EXECUTIVE SEVERANCE AGREEMENT
This Agreement, dated as of July 17, 1996, is among THE MUSICLAND GROUP,
INC. and its wholly-owned subsidiary, MUSICLAND RETAIL, INC., Delaware
corporations (collectively referred to herein as the "Company"), and XXXXXXX
X. XXXXXXXX (the "Executive").
WITNESSETH
WHEREAS, the Company wishes to be assured of the services of Executive
for the period provided in this Agreement; and
WHEREAS, Executive desires to serve in the employ of the Company on a
full-time basis for a period provided in the Agreement as Vice Chairman, and
upon the terms and conditions hereafter provided;
NOW, THEREFORE, in consideration of the premises and of the respective
representations and warranties set forth and of the mutual covenants herein
contained, the parties hereby agree as follow:
1. EMPLOYMENT. The Company agrees to employ Executive, and Executive agrees
to enter the employ of the Company, upon the terms and conditions provided
herein.
2. TERM. Executive's employment under this Agreement shall be for a period
of sixty (60) full months, beginning July 17, 1996, and shall end on July 31,
2001. The Company shall have the right to extend this Agreement for one or
more additional successive one year terms by giving written notice of such
extension to Executive at least three months prior to the expiration of the
then current term.
3. POSITION. During the period of his employment hereunder, Executive shall
be employed in the position of Vice Chairman, or in such other executive
officer capacity as the Board of Directors of the Company may from time to
time determine, and shall perform such services for the Company and for any
parent, subsidiary or affiliate of the Company when and as directed by the
Chairman and Chief Executive Officer of the Company.
1
4. SERVICES AND DUTIES. Executive shall devote substantially all of his time
during normal business hours, attention, skill and efforts to the faithful
performance of his duties as the Vice Chairman. Executive's primary job
responsibilities shall include, but not be limited to: merchandising, buying,
inventory management, advertising and distribution. Such responsibilities
may be altered as the business needs of the Company require. Executive shall
also sit as a member of the Executive Committee. The expenditure of
reasonable amounts of time by the Executive for personal, charitable and
professional activities shall not be deemed a breach of this Agreement,
provided such activities do not materially interfere with the services
required to be rendered by Executive under this Agreement, do not involve any
conflict of interest (or the appearance of a conflict of interest), and are
not contrary to the business or other interests of the Company or the Parent.
5. OBLIGATION OF LOYALTY TO THE COMPANY
A. During the term of this Agreement and while employed by the Company,
Executive agrees that he will not:
(1) Make any statement or perform any act intended to advance an
interest of any existing or prospective competitor of the Company in any
way or that will or may injure the Company in its relationship and
dealings with any existing or potential, supplier or creditor;
(2) Solicit or encourage any other officer or employee of the
Company to do any act that is disloyal to the Company, or inconsistent
with the Company's interests or in violation of any provision of this
Agreement;
(3) Solicit any other officer or employee to participate in or
assist with the formation or operation of any business intended to
compete with the Company or with respect to the possible future
employment of such other executive by any such business;
(4) Inform any existing or potential customer, supplier or creditor
of the Company that Executive intends to resign; or make any statement
or do any act intended to cause any existing or potential customer,
supplier or creditor of the Company to learn of Executive's intention to
resign;
2
(5) Discuss with any existing or potential customer, supplier or
creditor of the Company the present or future availability of services
or products provided by a business that competes with services or
products that the Company provides.
B. If Executive during his employment with the Company has or expects to
acquire a proprietary interest in, or is or expects to be made an owner,
agent, consultant, executive, officer or director of, any existing or future
business that provides or may provide services or products in competition
with the Company, Executive agrees that he will furnish immediately to the
Company all information that may reasonably be of assistance to the Company
in protecting its relationships with any existing or potential customer,
supplier or creditor with whom Executive may have had dealings on behalf of
the Company.
6. COMPENSATION. As compensation for all services rendered by Executive
under this Agreement, Executive shall be paid as follows:
A. SALARY. As a minimum the Executive shall be paid the fixed base
salary which was agreed to by the parties upon his hiring, said annual salary
to be paid in twenty-six (26) bi-weekly installments and subject to such
periodic merit increases as the Company shall deem appropriate in accordance
with the Company's customary procedures and practices applicable to other
similarly situated executives (the "Base Salary"). Such periodic increases,
once granted, shall not be subject to revocation except pursuant to a program
of salary reductions applicable to the Company's executive officers generally.
