Richard Thalheimer
 
                                                                  EXECUTION COPY
 
                              EMPLOYMENT AGREEMENT
 
         This  Employment  Agreement  (the  "Agreement")  is entered  into as of
October 21, 2002 by and between  Sharper Image  Corporation  (the "Company") and
Richard Thalheimer (the "Executive").
 
         WHEREAS the Company desires to continue to employ the Executive and the
Executive  desires to accept continued  employment with the Company on the terms
and conditions set forth below;
 
         NOW,  THEREFORE,  in  consideration  of  the  above  premises  and  the
respective  covenants  and  agreements  of the  parties  herein  contained,  and
intending to be legally bound hereby, the parties hereto agree as follows:
 
         1.  Employment.  The  Company  hereby  agrees to continue to employ the
Executive,  and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth herein.
 
         2.  Effective  Date.  The  employment  of the  Executive by the Company
pursuant to this Agreement as provided in Section 1 will commence on October 21,
2002 (the  "Effective  Date") and continue until the  Executive's  employment is
terminated as provided in Section 6 (the "Term").
 
         3. Position and Duties. The Executive shall serve as and hold the title
of Chief Executive Officer of the Company, and shall have such responsibilities,
duties and  authority as are  generally  associated  with such office and as may
from time to time be assigned to the  Executive by the Board of Directors of the
Company that are consistent  with such  responsibilities,  duties and authority.
The Executive shall devote  substantially all of his working time and efforts to
the business  and affairs of the Company and its  subsidiaries  and  affiliates;
provided,  however,  and without prejudice to the foregoing,  that nothing shall
preclude  the  Executive  from:  (i) serving on the board of  directors of other
corporations  or (ii) engaging in charitable and community  affairs and managing
his personal affairs and investments. The Executive shall report to the Board of
Directors  of the  Company.  Notwithstanding  anything in this  Section 3 to the
contrary,  the  Executive  shall  not be  required  to  perform  any  duties  or
responsibilities that would result in a violation of, or noncompliance with, any
law, regulation,  regulatory  pronouncement or any other regulatory  requirement
applicable  to the  Company or the conduct of the  Company's  business or to the
Executive in his capacity as Chief Executive of the Company.
 
         4. Place of Performance.  In connection with the Executive's employment
by the Company,  the Executive shall be based at the principal executive offices
of the Company in San Francisco,  California  (unless  mutually agreed to by the
parties hereto), except for required travel on the Company's business.
 
<PAGE>
 
         5. Compensation and Related Matters.
 
                  (a)  Salary.  During the Term,  the  Company  shall pay to the
         Executive  an annual base salary to be paid  pursuant to the  Company's
         normal  payroll  practices.  Such base  salary  shall be at the initial
         annual rate of $850,000 as of the Effective  Date and shall be reviewed
         annually as of April during the remaining term of the Agreement.
 
                  (b)  Bonus.  For each  calendar  year  during  the  Term,  the
         Executive  shall be eligible to participate in the Company's  Executive
         Bonus Plan or any successor plan or program adopted by the Company.
 
                  (c) Deferred  Compensation  Program.  For each  calendar  year
         during the Term, the Executive  shall be eligible to participate in the
         Company's  Deferred  Compensation  Program  or any  successor  plan  or
         program adopted by the Company.
 
                  (d)  Expenses.  The  Executive  shall be  entitled  to receive
         prompt reimbursement for all reasonable and customary expenses incurred
         by the Executive in performing services  hereunder,  provided that such
         expenses are incurred and accounted for in accordance with the policies
         and procedures established by the Company.
 
                  (e) Benefits and Perquisites.  The Executive shall be entitled
         to receive  the  benefits  and  perquisites  listed in Exhibit A hereto
         substantially  to the same extent the Executive  received such benefits
         and perquisites immediately before the Effective Date; provided that if
         the Board of  Directors  determines  in good faith that it is no longer
         possible  for the  Company to provide  any such  benefit or  perquisite
         without  substantial  adverse  consequences  to the  Company or without
         violating  an  applicable  law,  the  Executive  shall be entitled to a
         comparable benefit or perquisite or the cash value thereof.
 
                  (f)  Other  Benefits.  The  Executive  shall  be  entitled  to
         participate in the pension and welfare plans and arrangements  provided
         by the Company to senior  executives  of the Company  from time to time
         and,  additionally,  the  Executive  shall be entitled to the  benefits
         pursuant to a supplemental  executive  retirement  plan as set forth in
         Exhibit C (the "SERP"). However, the Executive shall not be entitled to
         participate  in any program  providing  severance  benefits  unless the
         Executive's  participation is expressly provided for therein,  in which
         case any severance benefits provided under such program will be reduced
         by  the  amount  of  severance  benefits,  if  any,  actually  provided
         hereunder.
 
                  (g)  Vacation.  The  Executive  shall be  entitled to four (4)
         weeks of  vacation  each  calendar  year,  which  will be  administered
         pursuant to the Company's vacation policy.
 
                  (h)  Insurance.  The  Executive  shall be  entitled  to estate
         planning insurance coverage in accordance with the Company's key person
         coverage policy, as consolidated, with Prudential, and the Split Dollar
         Agreement  originally  entered into by the Executive and the Company in
         May,  1995,  as amended (the "Split Dollar  Agreement").  To the extent
         that the Company is prohibited by law from providing such benefits, the
         Executive,  or his estate, shall be entitled to the economic equivalent
         of such benefits.
 
