UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
WHEREHOUSE ENTERTAINMENT, INC.
(Name of Issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
963281100
(CUSIP Number)
Joel A. Poretsky, Esq.
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street, 20th Floor
New York, New York 10036
(212) 626-0800
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
September 2, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4),
check the following box / /.
NOTE: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter disclosures provided in
a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
A&M INVESTMENT ASSOCIATES #3, LLC
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
13-3926181
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /X/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
SC;OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH:
7 SOLE VOTING POWER
Common Stock: 1,525,736 shares
8 SHARED VOTING POWER
9 SOLE DISPOSITIVE POWER
Common Stock: 1,525,736 shares
10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 1,525,736 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.353%
14 TYPE OF REPORTING PERSON*
OO
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
A&M INVESTMENT ASSOCIATES #4, LLC
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /X/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH:
7 SOLE VOTING POWER
Common Stock: 385,542 shares
8 SHARED VOTING POWER
9 SOLE DISPOSITIVE POWER
Common Stock: 385,542 shares
10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 385,542 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.37%
14 TYPE OF REPORTING PERSON*
OO
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
ANTONIO C. ALVAREZ, II
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
###-##-####
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /X/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
SC;OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH:
7 SOLE VOTING POWER
8 SHARED VOTING POWER
Common Stock: 1,911,278 shares
9 SOLE DISPOSITIVE POWER
10 SHARED DISPOSITIVE POWER
Common Stock: 1,911,278 shares
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 1,911,278 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.72%
14 TYPE OF REPORTING PERSON*
IN
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
BRYAN P. MARSAL
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
###-##-####
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) /X/
3 SEC USE ONLY
4 SOURCE OF FUNDS*
SC;OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH:
7 SOLE VOTING POWER
8 SHARED VOTING POWER
Common Stock: 1,911,278 shares
9 SOLE DISPOSITIVE POWER
10 SHARED DISPOSITIVE POWER
Common Stock: 1,911,278 shares
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 1,911,278 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.72%
14 TYPE OF REPORTING PERSON*
IN
<PAGE>
Item 1. Security and Issuer
This statement relates to shares of common stock of
Wherehouse Entertainment, Inc., a Delaware corporation
(the "Issuer"). The address of the principal executive
offices of the Issuer is 19701 Hamilton Avenue,
Torrance, California 90502.
Item 2. Identity and Background
This statement is filed jointly by A&M Investment
Associates #3, LLC ("A&M #3"), A&M Investment
Associates #4, LLC ("A&M #4"), Antonio C. Alvarez, II
("Alvarez") and Bryan P. Marsal ("Marsal")
(collectively, the "Reporting Persons").
A&M #3 and A&M #4 were formed by Alvarez and Marsal for
the purpose of acquiring securities of the Issuer. The
members of A&M #3 and A&M #4 are Alvarez Family
Partners L.P., Marsal Family Colorado Partners L.P.,
certain employees of Alvarez & Marsal, Inc., a
corporation wholly owned by Alvarez and Marsal, and
certain family members of Alvarez and Marsal. Alvarez
and Marsal are the managers of A&M #3 and A&M #4. The
business address of the Reporting Persons is c/o
Alvarez & Marsal, Inc., 885 Third Avenue, Suite 1700,
New York, New York 10022.
Antonio C. Alvarez II - Mr. Alvarez has led Alvarez &
Marsal, Inc. engagements in variety of industries, with
multi-client experience in retailing, manufacturing,
healthcare and oil field services. He is currently
serving as Chairman of the Board and CEO of the Issuer,
and has served as CEO of Phar-Mor, Inc., Long
Manufacturing N.C., Inc. and Coleco Industries, Inc.
He has also served as President of Republic Health
Corporation (renamed OrNda HealthCorp), and Director of
Republic Health Corporation and Resorts International,
Inc. Prior to co-founding Alvarez & Marsal, Inc. in
1983, Mr. Alvarez was Vice President and Controller of
Norton Simon Inc. As a member of the senior management
team of this $3 billion sales company, he was
responsible for all phases of planning, reporting and
control. Prior to joining Norton Simon inc. in 1981,
he was a partner in the accounting firm of Coopers &
Lybrand. At Coopers & Lybrand, he participated in
numerous special engagements that involved financially
troubled companies. He was also in charge of their
mergers and acquisitions practice for the New York City
office. Mr. Alvarez received a B.S. form De La Salle
College in the Philippines and an M.B.A. from New York
University.
Bryan P. Marsal - Mr. Marsal has led Alvarez & Marsal,
Inc. engagements in the healthcare, manufacturing,
retailing and apparel industries. Mr. Marsal is
currently serving as CEO of Bidermann Industries, Inc.,
and has served as CEO of Republic Health Corporation
(renamed OrNda HealthCorp), The Gitano Group, Inc. and
as a Director of Timex Corporation and Republic Health
Corporation. Prior to co-founding Alvarez & Marsal,
Inc. in 1983, Mr. Marsal was Director of Operations
Control of Norton Simon Inc., where he oversaw the
operations planning, analysis and review of four Nortom
Simon subsidiaries. Prior to joining Norton Simon in
1982, he was a Vice President in the problem loan
division of Citibank, N.A. At Citibank, Mr. Marsal
managed a workout team and was directly involved in a
number of large problem loan situations. Mr. Marsal
received both a B.B.A. and an M.B.A. from the
University of Michigan.
None of the Reporting Persons has during the past five
years, (a) been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors)
or (b) been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a
judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to,
federal or state securities laws or a finding of any
violation of such laws.
Item 3. Source and Amount of Funds or Other Consideration
Pursuant to a Stock Subscription Agreement between the
Issuer and A&M #3, dated as of January 31, 1997, A&M #3
acquired from the Issuer 1,100,000 shares of common
stock thereof for a purchase price of $6,340,000. Said
stock was acquired by A&M #3 for investment purposes.
A&M #3 financed said acquisition of the Issuer's stock
through (a) a loan of $335,000 obtained from the Issuer
in exchange for a Secured Recourse Promissory Note, and
(b) a loan of $5,005,000 obtained from the Issuer in
exchange for a Secured Non-Recourse Promissory Note.
To secure these notes, said acquired stock was pledged
as collateral. In addition, pursuant to the Management
Services Agreement entered into as of January 31, 1997
among the Issuer, Alvarez & Marsal, Inc., Alvarez, and
Cerberus Partners, L.P. ("Cerberus"), a Delaware
limited partnership, as agent of certain creditors of
the Issuer, and a Non-Transferable Stock Option
Agreement, dated as of January 31, 1997, between the
Issuer and A&M #3, in exchange for the management
services to be provided by Alvarez & Marsal, Inc. and
Alvarez, A&M #3 was granted options to acquire 993,380
shares of common stock of the Issuer. The options vest
and become exercisable in equal monthly installments of
approximately 47,304 shares per month over the 21 month
period commencing February 1, 1997 and expiring October
31, 1998. Options to acquire 331,127 shares have an
exercise price of $9.56 per share, options to acquire
331,127 shares have an exercise price of $11.58 per
share, and options to acquire 331,127 shares have an
exercise price of $14.10 per share.
As of September 2, 1997 A&M #4 purchased from Credit
Suisse First Boston Corporation 385,542 shares of
common stock of the Issuer for a purchase price of
$3,999,998.20. A&M #4 financed the purchase through a
loan obtained from Madeleine, LLC ("Madeleine"), an
affiliate of Cerberus, in exchange for a Secured Non-Recourse
Promissory Note. To secure said note the
purchased stock was pledged as collateral.
Item 4. Purpose of Transaction
The Reporting Persons acquired shares of common stock
of the Issuer for investment purposes based on their
expectation that there may be underlying value in the
properties owned by the Issuer. In addition, the
options granted to A&M #3 are in exchange for the
management services of Alvarez & Marsal, Inc. and
Alvarez. The Reporting Persons retain the right,
however, to change such investment intent, to acquire
further shares of common stock or to sell or otherwise
dispose of all or part of the shares of common stock
beneficially owned by such Reporting Persons in any
manner permitted by law and in conformity with their
obligations under the Stock Purchase Agreement and the
Stock Pledge Agreement as described below in Item 6 and
incorporated by reference herein.
Although the foregoing currently reflects the present
plans and intentions of the Reporting Persons, the
foregoing is subject to change at any time. The
Reporting Persons will, on an on-going basis, continue
to evaluate their investment in the Issuer.
Item 5. Interest in Securities of the Issuer
(a) and (b)
As of the date hereof, A&M #3, Alvarez and Marsal are
deemed to own 1,525,736 shares of common stock of the
Issuer, which number includes 94,608 options to
purchase shares of common stock exercisable within
sixty days herefrom, representing 13.353% of the total
outstanding stock of the Issuer. A&M #3 is deemed to be
the direct beneficial owner, and Alvarez and Marsal are
deemed to be the indirect beneficial owners of these
shares. Alvarez and Marsal share the exclusive power to
direct the vote and direct the disposition of these
shares by A&M #3.
As of the date hereof, A&M #4, Alvarez and Marsal are
deemed to own 385,542 shares of common stock of the
Issuer, representing 3.37% of the total outstanding
stock of the Issuer. A&M #4 is deemed to be the direct
beneficial owner, and Alvarez and Marsal are deemed to
be the indirect beneficial owners of these shares.
Alvarez and Marsal share the exclusive power to direct
the vote and direct the disposition of these shares by
A&M #4.
The 1,911,278 shares of which Alvarez and Marsal are
deemed to be the indirect beneficial owners represent
approximately 16.72% of the total outstanding stock of
the Issuer.
(c) Except for the purchase of stock from Credit Suisse
First Boston Corporation on September 2, 1997 as
described in Item 3 herein, neither the Reporting
Persons, nor any of their affiliates, have effected any
transaction in the Issuer's stock within the past 60
days.
(d) The Reporting Persons have no knowledge of any other
persons who might have the right to receive or the
power to direct the receipt of distributions from, or
the proceeds from the sale of, any stock beneficially
owned by the Reporting Persons.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the
Issuer
The information set forth in Item 3, Item 4 and Item 5
above is hereby incorporated by reference herein.
Pursuant to the Stock Subscription Agreement and the
Stock Pledge Agreement, both agreements between the
Issuer and A&m #3, and the Management Services
Agreement between the Issuer, A&M #3, Alvarez & Marsal,
Inc. and Alvarez, all said agreements dated as of
January 31, 1997, the acquisition of 1,100,000 shares
of common stock by A&M #3 was financed by a loan
obtained from the Issuer. In exchange for this loan,
A&M #3 issued to the Issuer (a) a Secured Recourse
Promissory Note for the principal amount of $335,000,
and (b) a Secured Non-Recourse Promissory Note for the
principal amount of $5,005,000. To secure these notes,
said acquired stock was pledged to the Issuer as
collateral. Upon the occurrence of an event of default
under the Stock Pledge Agreement, A&M #3 will cease to
hold the right to vote the pledged stock and the right
to transfer of said stock shall revert to the Issuer.
Pursuant to the Stock Subscription Agreement, A&M #3
may not dispose of the acquired stock unless and until
it gives a written notice to the Issuer and either
provides an opinion of counsel that the proposed
disposition is exempt from registration under the
Securities Act of 1933 (the "Act") or that a
registration statement has been filed by the Issuer and
is effective. Upon the receipt of a disposition
notice, the Issuer has a fifteen days period of first
refusal in which it can repurchase the offered stock.
In addition, the Stock Subscription Agreement provides
that, subject to the terms of an early termination of
the management services of Alvarez & Marsal, Inc. and
Alvarez as provided in sections 7 and 8 of the
Management Services Agreement, A&M #3 may not transfer
the acquired stock prior to October 14, 1998, and
therefrom can transfer said stock only in accordance
with Rule 144 under the Act or pursuant to an effective
registration statement. Pursuant to section 7 of the
Management Services Agreement, if said agreement is
terminated prior to October 14, 1998 by the Issuer for
cause, as defined therein, or by Alvarez & Marsal,
Inc., then during the following twelve months the
Issuer shall have an option to repurchase the stock
from A&M #3. If said agreement is terminated prior to
October 14, 1998 by the Issuer without cause, or if
there is a change of control, as defined therein, then
for a period of three months Alvarez & Marsal, Inc. or
A&M #3 shall have the right to require the Issuer to,
and the Issuer shall have the option to, repurchase the
stock from A&M #3. If said agreement is terminated
prior to October 14, 1998 due to the death of
disability of Alvarez, then for a period of six months
Alvarez & Marsal, Inc. or A&M #3 shall have the right
to require the Issuer to, and the Issuer shall have the
option to, repurchase the stock from A&M #3.
On September 2, 1997 A&M #4 purchased from Credit
Suisse First Boston Corporation 385,542 shares of
common stock of the Issuer. To finance this purchase,
A&M #4 obtained a loan from Madeleine, pursuant to the
Term Loan Agreement and the A&M Stock Pledge and
Account Agreement, both agreements entered into between
A&M #4 and Madeleine and dated August 28, 1997, in
exchange for a Secured Non-Recourse Promissory Note of
A&M #4. To secure this note, the purchased stock was
pledged under the A&M Stock Pledge and Account
Agreement to Madeleine as collateral. Upon the
occurrence of an event of default under this agreement,
A&M #4 will cease to hold the right to vote the pledged
stock and the right to transfer said stock shall vest
in Madeleine.
The discussion herein of the Stock Subscription
Agreement, the Stock Pledge Agreement, the Management
Services Agreement, the Term Loan Agreement and the A&M
Stock Pledge and Account Agreement is subject to and
qualified in its entirety by reference to such
agreements, forms of which are filed as exhibits to
this Schedule 13D and are incorporated herein by
reference.
Except as described above, the Reporting Persons do not
have any contracts, arrangements, understandings or
relationships with respect to any securities of the
Issuer.
Item 7. Material to Be Filed as Exhibits
The documents listed below are filed as exhibits to
this Schedule 13D:
a.
Exhibit 1. Joint Filing Agreement between Reporting
Persons, dated September 10, 1997
Exhibit 2. Form of Stock Subscription Agreement
between Issuer and A&M #3, dated as of
January 31, 1997
Exhibit 3. Form of Stock Pledge Agreement between
Issuer and A&M #3, dated as of January
31, 1997
Exhibit 4. Form of Management Services Agreement
among Issuer, Alvarez & Marsal, Inc.,
Alvarez and Cerberus, dated as of
January 31, 1997
Exhibit 5. Form of Registration Rights Agreement
between Issuer and A&M #3, dated as of
January 31, 1997
Exhibit 6. Form of Term Loan Agreement between A&M
#4 and Madeleine, dated August 28, 1997
Exhibit 7. Form of A&M Stock Pledge and Account
Agreement between A&M #4 and Madeleine,
dated August 28, 1997
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: September 10, 1997
A&M INVESTMENT ASSOCIATES #3, LLC
By: /s/ Bryan P. Marsal
Bryan P. Marsal
Title: Manager
A&M INVESTMENT ASSOCIATES #4, LLC
By: /s/ Bryan P. Marsal
Bryan P. Marsal
Title: Manager
ANTONIO C. ALVAREZ, II
/s/ Antonio C. Alvarez, II
Antonio C. Alvarez, II
BRYAN P. MARSAL
/s/ Bryan P. Marsal
Bryan P. Marsal
<PAGE>
Exhibit Index
Exhibit
1. Joint Filing Agreement between Reporting Persons, dated
September 10, 1997
2. Form of Stock Subscription Agreement between Issuer and
A&M #3, dated as of January 31, 1997
3. Form of Stock Pledge Agreement between Issuer and A&M
#3, dated as of January 31, 1997
4. Form of Management Services Agreement among Issuer,
Alvarez & Marsal, Inc., Alvarez and Cerberus, dated as
of January 31, 1997
5. Form of Registration Rights Agreement between Issuer
and A&M #3, dated as of January 31, 1997
6. Form of Term Loan Agreement between A&M #4 and
Madeleine, dated August 28, 1997
7. Form of A&M Stock Pledge and Account Agreement between
A&M #4 and Madeleine, dated August 28, 1997
<PAGE>
Exhibit 1
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) under the Securities
Exchange Act of 1934, as amended, the persons named below agree
to the joint filing on behalf of each of them of statements on
Schedule 13D (including amendments thereto) with respect to the
beneficial onwership of shares of common stock of Wherehouse
Entertainment, Inc., and further agree that this Joint Filing
Agreement be included as an Exhibit to such joint filings. In
evidence thereof, the undersigned, being duly authorized, have
executed this Joint Filing Agreement this 10th day of September,
1997.
A&M INVESTMENT ASSOCIATES #3, LLC
By: /s/ Bryan P. Marsal
Bryan P. Marsal
Title: Manager
A&M INVESTMENT ASSOCIATES #4, LLC
By: /s/ Bryan P. Marsal
Bryan P. Marsal
Title: Manager
ANTONIO C. ALVAREZ, II
By: /s/ Antonio C. Alvarez, II
Antonio C. Alvarez, II
BRYAN P. MARSAL
By: /s/ Bryan P. Marsal
Bryan P. Marsal
[Joint Filing Agreement for Schedule 13D
with respect to Wherehouse Entertainment, Inc.]
<PAGE>
Exhibit 2
STOCK SUBSCRIPTION AGREEMENT
This Stock Subscription Agreement (the "Agreement") is
entered into as of January 31, 1997, by and among WEI Acquisition
Co., a Delaware corporation (the "Company"), and A&M Investment
Associates #3, LLC, a Delaware limited liability company
(hereinafter referred to as the "Purchaser.")
