<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________
to _______________
Commission File Number 1-8281
Wherehouse Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
95-2647555
(I.R.S. Employer Identification Number)
19701 Hamilton Avenue
Torrance, California 90502-1334
(Address of principal executive offices including ZIP code)
(310) 538-2314
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class October 31, 1996
----- ----------------
Common Stock, $.01 Par Value 10
Total of 27 Pages
<PAGE>
INDEX
WHEREHOUSE ENTERTAINMENT, INC.
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
October 31, 1996 (Unaudited) and January 31, 1996 3
Condensed Statements of Operations -
Three Months Ended October 31, 1996 and 1995 (Unaudited)
Nine Months Ended October 31, 1996 and 1995 (Unaudited) 4
Condensed Statements of Cash Flows -
Nine Months Ended October 31, 1996 and 1995 (Unaudited) 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 27
2
<PAGE>
PART I.
FINANCIAL INFORMATION
WHEREHOUSE ENTERTAINMENT, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31 January 31
1996 1996
----------------- ----------------
(Unaudited) Note 1
ASSETS
<S> <C> <C>
Current Assets
Cash $ 1,428,000 $ 7,353,000
Receivables 1,483,000 1,583,000
Prepaid inventory deposits 5,797,000 10,880,000
Merchandise inventory 97,852,000 90,951,000
Other current assets 3,831,000 4,628,000
---------------- --------------
Total current assets 110,391,000 115,395,000
Rental inventory, net 11,987,000 14,004,000
Equipment and improvements, net 27,862,000 37,687,000
Financing costs and leasehold interest, net 1,019,000 641,000
Other assets 484,000 800,000
---------------- --------------
Total assets $ 151,743,000 $ 168,527,000
---------------- --------------
---------------- --------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Revolver-post petition $ 7,000,000 $ 0
Accounts payable and accrued expenses 24,799,000 28,232,000
Current maturities of capital lease obligations
and long-term debt 2,661,000 2,655,000
---------------- --------------
Total current liabilities 34,460,000 30,887,000
Capital lease obligations & long-term debt 874,000 1,498,000
Other long-term liabilities 10,583,000 9,494,000
Liabilities subject to compromise (Note 3) 276,575,000 279,665,000
Deferred income taxes 3,270,000 3,270,000
Shareholder's equity
Common stock, $.01 par value, 1,000
authorized, 10 issued and outstanding --- ---
Additional paid-in capital 95,671,000 95,671,000
Accumulated deficit (269,690,000) (251,958,000)
---------------- --------------
Total shareholder's deficit (174,019,000) (156,287,000)
---------------- --------------
Total liabilities and
shareholder's equity 151,743,000 $168,527,000
---------------- --------------
---------------- --------------
</TABLE>
See accompanying notes to Condensed Financial Statements
3
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
Oct 31, 1996 Oct 31, 1995 Oct 31, 1996 Oct 31, 1995
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 63,184,000 $ 74,817,000 $ 200,894,000 $ 239,057,000
Rental Revenue 14,960,000 18,283,000 52,409,000 63,053,000
--------------- ---------------- --------------- ---------------
78,144,000 93,100,000 253,303,000 302,110,000
Cost of sales 40,029,000 46,997,000 129,967,000 153,065,000
Cost of rentals, including amortization 9,392,000 11,280,000 27,309,000 30,041,000
--------------- ---------------- --------------- ---------------
49,421,000 58,277,000 157,276,000 183,106,000
Selling, general and administrative expenses 35,120,000 42,485,000 109,562,000 131,345,000
--------------- ---------------- --------------- ---------------
Loss from operations (6,397,000) (7,662,000) (13,535,000) (12,341,000)
Interest expense 281,000 1,088,000 594,000 14,127,000
Other income (122,000) (64,000) (216,000) (194,000)
--------------- ---------------- --------------- ---------------
Loss before reorganization items & income taxes (6,556,000) (8,686,000) (13,913,000) (26,274,000)
Reorganization items:
Professional fees 900,000 1,676,000 2,686,000 1,676,000
Provision for store closing costs 0 1,687,000 1,134,000 1,687,000
--------------- ---------------- --------------- ---------------
900,000 3,363,000 3,820,000 3,363,000
--------------- ---------------- --------------- ---------------
Loss before income taxes (7,456,000) (12,049,000) (17,733,000) (29,637,000)
Benefit for income taxes 0 0 0 0
--------------- ---------------- --------------- ---------------
Net loss $ (7,456,000) $ (12,049,000) $ (17,733,000) $ (29,637,000)
--------------- ---------------- --------------- ---------------
--------------- ---------------- --------------- ---------------
</TABLE>
See accompanying notes to Condensed Financial Statements
4
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
Oct 31, 1996 Oct 31, 1995
---------------- ----------------
<S> <C> <C>
Operating activities:
Net loss $ (17,733,000) $ (29,637,000)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 29,053,000 32,831,000
Book value of rental inventory dispositions 7,893,000 9,672,000
Loss (gain) on disposal of fixed assets 0 1,597,000
Changes in operating assets and liabilities:
Receivables 100,000 1,886,000
Tax receivable 0 1,293,000
Prepaid inventory deposits 5,083,000 0
Merchandise inventory (8,925,000) (420,000)
Other current assets 797,000 (1,254,000)
Accounts payable, accrued expenses and
other liabilities 135,000 (25,063,000)
Rental inventory purchases (25,292,000) (27,585,000)
-------------- -------------
Net cash used in operating activities (8,889,000) (36,680,000)
Investing activities:
Acquisition of property, equipment and improvements (1,934,000) (7,734,000)
Decrease in other assets and intangibles (418,000) (478,000)
-------------- -------------
Net cash used in investing activities (2,352,000) (8,212,000)
Financing activities:
Short-term borrowings 0 29,320,000
Short-term borrowings-Post 7,000,000 18,000,000
Subordinated debenture redemptions 0 (169,000)
Liabilities subject to compromise (1,066,000) (300,000)
Principal payments on capital lease obligations
and long-term debt (618,000) (1,543,000)
-------------- -------------
Net cash provided by financing
activities 5,316,000 45,308,000
-------------- -------------
Net increase (decrease) in cash (5,925,000) 416,000
Cash at beginning of the period 7,353,000 1,962,000
-------------- -------------
Cash at end of the period $ 1,428,000 $ 2,378,000
-------------- -------------
-------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 516,000 $ 11,456,000
Net income taxes 25,000 (1,276,000)
Reorganization items 2,815,000 0
</TABLE>
See accompanying notes to Condensed Financial Statements
5
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements of Wherehouse
Entertainment, Inc. (the "Company") have been prepared by the Company without
audit. The condensed balance sheet at January 31, 1996 has been derived from
the Company's audited financial statements at that date. Certain footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
accompanying condensed financial statements include all adjustments (consisting
only of normal, recurring adjustments) which are considered necessary for a fair
presentation. The results of operations for any interim period may not be
indicative of the results of the entire year.
It is suggested that the accompanying unaudited condensed financial
statements be read in conjunction with the financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended January
31, 1996 and Quarterly Reports on Form 10-Q for the quarters ended April 30,
1996 and July 31, 1996.
2. REORGANIZATION UNDER CHAPTER 11
On August 2, 1995 (the "Petition Date"), Wherehouse Entertainment, Inc.
(hereafter referred to as Wherehouse or the Company) and WEI Holdings, Inc.
(WEI), the Company's parent, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11" or the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court). The Chapter 11 proceedings are being jointly administered,
with the Company managing the business in the ordinary course as debtor-in-
possession subject to the control and supervision of the Bankruptcy Court.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims in existence at the petition date (pre-petition) are
stayed, absent specific Bankruptcy Court authorization to pay such claims. The
Company believes that appropriate provisions have been made in the accompanying
financial statements for the pre-petition claims that could be estimated at the
date of these financial statements. These claims are reflected in the October
31, 1996 balance sheet as "liabilities subject to compromise." Additional
claims (liabilities subject to compromise) may arise subsequent to the filing
date resulting from the rejection of executory contracts, including leases, and
from the determination of the court (or agreed to by parties-in-interest) of
allowed claims for contingencies and disputed amounts. Claims secured against
the Company's assets (secured claims) are stayed, although holders of such
claims have the right to
6
<PAGE>
petition the court for relief from the stay.
The Company received approval from the Bankruptcy Court to pay or otherwise
honor employee wages and benefits and certain other pre-petition obligations
necessary for the continuing existence of the Company prior to approval of a
plan of reorganization. Generally, unsecured debt does not accrue interest
after the petition date. In addition, the Company has determined that there is
insufficient collateral to cover the interest portion of scheduled payments on
most pre-petition debt obligations. Therefore, the Company has discontinued
accruing interest on these obligations. Contractual interest would have been
$19.5 million higher had the Company continued to accrue interest on these
obligations from February 1, 1996 through October 31, 1996.
As debtor-in-possession, the Company has the right, subject to Bankruptcy
Court approval and certain other limitations, to assume or reject certain
executory contracts, including unexpired leases. Any claim for damages
resulting from the rejection of an executory contract or an unexpired lease is
treated as a general unsecured claim in the Chapter 11 proceedings.
The Company has obtained debtor-in-possession financing from a syndicate of
financial institutions whereby a $30,000,000 revolving credit facility ("DIP
facility"), which includes a letter of credit subfacility of $10,000,000, is
available to fund working capital, issue letters of credit and make certain
other payments during Chapter 11 proceedings. The DIP facility is available
through the earlier of September 1, 1997 or the effective date of a plan of
reorganization. The Company pays a commitment fee of 1/2% on the average daily
unused portion of the DIP facility. The Company had outstanding borrowings of
$7.0 million against the DIP facility at October 31, 1996. At October 31, 1996,
the Company had $400,000 of letters of credit outstanding.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Chapter 11 filings, such realization of assets and
liquidation of liabilities is subject to uncertainty. While under the
protection of Chapter 11, the Company, in the normal course of business, may
sell or otherwise dispose of assets and liquidate or settle liabilities for
amounts other than those reflected in the consolidated financial statements.
Further, a plan of reorganization could materially change the amounts and
classifications reported in the consolidated historical financial statements,
which do not give effect to any adjustments to the carrying value of assets or
amounts of liabilities that might be necessary as a consequence of a plan of
reorganization. The propriety of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization, which must
be approved by the creditors and confirmed by the Bankruptcy Court, and the
Company's ability to meet its business plan and generate sufficient cash flows
from operations and financial sources.
On September 26, 1996 the Company filed with the Bankruptcy Court, an
Amended Plan of Reorganization (the "Plan"), as revised for technical
corrections on October 4, 1996, and amended on December 2, 1996, and further
amended on the record at a Confirmation hearing held on December 13, 1996.
The Bankruptcy Court orally confirmed the Plan at that hearing.
7
<PAGE>
Following is a summary of the proposed treatment in the Plan of each of
the major classes of creditors and shareholders recorded on the Company's
October 31, 1996 balance sheet. Capitalized terms are defined in the Plan, a
copy of which has been filed as an exhibit to the Report. The following is
subject to, and qualified by, reference to the Plan:
SENIOR LENDERS
Seniors Lender Claims are claims arising under or in respect of the
Company's 1992 credit agreement and related documents. Under the Plan,
the secured portion of such claims is compromised at $35 million. On
account of such secured portion, the Senior Lenders will receive (i)
approximately $11.61 million in cash, subject to adjustment to effectuate
an exchange for new common stock with Eligible Suppliers who exercise
the Exchange Option, and (ii) approximately 24% of the new common stock
(prior to dilution for warrants or management stock), assuming an $11.61
million cash distribution.
The Senior Lenders will also receive a distribution of 31.92 shares of
new common stock per $1,000 in Allowed amount of the deficiency portion
of their claims. The Company estimates that the Senior Lenders will
receive approximately 19% of the new common stock (prior to dilution for
warrants or management stock) on account of their deficiency claims.
The Senior Lenders will also receive shares of new common stock (which
would otherwise be distributed to holders of Senior Subordinated Note
Claims) in accordance with, and in enforcement of, the subordination
provisions of the Senior Subordinated Note Indenture. The Company esti-
mates that approximately 37% of the new common stock (prior to dilution
for warrants or management stock) will be distributed to the Senior Len-
ders on account of the enforcement of these subordination provisions.
The total percentage of shares to be distributed to the Senior Lenders
depends on a number of variables, including how many Eligible Suppliers
elect the cash-out option described below and the total unsecured claims
that are ultimately allowed. Assuming that all Eligible Suppliers elect
the exchange option and based on the Company's estimate of the claims that
will be allowed, the Company estimates that the Senior Lenders will re-
ceive approximately 94.5% of the new common stock prior to dilution and
approximately 81% of the new common stock after dilution for the warrants
and management stock.
GENERAL UNSECURED CREDITORS
All holders of General Unsecured Claims (including trade suppliers,
landlords with rejection damages, and other miscellaneous unsecured
creditors) will receive a distribution of 31.92 shares of new common
stock per $1,000 in Allowed amount of claim, the same distribution ratio
as applicable to the distribution on account of Senior Lenders' deficiency
claims.
In addition, the Plan provides for a voluntary exchange between the
Senior Lenders and ongoing suppliers of copyrighted music, film or other
entertainment products. If such supplier commits to supply to Reorgan-
ized Wherehouse goods on normal credit terms which are substantially com-
parable to those offered from time to time to other similarly situated
customers, such supplier will have an option to exchange the new common
stock received under the Plan for cash distributed to the Senior Lenders
on account of their secured claims. Such cash option is exercisable at
a ratio equal to $0.27 for every dollar of such supplier's Allowed amount
of general unsecured claim.
SENIOR SUBORDINATED NOTE HOLDERS
At the confirmation hearing on December 13, 1996, the Debtors' First
Amended Chapter 11 Plan was amended so that the distribution to Senior
Subordinate Noteholders is as follows:
1. The distribution to the Class 7 Senior Subordinated Note-
holders will consist of: (a) a cash payment of $3,900,000 to be funded
from two sources: $2,350,000 from the Wherehouse estates and $1,550,000
through a separate settlement involving the 1992 acquisition fund re-
cipients, the principal of which is Adler & Shaykin and (b) warrants to
purchase 776,000 shares of new common stock which shall be issued in three
branches as follows: (i) 576,000 shares at an exercise price of $2.38
with a five year maturity, (ii) 100,000 shares at an exercise price of
$9.00 with a seven year maturity and (iii) 100,000 shares at an exercise
price of $11.00 with a seven year maturity.
2. The warrants shall have customary anti-dilution protection (such
anti-dilution protections shall not apply to the issuance of any manage-
ment stock and options to Alvarez & Marsal, Inc. as set forth in the dis-
closure statement to the Plan). The warrants will also have tag-along
rights which will expire on the earlier of (i) 3 years from the issuance
of the warrants or (ii) the consummation of an initial public offering
for Reorganized Wherehouse. Such tag-along rights shall only be applic-
able to a transaction or series of related transactions for the sale of
an amount greater than 750,000 shares of Reorganized Wherehouse held by
Cerberus Partners, L.P.
3. Whether or not obligated by law, Reorganized Wherehouse will
agree to be a reporting company under the Securities Exchange Act of
1934 for a period of no less than three years from the Effective Date.
DC-2 SECURED CLAIM
The Plan provided that the holder of the DC-2 Secured Claim would receive
either
8
<PAGE>
full payment in cash or, if the DC-2 Property was abandoned to such
holder, a general unsecured claim for any deficiency. The DC-2 Property
was sold in December 1996 and the proceeds thereof were applied to the
payment in full of the DC-2 Secured Claim.
MISCELLANEOUS SECURED AND PRIORITY CLAIMS
Under the Plan, holders of Miscellaneous Secured Claims and Miscellaneous
Priority Claims will not be impaired.
CONVERTIBLE SUBORDINATED DEBENTURES
Under the Plan, the holders of Convertible Subordinated Debenture Claims
receive no distribution.
EQUITY HOLDERS
Under the Plan, the holders of equity interests receive no distribution.
RELEASES
The Plan was also modified to expand the releases related to the 1992
acquisition of the Company to include a release of the selling share-
holders, the principal of which was Adler & Shaykin. In return,
Adler & Shaykin agreed to fund a portion of the distribution to the
Senior Subordinated Noteholders.
The consummation and effectiveness of the Plan is subject to the satis-
faction of certain post-confirmation conditions (including the closing of
a new working capital facility and the execution and delivery of the Asset
Purchase Agreement, the Warrant Agreements and all required documents
thereunder) and the entry of a confirmation order by the Bankruptcy Court
that is unstayed.
9
<PAGE>
3. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise include the following:
October 31, January 31,
1996 1996
------------ ------------
13% senior subordinated notes $110,000,000 $110,000,000
Variable rate term note and revolving
line of credit 90,262,000 92,170,000
Accrued interest 9,192,000 8,507,000
Lease rejection claims 6,000,000 6,000,000
Convertible subordinated debentures 5,344,000 5,344,000
Trade and other miscellaneous claims 55,777,000 57,644,000
------------ ------------
$276,575,000 $279,665,000
------------ ------------
4. SUMMARY OF FINANCIAL INFORMATION OF WEI HOLDINGS, INC.
Unconsolidated summary financial information of the Company's parent, WEI
Holdings, Inc., is as follows:
October 31, January 31,
1996 1996
------------ ------------
(In Thousands)
Current assets $ 38 $ 38
Total assets 38 38
Current liabilities 76 76
Deficiency in investment in the Company 174,019 156,287
Total liabilities 174,095 156,363
Redeemable common stock 3,872 3,872
Notes receivable from shareholders (660) (660)
Contingent shares (663) (663)
For the Nine Months Ended
October 31, October 31,
1996 1995
------------ ------------
(In Thousands)
Net Income $ 0 $ 10
10
<PAGE>
WEI holds all of the capital stock of the Company and, in turn, is currently
owned by affiliates of Merrill Lynch Capital Partners, Inc. ("MLCP") (91.8% on a
fully diluted basis) and certain members of management (8.2% on a fully diluted
basis). Currently, WEI conducts no independent operations and has no
significant assets apart from its investment in the capital stock of the
Company.
On August 2, 1995, WEI filed a voluntary Petition for relief under Chapter
11 of Title 11 of the United States Code. See Note 2 above.
11
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology. The reader is cautioned
that all forward-looking statements are necessarily speculative and there are
certain risks and uncertainties that could cause actual events or results to
differ materially from those referred to in such forward-looking statements.
The results for the nine months ended October 31, 1996 are not necessarily
indicative of the results that may be expected for the entire year. The risks
highlighted in this Report should not be assumed to be the only things that
could affect future performance of the Company. The Company does not have a
policy of updating or revising forward-looking statements and thus it should not
be assumed that silence by management of the Company over time means that actual
events are bearing out as estimated in such forward-looking statements.
