Section 580d of the California Code of Civil Procedure (if applicable) or otherwise. The Guarantor waives any benefit of, and any right to participate in, any security or other guaranty now or hereafter held by the Bank securing the Obligations.

2.6 Waiver of Presentments, Etc. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Obligations or any other indebtedness of Company to the Bank.

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2.7 Information Relating to Company. The Guarantor acknowledges and agrees that it shall have the sole responsibility for obtaining from the Company such information concerning the Company's financial condition or business operations as the Guarantor may require, and that the Bank does not have any duty at any time to disclose to the Guarantor any information relating to the business operations or financial condition of the Company.

2.8 Right of Setoff. In addition to any rights and remedies of the Bank provided by law, if Guarantor has failed to make any payment due hereunder upon demand, the Bank is authorized at any time and from time to time, without prior notice to the Guarantor, any such notice being waived by the Guarantor to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Guarantor against any and all obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not the Bank shall have made demand under this Guaranty and although such obligations may be contingent or unmatured. The Bank agrees promptly to notify the Guarantor after any such set-off and application made by the Bank: provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this Section 2-8 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have.

2.9 Subordination. Any obligations of the Company to the Guarantor, now or hereafter existing, including, but not limited to, obligations to the Guarantor as subrogee of the Bank or resulting from the Guarantor's performance under this Guaranty, are hereby fully subordinated in priority of payment to the Obligations and all other indebtedness of the Company to the Bank.

2.10 Reinstatement of Guaranty, If any payment or transfer of any interest in property by the Company to the Bank in fulfillment of any Obligation is rescinded or must at any time (including after the return or cancellation of this Guaranty) be returned, in whole or in part, by the Bank to the Company or any other Person, upon the insolvency, bankruptcy or reorganization of the Company or otherwise, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior return or cancellation.

2.11 Powers. It is not necessary for the Bank to inquire into the powers of the Company or of the officers, directors, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers. shall be guaranteed hereunder.

2.12 Taxes. (a) Subject to compliance with Section 9.10 of the Syndicated Credit Agreement, any and all payments by the Guarantor to the Bank under this Guaranty shall be made free and clear of, and without deduction or withholding for, any Taxes, Other Taxes or Further Taxes. In addition, the Guarantor shall pay all Other Taxes.

(b) If the Guarantor shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to the Bank, then:

(1) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings

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applicable to additional sums payable under this Section), the Bank receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made;

(ii) the Guarantor shall make such deductions and withholdings;

(iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv) the Guarantor shall also pay to the Bank, at the time interest is paid, Further Taxes in the amount that the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

(c) The Guarantor agrees to indemnify and hold harmless the Bank for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor.

(d) Within 30 days after the date of any payment by the Guarantor of Taxes, Other Taxes or Further Taxes, the Guarantor shall furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank.

(e) For purposes of this Section, (i) "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges. and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office; (ii) "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Guaranty; and (iii) "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to this Section.

3. Representations and Warranties, The Guarantor represents and warrants to the Bank as follows:

3.1 Existence and Power. The Guarantor (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under, this Guaranty; (c) is duly qualified as a foreign limited liability

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company, and licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case, to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Guarantor, its parent and affiliates, taken as a whole; (b) a material impairment of the ability of the Guarantor to perform its obligations under this Guaranty; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty.

3.2 Authorization; No Contravention. The execution, delivery and performance by the Guarantor of this Guaranty have been duly authorized, and do not and will not (a) contravene the terms of any of the Guarantor's Organization Documents; (b) Violate or result in any breach or contravention of, or the creation of any lien under, any document evidencing any Contractual Obligation to which the Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Guarantor or its property is subject; or
(c) violate any Requirement of Law.

3.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Guarantor of this Guaranty.

3.4 Binding Effect. This Guaranty constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

3.5 Regulated Entities. None of the Guarantor, any Person controlling the Guarantor or any Subsidiary of the Guarantor is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur or guarantee Indebtedness.

4. Miscellaneous

4.1 Application of Payments on Guaranty. All payments required to be made by the Guarantor hereunder shall, unless otherwise expressly provided herein, be made to the Bank at the Bank's office. Payments received from the Guarantor shall, unless otherwise expressly provided herein, be applied to interest, principal, costs, fees, or other expenses due under the Credit Agreement in such order as the Bank shall determine.

4.2 Assignments, Participations, Confidentiality. The Bank may from time to time, without notice to the Guarantor and without affecting the Guarantor's obligations hereunder, transfer its interest in the Obligations to participants and assignees as provided in the Credit Agreement. The Guarantor agrees that each such transfer will give rise to a direct

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obligation of the Guarantor to each such participant and assignee and that each such participant and assignee shall have the same rights and benefits under this Guaranty as it would have if it were a Bank party to the Credit Agreement and this Guaranty. The Guarantor and the Bank agree that the provisions of Section 10.09 of the Syndicated Credit Agreement shall apply to all information identified as "confidential" or "secret" by the Guarantor and provided to the Bank by the Guarantor or any Subsidiary of the Guarantor under this Guaranty or any other Loan Document to which the Guarantor is a party.

4.3 Loan Document. This Guaranty is executed and delivered pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. Without limiting the generality of the foregoing, the provisions of Sections 1.02 and 1.03 of the Syndicated Credit Agreement shall apply to the interpretation and administration of this Guaranty as if such provisions were incorporated herein, with all references to the "Agreement" in such Sections being deemed to be references to this Guaranty.

4.4 Waivers; Writing Required. No delay or omission by the Bank to exercise any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Guaranty shall be deemed a waiver of any other breach or default. Any amendment or waiver of any provision of this Guaranty must be in writing and signed by the Guarantor and the Bank.

4.5 Remedies. All rights and remedies provided in this Guaranty and any instrument or agreement referred to herein are cumulative and are not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

4.6 Costs and Expenses. The Guarantor agrees to pay or reimburse the Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Guaranty (including in connection with any "workout" or restructuring regarding amounts due under this Guaranty, and including in any Insolvency Proceeding or appellate proceeding).

4.7 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement referred to herein shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement referred to herein.

4.8 Governing Law and Jurisdiction. (a) THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE GUARANTOR AND THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTOR AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-

-6-

EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GUARANTOR AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING. WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. THE GUARANTOR AND THE BANK EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

4.9 Waiver of Jury Trial. THE GUARANTOR AND THE BANK EACH WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT To A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.

4.10 Entire Agreement. This Guaranty (a) integrates all the terms and conditions mentioned herein or incidental hereto, (b) supersedes all oral negotiations and prior writings with respect to the subject matter hereof, and
(c) is intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and any such instrument, agreement and document and as the complete and exclusive statement of the terms agreed to by the parties.

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly authorized officers as of the day and year first above written.

WILLIAMS-SONOMA DIRECT, INC.

By  /s/ JOHN W. TATE
  ---------------------------------------
  John W. Tate, Chief Financial Officer

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EXHIBIT 10.10W

ONE BANK GUARANTY

This Guaranty is entered into as of February 7, 2000, by Pottery Barn Kids, Inc. (the "Guarantor"), in favor of Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association - the "Bank").

Recitals

A. Williams-Sonoma, Inc. (the "Company") and the Bank entered into a Letter of Credit Agreement dated as of June 1, 1997. The Letter of Credit Agreement as now in effect or hereafter extended, renewed, modified, supplemented, amended or restated is hereinafter called the "Credit Agreement".

B. The Bank is willing to issue letters of credit for the account of the Company as provided in the Credit Agreement on the condition (among others) that the Guarantor enter into this Guaranty.

C. The Guarantor as a Subsidiary of the Company will derive substantial and direct benefits (which benefits are hereby acknowledged by the Guarantor) from the letters of credit to be issued for the account of the Company under the Credit Agreement.

D. In order to induce the Bank to make such letters of credit available to the Company as provided in the Credit Agreement, and for other valuable consideration, the Guarantor issues this Guaranty.

1. Definitions. Unless otherwise defined herein, capitalized terms used in this Guaranty have the meanings given to them from time to time in the Credit Agreement, or, as applicable, in the Syndicated Credit Agreement (as defined in the Credit Agreement).

2. Guaranty.

2.1 Guaranty. The Guarantor hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment or performance when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all of the obligations of the Company to the Bank under the Credit Agreement and under the letters of credit issued pursuant to the Credit Agreement (the "Obligations'). This Guaranty constitutes a guaranty of payment and performance when due and not of collections and the Guarantor specifically agrees that it shall not be necessary or required that the Bank exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Company (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. The Bank may permit the indebtedness of the Company to the Bank to include indebtedness other than the Obligations, and may apply any amounts received from any source, other than from the Guarantor, to that portion of Company's indebtedness to the Bank which is not a part of the Obligations.

2.2 Obligations Independent. The obligations hereunder are independent of the obligations of the Company, and a separate action or actions may be brought and prosecuted against the Guarantor whether action is brought against the Company or whether the Company be joined in any such action or actions.

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2.3 Authorization of Renewals, Etc. The Guarantor authorizes the Bank, without notice or demand and without affecting its liability hereunder, from time to time:

(a) to renew, compromise, extend, accelerate or otherwise change the time for payment or otherwise change the terms, of the Obligations, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Credit Agreement or any letter of credit;

(b) to receive and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) to apply such security and direct the order or manner of sale thereof as the Bank in its discretion may determine; and

(d) to release or substitute any one or more of any endorsers or guarantors of the Obligations.

The Guarantor further agrees the performance or occurrence of any of the acts or events described in clauses (a), (b), (c), and (d) above with respect to indebtedness or other obligations of the Company, other than the Obligations, to the Bank, shall not affect the liability of the Guarantor hereunder.

2.4 Waiver of Certain Rights. The Guarantor waives any right to require the Bank:

(a) to proceed against the Company or any other Person;

(b) to proceed against or exhaust any security for the Obligations or any other indebtedness of the Company to the Bank; or

(c) to pursue any other remedy in the Bank's power whatsoever.

2.5 Waiver of Certain Defenses. The Guarantor waives any defense arising by reason of any claim that the Guarantor's obligations exceed or are more burdensome than those of the Company. The Guarantor waives all rights and defenses arising out of an election of remedies by the Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for the Obligations, has destroyed the Guarantor's rights of subrogation and reimbursement against the Company by operation of Section 580d of the California Code of Civil Procedure (if applicable) or otherwise. The Guarantor waives any benefit of, and any right to participate in, any security or other guaranty now or hereafter held by the Bank securing the Obligations.

2.6 Waiver of Presentments, Etc. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Obligations or any other indebtedness of Company to the Bank.

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2.7 Information Relating to Company. The Guarantor acknowledges and agrees that it shall have the sole responsibility for obtaining from the Company such information concerning the Company's financial condition or business operations as the Guarantor may require, and that the Bank does not have any duty at any time to disclose to the Guarantor any information relating to the business operations or financial condition of the Company.

2.8 Right of Setoff. In addition to any rights and remedies of the Bank provided by law, if Guarantor has failed to make any payment due hereunder upon demand, the Bank is authorized at any time and from time to time, without prior notice to the Guarantor, any such notice being waived by the Guarantor to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Guarantor against any and all obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not the Bank shall have made demand under this Guaranty and although such obligations may be contingent or unmatured. The Bank agrees promptly to notify the Guarantor after any such set-off and application made by the Bank: provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this Section 2-8 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have.

2.9 Subordination. Any obligations of the Company to the Guarantor, now or hereafter existing, including, but not limited to, obligations to the Guarantor as subrogee of the Bank or resulting from the Guarantor's performance under this Guaranty, are hereby fully subordinated in priority of payment to the Obligations and all other indebtedness of the Company to the Bank.

2.10 Reinstatement of Guaranty, If any payment or transfer of any interest in property by the Company to the Bank in fulfillment of any Obligation is rescinded or must at any time (including after the return or cancellation of this Guaranty) be returned, in whole or in part, by the Bank to the Company or any other Person, upon the insolvency, bankruptcy or reorganization of the Company or otherwise, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior return or cancellation.

2.11 Powers. It is not necessary for the Bank to inquire into the powers of the Company or of the officers, directors, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers. shall be guaranteed hereunder.

2.12 Taxes. (a) Subject to compliance with Section 9.10 of the Syndicated Credit Agreement, any and all payments by the Guarantor to the Bank under this Guaranty shall be made free and clear of, and without deduction or withholding for, any Taxes, Other Taxes or Further Taxes. In addition, the Guarantor shall pay all Other Taxes.

(b) If the Guarantor shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to the Bank, then:

(1) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings

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applicable to additional sums payable under this Section), the Bank receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made;

(ii) the Guarantor shall make such deductions and withholdings;

(iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv) the Guarantor shall also pay to the Bank, at the time interest is paid, Further Taxes in the amount that the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

(c) The Guarantor agrees to indemnify and hold harmless the Bank for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor.

(d) Within 30 days after the date of any payment by the Guarantor of Taxes, Other Taxes or Further Taxes, the Guarantor shall furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank.

(e) For purposes of this Section, (i) "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges. and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office; (ii) "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Guaranty; and (iii) "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to this Section.

3. Representations and Warranties, The Guarantor represents and warrants to the Bank as follows:

3.1 Existence and Power. The Guarantor (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under, this Guaranty; (c) is duly qualified as a foreign limited liability

-4-

company, and licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case, to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Guarantor, its parent and affiliates, taken as a whole; (b) a material impairment of the ability of the Guarantor to perform its obligations under this Guaranty; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty.

3.2 Authorization; No Contravention. The execution, delivery and performance by the Guarantor of this Guaranty have been duly authorized, and do not and will not (a) contravene the terms of any of the Guarantor's Organization Documents; (b) Violate or result in any breach or contravention of, or the creation of any lien under, any document evidencing any Contractual Obligation to which the Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Guarantor or its property is subject; or
(c) violate any Requirement of Law.

3.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Guarantor of this Guaranty.

3.4 Binding Effect. This Guaranty constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

3.5 Regulated Entities. None of the Guarantor, any Person controlling the Guarantor or any Subsidiary of the Guarantor is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur or guarantee Indebtedness.

4. Miscellaneous

4.1 Application of Payments on Guaranty. All payments required to be made by the Guarantor hereunder shall, unless otherwise expressly provided herein, be made to the Bank at the Bank's office. Payments received from the Guarantor shall, unless otherwise expressly provided herein, be applied to interest, principal, costs, fees, or other expenses due under the Credit Agreement in such order as the Bank shall determine.

4.2 Assignments, Participations, Confidentiality. The Bank may from time to time, without notice to the Guarantor and without affecting the Guarantor's obligations hereunder, transfer its interest in the Obligations to participants and assignees as provided in the Credit Agreement. The Guarantor agrees that each such transfer will give rise to a direct

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obligation of the Guarantor to each such participant and assignee and that each such participant and assignee shall have the same rights and benefits under this Guaranty as it would have if it were a Bank party to the Credit Agreement and this Guaranty. The Guarantor and the Bank agree that the provisions of Section 10.09 of the Syndicated Credit Agreement shall apply to all information identified as "confidential" or "secret" by the Guarantor and provided to the Bank by the Guarantor or any Subsidiary of the Guarantor under this Guaranty or any other Loan Document to which the Guarantor is a party.

4.3 Loan Document. This Guaranty is executed and delivered pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. Without limiting the generality of the foregoing, the provisions of Sections 1.02 and 1.03 of the Syndicated Credit Agreement shall apply to the interpretation and administration of this Guaranty as if such provisions were incorporated herein, with all references to the "Agreement" in such Sections being deemed to be references to this Guaranty.

4.4 Waivers; Writing Required. No delay or omission by the Bank to exercise any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Guaranty shall be deemed a waiver of any other breach or default. Any amendment or waiver of any provision of this Guaranty must be in writing and signed by the Guarantor and the Bank.

4.5 Remedies. All rights and remedies provided in this Guaranty and any instrument or agreement referred to herein are cumulative and are not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

4.6 Costs and Expenses. The Guarantor agrees to pay or reimburse the Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Guaranty (including in connection with any "workout" or restructuring regarding amounts due under this Guaranty, and including in any Insolvency Proceeding or appellate proceeding).

4.7 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement referred to herein shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement referred to herein.

4.8 Governing Law and Jurisdiction. (a) THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE GUARANTOR AND THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTOR AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-

-6-

EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GUARANTOR AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING. WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. THE GUARANTOR AND THE BANK EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

4.9 Waiver of Jury Trial. THE GUARANTOR AND THE BANK EACH WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT To A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.

4.10 Entire Agreement. This Guaranty (a) integrates all the terms and conditions mentioned herein or incidental hereto, (b) supersedes all oral negotiations and prior writings with respect to the subject matter hereof, and
(c) is intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in this Guaranty and any such instrument, agreement and document and as the complete and exclusive statement of the terms agreed to by the parties.

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly authorized officers as of the day and year first above written.

POTTERY BARN KIDS, INC.

By  /s/ JOHN W. TATE
  ---------------------------------------
  John W. Tate, Chief Financial Officer

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Exhibit 10.13
PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS

Between

LEVI STRAUSS & CO.,
a Delaware corporation
as seller

and

WILLIAM-SONOMA, INC.,
a California corporation
as Buyer

Dated as of December 14, 1999


TABLE OF CONTENTS

                                                                         Page
1.  Execution of Agreement ............................................    1

2.  Property Subject to Agreement .....................................    1
    2.1.  Land ........................................................    1
    2.2.  Improvements ................................................    1
    2.3.  ATM Lease ...................................................    1
    2.4.  Contracts ...................................................    1
    2.5.  Personal Property ...........................................    2
    2.6.  Certain Personal Property, Parking, Generator Access, and
          Continued Occupancy .........................................    2

3.  Purchase Price, Payment of Purchase Price and Liquidated
    Damages ...........................................................    3
    3.1.  Purchase Price ..............................................    3
    3.2.  Payment of Purchase Price ...................................    3
    3.3.  Intentionally deleted .......................................    3
    3.4.  Deposit as Liquidated Damages ...............................    3

4.  "As Is, Where Is" Sale ............................................    4
    4.1.  Disclaimer and Release ......................................    4

5.  Title to Property .................................................    6

6.  Conditions Precedent to Closing ...................................    7
    6.1.  Conditions ..................................................    7
    6.2.  Effect of Failure of Conditions .............................    7

7.  Escrow and Closing ................................................    7
    7.1.  Escrow Instructions .........................................    7
    7.2.  Closing .....................................................    7
    7.3.  Deliveries By Seller ........................................    7
    7.4.  Deliveries By Buyer .........................................    8
    7.5.  Other Instruments ...........................................    8
    7.6.  Prorations and Apportionments ...............................    9
    7.7.  Closing Costs and Expenses ..................................    9
    7.8.  Insurance; Utilities ........................................   10
    7.9.  Close of Escrow .............................................   10
    7.10. Notification; Closing Statements ............................   10

8.  Representations, Warranties and Covenants .........................   10
    8.1.  Buyer's Representations and Warranties ......................   10
    8.2.  Seller's Representations and Warranties .....................   11
    8.3.  Continuation and Survival of Representations and
          Warranties ..................................................   11
    8.4.  Limitation of Liability .....................................   11

9.  Possession ........................................................   12

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10.   Loss By Fire or Other Casualty: Condemnation............... 12
      10.1.   Damage or Destruction.............................. 12
      10.2.   Condemnation....................................... 12

11.   Miscellaneous.............................................. 13
      11.1.   Notices............................................ 13
      11.2.   Brokers and Finders................................ 14
      11.3.   Successors and Assigns............................. 15
      11.4.   Recording.......................................... 15
      11.5.   Amendments......................................... 15
      11.6.   Interpretation..................................... 15
      11.7.   Governing Law...................................... 15
      11.8.   Entire Agreement................................... 15
      11.9.   Attorneys' Fees and Costs.......................... 15
      11.10.  Time of Essence.................................... 15
      11.11.  Consultant Reports................................. 15
      11.12.  No Waiver.......................................... 15
      11.13.  Further Acts....................................... 15
      11.14.  No Intent To Benefit Third Parties................. 16
      11.15.  Performance Due On Day Other Than Business Day..... 16
      11.16.  Confidentiality.................................... 16
      11.17.  "Real Estate Reporting Person"..................... 16
      11.18.  Venue.............................................. 16
      11.19.  No Joint Venture; Not an Offer..................... 16
      11.20.  Counterparts....................................... 17


EXHIBIT LIST

     EXHIBIT                            SECTION REFERENCE

A - Legal Description                          2.1
B - Access Agreement                           2.6
C - Grant Deed                                 7.3
D - Bill of Sale                               7.3
E - Assignment of Lease                        7.3
F - Assignment of Contracts                    7.3
G - Notice to Tenant                           7.3
H - Delivered Documents                        4.1

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PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS

This PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS (the "Agreement") is made as of December 14, 1999 (the "Effective Date"), by and between Levi Strauss & Co., a Delaware corporation ("Seller"), and Williams-Sonoma, Inc., a California corporation ("Buyer").

R E C I T A L S

A. Seller owns that certain Property (as hereafter defined) commonly known as Icehouse One and Icehouse Two, in the City and County of San Francisco, State of California, as more particularly described below.

B. Buyer desires to purchase the Property from Seller, and Seller desires to sell the Property to Buyer, on the terms and conditions set forth herein.

A G R E E M E N T

NOW, THEREFORE, in consideration of the foregoing recitals and mutual agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

1. EXECUTION OF AGREEMENT

This Agreement shall be effective as of the Effective Date set forth above.

2. PROPERTY SUBJECT TO AGREEMENT

On and subject to the terms and conditions of this Agreement, Seller hereby agrees to sell to Buyer, and Buyer hereby agrees to purchase from Seller all of Seller's right, title and interest in and to the following:

2.1 Land. That certain land described in Exhibit A attached hereto, and all appurtenant rights, privileges and easements thereto (collectively, the "Land").

2.2 Improvements. All of Seller's right, title and interest in and to all buildings, structures, fixtures (but specifically excluding any improvements or fixtures that are the property of Bank of America under the ATM Lease), landscaping and other improvements located on the Land (collectively, the "Improvements"). The Land and the Improvements are collectively referred to herein as the "Real Property;"

2.3 ATM Lease. All of Seller's right, title and interest as lessor in and to the ATM lease with Bank of America, to the extent it is in effect on the Closing Date (the "ATM Lease");

2.4 Contracts. To the extent transferable without consent, all of Seller's right, title and interest in and to any and all service contracts for the Real Property in effect on the Closing Date (collectively, the "Contracts"); and


2.5 Personal Property. The tangible personal property owned by Seller and described in the Bill of Sale (the "Personal Property"). The Land, the Improvements, the ATM Lease, the Contracts and the Personal Property are collectively referred to herein as the "Property."

2.6 Certain Personal Property, Parking, Generator Access, and Continued Occupancy.

(a) Except for the Personal Property described in the Bill of Sale, the Property shall not include, and Seller shall have the right to remove from the Property, its computers, copiers and other office equipment, and its furniture, work stations, signage, emblems, trade materials, logos and art work from the Property.

(b) Pursuant to an agreement of record dated October 24, 1973 ("Parking Agreement"), the owner of the Levi's Plaza property is to make available for rental up to 120 off-street parking spaces in parking facilities within or near Levi's Plaza and/or within a permissible distance from the Property as provided in such Parking Agreement. For the term of Seller's existing leases of space in Levi's Plaza (as amended from time to time and as extended under options or otherwise), or for so long as Seller (or any successor-in-interest to Seller by way of merger, consolidation, the sale of all or substantially all of Seller's assets or stock, or other business arrangement) is a tenant or occupant of any portion of the Levi's Plaza property, to the extent Buyer elects to rent more than sixty (60) parking spaces under the Parking Agreement, Buyer agrees to use its best efforts to satisfy its right to rent more than sixty (60) parking spaces under the Parking Agreement by renting any excess over such sixty (60) of such parking spaces in parking facilities other than the garage at 1155 Battery Street. If in Seller's reasonable judgment it may be necessary or appropriate to seek any municipal consents or to amend the Parking Agreement to implement the foregoing agreement, Buyer shall support and cooperate with Seller in such efforts. At Seller's request, the parties shall execute and cause to be recorded at Closing a memorandum of the parties' agreement described in this Section 2.6(b).

(c) Seller currently uses a generator located on the ground floor of Icehouse One to serve certain important electrical needs for Seller's premises at Levi's Plaza. Pursuant to the Access Agreement attached hereto as Exhibit B (the "Access Agreement"), Buyer agrees to grant to Seller continued access and the right to use such area of the Property for the use, operation and maintenance of the generator.

(d) For a period not to exceed the later of the date which is (i) seventy-five (75) days following the Closing, or (ii) May 1, 2000, Seller shall be permitted to continue to occupy rent-free and conduct its business in a portion of the Property, consisting of approximately 30,000 square feet, comprised of the 7th floor of Ice House One, the 1st floor of Ice House Two, and the Ice House One 1st floor switch and IT server room. Seller shall continue to own and shall have the right to remove its office and telecommunications equipment and furniture located in the space, and, upon the termination of such occupancy, Seller agrees, if so requested by Buyer, to repair any material damage to the Property caused by Seller's removal of its furniture and equipment from such space. The parties shall cooperate in good faith to provide for Buyer's phased occupancy of the Property.

The provisions of this Section 2.6 shall survive the Closing.

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3. PURCHASE PRICE, PAYMENT OF PURCHASE PRICE AND LIQUIDATED DAMAGES

3.1 Purchase Price. Buyer agrees to pay, and Seller agrees to accept, as consideration for the conveyance of the Property to Buyer, the sum of Eighty Million Dollars ($80,000,000.00) (the "Purchase Price"). The Purchase Price shall be payable in full as set forth below.

3.2 Payment of Purchase Price. The Purchase Price shall be paid by Buyer as follows:

(a) Concurrently with its execution and delivery of this Agreement to Seller, Buyer shall deposit the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) (the "Deposit") in immediately available funds with Seller. The Deposit is and shall be non-refundable to Buyer, and may be used and retained by Seller, subject to return to Buyer only in the event Seller defaults under this Agreement, as provided in Section 3.4.

(b) The balance of the Purchase Price (i.e., the Purchase Price minus the Deposit, and all credits and prorations in favor of Buyer, if any), together with Buyer's share of all closing costs and any prorations charged to Buyer, shall be placed into Escrow (as defined below) by wire transfer of immediately available funds not later than one business day before the Closing Date. Buyer shall cause Escrow Holder to pay to Seller, by wire transfer of immediately available funds to an account designated by Seller, the Purchase Price (as adjusted by Seller's share of credits, prorations and closing costs) no later than 11:00 a.m. (Pacific Time) on the Closing Date.

3.3 Intentionally deleted.

3.4 Deposit as Liquidated Damages. IF THE SALE OF THE PROPERTY AS
CONTEMPLATED HEREUNDER IS NOT CONSUMMATED, THEN UNLESS BUYER HAS VALIDLY AND TIMELY EXERCISED ITS TERMINATION RIGHTS SET FORTH IN ARTICLE 10, OR UNLESS THE FAILURE TO CONSUMMATE THE SALE IS DUE SOLELY TO A DEFAULT OF SELLER, SELLER SHALL BE ENTITLED TO RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES. THE PARTIES ACKNOWLEDGE THAT SELLER'S ACTUAL DAMAGES IN THE EVENT OF SUCH A DEFAULT BY BUYER WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES AGREE AND ACKNOWLEDGE THAT THE DEPOSIT HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF SELLER'S DAMAGES. THE PARTIES FURTHER ACKNOWLEDGE THAT THE DEPOSIT HAS BEEN AGREED UPON AS SELLER'S SOLE AND EXCLUSIVE REMEDY AGAINST BUYER IN THE EVENT OF SUCH A DEFAULT ON THE PART OF BUYER OR A FAILURE TO CLOSE AS PROVIDED ABOVE, OTHER THAN THE OBLIGATIONS OF BUYER HEREIN WHICH EXPRESSLY SURVIVE TERMINATION OR CANCELLATION HEREOF. IN ADDITION, BUYER SHALL PAY ALL TITLE AND ESCROW CANCELLATION CHARGES.

IF THE CLOSING FAILS TO OCCUR DUE SOLELY TO A DEFAULT OF SELLER, THEN THIS AGREEMENT SHALL TERMINATE AND BUYER, AS ITS SOLE AND EXCLUSIVE REMEDY, SHALL BE ENTITLED TO THE RETURN OF THE DEPOSIT, AND NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS TO THE OTHER HEREUNDER OTHER THAN THE OBLIGATIONS

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WHICH EXPRESSLY SURVIVE TERMINATION OR CANCELLATION HEREOF. IN ADDITION, SELLER SHALL PAY ALL TITLE AND ESCROW CANCELLATION CHARGES. AS MATERIAL AND SUBSTANTIAL INDUCEMENT TO SELLER TO ENTER INTO THIS AGREEMENT, BUYER HEREBY IRREVOCABLY WAIVES AND AGREES NOT TO CLAIM OR ASSERT ANY RIGHT WHICH BUYER MAY HAVE TO (a) SPECIFIC PERFORMANCE OR ANY OTHER EQUITABLE REMEDY, (b) RECORD OR FILE A LIS PENDENS OR OTHER MATTER AFFECTING TITLE TO OR ANY INTEREST IN THE PROPERTY, (c) CLAIM A VENDEE'S LIEN UPON THE PROPERTY, OR (d) DAMAGES AGAINST SELLER. NOTWITHSTANDING THE FOREGOING, IN THE EVENT THAT SELLER HAS BREACHED THIS AGREEMENT BY WRONGFULLY REFUSING TO CONVEY TITLE TO THE PROPERTY AS PROVIDED HEREIN, BUYER MAY PURSUE AN ACTION FOR SPECIFIC PERFORMANCE AGAINST SELLER PROVIDED THAT (e) SELLER SHALL NOT BE REQUIRED TO PERFORM ANY ACT IN CONNECTION WITH SUCH CONVEYANCE, EXCEPT AS SPECIFICALLY PROVIDED FOR HEREIN, AND (f) BUYER SHALL COMMENCE ANY SUCH ACTION FOR SPECIFIC PERFORMANCE WITHIN FIFTEEN (15) DAYS OF SELLER'S WRONGFUL REFUSAL TO CONVEY TITLE TO THE PROPERTY AS PROVIDED HEREIN. BUYER SHALL NOT BE ENTITLED TO RECORD A LIS PENDENS AGAINST THE PROPERTY OTHER THAN IN CONNECTION AND CONCURRENTLY WITH THE FILING OF SUCH SPECIFIC PERFORMANCE ACTION.

Buyer's Initials ___________ Seller's Initials __________

4. "AS IS, WHERE IS" SALE

4.1 Disclaimer and Release. As an essential inducement to Seller to sell the Property to Buyer on the terms and conditions set forth in this Agreement, Buyer acknowledges, understands and agrees as follows:

(a) "AS IS, WHERE IS." Except as expressly provided in the representations and warranties in Section 8.2 hereof, the sale of the Property hereunder is and will be made on an "As Is, Where Is" basis and Seller has not made, does not make and specifically disclaims and negates any representations, warranties or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future of, as to, concerning or with respect to the Property or any other matter whatsoever.

(b) Sophisticated Buyer. Buyer represents that it is a sophisticated purchaser who is familiar with the ownership and operation of real estate projects similar to the Property and Buyer acknowledges that Buyer has had adequate opportunity to complete all physical, financial and other examinations relating to the Property that it deems necessary, and will acquire the same solely on the basis of such examinations, and not any information provided or to be provided by Seller (other than as expressly provided in
Section 8.2). Buyer has had the opportunity to perform such investigations as it deems necessary, and to review the documents and materials provided by Seller or its agents, including those referenced on ExhibitH hereof, and shall assume the risk that adverse matters, including, but not limited to, construction defects and adverse physical and environmental conditions, may exist, and may not have been revealed by Buyer's investigations.

(c) Disclaimers. Without limiting the generality of subsection (a) or (b) above, other than as expressly provided in Section 8.2 below, neither Seller nor any of its agents, brokers, attorneys or employees has made or does make any representations or

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warranties, whether oral or written, express or implied, including without limitation, with respect to (i) the quality, nature, adequacy and physical condition and aspects of the Property, including, but not limited to, the structural elements or seismic aspects of the Property, foundation, roof, appurtenances, access, landscaping, parking facilities, electrical, mechanical, HVAC, plumbing, sewage, and other utility systems, facilities and appliances, and the square footage within all or any part of the Improvements, (ii) the quality, nature, adequacy, and physical condition of soils, geology and any groundwater, (iii) the development potential of the Property, (iv) the zoning or other legal status of the Property or any other public or private restrictions on use, or any easements or appurtenant rights respecting, the Property, (v) the compliance of the Property or its operation with any applicable codes, laws, regulations, statutes, ordinances, covenants, conditions and restrictions of any governmental or quasi-governmental entity or of any other person or entity, (vi) the presence or absence of Hazardous Materials in, on, under or about the Property or any adjoining or neighboring property, (vii) the condition of title to the Property, or (viii) the ATM Lease, Contracts, or other agreements affecting the Property. Seller expressly disclaims and negates as to the Property (ix) any implied or express warranty of merchantability; (x) any implied or express warranty of fitness for a particular purpose; and (xi) any other implied or express warranty with respect to the Property. All documents, reports, studies and other information or materials delivered or disclosed to Buyer by Seller or anyone on behalf of Seller (the "Due Diligence Materials"), if any, are solely for Buyer's convenience and are or will be obtained from a variety of sources. Seller has not made any independent investigation or verification of Due Diligence Materials, and makes no representation as to the accuracy or completeness of Due Diligence Materials. Seller shall not be liable for any negligent misrepresentation or any failure to investigate the Property nor shall Seller be bound or liable in any manner by any verbal or written statement, representations, appraisals, environmental assessment reports, or other information pertaining to the Property or the operation thereof, furnished by Seller or any of Seller's agents, consultants, brokers or employees. As used herein, "Hazardous Materials" means any chemical, compound, material, mixture, living organism or substance that is now or hereafter becomes defined or listed in, or otherwise classified pursuant to any Environmental Law as a hazardous substance, hazardous material, hazardous waste, extremely hazardous waste, infectious waste, toxic substance, toxic pollutant or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity or toxicity, and shall include, without limitation, any polychlorinated biphenyls (PCBs), asbestos, lead-based paint or building materials, radon, petroleum, natural gas, natural gas liquids, liquified natural gas or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). "Environmental Laws" shall mean any and all present and future federal, state and local laws (whether under common law, statute, rule, regulation or otherwise), requirements under permits issued pursuant to these laws, and other requirements of governmental authorities relating to the environment, to any Hazardous Material or to any activity involving Hazardous Materials, and shall include, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Federal Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), and all other applicable provisions of federal, state and local laws related to the environment.

