UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 2)*
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)
December 10, 1998
(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 Sections 240.13d-1(e), 240.13d-1(f) or
240.13d-1(g), check the following box / /.
NOTE: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7 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 NAMES OF REPORTING PERSONS
A&M INVESTMENT ASSOCIATES #3, LLC
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
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: 2,278,387 shares
8 SHARED VOTING POWER
9 SOLE DISPOSITIVE POWER
Common Stock: 2,278,387 shares
10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 2,278,387 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
19.07%
14 TYPE OF REPORTING PERSON
OO
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
A&M INVESTMENT ASSOCIATES #4, LLC
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
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)
3.59%
14 TYPE OF REPORTING PERSON
OO
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
A&M INVESTMENT ASSOCIATES #8, LLC
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
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: 16,000 shares
8 SHARED VOTING POWER
9 SOLE DISPOSITIVE POWER
Common Stock: 16,000 shares
10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 16,000 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
.15%
14 TYPE OF REPORTING PERSON
OO
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
ANTONIO C. ALVAREZ, II
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
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: 2,679,929 shares
9 SOLE DISPOSITIVE POWER
10 SHARED DISPOSITIVE POWER
Common Stock: 2,679,929 shares
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 2,679,929 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
22.43%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
SCHEDULE 13D
CUSIP No. 963281100
1 NAME OF REPORTING PERSON
BRYAN P. MARSAL
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
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: 2,679,929 shares
9 SOLE DISPOSITIVE POWER
10 SHARED DISPOSITIVE POWER
Common Stock: 2,679,929 shares
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
Common Stock: 2,679,929 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
22.43%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
Item 2. Identity and Background
The first paragraph of Item 2. is hereby amended and
restated as follows:
This statement is filed jointly by A&M Investment Associates
#3, LLC ("A&M #3"), A&M Investment Associates #4, LLC ("A&M
#4"), A&M Investment Associates #8, LLC ("A&M #8"), Antonio C.
Alvarez, II ("Alvarez") and Bryan P. Marsal ("Marsal")
(collectively, the "Reporting Persons"). Alvarez and Marsal
are each United States citizens. A&M #3, A&M #4 and A&M #8 are
each Delaware limited liability companies.
The second paragraph of Item 2. is hereby amended and
restated as follows:
A&M #3, A&M #4 and A&M #8 were formed by Alvarez and Marsal
for the purpose of acquiring securities of the Issuer. The
members of A&M #3, A&M #4 and A&M #8 are Alvarez Family
Partners L.P., Marsal Family Colorado Partners L.P., certain
employees of Alvarez & Marsal, Inc. ("A&M"), a corporation
wholly owned by Alvarez and Marsal, and certain family members
of Alvarez and Marsal who are also employees of A&M. Alvarez
and Marsal are the managers of A&M #3, A&M #4 and A&M #8. The
business address of the Reporting Persons is c/o Alvarez &
Marsal, Inc., 599 Lexington Avenue, Suite 2700, New York, New
York 10022.
Item 3. Source and Amount of Funds or Other Consideration
Item 3 is hereby amended to add the following:
On May 28, 1998, A&M #8 purchased from Cerberus Partners, L.P.
("Cerberus"), a Delaware limited partnership, 16,000 shares of
common stock of the Issuer for a purchase price of $238,000.
A&M #8 paid $83,300 in cash and financed the balance of the
purchase price ($154,700) 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 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 2,278,387 shares of common stock of the
<PAGE>
Issuer, which number includes an option to purchase 1,199,151
shares of common stock exercisable within sixty days herefrom,
representing 19.07% of the total outstanding stock of the
Issuer as reported in the Issuer's most recent Quarterly
Report on Form 10-Q. 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 3.59% of the total outstanding stock of the
Issuer as reported in the Issuer's most recent Quarterly
Report on Form 10-Q. 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.
As of the date hereof, A&M #8, Alvarez and Marsal are deemed
to own 16,000 shares of common stock of the Issuer,
representing .15% of the total outstanding stock of the Issuer
as reported in the Issuer's most recent Quarterly Report on
Form 10-Q. A&M #8 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 #8.