This discussion should be read in conjunction with the financial statements,
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's Annual Report on Form 10-K
for the year ended January 31, 1996, and Quarterly Reports on Form 10-Q for
the quarters ended April 30, 1996 and July 31, 1996.
PETITION FOR RELIEF UNDER CHAPTER 11
On August 2, 1995 (the "Petition Date"), the Company and WEI, the Company's
parent, filed a voluntary petition for relief under Chapter 11 of Title 11 of
the United States Code in the United States Bankruptcy Court for the District of
Delaware in Wilmington, seeking to reorganize under Chapter 11. In Chapter 11,
the Company and WEI will continue to manage their respective affairs and operate
their businesses as debtors-in-possession while they attempt to develop a
reorganization plan that will restructure and allow their emergence from Chapter
11. As debtors-in-possession in Chapter 11, neither the Company nor WEI may
engage in transactions outside of the ordinary course of business without
approval, after notice and hearing, of the Bankruptcy Court.
As of the Petition Date, payment of pre-petition liabilities to the senior
lenders, bondholders and unsecured creditors of the Company and WEI, and pending
litigation against the Company and/or WEI are stayed while they continue their
business operations as debtors-
12
<PAGE>
in-possession.
As a result of the filing, the accrual of interest on the Revolving Line of
Credit, Variable Rate Term Note, 13% Senior Subordinated Notes and 6 1/4%
Convertible Subordinated Debentures was suspended effective August 1, 1995.
Interest expense on the above debt would have been $19.5 million higher had it
continued to accrue from the period of February 1, 1996 through October 31,
1996. The above debt has also become "Subject to Compromise" and has been
classified as such on the Company's balance sheet.
In accordance with the Bankruptcy Code, the Company can seek court approval
for the rejection of pre-petition executory contracts, including real property
leases. Any such rejection may give rise to a pre-petition claim for damages
pursuant to the Bankruptcy Code. In connection with the Chapter 11 proceedings,
the Company reviewed all of its store operating results and as a consequence of
that process the Company requested and received approval to reject
approximately 85 real property leases. The Company also requested approval
to reject an additional 29 property leases.
The Company has obtained lease concessions, primarily reductions in base
rent and other charges, for a number of its leases. Based upon these
reductions, the Company has obtained Court approval for the assumption of
approximately 27 store leases since the filing. The Company has also
requested approval to assume an additional 196 property leases and 44
executory contracts.
As a result of the reorganization proceedings, the Company may sell or
otherwise realize assets and liquidate or settle liabilities for amounts other
than those reflected in the financial statements. Further, a plan of
reorganization could materially change the amounts currently recorded in the
financial statements. Except as noted, the financial statements do not give
effect to any adjustments to the carrying value of assets, or amounts and
classification of liabilities that might be necessary as a consequence of these
matters.
On September 25, 1995, the Company completed negotiations with Bankers Trust
Company, as Agent, for a debtor-in-possession ("DIP") financing facility. The
DIP facility provides a borrowing capacity of up to $30.0 million in revolving
loans and letters of credit, subject to borrowing base limitations based upon,
among other things, the value of merchandise inventory. The DIP facility also
requires that the Company maintain certain financial covenants and provide
certain financial information on a periodic basis. A final order authorizing
borrowing on the DIP financing facility was approved by the Bankruptcy Court on
October 19, 1995. As of July 30, 1996, the DIP financing facility was amended
to modify certain financial covenants contained therein. The Company was in
compliance with all DIP facility covenants, as amended, at October 31, 1996, or
had obtained appropriate waivers.
The Company is currently involved in negotiations with a potential lender
for a post-
13
<PAGE>
bankruptcy financing facility. The Company is seeking a facility which provides
a borrowing capacity of up to $30.0 million in revolving loans and letters of
credit, subject to borrowing base limitations based upon, among other things,
the value of the merchandise inventory. It is anticipated that any such
facility will require that the Company maintain certain financial covenants and
provide certain financial information on a periodic basis. Any agreement that
is reached between the Company and a potential lender will be subject to
approval by the Bankruptcy Court.
On September 26, 1996 the Company filed with the Bankruptcy Court, an
Amended Plan of Reorganization (the "Plan"), as revised for technical
corrections on October 4, 1996, and amended on December 2, 1996, and further
amended on the record at a Confirmation hearing held on December 13, 1996.
See Note 2 to Notes to Condensed Financial Statements, above, for a summary
of the proposed treatment of creditor claims. The Bankruptcy Court orally
confirmed the Plan at the above hearing.
Since the filing, the Company has closed 90 stores (49 stores during fiscal
year 1996 and 41 stores during the nine months ended October 31, 1996). Total
store count at October 31, 1996 was 265.
14
<PAGE>
RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED OCTOBER 31, 1996 AND OCTOBER 31, 1995
Net revenues were $78.1 million and $93.1 million for the quarters ended
October 31, 1996 and 1995, respectively. The decrease of $15.0 million, or
16.1%, was principally due to the closing of 49 stores during fiscal year 1996
and 41 stores during the first nine months of fiscal year 1997, following the
bankruptcy filing, as well as continued competitive and economic pressures in
certain of the Company's markets.
A summary of total net revenues, by product category, is provided below:
NET REVENUES
BY PRODUCT CATEGORY
(DOLLAR AMOUNTS IN MILLIONS)
Quarter Ended
October 31,
1996 1995
----- -----
Net Merchandise Sales:
Compact discs (including used compact discs) $43.9 $46.6
Cassettes and other music 10.9 16.1
----- -----
Total music 54.8 62.7
Sales of new videocassettes 3.6 4.5
Video game software and hardware, general
merchandise, accessories, ticket commissions
and other 4.8 7.6
----- -----
Total merchandise sales 63.2 74.8
Videocassette and other rental income 14.9 18.3
----- -----
Total revenues $78.1 $93.1
----- -----
----- -----
Net merchandise sales were $63.2 million versus $74.8 million for the
quarters ended October 31, 1996 and 1995, respectively, representing an overall
decrease of 15.5%. On a same-store basis, however, net merchandise sales
declined by 2.6% during the quarter ended October 31, 1996 as compared to the
quarter ended October 31, 1995. These decreases in total and same-store net
merchandise sales are primarily attributable to the competitive and other
factors described above. Total net sales of music products, video games and
software, and accessories decreased in virtually all of the principal categories
of these products that are carried by the Company, except for sales of used
products which increased.
Rental income includes the rental of videocassettes, video games and game
players, audiocassette books, and laserdiscs; and sales of previously viewed
videocassettes and previously
15
<PAGE>
played video games. Approximately 224 of the Company's stores currently
offer rental products. Rental income was $15.0 million versus $18.3 million
during the quarters ended October 31, 1996 and 1995, respectively,
representing a decrease of $3.3 million or 18.0%. On a same-store basis,
rental income decreased approximately 8.0% as compared to the prior year.
The Company believes that the decrease in same-store rental income was
attributable to continued competition and general softening in rental
consumer spending nationwide. During the quarter ended October 31, 1996, the
Company decreased its purchases of video rental product by $0.7 million or
8.5% versus the same quarter of the prior year.
The Company believes that in the future its business will continue to be
impacted by various competitive and economic factors, including, but not limited
to, consumer tastes, new releases of music, videocassette and video game titles
available for sale or rental, and general economic trends impacting retailers
and consumers. In addition, in more recent years the Company's revenues have
been impacted by increased competition from other music and video specialty
retail chains, as well as discounters and mass merchandisers. Further, future
revenues may be reduced as a result of the closure of 90 stores since the
bankruptcy filing, and as a result of the closure of any additional stores that
may be approved by the Court during the remainder of the bankruptcy case.
Cost of sales decreased $7.0 million to $40.0 million for the quarter ended
October 31, 1996 versus $47.0 million for the quarter ended October 31, 1995,
representing a decrease of 14.9%. As a percentage of net merchandise sales,
costs of sales increased 0.6% to 63.4% during the quarter ended October 31, 1996
versus 62.8% during the quarter ended October 31, 1995. The 0.6% increase in
cost of sales as a percentage of net merchandise sales was principally due to
increased merchandise return costs and an increase in the provision for
obsolescence, offset by decreases in the cost of product sold and higher prompt
payment discounts.
Cost of rentals, including amortization, decreased to $9.4 million during
the quarter ended October 31, 1996, a decrease of $1.9 million or 16.8%, versus
$11.3 million during the quarter ended October 31, 1995. As a percentage of
rental income, cost of rentals increased to 62.8% during the quarter ended
October 31, 1996 versus 61.7% during the quarter ended October 31, 1995,
representing an increase of 1.1%. The 1.1% increase in cost of rentals,
including amortization, is primarily attributable to higher amortization and
lower recapture of amortization on video inventory returns, offset by decreases
in shrink and costs related to the sale and liquidation of used rental
inventory.
Merchandise sales as a percentage of aggregate net revenues increased 0.5%
to 80.9% during the quarter ended October 31, 1996 versus 80.4% during the
quarter ended October 31, 1995.
Several major retail chains, including Best Buy, Blockbuster Entertainment,
Hollywood Entertainment and Virgin Megastores, over the past two years have
increased their retail store presence in the Company's markets. This trend may
continue and it is anticipated the Company will in future periods experience
increased competition from companies with greater financial resources than its
own, and that such competition will result in continued pressure on revenues
16
<PAGE>
and gross profit margins.
Selling, general and administrative expenses, were $35.1 million versus
$42.5 million for the quarters ended October 31, 1996 and 1995, respectively, a
decrease of $7.4 million or 17.4%. As a percentage of net revenues, selling,
general and administrative expenses, were 44.9% during the quarter ended October
31, 1996 versus 45.6% during the quarter ended October 31, 1995, representing a
decrease of 0.7%. The 0.7% reduction was principally due to decreases as a
percentage of revenue in semi-variable expense and rent and other occupancy
costs offset by increases in payroll, advertising and other variable expense.
During the quarter, rent and occupancy costs declined in absolute dollars by
$3.5 million. Further decreases may be experienced as a result of the rejection
of additional real property leases during the bankruptcy case.
Interest expense (net of interest income) decreased $0.8 million to $0.2
million for the quarter ended October 31, 1996 versus $1.0 million for the
quarter ended October 31, 1995. The decrease was primarily attributable to a
reduction in the amount of borrowings on the DIP facility at October 31, 1996 as
compared to October 31, 1995.
Reorganization items include costs related to the bankruptcy case including
professional fees for legal and financial advisors, costs related to the closing
of stores, and the estimated cost associated with the rejection of certain
executory contracts. For the quarter, the Company reported total reorganization
items of $0.9 million which was entirely comprised of professional fees.
Reorganization items are expected to continue in future periods as a result of
the bankruptcy case.
Based upon current operations of the Company and other factors, the Company
did not record an income tax benefit for the quarters ended October 31, 1996 and
1995, and does not anticipate doing so for the remainder of the current fiscal
year. The Company anticipates that pre-tax losses, if any, which may be
realized during the fiscal year ending January 31, 1997 will not result in the
recording of any additional tax benefit by the Company, nor any refunds for
further operating loss carrybacks, although such tax benefits may be available
to the Company to reduce any future taxes payable under applicable Internal
Revenue Service and state regulations should the Company generate future taxable
income. Under certain circumstances, the Company could incur significant tax
liabilities from the forgiveness of indebtedness as a result of the bankruptcy
case, the eventual outcome of which is unknown at this time.
The Company is currently under audit by the California Franchise Tax Board
("FTB") for tax years January 31, 1992, 1993 and 1994. The Company believes
that it has made adequate provision in the financial statements for this audit.
In conjunction with the above-mentioned audit, the FTB has filed a proof of
claim in the bankruptcy court in the amount of $10.6 million for allegedly
unpaid income taxes during the years under audit. This claim, if allowed, would
become a pre-petition claim and as such would be paid out at the end of the
bankruptcy case. While the Company believes that the ultimate allowed amount of
this claim will constitute a small fraction of the claimed amount, there can be
17
<PAGE>
no assurance as to the final outcome of this claim.
FOR NINE MONTHS ENDED OCTOBER 31, 1996 AND OCTOBER 31, 1995
Net revenues were $253.3 million and $302.1 million for the nine months
ended October 31, 1996 and 1995, respectively. The decrease of $48.8 million,
or 16.2%, was principally due to the closing of 90 stores subsequent to the
bankruptcy filing, as well as continued competitive and economic pressures in
certain of the Company's markets.
A summary of total net revenues, by product category, is provided below:
NET REVENUES
BY PRODUCT CATEGORY
(DOLLAR AMOUNTS IN MILLIONS)
Nine Months Ended
October 31,
1996 1995
----- -----
Net Merchandise Sales:
Compact discs (including used compact discs) $131.8 $146.0
Cassettes and other music 40.7 53.7
----- -----
Total music 172.5 199.7
Sales of new videocassettes 15.0 14.9
Video game software and hardware, general
merchandise, accessories, ticket commissions
and other 13.4 24.4
------ ------
Total merchandise sales 200.9 239.0
Videocassette and other rental income 52.4 63.1
----- -----
Total revenues $253.3 $302.1
------ ------
Net merchandise sales were $200.9 million versus $239.1 million for the nine
months ended October 31, 1996 and 1995, respectively, representing an overall
decrease of 16.0%. On a same-store basis, however, net merchandise sales
declined by 5.5% during the nine months ended October 31, 1996 as compared to
the nine months ended October 31, 1995. These decreases in total and same-store
net merchandise sales are primarily attributable to the competitive and other
factors described above. Total net sales of music products, video games and
software, and accessories decreased in virtually all of the principal categories
of these products that are carried by the Company, except for sales of used
products which increased.
Rental income was $52.4 million versus $63.1 million during the nine months
ended October 31, 1996 and 1995, respectively, representing a decrease of $10.7
million or 17.0%. On a same-store basis, rental income decreased approximately
10.7% as compared to the prior year. The Company believes that the decrease in
same-store rental income was attributable to
18
<PAGE>
continued competition and general softening in rental consumer spending
nationwide. During the nine months ended October 31, 1996, the Company
decreased its purchases of video rental product by $2.8 million, or 10% versus
the same nine months of the prior year.
Cost of sales decreased $23.1 million to $130.0 million for the nine months
ended October 31, 1996 versus $153.1 million for the nine months ended October
31, 1995, representing a decrease of 15.1%. As a percentage of net merchandise
sales, costs of sales increased 0.7% to 64.7% during the nine months ended
October 31, 1996 versus 64.0% during the nine months ended October 31, 1995.
The 0.7% increase in cost of sales as a percentage of net merchandise sales was
principally due to increased merchandise return costs and lower prompt payment
discounts on merchandise inventory purchases.
Cost of rentals, including amortization, decreased to $27.3 million during
the nine months ended October 31, 1996, a decrease of $2.7 million or 9%, versus
$30.0 million during the nine months ended October 31, 1995. As a percentage of
rental income, cost of rentals increased to 52.1% during the nine months ended
October 31, 1996 versus 47.6% during the nine months ended October 31, 1995,
representing an increase of 4.5%. The 4.5% increase in cost of rentals,
including amortization, is primarily attributable to higher amortization,
shrinkage and costs related to an increased liquidation of used rental
inventory.
Merchandise sales as a percentage of aggregate net revenues increased by
0.2% from 79.1% for the period ended October 31, 1995, to 79.3% for the period
ended October 31, 1996.
Selling, general and administrative expenses, were $109.6 million versus
$131.3 million for the nine months ended October 31, 1996 and 1995,
respectively, a decrease of $21.7 million or 16.5%. As a percentage of net
revenues, selling, general and administrative expenses were 43.3% during the
nine months ended October 31, 1996 versus 43.5% during the nine months ended
October 31, 1995 representing a decrease of 0.2%. The 0.2% decrease was
principally due to decreases as a percentage of revenue in semi-variable expense
and rent and other occupancy costs offset by increases in payroll and other
variable expense. During the nine months, rent and other occupancy costs
decreased in absolute dollars by $8.7 million. Further decreases may be
experienced as a result of the rejection of additional real property leases
during the bankruptcy case.
Interest expense (net of interest income) decreased $13.5 million to $0.4
million for the nine months ended October 31, 1996 versus $13.9 million for the
nine months ended October 31, 1995. The decrease was primarily attributable to
the suspension of the accrual of interest following the filing of bankruptcy on
August 2, 1995, as noted previously.
Reorganization items include costs related to the bankruptcy case including
professional fees for legal and financial advisors, costs related to the closing
of stores, and the estimated cost associated with the rejection of certain
executory contracts. For the nine months, the Company reported total
reorganization items of $3.8 million which was comprised of professional fees of
$2.7 million and store closing costs of $1.1 million. Reorganization items are
expected to continue in future periods as a result of the bankruptcy case.
19
<PAGE>
Based upon current operations of the Company and other factors, the Company
did not record an income tax benefit for the nine months ended October 31, 1996
and 1995, and does not anticipate doing so for the remainder of the current
fiscal year. The Company anticipates that pre-tax losses, if any, which may be
realized during the fiscal year ending January 31, 1997 will not result in the
recording of any additional tax benefit by the Company, nor any refunds for
further operating loss carrybacks, although such tax benefits would be available
to the Company to reduce any future taxes payable under applicable Internal
Revenue Service and state regulations should the Company generate future taxable
income. Under certain circumstances, the Company could incur significant tax
liabilities from the forgiveness of indebtedness as a result of the bankruptcy
case, the eventual outcome of which is unknown at this time.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended October 31, 1996, the Company's net cash used
by operating activities decreased by $27.8 million to cash used of $8.9 million
from cash used during the nine months ended October 31, 1995 of $36.7 million.
The decrease of $27.8 million was due to lower decreases in accounts payable,
accrued expenses and other liabilities of $25.2 million, a cash increase
resulting from lower prepaid inventory deposits of $5.1 million and other
factors ($6.4 million), offset by lower decreases in merchandise inventory of
$8.9 million.
Cash used in investing activities decreased by $5.8 million to $2.4 million
during the nine months ended October 31, 1996 from $8.2 million during the nine
months ended July 31, 1995, principally due to decreased acquisitions of
property, equipment and improvements. While at the present time the Company
does not have any plans that materially alter the level of its planned capital
spending, such capital spending will be subject to future availability of funds
and other liquidity concerns.
Cash provided by financing activities decreased by $40.0 million from $45.3
million provided during the nine months ended October 31, 1995 to $5.3 million
provided in the nine months ended October 31, 1996 principally due to decreased
short-term borrowings.
