Document:

exv10w1

Exhibit 10.1

AGREEMENT

     This Agreement (this “Agreement”), dated as of February 11, 2011, is by and among Navarre
Corporation, a Minnesota corporation (the “Company”), Steven R. Becker, an individual resident of
Texas (“Becker”) and Matthew A. Drapkin, an individual resident of New York (“Drapkin”), and the
other entities that are signatories hereto (collectively with Becker and Drapkin, the “Shareholder
Group”).

     WHEREAS, the Company and the Shareholder Group have determined that the interests of the
Company and its shareholders would be best served by adding the Designee Directors to the Board (as
such terms are defined below), and making other changes to the composition of the Board, on the
terms and conditions set forth in this Agreement;

     NOW, THEREFORE, in consideration of the foregoing premises and the respective representations,
warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally
bound hereby, the parties hereby agree as follows:

     1. Representations and Warranties of the Company. The Company represents and warrants as
follows as of the date hereof:

     (a) The Company has the corporate power and authority to execute, deliver and carry out
the terms and provisions of this Agreement and to consummate the transactions contemplated
hereby.

     (b) This Agreement has been duly and validly authorized, executed and delivered by the
Company, constitutes a valid and binding obligation and agreement of the Company, and is
enforceable against the Company in accordance with its terms, except as enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting the rights of creditors and subject to general equity
principles.

     (c) The execution, delivery and performance of this Agreement by the Company does not
and will not (i) violate or conflict with any law, rule, regulation, order, judgment or
decree applicable to it, or (ii) result in any material breach or violation of or constitute
a material default (or an event which with notice or lapse of time or both could become a
material default) under or pursuant to, or result in the loss of a material benefit under,
or give any right of termination, amendment, acceleration or cancellation of, any
organizational document, agreement, contract, commitment, understanding or arrangement to
which the Company is a party or by which it is bound.

     2. Representations and Warranties of the Shareholder Group. Each of the members of
the Shareholder Group severally, and not jointly, represents and warrants with respect to himself
or itself as follows as of the date hereof:

     (a) Such party has the power and authority to execute, deliver and carry out the terms
and provisions of this Agreement and to consummate the transactions contemplated hereby.
Such party, if an entity, has the limited partnership or limited

 

 

liability company power and authority, as applicable, to execute, deliver and carry out
the terms and provisions of this Agreement and to consummate the transactions contemplated
hereby.

     (b) This Agreement has been duly and validly authorized, executed, and delivered by
such party, constitutes a valid and binding obligation and agreement of such party, and is
enforceable against such party in accordance with its terms, except as enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting the rights of creditors and subject to general equity
principles.

     (c) As of the date thereof, such party was the “beneficial owner” of a number of shares
of Common Stock (as defined below) as set forth on the cover page relating to such party in
the Schedule 13D filed by Becker Drapkin Management, L.P. with the Securities and Exchange
Commission (the “SEC”) on September 16, 2010, as amended (the “Schedule 13D”). As of the
date hereof, the members of the Shareholder Group own in the aggregate 3,621,701 shares of
Common Stock and warrants to acquire 142,857 shares of Common Stock. Except for those
Affiliates and Associates of such member with respect to whom a cover page is included in
the Schedule 13D, no other Affiliate or Associate of such member beneficially owns any
shares of Common Stock.

     (d) The execution, delivery and performance of this Agreement by such party does not
and will not (i) violate or conflict with any law, rule, regulation, order, judgment or
decree applicable to him or it, or (ii) result in any material breach or violation of or
constitute a material default (or an event which with notice or lapse of time or both could
become a material default) under or pursuant to, or result in the loss of a material benefit
under, or give any right of termination, amendment, acceleration or cancellation of, any
organizational document, agreement, contract, commitment, understanding or arrangement to
which he or it is a party or by which he or it is bound.