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and December
13, 1996 (the "POR") and an Asset Purchase Agreement dated as of
January 31, 1997 (the "Asset Purchase Agreement"), the Company
will acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively,
the "Debtors"), in Case No. 95-911 (HSB) (Jointly Administered)
(the "Bankruptcy Case") in the Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court");
WHEREAS, the Company, the Purchaser, Alvarez & Marsal,
Inc. ("A&M"), Cerberus Partners, L.P. and certain of A&M's
employees have entered into a Management Services Agreement dated
as of January 31, 1997 (the "Management Services Agreement"),
which will become effective on the Effective Date (as defined
therein) and, pursuant to the terms of which, the Purchaser has
agreed to purchase from Company, and Company has agreed to sell
to Purchaser a number of shares of common stock, $0.01 par value
per share, of the Company (the "Common Stock"), upon the terms
and subject to the conditions set forth herein; and
WHEREAS, the Purchaser has been formed by its members
(the "Members") for the purpose of acquiring the A&M Shares.
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations.
(a) Review of Documents, Investment Risk. The
Purchaser represents and acknowledges that (i) Purchaser and each
Member and their advisers have reviewed the Disclosure Statement
for Debtors' First Amended Chapter 11 Plan dated October 4, 1996
and have been afforded an opportunity to review and receive
certain confidential descriptive information (the "Information")
relating to the Company, the Company's business and finances, and
any and all other information deemed relevant by Purchaser and
the Members in order to make an informed investment decision
regarding this Agreement and the Shares (as defined in Section
2(a) below, have reviewed and understand the Information and this
Agreement; (ii) Purchaser and each Member have such knowledge and
experience in financial matters, such that Purchaser is properly
able to evaluate the proposed acquisition of the Debtors, the
proposed capital structure of the Company, the business of the
Company and its subsidiaries and the risks inherent therein;
(iii) Purchaser and each Member have been given the opportunity
to obtain any additional information or documents from, and to
ask questions and receive answers of, the officers and
representatives of the Company and its subsidiaries to the extent
necessary to evaluate the merits and risks related to an
investment in the Company and the undertakings evidenced by the
Management Services Agreement; (iv) Purchaser and each Member
have, to the extent Purchaser and each Member deemed necessary,
been advised by legal counsel of Purchaser's choice in connection
with this Agreement and the issuance and sale of the Shares
pursuant hereto; and (v) the purchase of the Shares pursuant
hereto is consistent, in both nature and amount, with Purchaser's
and each Member's overall investment program and financial
condition, and Purchaser's and each Member's financial condition
is such that Purchaser and each Member can afford to bear the
economic risk of holding unregistered Shares for which there is
no market and to suffer a complete loss of Purchaser's and each
Member's investment therein.
(b) Purchase for Investment.
(i) The Purchaser on behalf of itself and each
Member represents and warrants that (i) the Shares acquired by
Purchaser is being acquired for Purchaser's account for
investment and not with a view to or for sale in connection with
any distribution of the Shares, (ii) Purchaser and each Member do
not presently have any reason to anticipate any change in
Purchaser's and each Member's circumstances or any other
particular occasion or event which would cause Purchaser to sell
any of such Shares, and (iii) Purchaser and each Member is fully
aware that in agreeing to sell or issue such Shares to Purchaser
the Company is relying upon the truth and accuracy of these
representations and warranties. The Purchaser agrees that
Purchaser will not sell or otherwise dispose of any Common Stock
except in compliance with the Securities Act of 1933, as amended
(the "Act"), the rules and regulations of the Securities and
Exchange Commission thereunder, the relevant state securities
laws applicable to Purchaser's and each Member's actions and the
Shares, and the terms of this Agreement and the Management
Services Agreement. Purchaser and each Member is an accredited
investor under the Act.
(ii) In addition to the other restrictions
provided in this Agreement and the Management Services Agreement,
the Purchaser agrees that prior to making any disposition of any
Shares (other than a disposition to the Company), Purchaser will
give written notice to the Company describing the manner of such
proposed disposition. The Purchaser further agrees that
Purchaser will not effect such proposed disposition until either
(A) Purchaser has provided to the Company, if so requested by the
Company, an opinion of counsel reasonably satisfactory in form
and substance to the Company that such proposed disposition is
exempt from registration under the Act and any applicable state
securities laws, or (B) a registration statement under the Act
covering such proposed disposition has been filed by the Company
under the Act and has become effective and compliance with
applicable state securities laws has been effected. The Company
agrees that it will respond as promptly as reasonably practicable
to any notice of sale given hereunder. The Company will use its
best efforts to comply with any such applicable state securities
laws, but shall in no event be required, in connection therewith,
to qualify to do business in any state where it is not then
qualified or to take any action that would subject it to tax or
to the general service of process in any state where it is not
then subject, or, in the case of alternative (A) above, to
qualify the securities for sale in any state.
(iii) The Purchaser acknowledges that: (A) no
trading market for the Common Stock is expected to exist
following the Acquisition and that, as the result, Purchaser may
be unable to sell any of the Common Stock for the foreseeable
future; and (B) the Company has no obligation to register or
qualify any of the Common Stock under the Act or the Securities
Exchange Act of 1934 or any state securities laws.
(c) Company Representations. The Company is
authorized to issue 24,000,000 shares of Common Stock, $.01 par
value per share. Upon the issuance and purchase of the Shares
pursuant hereto, the Shares shall be duly authorized, validly
issued, fully paid and nonassessable.
2. Acquisition of Stock.
(a) Purchase of Shares. Subject to the terms and
conditions of this Agreement, on the Effective Date (as defined
in the Management Services Agreement) the Purchaser agrees to
purchase from the Company, and the Company agrees to sell to
Purchaser, the number of shares of Common Stock (the "Shares")
set forth in Section 4(b) of the Management Services at the
Purchase Price (as defined in the Management Services Agreement).
(b) Payment. Purchaser agrees to make payment for the
shares in the manner set forth in Section 4(b)(3) of the
Management Services Agreement.
(c) Termination of Purchase Obligation. In the event
the proposed acquisition of the Debtors is not consummated, the
obligations of the Purchaser to purchase, and the obligation of
the Company to issue and sell, the Common Stock shall terminate
without liability of any party to any other.
3. Legend on Certificates. Each stock certificate of the
Company issued to represent any of the Shares acquired pursuant
to this Agreement shall bear the following (or substantially
equivalent) legends on the face or reverse side thereof:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY
JURISDICTION. SUCH SHARES MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT
PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT
TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT AND
AS AUTHORIZED UNDER APPLICABLE STATE SECURITIES LAW, OR
(II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT,
AND APPLICABLE STATE SECURITIES LAW, RELATING TO THE
DISPOSITION OF SECURITIES, INCLUDING RULE 144, PROVIDED
AN OPINION OF COUNSEL IS FURNISHED, REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, THAT
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND/OR APPLICABLE STATE SECURITIES LAW IS
AVAILABLE.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
PLEDGED TO THE COMPANY PURSUANT TO A STOCK PLEDGE
AGREEMENT DATED JANUARY 31, 1997, ARE SUBJECT TO CALL
RIGHTS OF THE COMPANY AND OTHER LIMITATIONS AND MAY NOT
BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER IS
PERMITTED BY THE PROVISIONS SAID STOCK PLEDGE
AGREEMENT, A STOCK SUBSCRIPTION AGREEMENT DATED AS OF
JANUARY 31, 1997 AND A MANAGEMENT SERVICES AGREEMENT
DATED AS OF JANUARY 31, 1997, A COPY OF EACH OF WHICH
IS ON FILE AT THE OFFICES OF THE COMPANY.
Any stock certificate issued at any time in exchange or
substitution for any certificate bearing such legends (except a
new certificate issued upon the completion of a public
distribution of Common Stock represented thereby) shall also bear
such (or substantially equivalent) legends except to the extent
that the Shares represented by such certificate is no longer
subject to the referenced provisions and in the opinion of
counsel for the Company the Shares represented thereby need no
longer be subject to such restrictions. The Company shall not be
required to transfer on its books any certificate for Shares in
violation of the provisions of this Agreement or the Management
Services Agreement.
4. Sale or Transfer of Stock.
(a) No Sale or Transfer. The Purchaser agrees that
Purchaser will not, directly or indirectly, sell, pledge, give,
bequeath, transfer, assign or in any other way whatsoever
encumber or dispose of (a "transfer") any Shares (or any interest
therein), now or hereafter at any time owned by him, except as
permitted by this Agreement, the Management Services Agreement
and the Stock Pledge Agreement (as defined in the Management
Services Agreement), or as may be specifically authorized by the
Board of Directors of the Company in its sole discretion.
(b) During Term of Management Services Agreement or
Rule 144 Holding Period. Prior to (i) October 14, 1998 or (ii)
the expiration of the applicable holding period under Rule 144 of
the Act ("Rule 144"), whichever is later, Purchaser shall not
sell, transfer, encumber or otherwise dispose of any of the
Shares, except as required by Sections 7 and 8 of the Management
Services Agreement, and, after October 14, 1998, only in
accordance with, Rule 144 or pursuant to an effective
registration statement under the Act. Any sale, transfer,
assignment, pledge or hypothecation in contravention of this
proscription shall be void ab initio.
(c) Right of First Refusal. If the holder of any
Shares is permitted to and desires to sell, transfer or otherwise
dispose of the Shares or any interest therein (a "Disposition"),
the holder shall first send a notice to the Company which shall
include the consideration and manner of payment thereof of the
proposed Disposition and identify the potential transferees (the
"Disposition Notice"). Such Disposition Notice shall constitute
an offer by the holder to sell the Shares or any interest therein
as set forth in the Disposition Notice to the Company (or its
assignee) upon the terms set forth in the Disposition Notice (the
"Holder Offer"). The Company (or its assignee) shall have a
period of 15 days in which to accept the Holder Offer by delivery
of a notice to the Holder (the "Company Acceptance"). If the
Company (or its assignee) accepts the Holder Offer, it shall be
obligated to buy, and the holder shall be obligated to sell, on
the terms and conditions of the Holder Offer, the Shares, or any
interest therein to which the offer relates, except that (i) the
closing of such purchase and sale shall take place at the
principal offices of the Company on a date to be selected by the
Company (or its assignee) which shall be no later than 20 days
after the date of the Company Acceptance and (ii) in the event
that the Holder Offer included as all or part of the purchase
consideration any consideration other than cash, the Company (or
its assignee) shall pay, in lieu of such non-cash consideration,
an amount in cash equal to the fair market value of such non-cash
consideration as determined in good faith by the Company's Board
of Directors. In the event that the Company (or its assignee)
does not accept the Holder Offer within the 15-day period
specified above, the holder may make the Holder Offer to any or
all of the parties identified in the Disposition Notice and sell
the Shares or the interest therein for the consideration and
manner of payment no less favorable than as set forth in the
Holder Notice, within 60 days after the end of the first 15-day
period specified above; provided, however, that if the sale of
the Shares or interest therein to such third party has not been
consummated by the date 60 days after the expiration of the first
15-day period specified above, the Shares and any interest
therein shall again become subject to the first refusal right of
the Company set forth above and the holder may not sell, transfer
or otherwise dispose of the Shares or any interest therein except
in accordance with the foregoing. Any election by the Company
not to accept any Holder Offer in any instance shall not
constitute a waiver of its right to receive a Holder Offer in
each case in the future in which the holder desires to sell,
transfer or otherwise dispose of the Shares or any interest
therein.
(d) Evidence of Compliance. Notwithstanding anything
in this Agreement to the contrary, the Company shall have no
obligation to cause any Shares to be transferred to any person
unless (i) the holder-transferor of such Shares shall furnish to
the Company evidence of compliance with, or exemption from, the
Act, as specifically set forth in the next paragraph and shall
comply in all material respects with all conditions set forth in
this Agreement to a transfer of such Shares, and (ii) such
transferee shall assume in writing transferor's obligations under
this Section 4 and agree to be bound by the provisions of this
Agreement, including without limitation this Section 4, which
relate to the transfer of Shares.
(e) Transfer Requirements. Purchaser agrees and each
person to which any Shares are permitted to be transferred (by
acceptance of such transfer) shall agree in writing that it will
not dispose of any Shares except to the extent permitted under
this Agreement, the Management Services Agreement and the Stock
Pledge Agreement and pursuant to (1) an effective registration
statement under the Act and the receipt of all applicable
qualifications under state securities laws or (2) a written
opinion of counsel, reasonably satisfactory in form and substance
to the Company, delivered to the Company, that the Shares may be
transferred without registration under the Act or qualification
under such laws. Each person proposing to transfer Shares, other
than pursuant to an effective registration statement under the
Act, shall, if requested by the Company, as a condition precedent
to the effectiveness of such transfer, deliver to the Company an
investment representation letter and investment covenant
reasonably satisfactory in form and substance to the Company and
its counsel signed by the proposed transferee and the agreement
required under clause (ii) of paragraph (d) above.
(f) Distributions. In the event any securities of the
Company or any other entity shall be distributed on, with respect
to, or in exchange for shares of Common Stock of the Company as a
stock dividend, stock split, reclassification or recapitalization
or in connection with any merger or reorganization, the
restrictions set forth in this Section 4 shall apply with respect
to such other securities to the same extent as they are, or would
have been applicable, to the Common Stock on or with respect to
which such other securities were distributed.
5. Notices. All notices or other communications under
this Agreement shall be given in writing and shall be deemed duly
given and received on the third full business day following the
day of the mailing thereof by registered or certified mail or
when delivered personally or sent by facsimile transmission (with
confirmation of delivery to the intended recipient) as follows:
(a) if to the Company, at its principal executive
offices at the time of the giving of such notice, or at such
other place as the Company shall have designated by notice as
herein provided to the Purchaser; and
(b) if to the Purchaser, at the address of Purchaser
as it appears on the signature page hereof or at such other place
as Purchaser shall have designated by notice as herein provided
to the Company.
6. Specific Performance. Due to the fact the securities
of the Company cannot be readily purchased or sold in the open
market, and for other reasons, the parties will be irreparably
damaged in the event that this Agreement is not specifically
enforced. In the event of a breach or threatened breach of the
terms, covenants and/or conditions of this Agreement by any of
the parties hereto, the other parties shall, in addition to all
other remedies, be entitled (without any bond or other security
being required) to a temporary and/or permanent injunction,
without showing any actual damage or that monetary damages would
not provide an adequate remedy, and/or a decree for specific
performance, in accordance with the provisions hereof.
7. Miscellaneous.
(a) Obligations Several. All obligations of the
Purchaser hereunder shall be deemed to be several and not joint
with those of other management purchasers of Common Stock of the
Company.
(b) Amendments. Except as provided in the last
sentence of this paragraph, this Agreement, the Management
Services Agreement and the Stock Pledge Agreement (as defined in
the Management Services Agreement) constitute the entire
agreement of the parties with respect to the subject matter
hereof and may not be modified or amended except by a written
agreement signed by the Company and the Purchaser. Anything in
this Agreement to the contrary notwithstanding, any modification
or amendment of this Agreement by a written agreement signed by,
or binding upon, the "Purchaser" as defined in the introductory
paragraph of this Agreement shall be valid and binding upon any
and all persons or entities who may, at any time, have or claim
any rights under or pursuant to this Agreement in respect of any
Shares acquired by the Purchaser.
(c) Waiver. No waiver of any breach or default
hereunder shall be considered valid unless in writing, and no
such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature. Anything in this
Agreement to the contrary notwithstanding, any waiver, consent or
other instrument under or pursuant to this Agreement signed by,
or binding upon, the "Purchaser" as defined in the introductory
paragraph of this Agreement shall be valid and binding upon any
and all persons. or entities (other than the Company) who may,
at any time, have or claim any rights under or pursuant to this
Agreement in respect of any Shares originally acquired by
Purchaser.
(d) Successors and Assigns. Except as otherwise
expressly provided herein, this Agreement shall be binding upon
and inure to the benefit of the Company, its successors and
assigns, and the Purchaser and its respective successors and
assigns; provided, however, that nothing contained herein shall
be construed as granting to the Purchaser the right to transfer
any of the Common Stock except in strict accordance with this
Agreement, the Management Services Agreement and the Stock Pledge
Agreement and any transferee shall hold such Common Stock having
only those rights as provided for in this Agreement.
(e) Severability. If any provision of this Agreement
shall be invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall
not in any manner affect or render invalid or unenforceable any
other severable provision of this Agreement, and this Agreement
shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
(f) Attorney's Fees. Should any party to this
Agreement be required to commence any litigation concerning any
provision of this Agreement or the rights and duties of the
parties hereunder, the prevailing party in such proceeding shall
be entitled, in addition to such other relief as may be granted,
to the attorneys' fees and court costs incurred by reason of such
litigation.
(g) Section Headings. The section headings contained
herein are for the purposes of convenience only and are not
intended to define or limit the contents of said sections.
(h) Further Assurances. Each party hereto shall
cooperate and shall take such further action and shall execute
and deliver such further documents as may be reasonably requested
by any other party in order to carry out the provisions and
purposes of this Agreement.
(i) Singular and Plural. Words in the singular shall
be read and construed as though in the plural and words in the
plural shall be read and construed as though in the singular in
all cases where they would so apply.
(j) Counterparts. This Agreement may be executed in
one or more counterparts, all of which taken together shall be
deemed one original.
(k) Governing Law. This Agreement shall be deemed to
be a contract under the laws of the State of New York and for all
purposes shall be construed and enforced in accordance with the
internal laws of said state without regard to the principles of
conflicts of law.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the first date written above.
WEI ACQUISITION CO.