While the Company believes that the current DIP borrowing facility (see Note
2 under Notes to Condensed Financial Statements) is adequate to support
operations for the remainder of the current fiscal year, there can be no
assurance as to the effect which any future changes in the Company's operations
(such as closed stores, material changes in interest rates, or its possible
emergence from bankruptcy) may have on its liquidity.
The Company has filed an Amended Plan of Reorganization with the Bankruptcy
Court (see Note 2 under Notes to Condensed Financial Statements). This Plan
requires the Company to make certain payments to creditors and others.
As of October 31, 1996 the Company has not signed any lease commitments to
open new stores during the next twelve months, or any other material commitments
outside those referenced
20
<PAGE>
earlier.
SEASONALITY
The Company's business is seasonal, and revenues and operating income are
highest during the fourth quarter. Working capital deficiencies and related
bank borrowings are lowest during the period commencing with the end of the
Christmas holidays and ending with the close of the Company's fiscal year.
Beginning in February, working capital deficiencies and related bank borrowings
have historically trended upward during the year until the fourth quarter. Bank
borrowings have historically been highest in October and November due to
cumulative capital expenditures for new stores and the building of inventory for
the holiday season.
INFLATION
The Company believes that inflation has not had a material effect on its
operations and it's internal and external sources of liquidity and working
capital. However, interest rate increases beyond current levels could have an
impact on the Company's operations.
21
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(i) Bankruptcy filing.
For a further description of developments with respect to the
Bankruptcy filing see the Company's Reports on Form 10-K and 10-Q for the year
ended January 31, 1996 and the quarters ended April 30, 1996 and July 31, 1996,
respectively.
On September 26, 1996, the Company and its parent Company, WEI Holdings,
Inc. (together, the "Debtors") filed the Debtors' First Amended Chapter 11
Plan. On October 4, 1996, the Debtors filed their First Amended Chapter 11
Plan, as revised for technical corrections (the "Plan") and the accompanying
disclosure statement. The deadline for filing objections to the adequacy of
the disclosure statement was October 31, 1996.
On November 4, 1996, the hearing on the adequacy of the disclosure
statement was held. The Bankruptcy Court approved the disclosure statement,
as amended by the Debtors prior to the hearing and as further amended on the
record at the hearing. The Bankruptcy Court ordered, among other things, that
the deadline for voting on the Plan would be December 9, 1996 and for filing
an objection to the Plan would be December 3, 1996.
On December 3, 1996, the Debtors filed certain documents required under
the Plan, including a schedule of certain non-residential real property
leases and executory contracts to be assumed at the confirmation hearing on
the Plan and the exhibits to the Plan. On December 6, 1996, the Debtor's
senior lenders filed a Schedule of Initial Members of the Board of Directors
of Reorganized Wherehouse.
On December 13, 1996, the confirmation hearing on the Plan was held.
Objections to the Plan had been filed by, among other entities, the Official
Committee of Unsecured Creditors and U.S. Trust Company of New York, as
indenture trustee for holders of the Company's Senior Subordinated Notes. On
December 13, 1996, a settlement was reached among the Debtors, the Company's
senior lenders, these objecting parties and a third party. As a result of
such settlement, these objections were withdrawn. All other objections filed
against the Plan were either resolved and withdrawn or overruled by the
Bankruptcy Court. The Bankruptcy Court orally confirmed the Plan, as amended
on the record at the hearing.
During the three month period ended October 31, 1996, the Bankruptcy
Court entered various other orders, including orders approving the assumption
of certain non-residential real property leases, approving the rejection of
certain non-residential real property leases and executory contracts,
approving a settlement agreement with one of the Company's worker's
compensation insurance companies, approving an amendment to the Debtor's
debtor-in-
22
<PAGE>
possession credit agreement, supplementing the retention and employment of
Ernst & Young LLP as real estate consultants, extending the time to assume or
reject non-residential real property leases, and extending the Debtors'
exclusivity periods.
In November 1996, the Bankruptcy Court's orders included extending the
time for the Debtors to assume or reject their unexpired non-residential real
property leases through January 31, 1997, approving the sale of property that
formerly contained the Debtors' distribution center and the assumption and
assignment of the lease covering such property, and approving the payment of
deposits required in connection with the Debtors' efforts to obtain a
post-confirmation working capital facility. On December 13, 1996, the
Bankruptcy Court approved a further extension of the Debtors' exclusivity
periods through January 31, 1997.
Currently pending before the Bankruptcy Court is a motion to amend the
employment contract of Bruce Ogilvie, the Company's current President and
Chief Executive Officer, to provide for the termination of such contract on
the effective date of the Plan and for certain payments to be made in
connection with the confirmation of the Plan. Also pending before the
Bankruptcy Court is a motion to assume or reject the remaining
non-residential real property leases and executory contracts of the Debtors.
(ii) McMahan and Related Actions.
For a description of the prior history and background of McMahan v.
Wherehouse Entertainment, Inc., et al. and a related action, Don Thompson v.
Wherehouse Entertainment, Inc. et al., see the Company's Annual Report on
Form 10-K for the year ended January 31, 1996 and Quarterly Report on Form
10-Q for the quarter ended July 31, 1996.
(iii) Banker's Trust Litigation
In re Wherehouse Entertainment, Inc., and WEI Holdings, Inc.;
Wherehouse Entertainment, Inc. and WEI Holdings, Inc. V. Bankers Trust Company,
United States Bankruptcy Court for the District of Delaware, Case No. 95-911
(HSB); Adv. Pro No. A-95-105, see Item 1 of Part II of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1996. The Plan provides
that on its effective date, this adversary proceeding will be dismissed with
prejudice.
(iv) Declaratory Relief Action
In October 1996, the Official Committee and U.S. Trust filed an
adversary proceeding entitled United States Trust Company of New York and
the Official Committee of Unsecured Creditors of Wherehouse Entertainment,
Inc. and WEI Holdings, Inc. v. Cerberus Partners, L.P., individually and as
agent for the beneficial holders of Senior Lenders Claims. John Does
1-10,fi-ctitiously named parties whose true names are presently unknown, the
parties intended being the beneficial holders of Senior Lender Claims,
Wherehouse Entertainment, Inc., and WEI Holdings, Inc., Adversary Proceeding
No. A-96-183, in the United States Bankruptcy Court for the District of
Delaware. This proceeding sought declaratory relief relating to the
subordination provisions of the Senior Subordinated Note Indenture. In light
of the Court's oral confirmation of the Plan at the confirmation hearing,
this proceeding will be dismissed as moot.
(v) Other.
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of its business. In the opinion of
management, all such matters are without merit or involve such amounts that
unfavorable disposition will not have a material impact on the financial
position and results of operations of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As a result, among other things, of the bankruptcy filing, the Company
is currently in default under the indentures governing the 13% Senior
Subordinated Notes ($117.2 million in principal and accrued interest as of
August 2, 1995) and 6 1/4% Convertible Subordinated Debentures ($5.6 million in
principal and accrued interest as of August 2, 1995). The Company is also in
default under various agreements governing the Revolving Line of Credit and
Variable Rate Term Note ($93.8 million in principal and accrued interest as of
August 2, 1995.)
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.38 Letter Agreement dated June 14, 1996 between the
Company and GGG, Inc.
10.39 Letter Agreement dated June 14, 1996 between the
Company and Bruce Ogilvie
27.0 Financial Data Schedule
(b) Current Reports on Form 8-K
None.
10.40 Amendment No. 1 to Debtor-In-Possession Credit
Agreement dated July 30, 1996 between the Company and
Bankers Trust Company.
10.41 Debtors First Amended Chapter 11 Plan as Revised for
Technical Corrections on October 4, 1996.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHEREHOUSE ENTERTAINMENT, INC.
(Registrant)
Date: December 20, 1996 /s/ Bruce Ogilvie
----------------------------
BRUCE OGILVIE
President and Chief Executive Officer
(Principal Executive Officer)
Date: December 20, 1996 /s/ Henry Del Castillo
------------------------------------
HENRY DEL CASTILLO
Vice President, Chief Financial Officer
and Secretary (Principal Financial
and Accounting Officer)
25
<PAGE>
<PAGE>
Exhibit 10.40
AMENDMENT No. 1 TO DEBTOR-IN-POSSESSION
CREDIT AGREEMENT
This Amendment No. 1 to the Debtor-In-Possession Credit Agreement
is dated as of July 30, 1996 (the "Amendment") and entered into by and among
Wherehouse Entertainment, Inc., a Delaware corporation, as debtor and debtor-in-
possession (the "Borrower"), WEI Holdings, Inc., a Delaware corporation, as
debtor and debtor-in-possession ("Holdings"), the lenders from time to time
parties to the Credit Agreement (as hereinafter defined) as amended hereby (the
"Lenders"), and Bankers Trust Company, as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Agent").
RECITALS
WHEREAS, the Borrower, Holdings, the Agent and the Lenders are
parties to the Debtor-in-Possession Credit Agreement dated as of September 25,
1995 (the "Credit Agreement") under which the Lenders provide a revolving credit
facility (including a letter of credit subfacility) to the Borrower in
accordance with and on the terms and conditions set forth therein; and
WHEREAS, the Borrower has requested that the Lenders amend certain
covenants in the Credit Agreement and the Lenders are willing to do so under the
terms and on the conditions set forth herein;
NOW THEREFORE, in consideration of the premises and agreements,
provisions and covenants contained herein, the parties hereto agree as follows:
Section 1. DEFINED TERMS
Unless otherwise defined in this Amendment, defined terms used
herein shall have the meanings assigned to such terms in the Credit Agreement.
Section 2. AMENDMENT TO CREDIT AGREEMENT
Section 6.6A of the Credit Agreement is hereby amended and restated in its
entirety as follows:
Section 6.6 Financial Covenants
A. Minimum Consolidated Adjusted EBITDAV
<PAGE>
Holdings and Borrower shall not permit Consolidated Adjusted EBITDAV as of
the last day of each of the Fiscal Quarters shown below for the applicable
Fiscal Quarter ended on such date to be less than the correlative amount
indicated:
Minimum Consolidated
Fiscal Quarter Adjusted EBITDAV
-------------- ---------------------
FISCAL YEAR 1996
Third Fiscal Quarter ($3,000,000)
Fourth Fiscal Quarter 6,300,000
FISCAL YEAR 1997
First Fiscal Quarter 1,100,000
Second Fiscal Quarter (2,000,000)
Third Fiscal Quarter (1,500,000)
Fourth Fiscal Quarter 4,000,000
FISCAL YEAR 1998
First Fiscal Quarter 500,000
Second Fiscal Quarter 500,000
Section 3. REPRESENTATIONS AND WARRANTIES
Each of the Borrower and Holdings represents and warrants that:
(a) the execution and delivery of this Amendment by such Loan
Party (i) have been duly authorized by all necessary corporate action of such
Loan Party; (ii) have been duly authorized by the Court; and (iii) will not (A)
violate any provision of law applicable to Holdings or any of its Subsidiaries,
or any order, judgement or decree of any court or other agency of government
binding on Holdings or any of its Subsidiaries, or (B) conflict with, result in
a breach of, constitute (with due notice or lapse of time or both) a default
under, any Contractual Obligation of Holdings or any of its Subsidiaries
(performance or enforceability of which has not been excused by the Bankruptcy
Code or an applicable order of the Court); and
(b) after giving effect to this Amendment, (i) the representations
and warranties of each Loan Party contained in the Credit Agreement and in each
other Loan Document are true, correct and complete in all material respects as
if made on and as of the date of execution of this Amendment except to the
extent such representations and warranties specifically relate to an earlier
date, in which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier date;
and (ii) no POTENTIAL EVENT OF DEFAULT OR EVENT OF DEFAULT has occurred and is
continuing.
Section 4. EFFECTIVENESS
(a) This Amendment shall become effective as of July 30, 1996 when
this Amendment has been executed by the parties hereto and the Agent has
received the following:
<PAGE>
(i) a counterpart of this Amendment executed by the parties
hereto;
(ii) an arrangement fee in the amount of $75,000 for
distribution (as appropriate) to the Lenders and the Agent;
(iii) (A) payment of all reasonable fees, expenses and
reimbursements of counsel to the Agent, not to exceed $10,000, incurred by the
Agent in connection with the preparation and execution of this Amendment, and
(B) all other reasonable fees, expenses and reimbursements due and payable to
the Agent and the Lenders under the Credit Agreement; and
(iv) a copy of an order approving the Amendment, entered by the
Court and such order shall be in full force and effect and shall not be stayed.
(b) Upon the effectiveness of this Amendment (i) each reference in
the Credit Agreement to "this Agreement", "hereunder," "hereof," "herein," or
words of like import shall mean and be a reference to the Credit Agreement as
amended hereby and (ii) each reference in each other Loan Document to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended
hereby.
(c) Except as specifically amended above, the Credit Agreement
shall remain in full force and effect.
(d) The execution, delivery, and effectiveness of this Amendment
shall not operate as a wavier of any right, power, or remedy of the Agent or the
Lenders under the Credit Agreement, as amended hereby, or any of the other Loan
Documents, nor constitute a wavier of any provision of any of the Loan
Documents.
Section 5. MISCELLANEOUS
(a) This Amendment may be executed in separate counterparts by the
different parties hereto, each of which when executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
(b) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK AND, TO THE EXTENT APPLICABLE,
THE BANKRUPTCY CODE.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers on August
23, 1996.
WHEREHOUSE ENTERTAINMENT, INC.,
As debtor and debtor-in-possession
By: /s/ Henry Del Castillo
---------------------------------------------
Title: CFO
------------------------------------------
WEI HOLDINGS, INC.,
As debtor and debtor-in-possession
By: /s/ Henry Del Castillo
---------------------------------------------
Title: CFO
------------------------------------------
BANKERS TRUST COMPANY,
Individually and as Agent
By: /s/
Title:
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
WHEREHOUSE ENTERTAINMENT, ) Case No. 95-911 (HSB)
INC., and WEI HOLDINGS, INC., )
) Jointly Administered
)
Debtors. )
)
DEBTORS' FIRST AMENDED CHAPTER 11 PLAN
As Revised for Technical Corrections on October 4, 1996
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attn: Hendrik de Jong
Peter M. Gilhuly
(213) 485-1234
and
Young, Conaway Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899
Attn: Laura Davis Jones
(302) 571-6600
<PAGE>
DEBTORS' FIRST AMENDED CHAPTER 11 PLAN
In amendment of their Chapter 11 Plan dated April 29, 1996 and the Debtors'
First Amended Chapter 11 Plan dated September 26, 1996, WHEREHOUSE
ENTERTAINMENT, INC. and WEI HOLDINGS, INC., the Debtors and Debtors in
Possession in the above-captioned cases, propose the following chapter 11 plan
pursuant to Section 1121(a) of the Bankruptcy Code:
ARTICLE 1
DEFINITIONS AND RULES OF INTERPRETATION
1.01. DEFINITIONS. As used herein:
ACQUISITION RELATED CAUSES OF ACTION has the meaning assigned to that term
in Section 12.09.
ADEQUATE PROTECTION PAYMENTS means any and all payments made on account of
Senior Lender Claims after the Filing Date and prior to the Effective Date,
including all payments made at any time prior to the Effective Date pursuant to
the Bankruptcy Court's interim and final orders for use of cash collateral, as
such orders from time to time have been or may be amended or supplemented, or
pursuant to any other order of the Bankruptcy Court, except the payment
described in Section 5.01(g).
ADMINISTRATIVE EXPENSE means a cost or expense of administration of either
or both of the Chapter 11 Cases allowable under Section 503(b) of the
Bankruptcy Code, including (i) Fee Claims, (ii) any fees assessed against the
Debtors' estates under 28 U.S.C. Section 1930, (iii) Ordinary Course
Administrative Expenses, (iv) Approved Chapter 11 Liabilities, and (v)
Reclamation Claims.
ALLOWED means with respect to a Claim (other than an Administrative
Expense) that the Claim:
A. Either (i) is set forth in a proof of claim that was timely filed
or by order of the Bankruptcy Court is not and will not be required to be
filed, or (ii) has been or hereafter is listed in the Schedules as
liquidated in amount and not disputed or contingent and the claimant has
not filed a proof of claim in an amount different
1
<PAGE>
than that listed in the Schedules, or (iii) is to be allowed pursuant to this
Plan in an amount set forth herein, and
B. Either (i) no objection to the allowance thereof has been
interposed within the applicable period of time fixed by this Plan, the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, or (ii) such
an objection is so interposed and such Claim has been allowed by a Final
Order,
and means, with respect to an Administrative Expense, an Administrative Expense
that becomes "Allowed" as set forth in Section 2.01.
APPROVED CHAPTER 11 LIABILITIES means any and all liabilities that have,
with the approval of the Bankruptcy Court, been assumed by or otherwise become
binding upon either or both of the Debtors in the Chapter 11 Cases at any time
through the Effective Date and includes, so long as approved by the Bankruptcy
Court, (i) all agreements relating to any indebtedness incurred or credit
extended to either or both of the Debtors at any such time, (ii) all contracts
and other obligations undertaken by or imposed upon the Debtors at any such
time, and (iii) all unexpired leases and executory contracts entered into prior
to the Filing Date and assumed by either or both of the Debtors at any such
time.
ASSET PURCHASE AGREEMENT means an agreement between the Debtors and
Reorganized Wherehouse (substantially in the form of Exhibit A to this Plan) to
be executed, delivered and consummated on the Effective Date, pursuant to which
all of the property of the Estates, after giving effect to substantive
consolidation pursuant to Section 9.01, will be transferred to Reorganized
Wherehouse on an AS IS basis and on a quitclaim basis, without recourse and
without any representation or warranty whatsoever as to title, merchantability,
condition or any other matter, in exchange for which:
A. Reorganized Wherehouse will issue and deliver to the Estates (i)
New Common Stock in a number of shares sufficient to make any and all
distributions of New Common Stock at any time to be made pursuant to this
Plan, (ii) Warrants for a number of shares sufficient to make any and all
distributions of Warrants at any time to be made pursuant to this Plan, and
(iii) cash sufficient to fund payment of all Administrative Expenses, all
Miscellaneous Priority Claims the Secured Claim Cash Distribution and all
other cash distributions provided for in this Plan,
2
<PAGE>
B. Reorganized Wherehouse will represent and warrant that, as of the
Effective Date, (i) such shares of New Common Stock represent all of its
outstanding capital stock and no options, warrants or other rights to
acquire any of its capital stock are outstanding, except for the Warrants
and stock or options provided for in any Employee Stock Incentive Program,
and (ii) it has no outstanding indebtedness, liabilities or other
obligations (whether due or not due, fixed or contingent, liquidated or
unliquidated, primary or secondary) of any type or nature, and has not
engaged in any business and is not bound by any indenture, instrument or
agreement whatsoever, except the Asset Purchase Agreement, the Warrant
Agreement, any Employee Stock Incentive Program and the agreement governing
the revolving credit facility described in Section 13.01(c),
C. Reorganized Wherehouse will assume and agree to satisfy (i) all
Allowed Administrative Expenses, (ii) all Allowed Priority Tax Claims,
(iii) all Allowed Miscellaneous Priority Claims, (iv) all Allowed
Miscellaneous Secured Claims, (v) the Secured Claim Cash Distribution, (vi)
all indemnities, liabilities and obligations of the Debtors or Reorganized
Wherehouse under this Plan, and (vii) all sales and use taxes, documentary
and other stamp taxes, deed taxes, transfer taxes, intangible taxes and
other similar taxes imposed upon or in connection with, or required to be
paid as a result of, the sale and transfer of the assets of the Estates to
Reorganized Wherehouse, to the extent any such taxes are required to be
paid after giving effect to the provisions of Section 1146(c) of the
Bankruptcy Code,
D. Reorganized Wherehouse assumes and agrees to perform and observe
each and all of the provisions of this Plan applicable to it and each and
all of the obligations and undertakings of either or both the Debtors under
this Plan, including the releases in Section 12.04 and Section 12.09, as
fully as either or both of the Debtors are bound thereby, and
E. Reorganized Wherehouse will not assume or be liable for any Claim
or for any obligation of the Debtors except as expressly provided in the
Asset Purchase Agreement or in this Plan.
