FORM OF EMPLOYMENT AGREEMENT
FOR OTHER SENIOR EXECUTIVE OFFICERS
This Agreement is made as of July 26, 1999 by and between The Musicland
Group, Inc., a Delaware corporation (the "Company"), Musicland Stores
Corporation, a Delaware corporation (the "Parent") and _______________ (the
"Executive").
WHEREAS the Company and the Parent have employed Executive pursuant to
the terms of Employment and Change of Control Agreements dated August 25, 1988,
as amended December 3, 1996 (the "Prior Agreements");
WHEREAS the Company and the Parent desire to continue to employ
Executive in accordance with the terms and conditions stated in this Agreement,
which shall replace and supersede the Prior Agreements; and
WHEREAS Executive desires to continue employment pursuant to the terms
and conditions of this Agreement and acknowledges that this Agreement replaces
and supersedes the Prior Agreements;
NOW, THEREFORE, for the consideration described below, the parties
agree as follows:
I. EMPLOYMENT
1.1 Employment As Executive. During the Period of Employment described in
Section 1.3 below, the Company and the Parent hereby agree to employ Executive
as ____________________ or in such other executive officer position as the Board
of Directors of the Company and the Parent may from time to time determine,
unless terminated earlier pursuant to Article III of this Agreement. Executive
accepts such employment pursuant to the terms of this Agreement. Executive shall
perform such duties and responsibilities as may be determined from time to time
by the Board of Directors of the Company and the Parent, which shall be
consistent with his position as an executive officer. Executive shall not be
required to perform his duties hereunder for more than 60 working days in any
year, or for more than 21 consecutive days at any one time, at any office
located in any place other than the Minneapolis, Minnesota metropolitan area.
1.2 Exclusive Services. Executive agrees to devote his full time,
attention, and energy to performing his duties and responsibilities to the
Company and the Parent under this Agreement during the period that this
Agreement is in effect, except for reasonable vacations, illness, or incapacity,
provided that nothing in this Agreement shall preclude Executive from devoting
time during reasonable periods required for (i) serving as a director or member
of a committee of any organization or company involving no conflict of interest
with the Company or the Parent; (ii) delivering lectures,
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fulfilling speaking engagements; (iii) engaging in charitable and community
activities; and (iv) managing personal or family finances and investments;
provided that such activities do not materially interfere with the performance
of his duties hereunder.
1.3 Period of Employment. The Period of Employment shall be determined as
follows:
(a) Except as provided in subsection (b) in the event of a Change of
Control as defined in Section 4.1, the Period of Employment hereunder
shall be from July 26, 1999 through July 26, 2001, subject to extension
or termination as hereinafter provided. The then-existing Period of
Employment shall be automatically extended by one additional year (to
the next subsequent July 26, but in no event shall the Period of
Employment extend beyond the first day of the month next succeeding the
month in which Executive attains age 65) unless the Company shall
deliver to Executive or Executive shall deliver to the Company written
notice at least 18 months prior to the expiration of the then-existing
Period of Employment that the Period of Employment will not be
extended. In such case, the Period of Employment will end at the
expiration of the then-existing Period of Employment hereunder,
including any previous extension, and shall not be further extended
except by agreement of the Company and Executive. (For example, in
order to avoid the automatic extension of the expiration of the Period
of Employment from July 26, 2001 to July 26, 2002, notice must be given
by January 26, 2000.)
(b) If upon an event constituting a Change of Control the remaining period
in the then-existing Period of Employment (as determined under
subsection (a) above) is less than 24 months, the Period of Employment
shall be extended so that the expiration is on the last business day of
the 24th calendar month following such Change in Control. No adjustment
will be made if the remaining period is more than 24 months at the time
of the Change in Control. In either case, the automatic one year
extensions shall continue to apply as provided in subsection (a) above.
(For example, if a Change of Control occurs January 1, 2000, the
remaining period in the Period of Employment (ending July 26, 2001) is
less than 24 months and would be extended to expire January 1, 2002. In
order to avoid automatic extension of the adjusted Period of Employment
to January 1, 2003, notice must be given by July 1, 2000.)
(c) The Period of Employment shall continue until the expiration of all
automatic extensions effected as aforesaid, unless and until it sooner
ceases or is terminated as provided in Article III.
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II. COMPENSATION, BENEFITS, AND PERQUISITES
2.1 Salary. During the Period of Employment, the Company shall pay
Executive a base salary at the annual rate of $__________ commencing February
21, 1999. The base salary shall be payable in equal bi-weekly installments. The
Compensation Committee of the Board of Directors of the Company may review the
salary periodically and may in its sole discretion increase it to reflect
performance and other factors in accordance with the Company's customary
procedures and practices regarding the salaries of senior officers.
2.2 Disability Pay. In the event of the disability of Executive (within the
meaning of the Company's disability benefit plans in effect at the time of
Executive's disability), the obligation of the Company to make payments of
salary under Section 2.1 shall cease as of the date Executive begins receiving
benefits under the Company's short-term salary continuation plan, and Executive
shall be entitled to benefits under the Company's disability benefit plans in
accordance with the terms of such plans. Notwithstanding the terms of this
Agreement, the Company retains the right to amend, reduce or terminate its
disability benefit plans at any time so long as such amendments, reductions or
terminations apply equally to all senior officers.
