SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 31, 1997
Wherehouse Dissolution Co.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 1-8281 95-2647555
(State or other (Commission IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
</TABLE>
19701 Hamilton Avenue
Torrance, California 90502-1334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (310) 538-2314
Wherehouse Entertainment, Inc.
(Former name or former address, if changed since last report)
<PAGE>
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
A change in control of the registrant occurred on
January 31, 1997 by way of a transfer of assets to a successor of
the registrant which will be controlled by persons not currently
controlling the registrant. The registrant and its parent
company, WEI Holdings, Inc. ("Holdings"; and, together with the
registrant, the "Debtors") are debtors and debtors-in-possession
(collectively, the "Debtors"), in Case No. 95-911 (HSB) (Jointly
Administered) (the "Bankruptcy Case") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The Debtors' plan of reorganization, entitled the
"Debtors' First Amended Chapter 11 Plan, as Revised for Technical
Corrections dated October 4, 1996 and Supplemental Amendments on
December 2, 1996 and December 13, 1996" (the "Plan"), was
confirmed by an order of the Bankruptcy Court entered on
January 7, 1997 entitled "Findings of Fact, Conclusions of Law
and Order Confirming Debtors' First Amended Chapter 11 Plan Under
Chapter 11 of the Bankruptcy Code" (the "Confirmation Order").
The effective date of the Plan occurred on January 31, 1997.
The entry of the Confirmation Order and the material
features of the Plan are discussed in more detail in the Current
Report on Form 8-K filed by the registrant with the Securities
and Exchange Commission (the "Commission") on January 22, 1997
(the "Prior 8-K") which is incorporated herein by reference. The
Confirmation Order is incorporated herein by reference to Exhibit
3.1 of the Prior 8-K. The Plan is incorporated herein by
reference to Exhibit A of Exhibit 3.1 to the Prior 8-K.
Pursuant to the Plan, substantially all the assets of
the Debtors were transferred to WEI Acquisition Co., a
corporation (the "Successor") incorporated under the laws of the
State of Delaware on November 15, 1996, for the purpose of
acquiring the assets of the Debtors. In exchange for the assets
of the Debtors, the Successor has issued and will continue to
issue shares of its common stock, par value $0.01 per share (the
"Common Stock"). The Successor has also issued three tranches of
warrants (collectively, the "Warrants") to purchase an aggregate
of 776,000 shares of Common Stock pursuant to a Tranche A Warrant
Agreement, a Tranche B Warrant Agreement and a Tranche C Warrant
Agreement, as described in the Prior 8-K.
In an order dated January 30, 1997 entitled
"Stipulation and Order Authorizing Name Changes in Furtherance of
Implementation of Debtors' First Amended Chapter 11 Plan" (the
"Name Change Order") the Bankruptcy Court (i) authorized the
registrant to file with the Delaware Secretary of State an
amendment to its Certificate of Incorporation whereby the name of
the registrant would be changed to "Wherehouse Dissolution Co."
and (ii) authorized the Successor to file with the Delaware
Secretary of State an amendment to its Certificate of
Incorporation whereby the name of the Successor would be changed
to "Wherehouse Entertainment, Inc." The Name Change Order is
incorporated herein by reference to Exhibit 1.1 hereto. On
January 31, 1997, the registrant filed an amendment to its
Certificate of Incorporation whereby the registrant changed its
name to "Wherehouse Dissolution Co.," and the Successor filed an
amendment to its Certificate of Incorporation whereby the
Successor changed its name to "Wherehouse Entertainment, Inc."
The amendment to the registrant's Certificate of Incorporation is
incorporated herein by reference to Exhibit 1.2 hereto. The
amendment to the Successor's Certificate of Incorporation is
incorporated herein by reference to Exhibit 1.3 hereto.
Prior to the Succession, all of the capital stock of
Wherehouse was held by Holdings. The capital stock of Holdings
was held by the persons and in the amounts set forth in item 12
of the registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996 filed with the Commission on May 15,
1996, which Section 12 is incorporated herein by reference.
Pursuant to the Plan, the Debtors entered into an Asset
Purchase Agreement with the Successor dated as of January 31,
1997 (the "Purchase Agreement"), under which the Successor
acquired substantially all of the assets of the Debtors (the
"Acquisition"). The Purchase Agreement is incorporated herein by
reference to Exhibit 1.4 hereto. The closing of the Acquisition
(the "Closing") occurred on January 31, 1997, the date on which
the Plan became effective.
Pursuant to the Plan, the distributions of the
Successor's Common Stock described in Item 3 of the Prior 8-K
were and will be made to the creditors of the Debtors in respect
of the bankruptcy claims held by such creditors. No
distributions of the Common Stock were made in exchange for, or
otherwise in respect of, the capital stock of the Debtors and all
such capital stock were cancelled.
As a result of the distributions made pursuant to the
Plan as described in Item 3 of the Prior 8-K, the following
persons, who were the holders of the senior lender claims or
their affiliates in the Bankruptcy Case, acquired at the Closing
shares of the Successor's Common Stock as follows. Cerberus
Partners, L.P. ("Cerberus") acquired 5,712,558 shares of Common
Stock, representing approximately 62.38% of the shares of Common
Stock issued under the Plan at the Closing, prior to dilution for
the A&M Securities (as defined below) and the Warrants. Pequod
Investments, L.P. acquired 82,421 shares of Common Stock,
representing approximately 0.90% of the shares of Common Stock
issued under the Plan at the Closing, prior to dilution for the
A&M Securities and the Warrants. Amroc Investments, Inc.
acquired 100,480 shares of Common Stock, representing
approximately 1.10% of the shares of Common Stock issued under
the Plan at the Closing, prior to dilution for the A&M Securities
and the Warrants. Seneca Capital, L.P., acquired 602,879 shares
of Common Stock, representing approximately 6.58% of the shares
of Common Stock issued under the Plan at the Closing, prior to
dilution for the A&M Securities and the Warrants. Loeb Partners
Corp., acquired 124,896 shares of Common Stock, representing
approximately 1.36% of the shares of Common Stock issued under
the Plan at the Closing, prior to dilution for the A&M Securities
and the Warrants. Credit Suisse First Boston Corp., an affiliate
of CS First Boston Securities Corporation, acquired 2,041,246
shares of Common Stock, representing approximately 22.29% of the
shares of Common Stock issued under the Plan at the Closing,
prior to dilution for the A&M Securities and the Warrants.
BankAmerica Investment Corp., an affiliate of Bank of America,
Illinois, acquired 493,328 shares of Common Stock, representing
approximately 5.39% of the shares of Common Stock issued under
the Plan at the Closing, prior to dilution for the A&M Securities
and the Warrants. A total of 9,157,808 shares of Common Stock
were issued at the Closing to the holders of the senior lender
claims and/or their affiliates. Additional shares of Common
Stock will be issued to the holders of the senior lender claims
and to holders of certain unsecured claims as unsecured claims
become allowed in the Bankruptcy Case, as described in Item 3 of
the Prior 8-K.
Under the Plan, the bankruptcy claims against the
Debtors held by the holders of the senior lender claims were
canceled as of the Closing in exchange for cash and the shares of
Common Stock issued as described above. Accordingly, the amount
of the consideration paid by the holders of the senior lender
claims for the shares of Common Stock acquired by them and/or
their affiliates, and the source of such consideration, was the
cancellation of the claims held by them.
The Successor also entered into a Management Services
Agreement effective as of January 31, 1997 (the "Management
Services Agreement") with Alvarez & Marsal, Inc., a New York
corporation ("A&M"), Cerberus, Antonio C. Alvarez II and A&M
Investment Associates #3, LLC, a Delaware limited liability
company and an affiliate of A&M (the "A&M Affiliate"). The
Management Services Agreement is incorporated herein by reference
to Exhibit 1.5 hereto. Pursuant to the Management Services
Agreement and a Stock Subscription Agreement dated as of January
31, 1997 (the "Stock Subscription Agreement"), the Successor
agreed to sell, and the A&M Affiliate agreed to buy at a purchase
price of $6,340,000 ($1,000,000 in cash from the A&M Affiliate's
funds, plus a secured recourse promissory note in the principal
amount of $335,000 and a secured non-recourse promissory note in
the amount of $5,005,000), 1,100,000 shares of the Successor's
Common Stock, (the "A&M Shares") which may be adjusted upward or
downward to represent 10% of the sum of (i) the shares of Common
Stock ultimately issued under the Plan plus (ii) the number of
shares of Common Stock issued to the A&M Affiliate. The secured
recourse promissory note is incorporated herein by reference to
Exhibit 1.6 hereto. The secured non-recourse promissory note is
incorporated herein by reference to Exhibit 1.7 hereto. The
Pledge Agreement entered into in respect of the secured recourse
promissory note and the secured non-recourse promissory note is
incorporated herein by reference to Exhibit 1.8 hereto. The
Stock Subscription Agreement is incorporated herein by reference
to Exhibit 1.9 hereto.
In addition, the Successor and the A&M Affiliate
entered into a Non-Transferrable Stock Option Agreement dated as
of January 31, 1997 (the "Stock Option Agreement"), pursuant to
which the Successor issued to the A&M Affiliate three tranches of
options to purchase shares of Common Stock (the "A&M Options";
and, together with the A&M Shares, the "A&M Securities")
representing in the aggregate the right to purchase an additional
10% of the shares of Common Stock and the Warrants issued at the
Closing under the Plan. The first tranche of options represents
the right to purchase 331,127 shares of Common Stock at an
exercise price of $9.56. The second tranche of options
represents the right to purchase 331,127 shares of Common Stock
at an exercise price of $11.58. The third tranche of options
represents the right to purchase 331,126 shares of Common Stock
at an exercise price of $14.10. The A&M Options vest monthly in
equal installments through October 31, 1998 and all unexercised
A&M Options expire on January 31, 2003, subject to prior vesting
or termination as set forth in the Management Services Agreement
and as described in Item 5 below. The A&M Options are entitled
to certain anti-dilution provisions as set forth in the Stock
Option Agreement. The Stock Option Agreement is incorporated
herein by reference to Exhibit 1.10 hereto.
Pursuant to the Plan, the Board of Directors of the
Successor will consist of the following persons:
Antonio C. Alvarez II Chairman of the Board and
Chief Executive Officer
Bruce Ogilvie Director
Joe Smith Director
Robert C. Davenport Director
Jonathan Gallen Director
There are no arrangements known to the registrant,
including any pledge by any person of securities of the
registrant or any of its parents, the operation of which may, at
a subsequent date, result in a change in control of the
registrant other than as described above in this Item 1.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As described in Item 1 above, the Debtors transferred
substantially all of their tangible and intangible assets (which
related principally to its retail music distribution business and
related activities) to the Successor as of the Closing. Such
assets included fee title to a store located in Tucson, Arizona.
The Successor intends to use the assets acquired from the Debtors
to continue the business of the Debtors.
The consideration given for such assets by the
Successor was the issuance of the Successor's Common Stock and
the Warrants to the creditors of the Debtors as described in Item
1 above and in the Prior 8-K, and the assumption of certain
liabilities and obligations. As described in Item 1 above, the
Successor was formed for the purpose of acquiring substantially
all the assets of the Debtors in exchange for the issuance of its
Common Stock and the Warrants and the assumption of the
liabilities and obligations of the Debtors as provided in the
Plan.
ITEM 5 - OTHER EVENTS
As referenced in Item 1 above, the Management Services
Agreement became effective as of the Closing.
Upon the consummation of the Acquisition, the Successor
entered into a Loan and Security Agreement dated as of
January 31, 1997 (the "Loan and Security Agreement") with
Congress Financial Corporation (Western). The Loan and Security
Agreement is incorporated herein by reference to Exhibit 1.15
hereto.
The Successor also entered into Security Agreement
dated as of January 31, 1997 (the "Trade Security Agreement")
with the trade creditors named therein (the "Trade Creditors")
and United States Trust Company of New York, as the collateral
agent for the Trade Creditors (the "Collateral Agent"). The
Trade Security Agreement is incorporated herein by reference to
Exhibit 1.16 hereto.
The Successor also entered into an Intercreditor and
Collateral Agency Agreement dated as of January 31, 1997 (the
"Trade Collateral Agent Agreement") with the Trade Creditors and
the Collateral Agent. The Trade Collateral Agent Agreement is
incorporated herein by reference to Exhibit 1.17 hereto.
The Successor also entered into an Intercreditor and
Subordination Agreement dated as of January 31, 1997 (the
"Intercreditor Agreement") with Congress, the Trade Creditors and
the Collateral Agent. The Intercreditor Agreement is
incorporated herein by reference to Exhibit 1.18 hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) The audited historical financial statements of the
Debtors, which are the businesses being acquired, for the fiscal
year ended January 31, 1996, are incorporated herein by reference
to the registrant's Annual Report on Form 10-K filed with the
Commission on May 15, 1996.
The unaudited financial statements of the Debtors for
the period ended October 31, 1996 are incorporated herein by
reference to the registrant's Quarterly Report on Form 10-Q filed
with the Commission on December 20, 1996.
(b) It is impracticable to file at this time unaudited
pro forma information of the Successor, as adjusted to give
effect to the Acquisition. The registrant anticipates that such
pro forma information will be filed prior to February 28, 1997.
(c) EXHIBITS
The following exhibits are incorporated by reference
into this Current Report.
Exhibit
Number
99.1 Findings of Fact, Conclusions of Law and Order
Confirming Debtors' First Amended Chapter 11 Plan Under
Chapter 11 of the Bankruptcy Code (filed as Exhibit 3.1
of the Prior 8-K and incorporated herein by reference).
99.2 Debtors' First Amended Chapter 11 Plan, as Revised for
Technical Corrections dated October 4, 1996 and
Supplemental Amendments on December 2, 1996 and
December 13, 1996 (filed as Exhibits A, B and C of
Exhibit 3.1 of the Prior 8-K and incorporated herein by
reference).
1.1 Stipulation and Order Authorizing Name Changes in
Furtherance of Implementation of Debtors' First Amended
Chapter 11 Plan.
1.2 Certificate of Amendment to Certificate of
Incorporation of Wherehouse Entertainment, Inc. filed
with the Delaware Secretary of State on January 31,
1997.
1.3 Certificate of Amendment to Certificate of
Incorporation of WEI Acquisition Co. filed with the
Delaware Secretary of State on January 31, 1997.
1.4 Asset Purchase Agreement dated as of January 31, 1997
among Wherehouse Entertainment, Inc., WEI Holdings,
Inc. and WEI Acquisition Co., together with the
following Exhibits thereto:
Exhibit A -- Form of Bill of Sale
Exhibit B -- Form of Trademarks Assignment
Exhibit C -- Form of Patents Assignment
Exhibit D-1 -- Form of Tranche A Warrant Agreement
Exhibit D-2 -- Form of Tranche B Warrant Agreement
Exhibit D-3 -- Form of Tranche C Warrant Agreement
Exhibit E -- Form of Liquidation Agent Agreement
Exhibit F -- Form of Assumption Agreement
Exhibit G -- Form of Employee Benefits Assignment and
Assumption Agreement
1.5 Management Services Agreement dated as of January 31,
1997 among WEI Acquisition Co., Alvarez & Marsal, Inc.,
Antonio C. Alvarez II, A&M Investment Associates #3,
LLC, Cerberus Partners, L.P. and the Support Employees,
together with Exhibits C and I thereto. Conformed
copies of executed versions of the Exhibits A, B, D, E,
F, G and H to the Management Services Agreement are
attached as Exhibits 1.11, 1.9, 1.6, 1.7, 1.8, 1.12,
and 1.10 hereto, respectively.
1.6 Secured Recourse Promissory Note made January 31, 1997
by A&M Investment Associates #3, LLC in favor of WEI
Acquisition Co. in the principal amount of $335,000.
1.7 Secured Non-Recourse Promissory Note made January 31,
1997 by A&M Investment Associates #3, LLC in favor of
WEI Acquisition Co. in the principal amount of
$5,005,000.
1.8 Stock Pledge Agreement dated as of January 31, 1997
between A&M Investment Associates #3, LLC and WEI
Acquisition Co.
1.9 Stock Subscription Agreement dated as of January 31,
1997 between WEI Acquisition Co and A&M Investment
Associates #3, LLC.
1.10 Non-Transferrable Stock Option Agreement dated as of
January 31, 1997 between A&M Investment Associates #3,
LLC and WEI Acquisition Co.
1.11 Letter agreement dated as of January 31, 1997 between
WEI Acquisition Co. and Cerberus Partners, L.P.
1.12 Registration Rights Agreement dated as of January 31,
1997 between A&M Investment Associates #3, LLC and WEI
Acquisition Co.
1.13 Letter agreement dated as of October 14, 1996 among
Cerberus Partners, L.P., CS First Boston Securities
Corporation and Bank of America, Illinois.
1.14 Registration Rights Agreement dated as of January 31,
1997 among Cerberus Partners, L.P., CS First Boston
Securities Corporation and Bank of America, Illinois.
1.15 Loan and Security Agreement dated as of January 31,
1997 between WEI Acquisition Co. and Congress Financial
Corporation (Western).
1.16 Security Agreement dated as of January 31, 1997 between
WEI Acquisition Co. and United States Trust Company of
New York, as Collateral Agent; together with:
Exhibit A -- Form of Agreement Regarding
Additional Trade Creditor
1.17 Intercreditor and Collateral Agency Agreement dated as
of January 31, 1997 among WEI Acquisition Co., the
Trade Creditors named therein and United States Trust
Company of New York, as Collateral Agent; together
with:
Exhibit A -- Form of Agreement Regarding
Additional Trade Creditor
1.18 Intercreditor and Subordination Agreement dated as of
January 31, 1997 among the Trade Creditors named
therein, United States Trust Company of New York, as
Collateral Agent for the Trade Creditors and Congress
Financial Corporation (Western); together with:
Exhibit A -- Description of Trade Collateral
Exhibit B -- Form of Agreement Regarding
Additional Trade Creditor
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to the
signed on its behalf by the undersigned hereunto duly authorized.
WHEREHOUSE DISSOLUTION CO.
(Registrant)
Date: February 11, 1997 By /s/ Eliot Cobb
-----------------------------
(Signature)
Name: Eliot Cobb
Treasurer and Assistant
Secretary
<PAGE>
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
WHEREHOUSE ENTERTAINMENT, INC., ) Case No. 95-911(HSB)
and WEI HOLDINGS, INC., )
) Jointly Administered
Debtors. )
STIPULATION AND ORDER AUTHORIZING NAME
CHANGES IN FURTHERANCE OF IMPLEMENTATION OF DEBTORS' FIRST
AMENDED CHAPTER 11 PLAN
- -----------------------------------------------------------------
WHEREAS, Wherehouse Entertainment, Inc. ("Wherehouse")
and WEI Holdings, Inc. ("Holdings" and together with Wherehouse,
the "Debtors") filed voluntary petitions for relief under chapter
11 of title 11 of the United States Code (the "Bankruptcy Code")
on August 2, 1995;
WHEREAS, on January 6, 1997 this Court entered a
Findings of Fact, Conclusions of Law and Order Confirming
Debtors' First Amended Chapter 11 Plan Under Chapter 11 of the
Bankruptcy Code (the "Confirmation Order"), thereby confirming
the Debtors First Amended Chapter 11 Plan, as revised for
technical corrections on October 4, 1996 and supplemental
amendments on December 2, 1996 and December 13, 1996 (as amended,
the "Plan");
WHEREAS, the Plan contemplates a sale of all of the
assets of the Debtors' estates to Reorganized Wherehouse (as
defined in the Plan), and that in connection therewith, a series
of transactions will be completed in order for the Effective Date
(as defined in the Plan) to occur;
WHEREAS, the Debtors are each incorporated under the
Delaware General Corporate Law (the "DGCL");
WHEREAS, Reorganized Wherehouse was incorporated under
the DGCL under the name "WEI Acquisition Co.";
WHEREAS, pursuant to the Plan and WEI Acquisition Co.'s
purchase of the Debtors' assets contemplated thereunder, WEI
Acquisition Co. is purchasing the name "Wherehouse Entertainment,
Inc." from the Debtors, and on and after the Effective Date, WEI
Acquisition Co. desires to conduct business using the name
"Wherehouse Entertainment, Inc.";
WHEREAS, on and after the Effective Date, it is no
longer necessary or desirable for Wherehouse to use the name
"Wherehouse Entertainment, Inc.";
WHEREAS, on and after the Effective Date, Wherehouse
intends to use the name "Wherehouse Dissolution Co.";
WHEREAS, given that the Effective Date is currently
expected to occur on or about January 31, 1997 and the Plan
provides that on the Effective Date (i) any and all equity or
ownership interests in the Debtors shall be canceled, and (ii)
the Debtors' directors shall be terminated and are deemed to have
resigned (see Plan, Sections 8.03 and 9.06), it may be extremely
difficult to obtain the requisite corporate approval that is
required under the DGCL for the changing of Wherehouse's name to
"Wherehouse Dissolution Co." and the changing of WEI Acquisition
Co.'s name to "Wherehouse Entertainment, Inc.";
WHEREAS, section 303 of the DGCL provides that a
Delaware corporation that has a plan of reorganization that was
confirmed by a court of competent jurisdiction may put into
effect and carry out the plan and the orders of the court
relative thereto without further action by its directors or
stockholders; and
WHEREAS, the Confirmation Order provides that the
Debtors and WEI Acquisition Co. are authorized, empowered and
directed to take or cause to be taken any and all actions that
may be necessary to enable them to consummate the Confirmation
Order and to implement effectively the provisions of the Plan and
all transactions related thereto (see Confirmation Order
Paragraph 6, at 16).
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, by
and between the Debtors and WEI Acquisition Co., by and through
their respective undersigned counsel, as follows:
1. The proper officers(s) of Wherehouse and WEI
Acquisition Co. are hereby authorized to take whatever actions
may be necessary and to execute all documents that may be
required under the DGCL in order to effectuate the changing of
Wherehouse's name to "Wherehouse Dissolution Co." or a derivation
thereof that is acceptable to the Secretary of State for the
State of Delaware and the changing of WEI Acquisition Co.'s name
to "Wherehouse Entertainment, Inc.", including, but not limited
to, filing with the Secretary of State for the State of Delaware
the appropriate certificates of amendment pursuant to section 303
of the DGCL that effect the foregoing name changes.
2. This Stipulation may be executed in
counterparts, each of which shall be deemed an original, but
together shall constitute one and the same instrument.
3. The undersigned represent that they are duly
authorized to execute this Stipulation on behalf of his or her
respective client.
Dated: January 30, 1997
Wilmington, Delaware
/s/ Robert S. Brady /s/ Karen C. Bifferato
- ---------------------------- -------------------------
Laura Davis Jones (#2436) Mark D. Collins (#2981)
Robert S. Brady (#2847) Karen C. Bifferato (#3279)
YOUNG, CONAWAY, STARGATT RICHARDS, LAYTON & FINGER
& TAYLOR One Rodney Square
Rodney Square North - 11th Floor P.O. Box 551
P.O. Box 391 Wilmington, DE 19899
Wilmington, DE 19899 (302) 658-6541
(302) 571-6600
-and- -and-
Hendrik de Jong Ben H. Logan
Peter M. Gilhuly Suzzanne Uhland
LATHAM & WATKINS O'MELVENY & MYERS LLP
633 West Fifth Street 400 S. Hope Street
Suite 400 Los Angeles, CA 90071
Los Angeles, CA 90071 (213) 669-6000
Attorneys for the Debtors Attorneys for WEI Acquisition Co.
SO ORDERED this 30 day of January, 1997.
/s/ Peter Walsh
______________________________
United States Bankruptcy Judge
<PAGE>
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
WHEREHOUSE ENTERTAINMENT, INC.
Wherehouse Entertainment, Inc. (the "Corporation"), a
corporation duly organized and existing under the General
Corporation Law of the State of Delaware (the "General
Corporation Law"), DOES HEREBY CERTIFY that:
ONE: Article First of the Corporation's
Certificate of Incorporation is hereby amended to read in its
entirety as set forth below:
"FIRST: The name of the corporation is Wherehouse
Dissolution Co."
TWO: The foregoing amendment was duly adopted by
the Corporation pursuant to Sections 242 and 303 of the General
Corporation Law. Provision for the filing of this Certificate of
Amendment is contained in an order, dated January 30, 1997, of
the United States Bankruptcy Court for the District of Delaware
in In re: Wherehouse Entertainment, Inc., and WEI Holdings, Inc.,
Debtors, Chapter 11, Case No. 95-911 (HSB)(Jointly Administered).
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by Henry Del Castillo, its Chief
Financial Officer, this 31st day of January, 1997.
WHEREHOUSE ENTERTAINMENT, INC.
/s/ Henry Del Castillo
_____________________________
Henry Del Castillo
Chief Financial Officer
<PAGE>
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
WEI ACQUISITION CO.
WEI Acquisition Co. (the "Corporation"), a corporation
duly organized and existing under the General Corporation Law of
the State of Delaware (the "General Corporation Law"), DOES
HEREBY CERTIFY that:
ONE: Article First of the Corporation's
Certificate of Incorporation is hereby amended to read in its
entirety as set forth below:
"FIRST: The name of the corporation is Wherehouse
Entertainment, Inc."
TWO: The foregoing amendment was duly adopted by
the Corporation pursuant to Sections 242 and 303 of the General
Corporation Law. Provision for the filing of this Certificate of
Amendment is contained in an order, dated January 30, 1997, of
the United States Bankruptcy Court for the District of Delaware
in In re: Wherehouse Entertainment, Inc., and WEI Holdings, Inc.,
Debtors, Chapter 11, Case No. 95-911 (HSB)(Jointly Administered).
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by Robert C. Davenport, its Secretary
and Treasurer, this 31st day of January, 1997.
WEI ACQUISITION CO.
/s/ Bob Davenport
_____________________________
Robert C. Davenport
Secretary and Treasurer
<PAGE>
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
WHEREHOUSE ENTERTAINMENT, INC.
AND
WEI HOLDINGS, INC.
(COLLECTIVELY, "SELLER"),
AND
WEI ACQUISITION CO.
