Sharper Image Corporation

350 The Embarcadero

Sixth Floor

San Francisco, California 94105

 

December 23, 2006

 

VIA FEDERAL EXPRESS & ELECTRONIC MAIL

Jeffrey P. Forgan

c/o Sharper Image Corporation

350 The Embarcadero, Sixth Floor

San Francisco, California 94105

Dear Jeff:

This will confirm the agreement (the "Agreement") that has been reached with you
in connection with your resignation of employment from Sharper Image Corporation
("Sharper Image" or the "Company"). All capitalized terms not defined herein
shall have the meaning ascribed in the Employment Agreement dated as of May 10,
2006 between you and the Company (the "Employment Agreement).

    Termination Date:
    Effective as of November 8, 2006 (the "Termination Date"), you have resigned
    from all positions with the Company, including as Executive Vice President
    and Chief Financial Officer as well as from any and all other positions
    currently or previously held by you in the course of your employment with
    the Company and any of its subsidiary or affiliate entities, and your
    employment with the Company ceased as of the Termination Date. A copy of
    your letter of resignation dated November 8, 2006 is attached hereto as
    Exhibit A. You agree to execute any additional documents necessary to effect
    such resignation.
    Pay and Benefits Through Termination Date:
    You acknowledge that you have been paid through the Termination Date for all
    accrued salary together with accrued but unused vacation pay, less all
    applicable Federal, state and local withholding taxes and deductions. You
    hereby acknowledge and agree that, other than as specifically set forth in
    this Agreement, you are not due any compensation from the Company, including
    compensation for unpaid salary, unpaid bonus, accrued or unused vacation or
    other paid time off, or in connection with the exercise of stock options.
    Other than as expressly set forth herein, your eligibility to participate in
    the Company's benefit plans and programs terminated as of November 8, 2006.
    Termination Benefits:
    In consideration of your obligations set forth in this Agreement, including
    but not limited to your consent to the General Release set forth in
    paragraph 6 below, although you have resigned from employment with the
    Company without Good Reason, you will be entitled to receive the following
    termination benefits upon the Effective Date (defined below):
    Severance:
    You acknowledge and agree that you are not entitled to receive any severance
    payment under Section 4(b) of the Employment Agreement.
    Health Coverage:
    In the event that you timely elect to receive continued health coverage in
    the Company's group health plans pursuant to the provisions of the
    Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the
    Company agrees to pay the premiums for the same coverage in effect
    immediately prior to the Termination Date, from the Effective Date of this
    Agreement until the earlier of (i) twelve (12) months after the Termination
    Date, or (ii) you become eligible for coverage under another employer's
    group health plan, if earlier, all subject to the requirements, conditions
    and limitations of COBRA and such plans, which may be amended from time to
    time. Thereafter, should you choose to maintain continuation health coverage
    under COBRA, it shall be at your own expense.
    Stock Options:
    All of your options to purchase the Company's common shares ("Options") that
    are vested and outstanding as of the Termination Date will remain
    outstanding and shall have their exercise price adjusted as determined by
    the Board of Directors (or a Committee of a Board of Directors) of the
    Company (the "Board") in connection with the restatement of the Company's
    financial statements. You acknowledge that as of the Termination Date, you
    held 35,000 vested and outstanding Options (the "Outstanding Options"). The
    Outstanding Options shall remain exercisable for twelve (12) months
    following the Termination Date, with or without the provision of services to
    the Company, at the adjusted exercise price determined by the Board. You
    acknowledge and agree that you may not exercise the Outstanding Options
    until you have received written notification of the adjusted exercise price.
    You further acknowledge that you are not entitled to any award of any
    additional Options before or after the Effective Date.