The 2,679,929 shares of common stock of the Issuer of which
Alvarez and Marsal are deemed to be the indirect beneficial
owners represent approximately 22.43% of the total outstanding
stock of the Issuer as reported in the Issuer's most recent
Quarterly Report on Form 10-Q.
(c) 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 and Item 5 above is hereby
incorporated by reference herein.
<PAGE>
On April 30, 1998, in order to amend Section 4(b) of the
Management Services Agreement, dated as of January 31, 1997,
among the Issuer, A&M, A&M #3 and Alvarez ("the Management
Agreement"), which provides a mechanism for adjusting upward
or downward the number of shares of Common Stock of the Issuer
purchased by A&M #3 (the "A&M Shares") pursuant to a Stock
Subscription Agreement between the Issuer and A&M #3, dated as
of January 31, 1997 (the "Subscription Agreement"), the
Issuer, A&M, A&M #3 and Alvarez entered into a Second
Amendment to the Management Agreement. As so amended, Section
4(b) of the Management Agreement provides that the number of
shares purchased by A&M #3 pursuant to the Subscription
Agreement (1,100,000 shares) shall be adjusted upward or
downward such that the total number of A&M Shares is equal to
10% of the sum of (i) the shares of Common Stock ultimately
issued under the Issuer's plan of reorganization (the
"Reorganization Plan"), (ii) the quotient of (X) the amount in
dollars paid to the holders of allowed general unsecured
claims under the Reorganization Plan divided by (Y) $8.36, and
(iii) the total number of A&M Shares as adjusted hereby. On
December 10, 1998, pursuant to the above formula and based
upon distributions to and cash settlements by creditors of the
Issuer as of September 30, 1998, a 20,764 share downward
adjustment was made. Accordingly, A&M #3 returned 20,764
shares of Common Stock of the Issuer to the Issuer. Further
adjustments may be necessary for any additional distributions
or settlements pursuant to the Reorganization Plan occurring
after September 30,1998.
Pursuant to the terms of the First Amendment to
NonTransferable Stock Option Agreement, dated as of April 30,
1998, between the Issuer and A&M#3, Section 8(a) of the
Non-Transferable Stock Option Agreement (the "Option
Agreement"), dated as of January 31, 1997, between the Issuer
and A&M #3, which provides a mechanism for adjusting upward or
downward the number of shares of Common Stock of the Issuer
purchasable under the Option Agreement and the exercise prices
therefor, was amended to conform to the original intent of the
parties. On December 10, 1998, in accordance with the
adjustment provisions of the Option Agreement, an interim
adjustment was made to the number of shares purchasable upon
exercise of the option. After the adjustment, options to
acquire 331,127 shares have an exercise price of $8.80 per
share, options to acquire 331,127 shares have an exercise
price of $10.66 per share, and options to acquire 331,127
shares have an exercise price of $12.97 per share. Further
adjustments may be necessary for any additional
<PAGE>
distributions or settlements pursuant to the
Reorganization Plan occurring after September 30,1998.