2.3 Employee Benefits. Executive shall be entitled to the benefits and
perquisites which the Company generally provides to its other senior officers
under the applicable Company plans and policies. Executive's participation in
such benefit plans shall be on the same basis as applies to other senior
officers of the Company and subject to the terms of applicable law, plan
documents, and insurance policies. Executive shall pay contributions, if any,
which are generally required of the Company's senior officers in order to
receive any such benefits. Specifically, Executive shall:
(a) participate in the Company's Management Incentive Plan and Long-Term
Incentive Plan, or, if applicable, the shareholder approved Alternate
Incentive Plan for Designated Senior Officers (the "Alternate Plan");
(b) be considered by the Compensation Committee of the Board of Directors
for possible grants of stock options, stock appreciation rights,
restricted stock and deferred stock awards, under the Company's stock
option plans, stock incentive plans, or any similar plan adopted by the
Company or the Parent during the Period of Employment;
(c) participate to the permitted extent he wishes in the Company's Capital
Accumulation Plan;
(d) participate in the Company's Employees' Retirement Plan and
Supplemental Executive Retirement Plan;
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(e) participate in the Company's death benefit plans (consisting of its
Group Life Insurance Plan, and accidental death and dismemberment
insurance);
(f) participate in the Company's disability benefit plans (consisting of
its short-term salary continuation, short-term disability and long-term
disability plans);
(g) participate in its senior officer medical, dental, health and welfare
plans; and
(h) participate in equivalent successor plans of the Company for which
officers are eligible.
Notwithstanding the foregoing, nothing in this agreement shall preclude any
amendment or termination by the Company of any employee benefit plan or
practice, provided such amendment or termination is applicable to all of the
Company's senior officers generally; provided, however, that in the event of a
Change of Control as defined in Section 4.1 and through the Period of Employment
described in Section 1.3(b), Executive shall be entitled to perquisites and
benefits at least as favorable as those to which Executive was entitled
immediately prior to the Change of Control, and to the extent such perquisites
or benefits are not payable or provided under any such plan of the Company by
reason of the amendment or termination thereof, the Company itself shall pay or
provide therefor.
2.4 Incentive Compensation Following Change of Control. In the event of a
Change of Control as defined in Section 4.1 and through the Period of Employment
described in Section 1.3(b), Executive shall receive an annual award under the
Company's Management Incentive Plan, or, if applicable, the Alternate Plan, or a
plan with substantially equivalent incentives and benefits that may be adopted
by the Company, for each calendar year, or portion thereof, during the Period of
Employment, which shall be payable as soon as practicable after the end of such
calendar year and shall be equal to a percentage of Executive's base salary for
such calendar year. Such percentage shall be no less than the percentage at plan
target in effect preceding the Change of Control. Furthermore, Executive shall
continue to be a full participant in the performance awards of the Company's
Long-Term Incentive Plan, or if applicable, the Alternate Plan, and any other
long-term incentive plans of the Company, and any and all executive incentive
plans in which executives of the Company participate that are in effect
immediately prior to a Change of Control, or any amended or successor plans with
at least as favorable terms that may be substituted and that may hereafter be
adopted, including, without limitation, any plan relating to stock options,
stock appreciation rights, restricted stock and deferred stock awards, or
equivalent successor plans that may be adopted by the Company with at least the
same reward opportunities that have heretofore been provided and with such
improvements in such plans or other plans as may from time to time be made in
accordance with the present practices of the Company.
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2.5 Employment Taxes and Withholding. Executive recognizes that the
compensation, benefits, and other amounts provided by the Company under this
Agreement may be subject to federal, state, or local income taxes. All such
taxes shall be the responsibility of the Executive. To the extent that federal,
state, or local law requires withholding of taxes on compensation, benefits, or
other amounts provided under this Agreement, the Company shall withhold the
necessary amounts from the amounts payable to Executive under this Agreement.
2.6 Company Not Responsible for Insured Benefits. In this Article II, the
Company is agreeing to provide certain benefits in the form of premiums for
insurance coverage. The Company and the Parent are not themselves promising to
pay the benefit an insurance company is obligated to pay under the policy the
insurance company has issued. If an insurance company does not or cannot pay
benefits it owes to Executive or his beneficiaries under the insurance policy,
neither Executive nor his personal representative or beneficiary shall have any
claim for benefits against the Company or the Parent.
2.7 Expenses. Executive shall be entitled to receive reimbursement from the
Company (in accordance with the policies and procedures then in effect for the
Company's employees) for all reasonable travel and other expenses incurred by
him in connection with his services under this Employment Agreement.
III.TERMINATION OF EXECUTIVE'S EMPLOYMENT
3.1 Termination of Employment. Notwithstanding any other provision of this
Agreement, Executive's employment and the Period of Employment may be terminated
pursuant to the following:
(a) Executive's employment may be terminated by the Company or the Parent,
on not less than 60 days' notice in writing, for Cause as defined in
Section 3.2. After payment of all amounts accrued to Executive
hereunder through the date of such notice, the Company and the Parent
shall have no further obligation to the Executive hereunder except for
the payment of benefits under the Company's Employees' Retirement Plan
and Supplemental Executive Retirement Plan and Capital Accumulation
Plan vested on such date.
(b) Executive's employment may be terminated by the Company at any time for
any reason other than Cause as defined in Section 3.2, or Executive may
terminate his employment with the Company and the Parent for Good
Reason as defined in Section 3.3. In the event of termination of
employment by the Company without Cause, or termination by the
Executive for Good Reason, the Company shall pay to Executive, as
liquidated damages or severance pay or both, the amounts described in
Section 3.4.
