AGREEMENT FOR RELEASE AND WAIVER OF CLAIMS

1.

Sausa’s employment with Handleman terminated on December 31, 2004 (the “Termination Date”) as a result of his voluntary resignation with the consent of Handleman.

a.

As a result of the voluntary resignation with the consent of Handleman:

i.

Commencing January 1, 2005, Sausa shall be paid biweekly payments of $10,000.00 (less deductions for local, state and federal taxes and as otherwise required by law and/or authorized by Sausa), through September 30, 2005.

ii.

In June of 2005, Sausa will receive a bonus equivalent to that he would have received under Handleman’s Management Incentive Plan, based on results for fiscal 2005 and his Target Incentive Award Percentage, which was established at 40%, in accordance with the plan terms as if Sausa were employed and working for all the months of the applicable fiscal period. Sausa’s annual salary as of September of 2004 will be used in the calculation of the bonus. The Corporate measure that is applied to calculate the bonus will be the same that is applied to all other plan participants in his classification. The Strategic Scorecard Objectives related to Sausa’s bonus calculation under the plan will be awarded at the Target level. Handleman will provide Sausa a completed award calculation worksheet at the time of payment. This bonus will be paid in a lump sum payment at the end of the Plan’s fiscal year.

iii.

Sausa will be eligible to receive the equivalent of his Performance Share payout in June 2005, based on free cash flow results for fiscal years 2003 through 2005, as if Sausa were employed and working for all the months of the applicable fiscal year in accordance with the plan terms. The share payout will not be pro-rated for months not worked.

iv.

Handleman shall pay on Sausa’s behalf any premium applicable to the continuation of Sausa’s family’s health benefit coverage under COBRA, through September 30, 2005.

v.

Commencing January 1, 2005, Sausa shall be paid an automobile allowance of $831.00 per month for three (3) months.

vi.

Sausa will be eligible to continue to receive the services of AYCO financial planning until his 2004 income taxes are filed or April 30, 2005, whichever comes first. After the earlier of the date of filing or April 30, 2005, deductions for this service will not be taken from Sausa’s severance.

vii.

Sausa will be provided, at Handleman’s expense, three (3) months of outplacement services as arranged by Handleman. If after three (3) months, Sausa has not secured employment and continues to make use of the outplacement services, Handleman will continue the outplacement service for up to three (3) additional months.

viii.

Sausa shall be paid his accrued and unused vacation as of December 31, 2004, which equates to 108 hours of pay. Additionally, Sausa shall be paid for the vacation hours he would have become eligible for in 2005, which equates to 120 hours of pay. Payment of this vacation pay will be made within 5 business days following the expiration of the revocation period in paragraph 9(c).

ix.

In response to inquiries for employment reference, Stephen Strome will execute a letter on Handleman letterhead in the form attached as Exhibit A.

b.

Sausa’s employment was voluntarily terminated with Handleman’s consent and for the purposes of all benefits plans or agreements in which Sausa was a participant, he shall be considered to have voluntary resigned with Handleman’s consent.

c.

Except as specifically provided in subparagraphs (a) and (b) above, and except for those benefits in which he is vested, including, but not limited to, the Handleman Company 1998 and 2001 Stock Option and Incentive Plan and Stock Option Agreements dated December 6, 1999, June 14, 2000, June 13, 2001, June 4, 2002 and June 10, 2003, the Handleman Company Pension Plan, the Supplemental Executive Retirement Plan, the Handleman Company Salary Deferral and Stock Plan, and Company sponsored 401-k Plan, Sausa shall receive no pay or benefits and shall for no purpose be considered an employee of Handleman after December 31, 2004.

2.

In return for the consideration set forth above, which Sausa acknowledges as being adequate, Sausa hereby unconditionally releases Handleman and all Handleman’s parent, subsidiaries, divisions, as well as all employees, agents, officers, directors, successors and assigns of each (collectively referred to herein as “Releasees”) from, and hereby waives, ANY AND ALL causes of action, claims and demands that Sausa ever had or now has against any of them, including but not limited to any and all claims relating to Sausa’s employment with Handleman and the termination of such employment (including severance pay, vacation pay, and all other forms of pay and benefits), and specifically including any and all claims arising under or in connection with the Age Discrimination in Employment Act of 1967 and 1990; the Civil Rights Act of 1991; Title VII of the Civil Rights Act of 1964; the Americans with

Disabilities Act; the Elliott-Larsen Civil Rights Act; the Michigan Persons With Disabilities Civil Rights Act; the Michigan Whistleblowers Act; fair employment practice laws of the State of Michigan; any amendments to such statutes; all other federal, state or local laws; the common law of the State of Michigan and any actions based upon tort, breach of contract, and defamation. Sausa understands and agrees tha