("PURCHASER")
January 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES . . 1
1.1 Acquired Assets. . . . . . . . . . . . . . . . . . . . 1
1.2 Assignment of Contracts, Leases and Other Assets . . . 2
1.3 Other Assets and Rights. . . . . . . . . . . . . . . . 4
1.4 Excluded Assets. . . . . . . . . . . . . . . . . . . . 4
1.5 Liabilities Not Assumed. . . . . . . . . . . . . . . . 4
1.6 Assumed Obligations. . . . . . . . . . . . . . . . . . 4
ARTICLE II
PURCHASE PRICE AND PAYMENT. . . . . . . . . 5
2.1 (a) Total Purchase Price. . . . . . . . . . . . . . 5
(b) Allocation of Purchase Price. . . . . . . . . . 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . 6
3.1 Due Incorporation. . . . . . . . . . . . . . . . . . . 6
3.2 Due Authorization. . . . . . . . . . . . . . . . . . . 6
3.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . 6
3.4 Purchaser Acknowledgment . . . . . . . . . . . . . . . 6
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER TO CLOSE. . . 7
4.1 Actions or Proceedings . . . . . . . . . . . . . . . . 7
4.2 Licenses, Permits, Authorizations. . . . . . . . . . . 7
4.3 Bankruptcy Court Approval. . . . . . . . . . . . . . . 7
4.4 Changes in Law . . . . . . . . . . . . . . . . . . . . 7
4.5 Credit Agreement . . . . . . . . . . . . . . . . . . . 7
4.6 Disclosure Statement . . . . . . . . . . . . . . . . . 7
4.7 Liquidation Agent Agreement. . . . . . . . . . . . . . 8
4.8 Appointment of Directors . . . . . . . . . . . . . . . 8
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER TO CLOSE. . 8
5.1 Accuracy of Representations and Warranties . . . . . . 8
5.2 Entry of Approval Order; Consents. . . . . . . . . . . 8
5.3 Actions or Proceedings . . . . . . . . . . . . . . . . 8
5.4 Effectiveness of Plan of Reorganization. . . . . . . . 8
5.5 Liquidation Agent Agreement and Assumption
Agreement. . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI
EMPLOYEE MATTERS . . . . . . . . . . . 9
6.1 Employment . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VII
CLOSING . . . . . . . . . . . . . 9
7.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Deliveries by Seller . . . . . . . . . . . . . . . . . 9
7.3 Deliveries by Purchaser. . . . . . . . . . . . . . . . 9
ARTICLE VIII
MISCELLANEOUS. . . . . . . . . . . . 10
8.1 Amendment; Waiver. . . . . . . . . . . . . . . . . . . 10
8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . 10
8.3 Counterparts . . . . . . . . . . . . . . . . . . . . . 11
8.4 Headings . . . . . . . . . . . . . . . . . . . . . . . 11
8.5 Applicable Law . . . . . . . . . . . . . . . . . . . . 11
8.6 Assignment . . . . . . . . . . . . . . . . . . . . . . 11
8.7 Third Party Beneficiaries. . . . . . . . . . . . . . . 12
8.8 Tax Matters. . . . . . . . . . . . . . . . . . . . . . 12
8.9 Other Instruments. . . . . . . . . . . . . . . . . . . 12
8.10 Entire Understanding . . . . . . . . . . . . . . . . . 12
8.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . 13
8.12 Indemnification Obligations. . . . . . . . . . . . . . 13
8.13 Conflict with Plan of Reorganization or
Disclosure Statement . . . . . . . . . . . . . . . . . 14
ARTICLE IX
DEFINITIONS . . . . . . . . . . . . 14
<PAGE>
EXHIBITS
Exhibit A Form of Bill of Sale
Exhibit B Form of Trademarks Assignment
Exhibit C Form of Patents Assignment
Exhibit D-1 Form of Tranche A Warrant Agreement
Exhibit D-2 Form of Tranche B Warrant Agreement
Exhibit D-3 Form of Tranche C Warrant Agreement
Exhibit E Form of Liquidation Agent Agreement
Exhibit F Form of Assumption Agreement
Exhibit G Form of Employee Benefit Plans Assignment
and Assumption Agreement
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of
January 31, 1997, between Wherehouse Entertainment, Inc., a
Delaware corporation ("WHEREHOUSE") and WEI Holdings, Inc., a
Delaware Corporation ("HOLDINGS," and, together with Wherehouse,
"SELLER"), in their capacity as debtors and debtors-in-possession
in Case No. 95-911 (HSB) (Jointly Administered) (the "BANKRUPTCY
CASE") in the United States Bankruptcy Court for the District of
Delaware (the "BANKRUPTCY COURT"), and WEI Acquisition Co., a
Delaware corporation ("PURCHASER"). Unless otherwise indicated,
capitalized terms used herein have the meanings given thereto in
Article IX, or, if not defined in Article IX, in the Section
where used, and if not defined in this Agreement, shall have the
meanings given thereto in the Plan of Reorganization.
In consideration of the mutual covenants,
agreements and warranties herein contained, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES
1.1 ACQUIRED ASSETS. Subject to the terms and conditions
set forth in this Agreement (including Section 1.4), at the
Closing, Seller shall sell, assign, transfer and deliver to
Purchaser, and Purchaser shall purchase, acquire and take
assignment and delivery from Seller, all of the assets then owned
by Seller (wherever located) except for the Excluded Assets, and
such assets sold, assigned, transferred and delivered to
Purchaser hereunder are referred to collectively herein as the
"ACQUIRED ASSETS." The Acquired Assets include all property of
the Estates immediately prior the Closing, including (but not
limited to) the following:
(a) EQUIPMENT. All of the machinery, equipment,
installations, furniture, tools, spare parts, supplies,
maintenance equipment and supplies, materials and other
items of personal property of every kind and description
(other than the personal property described in Sections
1.1(b) and 1.1(c) and personal property subject to leases as
described in Section 1.2(b));
(b) INVENTORIES. All of the inventories of the
Business, including, without limitation, all inventories
held for sale or rental, wherever located;
(c) VEHICLES. All of the leased or owned trucks,
tractors, trailers, automobiles and other vehicles;
(d) INFORMATION AND RECORDS. All product files,
software, confidential information, price lists, marketing
information, sales records, customer lists and files
(including customer credit and collection information), tax,
historical and financial records and files, and other
information which are related to, or were or are used by
Seller, together with the following papers and records in
Seller's care, custody or control: all blueprints, building
specifications and "as built" plans, all personnel and labor
relations records, all employee benefits and compensation
plans and records, all environmental control, monitoring and
test records, all facility cost records, all maintenance and
production records, all plats and surveys of the Real
Property and all plans and designs of buildings, structures,
fixtures and equipment;
(e) INTELLECTUAL PROPERTY. All United States and
foreign patents, patent applications, patent licenses, trade
name, trademark and servicemark registrations (and
applications therefor) (including without limitation, all
rights to the name and trade usage of "The Wherehouse,"
"Wherehouse Entertainment," "Wherehouse Entertainment,
Inc.," and "WEI Holdings, Inc."), copyrights and copyright
registrations (and applications therefor), other trade
names, other trademarks, trade secrets, inventions,
processes, designs, know-how and formula, export licenses,
product qualifications, computer software, technology,
confidential and proprietary information, in each case
whether or not subject to statutory registrations, together
with the goodwill appurtenant to each of the foregoing;
(f) ACCOUNTS RECEIVABLE. Any and all accounts
receivable, trade receivables, notes receivable and other
receivables;
(g) REAL PROPERTY. (i) All Real Property owned by
Seller and (ii) all fixtures and improvements attached to
the Real Property owned by Seller or to any Real Property in
which Seller has a leasehold interest;
(h) CASH. All cash on hand held by or for the account
of Seller;
(i) PREPAID EXPENSES. Seller's prepaid expenses; and
(j) FIXTURES. To the extent not included in Section
1.1(g) above, all plant and store fixtures, shelving and
business fixtures and all storage and office facilities.
1.2 ASSIGNMENT OF CONTRACTS, LEASES AND OTHER ASSETS.
Subject to the terms and conditions set forth in this Agreement
(including Section 1.4) and in Section 7.01 of the Plan of
Reorganization, Seller, at the Closing, will assign and transfer
to Purchaser, effective as of the Closing Date, all of Seller's
right, title and interest in and to, and Purchaser will take
assignment of, the following, and all of the following shall be
deemed included in the term "Acquired Assets" as used herein:
(a) REAL PROPERTY LEASES. All of the leases of real
property assumed by Seller during the pendency of the
Bankruptcy Case in accordance with the Plan of
Reorganization;
(b) EQUIPMENT AND OTHER PERSONAL PROPERTY LEASES. All
of Seller's right, title and interest in and to the leases
of equipment, machinery, installations, vehicles and other
personal property assumed by Seller in accordance with the
Plan of Reorganization;
(c) PERMITS. All of the licenses, permits, variances,
interim permits, permit applications, approvals, consents,
certifications, qualifications and other authorizations
under any law, statute, rule, regulation, order or ordinance
applicable to the Business or otherwise required by any
Governmental Authority in connection with the business or
operations of the Business;
(d) PATENT AND COPYRIGHT LICENSES. All of Seller's
right, title and interest in and to any patent, trademark,
tradename, copyright or similar licenses used in connection
with the Business and the license agreements entered into in
connection therewith assumed by Seller in accordance with
the Plan of Reorganization, including without limitation,
any such licenses pursuant to which Seller has the right to
sell or rent pre-recorded music and computer software and
games;
(e) NAMES USED IN THE BUSINESS. All of the right,
title and interest of Seller in and to the names "THE
WHEREHOUSE", "WHEREHOUSE ENTERTAINMENT" and any derivation
thereof, all other names and derivations thereof under which
the Business (or portions thereof) are conducted, all of the
right, title and interest of Seller in any logos relating to
such names, and the goodwill appurtenant to each of the
foregoing, and all rights of Seller to prevent the use of
such names by others;
(f) CONFIDENTIALITY AGREEMENTS. All rights under all
Confidentiality Agreements entered into by Seller with any
person or entity in connection with the proposed sale of the
Business;
(g) CONTRACTS. All rights of Seller under all of the
other contracts and agreements, guarantees and warranties
from third parties assumed by Seller in accordance with the
Plan of Reorganization and listed on Schedule 1.2(i);
(h) RIGHTS UNDER PLAN OF REORGANIZATION. All rights
of Seller under the Plan of Reorganization, except for such
rights as are expressly retained by Seller after the Closing
pursuant to the Plan of Reorganization;
(i) INSURANCE POLICIES. All rights, and claims and
choses in action of Seller under any insurance policies;
(j) CHOSES IN ACTION. Subject to Sections 12.04 and
12.09 of the Plan of Reorganization, all other choses in
action of Seller of any kind against third parties; and
(k) 1992 MERGER AGREEMENT LETTER OF CREDIT. All
rights of Seller under the 1992 Merger Agreement Letter of
Credit , as set forth in Section 9.06 of the Plan of
Reorganization.
1.3 OTHER ASSETS AND RIGHTS. All other rights,
entitlements, assets or other interests that either the Plan of
Reorganization or the Employee Benefit Plan Assignment and
Assumption Agreement attached to this Agreement as Exhibit G
provides shall be transferred to or acquired by Purchaser.
1.4 EXCLUDED ASSETS. The following rights of Seller shall
be retained by Seller and are not being sold or assigned to
Purchaser hereunder (the "EXCLUDED ASSETS");
(a) Seller's rights under this Agreement;
(b) any executory contracts, leases or other
agreements that (i) are not assumed by Seller in the
Bankruptcy Case or (ii) have been assumed by Seller in the
Bankruptcy Case but were assigned to a person or entity
other than Purchaser pursuant to Section 7.01 of the Plan of
Reorganization.
1.5 LIABILITIES NOT ASSUMED. Except for the liabilities
and obligations specifically assumed pursuant to and identified
in Section 1.6 below, Purchaser shall not assume, shall not take
subject to and shall not be liable for, any liabilities or
obligations of any kind or nature, whether absolute, contingent,
accrued, known or unknown, of Seller (the "EXCLUDED
LIABILITIES").
1.6 ASSUMED OBLIGATIONS. Notwithstanding Section 1.5, on
the Closing Date Purchaser shall assume and satisfy the following
liabilities or obligations (the "ASSUMED OBLIGATIONS"):
(i) the obligations under the Plan of Reorganization
to pay all Allowed Administrative Expenses;
(ii) the obligations under the Plan of
Reorganization to pay all Allowed Priority Tax Claims;
(iii) the obligations under the Plan of
Reorganization to pay all Allowed Miscellaneous Priority
Claims;
(iv) the obligations under the Plan of
Reorganization to pay all Allowed Miscellaneous Secured
Claims;
(v) the obligations under the Plan of Reorganization
to pay the Secured Claim Cash Distribution;
(vi) the obligations of Purchaser set forth in
Sections 2.02, 5.01(f), 5.03, 10.01, 10.04, 10.05, 12.07 and
14.05 of the Plan of Reorganization;
(vii) all indemnities, liabilities, and obligations
of Seller and Purchaser under the Plan of Reorganization;
(viii) 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 Seller to Purchaser, 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; and
(ix) Purchaser further shall assume and agree to
perform and observe each and all of the provisions of the
Plan of Reorganization and the Employee Benefit Plans
Assignment and Assumption Agreement attached hereto as
Exhibit G applicable to Purchaser and each and all of the
obligations and undertakings of Seller under the Plan of
Reorganization, including the releases in Section 12.04 and
Section 12.09 thereof, as fully as Seller is bound thereby.
Purchaser shall not assume or be obligated to pay,
perform, fulfill or discharge any Claim or any other liability or
obligation of Seller not expressly assumed by Purchaser pursuant
to this Section 1.6.
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 (a) TOTAL PURCHASE PRICE. The total purchase price
(the "TOTAL PURCHASE PRICE") to be paid to Seller by Purchaser
for the Acquired Assets shall be (i) the assumption of the
Assumed Obligations, (ii) the issuance by Purchaser of a number
of shares (the "SHARES") of the common stock of Purchaser, $0.01
par value (the "COMMON STOCK") sufficient to make the
distributions of Common Stock required under the Plan of
Reorganization, (iii) if Warrants are to be issued pursuant to
the Plan of Reorganization, the issuance by Purchaser pursuant to
the Warrant Agreements of Warrants required to be issued under
the Plan of Reorganization, and (iv) 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 the Plan of
Reorganization (the sum of clauses (i), (ii), (iii) and (iv)
above being the "TOTAL PURCHASE PRICE"). On the Closing Date,
pursuant to the Plan of Reorganization, Purchaser shall, upon
delivery of the Acquired Assets, assume the Assumed Obligations
and, promptly following Closing or at such other time as required
by the Plan of Reorganization, shall issue the Shares and the
Warrants and make the cash payments in satisfaction of the Total
Purchase Price to such persons and entities required by the Plan
of Reorganization.
(b) ALLOCATION OF PURCHASE PRICE. Purchaser shall
have the right to allocate the Total Purchase Price, including
amounts attributable to the Assumed Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
3.1 DUE INCORPORATION. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware.
3.2 DUE AUTHORIZATION.
Purchaser has full power and authority to enter into
this Agreement, to perform its obligations under this Agreement
and to conduct the Business after the Closing Date. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Purchaser. This
Agreement has been duly executed and delivered by Purchaser, and,
assuming due authorization, execution and delivery of this
Agreement by Seller and approval of the Bankruptcy Court,
constitutes the valid and binding obligation of Purchaser,
enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time
to time in effect that affect the enforcement of creditors'
rights generally, and by legal and equitable limitations on the
availability of specific remedies.
3.3 CAPITAL STOCK. As of the Closing Date, (i) the Shares
and the shares of Common Stock sold to Alvarez & Marsal, Inc. or
its affiliate pursuant to the A&M Management Service Agreement
and the A&M Stock Subscription Agreement 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 (a) the Warrants represented by the Warrant Agreement,
if Warrants are to be issued pursuant to the Plan of
Reorganization and (b) the options to purchase shares of Common
Stock granted to Alvarez & Marsal, Inc. pursuant to the A&M
Option Agreement, (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 this Agreement, the Warrant Agreement, the A&M Management
Services Agreement, the A&M Option Agreement, the Credit
Agreement and its obligations to pay the fees of its attorneys
and other professional consultants and agents incurred in
connection with any of the foregoing and the Bankruptcy Case.
3.4 PURCHASER ACKNOWLEDGMENT. Subject to Section 4.9,
Purchaser acknowledges that Purchaser is taking the Acquired
Assets 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.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER TO CLOSE
The obligations of Purchaser to close the transactions
contemplated by this Agreement are subject to satisfaction by
Seller or waiver by Purchaser in writing on the Closing Date of
the following conditions precedent on or before the Closing Date:
4.1 ACTIONS OR PROCEEDINGS. No court order shall have been
entered and remain in effect in any action or proceeding which
enjoins or prohibits the consummation of the transactions
contemplated by this Agreement.
4.2 LICENSES, PERMITS, AUTHORIZATIONS. Purchaser shall
have received all material licenses, permits, agreements,
consents and authorizations from third parties or Governmental
Authorities required to consummate the transactions set forth in
this Agreement, and the Plan of Reorganization, and any
applicable waiting period under the Hart-Scott-Rodino Act shall
have expired or been terminated. The consents and authorizations
from third parties required under this section shall include any
and all consents and authorizations required to make an effective
assignment of any leases or contracts included in the Acquired
Assets, and such consents and authorizations shall have been
obtained without any material adverse change in the rights of
Seller or Purchaser under such leases or agreements.
4.3 BANKRUPTCY COURT APPROVAL. The Bankruptcy Court
before which the Bankruptcy Case is pending shall have entered
the Approval Order acceptable in form and substance to Purchaser,
together with such changes as are acceptable to Purchaser, and
such order shall, among other things, be binding on any trustee
which might be appointed in the Bankruptcy Case pursuant to
Chapter 11 or Chapter 7 of the Bankruptcy Code and, unless
otherwise agreed to by Purchaser, shall be an order which is
operable and has not been stayed by a court of competent
jurisdiction.
4.4 CHANGES IN LAW. No law, regulation or order shall
have been enacted, entered, issued, promulgated or enforced by
any Governmental Authority, nor shall any action, investigation,
suit or other proceeding have been instituted and remain pending
or have been threatened and remain so by any Governmental
Authority at what would otherwise be the Closing Date that would
not permit the Business as presently conducted to be continued by
Purchaser unimpaired following the Closing Date.
4.5 CREDIT AGREEMENT. All of the conditions to the
closing of the Credit Agreement shall have been satisfied or
waived, subject only to the actions to be taken under the Plan of
Reorganization on the Effective Date.
4.6 DISCLOSURE STATEMENT. None of the information
supplied by Seller for inclusion or incorporation by reference in
the Disclosure Statement shall contain, at the time the
Disclosure Statement is approved by the Bankruptcy Court and at
the Closing Date, any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make any statement therein not misleading.
4.7 LIQUIDATION AGENT AGREEMENT. Seller shall have
executed and delivered to Purchaser a counterpart to the
Liquidation Agent Agreement.
4.8 APPOINTMENT OF DIRECTORS. The members of the
Purchaser's Board of Directors shall have been validly appointed
pursuant to Article 8 of the Plan of Reorganization.
4.9 NO LIENS OR ENCUMBRANCES. Purchaser shall be
satisfied that title to all of the Acquired Assets shall pass to
Purchaser in accordance with Section 9.04 of the Plan of
Reorganization.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER TO CLOSE
The obligations of Seller to close the transactions
contemplated in this Agreement are subject to the satisfaction by
Purchaser or waiver by Seller in writing of the following
conditions precedent on or before the Closing Date:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Purchaser contained herein
shall be true and correct in all material respects on and as of
the Closing Date.
5.2 ENTRY OF APPROVAL ORDER; CONSENTS. The Bankruptcy
Court before which the Bankruptcy Case is pending shall have
entered the Approval Order, together with such changes as are
acceptable to Seller, and each such order shall, among other
things, be binding on any trustee which might be appointed in the
Bankruptcy Case pursuant to Chapter 11 or Chapter 7 of the
Bankruptcy Code and, unless otherwise agreed to by Seller, shall
be an order which is operable and has not been stayed by a court
of competent jurisdiction.
5.3 ACTIONS OR PROCEEDINGS. No court order shall have
been entered and remain in effect in any action or proceeding
which enjoins or prohibits the reasonable consummation of the
transactions contemplated by this Agreement.
5.4 EFFECTIVENESS OF PLAN OF REORGANIZATION. The Plan of
Reorganization shall have become effective in accordance with the
provisions of Article XIII thereof.
5.5 LIQUIDATION AGENT AGREEMENT AND ASSUMPTION AGREEMENT.
Purchaser shall have executed and delivered a counterpart of the
Liquidation Agent Agreement and the Assumption Agreement.
ARTICLE VI
EMPLOYEE MATTERS
6.1 EMPLOYMENT. Subject to Section 1.6, Purchaser shall
have the option (but not the obligation) to offer employment to
any of Seller's employees on terms and conditions satisfactory to
Purchaser and the employee to whom employment is offered.
ARTICLE VII
CLOSING
7.1 CLOSING. Subject to the terms and conditions set
forth herein, the Closing shall take place at the offices of
O'Melveny & Myers LLP, or such other place as may be agreed upon,
at 8:00 A.M. (Los Angeles time) on January 31, 1997 or such other
date as may be agreed to among the parties, which date shall not
be earlier than the eleventh day after entry of the Approval
Order (the "CLOSING DATE").
7.2 DELIVERIES BY SELLER. At or prior to the Closing,
Seller shall deliver to Purchaser the following:
(a) An executed Employee Benefit Plans Assignment and
Assumption Agreement in the form set forth in Exhibit G;
(b) Possession of all of the Acquired Assets;
(c) A Bill of Sale in the form set forth in Exhibit A;
(d) A Trademarks Assignment in the form set forth in
Exhibit B;
(e) A Patents Assignment in the form set forth in
Exhibit C;
(f) A copy of the Approval Order of the Bankruptcy
Court approving the transactions, confirming the Plan of
Reorganization and otherwise acceptable to Seller and
Purchaser;
(g) All certificates of title to any vehicles included
in the Acquired Assets;
(h) A Liquidation Agent Agreement in the form set
forth in Exhibit E; and
(i) Such other documents, certificates, agreements or
items as may be reasonably requested by Purchaser in order
to consummate the transactions contemplated herein.
7.3 DELIVERIES BY PURCHASER. At the Closing, or at such
other time as required by the Plan of Reorganization, Purchaser
will deliver to such parties as ordered by the Bankruptcy Court
the following:
(a) An executed Employee Benefit Plans Assignment and
Assumption Agreement in the form set forth in Exhibit G;
(b) The Shares required to be issued and delivered
pursuant to Section 2.1(a);
(c) The Warrant Agreements required to be issued and
delivered pursuant to Section 2.1(a), if Warrants are to be
issued pursuant to the Plan of Reorganization;
(d) A Liquidation Agent Agreement in the form set
forth in Exhibit E; and
(e) An Assumption Agreement in the form set forth in
Exhibit F.
ARTICLE VIII
MISCELLANEOUS
8.1 AMENDMENT; WAIVER. This Agreement may be amended,
modified or supplemented but only in writing signed by all of the
parties hereto. The failure of a party hereto at any time or
times to require performance of any provision hereof shall in no
manner affect its right at a later time to enforce the same. No
waiver by a party of any condition or of any breach of any term,
covenant, representation or warranty contained in this Agreement
shall be effective unless in writing, and no waiver in any one or
more instances shall be deemed to be a further or continuing
waiver of any such condition or breach in other instances or a
waiver of any other condition or breach of any other term,
covenant, representation or warranty.
8.2 NOTICES. Any notice, request, instruction or other
document to be given hereunder by a party hereto shall be in
writing and shall be deemed to have been given, (i) when received
if delivered by hand, (ii) on the date of transmission (subject
to confirmation of receipt) if sent by telex, telecopy or other
wire transmission or (iii) three days after being deposited in
the U.S. mail, certified or registered mail, postage prepaid:
(a) If to Seller, addressed as follows:
WHEREHOUSE ENTERTAINMENT, INC.
19701 Hamilton Avenue
Torrance, California 90502
Attention: Henry Del Castillo
Telecopy: (310) 538-0948
with a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Attention: Hendrik de Jong
Telecopy: (213) 891-8763
and
(b) If to Purchaser, addressed as follows:
WEI Acquisition Co.
450 Park Avenue, 28th Floor
New York, New York 10022
Attention: Robert Davenport
Telecopy: (212) 753-5305
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: C. James Levin, Esq.
Ben H. Logan, Esq.
Telecopy: (213) 669-6407
or to such other individual or address as a party hereto may
designate for itself by notice given as herein provided.
8.3 COUNTERPARTS. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the
same instrument.
8.4 HEADINGS. The headings preceding the text of Articles
and Sections of this Agreement and the Schedules hereto are for
convenience only and shall not be deemed part of this Agreement.
8.5 APPLICABLE LAW. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws
of the State of California applicable to agreements between
parties resident therein.
8.6 ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other party
hereto, except that the Purchaser may, upon the Closing, grant a
security interest in its rights under this Agreement to a lender
financing the transactions contemplated hereby.
8.7 THIRD PARTY BENEFICIARIES. This Agreement is solely
for the benefit of the parties hereto and, other than as
specified herein, no provision of this Agreement shall be deemed
to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement.
8.8 TAX MATTERS.
(a) Purchaser and Seller shall make available to each
other, (i) such records as either party may require for the
preparation of any Tax Returns required to be filed by
Seller or Purchaser and (ii) such records as Seller or
Purchaser may require for the defense of any audit,
examination, assessment, administrative appeal, or
litigation of any such Tax Return in which Seller or
Purchaser was included;
(b) Purchaser and Seller shall be bound by the
standard procedure described in Section 4 of Internal
Revenue Service Rev. Proc. 84-77 for reporting wages and
other compensation to the Internal Revenue Service, to the
various states and to the employees.
8.9 OTHER INSTRUMENTS. Upon the reasonable request of
Purchaser, Seller shall, on and after the Closing Date, execute
and deliver to Purchaser such other documents, releases,
assignments and other instruments and take such other steps as
may be reasonably required to effectuate the transfer and
assignment to Purchaser of, and to vest fully in Purchaser title
to, each of the Acquired Assets and the Assumed Obligations and
to permit and assist Purchaser to perform the Assumed
Obligations. In furtherance of the foregoing, Seller shall,
promptly after the Closing, file or cause to be filed with the
Delaware Secretary of State amendments to Seller's Certificates
of Incorporation changing the name of Seller, and Seller shall
take all such actions as may be reasonably requested by Purchaser
such that Purchaser may change its corporate name to that of
Seller.
8.10 ENTIRE UNDERSTANDING. This Agreement, the Plan of
Reorganization and the Disclosure Statement set forth the entire
agreement and understanding of the parties hereto in respect to
the transactions contemplated hereby and supersedes all prior
agreements, arrangements and understandings relating to the
subject matter hereof and is not intended to confer upon any
other person or entity any rights or remedies hereunder, other
than as expressly provided herein. The representations and
warranties contained in this Agreement, the Plan of
Reorganization and the Disclosure Statement are the sole
representations and warranties made by the parties hereto with
respect to the transactions contemplated hereby or thereby and
supersede any and all prior disclosures or other information,
oral or written, provided in connection with the negotiation of
this Agreement, the Plan of Reorganization and the Disclosure
Statement or otherwise. There have been no representations or
statements, oral or written, that have been relied on by any
party hereto, except those expressly set forth in this Agreement,
the Plan of Reorganization and the Disclosure Statement.
