EXHIBIT 10.4
EMPLOYMENT AGREEMENT
BETWEEN EGGHEAD, INC. AND JIM KALASKY
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THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective the
22nd day of January, 1998 (the "Effective Date"), between EGGHEAD, INC.
(the "Company"), and Jim Kalasky ("Executive").
Executive is currently serving as an officer of the Company. The
parties now wish to secure their future relationship. Accordingly, and in
consideration of the mutual covenants and conditions set forth in this
Agreement, the parties agree as follows:
ARTICLE 1 - TERM
1.1 Term
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This Agreement will extend from the Effective Date for a period of three (3)
years; provided that this Agreement will be renewed automatically for a period
of three (3) years following its termination unless, prior to the date six
months from the end of any such three-year period, either party provides notice
to the other of its desire not to renew the Agreement.
ARTICLE 2 - COMPENSATION
2.1 Salary
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Executive will receive an annual gross salary not less than the annual gross
salary Executive was receiving immediately prior to the Effective Date.
2.2 Additional Benefits
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During the term of this Agreement, the Company will provide Executive with
insurance, vacation, sick leave and other benefits as are approved by the
Company's Board of Directors and as are generally provided to other management-
level executives holding similar positions with the Company.
ARTICLE 3 - DUTIES OF EXECUTIVE
3.1 Duties
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During the term of this Agreement a.) Executive's title shall be at least
commensurate in all material respects with the most significant of those held at
any time during the 90-day period immediately preceding the Effective Date and
b.) Executive's status, duties and responsibilities
shall be reasonably commensurate with title; Executive will serve as an officer
of the Company and shall perform such duties as lawfully assigned to Executive.
The Executive shall report to the Chief Executive Officer of the Company.
ARTICLE 4 - TERMINATION
4.1 Termination Prior to the End of Term
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a) Either party may terminate this Agreement without cause.
(i) In the event that Executive exercises his right under this
subsection, he shall provide notice of his intent to terminate the Agreement not
less than one (1) month before the effective date of the termination. Regardless
of whether the Company elects to have Executive work through the notice period,
or elects to make Executive's resignation effective prior to the end of that
notice period, Executive shall be paid all compensation and benefits earned
through the notice period.
(ii) In the event that the Company exercises its right under this
subsection, the termination shall be effective immediately, or at such later
time as set forth in the notice (but in no event more than thirty days after the
date of the notice) and the Company shall pay to Executive the Severance
Benefits specified in Section 4.2.
The Company may, at its option, terminate this Agreement prior to the end of the
term for Cause. For purposes of this Agreement, "Cause" means the occurrence of
one or more of the following events: (a) failure or refusal to carry out any
lawful duties assigned to him by the Company's Board of Directors or the Chief
Executive Officer or any directions of the Board of Directors of the Company
reasonably consistent with such duties; (b) the conviction of the Executive of,
or the entrance by or on behalf of the Executive of a plea of nolo contendere
with respect to, violation of a state or federal criminal law (excluding non-
felony driving or traffic offenses) or other criminal act involving moral
turpitude; (c) any fraud, dishonesty or deception by the Executive that is
related to his duties for the Company; (d) any incident materially compromising
the Executive's ability to represent the Company with the public; (e) current
illegal use of drugs by the Executive; (f) any act or omission by the Executive
which substantially impairs the Company's business, goodwill or reputation; or
(g) any other material violation by the Executive of any provision of this
Agreement. In the event of a termination under this subsection, Executive shall
be paid all compensation and benefits earned through the date of termination,
but shall not be entitled to receive any further compensation or benefits other
than payments already due him as of that date. Upon notice by the Company of
any action or failure to act constituting Cause under any of clauses (a), (d) or
(f) or (g) of the second sentence of this paragraph (but excluding notice of
Cause pursuant to clause (g) based on any violation of Section 5 of this
Agreement, for which there is no cure period), the Company will provide the
Executive a reasonable opportunity to cure such act or failure to act, which
period shall be ten (10) work days.
b) Executive may, at his option, terminate this Agreement prior to
the end of the term for Good Reason. For purposes of this subsection, Executive
will have Good Reason to terminate this Agreement if the Company violates
Section 3.1 above; Executive is relocated to a facility other than the Company's
headquarters in Spokane, Washington; or the Company has materially breached its
obligations under the Agreement (provided that the Company has been given
warning and notice of its alleged material breach and a reasonable opportunity
to correct the alleged material breach).
