EXHIBIT 10.2
Exhibit 3.4
U.S. Transition Services
June 2, 2008
Version 1.9

 

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Requirements
1.0 Inventory Purchase Transition
1.1 Order Communication
Requirements

Ø   Effective June 2, 2008, (“Closing”), Anderson will begin to sell music to
the Wal~Mart stores in the United States (WMS) currently serviced by HDL. At
Closing, Anderson will become the vendor of record for each WMS.   Ø  
Exhibit 1.1.1 of the Purchase Agreement is a listing by SKU (with the cost per
unit of each SKU) of HDL’s inventory to be bought by Anderson at the Closing
(which Anderson and HDL have identified as buckets 1-3 and 11-13 of 13 buckets
of HDL’s inventory), the intention being that HDL will not sell to Anderson at
the Closing what HDL believes will be a 30-day supply of inventory with which
HDL will service its customers other than WMS.  Exhibit 1.1.1 is a preliminary
listing based on HDL’s perpetual inventory system.  The actual listing of
inventory bought by Anderson will be finalized and documented in the verified
truck manifests (see Section 1.3 procedures below).   Ø   Handleman will provide
Anderson with a list of all SKU’s with quantity on hand and current average cost
by end of day May 31, 2008.   Ø   On the morning of June 2, 2008, Anderson will
provide an electronic file to Handleman of orders by Ship To location for the
June 10, 2008 new releases. The new release orders provided to Handleman will be
the first priority to pick, pack, and load on a trailer on June 2, 2008.   Ø  
On June 2, 2008, Anderson will provide an electronic order file to Handleman by
Ship To location for the remaining SKU’s not included as part of the new release
orders above. The orders will be picked, packed, and loaded on trailers over the
next seven business days.   Ø   Handleman will contact the vendors on June 2,
2008 to change the PO quantities for the June 17, 2008 and June 24, 2008 new
release PO’s to what Handleman requires for non-Wal-Mart customers.   Ø  
Anderson will contact vendors on June 2, 2008 and issue new PO’s for what they
require for the June 17, 2008 and June 24, 2008 new release PO’s. Anderson will
be responsible for vendor payment. Handleman will provide Kris Cartrite the PO
data ahead of time so that Anderson can create the PO’s in advance. Dave Jones
and Kris Cartrite will develop a plan to communicate to vendors.   Ø   Anderson
requested and received a list of titles related to Hawaii, as well as Wal-Mart
exclusives and new release titles identified subsequent to the initial category
1-3 SKU identification. Parties will meet and agree on additional titles for the
June 2, 2008 purchase.   Ø   Handleman will provide Anderson with a status of
current in store promotions/events, as well as store backorder information.

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Requirements
1.2 Pick, Pack, Load
Requirements

Ø   Beginning the morning of June 2, 2008, Anderson will provide trailers to the
Handleman Indianapolis Distribution Center to accommodate the SKU’s purchased
from Handleman to be shipped via an Anderson carrier (FOB shipping). Anderson
and Handleman will jointly determine how many trucks are required. The initial
estimate is 2-5 per day.   Ø   Anderson will arrange for an LTL carrier for the
new release shipments on June 2, 2008.   Ø   On June 2, 2008, Handleman will
pick, pack and load the ordered product onto pallets, starting with new
releases, box lot quantities only, no loose pick boxes. A separate manifest
containing UPC, title, artist, and quantity for each SKU will be generated for
each pallet, which will be tied to a truck (i.e. Truck 1, Pallet 1). Each pallet
will be labeled with a copy of the pallet manifest signed off on by Anderson and
Handleman representatives (see Shipment Audit below). The shipping manifest for
the truck will consist of a summary of the pallet manifests. The truck shipping
manifest and individual pallet manifests will be electronically transmitted to
Anderson at the time the truck leaves the Indianapolis warehouse.   Ø   Anderson
will be responsible for scheduling the departure of loaded and jointly approved
trucks from the Indianapolis warehouse.