By _________________________
Its ________________________
PURCHASER
A&M INVESTMENT ASSOCIATES #3, LLC
By __________________________
Its _________________________
Address: 885 Third Avenue
Suite 170
New York, NY 10022-4802
<PAGE>
Exhibit 3
STOCK PLEDGE AGREEMENT
In order to induce WEI ACQUISITION CO. ("Secured
Party") to accept from A&M Investment Associates #3, LLC
("Debtor") (i) its Secured Recourse Promissory Note, dated
January 31, 1997, in the original principal amount of $335,000
(the "Recourse Promissory Note") and (ii) its Secured Non-Recourse Promissory
Note, dated January 31, 1997, in the original
principal amount of $5,005,000 (the "Non-Recourse Promissory
Note"; and, together with the Recourse Promissory Note, the
"Notes") in connection with the issuance by Secured Party to
Debtor of certain shares of Secured Party's common stock, par
value $0.01 per share (the "Stock"), pursuant to that certain
Stock Subscription Agreement, dated as of January 31, 1997, by
and between Debtor and Secured Party, the parties hereto agree as
follows:
1. Pledge; Grant of Security.
(a) Security Interest. Debtor hereby pledges,
hypothecates, assigns, grants, transfers, sets over and delivers
to Secured Party and hereby grants and assigns to Secured Party
with power of sale, a continuing security interest in all of
Debtor's right, title and interest in and to the Stock, together
with the certificates representing the Stock, all securities
hereafter delivered to Debtor in substitution for or in addition
to the Stock, all certificates and instruments representing or
evidencing such securities, all securities or other non-cash
property at any time and from time to time received, receivable,
or otherwise distributed in respect of any or all of the
foregoing, and all securities, cash or other property at any time
and from time to time received, receivable, or otherwise
distributed in exchange for, or in respect of, any or all of the
foregoing, all of which (to the extent received by Debtor) Debtor
shall deliver to Secured Party promptly upon receipt for
retention by Secured Party hereunder. The Stock, certificates,
instruments, securities, cash and other property which are
subject to the pledge and security interest created hereby, are
herein collectively referred to as the "Collateral".
(b) Delivery of Certificates. Concurrently with
the execution of this Agreement, Debtor shall deliver the
certificate or certificates representing the Stock to Secured
Party, together with a stock power endorsed for transfer in blank
by Debtor, to be held by Secured Party pursuant to this
Agreement.
2. Security for Obligations. This Agreement secures,
and the Collateral is collateral security for, the prompt payment
or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due
but for the operation of the automatic stay under Section 362(a)
of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations
and liabilities of every nature of Debtor now or hereafter
existing under or arising out of the Notes and all extensions or
renewals thereof, whether for principal, interest (including
without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Debtor, would accrue on
such obligations), fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly
owed with others, and whether or not from time to time decreased
or extinguished and later increased, created or incurred, and all
or any portion of such obligations or liabilities that are paid,
to the extent all or any part of such payment is avoided or
recovered directly or indirectly from Secured Party as a
preference, fraudulent transfer or otherwise (all such
obligations and liabilities being the "Underlying Debt"), and all
obligations of every nature of Debtor now or hereafter existing
under this Agreement (all such obligations of Debtor, together
with the Underlying Debt, being the "Secured Obligations").
3. Representations and Warranties. Debtor represents
and warrants as follows:
(a) Authorization. Debtor has full power and
authority to grant security interests in the Collateral, and to
execute, deliver, and perform this Agreement, without the consent
or approval of any other person.
(b) Binding Obligation. This Agreement
constitutes the legally valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally.
(c) Ownership of Collateral. Except for the
security interest created by this Agreement, Debtor owns, or at
the time the Collateral comes into existence will own, the
Collateral free and clear of any lien, mortgage, pledge,
assignment, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of
the foregoing (any of the foregoing, a "Lien"). Except as may
have been filed in favor of Secured Party relating to this
Agreement, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is
on file in any filing or recording office.
(d) No Conflict. The execution, delivery and
performance by Debtor of this Agreement will not (i) violate any
provision of law applicable to Debtor, or any order, judgment or
decree of any court or other agency of government binding on
Debtor, (ii) be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default
under any contractual obligation of Debtor or (iii) result in or
require the creation or imposition of any Lien upon any of his
properties or assets.
(e) Other Information. All information
heretofore, herein or hereafter supplied to Secured Party by or
on behalf of Debtor with respect to the Collateral is accurate
and complete in all respects.
4. Voting Powers. At any time during which an Event
of Default shall not have occurred and be continuing, Debtor
shall retain and be entitled to exercise all voting powers
pertaining to the Stock or any part thereof.
5. Further Assurances. Debtor agrees that from time
to time, at the expense of Debtor, Debtor will promptly execute
and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that
Secured Party may request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, Debtor will (i) execute
and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may request, in order
to perfect and preserve the security interests granted or
purported to be granted hereby and (ii) at Secured Party's
request, appear in and defend any action or proceeding that may
affect Debtor's title to or Secured Party's security interest in
all or any part of the Collateral.
6. Transfers and Other Liens. Prior to the payment
and performance in full of the Secured Obligations, Debtor shall
not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or (ii) except for
the security interest created by this Agreement, create or suffer
to exist any lien upon or with respect to any of the Collateral
to secure the indebtedness or other obligations of any person or
entity; or (iii) do, or permit or suffer to be done, anything
that may impair the value of the Collateral or the security
intended to be effected hereby and shall use its best efforts to
preserve, protect and enhance the value of the Collateral.
7. Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default":
(a) Failure to Make Payments When Due. Failure
of Debtor to pay any principal, interest or other amount due
under the Notes when due, whether by required prepayment,
declaration, acceleration, demand or otherwise, including the
failure to prepay the Notes to the extent required under Sections
7 and 8 of the Management Services Agreement dated as of January
31, 1997, among Alvarez & Marsal, Inc., Antonio C. Alvarez II,
the Debtor, Cerberus Partners, L.P. and Secured Party (the
"Management Services Agreement"); or
(b) Breach of Covenants. Failure of Debtor to
perform or observe any other term, covenant or agreement on his
part to be performed or observed pursuant to this Agreement or
the Notes within five (5) days after written notice of such
failure is given to Debtor by Secured Party; or
(c) Breach of Representation or Warranty. Any
representation or warranty made by Debtor to Secured Party in
connection with this Agreement or the Notes shall prove to have
been false in any material respect when made; or
(d) Involuntary Bankruptcy, etc. (i) A court
having jurisdiction in the premises shall enter a decree or order
for relief in respect of Debtor in an involuntary case under
Title 11 of the United States Code entitled "Bankruptcy" (as now
and hereinafter in effect, or any successor thereto, the
"Bankruptcy Code") or any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, which decree or
order is not stayed; or any other similar relief shall be granted
under any applicable federal or state law or (ii) an involuntary
case shall be commenced against Debtor under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over Debtor or over all or a substantial part of Debtor's
property shall have been entered; or the involuntary appointment
of an interim receiver, trustee or other custodian of Debtor for
all or a substantial part of Debtor's property shall have
occurred; or a warrant of attachment, execution or similar
process shall have been issued against any substantial part of
the property of Debtor, and, in the case of any event described
in this clause (ii), such event shall have continued for 60 days
unless dismissed, bonded or discharged; or
(e) Voluntary Bankruptcy, etc. An order for
relief shall be entered with respect to Debtor, or Debtor shall
commence a voluntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order
for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial
part of Debtor's property.
8. Rights and Remedies.
(a) If any Event of Default shall have occurred,
all of the Secured Obligations shall immediately become due and
payable and Secured Party may exercise in respect of the
Collateral, in addition to all other rights and remedies provided
for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction
(whether or not the Code applies to the affected Collateral).
Secured Party shall have full recourse to the Maker (directly and
as to a deficiency in respect of the Collateral) and the
Collateral in respect of the Secured Obligations arising under
the Recourse Promissory Note, but Secured Party's sole remedy in
respect of the Secured Obligations arising under the Non-Recourse
Promissory Note shall be against the Collateral. In exercising
its remedies against the Collateral, Secured Party may, upon ten
(10) days' written notice to Debtor, but without any other demand
or notice whatsoever, transfer ownership of the Stock to Secured
Party in discharge of the Secured Obligations to the extent of
the fair market value of the shares of the Stock so transferred,
to the extent required to pay all of the Secured Obligations,
such transfer to be free and clear of any right or equity of
redemption, which right or equity is hereby expressly waived and
released.
(b) In the event shares of the Stock are so
transferred in discharge of any or all of the Secured
Obligations, such transfer shall be applied first to the fees
incurred as set forth in Section 13, second to the Obligations
arising in respect of the Non-Recourse Promissory Note and third
to the Obligations arising in respect of the Recourse Promissory
Note, in each case first to liabilities for interest and then to
liabilities for principal. All rights and remedies hereunder are
in addition to whatever other rights the parties hereto may
otherwise have against one another, and no exercise of any such
rights or remedies shall be deemed to preclude the exercise of
any other rights or remedies.
(c) If Debtor and Secured Party are unable to
agree upon the fair market value of the shares of Stock so
transferred, the fair market value shall be determined in the
manner set forth in Section 7(e) of the Management Services
Agreement.
(d) In the event the fair market value of the
Stock exceeds the aggregate amount of the Secured Obligations,
the number of shares of Stock to be transferred to Secured Party
pursuant to Section 8(a) shall be determined by multiplying the
number of shares of Stock, by a fraction, the numerator of which
is the aggregate amount of the Secured Obligations and the
denominator of which is the aggregate fair market value of the
Stock determined as provided herein, with any fractional interest
settled in cash.
9. Continuing Security Interest; Transfer of Notes.
This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until
the payment in full of the Secured Obligations, (ii) be binding
upon Debtor, its successors and assigns and (iii) inure, together
with the rights and remedies of Secured Party hereunder, to the
benefit of Secured Party and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause
(iii), Secured Party may assign or otherwise transfer the Notes
only to any affiliate of Secured Party, and such affiliate shall
thereupon become vested with all the benefits in respect thereof
granted to Secured Party herein or otherwise. Upon the payment
in full of all Secured Obligations, the security interest granted
hereby shall terminate and all rights to the Collateral shall
revert to Debtor. Upon any such termination Secured Party will,
at Debtor's expense, execute and deliver to Debtor such documents
as Debtor shall reasonably request to evidence such termination.
10. Amendments; Etc. No amendment, modification,
termination or waiver of any provision of this Agreement, and no
consent to any departure by Debtor therefrom, shall in any event
be effective unless the same shall be in writing and signed by
Secured Party and, in the case of any such amendment or
modification, by Debtor.
11. Notices. Any communications between Secured Party
and Debtor and any notices or requests provided herein to be
given shall be given in accordance with the provisions set forth
in the Management Services Agreement.
12. Failure or Indulgence Not Waiver. No failure or
delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further
exercise thereof or of any other power, right or privilege.
13. Indemnity and Expenses. Debtor agrees to
indemnify Secured Party from and against any and all claims,
losses and liabilities arising out of or resulting from this
Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting from
Secured Party's negligence or willful misconduct. Debtor will
upon demand pay to Secured Party the amount of any and all
reasonable expenses, including the reasonable fees and
disbursements of counsel and of any experts and agents, which
Secured Party may incur in connection with (i) the administration
of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other
realization upon any of the Collateral, (iii) the exercise or
enforcement of any of its rights hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof.
14. Severability. In case any provision in or
obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not
in any way be affected or impaired thereby.
15. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
16. Governing Law; Terms. This Agreement and the
rights and obligations of the parties hereunder shall be governed
by, and shall be construed and enforced in accordance with, the
internal laws of the State of New York without regard to
conflicts of laws principles, except to the extent that the
Uniform Commercial Code of the applicable jurisdiction provides
that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular
collateral are governed by the laws of a jurisdiction other than
the State of California. Unless otherwise defined herein or in
the Notes, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of California are used herein as
therein defined.
17. Counterparts. This Agreement may be executed in
one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
18. Subject to Management Services Agreement. The
parties hereby agree that, notwithstanding anything to the
contrary contained herein, the Stock shall be subject to the
terms and provisions of Sections 7 and 8 of the Management
Services Agreement, and nothing contained herein shall limit the
operation of such Sections 7 and 8.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of January 31, 1997.
A&M INVESTMENT ASSOCIATES #3
By ____________________________
Name:
Title:
WEI ACQUISITION CO.
By ____________________________
Name:
Title:
<PAGE>
Exhibit 4
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (as it may be
amended, supplemented or otherwise modified from time to time,
the "Agreement") is entered into as of January 31, 1997 among WEI
ACQUISITION CO., a Delaware corporation (the "Company"), ALVAREZ
& MARSAL, INC., a New York corporation ("A&M"), A&M INVESTMENT
ASSOCIATES #3, LLC, a Delaware limited liability company (the
"Affiliate"), ANTONIO C. ALVAREZ II, an individual ("Alvarez"),
and CERBERUS PARTNERS, L.P., a Delaware limited partnership, as
Agent under that certain Credit Agreement dated June 11, 1992, as
amended ("Cerberus") with respect to Sections 2(c) and 8 only,
and shall bind the SUPPORT EMPLOYEES (as hereinafter defined),
each an individual.
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and December
13, 1996 (the "POR"), and an Asset Purchase Agreement dated as of
January 31, 1997 (the "Asset Purchase Agreement"), the Company
will acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively,
the "Debtors"), in Case No. 95-911 (HSB) (Jointly Administered)
(the "Bankruptcy Case") in the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court");
WHEREAS, A&M, Cerberus and the other holders of the
Senior Lender Claims (as defined in the POR) have previously
entered into a letter agreement dated as of October 14, 1996 (the
"Interim Management Agreement"), pursuant to which the holders of
the Senior Lender Claims, in anticipation of this Agreement
agreed to pay A&M, and A&M agreed to analyze the transactions
contemplated by the POR and to provide for a smooth management
transition to the arrangement contemplated by this Agreement;
WHEREAS, the Company desires to retain A&M, Alvarez and
the Support Employees to provide their services to the Company
upon termination of the Interim Management Agreement;
NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Retention. The Company hereby retains A&M, and its
employee, Alvarez, and the Support Employees, and A&M,
Alvarez and the Support Employees hereby agree to perform
services for the Company, upon the terms and subject to the
conditions hereinafter set forth.
2. Term, Renewal.
(a) Original Term. Subject to the
provisions of Sections 7 and 8 and
Section 2(c) below, the original term
(the "Original Term") of this Agreement
shall commence (the "Commencement Date")
effective as of the date on which the
POR becomes effective and shall, unless
extended pursuant to Section 2(b),
terminate on October 14, 1998, or the
date this Agreement is earlier
terminated in accordance with its terms
(the date of termination of this
Agreement in accordance with this
paragraph being referred to as the
"Termination Date").
(b) Extension. At least six months
prior to the expiration of the Original
Term, A&M and the Company shall notify
the other as to whether it desires to
extend the Original Term. If both A&M
and the Company desire to extend the
Original Term, they will promptly
commence and pursue good faith
negotiations regarding the terms and
conditions of such extension. If either
A&M or the Company does not desire to
extend the Original Term, or if the
parties are unable to reach agreement on
the terms and conditions under which the
Original Term shall be extended, each of
A&M and the Company shall use its best
efforts and shall provide full
cooperation to the other in making a
smooth transition in the management of
the Company to the new management
selected by the Company. If so
terminated by expiration of the Original
Term, except as provided in Section 6(d)
and except for accrued but unpaid fees
due to A&M pursuant to Section 4(a) and
amounts due pursuant to Section 5,
neither party shall have any further
obligation to the other hereunder.
(c) Reimbursement of Senior Lenders.
Notwithstanding Section 2(a) above, this
Agreement shall not be effective unless
and until Cerberus shall have received
from the Company an executed
Reimbursement Letter Agreement in the
form attached hereto as Exhibit A.
3. Services.
(a) A&M Personnel. During the term of
this Agreement: (i) A&M shall furnish
the services of, and the Company shall
accept the services of, Alvarez, who
shall serve as the Company's Chairman of
the Board and Chief Executive Officer
and shall report to the Company's Board
of Directors; (ii) Alvarez shall serve
as a full-time officer of the Company
and devote substantially all of his
business time, energy and abilities to
the business, affairs and interest of
the Company and shall perform the
services contemplated by this Agreement
in accordance with policies established
by and under the direction of the
Company's Board of Directors; (iii) A&M
shall from time to time furnish the
services of such other employees of A&M
(the "Support Employees") as A&M shall
determine to be necessary to provide
sufficient assistance and support to
Alvarez in the performance of his duties
hereunder; and (iv) notwithstanding the
foregoing, the parties acknowledge and
agree that each of Alvarez and each
Support Employee shall be permitted to
render limited services to other A&M
clients and to otherwise function as an
A&M consultant to such clients who are
not, in the reasonable judgment of the
Company's Board of Directors, in direct
or indirect competition with the Company
or any of its affiliates; provided that
his and their rendering of such services
and functioning as such consultants does
not in the Company's reasonable judgment
interfere in any significant respect
with their duties hereunder; and
provided further that neither Alvarez
nor any of the Support Employees who are
assigned on a full-time or substantially
full-time basis to the Company shall be
assigned on an ongoing basis to, nor act
as the principal consultant in any other
A&M consulting engagement during the
term of this Agreement. During the term
of this Agreement, Alvarez and the
Support Employees, as officers of the
Company, shall owe a fiduciary duty to
the Company and shall perform their
respective duties in accordance with
such fiduciary duty and the
responsibilities of their various
offices.
(b) Duties of Alvarez. Alvarez agrees
to observe and comply with the policies
of the Company as adopted by the
Company's Board of Directors respecting
the performance of Alvarez's duties and
agrees to carry out and perform orders,
directions and policies of the Company
and its Board of Directors as they may
be, from time to time, stated either
orally or in writing.