8.11 WAIVER OF JURY TRIAL. Each of Seller and Purchaser
irrevocably waives trial by jury in any action or proceeding with
respect to this Agreement.
8.12 INDEMNIFICATION OBLIGATIONS.
(a) TERMINATION OF INDEMNIFICATION OBLIGATIONS. The
parties acknowledge that pursuant to Section 12.07(a) of the Plan
of Reorganization, except as set forth in Section 8.12(b), all
obligations of Seller 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 the Plan of Reorganization, 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 proceeds shall be discharged under the Plan of
Reorganization and all undertakings and agreements for or
relating to any such indemnification, contribution or
reimbursement shall be rejected and terminated.
(b) LIMITED CONTINUING INDEMNIFICATION. The parties
further acknowledge that pursuant to Section 12.07(b) of the Plan
of Reorganization, no obligation of Seller, 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 Seller 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 the Plan of
Reorganization, (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.
Purchaser agrees that it shall assume and agrees to pay all such
obligations and, further, shall defend, indemnify and hold
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 Purchaser to pay any Claim or other liability or
to perform any obligation binding on it pursuant to the Plan of
Reorganization or other liability or to perform any obligation
binding on it pursuant to the Plan of Reorganization or this
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 the Plan of
Reorganization or any such indemnification obligation is
preserved pursuant to Section 12.07(b) of the Plan of
Reorganization; 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
8.12(b) or Section 12.07(b) of the Plan of Reorganization.
8.13 CONFLICT WITH PLAN OF REORGANIZATION OR DISCLOSURE
STATEMENT. In case of any conflict between any provision of this
Agreement and any provision of the Plan of Reorganization or the
Disclosure Statement, the provisions of this Agreement shall
govern.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings set forth herein
for the purposes of the transactions described in this Agreement;
"A&M MANAGEMENT SERVICES AGREEMENT" shall mean the
Management Services Agreement dated as of January 31, 1997
between Alvarez & Marsal and Purchaser.
"A&M OPTION AGREEMENT" shall mean the Non-Transferrable
Stock Option Agreement dated as of January 31, 1997 between
Alvarez & Marsal and Purchaser, entered into pursuant to the A&M
Management Services Agreement.
"A&M STOCK SUBSCRIPTION AGREEMENT" shall mean the Stock
Subscription Agreement dated as of January 31, 1997 between
Purchaser and Alvarez & Marsal, Inc. or its affiliate.
"ACQUIRED ASSETS" shall have the meaning given to it in
Section 1.1.
"AGREEMENT" shall mean this Asset Purchase Agreement,
including all Exhibits hereto, as it may be amended, supplemented
or otherwise modified from time to time in accordance with its
terms.
"APPROVAL ORDER" shall mean an order confirming the Plan of
Reorganization, including approval the acquisition of the
Business by the Purchaser in accordance with the terms agreed to
by the parties hereto.
"ASSUMED OBLIGATIONS" shall have the meaning given to it in
Section 1.6.
"ASSUMPTION AGREEMENT" shall mean the Assumption Agreement
dated as of the Closing Date between Seller and Purchaser,
substantially in the form attached hereto as Exhibit F.
"BANKRUPTCY CASE" shall have the meaning given to it in the
preamble to this Agreement.
"BANKRUPTCY CODE" shall mean Title 11 of the United States
Code.
"BANKRUPTCY COURT" shall have the meaning given to it in the
preamble of this Agreement.
"BUSINESS" shall mean the retail pre-recorded and blank
record, compact disc, cassette, video, video cassette and other
music and video consumer entertainment products business of
Seller.
"CLOSING" shall mean the consummation of the transactions
contemplated herein, subject to the terms and conditions set
forth herein.
"CLOSING DATE" shall have the meaning given to it in Section
7.1.
"CODE" shall mean the United States Internal Revenue Code of
1986, as amended.
"COMMON STOCK" shall have the meaning given thereto in
Section 2.1(a).
"CREDIT AGREEMENT" shall mean that certain Loan and Security
Agreement dated as of January 31, 1997 among the Purchaser and
Congress Financial Corporation (Western) containing terms and
provisions satisfactory to Seller and the Trade Committee.
"DISCLOSURE STATEMENT" shall mean the Disclosure Statement
describing this Agreement and the Plan of Reorganization filed
with the Bankruptcy Court in connection with the Bankruptcy Case.
"ENCUMBRANCE" means any lien, mortgage, pledge, assignment,
security interest, charge or encumbrance of any kind (including
any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any
security interest) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing.
"EXCLUDED ASSETS" shall have the meaning given to it in
Section 1.4.
"EXCLUDED LIABILITIES" shall have the meaning given to it in
Section 1.5.
"GOVERNMENTAL AUTHORITY" shall mean the government of the
United States or any state or political subdivision thereof and
any United States or any state entity or any entity of a
political subdivision thereof, including any court, exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"LIQUIDATION AGENT AGREEMENT" shall mean the Liquidation
Agent Agreement dated as of the Closing Date between Seller and
Purchaser, substantially in the form attached hereto as Exhibit
E.
"HART-SCOTT-RODINO ACT" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the related
regulations and published interpretations.
"PETITION DATE" shall mean August 2, 1995, the date on which
the Bankruptcy Case was commenced.
"PLAN OF REORGANIZATION" shall mean the Debtors' First
Amended Chapter 11 Plan, as Revised for Technical Corrections
dated October 4, 1996 and Supplemental Amendments on December 2,
1996 and December 13, 1996, providing, inter alia, for the
transactions contemplated in this Agreement.
"REAL PROPERTY" shall mean all real property, appurtenances
thereto, rights in connection therewith, and any interest
therein, including without limitation leasehold estates owned by
Seller.
"SHARES" shall have the meaning given to it in Section
2.1(a).
"TAX" or "TAXES" shall mean all federal, state, local or
foreign income, gross receipts, windfall profits, severance,
property, production, sales, use, license, excise, franchise,
employment, withholding, transfer, payroll, goods and services,
value-added or minimum tax, or any other tax, custom, duty,
governmental fee, or other like assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition
to tax or additional amount imposed by any Governmental
Authority.
"TAX RETURN" shall mean any return, report or similar
statement required to be filed with respect to any Taxes
including any attached schedules, statements or worksheets),
including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"TOTAL PURCHASE PRICE" shall have the meaning given to it in
Section 2.1(a).
"WARRANTS" shall mean warrants to purchase shares of Common
Stock.
"WARRANT AGREEMENTS" shall mean the Warrant Agreements,
substantially in the form attached hereto as Exhibits D-1, D-2
and D-3, representing the Tranche A, Tranche B and Tranche C
Warrants, respectively, to be issued as part of the Total
Purchase Price, if Warrants are to be issued pursuant to the Plan
of Reorganization.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first written
above.
WHEREHOUSE ENTERTAINMENT, INC.
/s/ Henry Del Castillo
By: ______________________________
Name: Henry Del Castillo
Title: CFO
WEI HOLDINGS, INC.
/s/ Henry Del Castillo
By: ______________________________
Name: Henry Del Castillo
Title: CFO
WEI ACQUISITION CO.
/s/ Bob Davenport
By: ______________________________
Name: Robert C. Davenport
Title: Chief Financial
Officer and Secretary
<PAGE>
<PAGE>
EXHIBIT A
BILL OF SALE
For good and valuable consideration, receipt of which
is hereby acknowledged, pursuant to the Asset Purchase Agreement,
dated as of January 31, 1997 (the "AGREEMENT"), among Wherehouse
Entertainment, Inc. and WEI Holdings, Inc., each a Delaware
corporation (collectively "SELLER") and WEI Holdings, Inc., a
Delaware corporation ("BUYER"), and subject to the terms and
conditions set forth therein, including, without limitation the
acknowledgement set forth in Section 3.4 thereof, and intending
to be legally bound hereby, Seller does hereby unconditionally
and irrevocably sell, convey, grant, assign and transfer to
Buyer, its successors and assigns, all of Seller's legal,
beneficial and other right, title and interest in and to the
Acquired Assets (as defined in the Agreement).
Capitalized terms used herein and not defined have the
meanings assigned to them in the Agreement. Nothing herein is
intended to limit or supersede in any way the representations and
warranties of Seller set forth in the Agreement.
Notwithstanding anything to the contrary contained in
this Bill of Sale, the "Acquired Assets" do not include, and
Seller does not hereby sell, convey, assign or transfer to Buyer
any of Seller's right, title or interest in or to, the Excluded
Assets.
IN WITNESS WHEREOF, Seller has caused this Bill of
Sale to be executed this 31st day of January, 1997.
WHEREHOUSE ENTERTAINMENT, INC.
By: ____________________________
Name:
Title:__________________________
WEI HOLDINGS, INC.,
By: ______________________________
Name:
Title:____________________________
ACCEPTED AND AGREED:
WEI ACQUISITION CO.
By: _______________________________
Name:
Title: ____________________________
<PAGE>
<PAGE>
EXHIBIT B
TRADEMARK ASSIGNMENT
For good and valuable consideration, the receipt of
which is hereby acknowledged, pursuant to that certain Asset
Purchase Agreement dated as of January 31, 1997 (the
"AGREEMENT"), by and between Wherehouse Entertainment, Inc. and
WEI Holdings, Inc., each a Delaware corporation (collectively
"SELLER"), and WEI Acquisition Co., a Delaware corporation
("BUYER"), and subject to the terms and conditions set forth
therein including, without limitation the acknowledgement set
forth in Section 3.4 thereof, and intending to be legally bound,
Seller hereby assigns and transfers to Buyer, all of Seller's
rights to all trademarks, trade names, service marks and other
proprietary intangibles used in or related to the Business (as
defined in the Agreement), including, without limitation, those
set forth on Annex A hereto.
IN WITNESS WHEREOF, Seller has executed and delivered
this Trademark Assignment as of the 31st day of January, 1997.
WHEREHOUSE ENTERTAINMENT, INC.
By: ______________________________
Name:
Title: ___________________________
WEI HOLDINGS, INC.
By: ______________________________
Name:
Title: ___________________________
ACCEPTED AND AGREED:
WEI ACQUISITION CO.
By: _______________________________
Name:
Title: ____________________________
<PAGE>
ANNEX A
TRADEMARKS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
REGISTRATION REGISTRATION JURISDICTION
DESCRIPTION SERIAL NO. NO. DATE
- ----------- ---------- ----------- ------------ -------------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT C
PATENT ASSIGNMENT
For good and valuable consideration, the receipt of
which is hereby acknowledged, pursuant to that certain Asset
Purchase Agreement dated as of January 31, 1997 (the
"AGREEMENT"), by and between Wherehouse Entertainment, Inc. and
WEI Holdings, Inc., each a Delaware corporation (collectively
"SELLER"), and WEI Acquisition Co., a Delaware corporation
("BUYER"), and subject to the terms and conditions set forth
therein including, without limitation the acknowledgement set
forth in Section 3.4 thereof, and intending to be legally bound
hereby, Seller hereby assigns and transfers to Buyer, all of
Seller's rights to all patents, patent applications and patent
licenses used in or related to the Business (as defined in the
Agreement), including, without limitation, those set forth on
Annex A hereto.
IN WITNESS WHEREOF, Seller has executed and delivered
this Trademark Assignment as of the 31st day of January, 1997.
WHEREHOUSE ENTERTAINMENT, INC.
By: _____________________________
Name:
Title:___________________________
WEI HOLDINGS, INC.
By: _____________________________
Name:
Title:____________________________
ACCEPTED AND AGREED:
WEI ACQUISITION CO.
By: ____________________________
Name:
Title: _________________________
<PAGE>
ANNEX A
PATENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
REGISTRATION REGISTRATION JURISDICTION
DESCRIPTION SERIAL NO. NO. DATE
- ----------- ---------- ----------- ------------ -------------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT D-1
TRANCHE A WARRANT AGREEMENT
------------------------------------------------------------
WARRANT AGREEMENT
RELATING TO THE ISSUANCE OF THE
TRANCHE A WARRANTS
WEI ACQUISITION CO.
(which will change its name to Wherehouse Entertainment, Inc.)
and
UNITED STATES TRUST COMPANY OF NEW YORK
Dated as of January 31, 1997
-------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
Sections Page(s)
SECTION 1. Appointment of Warrant Agent. . . . . . . . . . . 1
SECTION 2. Form of Warrants. . . . . . . . . . . . . . . . . 1
2.1. Form of Warrant Certificates. . . . . . . . 1
2.2. Countersignature of Warrant
Certificates . . . . . . . . . . . . . . . 2
2.3. Registration. . . . . . . . . . . . . . . . 2
SECTION 3. Transfer or Exchange of Warrants. . . . . . . . . 3
3.1. Transfer. . . . . . . . . . . . . . . . . . 3
3.2. Exchange of Warrant Certificates. . . . . . 3
SECTION 4. . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. Mutilated or Missing Warrants . . . . . . . . . . 3
SECTION 6. Term of Warrants; Exercise of Warrants. . . . . . 4
6.1. Term of Warrants. . . . . . . . . . . . . . 4
6.2. Exercise of Warrants. . . . . . . . . . . . 4
SECTION 7. Disposition of Proceeds on Exercise of
Warrants. . . . . . . . . . . . . . . . . . . . . 5
SECTION 8. Payment of Taxes. . . . . . . . . . . . . . . . . 5
SECTION 9. Reservation of Warrant Shares; Purchase
and Cancellation of Warrants. . . . . . . . . . . 5
9.1. Reservation of Warrant Shares . . . . . . . 5
9.2. Governmental Approvals and
Listings . . . . . . . . . . . . . . . . . 6
9.3. Purchase of Warrants by the
Company. . . . . . . . . . . . . . . . . . 6
9.4. Cancellation of Warrants. . . . . . . . . . 6
SECTION 10. Exercise Price. . . . . . . . . . . . . . . . . . 6
SECTION 11. Adjustment of Exercise Price and Number
of Warrant Shares . . . . . . . . . . . . . . . . 6
11.1. Adjustments. . . . . . . . . . . . . . . . 6
(a) Stock Dividends, Splits,
etc.. . . . . . . . . . . . . . . . . 7
(b) Distributions of Assets . . . . . . . 7
(c) Computation of Market
Price . . . . . . . . . . . . . . . . 8
(d) Minimum Adjustment. . . . . . . . . . 8
(e) Warrant Share Adjustment. . . . . . . 9
(f) Notice of Adjustment. . . . . . . . . 9
(g) Definition of Common Stock. . . . . . 9
(h) Company May Reduce Exercise
Price or Increase Number of
Warrant Shares Purchasable. . . . . . 10
(i) Subsequently Issued
Warrants. . . . . . . . . . . . . . . 10
(j) Number of Warrant Shares on
Warrant Certificates. . . . . . . . . 10
11.2. No Adjustment for Dividends. . . . . . . . 10
11.3. Preservation of Purchase Rights
and Adjustment of Exercise Price
upon Merger, Consolidation,
etc. . . . . . . . . . . . . . . . . . . . 10
SECTION 12. No Rights as Stockholders; Notices to
Warrant Holders . . . . . . . . . . . . . . . . . 12
SECTION 13. Purchase Rights . . . . . . . . . . . . . . . . . 13
SECTION 14. Fractional Shares of Common Stock . . . . . . . . 13
SECTION 15. Right of Action . . . . . . . . . . . . . . . . . 13
SECTION 16. Inspection of Warrant Agreement . . . . . . . . . 14
SECTION 17. Merger or Consolidation or Change of
Name of Warrant Agent . . . . . . . . . . . . . . 14
SECTION 18. Concerning the Warrant Agent. . . . . . . . . . . 14
18.1. Disclaimer of Representations. . . . . . . 15
18.2. No Responsibility for Failure of
Company's Covenants. . . . . . . . . . . . 15
18.3. Delegation . . . . . . . . . . . . . . . . 15
18.4. Opinion of Counsel . . . . . . . . . . . . 15
18.5. Officer's Certificate. . . . . . . . . . . 15
18.6. Compensation and Reimbursement . . . . . . 15
18.7. No Action Without Assurance of
Reimbursement. . . . . . . . . . . . . . . 16
18.8. Conflicts of Interest. . . . . . . . . . . 16
18.9. Solely as Agent. . . . . . . . . . . . . . 16
18.10. Reliance on Documents. . . . . . . . . . . 16
18.11. No Representation Regarding
Validity, Etc. . . . . . . . . . . . . . . 17
18.12. Instructions from Company. . . . . . . . . 17
SECTION 19. Change of Warrant Agent . . . . . . . . . . . . . 17
SECTION 20. Identity of Transfer Agent. . . . . . . . . . . . 18
SECTION 21. Notices . . . . . . . . . . . . . . . . . . . . . 18
SECTION 22. Supplements and Amendments. . . . . . . . . . . . 18
SECTION 23. Successors. . . . . . . . . . . . . . . . . . . . 19
SECTION 24. Merger or Consolidation of the Company. . . . . . 19
SECTION 25. Applicable Law. . . . . . . . . . . . . . . . . . 19
SECTION 26. Benefits of this Agreement. . . . . . . . . . . . 19
SECTION 27. Counterparts. . . . . . . . . . . . . . . . . . . 19
SECTION 28. Captions. . . . . . . . . . . . . . . . . . . . . 20
SECTION 29. Plan of Reorganization. . . . . . . . . . . . . . 20
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
PURCHASE FORM. . . . . . . . . . . . . . . . . . . . . . . . .A-4
ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . .A-5
<PAGE>
<PAGE>
WARRANT AGREEMENT relating to the issuance of the
Tranche A Warrants, dated as of January 31, 1997, between WEI
ACQUISITION CO. (which will change its name to Wherehouse
Entertainment, Inc.), a Delaware corporation (the "Company"), and
UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent (the
"Warrant Agent").
WITNESSETH:
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and
December 13, 1996 (the "POR") and an Asset Purchase Agreement
dated as of January 31, 1997 (the "ASSET PURCHASE AGREEMENT"),
the Company will acquire substantially all of the assets of
Wherehouse Entertainment, Inc., and its parent, WEI Holdings,
Inc., which companies are debtors and debtors-in-possession
(collectively, the "DEBTORS"), in Case No. 95-911 (HSB) (Jointly
Administered) (the "BANKRUPTCY CASE") in the Bankruptcy Court for
the District of Delaware (the "BANKRUPTCY COURT");
WHEREAS, as part of the purchase price for the assets
of the Debtors to be acquired by the Company, the Company
proposes to issue up to 576,000 Common Stock Purchase Warrants
hereinafter described (the "Warrants") to purchase its Common
Stock, par value $0.01 per share (the "Common Stock"), each
Warrant entitling the registered owner thereof to purchase one
share of Common Stock (each share of Common Stock purchasable
upon the exercise of a Warrant being referred to herein as a
"WARRANT SHARE"); and
WHEREAS, the Company wishes the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to act,
in connection with the issuance, transfer, exchange and exercise
of the Warrants.
NOW, THEREFORE, in consideration of the foregoing and
for the purpose of defining the terms and provisions of the
Warrants and the respective rights and obligations thereunder of
the Company and the registered owners of the Warrants (the
"Holders"), the Company and the Warrant Agent hereby agree as
follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT.
The Company hereby appoints the Warrant Agent to act as
agent for the Company in accordance with the terms and conditions
hereinafter set forth, and the Warrant Agent hereby accepts such
appointment.
SECTION 2. FORM OF WARRANTS.
2.1. Form of Warrant Certificates. The text of the
Warrant certificate and of the form of election to purchase
Warrant Shares shall be substantially as set forth in Exhibit A
attached hereto. The Warrant certificates shall be appropriately
printed, lithographed or engraved and may have such letters,
numbers or other marks of identification as the Company may deem
appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any rule or
regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The price per Warrant Share and
the number of Warrant Shares issuable upon exercise of each
Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant certificates
shall be executed on behalf of the Company by its Chairman of the
Board, its President or one of its Vice Presidents under its
corporate seal reproduced thereon and attested by its Secretary
or an Assistant Secretary. The signature of any of such officers
on the Warrant certificates may be manual or facsimile.
Warrant certificates bearing the manual or facsimile
signatures of individuals who were at any time the proper
officers of the Company shall bind the Company, notwithstanding
that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrant certifi-
cates or did not hold such office on the date of this Agreement.
Warrant certificates shall be dated as of the date of
countersignature thereof by the Warrant Agent either upon initial
issuance or upon exchange, substitution or transfer.
2.2. Countersignature of Warrant Certificates. The
Warrant certificates shall be manually countersigned by the
Warrant Agent (or any successor to the Warrant Agent then acting
as warrant agent under this Agreement) and shall not be valid for
any purpose unless so countersigned. Warrant certificates may be
countersigned by the Warrant Agent (or by its successor as
warrant agent hereunder) and may be delivered by the Warrant
Agent notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall
have ceased to be such officers at the time of such
countersignature, issuance or delivery. The Warrant Agent shall,
upon written instructions of the Chairman of the Board, the
President, any Vice President or the Secretary of the Company,
countersign, issue and deliver Warrant certificates entitling the
Holders thereof to purchase in the aggregate Warrant Shares
(subject to adjustment pursuant to Section 11 hereof) and shall
countersign and deliver Warrant certificates as otherwise
provided in this Agreement.
2.3. Registration. The Warrant certificates shall be
numbered and shall be registered in a register (the "Warrant
Register") as they are issued. The Company and the Warrant Agent
shall be entitled to treat the registered holder of any Warrant
as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in
such Warrant on the part of any other person, notwithstanding any
notice to the Company or the Warrant Agent to the contrary.
SECTION 3. TRANSFER OR EXCHANGE OF WARRANTS.
3.1. Transfer. The Warrants shall be transferable
only in the books of the Company maintained at the office or
agency of the Warrant Agent in the City of New York upon delivery
thereof duly endorsed by the Holder or by his or her duly
authorized attorney or legal representative, or accompanied by
proper evidence of succession, assignment or authority to
transfer, which endorsement shall be guaranteed by a bank or
trust company located in the United States or a broker or dealer
that is a member of a national securities exchange. In all cases
of transfer by an attorney, the original power of attorney, duly
approved, or an official copy thereof, duly certified, shall be
deposited and remain with the Warrant Agent. In case of transfer
by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited and remain
with the Warrant Agent in its discretion. Upon any registration
of transfer, the Warrant Agent shall countersign and deliver a
new Warrant certificate to the person entitled thereto.
3.2. Exchange of Warrant Certificates. Warrant
certificates may be exchanged for another certificate or
certificates entitling the Holder thereof to purchase a like
aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle such Holder to purchase.
Any Holder desiring to exchange a Warrant certificate shall make
such request in writing delivered to the Warrant Agent, and shall
surrender, properly endorsed in the manner described in
subsection 3.1 hereof, the Warrant certificate or certificates to
be so exchanged. Thereupon, the Warrant Agent shall countersign
and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested.
SECTION 4. [SECTION 4 INTENTIONALLY LEFT BLANK].
SECTION 5. MUTILATED OR MISSING WARRANTS.
In case any of the certificates evidencing the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may,
in its discretion, issue and the Warrant Agent shall countersign
and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant certificate, or in lieu of
and substitution for the Warrant certificate lost, stolen or
destroyed, a new Warrant certificate of like tenor and
representing an equivalent right or interest, but only, in case
of any such loss, theft or destruction, upon receipt of evidence
satisfactory to the Company and the Warrant Agent thereof and an
indemnity also satisfactory to them. An applicant for such
substitute Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as
the Company or the Warrant Agent may prescribe.
SECTION 6. TERM OF WARRANTS; EXERCISE OF WARRANTS.
6.1. Term of Warrants. Subject to the terms of this
Agreement, each Holder shall have the right until 5:00 P.M., New
York time, on January 31, 2002 (the fifth anniversary of the
Effective Date (as defined in the POR)) (the "Expiration Date"),
to purchase from the Company the number of fully paid and
nonassessable Warrant Shares which the Holder may at the time be
entitled to purchase on exercise of such Warrants.
6.2. Exercise of Warrants. Warrant Shares may be
purchased upon surrender to the Company at the office or agency
of the Warrant Agent in the City of New York, of the certificate
or certificates evidencing the Warrants to be exercised, together
with the form of election to purchase on the reverse thereof duly
filled in and signed, which signature shall, if the Warrant
Shares are to be issued in the name of a person other than the
Holder of the Warrant, be guaranteed by a bank or trust company
located in the United States or a broker or dealer that is a
member of a national securities exchange, and upon payment to the
Warrant Agent for the account of the Company of the Exercise
Price (as defined in and determined in accordance with the
provisions of Sections 10 and 11 hereof) for the number of
Warrant Shares in respect of which such Warrants are then being
exercised. Payment of the aggregate Exercise Price shall be made
by certified or cashier's check, or by any combination thereof.
Subject to Section 8 hereof, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered, with all
reasonable dispatch, to or upon the written order of the Holder
and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares
so purchased upon the exercise of such Warrants. Such
certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed
to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the
Exercise Price, as aforesaid; provided, however, that if such
Warrants are surrendered, and the Exercise Price is paid, on a
Saturday, Sunday or other day on which banking institutions in
the City of New York are authorized or obligated by law or
executive order to close, or on a day when the Common Stock
transfer books of the Company are closed, the certificates for
the Warrant Shares in respect of which such Warrants are then
exercised shall be issuable as of the next succeeding Monday,
Tuesday, Wednesday, Thursday or Friday on which such banking
institutions are not so authorized or obligated to close (whether
before or after the Expiration Date) and which is a day on which
the Common Stock transfer books of the Company are open. The
rights of purchase represented by the Warrants shall be
exercisable, at the election of the Holders thereof, either in
full or from time to time in part and, in the event that a
certificate evidencing Warrants is exercised in respect of less
than all of the Warrant Shares specified therein at any time
prior to the expiration of such Warrants, a new certificate
evidencing the remaining Warrant or Warrants will be issued, and
the Warrant Agent is hereby irrevocably authorized to countersign
and to deliver the required new Warrant certificates pursuant to
the provisions of this subsection and of subsection 2.2 hereof
and the Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrant certificates duly executed
on behalf of the Company for such purpose.
SECTION 7. DISPOSITION OF PROCEEDS ON EXERCISE OF
WARRANTS.
The Warrant Agent shall account promptly to the Company
with respect to the Warrants exercised and concurrently pay to
the Company all moneys received by the Warrant Agent for the
purchase of the Warrant Shares through the exercise of such
Warrants.