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(c) Executive may terminate his employment with the Company and the Parent
for other than Good Reason. In such event, the Executive's employment
shall terminate as of the 90th day following the giving of written
notice by the Executive to the Company of his decision to terminate
other than for Good Reason, or such earlier date as the Company may
specify in written notice to Executive. After such termination, the
Company and the Parent shall have no further obligation to the
Executive hereunder except for the payment of benefits under the
Company's Employees' Retirement Plan and Supplemental Executive
Retirement Plan and Capital Accumulation Plan vested on such date.
3.2 Termination for Cause.
(a) For purposes of this Article III, "Cause" shall mean only the
following:
(1) an intentional act or acts of dishonesty by the Executive or an
act or acts by him resulting or intended to result directly or
indirectly in gain to or personal enrichment of the Executive at
the Company's expense;
(2) a conviction of the Executive or an admission by the Executive of
committing a felony or any crime involving moral turpitude, or
any other criminal activity or unethical conduct which, in the
good faith opinion of the Company, would impair Executive's
ability to perform his duties or impair the business reputation of
the Company;
(3) a deliberate and intentional refusal by the Executive to comply
with Sections 1.1 and 1.2 of this Agreement (other than any such
failure to comply resulting from the Executive's incapacity due to
illness or accident) and which failure to comply results in
demonstrably material injury to the Company, provided, however,
that the Executive shall have either failed to remedy such failure
to comply within 30 days from his receipt of written notice from
the Secretary of the Company demanding that he remedy such failure
to comply, or shall have failed to take all reasonable steps to
that end during such 30-day period and thereafter; or
(4) a determination by the Chief Executive Officer or an affirmative
vote of at least a majority of the entire membership (whether
present or not) of the Company's Board of Directors (other than
the Executive if also a director) at a meeting called and held for
that purpose and at which the Executive is given an opportunity to
be heard, that, in the judgment of the Chief Executive Officer or
the Board, the Executive has, over an extended period of time,
consistently failed to satisfactorily perform the material duties
of his
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office assigned to him, and such failure has had an adverse impact
upon the Company; provided, however, that such determination may
be made only after a period of at least 90 days following the last
of two formal reviews (which are at least six months apart) of the
Executive's performance by the Chief Executive Officer, at which
the Executive was informed of the most significant deficiencies in
performance, and during such 90-day period the Executive shall
have failed to correct, or failed to take all reasonable steps to
correct, such significant deficiencies. For purposes of the
minimum number of directors required in the preceding sentence,
any fraction shall be rounded up to the next higher whole number
of directors.
(b) Anything herein to the contrary notwithstanding, the employment of
Executive shall not be considered to have been terminated by the
Company for Cause if termination of his employment took place solely
because of one or more of the following:
(1) as a result of bad judgment or negligence on the part of
Executive, or
(2) as the result of an act or omission without intent of gaining
therefrom directly or indirectly a profit to which Executive was
not legally entitled; provided, however, that this subsection
(b)(2) shall not apply to a termination pursuant to subsection
(a)(3) above, or
(3) because of an act or omission believed by Executive in good faith
to have been in or not opposed to the interests of the Company, or
(4) as the result of an act or omission which occurred more than 12
calendar months prior to Executive's having been given notice of
the termination of his employment for such act or omission unless
the commission of such act or such omission could not at the time
of such commission or omission have been known to a member of the
Board of Directors of the Company (other than Executive), in which
case more than 12 calendar months prior to the date that the
commission of such act or such omission was or could reasonably
have been so known; provided, however, that this subsection (b)(4)
shall not apply to a termination pursuant to subsection (a)(3)
above, or
(5) as a result of a continuing course of action which commenced and
was or could reasonably have been known to a member of the Board
of Directors of the Company (other than Executive) more than 12
calendar months prior to notice having been given to the Executive
of the termination of his employment; provided, however,
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that this subsection (b)(5) shall not apply to a termination
pursuant to subsection (a)(3) above.
3.3 Good Reason.
(a) For the purposes of this Article III, "Good Reason" shall mean:
(1) the authority, powers, functions, responsibilities or duties
assigned to Executive pursuant to this Agreement are materially
and adversely diminished without his written consent (except any
diminution that occurs solely as a result of the fact that the
Company or Parent ceases to be a public company);
(2) a breach of Article II of this Agreement with respect to the
salary, incentive compensation and benefits of Executive; or
(3) after a Change of Control (as defined in Section 4.1), Executive
is required, without his written consent, to locate his office
more than 35 miles distant by public highway from his office
immediately prior to the Change in Control (but only if the
distance between Executive's residence and such new office is
greater than the distance between his residence and office
immediately prior to the Change of Control) or to travel on
business more than 60 working days in any year or more than 21
consecutive days at any one time.
(b) Executive shall give written notice to the Company of termination for
Good Reason within six months of the event giving rise to such notice
and allow the Company 30 days after the Company's receipt of such
notice to cure such breach. If the Company disputes any contention by
Executive that there has been Good Reason, such dispute shall be
resolved by binding arbitration held in Minneapolis, Minnesota in
accordance with the Employment Dispute Resolution Rules of The American
Arbitration Association then in effect. The arbitrator shall be an
attorney with experience in employment disputes who is mutually
selected by the parties. Judgment may be entered on the arbitration
award in any court having jurisdiction.