(c) No Benefits. The parties
acknowledge and agree that: (i) by
furnishing the services of Alvarez and
the Support Employees, A&M is
functioning as an independent contractor
to the Company; (ii) Alvarez and the
Support Employees are and shall remain
employees of A&M, and A&M retains the
right (subject to the terms hereof) to
direct and control the performance of
Alvarez and the Support Employees and is
solely responsible for the payment of
salary, employee benefits and any other
employee compensation due Alvarez and
the Support Employees and for all
applicable federal, state and local tax
withholding with respect to compensation
and benefits payable to them under this
Agreement or otherwise; (iii) the
compensation set forth in Section 4 and
the reimbursement of expenses set forth
in Section 5 shall be exclusive and
Alvarez and the Support Employees shall
not participate in or be eligible to
participate in any compensation or
benefit plan or perquisite of the
Company; and (iv) all amounts of cash,
and other compensation, including stock
and stock options, paid to Alvarez or
any Support Employees pursuant to this
Agreement are being paid to and received
by Alvarez and such Support Employees
solely as nominees for and on behalf of
A&M and not for their own account.
4. Fees; Sale of Stock; Issuance of Options.
(a) Fees. In consideration for the
services of A&M, Alvarez and the Support
Employees, for the account, and on
behalf of A&M hereunder, the Company
shall pay A&M during the term of this
Agreement a management fee of $50,000
(or a pro-rated portion thereof) per
month irrespective of the number of
Support Employees provided by A&M to the
Company; provided, that the Company's
obligation to pay such compensation may
be accelerated or terminated in
accordance with Sections 7 or 8.
(b) Sale of Stock.
(1) Number of Shares. On the Commencement Date,
and pursuant to a Stock Subscription Agreement in the form
attached hereto as Exhibit B (the "Stock Subscription
Agreement"), the Company shall issue and sell to the
Affiliate and the Affiliate shall purchase, 1,100,000 shares
(the "A&M Shares") of the Company's Common Stock, par value
$0.01 per share (the "Common Stock"), subject to upward or
downward adjustment based on the total number of Shares
issued pursuant to the POR (the "Plan Shares") other than
upon exercise of the Warrants, as defined in the POR (the
"Warrants"), such that after the issuance of the Plan Shares
and the A&M Shares, the A&M Shares shall equal ten percent
(10%) of the sum of the Plan Shares and the A&M Shares.
(2) Purchase Price. The purchase price for the
A&M Shares (the "Purchase Price") shall be $6,340,000.
(3) Payment. Payment for the A&M Shares shall be
made in accordance with the following procedure: (i) the
Company shall make a loan of $5,340,000 to Alvarez and
Alvarez shall execute and deliver to the Company the Alvarez
Promissory Note in the form attached hereto as Exhibit C to
evidence such loan (the "Alvarez Promissory Note"); (ii)
Alvarez shall make a loan of $5,340,000 to the Affiliate,
which loan shall be a non-recourse loan secured by the A&M
Shares; (iii) the Affiliate shall pay to the Company
$6,340,000 in cash via federal wire transfer as the purchase
price for the A&M Shares, and in exchange therefor, the
Company shall issue to the Affiliate a stock certificate
representing the A&M Shares, registered in the name of the
Affiliate in the stock ledger of the Company; (iv) Alvarez
shall instruct the Affiliate to, and the Affiliate shall,
execute and deliver to the Company a Secured Recourse
Promissory Note in the aggregate principal amount of
$335,000 in the form attached hereto as Exhibit D (the
"Recourse Promissory Note"), a Secured Non-Recourse
Promissory Note in the aggregate principal amount of
$5,005,000 in the form attached hereto as Exhibit E (the
"Non-Recourse Promissory Note"; and together with the
Recourse Promissory Note, the "Promissory Notes"), a Stock
Pledge Agreement in the form attached hereto as Exhibit F
(the "Stock Pledge Agreement") and the certificate for the
A&M Shares, together with stock powers executed in blank, to
be held by the Company pursuant to the terms of the Stock
Pledge Agreement; and (v) in exchange for the actions taken
by Alvarez and the Affiliate pursuant to clause (iv) above,
the Company shall cancel the Alvarez Promissory Note and
shall deliver such cancelled note to Alvarez.
(4) Voting Rights; Dividends. After the
Commencement Date, the Affiliate shall be entitled to
dividends and other distributions, voting rights and other
rights applicable to the Company's Common Stock in
accordance with the terms of the Stock Pledge Agreement.
(5) Restrictions on Transfer. The A&M Shares
shall be subject to the transfer and other restrictions set
forth in the Stock Subscription Agreement and the Stock
Pledge Agreement; provided that such restrictions shall not
limit the operation of Sections 7 and 8 of this Agreement.
(6) Registration Rights. The Affiliate shall
have the registration rights set forth in the Registration
Rights Agreement attached hereto as Exhibit G.
(c) Issuance of Options. On the
Commencement Date, the Company and A&M
or the Affiliate shall issue and deliver
to the other an executed counterpart of
the Non-Transferrable Stock Option
Agreement in the form attached hereto as
Exhibit H (the "A&M Options").
5. Expenses and Facilities. During the term of this
Agreement, the Company shall reimburse A&M, Alvarez and the
Support Employees for all reasonable out-of-pocket expenses
that Alvarez and the Support Employees incur in connection
with services rendered hereunder, including the Travel
Expenses (as defined below) and reasonable local living
expenses, including the cost of renting apartments for
Alvarez and the Support Employees, upon presentation from
time to time of an itemized account of such expenses.
Alvarez and the Support Employees shall work at the
Company's corporate offices in Torrance, California, and the
Company shall supply them with adequate facilities and
support services. As used in this paragraph, "Travel
Expenses" shall mean the costs of travel incurred by Alvarez
and the Support Parties in the performance of their duties
hereunder; provided that (i) in the case of Alvarez, air
travel shall be (A) by business class seating if available,
or first class seating if business class seating is not
available, and (ii) in the case of the Support Employees, by
business class seating, or coach class seating if business
class seating is not available.
6. Indemnification.
(a) Indemnified Parties. Except as
otherwise expressly provided in other
provisions of this Agreement, the
Company agrees to indemnify and hold
Alvarez, the Support Employees, A&M,
A&M's directors, officers, employees and
agents and all of A&M's other affiliates
(as that term is defined in Rule 144
under the Securities Act of 1933, as
amended) (collectively, the "Indemnified
Parties") harmless from and against any
and all actions, claims, damages, and
liabilities (and all actions in respect
thereof and any legal or other expenses
in giving testimony or furnishing
documents in response to a subpoena or
otherwise), including the costs of
investigating, preparing or defending
any such action or claim, whether or not
in connection with litigation in which
an Indemnified Party is a party, and as
and when incurred, caused by, relating
to, based upon or arising out of
(directly or indirectly) such
Indemnified Party's acceptance of or the
performance or non-performance of its
material obligations under this
Agreement; provided, however, that such
indemnity shall not apply to any such
action, claim, damage, liability or cost
to the extent it is found in a final
judgment by a court of competent
jurisdiction (not subject to further
appeal) to have resulted from gross
negligence or willful misconduct of that
Indemnified Party or to constitute a
breach of this Agreement.
(b) Indemnification Demand. If any
action, proceeding or investigation is
commenced for which an Indemnified Party
proposes to demand such indemnification,
it will notify the Company with
reasonable promptness; provided,
however, that any failure by an
Indemnified Party to notify the Company
will not relieve the Company from its
obligations hereunder, except to the
extent that such failure shall have
prejudiced the defense of such action.
The Company shall promptly pay or
reimburse expenses reasonably and
actually incurred by an Indemnified
Party in defending or settling any
action, proceeding or investigation in
which an Indemnified Party is a party or
is threatened to be made a party by
reason of its relationship with the
Company hereunder, in advance of the
final disposition of such action,
proceeding, or investigation upon
submission of invoices therefor pursuant
to this Agreement. A&M, on behalf of
each Indemnified Party, hereby
undertakes, and the Company hereby
accepts its undertaking, to repay any
and all such amounts so advanced if it
shall ultimately be determined that such
Indemnified Party is not entitled to be
indemnified therefor. If any such
action, proceeding, or investigation in
which an Indemnified Party is a party is
also against the Company or any of its
subsidiaries, the Company may, in lieu
of advancing the expenses of separate
counsel for such Indemnified Party,
provide such Indemnified Party with
legal representation by the same counsel
who represents the Company or its
subsidiaries, as applicable, at no cost
to such Indemnified Party; provided,
however, that if such counsel or counsel
to such Indemnified Party shall
determine that due to the existence of
actual or potential conflicts of
interest between such Indemnified Party
and any one or more of the Company or
its subsidiaries, such counsel is unable
to represent both the Indemnified Party
and one or more of the Company or its
subsidiaries, then the Indemnified Party
shall be entitled to use separate
counsel of its own choice, and, subject
to the preceding sentence, the Company
shall promptly pay the Indemnified
Party's reasonable expenses of such
separate counsel upon submission of
invoices therefor. Nothing herein shall
prevent any Indemnified Party from using
separate counsel of its own choice at
its own expense. The Company shall only
be liable for settlements of claims
against any Indemnified Party made with
the Company's written consent, which
consent shall not be unreasonably
withheld.
(c) Contribution If Indemnification
Provisions Not Enforced. In order to
provide for just and equitable
contribution if a claim for
indemnification pursuant to these
indemnification provisions is made but
it is found in a final judgment by a
court of competent jurisdiction (not
subject to further appeal) that such
indemnification may not be enforced in
such case, even though the express
provisions hereof provide for
indemnification in such case, then the
Company, on the one hand, and the
Indemnified Party, on the other hand,
shall contribute to the amount paid or
payable as a result of the losses,
claims, damages, liabilities and costs
in such proportion as is appropriate to
reflect the relative fault of the
Company and Indemnified Party in
connection with the acts or omissions
which resulted in such losses, claims,
damages, liabilities and costs, as well
as any other relevant equitable
considerations. The amount paid or
payable by a party as a result of the
losses, claims, damages and liabilities
and expenses referred to above shall be
deemed to include, subject to the
limitations set forth in Section 6(b)
above, any legal or other fees or
expenses reasonably incurred by such
party in connection with any
investigation or proceeding. The
parties hereto agree that it would not
be just and equitable if the
contribution pursuant to this Section
6(c) were determined by pro rata
allocation or by any other method of
allocation which does not take into
account the equitable considerations
referred to in this Section 6(c). No
person found liable for a fraudulent
misrepresentation shall be entitled to
contribution hereunder from any person
who is not also found liable for such
fraudulent misrepresentation. The
aggregate amount of contribution from
A&M due under this Section 6 shall not
exceed the aggregate amount of
compensation received or receivable by
A&M and its affiliates under this
Agreement, including the monthly fees
referred to in Section 4(a) and the
difference between the Fair Market Value
(as defined in Section 7(e)) of any
shares of Common Stock purchased by it
or them pursuant to this Agreement and
the Stock Subscription Agreement, on the
one hand, and the amount paid by A&M for
such shares, including any shares
purchased upon exercise of any A&M
Option, on the other hand.
(d) Indemnification Remains in Effect;
Limitations. Neither termination nor
nonrenewal of this Agreement nor
completion of the retention of A&M,
Alvarez and the Support Employees
hereunder shall affect these
indemnification provisions, which shall
hereafter remain operative and in full
force and effect.
(e) Indemnification Under Agreement Not
Exclusive; Limitation. The rights
provided in this Section 6 shall not be
deemed exclusive of any other rights to
which the Indemnified Parties may be
entitled under the certificate of
incorporation and bylaws of the Company,
any other agreements, any vote of
stockholders or disinterested directors
of the Company, any applicable law or
otherwise, but shall nevertheless in all
respects be limited to the maximum
extent permitted by applicable law.
7. Termination. This Agreement shall be terminated prior
to October 14, 1998 only as provided in this Section 7 and
Section 8.
(a) Termination by the Company for
Cause. The Company shall have the right
to terminate this Agreement for cause at
any time by giving written notice to A&M
and Alvarez. The Company shall have
"cause" if, prior to such termination,
(i) the Company's Board of Directors
makes a determination in good faith of
A&M's, Alvarez's or any Support
Employee's willful misconduct or breach
of fiduciary duty, (ii) any of A&M,
Alvarez or any Support Employee (the
"A&M Parties") commits any material act
of fraud, dishonesty, embezzlement or
misappropriation of funds or property in
connection with the services rendered
hereunder, or (iii) any of the A&M
Parties commits a material breach of any
of their respective obligations
hereunder, and shall fail to remedy such
breach within 30 days after having
received written notice from the
Company.
If this Agreement is terminated by the Company for
cause under this Section 7(a), then (i) the A&M Parties shall not
be entitled to receive any further compensation under this
Agreement, (ii) all unexercised A&M Options, whether or not then
vested, shall expire, and (iii) the Company shall have the
option, for a period of 12 months after such termination, to
purchase all of shares of Common Stock then owned by A&M or the
Affiliate at a purchase price equal to the lesser of the amount
paid by A&M or the Affiliate for such shares of Common Stock or
the Fair Market Value (as defined in Section 7(e) below) of such
shares of Common Stock, which purchase price shall be applied and
set-off first against the amounts outstanding under the Recourse
Promissory Note and second against the amounts outstanding under
the Non-Recourse Promissory Note, in each case, first to accrued
interest and then to principal (such application being referred
to as the "Required Application of Proceeds"). The Company shall
provide A&M written notice of the Company's intention to exercise
its option to purchase the Common Stock owned by A&M or the
Affiliate under clause (iii) above prior to the expiration of the
12 month period referred to in clause (iii), and the closing of
such purchase shall occur as soon as practically possible after
the giving of such notice.
(b) Termination by the Company Without
Cause; Constructive Termination;
Unconsented Change-in-Control. The
Company shall have the right to
terminate this Agreement without cause
at any time. If this Agreement is
terminated by the Company without cause
or if a Constructive Termination (as
defined below) shall occur prior to
October 14, 1998, then (i) A&M and/or
the Affiliate shall have the right to
require the Company to purchase from A&M
and/or the Affiliate the shares of
Common Stock then owned by A&M or the
Affiliate, and the Company shall also
have the option to purchase such shares
of Common Stock from A&M and/or the
Affiliate, in each case for a period of
3 months after such termination and at a
sale or purchase price equal to the
greater of the amount paid by A&M or the
Affiliate for such shares of Common
Stock or the Fair Market Value of such
shares of Common Stock, which purchase
or sale price shall be subject to the
Required Application of Proceeds, (ii)
A&M or the Affiliate, as the case may
be, shall have the right to require the
Company to purchase from A&M or the
Affiliate, as the case may be, all
unexercised A&M Options, whether or not
then vested, and the Company shall also
have the option to purchase all such A&M
Options, in each case for a period of 3
months after such termination and at a
sale or purchase price equal to the then
Intrinsic Value (as defined in Section
7(e)) of such A&M Options, (iii) the
Company shall pay A&M cash in a lump sum
amount equal to $50,000 multiplied by
the number of months (or portion
thereof) remaining until October 14,
1998, (iv) the Company shall be relieved
of any obligation under this Agreement
to pay for the services of the A&M
Parties for periods after such
termination and (v) A&M shall be
relieved of its obligations to provide
services hereunder for periods after
such termination; provided, however,
that if such termination occurs in
connection with a transaction that would
qualify under Section 8 of this
Agreement, then Section 8, rather than
this Section, shall govern. For
purposes of this Section 7(b),
"Constructive Termination" shall mean
the material diminution by the Board of
Directors of the Company of the duties
and responsibilities of Alvarez such
that as so diminished Alvarez's duties
and responsibilities shall be materially
inconsistent with his title under this
Agreement. The Company and A&M and/or
the Affiliate, as the case may be, shall
provide the other written notice of its
intention to exercise its right to sell
or purchase the Common Stock owned by
A&M and/or the Affiliate or the A&M
Options under clauses (i) and (ii) above
prior to the expiration of the three
month period referred to in such clauses
and the closing of the purchase or sale
of the Common Stock owned by A&M or the
A&M Options, as the case may be, shall
occur as soon as practically possible
after the giving of such notice.
If there shall occur a Change-in-Control (as defined
below) on or prior to the first anniversary of the Commencement
Date, and A&M shall provide written notice to the Company at
least 30 days prior to the occurrence of such Change-in-Control
(or within 10 days after the occurrence of the Change-in-Control
if A&M had no prior notice thereof) that it does not consent to
such Change-in-Control and if neither A&M nor Alvarez theretofore
consented to or through Alvarez sponsored or voted in favor of
such Change-in-Control, then this Agreement shall immediately
terminate, and clauses (i) through (iv) and the last sentence of
the immediately preceding paragraph shall apply; provided,
however, that if a Change-in-Control occurs in connection with a
transaction that would qualify under Section 8 of this Agreement,
then Section 8, rather than this Section 7(b), shall govern. For
purposes of this Agreement, a "Change-in-Control" shall mean a
change in the membership of the Board of Directors of the Company
such that a majority of the members of the Company's Board of
Directors shall not have been nominated by either Cerberus
Partners, L.P. or A&M or Alvarez or by at least a majority of
persons who were any of their respective previously appointed
nominees.
(c) Termination by A&M. If prior to
October 14, 1998, A&M terminates or
breaches this Agreement other than an
account of a Constructive Termination or
Alvarez terminates his employment by A&M
or resigns as Chairman of the Board of
Directors of the Company or as Chief
Executive Officer of the Company for any
reason, then (i) all unexercised A&M
Options, whether or not then vested,
shall expire, (ii) the Company shall
have the option for a period of 12
months after any such event to purchase
all of the shares of Common Stock then
owned by A&M or the Affiliate at a
purchase price equal to the lesser of
the amount paid by A&M or the Affiliate
for such shares of Common Stock or the
Fair Market Value of such shares of
Common Stock, which purchase price shall
be subject to the Required Application
of Proceeds, and (iii) the Company shall
have no obligation to pay for the
services of the A&M Parties for periods
after any such event. The Company shall
provide A&M written notice of the
Company's intention to exercise its
option to purchase the Common Stock
owned by A&M or the Affiliate under
clause (ii) above prior to the
expiration of the 12 month period
referred to in clause (ii), and the
closing of such purchase shall occur as
soon as practically possible after the
giving of such notice.