SECTION 8. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of any Warrant certificates or
certificates for Warrant Shares issuable upon the exercise of
Warrants; provided, however, that the Company shall not be
required to pay, and the Holder shall pay, any tax or taxes that
may be payable in respect of any transfer involved in the issue
or delivery of any Warrant certificates or certificates for
Warrant Shares in a name other than that of the registered Holder
of the Warrants that were surrendered and the Company shall not
be required to issue or deliver such Warrant certificates or
certificates for Warrant Shares unless or until the persons
requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 9. RESERVATION OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
9.1. Reservation of Warrant Shares. There have been
reserved, and the Company shall at all times keep reserved out of
its authorized Common Stock, a number of shares of Common Stock
sufficient to provide for the exercise of the right of purchase
represented by the outstanding Warrants. The Company covenants
that all Warrant Shares will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable. Before taking any
action that would cause an adjustment reducing the Exercise Price
below the then par value, if any, of the shares of Common Stock
issuable upon exercise of the Warrants, the Company shall take
any corporate action which may, in the opinion of it counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of such Common Stock, at such
adjusted Exercise Price. The Transfer Agent for the Common Stock
and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid will be irrevocably authorized and
directed at all times to reserve such number of authorized shares
as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent for the
Common Stock and with every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent stock certificates
required to honor outstanding Warrants upon exercise thereof in
accordance with the terms of this Agreement. The Company will
supply such Transfer Agent with duly executed stock certificates
for such purpose. Promptly after the Expiration Date, the
Warrant Agent shall certify to the Company the aggregate number
of Warrants then outstanding and thereafter no shares shall be
subject to reservation in respect of such Warrants.
9.2. Governmental Approvals and Listings. The Company
will as promptly as practicable take all action which may be
necessary to obtain and keep effective (a) any and all permits,
consents and approvals of governmental agencies and authorities,
and will make any and all filings under federal and state
securities laws, necessary in connection with the issuance,
distribution and transfer of Warrant certificates, the exercise
of the Warrants, and the issuance, sale, transfer and delivery of
Warrant Shares and (b) if any of the Warrant Shares have been
listed on any securities exchange, the listing of the Warrant
Shares on any securities exchange on which the Common Stock may
be listed (it being understood that the Company has no obligation
to list any Warrant Shares with any securities exchange).
9.3. Purchase of Warrants by the Company. The Company
shall have the right, except as limited by law, other agreement
or herein, to purchase or otherwise acquire Warrants at such
times, in such manner and for such consideration as it may deem
appropriate.
9.4. Cancellation of Warrants. In the event the
Company shall purchase or otherwise acquire Warrants, the related
Warrant certificates shall thereupon be delivered to the Warrant
Agent and be cancelled by it and retired. The Warrant Agent
shall cancel any Warrant certificate surrendered for exchange,
substitution, transfer or exercise in whole or in part. Warrant
certificates cancelled by the Warrant Agent pursuant to any
provision of this Agreement shall be delivered to the Company or,
upon the request of the Warrant Agent and with the consent of the
Company, destroyed by the Warrant Agent. The Warrant Agent shall
furnish to the Company written confirmation of the destruction of
the Warrant certificates so cancelled.
SECTION 10. EXERCISE PRICE.
The price per share at which Warrant Shares shall be
purchasable upon exercise of each Warrant (the "Exercise Price")
shall be $2.38, subject to adjustment pursuant to Section 11
hereof.
SECTION 11. ADJUSTMENT OF EXERCISE PRICE AND NUMBER
OF WARRANT SHARES.
11.1. Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Exercise
Price shall be subject to adjustment as follows:
(a) Stock Dividends, Splits, etc. In case the Company
shall at any time after the date of this Agreement (w) pay a
dividend or make a distribution on its Common Stock which is
paid or made (A) in Common Stock or other shares of the
Company's capital stock or (B) in rights to purchase Common
Stock or other capital stock of the Company if such rights
are not exercisable or separable from the Common Stock
except upon the occurrence of a contingency, (x) subdivide
its outstanding Common Stock into a greater number of shares
of Common Stock, (y) combine its outstanding shares into a
smaller number of shares of Common Stock or (z) issue by
reclassification of its Common Stock other securities of the
Company, then, in any such event the number of Warrant
Shares purchasable upon exercise of each Warrant immediately
prior thereto shall be adjusted so that the Holder of each
Warrant shall be entitled to receive upon exercise of such
Warrant the kind and number of shares of the Company and
rights to purchase Common Stock or other securities of the
Company (or, in the event of the redemption of any such
rights, any cash paid in respect of such redemption) that
he, she or it would have owned or have been entitled to
receive after the happening of any of the events described
above had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the opening of
business on the next business day following the record date
in the case of dividends or other distributions and shall
become effective immediately after the opening of business
on the next business day following the effective date in the
case of a subdivision or combination.
(b) Distributions of Assets. In case the Company
shall at any time after the date of this Agreement
distribute to all holders of its Common Stock evidences of
indebtedness of the Company or assets of the Company
(including cash dividends or distributions out of retained
earnings other than cash dividends or distributions made on
a quarterly or other periodic basis) or warrants to
subscribe for securities of the Company (excluding those
referred to in paragraph (a) above), then in each case the
Exercise Price shall be adjusted to a price determined by
multiplying the Exercise Price in effect immediately prior
to such distribution by a fraction, of which the numerator
shall be the then current market price per share of Common
Stock (as defined in paragraph (c) below) on the record date
for determination of shareholders entitled to receive such
distribution, less the then fair value (as determined in
good faith by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of
such subscription rights or warrants which are applicable to
one share of Common Stock, and of which the denominator
shall be such market price per share of Common Stock;
provided, however, that if the then current market price per
share of Common Stock on the record date for determination
of shareholders entitled to receive such distribution is
less than the then fair value of the portion of the assets
or evidences of indebtedness so distributed or of such
subscription rights or warrants which are applicable to one
share of Common Stock, the foregoing adjustment of the
Exercise Price shall not be made and in lieu thereof the
Holder of each Warrant shall be entitled to receive upon
exercise of such Warrant in addition to the Common Stock the
kind and number of assets, evidences of indebtedness,
subscription rights and warrants (or, in the event of the
redemption of any such evidences of indebtedness,
subscription rights and warrants, any cash paid in respect
of such redemption) that he or she would have owned or have
been entitled to receive after the happening of such
distribution had such Warrant been exercised immediately
prior to the record date for such distribution. Such
adjustment shall be made successively whenever such a record
date is fixed, and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to
be the Exercise Price which would then be in effect if such
record date had not been fixed.
(c) Computation of Market Price. For the purpose of
any computation under this Agreement, the current market
price per share of Common Stock at any date shall be deemed
to be the average of the daily Market Price (as defined
below) per share for the 30 consecutive Trading Days (as
defined below) commencing 45 Trading Days before the date in
question. "Market Price" is defined as the closing sale
price (or, if no closing sale price is reported, the closing
bid price) for the Common Stock in the over-the-counter
market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or,
if the Common Stock is not quoted on NASDAQ, as reported by
the National Quotation Bureau Incorporated, or, if the
Common Stock is not so reported, as furnished by any two
members of the National Association of Securities Dealers,
Inc., selected from time to time by the Company for that
purpose. In the event that the Common Stock is hereafter
listed for trading on one or more United States national or
regional securities exchanges, Market Price shall be the
closing price on the exchange or system designated by the
Board of Directors of the Company as the principal United
States market in which the Common Stock is traded. If
Market Price cannot be established as described above,
Market Price shall be the fair market value of the Common
Stock as determined in good faith by the Board of Directors.
"Trading Day" shall mean a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the City
of Los Angeles and the State of California or New York, New
York, are not authorized or obligated by law or executive
order to close or, if the Common Stock is listed or admitted
to trading on a national securities exchange, a day on which
the principal national securities exchange on which the
Common Stock is listed or admitted to trading is open for
the transaction of business.
(d) Minimum Adjustment. No adjustment in the number
of Warrant Shares purchasable hereunder or the Exercise
Price shall be required unless such adjustment would require
an increase or decrease of at least one per cent (1%) in the
number of Warrant Shares purchasable upon the exercise of
each Warrant, or the Exercise Price, as the case may be;
provided, however, that any adjustments which by reason of
this paragraph (d) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be
made to the nearest cent or the nearest ten-thousandth of a
share, as the case may be.
(e) Warrant Share Adjustment. Upon each adjustment of
the Exercise Price as a result of the calculations made in
paragraph (a) or (b) above, each Warrant outstanding
immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares (calculated to the
nearest ten-thousandth) obtained by (A) multiplying (x) the
number of shares covered by a Warrant immediately prior to
such adjustment of the Exercise Price by (y) the Exercise
Price in effect immediately prior to such adjustment of the
Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(f) Notice of Adjustment. Whenever the number of
Warrant Shares purchasable upon the exercise of Warrants or
the Exercise Price of such Warrant Shares is adjusted, as
herein provided, the Company shall cause the Warrant Agent
promptly to mail by first class mail, postage prepaid, to
each Holder of a Warrant or Warrants notice of such
adjustment or adjustments and shall deliver to the Warrant
Agent a certificate of a firm of independent public
accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the
Company) setting forth (A) the number of Warrant Shares
purchasable upon the exercise of each Warrant and the
Exercise Price of such Warrant Shares after such adjustment,
(B) a brief statement of the facts requiring such adjustment
and (C) the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the
correctness of such adjustment. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no
duty or responsibility with respect to any such certificate,
except to exhibit the same, from time to time, to any Holder
desiring an inspection thereof during reasonable business
hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holders to determine whether
any facts exist that may require any adjustment of the
Exercise Price or the number of Warrant Shares or other
stock or property purchasable upon exercise thereof or with
respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such
adjustment.
(g) Definition of Common Stock. For the purpose of
this subsection 11.1, the term "Common Stock" shall mean
(A) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (B) any other class
of stock resulting from successive changes or
reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value or
from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders of a Warrant or Warrants
shall become entitled to purchase any securities of the
Company other than Common Stock, thereafter the number of
such other securities so purchasable upon exercise of each
Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this
subsection 11.1 and the provisions of Section 6 and
subsections 11.2 and 11.3, inclusive, with respect to the
Warrant Shares, shall apply on like terms to any such other
securities.
(h) Company May Reduce Exercise Price or Increase
Number of Warrant Shares Purchasable. The Company may, at
its option, at any time during the term of the Warrants,
reduce the then current Exercise Price, or increase the
number of Common Shares purchasable upon exercise of each
Warrant, to any amount deemed appropriate by the Board of
Directors of the Company.
(i) Subsequently Issued Warrants. All Warrants
originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall
evidence the right to purchase, at the adjusted Exercise
Price, the number of shares of Common Stock purchasable from
time to time hereunder upon exercise of the Warrants, all
subject to further adjustment as provided herein.
(j) Number of Warrant Shares on Warrant Certificates.
Irrespective of any adjustment or change in the Exercise
Price or the number of shares of Common Stock issuable upon
the exercise of the Warrants, the Warrant certificates
theretofore and thereafter issued may continue to express
the Exercise Price per share and the number of shares which
were expressed upon the initial Warrant certificates issued
hereunder.
11.2. No Adjustment for Dividends. Except as provided
in subsection 11.1, no adjustment in respect of any dividends
made on a quarterly or other periodic basis out of retained
earnings shall be made during the term of a Warrant or upon the
exercise of a Warrant.
11.3. Preservation of Purchase Rights and Adjustment
of Exercise Price upon Merger, Consolidation, etc. In case the
Company shall consolidate or merge with or into any other
corporation (other than a consolidation or merger in which the
Company is the surviving corporation and each share of Common
Stock outstanding immediately prior to such consolidation or
merger is to remain outstanding immediately after such
consolidation or merger and no cash, securities or other property
is distributed with respect to such shares) or shall sell or
transfer all or substantially all of its assets to any
corporation, the Company or such successor or purchasing
corporation, as the case may be (collectively, the "acquiring
corporation"), shall execute with the Warrant Agent an agreement
that each Holder of a Warrant shall have the right thereafter
upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Warrant the kind
and amount of shares and other securities, cash and other
property that he or she would have owned or have been entitled to
receive after the happening of such consolidation, merger or sale
had such Warrant been exercised immediately prior to such action
(assuming that such Holder, as a holder of Common Stock prior to
such action, would not have exercised any rights of election as a
holder of Common Stock as to the kind or amount of securities,
cash or other property receivable upon such consolidation, merger
or sale; provided, that if the kind or amount of securities, cash
or other property receivable upon such consolidation, merger or
sale is not the same for each non-electing share of Common Stock,
then the kind and amount of securities, cash or other property
receivable shall be deemed to be the kind and amount so
receivable by a plurality of the non-electing shares). The
Company shall mail by first-class mail, postage prepaid, to each
Holder, notice of the execution of any agreement with an
acquiring corporation as provided in the first sentence of this
subsection 11.3. In addition to any adjustments required by this
subsection 11.3, such agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 11. The Company shall
not effect any such consolidation, merger or sale unless prior to
or simultaneously with the consummation thereof the acquiring
corporation (if other than the Company) resulting from such
consolidation or merger or the acquiring corporation purchasing
such assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the
Warrant Agent, the obligation to deliver to each Holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to receive and
the other obligations of the Company under this Agreement. The
provisions of this subsection 11.3 shall similarly apply to
successive consolidations, mergers, sales or conveyances. The
Warrant Agent shall be under no duty or responsibility to
determine the correctness of any provisions contained in any such
agreement relating either to the kind or amount of shares of
stock or other securities, cash or property receivable upon
exercise of Warrants or with respect to the method employed and
provided therein for any adjustments.
11.4 No Adjustment for Employee Compensation and
Issuances to Alvarez & Marsal, Inc. Notwithstanding anything to
the contrary contained herein, no adjustment to the Exercise
Price or the number of shares of Common Stock purchasable upon
exercise of any Warrant shall be made in connection with the
issuance by the Company of any shares of Common Stock or options
to purchase Common Stock or other securities which may be
convertible or exercisable into shares of Common Stock to (i) any
employee of the Company as compensation for services rendered to
the Company or (ii) Alvarez & Marsal, Inc. ("A&M") or any of its
affiliates, in connection with the management services to be
provided by A&M to the Company under that certain Management
Services Agreement dated as of January 31, 1997 between the
Company, A&M, A&M Investment Associates #3, LLC, Antonio C.
Alvarez II, Cerberus Partners, L.P. and certain of A&M's
employees.
SECTION 12. NO RIGHTS AS STOCKHOLDERS; NOTICES TO
WARRANT HOLDERS.
(a) Nothing contained in this Agreement or in any of
the Warrants shall be construed as conferring upon the
Holders or their transferees the right to vote or to receive
dividends or to consent or to receive notice as shareholders
in respect of any meeting of shareholders for the election
of directors of the Company or any other matter, or any
rights whatsoever as shareholders of the Company. If prior
to the expiration of the Warrants:
(A) the Company shall declare a dividend or other
distribution on its Common Shares, other than (i) in cash as
described in Section 11.2, (ii) in other shares of Common
Stock, or (iii) in rights to purchase shares of Common Stock
or other securities of the Company of the character
described in paragraph (a) of subsection 11.1; or
(B) the Company shall authorize the issuance to
all holders of its Common Stock of rights or warrants
entitling them to subscribe for or purchase any Common Stock
or any other subscription rights or warrants (other than
rights of the character described in paragraph (a) of
subsection 11.1); or
(C) there shall occur a reclassification of the
capital stock of the Company (other than a subdivision or
combination of its outstanding Common Stock); or
(D) the Company shall propose to effect any
consolidation or merger into or with, or to effect any sale
or other transfer requiring an adjustment pursuant to
Section 11.3; or
(E) the Company shall take an action ("Adjustment
Action") which would cause an adjustment pursuant to Section
11 hereof of the number or kind of Common Stock (or other
securities) purchasable upon the exercise of each Warrant or
of the Exercise Price that would have the effect of reducing
the price payable for a share of the Company's capital stock
by a Holder upon exercise of a Warrant to an amount which is
less than the current value of such share; or
(F) a voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be proposed;
then, in any such event, the Company shall cause to be mailed to
the Warrant Agent and the Holders in the manner provided in
Section 21 hereof, at least 20 days prior to the applicable
record or effective date hereinafter specified, a notice stating
(i) the date as of which the holders of record of Common Stock to
be entitled to such dividend, distribution, rights or warrants
are to be determined, or (ii) the date on which such
reclassification, Adjustment Action, consolidation, merger, sale,
transfer, dissolution, liquidation, or winding up is expected to
become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange
their shares of securities or other property, if any, deliverable
upon such reclassification, Adjustment Action, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.
Such notice shall also state whether such transaction will result
in any adjustment of the number or kind of Common Stock (or other
securities) purchasable upon the exercise of a Warrant or of the
Exercise Price and, if so, shall set forth the nature thereof and
the date upon which it will become effective. In the event the
Company gives notice to the holders of its Common Stock of the
declaration or distribution of rights to purchase Common Stock or
other securities of the Company of the character described in
paragraph (a) of subsection 11.1, the Company will give
concurrently a similar notice to the Holders in the manner
provided in Section 21 hereof. The failure to give the notices
required by this Section 12, or any defect therein, shall not
affect the legality or validity of any such dividend,
distribution, right, warrant, reclassification, Adjustment
Action, dissolution, liquidation or winding up or other action,
or the vote on any action authorizing the same.
SECTION 13. PURCHASE RIGHTS.
If at any time or from time to time on or after the
date of the Agreement, the Corporation shall give notice (a
"Purchase Rights Notice") pursuant to paragraph (B) of Section
12(a) of an issuance of rights or warrants, (the "Purchase
Rights") to all record holders of Common Stock, such issuance
shall not result in an adjustment of the Exercise Price or the
number of Warrants under Section 11 hereof, but each Holder shall
be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder
could have acquired if it had held the number of shares of Common
Stock acquirable upon exercise of the Warrants immediately before
the record date for the grant, issuance, or sale of such Purchase
Rights. The Purchase Rights Notice shall describe the Purchase
Rights and their availability to the Holders.
SECTION 14. FRACTIONAL SHARES OF COMMON STOCK.
The Company will not issue fractions of Warrants or
distribute Warrant certificates which evidence fractional
Warrants. In lieu of such fractional Warrants, there shall be
paid to the Holders to whom Warrant certificates representing
such fractional Warrants would otherwise be issuable an amount in
cash equal to the product of such fraction of a Warrant
multiplied by the current market price per share of Common Stock
issuable with respect to such fraction of a Warrant.
SECTION 15. RIGHT OF ACTION.
All rights of action in respect of this Agreement are
vested in the respective Holders of the Warrant certificates, and
any Holder of any Warrant certificate, without the consent of the
Warrant Agent or of the Holder of any other Warrant certificate,
may, on such Holder's own behalf and for such Holder's own
benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in
respect of, such Holder's right to exercise the Warrants
evidenced by such Warrant certificate in the manner provided in
such Warrant certificate and in this Agreement.
SECTION 16. INSPECTION OF WARRANT AGREEMENT.
The Warrant Agent shall keep copies of this Agreement
and any notices given or received hereunder available for
inspection by the Holders during normal business hours at its
office in the City of New York for that purpose. The Company
shall supply the Warrant Agent from time to time with such
numbers of copies of this Agreement as the Warrant Agent may
request.
SECTION 17. MERGER OR CONSOLIDATION OR CHANGE OF
NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be
merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Warrant
Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part
of any of the parties hereto, provided that such corporation
would be eligible for appointment as successor Warrant Agent
under the provisions of Section 19 hereof. In case at the time
such successor to the Warrant Agent shall succeed to the agency
created by this Agreement any of the Warrants shall have been
countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the original
Warrant Agent and deliver such Warrants so countersigned; and in
case at that time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign
such Warrants either in the name of the predecessor Warrant Agent
or in the name of the successor Warrant Agent, and in all such
cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall
be changed and at such time any of the Warrants shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignatures under its prior name and deliver Warrants so
countersigned; and in case at that time any of the Warrants shall
not have been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name;
and in all such cases such Warrants shall have the full force
provided in the Warrants and in this Agreement.
SECTION 18. CONCERNING THE WARRANT AGENT.
The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of
Warrants, by their acceptance thereof, shall be bound:
18.1. Disclaimer of Representations. The
statements contained herein and in the Warrants shall be
taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the
same except such as describe the Warrant Agent or action
taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrants except as
herein otherwise provided.
18.2. No Responsibility for Failure of Company's
Covenants. The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the
covenants contained in this Agreement or in the Warrants.
18.3. Delegation. The Warrant Agent may execute
and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself or by or through
its attorneys or agents (which shall not include its
employees), and the Warrant Agent shall not be answerable or
accountable for any act, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting
from such neglect or misconduct provided reasonable care
shall have been exercised in the selection and continued
employment thereof.
18.4. Opinion of Counsel. The Warrant Agent may
consult at any time with legal counsel satisfactory to it,
and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder in respect of
any action taken, suffered or omitted by it hereunder in
good faith and in accordance with the opinion or the advice
of such counsel.
18.5. Officer's Certificate. Whenever in the
performance of its duties under this Agreement the Warrant
Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company and delivered
to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
18.6. Compensation and Reimbursement. The Company
agrees to pay the Warrant Agent reasonable compensation for
all services rendered by the Warrant Agent in the
performance of its duties under this Agreement, to reimburse
the Warrant Agent for all expenses, taxes and governmental
charges and other charges of any kind and nature reasonably
incurred by the Warrant Agent in the performance of its
duties under this Agreement, and agrees to indemnify the
Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable
counsel fees, for anything done or omitted by the Warrant
Agent in the performance of its duties under this Agreement
except as a result of the Warrant Agent's gross negligence
or willful misconduct.
18.7. No Action Without Assurance of Reimbursement.
The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one
or more Holders shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses
which may be incurred; but this provision shall not affect
the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without
any such security or indemnity. All rights or action under
this Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment
shall be for the ratable benefit of the Holders, as their
respective rights or interests may appear.
18.8. Conflicts of Interest. The Warrant Agent and
any stockholder, director, officer or employee of the
Warrant Agent may buy, sell or deal in any of the Warrants
or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity
for the Company or for any other legal entity.
18.9. Solely as Agent. The Warrant Agent shall act
hereunder solely as agent, and its duties shall be
determined solely by the provisions hereof. The Warrant
Agent shall not be liable for anything that it may do or
refrain from doing in connection with this Agreement except
for its own gross negligence or bad faith.
18.10. Reliance on Documents. The Warrant Agent
will not incur any liability or responsibility to the
Company or to any Holder of any Warrant for any action taken
in reliance on any notice, resolution, waiver, consent,
order, certificate, or other paper, document or instrument
reasonably believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
18.11. No Representation Regarding Validity, Etc.
The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution
and delivery hereof (except the due execution and delivery
hereof by the Warrant Agent) or in respect of the validity
or execution of any Warrant (except its countersignature
thereof); nor shall the Warrant Agent by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Shares (or other
stock) to be issued pursuant to this Agreement or any
Warrant, or as to whether any Warrant Shares (or other
stock) will when issued be validly issued, fully paid and
nonassessable, or as to the Exercise Price or the number or
amount of Warrant Shares or other securities or other
property issuable upon exercise of any Warrant.
18.12. Instructions from Company. The Warrant Agent
is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company,
and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in
accordance with instructions of any such Officers.
SECTION 19. CHANGE OF WARRANT AGENT.
The Warrant Agent may resign and be discharged from its
duties under this Agreement by giving to the Company 60 days'
notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant
Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the
Warrant Agent. If the Company shall fail to make such
appointment within a period of 50 days after such notice of
removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated
Warrant Agent or by any Holder (who shall with such notice submit
his Warrant for inspection by the Company), then the resigning,
discharged or removed Warrant Agent or any Holder may apply to
any court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Any successor warrant agent,
whether appointed by the Company or such court, shall be (a) a
bank or trust company, in good standing, incorporated under the
laws of the United States of America or any state thereof and
having at the time of its appointment as warrant agent a combined
capital and surplus of at least $100,000,000, as set forth in its
most recent published annual report of condition or (b) an
affiliate of a corporation described in clause (a) above. After
appointment, the successor warrant agent shall be vested with the
same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent hereunder without further
act or deed; but the former Warrant Agent shall deliver and
transfer to the successor warrant agent any property at the time
held by it hereunder, and shall execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose.
Failure to file any notice provided for in this Section 19,
however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or
the appointment of the successor warrant agent, as the case may
be. In the event of such resignation or removal, the successor
warrant agent shall mail, by first-class mail, postage prepaid,
to each Holder, written notice of such removal or resignation and
the name and address of such successor warrant agent.
SECTION 20. IDENTITY OF TRANSFER AGENT.
Forthwith upon the appointment of any subsequent
Transfer Agent for the Company's shares of Common Stock, or any
other shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants,
the Company will file with the Warrant Agent a statement setting
forth the name and address of such Transfer Agent.
SECTION 21. NOTICES.
Any notice pursuant to this Agreement by the Company or
by the Holder of any Warrant to the Warrant Agent, or by the
Warrant Agent or by the Holder of any Warrant to the Company,
shall be in writing and shall be deemed to have been duly given
if delivered or mailed by certified mail, return receipt
requested, (a) if to the Company, to WEI Acquisition Co., 19701
Hamilton Avenue, Torrance, California 90502-1334, Attention:
Henry Del Castillo and, if to the Warrant Agent, to United States
Trust Company of New York; Corporate Trust Division, 114 West
47th Street, 15th Floor, New York, NY 10036-1532; Attention:
Louis Young. Each party hereto may from time to time change the
address to which notices to it are to be delivered or mailed
hereunder by notice in writing to the other party.
Any notice mailed pursuant to this Agreement by the
Company or the Warrant Agent to the Holders of Warrants shall be
in writing and shall be deemed to have been duly given if mailed
by first-class mail, postage prepaid, to such Holders at their
respective addresses on the Warrant Register of the Warrant
Agent.
SECTION 22. SUPPLEMENTS AND AMENDMENTS.
(a) The Company and the Warrant Agent may from time to
time supplement or amend this Agreement, without the approval of
any Holder in order to cure any ambiguity or to correct or
supplement any provision contained herein that may be defective
or inconsistent with any other provisions herein, or to make any
other provisions with regard to matters or questions arising
hereunder that the Company and the Warrant Agent may deem
necessary or desirable and that shall not adversely affect the
interests of the Holders of Warrants.