BANK AGENT means Cerberus Partners, L.P., as Agent under the Prepetition
Credit Agreement.
BANKRUPTCY CODE means Title 11 of the United States Code, as amended from
time to time.
3
<PAGE>
BANKRUPTCY COURT means the United States Bankruptcy Court for the District
of Delaware.
BANKRUPTCY RULES means the Federal Rules of Bankruptcy Procedure and the
Local Rules of the Bankruptcy Court, as amended and supplemented from time to
time.
BT ADVERSARY PROCEEDING means the adversary proceeding captioned WHEREHOUSE
ENTERTAINMENT, INC. AND WEI HOLDINGS, INC. V. BANKERS TRUST COMPANY, Adv. Pro.
No. A-95-105, pending in the Chapter 11 Cases.
BUSINESS DAY means any day other than a Saturday, Sunday or "legal holiday"
as defined in Bankruptcy Rule 9006(a).
CANCELLED SECURITY means any note, bond, debenture, stock certificate or
other instrument or investment security evidencing an Impaired Claim or Impaired
Interest outstanding immediately prior to the Effective Date.
CAUSE OF ACTION means any action, cause of action, suit, account,
controversy, agreement, promise, right to legal remedy, right to an equitable
remedy, right to payment and claim, whether known or unknown, reduced to
judgment, not reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, unsecured and whether
asserted or assertable directly or derivatively, in law, equity or otherwise.
CHAPTER 11 CASES means the cases under chapter 11 of the Bankruptcy Code
voluntarily commenced by the Debtors on the Filing Date.
CLAIM means any "claim," as that term is defined in Section 101(5) of the
Bankruptcy Code, against either or both of the Debtors or either or both of the
Estates.
CLASS means a group of Claims or Interests as classified under this Plan.
CONFIRMATION DATE means the date and time on which the Confirmation Order
is entered on the docket maintained by the Clerk of the Bankruptcy Court.
CONFIRMATION HEARING means the hearing on the confirmation of the Plan.
4
<PAGE>
CONFIRMATION ORDER means an order entered by the Bankruptcy Court
confirming the Plan.
CONVERTIBLE SUBORDINATED DEBENTURES means the 61/4% Convertible
Subordinated Debentures Due 2006 outstanding under the Convertible Subordinated
Debenture Indenture.
CONVERTIBLE SUBORDINATED DEBENTURE CLAIMS means any and all Claims against
either or both of the Debtors arising under or in respect of the Convertible
Subordinated Debenture Indenture or the Convertible Subordinated Debentures or
the indebtedness evidenced thereby or any conversion thereof or any right of
conversion with respect thereto or any right to receive consideration on account
of the conversion thereof or the Convertible Subordinated Debenture Indenture or
any instrument, agreement, breach, tort, wrongful conduct, act, omission or
event in any respect and in any manner arising therefrom or related thereto,
except any Trustee's Prepetition Claim, and specifically includes all Claims
asserted in or arising out of the consolidated class action litigation cases
entitled MCMAHAN & COMPANY, ET AL. V. WHEREHOUSE ENTERTAINMENT, INC., ET AL., 88
Civ. 0321 (S.D.N.Y.) (MJL), and DON THOMPSON V. WHEREHOUSE ENTERTAINMENT, INC.
ET AL., 88 Civ. 9040 (S.D.N.Y.) (MJL).
CONVERTIBLE SUBORDINATED DEBENTURE INDENTURE means the Indenture dated as
of June 15, 1986 between Wherehouse and Bank of America National Trust and
Savings Association, as amended.
DC-2 PROPERTY means the parcel of real property and all buildings and
fixtures and other property appurtenant thereto or situated thereon located at
1639 Rosecrans Avenue in Gardena, California.
DC-2 SECURED CLAIM means the Claim secured by the DC-2 Property of
Principal Mutual Life Insurance Company against Wherehouse arising under or in
respect of the Secured Promissory Note dated November 26, 1986 between
Wherehouse and Principal Mutual Life Insurance Company and the Deed of Trust,
Security Agreement and Assignment of Rents dated November 26, 1986 between
Wherehouse and Principal Mutual Life Insurance Company.
DEBTORS means Wherehouse and Holdings.
DEBTORS IN POSSESSION means the Debtors as debtors in possession in the
Chapter 11 Cases.
5
<PAGE>
DGCL means the Delaware General Corporation Law, as amended.
DISCLOSURE STATEMENT means the disclosure statement concerning this Plan
distributed to Holders of Claims entitled to vote for the purpose of acceptance
or rejection of this Plan in accordance with Section 1126(b) of the Bankruptcy
Code and Bankruptcy Rule 3018.
DISPUTED means, in respect of any Claim, that such Claim has been asserted
or filed but has not been Allowed, whether or not such Claim is then being
prosecuted or opposed.
EFFECTIVE DATE means the first Business Day after the conditions set forth
in Section 13.01 have been satisfied, but not earlier than the eleventh day
after the Confirmation Order is entered.
ELIGIBLE SUPPLIER means a supplier of copyrighted music, film or other
entertainment products, personal electronic products, or blank tapes or discs
purchased by Wherehouse for its sale or rental inventory that (i) is the Holder
of a General Unsecured Claim and (ii) is identified by Wherehouse, with the
approval of the Bank Agent, as a continuing supplier of such products to
Reorganized Wherehouse in a schedule filed by Wherehouse at least 10 days prior
to the Confirmation Hearing.
EMPLOYEE STOCK INCENTIVE PROGRAM means any program or transaction approved
by the directors of Reorganized Wherehouse appointed pursuant to Section 8.02,
or their successors, for the issuance of New Common Stock, or options or
warrants to acquire New Common Stock, to one or more officers and employees of
Reorganized Wherehouse.
ENTITY means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, estate, entity, trust, trustee,
United States trustee, unincorporated organization, government, governmental
unit (as defined in the Bankruptcy Code), agency or political subdivision
thereof.
ESTATES means the bankruptcy estates created by the commencement of the
Chapter 11 Cases.
EXCHANGE OPTION means the right of an Eligible Supplier pursuant to Section
5.05(d), at its option exercisable by timely delivery of an Open Credit Terms
6
<PAGE>
Commitment and Option Exercise Notice, to exchange (i) all (but not less than
all) of the New Common Stock that such Eligible Supplier is entitled to receive
on account of its General Unsecured Claim under this Plan FOR (ii) a portion of
the Secured Claim Cash Distribution equal to 27% of the Allowed amount of such
General Unsecured Claim.
FEE CLAIM means a Claim under Section 330(a), Section 331 or Section 503
of the Bankruptcy Code for compensation for professional services rendered and
reimbursement of expenses in the Chapter 11 Cases.
FILING DATE means August 2, 1995.
FINAL ORDER means an order or judgment entered on the docket by the Clerk
of the Bankruptcy Court or any other court exercising jurisdiction over the
subject matter and the parties (i) that has not been reversed, stayed, modified
or amended, (ii) as to which no appeal, certiorari proceeding, reargument or
other review or rehearing has been requested or is still pending, and (iii) as
to which the time for filing a notice of appeal or petition for certiorari or
request for reargument or further review or rehearing has expired.
GENERAL UNSECURED CLAIMS means all Claims other than Administrative
Expenses, Priority Tax Claims, Miscellaneous Priority Claims, Senior Lender
Claims, the DC-2 Secured Claim, Miscellaneous Secured Claims, Senior
Subordinated Note Claims and Convertible Subordinated Debenture Claims and
includes all Claims of the type specified in Section 502(g), Section 502(h)
and Section 502(i) of the Bankruptcy Code and all Trustee's Prepetition Claims.
HOLDER means, in respect of any Claim or any Interest, the holder or owner
of, or person otherwise entitled to enforce, such Claim or Interest.
HOLDINGS means WEI Holdings, Inc., a Delaware corporation.
IMPAIRED means any Claim or Interest that is impaired within the meaning of
Section 1124 of the Bankruptcy Code.
INTERESTS means any and all equity or ownership interests in Wherehouse or
Holdings and all stock certificates and other investment securities, whether or
not certificated, representing any such equity or ownership interest and any and
all options,
7
<PAGE>
warrants, subscription agreements and contractual rights to acquire any such
equity or ownership interest.
MISCELLANEOUS PRIORITY CLAIMS mean any and all Claims entitled to priority
in payment under Section 507(a) of the Bankruptcy Code, except Administrative
Expenses and Priority Tax Claims.
MISCELLANEOUS SECURED CLAIMS means any and all Secured Claims other than
the Senior Lender Secured Claims and the DC-2 Secured Claim.
NEW BYLAWS means the bylaws of Reorganized Wherehouse, substantially in the
form of Exhibit B to this Plan.
NEW CERTIFICATE OF INCORPORATION means the certificate of incorporation of
Reorganized Wherehouse, substantially in the form of Exhibit C to this Plan.
NEW COMMON STOCK means the common stock of Reorganized Wherehouse ($0.01
par value), having one vote per share, without preemptive rights or cumulative
voting rights.
1992 MERGER AGREEMENT means the Agreement and Plan of Merger dated as May
5, 1992, by and among Holdings, Wherehouse, Grammy Corp., a Delaware
corporation, and Adler & Shaykin, a New York general partnership.
1992 MERGER AGREEMENT LETTER OF CREDIT means the Irrevocable Standby Letter
of Credit dated June 11, 1992, as amended, in the initial amount of $18,750,639,
issued by Bankers Trust Company for the account of Wherehouse and for the
benefit of the Representative (as defined in the 1992 Merger Agreement).
1992 MERGER CONSIDERATION means any and all amounts paid or payable to any
shareholder of Holdings or to any other Entity receiving consideration as if it
were a shareholder, or any heir, representative, successors or assigns of any
such shareholder or person, pursuant to the 1992 Merger Agreement or the 1992
Merger Agreement Letter of Credit.
1992 MERGER CONSIDERATION RECIPIENT means any Entity that has received or
is entitled to receive payment or distribution of any 1992 Merger Consideration.
8
<PAGE>
1992 MERGER CONSIDERATION RECOVERY CLAIMS means any and all Causes of
Action held by the Estates against any 1992 Merger Consideration Recipient under
any state or federal fraudulent conveyance or fraudulent transfer law seeking to
set aside, avoid, rescind or recover payment of any 1992 Merger Consideration.
OFFICIAL COMMITTEE means the Official Committee of Unsecured Creditors of
the Debtors appointed by the United States Trustee pursuant to Section 1102(a)
of the Bankruptcy Code.
OPEN CREDIT TERMS COMMITMENT AND OPTION EXERCISE NOTICE means an agreement
(substantially in the form of Exhibit D to this Plan) duly executed by an
Eligible Supplier and delivered to Wherehouse and the Bank Agent at least two
Business Days prior to the Effective Date, pursuant to which such Eligible
Supplier (i) commits to sell goods to Reorganized Wherehouse on open credit
terms substantially comparable to those from time to time offered by such
Eligible Supplier to other similarly situated customers and (ii) transfers to
the Holders of Allowed Senior Lender Secured Claims all shares of New Common
Stock that such Eligible Supplier is entitled to receive under this Plan, in
exchange for the right to receive 27% of the Allowed amount of such Eligible
Supplier's General Unsecured Claim in cash.
ORDINARY COURSE ADMINISTRATIVE EXPENSES means the actual, necessary costs
and expenses of preserving the Estates and operating the business of the
Debtors, incurred and payable in the ordinary course of business by the Debtors
after the Filing Date.
PLAN means this Chapter 11 Plan, as amended or modified from time to time
by the Debtors.
PREPETITION CREDIT AGREEMENT means the Credit Agreement dated June 11, 1992
by and among the Debtors, the lenders party thereto, Bankers Trust Company, as
agent, and Heller Financial, Inc., as co-agent, as amended, modified or
supplemented from time to time.
PREPETITION LOAN DOCUMENTS means the Prepetition Credit Agreement and all
other "Loan Documents," as that term is defined therein, and further includes
all agreements enforceable against either or both of the Debtors by Bankers
Trust Company relating in any respect to the 1992 Merger Agreement Letter of
Credit.
PRIORITY TAX CLAIMS means any and all Claims entitled to priority in
payment under Section 507(a)(8) of the Bankruptcy Code.
9
<PAGE>
RATABLE SHARE means, with reference to any distribution on account of any
Allowed Claim in any Class, a distribution equal in amount to the ratio
(expressed as a percentage) that the amount of such Allowed Claim bears to the
aggregate amount of all Allowed Claims in that Class.
RECLAMATION CLAIMS means any and all rights of reclamation converted to an
Administrative Expense pursuant to any order of the Bankruptcy Court under
Section 546(c) of the Bankruptcy Code.
RELEASE OBLIGOR has the meaning assigned to that term in Section 12.05.
RELEASED ENTITY has the meaning assigned to that term in Section 12.09.
REORGANIZED WHEREHOUSE means the newly-formed Delaware corporation that is
the purchaser under the Asset Purchase Agreement.
SCHEDULES means the Schedules of Assets and Liabilities and the Statement
of Affairs for Debtor Engaged in Business that were filed by the Debtors on or
about September 26, 1995, as such schedules have been and from time to time may
be amended or supplemented by either or both of the Debtors at any time prior to
the Effective Date.
SECURED CLAIM means a Claim that is secured by a lien on property in which
either or both of the Estates have an interest or that is subject to setoff
under Section 553 of the Bankruptcy Code, to the extent of the value of the
Holder's interest in the Estate's interest in such property or to the extent of
the amount subject to setoff, as applicable, as determined pursuant to Section
506(a) of the Bankruptcy Code.
SECURED CLAIM CASH DISTRIBUTION means the greater of (i) $11,610,000 or
(ii) the aggregate amount payable under this Plan to all Eligible Suppliers that
exercise the Exchange Option.
SENIOR LENDER CLAIMS means any and all Claims against either or both of the
Debtors arising under or in respect of the Prepetition Loan Documents or any
promissory note issued thereunder or the indebtedness evidenced thereby or any
other instrument, agreement, breach, tort, wrongful conduct, act, omission or
event in any respect and in any manner arising therefrom or related thereto.
10
<PAGE>
SENIOR LENDER DEFICIENCY CLAIMS means the difference between (i) the
aggregate amount of the Senior Lender Claims, as Allowed pursuant to Section
5.06(a), LESS (ii) the amount of the Senior Lender Secured Claims, as Allowed
pursuant to Section 5.01(a).
SENIOR LENDER SECURED CLAIMS means the amount of the Senior Lender Claims
that is a secured claim pursuant to Section 506(a) of the Bankruptcy Code, as
Allowed pursuant to Section 5.01(a).
SENIOR SUBORDINATED NOTES means the 13% Senior Subordinated Notes Due 2002,
Series A and Series B, outstanding under the Senior Subordinated Note Indenture.
SENIOR SUBORDINATED NOTE CLAIMS means any and all Claims against either or
both of the Debtors arising under or in respect of the Senior Subordinated Notes
or the indebtedness evidenced thereby or the Senior Subordinated Note Indenture
or any instrument, agreement, breach, tort, wrongful conduct, act, omission or
event in any respect and in any manner arising therefrom or related thereto,
except any Trustee's Prepetition Claim.
SENIOR SUBORDINATED NOTE INDENTURE means the Indenture dated as of June 1,
1992 between Wherehouse, Grammy Corp., as Guarantor and the United States Trust
Company of New York, N.A., as amended, modified, restated or supplemented from
time to time.
SUBORDINATION PROVISIONS means the provisions of Article 13 of the Senior
Subordinated Note Indenture.
TRADE COMMITTEE means the Unofficial Committee of Trade Creditors,
consisting of BMG Distribution, Sony Music Entertainment, Inc., UNI Distribution
Corporation, Paramount Pictures, Warner/Electra/Atlantic Corp., PolyGram Group
Distribution, EMI Music Distribution, Baker & Taylor, and Alliance Entertainment
Corp.
TRUSTEE'S PREPETITION CLAIM means a Claim for fees, expense reimbursements
and other amounts owed to a trustee under the Senior Subordinated Note Indenture
or the Convertible Subordinated Debenture Indenture, in its capacity as such, to
the extent such amounts were accrued and unpaid on the Filing Date.
11
<PAGE>
UNSECURED CLAIM STOCK DISTRIBUTION RATIO means, where this Plan provides
that the Holder of any Claim, other than a Senior Lender Secured Claim, is
entitled to receive New Common Stock on account of such Claim, that such Holder
shall be entitled to receive 28.14767183 shares of New Common Stock for each
$1,000 in Allowed amount of such Claim.
WARRANT AGREEMENT means an agreement (substantially in the form of Exhibit
E to this Plan) under which Reorganized Wherehouse delivers warrants for the
issuance of 576,873 shares of its common stock for an exercise price of $2.75
per share, exercisable at any time until the fifth anniversary of the Effective
Date.
WARRANTS means the warrants issued under the Warrant Agreement.
WHEREHOUSE means Wherehouse Entertainment, Inc., a Delaware corporation.
