<PAGE>
                                                                   EXHIBIT 10.25

                             SEVERANCE AGREEMENT AND
                          GENERAL RELEASE OF ALL CLAIMS

      By the terms of this Severance Agreement and General Release of all Claims
("RELEASE") and in consideration of the promises made herein and for good and
valuable consideration described below, intending to be legally bound, the
undersigned MARK VIDUCICH ("VIDUCICH"), on behalf of himself, his heirs,
executors, administrators, and assigns, does hereby fully release, acquit and
discharge, separately and jointly, MTS, INCORPORATED dba TOWER RECORDS, as well
as its officers, directors, shareholders, managers, agents, employees, heirs,
affiliates, parent companies, subsidiaries, successors, assigns and all other
persons and associations (also referred to as "COMPANY"), from any and all
claims, demands, suits, losses, contracts, liabilities, obligations and causes
of action, known or unknown, whether in law or in equity, including but not
limited to claims for discrimination under the Fair Employment and Housing Act,
Title VII of the Civil Rights Act of 1964, and the Age Discrimination in
Employment Act (ADEA), claims under the Worker Adjustment and Retraining
Notification (WARN) Act, wrongful termination, claims under any provision of the
California Labor Code, breach of contract, breach of public policy, physical or
mental harm or distress or any other claims, which now exist or may arise from
any matter, fact, circumstance, happening or thing whatsoever, occurring or
failing to occur prior to the execution of this RELEASE, relating to or in any
connection with VIDUCICH'S employment with COMPANY (collectively "Claims") to
the full extent permitted by law.

      1. Consideration

      (a) In consideration for the execution of this RELEASE, COMPANY agrees to
pay VIDUCICH the total sum of seven hundred fifty thousand dollars
($750,000.00), which amount shall be paid in equal biweekly installments, less
applicable payroll deductions, over twenty seven (27) months beginning with the
next scheduled payroll date that is ten (10) calendar days after the COMPANY
receives the executed RELEASE.


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      (b) As further consideration for this RELEASE, COMPANY agrees to forgive
all merchandise debt or other personal loans extended by COMPANY as of October
14, 2002 to VIDUCICH (totalling $31,699), provided that VIDUCICH is responsible
for all tax withholding and tax liability resulting from such debt and loan
forgiveness.

      (c) As further consideration for this RELEASE, COMPANY agrees to pay
continuation of company provided Health Insurance coverage for VIDUCICH and his
dependents for twelve (12) months, beginning the first date of the first month
following the Termination Date (defined below) as long as VIDUCICH elects COBRA
continuation coverage and as long as COMPANY continues to provide such coverage
for its employees. The necessary forms for COBRA continuation coverage will be
provided by MTS' Human Resources department as required by law.

      (d) COMPANY further agrees to pay up to $6,000 for VIDUCICH to utilize
three (3) months of executive-level out-placement assistance provided by Right
Management Consultants provided that said service is utilized on or before
December 2003.

      (e) COMPANY agrees that VIDUCICH and his wife may receive employee
discounts (to the extent that employees continue to receive said discounts) with
COMPANY for life, not to exceed one thousand ($1,000) dollars of discounted
merchandise purchased per calendar year. VIDUCICH agrees to monitor the
purchases made by himself and his wife to ensure that no more than one thousand
($1,000) dollars of discounted merchandise is purchased in any given calendar
year.

      (f) The parties agree that the compensation to be paid pursuant to section
1 of this RELEASE is specifically paid and designated to compensate VIDUCICH
fully and totally for his release of any and all known and unknown CLAIMS
arising from or associated with his employment or the separation of his
employment with COMPANY, except for vested benefits accrued during his
employment.

      (g) COMPANY makes no representations as to the taxable status of the
consideration paid pursuant to this RELEASE. If at some future date it should be
determined by any taxing entity that some portion or all of the amount
referenced above should be treated differently, VIDUCICH agrees to be


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solely responsible for characterizing, allocating and reporting to taxing
agencies the consideration stated herein, and for paying any taxes, assessments,
charges or penalties that may be attributable to the consideration and
indemnifying COMPANY for any liability, costs or attorneys' fees they incur as a
result of any taxing entity making such a determination.

      2. VIDUCICH hereby expressly acknowledges that his employment relationship
with COMPANY terminates effective October 18, 2002 ("Termination Date").

      3. VIDUCICH acknowledges that he has received payment for all wages and
other compensation owed to him through the Termination Date, including
compensation for all accrued, unused vacation or other paid time off to which he
is entitled.