(b) In addition to the foregoing, with the consent of
Holders of Warrants entitled, upon exercise thereof, to receive
not less than two-thirds of the shares of Common Stock issuable
thereunder, the Company and the Warrant Agent may modify this
Agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this
Agreement or modifying in any manner the rights of the Holders of
the Warrants; provided, however, that no modification of the
terms (including, but not limited to the adjustments described in
Section 11) upon which the Warrants are exercisable or reducing
the percentage required for consent to modification of this
Agreement, no acceleration of the Expiration Date and no increase
in the Exercise Price may, in each case, be made without the
consent of the Holder of each outstanding Warrant affected
thereby.
SECTION 23. SUCCESSORS.
All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and
assigns hereunder.
SECTION 24. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into
any other corporation unless the corporation resulting from such
merger or consolidation (if not the Company) shall expressly
assume, by supplemental agreement satisfactory in form to the
Warrant Agent in the exercise of its reasonable judgment and
executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and
condition of this Agreement to be performed and observed by the
Company.
SECTION 25. APPLICABLE LAW.
This Agreement and each Warrant issued hereunder shall
be deemed to be a contract made under the internal laws of the
State of New York (without preference to conflicts of law
principles) and for all purposes shall be construed in accordance
with the laws of said State.
SECTION 26. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company, the Warrant
Agent and the Holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company, the
Warrant Agent, and their respective successors and assigns
hereunder, and the holders from time to time of the Warrants.
SECTION 27. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
SECTION 28. CAPTIONS.
The captions of the Sections and subsections of this
Agreement have been inserted for convenience only and shall have
no substantive effect.
SECTION 29. PLAN OF REORGANIZATION.
The Company will comply for the benefit of the Holders
with Section 8.04 of the POR.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
WEI ACQUISITION CO.
By ___________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW
YORK
as Warrant Agent
By ___________________________
Name:
Title:
<PAGE>
TRANCHE A WARRANT TO PURCHASE COMMON STOCK VOID AFTER
5:00 P.M., NEW YORK TIME, ON JANUARY 31, 2002
WHEREHOUSE ENTERTAINMENT, INC.
This certifies that, for value received, __________
___________________ or registered assigns (the "Holder"), is
entitled to purchase from Wherehouse Entertainment, Inc., a
Delaware corporation (the "Company"), until 5:00 P.M., New York
time, on January 31, 2002, or such other date as may be provided
for pursuant to the Warrant Agreement referred to below (the
"Expiration Date"), at the purchase price of $2.38 per share (the
"Exercise Price"), a number of shares of Common Stock, par value
$0.01 per share, of the Company (the "Common Stock") that is
equal to the number of Warrants represented hereby. The number
of shares purchasable upon exercise of this Warrant and the
Exercise Price per share are subject to adjustment from time to
time as set forth in the Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole
or in part by presentation of this Warrant Certificate with the
Purchase Form on the reverse side hereof duly executed (with a
signature guarantee if required by the Warrant Agreement) and
simultaneous payment of the Exercise Price (subject to
adjustment) at the office or agency of the Company maintained for
that purpose in the City of New York. Initially, United States
Trust Company of New York will act as Warrant Agent (the "Warrant
Agent"). Payment of such price shall be made at the option of
the holder hereof by certified or cashier's check. No fractional
shares will be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any such
fraction upon the exercise of one or more Warrants, all as
provided in the Warrant Agreement.
Upon any partial exercise of this Warrant Certificate,
there shall be countersigned and issued to the Holder hereof a
new Warrant Certificate in respect of the shares as to which this
Warrant shall not have been exercised. This Warrant Certificate
may be exchanged at the office of the Warrant Agent maintained
for that purpose in the City of New York by surrender of this
Warrant Certificate properly endorsed (with a signature guarantee
if required by the Warrant Agreement), either separately or in
combination with one or more other Warrant Certificates, for one
or more new Warrant Certificates for the same aggregate number of
shares as were evidenced by the Warrant Certificate or Warrant
Certificates exchanged.
This Warrant Certificate is transferable at the office
of the Warrant Agent maintained for that purpose in the City of
New York in the manner and subject to the limitations set forth
in the Warrant Agreement.
The Warrants evidenced hereby are part of a duly
authorized issue of Common Stock Purchase Warrants with rights to
purchase an aggregate of up to 576,000 shares of Common Stock
(subject to adjustment) and are issued under and in accordance
with a Warrant Agreement dated as of January 31, 1997, between
the Company and the Warrant Agent and are subject to the terms
and provisions contained in the Warrant Agreement, to all of
which the Holder of this Warrant Certificate by acceptance hereof
consents. Copies of the Warrant Agreement are on file at the
above mentioned office of the Warrant Agent and may be obtained
for inspection by the Holder hereof upon written request to the
Warrant Agent.
The Holder hereof may be treated by the Company, the
Warrant Agent, and all other persons dealing with this Warrant
Certificate as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such
books, the Company, the Warrant Agent and all such other persons
may treat the registered holder hereof as the owner for all
purposes.
The Warrants evidenced hereby do not entitle any Holder
hereof to any of the rights of a stockholder of the Company.
This Warrant Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned
by the Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed by its duly authorized officers and
the corporate seal hereunto affixed.
Dated: WHEREHOUSE ENTERTAINMENT, INC.
By: _____________________________
Title:
ATTEST: _________________________
Name:
Title:
COUNTERSIGNED:
UNITED STATES TRUST COMPANY OF NEW YORK
WARRANT AGENT
By: ___________________________
Name:
Title:
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise
the right of purchase represented by the within Warrant
Certificate for, and to purchase thereunder, ______ shares of
Common Stock, provided for therein, and requests that
certificates for such shares of Common Stock be issued in the
name of:
Name: _______________________________________________________
Address: _______________________________________________________
_________________________________________________________________
Social Security or Taxpayer's
Identification Number: ________________________________________
and, if said number of shares of Common Stock shall not be all
the Common Stock purchasable thereunder, that a new Warrant
Certificate for the balance remaining of the Common Stock
purchasable under the within Warrant Certificate be registered in
the name of the undersigned Warrantholder or his or her Assignee
as below indicated and delivered to the address stated below.
Name of Warrantholder
or Assignee: ___________________________________
Address: ___________________________________
Social Security or Taxpayer's
Identification Number: ___________________________________
Signature: ___________________
Dated: ____________________
Signature Guaranteed:
NOTICE: The above signature must
correspond with the name
as written upon the face
of this Warrant
Certificate in every
particular, without
alteration or enlargement
or any change whatever,
unless this Warrant has
been assigned.
<PAGE>
ASSIGNMENT
(To be signed only upon
assignment of Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto ______________________________
(Name of Assignee)
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Social Security or other Taxpayer Identification Number of
Assignee) the within Warrants, hereby irrevocably constituting
and appointing _________________________________________________
Attorney to transfer said Warrants on the books of the Company,
with full power of substitution in the premises.
DATED: _____________________
______________________________
Signature of Registered Holder
Signature Guaranteed:
NOTICE: The signature of this
assignment must
correspond with the name
as it appears upon the
face of the within
Warrant Certificate in
every particular, without
alteration or enlargement
or any change whatever.
<PAGE>
<PAGE>
EXHIBIT D-2
TRANCHE B WARRANT AGREEMENT
------------------------------------------------------------
WARRANT AGREEMENT
RELATING TO THE ISSUANCE OF THE
TRANCHE B WARRANTS
WEI ACQUISITION CO.
(which will change its name to Wherehouse Entertainment, Inc.)
and
UNITED STATES TRUST COMPANY OF NEW YORK
Dated as of January 31, 1997
-------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
Sections Page(s)
SECTION 1. Appointment of Warrant Agent. . . . . . . . . . . 1
SECTION 2. Form of Warrants. . . . . . . . . . . . . . . . . 1
2.1. Form of Warrant Certificates. . . . . . . . 1
2.2. Countersignature of Warrant
Certificates . . . . . . . . . . . . . . . 2
2.3. Registration. . . . . . . . . . . . . . . . 2
SECTION 3. Transfer or Exchange of Warrants. . . . . . . . . 3
3.1. Transfer. . . . . . . . . . . . . . . . . . 3
3.2. Exchange of Warrant Certificates. . . . . . 3
SECTION 4. . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. Mutilated or Missing Warrants . . . . . . . . . . 3
SECTION 6. Term of Warrants; Exercise of Warrants. . . . . . 4
6.1. Term of Warrants. . . . . . . . . . . . . . 4
6.2. Exercise of Warrants. . . . . . . . . . . . 4
SECTION 7. Disposition of Proceeds on Exercise of
Warrants. . . . . . . . . . . . . . . . . . . . . 5
SECTION 8. Payment of Taxes. . . . . . . . . . . . . . . . . 5
SECTION 9. Reservation of Warrant Shares; Purchase
and Cancellation of Warrants. . . . . . . . . . . 5
9.1. Reservation of Warrant Shares . . . . . . . 5
9.2. Governmental Approvals and
Listings . . . . . . . . . . . . . . . . . 6
9.3. Purchase of Warrants by the
Company. . . . . . . . . . . . . . . . . . 6
9.4. Cancellation of Warrants. . . . . . . . . . 6
SECTION 10. Exercise Price. . . . . . . . . . . . . . . . . . 6
SECTION 11. Adjustment of Exercise Price and Number
of Warrant Shares . . . . . . . . . . . . . . . . 6
11.1. Adjustments. . . . . . . . . . . . . . . . 6
(a) Stock Dividends, Splits,
etc.. . . . . . . . . . . . . . . . . 7
(b) Distributions of Assets . . . . . . . 7
(c) Computation of Market
Price . . . . . . . . . . . . . . . . 8
(d) Minimum Adjustment. . . . . . . . . . 8
(e) Warrant Share Adjustment. . . . . . . 9
(f) Notice of Adjustment. . . . . . . . . 9
(g) Definition of Common Stock. . . . . . 9
(h) Company May Reduce Exercise
Price or Increase Number of
Warrant Shares Purchasable. . . . . . 10
(i) Subsequently Issued
Warrants. . . . . . . . . . . . . . . 10
(j) Number of Warrant Shares on
Warrant Certificates. . . . . . . . . 10
11.2. No Adjustment for Dividends. . . . . . . . 10
11.3. Preservation of Purchase Rights
and Adjustment of Exercise Price
upon Merger, Consolidation,
etc. . . . . . . . . . . . . . . . . . . . 10
SECTION 12. No Rights as Stockholders; Notices to
Warrant Holders . . . . . . . . . . . . . . . . . 12
SECTION 13. Purchase Rights . . . . . . . . . . . . . . . . . 13
SECTION 14. Fractional Shares of Common Stock . . . . . . . . 13
SECTION 15. Right of Action . . . . . . . . . . . . . . . . . 13
SECTION 16. Inspection of Warrant Agreement . . . . . . . . . 14
SECTION 17. Merger or Consolidation or Change of
Name of Warrant Agent . . . . . . . . . . . . . . 14
SECTION 18. Concerning the Warrant Agent. . . . . . . . . . . 14
18.1. Disclaimer of Representations. . . . . . . 15
18.2. No Responsibility for Failure of
Company's Covenants. . . . . . . . . . . . 15
18.3. Delegation . . . . . . . . . . . . . . . . 15
18.4. Opinion of Counsel . . . . . . . . . . . . 15
18.5. Officer's Certificate. . . . . . . . . . . 15
18.6. Compensation and Reimbursement . . . . . . 15
18.7. No Action Without Assurance of
Reimbursement. . . . . . . . . . . . . . . 16
18.8. Conflicts of Interest. . . . . . . . . . . 16
18.9. Solely as Agent. . . . . . . . . . . . . . 16
18.10. Reliance on Documents. . . . . . . . . . . 16
18.11. No Representation Regarding
Validity, Etc. . . . . . . . . . . . . . . 17
18.12. Instructions from Company. . . . . . . . . 17
SECTION 19. Change of Warrant Agent . . . . . . . . . . . . . 17
SECTION 20. Identity of Transfer Agent. . . . . . . . . . . . 18
SECTION 21. Notices . . . . . . . . . . . . . . . . . . . . . 18
SECTION 22. Supplements and Amendments. . . . . . . . . . . . 18
SECTION 23. Successors. . . . . . . . . . . . . . . . . . . . 19
SECTION 24. Merger or Consolidation of the Company. . . . . . 19
SECTION 25. Applicable Law. . . . . . . . . . . . . . . . . . 19
SECTION 26. Benefits of this Agreement. . . . . . . . . . . . 19
SECTION 27. Counterparts. . . . . . . . . . . . . . . . . . . 19
SECTION 28. Captions. . . . . . . . . . . . . . . . . . . . . 20
SECTION 29. Plan of Reorganization. . . . . . . . . . . . . . 20
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
PURCHASE FORM. . . . . . . . . . . . . . . . . . . . . . . . .A-4
ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . .A-5
<PAGE>
<PAGE>
WARRANT AGREEMENT relating to the issuance of the
Tranche B Warrants, dated as of January 31, 1997, between WEI
ACQUISITION CO. (which will change its name to Wherehouse
Entertainment, Inc.), a Delaware corporation (the "Company"), and
UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent (the
"Warrant Agent").
WITNESSETH:
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and
December 13, 1996 (the "POR") and an Asset Purchase Agreement
dated as of January 31, 1997 (the "ASSET PURCHASE AGREEMENT"),
the Company will acquire substantially all of the assets of
Wherehouse Entertainment, Inc., and its parent, WEI Holdings,
Inc., which companies are debtors and debtors-in-possession
(collectively, the "DEBTORS"), in Case No. 95-911 (HSB) (Jointly
Administered) (the "BANKRUPTCY CASE") in the Bankruptcy Court for
the District of Delaware (the "BANKRUPTCY COURT");
WHEREAS, as part of the purchase price for the assets
of the Debtors to be acquired by the Company, the Company
proposes to issue up to 100,000 Common Stock Purchase Warrants
hereinafter described (the "Warrants") to purchase its Common
Stock, par value $0.01 per share (the "Common Stock"), each
Warrant entitling the registered owner thereof to purchase one
share of Common Stock (each share of Common Stock purchasable
upon the exercise of a Warrant being referred to herein as a
"WARRANT SHARE"); and
WHEREAS, the Company wishes the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to act,
in connection with the issuance, transfer, exchange and exercise
of the Warrants.
NOW, THEREFORE, in consideration of the foregoing and
for the purpose of defining the terms and provisions of the
Warrants and the respective rights and obligations thereunder of
the Company and the registered owners of the Warrants (the
"Holders"), the Company and the Warrant Agent hereby agree as
follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT.
The Company hereby appoints the Warrant Agent to act as
agent for the Company in accordance with the terms and conditions
hereinafter set forth, and the Warrant Agent hereby accepts such
appointment.
SECTION 2. FORM OF WARRANTS.
2.1. Form of Warrant Certificates. The text of the
Warrant certificate and of the form of election to purchase
Warrant Shares shall be substantially as set forth in Exhibit A
attached hereto. The Warrant certificates shall be appropriately
printed, lithographed or engraved and may have such letters,
numbers or other marks of identification as the Company may deem
appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any rule or
regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The price per Warrant Share and
the number of Warrant Shares issuable upon exercise of each
Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant certificates
shall be executed on behalf of the Company by its Chairman of the
Board, its President or one of its Vice Presidents under its
corporate seal reproduced thereon and attested by its Secretary
or an Assistant Secretary. The signature of any of such officers
on the Warrant certificates may be manual or facsimile.
Warrant certificates bearing the manual or facsimile
signatures of individuals who were at any time the proper
officers of the Company shall bind the Company, notwithstanding
that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrant certifi-
cates or did not hold such office on the date of this Agreement.
Warrant certificates shall be dated as of the date of
countersignature thereof by the Warrant Agent either upon initial
issuance or upon exchange, substitution or transfer.
2.2. Countersignature of Warrant Certificates. The
Warrant certificates shall be manually countersigned by the
Warrant Agent (or any successor to the Warrant Agent then acting
as warrant agent under this Agreement) and shall not be valid for
any purpose unless so countersigned. Warrant certificates may be
countersigned by the Warrant Agent (or by its successor as
warrant agent hereunder) and may be delivered by the Warrant
Agent notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall
have ceased to be such officers at the time of such
countersignature, issuance or delivery. The Warrant Agent shall,
upon written instructions of the Chairman of the Board, the
President, any Vice President or the Secretary of the Company,
countersign, issue and deliver Warrant certificates entitling the
Holders thereof to purchase in the aggregate Warrant Shares
(subject to adjustment pursuant to Section 11 hereof) and shall
countersign and deliver Warrant certificates as otherwise
provided in this Agreement.
2.3. Registration. The Warrant certificates shall be
numbered and shall be registered in a register (the "Warrant
Register") as they are issued. The Company and the Warrant Agent
shall be entitled to treat the registered holder of any Warrant
as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in
such Warrant on the part of any other person, notwithstanding any
notice to the Company or the Warrant Agent to the contrary.
SECTION 3. TRANSFER OR EXCHANGE OF WARRANTS.
3.1. Transfer. The Warrants shall be transferable
only in the books of the Company maintained at the office or
agency of the Warrant Agent in the City of New York upon delivery
thereof duly endorsed by the Holder or by his or her duly
authorized attorney or legal representative, or accompanied by
proper evidence of succession, assignment or authority to
transfer, which endorsement shall be guaranteed by a bank or
trust company located in the United States or a broker or dealer
that is a member of a national securities exchange. In all cases
of transfer by an attorney, the original power of attorney, duly
approved, or an official copy thereof, duly certified, shall be
deposited and remain with the Warrant Agent. In case of transfer
by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited and remain
with the Warrant Agent in its discretion. Upon any registration
of transfer, the Warrant Agent shall countersign and deliver a
new Warrant certificate to the person entitled thereto.
3.2. Exchange of Warrant Certificates. Warrant
certificates may be exchanged for another certificate or
certificates entitling the Holder thereof to purchase a like
aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle such Holder to purchase.
Any Holder desiring to exchange a Warrant certificate shall make
such request in writing delivered to the Warrant Agent, and shall
surrender, properly endorsed in the manner described in
subsection 3.1 hereof, the Warrant certificate or certificates to
be so exchanged. Thereupon, the Warrant Agent shall countersign
and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested.
SECTION 4. [SECTION 4 INTENTIONALLY LEFT BLANK].
SECTION 5. MUTILATED OR MISSING WARRANTS.
In case any of the certificates evidencing the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may,
in its discretion, issue and the Warrant Agent shall countersign
and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant certificate, or in lieu of
and substitution for the Warrant certificate lost, stolen or
destroyed, a new Warrant certificate of like tenor and
representing an equivalent right or interest, but only, in case
of any such loss, theft or destruction, upon receipt of evidence
satisfactory to the Company and the Warrant Agent thereof and an
indemnity also satisfactory to them. An applicant for such
substitute Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as
the Company or the Warrant Agent may prescribe.
SECTION 6. TERM OF WARRANTS; EXERCISE OF WARRANTS.
6.1. Term of Warrants. Subject to the terms of this
Agreement, each Holder shall have the right until 5:00 P.M., New
York time, on January 31, 2004 (the seventh anniversary of the
Effective Date (as defined in the POR)) (the "Expiration Date"),
to purchase from the Company the number of fully paid and
nonassessable Warrant Shares which the Holder may at the time be
entitled to purchase on exercise of such Warrants.
6.2. Exercise of Warrants. Warrant Shares may be
purchased upon surrender to the Company at the office or agency
of the Warrant Agent in the City of New York, of the certificate
or certificates evidencing the Warrants to be exercised, together
with the form of election to purchase on the reverse thereof duly
filled in and signed, which signature shall, if the Warrant
Shares are to be issued in the name of a person other than the
Holder of the Warrant, be guaranteed by a bank or trust company
located in the United States or a broker or dealer that is a
member of a national securities exchange, and upon payment to the
Warrant Agent for the account of the Company of the Exercise
Price (as defined in and determined in accordance with the
provisions of Sections 10 and 11 hereof) for the number of
Warrant Shares in respect of which such Warrants are then being
exercised. Payment of the aggregate Exercise Price shall be made
by certified or cashier's check, or by any combination thereof.
Subject to Section 8 hereof, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered, with all
reasonable dispatch, to or upon the written order of the Holder
and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares
so purchased upon the exercise of such Warrants. Such
certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed
to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the
Exercise Price, as aforesaid; provided, however, that if such
Warrants are surrendered, and the Exercise Price is paid, on a
Saturday, Sunday or other day on which banking institutions in
the City of New York are authorized or obligated by law or
executive order to close, or on a day when the Common Stock
transfer books of the Company are closed, the certificates for
the Warrant Shares in respect of which such Warrants are then
exercised shall be issuable as of the next succeeding Monday,
Tuesday, Wednesday, Thursday or Friday on which such banking
institutions are not so authorized or obligated to close (whether
before or after the Expiration Date) and which is a day on which
the Common Stock transfer books of the Company are open. The
rights of purchase represented by the Warrants shall be
exercisable, at the election of the Holders thereof, either in
full or from time to time in part and, in the event that a
certificate evidencing Warrants is exercised in respect of less
than all of the Warrant Shares specified therein at any time
prior to the expiration of such Warrants, a new certificate
evidencing the remaining Warrant or Warrants will be issued, and
the Warrant Agent is hereby irrevocably authorized to countersign
and to deliver the required new Warrant certificates pursuant to
the provisions of this subsection and of subsection 2.2 hereof
and the Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrant certificates duly executed
on behalf of the Company for such purpose.
SECTION 7. DISPOSITION OF PROCEEDS ON EXERCISE OF
WARRANTS.
The Warrant Agent shall account promptly to the Company
with respect to the Warrants exercised and concurrently pay to
the Company all moneys received by the Warrant Agent for the
purchase of the Warrant Shares through the exercise of such
Warrants.
SECTION 8. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of any Warrant certificates or
certificates for Warrant Shares issuable upon the exercise of
Warrants; provided, however, that the Company shall not be
required to pay, and the Holder shall pay, any tax or taxes that
may be payable in respect of any transfer involved in the issue
or delivery of any Warrant certificates or certificates for
Warrant Shares in a name other than that of the registered Holder
of the Warrants that were surrendered and the Company shall not
be required to issue or deliver such Warrant certificates or
certificates for Warrant Shares unless or until the persons
requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 9. RESERVATION OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
9.1. Reservation of Warrant Shares. There have been
reserved, and the Company shall at all times keep reserved out of
its authorized Common Stock, a number of shares of Common Stock
sufficient to provide for the exercise of the right of purchase
represented by the outstanding Warrants. The Company covenants
that all Warrant Shares will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable. Before taking any
action that would cause an adjustment reducing the Exercise Price
below the then par value, if any, of the shares of Common Stock
issuable upon exercise of the Warrants, the Company shall take
any corporate action which may, in the opinion of it counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of such Common Stock, at such
adjusted Exercise Price. The Transfer Agent for the Common Stock
and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid will be irrevocably authorized and
directed at all times to reserve such number of authorized shares
as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent for the
Common Stock and with every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent stock certificates
required to honor outstanding Warrants upon exercise thereof in
accordance with the terms of this Agreement. The Company will
supply such Transfer Agent with duly executed stock certificates
for such purpose. Promptly after the Expiration Date, the
Warrant Agent shall certify to the Company the aggregate number
of Warrants then outstanding and thereafter no shares shall be
subject to reservation in respect of such Warrants.
9.2. Governmental Approvals and Listings. The Company
will as promptly as practicable take all action which may be
necessary to obtain and keep effective (a) any and all permits,
consents and approvals of governmental agencies and authorities,
and will make any and all filings under federal and state
securities laws, necessary in connection with the issuance,
distribution and transfer of Warrant certificates, the exercise
of the Warrants, and the issuance, sale, transfer and delivery of
Warrant Shares and (b) if any of the Warrant Shares have been
listed on any securities exchange, the listing of the Warrant
Shares on any securities exchange on which the Common Stock may
be listed (it being understood that the Company has no obligation
to list any Warrant Shares with any securities exchange).
9.3. Purchase of Warrants by the Company. The Company
shall have the right, except as limited by law, other agreement
or herein, to purchase or otherwise acquire Warrants at such
times, in such manner and for such consideration as it may deem
appropriate.
9.4. Cancellation of Warrants. In the event the
Company shall purchase or otherwise acquire Warrants, the related
Warrant certificates shall thereupon be delivered to the Warrant
Agent and be cancelled by it and retired. The Warrant Agent
shall cancel any Warrant certificate surrendered for exchange,
substitution, transfer or exercise in whole or in part. Warrant
certificates cancelled by the Warrant Agent pursuant to any
provision of this Agreement shall be delivered to the Company or,
upon the request of the Warrant Agent and with the consent of the
Company, destroyed by the Warrant Agent. The Warrant Agent shall
furnish to the Company written confirmation of the destruction of
the Warrant certificates so cancelled.
SECTION 10. EXERCISE PRICE.
The price per share at which Warrant Shares shall be
purchasable upon exercise of each Warrant (the "Exercise Price")
shall be $9.00, subject to adjustment pursuant to Section 11
hereof.
SECTION 11. ADJUSTMENT OF EXERCISE PRICE AND NUMBER
OF WARRANT SHARES.
11.1. Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Exercise
Price shall be subject to adjustment as follows:
(a) Stock Dividends, Splits, etc. In case the Company
shall at any time after the date of this Agreement (w) pay a
dividend or make a distribution on its Common Stock which is
paid or made (A) in Common Stock or other shares of the
Company's capital stock or (B) in rights to purchase Common
Stock or other capital stock of the Company if such rights
are not exercisable or separable from the Common Stock
except upon the occurrence of a contingency, (x) subdivide
its outstanding Common Stock into a greater number of shares
of Common Stock, (y) combine its outstanding shares into a
smaller number of shares of Common Stock or (z) issue by
reclassification of its Common Stock other securities of the
Company, then, in any such event the number of Warrant
Shares purchasable upon exercise of each Warrant immediately
prior thereto shall be adjusted so that the Holder of each
Warrant shall be entitled to receive upon exercise of such
Warrant the kind and number of shares of the Company and
rights to purchase Common Stock or other securities of the
Company (or, in the event of the redemption of any such
rights, any cash paid in respect of such redemption) that
he, she or it would have owned or have been entitled to
receive after the happening of any of the events described
above had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the opening of
business on the next business day following the record date
in the case of dividends or other distributions and shall
become effective immediately after the opening of business
on the next business day following the effective date in the
case of a subdivision or combination.
(b) Distributions of Assets. In case the Company
shall at any time after the date of this Agreement
distribute to all holders of its Common Stock evidences of
indebtedness of the Company or assets of the Company
(including cash dividends or distributions out of retained
earnings other than cash dividends or distributions made on
a quarterly or other periodic basis) or warrants to
subscribe for securities of the Company (excluding those
referred to in paragraph (a) above), then in each case the
Exercise Price shall be adjusted to a price determined by
multiplying the Exercise Price in effect immediately prior
to such distribution by a fraction, of which the numerator
shall be the then current market price per share of Common
Stock (as defined in paragraph (c) below) on the record date
for determination of shareholders entitled to receive such
distribution, less the then fair value (as determined in
good faith by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of
such subscription rights or warrants which are applicable to
one share of Common Stock, and of which the denominator
shall be such market price per share of Common Stock;
provided, however, that if the then current market price per
share of Common Stock on the record date for determination
of shareholders entitled to receive such distribution is
less than the then fair value of the portion of the assets
or evidences of indebtedness so distributed or of such
subscription rights or warrants which are applicable to one
share of Common Stock, the foregoing adjustment of the
Exercise Price shall not be made and in lieu thereof the
Holder of each Warrant shall be entitled to receive upon
exercise of such Warrant in addition to the Common Stock the
kind and number of assets, evidences of indebtedness,
subscription rights and warrants (or, in the event of the
redemption of any such evidences of indebtedness,
subscription rights and warrants, any cash paid in respect
of such redemption) that he or she would have owned or have
been entitled to receive after the happening of such
distribution had such Warrant been exercised immediately
prior to the record date for such distribution. Such
adjustment shall be made successively whenever such a record
date is fixed, and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to
be the Exercise Price which would then be in effect if such
record date had not been fixed.
(c) Computation of Market Price. For the purpose of
any computation under this Agreement, the current market
price per share of Common Stock at any date shall be deemed
to be the average of the daily Market Price (as defined
below) per share for the 30 consecutive Trading Days (as
defined below) commencing 45 Trading Days before the date in
question. "Market Price" is defined as the closing sale
price (or, if no closing sale price is reported, the closing
bid price) for the Common Stock in the over-the-counter
market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or,
if the Common Stock is not quoted on NASDAQ, as reported by
the National Quotation Bureau Incorporated, or, if the
Common Stock is not so reported, as furnished by any two
members of the National Association of Securities Dealers,
Inc., selected from time to time by the Company for that
purpose. In the event that the Common Stock is hereafter
listed for trading on one or more United States national or
regional securities exchanges, Market Price shall be the
closing price on the exchange or system designated by the
Board of Directors of the Company as the principal United
States market in which the Common Stock is traded. If
Market Price cannot be established as described above,
Market Price shall be the fair market value of the Common
Stock as determined in good faith by the Board of Directors.
"Trading Day" shall mean a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the City
of Los Angeles and the State of California or New York, New
York, are not authorized or obligated by law or executive
order to close or, if the Common Stock is listed or admitted
to trading on a national securities exchange, a day on which
the principal national securities exchange on which the
Common Stock is listed or admitted to trading is open for
the transaction of business.
(d) Minimum Adjustment. No adjustment in the number
of Warrant Shares purchasable hereunder or the Exercise
Price shall be required unless such adjustment would require
an increase or decrease of at least one per cent (1%) in the
number of Warrant Shares purchasable upon the exercise of
each Warrant, or the Exercise Price, as the case may be;
provided, however, that any adjustments which by reason of
this paragraph (d) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be
made to the nearest cent or the nearest ten-thousandth of a
share, as the case may be.
(e) Warrant Share Adjustment. Upon each adjustment of
the Exercise Price as a result of the calculations made in
paragraph (a) or (b) above, each Warrant outstanding
immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares (calculated to the
nearest ten-thousandth) obtained by (A) multiplying (x) the
number of shares covered by a Warrant immediately prior to
such adjustment of the Exercise Price by (y) the Exercise
Price in effect immediately prior to such adjustment of the
Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(f) Notice of Adjustment. Whenever the number of
Warrant Shares purchasable upon the exercise of Warrants or
the Exercise Price of such Warrant Shares is adjusted, as
herein provided, the Company shall cause the Warrant Agent
promptly to mail by first class mail, postage prepaid, to
each Holder of a Warrant or Warrants notice of such
adjustment or adjustments and shall deliver to the Warrant
Agent a certificate of a firm of independent public
accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the
Company) setting forth (A) the number of Warrant Shares
purchasable upon the exercise of each Warrant and the
Exercise Price of such Warrant Shares after such adjustment,
(B) a brief statement of the facts requiring such adjustment
and (C) the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the
correctness of such adjustment. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no
duty or responsibility with respect to any such certificate,
except to exhibit the same, from time to time, to any Holder
desiring an inspection thereof during reasonable business
hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holders to determine whether
any facts exist that may require any adjustment of the
Exercise Price or the number of Warrant Shares or other
stock or property purchasable upon exercise thereof or with
respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such
adjustment.
(g) Definition of Common Stock. For the purpose of
this subsection 11.1, the term "Common Stock" shall mean
(A) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (B) any other class
of stock resulting from successive changes or
reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value or
from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders of a Warrant or Warrants
shall become entitled to purchase any securities of the
Company other than Common Stock, thereafter the number of
such other securities so purchasable upon exercise of each
Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this
subsection 11.1 and the provisions of Section 6 and
subsections 11.2 and 11.3, inclusive, with respect to the
Warrant Shares, shall apply on like terms to any such other
securities.
(h) Company May Reduce Exercise Price or Increase
Number of Warrant Shares Purchasable. The Company may, at
its option, at any time during the term of the Warrants,
reduce the then current Exercise Price, or increase the
number of Common Shares purchasable upon exercise of each
Warrant, to any amount deemed appropriate by the Board of
Directors of the Company.
(i) Subsequently Issued Warrants. All Warrants
originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall
evidence the right to purchase, at the adjusted Exercise
Price, the number of shares of Common Stock purchasable from
time to time hereunder upon exercise of the Warrants, all
subject to further adjustment as provided herein.
(j) Number of Warrant Shares on Warrant Certificates.
Irrespective of any adjustment or change in the Exercise
Price or the number of shares of Common Stock issuable upon
the exercise of the Warrants, the Warrant certificates
theretofore and thereafter issued may continue to express
the Exercise Price per share and the number of shares which
were expressed upon the initial Warrant certificates issued
hereunder.
11.2. No Adjustment for Dividends. Except as provided
in subsection 11.1, no adjustment in respect of any dividends
made on a quarterly or other periodic basis out of retained
earnings shall be made during the term of a Warrant or upon the
exercise of a Warrant.
11.3. Preservation of Purchase Rights and Adjustment
of Exercise Price upon Merger, Consolidation, etc. In case the
Company shall consolidate or merge with or into any other
corporation (other than a consolidation or merger in which the
Company is the surviving corporation and each share of Common
Stock outstanding immediately prior to such consolidation or
merger is to remain outstanding immediately after such
consolidation or merger and no cash, securities or other property
is distributed with respect to such shares) or shall sell or
transfer all or substantially all of its assets to any
corporation, the Company or such successor or purchasing
corporation, as the case may be (collectively, the "acquiring
corporation"), shall execute with the Warrant Agent an agreement
that each Holder of a Warrant shall have the right thereafter
upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Warrant the kind
and amount of shares and other securities, cash and other
property that he or she would have owned or have been entitled to
receive after the happening of such consolidation, merger or sale
had such Warrant been exercised immediately prior to such action
(assuming that such Holder, as a holder of Common Stock prior to
such action, would not have exercised any rights of election as a
holder of Common Stock as to the kind or amount of securities,
cash or other property receivable upon such consolidation, merger
or sale; provided, that if the kind or amount of securities, cash
or other property receivable upon such consolidation, merger or
sale is not the same for each non-electing share of Common Stock,
then the kind and amount of securities, cash or other property
receivable shall be deemed to be the kind and amount so
receivable by a plurality of the non-electing shares). The
Company shall mail by first-class mail, postage prepaid, to each
Holder, notice of the execution of any agreement with an
acquiring corporation as provided in the first sentence of this
subsection 11.3. In addition to any adjustments required by this
subsection 11.3, such agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 11. The Company shall
not effect any such consolidation, merger or sale unless prior to
or simultaneously with the consummation thereof the acquiring
corporation (if other than the Company) resulting from such
consolidation or merger or the acquiring corporation purchasing
such assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the
Warrant Agent, the obligation to deliver to each Holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to receive and
the other obligations of the Company under this Agreement. The
provisions of this subsection 11.3 shall similarly apply to
successive consolidations, mergers, sales or conveyances. The
Warrant Agent shall be under no duty or responsibility to
determine the correctness of any provisions contained in any such
agreement relating either to the kind or amount of shares of
stock or other securities, cash or property receivable upon
exercise of Warrants or with respect to the method employed and
provided therein for any adjustments.
11.4 No Adjustment for Employee Compensation and
Issuances to Alvarez & Marsal, Inc. Notwithstanding anything to
the contrary contained herein, no adjustment to the Exercise
Price or the number of shares of Common Stock purchasable upon
exercise of any Warrant shall be made in connection with the
issuance by the Company of any shares of Common Stock or options
to purchase Common Stock or other securities which may be
convertible or exercisable into shares of Common Stock to (i) any
employee of the Company as compensation for services rendered to
the Company or (ii) Alvarez & Marsal, Inc. ("A&M") or any of its
affiliates, in connection with the management services to be
provided by A&M to the Company under that certain Management
Services Agreement dated as of January 31, 1997 between the
Company, A&M, A&M Investment Associates #3, LLC, Antonio C.
Alvarez II, Cerberus Partners, L.P. and certain of A&M's
employees.
SECTION 12. NO RIGHTS AS STOCKHOLDERS; NOTICES TO
WARRANT HOLDERS.
(a) Nothing contained in this Agreement or in any of
the Warrants shall be construed as conferring upon the
Holders or their transferees the right to vote or to receive
dividends or to consent or to receive notice as shareholders
in respect of any meeting of shareholders for the election
of directors of the Company or any other matter, or any
rights whatsoever as shareholders of the Company. If prior
to the expiration of the Warrants:
(A) the Company shall declare a dividend or other
distribution on its Common Shares, other than (i) in cash as
described in Section 11.2, (ii) in other shares of Common
Stock, or (iii) in rights to purchase shares of Common Stock
or other securities of the Company of the character
described in paragraph (a) of subsection 11.1; or
(B) the Company shall authorize the issuance to
all holders of its Common Stock of rights or warrants
entitling them to subscribe for or purchase any Common Stock
or any other subscription rights or warrants (other than
rights of the character described in paragraph (a) of
subsection 11.1); or
(C) there shall occur a reclassification of the
capital stock of the Company (other than a subdivision or
combination of its outstanding Common Stock); or
(D) the Company shall propose to effect any
consolidation or merger into or with, or to effect any sale
or other transfer requiring an adjustment pursuant to
Section 11.3; or
(E) the Company shall take an action ("Adjustment
Action") which would cause an adjustment pursuant to Section
11 hereof of the number or kind of Common Stock (or other
securities) purchasable upon the exercise of each Warrant or
of the Exercise Price that would have the effect of reducing
the price payable for a share of the Company's capital stock
by a Holder upon exercise of a Warrant to an amount which is
less than the current value of such share; or
(F) a voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be proposed;
then, in any such event, the Company shall cause to be mailed to
the Warrant Agent and the Holders in the manner provided in
Section 21 hereof, at least 20 days prior to the applicable
record or effective date hereinafter specified, a notice stating
(i) the date as of which the holders of record of Common Stock to
be entitled to such dividend, distribution, rights or warrants
are to be determined, or (ii) the date on which such
reclassification, Adjustment Action, consolidation, merger, sale,
transfer, dissolution, liquidation, or winding up is expected to
become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange
their shares of securities or other property, if any, deliverable
upon such reclassification, Adjustment Action, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.
Such notice shall also state whether such transaction will result
in any adjustment of the number or kind of Common Stock (or other
securities) purchasable upon the exercise of a Warrant or of the
Exercise Price and, if so, shall set forth the nature thereof and
the date upon which it will become effective. In the event the
Company gives notice to the holders of its Common Stock of the
declaration or distribution of rights to purchase Common Stock or
other securities of the Company of the character described in
paragraph (a) of subsection 11.1, the Company will give
concurrently a similar notice to the Holders in the manner
provided in Section 21 hereof. The failure to give the notices
required by this Section 12, or any defect therein, shall not
affect the legality or validity of any such dividend,
distribution, right, warrant, reclassification, Adjustment
Action, dissolution, liquidation or winding up or other action,
or the vote on any action authorizing the same.
SECTION 13. PURCHASE RIGHTS.
If at any time or from time to time on or after the
date of the Agreement, the Corporation shall give notice (a
"Purchase Rights Notice") pursuant to paragraph (B) of Section
12(a) of an issuance of rights or warrants, (the "Purchase
Rights") to all record holders of Common Stock, such issuance
shall not result in an adjustment of the Exercise Price or the
number of Warrants under Section 11 hereof, but each Holder shall
be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder
could have acquired if it had held the number of shares of Common
Stock acquirable upon exercise of the Warrants immediately before
the record date for the grant, issuance, or sale of such Purchase
Rights. The Purchase Rights Notice shall describe the Purchase
Rights and their availability to the Holders.
SECTION 14. FRACTIONAL SHARES OF COMMON STOCK.
The Company will not issue fractions of Warrants or
distribute Warrant certificates which evidence fractional
Warrants. In lieu of such fractional Warrants, there shall be
paid to the Holders to whom Warrant certificates representing
such fractional Warrants would otherwise be issuable an amount in
cash equal to the product of such fraction of a Warrant
multiplied by the current market price per share of Common Stock
issuable with respect to such fraction of a Warrant.
SECTION 15. RIGHT OF ACTION.
All rights of action in respect of this Agreement are
vested in the respective Holders of the Warrant certificates, and
any Holder of any Warrant certificate, without the consent of the
Warrant Agent or of the Holder of any other Warrant certificate,
may, on such Holder's own behalf and for such Holder's own
benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in
respect of, such Holder's right to exercise the Warrants
evidenced by such Warrant certificate in the manner provided in
such Warrant certificate and in this Agreement.
SECTION 16. INSPECTION OF WARRANT AGREEMENT.
The Warrant Agent shall keep copies of this Agreement
and any notices given or received hereunder available for
inspection by the Holders during normal business hours at its
office in the City of New York for that purpose. The Company
shall supply the Warrant Agent from time to time with such
numbers of copies of this Agreement as the Warrant Agent may
request.
SECTION 17. MERGER OR CONSOLIDATION OR CHANGE OF
NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be
merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Warrant
Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part
of any of the parties hereto, provided that such corporation
would be eligible for appointment as successor Warrant Agent
under the provisions of Section 19 hereof. In case at the time
such successor to the Warrant Agent shall succeed to the agency
created by this Agreement any of the Warrants shall have been
countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the original
Warrant Agent and deliver such Warrants so countersigned; and in
case at that time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign
such Warrants either in the name of the predecessor Warrant Agent
or in the name of the successor Warrant Agent, and in all such
cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall
be changed and at such time any of the Warrants shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignatures under its prior name and deliver Warrants so
countersigned; and in case at that time any of the Warrants shall
not have been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name;
and in all such cases such Warrants shall have the full force
provided in the Warrants and in this Agreement.
SECTION 18. CONCERNING THE WARRANT AGENT.
The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of
Warrants, by their acceptance thereof, shall be bound:
18.1. Disclaimer of Representations. The
statements contained herein and in the Warrants shall be
taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the
same except such as describe the Warrant Agent or action
taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrants except as
herein otherwise provided.
18.2. No Responsibility for Failure of Company's
Covenants. The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the
covenants contained in this Agreement or in the Warrants.
18.3. Delegation. The Warrant Agent may execute
and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself or by or through
its attorneys or agents (which shall not include its
employees), and the Warrant Agent shall not be answerable or
accountable for any act, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting
from such neglect or misconduct provided reasonable care
shall have been exercised in the selection and continued
employment thereof.
18.4. Opinion of Counsel. The Warrant Agent may
consult at any time with legal counsel satisfactory to it,
and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder in respect of
any action taken, suffered or omitted by it hereunder in
good faith and in accordance with the opinion or the advice
of such counsel.
18.5. Officer's Certificate. Whenever in the
performance of its duties under this Agreement the Warrant
Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company and delivered
to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
18.6. Compensation and Reimbursement. The Company
agrees to pay the Warrant Agent reasonable compensation for
all services rendered by the Warrant Agent in the
performance of its duties under this Agreement, to reimburse
the Warrant Agent for all expenses, taxes and governmental
charges and other charges of any kind and nature reasonably
incurred by the Warrant Agent in the performance of its
duties under this Agreement, and agrees to indemnify the
Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable
counsel fees, for anything done or omitted by the Warrant
Agent in the performance of its duties under this Agreement
except as a result of the Warrant Agent's gross negligence
or willful misconduct.
18.7. No Action Without Assurance of Reimbursement.
The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one
or more Holders shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses
which may be incurred; but this provision shall not affect
the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without
any such security or indemnity. All rights or action under
this Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment
shall be for the ratable benefit of the Holders, as their
respective rights or interests may appear.
18.8. Conflicts of Interest. The Warrant Agent and
any stockholder, director, officer or employee of the
Warrant Agent may buy, sell or deal in any of the Warrants
or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity
for the Company or for any other legal entity.
18.9. Solely as Agent. The Warrant Agent shall act
hereunder solely as agent, and its duties shall be
determined solely by the provisions hereof. The Warrant
Agent shall not be liable for anything that it may do or
refrain from doing in connection with this Agreement except
for its own gross negligence or bad faith.
18.10. Reliance on Documents. The Warrant Agent
will not incur any liability or responsibility to the
Company or to any Holder of any Warrant for any action taken
in reliance on any notice, resolution, waiver, consent,
order, certificate, or other paper, document or instrument
reasonably believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
18.11. No Representation Regarding Validity, Etc.
The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution
and delivery hereof (except the due execution and delivery
hereof by the Warrant Agent) or in respect of the validity
or execution of any Warrant (except its countersignature
thereof); nor shall the Warrant Agent by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Shares (or other
stock) to be issued pursuant to this Agreement or any
Warrant, or as to whether any Warrant Shares (or other
stock) will when issued be validly issued, fully paid and
nonassessable, or as to the Exercise Price or the number or
amount of Warrant Shares or other securities or other
property issuable upon exercise of any Warrant.
18.12. Instructions from Company. The Warrant Agent
is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company,
and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in
accordance with instructions of any such Officers.
SECTION 19. CHANGE OF WARRANT AGENT.
The Warrant Agent may resign and be discharged from its
duties under this Agreement by giving to the Company 60 days'
notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant
Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the
Warrant Agent. If the Company shall fail to make such
appointment within a period of 50 days after such notice of
removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated
Warrant Agent or by any Holder (who shall with such notice submit
his Warrant for inspection by the Company), then the resigning,
discharged or removed Warrant Agent or any Holder may apply to
any court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Any successor warrant agent,
whether appointed by the Company or such court, shall be (a) a
bank or trust company, in good standing, incorporated under the
laws of the United States of America or any state thereof and
having at the time of its appointment as warrant agent a combined
capital and surplus of at least $100,000,000, as set forth in its
most recent published annual report of condition or (b) an
affiliate of a corporation described in clause (a) above. After
appointment, the successor warrant agent shall be vested with the
same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent hereunder without further
act or deed; but the former Warrant Agent shall deliver and
transfer to the successor warrant agent any property at the time
held by it hereunder, and shall execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose.
Failure to file any notice provided for in this Section 19,
however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or
the appointment of the successor warrant agent, as the case may
be. In the event of such resignation or removal, the successor
warrant agent shall mail, by first-class mail, postage prepaid,
to each Holder, written notice of such removal or resignation and
the name and address of such successor warrant agent.
SECTION 20. IDENTITY OF TRANSFER AGENT.
Forthwith upon the appointment of any subsequent
Transfer Agent for the Company's shares of Common Stock, or any
other shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants,
the Company will file with the Warrant Agent a statement setting
forth the name and address of such Transfer Agent.
SECTION 21. NOTICES.
Any notice pursuant to this Agreement by the Company or
by the Holder of any Warrant to the Warrant Agent, or by the
Warrant Agent or by the Holder of any Warrant to the Company,
shall be in writing and shall be deemed to have been duly given
if delivered or mailed by certified mail, return receipt
requested, (a) if to the Company, to WEI Acquisition Co., 19701
Hamilton Avenue, Torrance, California 90502-1334, Attention:
Henry Del Castillo and, if to the Warrant Agent, to United States
Trust Company of New York, Corporate Trust Division, 114 West
47th Street, 15th Floor, New York, NY 10036-1532;, Attention:
Louis Young. Each party hereto may from time to time change the
address to which notices to it are to be delivered or mailed
hereunder by notice in writing to the other party.
Any notice mailed pursuant to this Agreement by the
Company or the Warrant Agent to the Holders of Warrants shall be
in writing and shall be deemed to have been duly given if mailed
by first-class mail, postage prepaid, to such Holders at their
respective addresses on the Warrant Register of the Warrant
Agent.
SECTION 22. SUPPLEMENTS AND AMENDMENTS.
(a) The Company and the Warrant Agent may from time to
time supplement or amend this Agreement, without the approval of
any Holder in order to cure any ambiguity or to correct or
supplement any provision contained herein that may be defective
or inconsistent with any other provisions herein, or to make any
other provisions with regard to matters or questions arising
hereunder that the Company and the Warrant Agent may deem
necessary or desirable and that shall not adversely affect the
interests of the Holders of Warrants.
(b) In addition to the foregoing, with the consent of
Holders of Warrants entitled, upon exercise thereof, to receive
not less than two-thirds of the shares of Common Stock issuable
thereunder, the Company and the Warrant Agent may modify this
Agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this
Agreement or modifying in any manner the rights of the Holders of
the Warrants; provided, however, that no modification of the
terms (including, but not limited to the adjustments described in
Section 11) upon which the Warrants are exercisable or reducing
the percentage required for consent to modification of this
Agreement, no acceleration of the Expiration Date and no increase
in the Exercise Price may, in each case, be made without the
consent of the Holder of each outstanding Warrant affected
thereby.
SECTION 23. SUCCESSORS.
All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and
assigns hereunder.
SECTION 24. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into
any other corporation unless the corporation resulting from such
merger or consolidation (if not the Company) shall expressly
assume, by supplemental agreement satisfactory in form to the
Warrant Agent in the exercise of its reasonable judgment and
executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and
condition of this Agreement to be performed and observed by the
Company.
SECTION 25. APPLICABLE LAW.
This Agreement and each Warrant issued hereunder shall
be deemed to be a contract made under the internal laws of the
State of New York (without preference to conflicts of law
principles) and for all purposes shall be construed in accordance
with the laws of said State.
SECTION 26. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company, the Warrant
Agent and the Holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company, the
Warrant Agent, and their respective successors and assigns
hereunder, and the holders from time to time of the Warrants.
SECTION 27. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
SECTION 28. CAPTIONS.
The captions of the Sections and subsections of this
Agreement have been inserted for convenience only and shall have
no substantive effect.
SECTION 29. PLAN OF REORGANIZATION.
The Company will comply for the benefit of the Holders
with Section 8.04 of the POR.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
WEI ACQUISITION CO.
By ___________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW
YORK,
as Warrant Agent
By ___________________________
Name:
Title:
<PAGE>
TRANCHE B WARRANT TO PURCHASE COMMON STOCK VOID AFTER
5:00 P.M., NEW YORK TIME, ON JANUARY 31, 2004
WHEREHOUSE ENTERTAINMENT, INC.
This certifies that, for value received, __________
___________________ or registered assigns (the "Holder"), is
entitled to purchase from Wherehouse Entertainment, Inc., a
Delaware corporation (the "Company"), until 5:00 P.M., New York
time, on January 31, 2004, or such other date as may be provided
for pursuant to the Warrant Agreement referred to below (the
"Expiration Date"), at the purchase price of $9.00 per share (the
"Exercise Price"), a number of shares of Common Stock, par value
$0.01 per share, of the Company (the "Common Stock") that is
equal to the number of Warrants represented hereby. The number
of shares purchasable upon exercise of this Warrant and the
Exercise Price per share are subject to adjustment from time to
time as set forth in the Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole
or in part by presentation of this Warrant Certificate with the
Purchase Form on the reverse side hereof duly executed (with a
signature guarantee if required by the Warrant Agreement) and
simultaneous payment of the Exercise Price (subject to
adjustment) at the office or agency of the Company maintained for
that purpose in the City of New York. Initially, United States
Trust Company of New York will act as Warrant Agent (the "Warrant
Agent"). Payment of such price shall be made at the option of
the holder hereof by certified or cashier's check. No fractional
shares will be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any such
fraction upon the exercise of one or more Warrants, all as
provided in the Warrant Agreement.
Upon any partial exercise of this Warrant Certificate,
there shall be countersigned and issued to the Holder hereof a
new Warrant Certificate in respect of the shares as to which this
Warrant shall not have been exercised. This Warrant Certificate
may be exchanged at the office of the Warrant Agent maintained
for that purpose in the City of New York by surrender of this
Warrant Certificate properly endorsed (with a signature guarantee
if required by the Warrant Agreement), either separately or in
combination with one or more other Warrant Certificates, for one
or more new Warrant Certificates for the same aggregate number of
shares as were evidenced by the Warrant Certificate or Warrant
Certificates exchanged.
This Warrant Certificate is transferable at the office
of the Warrant Agent maintained for that purpose in the City of
New York in the manner and subject to the limitations set forth
in the Warrant Agreement.
The Warrants evidenced hereby are part of a duly
authorized issue of Common Stock Purchase Warrants with rights to
purchase an aggregate of up to 100,000 shares of Common Stock
(subject to adjustment) and are issued under and in accordance
with a Warrant Agreement dated as of January 31, 1997, between
the Company and the Warrant Agent and are subject to the terms
and provisions contained in the Warrant Agreement, to all of
which the Holder of this Warrant Certificate by acceptance hereof
consents. Copies of the Warrant Agreement are on file at the
above mentioned office of the Warrant Agent and may be obtained
for inspection by the Holder hereof upon written request to the
Warrant Agent.
The Holder hereof may be treated by the Company, the
Warrant Agent, and all other persons dealing with this Warrant
Certificate as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such
books, the Company, the Warrant Agent and all such other persons
may treat the registered holder hereof as the owner for all
purposes.
The Warrants evidenced hereby do not entitle any Holder
hereof to any of the rights of a stockholder of the Company.
This Warrant Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned
by the Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed by its duly authorized officers and
the corporate seal hereunto affixed.
Dated: WHEREHOUSE ENTERTAINMENT, INC.
By: _____________________________
Title:
ATTEST: _________________________
Name:
Title:
COUNTERSIGNED:
UNITED STATES TRUST COMPANY OF NEW YORK
WARRANT AGENT
By: ___________________________
Name:
Title:
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise
the right of purchase represented by the within Warrant
Certificate for, and to purchase thereunder, ______ shares of
Common Stock, provided for therein, and requests that
certificates for such shares of Common Stock be issued in the
name of:
Name: _______________________________________________________
Address: _______________________________________________________
_________________________________________________________________
Social Security or Taxpayer's
Identification Number: ________________________________________
and, if said number of shares of Common Stock shall not be all
the Common Stock purchasable thereunder, that a new Warrant
Certificate for the balance remaining of the Common Stock
purchasable under the within Warrant Certificate be registered in
the name of the undersigned Warrantholder or his or her Assignee
as below indicated and delivered to the address stated below.
Name of Warrantholder
or Assignee: ___________________________________
Address: ___________________________________
Social Security or Taxpayer's
Identification Number: ___________________________________
Signature: ___________________
Dated: ____________________
Signature Guaranteed:
NOTICE: The above signature must
correspond with the name
as written upon the face
of this Warrant
Certificate in every
particular, without
alteration or enlargement
or any change whatever,
unless this Warrant has
been assigned.
<PAGE>
ASSIGNMENT
(To be signed only upon
assignment of Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto ______________________________
(Name of Assignee)
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Social Security or other Taxpayer Identification Number of
Assignee)
the within Warrants, hereby irrevocably constituting and
appointing _____________________________________________________
Attorney to transfer said Warrants on the books of the Company,
with full power of substitution in the premises.
DATED: _____________________
______________________________
Signature of Registered Holder
Signature Guaranteed:
NOTICE: The signature of this
assignment must
correspond with the name
as it appears upon the
face of the within
Warrant Certificate in
every particular, without
alteration or enlargement
or any change whatever.
<PAGE>
<PAGE>
EXHIBIT D-3
TRANCHE C WARRANT AGREEMENT
-----------------------------------------------------------
WARRANT AGREEMENT
RELATING TO THE ISSUANCE OF THE
TRANCHE C WARRANTS
WEI ACQUISITION CO.
(which will change its name to Wherehouse Entertainment, Inc.)
and
UNITED STATES TRUST COMPANY OF NEW YORK
Dated as of January 31, 1997
--------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Sections Page(s)
SECTION 1. Appointment of Warrant Agent. . . . . . . . . . . 1
SECTION 2. Form of Warrants. . . . . . . . . . . . . . . . . 1
2.1. Form of Warrant Certificates. . . . . . . . 1
2.2. Countersignature of Warrant
Certificates . . . . . . . . . . . . . . . 2
2.3. Registration. . . . . . . . . . . . . . . . 2
SECTION 3. Transfer or Exchange of Warrants. . . . . . . . . 3
3.1. Transfer. . . . . . . . . . . . . . . . . . 3
3.2. Exchange of Warrant Certificates. . . . . . 3
SECTION 4. . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. Mutilated or Missing Warrants . . . . . . . . . . 3
SECTION 6. Term of Warrants; Exercise of Warrants. . . . . . 4
6.1. Term of Warrants. . . . . . . . . . . . . . 4
6.2. Exercise of Warrants. . . . . . . . . . . . 4
SECTION 7. Disposition of Proceeds on Exercise of
Warrants. . . . . . . . . . . . . . . . . . . . . 5
SECTION 8. Payment of Taxes. . . . . . . . . . . . . . . . . 5
SECTION 9. Reservation of Warrant Shares; Purchase
and Cancellation of Warrants. . . . . . . . . . . 5
9.1. Reservation of Warrant Shares . . . . . . . 5
9.2. Governmental Approvals and
Listings . . . . . . . . . . . . . . . . . 6
9.3. Purchase of Warrants by the
Company. . . . . . . . . . . . . . . . . . 6
9.4. Cancellation of Warrants. . . . . . . . . . 6
SECTION 10. Exercise Price. . . . . . . . . . . . . . . . . . 6
SECTION 11. Adjustment of Exercise Price and Number
of Warrant Shares . . . . . . . . . . . . . . . . 6
11.1. Adjustments. . . . . . . . . . . . . . . . 6
(a) Stock Dividends, Splits,
etc.. . . . . . . . . . . . . . . . . 7
(b) Distributions of Assets . . . . . . . 7
(c) Computation of Market
Price . . . . . . . . . . . . . . . . 8
(d) Minimum Adjustment. . . . . . . . . . 8
(e) Warrant Share Adjustment. . . . . . . 9
(f) Notice of Adjustment. . . . . . . . . 9
(g) Definition of Common Stock. . . . . . 9
(h) Company May Reduce Exercise
Price or Increase Number of
Warrant Shares Purchasable. . . . . . 10
(i) Subsequently Issued
Warrants. . . . . . . . . . . . . . . 10
(j) Number of Warrant Shares on
Warrant Certificates. . . . . . . . . 10
11.2. No Adjustment for Dividends. . . . . . . . 10
11.3. Preservation of Purchase Rights
and Adjustment of Exercise Price
upon Merger, Consolidation,
etc. . . . . . . . . . . . . . . . . . . . 10
SECTION 12. No Rights as Stockholders; Notices to
Warrant Holders . . . . . . . . . . . . . . . . . 12
SECTION 13. Purchase Rights . . . . . . . . . . . . . . . . . 13
SECTION 14. Fractional Shares of Common Stock . . . . . . . . 13
SECTION 15. Right of Action . . . . . . . . . . . . . . . . . 13
SECTION 16. Inspection of Warrant Agreement . . . . . . . . . 14
SECTION 17. Merger or Consolidation or Change of
Name of Warrant Agent . . . . . . . . . . . . . . 14
SECTION 18. Concerning the Warrant Agent. . . . . . . . . . . 14
18.1. Disclaimer of Representations. . . . . . . 15
18.2. No Responsibility for Failure of
Company's Covenants. . . . . . . . . . . . 15
18.3. Delegation . . . . . . . . . . . . . . . . 15
18.4. Opinion of Counsel . . . . . . . . . . . . 15
18.5. Officer's Certificate. . . . . . . . . . . 15
18.6. Compensation and Reimbursement . . . . . . 15
18.7. No Action Without Assurance of
Reimbursement. . . . . . . . . . . . . . . 16
18.8. Conflicts of Interest. . . . . . . . . . . 16
18.9. Solely as Agent. . . . . . . . . . . . . . 16
18.10. Reliance on Documents. . . . . . . . . . . 16
18.11. No Representation Regarding
Validity, Etc. . . . . . . . . . . . . . . 17
18.12. Instructions from Company. . . . . . . . . 17
SECTION 19. Change of Warrant Agent . . . . . . . . . . . . . 17
SECTION 20. Identity of Transfer Agent. . . . . . . . . . . . 18
SECTION 21. Notices . . . . . . . . . . . . . . . . . . . . . 18
SECTION 22. Supplements and Amendments. . . . . . . . . . . . 18
SECTION 23. Successors. . . . . . . . . . . . . . . . . . . . 19
SECTION 24. Merger or Consolidation of the Company. . . . . . 19
SECTION 25. Applicable Law. . . . . . . . . . . . . . . . . . 19
SECTION 26. Benefits of this Agreement. . . . . . . . . . . . 19
SECTION 27. Counterparts. . . . . . . . . . . . . . . . . . . 19
SECTION 28. Captions. . . . . . . . . . . . . . . . . . . . . 20
SECTION 29. Plan of Reorganization. . . . . . . . . . . . . . 20
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
PURCHASE FORM. . . . . . . . . . . . . . . . . . . . . . . . .A-4
ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . .A-5
<PAGE>
<PAGE>
WARRANT AGREEMENT relating to the issuance of the
Tranche C Warrants, dated as of January 31, 1997, between WEI
ACQUISITION CO. (which will change its name to Wherehouse
Entertainment, Inc.), a Delaware corporation (the "Company"), and
UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent (the
"Warrant Agent").
WITNESSETH:
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and
December 13, 1996 (the "POR") and an Asset Purchase Agreement
dated as of January 31, 1997 (the "ASSET PURCHASE AGREEMENT"),
the Company will acquire substantially all of the assets of
Wherehouse Entertainment, Inc., and its parent, WEI Holdings,
Inc., which companies are debtors and debtors-in-possession
(collectively, the "DEBTORS"), in Case No. 95-911 (HSB) (Jointly
Administered) (the "BANKRUPTCY CASE") in the Bankruptcy Court for
the District of Delaware (the "BANKRUPTCY COURT");
WHEREAS, as part of the purchase price for the assets
of the Debtors to be acquired by the Company, the Company
proposes to issue up to 100,000 Common Stock Purchase Warrants
hereinafter described (the "Warrants") to purchase its Common
Stock, par value $0.01 per share (the "Common Stock"), each
Warrant entitling the registered owner thereof to purchase one
share of Common Stock (each share of Common Stock purchasable
upon the exercise of a Warrant being referred to herein as a
"WARRANT SHARE"); and
WHEREAS, the Company wishes the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to act,
in connection with the issuance, transfer, exchange and exercise
of the Warrants.
NOW, THEREFORE, in consideration of the foregoing and
for the purpose of defining the terms and provisions of the
Warrants and the respective rights and obligations thereunder of
the Company and the registered owners of the Warrants (the
"Holders"), the Company and the Warrant Agent hereby agree as
follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT.
The Company hereby appoints the Warrant Agent to act as
agent for the Company in accordance with the terms and conditions
hereinafter set forth, and the Warrant Agent hereby accepts such
appointment.
SECTION 2. FORM OF WARRANTS.
2.1. Form of Warrant Certificates. The text of the
Warrant certificate and of the form of election to purchase
Warrant Shares shall be substantially as set forth in Exhibit A
attached hereto. The Warrant certificates shall be appropriately
printed, lithographed or engraved and may have such letters,
numbers or other marks of identification as the Company may deem
appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any rule or
regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The price per Warrant Share and
the number of Warrant Shares issuable upon exercise of each
Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant certificates
shall be executed on behalf of the Company by its Chairman of the
Board, its President or one of its Vice Presidents under its
corporate seal reproduced thereon and attested by its Secretary
or an Assistant Secretary. The signature of any of such officers
on the Warrant certificates may be manual or facsimile.
Warrant certificates bearing the manual or facsimile
signatures of individuals who were at any time the proper
officers of the Company shall bind the Company, notwithstanding
that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrant certifi-
cates or did not hold such office on the date of this Agreement.
Warrant certificates shall be dated as of the date of
countersignature thereof by the Warrant Agent either upon initial
issuance or upon exchange, substitution or transfer.
2.2. Countersignature of Warrant Certificates. The
Warrant certificates shall be manually countersigned by the
Warrant Agent (or any successor to the Warrant Agent then acting
as warrant agent under this Agreement) and shall not be valid for
any purpose unless so countersigned. Warrant certificates may be
countersigned by the Warrant Agent (or by its successor as
warrant agent hereunder) and may be delivered by the Warrant
Agent notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall
have ceased to be such officers at the time of such
countersignature, issuance or delivery. The Warrant Agent shall,
upon written instructions of the Chairman of the Board, the
President, any Vice President or the Secretary of the Company,
countersign, issue and deliver Warrant certificates entitling the
Holders thereof to purchase in the aggregate Warrant Shares
(subject to adjustment pursuant to Section 11 hereof) and shall
countersign and deliver Warrant certificates as otherwise
provided in this Agreement.
2.3. Registration. The Warrant certificates shall be
numbered and shall be registered in a register (the "Warrant
Register") as they are issued. The Company and the Warrant Agent
shall be entitled to treat the registered holder of any Warrant
as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in
such Warrant on the part of any other person, notwithstanding any
notice to the Company or the Warrant Agent to the contrary.
SECTION 3. TRANSFER OR EXCHANGE OF WARRANTS.
3.1. Transfer. The Warrants shall be transferable
only in the books of the Company maintained at the office or
agency of the Warrant Agent in the City of New York upon delivery
thereof duly endorsed by the Holder or by his or her duly
authorized attorney or legal representative, or accompanied by
proper evidence of succession, assignment or authority to
transfer, which endorsement shall be guaranteed by a bank or
trust company located in the United States or a broker or dealer
that is a member of a national securities exchange. In all cases
of transfer by an attorney, the original power of attorney, duly
approved, or an official copy thereof, duly certified, shall be
deposited and remain with the Warrant Agent. In case of transfer
by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited and remain
with the Warrant Agent in its discretion. Upon any registration
of transfer, the Warrant Agent shall countersign and deliver a
new Warrant certificate to the person entitled thereto.
3.2. Exchange of Warrant Certificates. Warrant
certificates may be exchanged for another certificate or
certificates entitling the Holder thereof to purchase a like
aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle such Holder to purchase.
Any Holder desiring to exchange a Warrant certificate shall make
such request in writing delivered to the Warrant Agent, and shall
surrender, properly endorsed in the manner described in
subsection 3.1 hereof, the Warrant certificate or certificates to
be so exchanged. Thereupon, the Warrant Agent shall countersign
and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested.
SECTION 4. [SECTION 4 INTENTIONALLY LEFT BLANK].
SECTION 5. MUTILATED OR MISSING WARRANTS.
In case any of the certificates evidencing the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may,
in its discretion, issue and the Warrant Agent shall countersign
and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant certificate, or in lieu of
and substitution for the Warrant certificate lost, stolen or
destroyed, a new Warrant certificate of like tenor and
representing an equivalent right or interest, but only, in case
of any such loss, theft or destruction, upon receipt of evidence
satisfactory to the Company and the Warrant Agent thereof and an
indemnity also satisfactory to them. An applicant for such
substitute Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as
the Company or the Warrant Agent may prescribe.
SECTION 6. TERM OF WARRANTS; EXERCISE OF WARRANTS.
6.1. Term of Warrants. Subject to the terms of this
Agreement, each Holder shall have the right until 5:00 P.M., New
York time, on January 31, 2004 (the seventh anniversary of the
Effective Date (as defined in the POR)) (the "Expiration Date"),
to purchase from the Company the number of fully paid and
nonassessable Warrant Shares which the Holder may at the time be
entitled to purchase on exercise of such Warrants.
6.2. Exercise of Warrants. Warrant Shares may be
purchased upon surrender to the Company at the office or agency
of the Warrant Agent in the City of New York, of the certificate
or certificates evidencing the Warrants to be exercised, together
with the form of election to purchase on the reverse thereof duly
filled in and signed, which signature shall, if the Warrant
Shares are to be issued in the name of a person other than the
Holder of the Warrant, be guaranteed by a bank or trust company
located in the United States or a broker or dealer that is a
member of a national securities exchange, and upon payment to the
Warrant Agent for the account of the Company of the Exercise
Price (as defined in and determined in accordance with the
provisions of Sections 10 and 11 hereof) for the number of
Warrant Shares in respect of which such Warrants are then being
exercised. Payment of the aggregate Exercise Price shall be made
by certified or cashier's check, or by any combination thereof.
Subject to Section 8 hereof, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered, with all
reasonable dispatch, to or upon the written order of the Holder
and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares
so purchased upon the exercise of such Warrants. Such
certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed
to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the
Exercise Price, as aforesaid; provided, however, that if such
Warrants are surrendered, and the Exercise Price is paid, on a
Saturday, Sunday or other day on which banking institutions in
the City of New York are authorized or obligated by law or
executive order to close, or on a day when the Common Stock
transfer books of the Company are closed, the certificates for
the Warrant Shares in respect of which such Warrants are then
exercised shall be issuable as of the next succeeding Monday,
Tuesday, Wednesday, Thursday or Friday on which such banking
institutions are not so authorized or obligated to close (whether
before or after the Expiration Date) and which is a day on which
the Common Stock transfer books of the Company are open. The
rights of purchase represented by the Warrants shall be
exercisable, at the election of the Holders thereof, either in
full or from time to time in part and, in the event that a
certificate evidencing Warrants is exercised in respect of less
than all of the Warrant Shares specified therein at any time
prior to the expiration of such Warrants, a new certificate
evidencing the remaining Warrant or Warrants will be issued, and
the Warrant Agent is hereby irrevocably authorized to countersign
and to deliver the required new Warrant certificates pursuant to
the provisions of this subsection and of subsection 2.2 hereof
and the Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrant certificates duly executed
on behalf of the Company for such purpose.
SECTION 7. DISPOSITION OF PROCEEDS ON EXERCISE OF
WARRANTS.
The Warrant Agent shall account promptly to the Company
with respect to the Warrants exercised and concurrently pay to
the Company all moneys received by the Warrant Agent for the
purchase of the Warrant Shares through the exercise of such
Warrants.
SECTION 8. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of any Warrant certificates or
certificates for Warrant Shares issuable upon the exercise of
Warrants; provided, however, that the Company shall not be
required to pay, and the Holder shall pay, any tax or taxes that
may be payable in respect of any transfer involved in the issue
or delivery of any Warrant certificates or certificates for
Warrant Shares in a name other than that of the registered Holder
of the Warrants that were surrendered and the Company shall not
be required to issue or deliver such Warrant certificates or
certificates for Warrant Shares unless or until the persons
requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 9. RESERVATION OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
9.1. Reservation of Warrant Shares. There have been
reserved, and the Company shall at all times keep reserved out of
its authorized Common Stock, a number of shares of Common Stock
sufficient to provide for the exercise of the right of purchase
represented by the outstanding Warrants. The Company covenants
that all Warrant Shares will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable. Before taking any
action that would cause an adjustment reducing the Exercise Price
below the then par value, if any, of the shares of Common Stock
issuable upon exercise of the Warrants, the Company shall take
any corporate action which may, in the opinion of it counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of such Common Stock, at such
adjusted Exercise Price. The Transfer Agent for the Common Stock
and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid will be irrevocably authorized and
directed at all times to reserve such number of authorized shares
as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent for the
Common Stock and with every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent stock certificates
required to honor outstanding Warrants upon exercise thereof in
accordance with the terms of this Agreement. The Company will
supply such Transfer Agent with duly executed stock certificates
for such purpose. Promptly after the Expiration Date, the
Warrant Agent shall certify to the Company the aggregate number
of Warrants then outstanding and thereafter no shares shall be
subject to reservation in respect of such Warrants.
9.2. Governmental Approvals and Listings. The Company
will as promptly as practicable take all action which may be
necessary to obtain and keep effective (a) any and all permits,
consents and approvals of governmental agencies and authorities,
and will make any and all filings under federal and state
securities laws, necessary in connection with the issuance,
distribution and transfer of Warrant certificates, the exercise
of the Warrants, and the issuance, sale, transfer and delivery of
Warrant Shares and (b) if any of the Warrant Shares have been
listed on any securities exchange, the listing of the Warrant
Shares on any securities exchange on which the Common Stock may
be listed (it being understood that the Company has no obligation
to list any Warrant Shares with any securities exchange).
9.3. Purchase of Warrants by the Company. The Company
shall have the right, except as limited by law, other agreement
or herein, to purchase or otherwise acquire Warrants at such
times, in such manner and for such consideration as it may deem
appropriate.
9.4. Cancellation of Warrants. In the event the
Company shall purchase or otherwise acquire Warrants, the related
Warrant certificates shall thereupon be delivered to the Warrant
Agent and be cancelled by it and retired. The Warrant Agent
shall cancel any Warrant certificate surrendered for exchange,
substitution, transfer or exercise in whole or in part. Warrant
certificates cancelled by the Warrant Agent pursuant to any
provision of this Agreement shall be delivered to the Company or,
upon the request of the Warrant Agent and with the consent of the
Company, destroyed by the Warrant Agent. The Warrant Agent shall
furnish to the Company written confirmation of the destruction of
the Warrant certificates so cancelled.
SECTION 10. EXERCISE PRICE.
The price per share at which Warrant Shares shall be
purchasable upon exercise of each Warrant (the "Exercise Price")
shall be $11.00, subject to adjustment pursuant to Section 11
hereof.
SECTION 11. ADJUSTMENT OF EXERCISE PRICE AND NUMBER
OF WARRANT SHARES.
11.1. Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Exercise
Price shall be subject to adjustment as follows:
(a) Stock Dividends, Splits, etc. In case the Company
shall at any time after the date of this Agreement (w) pay a
dividend or make a distribution on its Common Stock which is
paid or made (A) in Common Stock or other shares of the
Company's capital stock or (B) in rights to purchase Common
Stock or other capital stock of the Company if such rights
are not exercisable or separable from the Common Stock
except upon the occurrence of a contingency, (x) subdivide
its outstanding Common Stock into a greater number of shares
of Common Stock, (y) combine its outstanding shares into a
smaller number of shares of Common Stock or (z) issue by
reclassification of its Common Stock other securities of the
Company, then, in any such event the number of Warrant
Shares purchasable upon exercise of each Warrant immediately
prior thereto shall be adjusted so that the Holder of each
Warrant shall be entitled to receive upon exercise of such
Warrant the kind and number of shares of the Company and
rights to purchase Common Stock or other securities of the
Company (or, in the event of the redemption of any such
rights, any cash paid in respect of such redemption) that
he, she or it would have owned or have been entitled to
receive after the happening of any of the events described
above had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the opening of
business on the next business day following the record date
in the case of dividends or other distributions and shall
become effective immediately after the opening of business
on the next business day following the effective date in the
case of a subdivision or combination.
(b) Distributions of Assets. In case the Company
shall at any time after the date of this Agreement
distribute to all holders of its Common Stock evidences of
indebtedness of the Company or assets of the Company
(including cash dividends or distributions out of retained
earnings other than cash dividends or distributions made on
a quarterly or other periodic basis) or warrants to
subscribe for securities of the Company (excluding those
referred to in paragraph (a) above), then in each case the
Exercise Price shall be adjusted to a price determined by
multiplying the Exercise Price in effect immediately prior
to such distribution by a fraction, of which the numerator
shall be the then current market price per share of Common
Stock (as defined in paragraph (c) below) on the record date
for determination of shareholders entitled to receive such
distribution, less the then fair value (as determined in
good faith by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of
such subscription rights or warrants which are applicable to
one share of Common Stock, and of which the denominator
shall be such market price per share of Common Stock;
provided, however, that if the then current market price per
share of Common Stock on the record date for determination
of shareholders entitled to receive such distribution is
less than the then fair value of the portion of the assets
or evidences of indebtedness so distributed or of such
subscription rights or warrants which are applicable to one
share of Common Stock, the foregoing adjustment of the
Exercise Price shall not be made and in lieu thereof the
Holder of each Warrant shall be entitled to receive upon
exercise of such Warrant in addition to the Common Stock the
kind and number of assets, evidences of indebtedness,
subscription rights and warrants (or, in the event of the
redemption of any such evidences of indebtedness,
subscription rights and warrants, any cash paid in respect
of such redemption) that he or she would have owned or have
been entitled to receive after the happening of such
distribution had such Warrant been exercised immediately
prior to the record date for such distribution. Such
adjustment shall be made successively whenever such a record
date is fixed, and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to
be the Exercise Price which would then be in effect if such
record date had not been fixed.
(c) Computation of Market Price. For the purpose of
any computation under this Agreement, the current market
price per share of Common Stock at any date shall be deemed
to be the average of the daily Market Price (as defined
below) per share for the 30 consecutive Trading Days (as
defined below) commencing 45 Trading Days before the date in
question. "Market Price" is defined as the closing sale
price (or, if no closing sale price is reported, the closing
bid price) for the Common Stock in the over-the-counter
market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or,
if the Common Stock is not quoted on NASDAQ, as reported by
the National Quotation Bureau Incorporated, or, if the
Common Stock is not so reported, as furnished by any two
members of the National Association of Securities Dealers,
Inc., selected from time to time by the Company for that
purpose. In the event that the Common Stock is hereafter
listed for trading on one or more United States national or
regional securities exchanges, Market Price shall be the
closing price on the exchange or system designated by the
Board of Directors of the Company as the principal United
States market in which the Common Stock is traded. If
Market Price cannot be established as described above,
Market Price shall be the fair market value of the Common
Stock as determined in good faith by the Board of Directors.
"Trading Day" shall mean a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the City
of Los Angeles and the State of California or New York, New
York, are not authorized or obligated by law or executive
order to close or, if the Common Stock is listed or admitted
to trading on a national securities exchange, a day on which
the principal national securities exchange on which the
Common Stock is listed or admitted to trading is open for
the transaction of business.
(d) Minimum Adjustment. No adjustment in the number
of Warrant Shares purchasable hereunder or the Exercise
Price shall be required unless such adjustment would require
an increase or decrease of at least one per cent (1%) in the
number of Warrant Shares purchasable upon the exercise of
each Warrant, or the Exercise Price, as the case may be;
provided, however, that any adjustments which by reason of
this paragraph (d) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be
made to the nearest cent or the nearest ten-thousandth of a
share, as the case may be.
(e) Warrant Share Adjustment. Upon each adjustment of
the Exercise Price as a result of the calculations made in
paragraph (a) or (b) above, each Warrant outstanding
immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares (calculated to the
nearest ten-thousandth) obtained by (A) multiplying (x) the
number of shares covered by a Warrant immediately prior to
such adjustment of the Exercise Price by (y) the Exercise
Price in effect immediately prior to such adjustment of the
Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(f) Notice of Adjustment. Whenever the number of
Warrant Shares purchasable upon the exercise of Warrants or
the Exercise Price of such Warrant Shares is adjusted, as
herein provided, the Company shall cause the Warrant Agent
promptly to mail by first class mail, postage prepaid, to
each Holder of a Warrant or Warrants notice of such
adjustment or adjustments and shall deliver to the Warrant
Agent a certificate of a firm of independent public
accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the
Company) setting forth (A) the number of Warrant Shares
purchasable upon the exercise of each Warrant and the
Exercise Price of such Warrant Shares after such adjustment,
(B) a brief statement of the facts requiring such adjustment
and (C) the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the
correctness of such adjustment. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no
duty or responsibility with respect to any such certificate,
except to exhibit the same, from time to time, to any Holder
desiring an inspection thereof during reasonable business
hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holders to determine whether
any facts exist that may require any adjustment of the
Exercise Price or the number of Warrant Shares or other
stock or property purchasable upon exercise thereof or with
respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such
adjustment.
(g) Definition of Common Stock. For the purpose of
this subsection 11.1, the term "Common Stock" shall mean
(A) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (B) any other class
of stock resulting from successive changes or
reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value or
from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders of a Warrant or Warrants
shall become entitled to purchase any securities of the
Company other than Common Stock, thereafter the number of
such other securities so purchasable upon exercise of each
Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this
subsection 11.1 and the provisions of Section 6 and
subsections 11.2 and 11.3, inclusive, with respect to the
Warrant Shares, shall apply on like terms to any such other
securities.
(h) Company May Reduce Exercise Price or Increase
Number of Warrant Shares Purchasable. The Company may, at
its option, at any time during the term of the Warrants,
reduce the then current Exercise Price, or increase the
number of Common Shares purchasable upon exercise of each
Warrant, to any amount deemed appropriate by the Board of
Directors of the Company.