                                       2.
 
<PAGE>
 
                  (i) Board Membership and Additional  Positions.  To the extent
         mutually  agreed upon by the parties  hereto,  the Executive  agrees to
         serve without additional  compensation as a director and as Chairman of
         the Board of Directors of the Company or any of its affiliated entities
         and/or  in one or  more  executive  positions  of any of the  Company's
         affiliated entities, if elected or appointed thereto, provided that the
         Executive is indemnified in accordance with Section 13.
 
         6. Termination.  The Executive's employment hereunder may be terminated
under the following circumstances:
 
                  (a)  Death.  The  Executive's  employment  hereunder  shall be
         terminated upon his death.
 
                  (b) Disability.  The Executive's  employment may be terminated
         by the Company  if, as a result of the  Executive's  incapacity  due to
         physical or mental disability ("Disability"),  the Executive shall have
         failed to perform his duties hereunder on a full-time basis for six (6)
         consecutive months and, within thirty (30) days after written Notice of
         Termination  is given in  accordance  with  Section 12 (which may occur
         only after the end of such six (6) month period),  the Executive  shall
         not have  returned  to the  performance  of his duties  hereunder  on a
         full-time basis.
 
                  (c) Cause or Without  Cause.  The  Company may  terminate  the
         Executive's  employment  hereunder  for  Cause or  without  Cause.  For
         purposes of this Agreement, the Company shall have "Cause" to terminate
         the Executive's employment hereunder upon:
 
                           (i) the Executive's  continued willful failure (other
                  than any such failure  resulting  from his  incapacity  due to
                  physical or mental  disability)  substantially  to perform his
                  material duties and obligations, which failure is not remedied
                  within  thirty  (30) days after  receipt by the  Executive  of
                  written  notice of such failure from the Board of Directors of
                  the  Company;  provided  that  a  change  in  the  quality  of
                  Executive's work on its own shall not constitute Cause; or
 
                           (ii) the Executive's  willful  misconduct against the
                  Company that could reasonably be expected to impair materially
                  the financial  condition or business reputation of the Company
                  (or any of its  affiliates) or a material act of fraud against
                  the Company; or
 
                           (iii) the Executive's  conviction,  or plea of guilty
                  or nolo  contendere  or a  similar  plea  to,  a  felony  or a
                  violation of any statute,  rule or  regulation  required to be
                  reported to any governmental or regulatory agency.
 
         No act or  failure  to act on the  Executive's  part  shall  be  deemed
         willful  unless done or omitted to be done by the Executive not in good
         faith and  without  reasonable  belief that the  Executive's  action or
         omission was in the best interests of the Company.
 
                  (d) Termination by the Executive.  The Executive may terminate
         his  employment  hereunder  for  Good  Reason  (as  defined  below)  or
         voluntarily in the absence
 
                                       3.
 
<PAGE>
 
         of Good Reason.  For purposes of this  Agreement,  "Good Reason" shall,
         unless,  where applicable,  expressly  consented to by the Executive in
         writing, mean:
 
                           (i)  the   Executive  no  longer   serving  as  Chief
                  Executive  Officer of the  Company  or,  unless  necessary  to
                  comply with any  applicable  law or any  corporate  governance
                  requirement of any stock exchange or other  regulatory body to
                  which  the  Company  is  subject,  Chairman  of the  Board  of
                  Directors or any material reduction in the nature or status of
                  the  Executive's  responsibilities  or  office  from  those in
                  effect under the Agreement, or the assignment to the Executive
                  of any responsibilities  adversely  inconsistent with those in
                  effect under the Agreement;
 
                           (ii) a reduction  in the  Executive's  rate of annual
                  base salary or bonus opportunity, except for a reduction of no
                  more than 20% that  applies to senior  officers of the Company
                  generally  and does not  occur in  anticipation  of or  within
                  twenty-four  months  following a Change in Control (as defined
                  below);
 
                           (iii) the  failure  by the  Company  to  continue  to
                  provide the Executive with benefits  materially  equivalent to
                  those  to be  received  by  the  Executive  pursuant  to  this
                  Agreement;
 
                           (iv) any reason  during the  period  beginning  three
                  months following a Change in Control (as defined below) of the
                  Company and ending twelve months following a Change in Control
                  (as defined below) of the Company; or
 
                           (v)  the   failure  of  the  Company  to  obtain  the
                  assumption of this Agreement pursuant to Section 11(a) hereof.
 
                  (e)  Any  termination  of the  Executive's  employment  by the
         Company  or by  the  Executive  (other  than  termination  pursuant  to
         subsection  (a)  hereof)  shall be  communicated  by written  Notice of
         Termination  to the other party  hereto in  accordance  with Section 12
         below. For purposes of the Agreement,  a "Notice of Termination"  shall
         indicate the specific termination  provision in the Agreement and shall
         set forth in reasonable detail the facts and  circumstances  claimed to
         provide  a  basis  for  termination  of  the   Executive's   employment
         hereunder.
 