B. INCENTIVE COMPENSATION.
(1) Executive shall participate in the Company's Management
Incentive Plan at a "target" level of 40% of Base Salary.
(2) Executive shall be considered by the Compensation Committee
along with other executive officers for selection of stock option awards
pursuant to the Company's stock option plans.
3
(3) Executive shall be eligible to participate in The Musicland
Group Capital Accumulation Plan (KSOP) upon meeting said plan's service
requirements.
(4) Executive may participate in successor or additional plans of
the Company which may be adopted by the Company in it's sole discretion
for the benefit of Company officers generally.
(5) Nothing in this Agreement shall preclude any amendment or
termination by the Company of any benefit plan, provided that such
amendment or termination is applicable to all of the Company's executive
officers generally.
C. FRINGE BENEFITS. Executive shall participate in the full executive
benefits package, as modified from time to time at the Company's sole
discretion, including:
(1) death benefit plans consisting of group life insurance and
accidental death and dismemberment insurance;
(2) disability benefit plans consisting of short-term salary
continuation, short-term disability and long-term disability plans;
(3) senior officer medical, dental, health and welfare plans;
(4) senior officer leased car or car allowance (reviewed annually);
(5) paid vacation, holidays and other leave pursuant to the
Company's policies and practices;
(6) all other fringe benefits and perquisites which the Company may
in its sole discretion make available to its officers generally,
provided that nothing in this Agreement shall preclude any amendment or
termination by the Company of any insurance plans, fringe
benefits or perquisites provided that such amendment or termination is
applicable to all of the Company's executive officers generally.
4
7. BUSINESS RELATED EXPENSE. Executive shall be entitled to reimbursement of
actual out-of-pocket expenses incurred in the conduct of the Company's
business, which shall be limited to ordinary and necessary items, and which
shall be supported by vouchers, receipts, or similar documentation in
accordance with such procedures as the Company may from time to time
establish.
8. DISABILITY.
A. In the event the Executive becomes disabled, as such term is defined
in the Company's then current disability benefit plans, the obligation of the
Company to make salary payments pursuant to this Agreement shall cease as of
the date the Executive begins receiving benefits under such disability plans.
B. If the Executive is unable to perform the essential functions of his
position, with or without reasonable accommodation, for six consecutive
months, or for an aggregate of 180 days during nine consecutive months, this
Agreement shall terminate as of the expiration date of such six-month period
or the completion of the aggregation of such 180 days, as the case may be.
9. DEATH. If the Executive dies while this Agreement is in effect, this
Agreement shall terminate as of the date of death. After payment of all
amounts accrued to the Executive hereunder through the date of death, the
Company shall have no obligation to make any further payments under this
Agreement with the exception of any benefits payable under the Company's then
current death benefit plans and any vested benefits the Executive may have
under the Company's qualified benefit plans.
10. TERMINATION OF EMPLOYMENT BY THE COMPANY.
A. This Agreement and the Executive's employment hereunder may be
terminated by the Company upon not less than 30 days' notice for "Cause" as
defined herein. After payment of all amounts accrued to the Executive
hereunder through the date of such notice, the Company will have no further
obligation to the Executive hereunder except any vested benefits the
Executive may have under the Company's qualified benefit plans.
B. Termination shall be deemed to have been for Cause if:
5
(1) Executive is convicted of or admits to 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 hereunder or would
impair the business reputation of the Company;
(2) Executive commits an intentional act of dishonesty or an act
resulting in or intended to result directly or indirectly in gain to or
personal enrichment of the Executive at the Company's expense;
(3) Executive refuses or is unable (except by reason of incapacity
due to illness, accident or disability) to comply with his obligations
under this Agreement to devote his time and attention to the affairs
of the Company or commits any other material breach of this Agreement,
and the Executive shall have either failed to remedy such alleged
breach within thirty (30) days from his receipt of written notice from
the Secretary of the Company demanding that he remedy such alleged
breach, or shall have failed to take all reasonable steps to that end
during such thirty-day period and thereafter; or
(4) There has been a determination by the Chief Executive Officer or
an affirmative vote of at least a majority of the Company's entire
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 office assigned to him, and such failure has had
an adverse impact upon the Company, provided that such determination may
be made only after a period of at least ninety (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 shall be informed of the most significant deficiencies and
during such ninety-day period the Executive shall have failed to
correct, or failed to take all reasonable steps to correct, such
significant deficiencies.
