FORM OF EMPLOYMENT AGREEMENT
                           FOR CHIEF EXECUTIVE OFFICER

         This Agreement is made as of July 26, 1999 by and between The Musicland
Group,  Inc.,   a  Delaware  corporation   (the  "Company"),  Musicland   Stores
Corporation,  a Delaware  corporation  (the "Parent") and  _______________  (the
"Executive").

         WHEREAS the Company and the Parent have employed  Executive pursuant to
the terms of Employment and Change of Control Agreements  dated August 25, 1988,
as amended January 22, 1992 and November 27, 1995 (the "Prior Agreements");

         WHEREAS  the  Company  and  the Parent  desire  to  continue  to employ
Executive in  accordance with the terms and conditions stated in this Agreement,
which shall replace and supersede the Prior Agreements; and

         WHEREAS Executive desires to continue employment  pursuant to the terms
and conditions of this Agreement and acknowledges  that this Agreement  replaces
and supersedes the Prior Agreements;

         NOW,  THEREFORE,  for the  consideration  described below, the  parties
agree as follows:

I.  EMPLOYMENT

    1.1  Employment As Executive.  During the Period of Employment described  in
Section 1.3 below, the Company and the Parent  hereby  agree to employ Executive
as Chairman and  Chief Executive Officer of the  Company and the Parent,  unless
terminated earlier pursuant to Article III of this Agreement.  Executive accepts
such  employment pursuant  to the terms of this  Agreement. Executive  shall  be
responsible  for managing  the Company  and  the Parent  and shall  perform such
duties and responsibilities as may be determined from time to time by the Boards
of Directors of the Company and the Parent,  which shall be consistent  with his
position as a Chief Executive Officer of the Company and the Parent. The Company
and the Parent shall  nominate and use their best efforts to secure the election
of  Executive  as a member of the Boards of  Directors  of the  Company  and the
Parent,  and  Executive  shall  serve as  Director of the Company and the Parent
without additional  compensation other than as provided herein.  Executive shall
not be required to perform his duties hereunder for more than 60 working days in
any year,  or for more than 21  consecutive  days at any one time, at any office
located in any place other than the Minneapolis, Minnesota metropolitan area.

    1.2  Exclusive  Services.   Executive  agrees  to  devote   his  full  time,
attention,  and energy to  performing  his duties  and  responsibilities  to the
Company  and the  Parent


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under this Agreement during the period  that this Agreement is in effect, except
for reasonable vacations, illness, or incapacity,  provided that nothing in this
Agreement shall preclude  Executive from devoting time during reasonable periods
required  for  (i)  serving  as a  director or  member  of a  committee  of  any
organization or company  involving no  conflict of interest  with the Company or
the Parent;  (ii) delivering  lectures,  fulfilling speaking engagements;  (iii)
engaging in charitable and community activities; and (iv) managing  personal  or
family finances and investments; provided that such activities do not materially
interfere with the performance of his duties hereunder.

    1.3  Period of Employment.  The Period of Employment  shall be determined as
follows:

    (a)  Except  as  provided in  subsection  (b) in the  event  of a  Change of
         Control as defined in Section 4.1,  the Period of  Employment hereunder
         shall be from July 26, 1999 through July 26, 2002, subject to extension
         or  termination  as hereinafter provided.  The then-existing  Period of
         Employment shall be  automatically  extended by one additional year (to
         the  next  subsequent  July 26,  but  in no event  shall the  Period of
         Employment extend beyond the first day of the month next succeeding the
         month in  which  Executive  attains  age 65) unless  the Company  shall
         deliver to Executive or  Executive shall deliver to the Company written
         notice at least 30 months prior to the expiration of the  then-existing
         Period  of Employment  that  the  Period  of  Employment  will  not  be
         extended.  In  such case, the  Period of  Employment  will end  at  the
         expiration  of  the   then-existing  Period  of  Employment  hereunder,
         including  any previous  extension, and shall  not be further  extended
         except  by  agreement of the  Company and  Executive.  (For example, in
         order to avoid the automatic  extension of the expiration of the Period
         of Employment from July 26, 2002 to July 26, 2003, notice must be given
         by January 26, 2000.)

    (b)  If upon an event constituting a Change of Control the  remaining period
         in  the  then-existing  Period  of  Employment  (as  determined   under
         subsection (a) above) is less than 36 months, the Period of  Employment
         shall be extended so that the expiration is on the last business day of
         the 36th calendar month following such Change of Control. No adjustment
         will be made if the remaining period is more than 36 months at the time
         of  the Change  in  Control.  In  either case,  the automatic  one year
         extensions shall continue to apply as provided in subsection (a) above.
         (For  example,  if a  Change in  Control  occurs  January 1, 2000,  the
         remaining period in the Period of Employment (ending  July 26, 2002) is
         less than 36 months and would be extended to expire January 1, 2003. In
         order to avoid automatic extension of the adjusted Period of Employment
         to January 1, 2004, notice must be given by July 1, 2000.)


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    (c)  The Period of  Employment  shall  continue until the expiration  of all
         automatic extensions effected as aforesaid,  unless and until it sooner
         ceases or is terminated as provided in Article III.

II. COMPENSATION, BENEFITS, AND PERQUISITES

    2.1  Salary.  During  the  Period  of  Employment,  the  Company  shall  pay
Executive a base salary at the annual rate of $___________ commencing January 1,
1999.  The base salary  shall be payable in equal  bi-weekly  installments.  The
Compensation  Committee  of the Board of Directors of the Company may review the
salary  periodically  and may in its  sole  discretion  increase  it to  reflect
performance  and  other  factors  in  accordance  with the  Company's  customary
procedures and practices regarding the salaries of senior officers.

    2.2  Disability Pay. In the event of the disability of Executive (within the
meaning  of  the  Company's  disability  benefit  plans in effect at the time of
Executive's  disability),  the  obligation  of the  Company to make  payments of
salary under Section 2.1 shall cease as of the date Executive  begins  receiving
benefits under the Company's  short-term salary continuation plan, and Executive
shall be entitled to benefits  under the Company's  disability  benefit plans in
accordance  with the  terms of such  plans.  Notwithstanding  the  terms of this
Agreement,  the Company  retains  the right to amend,  reduce or  terminate  its
disability  benefit plans at any time so long as such amendments,  reductions or
terminations apply equally to all senior officers.

    2.3  Employee Benefits.  Executive shall  be entitled  to the  benefits  and
perquisites  which the Company  generally  provides to its other senior officers
under the applicable  Company plans and policies.  Executive's  participation in
such  benefit  plans  shall be on the  same  basis as  applies  to other  senior
officers  of the  Company  and  subject  to the terms of  applicable  law,  plan
documents,  and insurance policies.  Executive shall pay contributions,  if any,
which are  generally  required  of the  Company's  senior  officers  in order to
receive any such benefits. Specifically, Executive shall:

    (a)  participate in the Company's  Management  Incentive  Plan and Long-Term
         Incentive Plan, or, if applicable,  the shareholder approved  Alternate
         Incentive Plan for Designated Senior Officers (the "Alternate Plan");

    (b)  be  considered by the Compensation  Committee of the Board of Directors
         for possible  grants  of  stock  options,  stock  appreciation  rights,
         restricted stock and deferred stock awards, under  the Company's  stock
         option plans, stock incentive plans, or any similar plan adopted by the
         Company or the Parent during the Period of Employment;

    (c)  participate to the permitted extent  he wishes in the Company's Capital
         Accumulation Plan;


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<PAGE>

    (d)  participate   in   the   Company's   Employees'  Retirement  Plan   and
         Supplemental Executive Retirement Plan;

    (e)  participate  in the Company's  death benefit plans  (consisting  of its
         Group  Life  Insurance  Plan,  and accidental  death and  dismemberment
         insurance);

    (f)  participate in the  Company's disability  benefit plans  (consisting of
         its short-term salary continuation, short-term disability and long-term
         disability plans);

    (g)  participate in its senior  officer medical, dental, health  and welfare
         plans;

    (h)  participate  in equivalent  successor plans  of the  Company for  which
         officers are eligible; and

    (i)  be provided with one golf membership paid for by the Company regardles
         if any other senior officers are provided such perquisite.

Notwithstanding  the  foregoing,  nothing in this  agreement  shall preclude any
amendment or termination by the Company of any employee benefit plan or practice
(other than (i) above),  provided such amendment or termination is applicable to
all of the Company's senior officers generally;  provided,  however, that in the
event of a Change of Control as defined in Section 4.1 and through the Period of
Employment  described  in  Section  1.3(b),   Executive  shall  be  entitled  to
perquisites  and benefits at least as favorable as those to which  Executive was
entitled  immediately  prior to the Change of  Control,  and to the extent  such
perquisites  or benefits are not payable or provided  under any such plan of the
Company by reason of the amendment or  termination  thereof,  the Company itself
shall pay or provide therefor.

    2.4  Incentive  Compensation Following  Change of Control. In the event of a
Change of Control as defined in Section 4.1 and through the Period of Employment
described in Section 1.3(b),  Executive shall receive an annual award  under the
Company's Management Incentive Plan, or, if applicable, the Alternate Plan, or a
plan with substantially  equivalent  incentives and benefits that may be adopted
by the Company, for each calendar year, or portion thereof, during the Period of
Employment,  which shall be payable as soon as practicable after the end of such
calendar year and shall be equal to a percentage of  Executive's base salary for
such calendar year. Such percentage  shall be the greater of (i) 60% or (ii) the
average of the percentages, for each of the three  preceding calendar  years (or
such lesser  number of years that the  Executive  has been a participant  in the
plan),  that result from dividing  Executive's annual award under the Management
Incentive  Plan  (or its  successor) for  such  year by Executive's  annual base
salary  for  that year.  Furthermore,  Executive  shall  continue to  be a  full
participant in the performance awards of the Company's Long-Term Incentive Plan,
or, if applicable,  the Alternate Plan, and any other long-term  incentive plans
of the Company, and any and all executive incentive plans in which executives of
the

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Company participate that are in effect immediately prior to a Change of Control,
or any amended or successor plans with  at least as favorable  terms that may be
substituted and  that may hereafter  be adopted, including,  without limitation,
any plan relating to stock options, stock appreciation rights, restricted  stock
and deferred stock awards, or equivalent  successor plans that may be adopted by
the Company with at least the  same reward  opportunities  that have  heretofore
been provided  and with such improvements  in such  plans or other  plans as may
from  time to  time be made in  accordance  with the  present  practices  of the
Company.

    2.5  Employment  Taxes  and  Withholding.  Executive  recognizes  that   the
compensation,  benefits,  and other  amounts  provided by the Company under this
Agreement  may be subject to federal,  state,  or local income  taxes.  All such
taxes shall be the responsibility of the Executive.  To the extent that federal,
state, or local law requires withholding of taxes on compensation,  benefits, or
other amounts  provided  under this  Agreement,  the Company shall  withhold the
necessary amounts from the amounts payable to Executive under this Agreement.

    2.6  Company Not Responsible for Insured  Benefits.  In this Article II, the
Company is agreeing to  provide certain  benefits  in the  form of premiums  for
insurance coverage.  The Company and the Parent are not themselves  promising to
pay the benefit an  insurance  company is  obligated to pay under the policy the
insurance  company has issued.  If an  insurance  company does not or cannot pay
benefits it owes to Executive or his  beneficiaries  under the insurance policy,
neither Executive nor his personal  representative or beneficiary shall have any
claim for benefits against the Company or the Parent.

    2.7  Expenses. Executive shall be entitled to receive reimbursement from the
Company (in accordance  with the policies and procedures  then in effect for the
Company's  employees) for all reasonable  travel and other expenses incurred  by
him in connection with his services under this Employment Agreement.

III.TERMINATION OF EXECUTIVE'S EMPLOYMENT

    3.1  Termination of Employment.  Notwithstanding any other provision of this
Agreement, Executive's employment and the Period of Employment may be terminated
pursuant to the following:

    (a)  Executive's employment may be terminated by the Company or the  Parent,
         on not less than 60  days' notice in writing, for Cause  as defined  in
         Section  3.2.  After  payment  of  all  amounts  accrued  to  Executive
         hereunder through the date of such notice, the Company  and the  Parent
         shall have no further obligation to the Executive hereunder  except for
         the payment  of benefits under the Company's Employees' Retirement Plan
         and  Supplemental  Executive  Retirement Plan and  Capital Accumulation
         Plan vested on such date.


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<PAGE>

    (b)  Executive's employment may be terminated by the Company at any time for
         any reason other than Cause as defined in Section 3.2, or Executive may
         terminate  his  employment  with the  Company and the  Parent  for Good
         Reason  as defined  in Section  3.3.  In the  event of  termination  of
         employment  by  the  Company  without  Cause,  or  termination  by  the
         Executive  for  Good Reason,  the Company  shall pay to  Executive,  as
         liquidated damages or  severance pay or both,  the amounts described in
         Section 3.4.

    (c)  Executive may terminate  his employment with the Company and the Parent
         for other than Good Reason.  In such event, the Executive's  employment
         shall  terminate  as of the  90th day  following the giving  of written
         notice by the Executive to the Company  of his  decision  to  terminate
         other than for Good Reason,  or such  earlier  date as the  Company may
         specify in written notice to  Executive, and the  Company  shall pay to
         Executive, as severance pay, the amounts described in Section 3.5.

    3.2  Termination for Cause.

    (a)  For  purposes  of  this  Article  III,   "Cause" shall  mean  only  the
         following:

         (1)  an  intentional  act  or  acts  of  dishonesty  by  the  Executive
              constituting a felony and resulting or intended to result directly
              or indirectly in gain to or  personal enrichment  of the Executive
              at the Company's expense;

         (2)  a deliberate  and intentional  refusal by the Executive  to comply
              with Sections 1.1 and 1.2 of this Agreement  (other than  any such
              failure to comply resulting from the Executive's incapacity due to
              illness  or  accident)  and which  failure  to comply  results  in
              demonstrably material  injury to the Company,  provided,  however,
              that the Executive shall have either failed to remedy such failure
              to comply within 30 days from his  receipt of written  notice from
              the Secretary of the Company demanding that he remedy such failure
              to comply, or  shall have failed to take all  reasonable  steps to
              that end during such 30-day period and thereafter; or

         (3)  failure by  the Executive,  on at least  three separate  occasions
              (each  occurring  less  than  24  months  apart),  to  comply with
              Sections 1.1 and 1.2 of this Agreement for a significant period of
              time (other than any such failure  to  comply  resulting  from the
              Executive's  incapacity due to illness or accident),  and provided
              that the Company has, on each such occasion, promptly  advised the
              Executive of such failure to comply by a written notice which sets
              forth the details of such failure to comply.


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<PAGE>

    (b)  Termination  shall not be for  Cause pursuant  to the foregoing  unless
         there  shall be  delivered to  Executive,  along with  the  termination
         notice, a certified copy of a  resolution of the Board of  Directors of
         the Company finding that  Executive was  guilty of conduct set forth in
         subsections  (a)(1), (2) or (3)  above and  specifying the  particulars
         thereof in detail.  The resolution  must be adopted  by the affirmative
         vote of not less than that number of directors  equal to the greater of
         (i) 4 directors or (ii) two-thirds of the entire membership (whether or
         not  present) of the  Board  of Directors  (other  than  Executive  and
         directors who are employees  of the Company or the Parent) at a meeting
         called and  held for that purpose  and at which  Executive was given an
         opportunity  to  be heard.  For  purposes  of  the  minimum  number  of
         directors  required in  the preceding  sentence, any  fraction shall be
         rounded up to the next higher whole number of directors.

    (c)  Anything  herein to the  contrary  notwithstanding,  the employment  of
         Executive  shall  not be  considered to  have  been  terminated  by the
         Company for Cause if termination of his employment  took  place  solely
         because of one or more of the following:

         (1)  as  a  result  of  bad  judgment  of  negligence  on  the  part of
              Executive, or

         (2)  as  the result  of an  act or  omission  without intent of gaining
              therefrom  directly or indirectly a profit to  which Executive was
              not  legally  entitled;  provided,  however, that  this subsection
              (c)(2) shall  not apply  to a termination  pursuant to  subsection
              (a)(3) above, or

         (3)  because of an act or omission believed by  Executive in good faith
              to have been in or not opposed to the interests of the Company, or

         (4)  as the result of an act or  omission  which  occurred more than 12
              calendar months prior to  Executive's having been given  notice of
              the termination of his employment for such act or omission  unless
              the commission of such act or such omission  could not at the time
              of such commission or omission have been known to a member  of the
              Board of  Directors  of the  Company  (other than  Executive),  in
              which case more than 12 calendar months prior to the date that the
              commission  of such act or such  omission was or could  reasonably
              have been so known; provided, however, that this subsection (c)(4)
              shall  not apply  to a  termination pursuant  to subsection (a)(3)
              above; or

         (5)  as a result of a  continuing  course of action which commenced and
              was or could reasonably have been known to a member of the


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              Board of Directors of the Company (other than Executive) more than
              12  calendar  months  prior  to  notice  having been  given to the
              Executive of the termination of his employment; provided, however,
              that  this  subsection  (c)(5)  shall  not apply to a  termination
              pursuant to subsection (a)(3) above.

    3.3  Good Reason

    (a)  For the purposes of this Article III, "Good Reason" shall mean:

         (1)  the  authority,  powers,  functions,  responsibilities  or  duties
              assigned to Executive  pursuant to this  Agreement are  materially
              and adversely diminished without his written  consent  (except any
              diminution  that  occurs  solely as a  result of the fact that the
              Company or Parent ceases to be a public company);

         (2)  Executive is removed as a director  of the Company and  Parent (or
              any successor thereto);

         (3)  a breach  of  Article II of  this  Agreement  with respect  to the
              salary, incentive compensation and benefits of Executive; or

         (4)  after a Change of Control (as defined in  Section 4.1),  Executive
              is required, without his written consent,  to  locate  his  office
              more  than  35 miles  distant by  public  highway from  his office
              immediately  prior  to the  Change  of  Control  (but  only if the
              distance  between the Executive's residence and such new office is
              greater  than  the  distance  between  his  residence  and  office
              immediately  prior  to  the Change  in  Control)  or to  travel on
              business  more  than 60 working  days in any year or more than  21
              consecutive days at any one time.

    (b)  Executive shall give written notice to the Company  of termination  for
         Good Reason  within  six months of the event giving rise to such notice
         and  allow the  Company 30 days  after the  Company's  receipt of  such
         notice to cure such breach.  If the Company  disputes any contention by
         Executive  that there  has been  Good  Reason,  such  dispute  shall be
         resolved  by binding arbitration  held  in  Minneapolis,  Minnesota  in
         accordance with the Employment Dispute Resolution Rules of The American
         Arbitration  Association  then  in effect.  The arbitrator  shall be an
         attorney  with  experience  in  employment  disputes  who  is  mutually
         selected by the parties. Judgment may  be  entered  on the  arbitration
         award in any court having jurisdiction.

    (c)  In the event of the  liquidation, dissolution,  consolidation or merger
         of  the  Company  or  transfer  (in  one  transaction  or a  series  of
         transactions) of 70% or more of its assets  (regardless of whether such
         event is not a

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         Change of  Control within the  meaning of Section  4.1(c) because it is
         approved by the  Continuing Directors),  and the successor  entity does
         not  assume  all  duties and  obligations  of  the Company  under  this
         Agreement or otherwise make arrangements with Executive satisfactory to
         Executive  for  employment  of  the  Executive  by the successor,  then
         Executive may within  90 days following such  event give written notice
         to the  Company of  his  termination of  employment (effective as of 90
         days following  such notice or  such earlier  date as  specified by the
         Company  in  written  notice  to  Executive),  which  shall  be  deemed
         termination for Good Reason.

    3.4  Severance  Benefits.  In  the  event   of  termination  of  Executive's
employment  by the Company  without Cause, or  termination by  the Executive for
Good Reason, the Company shall provide Executive with the following compensation
and benefits:

    (a)  Salary.  The Company shall pay  Executive  during the remainder  of the
         Period   of  Employment  as   in  effect  immediately   prior  to  such
         termination,  as if such termination had not occurred, an amount  equal
         to the base salary  provided  in  Section  2.1, including any increases
         therein provided, at the  times therein  stated, for the month in which
         termination shall have occurred  and for each month  thereafter  during
         such  Period,  less in respect of each such month the  amounts, if any,
         paid to him pursuant to the Company's Employees'  Retirement  Plan  and
         Supplemental  Executive  Retirement  Plan and the amounts the Executive
         would have paid in cash in respect of employee benefits provided for in
         Section 2.3, if Executive were still employed.

         Notwithstanding the foregoing,  in the event of a termination following
         a Change of  Control,  the salary  amount  described above shall be (i)
         determined  based on a remaining  Period of Employment of not less than
         36 months (even if the actual Period of Employment is shorter) and (ii)
         paid in a single lump sum within 20 days after such termination.

    (b)  Annual  Incentive.  The  Company  shall pay  the  Executive during  the
         remainder of the Period of Employment as in effect immediately prior to
         such termination,  as if  such  termination  had not occurred,  in full
         substitution  for his rights under the Company's  Management  Incentive
         Plan, or, if applicable, the Alternate Plan, or any successor plan then
         in  effect,  a  substitute  incentive  award,  for  the year  in  which
         termination occurred and for each  subsequent calendar year, or portion
         thereof  (in  which  case  such  substitute  award  shall  be  only  in
         proportion to such portion), during such Period which shall be equal to
         the greater of:

         (1)  60% of Executive's base salary for the applicable calendar year as
              described  in   Section  2.1  (including  any  increases   therein
              provided),  or


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         (2)  the  average  percentage  (of  salary)  of the awards received  by
              Executive  in respect  of the three calendar  years next preceding
              the year  in which the  first such substitute  incentive  award is
              paid times such base salary.

         The substitute  incentive award shall be paid  in a single lump  sum on
         the first day of February  of each year,  except that a  pro rata award
         for that portion of the calendar year in which the Period of Employment
         ends shall be paid in a single lump  sum on the last  day of the Period
         of Employment.

         Notwithstanding  the foregoing, in the event of a termination following
         a Change of  Control, the substitute  incentive awards described  above
         shall be (i) determined  based on a  remaining Period  of Employment of
         not less than  36 months (even if the  actual  Period of  Employment is
         shorter)  and  (ii)  paid  at  one  time  within  20  days  after  such
         termination in an amount equal  to the aggregate lump sum value of such
         substitute awards.

    (c)  Long-Term  Incentive.   The  Company  shall  pay   Executive  in   full
         substitution for any rights  under all outstanding  performance  awards
         under the Long-Term  Incentive  Plan, or, if applicable,  the Alternate
         Plan, or  any successor plan then in  effect, held by  Executive at the
         time of such  termination,  for each year  during the  remainder of the
         Period of Employment a substitute long-term award as follows:

         (1)  If the termination occurs after the completion of any  performance
              cycle  under  the  applicable  plan  but before the award for such
              cycle has been  paid,  the substitute  award for the year in which
              termination  occurs will equal the percentage of Executive's  base
              salary actually earned under the terms of  the applicable plan for
              such  completed  cycles  and  will be  paid at the same time other
              participants  are paid for such  completed  cycles.  Otherwise,  a
              substitute  long-term  award  will  not  be  paid  in the  year of
              termination  if  Executive  has  already  received  in such year a
              long-term incentive payment pursuant to the applicable plan.

         (2)  The substitute long-term  award for all other years will equal the
              greater of (i) 50% of Executive's then current  annual base salary
              as provided in subsection (a) above or (ii) the average percentage
              (of salary)  of the two most recent  long-term  awards paid to the
              Executive  times such base salary and will be paid by February 1st
              of the year for which the payment is being made.

         (3)  If the final  year of the Period of  Employment is a partial year,
              the substitute  long-term  award for such  year  (determined as in

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              subparagraph  (2) above) will be  prorated  based on the number of
              days in such partial year.

              For example: If the Executive is terminated in January 2001 before
              payment is made for the completed 1999  -  2000 performance cycle,
              the  Executive's  substitute  long-term  award  for  the  year  of
              termination  (2001)  will  be  equal to  the award  earned  by the
              Executive  under such completed cycle and will be paid at the same
              time  as  other  participants   are  paid.  If  the  Executive  is
              terminated  in the year 2001  after the payment for  the 1999-2000
              performance cycle  has been made, the first  substitute  long-term
              award  will  be  paid  in  the  year  2002.  In either  case,  the
              Executive's  substitute  long-term award for the year 2002 will be
              paid by  February 1, 2002 and will equal the greater of (i) 50% of
              Executive's  then  current  annual base salary or (ii) the average
              percentage (of  salary)  of  the  long-term  awards  paid  to  the
              Executive in 2000 and 2001 times such base salary.

         Notwithstanding  the foregoing, in the event of a termination following
         a  Change  of  Control,  the  substitute  long  term  incentive  awards
         described above shall be (i) determined based  on a remaining Period of
         Employment of not  less than 36 months  (even if  the actual  Period of
         Employment is  shorter) and (ii)  paid at one time within 20 days after
         such  termination in an amount equal to the aggregate lump sum value of
         such substitute awards.

    (d)  Stock Awards. Each outstanding stock  option to purchase shares  of the
         Company's or the Parent's common stock and any stock appreciation right
         that is held by  Executive at the time of such termination shall become
         vested and exercisable in full. Each stock option to purchase shares of
         the  Company's or the Parent's  common stock granted to Executive on or
         after the date hereof shall contain the following provision:

              In the event that the  Optionee's  Period of Employment  under his
              Employment Agreement with the Company dated as of July 26, 1999 is
              terminated  pursuant to Section  3.1(b) thereof, this Option shall
              become exercisable in full.

         In  addition,  all  restrictions  upon  any restricted stock previously
         granted to  Executive by the Company  or the Parent  shall be deemed to
         have lapsed and Executive shall be entitled to receive all such  shares
         of restricted stock.  Similarly, Executive shall be entitled to receive
         all shares  covered by outstanding  deferred  stock  awards  previously
         granted to Executive  by the  Company or the  Parent as if the deferral
         period  and all  conditions  pertaining  thereto  had  expired or  been
         satisfied, as the case may be.


                                       11

<PAGE>

    (e)  Death, Disability  and Medical  Benefits.  During the  remainder of the
         Period  of  Employment  as  in   effect  immediately   prior  to   such
         termination,  as if such  termination had  not occurred, the  Executive
         shall continue to be entitled to  all employee benefits provided for in
         Section  2.3(f), (g), and  (h),  as if  Executive were  still  employed
         during such  period under this Agreement, with benefits based  upon the
         compensation  and  increases  provided  in subsection (a), and upon the
         assumption that  Executive was  continuing to  pay or  continued  to be
         deemed to have  paid in  cash in respect  of such benefits  the amounts
         (and only the amounts)  by which the  payments otherwise  due Executive
         under subsection (a) were reduced in  respect to such  benefits, and if
         and to the extent the  said benefits shall  not be payable or  provided
         under any plan  by reason of  Executive no longer being an  employee of
         the Company as a result of Executive's  termination, the Company itself
         shall  pay or  provider therefor.  Notwithstanding  the  foregoing,  if
         Executive is  entitled to death, disability or medical benefit coverage
         of  the  kind  described  in  Section  2.3(f), (g) or  (h)  from  other
         employment or a  consulting position  during the  Period of Employment,
         such  benefits  provided  under  this  Agreement  shall  be  reduced or
         coordinated as provided in subsection (g) below.

    (f)  Retirement Benefits.  The Company shall  pay to  Executive  during  the
         remainder  of  his  life  following  the  expiration  of the  Period of
         Employment as in effect  immediately  prior to such  termination,  and,
         after  his  death,  to  his surviving  spouse (subject to such optional
         method  of  payment  election  as  may  be  made  under  the  Company's
         Employees' Retirement Plan  and Supplemental Executive Retirement  Plan
         and  as further  described  below), a supplemental  retirement  benefit
         which shall be equal to the excess of:

         (1)  an aggregate benefit at least equal to the benefit that would have
              been  paid  under the  Employees' Retirement Plan and Supplemental
              Executive  Retirement  Plan,  subject  to  any  plan amendments or
              terminations generally  applicable to all of the Company's  senior
              officers  which are adopted prior to the date of such termination,
              if the  Executive  had continued to be employed and to be entitled
              to service credit for benefits during the remainder of such Period
              of  Employment at  an  annual rate  of compensation  equal to  his
              compensation and  increases  provided  in subsections  (a) and (b)
              (unless  during  such  remainder  the  Executive  dies or  becomes
              disabled, in which event such benefit shall be reduced to  reflect
              application of the last two sentences of subsection(e), over

         (2)  the aggregate benefit actually payable to the  Executive under the
              Employees'  Retirement  Plan and Supplemental Executive Retirement
              Plan.


                                       12

<PAGE>

         In  clarification  of  the  foregoing   paragraph  (1),  in determining
         whether any actuarial  reduction would apply (and the  amount  of  such
         reduction,  if  any)  under  the  early  retirement  provisions  of the
         Employees' Retirement Plan and Supplemental  Executive  Retirement Plan
         (to reflect  the early  commencements of benefits),  the age  which the
         Executive would have attained at the expiration of such Period, and the
         accredited  service he would  have had at such time, shall be used.  An
         election  made by  Executive  under the  Employees' Retirement Plan and
         Supplemental  Executive Retirement Plan as  to a joint and  survivor or
         other optional method of payment and as to the time for commencement of
         payments shall be applicable to such supplemental  retirement  benefit,
         with application  of discount  factors no less  favorable  to Executive
         than   those  in  effect  under  the  Employees'  Retirement  Plan  and
         Supplemental Executive Retirement Plan on the date of such termination.
         Notwithstanding the  foregoing, Executive may, by  a notice in  writing
         filed with the Plan  Administrator for the  Employees' Retirement  Plan
         and Supplemental Executive Retirement Plan, designate any person as the
         payee of amounts due hereunder after his death (in the manner, and with
         the effect,  described in the Company's Employees' Retirement Plan  and
         Supplemental Executive Retirement Plan).

         Notwithstanding  the foregoing, in the event of a termination following
         a Change of  Control,  the  supplemental  retirement  benefit described
         above  shall be  (i)  calculated based upon  the Executive's  years  of
         service  at the time of the  termination  plus an additional five years
         and disregarding the requirement of five years of participation  in the
         Supplemental  Executive Retirement  Plan, and (ii) paid in a single sum
         within 20 days after  such  termination  in an amount equal to the lump
         sum value of such benefit.

    (g)  Subsequent Employment.  Notwithstanding  the foregoing,  to the  extent
         that the Executive shall receive cash  compensation that  is subject to
         federal income taxation in respect of other  employment or a consulting
         position with another company  and that is payable to  Executive solely
         in respect  of the  remainder of the  Period of Employment as in effect
         immediately  prior to  such  termination,  or a  portion  thereof,  the
         payments to be made by the Company under  subsections (a), (b), and (c)
         for the remainder of the Period of Employment  as in effect immediately
         prior to such  termination or such portion thereof, as the case may be,
         shall be  correspondingly  reduced,  and  any  supplemental  retirement
         benefit payments  pursuant to subsection  (f) shall be calculated after
         taking such reduction into account. In the event Executive has received
         lump  sum payments  following a  Change of  Control as  provided above,
         Executive  agrees to  re-pay  the  Company in  quarterly  payments  the
         reductions described in the foregoing sentence.


                                       13

<PAGE>

         Furthermore,  to  the extent  that benefits of the kind provided for in
         Section  2.3 (f),  (g)  and (h) are payable  in  respect of  such other
         employment or consulting position, any death or disability  benefits so
         payable under subsequent employment shall reduce  benefits of such kind
         otherwise  payable  under subsection (e) above and any  medical/dental/
         welfare benefits so payable under subsequent employment shall be deemed
         the primary  coverage for  purposes of  coordination  of benefits under
         subsection (e) above and avoiding duplication of benefits.

         Notwithstanding the  foregoing,  Executive  shall not  be  required  to
         minimize damages or severance  payments under this Agreement by seeking
         or accepting other employment or a consulting position.

    (h)  After  Death or  Disability.  Upon the  death of  Executive during  the
         period that payment  of the amounts  specified in subsection  (a) above
         are required to be made, the obligation of the Company to make payments
         to the  Executive  under this Section 3.4 shall cease as of the date of
         death  and the  benefits described in Section 3.7 shall become payable.
         In the event of the disability of the Executive during such Period, the
         obligation  to make  payments under subsections (a) and (b) above shall
         be suspended  as of the date specified in Section 2.2 for the cessation
         of  payments  of salary and Executive shall be entitled to the benefits
         described in Section 3.6, and such obligation shall be reinstated again
         only if during such period Executive ceases to be disabled.

    3.5  Severance  Pay Upon  Voluntary  Termination.  In  the  event  Executive
terminates employment with the  Company other than  for Good Reason, the Company
shall provide Executive with the following compensation and benefits:

    (a)  Executive shall  receive monthly an  amount equal to his monthly salary
         (at  his  annual  rate  of  salary  in  effect  on  the  date  of  such
         termination) for the month in which termination shall have occurred and
         for each month thereafter during the period ending the earlier of

         (1)  the expiration of the 12 months  immediately following the date of
              such termination, or

         (2)  the end of the Period of Employment under Section 1.3,

         less in respect of  each such month  the amount,  if any,  paid to  him
         pursuant to the Company's  Employees'  Retirement Plan and Supplemental
         Executive Retirement Plan and the amounts Executive would have  paid in
         cash in respect of employee benefits provided for in Section 2.3 if the
         executive were still employed.


                                       14

<PAGE>

    (b)  During  the  period  that the  payments of  the  amounts  specified  in
         subsection (a) are required to be made, Executive  shall continue to be
         entitled to all employee benefits provided for in  Section 2.3(f), (g),
         and (h) as if Executive  were still employed  during such  period under
         this Agreement, with benefits  based upon the  compensation provided in
         subsection (a) and upon the assumption that Executive was continuing to
         pay or continued to be deemed  to have paid  in cash in respect to such
         benefits  the amounts  (and only  the amounts)  by which  the  payments
         otherwise due Executive under subsection (a) were reduced in respect of
         such benefits, and if and to the extent that such benefits shall not be
         payable or  provided under  any such  plan by  reason of  Executive  no
         longer  being an  employee  of the  Company as a  result of Executive's
         termination,  the  Company  itself  shall  pay  or  provide   therefor.
         Notwithstanding the foregoing,  if Executive is  entitled to disability
         or medical benefit coverage  of the kind described in Section 2.3(g) or
         (h) from other employment or a consulting position during the Period of
         Employment,  such  benefits  provided  under this  Agreement  shall  be
         coordinated as provided in subsection (d) below.

    (c)  The Company shall pay to the Executive during the remainder of his life
         following the expiration of the period specified in subsection (a) and,
         after his death,  to his  surviving  spouse  (subject to  such optional
         method  of  payment  election  as  may  be  made  under  the  Company's
         Employees' Retirement Plan and Supplemental Executive  Retirement  Plan
         and as  further  described  below),  a supplemental retirement  benefit
         which shall be equal to the excess of

         (1)  an aggregate benefit at least equal to the benefit that would have
              been  paid  under  the   Company's  Employees' Retirement Plan and
              Supplemental  Executive  Retirement  Plan,  subject  to  any  plan
              amendments or terminations  generally  applicable  to  all of  the
              Company's  senior officers which are adopted prior to  the date of
              such  termination,  if the  Executive had continued to be employed
              and to be  entitled to service credit  for  benefits  during  such
              period   specified  in  subsection   (a)  at  an  annual  rate  of
              compensation  equal to his compensation provided in subsection (a)
              (unless  during  such  remainder  the  Executive  dies or  becomes
              disabled,  in which event such benefit shall be reduced to reflect
              application of the last two sentences of subsection (b)), over

         (2)  the aggregate  benefit actually  payable to  Executive  under  the
              Employees' Retirement  Plan and Supplemental  Executive Retirement
              Plan .

         In clarification of the foregoing paragraph (1), in determining whether
         any actuarial reduction would apply (and the amount of  such reduction,
         if any,

                                       15
<PAGE>


         under the early retirement provisions of the Employees' Retirement Plan
         and  Supplemental  Executive  Retirement  Plan  (to  reflect the  early
         commencement of benefits),  the age which Executive would have attained
         at the expiration of such period,  and the accredited service  he would
         have had at such  time,  shall be used.  An election  made by Executive
         under  the  Employees'  Retirement  Plan  and  Supplemental   Executive
         Retirement Plan as to a joint  and survivor or other optional method of
         payment  and as  to the  time for  commencement of  payments  shall  be
         applicable to such supplemental retirement benefit, with application of
         discount factors no less  favorable to  Executive  than those in effect
         under  the  Employees'  Retirement  Plan  and  Supplemental   Executive
         Retirement  Plan on the  date of such  termination. Notwithstanding the
         foregoing,  Executive may,  by a notice in  writing filed with the Plan
         Administrator  for  the Employees'  Retirement  Plan  and  Supplemental
         Executive Retirement Plan, designate any person as the payee of amounts
         due  hereunder  after his  death (in  the manner, and  with the effect,
         described in the Company's  Employees' Retirement Plan and Supplemental
         Executive Retirement Plan).

    (d)  Notwithstanding the  foregoing,  to  the extent  that  Executive  shall
         receive cash compensation that is subject to federal income taxation in
         respect  of other  employment or  a consulting  position  with  another
         company and  that is  payable to  Executive  solely  in respect  to the
         period specified  in subsection  (a) or a portion thereof, the payments
         to be made by the Company under subsection (a) for  such period or such
         portion thereof, as the case may be, shall be  correspondingly reduced,
         and any supplemental retirement benefit payments pursuant to subsection
         (c) shall be  calculated  after taking  such  reduction  into  account.
         Furthermore, to the extent that  benefits of the  kind provided  for in
         Section 2.3(g) and (h) are payable in respect of such  other employment
         or consulting  position, disability  benefits of the  kind described in
         Section 2.3(g) so payable shall reduce benefits  of such kind otherwise
         payable under subsection(b) and medical and dental benefits of the kind
         described  in Section  2.3(h) so payable  shall be  deemed the  primary
         coverage   for  purposes  of  coordination  of  benefits  and  avoiding
         duplication of benefits.  Notwithstanding the  foregoing, the Executive
         shall  not  be required  to minimize  payments of  benefits  under this
         Agreement  by seeking  or accepting  other employment  or a  consulting
         position.

    (e)  Upon the death of the Executive during the period that payments  of the
         amounts  specified  in  subsection  (a)  are required  to be made,  the
         obligation of the Company to make payments to the  Executive under this
         Section 3.5  shall cease  as of  the date of  death  and  the  benefits
         described  in Section  3.7 shall become  payable.  In the  event of the
         disability of  the  Executive  during  the period that  payments of the
         amounts  specified  in  subsection  (a) are  required  to be made,  the
         obligation to make payments

                                       16
<PAGE>


         under subsection (a) shall be suspended  as  of  the  date specified in
         Section 2.2 and Executive shall be entitled to the  benefits  described
         in Section 3.6, and such  obligation  shall be reinstated again only if
         during such period Executive ceases to be disabled.

    3.6  Disability. If Executive has become disabled from performing his duties
under  this  Agreement  and the  disability has  continued for  a period  of six
consecutive  months or for an  aggregate  of 180 days  during  nine  consecutive
months,  the Period of Employment  under this Agreement  shall  terminate.  Such
termination  shall not result in payments pursuant to Sections 3.4 or 3.5 above,
the disability  benefits  provided by the Company being in full  satisfaction of
the Company's obligation to Executive.

    3.7  Death. Upon the death of Executive during the Period of Employment, the
Period of  Employment  and the  obligation of the Company to make payments under
Section 2.1  shall  cease as of the  date of death,  and benefits  shall  become
payable under the death benefit plans  described in Section 2.3(f) in accordance
with their  terms,  exclusive  of any plan  amendments  that reduce or terminate
benefits  thereunder  not generally  applicable  to all of the Company's  senior
officers.

    3.8  Non-Competition  and Confidentiality. In consideration for the payments
and benefits to be provided to Executive under this  Agreement, Executive agrees
to comply with the following requirements:

    (a)  Agreement Not to Compete. Executive agrees that, on or before the first
         anniversary of the date  Executive's  employment  under this  Agreement
         terminates under Section 3.1, he will not, unless he receives the prior
         written approval of the Chairman  of the Board of the  Parent, directly
         or indirectly engage in any of the following actions:

         (1)  Own an  interest  in (except as  provided below), manage, operate,
              join, control,  lend money or render financial or other assistance
              to,  or participate  in  or be  connected  with,  as  an  officer,
              director, employee, partner, stockholder, consultant or otherwise,
              any entity that  is a competitor of  the  Company if the amount of
              competition  is significant, i.e., the competition is in a line of
              business or products that constitute more than five percent of the
              gross   revenues  of  both   the  Company  and   its  consolidated
              subsidiaries  and  the   competitor.  However,  nothing   in  this
              subsection (a) shall preclude Executive from (i) holding less than
              one  percent of the outstanding  capital stock of any  corporation
              required to file periodic reports with the Securities and Exchange
              Commission  under  Section  13 or 15(d) of the Securities Exchange
              Act of 1934, as amended, the securities of which are listed on any
              securities  exchange,  quoted  on  the   National  Association  of
              Securities  Dealers  Automated  Quotation System  or traded in the
              over-the-counter  market or  (ii)  continuing  to  engage  in  any
              activities or investments that the Executive

                                       17
<PAGE>


              participated in  prior to his  termination  of employment  if such
              activities or investments did not violate Company policy.

         (2)  Intentionally  solicit, endeavor to entice away from the Parent or
              the  Company, or any of their subsidiaries, or otherwise interfere
              with the  relationship of  the Parent  or the Company,  or  any of
              their  subsidiaries  with,  any  person  who  is  employed  by  or
              otherwise  engaged  to perform  services  for the  Parent  or  the
              Company,  or any of their subsidiaries (including, but not limited
              to,  any  independent  sales representatives or organizations), or
              any persons or entity  who is, or was within the then most  recent
              12-month  period,  a customer  or  client  of the  Parent  or  the
              Company, or any of their subsidiaries, whether for Executive's own
              account or  for the account of any other individual,  partnership,
              firm corporation or other business organization.

         If the scope of the restrictions in this subsection are determined by a
         court of  competent  jurisdiction to be too broad to permit enforcement
         of such restrictions to their full extent, then such restrictions shall
         be construed or rewritten (blue-lined) so as to be  enforceable  to the
         maximum extent permitted by law,  and Executive hereby consents, to the
         extent he may lawfully do so, to the judicial modification of the scope
         of such restrictions in any proceeding brought to enforce them.

    (b)  Non-Disclosure of Information.  During  the  period of  his  employment
         hereunder, and at  all times  thereafter, Executive  shall not, without
         the written  consent  of the  Chief Executive  Officer  of the  Parent,
         disclose  to any person,  other than  an employee of the  Parent or the
         Company, or any of their subsidiaries or a person to whom disclosure is
         reasonably  necessary or appropriate in connection with the performance
         by  Executive  of  his  duties  as an  executive of  the Parent or  the
         Company,  except where  such disclosure  may be  required by  law,  any
         material confidential information obtained  by him  while in the employ
         of the Parent or  the Company  with respect  to any of their  products,
         technology,  know-how or the  like,  services,  customers,  methods  or
         future plans, all of which Executive acknowledges are valuable, special
         and unique assets the disclosure of which Executive acknowledges may be
         materially damaging to the Parent or the Company.

    (c)  Remedies.  Executive  acknowledges that the  Parent's or the  Company's
         remedy at law  for any  breach or  threatened  breach  by  Executive of
         subsection (a) or (b) will be inadequate.  Therefore, the Parent or the
         Company  shall be entitled  to  injunctive  and  other equitable relief
         restraining Executive from violating those requirements, in addition to
         any other remedies that  may be available  to the Parent or the Company
         under this Agreement or applicable law.


                                       18

<PAGE>


IV. CHANGE OF CONTROL

    4.1  Change of Control Defined.  For purposes  of this Agreement, "Change of
Control" means the occurrence of any of the following:

    (a)  The  acquisition by any person, entity or "group" within the meaning of
         Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
         amended ("the 1934 Act"),  other than the Company, the Parent or any of
         their  affiliates,  or any  employee benefit plan of the Company and/or
         its affiliates, of  beneficial ownership  (within the  meaning of  Rule
         13(d)-3 under  the 1934 Act) of shares of stock  of the  Company or the
         Parent having  twenty five percent (25%) or more of the total number of
         votes that  may be cast for election of the Directors of the Company or
         the Parent in a transaction or series of transactions not  approved  in
         advance  by  a  vote  of  at least  three-quarters  of  the  Continuing
         Directors (as defined below).

    (b)  A change in the composition of the Board of Directors of the Company or
         the Parent  such  that at  any time a  majority  of the  Board  are not
         Continuing  Directors. "Continuing Directors" refers to the individuals
         who  serve as Directors at the effective date of this Agreement and any
         individual whose term  of office as a Director begins thereafter if the
         nomination or  election of such Director was  approved in  advance by a
         vote of at  least   three-quarters  of  the  then  serving  Continuing
         Directors  (other than a  nomination  of an  individual  whose  initial
         assumption  of office is  in connection  with an actual  or  threatened
         solicitation  with respect to the election or removal of the Directors,
         as such  terms are used in Rule 14a-11 of Regulation 14A under the 1934
         Act).

    (c)  The approval by the  shareholders  of the  Company or the  Parent  of a
         reorganization,  merger,  consolidation,  liquidation or dissolution of
         the Company  or the Parent,  or of the sale (in  one  transaction  or a
         series  of  transactions)  of all or substantially all of the assets of
         the  Company or the Parent other   than   a   reorganization,   merger,
         consolidation,  liquidation, dissolution or sale approved in advance by
         a vote of at least three-quarters of the Continuing Directors.

    (d)  Any other occurrence if at least a majority of the Continuing Directors
         determine in their discretion  that there has been a  Change of Control
         of the Company or the Parent.

    4.2  Vesting of Stock  Options  and  Restricted  Stock.  Upon  a  Change  of
Control,  the  right of  Executive  to  exercise  any and all stock  options  to
purchase   shares  of  the  Company's  or  the  Parent's  stock  and  any  stock
appreciation rights held by Executive shall, to the extent that such options and
rights  shall not  theretofore  have been  exercised,  become  fully  vested and
exercisable  immediately,  all restrictions upon any restricted stock previously
granted to Executive shall be deemed to have lapsed


                                       19

<PAGE>

and the deferral period and  all  conditions  pertaining to any  deferred  stock
awards  previously  granted to Executive shall be deemed to have expired or have
been  satisfied,  as the case may be, and Executive shall be entitled to receive
all such shares  of restricted  or deferred stock. All restricted  stock and all
deferred stock awards granted to  Executive on or after the date hereof shall be
awarded  subject  to  the  conditions  described  in the  immediately  preceding
sentence.  All options issued or awarded to the  Executive  on or after the date
hereof  shall  contain  the  following provision:

         Notwithstanding anything herein contained to the contrary, in the event
         that a Change of Control,  as defined in Section 4.1  of the Optionee's
         Employment Agreement with the Company dated as  of July 26, 1999 should
         occur,  this Option shall immediately thereafter  become exercisable in
         full.

    4.3  Trust Requirement After Change of Control. To assure the performance of
the  Company  and the  Parent of their  obligations  under this Agreement in the
event of a Change of Control,  the Company or the Parent shall, upon the request
of Executive immediately prior to a Change of Control, deposit in an irrevocable
trust with a trustee  designated by Executive,  an amount of liquid assets equal
to the  present  value of the  maximum amount of all lump amounts which could be
paid to  Executive under Section 3.4 in the event of a termination of employment
of Executive  without  Cause  following a Change of Control. Such trust shall be
established  and funded only if and to the extent that the establishment of such
trust does not contravene the provisions of any loan  agreement  under which the
Company or the Parent is  obligated;  provided,  however,  that the Company  and
Parent (as opposed to the lender  under any such loan agreement) may not seek to
preclude  the  establishment  of such trust by  initiating  the  entering  into,
renegotiating or amending of any such loan agreement,  a principal purpose which
entering into, renegotiating or amendment is such preclusion. The trust shall be
reasonably  satisfactory in form and substance to the Executive, with no greater
rights in Executive than an unsecured creditor of the Company and Parent. To the
extent  there are not  amounts in trust  sufficient to pay  Executive under this
Agreement, the Company and Parent shall be and remain liable therefore.

V.  MISCELLANEOUS

    5.1  Amendment.  This Agreement  may be  amended only  in a writing  that is
signed by all parties.

    5.2  Entire Agreement.  This Agreement contains the entire understanding  of
the parties with regard  to the employment  of the Executive  by the Company and
the Parent. There are no other agreements, conditions, or representations,  oral
or written, expressed or implied, with regard thereto. This Agreement supersedes
all prior agreements,  promises, and representations  relating to the employment
of Executive by the Company and the Parent.


                                       20
<PAGE>

    5.3  Assignment.  The  Company  may  in  its  sole  discretion  assign  this
Agreement  to any entity  which  succeeds to some or all of the  business of the
Company  through merger,  consolidation,  a sale of some or all of the assets of
the  Company,  or any  similar  transaction.  Executive  acknowledges  that  the
services to be rendered by him are unique and personal.  Accordingly,  Executive
may not assign any of his rights or obligations under this Agreement.

    5.4  Successors.  Subject  to  Section 5.3, the provisions of this Agreement
shall be binding upon the parties hereto, upon any successor to or assign of the
Company  and   the  Parent,  and  upon   Executive's  heirs  and   the  personal
representative of Executive or Executive's estate.

    5.5  Notices. Any notice required to be given under this Agreement shall  be
in writing and shall be delivered either in person or by certified or registered
mail,  return  receipt  requested.  Any  notice by  mail shall  be addressed  as
follows:

         If to the Company, to:

         The Musicland Group, Inc.
         10400 Yellow Circle Drive
         Minnetonka, Minnesota 55343

         Attention:  Secretary

         If to Executive, to:

         The Musicland Group, Inc.
         10400 Yellow Circle Drive
         Minnetonka, Minnesota 55343

         Attention:  _________________

         With an additional copy to (home address):

         ----------------------
         ----------------------
         ----------------------

or to such other  addresses  as either  party may be designate in writing to the
other party from time to time.

    5.6  Waiver of Breach.  Any waiver  by either  party of compliance  with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement or of any subsequent breach
by such party of a provision of this Agreement.


                                       21

<PAGE>

    5.7  Potential Excise Taxes.

         (a)  Gross-Up Payment. Anything to the contrary notwithstanding, in the
              event  it shall  be  determined  that  any  payment,  distribution
              or benefit  made or  provided by or on  behalf of  the Company  or
              Parent to or for the benefit of the Executive (whether pursuant to
              this Agreement  or otherwise)  (a "Payment"), would be  subject to
              the excise tax  imposed by  Section 4999 of  the Internal  Revenue
              Code of  1986.  as  amended  (the  "Code"),  or  any  interest  or
              penalties  with  respect to  such  excise  tax  (such  excise tax,
              together with any such interest and penalties, being, collectively
              referred to as the "Excise Tax"),  then the  Company shall pay the
              Executive in cash an  additional  amount (the  "Gross-Up Payment")
              such that, after payment by the Executive of  all taxes (including
              any  interest  or  penalties  imposed with respect to such taxes),
              including  but not  limited to  income taxes (and any interest and
              penalties imposed with respect thereto) and the Excise Tax imposed
              upon the Gross-Up Payment, the Executive retains an amount  of the
              Gross-Up Payment equal to the Excise Tax  imposed on the Payments.
              Notwithstanding the foregoing, no amount  shall be paid under this
              Section 5.7,  and  the amounts  payable  to Executive  under  this
              Agreement shall be reduced to  the amount  at which no such Excise
              Tax is  payable,  if the  result  of such  reduction  is to  place
              Executive in the same  or a better after-tax  position than  would
              result from making  the additional  payments  provided under  this
              Section.

         (b)  Determination of Gross-Up Payment.  Subject  to  sub-paragraph (c)
              below, all determinations  required to be made under  this Section
              5.7,  including  whether a Gross-Up  Payment is  required  and the
              amount  of the  Gross-Up  Payment, shall be  made by  the  firm of
              independent public accountants  selected by  the  Company to audit
              its financial  statements for the  year  immediately preceding the
              Change of Control  (the  "Accounting Firm")  which  shall  provide
              detailed supporting  calculations to the Company and the Executive
              within  30 days  after the date  of the Executive's termination of
              employment. In the event  that the Accounting  Firm is  serving as
              accountant  or  auditor  for  the  individual,  entity  or   group
              affecting the Change of Control, the Executive may appoint another
              nationally recognized  accounting firm to  make the determinations
              required under this Section 5.7 (which accounting  firm shall then
              be referred to as the "Accounting Firm"). All fees and expenses of
              the  Accounting  Firm in  connection  with the  work  it  performs
              pursuant  to  this  Section  5.7  shall  be  promptly  paid by the
              Company.  Any Gross-Up Payment shall be paid by the Company to the
              Executive  within 5 days of the receipt  of the Accounting  Firm's
              determination.  If the Accounting  Firm determines  that no Excise
              Tax is payable by the Executive, it shall furnish the Executive

                                       22
<PAGE>


              with a written opinion  that failure  to report the Excise  Tax on
              the Executive's  applicable federal  income tax  return  would not
              result in the imposition  of a penalty.  Any determination  by the
              Accounting  Firm  shall  be  binding  upon  the  Company  and  the
              Executive.  As a  result of the uncertainty  in the application of
              Section 4999 of the Code at the time of the  initial determination
              by  the Accounting  Firm,  it is  possible  that Gross-Up Payments
              which will not have been made by the Company should have been made
              ("Underpayment").  In  the event  that the  Company  exhausts  its
              remedies pursuant to sub-paragraph (c) below, and the Executive is
              thereafter  required  to  make  a   payment  of  Excise  Tax,  the
              Accounting  Firm  shall  promptly  determine  the  amount  of  the
              Underpayment that has occurred and  any such Underpayment shall be
              paid by the Company to  the  Executive within 5  days  after  such
              determination.

         (c)  Contest.  The Executive shall notify the Company in writing of any
              claim made  by the  Internal Revenue  Service that  if successful,
              would  require  the  Company  to  pay  a  Gross-Up  Payment.  Such
              notification shall be  given as soon as  practicable but no  later
              than 10 business days after the Executive  knows of such claim and
              shall apprise the Company of the nature of such claim and the date
              on which such claim is requested  to be paid.  The Executive shall
              not pay  such claim prior to the  expiration of  the 30-day period
              following the date on which the Executive gives such notice to the
              Company (or  such  shorter  period  ending  on the  date  that any
              payment  of  taxes with  respect to  such claim is  due).  If  the
              Company notifies the Executive in writing prior to the  expiration
              of such period that it desires to contest such claim, the Employee
              shall:

              (1)  give the Company any information reasonably requested  by the
                   Company relating to such claim;

              (2)  take such action in connection  with contesting such claim as
                   the  Company shall reasonably request in waiting from time to
                   time, without limitation, accepting legal representation with
                   respect to such claim by an  attorney selected by the Company
                   and reasonably acceptable to the Executive;

              (3)  cooperate  with  the  Company  in  good  faith  in  order  to
                   effectively contest such claim; and

              (4)  permit the Company to participate in any proceedings relating
                   to such  claim,  provided that the Company shall bear and pay
                   directly  all costs and  expenses  (including   interest  and
                   penalties) incurred in connection with such contest and shall
                   indemnify and  hold the Executive  harmless,  on an after-tax
                   basis,  for any Excise Tax or income tax,  including interest
                   and  penalties  with  respect thereto,

                                       23
<PAGE>


                   imposed  as a result of  such representation  and  payment of
                   costs and expenses.

              Without  limitation   on   the  foregoing   provisions   of   this
              subparagraph  (c), the Company shall control all proceedings taken
              in connection with such  contest.  At its sole option, the Company
              may  pursue  or   forego  any  and  all  administrative   appeals,
              proceedings, hearings and conferences with the taxing authority in
              respect of such claim and may either  direct the Executive  to pay
              the tax  claimed  and sue for a refund or contest the claim in any
              permissible manner. The Executive agrees to prosecute such contest
              to a determination before any administrative  tribunal, in a court
              of initial  jurisdiction and in one or more  appellate  courts, as
              the  Company shall determine,  provided  that any extension of the
              statute  of  limitations  relating to  payment  of taxes  for  the
              taxable year of the Executive with respect to which such contested
              amount is  claimed  to be due is limited  solely to such contested
              amount.  The Company's control of the contest shall be limited  to
              issues with  respect to which a Gross-Up  Payment would be payable
              hereunder,  and the  Executive  shall  be  entitled  to  settle or
              contest,  as the  case may  be,  any  other  issue  raised  by the
              Internal   Revenue   Service  or   any  other   taxing  authority.
              Furthermore,  the Company agrees to hold in confidence and not  to
              disclose,   without  Executive's   prior   written  consent,   any
              information  with  regard  to  Executive's  tax position which the
              Company obtains pursuant to this Section 5.7.

         (d)  Suit for Refund.  If the Company directs the  Executive to pay any
              claim and sue for a refund,  the Company shall  advance the amount
              of such payment  to the Executive,  on an interest-free basis.  If
              the Executive becomes entitled  to receive any refund with respect
              to such claim, the Executive shall promptly pay to the Company the
              amount of such refund (together with any interest paid or credited
              thereon  after taxes  applicable  thereto).  If a determination is
              made that the  Executive shall not  be entitled to any refund with
              respect  to  such  claim  and  the  Company  does  not  notify the
              Executive  in writing  of its  intent to  contest  such  denial of
              refund   prior  to   the   expiration  of  30   days  after   such
              determination, then such advance  shall be forgiven and shall  not
              be required  to be  repaid and  the amount  of such  advance shall
              offset,  to the extent  thereof, the  amount of  Gross-Up  Payment
              required to be paid.

    5.8  Indemnification.  The Company will  indemnify  Executive (and his legal
representatives  or other successors) to the fullest extent permitted (including
payment of expenses in advance of final disposition of a proceeding) by the laws
of the  State of  Delaware,  as in  effect at  the time  of the  subject  act or
omission,  or by the Restated  Certificate of  Incorporation and By-Laws of  the
Company,  as in effect at  such time or on the effective date of this Agreement,
or  by the  terms of any  indemnification  agreement  between  the  Company  and
Executive, whichever affords or afforded greater protection

                                       24
<PAGE>

to Executive, and  the Executive  shall be  entitled to  the  protection of  any
insurance  policies the Company may  elect to maintain generally for the benefit
of its  directors and officers (and to the extent the Company  maintains such an
insurance  policy or  policies,  Executive shall  be covered  by such  policy or
policies,  in accordance with its or their terms,  to the maximum  extent of the
coverage  affordable for any  Company  officer or  director), against all costs,
charges  and  expenses  whatsoever incurred  or sustained  by him  or his  legal
representatives  at the time  such costs,  charges and expenses are incurred  or
sustained,  in connection with any actions,  suit or  proceeding to which he (or
his legal  representatives or their successors) may be made a party by reason of
his being or having  been a  director,  officer or employee of the Company,  the
Parent or any  subsidiary of either of them, or his serving or having served any
other  enterprise  as a  director,  officer or  employee at the  request of  the
Company.

    5.9  Attorney's  Fees. In the event of any litigation, arbitration, or other
proceeding  between the  Company and Executive with respect to this Agreement or
the enforcement of Executive's rights hereunder,  the Company shall periodically
reimburse  Executive for all  of the reasonable  costs and expenses  relating to
such  litigation,  arbitration  or  proceeding  (including,  without limitation,
reasonable  attorneys' fees), regardless of outcome. In no event shall Executive
be  required to  reimburse  the Company or  the Parent  for any of  the costs or
expenses relating to such litigation, arbitration, or proceeding.

    5.10 Joint and Several Liability. All duties, undertakings, obligations, and
liabilities of the Company and the Parent  arising under this Agreement shall be
the joint and several liability of the Company and the Parent.

    5.11 Severability.  If  any one  or  more  of the  provisions  (or  portions
thereof) of this Agreement shall for any reason be held by a final determination
of a court of competent jurisdiction to be invalid, illegal, or unenforceable in
any respect, such invalidity,  illegality,  or unenforceability shall not affect
any other provisions (or portions of the provisions) of this Agreement,  and the
invalid,  illegal,  or  unenforceable  provision  shall be deemed  replaced by a
provision  that is valid,  legal,  and  enforceable  and that  comes  closest to
expressing intention of the parties.

    5.12 Governing Law.  This  Agreement  shall be  interpreted and  enforced in
accordance with  the laws of the State of  Minnesota,  without giving  effect to
conflict of law principles.

    5.13 Headings.  The  headings  of articles and sections  herein are included
solely  for  convenience  and reference  and shall  not control  the meaning  of
interpretation of any of the provisions of this Agreement.

    5.14 Counterparts.  This Agreement may be executed by either of the  parties
in counterparts, each of which shall be  deemed to be an original, but  all such
counterparts shall constitute a single instrument.


                                       25
<PAGE>

    IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the date set forth above.

                                       MUSICLAND STORES CORPORATION

                                       THE MUSICLAND GROUP, INC.



                                       By:
                                          -----------------------------------
                                             William A. Hodder
                                             Chairman, Compensation Committee

                                       EXECUTIVE


                                       --------------------------------------


                                      26