AGREEMENT

Exhibit 10.1

AGREEMENT

THIS AGREEMENT is entered into this 6th day of September, 2005, between HANDLEMAN COMPANY, a Michigan corporation (the “Company”), and RONNIE WAYNE LUND (the “Executive”).

RECITALS

A. The Board of Directors of the Company (the “Board”) recognizes that merger and acquisition activities have increased in recent years and that the threat of, or occurrence of, a Change in Control (as hereinafter defined) relating to the Company could result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation.

B. The Board has determined that it is in the best interests of the Company and its shareholders to retain the services of the Executive in the event of any threat or occurrence of a Change in Control and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security.

C. In order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event his employment is terminated as a result of, or in connection with, a Change in Control.

In consideration of the foregoing Recitals and the respective agreements contained herein, Company and Executive agree as follows:

1. Definitions.

(a) For purposes of this Agreement, a “Change in Control” shall be deemed to occur on the first date (the “Effective Date”) any one or more of the following occurs:

(1) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), together with all affiliates and associates of such person (as such terms are defined in Rule 12b-2 under the Exchange Act) but excluding all “Excluded Persons” (as defined in paragraph 1(b)), becomes the direct or indirect beneficial owner (within the meaning of Rule 13d-3 under

the Exchange Act), other than directly from the Company, of securities of the Company representing (A) twenty-five percent (25%) or more of the combined voting power of all of the Company’s outstanding securities entitled to vote generally in the election of the Company’s directors, or (B) twenty-five percent (25%) or more of the combined shares of the Company’s capital stock then outstanding, all except in connection with any merger, consolidation, reorganization or share exchange involving the Company;

(2) the consummation of any merger, consolidation, reorganization or share exchange involving the Company, unless the holders of the Company’s capital stock outstanding immediately before such transaction own more than fifty percent (50%) of the combined outstanding shares of capital stock and have more than fifty percent (50%) of the combined voting power in the Entity (as defined in paragraph 1(f)) after such transaction and they own such securities in substantially the same proportions (relative to each other) as they owned the Company’s capital stock immediately before such transaction;

(3) the consummation of any sale or other disposition (in one transaction or a series of related transactions) of all, or substantially all, of the Company’s assets to a transferee or transferees (the “Transferee”) other than a transaction or transactions as a result of which the shareholders of the Company’s capital stock outstanding immediately before such transaction(s) own or receive more than fifty percent (50%) of the capital stock and combined voting power in the Transferee after such transaction(s), at least a majority of the Board of Directors of the Transferee are “Continuing Directors” (as hereinafter defined), and no person owns twenty-five percent (25%) or more of the capital stock and combined voting power of the Transferee who did not own such percentage immediately before the transaction(s);

(4) a complete liquidation or dissolution of the Company; or

(5) the Continuing Directors cease to be a majority of the Company’s directors.

A determination by the Company’s Continuing Directors (by resolution of at least a majority of the Continuing Directors) as to whether a Change in Control has occurred for purposes of this Agreement, or the date on which the Change in Control has occurred (the

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Effective Date), or both, shall be conclusive for purposes of this Agreement if made in good faith.

(b) The “Excluded Persons” are defined as (1) the Executive, (2) any “group” (as that term is used in Section 13(d) of the Exchange Act and the rules thereunder) that includes the Executive or in which the Executive is, or has agreed to become, an equity participant, (3) any entity in which the Executive is, or has agreed to become, an equity participant, (4) the Company, (5) any subsidiary of the Company, (6) any employee benefit plan of the Company or any subsidiary of the Company or the related trust, and (7) any entity to the extent it is holding capital stock of the Company for or pursuant to the terms of any employee benefit plan of the Company or any subsidiary of the Company. For purposes of this Agreement, Executive shall not be deemed an “equity participant” in any group or entity (A) in which Executive owns for investment purposes only no more than five percent (5%) of the stock of a publicly-traded entity whose stock is either listed on a national stock exchange or quoted in The Nasdaq National Market, if Executive is not otherwise affiliated with such group or entity, or (B) if Executive’s participation is fully-disclosed to, and approved by, a majority of the Continuing Directors before the Change in Control occurs.

(c) The “Continuing Directors” are defined as the directors of the Company as of the date of this Agreement, and any person who subsequently becomes a director if such person is appointed to be a director by a majority of the Continuing Directors or if such person’s initial nomination for election or initial election as a director is recommended or approved by a majority of the Continuing Directors; provided, however, that no director shall be considered a Continuing Director if such individual initially assumed office as a director as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 of the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest.