    Consulting Services:
    For a period of four (4) months from the Termination Date (the "Consulting
    Period"), you shall make yourself available for substantially all or your
    working time (subject to any time used by you for job interviews or
    otherwise obtaining employment), at mutually agreed times, to provide
    advice, assistance, or information with respect to finance, accounting and
    treasury, and such other areas as reasonably requested by the Company (the
    "Consulting Services"), for which you will be paid a consulting fee of
    $25,000.00 per month, in arrears. During the Consulting Period, you shall
    serve as an independent contractor and not an employee of the Company. The
    Company and you shall treat your consulting engagement as that of an
    independent contractor, and not an employee, for all purposes, including (i)
    Federal, state, and local income and employment taxes, (ii) benefits and
    (iii) insurance. As a consultant, you shall not have any right or authority
    to assume or create any obligation or responsibility, express or implied, on
    behalf of or in the name of the Company, or to bind the Company in any
    manner, except as may be authorized in writing by an officer of the Company,
    and shall not make any contrary representation to any third party. Without
    in any way limiting the generality of the foregoing, you shall have no right
    or authority to accept service of legal process on behalf of the Company.
    Should you breach this paragraph 4, in addition to any and all other
    remedies available to the Company, you shall have no right to any further
    payments under this paragraph and the General Release set forth in paragraph
    6 below shall remain in full force and effect. If requested by the Company,
    you will provide to the Company a representation on the Company's restated
    financials similar to the representations required under Sections 302 and
    906 of the Sarbanes-Oxley Act of 2002, or if you are unable to provide such
    representation, an explanation to the Company's Chief Executive Officer or
    Chief Financial Officer or the Chairman of the Audit Committee of the Board
    as to why such representation cannot be provided.
    409A Issues and Taxes:
    Notwithstanding anything in this Agreement to the contrary, if required by
    section 409A of the Internal Revenue Code of 1986, as amended, to avoid the
    imposition of additional taxes, the amounts described in paragraphs 3 and 4
    hereof, to the extent required to be paid but not yet paid, shall upon your
    request be modified to the extent reasonably practicable and necessary to
    resolve any section 409A issues, provided that there is no increased cost to
    the Company. Any and all tax liabilities incurred by you as a result of the
    payments made or benefits provided under this Agreement, however, shall be
    your sole responsibility.
    General Release and Waiver; Company Limited Release:
 1. In consideration of the Company's obligations hereunder and acceptance of
    your resignation, you, your heirs, successors, and assigns, hereby knowingly
    and voluntarily release and forever discharge the Company and its
    subsidiaries and affiliates, together with all of their respective current
    and former officers, directors, consultants, agents, representatives and
    employees, and each of their predecessors, successors and assigns
    (collectively, the "Releasees"), from any and all debts, demands, actions,
    causes of actions, accounts, covenants, contracts, agreements, claims,
    damages, omissions, promises, and any and all claims and liabilities
    whatsoever, of every name and nature, known or unknown, suspected or
    unsuspected, both in law and equity ("Claims"), which you ever had, now
    have, or may hereafter claim to have against the Releasees by reason of any
    matter, cause or thing whatsoever arising from the beginning of time to the
    time you sign this Agreement (the "General Release"). This General Release
    of Claims shall apply to any Claim of any type, including, without
    limitation, any and all Claims of any type that you may have arising under
    the common law, under Title VII of the Civil Rights Act of 1964, the Civil
    Rights Act of 1991, the Age Discrimination in Employment Act ("ADEA"), the
    Older Workers Benefit Protection Act, the Americans With Disabilities Act,
    the Family and Medical Leave Act, the Employee Retirement Income Security
    Act ("ERISA"), the Sarbanes-Oxley Act of 2002 or the California Fair
    Employment and Housing Act, the California Family Rights Act, or the
    California Labor Code section 1400 et seq., each as amended, and any other
    Federal, state or local statutes, regulations, ordinances or common law, or
    under any policy, agreement, contract, understanding or promise, written or
    oral, formal or informal, between any of the Releasees and you, and shall
    further apply, without limitation, to any and all Claims in connection with,
    related to or arising out of your employment, or the termination of your
    employment, with the Company; provided, however, that this General Release
    shall not apply to or impair (i) any rights you may have arising under or in
    connection with any stock option plan adopted by the Company, as amended and
    restated, that governs the Options specifically described in paragraph 3(c)
    of this Agreement; (ii) claims for vested benefits pursuant to any other
    Company employee benefit plan, as defined in ERISA, in which you were a
    participant before the Termination Date; (iii) any indemnification rights
    you may have under the Indemnification Agreement dated March 18, 2003
    between you and the Company, (the "2003 Indemnification Agreement") and the
    Indemnification Agreement dated August 25, 2005 between you and the Company
    (the "2005 Indemnification Agreement"), the by-laws of the Company, or
    applicable law including California Labor Code section 2802; or (iv) claims
    for unemployment insurance benefits or workers' compensation benefits
    applicable to the period through the Termination Date; or (v) any claims
    that may arise from any violation of this Agreement.
 2. For the purpose of implementing a full and complete release, you understand
    and agree that this Agreement is intended to include all claims, if any,
    which you may have and which you do not now know or suspect to exist in your
    favor against the Company or any of the Releasees and that this Agreement
    extinguishes those claims. Accordingly, you expressly waive all rights
    afforded by section 1542 of the Civil Code of the State of California
    ("Section 1542"). Section 1542 states as follows:

    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.

 3. You represent and warrant that you have not filed any complaints or charges
    with any court or administrative agency against the Company or any of the
    Releasees, which have not been dismissed, closed, withdrawn or otherwise
    terminated on or before the date of this Agreement. You further represent
    and agree that you have not assigned nor transferred or attempted to assign
    or transfer, nor will you attempt to assign or transfer, to any person or
    entity not a party to this Agreement any of this Claims you are releasing in
    this Agreement. Furthermore, by signing this General Release of Claims, you
    represent and agree that you will not be entitled to any personal recovery
    in any action or proceeding that may be commenced on your behalf arising out
    of the matters released hereby.
 4. In consideration of your obligations set forth in this Agreement, including
    but not limited to your consent to the General Release set forth in
    paragraph 6(a)-(b) above, the Company hereby knowingly and voluntarily
    releases and forever discharges you, your heirs, successors, and assigns,
    from any and all demands, actions, causes of actions, or claims it may have
    against you (i) that you must repay gains relating to Options granted by the
    Company to you or exercised by you in or after 1994 or (ii) that you must
    repay bonuses that were, or are alleged to have been, excessive because
    Company expenses were understated at the time such bonuses were issued (A)
    with respect to options granted to employees in or after 1994 or (B) with
    respect to the matters resulting in the restatement of Company financial
    statements described in Note B to the Company's financial statements
    included in the Company's Form 10-K for the fiscal year ended January 31,
    2005.