On May 28, 1998, A&M #8 purchased from Cerberus 16,000 shares
of common stock of the Issuer. A&M #8 paid $83,300 in cash and
financed the balance of the purchase price ($154,700) through
a loan obtained from Madeleine pursuant to a Term Loan
Agreement, dated May 28, 1998, between A&M #8 and Madeleine
and the A&M Stock Pledge and Account Agreement, dated May 28,
1998, between A&M #8 and Madeleine, in exchange for a Secured
Non-Recourse Promissory Note of A&M #8. 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 #8
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 Second Amendment to the
Management Services Agreement, the First Amendment to
Non-Transferable Stock Option 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:
Exhibit 8. Amended and Restated Joint Filing
Agreement between Reporting Persons,
dated April 9, 1999
Exhibit 9. Second Amendment to Management Services
Agreement, dated as of April 30, 1998, among
the Issuer, A&M, A&M #3 and Alvarez
(Incorporated by reference to Exhibit 10.4
of Issuer's Annual Report on Form 10-K dated
April 30,1998)
Exhibit 10. First Amendment to Non-Transferable
Stock Option Agreement, dated as of April
30, 1998, between the Issuer and A&M #3
(Incorporated by reference to
<PAGE>
Exhibit 10.10 of Issuer's Annual Report
on Form 10-K dated April 30,1998)
Exhibit 11. Form of Term Loan Agreement between A&M
#8 and Madeleine, dated May 28, 1998
Exhibit 12. Form of A&M #8 Secured Non-Recourse
Promissory Note Due January 31, 2004
Exhibit 13. Form of A&M Stock Pledge and Account
Agreement between A&M #8 and Madeleine,
dated May 28, 1998
<PAGE>
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: April 9, 1999
A&M INVESTMENT ASSOCIATES #3, LLC
By:\s\ Bryan P. Marsal
------------------------------
Name: Bryan P. Marsal
Title: Manager
A&M INVESTMENT ASSOCIATES #4, LLC
By:\s\ Bryan P. Marsal
------------------------------
Name: Bryan P. Marsal
Title: Manager
A&M INVESTMENT ASSOCIATES #8, LLC
By:\s\ Bryan P. Marsal
------------------------------
Name: Bryan P. Marsal
Title: Manager
\s\ Antonio C. Alvarez
-----------------------------------
ANTONIO C. ALVAREZ, II
\s\ Bryan P. Marsal
-----------------------------------
BRYAN P. MARSAL
AMENDED AND RESTATED
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934,
as amended, each of the persons named below agree to the joint filing of a
statement on Schedule 13D, including amendments thereto, with respect to the
common stock, $.01 par value per share, of Wherehouse Entertainment, Inc., and
further agree that this Amended and Restated Joint Filing Agreement be included
as an exhibit to such filings; provided, that, as contemplated by Section
13d-1(k)(1)(ii), no person shall be responsible for the completeness or accuracy
of the information concerning the other persons making the filing, unless such
person knows or has reason to believe that such information is inaccurate. This
Amended and Restated Joint Filing Agreement may be executed in any number of
counterparts, all of which collectively shall constitute one and the same
instrument.
Dated: April 9, 1999
A&M INVESTMENT ASSOCIATES #3, LLC
By:\s\ Bryan P. Marsal
----------------------
Name: Bryan P. Marsal
Title: Manager
A&M INVESTMENT ASSOCIATES #4, LLC
By:\s\ Bryan P. Marsal
----------------------
Name: Bryan P. Marsal
Title: Manager
A&M INVESTMENT ASSOCIATES #8, LLC
By:\s\ Bryan P. Marsal
----------------------
Name: Bryan P. Marsal
Title: Manager
\s\ Antonio C. Alvarez, II
-----------------------------------
ANTONIO C. ALVAREZ, II
\s\ Bryan P. Marsal
-----------------------------------
BRYAN P. MARSAL
May 28, 1998
A&M Investment Associates #8, 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
#8, LLC, a Delaware limited liability company ("A&M"), for the purpose of
financing the purchase by A&M of 16,000 shares of common stock of Wherehouse
Entertainment, Inc. (the "Stock") at the price of Fourteen Dollars and Seven
Eighths of One Dollar per share ($14 7/8).
1. 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.
2. Term Loan.
(a) Amount; Expiration. Madeleine hereby agrees to provide a term loan in
the amount of One Hundred Fifty Four Thousand Seven Hundred United States
Dollars ($154,700.00) to A&M (the "Term Loan"). The commitment of Madeleine
hereunder to make the Term Loan shall expire immediately and without further
action on May 31, 1998 if the Term Loan is not made on or before that date.
(b) 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
$154,700.00 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:
1
<PAGE>
Citibank
ABA #021000089
for account of Bear Stearns Securities Corp.
Account #
for sub-account of Madeleine, LLC
Sub-account #
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.
(c) 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.
(d) Interest. Interest shall be payable on the Term Loan at the rate and at
the times set forth in the Promissory Note.
(e) 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.
(f) 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.
3. 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
2
<PAGE>
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.
4. 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:
(a) 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.
(b) 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.
(c) 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.
(d) 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.
5. 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
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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 #8, 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.
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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.
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Kindly indicate your acceptance of this Agreement by executing and
delivering a counterpart of this Agreement on or before May 28, 1998.
MADELEINE, LLC
By: ______________________
THE FOREGOING AGREEMENT IS
ACCEPTED:
A&M INVESTMENT ASSOCIATES #8, LLC
By:______________________________________
Antonio C. Alvarez II, Co-manager
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ANNEX I
FORM OF
A&M INVESTMENT ASSOCIATES #8, LLC
SECURED NON-RECOURSE PROMISSORY NOTE DUE JANUARY 31, 2004
$154,700.00 May 28, 1998
New York, New York
A&M INVESTMENT ASSOCIATES #8, LLC ("Payor"), for value received, hereby
promises to pay to MADELEINE, LLC., a New York limited liability company
("Payee"), the principal sum of $154,700.00 on January 31, 2004, with periodic
interest payments as herein provided and without mandatory interim principal
payments.
Interest on the unpaid principal amount hereof will accrue from the date
hereof through maturity, at the rate of eleven percent (11%) per annum; provided
that in no event will the amount of interest due under this Note exceed the
maximum amount permitted by law. Interest due under this Note shall be computed
on the basis of a 360-day year, based on the actual number of days elapsed.
Interest due under this Note shall compound annually and shall be due and
payable at the principal office of Payee on the last day of each calendar
quarter.
Payor shall have the right at any time or from time to time to prepay any
of the principal amount and/or interest due hereunder without penalty or
premium.
This Note is the "Promissory Note" referred to in that certain Term Loan
Agreement, dated as of May 28, 1998, between Payor and Payee (the "Term Loan
Agreement"). This Note shall be repaid in the manner set forth in Section 2(c)
of the Term Loan Agreement.
This Note is the "Promissory Note" referred to in that certain A&M Stock
Pledge and Account Agreement, dated as of the date hereof, between Payor and
Payee (the "A&M Stock Pledge and Account Agreement"). This Note is a
non-recourse note secured by, and is entitled to the benefit of, the A&M Stock
Pledge and Account Agreement, the terms and provisions of which are hereby
incorporated herein as if set forth herein in full. This Note shall become
immediately due and payable in its entirety, including all accrued interest,
upon the occurrence of an Event of Default under the A&M Stock Pledge and
Account Agreement, but Payee's sole remedy shall be to sell, mortgage, foreclose
upon or otherwise dispose of the Stock pledged to Payee under the A&M Stock
Pledge and Account Agreement.
Payor hereby waives presentment, demand, protest, notice of protest and
notice of dishonor.
To the full extent permitted by law, the obligations of Payor under this
Note shall not be subject to any counterclaim, set-off, deduction, diminution,
abatement, recoupment, suspension, deferment, reduction or defense (other than
the full and strict compliance by Payor with those obligations) based on any
claim that Payor may have against Payee or any other person.
No provision of this Note may be waived, modified or discharged orally, but
only by an agreement in writing signed by the party against whom enforcement is
sought.
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This Note 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.
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IN WITNESS WHEREOF, Payor has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
A&M INVESTMENT ASSOCIATES #8, LLC
By:________________________________
Name: Antonio C. Alvarez II
Title: Co-manager
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ANNEX II
FORM OF
A&M STOCK PLEDGE AND ACCOUNT AGREEMENT
In order to induce MADELEINE, LLC (Secured Party") to accept from A&M
INVESTMENT ASSOCIATES #8, LLC ("Debtor") its Secured Non-Recourse Promissory
Note, dated May 28, 1998 in the original principal amount of $154,700.00 (the
"Non-Recourse Promissory Note") in connection with the purchase by Debtor of
16,000 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
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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
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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.
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
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Alvarez, as extended or amended from time to time 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
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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.