(d) RELEASE. BUYER RELEASES SELLER AND ALL PARTIES RELATED TO OR AFFILIATED WITH SELLER, INCLUDING WITHOUT LIMITATION SELLER'S OFFICERS, DIRECTORS, SHAREHOLDERS, AGENTS, CONTRACTORS AND EMPLOYEES (EACH, A "SELLER RELATED PARTY") FROM ALL CLAIMS WHICH ANY BUYER OR ANY PARTY RELATED TO OR AFFILIATED WITH BUYER (EACH, A "BUYER RELATED PARTY") HAS OR MAY HAVE ARISING FROM OR RELATED TO ANY MATTER OR THING RELATED TO OR IN CONNECTION WITH THE PROPERTY,

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INCLUDING, WITHOUT LIMITATION, THE DOCUMENTS AND INFORMATION REFERRED TO HEREIN, THE CONTRACTS, THE ATM LEASE AND THE TENANT THEREUNDER, ANY CONSTRUCTION DEFECTS, ERRORS OR OMISSIONS IN DESIGN OR CONSTRUCTION, ANY ENVIRONMENTAL, STRUCTURAL OR PHYSICAL CONDITIONS, AND ANY NATURAL HAZARD DISCLOSURES REQUIRED UNDER GOVERNMENT CODE SECTIONS 8589.3, 8589.4 AND 51183.5 AND PUBLIC RESOURCES CODE SECTIONS 2621.9, 2694 AND 4136, AND BUYER SHALL NOT LOOK TO SELLER OR ANY SELLER RELATED PARTY IN CONNECTION WITH THE FOREGOING FOR ANY REDRESS OR RELIEF. NOTWITHSTANDING THE FOREGOING, THIS RELEASE SHALL NOT APPLY TO ANY BREACH OF THE REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN SECTION 8.2 OR TO THOSE OBLIGATIONS OF SELLER UNDER THIS AGREEMENT WHICH ARE EXPRESSLY STATED HEREIN TO SURVIVE THE CLOSING. THIS RELEASE SHALL BE GIVEN FULL FORCE AND EFFECT ACCORDING TO EACH OF ITS TERMS AND PROVISIONS, INCLUDING THOSE RELATING TO UNKNOWN AND UNSUSPECTED CLAIMS, DAMAGES AND CAUSES OF ACTION, AND IN THAT REGARD BUYER HEREBY EXPRESSLY WAIVES ALL RIGHTS AND BENEFITS IT MAY NOW HAVE OR HEREAFTER ACQUIRE UNDER CALIFORNIA CIVIL CODE SECTION 1542 WHICH PROVIDES:

"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."

Initials of Buyer __________

(e) Conspicuous. To the extent required to be operative, the parties acknowledge that the disclaimers or warranties contained herein are "conspicuous" disclaimers for purposes of any applicable law, rule, regulation or order.

(f) Indemnity. Buyer shall indemnify, defend (using counsel reasonably satisfactory to Seller) and hold Seller and each and every Seller Related Party harmless from and against any claims, liens, expenses, costs (including, without limitation, attorneys' fees, including allocated costs of in-house counsel), liabilities, damages, losses, demands, actions or causes of action of whatever kind or nature arising out of or in any way connected, directly or indirectly, with Buyer's use, operation, improvement, sale or lease of the Property after the Closing.

5. TITLE TO PROPERTY

Buyer heretofore has reviewed and approved the title report and all exceptions referred to therein dated October 26, 1999 from Chicago Title Insurance Company ("Title Company"), and any supplements thereto as may have been obtained by or delivered to Buyer (collectively "Title Report"), and the ALTA Survey dated December 3, 1999, prepared by Martin M. Ron Assoc., Inc., and Buyer has approved the Title Report, the Survey, and all matters related to the condition of title to the Property. At the Closing, Seller shall convey to Buyer fee title to the Property, subject to all matters of record (including without limitation those disclosed by the

6

Title Report) by execution and delivery of a Grant Deed (the "Grant Deed") in the form attached hereto as Exhibit C. Buyer's sole recourse for a defect in title shall be to enforce Buyer's rights under its Owner's Title Policy issued by the Title Company, and Seller shall have no liability to Buyer based upon any defect in or other matter related to the title acquired by Buyer. The Owner's Title Policy may include such reasonable endorsements as Buyer may reasonably require, provided that (i) Buyer shall have obtained prior to the Effective Date of this Agreement the commitment of the Title Company to issue such endorsements, (ii)the issuance of such endorsements shall not be a condition to Buyer's obligations hereunder, and (iii)any such endorsements shall be at Buyer's sole cost.

6. CONDITIONS PRECEDENT TO CLOSING

6.1 Conditions. The following conditions are conditions precedent to Seller's obligation to sell the Property:

(a) Compliance by Buyer. Buyer shall have complied with each and every covenant and condition of this Agreement to be kept or complied with by Buyer.

(b) Representations and Warranties. All of Buyer's representations and warranties set forth in Section 8.1 hereof shall be true and correct in all material respects as of the Closing Date.

6.2 Effect of Failure of Conditions. In the event that there shall be failure of any of the conditions contained in Section 6.1, Seller may terminate this Agreement and the Deposit shall be retained by Seller as provided in Section 3.4 above. If Seller so elects to terminate this Agreement, neither party shall have any further rights or obligations hereunder, except for those rights and obligations which expressly survive termination.

7. ESCROW AND CLOSING

7.1 Escrow Instructions. Escrow herein (the "Escrow") shall be established at Chicago Title Insurance Company, 388 Market Street, Suite 1300, San Francisco, California ("Escrow Holder"). This Agreement shall serve as the instructions to Escrow Holder to consummate the purchase and sale as contemplated hereby. Seller and Buyer agree to execute such additional and supplementary escrow instructions as may be appropriate to enable Escrow Holder to comply with the terms of this Agreement. If there is any conflict between the provisions of this Agreement and any supplementary escrow instructions, however, the terms of this Agreement shall control.

7.2 Closing. The closing hereunder (the "Closing") shall be the date the Grant Deed is recorded, which date shall be no earlier than January 31, 2000 and no later than February 14, 2000 (the "Closing Date"), time being of the essence.

7.3 Deliveries By Seller. Seller shall deposit with Escrow Holder, on or before the Closing Date in time sufficient to permit Escrow Holder to record and close the Escrow on the Closing Date, the following:

(a) The Grant Deed, duly executed and notarized and otherwise in recordable form;

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(b) The Access Agreement, duly executed and notarized and otherwise in recordable form, in the form of Exhibit B attached hereto;

(c) A Non-Foreign Affidavit, ("Seller's Non-Foreign Affidavit") executed by Seller and satisfying the requirements of Section 1445 of the United States Internal Revenue Code of 1986, as amended (the "IRC");

(d) A Bill of Sale, in the form of Exhibit D attached hereto, conveying, without warranty, the Personal Property;

(e) Two executed counterparts of an Assignment and Assumption of Lease (the "Assignment of Lease"), the form of which is attached hereto as Exhibit E, pursuant to which Seller shall assign to Buyer, and Buyer shall assume from Seller, all of Seller's rights and obligations under the ATM Lease;

(f) Two executed counterparts of an Assignment and Assumption of Contracts (the "Assignment of Contracts"), the form of which is attached hereto as Exhibit F, pursuant to which Seller shall assign to Buyer, and Buyer shall assume from Seller, all of Seller's rights and obligations under the Contracts;

(g) An executed Tenant Notice Letter ("Tenant Notice Letter") in the form of Exhibit G attached; and

(h) A closing statement approved and executed by the Seller.

7.4 Deliveries by Buyer. Buyer shall deliver to Escrow Holder, on or before the Closing Date in time sufficient to permit Escrow Holder to record and close the Escrow on the Closing Date, the following:

(a) Cash or other good funds sufficient to pay the Purchase Price, the closing costs and any other amounts payable by Buyer in order to permit Escrow Holder to close the Escrow;

(b) An executed and notarized Access Agreement;

(c) Two executed counterparts of the Assignment of Leases;

(d) Two executed counterparts of the Assignment of Contracts;

(e) An executed Tenant Notice Letter; and

(f) A closing statement approved and executed by the Buyer.

7.5 Other Instruments. Seller and Buyer shall each deposit any other documents or instruments that may be reasonably required by the other party and/or Escrow Holder, or that are otherwise required to close the escrow and consummate the purchase and sale of the Property in accordance with the terms hereof.

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7.6 Prorations and Apportionments.

(a) General real estate taxes and assessments against the Property shall be prorated as of the Closing Date, based on a three hundred sixty-five (365) day year. Seller shall be charged (or credited, if already paid) for taxes and assessments incurred up to (but not including) the Closing Date and Buyer shall be charged for all of the same on and after the Closing Date. Notwithstanding anything to the contrary in the foregoing, Seller shall retain the right to receive all refunds for overpayments of real property taxes and assessments to the extent paid by Seller and attributable to the period of time prior to the Closing Date, and Seller shall have the sole right to prosecute an appeal or claim with respect to such amounts.

(b) All rentals, tenant charges and reimbursements under the ATM Lease in respect to the month in which the Closing Date occurs (the "Current Month") shall be prorated as of the Closing Date. All of these amounts for the Current Month which have been received as of the Closing Date shall be prorated on a per diem basis based upon the number of days in the Current Month prior to, but not including, the Closing Date (which shall be allocated to Seller) and the number of days in the Current Month from and after the Closing Date (which shall be allocated to Buyer).

(c) Prepaid rentals and other prepaid tenant charges for periods after the Current Month, and the current balance of the security deposit, if any (including any portion thereof which may be designated as prepaid rent), under the ATM Lease, if and to the extent that such deposit is in Seller's actual possession and has not been otherwise applied by Seller to any obligations of the tenant under the ATM Lease, shall be credited against the Purchase Price, and upon the closing of the transaction contemplated hereby, Buyer shall assume full responsibility for the security deposit to be refunded to the tenant under the ATM Lease (to the extent the same is required to be refunded by the terms of the ATM Lease).

(d) All charges under Contracts and any other expenses of the Property shall be prorated on a per diem basis based upon the number of days in the then current billing period for such service provider or other payee prior to, but not including, the Closing Date (which shall be allocated to Seller), and the number of days in such current billing period from and after the Closing Date (which shall be allocated to the Buyer), and assuming that all charges are incurred uniformly during such current billing period. If actual bills for such current billing period are unavailable as of the Closing Date, then such proration shall be made on an estimated basis based upon the most recently issued bills, subject to readjustment upon receipt of actual bills. Any amount shown to be owed by Seller as a result of the foregoing proration shall be credited to Buyer at the Closing, and any amounts shown to be owed to Seller as a result of the foregoing proration shall be credited to Seller at Closing.

(e) Prior to Closing, Buyer and Seller shall review and approve the prorations set forth in this Section 7.6. If the actual amounts to be prorated are not known as of the Closing Date, the prorations shall be made on the basis of the best information then available. When actual figures are later received, a cash settlement thereof will promptly be made between Seller and Buyer by delivery of a check or cashier's check to the party that is owed a sum of money, which check shall be delivered within ten (10) business days after the parties have calculated such post-closing prorations. The provisions of this
Section shall survive the Closing.

7.7 Closing Costs and Expenses. Buyer shall pay all recording costs, title insurance premiums, the cost of any title endorsements, and the Escrow Holder's fees. Seller shall pay the City and County of San Francisco documentary transfer taxes. Each party shall pay

9

its own attorneys' fees. Any other closing costs shall be allocated in accordance with local custom.

7.8 Insurance; Utilities. Buyer acknowledges that Seller will cause its policies of casualty and liability insurance, if any, to be terminated with respect to the Property as of the Closing Date. Buyer shall be responsible for obtaining its own insurance and utilities as of the Closing Date and thereafter. All utilities shall be transferred to Buyer's name as of the Closing Date. Any deposits for utilities made by Seller shall be refunded to Seller and Buyer shall arrange for any required replacements therefor.

7.9 Close of Escrow. Provided that (i) Escrow Holder has received the documents and funds described in Sections 7.3, 7.4 and 7.5 hereof, and (ii) Escrow Holder has not received prior written notice from either party to the effect that an agreement of either party made hereunder has not been performed or to the effect that any condition set forth herein has not been satisfied or waived, Escrow Holder is authorized and instructed at 8:00 a.m. on the Closing Date (or as soon thereafter as practicable) to:

(a) Cause the Grant Deed and the Access Agreement to be recorded in the Recorder's Office of the City and County of San Francisco;

(b) Deliver, in the manner specified by Seller in separate instructions to Escrow Holder, the Purchase Price to Seller, less Seller's share of prorations as required herein;

(c) Deliver one fully executed original of the Assignment of Lease and the Assignment of Contracts to each of Seller and Buyer;

(d) Deliver Seller's Non-Foreign Affidavit to Buyer;

(e) Deliver the Bill of Sale to Buyer;

(f) Deliver to Bank of America the Tenant Notice Letter; and

(g) Deliver to Buyer and Seller copies of the final closing statements.

7.10 Notification; Closing Statements. If Escrow Holder cannot comply with the instructions herein (or as may be provided later), Escrow Holder is not authorized to cause the recording or delivery of any of the foregoing documents. If Escrow Holder is unable to cause the recording, Escrow Holder shall notify the parties without delay. Immediately after the Closing, Escrow Holder shall deliver to Buyer and Seller, respectively, at their addresses listed in Section 11.1 hereof, a true, correct and complete copy of the Seller's and Buyer's Closing Statements, in forms customarily prepared by Escrow Holder, as well as all other instruments and documents to be delivered to Buyer and Seller.

8. REPRESENTATIONS, WARRANTIES AND COVENANTS

8.1 Buyer's Representations and Warranties. Buyer represents and warrants to Seller as follows as of the Effective Date and as of the Closing Date:

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(a) Buyer is a California corporation duly formed, validly existing and in good standing under the laws of the State of California, and Buyer has full power and authority to enter into this Agreement and to consummate the transactions contemplated herein;

(b) This Agreement and all documents executed by Buyer that are to be delivered to Seller at the Closing are, and at the time of the Closing will be duly authorized, executed and delivered by Buyer and the person(s) executing this Agreement and all such documents on behalf of Buyer is (are) and shall be duly authorized to so execute and deliver this Agreement and such documents on behalf of Buyer; and

(c) No representations of any kind (whether oral or written, express or implied) have been made by Seller to Buyer except as specifically provided in Section 8.2 hereof, and Buyer hereby represents and warrants to Seller that Buyer is acquiring the Property solely in reliance on Buyer's own evaluation thereof.

8.2 Seller's Representations and Warranties. Seller represents and warrants to Buyer as follows as of the Effective Date and as of the Closing Date:

(a) Seller is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware, and Seller has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated herein; and

(b) This Agreement and all documents executed by Seller that are to be delivered to Buyer at the Closing are, and at the time of Closing will be, duly authorized, executed and delivered by Seller, and the person(s) executing this Agreement and all such documents on behalf of Seller is(are) and shall be duly authorized to so execute and deliver this Agreement and such documents on behalf of Seller.

8.3 Continuation and Survival of Representations and Warranties. All representations and warranties by Buyer contained herein or made in writing pursuant to this Agreement are intended to and shall remain true and correct as of the time of Closing, shall be deemed to be material, and, together with all conditions, covenants and indemnities made by Buyer contained herein or pursuant to this Agreement, shall survive the execution and delivery of this Agreement and the Closing, or any termination of this Agreement. No claim for a breach of any representation or warranty of Seller shall be actionable or payable (A) if the breach in question results from or is based on a condition, state of facts or other matter which was known to Buyer at or prior to Closing, (B) unless the valid claims for all such breaches collectively aggregate more than Two Hundred Fifty Thousand Dollars ($250,000.00), in which event the full amount of such claims shall be actionable, and (C) unless (i) written notice containing a description of the specific nature of such breach shall have been given by Buyer to Seller within six (6) months following the Closing, and (ii) an action shall have been commenced by Buyer against Seller with respect to such breach prior to thirty (30) days following the expiration of said six (6) month period. Unless each of the foregoing conditions has been satisfied, any claim based on a breach of any such representation and warranty shall be deemed to have been waived, and such representations and warranties shall be of no further force or effect.

8.4 Limitation of Liability. Any claims brought by Buyer against Seller (i) for default under or breach of this Agreement, (ii) for breach of any representation or warranty or covenant of Seller, or (iii) pursuant to any provisions of any of the documents delivered by Seller to Buyer at Closing or in connection with any and all documents executed pursuant hereto or in

11

connection herewith, must be asserted, if at all, and a complaint must be filed, if at all, no later than the date which is six (6) months following the Closing Date, and any liability of Seller in connection therewith shall be limited, in the aggregate, to One Million Dollars ($1,000,000). Seller shall have no liability to Buyer for any of the matters specified above in clauses (i)-(iii) of this Section 8.4 unless the loss resulting from such matter exceeds, in the aggregate, Two Hundred Fifty Thousand Dollars ($250,000.00). Any claim which is not asserted or as to which a complaint is not filed within the time specified in this section shall not be valid or effective and Seller shall have no liability with respect thereto.

9. POSSESSION

Seller shall deliver possession of the Property to Buyer on the Closing Date, subject to the rights of the tenant under the ATM Lease and Seller's rights under the Access Agreement.

10. LOSS BY FIRE OR OTHER CASUALTY: CONDEMNATION

10.1 Damage or Destruction.

(a) For purposes of this Section 10.1, the term "materially destroyed or damaged" shall mean damage or destruction that would cost in excess of Five Million Dollars ($5,000,000) to repair. If, before the Closing, the Improvements are materially destroyed or damaged by an insured casualty either party may elect to terminate this Agreement by notice to the other party given within thirty (30) days of the date of such casualty. If, before the Closing, the Improvements are damaged to any extent and such casualty is not insured by Seller, Seller may elect to terminate this Agreement by notice to Buyer given within thirty (30) days of the date of such casualty. In the event either party elects to terminate this Agreement as provided above, this Agreement shall be of no further force or effect and, except for those provisions which expressly survive termination, neither Buyer nor Seller shall have any further rights, duties, liabilities or obligations to the other by reason thereof. In the event of such termination, the cancellation costs (if any) of the Title Company and Escrow Holder shall be borne equally by Buyer and Seller, each party shall bear its own costs incurred hereunder, and the Deposit, less Buyer's share of Title Company and Escrow Holder cancellation costs, shall be returned to Buyer. In the event that this Agreement is not terminated by either party pursuant to this
Section 10.1(a), Buyer shall be obligated to purchase the Property as contemplated herein, Seller shall assign to Buyer all Seller's rights to proceeds under Seller's policy of casualty insurance, and the Purchase Price shall be reduced by the amount of any insurance deductible; provided that in the case of any uninsured loss, the Purchase Price shall be reduced by the reasonable cost of repairing the damage or destruction resulting therefrom.

(b) If, before the Closing, the Improvements are damaged, such damage would cost less than Five Million Dollars ($5,000,000) to repair, and such damage is covered by Seller's insurance (allowing for standard deductibles), then this Agreement shall not terminate, Buyer shall be obligated to purchase the Property as contemplated herein, Seller shall assign to Buyer all Seller's rights to proceeds under Seller's policy of casualty insurance, and the Purchase Price shall be reduced by the amount of any insurance deductible.

10.2 Condemnation.

(a) If, before the Closing, all of the Property shall be taken by condemnation or eminent domain (or deed given under threat of eminent domain), this

12

Agreement shall be automatically terminated. Thereafter, this Agreement shall be null and void and of no further force or effect and, except for those provisions which expressly survive termination, neither Buyer nor Seller shall have any further rights, duties, liabilities or obligations to the other by reason thereof. In the event of such termination, the cancellation costs of the Title Company and Escrow Holder shall be borne equally by Buyer and Seller, each party shall bear its own costs incurred hereunder, and the Deposit, less Buyer's share of Title Company and Escrow Holder cancellation costs, shall be returned to Buyer.

(b) If, before the Closing, a material portion of the Property shall be taken by condemnation or eminent domain (or deed given under threat of eminent domain), then Buyer, at Buyer's option, may terminate this Agreement by providing written notice of such termination to Seller within ten
(10) days of Buyer's receipt of written notice of the taking (Buyer's failure to give such notice within such period shall be deemed an election not to terminate this Agreement). If Buyer does not so terminate this Agreement, paragraph (c), below, shall apply. If Buyer elects to terminate this Agreement under this paragraph (b), this Agreement shall be of no further force or effect and, except for those provisions which expressly survive termination, neither Buyer nor Seller shall have any further rights, duties, liabilities or obligations to the other by reason thereof. For purposes of this Section 10.2, the term "material portion" shall mean any portion of the Property having a value in excess of Five Million Dollars ($5,000,000) or that materially impairs the access to the Property. In the event of such termination, the cancellation costs of the Title Company and Escrow Holder shall be borne equally by Buyer and Seller, each party shall bear its own costs incurred hereunder, and the Deposit, less Buyer's share of Title Company and Escrow Holder cancellation costs, shall be returned to Buyer.

(c) If this Agreement is not terminated in accordance with the foregoing, Buyer shall accept title to the Property subject to such taking. In such event, at the Closing the Seller's interest, if any, in proceeds from the taking of the Property condemned shall be assigned by Seller to Buyer.

11. MISCELLANEOUS

The provisions of this Article 11 shall survive Closing and any termination of this Agreement.

11.1. Notices. Any communication, notice or demand of any kind whatsoever that either party may be required or may desire to give to or serve upon the other shall be in writing, addressed to the parties at the addresses set forth below, and delivered by personal service, by Federal Express or other national overnight delivery service, or by registered or certified mail, postage prepaid, return receipt requested:

If to Seller:           Levi Strauss & Co.
                        1155 Battery Street
                        San Francisco, CA 94111
                        Attention: Susan E. Shipley
                                   Vice President - Real Estate
                        Facsimile No.: (415) 501-3960
                        Telephone No.: (415) 501-7759

                                13

With copy to:           Hoffman, Finney & Sandel
                        505 Montgomery Street, Suite 1530
                        San Francisco, CA 94111
                        Attention:  Charles P. Sandel
                        Facsimile No.:  (415) 362-7441
                        Telephone No.:  (415) 362-2200

If to Buyer:            Williams-Sonoma, Inc.
                        3250 Van Ness Avenue
                        San Francisco, CA 94109
                        Attention:  Mr. Richard Myers
                        Facsimile No.:  (415) 439-8277
                        Telephone No.:  (415) 615-8370


If to Escrow Holder:    Chicago Title Company
                        388 Market Street, Suite 1300
                        San Francisco, CA 94111
                        Attention: Nicole Carr
                        Facsimile No.:  (415) 956-2175
                        Telephone No.:  (415) 788-0871

Any such notice shall be deemed delivered as follows: (a) if personally delivered, the date of delivery to the address of the person set forth above to receive such notice; (b) if sent by "next business day" Federal Express or other reputable overnight courier service, the next business day after being sent; or (c) if sent by facsimile transmission, the date transmitted to the person to receive such notice if sent by 5:00 p.m. Pacific Time and the next business day if sent after 5:00 p.m. Pacific Time, provided that there is evidence of such transmission printed by the sending machine. Any notice sent by facsimile transmission must be confirmed by personally delivering or mailing a copy of the notice sent by facsimile transmission. Any party may change its address for notice by written notice given to the other at least three (3) business days before the effective date of such change in the manner provided in this Section.

11.2. Brokers and Finders.

(a) Buyer and Seller each represent to the other that they have not dealt with any brokers or finders in connection with the purchase and sale of the Property, except for Grubb & Ellis Company, whose commission, if any is due, shall be paid by Seller pursuant to a separate written agreement between Grubb & Ellis and Seller.

(b) In the event of a claim for broker's fees, finder's fees, commissions or other similar compensation in connection herewith:
(i) Buyer, if such claim is based upon any agreement alleged to have been made by Buyer, shall indemnify and defend Seller against and hold Seller harmless (using counsel reasonably satisfactory to Seller) from any and all damages, liabilities, costs, expenses and losses (including, without limitation, attorneys' fees and costs) that Seller sustains or incurs by reason of such claim; and (ii) Seller, if such claim is based upon any agreement alleged to have been made by Seller, shall indemnify and defend Buyer against and hold Buyer harmless (using counsel reasonably satisfactory to Buyer) from any and all damages, liabilities, costs, expenses and losses (including, without limitation, attorneys' fees and costs) that Buyer sustains or incurs by reason of such claim. The provisions of this subsection shall survive the termination of this Agreement or the Closing.

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11.3. Successors and Assigns. Buyer shall not assign its rights and obligations under this Agreement, without the prior written consent of Seller, which consent Seller may grant or withhold in its sole and absolute discretion. Buyer, in the event of any such assignment, shall not be released from any obligations hereunder and shall remain bound by all of the obligations set forth in this Agreement. Subject to the foregoing, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, administrators, successors and assigns.

11.4. Recording. Neither this Agreement nor any notice or memorandum hereof shall be recorded in any public record.

11.5. Amendments. This Agreement may be amended or modified only by a written instrument executed by both parties.

11.6 Interpretation. Words used in the singular shall include the plural, and vice-versa, and any gender shall be deemed to include the other. The captions and headings of the Articles and Sections of this Agreement are for convenience of reference only, and shall not be deemed to define or limit the provisions hereof. Each party and its counsel have reviewed and revised this Agreement and each shall be deemed to have drafted it. The terms of this Agreement shall be fairly construed and the usual rule of construction, to the effect that any ambiguities herein should be resolved against the drafting party, shall not be employed.

11.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

11.8. Entire Agreement. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral or written representations, statements, documents, understandings and agreements with respect thereto.

11.9. Attorneys' Fees and Costs. If either Buyer or Seller brings any suit or other proceeding with respect to the subject matter or the enforcement of this Agreement, the prevailing party (as determined by the court, agency or other authority before which such suit or proceeding is commenced), in addition to such other relief as may be awarded, shall be entitled to recover reasonable attorneys' fees, expenses and costs of investigation actually incurred.

11.10. Time of Essence. Time is of the essence of this Agreement.

11.11. Consultant Reports. If the transaction contemplated herein fails to close for any reason, Buyer shall deliver to Seller, at no cost to Seller, the results and/or copies of all such information, surveys, reports, tests, and studies, if any, provided for Buyer by third party consultants.

11.12. No Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver, nor shall a waiver in any instance constitute a waiver in any subsequent instance. No waiver shall be binding unless executed in writing by the party making the waiver.

11.13. Further Acts. Each party, at the request of the other, shall execute, acknowledge or have notarized (if appropriate) and deliver in a timely manner such additional

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documents, and do such other additional acts, also in a timely manner, as may be reasonably required in order to accomplish the intent and purposes of this Agreement.

11.14. No Intent To Benefit Third Parties. Seller and Buyer do not intend by any provision of this Agreement to confer any right, remedy or benefit upon any third party, and no third party shall be entitled to enforce, or otherwise shall acquire any right, remedy or benefit by reason of, any provision of this Agreement.

11.15. Performance Due On Day Other Than Business Day. If the time period for the performance of any act called for under this Agreement expires on a Saturday, Sunday or any other day on which banking institutions in the State of California are authorized or obligated by law or executive order to close (a "Holiday"), the act in question may be performed on the next succeeding day that is not a Saturday, Sunday or Holiday.

11.16. Confidentiality. Until the Closing, Buyer and its partners, members, attorneys, agents, contractors, employees and consultants will treat the information disclosed to it by Seller (including, without limitation, any Due Diligence Materials) and the existence of the transaction contemplated herein as confidential, giving it the same care as Buyer's own confidential information, and make no use of any such disclosed information except in connection with the transaction contemplated herein or to the extent required by court or legal requirements. Buyer shall instruct each of its attorneys, agents, contractors, employees and consultants as to the existence of this confidentiality agreement and the necessity of complying herewith and shall obtain their agreement to maintain confidentiality to the same extent as provided herein. In the event that this Agreement terminates for any reason, Buyer shall promptly return copies of all such confidential information to Seller and shall not retain any copies thereof, and shall retrieve all confidential information and copies or extracts thereof from its attorneys, agents, contractors, employees and consultants, and return the same to Seller. Notwithstanding any provision of this Agreement that calls for the Deposit to be returned to Buyer in the event of a termination of this Agreement, the parties agree that the Deposit shall not be returned to Buyer unless and until Buyer has fulfilled its obligation to return to Seller such confidential information as provided herein. In the event of a breach or threatened breach of this provision, Seller shall be entitled to an injunction restraining Buyer and/or its agents, contractors, employees and consultants from disclosing, in whole or in part, any such confidential information. Nothing herein shall be construed as prohibiting Seller from pursuing any other available remedy at law or in equity for such breach or threatened breach. Prior to the Closing, Buyer shall not, without the prior written consent of Seller, distribute any press release or make any other public announcement regarding this Agreement, the transaction contemplated hereby, the Property, or the proposed sale of the Property.

11.17. "Real Estate Reporting Person". The parties hereto agree that the Escrow Holder is hereby designated as the "real estate reporting person" for purposes of complying with Section 6045 of the IRC.

11.18. Venue. Each of the parties hereto consents to the jurisdiction of any court in the City and County of San Francisco, California for any action arising out of matters related to this Agreement. Each of the parties hereto waives the right to commence an action in connection with this Agreement in any court outside of such County.

11.19. No Joint Venture; Not an Offer. Nothing set forth in this Agreement shall be construed to create a joint venture between Buyer and Seller nor shall presentation of drafts

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hereof by one party to the other be deemed an offer. This Agreement shall only become a binding and enforceable contract upon execution hereof by both parties.

11.20. Counterparts. This Agreement may be executed in one or more counterparts. All counterparts so executed shall constitute one contract, binding on all parties, even though all parties are not signatory to the same counterpart. Facsimile signatures shall be binding.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the dates written below.

Dated:

SELLER:

LEVI STRAUSS & CO.,
a Delaware corporation

By: /s/ JOSEPH M. MAURER
   ---------------------------------------

Name:  Joseph M. Maurer
     -------------------------------------
Title:  Vice President & Treasurer
      ------------------------------------

BUYER:

WILLIAMS-SONOMA, INC.,
a California corporation

By: /s/ J. RICHARD MYERS
   ---------------------------------------
Name:  J. Richard Myers
     -------------------------------------
Title:  Vice President Facilities
      ------------------------------------

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EXHIBIT A

LEGAL DESCRIPTION

CITY OF SAN FRANCISCO

PARCEL ONE:

BEGINNING AT THE POINT OF INTERSECTION OF THE SOUTHERLY LINE OF UNION STREET WITH THE EASTERLY LINE OF ICE HOUSE ALLEY, FORMERLY GAINES STREET; RUNNING THENCE EASTERLY ALONG SAID SOUTHERLY LINE OF UNION STREET, 120 FEET TO THE WESTERLY LINE OF BATTERY STREET; THENCE AT A RIGHT ANGLE, SOUTHERLY ALONG SAID WESTERLY LINE OF BATTERY STREET, 100 FEET; THENCE AT A RIGHT ANGLE, WESTERLY 120 FEET TO THE EASTERLY LINE OF ICE HOUSE ALLEY; THENCE NORTHERLY ALONG SAID EASTERLY LINE OF ICE HOUSE ALLEY, 100 FEET TO THE POINT OF BEGINNING.

BEING A PORTION OF 50 VARA BLOCK NO. 29

PARCEL TWO:

BEGINNING AT THE POINT OF INTERSECTION OF THE EASTERLY LINE OF SANSOME STREET WITH THE SOUTHERLY LINE OF UNION STREET; RUNNING THENCE EASTERLY ALONG SAID SOUTHERLY LINE OF, UNION STREET, 120 FEET TO THE WESTERLY LINE OF ICE HOUSE ALLEY; FORMERLY GAINES STREET; THENCE AT A RIGHT ANGLE, SOUTHERLY ALONG SAID WESTERLY LINE OF ICE HOUSE ALLEY, 177.523 FEET, MORE OR LESS, TO A POINT DISTANT THEREON 97.50 FEET NORTHERLY FROM THE NORTHERLY LINE OF GREEN STREET; THENCE AT A RIGHT ANGLE, WESTERLY 120 FEET TO THE EASTERLY LINE OF SANSOME STREET; THENCE NORTHERLY ALONG SAID EASTERLY LINE OF SANSOME STREET, 177.523 FEET, MORE OR LESS, TO THE POINT OF BEGINNING.

BEING A PORTION OF 50 VARA BLOCK NO. 29.

PARCEL THREE:

ALL THAT AIR SPACE AND SUBSURFACE AREA BELOW A HORIZONTAL PLANE AT ELEVATION
89.75 FEET CITY DATUM, THE BOUNDARIES OF WHICH, IF PROJECTED VERTICALLY DOWNWARD, WILL INTERCEPT AND ENCOMPASS THE FOLLOWING DESCRIBED PARCEL OF LAND:

BEGINNING AT THE INTERSECTION OF THE SOUTHERLY LINE OF UNION STREET WITH THE EASTERLY LINE OF ICE HOUSE ALLEY, FORMERLY GAINES STREET; AND THENCE RUNNING SOUTHERLY ALONG SAID LINE OF ICE HOUSE, 100.00 FEET; THENCE AT A RIGHT ANGLE, WESTERLY 5.00 FEET; THENCE AT A RIGHT ANGLE, NORTHERLY, PARALLEL WITH SAID LINE OF ICE HOUSE ALLEY, 100.00 FEET; THENCE AT A RIGHT ANGLE, EASTERLY 5.00 FEET TO THE POINT OF BEGINNING.

PARCEL FOUR:

ALL THAT AIR SPACE AND SUBSURFACE ARE BELOW A HORIZONTAL PLANE AT ELEVATION
89.75 FEET CITY DATUM, THE BOUNDARIES OF WHICH, IF PROJECTED VERTICALLY DOWNWARD, WILL INTERCEPT AND ENCOMPASS THE FOLLOWING DESCRIBED PARCEL OF LAND:

BEGINNING AT THE INTERSECTION OF THE SOUTHERLY LINE OF UNION STREET WITH THE WESTERLY LINE OF ICE HOUSE ALLEY, FORMERLY GAINES STREET; AND THENCE RUNNING SOUTHERLY ALONG SAID LINE OF ICE HOUSE, 100.00 FEET; THENCE AT A RIGHT ANGLE, EASTERLY 5.00 FEET; THENCE AT A RIGHT ANGLE, NORTHERLY, PARALLEL WITH SAID LINE OF ICE HOUSE ALLEY, 100.00 FEET; THENCE AT A RIGHT ANGLE, WESTERLY 5.00 FEET TO THE POINT OF BEGINNING.


PARCEL FIVE:

ALL THAT AIR SPACE BETWEEN A HORIZONTAL PLANE AT ELEVATION 93.75 FEET CITY DATUM AND A HORIZONTAL PLANE AT ELEVATION 89.75 FEET CITY DATUM, THE BOUNDARIES OF WHICH, IF PROJECTED VERTICALLY DOWNWARD, WILL INTERCEPT AND ENCOMPASS THE FOLLOWING DESCRIBED PARCEL OF LAND:

BEGINNING AT A POINT ON THE EASTERLY LINE OF ICE HOUSE ALLEY, FORMERLY GAINES STREET, DISTANT THEREON 39.00 FEET SOUTHERLY FROM THE SOUTHERLY LINE OF UNION STREET; AND THENCE RUNNING SOUTHERLY ON SAID LINE OF ICE HOUSE ALLEY, 1.00 FOOT; THENCE AT A RIGHT ANGLE, WESTERLY 35.00 FEET TO THE WESTERLY LINE OF SAID ICE HOUSE ALLEY; THENCE AT A RIGHT ANGLE, NORTHERLY ALONG THE LAST SAID LINE OF ICE HOUSE ALLEY, 1.00 FOOT; THENCE AT A RIGHT ANGLE, EASTERLY 35.00 FEET TO SAID EASTERLY LINE OF ICE HOUSE ALLEY AND THE POINT OF BEGINNING.