6
C. Anything herein to the contrary notwithstanding, termination of the
employment of the Executive shall not be considered to have been for Cause if
such termination took place as a result of (i) bad judgment or negligence
(but not gross negligence) on the part of the Executive, (ii) an act or
omission without intent of gaining therefrom directly of indirectly a profit
or other benefit to which the Executive was not legally entitled, or (iii) an
act or omission believed by the Executive in good faith to have been in, or
at least not opposed to, the best interests of the Company and consistent
with reasonable business practices.
D. If the Executive's employment is terminated by the Company, while
this Agreement is in effect for any reason other than for Cause, then
Executive shall be due the severance payments described in Paragraph 12 below.
11. TERMINATION OF EMPLOYMENT BY THE EXECUTIVE.
A. Executive may terminate his employment at any time and for any
reason by giving written notice to the Company. Executive's employment and
this Agreement shall terminate effective on the date specified in such notice
or upon such earlier date as the Company may specify in a written notice
given to the Executive. After payment of all amounts accrued to the
Executive hereunder through the date of such notice (and unless subparagraph
B below applies), the Company will have no further obligation to the
Executive hereunder except any vested benefits the Executive may have under
the Company's qualified benefit plans.
B. If Executive determines in good faith that the nature and quality
of the authorities, powers, functions, duties or responsibilities assigned to
him are substantially and materially less than the nature and quality of the
authorities, powers, functions, duties or responsibilities generally of
executive vice presidents of the Company, which shall be deemed a continuing
breach of this Agreement, or that the Company has committed any other
material breach of the terms of this Agreement, Executive may terminate his
employment for "Good Reason" by setting forth the reason for such termination
in a written notice to the Company. Except in the case of a continuing
breach, such notice must be received by the Company within thirty (30) days
after the event giving rise to the
7
material breach. Unless the Company disputes the Executive's determination
of Good Reason or cures the breach within thirty (30) days after receipt of
such notice, this Agreement and the Executive's employment shall terminate at
the end of the thirty-day period, or upon such earlier date as the Company
may specify, and the Executive shall be due the severance payments described
in Paragraph 12 below. If the Company disputes the Executive's determination
of Good Reason, the matter shall be settled by arbitration pursuant to
Paragraph 15 hereof.
12. SEVERANCE. In the event, while this Agreement is in effect, the
Executive's employment is terminated by the Company for any reason other than
Cause or by the Executive for Good Reason, the Company will pay executive the
following as liquidated damages or severance pay, or both:
A. Executive's Base Salary will continue to be paid in bi-weekly
installments for a period of twelve (12) months following the date of
termination of the Executive's employment, provided that in the event the
termination occurs prior to July 17, 1997, Base Salary will be continued for
such additional period so that the total Base Salary paid to the Executive
both before and after the termination of employment aggregates to twenty-four
(24) months. The applicable period during which Base Salary is continued
shall be deemed the "Severance Period."
B. For the calendar year in which termination occurred and for each
subsequent calendar year (or portion thereof) in the Severance Period, in
full substitution for Executive's rights under the Company's Management
Incentive Plan, the Executive will be entitled to a substitute incentive
award (pro-rated for any partial year) equal to 40% of the Executive's
weighted average Base Salary for the twelve (12) months immediately preceding
the date of termination. The substitute incentive award for the calendar
year in which termination occurred shall be paid in a lump sum on the first
day of February following such calendar year. The substitute incentive award
for the remainder of the Severance Period shall be paid in a lump sum on last
day of the Severance Period.
C. Except for continuation rights under COBRA and any vested benefits
under the Company's qualified plans, all other benefits and perquisites shall
cease as of the termination of the Executive's employment.
8
13. CONFIDENTIAL INFORMATION. Executive agrees that he will not, during the
period of his employment hereunder, or at any time thereafter, disclose to
any unauthorized person, firm or corporation any trade secrets or
confidential information relating to the Company, its subsidiaries or
affiliates, or to any of the businesses operated by them; and Executive
confirms that such information constitutes the exclusive property of the
Company. For the purposes of this Agreement, the term "Confidential
Information" shall mean information of any nature and in any form which at
the time concerned is not generally known to those persons engaged in
business similar to that conducted or contemplated by the Company. Executive
shall return all tangible evidence of such Confidential Information to the
Company anytime upon the Company's request or at the termination of
Executive's employment.