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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
II-6
<PAGE>
single counterpart so that all signature pages are physically attached to the
same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
II-7
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of May
28, 1998.
A&M INVESTMENT ASSOCIATES #8, LLC
By:______________________________
Name:
Title:
MADELEINE, LLC
By:______________________________
Name:
Title:
II-8
A&M INVESTMENT ASSOCIATES #8, LLC
SECURED NON-RECOURSE PROMISSORY NOTE DUE JANUARY 31, 2004
$154,700.00 May 28, 1998
New York, New York
A&M INVESTMENT ASSOCIATES #8, LLC ("Payor"), for value received, hereby
promises to pay to MADELEINE, LLC., a New York limited liability company
("Payee"), the principal sum of $154,700.00 on January 31, 2004, with periodic
interest payments as herein provided and without mandatory interim principal
payments.
Interest on the unpaid principal amount hereof will accrue from the date
hereof through maturity, at the rate of eleven percent (11%) per annum; provided
that in no event will the amount of interest due under this Note exceed the
maximum amount permitted by law. Interest due under this Note shall be computed
on the basis of a 360-day year, based on the actual number of days elapsed.
Interest due under this Note shall compound annually and shall be due and
payable at the principal office of Payee on the last day of each calendar
quarter.
Payor shall have the right at any time or from time to time to prepay any
of the principal amount and/or interest due hereunder without penalty or
premium.
This Note is the "Promissory Note" referred to in that certain Term Loan
Agreement, dated as of May 28, 1998, between Payor and Payee (the "Term Loan
Agreement"). This Note shall be repaid in the manner set forth in Section 2(c)
of the Term Loan Agreement.
This Note is the "Promissory Note" referred to in that certain A&M Stock
Pledge and Account Agreement, dated as of the date hereof, between Payor and
Payee (the "A&M Stock Pledge and Account Agreement"). This Note is a
non-recourse note secured by, and is entitled to the benefit of, the A&M Stock
Pledge and Account Agreement, the terms and provisions of which are hereby
incorporated herein as if set forth herein in full. This Note shall become
immediately due and payable in its entirety, including all accrued interest,
upon the occurrence of an Event of Default under the A&M Stock Pledge and
Account Agreement, but Payee's sole remedy shall be to sell, mortgage, foreclose
upon or otherwise dispose of the Stock pledged to Payee under the A&M Stock
Pledge and Account Agreement.
Payor hereby waives presentment, demand, protest, notice of protest and
notice of dishonor.
To the full extent permitted by law, the obligations of Payor under this
Note shall not be subject to any counterclaim, set-off, deduction, diminution,
abatement, recoupment, suspension, deferment, reduction or defense (other than
the full and strict compliance by Payor with those obligations) based on any
claim that Payor may have against Payee or any other person.
No provision of this Note may be waived, modified or discharged orally, but
only by an agreement in writing signed by the party against whom enforcement is
sought.
This Note 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.
[remainder of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, Payor has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
A&M INVESTMENT ASSOCIATES #8, LLC
By:_____________________________
Name: Antonio C. Alvarez II
Title: Co-manager
2
A&M STOCK PLEDGE AND ACCOUNT AGREEMENT
In order to induce MADELEINE, LLC ("Secured Party") to accept from A&M
INVESTMENT ASSOCIATES #8, LLC ("Debtor") its Secured Non-Recourse Promissory
Note, dated May 28, 1998 in the original principal amount of $154,700.00 (the
"Non-Recourse Promissory Note") in connection with the purchase by Debtor of
16,000 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
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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
2
<PAGE>
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.
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, as extended or amended from time to time or (ii) is terminated from
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<PAGE>
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,
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<PAGE>
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.
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<PAGE>
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
6
<PAGE>
single counterpart so that all signature pages are physically attached to the
same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
7
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of May
28, 1998.
A&M INVESTMENT ASSOCIATES #8, LLC
By:________________________________
Name:
Title:
MADELEINE, LLC
By:______________________________
Name:
Title:
S-1