1.3 Shipment Audit and Management
Requirements

Ø   Anderson and Handleman will each assign a team of five on-site
representatives, comprised of a manager and four shipment auditors. The managers
from each company will work together to provide oversight to the entire process
and resolve issues. Shipment auditors from each company will pair up and conduct
the auditing of pallet manifests and truck shipping manifests.   Ø   Anderson
and Handleman will validate pallet manifests and at least one box of product per
pallet will be opened and title verified. Handleman and Anderson will provide a
joint approval by way of signature on the pallet manifests prior to the pallets
being loaded onto the trailer. In addition, the audit representatives will also
verify the accuracy of the truck shipping manifest which consists of a summary
of the pallets loaded on the trailer. Immediately after verifying the truck
shipping manifest, the trailer will be sealed.   Ø   After a trailer is sealed,
Anderson will coordinate the departure of the truck.   Ø   The truck manifest
and individual pallet manifests will be sent electronically in an Excel
spreadsheet for Anderson to receive against.

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Requirements
1.4 Handleman to Anderson Invoice for Inventory Purchased
Requirements

Ø   Handleman will invoice Anderson based on the mutually approved truck/pallet
shipping manifests generated at the time of shipping. Handleman will invoice
Anderson based on the Handleman average cost of each individual SKU shipped.
Handleman will provide the average cost by SKU to Anderson with the SKU file on
May 31, 2008.   Ø   Anderson will remit payment to Handleman within three days
of product shipment.

1.5 Handleman Receiving

Ø   Vendor shipments received in the Indianapolis Distribution Center post
May 31, 2008 will be received into Handleman inventory. Depending on the timing
of the receipt, Anderson will either purchase the product as part of the initial
transition or as part of the end of transition purchase.

1.6 Anderson Receiving

Ø   Given there will be a joint audit and approval at the time the trailers are
loaded and sealed, there will be no audit and reconciliation required at the
point of receiving at the Anderson locations.

1.7 Other

Ø   Anderson will pay Handleman $175,000 for transitional services.   Ø  
Anderson will pay Handleman $5 million for pick, pack and ship costs and
warehousing, billing and management costs incurred by Handleman at the closing.

2.0 Product Purchasing
Requirements

Ø   Handleman will provide Anderson with product requirements and Anderson will
reasonably accommodate HDL product requests.   Ø   Handleman will provide
Anderson with requirements in advance for product that is required to be ordered
for non-Wal-Mart accounts beginning June 2, 2008.   Ø   Handleman will provide
Anderson with a SAN # for the vendor ASN.   Ø   Anderson will create a separate
PO for orders going to the Indianapolis Distribution Center. Anderson will
provide Handleman with an electronic or hard copy of the PO’s generated.   Ø  
Anderson will request vendors drop ship product directly to the Handleman
Indianapolis Distribution Center.   Ø   The selling price of product is equal to
Anderson cost (in the case of on-hand inventory) plus .31 per unit (pick pack
and ship) or vendor invoice.

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Requirements

Ø   Handleman will manually check the product in and confirm the quantities
received to Anderson. Handleman will remit payment to Anderson based on
quantities received thirty days after product receipt.   Ø   HDL agrees to
provide Anderson an unconditional $3 million letter of credit as collateral for
any amounts due Anderson, and Anderson is under no obligation to ship product to
HDL that might exceed the letter of credit.

3.0 Wal-Mart Store Returns
Requirements

Ø   Anderson will be the vendor of record for all Wal-Mart stores beginning
June 2, 2008.   Ø   Handleman REPS personnel will stop processing all Wal-Mart
store returns by May 30, 2008. REPS personnel will follow up with Wal-Mart
stores the week of June 2, 2008 to ensure the returns processed by reps in the
weeks prior to June 2, 2008 are closed out and shipped to the Handleman
Indianapolis Distribution Center.   Ø   Handleman will provide Anderson with the
price file maintenance file related to the June 2, 2008 Wal-Mart download on
May 30, 2008.   Ø   Returns in-transit to Handleman as of June 2, 2008 will be
processed by Handleman and Handleman will own the related returned product.
Anderson agrees to purchase from Handleman clean, salable return product of a
SKU included in the initial inventory purchase. In addition, Handleman will
generate a process for the collection of pick up memos.   Ø   Handleman will
provide Anderson with a file of store specific inventory including the vendor
cross-reference and Wal-Mart cost. An initial file will be provided on May 23,
2008, a second file will be provided on May 31, 2008.   Ø   Beginning June 2,
2008, Handleman and Anderson will instruct Wal-Mart to process product returns
to Anderson and Anderson will process its own return credit to Wal-Mart.   Ø  
Anderson will refund to Handleman any deductions taken by Wal-Mart resulting
from any activity (such as returns) after June 2, 2008.   Ø   In the event there
is a return exception related to a store return processing error, Handleman and
Anderson will jointly agree on an option for handling the exception as defined
in the table below.   Ø   Return exception scenarios are defined as follows:

Return Exceptions — Returns Processed by Handleman before Close but Processed by
Wal-Mart after June 1st

      SCENARIO   Resolution
Scenario 1
   
Wal-Mart Deducts Return from HDL
 
•   AMD Ships Product to HDL
Wal-Mart Ships Product to Anderson
 
•   HDL pays shipping cost

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Requirements

     
Scenario 2
   
Wal-Mart Deducts Return from AMD
 
•   AMD reverses WMT deduction and ships product to HDL
Wal-Mart Ships Return to AMD
 
•   HDL pays shipping cost
 
 
•   HDL issues WMT credit for return
 
   
Scenario 3
   
Wal-Mart Deducts Return from AMD
 
•   AMD reverses WMT deduction
Wal-Mart Ships Product to Handleman
 
•   HDL Keeps Product
 
 
•   HDL issues WMT credit for return

Return Exceptions — Anderson Returns Processed Beginning by Wal-Mart after June
1st

      SCENARIO   Resolution
Scenario 4
   
Wal-Mart Deducts Return from AMD
 
•   Handleman Ships Product to Anderson
Wal-Mart Ships Product to HDL
 
•   Anderson pays shipping cost
 
   
Scenario 5
   
Wal-Mart Deducts Return from HDL
 
•   AMD Keeps Product
Wal-Mart Ships Return to AMD
 
•   AMD Pays HDL for Product
 
   
Scenario 6
   
Wal-Mart Deducts Return from HDL
 
•   HDL ships product to AMD
Wal-Mart Ships Product to HDL
 
•   AMD pays shipping cost
 
 
•   AMD pays HDL for product

4.0 Wal-Mart Store Receiving
Requirements

Ø   Anderson will become the vendor of record on June 2, 2008.   Ø   Handleman
will instruct Wal-Mart to manually receive any shipments from Handleman that are
received and/or processed after May 31, 2008.

5.0 Post Transition Inventory Purchases
Requirements

Ø   Anderson will buy the following at the close of business on August 28, 2008,
FOB Anderson’s warehouses: (i) at supplier invoice cost, whatever inventory then
exists in buckets 1-3 and 11-13; and (ii) at supplier invoice cost whatever
existing inventory mutually agreed to and authorized as returnable by music
suppliers in buckets 4-10 and can be returned, less

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Requirements

    $0.31/unit for each unit and less any handling fees charged by the
suppliers. Reference is made to the Asset Purchase Agreement section 1.3.2   Ø  
Handleman will provide Anderson with weekly updates regarding the quantity of
return product of a SKU included in the initial inventory purchase, as well as
any other salable new release SKU’s agreed to by both parties not included on
the initial inventory list.   Ø   Handleman will provide Anderson with a final
inventory file the morning of August 29, 2008. Anderson will communicate final
orders to Handleman the morning of September 2, 2008.   Ø   Beginning the
morning of September 3, 2008, Anderson will provide trailers to the Handleman
Indianapolis Distribution Center to accommodate the SKU’s purchased from
Handleman to be shipped via an Anderson carrier (FOB destination). Anderson and
Handleman will jointly determine how many trucks are required.   Ø   Starting
September 3, 2008, Handleman will pick, pack and load the ordered product onto
pallets. A separate manifest containing UPC, title, artist, and quantity for
each SKU will be generated for each pallet, which will be tied to a truck (i.e.
Truck 1, Pallet 1). Each pallet will be labeled with a copy of the pallet
manifest signed off on by Anderson and Handleman representatives (see Shipment
Audit below). The shipping manifest for the truck will consist of a summary of
the pallet manifests. The truck shipping manifest and individual pallet
manifests will be electronically transmitted to Anderson at the time the truck
leaves the Indianapolis warehouse.   Ø   Anderson will be responsible for
scheduling the departure of loaded and jointly approved trucks from the
Indianapolis warehouse.