14. INDEMNIFICATION. The Company will indemnify the 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 and the Restated Certificate
of Incorporation and By-Laws of the Company, as in effect at the time of the
subject act or omission. Executive shall also be entitled to the protection
of any insurance policies the Company, in its sole discretion, may elect to
maintain generally for the benefit of its directors and officers. The
Executive shall be covered by any such policies in accordance with their
terms to the maximum extent of the coverage available for any Company officer
or director. The foregoing obligations of the Company to indemnify Executive
shall survive the termination of this Agreement (whether such termination is
by the Company, by the Executive, upon expiration or otherwise).
15. JOINT AND SEVERAL LIABILITY. All obligations and liabilities of the
Company under this Agreement shall be the joint and several liability of The
Musicland Group, Inc. and Musicland Retail, Inc.
16. REMEDY FOR BREACH. Executive understands that a breach of any one or
more of the covenants contained herein will result in irreparable and
continuing damage to the Company for which there will be no adequate remedy
at law, and, in the event of any breach or threatened breach of Executive's
obligations hereunder, the Company may in addition to any other remedies
which may be
9
available to it (i) declare forfeited any sums representing accrued salary,
other fringe benefits or severance otherwise due and payable to Executive,
and, or alternatively, (ii) file suit to enjoin Executive from the breach or
threatened breach of such covenants.
17. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement, or the breach thereof, or the termination of the
employment relationship (including, without limitation, any claims of
unlawful discrimination, harassment or wrongful discharge) shall be settled
exclusively by binding arbitration 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 and shall be empowered to award counsel
fees and expenses to the prevailing party. Judgment may be entered on the
arbitration award in any court having jurisdiction.
18. CHOICE OF LAW. The validity of this Agreement, the construction of its
terms and the determination of the rights and duties of the parties hereto
shall be governed by and construed in accordance with the laws of the State
of Minnesota.
19. WAIVER. The failure of either party to enforce any rights
hereunder shall not be deemed to be a waiver of such rights, unless such
waiver is an express written waiver which has been signed by the waiving
party. Waiver of any one breach shall not be deemed to be a waiver of any
other breach of the same or any other provision hereof.
20. AMENDMENTS. This Agreement may be amended or modified at any time in all
respects, but only by an instrument in writing agreed upon and executed by or
on behalf of the party against whom any amendment, waiver, change,
modification or discharge is sought. Each party waives the future right to
contend that this Agreement was modified by an oral agreement or waiver or
course of conduct.
21. NOTICES. Any notice, communication, request, reply or advice given
hereunder by either party to the other shall be in writing and may be
effected by personal delivery or by certified mail postage prepaid with
return receipt requested and addressed as follows:
10
If to the Company, to:
Musicland Stores Corporation
Attn: General Counsel and Secretary
00000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
If to Executive, to:
Xxxxxxx X. Xxxxxxxx
-------------------
-------------------
With a copy to:
-------------------
-------------------
-------------------
or at such other address as either party may notify the other from time to
time. Notices delivered personally shall be deemed given on actual receipt,
and mailed notices shall be deemed given three (3) days after mailing by
certified mail, return receipt requested.
22. SEVERABILITY. Each provision of this Agreement is intended to be
severable. In the event that any one or more of the provisions contained in
this Agreement shall be for any reason held to be invalid, illegal or
unenforceable the same shall not affect the validity or enforceability of any
other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provisions had never been contained
herein.
23. ASSIGNABILITY. Executive shall not assign or transfer any of his rights
or obligations under this Agreement. Subject to the foregoing sentence, the
rights and obligations of the parties shall inure to the benefit of and be
binding upon their successors in interest, legal representatives and assigns.
25. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the Company and Executive with respect to the subject matter contained
herein. The parties rely on no representations or inducements not stated
herein or in other written agreements between the parties.
11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MUSICLAND RETAIL, INC.
By--------------------
Xxxx X. Xxxxxxx
Chief Executive Officer
MUSICLAND STORES CORPORATION
By--------------------
Xxxx X. Xxxxxxx
Chief Executive Officer
EXECUTIVE:
----------------------
XXXXXXX X. XXXXXXXX
12