Confidential Information: You agree that in the course of your employment with
the Company you have had, and during the Consulting Period you will have, access
to confidential and proprietary information ("Confidential Information")
relating to the Company, its subsidiaries and affiliates, and their respective
businesses, clients, finances, operations, strategic or other plans, employees,
trade practices, trade secrets, know how or other matters that are not publicly
known outside the Company, which are integral to the operations and success of
the Company, and that such Confidential Information has been disclosed to you in
confidence and only for the use of the Company. You understand and agree that
(a) you will keep such Confidential Information confidential at all times after
your employment with the Company, (b) you will not make use of such Confidential
Information on your own behalf, or on behalf of any third party, and (c) you
have returned or will return to the Company any and all copies, duplicates,
reproduction or excerpts of such Confidential Information within your
possession, custody or control. The provisions of this paragraph 7 are in
addition to any other written confidentiality or non-disclosure agreements that
you may have with the Company or any of the Releasees, including without
limitation the Confidentiality Agreement between you and the Company, and are
not meant to and do not excuse any additional obligations that you may have
under such agreements. Return of Property: All documents (electronic, paper or
otherwise), records (electronic, paper or otherwise), materials, software,
equipment, and other physical property, and all copies of the foregoing, whether
or not otherwise containing Confidential Information, that have come into your
possession or been produced by you in connection with your employment
("Property"), have been and remain the sole property of the Company or its
subsidiaries or affiliates, as applicable. You agree that you have returned all
such Property to the Company (or, to the extent that it is later discovered that
you have not, you will do so promptly and in no event later than three (3) days
after discovering that you retain such Property). Directors and Officers
Insurance: For six years, the Company shall not eliminate coverage for you in
its directors and officers insurance policies unless the Company determines in
its sole discretion that it cannot continue to cover you in such policies on
reasonable terms without any increase in cost, other than immaterial increases
in cost. Truthful Testimony: Notwithstanding any other provision of this
Agreement, nothing in this Agreement is intended to or shall preclude you from
providing truthful testimony in response to a valid subpoena, court order,
regulatory request or other judicial, administrative or legal process or
otherwise as required by law, in which event you shall notify the Company in
writing as promptly as practicable after receiving any such request of the
anticipated testimony and at least ten (10) days prior to providing such
testimony (or, if such notice is not possible under the circumstances, with as
much prior notice as is possible). Cooperation in Legal Proceedings:
Notwithstanding any other provision of this Agreement, both during and after the
Consulting Period, you agree to cooperate fully with the Company and its
subsidiaries and affiliates concerning requests for information about the
business of the Company or its subsidiaries or affiliates or your involvement
and participation therein; the defense, prosecution or investigation of any
claims or actions now in existence or which may be brought in the future against
or on behalf of the Company or its subsidiaries or affiliates which relate to
events or occurrences that transpired while you were employed by or acting as a
consultant for the Company; and in connection with any investigation or review
by any federal, state or local regulatory, quasi-regulatory or self-governing
authority (including, without limitation, the Securities and Exchange
Commission) as any such investigation or review relates to events or occurrences
that transpired while you were employed by or a consultant for the Company. Your
full cooperation shall include, but not be limited to, being available to meet
and speak with officers or employees of the Company and/or its counsel at
reasonable times and locations, executing accurate and truthful documents, and
taking such other actions as may reasonably be requested of you by the Company
and/or its counsel to effectuate the foregoing. In requesting such cooperation,
the Company will consider other commitments that you may have at the time of the
request. Following the Consulting Period, the Company will reimburse you for any
reasonable, out-of-pocket travel, hotel and meal, or similar expenses incurred
in connection with your performance of obligations pursuant to this paragraph 11
for which you have obtained prior, written approval from the Company. No
Knowledge of Detrimental Conduct: You hereby represent and warrant that, apart
from the issues raised in the course of the ongoing investigation involving the
pricing of Company stock options, you are not aware of any actions or omissions
by any current or former officer, director, employee, agent, consultant or
representative of the Company (including yourself) through the date of the
execution of this Agreement that were or have been alleged to be (individually
or collectively) in any way harmful or detrimental to the Company, its business
and/or its shareholders, including, without limitation, violations of any laws
or accounting policies or principles, the taking of unreasonable tax positions,
or the furnishing of inaccurate statements, invoices or other reports to any
person or entity. No Admission of Liability: You acknowledge that the Company is
not entering into this Agreement because it believes you have any cognizable
legal claim. The execution, delivery and performance of this Agreement by the
Company and by you shall not be construed as an admission of liability of any
kind on the part of, or as evidence of any unlawful or improper conduct of any
kind by, the Company or any of the Releasees or you, and any and all such