         "Date of Termination"  shall mean (i) if the Executive's  employment is
terminated  by his  death,  the  date  of his  death,  (ii)  if the  Executive's
employment is  terminated  pursuant to  subsection  (b) above,  thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned  to the  performance  of his duties on a  full-time  basis  during such
thirty  (30) day period or (iii) if the  Executive's  employment  is  terminated
pursuant  to  subsections  (c) or (d),  the  date  specified  in the  Notice  of
Termination;  except  that  (A)  if the  Executive's  employment  is  terminated
pursuant to subsection (c) above for Cause,  the date specified in the Notice of
Termination,  which date shall be no earlier than three (3) days  following  the
Notice  of  Termination  and  (B) if  Executive  terminates  his  employment  in
connection  with  a  Change  in  Control  pursuant  to  subsection  (d)(v),  the
termination shall be
 
 
                                       4.
<PAGE>
 
deemed to have occurred  effective  immediately  prior to the Change in Control.
Notwithstanding the above, in the event of the Executive's  termination pursuant
to subsection (c) above for Cause,  the Company shall have the right to prohibit
the Executive's presence at the Company's facilities immediately upon, or at any
time following, the Notice of Termination.
 
         7. Consequences of Termination.
 
                  (a) Death. Upon the Executive's termination as a result of his
         death,  the  Executive or his estate shall be entitled to the following
         benefits:
 
                           (i) The Company shall pay the Executive in a lump sum
                  as soon as  practicable,  but in any event no later than three
                  (3) days following the Date of  Termination,  his then current
                  base salary through the Date of  Termination  and any awarded,
                  but unpaid, bonus for the prior calendar year.
 
                           (ii)   The    Executive's    beneficiaries,    heirs,
                  distributees,  devisees and legatees, as applicable,  shall be
                  entitled to receive the benefits  payable to them  pursuant to
                  the Split  Dollar  Agreement  described in Section 5(h) or the
                  economic equivalent thereof.
 
                           (iii) If any  dependents of the Executive at the time
                  of his death are participating in any Company-sponsored  group
                  health plans  (including  dental plans, but excluding life and
                  disability),  the Company  will  continue  the coverage of the
                  dependents  thereunder  (under the terms  applicable to senior
                  executives)  and will pay the  premiums  for any such plans in
                  which such dependents  participated  immediately  prior to the
                  Executive's death for a period of ten (10) years following the
                  Date of  Termination;  provided that if the Company is unable,
                  at any point,  to provide any such coverage,  the Company will
                  pay  such  dependents  a lump sum cash  payment,  which  after
                  payment  of all  applicable  taxes  thereon,  will  equal  the
                  present value of the cost of such coverage for that portion of
                  the ten (10) year period for which such coverage  could not be
                  provided.
 
                           (iv)  Any and all  options  ("Options")  to  purchase
                  shares  of  common  stock of the  Company  granted  after  the
                  Effective  Date and held by the Executive at or on the Date of
                  Termination  shall  fully vest and become  exercisable  by the
                  Executive's  heirs,  distributees,  devisees and legatees,  as
                  applicable  and shall  remain  exercisable  until the date the
                  Options would otherwise expire in accordance with their terms.
 
                  (b) Disability.  During any period that the Executive fails to
         perform his duties  hereunder as a result of incapacity due to physical
         or mental illness ("Disability  Period"),  the Executive shall continue
         to  receive  his full  base  salary  and  remain  eligible  for a bonus
         pursuant to Section 5(b),  until his employment is terminated  pursuant
         to Section 6(b), provided that payments so made to the Executive during
         the  Disability  Period shall be reduced by the sum of the amounts,  if
         any,  payable to the  Executive  at or prior to the time of any payment
         under  disability  benefit  plans of the  Company or under the state or
         Social Security disability insurance programs. Upon the Executive's
 
 
                                       5.
<PAGE>
 
         termination as a result of Disability,  Executive  shall be entitled to
         the benefits set forth in Section 7(d)(i) through (iv) below.
 
                  (c)  Termination  by the  Company  for  Cause or by  Executive
         Without Good Reason. If the Executive's  employment shall be terminated
         by the Company for Cause or by the Executive  without Good Reason,  the
         Company  shall  (i)  pay  the  Executive  in a  lump  sum  as  soon  as
         practicable,  but in any event no later than  three (3) days  following
         the Date of Termination,  his then current base salary through the Date
         of Termination and any awarded,  but unpaid, bonus for the prior fiscal
         year,  (ii) provide the  Executive his vested and accrued SERP Benefits
         (as defined in Exhibit C), and (iii) the Company  shall have no further
         obligations to the Executive under this Agreement.
 
                  (d)  Termination  by  the  Company  Without  Cause  or by  the
         Executive  With  Good  Reason.  If  the  Company  shall  terminate  the
         Executive's  employment  other  than for Cause or the  Executive  shall
         terminate   employment  for  Good  Reason,  and  the  Executive  is  in
         compliance  with the  Confidentiality  Agreement (as defined in Section
         10), the Executive shall be entitled to the following benefits:
 
                           (i) The Company shall pay the  Executive,  as soon as
                  practicable,  but within three (3) days  following the Date of
                  Termination,  his then current base salary through the Date of
                  Termination and any awarded,  but unpaid,  bonus for the prior
                  fiscal  year  and a pro  rata  bonus  for the  fiscal  year of
                  termination.
 