     3. Definitions. For purposes of this Agreement:

     (a) The terms “Affiliate” and “Associate” have the respective meanings set forth in
Rule 12b-2 promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), provided that neither “Affiliate” nor “Associate” shall include (i) any
person that is a publicly held concern and is otherwise an Affiliate or Associate by reason
of the fact that a principal of any member of the Shareholder Group serves as a member of
the board of directors or similar governing body of such concern, (ii) such member of the
board of directors or other similar governing body of such concern or (iii) any entity which
is an Associate solely by reason of clause (1) of the definition of Associate in Rule 12b-2;
the terms “beneficial owner” and “beneficial ownership” shall have the respective meanings
as set forth in Rule 13d-3 promulgated by the SEC under the Exchange Act; and the terms
“person” or “persons” shall mean any individual, corporation (including not-for-profit),
general or limited partnership, limited liability company, joint venture, estate, trust,
association, organization or other entity of any kind or nature.

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     (b) “Board” means the Board of Directors of the Company.

     (c) “Common Stock” means the Common Stock of the Company, with no par value.

     (d) “Shareholder Group Event” means the earliest to occur of: (i) the first date on
which any member of the Shareholder Group engages in any of the activities prohibited by
Section 5 if such violation is material and not wholly cured within three (3) business days
following written notice thereof by the Company, (ii) the first date on which the members of
the Shareholder Group sell, transfer or otherwise dispose of shares of Common Stock such
that the Shareholder Group’s aggregate beneficial ownership of Common Stock is reduced below
5% of the outstanding Common Stock; (iii) the date on which there are no Designee Directors
in office as members of the Board, if the Shareholder Group has not named a successor in
accordance with Section 4(f) hereof; or (iv) the end of the Standstill Period.

     (e) “Standstill Period” means the period from the date hereof until the earlier of:

     (i) the two-year anniversary of the date hereof; or

     (ii) such date, if any, as the Company has materially breached any of its
representations, warranties, commitments or obligations set forth in Sections 1,
4(a), 4(b), 4(e), 4(f), and 4(g) of this Agreement (the “Principal Obligations”) and
such material breach has not been wholly cured within three (3) business days
thereof.

     4. Election of the Designee Directors; Related Matters.

     (a) As soon as reasonably practicable but in any event within five (5) business days
from the date hereof (the “Appointment Date”):

     (i) in accordance with the Company’s Amended and Restated Articles of
Incorporation (the “Articles”) and Amended and Restated Bylaws (the “Bylaws”), at
least one (1) member of the Board shall have resigned, effective no later than as of
the Appointment Date;

     (ii) to the extent necessary, in accordance with the Articles and Bylaws, the
Board shall adopt a resolution increasing the size of the Board by one director, to
a total of ten (10) directors, effective as of the Appointment Date;

     (iii) the Board shall have appointed Richard Willis (“Willis”) as a director of
the Company, effective as of the Appointment Date, to serve as a Class I member of
the Board until the Company’s 2011 Annual Meeting of Shareholders (the “2011 Annual
Meeting”) and until his successor is duly elected and qualified;

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     (iv) the Board shall have appointed Bradley Shisler (“Shisler”, and
collectively with Willis, the “Designee Directors”) as a director of the Company,
effective as of the Appointment Date, to serve as a Class I member of the Board
until the 2011 Annual Meeting and until his successor is duly elected and qualified;

     (v) the Board shall adopt a resolution appointing Shisler to serve as a member
of the Governance and Nominating Committee, the Audit Committee, and the Strategic
Transactions Committee, and Willis to serve as a member of the Compensation
Committee, effective as of the Appointment Date, and each of the Designee Directors
shall continue to serve on such Committees so long as he continues to be a member of
the Board;

     (vi) the Board shall also adopt a resolution requiring that no more than three
(3) directors shall serve on the Governance and Nominating Committee, including
Shisler, and no more than three (3) shall serve on the Compensation Committee,
including Willis; and

     (vii) in the event that any special committees are formed during the Standstill
Period, one of the Designee Directors shall have the opportunity to serve as a
member of each such committee, provided he satisfies any independence requirements
for membership on such committee.