1.02. RULES OF INTERPRETATION. References herein to a "Section," when
not qualified by a reference to another document, are references to the sections
of this Plan. Whenever from the context it appears appropriate, each term
stated in either the singular or the plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter. The words "herein,"
"hereof," "hereto," "hereunder" and others of similar import, refer to this Plan
as a whole and not to the part in which such words appear. The words "includes"
and "including" are not limiting and mean that the things specifically
identified are set forth for purposes of illustration, clarity or specificity
and do not in any respect qualify, characterize or limit the generality of the
class within such things are included. Captions and headings to articles,
sections and exhibits are inserted for convenience of reference only, are not a
part of this Plan, and shall not be used to interpret this Plan. The rules of
construction set forth in Section 102 of the Bankruptcy Code shall apply. In
computing any period of time prescribed or allowed by this Plan, the provisions
of Bankruptcy Rule 9006(a) and Section 14.12 shall apply, but Bankruptcy Rule
9006(a) shall govern.
1.03. INCORPORATION OF EXHIBITS. All Exhibits to this Plan are part of
this Plan and incorporated herein as fully as if set forth at length herein.
The Exhibits to this Plan must be satisfactory to and approved by the Debtors
and the Bank Agent and will be filed with the Bankruptcy Court at least 10 days
prior to the Confirmation Hearing.
ARTICLE 2
12
<PAGE>
PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSES
2.01. ALLOWANCE OF ADMINISTRATIVE EXPENSES. Claims for Administrative
Expenses shall become Allowed as follows:
(a) ORDINARY COURSE ADMINISTRATIVE EXPENSES AND APPROVED CHAPTER 11
LIABILITIES. An Ordinary Course Administrative Expense or Approved
Chapter 11 Liability that is not disputed by Reorganized Wherehouse by
written notice given to the claimant prior to the 60th day after the
Effective Date shall become Allowed on such day.
(b) RECLAMATION CLAIMS. A Reclamation Claim shall become Allowed
only to the extent either (i) Reorganized Wherehouse and the Holder of the
Reclamation Claim agree upon the amount thereof in a stipulation approved
by the Bankruptcy Court or (ii) the Holder files with the Bankruptcy Court
and serves on Reorganized Wherehouse a motion requesting payment of such
Reclamation Claim within 60 days after the Effective Date and a Final Order
is entered granting such motion.
(c) FEE CLAIMS. A Fee Claim shall become Allowed if allowed or
approved by the Bankruptcy Court upon an application filed no later than 90
days after the Effective Date.
(d) ALL ADMINISTRATIVE EXPENSES. All other Claims for an
Administrative Expenses (including Ordinary Course Administrative Expenses
and Approved Chapter 11 Liabilities that are disputed by Reorganized
Wherehouse as set forth in Section 2.01(a)) shall become Allowed only if
the Holder of such Claim files with the Bankruptcy Court and serves on
Reorganized Wherehouse, within 90 days after the Effective Date, a motion
requesting payment of such Administrative Expense and only if and to the
extent such Claim is allowed by the Bankruptcy Court pursuant to a Final
Order.
2.02. PAYMENT OF ADMINISTRATIVE EXPENSES. Reorganized Wherehouse
shall assume and pay each Allowed Administrative Expense, other than Ordinary
Course Administrative Expenses and Approved Chapter 11 Liabilities, in full and
in cash on the latest of (i) the Effective Date, (ii) the date on which such
Administrative Expense becomes Allowed, and (iii) a date agreed by Reorganized
Wherehouse or the Debtors, as the case may be, and such Holder. Reorganized
Wherehouse shall assume and pay each Allowed Ordinary Course Administrative
Expense and each Allowed Approved
13
<PAGE>
Chapter 11 Liability on the date on which payment is due or would otherwise be
permitted to be made in accordance with the terms and conditions of the
particular transaction and any agreements relating thereto.
ARTICLE 3
PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS
3.01. PRIORITY TAX CLAIMS. The Holder of an Allowed Priority Tax Claim
shall receive, on account of such Allowed Priority Tax Claim, a cash payment in
the amount of such Priority Tax Claim six years after the assessment of the tax
on which such Claim is based, plus simple interest annually in arrears on such
amount from the Effective Date through such day at the interest rate publicly
quoted on the Effective Date for full faith and credit obligations of the United
States of America maturing in 90 days. At the option of Reorganized Wherehouse,
any Allowed Priority Tax Claim may be (i) paid on such alternative terms as may
be agreed by Reorganized Wherehouse and the Holder of such Allowed Priority Tax
Claim or (ii) prepaid in whole or in part, without premium or penalty, at any
time.
ARTICLE 4
CLASSIFICATION OF CLAIMS AND INTERESTS
Pursuant to Section 1122 of the Bankruptcy Code, set forth below is a
designation of classes of Claims and Interests, except that Administrative
Expenses and Priority Tax Claims have not been classified and are excluded from
the following classes in accordance with Section 1123(a)(1) of the Bankruptcy
Code.
4.01. SECURED CLAIMS.
CLASS 1. Class 1 consists of all Senior Lender Secured Claims.
CLASS 2. Class 2 consists of the DC-2 Secured Claim.
CLASS 3. Class 3 consists of all Miscellaneous Secured Claims.
14
<PAGE>
4.02. PRIORITY CLAIMS.
CLASS 4. Class 4 consists of all Miscellaneous Priority Claims.
4.03. UNSECURED CLAIMS.
CLASS 5. Class 5 consists of all General Unsecured Claims.
CLASS 6. Class 6 consists of all Senior Lender Deficiency
Claims.
CLASS 7. Class 7 consists of all Senior Subordinated Note
Claims.
CLASS 8. Class 8 consists of all Convertible Subordinated
Debenture Claims.
4.04. INTERESTS.
CLASS 9. Class 9 consists of all Interests.
ARTICLE 5
PROVISIONS FOR TREATMENT OF
CLAIMS AND INTERESTS
5.01. SENIOR LENDER SECURED CLAIMS (CLASS 1).
(a) ALLOWANCE OF CLAIMS. The Senior Lender Secured Claims shall be
Allowed in the amount of $45,000,000, LESS all Adequate Protection
Payments.(1)
(1) The Debtors offer the proposed $45,000,000 Allowed amount of the Senior
Lender Secured Claims on the condition that this Plan is accepted by the Holders
of the Senior Lender Claims and solely as a proposed compromise and settlement
of certain matters in controversy between the Debtors and such Holders in the
Chapter 11 Cases. The Debtors' offer herein is in all respects subject to Rule
408 of the Federal Rules of Evidence and shall not be used against them, as an
admission or otherwise,
15
<PAGE>
(b) TREATMENT. Each Holder of an Allowed Senior Lender Secured
Claim shall receive, on account of such Claim, its Ratable Share of (i) the
Secured Claim Cash Distribution and (ii) 117.6229653 shares of New Common
Stock for each $1,000 in Allowed amount of the Senior Lender Secured Claims
that remains after deduction for the Secured Claim Cash Distribution.
(c) ADJUSTMENT FOR DILUTION. The distributions provisions for New
Common Stock in this Plan are predicated on the assumption that (i)
3,612,789 shares of New Common Stock will be distributed under this Plan on
account of Senior Lender Secured Claims (the "Secured Claim Stock
Distribution"), (ii) 6,387,211 shares of New Common Stock will be
distributed under this Plan on account of Allowed General Unsecured Claims,
Allowed Senior Lender Deficiency Claims and Allowed Senior Subordinated
Note Claims (collectively, "Unsecured Claim Distributions"), and,
accordingly, (iii) the New Common Stock distributed on account of Senior
Lender Secured Claims will be equal to 36.128% (the "Secured Claim Share
Percentage") of all New Common Stock distributed under this Plan, not
counting the Warrants ("Stock Distributions"). If and whenever shares of
New Common Stock are issued in any Unsecured Claim Distribution such that
the aggregate number of shares of New Common Stock issued in all prior
Secured Claim Stock Distributions is less than the Secured Claim Share
Percentage of all Stock Distributions at any time made under this Plan,
then each Holder of an Allowed Senior Lender Secured Claim shall receive,
on account of such Claim, its Ratable Share of a number of additional
shares of New Common Stock as necessary to ensure that the aggregate number
of shares of New Common Stock issued under this Plan in Secured Claim Stock
Distributions is equal to the Secured Claim Share Percentage of all Stock
Distributions at any time made under this Plan.
(d) SATISFACTION OF SECTION 507(b) RIGHTS. The distribution
pursuant to Section 5.01(b) shall be in full satisfaction of any and all
rights of the Holders of Senior Lender Secured Claims under Section 507(b)
of the Bankruptcy Code.
(..CONTINUED)
in the adjudication of any such matters. The Seniors Lenders' acceptance of
this Plan shall be subject to the same conditions and shall, in all respects, be
subject to Rule 408 of the Federal Rules of Evidence.
16
<PAGE>
(e) DISMISSAL OF BT ADVERSARY PROCEEDING. On the Effective Date,
the BT Adversary Proceeding shall be dismissed with prejudice, with each
party to bear its own costs.
(f) EXCHANGE OPTION. Each Holder of an Allowed Senior Lender
Secured Claim shall be bound by the Exchange Option, whether or not such
Holder individually accepted or rejected the Plan. Reorganized Wherehouse
shall administer the Exchange Option and shall (i) determine the amount by
which the Secured Claim Cash Distribution otherwise to be distributed under
this Plan to the Holders of Allowed Senior Lender Secured Claims must be
reduced to give effect to the Exchange Option as to all General Unsecured
Claims asserted by Eligible Suppliers that have timely exercised the
Exchange Option, whether or not such Claims are then Disputed or Allowed,
and withhold such cash amount from such distribution, (ii) withhold all
shares of New Common Stock otherwise to be distributed under this Plan to
such Eligible Supplier on account of its General Unsecured Claim, (iii) as
and when any such Eligible Supplier's General Unsecured Claim becomes
Allowed, (x) pay out the to such Eligible Supplier, from such withheld cash
amount, the sum payable to such Eligible Supplier under the Exchange
Option, and (y) distribute the withheld shares of New Common Stock
exchanged by such Eligible Supplier to the Holders of Allowed Senior Lender
Secured Claims, based on their Ratable Shares, and (iv) if and to the
extent any Disputed General Unsecured Claim of any such Eligible Supplier
at any time is disallowed or consensually reduced, distribute to the
Holders of Allowed Senior Lender Secured Claims, based on their Ratable
Shares, any withheld cash not required to be paid to such Eligible
Supplier.
(g) ALLOWED AMOUNT NET OF UTAH STORE SALE PAYMENT. The Allowed
amount of the Senior Lender Claims set forth in Section 5.06(a) and the
Allowed amount of the Senior Lender Secured Claims set forth in Section
5.01(a) reflect a deduction for, and are net of, a post-petition payment in
the amount of $158,852.02 made on account of the Senior Lender Claims in
connection with the sale of inventory and other assets located in certain
Utah stores, and such Allowed amounts shall not be further reduced on
account of such post-petition payment.
(h) IMPAIRMENT. Class 1 is Impaired.
5.02. DC-2 SECURED CLAIM (CLASS 2).
17
<PAGE>
(a) TREATMENT. On the Effective Date, at the option of Reorganized
Wherehouse, either (i) the Holder of the Allowed DC-2 Secured Claim shall
receive payment of the Allowed DC-2 Secured Claim, in full and in cash, or
(ii) Reorganized Wherehouse will abandon the DC-2 Property to the Holder of
the Allowed DC-2 Secured Claim.
(b) DEFICIENCY. If the DC-2 Property is abandoned to the Holder of
the Allowed DC-2 Secured Claim, any Claim for a deficiency shall be treated
as a General Unsecured Claim.
(c) IMPAIRMENT. Class 2 is Impaired.
5.03. MISCELLANEOUS SECURED CLAIMS (CLASS 3).
(a) TREATMENT. On the Effective Date, at Reorganized Wherehouse's
option, either (i) Reorganized Wherehouse shall assume an Allowed
Miscellaneous Secured Claim and the legal, equitable and contractual rights
to which an Allowed Miscellaneous Secured Claim entitles the Holder of such
Claim shall not be altered by this Plan, or (ii) Reorganized Wherehouse
shall provide such other treatment in respect of such Claim as will cause
such Claim not to be Impaired. The Debtors' failure to object to any such
Claim during the pendency of the Chapter 11 Cases shall be not prejudice,
diminish, affect or impair Reorganized Wherehouse's right to contest or
defend against such Claim in any lawful manner or forum when and if such
Claim is sought to be enforced by the Holder thereof. Each Miscellaneous
Secured Claim and all liens lawfully granted or existing on any property of
the Estates on the Filing Date as security for a Miscellaneous Secured
Claim shall (x) survive the confirmation and consummation of this Plan, the
Debtors' discharge under Section 1141(d) of the Bankruptcy Code and
Section 12.01, and the transfer of the property of the Estates to
Reorganized Wherehouse, (y) remain enforceable against Reorganized
Wherehouse in accordance with the contractual terms of any lawful
agreements enforceable by the Holder of such Claim on the Filing Date until
the Allowed amount of such Claim is paid in full, and (z) remain subject to
avoidance by Reorganized Wherehouse under the Bankruptcy Code as set forth
in Section 12.04(a).
(b) IMPAIRMENT. Class 3 is not Impaired.
18
<PAGE>
5.04. MISCELLANEOUS PRIORITY CLAIMS (CLASS 4).
(a) TREATMENT. Each Holder of an Allowed Miscellaneous Priority
Claim shall receive, on account of such Claim, payment of the Allowed
amount of such Claim in full and in cash.
(b) IMPAIRMENT. Class 4 is not Impaired.
5.05. GENERAL UNSECURED CLAIMS (CLASS 5).
(a) TREATMENT. Each Holder of an Allowed General Unsecured Claim
shall receive, on account of such Claim, shares of New Common Stock based
on the Unsecured Claim Stock Distribution Ratio.
(b) EFFECT OF RETURNS UNDER SECTIOn 546(g)*. If any Holder of a
General Unsecured Claim, or its predecessor in interest, received goods
returned by Wherehouse after the Filing Date for credit to the Claim of
such Holder pursuant to Section 546(g)* of the Bankruptcy Code, then when
such Claim is Allowed the amount of such Claim that would otherwise be
Allowed shall be reduced by the invoice price charged to Wherehouse for
such goods, less any discounts actually credited at the time of purchase
without any deduction for merchandise return charges. The right of such a
Holder to receive any distribution to be made under this Plan on account of
such Claim shall not otherwise be increased, reduced, impaired or affected
by any such return of goods.
(c) EFFECT OF ALLOWANCE OF RECLAMATION CLAIMS. If any Holder of a
General Unsecured Claim holds or asserts a Reclamation Claim, such General
Unsecured Claim shall not be Allowed until such Reclamation Claim is
Allowed, disallowed or otherwise resolved, and when Allowed such General
Unsecured Claim shall be reduced by the Allowed amount of the Reclamation
Claim.
(d) ELIGIBLE SUPPLIER OPTION TO EXCHANGE FOR CASH. Each Holder of a
General Unsecured Claim that is an Eligible Supplier shall have the right,
exercisable at its sole option by timely delivery of an Open Credit Terms
Commitment and Option Exercise Notice, to transfer all (but not less than
all) of the New Common Stock that such Holder is entitled to receive under
Section 5.05(a) to the Holders of the Senior Lender Secured Claims, in
exchange for cash from the Secured Claim Cash Distribution equal to 27% of
the Allowed
19
<PAGE>
amount of such General Unsecured Claim. To exercise such option, such
Eligible Supplier must deliver to Wherehouse and the Bank Agent at least
two Business Days prior to the Effective Date (time being of the essence)
an Open Credit Terms Commitment and Option Exercise Notice duly executed by
such Eligible Supplier.
(e) IMPAIRMENT. Class 5 is Impaired.
5.06. SENIOR LENDER DEFICIENCY CLAIMS (CLASS 6).
(a) ALLOWANCE OF CLAIMS. The Senior Lender Claims shall be Allowed
in the amount of $94,568,179.37 and the Senior Lender Deficiency Claims
shall be Allowed in the amount of $49,568,179.37.
(b) TREATMENT. Each Holder of an Allowed Senior Lender Deficiency
Claim shall receive, on account of such Claim, its Ratable Share of:
(1) DISTRIBUTION ON ACCOUNT OF DEFICIENCY CLAIMS.
1,395,229 shares of New Common Stock (the number of shares determined
under the Unsecured Claim Stock Distribution Ratio as to the Allowed
amount of the Senior Lender Deficiency Claims); and
(2) DISTRIBUTION UNDER SUBORDINATION PROVISIONS.
3,298,618 shares of New Common Stock (the number of shares determined
under the Unsecured Claim Stock Distribution Ratio as to the Allowed
amount of the Senior Subordinated Note Claims), which shares shall be
issued to the Holders of the Senior Lender Deficiency Claims in
enforcement of the Subordination Provisions.
(c) IMPAIRMENT. Class 6 is Impaired.
5.07. SENIOR SUBORDINATED NOTE CLAIMS (CLASS 7).
(a) ALLOWANCE OF CLAIMS. The Senior Subordinated Note Claims shall
be Allowed in the amount of $117,189,722.22.
(b) ENFORCEMENT OF SUBORDINATION. Subject only to Section 5.07(c),
in accordance with and in enforcement of the Subordination Provisions, all
distributions which the Holders of Senior Subordinated Note Claims would
20
<PAGE>
otherwise be entitled to receive under this Plan shall be delivered to the
Holders of the Allowed Senior Lender Deficiency Claims and provision
therefor is made in Section 5.06(b)(2).
(c) WARRANTS IF PLAN IS ACCEPTED. If this Plan is accepted by Class
7, then:
(1) WARRANTS. Each Holder of a Senior Subordinated Note Claim
shall receive, free from the Subordination Provisions, its Ratable
Share of the Warrants,
(2) RELEASE AS TO WARRANTS. Each Holder of a Senior Lender
Claim (whether or not such Holder individually accepted or rejected
this Plan) hereby absolutely, unconditionally and forever remises,
remits and releases any claim to or interest in the Warrants pursuant
to the Subordination Provisions, and
(3) RELEASE AS TO SHARES TURNED OVER. Each Holder of a Senior
Subordinated Note Claim (whether or not such Holder individually
accepted or rejected the Plan) hereby absolutely, unconditionally and
forever remises, remits and releases any claim to or interest in the
shares of New Common Stock distributed to the Holders of Senior Lender
Deficiency Claims pursuant to Section 5.06(b) and all other property
that they otherwise are or may be entitled to receive on account of
Senior Subordinated Note Claims.
No Warrants shall be distributed under this Plan if this Plan is not
accepted by Class 7.
(d) NO DISTRIBUTION IF PLAN IS NOT ACCEPTED. If this Plan is not
accepted by Class 7, then the Holders of Senior Subordinated Note
Claims shall receive no distribution under this Plan.