(d) Termination Due to Death or
Disability of Alvarez. The Company
shall have the right to terminate this
Agreement at any time by giving notice
to A&M and Alvarez (if not deceased) if
Alvarez dies or is disabled. For
purposes of this Agreement, Alvarez
shall be deemed to be disabled if any
ailment, illness or other physical or
mental incapacity has prevented, or in
the opinion of a medical physician or
psychiatrist selected by the Company and
acceptable to A&M will prevent, Alvarez
from performing his duties as specified
in this Agreement for a period of 60
days during any 180-day period or 90
days in any 360-day period. If the
Company shall terminate this Agreement
in accordance with this Section 7(d),
then (i) A&M or the Affiliate, as the
case may be, shall have the right to
require the Company to purchase from A&M
or the Affiliate, as the case may be,
all vested and unexercised A&M Options,
and the Company shall also have the
option to purchase all such A&M Options,
in each case for a period of 6 months
after such termination and at a sale or
purchase price equal to the then
Intrinsic Value of such A&M Options,
(ii) A&M and/or the Affiliate shall have
the right to require the Company to
purchase from A&M and/or the Affiliate
the shares of Common Stock then owned by
A&M or the Affiliate, and the Company
shall also have the option to purchase
such shares of Common Stock from A&M and
the Affiliate, in each case for a period
of 6 months after such termination and
at a sale or purchase price equal to the
then Fair Market Value of such shares of
Common Stock, which purchase price shall
be subject to the Required Application
of Proceeds, and (iii) the Company shall
be relieved of any obligation under this
Agreement to pay for the services of the
A&M Parties for periods after such
termination. The Company and A&M shall
provide the other written notice of its
intention to exercise its right to sell
or purchase the Common Stock owned by
A&M or the Affiliate or the A&M Options,
as the case may be, under clauses (i)
and (ii) above prior to the expiration
of the three month period referred to in
such clauses and the closing of the
purchase or sale of the Common Stock
owned by A&M or the Affiliate or the A&M
Options, as the case may be, shall occur
as soon as practically possible after
the giving of such notice.
(e) Definition of Fair Market Value and
Intrinsic Value. For purposes of this
Agreement, the "Fair Market Value" of
any shares of Common Stock shall mean an
amount agreed to by A&M and the Company
as being the fair market value of such
shares of Common Stock as of the date of
termination. If A&M and the Company are
unable to agree on the fair market value
of the Common Stock, the "Fair Market
Value" of the Common Stock shall equal
an amount therefor determined by a
majority vote of three independent
valuation firms, one each selected by
A&M and the Company and the third (the
"Third Appraiser") selected by the two
independent valuation firms selected by
A&M and the Company. If two of the
three appraisers cannot agree on the
Fair Market Value, the determination of
the Third Appraiser shall control. Each
of A&M and the Company shall pay the
fees and expenses of the appraiser
selected by it. The fees and expenses
of the Third Appraiser shall be paid (i)
solely by the party whose appraiser's
determination of the Fair Market Value
deviates by more than 10% from that of
the Third Appraiser, or (ii) equally by
A&M and the Company if the determination
of both of the appraisers selected by
them deviates by more or less than 10%
from that of the Third Appraiser. The
"Intrinsic Value" of the A&M Options
shall mean the difference between the
then Fair Market Value of the Common
Stock and the applicable exercise price
of the A&M Options.
8. Sale of the Company During the First Year. If, prior
to the first anniversary of the Commencement Date (x) (1)
all or at least 80% of the assets of the Company are sold in
a single or series of related transactions other than in the
ordinary course of business, or (2) a majority of the shares
of Common Stock held by Cerberus are sold to an unaffiliated
entity in a single transaction or series of related
transactions (such sale of stock being a "Majority Sale") or
(3) there shall occur a merger, consolidation or other form
of reorganization or series of related reorganizations, and
(y) after giving effect to such transaction or transactions,
the level of Cerberus' ownership interest in the surviving
entity (including a group of affiliated surviving entities)
shall be less than one-half of the level of Cerberus'
ownership interest in the Company immediately prior to such
transaction or series of transactions, and A&M shall have
provided written notice to the Company at least 30 days
prior to the occurrence of any such transaction or
transactions (or within 10 days after the occurrence of any
such transaction or transactions if A&M had no prior notice
thereof) that it does not consent to such transaction or
transactions, and if neither A&M nor Alvarez theretofore
consented to or through Alvarez sponsored or voted for such
transaction or transactions, then (i) this Agreement shall
immediately terminate, (ii) the Company shall pay to A&M
$1,500,000 in cash, except that in the case of a Majority
Sale in which neither of the events described in clauses
(x)(1) and (x)(3) above has occurred, Cerberus shall pay A&M
$1,500,000 in cash, (iii) other than in the case of a
Majority Sale, all unexpired and unvested A&M Options shall
immediately vest and be subject to the provisions of
Sections 8(k) and (l) of the A&M Option Agreement, (iv) in
the case of a Majority Sale, all unexpired and unvested A&M
Options shall immediately vest and the shares of Common
Stock then owned by A&M, and the shares of Common Stock
subject to the A&M Options as so vested, shall all be
subject to tag along and drag along rights and duties on
terms and conditions set forth in Exhibit I attached hereto
(with the proceeds received upon the exercise of such rights
being applied as set forth in Exhibit I), and all A&M
Options not sold pursuant to the exercise of such tag along
and drag along rights shall immediately expire, and (v) the
Company will be relieved of any obligation under this
Agreement to make payment for the services of Alvarez or the
Support Employees for periods after the closing of the
Majority Sale.
9. General.
(a) Amendment. No modification or
amendment of, or waiver under, this
Agreement shall be valid unless in
writing and signed by each of the
parties hereto.
(b) Binding Agreement. This Agreement
shall inure to the benefit of and be
binding upon the parties hereto and
their respective successors and assigns.
(c) Authorization. Each of the Company
and the A&M Parties represents and
warrants that its execution, delivery
and performance of this Agreement has
been duly authorized by all necessary
corporate action.
(d) Governing Law. This Agreement
shall be governed by and construed in
accordance with the internal laws of the
State of New York without regard to
conflict of law principles.
(e) Severability. If any term,
provision, covenant or restriction
herein is held by a court of competent
jurisdiction to be invalid, void or
unenforceable, the remainder of the
terms, provisions, covenants and
restrictions of this Agreement shall
remain in full force and effect and
shall in no way be affected, impaired or
invalidated thereby.
(f) Notices. All notices, requests,
demands and other communications
hereunder shall be in writing and shall
be deemed to have been duly given when
delivered personally or sent by
overnight courier express service or two
days after having been deposited in the
United States mail, registered or
certified, return receipt requested,
postage prepaid, addressed as follows:
(1) If to the A&M Parties, to:
Alvarez & Marsal, Inc.
885 Third Avenue, Suite 1700
New York, New York 10022-4802
Attention: Antonio C. Alvarez II
(2) If to the Company, to:
19701 Hamilton Avenue
Torrance, California 90502-1334
Attention: Henry Del Castillo
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: Ben H. Logan, Esq. and
C. James Levin Esq.
and a copy to:
Cerberus Partners, L.P.
950 Third Avenue
New York, New York 10022
Attention: Robert Davenport
or to such other address or addresses as each of the parties
hereto may communicate in writing to the other. Written notice
given by any other method shall be deemed effective only when
actually received by the party to whom given.
(g) Tax Indemnification. A&M, Alvarez
and each Support Employee agree jointly
and severally to indemnify and hold the
Company harmless against and reimburse
the Company on demand for any federal,
state or local taxes, workers
compensation, health or disability
benefits, and any penalties and interest
thereon, payable by or on behalf of the
Company in respect of the services of
A&M, Alvarez and the Support Employees
furnished to the Company pursuant to
this Agreement.
(h) Entire Agreement. This Agreement
contains the entire understanding of the
parties hereto respecting the subject
matter hereof and supersedes all prior
discussions and understandings.
(i) Confidentiality; Agreement of A&M
Not to Solicit Employees or Compete.
The A&M Parties acknowledge that none of
them or any of their agents or employees
will at any time prior to or during the
term of this Agreement and thereafter,
directly or indirectly, use for his or
their own account or disclose any
Confidential Information (as hereinafter
defined) to any person, firm or
corporation other than authorized
officers, directors and employees of the
Company or its subsidiaries and, to the
extent necessary in connection with the
services provided hereunder, to A&M
personnel who in Alvarez's good faith
judgment have a need to be familiar with
or aware of the Confidential Information
in order to perform their
responsibilities to the Company and who
are bound by the terms of this
Agreement. As used herein, Confidential
Information of the Company means
information of any kind, nature or
description which is disclosed to or
otherwise known to the A&M Parties as a
direct or indirect consequence of their
association with the Company (which
information is not generally known in
the businesses in which the Company is
engaged or otherwise publicly available)
or which information relates to specific
investment opportunities within the
scope of the Company's business which
were considered by the A&M Parties or
the Company prior to or during the term
of this Agreement. During a period of
two years following the termination of
this Agreement, the A&M Parties shall
not induce any employee of the Company
or its subsidiaries to terminate his or
her employment by the Company or its
subsidiaries in order to obtain
employment with any person, firm or
corporation. In addition, for a period
of 12 months following the termination
of this Agreement, neither A&M nor
Alvarez shall serve as an officer,
director, employee of or consultant to
any entity that has retail locations
that compete in the sale and rental of
prerecorded music and video products and
electronic games and computer programs
with the Company's retail locations in
markets that account for more than 25%
of the then current number of the
Company's retail locations; provided
that the foregoing shall not prohibit
A&M or Alvarez from serving as an
officer, director, employee of or
consultant to any entity that does
directly so compete with the Company but
whose lines of products that directly or
indirectly compete with the Company do
not exceed 15% of such entity's gross
revenues. For the purposes of this
paragraph one retail location shall be
deemed to be in the same market with
another if the two locations are within
10 miles of each other.
(j) Specific Performance. The parties
hereto agree that the services to be
rendered by A&M and Alvarez pursuant to
this Agreement, and the rights and
privileges granted to Company pursuant
to this Agreement, and the rights and
privileges granted to A&M and Alvarez by
virtue of Alvarez' position, are of a
special, unique, extraordinary and
intellectual character, which gives them
a peculiar value, the loss of which
cannot be reasonably or adequately
compensated in damages in any action at
law, and that a breach by A&M and
Alvarez of any of the terms of this
Agreement will cause the Company great
and irreparable injury and damage. A&M
and Alvarez hereby expressly agrees that
the Company shall be entitled to the
remedies of injunction, specific
performance and other equitable relief
to prevent a breach of this Agreement by
A&M and Alvarez. This subsection shall
not be construed as a waiver of any
other rights or remedies which the
Company may have for damages or
otherwise. Such remedies and all other
remedies provided for in this Agreement
shall, however, be cumulative and not
exclusive and shall be in addition to
any other remedies that a party may have
under this Agreement.
(k) Assignment. This Agreement may not
be assigned A&M or Alvarez without the
written consent of the Company.
(l) Right of Set-Off. In addition to
any rights now or hereafter granted
under applicable law and not by way of
limitation of any such rights, upon the
occurrence of a default by A&M, Alvarez
or any Support Employee under this
Agreement, the Promissory Notes or
otherwise, the Company is hereby
authorized by A&M, Alvarez and the
Support Employees at any time or from
time to time, without notice to A&M,
Alvarez or any Support Employee, any
such notice being hereby expressly
waived, to set off against any amounts
owed to A&M and to appropriate and to
apply any and all deposits (including,
but not limited to, the Promissory Notes
and the stock certificate for the A&M
Shares) to any indebtedness or other
obligation owing by A&M, Alvarez or any
Support Employee to the Company.
<PAGE>
IN WITNESS THEREOF, the parties have executed this
Agreement as of the day and year first above written.
ALVAREZ & MARSAL, INC.
By: _____________________________
Its: ____________________________
A&M INVESTMENT ASSOCIATES #3, LLC
By: _____________________________
Its: ____________________________
ANTONIO C. ALVAREZ
_________________________________
WEI ACQUISITION CO.
By: _____________________________
Its: ____________________________
Accepted and agreed with respect
to Sections 2(c) and 8 only:
CERBERUS PARTNERS, L.P.
By: _________________________________
Its: General Partner
<PAGE>
Exhibit 5
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of January 31, 1997 by WEI
ACQUISITION CO., a Delaware corporation (the "Company"), and A&M
INVESTMENT ASSOCIATES #3, LLC, (the "Affiliate") as the holders
of the Registrable Shares (as defined below) and for the benefit
of any Eligible Transferee (as defined below). Unless otherwise
indicated, all capitalized terms used in this Agreement shall
have the meanings given thereto in Section 1 of this Agreement,
or if not defined in Section 1, in the section in which such term
is used.
RECITALS
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and December
13, 1996 (the "POR") and an Asset Purchase Agreement dated as of
January 31, 1997 (the "Asset Purchase Agreement"), the Company
will acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively,
the "Debtors"), in Case No. 95-911 (HSB) (Jointly Administered)
in the Bankruptcy Court for the District of Delaware; and
WHEREAS, the Company, Alvarez & Marsal, Inc. ("A&M"),
of which the Affiliate is an affiliate, and certain of A&M's
employees have entered into a Management Services Agreement dated
as of January 31, 1997 (the "Management Services Agreement"),
which will become effective on the Effective Date (as defined
therein);
WHEREAS, pursuant to the terms of the Management
Services Agreement, the Company and the Affiliate entered into
the Stock Subscription Agreement, pursuant to which the Affiliate
agreed to purchase from Company, and Company agreed to sell to
the Affiliate a number of shares of the New Common Stock, upon
the terms and subject to the conditions set forth therein;
WHEREAS, pursuant to the terms of the Management
Services Agreement, the Company and the Affiliate entered into
the A&M Option Agreement, pursuant to which the Company granted
to A&M the A&M Options upon the terms and conditions set forth in
the A&M Option Agreement; and
WHEREAS, pursuant to the terms of the Management
Services Agreement, the Company agreed to grant to the Affiliate
the registration rights set forth in this Agreement in respect of
the Registrable Shares.
NOW, THEREFORE, in consideration of the premises and
for other good and valuable considerations, the receipt and
adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. DEFINITIONS.
The terms set forth below are used herein as so
defined:
"A&M Options" means the options granted to the
Affiliate and evidenced by the A&M Option Agreement.
"A&M Option Agreement" means the Non-Transferable Stock
Option Agreement dated as of the date hereof between the Company
and the Affiliate pursuant to which the A&M Options were granted.
"Anti-Dilutive Adjustments" has the meaning given
thereto in Section 2(b).
"Asset Purchase Agreement" has the meaning given
thereto in the first WHEREAS paragraph of the Recitals hereto.
"Commission" means the Securities and Exchange
Commission, or any other federal agency at the time administering
the Exchange Act or the Securities Act.
"Company" means WEI Acquisition Co., a Delaware
corporation.
"Demand Registration" means a registration requested
pursuant to the terms of Section 2 hereof.
"Effective Date" means the date the POR becomes
effective.
"Eligible Transferee" means any successor or permitted
transferee, in a single transaction or series of related
transactions, of all, but not less than all, of the Registrable
Shares.
"Exchange Act" means the Securities Exchange Act of
1934, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect from time to time.
"Expiration Date" means the date that is two years
after the later of (i) the expiration of the holding period under
Rule 144 in respect of the Registrable Shares or (ii) the payment
in full or cancellation of the Promissory Notes.
"Holder" means the Affiliate or the Eligible
Transferee.
"Indemnified Person" has the meaning assigned to that
term in Section 8(a) hereof.
"Inspectors" has the meaning assigned to that term in
Section 6(e) hereof.
"Management Services Agreement" has the meaning given
thereto in the second WHEREAS paragraph of the Recitals hereto.
"New Common Stock" means the common stock, par value
$0.01 per share, of the Company.
"Participating Holder" means any Holder that has
Registrable Shares registered for sale pursuant to a Registration
Statement.
"Person" means any individual, partnership, joint
venture, corporation, trust, unincorporated organization, or
other entity.
"Piggy-Back Registration" has the meaning assigned to
that term in Section 3(a) of this Agreement.
"POR" has the meaning given thereto in the first
WHEREAS paragraph of the Recitals hereto.
"Promissory Notes" means the Secured Non-Recourse
Promissory Note in the aggregate principal amount of $5,005,000
issued by the Affiliate in favor of the Company and the Secured
Recourse Promissory Note in the aggregate principal amount of
$335,000 issued by the Affiliate in favor of the Company.
"Records" has the meaning assigned to that term in
Section 6(e) hereof.
"Registrable Shares" means the shares of New Common
Stock purchased by the Affiliate pursuant to the Stock
Subscription Agreement and the shares of New Common Stock issued
or issuable upon exercise of an A&M Option and held by a Holder
from time to time. A share of New Common Stock will cease to be
a Registrable Share when (a) a registration statement covering a
Registrable Share has been declared effective by the Commission
and such share has been disposed of by a Holder pursuant to such
effective registration statement, (b) the Registrable Share or an
A&M Option (in respect thereof) is transferred to a Person other
than an Eligible Transferee, or (c) such share (after initial
issuance) or an A&M Option (in respect thereof) is held by the
Company or one of its subsidiaries or otherwise ceases to be
outstanding.