                           (ii) The Company shall pay the Executive,  as soon as
                  practicable, but within thirty (30) days following the Date of
                  Termination,   (A)  an  amount   equal  to  three   times  the
                  Executive's  highest  annual  rate of base  salary  payable to
                  Executive  in the  thirty-six  months  preceding  the  Date of
                  Termination,  but not less than the current  amount then paid,
                  plus (B) an amount equal to three times the average bonus paid
                  to the  Executive  for  any  three  fiscal  years  immediately
                  preceding  the  Date  of   Termination,   but  not  less  than
                  Executive's  target  bonus  for the year in which  the Date of
                  Termination  occurs;  provided that the current  minimum total
                  payment  under this  Section  7(d)(ii)  shall be five  million
                  dollars  ($5,000,000),  which  minimum  total payment shall be
                  increased  during  the  term  of  this  Agreement  to  reflect
                  increases in the Urban Consumer Price Index for San Francisco,
                  California;   provided   further   that  if  the   Executive's
                  employment terminates at or after his 71st birthday other than
                  following a Change in Control,  the payment under this Section
                  7(d)(ii)  shall be  reduced  by 10% for each year by which his
                  age exceeds 71 at the Date of Termination.
 
                           (iii) The  Executive  shall fully vest in any and all
                  Options granted after the Effective Date which are outstanding
                  and  held  by him on the  Date of  Termination  and  shall  be
                  entitled to exercise  such Options  until the date the Options
                  would  otherwise  expire in accordance with their terms absent
                  the Executive's termination.
 
 
                                       6.
<PAGE>
 
                           (iv) The Executive  shall receive his vested benefits
                  pursuant to the SERP or otherwise. For purposes of determining
                  the accrual amount of the SERP Benefits (as defined in Exhibit
                  C) upon early  retirement,  the Executive will be given credit
                  for  service  with the  Company as if the Date of  Termination
                  occurred on his 70th birthday.
 
                           (v) For a period of three (3) years  from the Date of
                  Termination,  the Executive shall continue to be provided with
                  the  full-time   support  of  an   administrative   assistant,
                  substantially  similar to the support which is being  provided
                  on the Date of Termination,  and shall be entitled to full use
                  of and  access to the  office he is  occupying  on the Date of
                  Termination  or, if the Board of Directors  determines that it
                  is no longer in the best  interests of the Company to continue
                  the  Executive's  continued  use of  such  office  or,  at the
                  Executive's  choice, an office  substantially  similar to such
                  office at a location  selected by the Executive so long as the
                  choice of location shall not substantially  increase the cost,
                  and all expenses related to such administrative  assistant and
                  office use by the Executive shall be paid by the Company.
 
         8. Change in Control.
 
                  (a) Definition.  For purposes of this Agreement,  a "Change in
         Control" shall mean:
 
                           (i) the acquisition,  directly or indirectly,  by any
                  person or related  group of  persons  (as such term is used in
                  Sections  13(d) and 14(d) of the  Securities  Exchange  Act of
                  1934, as amended (the "Exchange Act") of beneficial  ownership
                  (as defined in Rule 13d-3 of the Exchange  Act,  except that a
                  person  shall be  deemed to be the  "beneficial  owner" of all
                  shares that any such person has the right to acquire  pursuant
                  to any agreement or arrangement or upon exercise of conversion
                  rights, warrants, options or otherwise,  without regard to the
                  sixty day period  referred to in such Rule) of securities that
                  results   in  such   person  or   related   group  of  persons
                  beneficially owning securities representing 50% or more of the
                  combined  voting  power  of  the  Company's  then  outstanding
                  securities),  but excluding (A)  acquisitions by the Executive
                  or any employee  benefit plan  maintained by the Company,  (B)
                  any acquisition  resulting primarily from a decision initiated
                  by the Executive without the consent of the Board of Directors
                  to sell his  interest in the Company to the  acquiror  and (C)
                  any  acquisition  by a  corporation  pursuant to a transaction
                  that  satisfies each of the conditions of clauses (A), (B) and
                  (C) of Section 8(a)(ii) hereof;
 
                           (ii) a merger,  consolidation or similar  transaction
                  to which the Company is a party or the sale, transfer or other
                  disposition  of all  or  substantially  all  of the  Company's
                  assets, unless (A) securities representing at least 50% of the
                  combined  voting power of the then  outstanding  securities of
                  the  surviving  entity or the entity  acquiring  the Company's
                  assets,  as  the  case  may  be,  or  a  parent  thereof,  are
                  immediately   thereafter   beneficially  owned,   directly  or
                  indirectly  and in  substantially  the  same  proportions,  by
                  persons who beneficially owned the
 
 
                                       7.
<PAGE>
 
                  Company's outstanding voting securities immediately before the
                  transaction,  (B) the  directors  of the  Company  immediately
                  before the  transaction  constitute,  upon the  closing of the
                  transaction,  at least a majority of the board of directors of
                  the  surviving  entity or the entity  acquiring  the Company's
                  assets,  as the case may be, or the  ultimate  parent  thereof
                  (for this  purpose,  treating  any change in board of director
                  composition   that   is   anticipated   or   pursuant   to  an
                  understanding  or agreement in connection with the transaction
                  as deemed to have occurred at the time of the transaction) and
                  (C) no person or group of related  persons  (as such terms are
                  used in Sections  13(d) and 14(d) of the  Exchange  Act) other
                  than the Executive  acquires  securities  representing  30% or
                  more of the  combined  voting  power of the  then  outstanding
                  securities of the surviving entity or the entity acquiring the
                  Company's assets, or a parent thereof, as the case may be; and
 
                           (iii) a change  in the  composition  of the  Board of
                  Directors of the Company over a period of thirty-six months or
                  less such that the majority of the Board of  Directors  ceases
                  by  reason  of one or more  contested  elections  for Board of
                  Directors  membership,  to be  comprised  of  individuals  who
                  either (A) have been members of the Board of  Directors  since
                  the  beginning  of such  period  or (B) have been  elected  or
                  nominated  for  election  during  such  period  by at  least a
                  majority of the members  who were  described  in clause (A) or
                  who were  previously so elected or approved and who were still
                  in  office at the time the Board of  Directors  approved  such
                  election or nomination.
 