(e) SUBORDINATION ENFORCEMENT AS ESSENTIAL ELEMENT. Whether or not
Class 7 or any individual Holder of a Senior Subordinated Note Claim has
accepted this Plan, the Subordination Provisions shall be enforced without
exception, through the consummation of this Plan and as an essential
element hereof, as to all New Common Stock and any and all other property,
except the Warrants, that the Holders of Allowed Senior Subordinated Note
Claims are,
21
<PAGE>
would or might otherwise be entitled to receive from the Debtors or the
Estates or in the Cases on account of Senior Subordinated Note Claims and
all such New Common Stock and other property, except the Warrants, shall be
delivered by the Debtors and Reorganized Wherehouse directly to the Holders
of Senior Lender Deficiency Claims pursuant to the Subordination
Provisions.
(f) IMPAIRMENT. Class 7 is Impaired.
5.08. CONVERTIBLE SUBORDINATED DEBENTURE CLAIMS (CLASS 8).
(a) NO DISTRIBUTION. The Holders of Convertible Subordinated
Debenture Claims shall receive no distribution under this Plan.
(b) IMPAIRMENT. Class 8 is Impaired.
5.09. INTERESTS (CLASS 9).
(a) NO DISTRIBUTION. The Holders of Interests shall receive no
distribution under this Plan.
(b) IMPAIRMENT. Class 9 is Impaired.
ARTICLE 6
IDENTIFICATION OF CLASSES OF CLAIMS
AND INTERESTS IMPAIRED AND NOT IMPAIRED BY THIS PLAN;
ACCEPTANCE OR REJECTION OF THIS PLAN
6.01. ACCEPTANCE BY AN IMPAIRED CLASS OF CREDITORS. Consistent with
Section 1126(c) of the Bankruptcy Code and except as provided in Section
1126(e) of the Bankruptcy Code, an Impaired Class of Claims shall have accepted
this Plan if this Plan is accepted by the holders of at least two-thirds in
dollar amount and more than one-half in number of the Allowed Claims of such
Class that have timely and properly voted to accept or reject this Plan.
6.02. VOTING CLASSES. Senior Lender Secured Claims (Class 1), the DC-2
Secured Claim (Class 2), General Unsecured Claims (Class 5), Senior Lender
Deficiency Claims (Class 6), and Senior Subordinated Note Claims (Class 7) are
22
<PAGE>
Impaired by this Plan, and only the Holders of Allowed Claims in such Classes at
the time the vote on this Plan is solicited are entitled to vote to accept or
reject this Plan.
6.03. CLASSES RECEIVING NO PROPERTY DEEMED TO REJECT THIS PLAN.
Convertible Subordinated Debenture Claims (Class 8) and Interests (Class 9) are
Impaired by this Plan and do not receive or retain any property under this Plan.
Under Section 1126(g) of the Bankruptcy Code, the Holders of Claims and
Interests in such Classes are deemed to reject this Plan and the votes of
Holders in such classes will not be solicited.
6.04. UNIMPAIRED CLASSES CONCLUSIVELY PRESUMED TO ACCEPT THIS PLAN.
Miscellaneous Secured Claims (Class 3) and Miscellaneous Priority Claims (Class
4) are not Impaired by this Plan. Under Section 1126(f) of the Bankruptcy
Code, such classes of Claims are conclusively presumed to accept this Plan, and
the votes of Holders in such Classes will not be solicited.
6.05. CONFIRMATION PURSUANT TO SECTION 1129(b). The Debtors may seek
confirmation of the Plan under Section 1129(b) of the Bankruptcy Code with
respect to any Class, except Class 1 and Class 6, to the extent a Class rejects
or is deemed to have rejected this Plan.
ARTICLE 7
UNEXPIRED LEASES AND EXECUTORY CONTRACTS
7.01. ASSUMPTION AND REJECTION. Any unexpired lease or executory
contract that has not been expressly rejected or assumed by the Debtors with the
Bankruptcy Court's approval on or prior to the Effective Date shall be deemed to
have been rejected by the Debtors as of the Effective Date unless there is then
pending before the Bankruptcy Court a motion to assume such unexpired lease or
executory contract. Any unexpired lease or executory contract assumed by the
Debtors at any time during the pendency of the Chapter 11 Cases (and not
otherwise assigned) shall be assigned to and assumed by Reorganized Wherehouse,
unless prior to the Effective Date the Debtors, with the Bank Agent's approval,
elect that such lease or contract shall be assigned to and assumed by another
Entity.
7.02. ASSUMPTION AND ASSIGNMENT OF LEASES AND CONTRACTS. At the
Confirmation Hearing, subject to the approval of the Bank Agent, the Debtors
will request the Bankruptcy Court to approve assumption of certain of its real
property leases and executory contracts and assignment of such leases and
contracts to Reorganized Wherehouse or another Entity in accordance with Section
7.01. The
23
<PAGE>
Debtors will file a schedule of such leases and contracts with the Bankruptcy
Court at least ten days prior to the Confirmation Hearing.
7.03. ASSIGNED LEASES. Any lease of nonresidential real property that
was assigned by a Debtor prior to the Filing Date shall be treated as being
neither executory nor unexpired and shall be deemed neither assumed nor rejected
pursuant to this Plan.
7.04. ASSIGNMENTS OF CONTRACTS AND LEASES. The Debtors reserve all
rights accorded to them under Section 365 of the Bankruptcy Code, including all
rights under Section 365(f) of the Bankruptcy Code with respect to the
assignment of any or all of their executory contracts and unexpired leases.
ARTICLE 8
OPERATION AND MANAGEMENT
OF REORGANIZED WHEREHOUSE AND THE DEBTORS
8.01. BOARD OF DIRECTORS. From and after the Effective Date,
Reorganized Wherehouse shall be managed under the direction of its board of
directors in accordance with the applicable provisions of the DGCL, the New
Certificate of Incorporation and the New Bylaws.
8.02. APPOINTMENT OF DIRECTORS. On or prior to the Effective Date,
the Bank Agent, subject to the consent of the Debtors and upon consultation with
the Trade Committee, shall appoint five directors of Reorganized Wherehouse. At
least five Business Days prior to the Confirmation Hearing, the Debtors and the
Bank Agent will file with the Bankruptcy Court a schedule setting forth the
names of the persons to be appointed as the directors of Reorganized Wherehouse
pursuant to this Section 8.02.
8.03. EFFECT OF APPOINTMENT. Upon the Effective Date, subject to
appointment of the persons named in such schedule as directors of Reorganized
Wherehouse and acceptance of such appointment by such persons, (i) all rights of
the Debtors' and the Trade Committee with respect to appointment of directors
shall be extinguished and the directors of Reorganized Wherehouse shall
thereafter be appointed or elected in accordance with the DGCL, the New
Certificate of Incorporation and the New Bylaws, as they may from time to time
be amended and (ii) the authority, power and
24
<PAGE>
incumbency of the persons then acting as directors of the Debtors shall be
terminated and such directors shall be deemed to have resigned.
ARTICLE 9
IMPLEMENTATION OF THIS PLAN
9.01. SUBSTANTIVE CONSOLIDATION. This Plan shall constitute a motion
pursuant to Section 105 of the Bankruptcy Code to substantively consolidate the
bankruptcy estates of Wherehouse and Holdings. On the Effective Date, (i) the
Chapter 11 Case and Estate of Holdings shall be substantively consolidated with
and into the Chapter 11 Case and Estate of Wherehouse, (ii) any and all Claims
against Holdings shall be deemed to be Claims against Wherehouse, and (iii) any
and all Claims against Holdings and Wherehouse shall be satisfied in accordance
with the terms of this Plan.
9.02. EXTINGUISHMENT OF INTER-DEBTOR AND CO-DEBTOR CLAIMS AND INTERESTS.
On the Effective Date and pursuant to the substantive consolidation effected by
this Plan, (i) any and all Claims between the Debtors shall be extinguished,
(ii) any and all Interests in Wherehouse of which Holdings is the Holder shall
be cancelled, and (iii) any Claim against one of the Debtors that the other
Debtor has guaranteed or as to which the other Debtor is liable, jointly or
otherwise, shall be disallowed and extinguished as necessary to avoid
duplication and so as to result in one Claim against the consolidated Debtors.
9.03. RESERVATION OF RIGHTS. The substantive consolidation contained
herein is and shall be accomplished only as part of this Plan. If this Plan is
not confirmed for any reason, the Debtors shall not be substantively
consolidated, unless such relief is requested by the Debtors. If this Plan is
not confirmed for any reason, each Debtor reserves the right to contest any
motion or request for substantive consolidation affecting either of the Debtors.
No provision in this Plan and no statement in the Disclosure Statement may or
shall be used as an admission that substantive consolidation is warranted or in
the best interests of creditors or other parties in interest or a waiver of
either Debtor's right to contest any such motion or request.
9.04. TRANSFER OF PROPERTY. If this Plan becomes effective as set forth
in Section 13.02, the confirmation of this Plan shall transfer to Reorganized
Wherehouse all property of the Estates remaining after giving effect to
substantive consolidation pursuant to Sections 9.01, 9.02 and 9.03 (except (i)
the New Common Stock and
25
<PAGE>
Warrants and all other consideration delivered to the Estates by Reorganized
Wherehouse pursuant to the Asset Purchase Agreement and (ii) any property of the
Estates that is transferred to any other Entity on or prior to the Effective
Date or that is abandoned pursuant to this Plan), and title to all property so
to be transferred to Reorganized Wherehouse shall pass to Reorganized Wherehouse
on the Effective Date on the terms and conditions set forth in the Asset
Purchase Agreement, free and clear of all Claims, all liens securing Claims and
all Interests, except any lien preserved under Section 5.03(a). Reorganized
Wherehouse shall not be liable or responsible for any Claim against the Debtors
or the Estates or any obligation of the Debtors or the Estates except as
expressly assumed by Reorganized Wherehouse in the Asset Purchase Agreement or
pursuant to this Plan. Reorganized Wherehouse shall be the successor to the
Debtors for the purposes of Section 1123, Section 1129 and Section 1145 of
the Bankruptcy Code.
9.05. LIQUIDATION OF ESTATES. After this Plan becomes effective, the
Estates shall be liquidated in accordance with this Plan and applicable law.
Subject to any further order of the Bankruptcy Court, Reorganized Wherehouse
shall act as liquidating agent of and for the Estates from and after the
Effective Date and as such shall be both authorized and obligated, as agent for
and on behalf of the Estates, to admit, object to or contest any and all Claims,
to defend, protect and enforce any and all rights and interests, to make any and
all distributions required or permitted to be made under this Plan, to file any
and all reports, requests for relief or opposition thereto, and to take any and
all other actions necessary or appropriate to implement this Plan or to wind up
the Estates in accordance with applicable law and shall be authorized to pay
(from its own funds and without any right of contribution or reimbursement as
against the Estates) any and all claims, liabilities, losses, damages, costs and
expenses incurred in connection therewith or as a result thereof, including all
fees and expenses of its professionals accruing from and after the Confirmation
Date without any application to the Bankruptcy Court. Reorganized Wherehouse
shall not be entitled to receive any compensation or indemnification whatsoever
from the Estates for its services as such liquidating agent or in respect of any
such claims, liabilities, losses, damages, costs or expenses.
9.06. CANCELLATION OF SECURITIES. On the Effective Date, the Prepetition
Loan Documents, including all notes and other instruments outstanding thereunder
or issued pursuant thereto and all obligations of the Debtors or the Estates
thereunder or in respect thereof, the Senior Subordinated Notes and the Senior
Subordinated Note Indenture and all obligations of the Debtors or the Estates
thereunder or in respect thereof, the Convertible Subordinated Debentures and
the Convertible Subordinated Debenture Indenture and all obligations of the
Debtors or the Estates thereunder or in
26
<PAGE>
respect thereof, and all Interests shall be cancelled and discharged and fully
satisfied by confirmation of this Plan and the distributions to be made pursuant
to this Plan; PROVIDED, HOWEVER, that the 1992 Merger Agreement Letter of Credit
shall not be cancelled and all rights of the Estates under any agreement related
thereto and any interest of the Estates therein shall be transferred to
Reorganized Wherehouse pursuant to the Asset Purchase Agreement.
9.07. SURRENDER OF CANCELLED SECURITIES. On the Effective Date, each of
the respective transfer books maintained for the Cancelled Securities shall be
closed. Except for the right to receive the distributions, if any, to be made
pursuant to this Plan, the Holder of a Cancelled Security shall have no rights
arising from or relating to such Cancelled Security after the Effective Date,
including rights of subordination or subrogation that may be construed to be
inherent in or ancillary or related to such Cancelled Security. Each holder of
a Cancelled Security evidencing any Allowed Claim shall surrender such Cancelled
Security to Reorganized Wherehouse (or its designee), and Reorganized Wherehouse
(or its designee) shall distribute to such Holder or to such Holder's agent,
trustee or representative the appropriate consideration therefor in accordance
with this Plan as promptly as is reasonably practicable. No distribution under
this Plan shall be made to or for account of any Holder of an Allowed Claim
evidenced by a Cancelled Security unless and until such Cancelled Security is
received by Reorganized Wherehouse (or its designee). If a Cancelled Security
is lost or destroyed, the Holder of such Cancelled Security must deliver an
affidavit of loss or destruction to the Debtors or Reorganized Wherehouse (or
their designee), as well as an agreement to indemnify the Debtors and
Reorganized Wherehouse (and post a bond if so requested by the Debtors or
Reorganized Wherehouse), in form and substance reasonably acceptable to
Reorganized Wherehouse, before such Holder may receive any distribution that it
would otherwise be entitled to receive under this Plan in respect of such lost
or destroyed Cancelled Security. Any Holder of an Allowed Claim that fails to
surrender a Cancelled Security related thereto or to deliver an affidavit and an
indemnity agreement before the later to occur of (i) two years from the
Effective Date, and (ii) six months following the date such Holder's Claim
becomes an Allowed Claim shall be deemed to have no further Claim and no
distributions shall be made under this Plan in respect of such Claim. The
Debtors or Reorganized Wherehouse may waive the requirements of this Section
9.07.
9.08. ALLOWANCE OF CLAIMS SUBJECT OF SECTION 502(d). Allowance of
Claims shall be in all respects subject to the provisions of Section 502(d) of
the Bankruptcy Code, except that no Claim that is Allowed in an amount set forth
in this Plan shall be disallowed under Section 502(d) of the Bankruptcy Code.
27
<PAGE>
9.09. RIGHT OF SETOFF. Reorganized Wherehouse shall have the right to
set off against any Claim and the distributions to be made pursuant to this Plan
in respect of such Claim, any and all debts, liabilities and claims of every
type and nature whatsoever which (after giving effect to the releases set forth
in Section 12.04) the Estates or Reorganized Wherehouse may have against the
Holder of such Claim, and neither any prior failure to do so nor the Allowance
of such Claim, whether pursuant to this Plan or otherwise, shall constitute a
waiver or release of any such right of setoff.
ARTICLE 10
PROVISIONS COVERING DISTRIBUTIONS
10.01. TIME OF DISTRIBUTIONS UNDER THIS PLAN. Except as otherwise
provided in this Plan, distributions in respect of Claims that, on the Effective
Date, are Allowed Claims shall be made by Reorganized Wherehouse (or its
designee) on or as promptly as practicable after the Effective Date.
Distributions in respect or as a result of Claims Allowed after the Effective
Date shall be made as soon as practicable after such Claim becomes Allowed.
10.02. FRACTIONAL SHARES. Fractional shares of New Common Stock shall
not be issued under this Plan. Instead, on the date of final distribution of
New Common Stock to the persons entitled thereto, the aggregate of all
fractional shares that would otherwise be issued to such persons shall be pooled
in a fractional securities pool and each Holder of an Allowed Claim entitled to
any such fractional interest shall be placed on a distribution list in
descending order according to the size of the fractional interest to which such
Holder is entitled. If two or more Holders are entitled to the same fractional
interest (rounded to six decimal places), their relative ranking on the
distribution list shall be determined by lot. A whole share of New Common Stock
shall be distributed, in the descending order set forth in the distribution
list, to Holders named on the list until all of the whole shares of the New
Common Stock in the fractional securities pool have been distributed. No other
distribution shall be due or made on any fractional shares.
10.03. WARRANTS FOR ISSUANCE OF FRACTIONAL SHARES. Warrants for
fractional shares of New Common Stock shall not be issued under this Plan.
Instead, on the date of final distribution of Warrants to the persons entitled
thereto, the aggregate of all Warrants for issuance of fractional shares that
would otherwise be issued to such
28
<PAGE>
persons shall be pooled in a Warrants for issuance of fractional securities pool
and each Holder of an Allowed Claim entitled to any such Warrants for issuance
of fractional interests shall be placed on a distribution list in descending
order according to the size of the fractional interest to which such Holder is
entitled. If two or more Holders are entitled to the same fractional interest
(rounded to six decimal places), their relative ranking on the distribution list
shall be determined by lot. A Warrant for a whole share of New Common Stock
shall be distributed, in the descending order set forth in the distribution
list, to Holders named on the list until all of the Warrants for issuance of
whole shares of the New Common Stock in the fractional securities pool have been
distributed. No other distribution shall be due or made on any Warrants for
issuance of fractional shares.
10.04. COMPLIANCE WITH TAX REQUIREMENTS. In connection with each
distribution with respect to which the filing of an information return (such as
an Internal Revenue Service Form 1099 or 1042) or withholding is required,
Reorganized Wherehouse shall file such information return with the Internal
Revenue Service and provide any required statements in connection therewith to
the recipients of such distribution or effect any such withholding and deposit
all moneys so withheld as required by law. With respect to any Entity from whom
a tax identification number, certified tax identification number or other tax
information required by law to avoid withholding has not been received by
Reorganized Wherehouse (or its distribution agent), Reorganized Wherehouse may,
at its option, withhold the amount required and distribute the balance to such
Entity or decline to make such distribution until the information is received.
In any event, however, Reorganized Wherehouse shall not be obligated to
liquidate New Common Stock to honor any withholding obligation.
10.05. PERSONS DEEMED HOLDERS OF REGISTERED SECURITIES. Except as
otherwise provided herein, Reorganized Wherehouse and each transfer or
distribution agent shall be entitled to treat the record holder of a registered
security as the sole Holder of the Claim or Interest in respect thereof for
purposes of all notices, payments or other distributions under this Plan. No
notice of any transfer of any such security shall be binding on Reorganized
Wherehouse or any transfer or distribution agent, unless such transfer has been
properly registered in accordance with the provisions of the governing indenture
or agreement at least ten Business Days prior to the day on which any such
notice is given or any such payment or other distribution is made. If there is
any dispute regarding the identity the person entitled to any payment or
distribution in respect of any Claim under this Plan, no payment or distribution
need be made in respect of such Claim until the Bankruptcy Court resolves the
dispute pursuant to a Final Order.
29
<PAGE>
10.06. DISTRIBUTION OF UNCLAIMED PROPERTY. Any distribution of property
under this Plan that is unclaimed after two years following the Effective Date
shall irrevocably revert to Reorganized Wherehouse, without regard to state
escheatment laws.
ARTICLE 11
RESOLUTION OF DISPUTED CLAIMS
11.01. OBJECTIONS TO CLAIMS. Any party in interest may object to an
Impaired Claim, except a Claim that is Allowed as set forth in this Plan. Any
such objection must be filed and served no later than the later of (a) the 60th
day following the Effective Date, (b) 30 days after the filing of the proof of
claim of such Claim, or (c) any later day set by order of the Bankruptcy Court,
which the Debtors or Reorganized Wherehouse may request on an EX PARTE basis.
Only Reorganized Wherehouse may object to Claims that are not Impaired.
Objections to Claims, except Claims that are Allowed pursuant to this Plan, may
be filed and served by Reorganized Wherehouse at any time.
11.02. PROCEDURE. Unless otherwise ordered by the Bankruptcy Court, the
Debtors or Reorganized Wherehouse shall litigate the merits of each Disputed
Claim until it is abandoned by the Holder, determined by Final Order or
compromised and settled by the Debtors or Reorganized Wherehouse, subject to any
required approval of the Bankruptcy Court.
11.03. NO DISTRIBUTIONS ON DISPUTED CLAIMS. No payments or distributions
shall be made in respect of any Disputed Claim.
11.04. ESTIMATION; PARTIAL ALLOWANCE. In order to effectuate
distributions pursuant to the Plan and avoid undue delay in the administration
of the Estates, the Debtors (prior to the Effective Date) and Reorganized
Wherehouse (after the Effective Date) shall have the right to seek an order of
the Bankruptcy Court, after notice and a hearing (which notice may be limited to
the holder of such Disputed Claim and which hearing may be held on an expedited
basis), estimating a Disputed Claim pursuant to Section 502(c) of the
Bankruptcy Code or providing that a Disputed Claim shall be Allowed in part,
with the rest to remain Disputed.
30
<PAGE>
ARTICLE 12
DISCHARGE, RELEASE AND PRESERVATION OF CLAIMS
12.01. DISCHARGE AND TERMINATION. If this Plan becomes effective as set
forth in Section 13.02, the confirmation of this Plan shall (i) discharge the
Debtors, the Estates and Reorganized Wherehouse from any debt that arose before
the Confirmation Date, any debt of the kind specified in Section 502(g),
Section 502(h) or Section 502(i) of the Bankruptcy Code, all Claims treated in
this Plan, all contingent and unliquidated liabilities of every type and
description to the fullest extent discharge of such liabilities is permitted
under the Bankruptcy Code, and all other Claims against either or both of the
Debtors or the Estates that were outstanding, accrued or existing, or might
reasonably have been asserted, on the Confirmation Date, in each instance
whether or not a proof of such Claim is filed or deemed filed, whether or not
such Claim is Allowed, and whether or not the holder of such Claim has voted on
this Plan, and (ii) terminate all rights and interests of the Holders of all
Interests.
12.02. DISTRIBUTIONS IN COMPLETE SATISFACTION. If this Plan becomes
effective as set forth in Section 13.02, the distributions and rights provided
under this Plan shall be in complete satisfaction, discharge and release,
effective as of the Confirmation Date, of all Claims against and Interests in
the Debtors and the Estates and all liens upon any property of the Estates or
Reorganized Wherehouse.
12.03. INJUNCTION. The discharge provided in Section 12.01 shall also
operate as an injunction restraining any Entity from commencing or continuing
any action, suit or proceeding, or employing any process, or otherwise acting,
to collect, offset or recover any Claim discharged under this Plan to the
fullest extent authorized or provided by the Bankruptcy Code, including Section
524 and Section 1141 thereof. The Confirmation Order shall constitute an
injunction enjoining any Entity from enforcing or attempting to enforce any
Cause of Action against any present or former shareholder, director, officer,
employee, attorney or agent of either or both of the Debtors based on, arising
from or relating to any failure to pay, or make provision for payment of, any
amount payable in respect of any Priority Tax Claim on which the payments due
under Section 3.01 have been made or are not yet due under Section 3.01.
31
<PAGE>
12.04. RELEASE BY DEBTORS AND DEBTORS IN POSSESSION. Pursuant to Section
1123(b)(3) of the Bankruptcy Code, if this Plan becomes effective as set forth
in Section 13.02, the Debtors, in their individual capacity and as Debtors in
Possession, for and on behalf of the Estates, hereby release and discharge,
absolutely, unconditionally, irrevocably and forever:
(a) CERTAIN BANKRUPTCY CAUSES OF ACTION. Any and all Causes of
Action that may be enforceable by either or both of the Debtors or either
or both of the Debtors in Possession under Section 510, Section 542,
Section 544, Section 545, Section 546, Section 547, Section 548,
Section 549, Section 550 and Section 553 of the Bankruptcy Code or under
similar state laws, including fraudulent conveyance and fraudulent transfer
laws, except only that the following Causes of Action shall be reserved and
preserved: (i) any and all 1992 Merger Consideration Recovery Claims, and
(ii) any and all Causes of Action against any Holder of a Miscellaneous
Secured Claim based on or arising from or relating to such Miscellaneous
Secured Claim or any act, omission, wrongful conduct, occurrence or event
related thereto; and
(b) CAUSES OF ACTION RELATED TO CLAIMS, INTERESTS OR THE CASES. Any
and all Causes of Action against any person or Entity (including all
present and former directors, officers, attorneys, advisors, investment
bankers, consultant and agents acting for the Debtors or the Estates, all
Holders of Claims or Interests treated herein, and all present and former
members of the Official Committee, the Trade Committee and the Senior
Lenders and their attorneys and advisors) in any manner arising from, based
on or relating to the subject matter of, or the transaction or event giving
rise to, any Claim or Interest that is treated in this Plan or the
restructuring of such Claims and Interests prior to or in the Chapter 11
Cases or any act, omission, occurrence or event in any matter related to
any such transaction, event or restructuring, except Causes of Action (i)
based on or arising from a promissory note or other instrument or a
contract or quasi-contract, (ii) based on or arising from intentional fraud
or defalcation, willful misconduct, wrongful trade practices or willful
violation of law, (iii) asserted in proceedings pending on the Confirmation
Date, (iv) against any Holder of a Miscellaneous Secured Claim based on,
arising from or relating to such Miscellaneous Secured Claim or any act,
omission, wrongful conduct, occurrence or event related thereto, or (v)
that are 1992 Merger Consideration Recovery Claims.
Reorganized Wherehouse (x) shall not succeed to any Cause of Action released and
discharged pursuant to this Section 12.04, (y) shall be bound, to the same
extent the
32
<PAGE>
Debtors are bound, by each and all of the releases set forth herein, and (z)
pursuant to the transfer of property of the Estates to be made to it on the
Effective Date, shall succeed to and be entitled to enforce each of the Causes
of Action that are reserved and preserved pursuant to the express provisions of
this Section 12.04.
12.05. RELEASE BY HOLDERS OF CLAIMS AND INTERESTS. Each Entity that
accepts any distribution on its Claim made pursuant to this Plan (a "Release
Obligor") shall be presumed conclusively to have released and discharged the
Debtors, the Estates, Reorganized Wherehouse and each other Entity that accepts
any distribution under this Plan and any other Holder of a Claim or Interest
that expressly agrees in writing to be reciprocally bound by the provisions of
this Section 12.05, and their respective present and former affiliates,
shareholders, directors, officers, attorneys, advisors, financial advisors,
investment bankers and agents, and all of their respective heirs,
representatives, successors and assigns, and any Entity that may be liable
derivatively through any of the foregoing, absolutely, unconditionally,
irrevocably and forever, FROM any Cause of Action arising from, based on or
relating to the subject matter of, or the transaction or event giving rise to,
the Claim on which the Release Obligor received such distribution or any act,
omission, occurrence or event in any manner related to such subject matter,
transaction or event, except any Causes of Action (i) based on or arising from a
promissory note or other instrument or a contract or quasi-contract, (ii) based
on or arising from intentional fraud or defalcation, willful misconduct,
wrongful trade practices or willful violation of law, or (iii) asserted in
proceedings pending on the Confirmation Date. The release and discharge
described in the preceding sentence shall further extend to the matters set
forth in Section 5.07(c), if the conditions set forth therein are met, and shall
be enforceable as a matter of contract against (i) any Entity that accepts any
distribution pursuant to this Plan, and (ii) any Holder of any Claim or Interest
that expressly agrees in writing to be reciprocally bound by the provisions of
this Section 12.05.
12.06. EXCULPATION. Neither the Debtors, nor the Estates, nor
Reorganized Wherehouse, nor the Bank Agent or its predecessors or successors,
nor any past, present or future member of the Senior Lenders, Official Committee
or the Trade Committee, nor any Holder of any Claim or Interest treated in this
Plan, nor any officer, director, shareholder, employee, agent, attorney,
accountant or advisor to any of them, shall be obligated in any manner under
this Plan or in respect of or by reason of the filing, negotiation, prosecution,
confirmation, consummation or implementation of this Plan or any action taken or
not taken in connection therewith, or shall have or incur any liability to any
Holder of any Claim or Interest or any other Entity in respect of any such
matters or any information provided or statement made in the Disclosure
33
<PAGE>
Statement or omitted therefrom, except that (i) the Debtors and Reorganized
Wherehouse shall fulfill the obligations expressly set forth in this Plan and
(ii) each Entity shall remain liable, to the extent provided by law, for its own
willful misconduct or recklessness as determined pursuant to a Final Order.
Each such person and Entity shall be entitled to rely upon the advice of counsel
with respect to its duties and responsibilities under the Plan and shall be
fully protected in acting or in refraining from acting in accordance with such
advice or in any manner approved or ratified by the Bankruptcy Court.
12.07. INDEMNIFICATION OBLIGATIONS.
(a) TERMINATION OF INDEMNIFICATION OBLIGATIONS. Except as set forth
in Section 12.07(b), all obligations of the Debtors or the Estates to indemnify,
or to pay contribution or reimbursement to, any of its present or former
directors, officers, agents, employees and representatives or any Holder of a
Claim or Interest treated in this Plan, or any trustee or agent acting for any
such Holder, or any person in any manner engaged, employed or indemnified in
connection with the issuance or sale of any Cancelled Securities or any agent,
attorney, advisor, financial advisor, investment banker, employee or
representative or any heirs, representatives, successors or assigns of any
indemnified person that may be outstanding, accrued or existing, or might
reasonably have been asserted, on the Confirmation Date (whether pursuant to a
certificate of incorporation, bylaws, contractual obligations or any applicable
law or otherwise) in respect of any past, present or future action, suit or
proceedings shall be discharged under this Plan and all undertakings and
agreements for or relating to any such indemnification, contribution or
reimbursement are hereby rejected and terminated.
(b) LIMITED CONTINUING INDEMNIFICATION. No obligation of either or
both of the Debtors, whether arising pursuant to law or its certificate of
incorporation or bylaws or by contract or otherwise, to indemnify, or to pay
contribution or reimbursement to, any individual who served as a director or
officer of the Debtors at any time during the period that commenced three years
prior to the Filing Date and ends on the Effective Date shall be (i) discharged
or impaired under this Plan, (ii) subordinated under Section 510 of the
Bankruptcy Code or otherwise, or (iii) disallowed under Section 502(e) of the
Bankruptcy Code. Any such obligation that, under the Bankruptcy Code, has the
priority of an expense of administration shall be entitled to such priority. No
proof of claim shall be required to preserve any such obligation. Pursuant to
the Asset Purchase Agreement, Reorganized Wherehouse shall assume and agree to
pay all such obligations and, further, shall defend, indemnify and hold
34
<PAGE>
harmless each such individual from and against all claims, damages, losses,
liabilities costs and expenses (including the reasonable fees and disbursements
of legal counsel selected and employed by such indemnified person, whether or
not suit is brought) based on, arising from or in any manner related to (i) any
failure by Reorganized Wherehouse to pay any Claim or other liability or to
perform any obligation binding on it pursuant to this Plan or the Asset Purchase
Agreement or (ii) any act, omission, wrongful conduct, circumstance or event as
to which either any Cause of Action is released as against any Person pursuant
to this Plan or any such indemnification obligation is preserved pursuant to
this Section 12.07(b); PROVIDED, HOWEVER, that (i) no individual shall be
indemnified in respect of any claim, damages, liability, loss, cost or expense
that is finally determined by a court of competent jurisdiction to have been
caused by such individual's own willful misconduct or gross negligence and (ii)
no 1992 Merger Consideration Recipient shall be indemnified as to any 1992
Merger Consideration Recovery Claim pursuant to this Section 12.07(b).
12.08. PRESERVATION OF INSURANCE. The Debtors' discharge provided in
this Plan shall not diminish or impair the enforceability of any insurance
policies that may cover claims against the Debtors or any other person or
Entity.
12.09. GOOD FAITH SETTLEMENT OF ACQUISITION RELATED CAUSES OF ACTION.
Except as provided in Section 12.10, on the Effective Date the Debtors (whether
as Debtors, debtors in possession or on behalf of creditors) and all persons or
Entities asserting claims or who may in the future assets claims derivatively or
otherwise through or on behalf of any of the Debtors and all present and former
directors, officers, agents, attorneys, advisors, financial advisors, investment
bankers, employees and shareholders of the Debtors, in their respective
capacities as such (collectively, the "Wherehouse Releasors") shall be deemed,
for good and valuable consideration, to have released and discharged all Causes
of Action against any and all Entities (the "Released Entities") that any or all
of the Wherehouse Releasors ever had, now have or hereafter can, shall or may
have against any Entity by reason of, arising in connection with, or related in
any way to the 1992 Acquisition (such Causes of Action being referred to herein
as the "Acquisition Related Causes of Action"), including (i) the offer, sale,
purchase or resale of any securities of Wherehouse or Holdings, or any
registration statement, preliminary prospectus, prospectus, disclosure or
omission related thereto, (ii) any extension, supplementation or restructuring
of any indebtedness of any of the Debtors, including any breach of duty owed to
any of the Debtors arising from any extension, supplementation or restructuring
of that indebtedness, (iii) any engagement or role of, or services rendered by,
any or all of the Released Entities in
35
<PAGE>
connection with the foregoing, and (iv) any and all actions taken or not
taken by the Released Entities in connection with the Debtors' prepetition
indebtedness.
Pursuant to Bankruptcy Rule 9019 and any applicable state law and as
consideration for the compromises, satisfaction of Claims, distributions and
other benefits provided under this Plan, but (except as provided in Section
12.10) the provisions of this Plan and the treatment of the Claims and Interests
set forth herein shall constitute a good faith compromise and settlement of the
Acquisition Related Causes of Action and any claims for indemnity or
contribution (or similar claims) that could be brought (or could have been
brought) by the Wherehouse Releasors against or involving Released Entities,
which compromise and settlement is in the best interest of creditors and is
fair, equitable and reasonable. Confirmation of this Plan constitutes approval
by the Bankruptcy Court of this settlement as a good faith settlement of all
Acquisition Related Causes of Action that the Wherehouse Releasors may hold
against the Released Entities. The Bankruptcy Court's approval of this
settlement pursuant to Bankruptcy Rule 9019 and its finding that this is a good
faith settlement pursuant to any applicable state laws, including the States of
Delaware, California and New York, given and made after due notice and
opportunity for hearing, shall bar any claim against the Released Entities for
indemnity or contribution (or similar claim) by any Entity that is claimed to be
a joint tort feasor or otherwise jointly liable in respect of such Acquisition
Related Causes of Action with such Released Entities.
12.10. MERGER CONSIDERATION RECOVERY CLAIMS NOT RELEASED.
Notwithstanding Section 12.09 or any of the other provisions of this Plan, this
Plan shall not release any 1992 Merger Consideration Recipient from any 1992
Merger Consideration Recovery Claim.
12.11. SUBORDINATION. Except as otherwise provided in Section 5.07(c),
distributions under this Plan take into account the relative priorities of the
Claims and Interests in each Class in connection with any and all contractual,
legal or equitable subordination provisions or rights relating thereto.
Accordingly, subject to Section 5.07(c), (i) any distributions under this Plan
shall be received and retained free of and from any obligations to hold or
transfer the same to any other creditor and shall not be subject to levy,
garnishment, attachment or other legal process by any Holder by reason of
claimed contractual subordination rights and (ii) the Confirmation Order shall
constitute an injunction enjoining any Entity from enforcing or attempting to
enforce any contractual, legal or equitable subordination rights to property
distributed under this Plan.
36
<PAGE>
ARTICLE 13
CONDITIONS TO CONSUMMATION OF THE PLAN
13.01. CONDITIONS. This Plan shall not become effective, and no
obligations and rights set forth in this Plan as of the Effective Date or
thereafter shall come into existence, unless each of the following conditions is
met on the Effective Date:
(a) CONFIRMATION ORDER. The Confirmation Order shall have been
entered and shall not be in any respect stayed.
(b) REORGANIZED WHEREHOUSE. Reorganized Wherehouse shall have been
duly incorporated. The New Certificate of Incorporation and the New Bylaws
shall be its sole governing documents. Reorganized Wherehouse shall have duly
authorized, executed and delivered the Asset Purchase Agreement, the Warrant
Agreement, and all New Common Stock and Warrants to be distributed pursuant to
this Plan. Each of the representations and warranties of Reorganized Wherehouse
set forth in the Asset Purchase Agreement and in the Warrant Agreement shall be
true and correct. Reorganized Wherehouse shall have fully satisfied all
conditions therein and shall have duly and punctually have performed or tendered
performance of all its obligations binding thereunder, and such satisfaction,
performance and tender of performance shall not be in any respect restrained by
order of any court of competent jurisdiction.
(c) FUNDING UNDER WORKING CAPITAL FACILITY. Reorganized Wherehouse
and a lender shall have entered into a definitive written agreement offering
Reorganized Wherehouse a revolving credit facility in an amount and on terms,
conditions and collateral security satisfactory to and approved by the Debtors
and the Trade Committee, and all conditions of closing set forth in such
agreement shall have been satisfied or waived, subject to the actions to be
taken under this Plan on the Effective Date.
(d) DELIVERY OF DOCUMENTS. All documents required to be delivered
under this Plan or under the Asset Purchase Agreement or the Warrant Agreement
on or prior to the Effective Date shall have been executed and delivered by the
parties thereto.