(c) In the event of the liquidation, dissolution, consolidation or merger
of the Company or transfer (in one transaction or a series of
transactions) of 70% or more of its assets (regardless of whether such
event is not a Change of Control within the meaning of Section 4.1(c)
because it is approved by the Continuing Directors), and the successor
entity does not assume all duties and obligations of the Company under
this Agreement or otherwise make arrangements with Executive
satisfactory to Executive for employment of the Executive by the
successor, then Executive may
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within 90 days following such event give written notice to the Company
of his termination of employment (effective as of 90 days following
such notice or such earlier date as specified by the Company in written
notice to Executive), which shall be deemed termination for Good
Reason.
3.4 Severance Benefits. In the event of termination of Executive's
employment by the Company without Cause, or termination by the Executive for
Good Reason, the Company shall provide Executive with the following compensation
and benefits; provided, that, the Company shall not be obligated to provide any
severance benefits unless and until the Executive (if he is then so serving)
resigns as a director of the Parent or the Company or any subsidiaries:
(a) Salary. The Company shall pay Executive during the remainder of the
Period of Employment as in effect immediately prior to such
termination, as if such termination had not occurred, an amount equal
to the base salary provided in Section 2.1, including any increases
therein provided, at the times therein stated, for the month in which
termination shall have occurred and for each month thereafter during
such Period, less in respect of each such month the amounts, if any,
paid to him pursuant to the Company's Employees' Retirement Plan and
Supplemental Executive Retirement Plan and the amounts the Executive
would have paid in cash in respect of employee benefits provided for in
Section 2.3, if Executive were still employed.
Notwithstanding the foregoing, in the event of a termination following
a Change of Control, the salary amount described above shall be (i)
determined based on a remaining Period of Employment of not less than
24 months (even if the actual Period of Employment is shorter) and (ii)
paid in a single lump sum within 20 days after such termination.
(b) Annual Incentive. The Company shall pay the Executive during the
remainder of the Period of Employment as in effect immediately prior to
such termination, as if such termination had not occurred, in full
substitution for his rights under the Company's Management Incentive
Plan, or, if applicable, the Alternate Plan, or any successor plan then
in effect, a substitute incentive award, for the year in which
termination occurred and for each subsequent calendar year, or portion
thereof (in which case such substitute award shall be only in
proportion to such portion), during such Period which shall be equal to
the then current percentage at plan target of Executive's base salary
for the applicable calendar year as described in Section 2.1 (including
any increases therein provided).
The substitute incentive award shall be paid in a single lump sum on
the first day of February of each year, except that a pro rata award
for that
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portion of the calendar year in which the Period of Employment ends
shall be paid in a single lump sum on the last day of the Period of
Employment.
Notwithstanding the foregoing, in the event of a termination following
a Change of Control, the substitute incentive awards described above
shall be (i) determined based on a remaining Period of Employment of
not less than 24 months (even if the actual Period of Employment is
shorter) and (ii) paid at one time within 20 days after such
termination in an amount equal to the aggregate lump sum value of such
substitute awards.
(c) Long-Term Incentive. The Company shall pay Executive in full
substitution for any rights under all outstanding performance awards
under the Long-Term Incentive Plan, or, if applicable, the Alternate
Plan, or any successor plan then in effect, held by Executive at the
time of such termination, for each year during the remainder of the
Period of Employment a substitute long-term award as follows:
(1) If the termination occurs after the completion of any performance
cycle under the applicable plan but before the award for such
cycle has been paid, the substitute award for the year in which
termination occurs will equal the percentage of Executive's base
salary actually earned under the terms of the applicable plan for
such completed cycles and will be paid at the same time other
participants are paid for such completed cycles. Otherwise, a
substitute long-term award will not be paid in the year of
termination if Executive has already received in such year a
long-term incentive payment pursuant to the applicable plan.
(2) The substitute long-term award for all other years will equal the
then current percentage (of salary) at plan target times
Executive's then current annual base salary as provided in
subsection (a) above and will be paid by February 1st of the year
for which the payment is being made.
(3) If the final year of the Period of Employment is a partial year,
the substitute long-term award for such year (determined as in
subparagraph (2) above) will be prorated based on the number of
days in such partial year.
For example: If the Executive is terminated in January 2001 before
payment is made for the completed 1999 - 2000 performance cycle,
the Executive's substitute long-term award for the year of
termination (2001) will be equal to the award earned by the
Executive under such completed cycle and will be paid at the same
time as other participants are paid. If the Executive is
terminated in the year 2001 after the payment for the 1999-2000
performance
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cycle has been made, the first substitute long-term award will be
paid in the year 2002. In either case, the Executive's substitute
long-term award for the year 2002 will be paid by February 1, 2002
and will equal the then current percentage (of salary) at plan
target times Executive's then current annual base.
Notwithstanding the foregoing, in the event of a termination following
a Change of Control, the substitute long term incentive awards
described above shall be (i) determined based on a remaining Period of
Employment of not less than 24 months (even if the actual Period of
Employment is shorter) and (ii) paid at one time within 20 days after
such termination in an amount equal to the aggregate lump sum value of
such substitute awards.
(d) Stock Awards. Each outstanding stock option to purchase shares of the
Company's or the Parent's common stock and any stock appreciation right
that is held by Executive at the time of such termination shall become
vested and exercisable in full. Each stock option to purchase shares of
the Company's or the Parent's common stock granted to Executive on or
after the date hereof shall contain the following provision:
In the event that the Optionee's Period of Employment
under his Employment Agreement with the Company dated
as of July 26, 1999 is terminated pursuant to Section
3.1(b) thereof, this Option shall become exercisable in
full.
In addition, all restrictions upon any restricted stock previously
granted to Executive by the Company or the Parent shall be deemed to
have lapsed and Executive shall be entitled to receive all such shares
of restricted stock. Similarly, Executive shall be entitled to receive
all shares covered by outstanding deferred stock awards previously
granted to Executive by the Company or the Parent as if the deferral
period and all conditions pertaining thereto had expired or been
satisfied, as the case may be.
(e) Death, Disability and Medical Benefits. During the remainder of the
Period of Employment as in effect immediately prior to such
termination, as if such termination had not occurred, the Executive
shall continue to be entitled to all employee benefits provided for in
Section 2.3(f), (g), and (h), as if Executive were still employed
during such period under this Agreement, with benefits based upon the
compensation and increases provided in subsection (a), and upon the
assumption that Executive was continuing to pay or continued to be
deemed to have paid in cash in respect of such benefits the amounts
(and only the amounts) by which the payments otherwise due Executive
under subsection (a) were reduced in respect to such benefits, and if
and to the extent the said benefits shall
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not be payable or provided under any plan by reason of Executive no
longer being an employee of the Company as a result of Executive's
termination, the Company itself shall pay or provider therefor.
Notwithstanding the foregoing, if Executive is entitled to death,
disability or medical benefit coverage of the kind described in Section
2.3(f), (g) or (h) from other employment or a consulting position
during the Period of Employment, such benefits provided under this
Agreement shall be reduced or coordinated as provided in subsection (g)
below.
(f) Retirement Benefits. The Company shall pay to Executive during the
remainder of his life following the expiration of the Period of
Employment as in effect immediately prior to such termination, and,
after his death, to his surviving spouse (subject to such optional
method of payment election as may be made under the Company's
Employees' Retirement Plan and Supplemental Executive Retirement Plan
and as further described below), a supplemental retirement benefit
which shall be equal to the excess of:
(1) an aggregate benefit at least equal to the benefit that would have
been paid under the Employees' Retirement Plan and Supplemental
Executive Retirement Plan, subject to any plan amendments or
terminations generally applicable to all of the Company's senior
officers which are adopted prior to the date of such termination,
if the Executive had continued to be employed and to be entitled
to service credit for benefits during the remainder of such Period
of Employment at an annual rate of compensation equal to his
compensation and increases provided in subsections (a) and (b)
(unless during such remainder the Executive dies or becomes
disabled, in which event such benefit shall be reduced to reflect
application of the last two sentences of subsection (e), over
(2) the aggregate benefit actually payable to the Executive under the
Employees' Retirement Plan and Supplemental Executive Retirement
Plan.
In clarification of the foregoing paragraph (1), in determining whether
any actuarial reduction would apply (and the amount of such reduction,
if any) under the early retirement provisions of the Employees'
Retirement Plan and Supplemental Executive Retirement Plan (to reflect
the early commencements of benefits), the age which the Executive would
have attained at the expiration of such Period, and the accredited
service he would have had at such time, shall be used. An election made
by Executive under the Employees' Retirement Plan and Supplemental
Executive Retirement Plan as to a joint and survivor or other optional
method of payment and as to the time for commencement of payments
shall be applicable to such supplemental retirement benefit, with
application of discount factors no less favorable to Executive than
those in
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effect under the Employees' Retirement Plan and Supplemental Executive
Retirement Plan on the date of such termination. Notwithstanding the
foregoing, Executive may, by a notice in writing filed with the Plan
Administrator for the Employees' Retirement Plan and Supplemental
Executive Retirement Plan, designate any person as the payee of amounts
due hereunder after his death (in the manner, and with the effect,
described in the Company's Employees' Retirement Plan and Supplemental
Executive Retirement Plan).
Notwithstanding the foregoing, in the event of a termination following
a Change of Control, the supplemental retirement benefit described
above shall be (i) calculated based upon the Executive's years of
service at the time of the termination plus an additional five years
and disregarding the requirement of five years of participation in the
Supplemental Executive Retirement Plan, and (ii) paid in a single sum
within 20 days after such termination in an amount equal to the lump
sum value of such benefit.
(g) Subsequent Employment. Executive shall be required to minimize damages
or severance payments under this Agreement by seeking and accepting
other executive employment or a comparable consulting position. To the
extent that the Executive shall receive cash compensation that is
subject to federal income taxation in respect of other employment or a
consulting position with another company and that is payable to
Executive solely in respect of the remainder of the Period of
Employment as in effect immediately prior to such termination, or a
portion thereof, the payments to be made by the Company under
subsections (a), (b), and (c) for the remainder of the Period of
Employment as in effect immediately prior to such termination or such
portion thereof, as the case may be, shall be correspondingly reduced,
and any supplemental retirement benefit payments pursuant to subsection
(f) shall be calculated after taking such reduction into account. In
the event Executive has received lump sum payments following a Change
in Control as provided above, Executive agrees to re-pay the Company in
quarterly payments the reductions described in the foregoing sentence.
Furthermore, to the extent that benefits of the kind provided for
in Section 2.3 (f), (g) and (h) are payable in respect of such other
employment or consulting position, any death or disability benefits so
payable under subsequent employment shall reduce benefits of such kind
otherwise payable under subsection (e) above and any medical/dental/
welfare benefits so payable under subsequent employment shall be deemed
the primary coverage for purposes of coordination of benefits under
subsection (e) above and avoiding duplication of benefits.
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(h) After Death or Disability. Upon the death of Executive during the
period that payment of the amounts specified in subsection (a) above
are required to be made, the obligation of the Company to make payments
to the Executive under this Section 3.4 shall cease as of the date of
death and the benefits described in Section 3.6 shall become payable.