                  (b) Effect of Parachute  Tax. If any  compensation  or benefit
         payable to or for the benefit of the Executive hereunder, together with
         any other compensation  payable to the Executive,  causes the Executive
         to incur an excise tax under Section 4999 of the Internal  Revenue Code
         of 1986, as amended,  or a successor  provision  dealing with parachute
         payments,  the Company  shall make an  additional  cash  payment to the
         Executive  in an amount  that,  after  reduction  of all taxes  thereon
         (including any additional  excise taxes  resulting from or attributable
         to the  additional  payment),  is sufficient to reimburse the Executive
         for the amount of the original  excise tax.  Determinations  under this
         Section 8(b) shall be made by a tax counsel or other tax advisor who is
         selected by the Executive and is acceptable to the Company.  Should the
         actual  excise  tax  determined  upon an IRS audit and agreed to by the
         Executive  or upon a final  judicial  determination  differ  from  that
         previously determined hereunder,  appropriate adjustments shall be made
         under this Section  8(b).  The Company  shall have the right to monitor
         and  participate  in any audit or litigation  concerning  the amount of
         such excise tax and to approve any settlement thereof; provided that if
         the Executive recommends a settlement of which the Company disapproves,
         the Company shall be responsible for any further costs incurred in such
         audit or litigation as a result of not settling the matter.
 
                  (c)   Effect  of  Change  in   Control   on  SERP.   Upon  the
         effectiveness of a Change in Control, (i) the SERP Benefits will become
         fully accrued so that  Executive is entitled to the SERP Benefits as if
         he served with the Company  until age 70  regardless of the date of his
         termination  of  employment  following a Change in Control and (ii) the
         Company  will fund a grantor  trust in support of the SERP as set forth
         in Exhibit C.
 
 
                                       8.
<PAGE>
 
         9. Mitigation.  The Executive shall not be required to mitigate amounts
payable pursuant to this Agreement by seeking other employment or otherwise, and
no payments or benefits shall be subject to mitigation.
 
         10. Confidentiality.
 
         The Executive  shall remain bound by a  Confidentiality  Agreement (the
"Confidentiality   Agreement"),   between   the   Executive   and  the   Company
substantially in the form attached as Exhibit B hereto.
 
         11. Successors; Binding Agreement.
 
                  (a) The Company will require any successor  (whether direct or
         indirect,  by purchase,  merger,  consolidation or otherwise) to all or
         substantially  all of the business  and/or  assets of the  Company,  to
         expressly assume and agree to perform this Agreement in the same manner
         and to the same extent that the Company would be required to perform it
         if no such  succession  had  taken  place.  As used in this  Agreement,
         "Company" shall mean the Company as defined herein and any successor to
         its business and/or assets as aforesaid which executes and delivers the
         agreement  provided for in this Section 11 or which  otherwise  becomes
         bound by all of the terms and provisions of this Agreement by operation
         of law.
 
                  (b) This  Agreement and all rights of the Executive  hereunder
         shall inure to the  benefit of and be  enforceable  by the  Executive's
         personal   or   legal   representatives,   executors,   administrators,
         successors,  heirs,  distributees,   devisees  and  legatees,  and  for
         purposes of Section 7, any of Executive's dependents to the extent such
         dependent is a beneficiary hereunder.  If the Executive should die, all
         amounts due following the Executive's death,  unless otherwise provided
         herein, shall be paid in accordance with the terms of this Agreement to
         the Executive's devisee,  legatee, or other designee or, if there is no
         such designee, to the Executive's estate.
 
         12. Notice.  For the purposes of this Agreement,  notices,  demands and
all other communications  provided for in this Agreement shall be in writing and
shall be deemed to have been duly given  when  delivered  or  (unless  otherwise
specified)  mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
 
                  If to the Executive:
 
                  Richard Thalheimer
                  c/o Sharper Image Corporation
                  650 Davis Street
                  San Francisco, CA  94111
 
 
                                       9.
<PAGE>
 
                  PERSONAL AND CONFIDENTIAL
 
                  If to the Company:
 
                  Sharper Image Corporation
                  650 Davis Street
                  San Francisco, CA 94111
 
                  Attn:  Chief Financial Officer
 
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
 
         13.  Indemnification.  During the Executive's employment and thereafter
for the period during which the Executive may be subject to potential  liability
for any claim,  action or proceeding  (whether civil or criminal) as a result of
the  Executive's  service  as an officer or  director  of the  Company or in any
capacity at the request of the Company,  the Company agrees (1) to indemnify and
hold the Executive  harmless to the fullest extent  permitted by law,  including
advancing of expenses as appropriate, and (2) to continue to cover the Executive
under its directors and officers  insurance at the same level then maintained by
the Company for its officers and directors.
 
         14. Interpretation.
 
                  (a) When a reference  is made in the  Agreement  to a section,
         such reference shall be to a section of this Agreement unless otherwise
         clearly indicated to the contrary.
 