(d) Termination of employment for “Good Reason” means Executive’s voluntary termination of employment with the Entity (as hereinafter defined) before or after a Change in Control as a result of (1) any change by the Entity (without Executive’s consent) in Executive’s title from Executive’s title immediately before such Change in Control, (2) any decrease by the Entity (without Executive’s consent) in Executive’s compensation (including base

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salary and bonus arrangements) or incentives from Executive’s compensation or incentives immediately before such Change in Control; provided that Executive’s bonus shall not be deemed to have decreased if Executive shall have a substantially similar opportunity to earn a bonus as Executive did in the last full fiscal year before such Change in Control, (3) any material decrease by the Entity (without Executive’s consent) in Executive’s employee benefits from Executive’s employee benefits immediately before such Change in Control unless the substitute or replacement employee benefits are substantially similar to or uniformly applicable to the employee benefits being provided to all executive employees of the Entity; (4) a substantial change by the Entity (without Executive’s consent) in Executive’s duties or responsibilities (including reporting responsibilities) from Executive’s duties and responsibilities immediately before such Change in Control, (5) any requirement by the Entity (to which Executive does not consent) that Executive change Executive’s primary place of business to be outside the metropolitan Detroit area, (6) if such Change in Control results in a new Entity being a successor to the Company’s business, the failure of such Entity to assume expressly in writing the Company’s obligations under this Agreement or under any written employment agreement between Executive and the Company in effect immediately before such Change in Control, or (7) any material breach by the Entity of any provision of this Agreement. “Good Reason” does not include Executive’s termination of employment due to Executive’s death, Disability (as defined below) or Retirement (as defined below), or Executive’s resignation other than as provided in the preceding sentence. For purposes of this Agreement, (A) “Disability” means (i) if Executive is covered by an Entity-provided disability insurance policy, the definition of disability contained in, and entitling Executive to benefits under, that policy, or (ii) if Executive is not covered by such a policy, Executive’s inability, whether physical or mental, to perform the normal duties of Executive’s position for six (6) consecutive months; and (B) “Retirement” means Executive’s retirement from the Entity in accordance with the Entity’s normal policies.

Determination by the Executive of “Good Reason” shall be conclusive for purposes of this Agreement if made in good faith.

Any event or condition described in paragraph 1(d)(1) through (7) which occurs prior to a Change in Control, but which the Executive reasonably demonstrates (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (B) otherwise arose in connection with, or in anticipation of a

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Change in Control, shall constitute Good Reason for purposes of this Agreement, notwithstanding that it occurred prior to the Change in Control, provided that any such event or condition described in paragraph 1(d)(1)-(7) shall have occurred within ninety (90) days prior to the Change in Control.

(e) “Cause” means (1) the willful and continued failure of the Executive to perform his employment duties (unless due to illness or Disability), (2) the willful engaging by the Executive in illegal, improper or gross misconduct materially injurious to the Entity, or (3) any breach by the Executive of the provisions of paragraph 5 of this Agreement; provided, however, that no termination of the Executive’s employment shall be for Cause until there shall have been delivered to the Executive a copy of a written notice specifying the particulars of the conduct constituting “Cause” and the Executive shall have been provided an opportunity to be heard by the Board (and the Board shall have rendered a decision as to whether the Executive’s employment shall have been terminated for Cause in accordance with this Agreement).

(f) “Entity” shall mean both (1) the Company and (2) in connection with a Change in Control defined in paragraph 1(a)(2) or paragraph 1(a)(3), the survivor of the merger, consolidation, reorganization or share exchange involving the Company or the Transferee of the Company’s assets.

2. Right to Receive Severance Benefits. Executive shall receive the severance benefits described in paragraph 3 if (a) a Change in Control occurs during the Period (as defined in paragraph 4), and (b) at any time during the period beginning ninety (90) days before, and ending two (2) years after, the Effective Date, Executive terminates Executive’s employment with the Entity for Good Reason or the Entity terminates Executive’s employment without Cause.

Executive shall not be deemed to have terminated Executive’s employment with the Entity for Good Reason, and the Entity shall not be deemed to have terminated Executive’s employment without Cause, (a) if the Entity has offered to employ Executive on such terms that would not constitute Good Reason for termination of Executive’s employment if imposed by the Entity, (b) Executive refuses to accept such employment, and (c) the Entity thereupon terminates Executive’s employment.

For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which indicates the specific termination provision in this Agreement, if any, relied upon and

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which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. Any purported termination by the Entity or by the Executive shall be communicated by Notice of Termination to the other. For purposes of this Agreement, no purported termination of employment shall be effective without such Notice of Termination. The “Termination Date” shall be the date of termination of the Executive’s employment specified in the Notice of Termination, provided, however, that if the Executive’s employment is terminated by the Executive for Good Reason, the Termination Date shall be no more than thirty (30) days from the date the Notice of Termination is delivered to the Entity.

3. Severance Benefits. If Executive is entitled to severance benefits pursuant to paragraph 2, Executive shall be paid the following by the Entity (Company):

(a) All amounts earned or accrued by Executive through the Termination Date but not paid as of the Termination Date, including base salary or compensation, reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date, vacation pay and sick leave; and

(b) A pro rata bonus for the Company’s current fiscal year in an amount equal to (1) the average of the annual bonus accrued on behalf of the Executive during the Company’s three (3) full fiscal years ended prior to the Effective Date, multiplied by (2) a fraction, the numerator of which is the number of days in the current fiscal year through the Termination Date and the denominator of which is 365; and

(c) The Entity shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment, an amount (the “Severance Amount”) in cash equal to 2.99 times the sum of (1) the Executive’s base salary at the highest rate in effect at any time within one hundred eighty (180) days prior to the Effective Date, and (2) the average of the annual bonu