     (b) So long as a Shareholder Group Event has not occurred, the Board and the Governance
and Nominating Committee shall nominate each of Willis and Shisler for election as a
director at the 2011 Annual Meeting for a one-year term and at the Company’s 2012 Annual
Meeting of Shareholders (the “2012 Annual Meeting”) for a three-year term. The Company
agrees to recommend that the Company’s shareholders vote, and shall solicit proxies, in
favor of the election of Willis and Shisler at such meetings and otherwise support Willis
and Shisler for election in a manner no less rigorous and favorable than the manner in which
the Company supports its other nominees.

     (c) The members of the Shareholder Group shall promptly file an amendment to the
Schedule 13D reporting the entry into this agreement, amending applicable items to conform
to their obligations hereunder and appending or incorporating by reference this Agreement as
an exhibit thereto. The members of the Shareholder Group shall provide to the Company a
reasonable opportunity to review and comment on such amendment in advance of filing, and
shall consider in good faith the reasonable and timely comments of the Company. The Company
and Becker and Drapkin shall discuss in good faith whether or not the Company shall issue a
press release with respect to the execution and delivery of this Agreement by the parties
hereto and the material provisions hereof, which press release, if issued, will be subject
to the mutual agreement of the parties; if the Company files a Form 8-K in lieu of a press
release, the Company shall provide to Becker and Drapkin a reasonable opportunity to review
and comment on such Form 8-K in advance of its filing, and shall consider in good faith the
reasonable and timely comments of Becker and Drapkin.

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     (d) So long as the Company has complied and is complying with the Principal
Obligations, each member of the Shareholder Group shall cause all shares of Common Stock
owned of record and shall instruct the record owner, in case of all shares of Common Stock
beneficially owned but not of record, by it and their respective Affiliates, as of the
record date for the 2011 Annual Meeting and for the 2012 Annual Meeting, to be present for
quorum purposes and to be voted, and shall cause all shares of Common Stock held by their
respective Associates to be present for quorum purposes and to be voted in favor of all
directors nominated by the Board for election at the 2011 Annual Meeting and the 2012 Annual
Meeting, respectively; provided such directors nominated by the Board are either current
members of the Board or otherwise reasonably acceptable to the Shareholder Group.

     (e) The Company agrees (i) that the size of the Board shall only be increased at any
time prior to the conclusion of the 2012 Annual Meeting in connection with the appointment
of the Designee Directors; (ii) that in the event of the first vacancy on account of the
death, resignation or removal of any member of the Board other than one of the Designee
Directors prior to the conclusion of the 2011 Annual Meeting such vacancy shall not be
filled and the Board shall adopt, in accordance with the Articles and Bylaws, a resolution
to reduce the size of the Board accordingly; (iii) that, to the extent necessary and in
accordance with the Articles and Bylaws, the Board shall adopt a resolution decreasing the
size of the Board by one director, to a total of nine (9) directors effective immediately
after the 2011 Annual Meeting; (iv) that after the Appointment Date but prior to the 2011
Annual Meeting, one member of the Board, other than one of the Designee Directors, shall
resign or not stand for re-election, to the extent necessary so that the size of the Board
shall consist of a total of nine (9) directors; and (v) that the Company shall hold the 2011
Annual Meeting no later than October 15, 2011.

     (f) Provided that a Shareholder Group Event has not occurred, if at any time prior to
the termination of the Standstill Period, any Director Designee is unable or unwilling to
serve (or continue to serve) as a director of the Company for any reason, then the
Shareholder Group and the Company shall agree on a replacement for such Designee Director,
and for all purposes the provisions of this Agreement with respect to such Designee
Director’s rights and obligations as a director (and not as a member of the Shareholder
Group) shall apply to such replacement director.

     (g) The Company agrees that if at any time prior to a Shareholder Group Event, the
chairmanship of the Board changes, the new chairman shall be a non-employee, independent
director.

     (h) Becker Drapkin Management, L.P., Becker Drapkin Partners (QP), L.P., Becker Drapkin
Partners, L.P., and BD Partners II, L.P. hereby withdraw their letter dated November 10,
2010, to the Secretary of the Company making a demand pursuant to Section 302A.461 of the
Minnesota Business Corporation Act.

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     5. Standstill.

     Each member of the Shareholder Group agrees that, during the Standstill Period, he or it will
not, and he or it will cause each of such person’s Affiliates or agents or other persons acting on
his or its behalf not to, and will cause his or its respective Associates not to:

     (a) acquire, offer to acquire or agree to acquire, alone or in concert with any other
individual or entity, by purchase, tender offer, exchange offer, agreement or business
combination or any other manner, beneficial ownership of any securities of the Company or
any securities of any Affiliate of the Company, if, after completion of such acquisition or
proposed acquisition, such party would beneficially own more than 14.99% of the outstanding
shares of Common Stock;

     (b) submit any shareholder proposal (pursuant to Rule 14a-8 promulgated by the SEC
under the Exchange Act or otherwise) or any notice of nomination or other business for
consideration, or nominate any candidate for election to the Board or oppose the directors
nominated by the Board, other than as expressly permitted by this Agreement;

     (c) form, join in or in any other way participate in a “partnership, limited
partnership, syndicate or other group” within the meaning of Section 13(d)(3) of the
Exchange Act with respect to the Common Stock or deposit any shares of Common Stock in a
voting trust or similar arrangement or subject any shares of Common Stock to any voting
agreement or pooling arrangement, other than solely with other members of the Shareholder
Group or one or more Affiliates of a member of the Shareholder Group with respect to the
Common Stock currently owned as set forth in Section 2(c) of this Agreement or acquired in
the future subject to the limitations set forth in Section 5(a) or to the extent such a
group may be deemed to result with the Company or any of its Affiliates as a result of this
Agreement;

     (d) solicit proxies or written consents of shareholders, or otherwise conduct any
nonbinding referendum with respect to Common Stock, or make, or in any way participate in,
any “solicitation” of any “proxy” within the meaning of Rule 14a-1 promulgated by the SEC
under the Exchange Act to vote, or advise, encourage or influence any person with respect to
voting, any shares of Common Stock with respect to any matter, or become a “participant” in
any contested “solicitation” for the election of directors with respect to the Company (as
such terms are defined or used under the Exchange Act and the rules promulgated by the SEC
thereunder), other than a “solicitation” or acting as a “participant” in support of all of
the nominees of the Board at the 2011 Annual Meeting or 2012 Annual Meeting as set forth in
this Agreement;

     (e) seek, in any capacity other than as a member of the Board, to call, or to request
the calling of, a special meeting of the shareholders of the Company, or seek to make, or
make, a shareholder proposal at any meeting of the shareholders of the Company or make a
request for a list of the Company’s shareholders (or otherwise induce, encourage or assist
any other person to initiate or pursue such a proposal or request) or otherwise acting
alone, or in concert with others, seek to control or influence

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the governance or policies of the Company, except as expressly permitted by this
Agreement;

     (f) effect or seek to effect, in any capacity other than as a member of the Board
(including, without limitation, by entering into any discussions, negotiations, agreements
or understandings with any third person), offer or propose (whether publicly or otherwise)
to effect, or cause or participate in, or in any way assist or facilitate any other person
to effect or seek, offer or propose (whether publicly or otherwise) to effect or cause or
participate in (i) any acquisition of any material assets or businesses of the Company or
any of its subsidiaries, (ii) any tender offer or exchange offer, merger, acquisition or
other business combination involving the Company or any of its subsidiaries, or (iii) any
recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction
with respect to the Company or any of its subsidiaries;

     (g) publicly disclose, or cause or facilitate the public disclosure (including without
limitation the filing of any document or report with the SEC or any other governmental
agency or any disclosure to any journalist, member of the media or securities analyst) of,
any intent, purpose, plan or proposal to obtain any waiver, or consent under, or any
amendment of, any of the provisions of Section 4(d) or this Section 5, or otherwise seek (in
any manner that would require public disclosure by any of the members of the Shareholder
Group or their Affiliates or Associates) to obtain any waiver, consent under, or amendment
of, any provision of this Agreement;