PARCEL SIX:

ALL THAT AIR SPACE BETWEEN A HORIZONTAL PLANE AT ELEVATION 93.75 FEET CITY DATUM AND A HORIZONTAL PLANE AT ELEVATION 89.75 FEET CITY DATUM, THE BOUNDARIES OF WHICH, IF PROJECTED VERTICALLY DOWNWARD, WILL INTERCEPT AND ENCOMPASS THE FOLLOWING DESCRIBED PARCEL OF LAND:

BEGINNING AT A POINT ON THE EASTERLY LINE OF ICE HOUSE ALLEY, FORMERLY GAINES STREET, DISTANT THEREON 74.00 FEET SOUTHERLY FROM THE SOUTHERLY LINE OF UNION STREET; AND THENCE RUNNING SOUTHERLY ON SAID LINE OF ICE HOUSE ALLEY, 1.00 FOOT; THENCE AT A RIGHT ANGLE, WESTERLY 35.00 FEET TO THE WESTERLY LINE OF SAID ICE HOUSE ALLEY; THENCE AT A RIGHT ANGLE, NORTHERLY ALONG THE LAST SAID LINE OF ICE HOUSE ALLEY, 1.00 FOOT; THENCE AT A RIGHT ANGLE, EASTERLY 35.00 FEET TO SAID EASTERLY LINE OF ICE HOUSE ALLEY AND THE POINT OF BEGINNING.

PARCEL SEVEN:

ALL THE AIR SPACE BETWEEN A HORIZONTAL PLANE AT ELEVATION 89.75 FEET CITY DATUM AND A HORIZONTAL PLANE AT ELEVATION 19.75 FEET CITY DATUM, THE BOUNDARIES OF WHICH, IF PROJECTED VERTICALLY DOWNWARD, WILL INTERCEPT AND ENCOMPASS THE FOLLOWING DESCRIBED PARCEL OF LAND:

COMMENCING AT A POINT ON THE WESTERLY LINE OF ICE HOUSE ALLEY, FORMERLY GAINES STREET, DISTANT THEREON 40.00 FEET SOUTHERLY FROM THE SOUTHERLY LINE OF UNION STREET; AND THENCE RUNNING WESTERLY AT RIGHT ANGLE TO SAID LINE OF ICE HOUSE ALLEY, 5.00 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING WESTERLY ALONG THE WESTERLY PROLONGATION OF THE LAST SAID COURSE, PARALLEL WITH SAID LINE OF UNION STREET, 25.00 FEET; THENCE AT A RIGHT ANGLE SOUTHERLY 34.00 FEET; THENCE AT A RIGHT ANGLE, EASTERLY 25.00 FEET; THENCE AT A RIGHT ANGLE, NORTHERLY 34.00 FEET TO THE TRUE POINT OF BEGINNING.

LOT 001, BLOCK 0112 (AFFECTS PARCEL ONE)
LOT 009, BLOCK 0112 (AFFECTS PARCEL TWO)

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EXHIBIT B

ACCESS AGREEMENT

RECORDING REQUESTED AND WHEN
RECORDED RETURN TO:

GRANT OF EASEMENT

THIS GRANT OF EASEMENT (the "Easement") is made and entered into as of the _____ day of ____________, 2000, by and between _________________________ ("Grantor") and Levi Strauss & Co., a Delaware corporation ("LS&CO").

W I T N E S S E T H:

A. Grantor is the owner of that certain real property located in the City and County of San Francisco, California, commonly known as Ice House One and Ice House Two, 151 Union Street, San Francisco, and more particularly described on Exhibit "A" attached hereto (the "Ice House Property"). Grantor acquired the Ice House Property from LS&CO.

B. LS&CO occupies a portion of the real property across Union Street from the Ice House Property, located in the City and County of San Francisco, California, commonly known as Levi's Plaza, and more particularly described on Exhibit "B" attached hereto (the "Levi's Plaza Property").

C. There is located in the electrical room on the ground floor of the Ice House One building a generator ("Generator") and an uninterruptible power system ("UPS"). The Generator and UPS provide emergency power through a gutter that travels through the Ice House Property under Union Street and connects to electrical power facilities in the Levi's Plaza Property, to supply emergency electrical power to LS&CO's premises at the Levi's Plaza Property.

D. LS&CO requires the continued use of the Generator and UPS, and continued access to the portions of the Ice House Property in which are located the electrical room, the Generator, the UPS and the gutter connecting those facilities with the Levi's Plaza Property electrical facilities for the continued use, maintenance, repair and replacement of the Generator, the UPS, and their associated cabling, gutter, conduit, connections and other elements of such systems (collectively the "Equipment"). Grantor has agreed to grant to LS&CO easements and other rights to enable LS&CO to continue to use, maintain, repair and replace the Generator, the UPS and the Equipment, as described herein.


NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which is hereby acknowledged, and in consideration of the promises and the mutual agreements hereinafter set forth, the parties agree as follows:

1. Utility Easement. Grantor hereby grants, transfers and conveys to LS&CO an easement (the "Utility Easement") in and over that portion of the Ice House Property where the Generator, the UPS and the Equipment related to the maintenance of electric service to LS&CO's premises at the Levi's Plaza Property are located as of the date of this Easement. The area of the Utility Easement is generally described as the area shown on the _____________ Map attached hereto as Exhibit "C" as the cross hatched area identified as the "Utility Easement."

(a) Use. The Utility Easement shall include an easement for twenty-four (24) hour access by LS&CO and its agents, employees, contractors, subtenants and invitees (the "LS&CO Parties") to the Generator, UPS and the Equipment, and to the area of the Ice House Property in which the Utility Easement is located, for the purpose of the installation, maintenance, inspection, repair, replacement, modification and removal of the Generator, UPS and the Equipment. (As used in this Easement, the term "Maintenance Activities" shall refer to the installation, maintenance, inspection, testing, repair, replacement, modification or removal by LS&CO of the Generator, UPS, and Equipment, and any elements or components thereof).

(b) Maintenance Activities Concerning the Utility Easement. LS&CO, at LS&CO's sole cost and expense, shall be responsible for all Maintenance Activities conducted by LS&CO in connection with the Generator, UPS and Equipment. To the extent that any Maintenance Activities conducted by LS&CO within the Utility Easement results in damage to the pavement surface within the Utility Easement, LS&CO shall, at LS&CO's sole cost and expense, restore such pavement to substantially the then-existing condition of the pavement surrounding any such damaged area.

(c) Generator. LS&CO and Grantor shall in good faith cooperate to determine whether and to what extent the Generator may be used by Grantor. In all events, LS&CO shall have no liability and Grantor fully releases LS&CO of and from any and all claims, damages, costs, losses and liability related to the Generator, UPS or Equipment, including, without limitation, any of the same caused by or arising from any change or interruption in the functioning of or discontinuance of the use of the Generator, UPS or Equipment, whether due to repairs, maintenance, failure of utility service or any other cause whatsoever.

2. Easements to Run With the Land. The Easements granted herein and all terms, rights, conditions, obligations, restrictions, covenants and limitations contained herein with respect to such Easements, shall burden and run with the Ice House Property, and shall benefit LS&CO and its premises at the Levi's Plaza Property.

3. Enforcement. Enforcement of the covenants contained in this Easement may be by legal or equitable proceedings against any person violating any restriction, covenant, condition or agreement herein contained, either to restrain or enjoin such violation or to recover damages.

4. Amendments. This Easement may be modified, amended, or terminated only by a written agreement executed by Grantor, LS&CO and LS&CO or their respective

20

successors and assigns and no other persons shall have any rights whatsoever to join in, prevent or otherwise affect or limit any such modification, amendment or termination.

5. Costs. In the event of any litigation between the parties arising out of the obligations of the parties under this Easement, the non-prevailing party shall pay the prevailing party's costs and expenses of such litigation, including without limitation reasonable attorneys' fees.

6. Severability. Invalidation of any of the provisions contained in this Easement or of the application thereof to any person, by legislation, judgement or court order, shall have no effect upon any of the other provisions hereof, or the application thereof to any other person, and the same shall remain in full force and effect.

7. Captions. The headings of the paragraphs of this Easement are for convenience only and are not a part of this Easement and do not in any way limit or amplify the terms and provisions of this Easement.

8. Entire Agreement. This Easement contains the entire agreement between the parties relating to the rights herein granted and the obligations herein assumed.

9. Governing Law. This Easement shall be governed by and construed according to the laws of the State of California.

10. Binding Effect. This Easement shall bind and inure to the benefit of the respective heirs, personal representatives, successors and assigns of the parties hereto.

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

GRANTOR:                                     GRANTEE:

______________________________,              LEVI STRAUSS & CO.,
a _____________________________              a Delaware corporation

                                             By: ______________________________
By: _______________________________
                                             Title: ___________________________
Title:_____________________________

3

STATE OF CALIFORNIA                 )
                                    ) ss.
County of ________________          )

On , 2000, before me, _______________________, a Notary Public, personally appeared __________________________________________________ personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature                                                           [SEAL]
          ---------------------------------------------







STATE OF CALIFORNIA                 )
                                    ) ss.
County of ________________          )

On , 2000, before me, _______________________, a Notary Public, personally appeared ___________________________________________________ personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature [SEAL]

4

EXHIBIT C

GRANT DEED

RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:

MAIL TAX STATEMENTS TO:





Documentary Transfer Tax is not of public record and is shown on a separate sheet.

GRANT DEED

FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, LEVI STRAUSS & CO., a Delaware corporation, hereby grants to ____________________, a __________________, the real property located in the City of San Francisco, County of San Francisco, State of California, described on ExhibitA attached hereto and made a part hereof, subject to the exceptions to title described on Exhibit B attached hereto and made a part hereof.

Executed as of this ____ day of ____________, 1999.

LEVI STRAUSS & CO.,
a Delaware corporation

By:________________________________

Name:______________________________

Its:_______________________________


EXHIBIT D

BILL OF SALE

BILL OF SALE

THIS BILL OF SALE is executed as of _____________, 1999, by and between LEVI STRAUSS & CO., a Delaware corporation ("Transferor"), and ___________________________, a ___________________________ ("Transferee"), pursuant to that certain Purchase and Sale agreement dated as of ___________________, 1999 (the "Purchase Agreement"), by and between Transferor and Transferee.

FOR VALUE RECEIVED, receipt of which is hereby acknowledged, Transferor does hereby grant, bargain, sell, convey, assign, transfer and set over unto Transferee, absolutely and not as security, all of the following property, to the extent of Transferor's right, title and interest therein the tangible personal property described on Schedule 1 attached hereto and incorporated herein by this reference (the "Transferred Property").

TRANSFEROR IS NOT MAKING ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE TRANSFERRED PROPERTY, INCLUDING, WITHOUT LIMITATION: (I) VALUE, CONDITION, MERCHANTABILITY, MARKETABILITY, PROFITABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OF ANY OF THE TRANSFERRED PROPERTY, (II) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS INCORPORATED INTO ANY OF THE TRANSFERRED PROPERTY, AND
(III) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE TRANSFERRED PROPERTY. TRANSFEREE AGREES THAT WITH RESPECT TO THE TRANSFERRED PROPERTY, TRANSFEREE HAS NOT RELIED UPON AND WILL NOT RELY UPON, EITHER DIRECTLY OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF TRANSFEROR. TRANSFEREE REPRESENTS THAT IT IS A KNOWLEDGEABLE BUYER AND THAT IT IS RELYING SOLELY ON ITS OWN EXPERTISE AND THAT OF TRANSFEREE'S CONSULTANTS, AND THAT TRANSFEREE WILL CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE TRANSFERRED PROPERTY, INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL CONDITION THEREOF, AS IT DEEMS REASONABLE, NECESSARY OR APPROPRIATE, AND SHALL RELY UPON SAME, AND UPON CLOSING, SHALL ASSUME THE RISKS THAT ADVERSE MATTERS, INCLUDING, BUT NOT LIMITED TO, ADVERSE PHYSICAL CONDITION, MAY NOT HAVE BEEN REVEALED BY TRANSFEREE'S INSPECTIONS AND INVESTIGATIONS. TRANSFEREE ACKNOWLEDGES AND AGREES THAT UPON CLOSING, TRANSFEROR IS CONVEYING TO TRANSFEREE AND TRANSFEREE HEREBY ACCEPTS THE TRANSFERRED PROPERTY "AS IS, WHERE IS" WITH ALL FAULTS, AND THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE TRANSFERRED PROPERTY, BY TRANSFEROR OR ANY THIRD PARTY.

This Bill of Sale may be executed in counterparts, each of which shall be deemed an original, but such counterparts, when taken together, shall constitute one agreement.

IN WITNESS WHEREOF, Transferor and Transferee have executed this Bill of Sale as of the day and year first above written.


TRANSFEROR:

LEVI STRAUSS & CO.,
a Delaware corporation

By:_______________________________________

Name:_____________________________________

Its:______________________________________

TRANSFEREE:

_________________________________________,
a ________________________________________

By:_______________________________________

Name:_____________________________________

Its:______________________________________

2

SCHEDULE 1
TO
BILL OF SALE

NONE.

3

EXHIBIT E

Assignment and Assumption of Lease

ASSIGNMENT AND ASSUMPTION OF LEASE

THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is made this __________ day of_______________, 1999, by LEVI STRAUSS & CO., a Delaware corporation ("Assignor"), to ___________________________, a _________________ ("Assignee"):

RECITALS:

A. Assignor and Assignee have entered into that certain Purchase and Sale Agreement dated as of ____________________, 1999 (the "Purchase Agreement"), with respect to certain real property commonly known as 151 Union Street, San Francisco, California, as more particularly described on Exhibit A to the Purchase Agreement (the "Property").

B. Pursuant to the Purchase Agreement, Assignor is obligated to assign to Assignee all of its right, title and interest in and to that certain Lease between Assignor and Bank of America dated ____________________, 19_____ (the "Lease").

AGREEMENT:

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor hereby assigns, sells, transfers, sets over and delivers unto Assignee, effective as of the Closing Date (as defined below), all of its estate, right, title and interest in and to the Lease, together with all security deposits paid to and held by Assignor under the Lease.

1. The term "Lease" as used herein shall mean the Lease and all renewals, modifications, amendments or other agreements, if any, affecting the Lease, entered into by Assignor or its predecessors in interest, together with all rents, issues and profits thereunder. For purposes of this Assignment, the "Closing Date" shall be the date of the Closing (as defined in the Purchase Agreement).

2. Assignee hereby accepts the foregoing assignment, and assumes the performance of all of the terms, covenants and conditions imposed upon Assignor accruing or arising under the Lease on or after the Closing.

3. If either party hereto fails to perform any of its obligations under this Assignment or, if a dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Assignment, and an action is filed, the prevailing party in any such action shall be entitled to recover from the other party, in addition to any other relief that may be granted, its court costs and reasonable attorneys' fees and disbursements, including such incurred in connection with any appeal.

4. This Assignment shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, heirs and legatees of the respective parties thereto.

22

5. This Assignment shall be governed by and construed in accordance with the laws of the State of California.

6. Assignee hereby agrees to indemnify and hold harmless Assignor, Assignor's agents, officers, directors, shareholders and employees, and their respective successors and assigns from and against any and all claims, liens, damages, demands, causes of action, losses, liabilities, lawsuits, judgments, costs and expenses, including reasonable attorneys' fees to the extent resulting from or relating to Assignor's obligations under the Lease as of or subsequent to the Closing.

7. This Assignment may be executed in counterparts, each of which shall be deemed an original, but such counterparts, when taken together, shall constitute one agreement.

8. For purposes of this Assignment, the "Closing Date" shall be the date of the Closing (as defined in the Purchase Agreement).

IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered this Assignment as of the day and year first above written.

ASSIGNOR:

LEVI STRAUSS & CO.,
a Delaware corporation

By:_______________________________________

Name:_____________________________________

Its:______________________________________

ASSIGNEE:

_________________________________________,
a ________________________________________

By:_______________________________________

Name:_____________________________________

Its:______________________________________

2

EXHIBIT F

Assignment and Assumption of Service Contracts

ASSIGNMENT
AND ASSUMPTION OF SERVICE CONTRACTS

THIS ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS (this "Assignment") is made this ___day of ____________, 1999, by LEVI STRAUSS & CO., a Delaware corporation ("Assignor") to ____________________, a __________________ ("Assignee").

RECITALS:

A. Assignor and Assignee have entered into that certain Purchase and Sale Agreement dated as of ____________________, 1999 (the "Purchase Agreement"), with respect to certain real property commonly known as 151 Union Street, San Francisco, California, as more particularly described on Exhibit A to the Purchase Agreement (the "Property").

B. Pursuant to the Purchase Agreement, Assignor is obligated to assign to Assignee all of its right, title and interest in and to certain Contracts between Assignor and third parties.

AGREEMENT:

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Closing Date (as defined below), Assignor hereby assigns and transfers unto Assignee all of Assignor's right, title, claim and interest in and under all of the service contracts listed on Schedule 1 attached hereto (the "Service Contracts").

ASSIGNOR AND ASSIGNEE FURTHER HEREBY AGREE AND COVENANT AS FOLLOWS:

1. Effective as of the Closing Date (as defined below), Assignor hereby assigns to Assignee all of its right, title and interest in and to the Service Contracts, and Assignee hereby accepts such assignment and assumes all of the owner's obligations under the Service Contracts.

2. If either party hereto fails to perform any of its obligations under this Assignment or, if a dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Assignment, and an action is filed, the prevailing party in any such action shall be entitled to recover from the other party, in addition to any other relief that may be granted, its court costs and reasonable attorneys' fees and disbursements, including such incurred in connection with any appeal.

3. This Assignment may be signed in counterparts and all counterparts so executed shall constitute one contract, binding on all parties hereto, even though all parties are not signatory to the same counterpart.

4. This Assignment shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns.


5. Assignee hereby agrees to indemnify Assignor and hold Assignor and Assignor's agents, officers, directors, shareholders and employees, and their respective successors and assigns harmless from and against any and all claims, liens, damages, demands, causes of action, liabilities, lawsuits, judgments, losses, costs and expenses (including but not limited to reasonable attorneys' fees and expenses) to the extent resulting from the owner's obligations under the Service Contracts that relate to the period on or after the Closing Date.

6. This Assignment shall be governed by and construed and in accordance with the laws of the State of California.

7. For purposes of this Assignment, the "Closing Date" shall be the date of the Closing (as defined in the Purchase Agreement).

IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the day and year first above written.

ASSIGNOR:

LEVI STRAUSS & CO.,
a Delaware corporation

By:_______________________________________

Name:_____________________________________

Its:______________________________________

ASSIGNEE:

_________________________________________,
a ________________________________________

By:_______________________________________

Name:_____________________________________

Its:______________________________________

2

SCHEDULE 1
TO
ASSIGNMENT OF SERVICE CONTRACTS

LIST OF CONTRACTS

3

EXHIBIT G

NOTICE TO TENANT

VIA REGISTERED MAIL

Re: 151 Union Street, San Francisco, California

Dear Tenant:

You are hereby notified that as of the above date, Levi Strauss & Co. has transferred that certain real property commonly known as 151 Union Street office building, in San Francisco, California, including its interest in your Lease to _________________________("Buyer") who is assuming all responsibility for security deposits held under your lease in the amount of _____________.

You are hereby directed to make all future rental payments and other amounts due under the terms of your Lease to Buyer at the following address:

Attention:

You are hereby directed to cause all insurance required under your lease to be issued in favor of Buyer and a certificate evidencing same to be delivered to Buyer at the above address. All future notices with respect to your lease should be delivered to Buyer at the above address.

Very truly yours,

LEVI STRAUSS & CO.,
a Delaware corporation

By:_______________________________________

Name:_____________________________________

Its:______________________________________


EXHIBIT H

DELIVERED DOCUMENTS

October 26, 1999 Title Report and exceptions

ALTA Survey

Grubb & Ellis Offering Memorandum

OB&A Building Assessment Report, dated November 30, 1999

ALTA Survey, revised 12/3/99

Revisions to OB&A Report (undated)

Property Tax bills for 97/98, 98/99 and 99/2000

Seismic Performance and Risk Analysis, prepared by Forell/Elsesser Engineers with Charles C.Thiel Jr., dated March 1995

Seismic Risk Assessment of the Icehouse, prepared by EMG, dated November 9, 1999

Draft Seismic Performance and Risk Analysis for Ice House Buildings, prepared by Telesis Engineers, dated September 13, 1999


Exhibit 10.14

INDEXING INSTRUCTIONS:

Part of the Northeast Quarter, Section 25,

Township 1 South, Range 6 West,
and
Part of the Southeast Quarter, Section 24,
Township 1 South, Range 6 West,
DeSoto County Mississippi

LEASE AGREEMENT

BY AND BETWEEN

HEWSON/DESOTO PARTNERS, L.L.C.

AND

WILLIAMS-SONOMA RETAIL SERVICES, INC.

DATED: AS OF NOVEMBER 15, 1999

PREPARED BY:

BAKER, DONELSON, BEARMAN & CALDWELL


2000 FIRST TENNESSEE BUILDING
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103


TABLE OF CONTENTS

Section                                                                     Page
-------                                                                     ----
ARTICLE  I
TERM..........................................................................3
  1.1 Initial Term............................................................3
  1.2 Improvements; Occupancy.................................................3
  1.3 Fixtures; Equipment.....................................................6
  1.4 Option Periods..........................................................6

ARTICLE II
RENT..........................................................................8
  2.1 Rent....................................................................8
  2.2 Net-Net-Net Lease......................................................10
  2.3 Proration of Taxes.....................................................14
  2.4 Payment of Taxes; Payment Deferral.....................................15
  2.5 Evidence of Tax Payment................................................16
  2.6 Global Basic Rent Adjustment...........................................16
  2.7 Option Period Rent Rates...............................................17

ARTICLE III
USE, OPERATION, MAINTENANCE AND ALTERATION...................................20
  3.1 Use & Occupancy........................................................20
  3.2 Use of Insurance Proceeds..............................................24
  3.3 Alterations; Improvements..............................................28
  3.4 Signage................................................................31
  3.5 Liens; Encumbrances....................................................31
  3.6 Indemnification........................................................32
  3.7 Inspection of Project..................................................32
  3.8 Landlord's Entry to Project Following Default..........................33

ARTICLE IV
INSURANCE....................................................................33
  4.1 Insurance Requirements.................................................33
  4.2 Form of Policy.........................................................35
  4.3 Notice of Damage or Destruction........................................37
  4.4 Net Proceeds...........................................................37

i

                                                                                            Page
Section                                                                                     ----
-------
ARTICLE V
CONDEMNATION................................................................................37
5.1 Notice of Condemnation..................................................................37
5.2 Partial Condemnation....................................................................38
5.3 Substantial Condemnation; Condemnation in Excess of $5,000,000..........................39

ARTICLE VI
SALES, MORTGAGES, ETC. AND GENERAL CONDITIONS...............................................42
6.1 Assignment by Tenant....................................................................42
6.2 Exercise of Rights or Remedies by Landlord..............................................44
6.3 Tenant's Right of First Refusal.........................................................44
6.4 Financial Covenants of Lessee...........................................................44
6.5 Compliance with Bond Documents by Landlord..............................................50
6.6 Financial Statements....................................................................50

ARTICLE VII
DEFAULT.....................................................................................51
7.1 Events of Default.......................................................................51
7.2 Landlord Remedies.......................................................................53
7.3 Re-Entry................................................................................57
7.4 Remedies Cumulative.....................................................................57
7.5 Lessee's Indemnification; Attorney Fees.................................................57
7.6 Mutual Indemnification; Costs...........................................................58
7.7 Right of Offset.........................................................................58
7.8 Certification by Subtenants.............................................................59

ARTICLE VIII
ARBITRATION.................................................................................59
8.1 Submission to Board of Arbitrators......................................................59

ARTICLE IX
COVENANT OF QUIET ENJOYMENT.................................................................61
9.1 Quiet Enjoyment; Non-Disturbance........................................................61


Section                                                                                          Page
-------                                                                                          ----
ARTICLE X
MISCELLANEOUS.....................................................................................61

10.1    Tenancy Beyond Lease Term.................................................................61
10.2    Notices...................................................................................62
10.3    Definition of "Landlord.".................................................................63
10.4    Headings; Table of Contents...............................................................63
10.5    Counterparts..............................................................................64
10.6    Governing Law.............................................................................64
10.7    Cure on Behalf of Landlord................................................................64
10.8    Binding on Successors and Assigns.........................................................64
10.9    Authority of Signatories..................................................................64
10.10   Benefits of the Act.......................................................................65
10.11   [RESERVED.]...............................................................................66
10.12   Waivers...................................................................................66
10.13   Mechanic's Liens..........................................................................66
10.14   Utilities.................................................................................67
10.15   [RESERVED.]...............................................................................67
10.16   Cure on Behalf of Tenant..................................................................67
10.17   Severability..............................................................................67
10.18   Venue.....................................................................................68
10.19   [RESERVED.]...............................................................................68
10.20   Waiver of Jury Trial......................................................................68
10.21   Waiver of Right of Recovery...............................................................69
10.22   Design and Construction Indemnity.........................................................69
10.23   Landlord Waiver of Liens..................................................................70
10.24   Tenant Right to Terminate.................................................................70
10.25   Litigation................................................................................72
10.26   Costs of Action...........................................................................72
10.27   Nondisturbance............................................................................72
10.28   Tenant Subordination of Lease.............................................................73
10.29   Agency....................................................................................73
10.30   Amendment.................................................................................74

Exhibits:

Exhibit "A" Real Property Description A-1

Exhibit "B"    Plans for Building and Improvements and Construction Budget   B-1
Exhibit "C"    Rent Schedule  C-1
Exhibit "D"    Environmental Notices  D-1

iii

Exhibit "E" Easements Affecting Real Property E-1 Exhibit "F" Existing Indebtedness F-1

iv

LEASE AGREEMENT

THIS LEASE, entered into as of the 15th day of November, 1999, by and between HEWSON/DESOTO PARTNERS, L.L.C., an Arizona limited liability company (the "Landlord"), and WILLIAMS-SONOMA RETAIL SERVICES, INC., a California corporation (the "Tenant");

W I T N E S S E T H, that:

This Lease constitutes a financing agreement for the purposes of Sections 57-10-409 and 27-7-22.3 of the Mississippi Code of 1972, as amended.

Landlord hereby leases to Tenant and Tenant hereby hires from Landlord for the term of this Lease, at the rental and subject to the provisions herein set forth, that entire certain parcel of land (the "Property"), containing sixty point nine eight three (60.983) acres, more or less, and the easements and appurtenances thereto, located in the County of DeSoto, State of Mississippi, as described in Exhibit "A" attached hereto and made a part hereof, together with the building, and on-site and off-site improvements, all as described in the Plans (as defined in the Loan Agreement, as hereinafter defined) in Exhibit "B," attached hereto (the "Improvements") (the Property and Improvements being herein sometimes called the "Project"). The Tenant shall, during the course of and upon completion of the construction of the Improvements, at the Tenant's sole cost and expense, install in the Improvements certain fixtures ("Fixtures") and equipment (the "Equipment"). The Project is to be financed through the issuance of

v

$42,500,000 Taxable Industrial Development Revenue Bonds, Series 1999 (Hewson/DeSoto Partners, L.L.C. Project) (the "Bonds") by the Mississippi Business Finance Corporation (the "Issuer"), pursuant to a Loan Agreement of even date herewith between the Issuer and Landlord (the "Loan Agreement"). The Bonds are issued pursuant to the Trust Indenture ("Indenture") of even date herewith executed by and between the Issuer and First Tennessee Bank National Association, as Trustee (the "Trustee"), and are secured by a deed of trust of even date herewith and executed by Landlord in favor of the Issuer (the "Deed of Trust"), which has been assigned by the Issuer to the Trustee pursuant to the Indenture. Interests of various parties in the Project are further subject to a Tenant Estoppel, Subordination, Non-Disturbance and Attornment Agreement (the "Non-Disturbance Agreement") of even date herewith by and among the Landlord, the Tenant, the Issuer and the Trustee.

Tenant expressly acknowledges that, as security for Landlord's obligations under the Loan Agreement and as additional security for the Bonds, the Landlord has assigned its interests hereunder to the Issuer pursuant to an Assignment of Rents, Leases and Profits of even date herewith (the "Assignment"), the Issuer's interest in which has been assigned to the Trustee pursuant to the Indenture. As such, any rights or obligations of Landlord hereunder, including, but not limited to, approvals, consents and enforcement of remedies may, but need not be, exercised or performed by the Trustee and/or the holders of any Bonds (the "Holders" or the "Bondholders") so long as any of the Bonds remain Outstanding (as defined in the Indenture). So long as the Tenant is not in default under this Lease, such approvals or consents shall not be unreasonably withheld unless this Lease or the Loan Agreement otherwise specifically provides. When no Bonds remain Outstanding and the Loan Agreement has been terminated and the Indenture released, references to the Trustee herein shall have no further force or effect.

2

This Lease is made upon the following terms, provisions, conditions and limitations, and the parties respectively covenant and agree as follows:

1 ARTICLE

TERM

1

1.1. Initial Term. The initial term of this Lease shall commence on the Occupancy Commencement Date (as hereinafter defined) and continues until January 1, 2023 (the "Primary Term"). Thereafter, as used herein, unless the context shall otherwise require, the phrase "term of this Lease" shall mean the Primary Term plus the option periods exercised pursuant to Section 1.4 hereof.

(a). Improvements; Occupancy. The parties hereto understand and agree that the Improvements to be erected as part of the Project are anticipated to be complete and ready for occupancy as evidenced by a Certificate of Occupancy to be issued by the relevant jurisdiction on or about August 31, 2000 ("Estimated Completion Date"). Landlord shall exert its best efforts toward the end that the Improvements be completed on or before August 31, 2000. Landlord agrees to give Tenant written notice as to whether or not the Improvements will be completed by the Estimated Completion Date as soon as possible, but in any event not later than thirty (30) days prior to the Estimated Completion Date.

(b) Tenant's responsibility for payment of amounts set forth in Article II hereof shall commence on that date (the "Rental Commencement Date") which is the earliest of (i) ten (10) business days following receipt by the Tenant of a copy of those items required under

3

Section 4.4 of the Loan Agreement, (ii) that date on which Tenant commences actual productive use (as distinct from installation of Fixtures and Equipment) of the Project as a distribution facility, or (iii) January 31, 2001. Tenant's occupancy of the Project shall commence on that date (the "Occupancy Commencement Date") which is the earlier of (i) ten (10) business days following receipt by the Tenant of a copy of those items required under Section 4.4 of the Loan Agreement or (ii) that date on which Tenant commences actual productive use (as distinct from installation of Fixtures and Equipment) of the Project as a distribution facility. Notwithstanding anything to the contrary herein, Tenant shall have no obligation to pay Company Payments (as hereinafter defined) until after the Occupancy Commencement Date and until after all amounts (if any) due to Tenant under the Agreement and Indemnification (as hereinafter defined) have been paid in full.

(c)

(d) Tenant's obligation to pay those amounts set forth in Article II hereof (other than Company Payments) shall arise on the Rental Commencement Date regardless of any disputes which may occur between Landlord and Tenant concerning construction of the Improvements, subject to the provisions of paragraph 7.7.

(e)

(f) The Landlord shall construct or cause to be constructed the Improvements substantially in accordance with the Plans and the Construction Budget attached hereto as Exhibit "B"; provided, however, that Landlord and Tenant may update and revise the Plans as they may mutually agree. The Landlord shall obtain all approvals requisite to the construction of the Project, and shall construct the Project in material compliance with all federal, State and local laws and regulations. On or before the Occupancy Commencement Date, the Landlord will furnish to the Tenant copies of all required permits and authorizations except those permits and

4

authorizations which Tenant must obtain, authorizing the occupancy and uses of the Project for the purposes contemplated by the Tenant. The Landlord will take such action and institute such proceedings as shall be necessary to cause and require all contractors and material suppliers to complete their contracts, including the correction of any defective work, and the Landlord agrees that the Tenant may, from time to time, in its own name, or in the name of the Landlord, take such action as may be necessary or advisable, as determined by the Tenant, to assure that the construction of the Improvements will proceed in an efficient and workmanlike manner. Any amounts recovered as damages, refunds, adjustments or otherwise in connection with the foregoing (a) shall be paid to the Tenant if the Tenant has corrected, at its own expense, the matter which gave rise to such default or breach, or (b) shall be paid to the Landlord if the Landlord has corrected, at its own expense, the matter which gave rise to such default or breach, or (c) shall be paid to the Landlord if the matter which gave rise to such default or breach has not yet been corrected and if such payment is prior to the Occupancy Commencement Date (in which event Landlord shall thereafter promptly apply such amount to the correction of such matter, with the balance, if any, disposed of as set forth in Section 4.5 of the Loan Agreement), or (d) shall be paid to the Tenant if the matter which gave rise to such default or breach has not yet been corrected and if such payment is after the Occupancy Commencement Date (in which event Tenant shall thereafter promptly apply such amount to the correction of such matter, with the balance, if any, disposed of as set forth in Section 3.2(b) of this Lease).

1.2. Fixtures; Equipment. The parties hereto understand and agree that the Landlord has no responsibility whatsoever regarding the delivery and installation of the Fixtures and Equipment in the Project, and that this Lease and the Tenant's covenants and agreements contained herein are in no way conditioned upon such delivery or installation.

1.3

5

(a). Option Periods. In addition to the Primary Term of this Lease and in partial consideration of Tenant's entering into this Lease, Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional period equal to five (5) years plus the number of months (if any), rounded to the nearest whole month by which the Rental Commencement Date precedes the Occupancy Commencement Date, commencing at the conclusion of the Primary Term (hereinafter referred to as the "First Option Period") at the rental to be determined in accordance with Section 2.7(a) and (b) hereof, but otherwise upon the same terms and conditions as those set forth in this Lease.

(b)

(c) In addition to the Primary Term of this Lease and in addition to the First Option Period and in partial consideration of Tenant's entering into this Lease, Landlord hereby grants to Tenant an additional option to further extend the term of this Lease for an additional five (5) year period commencing at the conclusion of the First Option Period (hereinafter referred to as the "Second Option Period") at the rental to be determined in accordance with Section 2.7(a) and (c) hereof, but otherwise upon the same terms and conditions as those set forth in this Lease, together with any additions or amendments made for the First Option Period.

(d)

(e) [RESERVED.]

(f) [RESERVED.]

(g)

(i) The options under this Section 1.4 may be exercised solely at the discretion of Tenant. Tenant may exercise the option for the First Option Period by delivering written notice of such exercise to Landlord at any time prior to that date which precedes the conclusion of the Primary Term of this Lease by one (1) year (the "First Option Exercise Date"). If

6

Tenant has not delivered to Landlord written notice of Tenant's exercise of the option for the First Option Period by the First Option Exercise Date, the options for the First Option Period and the Second Option Period under this Section 1.4 shall lapse and be deemed of no further effect.

(i) Tenant may exercise the option for the Second Option Period by delivering written notice of such exercise to Landlord at any time during the First Option Period prior to that date which precedes the conclusion of the First Option Period by one (1) year (the "Second Option Exercise Date"). If Tenant has not delivered to Landlord written notice of Tenant's exercise of the option for the Second Option Period by the Second Option Exercise Date, the option for the Second Option Period under this Section 1.4 shall lapse and be deemed of no further effect.

(i) Neither the option for the First Option Period nor the option for the Second Option Period may be exercised at any time during which Tenant is in default under any of the terms of this Lease.

(a) As used hereinafter, "Option Period" shall be deemed to mean either the First Option or the Second Option Period.

7

1 ARTICLE RENT

(a) Rent. From and after the Rental Commencement Date, Tenant shall pay Global Basic Rent, subject to adjustment as provided in Section 2.6 hereof; "Global Basic Rent" being defined (i) during the Primary Term as the sum of Basic Rent (as defined below) and Company Payments (as defined below) (provided, however, that Tenant shall have no obligation to pay Company Payments until after the Occupancy Commencement Date and until after all amounts due to Tenant under the Agreement and Indemnification have been paid in full); and (ii) during the Option Periods, as set forth in Section 2.7 hereof (provided, however, that during said Option Periods all Global Basic Rent shall also constitute Company Payments hereunder).

(a) During the Primary Term, the Global Basic Rent shall be payable in the amounts set forth in Exhibit "C" attached hereto ("Rent Schedule") and made a part hereof, subject to adjustment of the Basic Rent as provided in Section 2.6 hereof. Any such Basic Rent adjustment will be documented by an amended Exhibit "C," agreed to by the parties, at the time of such adjustment. During any Option Period, the Global Basic Rent shall be determined as set forth in Section 2.7 hereof.

(b)

(c) From and after the Rental Commencement Date and so long as any Bonds remain Outstanding or the Indenture has not been released during the Primary Term, Tenant shall timely pay to Trustee in accordance with the terms of the Loan Agreement at First Tennessee Bank National Association, 4385 Poplar Avenue, Memphis, Tennessee 38117, Attention: Corporate

8

Trust Department, or such other person or at such other place as Trustee designates in writing to Tenant, without previous demand therefor and without deduction or offset, the amount of quarterly payments of interest accruing on Outstanding Bonds and semi-annual Mandatory Sinking Fund Payments (as defined in the Indenture) due on the Bonds (the "Basic Rent"). Attached as part of Exhibit "C" is a schedule of payments of Basic Rent over the term of the Bonds assuming no prepayments and assuming no change in the rate of interest borne by the Bonds as described in Section 2.6(b). All payments of Basic Rent by Tenant to Trustee shall be credited against Tenant's obligation to pay Global Basic Rent. Attached as part of Exhibit "C" is a schedule of Company Payments for the Primary Term assuming no prepayment under Section 2.6(a). Provided that all amounts due to Tenant under the Agreement and Indemnification have been paid in full, from and after the Occupancy Commencement Date and during the Primary Term, Tenant shall pay such amounts ("Company Payments") to Landlord, ? Hewson Properties, Inc. at 4636 E. University Drive, Suite 265, Phoenix, Arizona 85034, or to such other person or place as Landlord designates in writing to Tenant, quarterly (on the same day as quarterly interest payments are due on the Bonds), without previous demand therefor, in an amount equal to one-quarter (_) of the difference between
(i) the then applicable Global Basic Rent (as adjusted in Section 2.6 hereof during the Primary Term) for the applicable lease year and (ii) the Basic Rent for the applicable lease year ("lease year" being the successive one (1) year periods). During any Option Period, all Global Basic Rent shall be deemed to be Company Payments for purposes of this Lease, and shall be paid to Landlord quarterly as set forth in this Section 2.1(c).

(d)

(e) Notwithstanding any other provision hereof, in the event that the Occupancy Commencement Date occurs on a date other than a quarterly interest payment date on the Bonds,

9

the Company Payments due hereunder shall be prorated for such portion of a quarterly interest period.

(f)

(g) Net-Net-Net Lease. This Lease constitutes what is commonly known as a "net-net-net lease," it being understood that the Trustee and the Landlord shall receive the Basic Rent and Company Payments, respectively, free and clear of any and all impositions, taxes, liens, charges or expenses of any nature whatsoever in connection with Landlord's ownership and leasing of the Project. In addition to the Global Basic Rent provided for in Section 2.1 hereof, from and after the Rental Commencement Date, the Tenant shall pay to Landlord or to third parties as provided herein (particularly in Sections 2.3 and 2.4) as additional rent ("Additional Rent") all impositions, taxes, payments or fees in lieu of taxes, insurance premiums, operating charges, costs and expenses which arise or may be contemplated under any provisions of this Lease during the Primary Term and any Option Periods. Upon the failure of Tenant to pay any of such costs, charges or expenses, Landlord shall have the same rights and remedies as otherwise provided in this Lease for the failure of Tenant to pay Basic Rent. It is the intention of the parties hereto that Tenant shall in no event be entitled to any abatement of or reduction in Global Basic Rent payable hereunder except as expressly provided herein. Any present or future law to the contrary shall not alter this agreement of the parties.

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Amounts payable by Tenant hereunder shall include, but not be limited to, the following:

(i) Insurance premiums required to maintain the insurance policies described in Article IV hereof;

(i) Expenses of occupying, operating, altering, maintaining and repairing the Project throughout the term of this Lease; and

(i) All taxes, assessments, fees in lieu of taxes and other governmental charges, as set forth in Section 6.2 of the Loan Agreement, except as hereinafter provided in subsection 2.4 and except as prorated pursuant to Section 2.3(a) of this Lease, and all other expenses and charges (including any asserted by the Issuer or the Trustee, including but not limited to Trustee's regular and extraordinary fees, as to all of which Landlord shall be entitled to prompt reimbursement by Tenant) which during the term of this Lease shall be levied, assessed or imposed by any governmental authority upon or with respect to, or incurred in connection with the ownership, possession, occupation, operation, alteration, maintenance, repair or use of the Project.

If at any time during the term of this Lease under the laws of the State of Mississippi or any political subdivision thereof in which the Project is situated, a tax or excise on rents or other tax, however described, is levied or assessed by said State or political subdivision against Landlord or the rentals set forth in Section 2.1 hereof, Tenant covenants to pay and discharge such tax or excise on rents or other tax, but only to the extent of the amount thereof which is lawfully assessed or imposed upon Landlord and which was so assessed or imposed as a direct

11

result of Landlord's interest in the Project, or of this Lease or of the rentals accruing hereunder, it being the intention of the parties hereto that all sums payable by Tenant hereunder (including, without limitation, Basic Rent, Company Payments, Additional Rent and all other sums, all of which are herein sometimes collectively called "Rent") shall be paid to Landlord absolutely net without offset of any kind or deduction of any nature whatsoever except as expressly provided in this Lease with respect to Company Payments. Any payment or discharge by Tenant of any tax or excise on rents or other tax referred to in the preceding sentence shall not be deemed to be Additional Rent. Nothing in this Lease shall be construed to require Tenant to pay any franchise, estate, inheritance, succession, capital levy or transfer tax of Landlord, or any income, excess profits or revenue tax or any other tax or impost charged or levied against Landlord upon the rentals payable by Tenant under this Lease, except to the extent hereinabove provided. In the case of any assessment for public improvement wherein the cost of the public improvement is permitted to be paid in installments, then and in such event only, such installments falling due during the term of this Lease shall be paid by Tenant, and all such installments falling due subsequent to the term of this Lease shall be paid by Landlord, notwithstanding the provisions of Section 2.3 hereof. For the purpose of the foregoing sentence, an installment is due on the last day prior to the date upon which such an installment becomes delinquent.

Upon the occurrence and continuation of an event of default hereunder (an "Event of Default"), the Landlord may require the Tenant to deposit with the Trustee (or Landlord if there is no Trustee) in an escrow account bearing interest for the benefit of Tenant (i) an amount equal to (A) all taxes which are due and payable which Tenant is obligated to pay under this Section, including accrued ad valorem taxes, if any, or, in the alternative all amounts due as payments or fees in lieu of taxes, with respect to the Project plus (B) any then delinquent insurance premiums

12

with respect to the insurance required under Section 4.1 hereof, and (ii) thereafter, each month, an amount equal to one-twelfth (1/12th) of the annual charges for taxes to be paid under this Section 2.2 and insurance premiums.

Tenant covenants to cooperate fully with Landlord in taking any actions necessary to apply for and receive ad valorem tax relief for the Property, including, but not limited to, meeting the requirements of Mississippi Code
Section 27-31-101 and Section 27-31-104. Tenant expressly acknowledges that no right of offset with respect to payment of Basic Rent to the Trustee or the payment of other amounts (except Company Payments) hereunder shall arise in the event of the loss of ad valorem tax relief. Landlord agrees that, so long as Tenant is not in default hereunder, if any actions on the part of Landlord result in the occurrence of an event of default under the Loan Agreement or leads to a foreclosure on the Deed of Trust or any other event the result of which is the loss of ad valorem tax relief under the Loan Agreement, Landlord will indemnify Tenant to the extent Tenant is required under this Section 2.2. to pay ad valorem taxes in excess of the payments in lieu of taxes which otherwise would have been paid by Tenant hereunder.

(a) Tenant agrees, within six (6) months following the earlier of (i) the Occupancy Commencement Date or (ii) the date of issuance of the Series 1999 Bonds, the Tenant will certify in writing to the Landlord as to the number of jobs created or, if prior to the Occupancy Commencement Date, anticipated to be created, as a result of the Project.

(b)

(c) Tenant will reimburse Landlord with respect to certain environmental inspection matters as follows:

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(i) On an annual basis, Tenant will reimburse Landlord for the costs of a "walk-through" inspection of the Project by a qualified environmental engineer reasonably acceptable to Tenant.

(i) If such inspection yields evidence of any potential environmental hazards related to Tenant's use and occupancy of the Project, Tenant will reimburse Landlord for such additional environmental inspections and reports as are deemed reasonably necessary by such engineer.

(a) Proration of Taxes. The taxes, fees in lieu of taxes, and other charges and expenses described in Section 2.2(a) above shall be prorated when appropriate between Landlord and Tenant in order that all of such taxes and other charges and expenses which relate to the period prior to the Occupancy Commencement Date and the period subsequent to the termination of the term of this Lease shall be borne by Landlord and in order that all of such taxes and other charges and expenses which relate to the term of this Lease shall be borne by Tenant. Such proration shall be computed in accordance with generally accepted accrual accounting principles and Landlord and Tenant shall each indemnify and hold the other harmless from any taxes and other charges and expenses relating to their respective periods of responsibility which may have become a charge upon the other.

(b)

(c) Tenant shall not enter into any non-terminable contracts or agreements with respect to the Project extending beyond the term of this Lease without the prior written consent of Landlord, which consent Landlord may not withhold unreasonably and arbitrarily.

(d)

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(e) Payment of Taxes; Payment Deferral. Tenant shall pay each sum payable pursuant to Section 2.2(a) above prior to the time that such sum becomes delinquent; provided, however, that if any authority having jurisdiction or alleging to have jurisdiction assesses real estate taxes or assessments (or fees in lieu thereof), personal property taxes or assessments (or fees in lieu thereof), or assesses or levies any other charges against the Project as contemplated and provided in this Lease, and Tenant deems the same or any of them excessive, improper or illegal, Tenant may defer payment thereof to the extent permitted by law so long as the validity or amount thereof is contested by Tenant in good faith. In such event, if an Event of Default has occurred and is continuing, Tenant, if requested by Landlord or Trustee so to do, shall furnish to Landlord and Trustee a corporate surety bond, satisfactory to Landlord and Trustee as beneficiary, in an amount equal to the aggregate of (a) the taxes, assessments, or other charges so assessed, plus (b) all penalties and interest which may reasonably be estimated to be incurred if such contest is adversely determined thereon at the annual rate provided for by law. In the event that during the period of such deferred payment, and while such Event of Default remains unwaived or uncured, such penalties and interest increase to an amount beyond the amount of such bond, Tenant shall furnish to Landlord and Trustee such additional corporate surety bond or bonds, satisfactory to Landlord and Trustee as beneficiary, in such amount as may be necessary to fully cover such increases in said taxes, assessments, or other charges and penalties and interest thereon as aforesaid.

(f) With the exception of Global Basic Rent, which shall be due and payable as set forth in Section 2.1, Tenant shall pay, within twenty (20) days after receipt of Landlord's written demand and supporting documentation therefor unless otherwise specified herein, all amounts which Tenant shall otherwise be obligated to pay to Landlord or otherwise by reason of the provisions

15

of this Lease, provided that Tenant shall not be required to pay any amount prior to the date such amount is due and payable hereunder.

(g)

1.2 Evidence of Tax Payment. At any time upon request, Tenant shall provide Landlord with a true copy of a receipted bill, if available, for any tax, assessment or other governmental charge which has become due and payable by Tenant under this Lease or any other evidence reasonably satisfactory to Landlord of the payment thereof.

1.3

(a) Global Basic Rent Adjustment. If upon completion of the Project (in accordance with Section 4.4 of the Loan Agreement) funds remain in the Acquisition Fund [resulting in the transfer of such surplus amount from the Acquisition Fund to the Bond Fund (each as defined in the Loan Agreement) under
Section 5.3(b) of the Indenture, the application of such amount by the Trustee under Section 5.4(a) of the Indenture to the redemption of Bonds at par pro rata at the earliest possible date and the corresponding reduction in the amount of principal and interest payments due on the Bonds], the Basic Rent during the portion of the Primary Term occurring after the Occupancy Commencement Date shall be reduced proportionately. Further, to the extent that the Costs of the Project, as defined in Section 1.1 of the Loan Agreement, necessary to effect completion of the Project as contemplated by Section 4.4 of the Loan Agreement, are less than Forty-Two Million Five Hundred Thousand Dollars ($42,500,000.00), quarterly Company Payments shall be reduced by an amount equal to (x) the product of 0.5% times the difference between $42,500,000 and such lesser actual Costs of the Project divided by (y) four (4).

(b)

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(c) The Bonds are subject to an interest rate increase on January 1, 2011 or if such day is not a business day, the next succeeding business day (the "Rate Adjustment Date"), as provided in Section 2.2 of the Indenture, up to a maximum of thirteen percent (13%) per annum. Landlord and Tenant agree that, upon receiving notice from the Trustee that such an increase in rate has occurred, the Basic Rent component of the Global Basic Rent during the remaining portion of the Primary Term shall be increased accordingly.

(d)

(e) Following the occurrence of any circumstances set forth in Section 6.9 of the Loan Agreement requiring or permitting the partial prepayment of Bonds, such amounts will be used to redeem Bonds as provided in Section 3.1 of the Indenture. If any such redemption occurs during the Primary Term, the Basic Rent component of the Global Basic Rent during the remaining portion of the Primary Term shall be reduced proportionately.

(f)

(g) Option Period Rent Rates. The Global Basic Rent for the First Option Period and for any subsequent Option Period shall be determined as set forth hereinafter prior to the commencement of each such Option Period by negotiation between the parties hereto and shall, within the limitations hereinafter set forth, be based on a negotiated fair market rental rate based upon the prevailing rental rate for similar industrial space in the vicinity of Olive Branch, Mississippi including southeast Shelby County, Tennessee, comparably improved (without reference, however, to Tenant's Fixtures and Equipment), and of substantially similar age, quality, layout, building size and land size as that existing in the Project ("Fair Market Rental").

(h)

(i) If the parties hereto fail to reach agreement on the Global Basic Rent for any Option Period within thirty (30) days prior to the commencement of such Option Period, the Fair Market

17

Rental determination underlying the relevant amount of Global Basic Rent for such Option Period shall be determined as follows:

(j)

(i) Landlord and Tenant shall each appoint a qualified, licensed, experienced real estate appraiser, who is a Member of the American Institute of Appraisers, and who is familiar with the rentals being charged in the vicinity of Olive Branch, Mississippi, including southeast Shelby County, Tennessee for industrial space of a similar kind and nature, the appointment of each appraiser to be made within fifteen (15) days following written notice of either party to the other of the necessity of making such appointment.

(i) The two (2) appraisers, as so selected, shall themselves select a third appraiser whose qualifications meet those set forth for the first two (2) appraisers, the appointment of the third appraiser to take place within fifteen (15) days following the appointment of the first two (2) appraisers.

(i) The three (3) appraisers shall then reach a determination as to whether the parties shall employ, as the Fair Market Rental upon which the Global Basic Rent for the Option Period in dispute will be based, the rentals proposed by the Landlord or the rentals proposed by the Tenant.

(i) The decision of a majority of the three (3) appraisers shall be binding.

(i) Each party shall pay the costs, fees and expenses of its own appraiser, and the cost of the third appraiser shall be shared equally by the parties. If either party shall fail to

18

select an appraiser within the time set forth above, the non-defaulting party may select such appraiser for the defaulting party. If two (2) appraisers, as selected, fail to agree upon an appointed third appraiser, both appraisers shall be dismissed and the matter shall be submitted to arbitration under the applicable provisions of the American Arbitration Association.

(a) During the First Option Period, the Global Basic Rent shall be the Fair Market Rental of the Project.

(b)

(c) During the Second Option Period, the Global Basic Rent shall be the Fair Market Rental of the Project.

(d)

(e) [RESERVED.]

(f)

(g) [RESERVED.]

(h)

(i) Any rental payment not made when due shall be subject to the Default Rate (as defined in the Loan Agreement).

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1 ARTICLE

USE, OPERATION, MAINTENANCE AND ALTERATION

1

(a) Use & Occupancy. Tenant agrees to use and occupy the Project as a distribution facility, for any other lawful uses in connection with its business, and for other permitted related uses, all of which shall be consistent with the provisions of Section 57-10-401, et seq. of the Mississippi Code of 1972, as amended, and for no other purpose. Tenant further agrees that in the use and occupancy of the Project and in the conduct of its business therein, Tenant will comply with all requirements of all applicable laws, ordinances, orders and regulations of all governmental authorities having jurisdiction. Tenant represents that, to its best knowledge, no Hazardous Substances (as hereinafter defined) have been stored, processed or disposed of on or released or discharged (including ground water contamination) from the Property which would materially and adversely affect the value of the Project and no above or underground storage tanks exist on the Property, and except as set forth on Exhibit "D" attached hereto, no private or governmental lien or judicial or administrative notice or action related to Hazardous Substances or other environmental matters has been filed against the Property or otherwise issued to or received by Tenant with respect to the Property.

Tenant will maintain at all times, from and after the Occupancy Commencement Date, all the Property in material compliance with all Environmental Laws (as hereinafter defined), will handle any Hazardous Substances located, stored, used or processed at the Property in material compliance with all Environmental Laws and will not dispose of, release, discharge, handle, use, process or store any Hazardous Substances in violation of any Environmental Laws, and will

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promptly notify the Landlord and Trustee following receipt of any notice, action, lien or other similar action alleging either the location of any Hazardous Substances or the violation of any Environmental Laws with respect to the Property.

As used herein, "Environmental Laws" means all local, state or federal laws, rules or regulations pertaining to environmental regulation, contamination or cleanup, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1976 or any state lien or superlien or environmental cleanup statutes.

Also as used herein, "Hazardous Substances" shall mean and include all hazardous and toxic substances, wastes or materials, any pollutants or contaminants (including, without limitation, asbestos and raw materials which include hazardous constituents), or any other similar substances or materials which are included under or regulated by any Environmental Laws.

The Tenant agrees to indemnify and save the Landlord, the Issuer and the Trustee harmless from any and all claims, damages, demands, expenses, liabilities and losses of any nature whatsoever (including, without limitation, all reasonable attorney's fees and expenses) asserted by or on behalf of any person arising out of, resulting from, or in any way connected with any and all claims, demands, judgments, damages, actions, causes of action, injuries, administrative orders, consent agreements and orders, liabilities, penalties, costs, and expenses of any kind whatsoever including claims arising out of loss of life, injury to persons, property, or business and/or damages to natural resources in connection with the activities of Tenant from and after the Occupancy Commencement Date which (i) arises out of the actual, alleged or threatened discharge, dispersal, release, storage, treatment, generation, disposal or escape of

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pollutants or other toxic or Hazardous Substances, including any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste (including materials to be recycled, reconditioned or reclaimed), or (ii) actually or allegedly arises out of the use, specification or inclusion of any product, material or process containing chemicals, the failure to detect the existence or proportion of chemicals in the soil, air, surface water or groundwater, or the performance or failure to perform the abatement of any pollution source or the replacement or removal of any soil, water, surface water or groundwater containing chemicals, in each case caused by the act or omission of Tenant from and after the Occupancy Commencement Date.

(a) Subject to Tenant's rights under Sections 3.2 and 5.3 hereof, throughout the Primary Term of this Lease (and all Option Periods) Tenant will, at its own expense, keep the Project, including, but not limited to, the HVAC and roof of the building, in good condition, repair and working order (ordinary wear and tear excepted) making all repairs and replacements thereto (whether ordinary or extraordinary, structural or non-structural, foreseen or unforeseen), and operate the Project in a sound and economic manner (provided, however, that nothing contained herein shall be construed to impair any rights of Tenant against third parties). Notwithstanding the foregoing, but subject to the provisions of Section 10.21, Landlord shall be responsible for all damages (and repairs necessitated thereby) caused by Landlord, its agents, employees, invitees and/or contractors. Nothing contained in this Lease shall give Tenant any right to offset against amounts due as Basic Rent for claims it may have against Landlord. Subject to Tenant's rights under Sections 3.2 and 5.3 hereof, at its expense Tenant will maintain the Project in compliance with (i) all laws, ordinances, orders and regulations of all governmental authorities applicable to the Project, and (ii) all requirements of those insurance companies with which Tenant maintains

22

the insurance policies required by Article IV hereof (provided, however, that nothing contained herein shall be construed to impair any rights of Tenants against third parties). Tenant also shall comply with and abide by all covenants, restrictions, conditions and other matters, if any, to which title to the Project is subject as of the Occupancy Commencement Date, including, without limitation, those certain easements described on Exhibit "E" hereto, and shall comply with all such matters becoming effective subsequent to the Occupancy Commencement Date if such matters were created by the acts of or agreed to by Tenant. A final unappealable judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding that Tenant has violated any laws, statutes, ordinances, rules, regulations, requirements or such matters affecting title in the use of the Project shall conclusively determine that fact as between the Landlord and the Tenant. In connection with any repairs, renewals or replacements which are covered by warranties received by Landlord in connection with the construction or purchase of the Project, Landlord shall exert its best efforts to cause the issuer of such warranties, if any, to make such repairs, renewals or replacements.

(b)

(c) In the event that any building, structure or other improvement erected or made by Tenant, at any time during the term of this Lease, shall encroach upon any property, street, right-of-way, easement or set-back line or shall violate the agreements or conditions contained in any restrictive covenant affecting the Project, then, promptly after written request of the Trustee or of any person affected by any such encroachment, violation, hindrance, obstruction or impairment, the Tenant shall, at its expense, either: (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment; or (ii) make such changes in the buildings,

23

structures or other improvements and take such other action as shall be necessary to remove such encroachments, hindrances or obstructions or to end such violations or impairments.

(d)

(e) The Tenant anticipates that the Project will result in the creation of one hundred twenty-five (125) full-time equivalent jobs.

(f)

(g) Use of Insurance Proceeds. In the event of damage or destruction resulting in an award of Net Proceeds (as defined in Section 4.4 hereof) in excess of $5,000,000, Tenant shall not be required to repair or restore the Project if, while any Bonds remain Outstanding, the award is made during the last year of the term of this Lease, or if no Bonds remain Outstanding, during the last year of the Primary Term or any Option Period, unless the Tenant has previously exercised an option to extend for the next ensuing Option Period (if any then be). If the Tenant has exercised its option to extend for the next ensuing Option Period, Tenant shall be obligated to repair and restore the portion of the Project remaining after the event of damage or destruction as provided above. In the event that Tenant has not exercised its option to extend and is not, therefore, obligated to repair or restore the Project as provided above, the Landlord shall be required to promptly repair and restore the Project in accordance with Section 7.1(a) of the Loan Agreement. If, while the Bonds remain Outstanding or the Indenture has not been released, such repair or restoration 2accesby Landlord is not commenced and prosecuted promptly, Tenant agrees to promptly repair and restore the Project [in which event, Landlord will indemnify Tenant for any and all costs and expenses incurred by Tenant with respect thereto, Tenant expressly acknowledging that no right of offset with respect to payment of Basic Rent to Trustee or the payment of other amounts (except Company Payments) hereunder shall arise in such event]. If the building is structurally sound and the remaining portions accessible, Tenant shall have the

24

option to remain in the unrestored building on the Property until the end of the Primary Term of this Lease, or the then current Option Period, as the case may be, at which time the Tenant's rights of continued occupancy shall cease and terminate for all purposes.

(h)

(i) If the Project shall be less than totally damaged or destroyed at any time that any Bonds remain Outstanding, the Loan Agreement has not been terminated or the Indenture has not been released, if the loss is covered by hazard insurance, subject to the provisions of Section 3.2(a), Net Proceeds of insurance resulting from any claim in an amount less than $500,000 shall be paid to Tenant and shall be used promptly to repair and restore the Project. If such Net Proceeds are in excess of $500,000, such amounts shall be made payable to and deposited with the Trustee and disbursed in accordance with the provisions of Section 7.1(a) of the Loan Agreement. If the partial loss is in excess of $500,000 and is not an insured loss, or if insurance proceeds required to be deposited with the Trustee are insufficient to cover costs of repair and reconstruction, subject to Section 3.2(a), Tenant shall deposit sums sufficient to cover repair and reconstruction costs with the Trustee who shall disburse in accordance with Section 7.1(a) of the Loan Agreement. If all Bonds have been redeemed, the Loan Agreement terminated and the Indenture released, all Net Proceeds shall be made payable to Tenant for use in repair and restoration of the Project. In either a case of an insured or uninsured loss, subject to the provisions of this Section 3.2(a), Tenant shall promptly replace, repair, rebuild or restore the Project to substantially the same condition, value and utility as an operating entity as existed prior to such damage or destruction, with such changes, alterations and modifications (including the substitution and addition of other property) as may be desired by Tenant and submitted to the Trustee for approval, if required in accordance with Section 3.3 hereof, and as will not impair the overall operating utility, use, value or service capacity or the character of the Project. Tenant

25

shall pay over to the Landlord any balance of such Net Proceeds of insurance remaining after payment of all costs of such restoration.

(j)

(i) If the Project shall be totally destroyed at any time, whether or not any Bonds remain Outstanding, or the Loan Agreement terminated or the Indenture released, and if there has been no default hereunder, Tenant shall have a period of forty-five (45) days from the date of destruction to decide whether or not to reconstruct the Project, or to terminate this Lease. If, while any Bonds remain Outstanding, Tenant elects by written notice to Landlord and Trustee to terminate the Lease, Landlord shall direct the Trustee to effect a redemption of the Bonds in whole under Section 3.1(a) of the Indenture with the Net Proceeds of insurance. If there is any deficiency in Net Proceeds necessary to redeem the Bonds, Tenant shall pay such amounts; if there are any excess Net Proceeds following redemption, Landlord shall be entitled to such amounts. If Tenant elects to repair or reconstruct the Project, Net Proceeds of insurance shall be deposited with the Trustee and disbursed in accordance with the provisions of Section 7.1(b) of the Loan Agreement. If the loss is not an insured loss, or if insurance proceeds are insufficient to cover the costs of repair and reconstruction, Tenant shall deposit sums sufficient to cover repair and reconstruction costs with the Trustee who shall disburse in accordance with Section 7.1(b) of the Loan Agreement. Following reconstruction of the Project in accordance with Section 7.1(b) of the Loan Agreement, Landlord shall be entitled to receive any unexpended Net Proceeds of insurance.

(i) If at any time following an election by Tenant to repair or reconstruct the Project under this Section, an Event of Default shall occur hereunder and be continuing, the

26

Trustee must obtain the written consent of sixty-six and two-thirds percent (66?%) of Bondholders for Tenant to obtain funds from the insurance loss trust account held by Trustee pursuant to the Indenture, which consent shall not be unreasonably withheld or delayed. While obtaining such consent, the Trustee may cease to honor requisitions for disbursements for repair and reconstruction and may proceed to accelerate the Bonds under the Indenture.

(i) Landlord agrees to join in any direction necessary to effect the exercise by Tenant of the options set forth in subsection (i).

(i) For the purposes of this section (c), "totally destroyed" shall mean damage or destruction to the extent of fifty percent (50%) or more of the usable floor space in the building on the Project or which has the effect of reducing Tenant's distribution capacity in the building on the Project to fifty percent (50%) or less of full, pre-casualty capacity.

(a) All such replacements, repairs, rebuilding or restoration made pursuant to this Section, whether or not requiring the expenditure of the Tenant's own money, shall automatically become a part of the Project, as if the same were specifically described herein.

(b)

(c) At all times prior to the termination of this Lease in accordance with subsection (c) above following total destruction of the Project, Tenant shall remain liable for Global Basic Rent and all other expenses payable by Tenant in accordance with this Lease.

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(a) Alterations; Improvements. The provisions of this Section 3.3 shall be subject to, and, if in conflict with, superseded by, the provisions of Section 3.2 hereof. Subject to the preceding sentence, and subject to the Loan Agreement, Tenant may make, from time to time, permanent remodeling, alterations, improvements or expansions to the Project which the parties hereto understand and intend to constitute fixtures and permanent accessions to the Project ("Permanent Improvements"), subject, however, in all cases to the following conditions, which Tenant shall observe and perform:

(b)

(i) Prior to making any alterations, improvements or expansions to the Project which: (A) do not affect the outside or facade of the building or do not involve removal of any part of any floor, load-bearing wall, column, girder or other support, or do not affect roof load and (B) involve a cost which Tenant reasonably and in good faith estimates to be less than Five Hundred Thousand Dollars ($500,000.00), Tenant shall furnish to Landlord and Trustee information (including sketches and drawings which may be prepared by officers or employees of Tenant) as to the proposed changes in walls and partitions or relocations thereof and plans and specifications, if available, covering any proposed work, but Tenant may proceed forthwith to make such specified alterations or improvements. The cost of all such improvements shall be paid by Tenant.

(i) Prior to making any alterations, improvements or expansions to the Project which: (A) affect the outside or facade of the building, or involve removal of any part of any floor, load-bearing wall, column, girder or other support, or affect roof load, or (B) involve a cost which Tenant reasonably and in good faith estimates to be Five Hundred Thousand Dollars ($500,000.00) or more, Tenant shall furnish to Landlord and

28

Trustee plans and specifications or other detailed information covering the proposed work, and Tenant shall not commence such work unless within thirty (30) business days thereafter, Landlord and Trustee shall either approve or shall not advise Tenant of Landlord's disapproval of such plans and specifications, which approval Landlord and Trustee will not unreasonably withhold. Tenant acknowledges that Trustee will submit the proposed alteration, improvement or expansion to the Project to the Bondholders and Trustee will either approve or disapprove of such proposed work based upon the recommendation of Holders of sixty-six and two-thirds percent (66?%) of the Bonds then Outstanding with the affirmative recommendation of such Holders not to be unreasonably withheld or delayed. The cost of all such improvements shall be paid by Tenant, and such improvements shall automatically become a part of the Project as if the same were specifically described herein.

Such Permanent Improvements shall become part of the Project and shall be subject to this Lease. In addition, the parties hereto understand and intend that such Permanent Improvements shall be subject to the lien of the Deed of Trust.

(a) The parties hereto intend that any Fixtures and Equipment installed by Tenant for its use during the term hereof shall be and remain personal property, shall not constitute fixtures and shall not become part of the Project subject to this Lease, nor shall the lien of the Deed of Trust attach thereto. Any such items shall be and remain the property of Tenant and may be removed by Tenant upon the termination of this Lease. Tenant shall effect such removal solely at Tenant's expense, subject to the following qualifications:

29

(b)

(i) Tenant at its own expense shall repair any damage to the Project caused by such removal, including, without limitation, damage caused by removal of air-conditioning installations, equipment, air ducts and vents, conduits of every nature, false floors and floor ramps, electrical switches, panels and electrical wiring which were installed by the Tenant. Such repairs shall include safe and proper covering of any and all exposed wiring occasioned by removal of any electrical equipment, including computers. In no event shall Tenant be entitled to remove any items not installed and paid for by the Tenant.

(i) Any alterations or improvements installed in accordance with the terms of this Lease on the Project whether before or after the Occupancy Commencement Date and not removed by Tenant upon termination of this Lease shall forthwith become the property of Landlord. However, should Tenant fail to remove any alterations or improvements to the Project which Tenant is required to remove, then and in such event, Landlord may cause the same to be removed at Tenant's expense, and Tenant shall reimburse Landlord for (A) the reasonable cost of the removal; (B) the reasonable cost of repairing any damage to the Project caused by such removal; (C) rent lost from successor lessees during the period of time reasonably required for such removal; and (D) any other damages suffered by Landlord as a result thereof.

1.1 Signage. Tenant may install a sign or signs on or in the Project which sign or signs may be selected by Tenant in its discretion. Tenant shall remove all such signs at the termination of this Lease and shall promptly repair, to the reasonable satisfaction of Landlord, any damage to the Project caused by such removal.

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1.2

1.3 Liens; Encumbrances. Except as provided in Section 2.4 hereof, Tenant shall not create or permit to be created or to exist any lien or encumbrance which might be or become a lien or encumbrance against the Project, except any lien against Landlord caused by Landlord's actions or inactions and not by Tenant's actions or inactions. If such lien or encumbrance arises from a matter other than taxes or assessments by a governmental body, or the payment of amounts in lieu of taxes to a governmental body, Tenant may defer payment and suffer the lien to the extent permitted by law so long as the validity or amount thereof is contested by Tenant in good faith and Tenant has secured a court order from a court of competent jurisdiction or reasonable assurance from competent legal counsel that in the interim and during said contest no action can be taken against the Project by the party holding such lien. If at any time while an Event of Default has occurred hereunder and is continuing a lien or encumbrance arises from Tenant's acts or omissions, Tenant, if requested by Landlord or Trustee so to do, shall furnish to Landlord and Trustee a corporate surety bond or bonds, satisfactory in form and substance to Landlord and Trustee, in an amount equal to the amount of the lien, plus all applicable penalties and interest thereon, which are estimated to accrue during the period of the contest, such bond to be issued by an insurance company satisfactory to Landlord and Trustee. In the event that, while an Event of Default has occurred and is continuing during the period of Tenant's good faith contest, such penalties and interest increase to an amount beyond the amount of such corporate surety bond, Tenant shall furnish to Landlord and Trustee such additional bond or bonds, similarly satisfactory to Landlord and Trustee, in form and substance, in such amounts as may be necessary to fully cover the lien and all penalties and interest thereon and likewise issued by an insurance company satisfactory to Landlord and Trustee.

1.4

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1.5 Indemnification . Subject to the provisions of Section 10.21, Tenant does hereby indemnify Landlord against any liability, penalty, expense or damages which Landlord may incur or to which Landlord may be subjected by reason of Tenant's possession, occupation, operation, alteration, maintenance, repair or use of the Project.

1.6

1.7 Inspection of Project. Landlord, Issuer and Trustee shall be entitled to make reasonable visits to examine and inspect the Project during normal business hours (but shall be under no obligation to make any such visits or inspections), all in compliance with Section 12.5 of the Loan Agreement. Such inspections shall be scheduled at least twenty-four (24) hours in advance so as not to unduly interfere with Tenant's business activities, except that in case of emergency, Landlord may enter the Project without prior notice to Tenant.

1.8

1.9 Landlord's Entry to Project Following Default. At any time following the tenth (10th) day after Tenant shall have received from Landlord any notice of default hereunder and continuing until Tenant shall have cured such default, and at any time within twelve (12) months prior to the termination of the term of this Lease, Tenant shall permit Landlord and any authorized representatives of Landlord to enter the Project during normal business hours to exhibit the same for the purpose of future leasing and to display on the Project usual "For Lease" signs. At any time during the term of this Lease, Landlord and any authorized representatives of Landlord may enter the Project during normal business hours to exhibit the Project for the purpose of sale or of mortgage or other hypothecation. So long as Tenant is not in default hereunder, Landlord shall give Tenant at least twenty-four (24) hours prior notice of Landlord's intent to enter to exhibit the Project, and such entry shall be made so as not unreasonably to interfere with Tenant's use of the Project.

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1 ARTICLE

INSURANCE

1

1.1 Insurance Requirements. Tenant shall maintain insurance against such risks and in such amounts as the Landlord and Trustee shall reasonably determine to be proper for buildings and commercial facilities of like size and type, and shall pay as the same become due and payable, all premiums with respect thereto, including, but not necessarily limited to:

(a) All risk or broad form named perils coverage at all times equal to one hundred percent (100%) of the replacement cost of the Improvements exclusive of excavations and foundations. Earthquake coverage equal to one hundred percent (100%) of the replacement cost of the Improvements exclusive of excavations and foundations (so long as commercially available);

(a) comprehensive general liability insurance with $5,000,000.00 minimum single limit for injury to persons or property, but in no event less than that provided under the Tenant's primary and, if any, excess coverage;

(a) worker's compensation coverage, disability benefits insurance and any other type of insurance required by the laws of the State of Mississippi;

(a) Rental value insurance in an amount equal to twelve (12) months of all Basic Rent payable hereunder.

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Any of the insurance required in paragraphs (a) through (d), inclusive, may provide an all risk deductible provision in an amount not exceeding $500,000 and an earthquake deductible provision not to exceed fifteen percent (15%) of the building's replacement cost value. The Tenant shall be a self-insurer to the extent of the amount of the deductibles obtained.

Until such time as the construction of the Improvements shall have been completed, Landlord shall maintain builder's risk insurance to the full insurable value (with deductible provision not to exceed $500,000) of the Improvements, and Landlord shall be a self-insurer to the extent of the amount of the deductible so obtained. During such construction period, Tenant shall have the responsibility for maintaining any insurance coverage it deems necessary with respect to the Fixtures and Equipment installed by Tenant at the Project. Following the Occupancy Commencement Date, Tenant covenants to maintain insurance coverage in an amount equal to full replacement value with respect to any of its property located at the Project, with a deductible provision in an amount not exceeding $500,000.00.

The insurance required of Tenant by this Section 4.1 shall be maintained in full force and effect at all times following the Occupancy Commencement Date.

Each insurance policy provided in accordance with this Section 4.1 shall include a provision to the effect that any act or omission of Tenant or Landlord, as the case may be, shall not prejudice Issuer's or Trustee's rights thereunder. Any insurance provided for in this Article IV may be effected by a policy or policies of blanket insurance provided that the amount of the total insurance allocated to the Improvements shall be such as to furnish in protection the equivalent of separate policies in the amounts herein required. Subject to Section 3.2 hereof,

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Tenant shall remain liable and responsible to Landlord for keeping the Project in good repair and condition whether or not covered by insurance and whether or not said insurance coverage is adequate to repair and/or replace the Improvements.

(a) Form of Policy. Each insurance policy required by Section 4.1 hereof (i) shall be issued by a financially responsible insurer (or insurers) of recognized standing, legally authorized to write the respective insurance, (ii) shall be in such form and with such provisions (including, without limitation, the loss payable clause, the waiver of subrogation clause and the designation of the named insured parties) as are generally considered standard provisions for the type of insurance involved, and (iii) shall prohibit cancellation or modification by the insurer without at least thirty (30) day's prior written notice to the Landlord and the Trustee. Prior to the expiration of any such policy, the Tenant shall furnish the Landlord and Trustee satisfactory evidence that the policy has been renewed or replaced, unless Trustee shall have informed Tenant in writing that such insurance is no longer required. Without limiting the generality of the foregoing, all insurance policies maintained pursuant to
Section 4.1(a) hereof shall name the Landlord, Tenant, Issuer and Trustee as the parties insured thereunder as their respective interests may appear; all insurance policies maintained pursuant to Section 4.1(b) hereof shall name the Tenant as the insured and the Landlord and Trustee as additional insureds; and each such policy shall provide that losses thereunder shall be adjusted with the insurer by the Tenant or Landlord, on behalf of the insured parties, in the case of the policy described in Section 4.1(a) hereof, with the approval of the Trustee as to settlement of any claims in excess of $500,000, but all such adjustments shall be subject to the provisions hereof. If there is any claim in excess of $500,000.00 for loss or damage covered under the policy described in
Section 4.1(a) hereof, all

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proceeds of insurance resulting therefrom shall be paid directly and solely to the Trustee for application as provided in Section 7.1 of the Loan Agreement.

(b)

(c) Certificates and opinions of the insurers or an agent or agents of the insurers acceptable to the Trustee, shall be deposited with the Trustee on or before the Occupancy Commencement Date, upon renewals of policies and at any other time, at the request of the Trustee.

(d)

1.2 Notice of Damage or Destruction. If the Project shall be damaged or destroyed (in whole or in part) at any time, Tenant shall promptly give written notice thereof to the Landlord and the Trustee.

1.3

1.4 Net Proceeds. As used herein, "Net Proceeds," when used with respect to any insurance or condemnation award, means the gross proceeds from the insurance or condemnation award with respect to which that term is used remaining after the payment of all expenses [including reasonable and documented attorney's fees and any Extraordinary Expense (as defined in the Loan Agreement) of the Trustee] incurred in the collection thereof.

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1 ARTICLE

CONDEMNATION

1

1.1 Notice of Condemnation. Forthwith upon receipt by Tenant or Landlord of any notice of the institution of any proceeding for the taking of the Project or any part thereof by the exercise of any power of condemnation affecting the Project or any part thereof, the party receiving such notice shall promptly give written notice thereof to the other party, and the Trustee. Subject to Section 7.4 of the Loan Agreement, Tenant, in cooperation with Landlord, shall have the right to participate in any such proceedings and to be represented by counsel for the purpose of protecting its interest hereunder. Landlord and Tenant shall each bear their own expenses incurred in such proceeding. Notwithstanding anything to the contrary above, as long as the Bonds remain Outstanding and the Indenture has not been released, any awards in excess of $500,000.00 resulting from the damages to or taking of the Project, including without limitation any awards for the fee estate of the Landlord, shall be paid solely and directly to Trustee for application in accordance with Section 7.2(a) of the Loan Agreement.

(a) Partial Condemnation. If at any time any part of title to, or the partial use of the Project shall be taken by condemnation or pursuant to the exercise of the power of eminent domain by any governmental authority ("Condemnation") and any Bonds are still Outstanding, the Loan Agreement has not been terminated or the Indenture has not been released and satisfied, Net Proceeds of Condemnation resulting from any award in an amount less than $500,000 shall be paid to Tenant and used promptly to replace such condemned portion of the Project. If Net Proceeds of Condemnation are in excess of $500,000, at any time when Bonds remain

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Outstanding, the Loan Agreement has not been terminated and the Indenture has not been released, such amount shall be paid solely and directly to the Trustee and disbursed in accordance with Section 7.2(a) of the Loan Agreement; at any time the Bonds have been redeemed, the Loan Agreement has been terminated and the Indenture has been released such amounts shall be disbursed in accordance with Section 5.2(c). In the event such proceeds are insufficient to restore the Project, subject to Section 5.3, Tenant shall pay the additional amounts necessary to carry out such restorations, and if Tenant has been obligated by this Section 5.2 to deposit Net Proceeds of Condemnation with Trustee, Tenant shall deposit such additional amount with the Trustee. All such amounts deposited with the Trustee shall be used to promptly restore the Project (excluding any part thereof not taken by Condemnation) to substantially the same condition, value and utility as an operating entity as existed prior to such Condemnation.

(b)

(c) If any Bonds remain Outstanding, or the Indenture has not been released, then any balance of such proceeds of any Condemnation award remaining after payment of all costs of such restoration shall be used to redeem Bonds at par pro rata under Section 3.1(e) of the Indenture. Tenant shall be entitled, under
Section 2.6(c) hereof, to a proportionate reduction in the Basic Rent component of Global Basic Rent.

(d)

(e) Any balance of such Net Proceeds of Condemnation remaining after payment of all costs of such restoration and, if any Bonds are then Outstanding, after redemption of all such Bonds as provided in the preceding subsection (b), shall be allocated solely to Landlord.

(f)

(g) Substantial Condemnation; Condemnation in Excess of $5,000,000 . In the event that a taking by eminent domain or condemnation will affect substantially all [fifty percent (50%) or

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more] of the usable floor space in the Improvements or will have the effect of reducing Tenant's distribution capacity in the Improvements to fifty percent (50%) or less of full, pre-condemnation capacity, Tenant shall have the option, to be exercised by delivery of a written notice to Landlord and Trustee within forty-five (45) days after Tenant's receipt of notice from Landlord or the condemning authority of such taking, to terminate this Lease. While any Bonds remain Outstanding, upon receipt of such notice, Landlord shall direct the Trustee to effect a redemption of the Bonds in whole under Section 3.1(a) of the Indenture with the Net Proceeds of Condemnation. If there is any deficiency in Net Proceeds necessary to redeem Bonds, Landlord will pay such amounts; any excess Net Proceeds following redemption shall be allocated solely to Landlord. If Landlord fails to pay the deficiency, then Tenant shall either: (i) pay such deficiency required to redeem the Bonds; or (ii) promptly repair or restore the Project in accordance with Section 7.2 of the Loan Agreement [in which event, Landlord will indemnify Tenant for any and all costs and expenses incurred by Tenant with respect thereto, Tenant expressly acknowledging that no right of offset with respect to payment of Basic Rent to Trustee or the payment of other amounts (except Company Payments) hereunder shall arise in such event]. Such termination of this Lease shall only be effective upon the happening of the earlier of the following events:

(h)

(i) The date of delivery of possession to the condemning authority; or

(i) A date mutually agreed to by Tenant and Landlord which shall not be less than one (1) year from the date that Tenant gives notice to Landlord of Tenant's intent to terminate.

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(a) Subject to the provisions of Sections 5.2(a) and 5.3 hereof, in the event that the taking by eminent domain or condemnation will affect less than fifty percent (50%) of the usable floor space in the Improvements or will not have the effect of reducing Tenant's distribution capacity in the Improvements to fifty percent (50%) or less of full, pre-casualty capacity, or in the event Tenant elects not to exercise the option to terminate set forth in Section 5.3(a) above, this Lease shall remain in full force and effect.

(b)

(c) In the event of a taking by eminent domain or Condemnation resulting in an award of Net Proceeds in excess of $5,000,000, Tenant shall not be required to repair or restore the Project if, while any Bonds remain Outstanding the taking is intended to take place during the last year of the Primary Term of this Lease, or if no Bonds remain Outstanding, during the last year of the Primary Term or any Option Period, unless the Tenant has previously exercised an option to extend for the next ensuing Option Period (if any then be). If the Tenant has exercised its option to extend for the next ensuing Option Period, Tenant shall be obligated to repair and restore the portion of the Project remaining after the condemnation as provided above. In the event that Tenant has not exercised its option to extend and is not, therefore, obligated to repair or restore the Project as provided above, the Landlord shall be required to promptly repair and restore the Project in accordance with Section 7.2 of the Loan Agreement. If, while the Bonds remain Outstanding or the Indenture has not been released, such repair or restoration by Landlord is not commenced and prosecuted promptly, Tenant agrees to promptly repair and restore the Project [in which event, Landlord will indemnify Tenant for any and all costs and expenses incurred by Tenant with respect thereto, Tenant expressly acknowledging that no right of offset with respect to payment of Basic Rent to Trustee or the payment of other amounts (except Company Payments) hereunder shall arise in such event]. If the building is structurally sound and the

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remaining portions accessible, Tenant shall have the option to remain in the unrestored building on the Property until the end of the Primary Term of this Lease, or the then current Option Period, as the case may be, at which time the Tenant's rights of continued occupancy shall cease and terminate for all purposes.

(d)

(e) All such replacements, repairs, rebuilding, or restoration made pursuant to Sections 5.2 and 5.3 hereof, whether or not requiring the expenditure of the Tenant's own money, shall automatically become a part of the Project, as if the same were specifically described herein.

(f)

(g) At all times prior to the termination of this Lease in accordance with subsection (a) above following total Condemnation of the Project, Tenant shall remain liable for Global Basic Rent and all other expenses payable by Tenant in accordance with this Lease (provided, however, that Tenant shall be entitled to offset against Company Payments any amount due from Landlord to Tenant).

(h)

(i) If at any time following an election by Tenant to replace the Project under this Section, an Event of Default shall occur hereunder and be continuing, the Trustee must obtain the written consent of sixty-six and two-thirds percent (66?%) of Bondholders for Tenant to obtain funds from the condemnation trust account held by Trustee pursuant to the Indenture, which consent shall not be unreasonably withheld or delayed. While obtaining such consent, the Trustee may cease to honor requisitions for disbursements for costs of replacement and may proceed to accelerate the Bonds under the Indenture.

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1 ARTICLE

SALES, MORTGAGES, ETC. AND GENERAL CONDITIONS

1

(a) Assignment by Tenant. Except as hereinafter provided, and subject to the Loan Agreement, the Indenture, the Deed of Trust, and the Non-Disturbance Agreement, Tenant shall not transfer, assign or hypothecate this Lease or its interest hereunder without the written consent of Landlord and Bondholders, which consent shall not be unreasonably withheld; provided that no transfer, assignment or hypothecation shall release Tenant from any obligation or liability under this Lease, and the person or persons to whom this Lease may be transferred or assigned shall also assume all the obligations of Tenant under this Lease. A copy of any such proposed assignment shall be delivered to Landlord and Trustee in advance of its consenting thereto. No subletting and no acceptance by Landlord of any rent or other sum of money from a sublessee, and no recognition by Landlord of any subletting shall release Tenant from any of its obligations under this Lease.

(a) Notwithstanding the provisions of the foregoing Section 6.1(a), subject to the covenants set forth in Section 6.4 hereof, Tenant shall have the right to transfer or assign this Lease or sublet the Project or any portion thereof without the Landlord's consent or the consent of Bondholders to any corporation more than fifty percent (50%) of the stock of which is owned by Parent (as defined in Section 6.4 below), or to any corporation more than fifty percent (50%) of the stock of which is owned by any corporation owning more than fifty percent (50%) of Tenant's stock, or to any corporation surviving or resulting from a merger or consolidation to which Tenant may be a party (providing that Parent shall own more than 50% of the stock of

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such surviving corporation), or to any corporation succeeding to all or a substantial portion of the assets of Tenant (providing that Parent shall own more than 50% of the stock of such successor corporation); provided, that no such transfer or assignment shall relieve or release Tenant from any obligation or liability under this Lease, and the party or parties to whom this Lease may be transferred or assigned shall assume all the obligations of Tenant hereunder. The sale of stock by Parent or any shareholder of Parent, or the merger or consolidation of Parent with or into any other entity, shall not constitute an assignment of this Lease.

(b)

1.2 Exercise of Rights or Remedies by Landlord. No assignment by Tenant of this Lease or its interest hereunder and no subletting by Tenant of the Project or any part thereof, whether with or without the consent of Landlord, shall affect Landlord's right to exercise any of its rights or remedies hereunder directly against Tenant.

1.3

1.4 Tenant's Right of First Refusal. Subject to the Loan Agreement, the Indenture, the Deed of Trust, and the Non-Disturbance Agreement, if Landlord receives a bona fide offer, from a party not affiliated with Tenant, whether or not solicited by Landlord, to purchase the Landlord's interest in the Project and Landlord is willing to accept such offer, Landlord shall give Tenant written notice of the amount and terms of said offer and the identity of the proposed purchaser. Tenant shall have the option, exercisable within thirty (30) days after receipt of such notice, to purchase the Landlord's interest in the Project on the same terms as those contained in the offer. Landlord may not sell until after said thirty (30) day period and may then sell only in accordance with the terms and to the party making the original offer. Any deviation from the original offer constitutes a new offer and must be submitted to Tenant in accordance with this

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Section. There shall occur no merger of the fee and leasehold interests hereunder as a result of acquisition of both estates by the same party.

1.5

1.6 Financial Covenants of Lessee. For purposes of this Section 6.4, the term "Group" shall mean each of Williams-Sonoma, Inc., a California corporation and owner of all issued and outstanding stock of Tenant ("Parent"), Tenant, and all other wholly-owned subsidiaries of Parent; and "Consolidated Group" shall mean Parent, Tenant, and all other wholly-owned subsidiaries of Parent on a consolidated basis. For so long as any Bonds remain Outstanding and the Loan Agreement has not been terminated or the Indenture released, Tenant agrees that:

1.7

(a) The Group will not incur additional Indebtedness or merge or consolidate with any other entity if, after giving effect to such Indebtedness, merger or consolidation on a pro forma basis (including pro forma application of the net proceeds therefrom), the ratio of (i) the sum of (A) the Consolidated Net Income plus (B) an amount equal to any net loss realized upon the sale or other disposition of any business segment or capital asset (to the extent such loss was deducted in computing such Consolidated Net Income), plus (C) any provision for taxes utilized in computing net loss under clause (B) hereof, plus (D) Consolidated Interest Expense plus one-third (?) of operating lease (including this Lease) base rent (before contingency and pass-through payments), plus (E) provision for federal and state income taxes (b) to (ii) Consolidated Interest Expense plus one-third (?) of operating lease (including this Lease) base rent (before contingency/and pass-through payments) for any six (6) (as determined by Tenant) of the immediately preceding eight (8) full fiscal quarters immediately preceding the date of such proposed incurrence of indebtedness, merger or consolidation, is less than 2.0 to 1.0; provided, however, that the foregoing restrictions shall not apply to the incurrence by the

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Consolidated Group of Existing Indebtedness, Permitted Refinancing Indebtedness, and Indebtedness incurred in connection with Fixtures and Equipment to be located at the Project; and further provided, however, that accrual of interest and accretion of accreted value shall not be deemed to be an incurrence of Indebtedness for purposes of this Section 6.4(a).

(c)

(d) The Group will not permit Consolidated Net Worth (plus deferred catalog charges not to exceed 10% of Consolidated Net Worth) to be less than $120,000,000 plus 25% of cumulative Consolidated Net Income (if positive) from the first day of the first fiscal quarter of Tenant beginning after the date hereof to the last day of the fiscal quarter of Tenant ending immediately prior to the date of measurement.

For purposes of this Section 6.4:

A. "Consolidated Interest Expense" means the sum of (without duplication) (i) the cash and non-cash interest expense of the Consolidated Group, determined in accordance with Generally Accepted Accounting Principles (including, without limitation, non-cash interest payments, all net payments and receipts in respect of Interest Rate Agreements, and the interest component of rental payments under capital leases), (ii) amortization of debt discount in connection with any Indebtedness of the Consolidated Group, and (iii) amortization of costs associated with the issuance of any Indebtedness of the Consolidated Group; provided, however, that one-time fees paid in connection with the issuance of any Permitted Refinancing Indebtedness incurred by the Consolidated Group or a member thereof, shall not be included in Consolidated Interest Expense.

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B. "Consolidated Net Income" means, for any period, without duplication, the aggregate of the Net Income of the Consolidated Group for such period, determined in accordance with Generally Accepted Accounting Principles; provided, however, that (i) the Net Income of any entity that is not a member of the Consolidated Group or is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to a member of the Consolidated Group; (ii) the Net Income of any entity that is a subsidiary of Parent [other than a subsidiary of which at least eighty percent (80%) of the capital stock having ordinary voting power is owned by the Parent directly or indirectly through one or more subsidiaries] shall be included only to the extent of the lesser of (a) the amount of dividends or distributions paid to a member of the Consolidated Group, and (b) the Net Income of such entity; (iii) the Net Income of any entity acquired by a member of the Consolidated Group in a pooling of interests transaction for any period prior to the date of such acquisition, shall be excluded; and (iv) there shall be excluded from such Net Income, the Net Income (only if positive) of any member of the Consolidated Group to the extent that the declaration or payment of dividends or similar distributions by such member of such Net Income is not at the time permitted by operation of the terms of its charter, or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such member.

C. "Consolidated Net Worth" means, as of any date, the consolidated equity of the common and preferred stockholders of the Parent determined on a consolidated basis in accordance with Generally Accepted Accounting Principles, less (i) all write-ups (other than write-ups of assets of a going concern business made within one year after the acquisition of such business) subsequent to January 31, 2000 in the book value of any asset owned by a

46

member of the Consolidated Group, (ii) all investments in unconsolidated subsidiaries of Parent and in entities that are not subsidiaries of Parent (other than cash equivalents, marketable securities and other assets held for sale outside of the ordinary course of business and long term receivables resulting from the sale of assets or businesses), and (iii) all unamortized debt discount and expense, unamortized deferred charges (excluding deferred income taxes), goodwill, patents, trademarks, service marks, trade names, copyrights, organization and developmental expenses and other intangible items, all of the foregoing as determined in accordance with Generally Accepted Accounting Principles; provided, however, that in determining the consolidated equity of any entity, the Net Income of such entity shall be calculated in the same manner as that specified for the determination of Net Income.

D. "Existing Indebtedness" means the Indebtedness of the Consolidated Group set forth on Exhibit "F" hereto.

E. "Indebtedness" means all obligations of the Consolidated Group for borrowed money which in accordance with Generally Accepted Accounting Principles should be classified on the balance sheet of the Consolidated Group as liabilities, and in any event shall include all obligations of the Consolidated Group for (a) borrowed money; (b) for the deferred portion of the purchase price of assets (other than trade payables not more than 120 days past due); (c) secured by any liens upon property or assets owned by the Consolidated Group, even though the Consolidated Group has not assumed or become liable for the payment of such obligations; (d) created or accruing under any conditional sale or other title retention agreement with respect to property acquired by the Consolidated Group, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to

47

repossession or sale of the property sold; (e) the non-interest portion of capitalized lease obligations; and (f) guaranties of obligations of others of the character referred to in this definition.

F. "Interest Rate Agreement" shall mean any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge arrangement, to or under which any member of the Consolidated Group is or becomes a party or beneficiary.

G. "Net Income" for any period means, with respect to an entity, the net income (loss) for such period, determined in accordance with Generally Accepted Accounting Principles; provided, however, that (i) the net income of any entity (other than a subsidiary of such entity) in which such entity has a joint interest with a third party shall be included only to the extent of the amount of dividends or distributions paid to such entity by such other entity during such period, (ii) the net income of any entity (other than a subsidiary of such entity) acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iii) the net income of such entity shall be reduced by any net after tax gains from any asset sale which gains were included in net income during such period, (iv) the net income of such entity, except as already adjusted pursuant to (iii) above, shall not include, without duplication, any gains which are classified as extraordinary items in accordance with Generally Accepted Accounting Principles (other than tax benefits realized in connection with the tax treatment of such entity's net operating loss carry forwards incurred after the acquisition), and (v) the net income of such entity shall not include any unrealized gains from investments other than gains which reverse losses in such period.

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H. "Permitted Refinancing Indebtedness" means any Indebtedness of the Consolidated Group issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease, or refund other Indebtedness of the Consolidated Group permitted to be incurred under the terms of this Lease, provided, however, that (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount plus accrued interest (or accreted value, if applicable) and premium (if any) of the Indebtedness so exchanged, extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable and documented expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final stated maturity later than the final maturity of, and has a weighted average life to maturity equal to or greater than the weighted average life to maturity of, the Indebtedness being exchanged, extended, refinanced, renewed, replaced, defeased or refunded; and (iii) such Permitted Refinancing Indebtedness is incurred by the member of the Consolidated Group which is the obligor on the Indebtedness being exchanged, extended, refinanced, renewed, replaced, defeased or refunded.

1.1 Compliance with Bond Documents by Landlord . Tenant agrees that no provision hereof requiring or permitting the action or inaction of the Tenant or the action or inaction of the Landlord shall be applicable if it should cause Landlord to fail to comply in any respect with Landlord's obligations under the Loan Agreement, the Deed of Trust, the Indenture or the Guaranty.

1.2

1.3 Financial Statements . For so long as any Bonds remain Outstanding and the Loan Agreement has not been terminated or the Indenture has not been released, Tenant agrees to

49

furnish to the Trustee and each Bondholder, within one hundred twenty (120) days after the end of each fiscal year of the Parent, audited consolidated financial statements as of the close of such fiscal year for the Consolidated Group. Such audited financial statements, which shall include comparative financial information for the immediately preceding fiscal year, shall be prepared and certified by Deloitte & Touche or another nationally recognized independent certified public accounting firm showing the financial condition of the Consolidated Group at the close of such year and the results of operations of the Consolidated Group during such year; and within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year, similar financial statements (but not including consolidating financial statements) for the Consolidated Group to those described above, not audited but certified by the chief financial officer for the Consolidated Group, such balance sheet to be as of the end of such quarter and such statements of income and surplus to be for the period from the beginning of such fiscal year to the end of such quarter, in each case subject only to year-end adjustments. The quarterly Consolidated Group-prepared financial statements and the annual audited financial statements shall be accompanied by statements certified by an authorized Consolidated Group representative to the effect that (i) with respect to loan agreements (or equivalent documents) unrelated to the Bonds, it has received no notice of any defaults thereunder, and (ii) is not currently in default under the Lease or if such a default exists, describing the default.

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1 ARTICLE

DEFAULT

1

1.1 Events of Default. The following shall constitute Events of Default hereunder:

1.2

(a) If payment of any Basic Rent or Additional Rent, each as adjusted, is not made within five (5) days of the date when due or if default shall be made in the due and punctual payment of any Company Payments, as adjusted, payable under this Lease or any part thereof when and as the same shall become due and payable in accordance with the terms of this Lease.

(a) If default shall be made by Tenant in keeping, observing or performing any of the terms, covenants, agreements, provisions, conditions or limitations contained in this Lease on Tenant's part to be kept, observed or performed, other than those referred to in the foregoing subsection (a) of this Section, and such default shall continue for a period of thirty (30) days after written notice thereof from Landlord or Trustee to Tenant, or in the case of such a default or a contingency which cannot with due diligence and in good faith be cured within said thirty (30) days, the Tenant should fail to proceed promptly and with due diligence and in good faith to cure the same and thereafter to prosecute the curing of such default with due diligence and in good faith [it being intended that in connection with a default not susceptible of being cured with due diligence and in good faith within thirty (30) days that the time within which to cure the same shall be extended for such a period as may be necessary for the curing thereof with due diligence and in good faith]. The foregoing is subject to the proviso that no grace period shall apply to Tenant's obligations hereunder to keep the Project insured.

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(b)

(c) An order for relief shall be entered in any federal bankruptcy proceeding in which the Tenant is the debtor; or bankruptcy, receivership, insolvency, reorganization, relief, dissolution, liquidation or other similar proceedings shall be instituted by or against the Tenant or all or any part of the property of the Tenant under the Federal Bankruptcy Code or any other law of the United States or any bankruptcy or insolvency law of any state of competent jurisdiction unless, if such proceedings are instituted against the Tenant, such proceedings are dismissed or discharged within sixty (60) days after they are instituted.

(d)

(e) The Tenant shall have become insolvent or unable to pay its debts as they mature, cease doing business as a going concern, make an assignment for the benefit of creditors, admit in writing its inability to pay its debts as they become due, or if a trustee, receiver or liquidator shall be appointed for the Tenant or for any substantial portion of the assets of the Tenant and such appointment shall not be vacated within sixty (60) days.

(f)

(g) If Tenant shall abandon the Project; provided that as long as Tenant shall continue to pay rent and maintain and protect the Project in accordance with the terms of this Lease, Tenant shall not be deemed to have abandoned the Project.

(h)

(i) Any certification, representation or warranty made by the Tenant herein shall prove to have been false when made or deemed to have been made.

(j)

(k) Landlord Remedies. If an Event of Default shall occur and shall not have been remedied within any applicable grace period, and in the manner hereinbefore provided,

52

Landlord, without prejudice to any other right or remedy of Landlord hereunder or by law, and notwithstanding any waiver of any prior breach of condition or Event of Default hereunder, may at its option, and without further demand or notice, the same being expressly waived:

(l)

(i) Terminate this Lease and retake possession of the Project, and thereupon all rights of Tenant hereunder (and of parties claiming by, through or under Tenant) shall come to an end, as fully as if such were the last day of the whole term hereinbefore specified, and Tenant hereby covenants peaceably and quietly to yield up and surrender to Landlord the Project and all Permanent Improvements thereon, consistent with the provisions of this Lease covering such Permanent Improvements; and Tenant shall execute and deliver to Landlord such instrument or instruments as shall be required by Landlord to properly evidence termination of Tenant's rights hereunder and its interest herein. In the event of such termination of this Lease, Landlord shall have the right to repossess the Project and such Permanent Improvements (consistent with the provisions of this Lease covering such Permanent Improvements) as well as the right to sue for and recover from Tenant:

(A) the worth at the time of the award of any unpaid Rent which had been earned at the time of such termination; plus

(A) the worth at the time of the award of the amount by which the unpaid Rent which would have been earned after termination until the time of award

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exceeds the amount of such rental loss Tenant proves could have been reasonably avoided; plus

(A) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus

(A) any other amount necessary to compensate Landlord for all of the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom including, but not limited to, payment of any and all installments for public improvements falling due during the term of this Lease under Section 2.2(a)(iii) hereof; plus

(A) such other amounts in addition to or in lieu of the foregoing as may be permitted from time to by time by applicable law.

As used in paragraphs (A), (B) and (C) of this subsection (a)(i), the "worth at the time of award" is computed by allowing interest at the prime rate of interest as published from time to time in the "Money Rates" section of The Wall Street Journal (the "prime rate") plus 1% or by determining present value using a discount rate equal to the prime rate plus 1%; or

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(i) Landlord may terminate Tenant's right of possession and may repossess the Project by forcible entry and detainer suit, by taking peaceful possession or otherwise, without terminating this Lease, and may sue for and recover all rents and other sums including damages at any time and from time to time accruing hereunder and exercise all such other rights as may be provided by law. Landlord's efforts to relet the Project or any part thereof or acts of maintenance or preservation and Landlord's appointment of a receiver to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession; and no reentry or taking possession of the Project by Landlord shall be construed an election to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any attempted reletting without termination by Landlord because of any default by Tenant, Landlord may, at any time after such attempt, elect to terminate this Lease for any such default.

In the event of any default by Tenant, Landlord shall also have the right, with or without terminating this Lease, to reenter the Project and remove all persons and property from the Project; such property may be removed and stored in public warehouse or elsewhere at the cost of and for the account of Tenant; if Tenant does not remove such property from either the Project or the storage area selected by Landlord in accordance with the above provision within thirty (30) days from the effective date of said default, such property shall be deemed to be abandoned and, at the option of Landlord, shall become the property of Landlord.

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(a) Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy, at law or in equity, including but not limited to the right of injunction, as if reentry, summary proceedings or other remedies were not provided for.

(b)

(c) The Tenant shall have an affirmative obligation to notify the Trustee immediately upon its knowledge of the occurrence of any "Event of Default" as defined in Section 7.1 hereof.

(d)

1.2 Re-Entry. The terms "enter," "re-enter," "entry" and "re-entry," as used in this Lease, are not restricted to their technical legal meaning.

1.3

1.4 Remedies Cumulative. Each right or remedy of either party provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or the beginning of the exercise by a party of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by that party of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise.

1.5

(a) Lessee's Indemnification; Attorney Fees. Tenant covenants and agrees to pay, and to indemnify Landlord against the payment of all costs and charges, including reasonable counsel fees, incurred by Landlord in obtaining possession of the Project after default by Tenant or upon expiration or earlier termination of the term of this Lease, provided Landlord prevails in any action or proceeding (except arbitration) brought to obtain, or to determine the right to,

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possession. This covenant shall include payment of all reasonable and documented costs and charges of the Issuer and the Trustee, including reasonable counsel fees of each.

(b)

(c) Tenant further agrees that if Tenant defaults under any of the provisions of this Lease and the Issuer or the Trustee on behalf of the Bondholders or in its individual capacity employs attorneys or incurs other expenses in connection with such default, including but not limited to, seeking legal advice with regards to enforcement rights and for the collection of Basic Rent and Additional Rent or the enforcement of performance or of observance of any obligation or agreement on the part of the Tenant herein contained, or legal advice with respect thereto, the Tenant agrees that it will on demand therefor pay to the Issuer or the Trustee the reasonable fees of such attorneys and such other reasonable and documented expenses as may be incurred by the Issuer and the Trustee.

(d)

1.6 Mutual Indemnification; Costs. Each party ("indemnitor") covenants and agrees to pay, and to indemnify the other ("indemnitee") against, all costs and charges, including reasonable counsel fees, incurred by the indemnitee in enforcing any agreement or covenant of the indemnitor herein contained, provided the indemnitee prevails in any action or proceeding (except arbitration) brought to secure such enforcement.

1.7

1.8 Right of Offset. So long as Tenant has not exercised any right to terminate this Lease as set forth in Section 10.24(a) hereof, any breach by Landlord of any term or provisions hereof shall, in addition to those rights set forth in
Section 10.24(a) hereof, give Tenant the right to offset sums due Tenant from Landlord as a result thereof against sums payable hereunder to Landlord as Company Payments. In addition, Tenant shall have the right to offset Company

57

Payments owed to Landlord hereunder against sums owed Tenant from time to time pursuant to that certain Agreement and Indemnification of even date herewith among Tenant, Parent, Landlord, Hewson Properties, Inc. and Gary J. Hewson. So long as any Bonds remain Outstanding or the Indenture has not been released, then notwithstanding a breach by Landlord, Tenant shall remain liable for the payment of all Basic Rent to the Trustee and payment of other amounts (except Company Payments) hereunder until the termination of this Lease by Tenant as provided herein.

1.9

1.10 Certification by Subtenants. Upon request by Landlord, Tenant shall furnish to Landlord (i) written certification from each subtenant of space within the Project, confirming the amount of rent due under such subtenant's lease, stating whether any offsets or defenses exist against the sublessor thereunder, and covering such other matters as Landlord may reasonably require, and (ii) such other certifications by Tenant as Landlord may reasonably require with respect to the physical condition of the Project and Tenant's compliance with the provisions hereof.

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1 ARTICLE

ARBITRATION

1

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1.1 Submission to Board of Arbitrators . If at any time, or from time to time during the term of this Lease, any dispute shall arise between Landlord and Tenant, and (i) such dispute shall relate to damage, destruction, alterations or improvements to, or the taking by eminent domain or the condemnation of, the Project, or (ii) this Lease shall specifically identify such dispute as subject to arbitration, or (iii) Landlord and Tenant shall have agreed in writing to resolve such dispute by arbitration; then and only then shall such dispute be submitted to a board of arbitrators. The board of arbitrators shall be three (3) in number, one to be named by each of the parties hereto no later than thirty
(30) days after the parties hereto have agreed to submit such dispute to arbitration or no later than thirty (30) days after the parties hereto shall agree that such dispute cannot be resolved between themselves, and the third arbitrator shall be selected by the two arbitrators previously named. The decision of any two of such arbitrators shall be final and conclusive on the parties hereto. All arbitrators hereto shall be independent, disinterested persons with experience in the area of the dispute; any question arising between the parties hereto related to value of the Project shall be determined by qualified, licensed appraisers who are members of the American Institute of Real Estate Appraisers or similarly qualified persons, and all questions concerning the structure of the building on the Project shall be determined by engineers, architects or similarly qualified persons. If the two arbitrators designated by the parties fail to select a third arbitrator within fifteen (15) days after the appointment by such parties, then the parties may apply to any Chancellor of the Chancery Court of DeSoto County, Mississippi to designate a third arbitrator. If either party hereto shall fail to designate an arbitrator within said thirty
(30) days, the other party shall have the right to appoint a second arbitrator. The parties to the arbitration shall have the right to offer evidence and testify at the hearings, to be represented by counsel and to cross-examine witnesses (but the arbitrators may not determine issues and questions not submitted to arbitration and not framed by the facts and

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data presented by the parties during such hearings). Subject to the foregoing, the arbitration shall be conducted in accordance with the then applicable rules of the American Arbitration Association.

1 ARTICLE

COVENANT OF QUIET ENJOYMENT

1

1.1 Quiet Enjoyment; Non-Disturbance . Landlord covenants and agrees that Tenant, upon paying the Rents reserved herein and observing and keeping the covenants, agreements and stipulations of this Lease on its part to be kept shall lawfully, peaceably and quietly hold, occupy and enjoy the Project during the term of this Lease, without hindrance, ejection or molestation by Landlord or any person or persons claiming under Landlord or claiming by a title superior to Landlord. Contemporaneously with the execution of this Lease, Landlord and Tenant have joined in the execution of the Non-Disturbance Agreement.

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1 ARTICLE

MISCELLANEOUS

1

1.1 Tenancy Beyond Lease Term . If Landlord has not leased the Project to others or does not require the use of the Project for itself and if Tenant holds possession of the Project after the expiration or termination of the term of this Lease, Tenant shall become a tenant from month to month upon the terms and conditions herein contained, so far as applicable, at a monthly rental in an amount equal to one hundred fifty percent (150%) of the average Global Basic Rent which was in effect during the Primary Term or Option Term, as applicable, and which shall be payable in advance, and Tenant shall continue to be such a month to month tenant until thirty (30) days after Tenant shall have given to Landlord or Landlord shall have given to Tenant a written notice of intention to terminate such monthly tenancy.

1.1 Notices . All notices, demands and requests which may or are required to be given to another party hereunder shall be in writing, and each shall be deemed to have been properly given (a) on the day given when served personally on an executive officer or general partner of the party to whom such notice is to be given, (b) on the following Business Day (as defined in the Loan Agreement) when sent by reputable overnight courier service, or when sent by telecopy (confirmed promptly by mail), or (c) on the fifth (5th) Business Day following the Business Day when sent postage prepaid by first class mail, registered or certified, return receipt requested, by deposit thereof in a duly constituted United States Post Office or branch thereof located in one of the states of the United States of America in a sealed envelope addressed as follows:

1.2

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(i) To Landlord, ? Hewson Properties, Inc., 4636 E. University Drive, Suite 265, Phoenix, Arizona 85034, or such other address as Landlord may from time to time designate.

(i) To Tenant, at 3250 Van Ness, San Francisco, California 94109, Attention: President, or such other address as Tenant may from time to time designate.

(i) To Trustee, at First Tennessee Bank National Association, 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Dennis D. Gillespie.

A duplicate copy of each notice, certificate or other communication given hereunder to Tenant and/or Landlord shall also be given to Trustee.

1.1 Definition of "Landlord." The term "Landlord" as used in this Lease so far as covenants and agreements on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners of the Landlord's interest in this Lease at the time in question, and in the event of any transfer or transfers of such interest authorized herein, except a transfer by way of security, Landlord herein named (and in case of any subsequent transfer, the then transferor) shall be automatically freed and relieved from and after the date of such transfer of all personal liability as respects the performance of any covenants or agreements on the part of Landlord contained in this Lease thereafter to be performed; provided, that any funds in the hands of Landlord or the then transferor at the time of such transfer, in which Tenant has an interest, shall be turned over to the transferee and any amount then due and payable to Tenant by Landlord or the then transferor under any provision of this Lease, shall be paid to Tenant;

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provided further that, upon any such transfer, the transferee shall be deemed to have assumed, subject to the limitations of this Section 10.3, all of the covenants, agreements and conditions in the Lease contained to be performed on the part of Landlord; it being intended hereby that the covenants and agreements contained in this Lease on the part of Landlord shall subject as aforesaid, be binding on Landlord, its successors and assigns, only during and in respect of their respective successive periods of ownership.

1.2

1.3 Headings; Table of Contents . The headings of the Articles and the numberings of the Sections and Subsections in this Lease are inserted as a matter of convenience to the parties and shall not affect the construction of this Lease. The wording of this Lease has been agreed upon by both parties hereto and therefore no party hereto is deemed to be the author thereof.

1.4

1.5 Counterparts . This Lease may be executed in any number of counterparts, each of which shall be an original and the counterparts shall constitute but one and the same instrument.

1.6

1.7 Governing Law . This Lease is to be governed and construed in accordance with the internal laws of the State of Mississippi, without regard to principles of conflicts of laws.

1.8

1.9 Cure on Behalf of Landlord . In the event that there shall occur a default under any mortgage, deed of trust, security agreement, reimbursement agreement, and/or bond affecting Landlord's interest in the Project, or if any other lien or encumbrance is created which may be prior to Tenant's interest hereunder and threatens Tenant's interest hereunder, Tenant may, upon giving Landlord written notice at least ten (10) days prior to doing so, take such action, including the payment of money, as may be required to cure such defect, or to discharge such lien or

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encumbrance, and may deduct such sums and/or its cost and expenses in taking such action, from the Company Payments due hereunder as they may become due.

1.10

1.11 Binding on Successors and Assigns . Except as otherwise provided herein, this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors and assigns.

1.12

(a) Authority of Signatories . Landlord represents and warrants that the person executing this Lease on behalf of Landlord is a duly authorized member of Landlord or is its or his duly authorized attorney-in-fact.

(b)

(c) Tenant represents and warrants that all corporate and other proceedings required to be taken by or on the part of Tenant and its Board of Directors for the authorization, execution and delivery of this Lease and the performance of the agreements set forth herein have been duly taken and that the person executing this Lease on behalf of Tenant has been duly authorized to act for and in behalf of Tenant.

(d)

1.13 Benefits of the Act. Landlord and Tenant acknowledge that the Bonds are being issued pursuant to the provisions of Section 57-10-401 et seq. of the Mississippi Code of 1972, as amended (the "Act"), so that Tenant may obtain certain benefits provided by the Act as set forth in Section 5.6 of the Loan Agreement. Tenant hereby acknowledges and accepts the obligations set forth in
Section 5.6 of the Loan Agreement on its behalf, and said Section is hereby incorporated herein by reference. In order to comply with the requirements of
Section 57-10-409 of the Act, Tenant hereby covenants and agrees as follows:

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1.14

(a) This Lease may be assigned by Tenant (other than to an affiliate thereof) only upon the prior written consent of the Issuer following the adoption of a resolution by the Issuer to such effect.

(b)

(c) Upon a default by Tenant in the payment of Basic Rent hereunder, the Trustee, on behalf of the Issuer, may exercise the rights and remedies available under the Indenture and the Loan Agreement, including but not limited to acceleration of the Bonds, foreclosure of the Deed of Trust and termination of this Lease.

(d)

1.15 [RESERVED.]

1.16

1.17 Waivers . Neither failure by either party to insist upon the strict performance of any term or condition of this Lease, or to exercise any right or remedy available on a breach thereof, nor acceptance by Landlord of full or partial Basic Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term or condition. No term or condition of this Lease required to be performed by a party hereto, and no breach thereof, shall be waived, altered or modified, except by a written instrument executed by the party making such waiver. No waiver of any breach shall be taken to constitute a waiver of any other breach, or of a subsequent breach of the same covenants; and each term or condition shall continue in full force and effect with respect to any other then existing or subsequent breach thereof.

1.18

1.19 Mechanic's Liens . Under no circumstances shall either party create or permit the creation of or suffer to exist, any mechanic's lien to be filed against the Project other than

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Permitted Encumbrances (as defined in the Loan Agreement), by reason of any work, labor, services or material supplied or claimed to have been supplied to the Tenant or to the Landlord. Tenant shall promptly take all steps necessary to discharge and remove any such lien, except Permitted Encumbrances, created by the action or inaction of Tenant. Nothing in this Lease shall be construed in any way as constituting the consent or request of either party, expressed or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any improvement, alteration, or repair of or to the Project that would give rise to the assertion of any mechanics' or materialmen's lien claim against the Project, or as giving either party the right, power or authority to contract for or to permit the rendering of any service or the furnishing of any material that would give rise to the filing of any mechanic's lien claim against the Project.

1.20

1.21 Utilities . All heat, water, electric current, gas, or other utilities used in the Project during the Primary Term and the Option Periods shall be paid for by the Tenant. In addition, should usage of such utilities during the construction of the Project exceed that occasioned by construction, due to installation of Equipment and/or Fixtures by Tenant, Tenant agrees to pay such additional costs.

1.22

1.23 [RESERVED.]

1.24

1.25 Cure on Behalf of Tenant . If the Tenant shall be in default hereunder, and the Tenant shall not have cured such default within the applicable notice period set forth herein, the Landlord may, at its option, in addition to any other rights and remedies, cure such default on behalf of the Tenant, in which event the Tenant shall reimburse the Landlord for all sums paid to

67

effect such cure, together with interest thereon at the Default Rate (as defined in the Loan Agreement), and together with such reasonable attorney's fees as the Landlord may have incurred in connection with such matter. Any such sum so paid by the Landlord, together with any interest and attorney's fees, as above provided, shall be due on the next rental installment date following the date of such cure by Landlord.

1.26

1.27 Severability . If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby; and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by applicable law.

1.28

1.29 Venue . As an integral part of the consideration for the Landlord's willingness to enter into this Lease, it is expressly understood and agreed that no suit or action shall be commenced by either party, or by any successor, personal representative, or assignee of either party, with respect to this Lease or any of the provisions hereof, other than in a state court of competent jurisdiction in DeSoto County, Mississippi, or in the United States District Court for the Northern District of Mississippi, Delta Division, and not elsewhere.

1.30

1.31 [RESERVED.]

1.32

1.33 Waiver of Jury Trial . TO THE FARTHEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY TO THIS LEASE AGREEMENT HEREBY WAIVES

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ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS LEASE AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALING OF THE PARTIES HERETO WITH RESPECT TO THIS LEASE AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS LEASE AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS EVIDENCE OF SUCH AGREEMENT.

1.34

1.35 Waiver of Right of Recovery . Tenant and Landlord hereby waive and release any and all right of recovery against the other, including employees and agents, arising during the term of this Lease for any and all loss or damage to any property located within or constituting a part of the Project which loss or damage arises from the perils covered by an all risk policy or which right of recovery arises from loss of earnings or rents resulting from damage caused by such a peril. This mutual waiver is in addition to any other waiver or release contained in this Lease. Landlord and Tenant shall each have their insurance policies issued in such form as to waive any right of subrogation which might otherwise exist.

1.36

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1.37 Design and Construction Indemnity . With respect to the manner of design and construction of the Project, Landlord agrees at Tenant's option, to save Tenant harmless from and indemnify and defend Tenant against any and all injury, loss, damage, liability (or any claims in respect of the foregoing), costs or expenses (including, without limitation, attorney's fees, reasonable investigation and discovery costs), of whatever nature, to any person or property caused or claimed to be caused by or resulting from any act, omission or negligence of Landlord or its employees or agents, provided that Tenant, upon becoming aware of such claim or damage, shall promptly notify Landlord as soon as reasonably possible. The provisions of this paragraph as to property damage shall be subject to the provisions of paragraph 10.21 regarding waiver of subrogation; and the provisions of this paragraph shall further be subject to the proviso that any obligation of Landlord to Tenant hereunder with respect to matters covered by insurance required to be maintained by Tenant hereunder shall be limited so as to assume that the deductible provision in such policy of insurance does not exceed (A) $50,000 (thereby limiting Landlord's obligation hereunder to $50,000 per claim) in the case of insurance coverage required to be maintained by Tenant under Section 4.1(a)-(d) and (B) $500,000 (thereby limiting Landlord's liability hereunder to $500,000 per claim) in the case of insurance coverage on Tenant's personal property required to be maintained by Tenant under
Section 4.1.

1.38

1.39 Landlord Waiver of Liens . Landlord waives such liens, if any, to which it may have a right with respect to the merchandise, furniture, trade fixtures and other personal property of Tenant located on or about the Property and shall from time to time execute such documents as Tenant may reasonably request to acknowledge such waiver.

1.40

70

(a) Tenant Right to Terminate . Provided that all Bonds are redeemed, the Loan Agreement terminated and the Indenture released, if Landlord should be in default in the performance of any of its obligations under this Lease, which default continues for a period of more than thirty (30) days after receipt of written notice from Tenant specifying such default, or if such default is of a nature to require more than thirty (30) days for remedy and continues beyond the time reasonably necessary to cure [provided Landlord must have undertaken procedures to cure the default within such thirty (30) day period and diligently pursue such efforts to cure to completion], Tenant may, in addition to availing itself of any other remedies available at law and in equity, at its option, upon written notice, terminate this Lease, or may incur any reasonable expense necessary to perform the obligation of Landlord specified in such notice and deduct such expense from the Company Payments next becoming due.

(b)

(c) So long as the Bonds remain Outstanding, or the Indenture has not been released, the obligation of the Tenant to pay Basic Rent and Additional Rent as provided herein and to make all other payments (other than Company Payments), provided for in this Lease and to maintain the Project in accordance with this Lease and to perform its other obligations under the Lease shall be absolute and unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim it might otherwise have against the Landlord. During such period, the Tenant (i) will not suspend or discontinue any such payment (other than Company Payments), (ii) will perform all of its other agreements under this Lease, and (iii) will not terminate this Lease [other than such termination as is provided for hereunder in subparagraph (a)] for any cause including, without limitation, any acts or circumstances that may constitute an eviction or constructive eviction, failure of consideration, failure of title, or commercial frustration of purpose, or any damage to or destruction of the Project, or the taking

71

by eminent domain of title to or the rights to temporary use of all or any part of the Project or any change in the tax or other laws of the United States, the State or any political subdivision of either thereof, or any failure of the Issuer to perform and observe any agreement or covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Lease. Notwithstanding the foregoing, the Tenant may, at its own cost and expense, in its own name, prosecute or defend any action or proceedings or take any other action involving third persons which the Tenant deems reasonably necessary in order to secure or protect its right of possession, use and occupancy of the Project and other rights hereunder. Nothing contained herein shall be construed to prevent or restrict the Tenant from asserting any rights which the Tenant may have against the Landlord under this Lease or under any provision of law.

(d)

1.41 Litigation . If either party becomes a party to any litigation concerning this Lease or the Project by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorney's fees, court costs, investigation expenses, discovery costs and costs of appeal incurred by it in the litigation.

1.42

1.43 Costs of Action . If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party, reasonable attorney's fees, costs of suit, investigation costs and discovery costs, including costs of appeal. When this Lease imposes upon a party an obligation to indemnify the other, the indemnification obligation shall include the obligation to pay the

72

indemnitee's reasonable attorney's fees, costs and disbursements, whether the indemnitee be the plaintiff or defendant.

1.44

1.45 Nondisturbance . Landlord covenants to obtain from any secured party benefitting from an encumbrance on the Project [and each lessor, if any, whose interest in the Project is paramount to Landlord's ("Overlessor")] at the time of the execution hereof, or at any time prior to the recordation of the Memorandum of Lease, an executed non-disturbance agreement assuring Tenant that notwithstanding any default by Landlord to the lender or Overlessor, or any foreclosure or deed in lieu thereof (or Overlessor's termination proceedings), Tenant's rights under this Lease shall continue in full force and effect and its possession of the Project shall remain undisturbed except in accordance with the provisions of this Lease so long as Tenant is not in default hereunder so as to prevent Lease termination and that the proceeds of any insurance recovery or condemnation award shall be used for the purposes stated in this Lease.

1.46

1.47 Tenant Subordination of Lease . Tenant shall upon Landlord's request, subordinate this Lease in the future to any first lien placed by Landlord on the Project, with an insurance company, bank or any other institutional lender, provided that such lender executes a non-disturbance agreement providing that if Tenant is not then in default under this Lease, this Lease shall not terminate as a result of the foreclosure of such lien, or conveyance in lieu thereof, Tenant's rights under this Lease shall continue in full force and effect and its possession be undisturbed except in accordance with the provisions of this Lease, and that the proceeds of any insurance recovery or condemnation award shall be used for the purposes stated in this Lease. Tenant will, upon request of the lienholder, be a party to such an agreement, and will agree that

73

if such lienholder succeeds to the interests of Landlord, Tenant will recognize said lienholder (or successor in interest of the lienholder) as its Landlord under the terms of this Lease.

1.48

1.49 Agency . Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent, or of partnership, or of joint venture, or of any other association between the parties other than Landlord and Tenant, or to prevent Landlord or Tenant from entering into ventures in direct competition with the Project.

1.50

1.51 Amendment . This Lease may be amended only by a written instrument executed by the Landlord and the Tenant. Additionally, prior to full payment of the Bonds (or provision for payment thereof having been made in accordance with the Indenture), except for amendments entered into in connection with a refunding of the Bonds and except for modifications, amendments and changes relating to Company Payments, the Landlord and the Tenant shall not alter, modify or amend in any material respect any of the terms of this Lease without the prior written approval of the Holders of sixty-six and two-thirds percent (66?%) of the Bonds, which consent absent the existence and continuance of an Event of Default by Tenant hereunder, shall not be unreasonably withheld.

1.52

[SIGNATURE PAGE FOLLOWS]

74

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

HEWSON/DESOTO PARTNERS, L.L.C., an
Arizona limited liability company

BY: HEWSON PROPERTIES, INC., a
California corporation

By:  /s/ GARY J. HEWSON
   ----------------------------------
Title: Chief Executive Officer
      -------------------------------

LANDLORD

WILLIAMS-SONOMA RETAIL SERVICES, INC., a
California corporation

By: JERRY OWENS

Title: VP Distribution

TENANT


STATE OF

COUNTY OF

Personally appeared before me, ______________________________, the undersigned authority in and for the said county and state, on this the ____ day of _______________, 1999, the within-named ______________________________ who acknowledged that __he is _______________ of WILLIAMS-SONOMA RETAIL SERVICES, INC. and that for and on behalf of the said corporation, and as its act and deed, __he executed and delivered the above and foregoing instrument, after first having been duly authorized by said corporation to do so.


Notary Public

My Commission Expires:


STATE OF________________

COUNTY OF_______________

Personally appeared before me, ______________________________, the undersigned authority in and for the said county and state, on this the _____ day of _______________, 1999, within my jurisdiction, the within-named _______________________________, who acknowledged himself to be _______________ of HEWSON PROPERTIES, INC., a California corporation, which corporation is the manager of HEWSON/DESOTO PARTNERS, L.L.C., an Arizona limited liability company (the "Maker"), and that for and on behalf of said corporation and as its act and deed as manager of the Maker and for and on behalf of the Maker and as its act and deed, he executed and delivered the foregoing instrument after having been duly authorized so to do.


Notary Public

My Commission Expires:



EXHIBIT "A"

Real Property Description

TRACT I:

LOCATED IN DESOTO COUNTY, MISSISSIPPI:

BEING A SURVEY OF PART OF THE NORTHEAST QUARTER OF THE NORTHEAST QUARTER, PART OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER, SECTION 25, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI AND PART OF THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER AND PART OF THE SOUTHEAST QUARTER OF THE SOUTHEAST QUARTER,
SECTION 24, TOWNSHIP 1 SOUTH, RANGE 6 WEST, DESOTO COUNTY MISSISSIPPI AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 25; THENCE S89 degrees32'11"W ALONG THE NORTH LINE OF SAID SECTION 25 A DISTANCE OF
80.00 FEET TO THE POINT OF BEGINNING; THENCE S00 degrees31'04"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL TO THE EAST LINE OF SAID
SECTION 25 A DISTANCE OF 491.49 FEET TO A POINT; THENCE S89 degrees13'30"W A DISTANCE OF 1964.19 FEET TO A POINT; THENCE N00 degrees46'30"W A DISTANCE OF 1351.48 FEET TO A POINT; THENCE N89 degrees13'30"E A DISTANCE OF 1965.03 FEET TO A POINT; THENCE S00E51'56"E ALONG A LINE THAT IS 80.00 FEET WEST OF AND PARALLEL TO THE EAST LINE OF SAID SECTION 24 A DISTANCE OF 860.00 FEET TO THE POINT OF BEGINNING AND CONTAINING 2,656,423 SQUARE FEET OR 60.983 ACRES.

TRACT II:

The rights benefitting and burdening the foregoing Tract I created by
(a) the Reciprocal Storm Water Detention and Drainage Agreement recorded on December 11, 1998, at 2:57 p.m. in Book 79, Page 486, of the Chancery Clerk's Office, DeSoto County, Mississippi, and re-recorded on January 21, 1999, at 4:14
p.m. in Book 80, Page 182 in said Chancery Clerk's Office and (b) the Reciprocal Connector Easement recorded on December 11, 1998, at 3:00 p.m. in Book 079, Page 511, of the Chancery Clerk's Office, DeSoto County, Mississippi.


EXHIBIT "B"

Plans for Building and Improvements and Construction Budget

See Attached

1

RETAIL DISTRIBUTION CAMPUS, SECOND BUILDING, WILLIAMS SONOMA, OLIVE BRANCH, MS PHASE II
Plans by H + M Design Services

----------------------------------------------------------------------------------------------------------
                                                                                                 Final
Sheet #      Prepared by:  Sheet Title                                            Date       Revision Date
----------------------------------------------------------------------------------------------------------
CE - 1.1     RSM           Site Plan                                              11/16/99
----------------------------------------------------------------------------------------------------------
CE - 2.1     RSM           Grading & Drainage Plan                                 8/25/99
----------------------------------------------------------------------------------------------------------
CE - 3.1     RSM           Erosion Control Plan                                    8/12/99
----------------------------------------------------------------------------------------------------------
CE - 3.2     RSM           Erosion Control Details                                 9/22/99
----------------------------------------------------------------------------------------------------------
A - 1.1      H-M           Faciltiy Floor Plan                                    11/18/99
----------------------------------------------------------------------------------------------------------
A - 1.2      H-M           Enlarged Office Floor Plan                             11/18/99
----------------------------------------------------------------------------------------------------------
A - 1.3      H-M           DC Section 1/Enlarged Area Floor Plans                 11/18/99
----------------------------------------------------------------------------------------------------------
A - 1.4      H-M           Enlarged Area Floor Plans Shipping/Receiving Offices   11/18/99
----------------------------------------------------------------------------------------------------------
A - 1.5      H-M           Enlarged Tunnel Floor Plan                             11/17/99
----------------------------------------------------------------------------------------------------------
A - 2.1      H-M           Door Schedule                                          11/19/99
----------------------------------------------------------------------------------------------------------
A - 2.2      H-M           Room Finish Schedule Door & Window Details             11/19/99
----------------------------------------------------------------------------------------------------------
A - 3.1      H-M           Building Elevations                                    11/10/99
----------------------------------------------------------------------------------------------------------
A - 3.2      H-M           Enlarged Elevations                                     11/3/99
----------------------------------------------------------------------------------------------------------
A - 3.3      H-M           North Wall Tilt-Up Wall Panel Elevations               11/12/99
----------------------------------------------------------------------------------------------------------
A - 3.4      H-M           North/West Wall Tilt-Up Wall Panel Elevations           11/3/99
----------------------------------------------------------------------------------------------------------
A - 3.5      H-M           West/South Wall Tilt-Up Wall Panel Elevations           11/1/99
----------------------------------------------------------------------------------------------------------
A - 3.6      H-M           South Wall Tilt-Up Wall Panel Elevations               11/10/99
----------------------------------------------------------------------------------------------------------
A - 3.7      H-M           East Wall Tilt-Up Wall Panel Elevations                 11/5/99
----------------------------------------------------------------------------------------------------------
A - 3.8      H-M           Column Line 11 Firewall Tilt-Up Wall Panel Elevations   11/3/99
----------------------------------------------------------------------------------------------------------
A - 3.9      H-M           Column Line 26 Firewall Tilt-Up Wall Panel Elevations   11/8/99
----------------------------------------------------------------------------------------------------------
A - 4.10     H-M           Wall Sections                                          11/19/99
----------------------------------------------------------------------------------------------------------
A - 4.1      H-M           Wall Sections                                          11/16/99
----------------------------------------------------------------------------------------------------------
A - 4.2A     H-M           Wall Sections                                           11/4/99
----------------------------------------------------------------------------------------------------------
A - 4.2      H-M           Wall Sections                                           11/5/99
----------------------------------------------------------------------------------------------------------
A - 4.3      H-M           Wall Sections                                          11/16/99
----------------------------------------------------------------------------------------------------------
A - 4.6      H-M           Wall Sections                                          10/27/99
----------------------------------------------------------------------------------------------------------
A - 4.7      H-M           Wall Sections                                          11/17/99
----------------------------------------------------------------------------------------------------------
A - 4.8      H-M           Wall Sections                                          11/18/99
----------------------------------------------------------------------------------------------------------
A - 4.9      H-M           Wall Sections                                          11/18/99
----------------------------------------------------------------------------------------------------------
A - 6.1      H-M           Glass and Glazing Elevations                           11/19/99
----------------------------------------------------------------------------------------------------------
A - 6.2      H-M           Glass and Glazing Details                              11/19/99
----------------------------------------------------------------------------------------------------------
A - 7.1      H-M           Faciltiy Roof Plans                                    11/16/99
----------------------------------------------------------------------------------------------------------
C - 1.1      H-M           Partial Foundation Plan                                 9/29/99
----------------------------------------------------------------------------------------------------------
C - 1.2      H-M           Partial Foundation Plan                                 9/29/99
----------------------------------------------------------------------------------------------------------
C - 1.3      H-M           Partial Foundation Plan                                 9/29/99
----------------------------------------------------------------------------------------------------------
C - 1.4      H-M           Partial Reinforcing Details                             11/0/99
----------------------------------------------------------------------------------------------------------
C - 1.5      H-M           Partial Reinforcing Details                             11/0/99
----------------------------------------------------------------------------------------------------------
C - 1.6      H-M           Office Foundation Plan                                   6/0/99
----------------------------------------------------------------------------------------------------------
C - 2.1      H-M           Sections and Details                                    9/29/99
----------------------------------------------------------------------------------------------------------
C - 2.2      H-M           Sections and Details                                    9/29/99
----------------------------------------------------------------------------------------------------------
S - 1.1      H-M           Partial Roof Framing Plan                                6/0/99
----------------------------------------------------------------------------------------------------------
S - 1.2      H-M           Partial Roof Framing Plan                                6/0/99
----------------------------------------------------------------------------------------------------------
S - 1.3      H-M           Partial Roof Framing Plan                                6/0/99
----------------------------------------------------------------------------------------------------------
S - 2.1      H-M           Sections and Details                                     6/0/99
----------------------------------------------------------------------------------------------------------
M - 1.1      H-M           Site Utilities Plans                                   10/21/99
----------------------------------------------------------------------------------------------------------
M - 2.1      H-M           Facilty Underground Plumbing Plan                      10/20/99
----------------------------------------------------------------------------------------------------------
M - 2.2      H-M           Enlarged Office Underground Plumbing Plan               11/3/99
----------------------------------------------------------------------------------------------------------
M - 2.3      H-M           Enlarged Areas Underground Plumbing Plan                11/3/99
----------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------
M - 2.4      H-M           Enlarged Areas Underground Plumbing Plan               11/27/99
----------------------------------------------------------------------------------------------------------
M - 2.5      H-M           Underground Riser Diagrams                              11/3/99
----------------------------------------------------------------------------------------------------------
M - 3.1      H-M           Faciltiy Overhead Plumbing Plan                        10/28/99
----------------------------------------------------------------------------------------------------------
M - 3.2      H-M           Enlarged Office Underground Plumbing Plan               11/3/99
----------------------------------------------------------------------------------------------------------
M - 3.3      H-M           Enlarged Areas Underground Plumbing Plan                11/3/99
----------------------------------------------------------------------------------------------------------
M - 3.4      H-M           Enlarged Areas Underground Plumbing Plan               10/28/99
----------------------------------------------------------------------------------------------------------
M - 3.5      H-M           Overhead Riser Diagrams                                 11/3/99
----------------------------------------------------------------------------------------------------------
M - 4.1      H-M           Faciltiy HVAC Plan                                     11/11/99
----------------------------------------------------------------------------------------------------------
M - 4.2      H-M           Office HVAC Plan                                       11/19/99
----------------------------------------------------------------------------------------------------------
M - 4.3      H-M           DC Section /Enlarged Area HVAC Plans                   11/17/99
----------------------------------------------------------------------------------------------------------
M - 4.4      H-M           Enlarged Area HVAC Plans Shipping /Receiving Offices   11/17/99
----------------------------------------------------------------------------------------------------------
M - 4.5      H-M           Enlarged Tunnel HVAC Plan                              11/15/99
----------------------------------------------------------------------------------------------------------
M - 4.6      H-M           HVAC Details and Schedules                             11/19/99
----------------------------------------------------------------------------------------------------------
M - 4.7      H-M           HVAC Details and Notes                                 11/19/99
----------------------------------------------------------------------------------------------------------
E - 1.1      H-M           Site Electrical Site Plan                              10/21/99
----------------------------------------------------------------------------------------------------------
E - 1.2      H-M           Facility Grounded Plan                                  11/1/99
----------------------------------------------------------------------------------------------------------
E - 2.1      H-M           Facility Lighting Key Plan                              11/3/99
----------------------------------------------------------------------------------------------------------
E - 2.1A     H-M           Lighting Plan (Section A)                              11/17/99
----------------------------------------------------------------------------------------------------------
E - 2.1BD    H-M           Lighting Location Plan (Section B)                     11/18/99
----------------------------------------------------------------------------------------------------------
E - 2.1CD    H-M           Lighting Location Plan (Section C)                     11/11/99
----------------------------------------------------------------------------------------------------------
E - 2.1CD    H-M           Lighting Plan (Section C)                              11/15/99
----------------------------------------------------------------------------------------------------------
E - 2.1D     H-M           Lighting Location Plan (Section D)                      11/8/99
----------------------------------------------------------------------------------------------------------
E - 2.1E     H-M           Lighting Plan (Section E)                               11/8/99
----------------------------------------------------------------------------------------------------------
E - 2.1FD    H-M           Lighting Location Plan (Section F)                     11/11/99
----------------------------------------------------------------------------------------------------------
E - 2.1F     H-M           Lighting Plan (Section F)                              11/16/99
----------------------------------------------------------------------------------------------------------
E - 2.3      H-M           Office Lighting Plan                                   11/17/99
----------------------------------------------------------------------------------------------------------
E - 2.4      H-M           Enlarged Office Lighting Plan                           11/1/99
----------------------------------------------------------------------------------------------------------
E - 2.5      H-M           Enlarged Office Lighting Plan                           11/1/99
----------------------------------------------------------------------------------------------------------
E - 2.7      H-M           Luminaire Schedule and Details                          11/1/99
----------------------------------------------------------------------------------------------------------
E - 3.1      H-M           Facility Power Key Plan                                 11/9/99
----------------------------------------------------------------------------------------------------------
E - 3.1A     H-M           Power Plan (Section A)                                 11/10/99
----------------------------------------------------------------------------------------------------------
E - 3.1B     H-M           Power Plan (Section B)                                 11/10/99
----------------------------------------------------------------------------------------------------------
E - 3.1C     H-M           Power Plan (Section C)                                 11/10/99
----------------------------------------------------------------------------------------------------------
E - 3.1D     H-M           Power Plan (Section D)                                  11/8/99
----------------------------------------------------------------------------------------------------------
E - 3.1E     H-M           Power Plan (Section E)                                  11/8/99
----------------------------------------------------------------------------------------------------------
E - 3.1F     H-M           Power Plan (Section F)                                  11/8/99
----------------------------------------------------------------------------------------------------------
E - 3.4      H-M           Enlarged Office Power Plan                             11/17/99
----------------------------------------------------------------------------------------------------------
E - 3.5      H-M           Enlarged Office Power Plan                             11/17/99
----------------------------------------------------------------------------------------------------------


EXHIBIT "C"

Rent Schedule

See Attached

1

EXHIBIT "C"

                                                                                                 GLOBAL
    LEASE                                                      BASIC           COMPANY            BASIC           Annual
    QRTS     DATE         INTEREST          SINK FUND          RENT            PAYMENT            RENT             Rent
-----------------------------------------------------------------------------------------------------------------------------
       1   09/01/00          $0                    $0               $0         $17,708             $17,708
       2   10/01/00       $318,750                 $0         $318,750         $53,125            $371,875
       3   01/01/01       $956,250                 $0         $956,250         $53,125          $1,009,375      1,398,958.33
       4   04/01/01       $956,250                 $0         $956,250         $53,125          $1,009,375
       5   07/01/01       $956,250           $325,000       $1,281,250         $53,125          $1,334,375
       6   10/01/01       $948,938                 $0         $948,938         $53,125          $1,002,063
       7   01/01/02       $948,938           $335,000       $1,283,938         $53,125          $1,337,063      4,682,875.00
       8   04/01/02       $941,400                 $0         $941,400         $53,125            $994,525
       9   07/01/02       $941,400           $350,000       $1,291,400         $53,125          $1,344,525
      10   10/01/02       $933,525                 $0         $933,525         $53,125            $986,650
      11   01/01/03       $933,525           $370,000       $1,303,525         $53,125          $1,356,650      4,682,350.00
      12   04/01/03       $925,200                 $0         $925,200         $53,125            $978,325
      13   07/01/03       $925,200           $385,000       $1,310,200         $53,125          $1,363,325
      14   10/01/03       $916,538                 $0         $916,538         $53,125            $969,663
      15   01/01/04       $916,538           $400,000       $1,316,538         $53,125          $1,369,663      4,680,975.00
      16   04/01/04       $907,538                 $0         $907,538         $53,125            $960,663
      17   07/01/04       $907,538           $420,000       $1,327,538         $53,125          $1,380,663
      18   10/01/04       $898,088                 $0         $898,088         $53,125            $951,213
      19   01/01/05       $898,088           $440,000       $1,338,088         $53,125          $1,391,213      4,683,750.00
      20   04/01/05       $888,188                 $0         $888,188         $53,125            $941,313
      21   07/01/05       $888,188           $460,000       $1,348,188         $53,125          $1,401,313
      22   10/01/05       $877,838                 $0         $877,838         $53,125            $930,963
      23   01/01/06       $877,838           $480,000       $1,357,838         $53,125          $1,410,963      4,684,550.00
      24   04/01/06       $867,038                 $0         $867,038         $53,125            $920,163
      25   07/01/06       $867,038           $500,000       $1,367,038         $53,125          $1,420,163
      26   10/01/06       $855,788                 $0         $855,788         $53,125            $908,913
      27   01/01/07       $855,788           $525,000       $1,380,788         $53,125          $1,433,913      4,683,150.00
      28   04/01/07       $843,975                 $0         $843,975         $53,125            $897,100
      29   07/01/07       $843,975           $545,000       $1,388,975         $53,125          $1,442,100
      30   10/01/07       $831,713                 $0         $831,713         $53,125            $884,838
      31   01/01/08       $831,713           $570,000       $1,401,713         $53,125          $1,454,838      4,678,875.00
      32   04/01/08       $818,888                 $0         $818,888         $53,125            $872,013
      33   07/01/08       $818,888           $595,000       $1,413,888         $53,125          $1,467,013
      34   10/01/08       $805,500                 $0         $805,500         $53,125            $858,625
      35   01/01/09       $805,500           $625,000       $1,430,500         $53,125          $1,483,625      4,681,275.00


                                                                                                 GLOBAL
    LEASE                                                      BASIC           COMPANY            BASIC           Annual
    QRTS     DATE         INTEREST          SINK FUND          RENT            PAYMENT            RENT             Rent
-----------------------------------------------------------------------------------------------------------------------------
      36   04/01/09       $791,438                 $0         $791,438         $53,125            $844,563
      37   07/01/09       $791,438           $650,000       $1,441,438         $53,125          $1,494,563
      38   10/01/09       $776,813                 $0         $776,813         $53,125            $829,938
      39   01/01/10       $776,813           $680,000       $1,456,813         $53,125          $1,509,938      4,679,000.00
      40   04/01/10       $761,513                 $0         $761,513         $53,125            $814,638
      41   07/01/10       $761,513           $710,000       $1,471,513         $53,125          $1,524,638
      42   10/01/10       $745,538                 $0         $745,538         $53,125            $798,663
      43   01/01/11       $745,538           $745,000       $1,490,538         $53,125          $1,543,663      4,681,600.00
      44   04/01/11       $728,775                 $0         $728,775         $53,125            $781,900
      45   07/01/11       $728,775           $775,000       $1,503,775         $53,125          $1,556,900
      46   10/01/11       $711,338                 $0         $711,338         $53,125            $764,463
      47   01/01/12       $711,338           $810,000       $1,521,338         $53,125          $1,574,463      4,677,725.00
      48   04/01/12       $693,113                 $0         $693,113         $53,125            $746,238
      49   07/01/12       $693,113           $850,000       $1,543,113         $53,125          $1,596,238
      50   10/01/12       $673,988                 $0         $673,988         $53,125            $727,113
      51   01/01/13       $673,988           $885,000       $1,558,988         $53,125          $1,612,113      4,681,700.00
      52   04/01/13       $654,075                 $0         $654,075         $53,125            $707,200
      53   07/01/13       $654,075           $925,000       $1,579,075         $53,125          $1,632,200
      54   10/01/13       $633,263                 $0         $633,263         $53,125            $686,388
      55   01/01/14       $633,263           $970,000       $1,603,263         $53,125          $1,656,388      4,682,175.00
      56   04/01/14       $611,438                 $0         $611,438         $53,125            $664,563
      57   07/01/14       $611,438         $1,010,000       $1,621,438         $53,125          $1,674,563
      58   10/01/14       $588,713                 $0         $588,713         $53,125            $641,838
      59   01/01/15       $588,713         $1,060,000       $1,648,713         $53,125          $1,701,838      4,682,800.00
      60   04/01/15       $564,863                 $0         $564,863         $53,125            $617,988
      61   07/01/15       $564,863         $1,105,000       $1,669,863         $53,125          $1,722,988
      62   10/01/15       $540,000                 $0         $540,000         $53,125            $593,125
      63   01/01/16       $540,000         $1,155,000       $1,695,000         $53,125          $1,748,125      4,682,225.00
      64   04/01/16       $514,013                 $0         $514,013         $53,125            $567,138
      65   07/01/16       $514,013         $1,205,000       $1,719,013         $53,125          $1,772,138
      66   10/01/16       $486,900                 $0         $486,900         $53,125            $540,025
      67   01/01/17       $486,900         $1,260,000       $1,746,900         $53,125          $1,800,025      4,679,325.00
      68   04/01/17       $458,550                 $0         $458,550         $53,125            $511,675
      69   07/01/17       $458,550         $1,320,000       $1,778,550         $53,125          $1,831,675
      70   10/01/17       $428,850                 $0         $428,850         $53,125            $481,975
      71   01/01/18       $428,850         $1,375,000       $1,803,850         $53,125          $1,856,975      4,682,300.00
      72   04/01/18       $397,913                 $0         $397,913         $53,125            $451,038


                                                                                                 GLOBAL
    LEASE                                                      BASIC           COMPANY            BASIC           Annual
    QRTS     DATE         INTEREST          SINK FUND          RENT            PAYMENT            RENT             Rent
-----------------------------------------------------------------------------------------------------------------------------
      73   07/01/18       $397,913         $1,440,000       $1,837,913         $53,125          $1,891,038
      74   10/01/18       $365,513                 $0         $365,513         $53,125            $418,638
      75   01/01/19       $365,513         $1,505,000       $1,870,513         $53,125          $1,923,638      4,684,350.00
      76   04/01/19       $331,650                 $0         $331,650         $53,125            $384,775
      77   07/01/19       $331,650         $1,570,000       $1,901,650         $53,125          $1,954,775
      78   10/01/19       $296,325                 $0         $296,325         $53,125            $349,450
      79   01/01/20       $296,325         $1,640,000       $1,936,325         $53,125          $1,989,450      4,678,450.00
      80   04/01/20       $259,425                 $0         $259,425         $53,125            $312,550
      81   07/01/20       $259,425         $1,715,000       $1,974,425         $53,125          $2,027,550
      82   10/01/20       $220,838                 $0         $220,838         $53,125            $273,963
      83   01/01/21       $220,838         $1,795,000       $2,015,838         $53,125          $2,068,963      4,683,025.00
      84   04/01/21       $180,450                 $0         $180,450         $53,125            $233,575
      85   07/01/21       $180,450         $1,875,000       $2,055,450         $53,125          $2,108,575
      86   10/01/21       $138,263                 $0         $138,263         $53,125            $191,388
      87   01/01/22       $138,263         $1,960,000       $2,098,263         $53,125          $2,151,388      4,684,925.00
      88   04/01/22        $94,163                 $0          $94,163         $53,125            $147,288
      89   07/01/22        $94,163         $2,045,000       $2,139,163         $53,125          $2,192,288
      90   10/01/22        $48,150                 $0          $48,150         $53,125            $101,275
      91   01/01/23        $48,150         $2,140,000       $2,188,150              $0          $2,188,150      4,629,000.00

                       $57,099,525        $42,500,000      $99,599,525      $4,745,833        $104,345,358      $104,345,358

This rent schedule assumes the building is delivered on schedule on 8/30/00. The interest payment paid by Williams-Sonoma on 10/1/00 is for the month of September. The capitalized interest fund will cover the months of July and August. This schedule assumes no mandatory redemption of bond proceeds and no interest rate reset.


EXHIBIT "D"

Environmental Notices

NONE


EXHIBIT "E"

Easements Affecting Real Property

1. 15' Utility Easement in favor of City of Olive Branch, Mississippi, running parallel with the west edge of the 80' road right-of-way for Polk Lane, recorded on August 25, 1998 at 1:04 p.m. in Book 338, Page 562, of the Land Deed Records, Chancery Clerk's Office, DeSoto County, Mississippi.

2. 15' Right-of-Way Easement in favor of North Central Mississippi Electric Power Association, running parallel with the west edge of the 80' road right-of-way for Polk Lane, recorded on August 25, 1998 at 1:03 p.m. in Book 338, Page 559, of the Land Deed Records, Chancery Clerk's Office, DeSoto County, Mississippi.

3. Subdivision Restrictions, Building Lines and Easements of record in Plat Book 64, Page 34, of the Chancery Court Clerk's Office, DeSoto County, Mississippi.

4. Reciprocal Storm Water Detention and Drainage Agreement recorded on December 11, 1998 at 2:57 p.m. in Book 79, Page 486, of the Chancery Court Clerk's Office, DeSoto County, Mississippi, and re-recorded on January 21, 1999 at 4:14 p.m. in Book 80, Page 182 in said Chancery Court Clerk's Office.

5. Reciprocal Connector Easement of record on December 11, 1998 at 3:00
p.m. in Book 079, Page 511, of the Chancery Court Clerk's Office, DeSoto County, Mississippi.

6. Parking Easement Agreement recorded on December 11, 1998 at 2:59 p.m. in Book 079, Page 503, of the Chancery Court Clerk's Office, DeSoto County, Mississippi.


EXHIBIT "F"

Existing Indebtedness

1

EXHIBIT 10.14A
LEASE GUARANTY

In order to induce HEWSON /DESOTO PARTNERS, LLC, ("Landlord") to execute a certain Lease Agreement dated as of November 15, 1999 (the "Lease") between Landlord and WILLIAMS-SONOMA RETAIL SERVICES, INC., a California corporation ("Tenant"), covering certain premises situated in the City of Olive Branch, Mississippi described on Exhibit "A" hereto, the undersigned (hereinafter referred to as "Guarantor") hereby guarantees unto Landlord the payment and performance of (a) all of the Basic Rent, Additional Rent (as such terms are defined in the Lease) and other sums or charges which may ever become due and payable by Tenant under the Lease, including, without limitation, rent that becomes due and payable by reason of the exercise of any power to accelerate granted to Landlord under the Lease, (collectively, the "Rents"), and any damages or other sums that become payable on account of any default by Tenant under the Lease, and the Company Payments (as defined in the Lease) due Landlord thereunder, and (b) all of the other obligations, liabilities and duties of Tenant under the Lease [the Rents, Company Payments and other obligations, liabilities and duties described in the foregoing clauses (a) and (b) being hereinafter collectively referred to as the "Obligations"].

Upon the occurrence of an event of a default by Tenant in the payment or performance of any of the Obligations, Guarantor shall on demand pay the amount due to Landlord and perform all of the other Obligations of Tenant with respect to which Tenant is then in default. For the purposes hereof, the term "Tenant" shall include any assignee of Tenant and the term "Lease" shall include any amendment of the Lease effected by Landlord and Tenant. Notwithstanding anything contained herein to the contrary, Guarantor's obligations shall be limited to those provided herein.

Landlord shall not be required, before invoking the benefits of this guaranty, to institute suit against or exhaust its remedies with respect to Tenant or any other person liable for the Obligations or to enforce its rights with respect to any security which shall have ever been given to secure the payment and performance of the Obligations; and the obligations of Guarantor hereunder shall not be released or impaired in any way by any action for the collection or enforcement of the Obligations, or any failure of Landlord to give Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with the Obligations. Suit may be brought and maintained against Guarantor without the joinder of Tenant or any other person, and in the event that there is more than one (1) guarantor of the Obligations, Landlord may
(a) bring suit against all guarantors jointly and severally or against any one or more of them, (b) compromise or settle with any one or more of such guarantors for such consideration as Landlord may deem proper, and (c) release one or more of the guarantors from liability without impairing the liability of the guarantors not so released; and no action brought by Landlord against any guarantor of the Obligations shall impair the right of Landlord to bring suit against any remaining guarantor or guarantors, including Guarantor hereunder.

The obligations of Guarantor shall be irrevocable and unconditional, irrespective of the genuineness, validity, regularity or enforceability of the Lease or any security given for the Obligations or any other circumstances which might otherwise constitute a legal or equitable discharge of a surety or guarantor, and Guarantor waives the benefit of all principles or


provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this guaranty, and agrees that the obligations of Guarantor shall not be affected by any circumstances, whether or not referred to in this guaranty, which might otherwise constitute a legal or equitable discharge of a surety or a guarantor. Specifically, Guarantor waives the benefits of any rights of sureties and guarantors under the laws of the State of Mississippi. Without limiting the generality of the foregoing Guarantor agrees that Landlord may, in its sole and absolute discretion, without notice to or consent by Guarantor, and without in any way releasing or impairing any liability or obligation of Guarantor hereunder (a) waive compliance by Tenant with any of its Obligations or covenants under the Lease or waive any default thereunder, or grant any other indulgence with respect to the Lease, (b) modify, amend or change any provision of the Lease, (c) grant extensions or renewals of the Lease or the Obligations, or effect any release, compromise or settlement in connection therewith, including any release of the liability of Tenant or any guarantor or other person liable on the Obligations or any part thereof, (d) transfer its interest in the premises covered by the Lease or its rights under this guaranty (including specifically the anticipated assignment of certain of Landlord's rights under this guaranty and the Lease to the Mississippi Business Finance Corporation as issuer ("Issuer") of its $42,500,000 Taxable Industrial Development Revenue Bonds, Series 1999 (Hewson/Desoto Partners, L.L.C. Project) ("Bonds") pursuant to an Assignment of Rents and Leases (the "Assignment"), which will in turn be assigned by the Issuer to First Tennessee Bank National Association as trustee ("Trustee") for the holders of the Bonds pursuant to a Trust Indenture of even date herewith between Issuer and Trustee and the conveyance and assignment by Landlord to Hewson/Phase II Partners, L.L.C. of the premises and of its rights under the Lease, (e) consent to the assignment by Tenant of its rights under the Lease, and (f) deal in all respects with Tenant and the Obligations as if this guaranty were not in effect. Guarantor further waives (1) acceptance or notices of acceptance of this guaranty, (2) notices to Guarantor of any kind in any circumstances whatsoever, including, without limitation, notice of dishonor and, except as otherwise herein provided, notice of any default by Tenant under the Lease and all waivers or indulgences granted by Landlord to Tenant under the Lease, and (3) diligence, presentment and suit on the part of Landlord in the enforcement of any of the Obligations.

This guaranty shall be enforceable despite any exculpation from liability granted to Tenant under the Lease, with the same force and effect as if no such exculpation from liability had been granted to Tenant.

Guarantor agrees to pay the reasonable attorneys' fees and all other costs and expenses incurred by Landlord in order to enforce its rights under this guaranty.

In the event any payment by Tenant to Landlord is held to constitute a preference under the bankruptcy laws, or if for any other reason Landlord is required to refund such payment or pay the amount thereof to any other party, such payment by Tenant to Landlord shall not constitute a release of Guarantor from any liability hereunder, but Guarantor agrees to pay such amount to Landlord upon demand.

2

Until the Obligations have been paid in full, Guarantor shall not have any right of subrogation unless such right is expressly granted in writing by Landlord.

Landlord shall apply all payments received by it from Tenant, Guarantor or any other guarantor under any other instrument, or realized by it from any security as follows: first, to payment of Basic Rent then due and payable; second, to payment of Additional Rent then due and payable; third, to payment of any damages or other sums then payable on account of any default by Tenant; fourth, to payment of Company Payments then due and payable; and fifth, to payments of any Obligations then due and payable.

All the obligations of Guarantor arising hereunder shall be binding on its successors and assigns. The word "person" as used herein includes natural persons and entities of all kinds.

This guaranty shall be construed in accordance with and governed by the laws of the State of Mississippi.

EXCEPT TO THE EXTENT PROHIBITED BY LAW, THE GUARANTOR WAIVES TRIAL BY JURY IN CONNECTION WITH ANY ACTION OR PROCEEDING OF ANY NATURE WHATSOEVER ARISING UNDER, OUT OF OR IN CONNECTION WITH THIS GUARANTY, WHETHER ARISING UNDER STATUTE (INCLUDING ANY FEDERAL OR STATE CONSTITUTION) OR UNDER THE LAW OF CONTRACT, TORT OR OTHERWISE AND INCLUDING, WITHOUT LIMITATION, ANY CHALLENGE TO THE LEGALITY, VALIDITY, BINDING EFFECT OR ENFORCEABILITY OF THIS PARAGRAPH. THE GUARANTOR CONSENTS TO THE JURISDICTION OF THE MISSISSIPPI COURTS AND CONSENTS TO SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL.

3

This guaranty shall be binding upon Guarantor and its successors and assigns, and shall inure to the benefit of Landlord and its successors and assigns. Guarantor acknowledges and agrees that Landlord does not intend to assign its rights to Company Payments pursuant to the Assignment, and that upon enforcement of its rights under this guaranty by Trustee, sums due hereunder in respect of Company Payments shall not be paid to Trustee. Landlord acknowledges and agrees that notwithstanding anything to the contrary herein contained, Guarantor may assert any and all defenses of the Tenant arising under the Lease to the payment of Company Payments, and any and all rights of set-off, recoupment and counterclaim of the Tenant arising under the Lease with respect to Company Payments to Guarantor's obligations with respect to Company Payments hereunder.

Executed this ____ day of ____________________, 1999.

WILLIAMS-SONOMA, INC.

By:  /s/ Jerry Owens
   ---------------------------------

Title: VP Operation
      ------------------------------

GUARANTOR

4

EXHIBIT 13

Five-Year Selected Financial Data

Dollars and amounts in thousands except percentages,
per share amounts and retail stores data                  Jan. 30        Jan. 31         Feb. 1        Feb. 2          Jan. 28
                                                            2000           1999           1998         1997(2)          1996
                                                         ----------     ----------     ----------     ----------     ----------
Results of Operations
   Net sales                                             $1,383,993     $1,103,954     $  933,257     $  811,758     $  644,653
   Gross margin                                             571,027        453,012        376,481        318,579        234,318
   Earnings before income taxes                             110,721         90,745         70,022         39,197          4,373
   Net earnings                                              68,100         54,897         41,347         22,742          2,536
   Basic net earnings per share(1)                             1.22           1.01            .81            .45            .05
   Diluted net earnings per share(1)                     $     1.16     $      .96     $      .75     $      .43     $      .05
   Operating margin                                             8.2%           8.3%           7.9%           5.4%           1.4%
Financial Position
   Working capital                                       $  194,093     $  172,866     $  134,524     $   96,568     $   39,076
   Long-term debt and other liabilities                      40,453         44,649         89,789         89,319         46,757
   Total assets                                             738,942        576,245        477,229        404,417        319,096
   Return on assets                                            10.6%          10.7%          10.2%           7.7%           2.6%
   Shareholders' equity                                     383,309        302,030        193,198        146,038        121,653
   Shareholders' equity per share (book value)(1)        $     6.80     $     5.42     $     3.74     $     2.86     $     2.39
   Return on equity                                            19.9%          22.2%          24.4%          17.0%           2.1%
   Debt-to-equity ratio                                        12.1%          16.9%          46.5%          61.2%          38.4%
Retail Stores
     Store Count
        Williams-Sonoma                                         185            163            152            145            139
           Classic                                               57             65             78             89             97
           Grand Cuisine                                        128             98             74             56             42
        Pottery Barn                                            117             96             88             76             67
           Classic                                               17             19             34             43             47
           Design Studio                                        100             77             54             33             20
        Hold Everything                                          32             33             32             32             32
        Outlets                                                  10              6              4              3              2
   Number of stores at year-end                                 344            298            276            256            240
   Comparable store sales growth                                6.4%           5.0%           2.8%           4.6%           3.4%
   Store selling area at year-end (sq. ft.)               1,497,382      1,217,047      1,015,778        839,112        690,256
   Gross leasable area at year-end (sq. ft.)              2,308,488      1,887,560      1,553,137      1,264,531      1,023,003
Direct-to-Customer sales(3)
   Catalogs mailed in year                                  191,810        163,067        154,475        136,489        131,800
   Direct-to-customer sales growth                             34.2%          15.7%          11.2%          19.1%          16.2%
   Direct-to-customer sales as percent of total sales          37.2%          34.8%          35.5%          36.7%          38.8%

(1) Per share amounts have been restated to reflect the 2-for-1 stock split in May 1998.

(2) The year ended February 2, 1997 includes 53 weeks

(3) Direct-to-customer sales include catalog and Internet sales.

37

Management's Discussion and Analysis

NET SALES

Net sales consists of the following components:

                                  Year                      Year                      Year
                                 Ended                     Ended                     Ended
Dollars in thousands          Jan. 30, 2000   % Total   Jan. 31, 1999   % Total   Feb. 1, 1998   % Total
                              -------------   -------   -------------   -------   ------------   -------
Retail sales                   $  869,078       62.8%    $  720,320       65.2%     $601,738       64.5%
Direct-to-customer sales          514,915       37.2%       383,634       34.8%      331,519       35.5%
  Total net sales              $1,383,993      100.0%    $1,103,954      100.0%     $933,257      100.0%

Net sales for Williams-Sonoma, Inc. and subsidiaries (the Company) for the 52 weeks ended January 30, 2000 (fiscal 1999) were $1,383,993,000 -- an increase of $280,039,000 (25.4%) over net sales for the 52 weeks ended January 31, 1999 (fiscal 1998). Net sales for fiscal 1998 increased 18.3% over net sales for the 52 weeks ended February 1, 1998 (fiscal 1997). Direct-to-customer sales include catalog and Internet sales.

Historically, the Company had not recorded sales returns on the accrual basis of accounting because the difference between the cash and accrual basis of accounting was not material to the results of operations. In fiscal 1999, the Company began recording sales returns on the accrual basis of accounting. Because the effect of this change was insignificant to fiscal 1998 and 1997, the Company recorded the effect of this change in the current year. The impact of recording this change in fiscal 1999 for current and prior years is a reduction in net earnings of $3,206,000, or $0.05 diluted earnings per share.

RETAIL SALES

                                                                           Year Ended
Dollars in thousands                                    Jan. 30, 2000     Jan. 31, 1999     Feb. 1, 1998
                                                        -------------     -------------     ------------
Retail sales                                             $  869,078        $  720,320        $  601,738
Retail sales growth percentage                                 20.7%             19.7%             17.2%
Comparable store sales growth                                   6.4%              5.0%              2.8%
Number of stores - beginning of year                            298               276               256
Number of new stores                                             58                57
                                                                                                     44
Number of closed stores                                          12                35
                                                                                                     24
Number of stores - end of year                                  344               298               276
Store selling square footage at year-end (sq. ft.)        1,497,382         1,217,047         1,015,778
Store leased square footage at year end (sq. ft.)         2,308,488         1,887,560         1,553,137

Retail sales for fiscal 1999 increased 20.7% over retail sales for fiscal 1998 primarily due to new store openings. During fiscal 1999, the Company opened 58 stores (30 large-format Williams-Sonoma, 23 large-format Pottery Barn, 1 Hold Everything and 4 Outlets), and closed 12 smaller stores (8 Williams-Sonoma, 2 Pottery Barn and 2 Hold Everything). Pottery Barn accounted for 55.9% of the growth in selling square footage from fiscal year-end 1998 to fiscal year-end 1999 and 58.2% of the growth in retail sales as measured for the same period. For the comparable periods of fiscal 1998 and fiscal 1997, Pottery Barn accounted for 65.5% of the growth in selling square footage and 60.2% of the growth in retail sales. Total retail sales in fiscal 1998 increased 19.7% over retail sales in fiscal 1997, principally due to a net increase of 22 stores.

Comparable stores are defined as those whose gross square feet did not change by more than 20% in the previous 12 months and which have been open for at least 12 months. Comparable store sales are computed monthly for purposes of this analysis. Comparable store sales grew 6.4% in fiscal 1999 and 5.0% in fiscal 1998.

38

Same-store sales growth in Pottery Barn and Williams-Sonoma, the Company's primary concepts, were strong in fiscal 1999, with both being above 5%.

The prototypical 1999 large-format stores range from 5,700 - 8,800 selling square feet (8,800 - 15,000 gross square feet) for Pottery Barn stores and 2,700
- 6,300 selling square feet (3,800 - 7,800 gross square feet) for Williams-Sonoma. As of the end of fiscal 1999, 228 stores (128 Williams-Sonoma and 100 Pottery Barn) were large-format, comprising 77.8% of the Company's total selling square footage. Large-format stores accounted for 76% of retail sales in fiscal 1999, as compared to 68% in fiscal 1998. In fiscal 2000, the Company plans to increase leased square footage by approximately 22%. Planned store openings in fiscal 2000 include the introduction of six Pottery Barn Kids retail locations.

DIRECT-TO-CUSTOMER SALES

                                                                       Year Ended
                                                January 30, 2000    January 31, 1999    February 1, 1998
                                                ----------------    ----------------    ----------------
Catalog sales                                       $504,967            $383,634            $331,519
Internet sales                                         9,948                  --                  --
Total direct-to-customer sales                      $514,915            $383,634            $331,519
Percent growth in direct-to-customer sales              34.2%               15.7%               11.2%
Percent growth in number of catalogs mailed             17.6%                5.6%               13.2%

Direct-to-customer sales increased 34.2% in fiscal 1999 and 15.7% in fiscal 1998, as compared to the same periods of the respective prior years. The increases in both years were primarily due to the strength of Pottery Barn.

Excluding the Gardeners Eden catalog, which was sold in May 1999, Pottery Barn and Pottery Barn Kids accounted for 59.5% and 36.2%, respectively, of the growth in fiscal 1999 catalog sales. The number of pages mailed and number of catalogs mailed for Pottery Barn increased 45.4% and 19.8%, respectively, for fiscal 1999 as compared to fiscal 1998. Fiscal 1999 sales for Pottery Barn Kids, which debuted in January 1999, were more than double the Company's original sales plan. Management believes that the success of the Pottery Barn brand reflects the Company's continuing investment in product design and quality, and the consumer recognition achieved through its Pottery Barn catalogs and design studio stores. The Company expects to introduce a Pottery Barn Bed & Bath catalog in the second quarter of 2000.

Sales for Williams-Sonoma catalog increased 8.5% in fiscal 1999 as compared to the same period of the prior year. The Company attributes this in part to the redesign of the Williams-Sonoma catalog, which was introduced in the second quarter of fiscal 1999.

In June 1999 the Company launched its Williams-Sonoma Internet Wedding and Gift Registry Web site and in November 1999 the Company launched its Williams-Sonoma e-commerce site. Combined sales from these sites was $9,948,000 in fiscal 1999. Management expects to add a Pottery Barn e-commerce site in the summer of fiscal 2000.

The Company sold Gardeners Eden to Brookstone, Inc. to allow greater focus on existing Company brands and the Internet. As a result of the sale, the Company recognized a $3,962,000 pre-tax gain ($2,437,000 after-tax).

COST OF GOODS SOLD AND OCCUPANCY

Cost of goods sold and occupancy expenses expressed as a percent of net sales for fiscal 1999 decreased 0.3 percentage points to 58.7% from 59.0% in fiscal 1998, principally due to a lower cost of merchandise. The Company believes this is a direct result of its investment in product development, sourcing and quality control personnel over the last several years. Occupancy expenses expressed as a percent of net sales remained flat in fiscal 1999 as compared to the same

39

period of the prior year. A higher depreciation expense rate related to systems development and the expansion of the Company's distribution facilities was offset by improvement in other occupancy expense rates due to increased sales volume.

In fiscal 1998, cost of goods sold and occupancy expenses expressed as a percent of net sales declined 0.7 percentage points, primarily as a result of lower cost of merchandise.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Selling, general and administrative expenses expressed as a percent of net sales increased 0.7 percentage points in fiscal 1999 to 33.4% from 32.7% in fiscal 1998, primarily due to an increased employment expense rate. The increased employment rate was partially due to higher than planned direct-to-customer demand in the fourth quarter, resulting in labor inefficiencies at the Company's direct-to-customer distribution facility. The Company also continued to develop the infrastructure required for the brand extensions and accelerated growth expected in the coming year, which resulted in increased expenses.

In fiscal 1998, selling, general and administrative expenses as a percent of net sales increased 0.3 percentage points, from 32.4% in fiscal 1997 to 32.7%. The increase is principally due to higher employment costs in the stores and distribution facility, partially offset by an improved advertising expense rate.

INTEREST EXPENSE

Net interest expense increased $1,082,000, from $1,363,000 in fiscal 1998 to $2,445,000 in fiscal 1999, principally due to reduced short-term investment income. Net interest expense in fiscal 1998 decreased $2,427,000 over net interest expense in fiscal 1997, primarily as a result of the conversion of the Company's $40,000,000 Convertible Notes.

INCOME TAXES

The Company's effective tax rate was 38.5% for fiscal 1999, as compared to 39.5% in fiscal 1998 and 41.0% in fiscal 1997. These reductions in the effective tax rate over the last several years reflect decreases in state taxes resulting from revisions in the corporate structure which are being undertaken in order to conform more closely to the Company's operations.

LIQUIDITY AND CAPITAL RESOURCES

For fiscal 1999, cash provided by operating activities was $105,721,000 representing an increase of $25,994,000 from the $79,727,000 of cash provided by operating activities for fiscal 1998. The $79,727,000 of operating cash provided in fiscal 1998 represented an increase of $3,854,000 as compared to fiscal 1997. The fiscal 1999 increase in operating cash is primarily attributable to an increase in net earnings. In addition, a significant increase in the level of merchandise inventories was mostly offset by increases in accounts payable and accrued expenses. An increase in inventory levels was planned to improve order fulfillment rates in the direct-to-customer business. However, merchandise inventory levels were above management's expectations at the end of fiscal 1999. The Company anticipates that inventory levels will be back in line with forecasted sales in the second half of fiscal 2000.

Net cash used in investing activities was $116,400,000 for fiscal 1999 as compared to $76,728,000 in fiscal 1998 and $59,146,000 in fiscal 1997. Fiscal 1999 purchases of property and equipment were $120,209,000, which includes approximately $70,442,000 for stores, $18,720,000 for warehouse and computer equipment in a new leased distribution facility and $25,455,000 for systems development, including the Internet. Net proceeds from the sale of the assets of the Gardeners Eden catalog were $9,101,000. Additionally, there were net proceeds from the sale of land of $2,091,000 and a $7,500,000 deposit on a new corporate headquarters building, as discussed below. The fiscal 1998 expenditures were primarily for new stores and information systems. Gross capital expenditures in fiscal 2000 are projected to be approximately $230,000,000, including approximately $75,000,000 for the purchase of a new corporate headquarters building, $80,000,000 for stores, and approximately $30,000,000 for systems development, including the Internet.

For fiscal 1999, cash used in financing activities was $3,786,000, comprised primarily of repayment of long-term debt and repurchases of the Company's common stock, partially offset by proceeds from stock option exercises. For fiscal

40

1998 and fiscal 1997, cash provided by financing activities was $7,095,000 and $1,685,000, respectively, principally due to proceeds from the exercise of stock options.

The Company's amended and restated syndicated line of credit agreement, which expires on May 31, 2001, provides for $50,000,000 in cash advances, and contains certain restrictive loan covenants, including minimum tangible net worth, a minimum out-of-debt period, fixed charge coverage requirements and a prohibition on payment of cash dividends. In addition, the Company has a $65,000,000 letter of credit agreement with its lead bank, which was amended in February 2000 as discussed below. As of January 30, 2000, the Company had no borrowings outstanding under the line of credit facility and $39,361,000 in outstanding letters of credit.

In February 2000 the Company purchased a 204,000 square foot office building in San Francisco, California, for the purpose of consolidating certain headquarters staff and to provide for future growth. The purchase price of $80,000,000 was financed by amending the Company's existing letter of credit agreement to add a $75,000,000 revolving line of credit at an interest rate of IBOR plus 0.875%. The amended letter of credit agreement expires on May 31, 2001.

By the end of the third quarter of fiscal 2000, the Company expects to replace its current line of credit and letter of credit agreements with a long-term agreement in order to meet increased working capital needs associated with the Company's growth plans.

In April 1998, the Company notified the holders of the Convertible Notes of the Company's intention to redeem the Convertible Notes. Prior to such redemption, substantially all of the Convertible Notes were converted into 3,064,000 shares of the Company's common stock. As a result, the Company recorded a net increase to paid-in capital of $39,004,000, representing $39,999,000 from the conversion of the Convertible Notes, net of $995,000 of related unamortized debt issuance costs.

In fiscal 1998, the Company leased a 750,000 square foot retail distribution facility located in Olive Branch, Mississippi. The lease covers 22.5 years with two optional five-year renewals. Rental payments for the primary term, which commenced in July 1999, are payable at an average annual rate of $3,100,000. In September 1999, the lease was amended to include a 261,000 square-foot expansion. Rent for the expansion commenced in January 2000 and is estimated at an average annual rate of $855,000.

In January 2000, the Company entered into an agreement to lease an additional 1,100,000 square-foot distribution facility in Olive Branch, Mississippi. The lease covers a 23-year term with two optional five-year renewals. Rent will commence upon completion of the facility, currently anticipated to be August 2000. Rental payments for the primary term are estimated to average $4,500,000 annually. These estimated rental payments are subject to adjustment upon completion of construction and finalization of costs.

In March 2000, the Company repurchased 825,000 shares of its common stock for approximately $18,500,000.

IMPACT OF INFLATION

The impact of inflation on results of operations has not been significant.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risks, which include changes in U.S. interest rates and, to a lesser extent, foreign exchange rates. The Company does not engage in financial transactions for trading or speculative purposes.

Interest Rate Risk.

The interest payable on the Company's bank line of credit is based on variable interest rates and therefore affected by changes in market interest rates. If interest rates on existing variable rate debt rose .85 basis points (a 10% change from the bank's reference rate as of January 30, 2000), the Company's results from operations and cash flows would not be materially affected. In addition, the Company has fixed and variable income investments consisting of cash equivalents and short-term investments, which are also affected by changes in market interest rates. In February 2000 the Company incurred additional variable rate debt in connection with the purchase of a corporate headquarters building. The Company does not use derivative financial instruments in its investment portfolio.

Foreign Currency Risks.

41

The Company enters into a significant amount of purchase obligations outside of the U.S. which are settled in U.S. Dollars and, therefore, has only minimal exposure to foreign currency exchange risks. The Company does not hedge against foreign currency risks and believes that foreign currency exchange risk is immaterial.

SEASONALITY

The Company's business is subject to substantial seasonal variations in demand. Historically, a significant portion of the Company's sales and net income have been realized during the period from October through December, and levels of net sales and net income have generally been significantly lower during the period from January through September. The Company believes this is the general pattern associated with the direct-to-customer and retail industries. In anticipation of its peak season, the Company hires a substantial number of additional employees in its retail stores and direct-to-customer processing and distribution areas, and incurs significant fixed catalog production and mailing costs.

FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, the matters discussed in this Annual Report to Shareholders are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements. Such risks and uncertainties include, without limitation, the Company's ability to continue to improve planning and control processes and other infrastructure issues, the potential for construction and other delays in store openings, the potential for changes in consumer spending patterns, consumer preferences and overall economic conditions, the Company's dependence on foreign suppliers, and increasing competition in the specialty retail business. Other factors that could cause actual results to differ materially from those set forth in such forward-looking statements include the risks and uncertainties detailed in the Company's most recent annual report on Form 10-K and its other filings with the Securities and Exchange Commission.