                  (b) Whenever the words  "include,"  "includes" or  "including"
         are used in this  Agreement  they shall be deemed to be followed by the
         words "without limitation."
 
                  (c) The words  "hereof,"  "herein" and "herewith" and words of
         similar import shall, unless otherwise stated, be construed to refer to
         this  Agreement as a whole and not to any  particular  provision of the
         Agreement,  and section,  paragraph,  and exhibit references are to the
         sections,  paragraphs,  and exhibits of the Agreement  unless otherwise
         specified.
 
                  (d) The  plural  of any  defined  term  shall  have a  meaning
         correlative  to such  defined  term.  Where a word or phrase is defined
         herein,  each of its other grammatical forms shall have a corresponding
         meaning.
 
                  (e) A  reference  to any party to the  Agreement  or any other
         agreement  or  document  shall  include  such  party's  successors  and
         permitted assigns.
 
                  (f) A reference to any  legislation or to any provision of any
         legislation shall include any  modification,  amendment or re-enactment
         thereof, any legislative  provision substituted therefor and all rules,
         regulations and statutory  instruments issued under or pursuant to such
         legislation.
 
 
                                       10.
<PAGE>
 
         15.  Miscellaneous.  No  provision  of this  Agreement  may be amended,
modified,  waived or discharged unless such amendment,  waiver,  modification or
discharge is agreed to in writing and signed by the  Executive  and such officer
of the Company as may be expressly  designated  by the Board of Directors of the
Company. No waiver by either party hereto at any time of any breach by the other
party  hereto  of, or  compliance  with,  any  condition  or  provision  of this
Agreement  to be  performed  by such  other  party  shall be  deemed a waiver of
similar or  dissimilar  provisions  or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied,  with  respect to the  subject  matter  hereof have been made by either
party that are not set forth expressly in the Agreement.  The Agreement shall be
binding on all successors to the Company.
 
         16.  Severability.  In the event that any one or more of the provisions
of this Agreement shall become invalid, illegal or unenforceable in any respect,
the validity,  legality and  enforceability of the remaining  provisions of this
Agreement shall not be affected thereby.  If Section 7 of this Agreement (or any
portion  thereof) is determined to be invalid or  unenforceable  in any material
respect,  then upon the Company's  breach of any material  obligation under such
Section 7, the Executive  shall  immediately be released by the Company from any
obligations under this Agreement.
 
         17.  Attorney's Fees. The Company shall reimburse the Executive for all
reasonable  attorney's  fees and other  expenses  incurred by the  Executive  in
connection  with the  negotiation  of this  Agreement.  If a good faith  dispute
arises  between the Executive  and the Company  regarding any payment or benefit
under this  Agreement or regarding any other  provision of this  Agreement,  the
Company shall  reimburse the Executive for all  reasonable  attorney's  fees and
other expenses  incurred by the Executive in resolving or otherwise dealing with
such good faith dispute.
 
         18.  Arbitration.  Any dispute  between  the parties to this  Agreement
arising from or relating to the terms of this Agreement or the employment of the
Executive by the Company  shall be submitted to  arbitration  in San  Francisco,
California under the auspices of the American Arbitration Association.
 
         19.  Governing  Law. The  validity,  interpretation,  construction  and
performance of this Agreement shall be governed by and construed and enforced in
accordance  with the internal laws of the State of California  without regard to
the principles of conflicts of laws.
 
         20.  Counterparts.  This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original but both of which  together will
constitute one and the same  instrument.  This Agreement shall become  effective
when each party hereto shall have  received a  counterpart  hereof signed by the
other party hereto.
 
         21. Survivorship.  The respective rights and obligations of the parties
to this Agreement,  including,  without limitation,  the rights of the Executive
and the Company under Section 13 hereof and  obligations of the Executive  under
Section 10, shall survive the  termination of this Agreement or the  Executive's
employment  hereunder  for any reason to the  extent  necessary  to achieve  the
intended preservation of such rights and obligations.
 
 
                                       11.
<PAGE>
 
 
         22.  Representation.  The Company  represents  and warrants  that it is
fully  authorized  and  empowered  to enter  into  this  Agreement  and that the
performance of its obligations hereunder shall not violate any agreement between
the Company and any other person, firm or organization.
 
         23. Entire  Agreement.  This  Agreement and all  agreements  referenced
herein set forth the entire  agreement  of the parties  hereto in respect of the
subject matter  contained herein and supersede all prior  agreements,  promises,
covenants, arrangements, communications,  representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereto;
and any prior  agreement of the parties  hereto in respect of the subject matter
contained herein is hereby terminated and cancelled.
 
         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the date and year first above written.
 
                                     SHARPER IMAGE CORPORATION
 
 
 
                                      By: ______________________________________
                                          Name:
                                          Title:
 
 
                                          ______________________________________
                                               Richard Thalheimer
 
 
                                       12.
<PAGE>
 
                                    EXHIBIT A
 
 
                            Benefits and Perquisites
 
 
Company Car
 
 
 
<PAGE>
 
 
                                    EXHIBIT B
 
 
 
                                The Sharper Image
                            Confidentiality Agreement
 
 
         The purpose of this Agreement is to protect Sharper Image Corporation's
confidential information to maintain a competitive advantage and avoid having
confidential information disclosed. Because our business environment is so
competitive, The Sharper Image Corporation (referred to as the Company) expects
Associates (our term for employees) to read and comply with our confidentiality
policy.
 