      4. VIDUCICH covenants that at no time subsequent to the execution of this
RELEASE will he file or maintain, or cause or permit the filing or maintenance
of, in any state, federal or foreign court, or before any local, state, or
federal administrative agency, or any other tribunal, a lawsuit of any kind,
nature and character whatsoever, which he may have, has ever had, or may in the
future have against COMPANY which is based in whole or in part on any matter
relating to or in any connection with his employment with COMPANY, except for
vested benefits accrued during his employment.

      5. VIDUCICH further expressly acknowledges that in executing this RELEASE
he is waiving both known CLAIMS, as well as claims that he does not know about.
VIDUCICH expressly acknowledges that this RELEASE constitutes a waiver of all
claims of any kind, whether known or unknown, foreseen or unforeseen, suspected
or unsuspected; and in furtherance of this intention, VIDUCICH expressly waives
and relinquishes all rights and benefits under Section 1542 of the California
Civil Code which provides:

      "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
      KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
      RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
      SETTLEMENT WITH THE DEBTOR."


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      6. This RELEASE does not constitute an admission of liability or
wrongdoing. Neither the execution and delivery of this RELEASE nor any payments
nor the performance of any acts in connection therewith shall be construed at
any time or place to be an admission by COMPANY that they at any time performed
or failed to perform any act, which performance or failure to perform was or is
in violation of the rights of VIDUCICH and/or which performance or failure to
perform gives rise to any valid claim for damages or any other relief
whatsoever.

      7. VIDUCICH represents that he has returned to the COMPANY, all COMPANY
files, memoranda, documents, records, tapes, computer disks, computers, copies
of the above items, credit cards, keys, and any other COMPANY property in
VIDUCICH'S possession.

      8. VIDUCICH agrees that he shall not disclose, provide or reveal, directly
or indirectly, any confidential information, proprietary information, or trade
secrets of COMPANY, and that he shall hold such information in the strictest
confidence. VIDUCICH may only reveal such information when compelled to do so by
a valid subpoena or as otherwise compelled by law, but in either case only after
providing MTS INCORPORATED's Legal Department with prior written notice and
opportunity to contest such subpoena or other requirement. Written notice shall
be provided as soon as practicable, but in no event less than five (5) business
days prior to any such disclosure or, if later, within one business day after
VIDUCICH receives notice compelling such disclosure.

      9. Non-Disparagement - VIDUCICH agrees that he will not knowingly make,
repeat, or authorize any statements, comments, remarks or publications of any
type or of any nature which would disparage the reputation of COMPANY, or its
current and former directors, officers, employees, and shareholders, or any of
them, at any time now or in the future (collectively, "DISPARAGING REMARKS").
This includes but is not limited to DISPARAGING REMARKS as to any events,
circumstances, occurrences, interactions, transactions, observations or dealings
of any kind, at any time, involving VIDUCICH, COMPANY, or both.


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      10. VIDUCICH represents and warrants that no other person had, or has, or
claims any interest in the claims referred to in this RELEASE; that he has the
sole right and exclusive authority to execute this RELEASE and to receive the
consideration therefore; and that he has not sold, assigned, transferred,
conveyed or otherwise disposed of any claim or demand relating to the CLAIMS
herein.

      11. VIDUCICH agrees that he shall keep the terms of this Agreement,
including the amount of consideration referred to in Paragraph 1, CONFIDENTIAL,
and he promises and covenants not to disclose, publicize, or cause to be
disclosed or publicized in any manner, directly or indirectly, the terms or
conditions of this Agreement except (i) to his accountants, auditors, insurance
agents, insurance companies or adjusters, financial advisors, attorneys, and
spouse, provided VIDUCICH first ensures that such persons also agree to this
pledge of confidentiality, (ii) to state and federal taxing authorities, and
(iii) as legally required when compelled by applicable law (i.e. under subpoena)
and then only under the procedures set forth in section 8 of this RELEASE.
VIDUCICH acknowledges that confidentiality is a key and material provision of
this RELEASE and that a violation of this provision could result in significant
consequences to COMPANY and shall be considered a material breach of the
RELEASE, providing COMPANY with all available remedies under law.

      12. VIDUCICH agrees that he will cooperate with COMPANY with regard to
defending or prosecuting any future claims, lawsuits or actions which arose
during VIDUCICH'S employment with COMPANY, which may require VIDUCICH'S
testimony, deposition, or advice.