"Registration Expenses" has the meaning assigned that
term in Section 7 hereof.
"Registration Statement" means any registration
statement or comparable document under the Securities Act through
which a public sale or disposition of the Registrable Shares may
be registered, including the prospectus, amendments and
supplements to such registration statement, all exhibits, and all
material incorporated by reference or deemed to be incorporated
by reference in such Registration Statement.
"Requesting Holders" has the meaning assigned to that
term in Section 2(a) of this Agreement.
"Requisite Holders" means Holders holding at least 25%
of the total number of Registrable Shares of New Common Stock
that were issued or issuable pursuant to the Stock Subscription
Agreement or upon exercise of any A&M Option.
"Rule 144" means Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule
(other than Rule 144A) or regulation hereafter adopted by the
Commission providing for offers and sales of securities made in
compliance therewith resulting in offers and sales by subsequent
holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery
requirements of the Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect from time to time.
"Selling Holder" means a Holder who is selling Regis-
trable Shares pursuant to a Registration Statement under this
Agreement.
"Stock Subscription Agreement" means the Stock
Subscription Agreement dated as of the date hereof between the
Company and the Affiliate pursuant to which the Affiliate
purchased a number of shares of New Common Stock from the
Company.
Section 2. DEMAND REGISTRATION RIGHTS.
(a) At any time after any shares of New Common Stock
shall have been registered under the Securities Act but prior to
the Expiration Date, Requisite Holders may by written notice to
the Company request that the Company register all or a portion of
the Registrable Shares held by such Holders under the Securities
Act and register or qualify under applicable state securities
laws and, subject to the provisions of this Agreement, the
Company shall use its reasonable best efforts to effect such
demand registration promptly; provided, however, that the Company
shall have no obligation under this Section 2(a) if the public
sale of the shares by the Holders is then covered under any other
Registration Statement (including, pursuant to Section 3 hereof)
that includes such shares on a continuing basis.
Each notice to the Company shall set forth (i) the
names of the Requisite Holders requesting registration
("Requesting Holders") and the number of shares to be sold by
each and (ii) the proposed manner of sale. Within ten (10) days
after receipt of notice from the Requisite Holders, the Company
shall notify any Holder who is not a party to the written notice
served on the Company and offer to them the opportunity to
include their shares in such registration. Each such Holder
shall have 20 days following delivery of such notice to elect, by
notice to the Company, to have such Holder's Registrable Shares
included in such registration. The Company shall have no
obligation to effect any Demand Registration under this Section 2
unless the number of Registrable Shares in such Demand
Registration shall be equal to at least 250,000 shares or, if
lesser, the remaining Registrable Shares (including shares
subject to the A&M Options) but not less than 125,000 shares,
each of such numbers to be subject to adjustment as contemplated
by Section 8 of the A&M Option Agreement (the "Anti-Dilutive
Adjustments"). The maximum number of such demands under this
Section 2 shall be one (1); provided, however, that no such
demand may be made after the Expiration Date. A Registration
Statement will not count as a Demand Registration hereunder
unless it is declared effective by the Commission and remains
effective for at least ninety (90) days or such shorter period
which shall terminate when all of the Registrable Shares covered
by such Demand Registration have been sold pursuant to such
Demand Registration; provided, however, that in the event a
Registration Statement is withdrawn at the request of the
Requesting Holders (other than a withdrawal pursuant to Section
2(c) of this Agreement), such Requesting Holders will forfeit the
demand registration rights granted pursuant to this Section 2.
These rights are in addition to, and shall not limit, the
registration rights of the Holders of Registrable Shares granted
pursuant to Section 3 hereunder.
(b) If the managing underwriter of an underwritten
offering under this Section 2 advises the Company in writing that
in its opinion the number of shares requested to be included in
such registration (including, without limitation, shares to be
included in such registration pursuant to "piggyback" rights
heretofore or hereafter granted by the Company) exceeds the
number which can be sold in such offering, the Company will
include in such registration only the number of shares which in
the opinion of such underwriter can be sold. If the number of
shares which can be sold is less than the number of shares
proposed to be registered, the amount to be so registered shall
be allocated pro rata among the Holders of Registrable Shares
desiring to participate in such registration and among other
holders of shares of New Common Stock requested to be included in
such registration, based on the numbers of shares initially
proposed to be registered by all such holders.
(c) The Company shall not be obligated to effect any
Demand Registration within three (3) months after the effective
date of a previous registration for an underwritten offering
under which the Holders had piggyback rights pursuant to Section
3 hereof (irrespective of whether such rights were exercised).
The Company may (i) postpone for up to 60 days the filing or the
effectiveness of a Registration Statement for a Demand
Registration if, based on the good faith judgment of the
Company's Board of Directors, such registration and offering
would materially interfere with any material financing,
acquisition, corporate reorganization, security offering or other
material transaction, or such postponement or withdrawal is
necessary in order to avoid premature disclosure of a matter the
Board of Directors of the Company has determined would not be in
the best interest of the Company to be disclosed at such time or
(ii) postpone the filing of a Demand Registration for a period of
not more than 60 days in the event the Company shall be required
to prepare audited financial statements as of a date other than
its fiscal year end (unless the Holders requesting such
registration agree to pay the expenses of such an audit);
provided, however, that in no event shall the Company withdraw a
Registration Statement under clause (i) after such Registration
Statement has been declared effective; and provided, further,
that in any of the events described in clause (i) or (ii) above,
the Holders initiating the request for such Demand Registration
shall be entitled to withdraw such request (without expense to
such Holders) and, if such request is withdrawn, such Demand
Registration shall not count as a permitted Demand Registration.
The Company shall provide prompt written notice to the Requesting
Holders of (x) any postponement or withdrawal of the filing or
effectiveness of a Registration Statement pursuant to this
paragraph (c), (y) the Company's decision to file or seek
effectiveness of such Registration Statement following such
withdrawal or postponement and (z) the effectiveness of such
Registration Statement.
(d) If any of the Registrable Shares covered by a
Demand Registration are to be sold in an underwritten offering,
the Company shall have the right to select the managing
underwriter(s) to administer the offering, subject to the
approval of the Holders of a majority in interest of the
Registrable Shares initiating the request for registration, which
approval shall not be unreasonably withheld.
Section 3. PIGGY-BACK REGISTRATION RIGHTS.
(a) If the Company, at any time prior to the
Expiration Date, proposes to register any New Common Stock under
the Securities Act (other than pursuant to Section 2 of this
Agreement or pursuant to a registration statement on a form
exclusively for the sale or distribution of securities by the
Company to employees of the Company or its subsidiaries or for
use exclusively in connection with a business combination)
whether or not for sale for its own account, and the registration
form to be used may be used for the registration of Registrable
Shares, it will give prompt written notice to all Holders of the
Company's intention to effect such a registration and include in
such registration all Registrable Shares with respect to which
the Company has received written notice from a Holder for
inclusion therein within 20 days after the date of the Company's
notice; provided, that:
(i) if, at any time after giving written notice
of its intention to register any shares and, prior to the
effective date of the Registration Statement filed in
connection with such registration, the Company shall
determine for any reason not to register such shares, the
Company may, at its election, give written notice of such
determination to each Holder requesting inclusion therein,
and, thereupon, the Company shall be relieved of its
obligation to register any Registrable Shares in connection
with such withdrawn of unfiled registration (but not of its
obligation to pay the Registration Expenses in connection
therewith);
(ii) if such registration shall be in connection
with an underwritten public offering and the managing
underwriter shall advise the Company in writing that in its
opinion the number of shares requested to be included in
such registration exceeds the number of such securities
which can be sold in such offering or would have an adverse
impact on the price of such securities, the amount to be
registered shall be allocated first, to the Company if such
registration is not being effected as a result of the
exercise of any demand registration rights by a holder of
the Company's securities, and second, pro rata among the
Requesting Holders desiring to participate in such
registration and the other holders of the Company's
securities requested to be included in such registration,
based on the numbers of shares initially proposed to be
included by such holders. If such registration is being
effected as a result of the exercise of any demand
registration rights by a holder of the Company's securities,
the amount of securities to be included in such registration
shall be allocated pro rata among the Holders of Registrable
Shares desiring to participate in such registration, the
Company and among other holders of the Company's securities
requested and entitled to be included in such registration,
based on the numbers of shares initially proposed to be
registered by the Company and all such holders;
(iii) with respect to any unissued shares to
be included therein, the Holder delivers a commitment to
timely exercise the A&M Options prior to the effective date
of the registration for inclusion therein of such shares, if
the Registration Statement does not otherwise contemplate a
continuing or "shelf" registration of shares issuable under
the A&M Options; and
(iv) the number of shares to be sold by the
Holders is not less than 50,000 (subject to Anti-Dilutive
Adjustments).
(b) If any Registration pursuant to this Section 3 is
an underwritten primary offering, the Holders shall not have the
right to select the managing underwriter to administer such
offering.
(c) The maximum number of Piggy-Back Registrations
under this Section 3 shall be two.
Section 4. SUSPENSION OF EFFECTIVENESS.
The Company's obligations under Section 2(a) and
Section 3(a) shall not restrict its ability to suspend the
effectiveness of, or direct Holders not to offer or sell
securities under, any Demand Registration or a Piggy-Back
Registration, at any time, for such reasonable period of time not
to exceed 60 days which the Company believes is necessary to
prevent the premature disclosure of any events or information
having a material effect on the Company. In addition, the
Company shall not be required to keep a Piggy-Back Registration
or any Demand Registration, effective, or may, without suspending
such effectiveness, instruct the holders of Registrable Shares
included in a Piggy-Back Registration or any Demand Registration,
not to sell such securities, during any period during which the
Company is instructed, directed, ordered or otherwise requested
by any governmental agency or self-regulatory organization to
stop or suspend such trading or sales.
Section 5. HOLDBACK AGREEMENT.
(a) In the event of any filing of a prospectus
supplement or the commencement of an underwritten public
distribution of New Common Stock under a Registration Statement,
whether or not Registrable Shares are included, each Holder
agrees not to effect any public sale or distribution of New
Common Stock (except as part of such underwritten public
distribution), including a sale pursuant to Rule 144 or Rule 144A
under the Securities Act, during a period designated by the
Company in a written notice duly given to the Holders in
accordance with Section 10(b), which period shall commence
approximately 14 days prior to the effective date of any such
filing of such prospectus supplement or the commencement of such
underwritten public distribution of New Common Stock under a
Registration Statement and shall continue for up to 134
consecutive days.
(b) The foregoing provisions shall not apply to any
Holder to the extent such Holder is prohibited by applicable law
from agreeing to withhold from sale pursuant to a binding
commitment entered into prior to receipt of the notice
contemplated by Section 5(a).
Section 6. REGISTRATION PROCEDURES.
Except as otherwise expressly provided herein and
subject to Section 7, in connection with any registration of
Registrable Shares pursuant to this Agreement, the Company shall,
as expeditiously as possible:
(a) prepare and file with the Commission a
Registration Statement on the appropriate form with respect to
such Registrable Shares and use its reasonable best efforts to
cause such Registration Statement to become effective as soon as
practicable thereafter; and before filing a Registration
Statement or prospectus or any amendments or supplements thereto,
furnish to each Selling Holder copies of such Registration State-
ment and such other documents as proposed to be filed (including
copies of any document to be incorporated by reference therein),
and thereafter furnish to each Selling Holder such number of
copies of such Registration Statement, each amendment and
supplement thereto (including copies of any document to be
incorporated by reference therein), at the written request of the
Selling Holder, including all exhibits thereto, the prospectus
included in such registration statement (including each
preliminary prospectus), and, promptly after the effectiveness of
a Registration Statement, the definitive final prospectus filed
with the Commission, and such other documents as such Selling
Holder may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such Selling
Holder;
(b) use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or
blue sky laws of such jurisdictions within the United States as
any Selling Holder reasonably (in light of such Selling Holder's
intended plan of distribution) requests; provided that the
Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6(b), (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
(c) notify each Selling Holder of such Registrable
Shares, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the
occurrence of any event as a result of which the prospectus
included in such Registration Statement (including any document
to be incorporated by reference therein) contains an untrue
statement of a material fact or omits any fact necessary to make
the statements therein not misleading and, at the request of any
such Selling Holder, the Company shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, such prospectus will
not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading and
promptly make available to each Selling Holder any such
supplement or amendment;
(d) in connection with an underwritten public
offering, enter into customary agreements (including, if
requested, an underwriting agreement), reasonably satisfactory in
form and substance to the Company, and take such other actions in
connection therewith as the Holders of at least a majority in
interest of the Registrable Shares being sold or the underwriter
shall reasonably request in order to consummate the disposition
of such Registrable Shares;
(e) make available for inspection during business
hours on reasonable advance notice by any Selling Holder of such
Registrable Shares, any underwriter participating in any
disposition pursuant to a Registration Statement, and any
attorney, accountant or other professional retained by any such
Selling Holder or underwriter (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably
requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in
good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary
to avoid or correct a material misstatement or omission in the
Registration Statement or (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. Each Selling Holder of such Registrable
Shares further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction,
give written notice to the Company, and allow the Company, at the
Company's expense, to undertake appropriate action to prevent
disclosure of the Records it deemed confidential. Each Selling
Holder of such Registrable Shares further agrees that information
obtained by it as a result of such inspections which is deemed
confidential by the Company shall not be used or disclosed by it,
and it shall cause each of its Inspectors not to use or disclose
such confidential information, as the basis for any market
transactions in securities of the Company or for any purpose
other than any due diligence review with respect to decisions
regarding such Selling Holder's investment in the Registrable
Shares, unless and until such information is made generally
available to the public;
(f) in the event such sale is pursuant to an under-
written offering, use its reasonable best efforts to obtain (i) a
comfort letter or comfort letters from the Company's independent
public accountants in customary form and covering such financial
and accounting matters of the type customarily covered by comfort
letters as the Selling Holders of a majority in interest of the
Registrable Shares being sold or the managing underwriter
reasonably request, and (ii) an opinion or opinions from counsel
for the Company, addressed to the underwriters, covering the
matters customarily covered in opinions given by counsel in
similar transactions; and
(g) notify the Selling Holders and the managing under-
writers, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (i) when the Registration
Statement, the prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for
that purpose and the Company shall promptly use its reasonable
best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued and
(iii) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the
Registrable Shares for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose.
The Company may require each Selling Holder of Regis-
trable Shares as to which any registration is being effected to
furnish to the Company such information regarding the Selling
Holder and the distribution of such Registrable Shares as the
Company may from time to time reasonably request in writing and
such other information as may be legally required in connection
with such registration. Each Selling Holder agrees, by its
acquisition of Registrable Shares and its acceptance of the
benefits provided to it hereunder, to furnish promptly to the
Company all information required to be disclosed in order to make
the information previously furnished to the Company by such
Selling Holder not materially misleading.
Each Holder agrees that upon receipt of any notice from
the Company of the happening of any event of the kind described
in Sections 4, 6(c), (g)(ii) or (g)(iii) hereof, such Holder will
forthwith discontinue disposition of Registrable Shares pursuant
to the Registration Statement covering such Registrable Shares
until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6(c) hereof, or until
it is advised in writing by the Company that the use of the
prospectus may be resumed, and, if so directed by the Company,
such Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in
such Holder's possession, of the prospectus covering such
Registrable Shares current at the time of receipt of such notice.
In the event the Company shall give any such notice under Section
6(c), (g)(ii) or (g)(iii), the Company shall extend the period
during which such Registration Statement shall be maintained
effective by the number of days during the period from and
including the date of the giving of such notice pursuant to
Section 6(c) hereof to and including the date when each Holder of
Registrable Shares covered by such Registration Statement shall
have received the copies of the supplemented or amended
prospectus contemplated by Section 6(c) hereof.
Section 7. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of
or compliance with this Agreement, including, without limitation,
all registration and filing fees, fees and expenses of compliance
with securities or "blue sky" laws (including reasonable fees and
disbursements of counsel of the Company and counsel for the
underwriters in connection with "blue sky" qualifications of the
Registrable Shares), fees and expenses associated with filings
required to be made with the National Association of Securities
Dealers, Inc., and with listing on any national securities
exchange or exchanges in which listing may be sought, printing
expenses, messenger and delivery expenses, fees and expenses of
counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or "cold
comfort" letters required by or incident to such performance),
securities acts liability insurance (if the Company elects to
obtain such insurance), the fees and expenses of any special
experts retained by the Company in connection with such
registration, and fees and expenses of other persons retained by
the Company (all such expenses being herein called "Registration
Expenses") will be borne (i) by the Company in respect of a
Piggy-Back Registration and (ii) by the Selling Holders in
respect of any Demand Registration, in each case whether or not
any registration statement becomes effective; provided that in no
event shall Registration Expenses payable by the Company include
any (A) underwriting discounts, commissions, or fees attributable
to the sale of the Registrable Shares, (B) fees and expenses of
any counsel, accountants, or other persons retained or employed
by the Holders or underwriters, or (C) transfer taxes, if any.
Section 8. INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by Company. The Company agrees to
indemnify and hold harmless each Selling Holder of Registrable
Shares, its officers, directors, partners and agents and each
Person, if any, who controls such Selling Holder within the
meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act (each such person being sometimes hereinafter
referred to as an "Indemnified Person") from and against any and
all losses, claims, damages, liabilities and judgments
(including, the reasonable legal expenses incurred in connection
with any action, suit or proceeding) arising out of or based upon
(i) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or
prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a registration hereunder or
arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, or (ii)
any violation by the Company of any federal, state or common law
rule or regulation applicable to Company and relating to action
or inaction required by the Company in connection with any such
registration; provided, however, that the Company shall not be
liable for any losses, claims, damages, liabilities or judgments
arise out of, or are based upon, any such untrue statement or
omission or allegation thereof based upon information furnished
in writing to the Company by such Selling Holder or on such
Selling Holder's behalf for use therein, or by any Holder's
failure to deliver a copy of the Registration Statement or
prospectus or any amendment or supplement thereto after being
furnished with a sufficient number of copies thereof by the
Company.