c) This Agreement shall terminate in the event that Executive dies,
or is unable to perform his duties as a result of a physical or mental
disability at any time during the term of this Agreement. In the event of a
termination under this subsection, Executive or his estate shall be paid all
compensation and benefits earned through the date of such termination, but shall
not be entitled to receive any compensation or benefits other than payments
already due him as of that date; provided that Executive's right to exercise
stock options awarded pursuant to the EGGHEAD, INC. 1993 STOCK OPTION PLAN shall
be governed by the terms of that plan. For purposes of this Agreement, Executive
will be considered unable to perform his duties as a result of a physical or
mental disability if that disability exists, or is reasonably expected to exist,
for more than ninety (90) days in any twelve consecutive calendar months.
4.2 Severance Benefits; Change in Control
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In the event that the Company exercises its rights under Section 4.1(a)(ii)
(termination without Cause) or Executive exercises his rights under Section
4.1(b) (resignation for Good Reason), Executive will receive the following
severance benefits:
a) Commencing on the date of termination or resignation (the
"Termination Date"), the Company shall pay the Executive his then current base
salary for a period of twelve months (the "Initial Period"), less any lawful
withholding (such amount of twelve months' salary, in aggregate, the "Initial
Severance Amount"). The Initial Severance Amount shall be paid in a lump sum
payment within ten days of the Termination Date.
b) If the Executive has failed to commence alternative employment at
any time prior to the end of the Initial Period, the Company will continue to
pay the Executive at the rate of his base salary as of the Termination Date,
less any lawful withholding, in monthly installments for a period (the
"Extension Period") that will terminate on the earlier of: (i) the end of the
sixth month after the end of the Initial Period, or (ii) the date that the
Executive commences alternative employment. From time to time during the
Extension Period, but in no event more frequently than monthly, the Executive
will be available by telephone to update the Chief Executive Officer of the
Company on the status of his efforts to obtain alternative employment, and he
will notify the Company in writing within ten days after accepting alternative
employment. Upon accepting new employment, the Executive will not unreasonably
delay commencing work for his new employer in order to continue receiving
payments during the Extension Period. For purposes of this Agreement,
"alternative employment" is defined as any business relationship (excluding
consulting relationships of less than one month) from which the Executive
receives monthly W-
2/1099 wages of at least 50% of his monthly salary as of the Termination Date.
If at any time during the Initial Period, or the Extension Period, George Orban
should no longer be Chief Executive Office of the Company, an amount equal to
the payments due during the Extension Period shall be placed in escrow, on
reasonable terms to be agreed upon by the Company and the Executive, for the
benefit of Executive.
c) Any stock option(s) issued to Executive pursuant to the EGGHEAD,
INC. 1993 STOCK OPTION PLAN (the "Plan") and the EGGHEAD, INC. NONQUALIFIED
STOCK OPTION LETTER AGREEMENT AND PLAN SUMMARY that are outstanding and
unexercised as of the Termination Date shall vest on a prorated basis as of
immediately prior to the Executive's termination or resignation on the
Termination Date (except as otherwise provided in the final sentence of this
subsection (c)). For purposes of the preceding sentence, "prorated basis" shall
mean, with respect to each such stock option, that it shall be deemed to be
vested as to that percentage of shares originally subject to the option equal to
the quotient of the number of weeks that the Executive was employed by the
Company during that stock option's entire vesting period (rounded up to the
nearest week) divided by the total number of weeks in the stock option's entire
vesting period (e.g. if a stock option has a three year vesting period, and the
Executive has worked 52 weeks of that vesting period as of the Termination Date,
the stock option would be deemed 33% vested as of immediately prior to
Executive's resignation or termination on the Termination Date.).
d) Continued coverage under the Company's medical, dental and vision
benefit programs at the same level that Executive received prior to the
termination for a period of eighteen months, or until Executive finds employment
which provides comparable benefits, whichever comes first. This period of paid
benefits will be in addition to any COBRA rights Executive may have under
applicable law.
e) In the event of a change in control, as defined in Attachment A
hereto, all of the Executive's stock options issued pursuant to the Plan, shall
vest immediately prior to such change in control.
ARTICLE 5 - RESTRICTIVE AGREEMENTS
5.1 Confidentiality. The Executive agrees not to use or disclose any
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confidential information except as required to fulfill his duties and
responsibilities as an employee of the Company. As used herein, "confidential
information" means all trade secrets, non-public information, methods,
strategies, practices, computer programs and systems, research and related
documentation, customer lists and other data, marketing plans, financial
information, and all other compilations of information that relate in any matter
to the business of the Company or any of the direct or indirect subsidiaries of
the Company (such subsidiaries, the "Affiliate Entities") or any of them. The
Executive acknowledges that all confidential information is the proprietary and
confidential property of the Company or the Affiliate Entities. The Executive
further agrees to return all tangible items containing such confidential
information, wherever located and in whatever form,
in addition to all other property belonging to the Company or the Affiliate
Entities, on or before the Termination Date.
5.2 Non-Solicitation. The Executive agrees that during the Severance
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Period and Extension Period (if any) he will not individually, or in conjunction
with any other person, corporation or other entity, in any capacity, directly or
indirectly, (i) solicit or recruit any employee of or consultant to the Company
or any of the Affiliate Entities or (ii) cause or seek to cause (A) any employee
of or consultant to the Company or any of the Affiliate Entities to terminate
his or her employment or consulting relationship with the Company or any of the
Affiliate entities or (B) any customer, client or vendor of the Company or any
of the Affiliate Entities to alter or terminate any business relationship with
the Company or any Affiliate Entities.
5.3 Non-Competition. For a period of eighteen months from the Termination
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Date, the Executive shall not, directly or indirectly, be employed by, own,
manage, join, control or participate in the ownership, management, operation or
control of or be connected with, (as that phrase is described below), any person
or entity engaged in any operations in competition with the Company or any of
the Affiliate entities in the retail sale of computer software or computer
hardware, or both, through stores, mail order, telephonic means or electronic
commerce, including, without limitation, through the Internet. For purposes of
this Section 5.3, the following shall be deemed to be persons or entities not
engaged in operations in competition with Egghead or any if its Affiliated
Entities: any person or entity if the sale of computer software and computer
hardware generates less than ten (10) percent of its total annual revenue, and
less than ten (10) percent of the total annual revenue of the division of such
person or entity, if any, which Executive is connected with. The Board of
Directors of the Company may, in its sole discretion, release the Executive from
any or all of his obligations pursuant to this Section 5.3, provided that such
release shall not be effective unless in writing. The Executive shall be deemed
to "be connected with" such business if such business is carried on by a
partnership, corporation or association of which he is an officer, director,
employee, partner, member, consultant or agent; provided, however, that nothing
herein shall prevent the purchase or ownership by the Executive of shares which
constitute less than 2% of the outstanding equity securities of a publicly or
privately held corporation.
5.4 Violation. The Executive acknowledges that his confidentiality,
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nonsolicitation and non-competition obligations under this Article 5 are
material inducements to the Company entering into this Agreement, that his
violation thereof shall constitute a material breach of this Agreement and that
any disclosure or action by the Executive in violation of this Article 5 will
cause serious and irreparable injury to the Company for which there is no
adequate remedy at law. If, upon investigation, the Company determines that the
Executive is in violation of this Article 5, then the Company will give the
Executive written notice of the violation, and if the Executive shall not have
cured such violation within four business days of such notice, , then the
Company may retain as liquidated damages the balance of the payments coming due
to the Executive under Section 4.2 hereof, if any, and may obtain immediate and
permanent injunctive relief in any court of competent jurisdiction. The rights
and remedies set forth in this Article 5 are in addition to all other legal,
equitable and contractual rights and remedies available to the Company.
ARTICLE 6 - GENERAL
6.1 Further Assurances
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Each party will, at its own expense and without expense to the other party,
execute and deliver such further agreements and other documents and do such
further acts and things as the other party reasonably requests to evidence,
carry out or give full force and effect to the intent of this Agreement. In
particular, the Company will modify or amend option letters as necessary to
permit the accelerated vesting of options under the circumstances described in
Section 4.2.
6.2 Severability
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If any provision of this Agreement is unenforceable or invalid for any reason it
will be severable from the remainder of this Agreement and, in its application
at that time, this Agreement will be construed as though such provision was not
contained herein and the remainder will continue in full force and effect and be
construed as if this Agreement had been executed without the invalid or
unenforceable provision.
6.3 Waiver and Consent
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No consent or waiver, express or implied, by either party to or of any breach or
default by the other party of any or all of its obligations under this Agreement
will be valid unless it is in writing and stated to be a consent or waiver
pursuant to this section.
6.4 Notice
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Every notice to be given pursuant to this Agreement by one party to the other
will be in writing and will be delivered or sent by registered or certified mail
or by personal delivery. Notices shall be effective upon receipt.
6.5 Binding Effect
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This Agreement will inure to the benefit of and be binding upon the respective
legal representatives and successors.
6.6 Counterparts
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This Agreement may be executed in any number of counterparts with the same
effect as if all parties to this Agreement or such other writing had signed the
same document and all counterparts will be construed together and will
constitute one and the same instrument.
6.7 Headings
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The section headings in this Agreement are for reference and shall not by
themselves determine the construction or interpretation of the Agreement.
6.8 Arbitration
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All disputes between the parties relating to this Agreement shall be submitted
to binding arbitration in the City of Spokane, Washington. Either party may
commence the arbitration by delivery of a written notice to the other,
describing the issue in dispute and its position with regard to the issue. If
the parties are unable to agree on an arbitrator within thirty (30) days
following delivery of such notice, the arbitrator shall be selected by using the
selection procedures established by the American Arbitration Association.
Discovery shall be allowed in connection with any such arbitration to the same
extent permitted by the Washington Rules of Civil Procedure but either party may
petition the arbitrator to limit the scope of such discovery, in which event the
arbitrator shall determine the extent of discovery allowable in connection with
the dispute in question. Except as otherwise provided in this Agreement, the
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association then in effect. The award of the arbitrator shall be
final and binding, and judgment upon an award may be entered in any court of
competent jurisdiction. In any such arbitration, the substantially prevailing
party shall pay the costs and reasonable attorneys' fees of the other party.
6.9 Governing Law.
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This Agreement shall be governed by and construed in accordance with the laws of
the State of Washington without application of the principles of conflicts of
laws.
6.10. Effect on Other Agreements
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Except as specified above, this Agreement does not modify, amend or supersede
the terms of the EGGHEAD, INC. NONQUALIFIED STOCK OPTION LETTER AGREEMENT AND
PLAN SUMMARY between the parties, which shall remain in full force and effect
according to their respective terms. In consideration of the mutual agreements
herein, the Change of Control Agreement dated July 1, 1996, and previously
entered into between the parties, is hereby terminated in all respects.
EXECUTED as of the day and year first written above.
EGGHEAD, INC.
By__________________________________ _____________________________
Its_________________________________ EXECUTIVE
ATTACHMENT A
For purposes of this Agreement, a "Change of Control" control shall
mean:
(a) A "Board Change" which, for purposes or this Agreement, shall have
occurred if a majority (excluding vacant seats) of the seats on the Company's
Board of Directors (the "Board") are occupied by individuals who were neither
(i) nominated by a majority of the Incumbent Directors nor (ii) appointed by
directors so nominated. An "Incumbent Director" is a member of the Board who has
been either (i) nominated by a majority of the directors of the Company then in
office or (ii) appointed by directors so nominated, but excluding for this
purpose any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person (as hereinafter
defined) other than the Board); or
(b) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of (i) 20% or more of either (A) the then outstanding shares of
Common Stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"), in the case of either (A) or (B) of this clause
(i), which acquisition is not approved in advance by a majority of the incumbent
Directors, or (ii) 33% or more of either (A) the Outstanding Company Common
Stock or (B) the Outstanding Company Voting Securities, in the case of either
(A) or (B) of this clause (ii), which acquisition is approved in advance by a
majority of the Incumbent Directors; provided, however that the following
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acquisitions shall not constitute a Change of Control: (x) any acquisition by
the Company, (y) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (z) any acquisition by any corporation pursuant to a reorganization,
merger or consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and (iii) of
subsection (c) of this Appendix A are satisfied; or
(c) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, unless immediately following such
reorganization, merger or consolidation, (i) more than 60% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportion as
their ownership immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization merger or
consolidation, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Voting Securities as the case may be)
beneficially owns directly or indirectly, 33% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were the Incumbent Directors at the time of the execution of
the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the stockholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owed, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 33% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 33%
or more of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of directors
of such corporation were approved by a majority of the Incumbent Directors at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.