13.02. CONSUMMATION. This Plan shall become effective when the
conditions set forth in Section 13.01 are met. Reorganized Wherehouse shall
thereupon perform
37
<PAGE>
the obligations required under this Plan to be performed by it on the Effective
Date. The filing with the Bankruptcy Court of a certificate of a responsible
officer of Reorganized Wherehouse to the effect that the conditions in Section
13.01 have been met and that Reorganized Wherehouse has substantially performed
the obligations required under this Plan to be performed by it on the Effective
Date shall establish conclusively that this Plan has been substantially
consummated.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.01. BANKRUPTCY COURT TO RETAIN JURISDICTION. The property of the
Estates and affairs of the Debtors shall remain subject to the jurisdiction of
the Bankruptcy Court until this Plan becomes effective as set forth in Section
13.02. After this Plan becomes effective, the Bankruptcy Court shall retain
jurisdiction over the Debtors and Reorganized Wherehouse, as liquidating agent
for the Debtors and the Estates, and the consolidated Chapter 11 Cases to the
fullest extent permitted by law, and shall have such jurisdiction exclusively to
the fullest extent permitted by law, including for the purpose of hearing all
requests for relief and determining all disputes relating to (i) this Plan and
the implementation, interpretation and enforcement hereof, (ii) the allowance,
amount and classification of Claims and Interests treated in this Plan, (iii)
the rights and obligations of any Holder of any such Claim or Interest, whether
as against the Debtors or Reorganized Wherehouse or as against any other Holder,
(iv) compensation of professional persons, (v) any and all applications,
motions, adversary proceedings and contested or litigated matters pending on the
Effective Date and arising under Chapter 11 or arising in or related to the
Chapter 11 Cases or this Plan, (vi) the interpretation or enforcement of the
Confirmation Order or any proceedings or matters set forth or contemplated
therein, and (vii) any other matter within the continuing jurisdiction of the
Bankruptcy Court.
14.02. BINDING EFFECT OF THIS PLAN. The provisions of this Plan shall be
binding upon and inure to the benefit of the Debtors, the Estates, Reorganized
Wherehouse, any Holder of any Claim or Interest treated herein, and each of
their respective predecessors, successors, assigns, agents, officers and
directors and, to the fullest extent permitted under Section 1141(a) of the
Bankruptcy Code and other applicable law, each other Entity affected by this
Plan.
14.03. NONVOTING STOCK. In accordance with Section 1123(a)(6) of the
Bankruptcy Code, the certificate of incorporation of Reorganized Wherehouse
shall contain a
38
<PAGE>
provision prohibiting the issuance of nonvoting equity securities by
Reorganized Wherehouse.
14.04. AUTHORIZATION OF CORPORATE ACTION. The entry of the Confirmation
Order shall constitute authorization for the Debtors and Reorganized Wherehouse
to take or cause to be taken all corporate actions necessary or appropriate to
consummate and implement the provisions of this Plan prior to, on and after the
Effective Date, and all such actions taken or caused to be taken shall be deemed
to have been authorized and approved by the Bankruptcy Court. All such actions
shall be deemed to have occurred and shall be in effect pursuant to Section 303
of the DGCL and the Bankruptcy Code, without any requirement of further action
by the stockholders or directors of the Debtors or Reorganized Wherehouse. On
the Effective Date, the appropriate officers of Reorganized Wherehouse and
members of its board of directors are authorized and directed to execute and
deliver the agreements, documents and instruments contemplated by this Plan in
the name of and on behalf of Reorganized Wherehouse.
14.05. RETIREE BENEFITS. On and after the Effective Date, Reorganized
Wherehouse shall continue to pay all retiree benefits, as that term is defined
in Section 1114 of the Bankruptcy Code, to the extent required by Section
1129(a)(13) of the Bankruptcy Code, without prejudice to Reorganized
Wherehouse's rights under applicable non-bankruptcy law to modify, amend or
terminate the foregoing arrangements.
14.06. WITHDRAWAL OF THIS PLAN. The Debtors reserve the right, at any
time prior to the entry of the Confirmation Order, to revoke or withdraw this
Plan. If they do so, this Plan shall be null and void.
14.07. FINAL ORDER. Except as otherwise expressly provided in this Plan,
any requirement in this Plan for a Final Order may be waived by the Debtors or,
after the Effective Date, Reorganized Wherehouse upon written notice to the
Bankruptcy Court. No such waiver shall prejudice the right of any party in
interest to seek a stay pending appeal of any order that is not a Final Order.
14.08. NOTICE. All notices required to be given under this Plan, if any,
shall be in writing and shall be sent by first class mail, postage prepaid, or
by overnight courier:
If to the Debtors to:
Wherehouse Entertainment, Inc.
39
<PAGE>
19701 Hamilton Ave.
Torrance, CA 90502-1334
Attn: Jerry E. Goldress
(310) 538-2314
with copies to:
Latham & Watkins
633 West 5th Street, Suite 4000
Los Angeles, CA 90071-2007
Attn: Hendrik de Jong
Peter M. Gilhuly
(213) 485-1234
and
Young, Conaway Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
Attn: Laura Davis Jones
(302) 571-6600
Any of the above may, from time to time, change its address for future notices
and other communications hereunder by filing a notice of the change of address
with the Bankruptcy Court. Any and all notices given under this Plan shall be
effective when received.
14.09. DISSOLUTION OF COMMITTEES. When this Plan becomes effective as
set forth in Section 13.02, the Official Committee and the Trade Committee shall
cease to exist and their members and employees or agents (including attorneys,
investment bankers, financial advisors, accountants and other professionals)
shall be released and discharged from all further authority, duties,
responsibilities and obligations relating to, arising from or in connection with
the Chapter 11 Cases.
14.10. CONTINUED CONFIDENTIALITY OBLIGATIONS. All members of and
advisors to the Official Committee or the Trade Committee and each other person
bound by a confidentiality agreement with Wherehouse or Holdings shall continue
to be obligated and bound by the terms of such confidentiality agreement.
40
<PAGE>
14.11. AMENDMENTS AND MODIFICATIONS. To the fullest extent permitted
under Section 1127 of the Bankruptcy Code, this Plan may be altered, amended or
modified by the Debtors at any time prior to the Effective Date and by
Reorganized Wherehouse anytime thereafter.
14.12. TIME. Unless otherwise specified herein, in computing any period
of time prescribed or allowed by the Plan, the day of the act or event from
which the designated period begins to run shall not be included. The last day
of the period so computed shall be included, unless it is not a Business Day, in
which event the period runs until the end of the next succeeding day that is a
Business Day.
14.13. SECTION 1145 EXEMPTION. To the fullest extent permitted under
Section 1145 of the Bankruptcy Code, the offer and sale of the New Common Stock
and the Warrants and transactions in such securities shall be and are exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended, and any state or local law requiring registration for offer or sale
of a security or registration or licensing of an issuer of, underwriter of, or
broker or dealer in, such New Common Stock or Warrants. The offer and sale of
the New Common Stock and the Warrants under this Plan is deemed to be a public
offering of the New Common Stock and the Warrants.
14.14. SECTION 1146 EXEMPTION. To the fullest extent permitted under
Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of
any security under the Plan, or the execution, delivery or recording of an
instrument of transfer pursuant to, in implementation of or as contemplated by
the Plan, or the revesting, transfer or sale of any real property of the Debtors
pursuant to, in implementation of or as contemplated by the Plan shall not be
taxed under any state or local law imposing a stamp tax, transfer tax or similar
tax or fee. Consistent with the foregoing, each recorder of deeds or similar
official for any county, city or governmental unit in which any instrument
hereunder is to be recorded shall, pursuant to the Confirmation Order, be
ordered and directed to accept such instrument, without requiring the payment of
any documentary stamp tax, deed stamps, stamp tax, transfer tax, intangible tax
or similar tax.
41
<PAGE>
Wilmington, Delaware
October 4, 1996
Respectfully submitted,
WHEREHOUSE ENTERTAINMENT, INC.
By: ____________________________
Jerry E. Goldress
Chairman
WEI HOLDINGS, INC.
By: ____________________________
Jerry E. Goldress
Chairman
LATHAM & WATKINS
Co-counsel for Debtors and
Debtors in Possession
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
(213) 485-1234
Hendrik de Jong
Peter M. Gilhuly
- and -
S-1
<PAGE>
YOUNG, CONAWAY, STARGATT
& TAYLOR
Co-counsel for Debtors and
Debtors in Possession
11th Fl.-Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6642
Laura Davis Jones (#2436)
A Member of the Firm
S-2
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - DEFINITIONS AND RULES OF INTERPRETATION . . . . . . . . . . . 1
1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Rules of Interpretation . . . . . . . . . . . . . . . . . . 12
1.03. Incorporation of Exhibits . . . . . . . . . . . . . . . . . 12
ARTICLE 2 - PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSES . . . . . 12
2.01. Allowance of Administrative Expenses . . . . . . . . . . . 12
2.02. Payment of Administrative Expenses . . . . . . . . . . . . 13
ARTICLE 3 - PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS . . . . . . . 14
3.01. Priority Tax Claims . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 4 - CLASSIFICATION OF CLAIMS AND INTERESTS . . . . . . . . . . . . 14
4.01. Secured Claims . . . . . . . . . . . . . . . . . . . . . . 14
4.02. Priority Claims . . . . . . . . . . . . . . . . . . . . . . 14
4.03. Unsecured Claims. . . . . . . . . . . . . . . . . . . . . . 15
4.04. Interests . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 5 - PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS . . . . . . . 15
5.01. Senior Lender Secured Claims (Class 1) . . . . . . . . . . 15
5.02. DC-2 Secured Claim (Class 2). . . . . . . . . . . . . . . . 17
5.03. Miscellaneous Secured Claims (Class 3). . . . . . . . . . . 18
5.04. Miscellaneous Priority Claims (Class 4). . . . . . . . . . 18
5.05. General Unsecured Claims (Class 5). . . . . . . . . . . . . 18
5.06. Senior Lender Deficiency Claims (Class 6). . . . . . . . . 19
5.07. Senior Subordinated Note Claims (Class 7). . . . . . . . . 20
5.08. Convertible Subordinated Debenture Claims (Class 8) . . . . 21
5.09. Interests (Class 9) . . . . . . . . . . . . . . . . . . . . 22
i
<PAGE>
Page
----
ARTICLE 6 - IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED BY THIS PLAN; ACCEPTANCE OR REJECTION OF
THIS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.01. Acceptance by an Impaired Class of Creditors . . . . . . . 22
6.02. Voting Classes . . . . . . . . . . . . . . . . . . . . . . 22
6.03. Classes Receiving No Property Deemed to Reject this Plan . 22
6.04. Unimpaired Classes Conclusively Presumed to Accept this Plan 22
6.05. Confirmation Pursuant to Section 1129(b) . . . . . . . . . 23
ARTICLE 7 - UNEXPIRED LEASES AND EXECUTORY CONTRACTS . . . . . . . . . . . 23
7.01. Assumption and Rejection . . . . . . . . . . . . . . . . . 23
7.02. Assumption and Assignment of Leases . . . . . . . . . . . . 23
7.03. Assigned Leases . . . . . . . . . . . . . . . . . . . . . . 23
7.04. Assignments of Contracts and Leases . . . . . . . . . . . . 23
ARTICLE 8 - OPERATION AND MANAGEMENT OF REORGANIZED
WHEREHOUSE AND THE DEBTORS . . . . . . . . . . . . . . . . . . . . . . . . 24
8.01. Board of Directors . . . . . . . . . . . . . . . . . . . . 24
8.02. Appointment of Directors . . . . . . . . . . . . . . . . . 24
8.03. Effect of Appointment . . . . . . . . . . . . . . . . . . . 24
ARTICLE 9 - IMPLEMENTATION OF THIS PLAN . . . . . . . . . . . . . . . . . 24
9.01. Substantive Consolidation. . . . . . . . . . . . . . . . . 24
9.02. Extinguishment of Inter-Debtor and Co-Debtor Claims and
Interests. . . . . . . . . . . . . . . . . . . . . . . . . 25
9.03. Reservation of Rights. . . . . . . . . . . . . . . . . . . 25
9.04. Transfer of Property . . . . . . . . . . . . . . . . . . . 25
9.05. Liquidation of Estates . . . . . . . . . . . . . . . . . . 25
9.06. Cancellation of Securities . . . . . . . . . . . . . . . . 26
9.07. Surrender of Cancelled Securities . . . . . . . . . . . . . 26
9.08. Allowance of Claims Subject of Section 502(d) . . . . . . 27
9.09. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . 27
ii
<PAGE>
Page
----
ARTICLE 10 - PROVISIONS COVERING DISTRIBUTIONS . . . . . . . . . . . . . . 27
10.01. Time of Distributions Under this Plan . . . . . . . . . . . 27
10.02. Fractional Shares . . . . . . . . . . . . . . . . . . . . . 28
10.03. Warrants for Issuance of Fractional Shares . . . . . . . . 28
10.04. Compliance With Tax Requirements . . . . . . . . . . . . . 28
10.05. Persons Deemed Holders of Registered Securities . . . . . . 29
10.06. Distribution of Unclaimed Property . . . . . . . . . . . . 29
ARTICLE 11 - RESOLUTION OF DISPUTED CLAIMS . . . . . . . . . . . . . . . . 29
11.01. Objections to Claims . . . . . . . . . . . . . . . . . . . 29
11.02. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.03. No Distributions on Disputed Claims . . . . . . . . . . . . 30
11.04. Estimation; Partial Allowance . . . . . . . . . . . . . . . 30
ARTICLE 12 - DISCHARGE, RELEASE AND PRESERVATION OF CLAIMS . . . . . . . . 30
12.01. Discharge and Termination. . . . . . . . . . . . . . . . . 30
12.02. Distributions in Complete Satisfaction. . . . . . . . . . . 31
12.03. Injunction . . . . . . . . . . . . . . . . . . . . . . . . 31
12.04. Release by Debtors and Debtors in Possession . . . . . . . 31
12.05. Release by Holders of Claims and Interests . . . . . . . . 32
12.06. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . 33
12.07. Indemnification Obligations . . . . . . . . . . . . . . . . 33
12.08. Preservation of Insurance . . . . . . . . . . . . . . . . . 34
12.09. Good Faith Settlement of Acquisition Related Causes of Action 34
12.10. Merger Consideration Recovery Claims not Released . . . . . 35
12.11. Subordination . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 13 - CONDITIONS TO CONSUMMATION OF THE PLAN . . . . . . . . . . . 36
13.01. Conditions . . . . . . . . . . . . . . . . . . . . . . . . 36
13.02. Consummation . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 14 - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . 37
iii
<PAGE>
Page
----
14.01. Bankruptcy Court to Retain Jurisdiction . . . . . . . . . . 37
14.02. Binding Effect of this Plan. . . . . . . . . . . . . . . . 38
14.03. Nonvoting Stock. . . . . . . . . . . . . . . . . . . . . . 38
14.04. Authorization of Corporate Action. . . . . . . . . . . . . 38
14.05. Retiree Benefits. . . . . . . . . . . . . . . . . . . . . . 38
14.06. Withdrawal of this Plan. . . . . . . . . . . . . . . . . . 38
14.07. Final Order. . . . . . . . . . . . . . . . . . . . . . . . 39
14.08. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
14.09. Dissolution of Committees. . . . . . . . . . . . . . . . . 40
14.10. Continued Confidentiality Obligations. . . . . . . . . . . 40
14.11. Amendments and Modifications. . . . . . . . . . . . . . . . 40
14.12. Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.13. Section 1145 Exemption . . . . . . . . . . . . . . . . . . 40
14.14. Section 1146 Exemption . . . . . . . . . . . . . . . . . . 40
iv
<PAGE>
EXHIBITS
A - Asset Purchase Agreement
B - Bylaws of Reorganized Wherehouse
C - Certificate of Incorporation of Reorganized Wherehouse
D - Open Credit Terms Commitment and Option Exercise Notice
E - Warrant Agreement
v
<PAGE>
Exhibit 10.41
SUPPLEMENTAL AMENDMENTS TO
DEBTORS' FIRST AMENDED CHAPTER 11 PLAN
DECEMBER 2, 1996
In amendment of their Chapter 11 Plan dated April 29, 1996 and the
Debtors' First Amended Chapter 11 Plan Dated September 26, 1996, as Revised
for Technical Corrections on October 4, 1996, (the "Plan"), WHEREHOUSE
ENTERTAINMENT, INC., and WEI HOLDINGS, INC., the Debtors and Debtors in
Possession in the above-captioned cases (collectively the "Debtors" or
"Wherehouse"), hereby make the following amendments to the Plan:
1. The definition of the "Unsecured Claim Stock Distribution Ratio" set
forth in Plan section 1.01 is hereby amended to strike "28.14767183" and
replace it with "31.92430893."
2. Section 5.01(a) of the Plan is hereby amended to strike
"$45,000,000" and replace it with "$35,000,000", both where it appears in the
text and in footnote 1.
3. Section 5.01(c) of the Plan is hereby amended as follows: (i)
"3,612,789" shall be stricken and replaced with "2,436,560", (ii) "6,387,211"
shall be stricken and replaced with "7,563,440", and (iii) "36.128%" shall be
stricken and replaced with "24.366%"
4. Section 5.06(a) of the Plan is hereby amended to strike
"$49,569,179.37" and replace it with "$59,568,179.37"
5. Section 5.06(b)(1) of the Plan is hereby amended to strike "1,395,229"
and replace it with "1,901,673"
6. Section 5.06(b)(2) of the Plan is hereby amended to strike "3,298,618"
and replace it with "3,741,201"
7. Except as expressly set forth herein, no other part of the Plan is
amended.
Respectively submitted,
WHEREHOUSE ENTERTAINMENT, INC.
By /s/
----------------------------------
WEI HOLDINGS, INC.
By /s/
----------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 1,428
<SECURITIES> 3
<RECEIVABLES> 1,483
<ALLOWANCES> 0
<INVENTORY> 97,852
<CURRENT-ASSETS> 110,391
<PP&E> 58,748
<DEPRECIATION> 30,887
<TOTAL-ASSETS> 151,743
<CURRENT-LIABILITIES> 34,460
<BONDS> 117,191
0
0
<COMMON> 0
<OTHER-SE> 95,671
<TOTAL-LIABILITY-AND-EQUITY> 151,743
<SALES> 63,184
<TOTAL-REVENUES> 78,144
<CGS> 49,421
<TOTAL-COSTS> 35,120
<OTHER-EXPENSES> 900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> (7,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,456)
<EPS-PRIMARY> 0.0
<EPS-DILUTED> 0.0
</TABLE>