         This Agreement is entered into between Sharper Image Corporation and
the undersigned Associate. Associate understands that signing this agreement is
a condition of Associate's employment. Associate agrees as follows:
 
         a) Associate  acknowledges and agrees that  information  concerning the
work conducted by the Company may  constitute  confidential  information,  trade
secrets or copyrightable or patentable works or expressions,  including, but not
limited to, design information or concepts, private label products,  advertising
concepts,  matters  which are  subject to  trademark  protection,  manufacturing
information  or concepts,  marketing  information,  price and cost  information,
customer information, contacts, and all personnel information. Associate further
acknowledges  that such  information will be entrusted to him/her by the Company
and that Associate will take all steps necessary to protect the  confidentiality
of such information.
 
         b)  During  the  employment  term and all times  thereafter,  Associate
promises  and agrees not to  reproduce or disclose to any other person or entity
any trade secrets or confidential information, unless specifically authorized in
writing  by  the  Company  to do so.  If the  Company  gives  Associate  written
authorization to make any such disclosure, Associate shall do so only within the
limits and to the extent of the authorization.
 
         c) During  employment  and for the one (1) year  after  termination  of
employment,  Associate shall not induce or attempt to induce any other Associate
of the  Company to  discontinue  employment  with the Company for the purpose of
seeking or commencing employment with any competitor of the Company.
 
         d) Associate  also  acknowledges  that by virtue of his/her  employment
with the  Company  he/she will have access to  confidential  information,  trade
secrets,  copyrightable  works or expressions,  design  information or concepts,
manufacturing   information   or  concepts,   advertising   concepts  and  other
confidential  information  and trade  secrets  of the  Company as set forth more
fully above,  which are the intangible  assets of the Company.  Associate agrees
that his/her  knowledge of the existence of such  information does not give rise
to any rights on  Associate's  behalf to  disclose or utilize  these  intangible
assets or information.
 
         e) Associate further  acknowledges that he/she is entirely  responsible
for honoring and not breaching any prior  commitments to or agreements  with any
prior employers  regarding those  entities,  trade secrets,  and proprietary and
confidential  information.  The Company  does not condone and will not  tolerate
Associate's  breach of any prior trade secret,  and proprietary and confidential
information  obligations  with prior  employers.  Such  violations may result in
disciplinary action including, but not limited to, termination of employment.
 
<PAGE>
 
         f) Any term or provision of this  Agreement  that is held to be illegal
or  unenforceable  by court  of law  shall  be  deemed  amended  to  conform  to
applicable laws or regulations;  provided, that if such term or provision cannot
be so amended  without  materially  altering the intention of the parties,  such
term or provision shall be stricken from this Agreement and this Agreement shall
remain in full  force and  effect in  accordance  with the  remaining  terms and
provisions hereof.
 
         g) This  Agreement  contains the entire  agreement  between the parties
hereto  with  respect to the  subject  matter  hereof and  supersedes  all prior
understandings,  discussions,  negotiations  and  representations,  if any, with
respect thereto.
 
         h) This Agreement may be amended only by written amendment  executed by
the party against whom enforcement is sought.
 
 
                                 Acknowledgement
 
         Associate  acknowledges  that  neither  this  Agreement  nor any  other
communication by any management  representative is intended to in any way create
a contract of permanent  employment.  Rather,  it is understood that the Company
and Associate  each have the right to terminate  Associate's  employment for any
reason at any time, with or without cause and with or without notice.  Associate
understands that any change in this at-will employment  relationship between the
Company  and  Associate  must be in writing  and  signed by the Chief  Operating
Officer of the Company.
 
 
 
 
 
---------------------------------                    ---------------------------
Associate Name (Print)                               Associate Signature
 
 
 
 
---------------------------------                    ---------------------------
Department                                           Date
 
                                       2.
 
<PAGE>
 
 
                                    EXHIBIT C
 
                                  Terms of SERP
 
(1)  Normal  Retirement  Benefits.  Upon  the  termination  of  the  Executive's
     employment  with the Company due to his  retirement at or after age 70, the
     Executive shall be entitled to receive the following benefits:
 
     (a)  Retirement  Pay. An annual  payment of $500,000 (or such higher amount
          resulting from the annual COLA  Adjustment  described  below) per year
          payable for the remainder of the Executive's  life,  which may be paid
          at the election of the Executive in the form of a single life annuity,
          a joint and survivor  annuity or a lump sum payment  payable within 30
          days of the Date of  Termination  calculated  on the  assumptions  set
          forth in the next sentence (the "Retirement  Pay"). The lump sum value
          at retirement will be based on a 6.5% interest rate and the 1994 Group
          Annuity Mortality Table for males (the "Actuarial  Assumptions"),  but
          in no case shall be  greater  than $6  million.  In the event that the
          Executive  elects to receive the annual  payments,  the amount of such
          annual payments shall be increased during each year the Retirement Pay
          is payable by an amount  which  reflects  any  increase in the cost of
          living on the immediately preceding January 1st of each year, using as
          a basis for such increase the Consumer  Price Index for San Francisco,
          California,  or in the event that such  index is no longer  published,
          such other index as is  determined  in good faith to be  comparable by
          the Board of Directors of the Company (the "COLA Adjustment").
 
     (b)  Post  Retirement  Health  Benefits.  If the  Executive,  or any of his
          dependents,  was participating in any  Company-sponsored  group health
          plan (including dental plans, but excluding life and disability) as of
          the Date of  Termination  and such plans continue in effect for active
          employees  of  the  Company,   the  Company  will  continue   coverage
          thereunder (under the terms applicable to senior  executives) and will
          pay the Executive's share of any premiums thereunder for the remainder
          of the Executive's life, provided that for the Executive's dependents,
          such coverage  will be no less than ten (10) years.  If the Company is
          unable,  at any point,  to provide such coverage under any such plans,
          the  Company  will pay the  Executive a lump sum cash  payment  which,
          after the payment by the Executive of all  applicable  taxes  thereon,
          will equal the present  value of the cost of such  coverage  (based on
          the Actuarial  Assumptions  and a reasonable  forecast of increases in
          the cost of such  coverage)  for that portion of the period  following
          the Date of Termination  for which such coverage could not be provided
          (the "Post Retirement Health Benefit" and with the Retirement Pay, the
          "SERP Benefits").
 
(2)  Early Retirement  Benefits.  If the Executive  terminates  employment other
     than by reason of death before his 70th  birthday,  the Executive  shall be
     entitled to:
 
     (a)  Retirement  Pay  commencing  at the  Executive's  70th birthday in the
          amount  equal  to  the  amount  determined  in  Section  (1)(a)  above
          multiplied by a fraction, the numerator of which is the number of days
          of the  Executive's  employment  beginning  on the date the  Executive
          first  commenced   employment   with  the  Company  (the   "Employment
 
 
<PAGE>
 
          Commencement   Date")  and  ending  on  and   including  the  Date  of
          Termination  and  the  denominator  of  which  is the  number  of days
          beginning on and including the Employment Commencement Date and ending
          on and  including the  Executive's  70th  birthday.  The Executive may
          elect  to  commence  Retirement  Pay at any  time  after  the  Date of
          Termination and before the Executive's  70th birthday,  in which case,
          the amount of annual Retirement Pay shall be reduced to an amount that
          has the  same  present  value on early  retirement  commencement  date
          (based on the Actuarial  Assumptions) as the benefit commencing at his
          70th birthday.
 
     (b)  The Post  Retirement  Health  Benefit  determined in  accordance  with
          Section (1)(b) above,  but with the amount of premiums  payable by the
          Company to be an amount equal to the amount of the total  premiums for
          such coverage multiplied by a fraction,  the numerator of which is the
          number  of  days  of  the  Executive's  employment  beginning  on  and
          including the Employment Commencement Date and ending on and including
          the Date of Termination  and the denominator of which is the number of
          days beginning on and including the Employment  Commencement  Date and
          ending on and including the Executive's 70th birthday.
 
     (c)  For purposes of Section (2)(a) and (b) above,  the Executive  shall be
          deemed to have remained  employed until the Executive's  70th birthday
          under the  circumstances  provided in Sections  7(d)(iv) and (8)(c) of
          the Agreement.
 
(3)  Calculations.  All  calculations  hereunder  shall be rounded to the fourth
     decimal  place and  calculations  of  present  values  and  adjustments  in
     benefits  shall take into  account the timing and form of  payments  and be
     made as appropriate based on the Actuarial Assumptions.
 
(4)  Vested Status, Offsets. The SERP Benefits shall be fully vested and payable
     upon any termination of employment  other than death and the Retirement Pay
     shall not be offset  against any severance  benefits to which the Executive
     is entitled under the Agreement.  The Executive's right to receive the Post
     Retirement  Health  Benefit,  however,  shall be offset and  reduced to the
     extent that the  Executive is entitled to receive  Medicare  benefits,  but
     shall only be reduced to the extent that such offset is legally permitted.
 
(5)  Unfunded  Promise to Pay. The  Executive  acknowledges  that the  Company's
     obligations to provide the SERP Benefits is an unfunded,  unsecured promise
     to pay certain amounts to the Executive in the future.  The amounts payable
     hereunder  shall be paid out of the Company's  general  assets and shall be
     subject  to the risk of the  Company's  creditors.  In no event  shall  the
     Executive's  rights  hereunder be greater  than the right of any  unsecured
     general creditor of the Company.
 
(6)  Funding  of  Rabbi  Trust  Upon  Change  in  Control.  Notwithstanding  the
     foregoing  provision,  the Company shall  establish a grantor trust,  which
     substantially  complies with the  requirements of Rev. Proc.  92-64 (or its
     successor) and in form and substance is satisfactory to the Executive, into
     which the Company shall, within 30 days of the effectiveness of a Change in
     Control (as defined herein),  deposit the then present value (determined in
     accordance  with  Section (3) above) of the  unfunded  SERP  Benefits.  The
     Company  shall
 
                                       2.
 
<PAGE>
 
     from time to time make  additional  deposits to the grantor trust such that
     the amount of assets held therein with respect to the SERP  Benefits  shall
     equal the then present value of the unfunded SERP Benefits obligation.  The
     establishment of the grantor trust and deposit of amounts therein shall not
     affect the obligation of the Company to provide the SERP Benefits described
     herein and, to the extent not paid by the grantor trust, such amounts shall
     be paid by the Company.
 
(7)  Joint and  Survivor  Annuity.  To the extent that the  Executive  elects to
     receive a joint and  survivor  annuity,  the annual  amount of such annuity
     will be  determined  so that it has the same value as a single life annuity
     or the lump sum payment, using the Actuarial Assumptions.
 
 
                                       3.
 
</TEXT>
</DOCUMENT>