In the event of the disability of the Executive during such Period, the
obligation to make payments under subsections (a) and (b) above shall
be suspended as of the date specified in Section 2.2 for the cessation
of payments of salary and Executive shall be entitled to the benefits
described in Section 3.5, and such obligation shall be reinstated again
only if during such period Executive ceases to be disabled.
3.5 Disability. If Executive has become disabled from performing his duties
under this Agreement and the disability has continued for a period of six
consecutive months or for an aggregate of 180 days during nine consecutive
months, the Period of Employment under this Agreement shall terminate. Such
termination shall not result in payments pursuant to Section 3.4 above, the
disability benefits provided by the Company being in full satisfaction of the
Company's obligation to Executive.
3.6 Death. Upon the death of Executive during the Period of Employment, the
Period of Employment and the obligation of the Company to make payments under
Section 2.1 shall cease as of the date of death, and benefits shall become
payable under the death benefit plans described in Section 2.3(f) in accordance
with their terms, exclusive of any plan amendments that reduce or terminate
benefits thereunder not generally applicable to all of the Company's senior
officers.
3.7 Non-Competition and Confidentiality. In consideration for the payments
and benefits to be provided to Executive under this Agreement, Executive agrees
to comply with the following requirements:
(a) Agreement Not to Compete. Executive agrees that, on or before the first
anniversary of the date Executive's employment under this Agreement
terminates under Section 3.1, he will not, unless he receives the prior
written approval of the Chief Executive Officer of the Company,
directly or indirectly engage in any of the following actions:
(1) Own an interest in (except as provided below), manage, operate,
join, control, lend money or render financial or other assistance
to, or participate in or be connected with, as an officer,
director, employee, partner, stockholder, consultant or otherwise,
any entity that is a competitor of the Company if the amount of
competition is significant, i.e., the competition is in a line of
business or products that constitute more than five percent of the
gross revenues of both the Company and its consolidated
subsidiaries and the competitor. However, nothing in this
subsection (a) shall preclude Executive from (i) holding less than
one percent of the outstanding capital stock of any corporation
required
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to file periodic reports with the Securities and Exchange
Commission under Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the securities of which are listed on any
securities exchange, quoted on the National Association of
Securities Dealers Automated Quotation System or traded in the
over-the-counter market or (ii) continuing to engage in any
activities or investments that the Executive participated in prior
to his termination of employment if such activities or investments
did not violate Company policy.
(2) Intentionally solicit, endeavor to entice away from the Parent or
the Company, or any of their subsidiaries, or otherwise interfere
with the relationship of the Parent or the Company, or any of
their subsidiaries with, any person who is employed by or
otherwise engaged to perform services for the Parent or the
Company, or any of their subsidiaries (including, but not limited
to, any independent sales representatives or organizations), or
any persons or entity who is, or was within the then most recent
12-month period, a customer or client of the Parent or the
Company, or any of their subsidiaries, whether for Executive's own
account or for the account of any other individual, partnership,
firm, corporation or other business organization.
If the scope of the restrictions in this subsection are determined by a
court of competent jurisdiction to be too broad to permit enforcement
of such restrictions to their full extent, then such restrictions shall
be construed or rewritten (blue-lined) so as to be enforceable to the
maximum extent permitted by law, and Executive hereby consents, to the
extent he may lawfully do so, to the judicial modification of the scope
of such restrictions in any proceeding brought to enforce them.
(b) Non-Disclosure of Information. During the period of his employment
hereunder, and at all times thereafter, Executive shall not, without
the written consent of the Chief Executive Officer of the Parent,
disclose to any person, other than an employee of the Parent or the
Company, or any of their subsidiaries or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance
by Executive of his duties as an executive of the Parent or the
Company, except where such disclosure may be required by law, any
material confidential information obtained by him while in the employ
of the Parent or the Company with respect to any of their products,
technology, know-how or the like, services, customers, methods or
future plans, all of which Executive acknowledges are valuable, special
and unique assets the disclosure of which Executive acknowledges may be
materially damaging to the Parent or the Company.
(c) Remedies. Executive acknowledges that the Parent's or the Company's
remedy at law for any breach or threatened breach by Executive of
subsection (a) or (b) will be inadequate. Therefore, the Parent or the
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Company shall be entitled to injunctive and other equitable relief
restraining Executive from violating those requirements, in addition to
any other remedies that may be available to the Parent or the Company
under this Agreement or applicable law.
IV. CHANGE OF CONTROL
4.1 Change of Control Defined. For purposes of this Agreement, "Change of
Control" means the occurrence of any of the following:
(a) The acquisition by any person, entity or "group" within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended ("xxx 0000 Xxx"), other than the Company, the Parent or any of
their affiliates, or any employee benefit plan of the Company and/or
its affiliates, of beneficial ownership (within the meaning of Rule
13(d)-3 under the 0000 Xxx) of shares of stock of the Company or the
Parent having twenty five percent (25%) or more of the total number of
votes that may be cast for election of the Directors of the Company or
the Parent in a transaction or series of transactions not approved in
advance by a vote of at least three-quarters of the Continuing
Directors (as defined below).