      13. VIDUCICH expressly states that he has read this RELEASE and
understands all of its terms. VIDUCICH represents and acknowledges that he has
not relied on any oral or other extraneous representations in agreeing to
execute this RELEASE and that this RELEASE is executed voluntarily and with full
knowledge of its significance.

      14. ACKNOWLEDGEMENTS:

            (a) VIDUCICH understands, represents and acknowledges that COMPANY
      has given him forty-five (45) days to consider whether or not to execute
      this RELEASE;


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            (b) VIDUCICH understands, represents and acknowledges that he has
      been encouraged to consult with a financial advisor, accountant, attorney
      and/or other advisor before deciding whether or not to sign this RELEASE.
      COMPANY encourages VIDUCICH to seek legal counsel before entering into
      this RELEASE.

            (c) After executing this RELEASE, VIDUCICH understands, represents
      and acknowledges that he has seven (7) calendar days from the date of
      execution ("revocation period") to revoke his agreement to the terms of
      this RELEASE. The parties agree and understand that any revocation under
      this provision must be in writing and received (facsimile acceptable) by
      Shauna Pompei, V.P. Compensation and Benefits, 2500 Del Monte Street, West
      Sacramento, CA 95691 (facsimile - 916-373-2434), by 11:59 p.m. on the last
      day of the revocation period;

            (d) VIDUCICH agrees, understands and acknowledges that at the time
      he was presented with this RELEASE he was provided with a document
      entitled EXHIBIT A, which provided the following information: (1) any
      class, unit or group of individuals covered by the REDUCTION IN FORCE, the
      eligibility factors for the REDUCTION IN FORCE, and the time limits
      applicable to the REDUCTION IN FORCE program; and (2) the job titles and
      ages of all individuals eligible or selected for the REDUCTION IN FORCE
      and the ages of the individuals in the same job classification or
      organizational unit who were not selected for the REDUCTION IN FORCE; and

            (e) that in exchange for the consideration given to VIDUCICH in this
      RELEASE, VIDUCICH is waiving any known or unknown claims for age
      discrimination including, but not limited to, claims for age
      discrimination under the California Fair Employment and Housing Act and
      federal Age Discrimination in Employment Act.

      15. This RELEASE is the entire agreement between the parties related to
the subject matter of the RELEASE as well as the termination of VIDUCICH'S
employment with COMPANY. This


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RELEASE may not be modified or changed in any manner nor may any provision of it
or any legal remedy with respect to it be waived except by a writing signed by
VIDUCICH and the then current Chief Executive Officer of the Company.

      16. This RELEASE shall be construed under the laws of the State of
California. Venue for any dispute, mediation or arbitration related to this
RELEASE shall be in Sacramento County, California.

      17. Challenging the Releases Contained Herein

      Should VIDUCICH attempt to challenge the enforceability of any part of the
releases contained in this RELEASE, VIDUCICH must first do the following: (a)
prior to initiating any challenge regarding the enforceability of any release
contained within this RELEASE, deliver a certified or cashier's check to the
COMPANY equal to all monetary benefits he has received pursuant to this RELEASE,
and (b) provide to the COMPANY in writing a statement that all future benefits
or payments that EMPLOYEE is to receive from the COMPANY pursuant to this
RELEASE shall be suspended pending the results of the challenge of
enforceability. COMPANY shall deposit the amount that VIDUCICH has repaid and
any payments due during the suspension period in an interest bearing account
pending the determination of enforceability. If the RELEASE is determined to be
enforceable, COMPANY will pay VIDUCICH the amount in the interest bearing
account and end the suspension of payments, unless otherwise agreed in writing
by the parties. If the RELEASE is determined to be unenforceable, the amount in
the interest bearing account shall be paid back to the COMPANY and the
suspension of any future benefits or payments shall become permanent, unless
otherwise agreed in writing by the parties.

      18. Dispute Resolution, Claims Related to Release

      Employee and Company agree that any future dispute over this RELEASE, its
terms, or its enforceability shall be resolved under the following procedures:

            (a) The party making a claim or grievance shall present such claim
or grievance and the relief requested to the other party in writing.


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            (b) If the other party does not agree to the relief requested or
otherwise satisfy the demand of the party claiming to be aggrieved, the parties
shall submit the dispute to non-binding mediation before a mediator jointly
selected by the parties. If the parties cannot agree on a mediator, a mediator
shall be appointed by the Judicial Arbitration and Mediations Service (JAMS).
The costs of the mediation shall be borne equally by the parties.