liability and conduct is expressly denied. You acknowledge and agree that if you
elect not to sign this Agreement, the fact that this Agreement was offered to
you will not be understood as an indication that the Company believed you were
treated unlawfully or improperly in any respect. Knowing and Voluntary Waiver:
The Company advises you to consult with an attorney of your choosing prior to
signing this Agreement. You understand and agree that you have the right and
have been given the opportunity to review this Agreement and, specifically, the
General Release in paragraph 6 above, with an attorney. You also understand and
agree that the Company is under no obligation to offer you the payments and
benefits set forth in paragraphs 3 and 4 above and that you are under no
obligation to consent to the General Release set forth in paragraph 6 above. You
acknowledge and agree that the payments and benefits set forth in paragraphs 3
and 4 above constitute sufficient consideration to require you to abide with
your obligations under this Agreement, including but not limited to the General
Release set forth in paragraph 6. You represent that you have read this
Agreement, including the General Release set forth in paragraph 6, that you
understand its terms and the fact that it includes a waiver of any rights under
the ADEA arising on or prior to the date of this Agreement, and that you enter
into this Agreement freely, voluntarily, and without coercion. Review and
Revocation Rights: You acknowledge and represent that you have been given at
least forty-five (45) days during which to review and consider the provisions of
this Agreement and, specifically, the General Release set forth in paragraph 6
above, although you may sign and return it sooner if you so desire. You further
acknowledge and represent that you have been advised by the Company that you
have the right to revoke this Agreement for a period of seven (7) days after
signing it. You acknowledge and agree that you have been advised in writing by
the Company of the class or group of individuals covered by this termination
program, any eligibility factors for the program, the time limits applicable to
the program, and the job titles and ages of those in the covered class or group
eligible and those not eligible for the program, as reflected in Exhibit B,
attached hereto. You acknowledge and agree that, if you wish to revoke this
Agreement, you must do so in a writing, signed by you and received by the
Company (sent to my attention) no later than 5:00 p.m. Pacific Time on the
seventh (7th) day of the revocation period. If no such revocation occurs, the
General Release and this Agreement shall become effective on the eighth (8th)
day following your execution of this Agreement (the "Effective Date"). You
further acknowledge and agree that, in the event that you revoke this Agreement,
it shall have no force or effect, and you shall have no right to receive any
payments or benefits hereunder (with the exception of any accrued and unpaid
portion of the monthly fee for Consulting Services, pro rated through the date
of such revocation, which will be paid to you whether or not you sign this
Agreement). Entire Agreement; Modification: The terms described in this
Agreement set forth the entire agreement and understanding between you and the
Company and, except as otherwise provided herein, supersedes all prior
agreements, arrangements and understandings, written or oral, between us, other
than the 2003 Indemnification Agreement (other than Section 6 of such agreement
which shall not survive) and the 2005 Indemnification Agreement (other than
Section 6 of such agreement which shall not survive), concerning your employment
with the Company and the termination thereof, including the Employment
Agreement. You acknowledge and agree that you are not relying on any
representations or promises by any representative of the Company concerning the
meaning or any aspect of this Agreement. This Agreement may not be altered or
modified other than in writing signed by you and an authorized representative of
the Company. Severability; Blue Pencil: It is the desire and intent of the
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under applicable law. In the event that any one or
more of the provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. Moreover, if
any one or more of the provisions contained in this Agreement shall be held to
be excessively broad as to duration, scope, activity or subject, such provisions
shall be construed by limiting or reducing them so as to be enforceable to the
maximum extent compatible with applicable law. Waiver: No waiver by either party
of any breach by the other party of any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of any other
provision or condition at the time or at any prior or subsequent time. This
Agreement and the provisions contained in it shall not be construed or
interpreted for or against either party because that party drafted or caused
that party's legal representative to draft any of its provisions. Arbitration:
Any disputes arising under or in connection with this Agreement shall be
resolved by final and binding arbitration in San Francisco, California, using
the JAMS judicial arbitration service and in accordance with the commercial
arbitration rules of JAMS then in effect. San Francisco shall be the exclusive
venue for such disputes. The written decision of the arbitrator shall be final
and binding upon the parties and in such form that judgment may be entered in
and enforced by any court having jurisdiction over the parties. Governing Law:
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of California, without reference to its choice of law
rules. Counterpart Signatures: This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.

If the above sets forth our agreement as you understand it and consent to it,
please so signify by signing the enclosed copy of this letter and return it to
me at the address above.

Very truly yours,
Sharper Image Corporation

/s/ Jerry W. Levin
By: Jerry W. Levin
Title: Chairman, Board of Directors and Interim

Chief Executive Officer

Agreed to and Accepted:

/s/ Jeffrey P. Forgan

Jeffrey P. Forgan
Dated: December 23, 2006