(b) A change in the composition of the Board of Directors of the Company or
the Parent such that at any time a majority of the Board are not
Continuing Directors. "Continuing Directors" refers to the individuals
who serve as Directors at the effective date of this Agreement and any
individual whose term of office as a Director begins thereafter if the
nomination or election of such Director was approved in advance by a
vote of at least three-quarters of the then serving Continuing
Directors (other than a nomination of an individual whose initial
assumption of office is in connection with an actual or threatened
solicitation with respect to the election or removal of the Directors,
as such terms are used in Rule 14a-11 of Regulation 14A under the 1934
Act).
(c) The approval by the shareholders of the Company or the Parent of a
reorganization, merger, consolidation, liquidation or dissolution of
the Company or the Parent, or of the sale (in one transaction or a
series of transactions) of all or substantially all of the assets of
the Company or the Parent other than a reorganization, merger,
consolidation, liquidation, dissolution or sale approved in advance by
a vote of at least three-quarters of the Continuing Directors.
(d) Any other occurrence if at least a majority of the Continuing Directors
determine in their discretion that there has been a Change of Control
of the Company or the Parent.
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4.2 Vesting of Stock Options and Restricted Stock. Upon a Change of
Control, the right of Executive to exercise any and all stock options to
purchase shares of the Company's or the Parent's stock and any stock
appreciation rights held by Executive shall, to the extent that such options and
rights shall not theretofore have been exercised, become fully vested and
exercisable immediately, all restrictions upon any restricted stock previously
granted to Executive shall be deemed to have lapsed and the deferral period and
all conditions pertaining to any deferred stock awards previously granted to
Executive shall be deemed to have expired or have been satisfied, as the case
may be, and Executive shall be entitled to receive all such shares of restricted
or deferred stock. All restricted stock and all deferred stock awards granted to
Executive on or after the date hereof shall be awarded subject to the conditions
described in the immediately preceding sentence. All options issued or awarded
to the Executive on or after the date hereof shall contain the following
provision:
Notwithstanding anything herein contained to the contrary, in the event
that a Change of Control, as defined in Section 4.1 of the Optionee's
Employment Agreement with the Company dated as of July 26, 1999 should
occur, this Option shall immediately thereafter become exercisable in
full.
4.3 Trust Requirement After Change of Control. To assure the performance of
the Company and the Parent of their obligations under this Agreement in the
event of a Change of Control, the Company or the Parent shall, upon the request
of Executive immediately prior to a Change of Control, deposit in an irrevocable
trust with a trustee designated by Executive, an amount of liquid assets equal
to the present value of the maximum amount of all lump amounts which could be
paid to Executive under Section 3.4 in the event of a termination of employment
of Executive without Cause following a Change of Control. Such trust shall be
established and funded only if and to the extent that the establishment of such
trust does not contravene the provisions of any loan agreement under which the
Company or the Parent is obligated; provided, however, that the Company and
Parent (as opposed to the lender under any such loan agreement) may not seek to
preclude the establishment of such trust by initiating the entering into,
renegotiating or amending of any such loan agreement, a principal purpose which
entering into, renegotiating or amendment is such preclusion. The trust shall be
reasonably satisfactory in form and substance to the Executive, with no greater
rights in Executive than an unsecured creditor of the Company and Parent. To
the extent there are not amounts in trust sufficient to pay Executive under this
Agreement, the Company and Parent shall be and remain liable therefore.
V. MISCELLANEOUS
5.1 Amendment. This Agreement may be amended only in a writing that is
signed by all parties.
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5.2 Entire Agreement. This Agreement contains the entire understanding of
the parties with regard to the employment of the Executive by the Company and
the Parent. There are no other agreements, conditions, or representations, oral
or written, expressed or implied, with regard thereto. This Agreement supersedes
all prior agreements, promises, and representations relating to the employment
of Executive by the Company and the Parent.
5.3 Assignment. The Company may in its sole discretion assign this
Agreement to any entity which succeeds to some or all of the business of the
Company through merger, consolidation, a sale of some or all of the assets of
the Company, or any similar transaction. Executive acknowledges that the
services to be rendered by him are unique and personal. Accordingly, Executive
may not assign any of his rights or obligations under this Agreement.
5.4 Successors. Subject to Section 5.3, the provisions of this Agreement
shall be binding upon the parties hereto, upon any successor to or assign of the
Company and the Parent, and upon Executive's heirs and the personal
representative of Executive or Executive's estate.
5.5 Notices. Any notice required to be given under this Agreement shall be
in writing and shall be delivered either in person or by certified or registered
mail, return receipt requested. Any notice by mail shall be addressed as
follows:
If to the Company, to:
The Musicland Group, Inc.
00000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Attention: Secretary
If to Executive, to:
The Musicland Group, Inc.
00000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Attention: ______________
With an additional copy to (home address):
-----------------------
-----------------------
-----------------------
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or to such other addresses as either party may be designate in writing to the
other party from time to time.
5.6 Waiver of Breach. Any waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement or of any subsequent breach
by such party of a provision of this Agreement.
5.7 Potential Excise Taxes.
(a) Gross-Up Payment. Anything to the contrary notwithstanding, in the
event it shall be determined that any payment, distribution or benefit
made or provided by or on behalf of the Company or Parent to or for the
benefit of the Executive (whether pursuant to this Agreement or
otherwise) (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986. as amended (the
"Code"), or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, being,
collectively referred to as the "Excise Tax"), then the Company shall
pay the Executive in cash an additional amount (the "Gross-Up Payment")
such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including
but not limited to income taxes (and any interest and penalties imposed
with respect thereto) and the Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed on the Payments. Notwithstanding the
foregoing, no amount shall be paid under this Section 5.7, and the
amounts payable to Executive under this Agreement shall be reduced to
the amount at which no such Excise Tax is payable, if the result of
such reduction is to place Executive in the same or a better after-tax
position than would result from making the additional payments provided
under this Section.