     (h) publicly disparage any member of the Board or management of the Company; provided
that this provision shall not apply to compelled testimony, either by legal process,
subpoena or otherwise, or to communications that are required by an applicable legal
obligation and are subject to contractual provisions providing for confidential disclosure;

     (i) enter into any arrangements, understandings or agreements (whether written or oral)
with, or advise, finance, assist or encourage, any other person that engages, or offers or
proposes to engage, in any of the foregoing; or

     (j) take or cause or induce or assist others to take any action inconsistent with any
of the foregoing.

     6. Non-Disparagement. Provided that a Shareholder Group Event has not occurred,
during the Standstill Period the Company shall not publicly disparage any member of the Shareholder
Group or any member of the management of the Shareholder Group, provided that this provision shall
not apply to compelled testimony, either by legal process, subpoena or otherwise, or to
communications that are required by an applicable legal obligation or are subject to contractual
provisions providing for confidential disclosure.

     7. Expenses. All costs and expenses incurred in connection with this Agreement will
be paid by the party incurring such cost or expense.

     8. Specific Performance. Each party hereto acknowledges and agrees, on behalf of
itself and its Affiliates, that irreparable harm would occur in the event any of the provisions of

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this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will be entitled to specific relief hereunder,
including, without limitation, an injunction or injunctions to prevent and enjoin breaches of the
provisions of this Agreement and to enforce specifically the terms and provisions hereof in any
state or federal court in the State of Minnesota, in addition to any other remedy to which they may
be entitled at law or in equity. Any requirements for the securing or posting of any bond with
such remedy are hereby waived.

     9. Jurisdiction. Each party hereto agrees, on behalf of itself and its Affiliates,
that any actions, suits or proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby will be brought solely and exclusively in any state or federal
court in the State of Minnesota (and the parties agree on behalf of themselves and their respective
Affiliates not to commence any action, suit or proceeding relating thereto except in such courts),
and further agrees that service of any process, summons, notice or document by U.S. registered mail
to the respective addresses set forth in Section 13 of this Agreement will be effective service of
process for any such action, suit or proceeding brought against any party in any such court. Each
party, on behalf of itself and its Affiliates, irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby, in the state or federal courts in the State of Minnesota, and
hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such
court that any such action, suit or proceeding brought in any such court has been brought in an
improper or inconvenient forum.

     10. Applicable Law. This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Minnesota applicable to contracts
executed and to be performed wholly within such state, without giving effect to the choice of law
principles of such state.

     11. Counterparts; Facsimile or Electronic Signatures. This Agreement may be executed
in two or more counterparts which together shall constitute a single agreement. Facsimile or
electronic (i.e., PDF) signatures shall be as effective as original signatures.

     12. Entire Agreement; Amendment and Waiver; Successors and Assigns. This Agreement
contains the entire understanding of the parties hereto with respect to, and supersedes all prior
agreements relating to, its subject matter. There are no restrictions, agreements, promises,
representations, warranties, covenants or undertakings between the parties other than those
expressly set forth herein. This Agreement may be amended only by a written instrument duly
executed by the parties hereto or their respective successors or assigns. No failure on the part
of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of such right, power or
remedy by such party preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law. The terms and conditions of this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the parties hereto and their respective successors, heirs,
executors, legal representatives, and assigns.

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     13. Notices. All notices, consents, requests, instructions, approvals and other
communications provided for herein and all legal process in regard hereto shall be in writing and
shall be deemed validly given, made or served, (a) if given by telecopy, when such telecopy is
transmitted to the telecopy number set forth below, or to such other telecopy number as is provided
by a party to this Agreement to the other parties pursuant to notice given in accordance with the
provisions of this Section, and the appropriate confirmation is received, or (b) if given by any
other means, when actually received during normal business hours at the address specified in this
Section, or at such other address as is provided by a party to this Agreement to the other parties
pursuant to notice given in accordance with the provisions of this Section:

     if to the Company:

Navarre Corporation

7400 49th Avenue North

New Hope, Minnesota 55428

Facsimile: (763) 533-2156

Attention: Chief Executive Officer

Attention: General Counsel

     with a copy to:

Dorsey & Whitney LLP

50 South 6th Street, Suite 1500

Minneapolis, Minnesota 55402

Facsimile: (612) 340-2868

Attention: Matthew J. Knopf

     if to the Shareholder Group or any member thereof:

Becker Drapkin Management, L.P.

300 Crescent Court

Suite 1111

Dallas, Texas 75201

Facsimile: (214) 756 6037

Attention: Matthew A. Drapkin

     with a copy to:

Boies, Schiller & Flexner LLP

575 Lexington Avenue, 7th Floor

New York, New York 10022

Facsimile: (212) 446-2350

Attention: Richard J. Birns, Esq.

     14. No Third-Party Beneficiaries. Nothing in this Agreement is intended to confer on
any person other than the parties hereto or their respective successors and assigns, and their

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respective Affiliates to the extent provided herein, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

[Signature page follows.]

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     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized
signatories of the parties as of the date first written above.

	 	 	 	 	 	 	 	 	 

	 	 	COMPANY:
	 
	 	 	 	 	 	 	 	 
	 	 	NAVARRE CORPORATION
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	Name:
	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	SHAREHOLDER GROUP:
	 
	 	 	 	 	 	 	 	 
	 	 	BECKER DRAPKIN MANAGEMENT, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	BC Advisors, LLC, its general partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name:
	 	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BECKER DRAPKIN PARTNERS (Q.P.), L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Becker Drapkin Management, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	BC Advisors, LLC, its general partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:

11

 

	 	 	 	 	 	 	 	 	 

	 	 	BECKER DRAPKIN PARTNERS, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Becker Drapkin Management, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	BC Advisors, LLC, its general partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BD PARTNERS II, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Becker Drapkin Management, L.P.
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	BC Advisors, LLC, its general partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 

	 	 	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BC ADVISORS, LLC
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	Name:
	 	 	 	 	Title:
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 
	 	 	 
	 	 	Steven R. Becker
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 
	 	 	 
	 	 	Matthew A. Drapkin

12Exhibit 10.1

Exhibit 10.1

2011 Incentive Plan

 

 

 

Somaxon Pharmaceuticals, Inc.

2011 Incentive Plan

The Somaxon Pharmaceuticals, Inc. (Somaxon) 2011 Incentive Plan (the “Plan”) is designed to offer
incentive compensation to eligible Employees by rewarding the achievement of corporate goals and
specifically measured individual goals that are consistent with and support overall corporate
goals. The Plan will create an environment which will focus Employees on the achievement of
objectives. Since cooperation between departments and Employees will be required to achieve
corporate objectives that represent a significant portion of the Plan, the Plan should help foster
improved teamwork and a more cohesive management team.

Purpose of the Plan

The Plan is designed to:

	•	 	Provide an incentive program to achieve overall corporate objectives and to enhance
shareholder value
	 
	•	 	Reward those individuals who significantly impact corporate results
	 
	•	 	Encourage increased teamwork among all disciplines within the Company
	 
	•	 	Incorporate an incentive program in the Somaxon overall compensation program to help
attract and retain Employees
	 
	•	 	Incentivize eligible Employees to remain employed by Somaxon throughout the Plan year and
until the time incentive awards are paid

Plan Governance

The Plan will be governed by the Compensation Committee of the Board of Directors. The President
and CEO of Somaxon will be responsible for administration of the Plan. The Compensation Committee
of the Board will be responsible for approving any compensation or incentive awards to officers of
the Company.

Eligibility

All full time (40 hours/week) exempt Employees Level 6 (Manager) or higher are eligible to
participate in the Plan. To receive an incentive award, a participant: (a) must have been in an
eligible position for at least three (3) consecutive months prior to the end of the Plan year and
remain employed through the end of the Plan year and
until incentive awards are paid; and (b) must not be on probation at the time bonus determinations
are made.

 

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Section 1: Bonus Incentive Awards (“Bonus”)

Form of Incentive Award Payments

Incentive award payments may be made in cash, through the issuance of stock or stock options, or by
a combination of cash, stock and/or stock options, at the discretion of the Company’s Compensation
Committee, subject to the approval of the Company’s Board of Directors. In the event that the
Compensation Committee and the Board of Directors elect to pay incentive awards in stock or stock
options, the Compensation Committee, in its sole discretion, will make a determination of the
number of shares of stock or stock options to be issued to each Plan participant based, in part,
upon each participant’s Corporate and Individual Performance, as described below. The issuance of
stock and stock options may also be subject to the approval of the Company’s stockholders, and any
stock options issued will be subject to the terms and conditions of the Company’s 2005 Equity
Incentive Award Plan, as amended from time to time by the Company.

Corporate and Individual Performance

Prior to the beginning of the Plan year, the President and CEO will present to the Board of
Directors a list of the overall corporate objectives for the coming year, which are subject to
approval by the Board. All participants in the Plan will then develop a list of key individual
objectives, which must be approved by the responsible Vice President and by the President and CEO.

The Plan calls for incentive awards based on the achievement of annual corporate and individual
objectives that have been approved as indicated above.

The relative weight between corporate and individual performance factors may vary based on the
individual’s level within the organization. The weighting will be reviewed annually and may be
adjusted, as necessary or appropriate. The weighting for 2011 will be as follows:

	 	 	 	 	 	 	 	 	 
	 	 	Corporate	 	 	Individual	 
	President
and CEO (Grade 13)
	 	 	100	%	 	 	 	 
	Officer Vice Presidents (Grade 12)
	 	 	100	%	 	 	 	 
	Non-Officer Vice Presidents (Grade 11)
	 	 	100	%	 	 	 	 
	Executive Directors (Grades 10)
	 	 	75	%	 	 	25	%
	All Others (Grades 6-9)
	 	 	50	%	 	 	50	%

 

3

 

Bonus Percentage

Incentive Awards will be determined by applying a “bonus percentage” to the base salary of
participants in the Plan. The following bonus percentages will be used for this purpose:

	 	 	 	 	 	 	 
	Grade Level	 	Position Title	 	Bonus Percentage	 
	13
	 	President & CEO	 	 	55	%
	12
	 	Officers, Sr. VP, VP	 	 	40	%
	11
	 	Non-Officer Vice Presidents	 	 	35	%
	10
	 	Executive Director	 	 	25	%
	8 – 9
	 	Sr. Director, Director	 	 	20	%
	6 – 7
	 	Sr. Manager, Manager	 	 	15	%

Performance Measurement

The following scale will be used to determine the actual award multiplier for incentive award
calculations based upon measurement of corporate and individual performance versus objectives.
Separate payment multipliers will be established for both the individual and the corporate
components of each award. The same payment multiplier for the corporate component of each
participant’s annual award shall be used for all Plan participants in any given year. The award
multiplier for the corporate component shall be determined by the Board of Directors.

	 	 	 	 	 
	Performance Category	 	Award Multiplier	 
	1. Performance for the year met or exceeded objectives
or was excellent in view of prevailing conditions
	 	 	75% – 150%	 
	 
	 	 	 	 
	2. Performance generally met the year’s objectives or
was very acceptable in view of prevailing conditions
	 	 	50% – 75%	 
	 
	 	 	 	 
	3. Performance for the year met some, but not all, objectives
	 	 	25% – 50%	 
	 
	 	 	 	 
	4. Performance for the year was not acceptable in view of
prevailing conditions
	 	 	0%	 

Calculation of Cash Incentive Award

The example below shows sample cash incentive award calculations under the Somaxon
Incentive Plan. First, a total bonus potential is calculated by multiplying the Employee’s base
salary by the bonus percentage. This dollar figure is then divided between its corporate component
and its individual component based on the performance factor mix for that specific position. This
calculation establishes specific dollar potential awards for the performance period for both the
individual and corporate components of the award.

 

4

 

At the end of the performance period, corporate and individual award multipliers will be
established using the criteria described above. The corporate award multiplier, which is based on
overall corporate performance, is used to calculate corporate performance awards for all Plan
participants. This is accomplished by multiplying the bonus percentage established for each
individual at the beginning of the performance period by the actual corporate award multiplier.
The individual award multiplier, which is based on an individual’s performance against objectives,
is used in the same way to calculate the actual individual performance award.

Example:

Cash Award Calculation

	 	 	 	 	 
	Position:
	 	Manager
	Base Salary:
	 	$	100,000	 
	Bonus percentage:
	 	 	15	%
	Potential bonus dollars:
	 	$	15,000	 
	 
	 	 	 	 
	Potential bonus components (based on performance factor mix):
	 	 	 	 
	Potential corporate performance bonus (50%):
	 	$	7,500	 
	Potential individual performance bonus (50%):
	 	$	7,500	 

Actual Cash Award Calculation

Assumed payment multipliers based on assessment of corporate and individual performance:

	 	 	 	 	 	 	 	 	 
	Corporate multiplier	 	75%-performance generally met year’s objectives
	Individual multiplier	 	125%-performance generally exceeded objectives
	Cash Award:
	 	 	 	 	 	 	 	 
	Corporate component
	 	$	5,625	 	 	 	($7,500 x 75	%)
	Individual component
	 	$	9,375	 	 	 	($7,500 x 125	%)

Payment of the Incentive Award

Payment of incentive awards will be made as soon as practicable after the end of the Plan year but
not before the completion and issuance of the Company’s year-end audited Financial Statements.
Incentive award calculations will be based on the participant’s base salary earned during the year
ending December 31, 2011. Participants’ entitlement to an incentive award under this Plan does not
vest until the awards are actually paid.

Participants who have been in an eligible position for less than a year, but who hold an eligible
position for at least three months prior to the end of the Plan year and remain continuously
employed through the end of the Plan year, will receive a pro-rata bonus based on the portion of
the Plan year they hold an eligible position. Participants promoted during the year from one
“Bonus percentage” level to another will have their Incentive Award calculated using their base
salary earned during the year ending December 31, 2011. Providing the promotion occurred prior to
October 1, 2011, the calculation will be pro-rated, based on the number on months at each Bonus
Percentage level. If the promotion occurred after October 1, 2011, the entire calculation will be
based on the Bonus Percentage applicable prior to the promotion. Other than as stated above,
incentive awards will not be prorated for partial year service.

 

5

 

Termination

A Plan participant, whose employment terminates voluntarily prior to the payment of the incentive
awards, will not be eligible to receive an incentive award. Continued employment until payment of
the incentive award is a condition of vesting. If a participant’s employment is terminated
involuntarily during the calendar year, or prior to payment of awards, it will be at the absolute
discretion of the Company whether or not an award payment is made.

Board of Director’s Absolute Right to Alter or Abolish the Plan

The Somaxon Board of Directors reserves the right in its absolute discretion to abolish the Plan at
any time or to alter the terms and conditions under which incentive compensation will be paid.
Such discretion may be exercised any time before, during, and after the Plan year is completed. No
participant shall have any vested right to receive any compensation hereunder until actual delivery
of such compensation.

Employment Duration/Employment Relationship

This Plan does not, and Somaxon’s policies and practices in administering this Plan do not,
constitute an express or implied contract or other agreement concerning the duration of any
participant’s employment with the Company. The employment relationship of each participant is “at
will” and may be terminated at any time by Somaxon or by the participant, with or without cause.

 

6

 

Somaxon Pharmaceuticals, Inc.

2011 Incentive Plan

This is to acknowledge that I have received a copy of the 2011 Incentive Plan.

	 	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 

(print)
	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 

(signature)
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Please return signed copy to Stacy Leppert.

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