42

Consolidated Statements of Earnings

                                                                                   Year Ended
Dollars and shares in thousands, except per share amounts       Jan. 30, 2000     Jan. 31, 1999    Feb. 1, 1998
                                                                -------------     -------------    ------------
Net sales                                                        $1,383,993        $1,103,954        $933,257
Cost of goods sold and occupancy expenses                           812,966           650,942         556,776
   Gross margin                                                     571,027           453,012         376,481
Selling, general and administrative expenses                        461,823           360,904         302,669
Gain on sale of assets                                                3,962                --              --
Interest expense - net                                                2,445             1,363           3,790
   Earnings before income taxes                                     110,721            90,745          70,022
Income taxes                                                         42,621            35,848          28,675
   Net earnings                                                  $   68,100        $   54,897        $ 41,347
Basic earnings per share                                         $     1.22        $     1.01        $    .81
Diluted earnings per share                                       $     1.16        $      .96        $    .75
Shares used in calculation of earnings per share:
   Basic                                                             55,817            54,267          51,297
   Diluted                                                           58,612            57,655          56,666

See Notes to Consolidated Financial Statements.

Consolidated Statements of Shareholders' Equity

                                                              Common Stock             Retained
Dollars and shares in thousands                            Shares        Amount        Earnings       Total
                                                           ------       --------       --------      --------
Balance at February 2, 1997                                51,088       $ 49,960       $ 96,078      $146,038
   Exercise of stock options and tax
      benefit from disqualifying dispositions                 592          5,813             --         5,813
   Net earnings                                                --             --         41,347        41,347
Balance at February 1, 1998                                51,680         55,773        137,425       193,198
   Exercise of stock options and tax
      benefit from disqualifying dispositions               1,028         14,931             --        14,931
   Conversion of Convertible Notes into common stock        3,064         39,004             --        39,004
   Net earnings                                                --             --         54,897        54,897
Balance at January 31, 1999                                55,772        109,708        192,322      $302,030
   Exercise of stock options and tax
      benefit from disqualifying dispositions                 773         17,917             --        17,917
   Repurchase of common stock                                (166)        (4,738)            --        (4,738)
   Net earnings                                                --             --         68,100        68,100
Balance at January 30, 2000                                56,379       $122,887       $260,422      $383,309

See Notes to Consolidated Financial Statements.

43

Consolidated Balance Sheets

Dollars in thousands, except per share amounts                                       Jan. 30, 2000  Jan. 31, 1999
                                                                                     -------------  -------------
Assets

Current Assets
     Cash and cash equivalents                                                         $ 92,843       $107,308
     Accounts receivable (less allowance for doubtful
          accounts of $250 and $230)                                                     22,427         20,082
     Merchandise inventories                                                            257,342        173,160
     Prepaid expenses and other assets                                                   13,326          8,985
     Prepaid catalog expenses                                                            14,677         13,154
     Deferred income taxes                                                                9,265          4,077
     Total current assets                                                               409,880        326,766
Property and equipment - net                                                            313,171        243,119
Investments and other assets (less accumulated
          amortization of $649 and $544)                                                 15,891          6,360
Total assets                                                                           $738,942       $576,245

Liabilities and Shareholders' Equity

Current liabilities
     Accounts payable                                                                  $102,462       $ 70,964
     Accrued expenses                                                                    33,971         24,003
     Customer deposits                                                                   40,087         26,659
     Income taxes payable                                                                26,062         19,529
     Current portion of long-term obligations                                             5,839          6,368
     Other liabilities                                                                    7,366          6,377
     Total current liabilities                                                          215,787        153,900
Deferred lease credits                                                                   90,873         72,327
Long-term debt and other liabilities                                                     40,453         44,649
Deferred income tax liability                                                             8,520          3,339
Commitments and contingencies                                                                --             --
Shareholders' equity
     Preferred stock, $.01 par value,
          Authorized 7,500,000 shares, none issued                                           --             --
     Common stock, $.01 par value, authorized 126,562,500 shares,
          issued and outstanding, 56,378,958 and 55,771,935 shares, respectively        122,887        109,708
     Retained earnings                                                                  260,422        192,322
     Total shareholders' equity                                                         383,309        302,030
Total liabilities and shareholders' equity                                             $738,942       $576,245

See Notes to Consolidated Financial Statements.

44

Consolidated Statements of Cash Flows

                                                                               Year Ended
Dollars in thousands                                        Jan. 30, 2000     Jan. 31, 1999     Feb. 1, 1998
                                                            -------------     -------------     ------------
Cash flows from operating activities:
Net Earnings                                                  $  68,100         $  54,897         $ 41,347
Adjustments to reconcile net earnings to net cash used
     In operating activities:
     Depreciation and amortization                               45,211            33,021           28,871
     Net (gain)loss on disposal of assets                          (931)              289             (132)
     Amortization of deferred lease incentives                   (8,699)           (6,605)          (4,853)
     Change in deferred income taxes                                 (7)              503            3,238
     Tax benefit from exercise of stock options                  10,488             7,221            3,507
     Other                                                           --                --            3,022
Change in:
     Accounts receivable                                         (2,345)           (4,844)          (3,320)
     Merchandise inventories                                    (86,854)          (40,709)         (21,749)
     Prepaid catalog expenses                                    (3,152)              442           (1,671)
     Prepaid expenses and other assets                           (4,342)             (994)             683
     Accounts payable                                            31,498            12,468           (5,913)
     Accrued expenses and other liabilities                      22,976            (1,050)           9,911
     Deferred lease incentives                                   27,245            22,775           21,431
     Income taxes payable                                         6,533             2,313            1,501
Net cash provided by operating activities                       105,721            79,727           75,873
Cash flows from investing activities:
     Purchase of property and equipment                        (120,209)          (78,934)         (59,299)
     Proceeds from sale of property and equipment                11,192             2,206               --
     Deposit on purchase of headquarters building                (7,500)               --               --
     Other                                                          117                --              153
Net cash used in investing activities                          (116,400)          (76,728)         (59,146)
Cash flows from financing activities:
     Borrowings under line of credit                            158,480            53,825           41,000
     Repayments under line of credit                           (158,480)          (53,825)         (41,000)
     Repurchase of common stock                                  (4,738)               --               --
     Repayments of long-term debt                                (6,477)             (615)            (621)
     Proceeds from exercise of stock options                      7,429             7,710            2,306
Net cash provided by (used in) financing activities              (3,786)            7,095            1,685
Net increase (decrease) in cash and cash equivalents            (14,465)           10,094           18,412
Cash and cash equivalents at beginning of period                107,308            97,214           78,802
Cash and cash equivalents at end of period                    $  92,843         $ 107,308         $ 97,214

Non-cash financing transaction:
     Conversion of Convertible Notes to common stock          $      --         $  39,004         $     --

See Notes to Consolidated Financial Statements.

45

Notes to Consolidated Financial Statements

Note A Summary of Significant Accounting Policies

Williams-Sonoma, Inc. and its subsidiaries (the Company) are specialty retailers of products for the home. The retail segment sells its products through its three retail concepts: Williams-Sonoma, Pottery Barn and Hold Everything. The direct-to-customer segment sells similar products through its five direct-mail catalogs, Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Hold Everything and Chambers and the Internet (Williams-Sonoma only). Based on net sales in fiscal 1999, retail accounted for 62.8% of the business and direct-to-customer accounted for 37.2%. The principal concepts in both retail and direct-to-customer are Williams-Sonoma and Pottery Barn, which sell cookware essentials and contemporary tableware and home furnishings, respectively. The catalogs reach customers throughout the United States, while the three retail businesses currently operate 344 stores in 39 states and Washington D.C. Significant intercompany transactions and accounts have been eliminated.

Fiscal Year: The Company's fiscal year ends on the Sunday closest to January 31. Fiscal years 1999, 1998 and 1997 ended on January 30, 2000, January 31, 1999 and February 1, 1998, respectively and each fiscal year consisted of 52 weeks.

Fair Value of Financial Instruments: The carrying value of cash and cash equivalents, accounts receivable, investments, accounts payable and debt approximates their estimated fair values.

Cash equivalents: Cash equivalents consist of short-term investments with original maturities of 90 days or less.

Merchandise inventories: Merchandise inventories are stated at the lower of cost (weighted-average method) or market. In fiscal 1999, approximately 49.4% of the Company's payments for merchandise were to foreign vendors, most of which are located in Europe and Asia.

Prepaid catalog expenses: Prepaid catalog expenses consist of the cost to produce, print and distribute catalogs. Such costs are amortized over the expected sales volume of each catalog. Typically, over 90% of the cost of a catalog is amortized in the first four months. Catalog advertising expenses amounted to $132,326,000, $108,425,000 and $94,169,000 in fiscal 1999, 1998 and 1997, respectively.

Property and equipment: Property and equipment are stated at cost. Depreciation is computed using the straight-line method based upon the estimated remaining useful lives of the assets ranging from 3 to 49 years. Amortization of improvements to leased properties is based upon the shorter of the remaining term of the applicable lease or the estimated useful lives of such assets. Whenever events or changes in circumstances have indicated that the carrying amount of its assets might not be recoverable, the Company, using its best estimates based on reasonable and supportable assumptions and projections, has reviewed for impairment the carrying value of long-lived assets.

Capitalized software costs: Capitalized computer software, included in property and equipment, reflects costs related to internally developed or purchased software that are capitalized and amortized on a straight line basis, generally over a three to five year period. Internally developed software costs are capitalized in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use"

Investments and other assets: Investments and other assets include certain investments, long-term deposits, lease rights and interests which are being amortized over the life of the respective leases (5 to 49 years), and debt-issuance costs which are amortized over the life of the debt.

Deferred lease incentives: Deferred lease incentives include construction allowances received from landlords, which are amortized on a straight-line basis over the initial lease term. For leases which contain fixed escalations of the minimum annual lease payment during the original term of the lease, the Company recognizes rental expense on a straight-line basis and records the difference between rent expense and the amount currently payable as deferred lease incentives.

Net Sales: Sales are recorded, net of estimated returns, when merchandise is shipped from warehouses for catalog and Internet sales or purchased by the customer at retail locations. Historically, the Company had not recorded sales returns on the accrual basis of accounting because the difference between the cash and accrual basis of accounting was not material to the results of operations. In fiscal 1999, the Company began recording sales returns on the accrual

46

basis of accounting. Because the effect of this change was insignificant to fiscal 1998 and 1997, the Company recorded the effect of this change in the current year. The impact of recording this change in fiscal 1999 for current and prior years is a reduction in net earnings of $3,206,000, or $0.05 diluted earnings per share.

Income taxes: Income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements.

Earnings Per Share: Basic earnings per share is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted net earnings per share is computed based on the weighted average number of common shares outstanding for the period, plus common stock equivalents consisting of shares subject to stock options and shares from assumed conversion of convertible debt. Earnings per share, number of shares and stock options for all periods presented have been restated to reflect a 2-for-1 stock split in May 1998.

Stock-based awards: The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion (APB) NO. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements.

Comprehensive income: Comprehensive income consists of net income and other comprehensive income (income, expenses, gains and losses that currently bypass the income statement and are reported directly as a separate component of equity). The Company's comprehensive income equals net income for all periods presented.

New accounting pronouncement: Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for years beginning after June 15, 2000. The impact of adoption of the standard by the Company has not yet been determined.

Management estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications: Certain items in the prior years' consolidated financial statements have been reclassified to conform to the fiscal 1999 presentation.

Note B Property and Equipment

Property and equipment consist of the following:

Dollars in thousands                                Jan. 30, 2000   Jan. 31, 1999
                                                    -------------   -------------
Land and buildings                                    $ 12,658        $ 12,689
Leasehold improvements                                 250,106         201,170
Fixtures and equipment                                 166,466         122,861
Software                                                44,125          23,625
Construction in progress                                 7,313          11,242
                                                       480,668         371,587
Less accumulated depreciation and amortization         167,497         128,468
Total property and equipment - net                     313,171         243,119

47

Note C Borrowing Arrangements

Long-term debt consists of the following:

Dollars in thousands                                        Jan. 30, 2000   Jan. 31, 1999
                                                            -------------   -------------
Senior notes                                                    34,286          40,000
Mortgage                                                         6,279           6,404
Obligations under capital leases and other liabilities           5,727           4,613
                                                                46,292          51,017
Less current maturities                                          5,839           6,368
Total long-term debt                                           $40,453         $44,649

In April 1998, the Company notified the holders of the Convertible Notes of the Company's intention to redeem the Convertible Notes. Prior to such redemption, substantially all of the Convertible Notes were converted into 3,064,000 shares of the Company's common stock. As a result, the Company recorded a net increase to paid-in capital of $39,004,000, representing $39,999,000 from the conversion of the Convertible Notes, net of $995,000 of related unamortized debt issuance costs.

The Company has $40,000,000 of Senior Notes which are due in August 2005, and interest is payable semi-annually at 7.2%. Annual principal payments of $5,714,000 began in August 1999, and continue through August 2004. The remaining principal amount is due and payable upon maturity. The Senior Notes contain certain restrictive loan covenants, including minimum net-worth requirements, fixed-charge coverage ratios and limitations on current and funded debt.

The Company has an agreement with a bank for a $7,000,000 mortgage at LIBOR plus 1.25%. The Company fixed the interest rate at 7.8% through an interest-rate swap agreement with the bank. Interest and nominal principal payments are due quarterly. Upon maturity of the mortgage in March 2001, a lump sum payment of $6,154,000 will be due. The mortgage is secured by the corporate headquarters building.

The Company's amended and restated syndicated line of credit facility, which expires on May 31, 2001, provides for $50,000,000 in cash advances, and contains certain restrictive loan covenants, including minimum tangible net worth, a minimum out-of-debt period, fixed charge coverage requirements and a prohibition on payment of cash dividends. In addition, the Company has a $65,000,000 letter of credit agreement with its lead bank which was amended in February 2000 as discussed below. As of January 30, 2000, the Company had no borrowings outstanding under the line of credit facility and $39,361,000 in outstanding letters of credit.

In February 2000 the Company purchased a 204,000 square foot office building in San Francisco, California, for the purpose of consolidating certain headquarters staff and to provide for future growth. The purchase price of $80,000,000 was financed by amending the Company's existing letter of credit agreement to add a $75,000,000 revolving line of credit. The amended agreement expires on May 31, 2001.

By the end of the third quarter of fiscal 2000, the Company expects to replace its current line of credit and letter of credit agreements with a long-term agreement in order to meet increased working capital needs associated with the Company's growth plans.

Interest expense was $4,221,000, $4,093,000 and $5,705,000 for fiscal 1999, 1998 and 1997, respectively. Interest paid was $4,390,000, $4,568,000 and $5,828,000 for the same periods.

Accounts payable at January 30, 2000, and January 31, 1999, includes cash overdrafts of $22,667,000 and $17,109,000, respectively, for checks issued and not presented to the bank for payment.

As of January 30, 2000, the Company's debt (excluding the February 2000 borrowings), is scheduled to mature as follows: $5,839,000 in fiscal year 2000, $12,734,000 in fiscal year 2001, $5,852,000 in fiscal year 2002, $5,763,000 in fiscal year 2003, $5,714,000 in fiscal year 2004 and $10,390,000 thereafter.

48

Note D Income Taxes

The provision for income taxes consists of the following:

Dollars in thousands                            Year Ended
                           Jan. 30, 2000       Jan. 31, 1999       Feb. 1, 1998
                           -------------       -------------       ------------
Current payable
     Federal                 $ 36,034             $29,182            $20,261
     State                      6,594               6,163              5,176
     Total current             42,628              35,345             25,437
Deferred
     Federal                      (12)                336              2,609
     State                          5                 167                629
     Total deferred                (7)                503              3,238
     Total provision         $ 42,621             $35,848            $28,675

Income taxes paid were $26,639,000, $26,371,000 and $20,702,000 for fiscal 1999, 1998 and 1997, respectively. A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows:

                                                                       Year Ended
                                                     Jan. 30, 2000    Jan. 31, 1999    Feb. 1, 1998
                                                     -------------    -------------    ------------
Federal income taxes at the statutory rate               35.0%            35.0%            35.0%
State income tax rate, less federal benefit               3.5%             4.5%             5.5%
Other                                                      --               --              0.5%
Total                                                    38.5%            39.5%            41.0%

Significant components of the Company's deferred tax accounts are as follow:

                                            Jan. 30, 2000                  Jan. 31, 1999
                                            -------------                  -------------
Dollars in thousands
                                      Deferred         Deferred        Deferred         Deferred
                                      Tax Assets   Tax Liabilities    Tax Assets    Tax Liabilities
                                      ----------   ---------------    ----------    ---------------
Current:
     Compensation                      $ 4,087              --         $ 3,437              --
     Inventory                           7,419              --           4,284              --
     Accrued liabilities                 3,669         $   258           1,773          $  182
     Deferred catalog costs                 --           5,652              --           5,235
          Total current                 15,175           5,910           9,494           5,417

Non-current:
     Depreciation                           --           4,225              --           1,648
     Deferred rent                         821              --             773              --
     Deferred lease incentives              --           5,116              --           2,464
     Capital loss                           --              --           5,160              --
     Valuation allowance                    --              --          (5,160)             --
     Total non-current                     821           9,341             773           4,112
  Total                                $15,996         $15,251         $10,267          $9,529

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. The Company had established a valuation allowance as of January 31, 1999 due to the uncertainty of realizing future tax benefits from its capital loss carryforwards. Due to the expiration of the capital loss carryforward as of January 30, 2000, the deferred tax asset and applicable valuation allowance have been eliminated.

Note E Leases

The Company leases store locations, its warehouses, corporate headquarters, call centers and certain equipment under operating and capital leases for original terms ranging from 3 to 23 years extending through 2022, except for one store lease with a 49 year term extending though 2040. Most store leases require the payment of minimum rentals against percentage rentals based on store sales. Certain leases contain renewal options for periods of up to 20 years.

In fiscal 1998, the Company leased a 750,000 square foot retail distribution facility located in Olive Branch, Mississippi. The lease covers 22.5 years with two optional five-year renewals. Rental payments for the primary term, which commenced in July 1999, are payable at an average annual rate of $3,100,000. In September 1999, the lease was amended to include a 261,000 square-foot expansion. Rent for the expansion commenced in January 2000 and is estimated at an average annual rate of $855,000.

49

In January 2000, the Company entered into an agreement to lease an additional 1,100,000 square-foot distribution facility in Olive Branch, Mississippi. The lease covers a 23-year term with two optional five-year renewals. Rent will commence upon completion of the facility, currently anticipated to be August 2000. Rental payments for the primary term are estimated to average $4,500,000 annually. These estimated rental payments are subject to adjustment upon completion of construction and finalization of costs. The estimated rental payments have been included in the lease commitment table below.

Total rental expense for all operating leases was as follows:

                                              Year Ended
Dollars in thousands         Jan. 30, 2000   Jan. 31, 1999    Feb. 1, 1998
                             -------------   -------------    ------------
Minimum rent expense            $50,580         $43,320         $35,431
Equipment rent                    9,745           8,056           6,767
Contingent rent expense          10,046           6,138           5,584
     Total rent expense         $70,371         $57,514         $47,782

The aggregate minimum annual rental payments under noncancelable operating leases in effect at January 30, 2000 were as follows:

Dollars in thousands

Fiscal 2000                                                    $ 78,161
Fiscal 2001                                                      78,181
Fiscal 2002                                                      75,048
Fiscal 2003                                                      71,239
Fiscal 2004                                                      67,768
Later years                                                     459,401
     Total minimum lease commitment                            $829,798

Note F Related Party Lease Transactions -

Two of the Company's distribution facilities are leased from two partnerships whose partners include directors, executive officers and/or significant shareholders of the Company.

The Company has an agreement to lease a distribution facility which expires in June, 2004. The lessor is a partnership comprised of W. Howard Lester, chairman, chief executive officer and significant shareholder of the Company and James A. McMahan, a director and significant shareholder of the Company. The partnership financed the construction through the sale of $6,300,000 principal amount of industrial development bonds due June 2008. The partnership financed the construction of additional space through the sale of $2,900,000 principal amount of industrial development bonds due 2010. The Company's lease with the partnership was amended to include additional rent plus interest on the new bonds for the same lease term as the original lease. Rental payments consist of the basic annual rent of $618,000, plus interest on the bonds (a floating rate equal to 55% of the prime rate of a designated bank), applicable taxes, insurance and maintenance expenses.

The Company has an agreement to lease another distribution facility. The lessor is a partnership that includes Messrs. Lester and McMahan. The lease has an initial, non-cancelable term of 15 years ending in July 2006, with three optional five year renewals. Rentals (including interest on the bonds, sinking fund payments and fees) for the primary term are payable at an average rate of $2,700,000 per year plus applicable taxes, insurance and maintenance expenses. The partnership financed the construction of the distribution facility through the sale of $10,550,000, 10.36% principal amount of industrial development bonds due August 2015. The lessor financed the construction of an expansion through the sale of $9,825,000, 9.01% principal amount of industrial development bonds due in August 2015.

50

After the option periods, the Company is obligated to renew each lease annually so long as the bonds which financed the specific projects remain outstanding.

Note G Earnings Per Share

The following is a reconciliation of net earnings and the number of shares used in the basic and diluted earnings per share computations:

                                                               Net          Weighted      Per-Share
                                                             Earnings    Average Shares     Amount
                                                             --------    --------------   ---------
1999
     Basic                                                   $68,100         55,817         $1.22
        Effect of dilutive stock options                          --          2,795
     Diluted                                                  68,100         58,612          1.16

1998
     Basic                                                    54,897         54,267          1.01
        Effect of assumed conversion of Convertible Notes        212          1,021
        Effect of dilutive stock options                          --          2,367
     Diluted                                                  55,109         57,655           .96

1997
     Basic                                                    41,347         51,297           .81
        Effect of assumed conversion of Convertible Notes      1,239          3,065
        Effect of dilutive stock options                          --          2,304
     Diluted                                                 $42,586         56,666         $ .75

Options for which the exercise price was greater than the average market price of common shares for the period were not included in the computation of diluted earnings per share. These options to purchase shares were 25,000 in fiscal 1999, 9,500 in fiscal 1998 and 15,000 in fiscal 1997.

In March 2000, the Company repurchased 825,000 shares of its common stock for approximately $18,500,000.

Note H: Stock Options

The Company's 1993 Stock Option Plan (the 1993 Plan), as amended, provides for grants of incentive and non-qualified stock options up to an aggregate of 8,500,000 shares. All incentive stock option grants made under the 1993 Plan have a maximum term of ten years, except those issued to 10% shareholders which have a term of five years. The exercise price of all incentive stock options is 100% of the fair market value of the stock at the option grant date or 110% for a 10% shareholder.

In fiscal 1998, the Board of Directors adopted a resolution to reprice all outstanding stock options with an exercise price greater than $19.31, the market price at the time of the resolution. Accordingly, approximately 1,225,000 options were repriced to $19.31.

The following table reflects the aggregate activity under the Company's stock option plans, including the repricing:

51

                                                                         Weighted Average
                                                            Options       Exercise Price
                                                           ---------     ----------------
Balance at February 2, 1997                                3,960,318           7.12
     Granted (weighted average fair value of $9.70)        1,364,700          15.01
     Exercised                                               593,382           3.77
     Canceled                                                155,526           9.70
Balance at February 1, 1998                                4,576,110           9.82
     Granted (weighted average fair value of $13.53)       2,558,350          22.57
     Exercised                                             1,028,630          29.29
     Canceled                                              1,558,848          23.06
Balance at January 31, 1999                                4,546,982          13.00
     Granted (weighted average fair value of $19.39)       1,836,075          30.63
     Exercised                                               772,063           9.59
     Canceled                                                591,350          16.12
Balance at January 30, 2000                                5,019,644          19.61

Exercisable, February 1, 1998                              1,939,598           6.71
Exercisable, January 31, 1999                              1,752,638           8.22
Exercisable, January 30, 2000                              1,773,015          11.17

Options to purchase 1,938,107 shares were available for grant on January 30, 2000.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123), requires the disclosure of pro forma net earnings and earnings per share as if the Company had adopted the fair value method. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.

The Company's calculations are based on a single option valuation approach and forfeitures are recognized as they occur. However, the impact of outstanding unvested stock options granted prior to 1995 has been excluded from the pro forma calculation, accordingly, the 1997, 1998 and 1999 pro forma adjustments are not indicative of future periods pro forma adjustments. Had compensation cost been determined consistent with SFAS No. 123, the Company's net earnings and earnings per share would have been changed to the pro forma amounts indicated below:

                                                                      Year Ended
Dollars in thousands, except per share amounts      Jan. 30, 2000    Jan. 31, 1999     Feb. 1, 1998
                                                    -------------    -------------     ------------
Net earnings
     As reported                                       $68,100          $54,897          $41,347
     Pro forma                                          59,606               --               --
     Pro forma - basic(1)                                   --           50,058           38,639
     Pro forma - diluted(1)                                 --           50,270           39,878
Basic earnings per share
     As reported                                          1.22             1.01              .81
     Pro forma                                            1.07              .92              .76
 Diluted earnings per share
     As reported                                          1.16              .96              .75
     Pro forma                                         $  1.03          $   .88          $   .71

(1) Within fiscal 1998 and fiscal 1997, pro forma basic and diluted net earnings are different due to the assumed conversion of the Convertible Notes, which were converted in April 1998.

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

                                                 Year Ended
                               Jan. 30, 2000    Jan. 31, 1999    Feb. 1, 1998
                               -------------    -------------    ------------
Dividend yield                       --               --               --
Volatility                         59.6%            60.0%            61.0%
Risk-free interest                  5.2%             5.6%             6.5%
Expected term (years)               6.7              5.7              6.0

52

The following table summarizes information about stock options outstanding at January 30, 2000:

                                               Options Outstanding                     Options Exercisable
                                               -------------------                     -------------------
                                                          Weighted    Weighted                         Weighted
                                            Number         Average     Average              Number      Average
                                       Outstanding     Contractual    Exercise         Exercisable     Exercise
                                     Jan. 30, 2000    Life (Years)       Price    at Jan. 30, 2000        Price
                                     -------------    ------------    --------    ----------------     --------
Range of exercise prices
$ 2.56 - $ 9.41                          1,005,389             4.1      $ 6.18             850,149       $ 5.65
$10.44 - $18.19                          1,081,390             6.5       13.58             581,328        13.16
$18.38 - $19.31                          1,038,040             8.2       19.23             261,338        19.19
$21.56 - $29.00                          1,040,075             9.1       28.17              12,300        21.73
$29.75 - $53.75                            854,750             9.5       33.06              67,900        30.62

$ 2.56 - $53.75                          5,019,644             7.4      $19.61           1,773,015       $11.17

Note I Associate Stock-Incentive Plan -

The Company has a defined contribution retirement plan, the "Williams Sonoma, Inc. Associate Stock-Incentive Plan", (the Plan) for eligible employees, which is intended to be qualified under Internal Revenue Code Sections 401(a) and 401(k). The plan permits eligible employees to make salary deferral contributions in accordance with Internal Revenue Code Section 401(k). Each participant may choose to have his/her salary deferral contributions and earnings thereon invested in one or more of a money market reserve fund, a balanced mutual fund, or a fund investing in stock of the Company. All amounts contributed by the Company are invested in stock of the Company. The Company's matching contribution is 100% of the first 6% of a participant's pay (4% for highly-compensated individuals) which the participant elects to contribute as salary deferral contributions. The Company's contributions were $2,822,000 in fiscal 1999, $2,098,000 in fiscal 1998 and $1,331,147 in fiscal 1997.

Note J Commitments and Contingencies

The Company is party to various legal proceedings arising from normal business activities. Management believes that the resolution of these matters will not have an adverse material effect on the Company's financial statements taken as a whole.

Note K Segment Reporting

Williams-Sonoma, Inc. has two reportable segments: retail and direct-to-customer. The retail segment sells products for the home through its three retail concepts: Williams-Sonoma, Pottery Barn and Hold Everything. The direct-to-customer segment sells similar products through its five direct-mail catalogs: Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Hold Everything and Chambers, and the Internet (Williams-Sonoma only).

These reportable segments are strategic business units that offer similar home-centered products. They are managed separately because the business units utilize two distinct distribution and marketing strategies.

The accounting policies of the segments, where applicable, are the same as those described in the summary of significant accounting policies. The Company uses earnings before unallocated corporate overhead, interest and taxes to evaluate segment profitability. Unallocated assets include corporate cash and equivalents, the net book value of corporate facilities and related information systems, deferred tax amounts and other corporate long-lived assets.

In 1999 the Company sold its Gardeners Eden catalog business to Brookstone, Inc. As a result of this sale, the Company recorded a $3,962,000 pre-tax gain, which is reflected in direct-to-customer earnings before income taxes in the segment information below.

53

SEGMENT INFORMATION

Dollars in thousands
                                                                    Direct-to-
                                                      Retail         Customer       Unallocated            Total
                                                      ------        ----------      -----------            -----
1999
        Revenues                                     $869,078        $514,915        $        --         $1,383,993
        Depreciation and amortization expense          30,951           7,719              6,451             45,211
        Earnings before income taxes                  114,526          70,218            (74,023)           110,721

        Assets                                        425,375         160,076            153,491            738,942
        Capital expenditures                           89,994          17,770             12,445            120,209

1998
        Revenues                                      720,320         383,634                 --          1,103,954
        Depreciation and amortization expense          24,054           3,954              5,013             33,021
        Earnings before income taxes                   88,670          58,045            (55,970)            90,745

        Assets                                        335,882          91,585            148,778            576,245
        Capital expenditures                           65,374           8,930              4,630             78,934

1997
        Revenues                                      601,738         331,519                 --            933,257
        Depreciation and amortization expense          20,146           3,489              5,236             28,871
        Earnings before income taxes                   77,151          41,916            (49,045)            70,022

        Assets                                        272,610          73,742            130,877            477,229
        Capital expenditures                         $ 50,077        $  3,468        $     5,754         $   59,299

54

Independent Auditors' Report

To the Board of Directors and the Shareholders of Williams-Sonoma, Inc.:

We have audited the accompanying consolidated balance sheets of Williams-Sonoma, Inc. and subsidiaries (the Company) as of January 30, 2000 and January 31, 1999, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three fiscal years in the period ending January 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Williams-Sonoma, Inc. and subsidiaries as of January 30, 2000, and January 31, 1999, and the results of its operations and its cash flows for each of the three fiscal years in the period ending January 30, 2000, in conformity with generally accepted accounting principles.

San Francisco, California
March 24, 2000

55

Quarterly Financial Information
(Unaudited)

Fiscal 1999                                                               Quarter Ended
Dollars in thousands, except per share amounts         May 2         August 1(2)    October 31       January 30
                                                       -----         ----------     ------------     ----------
Net sales                                             $258,676        $264,000        $324,148        $537,169
Gross margin                                            98,783          97,922         131,400         242,923
Earnings before income taxes                             5,410          11,436          15,271          78,604
Net earnings                                             3,274           6,918           9,239          48,669
Basic earnings per share                                   .06             .12             .17             .87
Diluted earnings per share                                 .06             .12             .16             .82

Fiscal 1998                                                                Quarter Ended
Dollars in thousands, except per share amounts        May 3(1)        August 2        November 1     January 31
                                                      -------         --------        ----------     ----------
Net sales                                             $206,210        $215,262        $241,298        $441,184
Gross margin                                            78,286          80,014          94,804         199,907
Earnings before income taxes                             3,639           6,515           8,470          72,121
Net earnings                                             2,147           3,844           4,998          43,908
Basic earnings per share                                   .04             .07             .09             .79
Diluted earnings per share                                 .04             .07             .09             .75

(1) These per share amounts have been restated to reflect the 2-for-1 stock split in May 1998.

(2) Earnings include a $2,437,000 after-tax gain for the sale of the assets of Gardeners Eden.

Common Stock

Williams-Sonoma's common stock is traded on the New York Stock Exchange (NYSE) under the symbol WSM. The following table sets forth the high and low closing prices on the NYSE for the periods indicated.

On March 22, 2000, there were 563 shareholders of record, excluding shareholders whose stock is held in nominee or street name by brokers. The Company's present policy is to retain its earnings to finance future growth, and it does not intend to pay cash dividends. In addition, the Company's bank line of credit prohibits payment of cash dividends (see Note C of Notes to Consolidated Financial Statements).

Fiscal 1999                                        High           Low
                                                   ----           ---
     1st Quarter                                  38 1/2         25 5/8
     2nd Quarter                                  38 3/8         26
     3rd Quarter                                  53 3/4         34 5/16
     4th Quarter                                  59 3/16        31 1/8

Fiscal 1998                                        High           Low
                                                   ----           ---
     1st Quarter(1)                               31 1/2         20 3/8
     2nd Quarter                                  36 1/2         25 7/8
     3rd Quarter                                  31 7/8         17 9/16
     4th Quarter                                  40 5/16        27 9/16

(1) These amounts have been restated to reflect the 2-for-1 stock split in May 1998.

56

EXHIBIT 21

Exhibit 21: Subsidiaries of Williams-Sonoma, Inc. As of Fiscal Year End January 30, 2000

Subsidiary Name                                            State/Date of Incorporation
---------------                                            ---------------------------
Williams-Sonoma Stores, Inc.                               California, October 11, 1984

Pottery Barn, Inc.                                         California, August 18, 1986

Hold Everything, Inc.                                      California, September 30, 1986

Chambers Catalog Company, Inc.                             California, February 1, 1995

Pottery Barn Kids, Inc.                                    California, June 23, 1998

Williams-Sonoma Stores LLC                                 Delaware, July 29, 1998

Williams-Sonoma Retail Services, Inc.                      California, January 25, 1999

Williams-Sonoma Direct, Inc.                               California, August 9, 1999


EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No. 2-89801, No. 33-28490, No. 33-33693, No. 33-60787, No. 33-65656, No. 333-48247, No. 333-39811, No. 333-58833 and No. 333-82205 on Form S-8, and No. 333-07851 on Form S-3 of Williams-Sonoma, Inc. of our reports dated March 24, 2000, appearing in and incorporated by reference in the Annual Report on Form 10-K of Williams-Sonoma, Inc. for the fiscal year ended January 30, 2000.

/s/ Deloitte & Touche LLP

San Francisco, California
April 26, 2000


ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
MULTIPLIER: 1,000


PERIOD TYPE YEAR
FISCAL YEAR END JAN 30 2000
PERIOD END JAN 30 2000
CASH 92,843
SECURITIES 0
RECEIVABLES 22,427
ALLOWANCES 0
INVENTORY 257,342
CURRENT ASSETS 409,880
PP&E 480,668
DEPRECIATION 167,497
TOTAL ASSETS 738,942
CURRENT LIABILITIES 215,787
BONDS 35,466
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 11,466
OTHER SE 371,843
TOTAL LIABILITY AND EQUITY 738,942
SALES 1,383,993
TOTAL REVENUES 1,383,993
CGS 812,966
TOTAL COSTS 1,274,789
OTHER EXPENSES 0
LOSS PROVISION 0
INTEREST EXPENSE 2,445
INCOME PRETAX 110,721
INCOME TAX 42,621
INCOME CONTINUING 68,100
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME 68,100
EPS BASIC 1.22 1
EPS DILUTED 1.16
1