(b) Determination of Gross-Up Payment. Subject to sub-paragraph (c) below,
all determinations required to be made under this Section 5.7,
including whether a Gross-Up Payment is required and the amount of the
Gross-Up Payment, shall be made by the firm of independent public
accountants selected by the Company to audit its financial statements
for the year immediately preceding the Change in Control (the
"Accounting Firm") which shall provide detailed supporting calculations
to the Company and the Executive within 30 days after the date of the
Executive's termination of employment. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or
group affecting the Change in Control, the Executive may appoint
another nationally recognized accounting firm to make the
determinations required under this Section 5.7 (which accounting firm
shall then be referred to as the
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"Accounting Firm"). All fees and expenses of the Accounting Firm in
connection with the work it performs pursuant to this Section 5.7 shall
be promptly paid by the Company. Any Gross-Up Payment shall be paid by
the Company to the Executive within 5 days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax
on the Executive's applicable federal income tax return would not
result in the imposition of a penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As
a result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm,
it is possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"). In the event that
the Company exhausts its remedies pursuant to sub-paragraph (c) below,
and the Executive is thereafter required to make a payment of Excise
Tax, the Accounting Firm shall promptly determine the amount of the
Underpayment that has occurred and any such Underpayment shall be paid
by the Company to the Executive within 5 days after such determination.
(c) Contest. The Executive shall notify the Company in writing of any claim
made by the Internal Revenue Service that if successful, would require
the Company to pay a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the
Executive knows of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration
of the 30-day period following the date on which the Executive gives
such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Employee shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim;
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in waiting from time to time,
without limitation, accepting legal representation with respect to
such claim by an attorney selected by the Company and reasonably
acceptable to the Executive;
(3) cooperate with the Company in good faith in order to effectively
contest such claim; and
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(4) permit the Company to participate in any proceedings relating to
such claim, provided that the Company shall bear and pay directly
all costs and expenses (including interest and penalties) incurred
in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs
and expenses.
Without limitation on the foregoing provisions of this subparagraph
(c), the Company shall control all proceedings taken in connection with
such contest. At its sole option, the Company may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may either
direct the Executive to pay the tax claimed and xxx for a refund or
contest the claim in any permissible manner. The Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine, provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. The Company's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. Furthermore, the Company agrees
to hold in confidence and not to disclose, without Executive's prior
written consent, any information with regard to Executive's tax
position which the Company obtains pursuant to this Section 5.7.
(d) Suit for Refund. If the Company directs the Executive to pay any claim
and xxx for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis. If the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be
paid.
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5.8 Indemnification. The Company will indemnify Executive (and his legal
representatives or other successors) to the fullest extent permitted (including
payment of expenses in advance of final disposition of a proceeding) by the laws
of the State of Delaware, as in effect at the time of the subject act or
omission, or by the Restated Certificate of Incorporation and By-Laws of the
Company, as in effect at such time or on the effective date of this Agreement,
or by the terms of any indemnification agreement between the Company and
Executive, whichever affords or afforded greater protection to Executive, and
the Executive shall be entitled to the protection of any insurance policies the
Company may elect to maintain generally for the benefit of its directors and
officers (and to the extent the Company maintains such an insurance policy or
policies, Executive shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage affordable for
any Company officer or director), against all costs, charges and expenses
whatsoever incurred or sustained by him or his legal representatives at the time
such costs, charges and expenses are incurred or sustained, in connection with
any actions, suit or proceeding to which he (or his legal representatives or
their successors) may be made a party by reason of his being or having been a
director, officer or employee of the Company, the Parent or any subsidiary of
either of them, or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
5.9 Attorney's Fees. In the event of any litigation, arbitration, or other
proceeding between the Company and Executive with respect to this Agreement or
the enforcement of Executive's rights hereunder, if the Executive prevails on
any issue which is a material part of such litigation, arbitration or other
proceeding, the Company shall periodically reimburse Executive for all of the
reasonable costs and expenses relating to such litigation, arbitration or
proceeding (including, without limitation, reasonable attorneys' fees). In no
event shall Executive be required to reimburse the Company or the Parent for any
of the costs or expenses relating to such litigation, arbitration, or
proceeding.
5.10 Joint and Several Liability. All duties, undertakings, obligations, and
liabilities of the Company and the Parent arising under this Agreement shall be
the joint and several liability of the Company and the Parent.
5.11 Severability. If any one or more of the provisions (or portions
thereof) of this Agreement shall for any reason be held by a final determination
of a court of competent jurisdiction to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other provisions (or portions of the provisions) of this Agreement, and the
invalid, illegal, or unenforceable provision shall be deemed replaced by a
provision that is valid, legal, and enforceable and that comes closest to
expressing intention of the parties.
5.12 Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Minnesota, without giving effect to
conflict of law principles.
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5.13 Headings. The headings of articles and sections herein are included
solely for convenience and reference and shall not control the meaning of
interpretation of any of the provisions of this Agreement.
5.14 Counterparts. This Agreement may be executed by either of the parties
in counterparts, each of which shall be deemed to be an original, but all such
counterparts shall constitute a single instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the date set forth above.
MUSICLAND STORES CORPORATION
THE MUSICLAND GROUP, INC.
By:--------------------------------------
Xxxx X. Xxxxxxx
Chairman and CEO
EXECUTIVE
-----------------------------------------
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