6.0 Wal-Mart Field Service
REPS Servicing of Wal-Mart Stores
Requirements

Ø   REPS will service Wal-Mart stores on behalf of Anderson beginning the week
of June 2, 2008 until Anderson no longer requires REPS to perform the service.  
Ø   Handleman REPS field services employees will stop processing returns at all
Wal-Mart stores on May 23, 2008.   Ø   Handleman will bill Anderson for REPS
associate labor for the hours serviced in Wal-Mart stores (until the associate
is hired or Anderson assigns an associate) at HDL direct labor cost, plus fringe
and taxes. Invoice detail will support the hours worked per store (see
Attachment II). Invoicing will occur weekly based on calendar weeks. For
example, the first invoice will be for the period of June 1, 2008 through
June 7, 2008. Invoicing will occur four days after the last day of the period.
Invoice terms are Net 3.   Ø   Prior to Closing, Handleman working with Anderson
will identify up to 200 Field full-time employees and 40 Field part-time
employees. Anderson may offer employment to these Handleman employees that pass
Anderson pre-employment tests and interviews. Anderson

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Requirements

    will assume the leases for the automobiles for the employees that accept
Anderson’s offer of employment.

  o   Handleman agrees to offer to sell to Anderson equipment owned by Handleman
and presently used by its field employees at a mutually agreed value and with
all software and confidential Handleman information deleted.     o   Until the
earlier of (1) June 30, 2008, or (2) the date Anderson gives Handleman the list
of Handleman’s employees Anderson wishes to hire, Handleman (i) will not
terminate the employment of the employees (except for cause), and (ii) will bill
Anderson for reimbursement of Handleman’s direct payroll (i.e. salary, fringes
and employment taxes) for such employees with respect to WMS. In addition, HDL
will continue the medical coverage of such employees, at its cost, for the month
of June 2008.     o   Handleman agrees to make any corporate employees available
for interviews post closing.

Ø   The hiring process and timeline are outlined below:

  Field Hiring Process     o   No contact with employees until the agreement is
signed     o   Interviews (in person, in market with Regional Management & HR) 
(15-20 min)     o   Taleo testing (at time of interview) (15-20 min)     o  
Hire decisions by Friday June, 6th     o   Offers contingent on background
check, MVR, drug testing     Timeline     6/2   Announcement     6/3-6/4   REPS
management interviews (all DMs and RDs)     6/4-6/6   REPS FT/PT interviews
(based on geography needs)     6/5-6/6   REPS FT/PT hiring decisions made    
6/6   Hiring decisions made for Field Management and Bentonville Office     6/9
  Start date: training, transition     6/13   Hiring decisions made for
Corporate Management

The interview schedule is defined as follows:

                      Area   # EE’s     Interview Dates   Location   AM
Interviewer(s)
Field — Regional Directors
    2     Friday - May 30th   Amarillo, TX   Girard
 
                   
Field District Managers
    7     Tuesday - June 3rd   Chicago, IL   Crunk, VanderDoes, Tobiason

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Requirements

                      Area   # EE’s     Interview Dates   Location   AM
Interviewer(s)
Hawaii
    1     Wednesday – June 4th   Phone Interview   Ed Hardy
 
                   
Field FT Reps
    103     Wednesday - Friday - June 4th - 6th   Local to Rep   Regional/DSM
for area
 
                   
Field PT Reps
    40     Wednesday - Friday - June 4th - 6th   Local to Rep   Regional/DSM for
area
 
                   
Corporate — Troy Office
    11     Wednesday - June 4th   Troy, MI   Lardie, Johnson & Shufeldt
 
                   
Wal-Mart Customer Team — Bentonville
    13     Monday/Tuesday - June 2nd & 3rd   Bentonville, AR   McClanahan
 
                   
 
          TBD - Tuesday/Wednesday - June 3rd        
Indy ADC
    6     & 4th   Indianapolis, IN   Coile
 
                   
Totals:
    183              

7.0 Hawaii
Requirements

Ø   The process for transition will be determined between Handleman, Anderson
and Pacific Hawaiian on June 2, 2008.

8.0 Credit Terms — Throughout this document transactions are contemplated which
may result in Handleman owing Anderson balances created from the transactions.
Any such balances are included under the coverage of the $3 million letter of
credit referenced in 2.0 above.

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