(b) Conduct of Indemnification Proceedings. If any
action or proceeding (including any governmental investigation)
shall be brought or asserted against any Indemnified Person in
respect of which indemnity may be sought from the Company, such
Indemnified Person shall promptly notify the Company in writing,
and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Person and the payment of all reasonable expenses. Such Indemni-
fied Person shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Company has agreed to pay
such fees and expenses or (ii) the named parties to any such
action or proceeding (including any impleaded parties) include
both such Indemnified Person and the Company, and such
Indemnified Person shall have been advised in writing by the
counsel employed by the Company in accordance with the provisions
of this Section 8(b) that there exists a conflict of interest
between such Indemnified Person and the Company with respect to
such claim (in which case, if such Indemnified Person notifies
the Company in writing that it elects to employ separate counsel
at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on
behalf of such Indemnified Person, it being understood, however,
that the Company shall not, in connection with any one such
action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable
for the reasonable fees and expenses of more than one separate
firm of attorneys at any time for such Indemnified Person and any
other Indemnified Persons, which firm shall be designated in
writing by a majority of such Indemnified Persons and be
reasonably acceptable to the Company). The Company shall not be
liable for any settlement of any such action or proceeding
effected without the Company's prior written consent, but if
settled with its prior written consent, or if there be a final,
unappealable judgment for the plaintiff in any such action or
proceeding, the Company agrees to indemnify and hold harmless
such Indemnified Persons from and against any loss or liability
(to the extent stated above) by reason of such settlement or
judgment.
(c) Indemnification by Holders of Registrable Shares.
Each Selling Holder agrees severally and not jointly to indemnify
and hold harmless the Company, its directors, officers and agents
and each Person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Selling Holder, but only with respect to
information furnished in writing by such Selling Holder or on
such Selling Holder's behalf for use in any Registration
Statement or prospectus or any amendment or supplement thereto,
or any preliminary prospectus or by any Holder's failure to
deliver a copy of the Registration Statement or prospectus or any
amendment or supplement thereto after being furnished with a
sufficient number of copies thereof by the Company. In case any
action or proceeding shall be brought against the Company or its
directors, officers or agents or any such controlling person, in
respect of which indemnity may be sought against such Selling
Holder, such Selling Holder shall have the rights and duties
given to the Company, and the Company or its directors, officers
or agents or such controlling person shall have the rights and
duties given to such Selling Holder by the preceding Section
8(b).
(d) Contribution. If the indemnification provided for
in this Section 8 is unavailable to or unenforceable by the
Company or the Indemnified Persons in respect of any losses,
claims, damages, liabilities or judgments referred to herein,
then each such indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments in such proportions as is
appropriate to reflect the relative fault of the Company and the
Indemnified Persons in connection with the actions or inactions
which resulted in such losses, claims, damages, liabilities and
judgments, as well as any other relevant equitable considerations
(including the relative fault and indemnification or contribution
obligations of other relevant parties). The relative fault of
the indemnifying party on the one hand and of the indemnified
person on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying
party or by the indemnified party, and by such party's relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Indemnified Persons agree that it
would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
Section 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten
registration hereunder unless such Person (a) agrees to sell such
Person's securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to
approve such arrangements, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the
terms of such underwriting arrangements and (c) agrees to pay
such Person's pro rata portion of all underwriting discounts,
commissions and fees.
Section 10. MISCELLANEOUS.
(a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may
not be given unless the Company has obtained the written consent
of Holders of at least a majority in interest of the Registrable
Shares. Notwithstanding the foregoing, (i) if a waiver or
consent to departure from the provisions hereof does not
adversely affect the rights of all of the Holders, the Company
shall not be required to obtain the consent of any such Holder
not adversely affected thereby, and (ii) if such waiver or
consent to departure relates exclusively to the rights of Holders
whose Registrable Shares are being sold pursuant to a
Registration Statement and does not directly or indirectly affect
the rights of other Holders, such waiver or consent to departure
may be given by Holders of a least a majority in interest of the
Registrable Shares being sold by such Holders pursuant to such
Registration Statement; provided that the provisions of this
sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding
sentence.
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be in writing and shall
be delivered personally or by first-class mail, telecopier or
overnight courier:
(i) if to a Holder of Registrable Shares, at the
most current address set forth on the books of the Company,
and
(ii) if to the Company, initially at 19701
Hamilton Avenue; Torrance, California 90502-1334,
Attention: Henry Del Castillo, and thereafter at such other
address, notice of which is given in accordance with the
provisions of this Section 10(b).
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if person-
ally delivered; five business days after being deposited in the
mail (postage prepaid), if mailed; upon receipt of a telecopy
confirmation sheet, if telecopied; and on the day delivered if
sent by an air courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and,
to the extent set forth herein, the assigns of each of the
parties, including without limitation and without the need for an
express assignment, Eligible Transferees.
(d) Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute
one and the same agreement.
(e) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(f) Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED UNDER AND INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES.
(g) Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall
not invalidate the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable any such provision in any
other jurisdiction.
(h) Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and is
intended to be a complete and exclusive statement of the agree-
ment and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights
granted by the Company with respect to the Registrable Shares.
This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(i) Effectiveness. This Agreement shall become
effective on the Effective Date.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have
executed this Agreement as of the date first written above.
COMPANY:
WEI ACQUISITION CO.
By ______________________________
Name:
Title:
HOLDER:
A&M INVESTMENT ASSOCIATES #3, LLC
By ______________________________
Name:
Title:
<PAGE>
Exhibit 6
August 28, 1997
A&M Investment Associates #4, LLC
Alvarez & Marsal, Inc.
885 Third Avenue, Suite 1700
New York, New York 10022-4802
Re: Term Loan Agreement
Gentlemen:
This letter agreement (this "Agreement") shall
constitute the agreement of Madeleine, LLC ("Madeleine") to make
a term loan to A&M Investment Associates #4, LLC, a Delaware
limited liability company ("A&M"), for the purpose of financing
the purchase by A&M of 385,542 shares of common stock of
Wherehouse Entertainment, Inc. (the "Stock") at the price of Ten
and Three Eighths of One Dollar per share ($10 3/8).
i. Definitions. The following terms used in
this Agreement shall have the following meanings:
"Affiliate" means, as applied to any person, any other
person directly or indirectly controlling, controlled by, or
under common control with, that person. For the purposes of this
definition, "control" (including, with correlative meanings, the
terms "controlling," "controlled by" and "under common control
with"), as applied to any person, means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management and policies of that person, whether through the
ownership of voting securities or by contract or otherwise.
"A&M Stock Pledge and Account Agreement" means that certain
A&M Stock Pledge and Account Agreement dated as of the date
hereof between Madeleine and A&M and in the form of Annex II
hereto.
"Promissory Note" means the Secured Non-Recourse Promissory
Note of A&M, dated the date hereof and in the form of Annex I
hereto, to evidence the Term Loan made by Madeleine under this
Agreement.
"Obligations" means all obligations of A&M under this
Agreement, the Promissory Note, the A&M Stock Pledge and Account
Agreement and all matters relating hereto and thereto.
ii. Term Loan.
(i) Amount; Expiration. Madeleine
hereby agrees to provide a term
loan in the amount of Two Million
Five Hundred Thousand Nine Hundred
Ninety Eight United States Dollars
and Twenty Five United States Cents
($2,599,998.25) to A&M (the "Term
Loan"). The commitment of
Madeleine hereunder to make the
Term Loan shall expire immediately
and without further action on
September 1, 1997 if the Term Loan
is not made on or before that date.
(ii) Borrowing Mechanics. A&M may
request the Term Loan by delivering
to Madeleine, not later than 12:00
noon (New York time) on the
proposed funding date for the Term
Loan, a notice of borrowing which
shall be in the amount of
$2,599,998.25 and shall specify the
proposed funding date for the Term
Loan the proceeds of which shall be
transmitted by wire on such
proposed funding date to:
Citibank
ABA #021000089
for account of Bear Stearns Securities Corp.
Account #09253186
for sub-account of Madeleine, LLC
Sub-account #1020675227
Such notice shall be executed by the person acting as an
authorized representative of A&M, who shall, until A&M advises
Madeleine to the contrary, be Antonio C. Alvarez II or Bryan
Marsal. A&M may make only one borrowing under the Term Loan, and
amounts borrowed under the Term Loan and subsequently repaid or
prepaid may not be reborrowed. Except as otherwise provided in
this Agreement, the Promissory Note and the A&M Stock Pledge and
Account Agreement, A&M hereby agrees that amounts borrowed under
this subsection 2(b) shall be applied only toward the purchase by
A&M of the Stock.
(iii) Repayments, Prepayments;
Promissory Note. The
principal of the Term Loan
shall be repaid in full on
January 31, 2004 and shall be
evidenced by the Promissory
Note; provided, however that
A&M may, upon written notice
to Madeleine on or prior to
12:00 Noon (New York City
time) on the date of
prepayment, prepay all or any
portion of the principal of
the Term Loan. In the event
that all amounts due and owing
under this Agreement are not
paid immediately upon January
31, 2004, Madeleine may,
subject to subsection 5.10 of
this Agreement, exercise any
other remedy available to it
at law, in equity or
otherwise.
(iv) Interest. Interest shall be
payable on the Term Loan at the
rate and at the times set forth in
the Promissory Note.
(v) Use of Proceeds. The proceeds
of the Term Loan shall be used by
A&M solely for the purchase of the
Stock, and A&M shall purchase the
Stock on the same date that A&M
receives the proceeds of the Term
Loan from Madeleine.
(vi) Assignments and
Participations. Madeleine shall
have the right at any time to sell,
assign, transfer, negotiate or
grant participations in all or any
part of the Promissory Note and the
Term Loan. A&M hereby acknowledges
and agrees that any such
disposition will give rise to a
direct obligation of A&M to the
participant and the participant
shall for all purposes relevant
thereto be considered to be treated
as though it were "Madeleine" under
the Promissory Note and hereunder.
iii. Representations and Warranties. A&M
represents and warrants as follows:
3.1 Valid Existence, etc. A&M is a limited liability
company duly organized and validly existing under the laws of the
State of Delaware; A&M has the power and adequate authority,
rights and franchises to own its properties and to carry on its
business as now conducted; A&M has the power and adequate
authority to make and carry out this Agreement, the Promissory
Note and the A&M Stock Pledge and Account Agreement; and A&M is
in good standing wherever necessary to carry on its present
business and operations.
3.2 Due Authorization. Antonio C. Alvarez II and
Bryan Marsal are the sole co-managers of A&M, and either Antonio
C. Alvarez II or Bryan Marsal are duly authorized to execute and
deliver this Agreement and the A&M Stock Pledge and Account
Agreement on behalf of A&M. A&M has duly authorized the
execution and delivery of this Agreement, the Promissory Note and
the A&M Stock Pledge and Account Agreement.
3.3 Binding Obligation. This Agreement, the
Promissory Note and the A&M Stock Pledge and Account Agreement
are the legal, valid and binding obligations of A&M, enforceable
against A&M in accordance with their respective terms, subject,
however, to the application by a court of general principles of
equity and to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally.
3.4 No Conflict. The execution and delivery of this
Agreement, the Promissory Note and the A&M Stock Pledge and
Account Agreement, the consummation of the transactions herein
and therein contemplated and the fulfillment of or compliance
with the terms and conditions hereof and thereof will not in any
material respect conflict with or constitute a violation or
breach of or default (with due notice or the passage of time or
both) under the operating agreement of A&M or any applicable law
or administrative rule or regulation, or any applicable court or
administrative decree or order, or any note, trust agreement,
mortgage, deed of trust, loan agreement, lease, contract or other
agreement or instrument to which A&M is a party or by which it or
its properties are otherwise subject or bound, or result in the
creation or imposition of any lien of any nature whatsoever, upon
any of the property or assets of A&M except for the A&M Stock
Pledge and Account Agreement.
iv. Covenants.
4.1 Affirmative Covenants. In consideration of
Madeleine entering into this Agreement, A&M agrees that it will,
unless Madeleine shall otherwise consent in writing:
(i) Maintenance of Existence.
Maintain and preserve its existence
and all rights, privileges,
licenses, franchises and other
authority adequate for the conduct
of its business in an orderly
manner without voluntary
interruption.
(ii) Compliance with Laws. Comply
with all applicable laws, rules,
regulations and orders of any
governmental authority, the non-compliance with
which would
materially and adversely affect the
business or condition of A&M.
(iii) Payment of Taxes.
Promptly pay all lawful taxes,
governmental charges and
assessments at any time levied
or assessed upon or against it
or its properties; provided,
however, that it shall have
the right to contest in good
faith and by appropriate
proceedings diligently pursue
any such sums and pending such
contest may delay or defer
payment thereof.
(iv) Notice of Adverse Events.
Deliver written notice promptly
upon (and, in any event, within one
business day of) (i) the occurrence
of any default in the payment when
due of any indebtedness of A&M or
of any condition or event that
would permit the holders of any
outstanding indebtedness of A&M to
declare such indebtedness to be due
and payable prior to its scheduled
maturity or (ii) any material
adverse change in the business,
condition (financial or otherwise),
operations, properties or prospects
of A&M.
4.2 Negative Covenant. In consideration of Madeleine
entering into this Agreement, A&M agrees that it will not,
without the prior written consent of Madeleine, sell, assign (by
operation of law or otherwise) or otherwise dispose of any of the
Stock; or, except for the security interest created by the A&M
Stock Pledge and Account Agreement, create or suffer to exist any
lien upon or with respect to any of the Stock to secure the
indebtedness or other obligations of any person or entity; or
(iii) do, or permit or suffer to be done, anything that may
impair the value of the Stock or the security intended to be
effected under this Agreement, the Promissory Note and the A&M
Stock Pledge and Account Agreement, and shall use its best
efforts to preserve, protect and enhance the value of the Stock.
v. Miscellaneous.
5.1 Taxes. All sums payable by A&M under this
Agreement shall be paid (i) free of any restriction or condition,
(ii) free and clear of and (except to the extent required by law)
without any deduction or withholding on account of any tax
imposed, levied, collected, withheld or assessed by or within the
United States of America or any political subdivision in or of
the United States of America and (iii) without deduction or
withholding (except to the extent required by law) on account of
any other amount, whether by way of set-off or otherwise.
5.2 Amendments, Etc. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by A&M
therefrom, shall in any event be effective unless the same shall
be in writing and signed by Madeleine and A&M and then such
waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
5.3 Notice, Etc. All notices, demands and other
communications provided for hereunder shall, unless otherwise
stated herein, be in writing (including facsimile notice with
telephonic confirmation) and mailed, sent or delivered, if to
A&M:
A&M Investment Associates #4, LLC
c/o Alvarez & Marsal, Inc.
885 Third Avenue, Suite 1700
New York, New York 10022-4802
Attention: Mr. Antonio C. Alvarez II
Telecopy no.: (212) 230-3307
and if to Madeleine, in the case of deliveries or mailings, at
its address at 450 Park Avenue, 28th Floor, New York, New York
10022, and in the case of telecopy, to telecopy no.: (212) 421-2947, in each
case Attention: Mr. Robert C. Davenport.
5.4 No Waiver; Remedies. No failure on the part of
Madeleine to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
5.5 Costs, Expenses and Taxes. A&M hereby agrees to
pay on demand all reasonable costs and expenses incurred in
connection with the preparation, execution, delivery, filing,
recording and administration of this Agreement including, without
limitation, the reasonable fees and expenses of counsel for
Madeleine with respect to the preparation and administration of
this Agreement and the Promissory Note and advising Madeleine as
to its rights and responsibilities under this Agreement and the
Promissory Note. A&M also agrees to pay all reasonable costs and
expenses (including reasonable counsel fees and expenses)
incurred in connection with the enforcement or amendment of this
Agreement or the Promissory Note or any insolvency or bankruptcy
proceeding. In addition, A&M shall pay any and all stamp and
other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of
this Agreement, the Promissory Note and the A&M Stock Pledge and
Account Agreement, and agrees to save Madeleine harmless from and
against any and all liabilities with respect to or resulting from
any delay in paying or omitting to pay such taxes and fees,
except to the extent that such liability results from the gross
negligence or willful misconduct of Madeleine.
5.6 Binding Effect. This Agreement shall become
effective when it shall have been executed by A&M and Madeleine
and thereafter shall be binding upon and inure to the benefit of
A&M and Madeleine and their respective successors and assigns,
except that A&M shall not have the right to assign its rights
hereunder or any interest herein to any person without the prior
written consent of Madeleine.
5.7 Severability. Any provision of this Agreement
which is prohibited, unenforceable or not authorized in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating or affecting the remaining
provisions hereof, or affecting the validity, enforceability or
legality of such provision in any other jurisdiction.
5.8 Governing Law and Jurisdiction. This Agreement
and the rights and obligations of the parties hereunder shall be
governed by, and shall be construed and enforced in accordance
with, the internal laws of the State of New York without regard
to conflicts of laws principles. Any action or proceeding
arising out of or relating to this Agreement, the Promissory Note
or the A&M Stock Pledge and Account Agreement shall be heard and
determined in an appropriate state or federal court in the State
of New York.
