EXHIBIT 10.04

 

Mark C. Shepherd
28 Chestnut Place
Danville, CA 94506

Dear Mark:

March 15, 2001

On behalf of Egghead.com I am pleased to offer you the position of Chief
Financial Officer and Sr. Vice President, reporting to me in my role as
President & CEO. You will start working with us during the latter part of March
on some date mutually agreed upon between the two of us.

Your annual base salary will be $250,000 paid in 26 increments over the course
of the year. After we reach profitability, you will participate in Egghead's Sr.
Management Bonus Program, which can add substantial income in the form of
variable cash compensation.

In the event that you are involuntarily terminated, except for a Termination for
Cause as defined below, you will be paid 6 months of base salary in a lump sum
within 30 days of your termination date. Further, if you voluntarily terminate
within six months following the close of a Change of Control transaction as
defined below, because your duties, responsibilities, or compensation is
materially diminished, or the location of your office is changed by more than 50
miles, you will be paid 6 months base salary in a lump sum within 30 days of
your termination date.

You will receive an option to purchase 500,000 shares of Egghead common stock,
subject to board approval. 375,000 shares of this stock will vest monthly over a
four-year period after a six-month "cliff". Your stock option price for this
option will be based upon the closing price of Egghead.com stock the workday
prior to the commencement of your employment with us. The remaining 125,000
shares of stock will be in the form of a Time Accelerated Sock Option Program
(TASOP). This is a new program for Egghead and will be introduced early in the
second quarter of 2001.

Your strike price for this second option will be based upon the closing price of
Egghead.com stock the day before the program is announced. This option either
vests ratably over a 36 month period after a six-month cliff, or as Egghead
reaches profitability, whichever occurs first. On the day we publicly announce
that the company made a profit during the previous quarter, 50% of the shares
vest. On the day we publicly announce that Egghead earned 2% in net income
during the previous quarter, an additional 25% of the shares vest. Finally, on
the day we publicly announce that the company earned 3% in net income during the
previous quarter the remaining 25% of the shares vest. Net income excludes
special charges that are related to acquisitions, amortization/write-off of
goodwill and acquired R&D, special compensation charges, etc.

Egghead provides employees a wide array of benefits including a 401(K) plan
through Fidelity Investments and an Employee Stock Purchase Plan. Most of these
benefits, including health care benefits will begin on the first day of your
employment. A brochure describing all our benefits plans is enclosed.

You will be required to sign a standard Employee Inventions and Assignment
Agreement and an Acknowledgement and Receipt of Egghead.com's Employee Handbook.
Your employment will at all times be "at will", which means that you or Egghead
can terminate your employment at any time with or without cause. There will be
no express or implied agreements to the contrary.

Please sign and return a copy of this letter to indicate your acceptance of our
offer. This offer is contingent on the completion of a background check. If you
have any questions, please feel free to call me or any other member of the
executive staff. This offer expires if not signed and returned by Friday, March
16, 2001. You may fax it to me on (650) 473 6990.

Sincerely,

/s/ Jeff Sheahan

Jeff Sheahan

President & CEO

I accept this job offer as described above:

Signature: /s/ Mark C. Shepherd Date:3/15/01

Definition of Termination for Cause: The company's termination of an executive's
employment for (I) willful failure or refusal without proper cause, to
substantially perform his duties as an employee of the company; (ii) the
executive's conviction for any criminal act, except that a misdemeanor
conviction shall not constitute "Termination for Cause" unless it shall have
involved misappropriate use of funds or property, fraud, or other similar
activity which bears directly upon the executive's ability to perform faithfully
his duties as an employee of the Company. The executive shall have an
opportunity to appeal such termination to the board of directors of the company.

Definition of Change of Control Transaction: (i) a merger or consolidation in
which the voting shares of the Corporation immediately before the merger or
consolidation do not represent, or are not converted into shares representing, a
majority of the voting poser of the surviving corporation; (ii) a transfer of
shares representing more than 50% of the voting power of the Corporation to a
single entity or person or group of related entities or persons; or (iii) a sale
of substantially all of the assets of the Corporation.

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