            (c) If the mediation does not produce a resolution of the dispute,
the parties agree that the dispute shall be resolved by final and binding
arbitration. Any such dispute shall be submitted to the American Arbitration
Association for binding arbitration. The arbitration shall be conducted by an
arbitrator approved and agreeable by both parties, or if no agreement can be
reached, then selected in accordance with the Employment Rules of the American
Arbitration Association. The arbitrator shall have the authority to resolve the
dispute and interpret the RELEASE. The arbitrator shall not have authority to
add to, modify, blue-line, change or disregard any lawful terms of this
Agreement or to issue an award that is contrary to California law. The
prevailing party in any such controversy or claim shall be entitled to
reasonable attorneys' fees for actual hours worked at a reasonable rate, without
any premium or multiplier. The parties shall share in the cost of the
arbitration equally, unless otherwise ordered by the arbitrator for good cause.

            (d) Arbitration shall be the exclusive final remedy for any dispute
between the parties relating to the enforceability, breach, or interpretation of
this RELEASE.

      19. Dispute Resolution - Claims Not Related to Release

      VIDUCICH and COMPANY agree that in the event there are any future disputes
between the parties not related to the enforceability, breach, or interpretation
of this RELEASE, said disputes shall be resolved as indicated in the preceding
section, except that if mediation is unsuccessful the dispute shall be resolved
through the appropriate court of law, without a jury, instead of the arbitration
provisions above. The parties recognize that they are both waiving certain
rights to trial by jury, and do so knowingly in order to hasten the resolution
of any such dispute and minimize costs.


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      20. VIDUCICH and COMPANY each understand and agree that if any provision
of this RELEASE is found to be unenforceable, all other portions shall remain
fully enforceable to the extent permitted by law.

           PLEASE READ CAREFULLY - RELEASE OF KNOWN AND UNKNOWN CLAIMS

      I agree to all of the foregoing without reservation.

      Executed at ________________________, this ____ day of ____________,2002.


                                            ____________________________________

                                            MARK VIDUCICH

      Executed at ________________________, this ____ day of ____________,2002.


                                            MTS, INCORPORATED

                                            ____________________________________
                                            By:
                                            Its:

                 CERTIFICATE OF ACKNOWLEDGMENT OF NOTARY PUBLIC

STATE OF CALIFORNIA               )
                                  )        ss:
COUNTY OF                         )

      ON __________________________, 2002, MARK VIDUCICH appeared before me, the
undersigned, personally appeared, personally known to me or proved to me on the
basis of satisfactory evidence to be the person who executed the within
instrument, and that be his signature on the instrument, the person executed the
instrument. I declare under penalty of perjury that the person whose name is
subscribed to this instrument appears to be of sound mind and under no duress,
fraud, or undue influence.

         WITNESS my hand and official seal.

         _________________________________________
                    Notary Public


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<PAGE>
                                    EXHIBIT A

      The following information is provided to you in accordance with the Age
Discrimination in Employment Act, as amended, 29 U.S.C. Section 626(f)(1)(H).

      1.    The class, unit, or group of individuals covered by this program are
            as follows:

            Executive employees affected by the reorganization of the Company
            headquarters in West Sacramento, California, occurring on or about
            October 14, 2002.

      2.    The eligibility factors for this program are as follows:

            Those executive employees terminated as a result of the
            reorganization of the Company headquarters in West Sacramento,
            California on or about October 14, 2002.

      3.    The time limits applicable to this program are as follows:

            The employees were notified of their layoff on or about October 14,
            2002. The employees will each have 45 days to consider the severance
            package presented to them after negotiations are complete.

      4.    The job titles and ages of all individuals affected or selected for
            the reorganization are as follows:

<TABLE>
<CAPTION>
TITLE                                                     AGE
-----                                                     ---
<S>                                                       <C>
Chief Operations Officer/Bayside                          52
Legal Manager/General Counsel                             53
Chief Marketing Officer                                   53
VP & Chief Operating Officer                              54
</TABLE>

      5.    The job titles and ages of all individuals in the same job
            classification or organizational unit, who were not affected or
            selected for the reorganization are as follows:

<TABLE>
<CAPTION>
TITLE                                                     AGE
-----                                                     ---
<S>                                                       <C>
Chief Information Officer                                 40
Senior V.P - Corporate Development                        45
Chief Executive Officer                                   54
Chairman                                                  77
</TABLE>


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