5.9 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY AGREES TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT, THE PROMISSORY NOTE OR THE A&M STOCK
PLEDGE AND ACCOUNT AGREEMENT, OR ANY DEALINGS BETWEEN THEM
RELATING TO THE SUBJECT MATTER OF THE PROMISSORY NOTE AND THIS
AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING
ESTABLISHED. The scope of this waiver is intended to be all-encompassing of
any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction,
including without limitation, contract claims, tort claims,
breach of duty claims, and all other common law and statutory
claims. Each party hereto acknowledges that this waiver is a
material inducement to enter into a business relationship, that
each has already relied on the waiver in entering into this
Agreement, and that each will continue to rely on the waiver in
their related future dealings. Each party hereto further
warrants and represents that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT, THE PROMISSORY NOTE, THE A&M STOCK PLEDGE AND
ACCOUNT AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE PROMISSORY NOTE. In the event of litigation,
this Agreement may be filed as a written consent to a trial by
the court.
5.10 Recourse Limited. Notwithstanding any provision
of this Agreement, Madeleine's sole remedy in respect of the
Obligations arising under this Agreement, the Promissory Note and
the A&M Stock Pledge and Account Agreement shall be to sell,
mortgage, foreclose upon or otherwise dispose of the Stock.
5.11 Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto on
separate counterparts, each of which counterpart, when so
executed and delivered, shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one
and the same agreement.
[Remainder of page intentionally left blank]
<PAGE>
Kindly indicate your acceptance of this Agreement by
executing and delivering a counterpart of this Agreement on or
before August 28, 1997.
MADELEINE, LLC
By: ______________________________
THE FOREGOING AGREEMENT IS
ACCEPTED:
A&M INVESTMENT ASSOCIATES #4, LLC
By: _________________________________
Antonio C. Alvarez II, Co-manager
<PAGE>
Exhibit 7
FORM OF
A&M STOCK PLEDGE AND ACCOUNT AGREEMENT
In order to induce MADELEINE, LLC ("Secured Party") to
accept from A&M INVESTMENT ASSOCIATES #4, LLC ("Debtor") its
Secured Non-Recourse Promissory Note, dated August 28, 1997 in
the original principal amount of $2,599,998.25 (the "Non-Recourse
Promissory Note") in connection with the purchase by Debtor of
385,542 shares of common stock of Wherehouse Entertainment, Inc.
(the "Stock"), the parties hereto agree as follows:
1. Pledge; Grant of Security. Debtor hereby pledges,
hypothecates, assigns, grants, transfers, sets over and delivers
to Secured Party and hereby grants and assigns to Secured Party
with power of sale, a continuing security interest in all of
Debtor's right, title and interest in and to the Stock, together
with the certificates representing the Stock, all securities
hereafter delivered to Debtor in substitution for or in addition
to the Stock, all certificates and instruments representing or
evidencing such securities, all securities or other non-cash
property at any time and from time to time received, receivable,
or otherwise distributed in respect of any or all of the
foregoing, and all securities, cash or other property at any time
and from time to time received, receivable, or otherwise
distributed in exchange for, or in respect of, any or all of the
foregoing, all of which (to the extent received by Debtor) Debtor
shall deliver to Secured Party promptly upon receipt for
retention by Secured Party hereunder. The Stock, certificates,
instruments, securities, cash and other property which are
subject to the pledge and security interest created hereby, are
herein collectively referred to as the "Collateral".
2. Securities Account; Securities Intermediary.
(a) Credit of the Collateral to Securities
Account. Immediately following the Debtor's purchase of the
Stock, Debtor shall cause the Collateral to be credited to a
securities account held in the name of Secured Party (the
"Securities Account" which term shall include any Securities
Account that Secured Party from time to time elects to replace
the then-existing Securities Account), and having account number
1020675227 at the office of Bear Stearns Securities Corp. (in
such capacity "Securities Intermediary," which term shall include
any successor Securities Intermediary appointed from time to time
by Secured Party), located at One Metrotech Center North,
Brooklyn, New York 11201-3859.
(b) Disposition of the Collateral in Securities
Account. Debtor agrees that Secured Party may, as provided in
Section 10 of this Agreement, sell or cause the sale of the
Collateral and instruct the Securities Intermediary to transfer
proceeds of such sale.
3. Security for Obligations. This Agreement secures,
and the Collateral is collateral security for, the prompt payment
or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due
but for the operation of the automatic stay under Section 362(a)
of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations
and liabilities of every nature of Debtor now or hereafter
existing under or arising out of the Term Loan Agreement dated as
of the date hereof, between the Debtor and Secured Party (the
"Term Loan Agreement"), and the Non-Recourse Promissory Note and
all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Debtor, would
accrue on such obligations), fees, expenses, indemnities or
otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or
not jointly owed with others, and whether or not from time to
time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such
payment is avoided or recovered directly or indirectly from
Secured Party as a preference, fraudulent transfer or otherwise
(all such obligations and liabilities being the "Underlying
Debt"), and all obligations of every nature of Debtor now or
hereafter existing under this Agreement (all such obligations of
Debtor, together with the Underlying Debt, being the "Secured
Obligations").
4. Representations and Warranties. Debtor represents
and warrants as follows:
(a) Authorization. Debtor has full power and
authority to grant security interests in the Collateral, and to
execute, deliver, and perform this Agreement, without the consent
or approval of any other person.
(b) Binding Obligation. This Agreement
constitutes the legally valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally.
(c) Ownership of Collateral. Except for the
security interest created by this Agreement, Debtor owns, or at
the time the Collateral comes into existence will own, the
Collateral free and clear of any lien, mortgage, pledge,
assignment, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of
the foregoing (any of the foregoing, a "Lien"). Except as may
have been filed in favor of Secured Party relating to this
Agreement, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is
on file in any filing or recording office, and the pledge and
assignment of the Collateral pursuant to this Agreement creates a
valid, perfected and first priority security interest in the
Collateral securing payment of the Secured Obligations.
(d) No Conflict. The execution, delivery and
performance by Debtor of this Agreement will not (i) violate any
provision of law applicable to Debtor, or any order, judgment or
decree of any court or other agency of government binding on
Debtor, (ii) be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default
under any contractual obligation of Debtor or (iii) result in or
require the creation or imposition of any Lien upon any of
Debtor's properties or assets.
(e) Other Information. All information
heretofore, herein or hereafter supplied to Secured Party by or
on behalf of Debtor with respect to the Collateral is accurate
and complete in all respects.
5. Voting Powers. At any time during which an Event
of Default shall not have occurred and be continuing, Debtor
shall retain and be entitled to exercise all voting powers
pertaining to the Stock or any part thereof.
6. Further Assurances. Debtor agrees that from time
to time, at the expense of Debtor, Debtor will promptly execute
and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that
Secured Party may request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, Debtor will (i) execute
and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may request, in order
to perfect and preserve the security interests granted or
purported to be granted hereby and (ii) at Secured Party's
request, appear in and defend any action or proceeding that may
affect Debtor's title to or Secured Party's security interest in
all or any part of the Collateral.
7. Transfers and Other Liens. Prior to the payment
and performance in full of the Secured Obligations, Debtor shall
not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or (ii) except for
the security interest created by this Agreement, create or suffer
to exist any lien upon or with respect to any of the Collateral
to secure the indebtedness or other obligations of any person or
entity; or (iii) do, or permit or suffer to be done, anything
that may impair the value of the Collateral or the security
intended to be effected hereby and shall use its best efforts to
preserve, protect and enhance the value of the Collateral.
8. Secured Party Appointed Attorney-in-Fact; Secured
Party Performance.
(a) Secured Party Appointed Attorney-in-Fact.
Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of
Debtor and in the name of Debtor, Secured Party or otherwise,
from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem
necessary or advisable to accomplish the purposes of this
Agreement or the Third-Party Account Agreement, including (a) to
file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Collateral
without the signature of Debtor and (b) to receive, endorse and
collect any instruments made payable to Debtor representing any
dividend, principal or interest payment or other distribution in
respect of the Collateral or any part thereof and to give full
discharge for the same.
(b) Performance by Secured Party. If Debtor
fails to perform any agreement contained herein, Secured Party
may itself perform, or cause performance of, such agreement, and
the expenses of Secured Party incurred in connection therewith
shall be payable by Debtor under Section 15.
9. Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default":
(a) Failure to Make Payments When Due. Failure
of Debtor to pay any principal, interest or other amount due
under the Non-Recourse Promissory Note when due, whether by
required prepayment, declaration, acceleration, demand or
otherwise, including the failure to repay the Non-Recourse
Promissory Note to the extent required under Sections 2(c) and
2(d) of the Term Loan Agreement; or
(b) Breach of Covenants. Failure of Debtor to
perform or observe any other term, covenant or agreement on
Debtor's part to be performed or observed pursuant to this
Agreement, the Term Loan Agreement or the Non-Recourse Promissory
Note within five (5) days after written notice of such failure is
given to Debtor by Secured Party; or
(c) Breach of Representation or Warranty. Any
representation or warranty made by Debtor to Secured Party in
connection with this Agreement, the Term Loan Agreement or the
Non-Recourse Promissory Note shall prove to have been false in
any material respect when made; or
(d) Resignation or Termination of Service of
Antonio C. Alvarez II to Wherehouse Entertainment, Inc. In the
event Antonio C. Alvarez II ("Alvarez"), co-manager of A&M (i)
resigns from either or both of his positions as Chief Executive
Officer and Chairman of the Board of Wherehouse Entertainment,
Inc. (X) prior to the termination of that certain Management
Services Agreement, dated January 31, 1997 (the "Management
Services Agreement"), by and among WEI Acquisition Co. (presently
named Wherehouse Entertainment, Inc.), Alvarez & Marsal, Inc.,
A&M Investment Associates #3, LLC, Cerberus Partners, L.P. and
Alvarez or (Y) prior to any extensions of the Management Services
Agreement as provided by Section 2(b) thereof, or (ii) is
terminated from either or both such positions for cause, as
provided in the Management Services Agreement; or
(e) Breach of Management Services Agreement.
Failure of Alvarez to perform or observe any material term,
covenant or agreement on Alvarez's part to be performed or
observed pursuant to the Management Services Agreement, which
failure has not been remedied 30 days after written notice of
such failure is given to Debtor by Secured Party; or
(f) Involuntary Bankruptcy, etc. (i) A court
having jurisdiction in the premises shall enter a decree or order
for relief in respect of Debtor in an involuntary case under
Title 11 of the United States Code entitled "Bankruptcy" (as now
and hereinafter in effect, or any successor thereto, the
"Bankruptcy Code") or any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, which decree or
order is not stayed; or any other similar relief shall be granted
under any applicable federal or state law or (ii) an involuntary
case shall be commenced against Debtor under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over Debtor or over all or a substantial part of Debtor's
property shall have been entered; or the involuntary appointment
of an interim receiver, trustee or other custodian of Debtor for
all or a substantial part of Debtor's property shall have
occurred; or a warrant of attachment, execution or similar
process shall have been issued against any substantial part of
the property of Debtor, and, in the case of any event described
in this clause (ii), such event shall have continued for 60 days
unless dismissed, bonded or discharged; or
(g) Voluntary Bankruptcy, etc. An order for
relief shall be entered with respect to Debtor, or Debtor shall
commence a voluntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order
for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial
part of Debtor's property.
10. Rights and Remedies.
(a) If any Event of Default shall have occurred,
all of the Secured Obligations shall immediately become due and
payable and Secured Party may exercise in respect of the
Collateral, in addition to all other rights and remedies provided
for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction
(whether or not the Code applies to the affected Collateral).
Secured Party's sole remedy in respect of the Secured Obligations
arising under the Non-Recourse Promissory Note shall be against
the Collateral. In exercising its remedies against the
Collateral, Secured Party may, upon ten (10) days' written notice
to Debtor, but without any other demand or notice whatsoever,
transfer ownership of the Stock to Secured Party in discharge of
the Secured Obligations to the extent of the Fair Market Value,
as defined in Section 10(c) of this Agreement, of the shares of
the Stock so transferred, to the extent required to pay all of
the Secured Obligations, such transfer to be free and clear of
any right or equity of redemption, which right or equity is
hereby expressly waived and released.
(b) In the event shares of the Stock are so
transferred in discharge of any or all of the Secured
Obligations, such transfer shall be applied first to the amounts
payable as set forth in Section 15 and second to the Obligations
arising in respect of the Non-Recourse Promissory Note and the
Term Loan Agreement, in each case first to liabilities for
interest and then to liabilities for principal. All rights and
remedies hereunder are in addition to whatever other rights the
parties hereto may otherwise have against one another, and no
exercise of any such rights or remedies shall be deemed to
preclude the exercise of any other rights or remedies.
(c) For purposes of this Agreement, the "Fair
Market Value" of any shares of the Stock shall mean an amount
agreed to by Debtor and Secured Party as being the fair market
value of such shares of the Stock. If Debtor and Secured Party
are unable to agree upon the Fair Market Value of the shares of
the Stock, the "Fair Market Value" of the Stock shall equal an
amount therefor determined by a majority vote of three
independent valuation firms, one each selected by A&M and Secured
Party and the third (the "Third Appraiser") selected by the two
independent valuation firms selected by A&M and Secured Party.
If two of the three appraisers cannot agree on the Fair Market
Value, the determination of the Third Appraiser shall control.
Each of A&M and Secured Party shall pay the fees and expenses of
the appraiser selected by it. The fees and expenses of the Third
Appraiser shall be paid (i) solely by the party whose appraiser's
determination of the Fair Market Value deviates by more than 10%
from that of the Third Appraiser, or (ii) equally by A&M and
Secured Party if the determination of both of the appraisers
selected by them deviates by more or less than 10% from that of
the Third Appraiser.
(d) In the event the Fair Market Value of the
Stock exceeds the aggregate amount of the Secured Obligations,
the number of shares of Stock to be transferred to Secured Party
pursuant to Section 10(a) shall be determined by multiplying the
number of shares of Stock, by a fraction, the numerator of which
is the aggregate amount of the Secured Obligations and the
denominator of which is the aggregate Fair Market Value of the
Stock determined as provided herein, with any fractional interest
settled in cash.
11. Continuing Security Interest; Transfer of the Non-Recourse
Promissory Note. This Agreement shall create a
continuing security interest in the Collateral and shall (i)
remain in full force and effect until the payment in full of the
Secured Obligations, (ii) be binding upon Debtor, its successors
and assigns and (iii) inure, together with the rights and
remedies of Secured Party hereunder, to the benefit of Secured
Party and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), Secured
Party may assign or otherwise transfer the Non-Recourse
Promissory Note only to any affiliate of Secured Party, and such
affiliate shall thereupon become vested with all the benefits in
respect thereof granted to Secured Party herein or otherwise.
Upon the payment in full of all Secured Obligations, the security
interest granted hereby shall terminate and all rights to the
Collateral shall revert to Debtor. Upon any such termination
Secured Party will, at Debtor's expense, execute and deliver to
Debtor such documents as Debtor shall reasonably request to
evidence such termination.
12. Amendments; Etc. No amendment, modification,
termination or waiver of any provision of this Agreement, and no
consent to any departure by Debtor therefrom, shall in any event
be effective unless the same shall be in writing and signed by
Secured Party and, in the case of any such amendment or
modification, by Debtor.
13. Notices. Any communications between Secured Party
and Debtor and any notices or requests provided herein to be
given shall be given in accordance with the provisions set forth
in the Term Loan Agreement.
14. Failure or Indulgence Not Waiver. No failure or
delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further
exercise thereof or of any other power, right or privilege.
15. Expenses. Debtor will upon demand pay to Secured
Party the amount of any and all reasonable expenses, including
the reasonable fees and disbursements of counsel and of any
experts and agents, which Secured Party may incur in connection
with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection
from or other realization upon any of the Collateral, (iii) the
exercise or enforcement of any of its rights hereunder or (iv)
the failure by Debtor to perform or observe any of the provisions
hereof.
16. Severability. In case any provision in or
obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not
in any way be affected or impaired thereby.
17. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
18. Governing Law; Terms; Jurisdiction. This
Agreement and the rights and obligations of the parties hereunder
shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of New York
without regard to conflicts of laws principles, except to the
extent that the Uniform Commercial Code of the applicable
jurisdiction provides that the validity or perfection of the
security interest hereunder, or remedies hereunder, in respect of
any particular collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Non-Recourse Promissory Note, terms used
in Articles 8 and 9 of the Uniform Commercial Code in the State
of New York are used herein as therein defined. Any action or
proceeding arising out of or relating to this Agreement, the
Promissory Note or the Term Loan Agreement shall be heard and
determined in an appropriate state or federal court in the State
of New York.
19. Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY AGREES TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT, THE PROMISSORY NOTE OR THE TERM LOAN
AGREEMENT, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THE PROMISSORY NOTE AND THIS AGREEMENT AND THE
LENDER/BORROWER AND SECURED PARTY/DEBTOR RELATIONSHIP THAT IS
BEING ESTABLISHED. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction,
including without limitation, contract claims, tort claims,
breach of duty claims, and all other common law and statutory
claims. Each party hereto acknowledges that this waiver is a
material inducement to enter into a business relationship, that
each has already relied on the waiver in entering into this
Agreement, and that each will continue to rely on the waiver in
their related future dealings. Each party hereto further
warrants and represents that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT, THE PROMISSORY NOTE, THE TERM LOAN AGREEMENT OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE PROMISSORY
NOTE. In the event of litigation, this Agreement may be filed as
a written consent to a trial by the court.
20. Counterparts. This Agreement may be executed in
one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of August 28, 1997.
A&M INVESTMENT ASSOCIATES #4, LLC
By ____________________________
Name:
Title:
MADELEINE, LLC
By ____________________________
Name:
Title:
