Exhibit 99.1
CONSULTING AGREEMENT
THIS
CONSULTING AGREEMENT (this “ Agreement ”), dated
as of November 27, 2007, is entered into by and between
Handleman Company, a Michigan corporation (the “
Company ”) and Stephen Strome (the “
Consultant ”).
WITNESSETH:
WHEREAS,
the Consultant has been employed by the Company since 1978, and has
served as the Chief Executive Officer of the Company since 1991,
and is party to a Change in Control Agreement with the Company
entered into as of March 17, 1997 (the “ Prior
Agreement ”);
WHEREAS,
the Consultant desires to retire from the employment of the
Company;
WHEREAS,
the Consultant has invaluable knowledge and expertise regarding the
operations of the Company and important relationships with the
Company’s suppliers, customers and others;
WHEREAS,
due to the Consultant’s knowledge, expertise and
relationships, the Company wishes to have the cooperation of, and
access to, the Consultant for a period of time following his
retirement; and
WHEREAS,
the Company and the Consultant have mutually agreed that the
Consultant shall serve as an advisor to the Company on the terms
and subject to the conditions hereinafter specified.
NOW,
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the
Consultant hereby agree as follows:
1. Consulting Period .
The Consultant shall resign from the positions of Chief Executive
Officer of the Company and member of the Board of Directors of the
Company on November 27, 2007 and shall retire and cease to be an
employee of the Company on January 7, 2008. The Consultant
shall render consulting services, on the terms and conditions set
forth in this Agreement, for the period beginning on the date of
his retirement as an employee of the Company and ending on
March 31, 2010 (the “ Consulting Period ”).
Notwithstanding the foregoing, nothing in this Agreement or
otherwise will interfere in any way with the rights of the
Consultant or the Company to terminate the Consultant’s
services, with or without Cause (as defined in
Section 4).
2. Consulting Services .
During the Consulting Period, the Consultant shall (a) provide
general consulting services to the Company with respect to the
business of the Company and (b) make himself reasonably
available to the Company during normal business hours to consult on
specific projects for the Company with respect to such business, in
each case as may be reasonably requested from time to time by the
Chief Executive Officer of the Company or his designee (the “
Consulting Services ”). The Consulting Services shall
be performed at such place or places as shall be mutually agreed
upon by the Consultant and the Company, but in no event shall the
Consultant be required to relocate his principal residence. The
Consultant shall not be required to provide more than eighty
(80) hours of consulting services in any month during the
Consulting Period.
3. Consideration .
A. Consulting and Covenant
Not to Compete Fees . In consideration for providing the
Consulting Services, during the Consulting Period, the Consultant
shall be paid an annual amount of $506,667 (the “
Consulting Fee ”), payable in advance in equal
quarterly installments of $126,666.67 commencing on January 7,
2008 and on the first day of each April, July, October and January
thereafter during the Consulting Period. The Consulting Fee shall
be pro rated for any partial quarter. In consideration for the
obligations of the Consultant set forth in Sections 11, 12, 13
and 14, including specifically the Consultant’s
non-competition obligations, on January 7, 2008 the Consultant
shall be paid the sum of $800,000.
B. SERP; Health and Dental
Premium. On or promptly after January 8, 2008, to the
extent not previously paid, the Consultant will receive a lump sum
payment of the present value of the Consultant’s benefit
under the Company’s frozen SERP, in the amount of
approximately $3,670,000, as provided for under the SERP as it will
be amended prior to December 31, 2007 to set a specific
payment date between January 1 and January 15, 2008 and to
provide for lump sum payments from the SERP. In addition, the
Consultant will be entitled to a contribution to the
Company’s defined contribution retirement plan for 2007 of
5.9% of covered compensation, and payment under the Company’s
“defined contribution SERP” for 2007 of 12% of covered
compensation in each instance based on his 2007 covered
compensation. On or before March 31, 2010,
unless
the Consulting Period is terminated voluntarily by the Consultant
or for Cause as provided in Section 4.A, below, the Company
shall pay the Consultant an amount sufficient for the Consultant to
pay the premiums for the Consultant’s medical and dental
insurance policies providing benefits for the Consultant and his
wife substantially similar to the benefits provided during the
Consulting Period, for the period ending June 30, 2011.
C. Accrued Vacation. On
January 7, 2008, the Consultant will be paid in a lump sum
based on his 2007 base salary the five weeks’ vacation he
accrued during 2007 in accordance with the Company’s vacation
policy.
D. Advance Payment of
Consulting Fee Upon a Change in Control . Upon the occurrence
of a Change in Control (as defined in Section 18) during the
Consulting Period, the remaining payments of the Consulting Fee, if
any, shall be paid in advance in a lump sum on the 30 th day following
the Effective Date of the Change in Control.
4. Termination of Consulting
Services .
Death/Disability/Voluntary Termination/Termination for Cause
. In the event of the Consultant’s death, permanent and total
disability (as determined by a physician selected by the Company
and reasonably acceptable to the Consultant or his representative),
the Company shall continue to pay the Consulting Fees for the
remainder of the period ending March 31, 2010, either to the
Consultant (in the event of disability) or to the
Consultant’s estate (in the event of death). In the event of
voluntary termination of this Agreement by the Consultant or
termination by the Company of the Consultant for Cause (as defined
below), the Consulting Period shall terminate and the
Company’s obligation to pay the Consulting Fees and to
provide health and dental benefits to the Consultant shall
cease.
Termination without Cause . In the event the Company
terminates the Consultant other than for Cause during the
Consulting Period, the Consulting Period shall terminate and the
Consultant shall be paid the Consulting Fees for the remainder of
the period ending March 31, 2010, and the Company shall
continue to provide the health and dental benefits provided for in
Section 5(iv) below for the balance of the period ending
March 31, 2010. For purposes of this Agreement,
“Cause” shall mean (i) the Consultant’s
continued breach of the provisions set forth in Sections 11, 12, 13
and 14 of this Agreement for a period of ten (10) days after
written notice to the Consultant specifying any such breach, and
the failure of the Consultant to cure or remedy such breach within
such period, (ii) the willful engaging by the Consultant in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company or (iii) the
Consultant’s conviction of, or plea of guilty or nolo
contendere to, a charge of commission of (A) a felony or
(B) any crime involving moral turpitude, in any such case
resulting in reputational harm causing material injury to the
Company.
5. Resignation and
Termination of Obligations under the Prior Agreement . In
connection with the termination of the Consultant’s
employment with the Company, (i) the Prior Agreement is hereby
terminated, (ii) the Consultant shall have the right to
continue
to receive the benefit and payment of any awards of performance
shares and units made to the Consultant under the Company’s
2004 Stock Plan at any time prior to the date hereof, as and to the
extent that such awards may become payable in 2008 or in subsequent
years, and the Company’s Compensation Committee has taken
appropriate action to permit any such receipt of shares or units by
the Consultant notwithstanding the Consultant’s resignation
from the Company’s employ on January 7, 2008; (iii) the
Consultant shall cease to be an officer or director of the Company,
and shall cease to be an officer, director, trustee or member of
any committee of any of the Company’s subsidiaries or of any
of the retirement, welfare or benefit plans of the Company or of
any subsidiary of the Company and (iv) the Consultant and his
wife shall either continue to be eligible to participate in the
Company’s health and dental plans (or pursuant to the
“COBRA” continuation coverage rules with respect to
dental coverage) with the Company paying all premiums, or, for any
period that such coverage is not available under the
Company’s health and dental plans, the Company shall obtain
and pay for on a monthly basis (or such other basis as may be
required by the Company through which the substitute health and
dental coverage is obtained) the costs of obtaining substitute
health and dental coverage substantially similar to that provided
under the Company’s health and dental plans at such time. In
either case, the coverage shall be provided through the period
ending March 31, 2010, notwithstanding any termination of the
Consulting Period for any reason other than by voluntary
termination by the Consultant or for Cause as provided in Section
4.A, above. All previously granted stock options or other rights
granted under the Company’s 2001 Stock Option and Incentive
Plan shall be exercisable following the termination of the
Consultant’s employment in accordance with the terms of the
granting agreements pursuant to which such options were issued to
the Consultant, as modified by the early retirement provisions of
the Changes to Stock Option Agreements adopted by the
Company’s Compensation Committee on August 7, 2003. In
connection with the termination of the Consultant’s
employment with the Company, on January 7, 2008 the Consultant
shall sign an Agreement to Release All Claims in the form attached
as Exhibit A, and on such date the Company shall provide the
Consultant with a release, reasonably satisfactory to the
Consultant, by which the Company shall release the Consultant from
any and all claims arising from his service as an officer, director
or employee of the Company.
6. Office . During the
Consulting Period, the Consultant shall continue to have the use of
an office in the Company’s headquarters or if the Company so
elects, in the Oakland County area, which office shall be furnished
and equipped and with such office support services as are
reasonably necessary for the Consultant to perform the Consulting
Services, including the services of an administrative assistant
(which administrative assistant may be located at the
Company’s offices, even if the Consultant relocates to a
different office). In the event of a termination of the Consulting
Services for any reason the obligation to provide the office space
and support services set forth in this Section 6 in respect of
the remainder of the Consulting Period shall cease.
7. Expenses . The
Company shall reimburse the Consultant pursuant to the
Company’s reimbursement policies for any reasonable business
expenses incurred by the Consultant in connection with the
performance of the Consulting Services.
8. Sole Consideration .
Except as specifically provided herein, the Consultant shall be
entitled to no compensation or benefits with respect to the
Consulting Services from the Company, its subsidiaries or
affiliates (each, an “ Affiliated Entity ” and
collectively, the “ Affiliated Entities ”) and
will be credited with no service or age credit for purposes of
eligibility, vesting or benefit accrual under any employee benefit
plan of any of the Affiliated Entities for the Consulting
Services.
9. Status as an Independent
Contractor . The Company and the Consultant acknowledge and
agree that the Company shall not exercise general supervision or
control over the time, place or manner in which the Consultant
provides Consulting Services hereunder, and that in performing
Consulting Services pursuant to this Agreement the Consultant shall
be acting and shall act at all times as an independent contractor
only and not as an employee, agent, partner or joint venturer of or
with the Company or the Company. The Consultant acknowledges that
he is solely responsible for the payment of all Federal, state,
local and other taxes that may result with respect to the payment
of the Consulting Fees, and the Company shall not be in any way
liable for any such taxes or penalties.
10. Return of Company
Property . On or before January 7, 2008, the Consultant
shall return to the Company any credit cards, confidential
documents or material, or other property belonging to the Company,
and the Consultant shall also return all writings, files, records,
correspondence, notebooks, notes and other documents and things
(including any copies thereof) containing confidential information
or relating to the business or proposed business of the Company or
the Affiliated Entities or containing any trade secrets relating to
the Company or the Affiliated Entities except any personal diaries,
calendars, rolodexes or personal notes or correspondence (the
“ Company Property ”). Upon termination of the
Consulting Services for any reason, the Consultant shall promptly
return any Company Property that has not previously been returned
to the Company, whether pursuant to the immediately foregoing
sentence or otherwise. For purposes of the preceding sentence, the
term “trade secrets” shall have the meaning ascribed to
it under the Uniform Trade Secrets Act.
11. Mutual Nondisparagement;
Publicity . The Consultant and the Company each agree that,
foll
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