(i) Subsequently Issued Warrants. All Warrants
originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall
evidence the right to purchase, at the adjusted Exercise
Price, the number of shares of Common Stock purchasable from
time to time hereunder upon exercise of the Warrants, all
subject to further adjustment as provided herein.
(j) Number of Warrant Shares on Warrant Certificates.
Irrespective of any adjustment or change in the Exercise
Price or the number of shares of Common Stock issuable upon
the exercise of the Warrants, the Warrant certificates
theretofore and thereafter issued may continue to express
the Exercise Price per share and the number of shares which
were expressed upon the initial Warrant certificates issued
hereunder.
11.2. No Adjustment for Dividends. Except as provided
in subsection 11.1, no adjustment in respect of any dividends
made on a quarterly or other periodic basis out of retained
earnings shall be made during the term of a Warrant or upon the
exercise of a Warrant.
11.3. Preservation of Purchase Rights and Adjustment
of Exercise Price upon Merger, Consolidation, etc. In case the
Company shall consolidate or merge with or into any other
corporation (other than a consolidation or merger in which the
Company is the surviving corporation and each share of Common
Stock outstanding immediately prior to such consolidation or
merger is to remain outstanding immediately after such
consolidation or merger and no cash, securities or other property
is distributed with respect to such shares) or shall sell or
transfer all or substantially all of its assets to any
corporation, the Company or such successor or purchasing
corporation, as the case may be (collectively, the "acquiring
corporation"), shall execute with the Warrant Agent an agreement
that each Holder of a Warrant shall have the right thereafter
upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Warrant the kind
and amount of shares and other securities, cash and other
property that he or she would have owned or have been entitled to
receive after the happening of such consolidation, merger or sale
had such Warrant been exercised immediately prior to such action
(assuming that such Holder, as a holder of Common Stock prior to
such action, would not have exercised any rights of election as a
holder of Common Stock as to the kind or amount of securities,
cash or other property receivable upon such consolidation, merger
or sale; provided, that if the kind or amount of securities, cash
or other property receivable upon such consolidation, merger or
sale is not the same for each non-electing share of Common Stock,
then the kind and amount of securities, cash or other property
receivable shall be deemed to be the kind and amount so
receivable by a plurality of the non-electing shares). The
Company shall mail by first-class mail, postage prepaid, to each
Holder, notice of the execution of any agreement with an
acquiring corporation as provided in the first sentence of this
subsection 11.3. In addition to any adjustments required by this
subsection 11.3, such agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 11. The Company shall
not effect any such consolidation, merger or sale unless prior to
or simultaneously with the consummation thereof the acquiring
corporation (if other than the Company) resulting from such
consolidation or merger or the acquiring corporation purchasing
such assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the
Warrant Agent, the obligation to deliver to each Holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to receive and
the other obligations of the Company under this Agreement. The
provisions of this subsection 11.3 shall similarly apply to
successive consolidations, mergers, sales or conveyances. The
Warrant Agent shall be under no duty or responsibility to
determine the correctness of any provisions contained in any such
agreement relating either to the kind or amount of shares of
stock or other securities, cash or property receivable upon
exercise of Warrants or with respect to the method employed and
provided therein for any adjustments.
11.4 No Adjustment for Employee Compensation and
Issuances to Alvarez & Marsal, Inc. Notwithstanding anything to
the contrary contained herein, no adjustment to the Exercise
Price or the number of shares of Common Stock purchasable upon
exercise of any Warrant shall be made in connection with the
issuance by the Company of any shares of Common Stock or options
to purchase Common Stock or other securities which may be
convertible or exercisable into shares of Common Stock to (i) any
employee of the Company as compensation for services rendered to
the Company or (ii) Alvarez & Marsal, Inc. ("A&M") or any of its
affiliates, in connection with the management services to be
provided by A&M to the Company under that certain Management
Services Agreement dated as of January 31, 1997 between the
Company, A&M, A&M Investment Associates #3, LLC, Antonio C.
Alvarez II, Cerberus Partners, L.P. and certain of A&M's
employees.
SECTION 12. NO RIGHTS AS STOCKHOLDERS; NOTICES TO
WARRANT HOLDERS.
(a) Nothing contained in this Agreement or in any of
the Warrants shall be construed as conferring upon the
Holders or their transferees the right to vote or to receive
dividends or to consent or to receive notice as shareholders
in respect of any meeting of shareholders for the election
of directors of the Company or any other matter, or any
rights whatsoever as shareholders of the Company. If prior
to the expiration of the Warrants:
(A) the Company shall declare a dividend or other
distribution on its Common Shares, other than (i) in cash as
described in Section 11.2, (ii) in other shares of Common
Stock, or (iii) in rights to purchase shares of Common Stock
or other securities of the Company of the character
described in paragraph (a) of subsection 11.1; or
(B) the Company shall authorize the issuance to
all holders of its Common Stock of rights or warrants
entitling them to subscribe for or purchase any Common Stock
or any other subscription rights or warrants (other than
rights of the character described in paragraph (a) of
subsection 11.1); or
(C) there shall occur a reclassification of the
capital stock of the Company (other than a subdivision or
combination of its outstanding Common Stock); or
(D) the Company shall propose to effect any
consolidation or merger into or with, or to effect any sale
or other transfer requiring an adjustment pursuant to
Section 11.3; or
(E) the Company shall take an action ("Adjustment
Action") which would cause an adjustment pursuant to Section
11 hereof of the number or kind of Common Stock (or other
securities) purchasable upon the exercise of each Warrant or
of the Exercise Price that would have the effect of reducing
the price payable for a share of the Company's capital stock
by a Holder upon exercise of a Warrant to an amount which is
less than the current value of such share; or
(F) a voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be proposed;
then, in any such event, the Company shall cause to be mailed to
the Warrant Agent and the Holders in the manner provided in
Section 21 hereof, at least 20 days prior to the applicable
record or effective date hereinafter specified, a notice stating
(i) the date as of which the holders of record of Common Stock to
be entitled to such dividend, distribution, rights or warrants
are to be determined, or (ii) the date on which such
reclassification, Adjustment Action, consolidation, merger, sale,
transfer, dissolution, liquidation, or winding up is expected to
become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange
their shares of securities or other property, if any, deliverable
upon such reclassification, Adjustment Action, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.
Such notice shall also state whether such transaction will result
in any adjustment of the number or kind of Common Stock (or other
securities) purchasable upon the exercise of a Warrant or of the
Exercise Price and, if so, shall set forth the nature thereof and
the date upon which it will become effective. In the event the
Company gives notice to the holders of its Common Stock of the
declaration or distribution of rights to purchase Common Stock or
other securities of the Company of the character described in
paragraph (a) of subsection 11.1, the Company will give
concurrently a similar notice to the Holders in the manner
provided in Section 21 hereof. The failure to give the notices
required by this Section 12, or any defect therein, shall not
affect the legality or validity of any such dividend,
distribution, right, warrant, reclassification, Adjustment
Action, dissolution, liquidation or winding up or other action,
or the vote on any action authorizing the same.
SECTION 13. PURCHASE RIGHTS.
If at any time or from time to time on or after the
date of the Agreement, the Corporation shall give notice (a
"Purchase Rights Notice") pursuant to paragraph (B) of Section
12(a) of an issuance of rights or warrants, (the "Purchase
Rights") to all record holders of Common Stock, such issuance
shall not result in an adjustment of the Exercise Price or the
number of Warrants under Section 11 hereof, but each Holder shall
be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder
could have acquired if it had held the number of shares of Common
Stock acquirable upon exercise of the Warrants immediately before
the record date for the grant, issuance, or sale of such Purchase
Rights. The Purchase Rights Notice shall describe the Purchase
Rights and their availability to the Holders.
SECTION 14. FRACTIONAL SHARES OF COMMON STOCK.
The Company will not issue fractions of Warrants or
distribute Warrant certificates which evidence fractional
Warrants. In lieu of such fractional Warrants, there shall be
paid to the Holders to whom Warrant certificates representing
such fractional Warrants would otherwise be issuable an amount in
cash equal to the product of such fraction of a Warrant
multiplied by the current market price per share of Common Stock
issuable with respect to such fraction of a Warrant.
SECTION 15. RIGHT OF ACTION.
All rights of action in respect of this Agreement are
vested in the respective Holders of the Warrant certificates, and
any Holder of any Warrant certificate, without the consent of the
Warrant Agent or of the Holder of any other Warrant certificate,
may, on such Holder's own behalf and for such Holder's own
benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in
respect of, such Holder's right to exercise the Warrants
evidenced by such Warrant certificate in the manner provided in
such Warrant certificate and in this Agreement.
SECTION 16. INSPECTION OF WARRANT AGREEMENT.
The Warrant Agent shall keep copies of this Agreement
and any notices given or received hereunder available for
inspection by the Holders during normal business hours at its
office in the City of New York for that purpose. The Company
shall supply the Warrant Agent from time to time with such
numbers of copies of this Agreement as the Warrant Agent may
request.
SECTION 17. MERGER OR CONSOLIDATION OR CHANGE OF
NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be
merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Warrant
Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part
of any of the parties hereto, provided that such corporation
would be eligible for appointment as successor Warrant Agent
under the provisions of Section 19 hereof. In case at the time
such successor to the Warrant Agent shall succeed to the agency
created by this Agreement any of the Warrants shall have been
countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the original
Warrant Agent and deliver such Warrants so countersigned; and in
case at that time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign
such Warrants either in the name of the predecessor Warrant Agent
or in the name of the successor Warrant Agent, and in all such
cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall
be changed and at such time any of the Warrants shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignatures under its prior name and deliver Warrants so
countersigned; and in case at that time any of the Warrants shall
not have been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name;
and in all such cases such Warrants shall have the full force
provided in the Warrants and in this Agreement.
SECTION 18. CONCERNING THE WARRANT AGENT.
The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of
Warrants, by their acceptance thereof, shall be bound:
18.1. Disclaimer of Representations. The
statements contained herein and in the Warrants shall be
taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the
same except such as describe the Warrant Agent or action
taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrants except as
herein otherwise provided.
18.2. No Responsibility for Failure of Company's
Covenants. The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the
covenants contained in this Agreement or in the Warrants.
18.3. Delegation. The Warrant Agent may execute
and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself or by or through
its attorneys or agents (which shall not include its
employees), and the Warrant Agent shall not be answerable or
accountable for any act, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting
from such neglect or misconduct provided reasonable care
shall have been exercised in the selection and continued
employment thereof.
18.4. Opinion of Counsel. The Warrant Agent may
consult at any time with legal counsel satisfactory to it,
and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder in respect of
any action taken, suffered or omitted by it hereunder in
good faith and in accordance with the opinion or the advice
of such counsel.
18.5. Officer's Certificate. Whenever in the
performance of its duties under this Agreement the Warrant
Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company and delivered
to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
18.6. Compensation and Reimbursement. The Company
agrees to pay the Warrant Agent reasonable compensation for
all services rendered by the Warrant Agent in the
performance of its duties under this Agreement, to reimburse
the Warrant Agent for all expenses, taxes and governmental
charges and other charges of any kind and nature reasonably
incurred by the Warrant Agent in the performance of its
duties under this Agreement, and agrees to indemnify the
Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable
counsel fees, for anything done or omitted by the Warrant
Agent in the performance of its duties under this Agreement
except as a result of the Warrant Agent's gross negligence
or willful misconduct.
18.7. No Action Without Assurance of Reimbursement.
The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one
or more Holders shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses
which may be incurred; but this provision shall not affect
the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without
any such security or indemnity. All rights or action under
this Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment
shall be for the ratable benefit of the Holders, as their
respective rights or interests may appear.
18.8. Conflicts of Interest. The Warrant Agent and
any stockholder, director, officer or employee of the
Warrant Agent may buy, sell or deal in any of the Warrants
or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity
for the Company or for any other legal entity.
18.9. Solely as Agent. The Warrant Agent shall act
hereunder solely as agent, and its duties shall be
determined solely by the provisions hereof. The Warrant
Agent shall not be liable for anything that it may do or
refrain from doing in connection with this Agreement except
for its own gross negligence or bad faith.
18.10. Reliance on Documents. The Warrant Agent
will not incur any liability or responsibility to the
Company or to any Holder of any Warrant for any action taken
in reliance on any notice, resolution, waiver, consent,
order, certificate, or other paper, document or instrument
reasonably believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
18.11. No Representation Regarding Validity, Etc.
The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution
and delivery hereof (except the due execution and delivery
hereof by the Warrant Agent) or in respect of the validity
or execution of any Warrant (except its countersignature
thereof); nor shall the Warrant Agent by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Shares (or other
stock) to be issued pursuant to this Agreement or any
Warrant, or as to whether any Warrant Shares (or other
stock) will when issued be validly issued, fully paid and
nonassessable, or as to the Exercise Price or the number or
amount of Warrant Shares or other securities or other
property issuable upon exercise of any Warrant.
18.12. Instructions from Company. The Warrant Agent
is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company,
and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in
accordance with instructions of any such Officers.
SECTION 19. CHANGE OF WARRANT AGENT.
The Warrant Agent may resign and be discharged from its
duties under this Agreement by giving to the Company 60 days'
notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant
Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the
Warrant Agent. If the Company shall fail to make such
appointment within a period of 50 days after such notice of
removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated
Warrant Agent or by any Holder (who shall with such notice submit
his Warrant for inspection by the Company), then the resigning,
discharged or removed Warrant Agent or any Holder may apply to
any court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Any successor warrant agent,
whether appointed by the Company or such court, shall be (a) a
bank or trust company, in good standing, incorporated under the
laws of the United States of America or any state thereof and
having at the time of its appointment as warrant agent a combined
capital and surplus of at least $100,000,000, as set forth in its
most recent published annual report of condition or (b) an
affiliate of a corporation described in clause (a) above. After
appointment, the successor warrant agent shall be vested with the
same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent hereunder without further
act or deed; but the former Warrant Agent shall deliver and
transfer to the successor warrant agent any property at the time
held by it hereunder, and shall execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose.
Failure to file any notice provided for in this Section 19,
however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or
the appointment of the successor warrant agent, as the case may
be. In the event of such resignation or removal, the successor
warrant agent shall mail, by first-class mail, postage prepaid,
to each Holder, written notice of such removal or resignation and
the name and address of such successor warrant agent.
SECTION 20. IDENTITY OF TRANSFER AGENT.
Forthwith upon the appointment of any subsequent
Transfer Agent for the Company's shares of Common Stock, or any
other shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants,
the Company will file with the Warrant Agent a statement setting
forth the name and address of such Transfer Agent.
SECTION 21. NOTICES.
Any notice pursuant to this Agreement by the Company or
by the Holder of any Warrant to the Warrant Agent, or by the
Warrant Agent or by the Holder of any Warrant to the Company,
shall be in writing and shall be deemed to have been duly given
if delivered or mailed by certified mail, return receipt
requested, (a) if to the Company, to WEI Acquisition Co., 19701
Hamilton Avenue, Torrance, California 90502-1334, Attention:
Henry Del Castillo and, if to the Warrant Agent, to United States
Trust Company of New York, Corporate Trust Division, 114 West
47th Street, 15th Floor, New York, NY 10036-1532;, Attention:
Louis Young. Each party hereto may from time to time change the
address to which notices to it are to be delivered or mailed
hereunder by notice in writing to the other party.
Any notice mailed pursuant to this Agreement by the
Company or the Warrant Agent to the Holders of Warrants shall be
in writing and shall be deemed to have been duly given if mailed
by first-class mail, postage prepaid, to such Holders at their
respective addresses on the Warrant Register of the Warrant
Agent.
SECTION 22. SUPPLEMENTS AND AMENDMENTS.
(a) The Company and the Warrant Agent may from time to
time supplement or amend this Agreement, without the approval of
any Holder in order to cure any ambiguity or to correct or
supplement any provision contained herein that may be defective
or inconsistent with any other provisions herein, or to make any
other provisions with regard to matters or questions arising
hereunder that the Company and the Warrant Agent may deem
necessary or desirable and that shall not adversely affect the
interests of the Holders of Warrants.
(b) In addition to the foregoing, with the consent of
Holders of Warrants entitled, upon exercise thereof, to receive
not less than two-thirds of the shares of Common Stock issuable
thereunder, the Company and the Warrant Agent may modify this
Agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this
Agreement or modifying in any manner the rights of the Holders of
the Warrants; provided, however, that no modification of the
terms (including, but not limited to the adjustments described in
Section 11) upon which the Warrants are exercisable or reducing
the percentage required for consent to modification of this
Agreement, no acceleration of the Expiration Date and no increase
in the Exercise Price may, in each case, be made without the
consent of the Holder of each outstanding Warrant affected
thereby.
SECTION 23. SUCCESSORS.
All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and
assigns hereunder.
SECTION 24. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into
any other corporation unless the corporation resulting from such
merger or consolidation (if not the Company) shall expressly
assume, by supplemental agreement satisfactory in form to the
Warrant Agent in the exercise of its reasonable judgment and
executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and
condition of this Agreement to be performed and observed by the
Company.
SECTION 25. APPLICABLE LAW.
This Agreement and each Warrant issued hereunder shall
be deemed to be a contract made under the internal laws of the
State of New York (without preference to conflicts of law
principles) and for all purposes shall be construed in accordance
with the laws of said State.
SECTION 26. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company, the Warrant
Agent and the Holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company, the
Warrant Agent, and their respective successors and assigns
hereunder, and the holders from time to time of the Warrants.
SECTION 27. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
SECTION 28. CAPTIONS.
The captions of the Sections and subsections of this
Agreement have been inserted for convenience only and shall have
no substantive effect.
SECTION 29. PLAN OF REORGANIZATION.
The Company will comply for the benefit of the Holders
with Section 8.04 of the POR.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
WEI ACQUISITION CO.
By ___________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW
YORK,
as Warrant Agent
By ___________________________
Name:
Title:
<PAGE>
TRANCHE C WARRANT TO PURCHASE COMMON STOCK VOID AFTER
5:00 P.M., NEW YORK TIME, ON JANUARY 31, 2004
WHEREHOUSE ENTERTAINMENT, INC.
This certifies that, for value received, __________
___________________ or registered assigns (the "Holder"), is
entitled to purchase from Wherehouse Entertainment, Inc., a
Delaware corporation (the "Company"), until 5:00 P.M., New York
time, on January 31, 2004, or such other date as may be provided
for pursuant to the Warrant Agreement referred to below (the
"Expiration Date"), at the purchase price of $11.00 per share
(the "Exercise Price"), a number of shares of Common Stock, par
value $0.01 per share, of the Company (the "Common Stock") that
is equal to the number of Warrants represented hereby. The
number of shares purchasable upon exercise of this Warrant and
the Exercise Price per share are subject to adjustment from time
to time as set forth in the Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole
or in part by presentation of this Warrant Certificate with the
Purchase Form on the reverse side hereof duly executed (with a
signature guarantee if required by the Warrant Agreement) and
simultaneous payment of the Exercise Price (subject to
adjustment) at the office or agency of the Company maintained for
that purpose in the City of New York. Initially, United States
Trust Company of New York will act as Warrant Agent (the "Warrant
Agent"). Payment of such price shall be made at the option of
the holder hereof by certified or cashier's check. No fractional
shares will be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any such
fraction upon the exercise of one or more Warrants, all as
provided in the Warrant Agreement.
Upon any partial exercise of this Warrant Certificate,
there shall be countersigned and issued to the Holder hereof a
new Warrant Certificate in respect of the shares as to which this
Warrant shall not have been exercised. This Warrant Certificate
may be exchanged at the office of the Warrant Agent maintained
for that purpose in the City of New York by surrender of this
Warrant Certificate properly endorsed (with a signature guarantee
if required by the Warrant Agreement), either separately or in
combination with one or more other Warrant Certificates, for one
or more new Warrant Certificates for the same aggregate number of
shares as were evidenced by the Warrant Certificate or Warrant
Certificates exchanged.
This Warrant Certificate is transferable at the office
of the Warrant Agent maintained for that purpose in the City of
New York in the manner and subject to the limitations set forth
in the Warrant Agreement.
The Warrants evidenced hereby are part of a duly
authorized issue of Common Stock Purchase Warrants with rights to
purchase an aggregate of up to 100,000 shares of Common Stock
(subject to adjustment) and are issued under and in accordance
with a Warrant Agreement dated as of January 31, 1997, between
the Company and the Warrant Agent and are subject to the terms
and provisions contained in the Warrant Agreement, to all of
which the Holder of this Warrant Certificate by acceptance hereof
consents. Copies of the Warrant Agreement are on file at the
above mentioned office of the Warrant Agent and may be obtained
for inspection by the Holder hereof upon written request to the
Warrant Agent.
The Holder hereof may be treated by the Company, the
Warrant Agent, and all other persons dealing with this Warrant
Certificate as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding, and until such transfer on such
books, the Company, the Warrant Agent and all such other persons
may treat the registered holder hereof as the owner for all
purposes.
The Warrants evidenced hereby do not entitle any Holder
hereof to any of the rights of a stockholder of the Company.
This Warrant Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned
by the Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed by its duly authorized officers and
the corporate seal hereunto affixed.
Dated: WHEREHOUSE ENTERTAINMENT, INC.
By: _____________________________
Title:
ATTEST: _________________________
Name:
Title:
COUNTERSIGNED:
UNITED STATES TRUST COMPANY OF NEW YORK
WARRANT AGENT
By: ___________________________
Name:
Title:
<PAGE>
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise
the right of purchase represented by the within Warrant
Certificate for, and to purchase thereunder, ______ shares of
Common Stock, provided for therein, and requests that
certificates for such shares of Common Stock be issued in the
name of:
Name: _______________________________________________________
Address: _______________________________________________________
_________________________________________________________________
Social Security or Taxpayer's
Identification Number: ________________________________________
and, if said number of shares of Common Stock shall not be all
the Common Stock purchasable thereunder, that a new Warrant
Certificate for the balance remaining of the Common Stock
purchasable under the within Warrant Certificate be registered in
the name of the undersigned Warrantholder or his or her Assignee
as below indicated and delivered to the address stated below.
Name of Warrantholder
or Assignee: ___________________________________
Address: ___________________________________
Social Security or Taxpayer's
Identification Number: ___________________________________
Signature: ___________________
Dated: ____________________
Signature Guaranteed:
NOTICE: The above signature must
correspond with the name
as written upon the face
of this Warrant
Certificate in every
particular, without
alteration or enlargement
or any change whatever,
unless this Warrant has
been assigned.
<PAGE>
<PAGE>
ASSIGNMENT
(To be signed only upon
assignment of Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto ______________________________
(Name of Assignee)
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Social Security or other Taxpayer Identification Number of
Assignee)
the within Warrants, hereby irrevocably constituting and
appointing _____________________________________________________
Attorney to transfer said Warrants on the books of the Company,
with full power of substitution in the premises.
DATED: _____________________
______________________________
Signature of Registered Holder
Signature Guaranteed:
NOTICE: The signature of this
assignment must
correspond with the name
as it appears upon the
face of the within
Warrant Certificate in
every particular, without
alteration or enlargement
or any change whatever.
<PAGE>
<PAGE>
EXHIBIT E
FORM OF LIQUIDATION AGENT AGREEMENT
LIQUIDATION AGENT AGREEMENT
This Liquidation Agent Agreement (this "AGREEMENT") is
entered into as of January 31, 1997, by and among Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., each a
Delaware corporation (collectively, the "DEBTORS"), and WEI
Acquisition Co., a Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 (the "POR") and an Asset Purchase Agreement dated as of
January 31, 1997 (the "ASSET PURCHASE AGREEMENT"), the Company
will acquire substantially all of the assets of the Debtors who
are debtors and debtors-in-possession, in Case No. 95-911 (HSB)
(Jointly Administered), in the Bankruptcy Court for the District
of Delaware; and
WHEREAS, Section 9.05 of the POR requires the Company
to act as the liquidation agent for the Debtors in respect of the
Estates (the "LIQUIDATION AGENT OBLIGATIONS"), and Section 4.7 of
the Asset Purchase Agreement requires the Company and the Debtors
to enter into this Agreement in order to permit the Company to
perform the Liquidation Agent Obligations.
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS. Unless otherwise indicated, all
capitalized terms used herein without definition shall have the
meanings given thereto in the POR.
2. APPOINTMENT. The Debtors hereby irrevocably appoint
the Company, and the Company hereby accepts the appointment, as
the Debtors' liquidation agent and attorney-in-fact, with full
authority in the place and stead of the Debtors and in the name
of the Debtors, the Company or otherwise, from time to time in
the Company's discretion to take any action and to execute any
instrument necessary or advisable to perform the Liquidation
Agent Obligations, including without limitation:
(a) to admit, object to or contest any and all Claims;
(b) to defend, protect and enforce any and all rights
and interests of the Debtors and to make any and all
distributions required or permitted to be made by the Debtors
under the POR;
(c) to file any and all reports, requests for relief
or opposition thereto in respect of the Estates and the
liquidation thereof;
(d) to ask for, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Debtors'
property;
(e) to receive, endorse and collect any drafts or
other instruments, documents and chattel paper in connection with
clauses (a), (b), (c) and (d) above;
(f) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications and notices in
connection with any receivables of the Debtors and other
documents relating to the Debtors' assets;
(g) generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the
Debtors' assets as fully and completely as though the Company
were the absolute owner thereof for all purposes;
(h) to take any and all other actions necessary or
appropriate to implement the POR or to wind up the Estates in
accordance with applicable law; and
(i) 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 with the Liquidation Agent Obligations.
3. ACCEPTANCE OF OBLIGATIONS. The Company hereby agrees
to perform the Liquidation Agent Obligations.
4. NO COMPENSATION. The Company shall not be entitled
to receive any compensation or indemnification from the Debtors
or the Estates for the Company's services under this Agreement.
5. MISCELLANEOUS.
(a) Further Assurances. The Debtors shall cooperate
and shall promptly take all such further actions and shall
execute and deliver all such further documents as may be
requested by the Company in order to carry out the provisions and
purposes of this Agreement.
(b) Counterparts. This Agreement may be executed in
one or more counterparts, all of which taken together shall be
deemed one original.
(c) Governing Law. This Agreement shall be deemed to
be a contract under the laws of the State of California and for
all purposes shall be construed and enforced in accordance with
the internal laws of said state without regard to the principles
of conflicts of law.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the first date written above.
WEI ACQUISITION CO.
By ______________________________
Its _____________________________
WHEREHOUSE ENTERTAINMENT, INC.
By _______________________________
Its ______________________________
WEI HOLDINGS, INC.
By ________________________________
Its _______________________________
<PAGE>
EXHIBIT F
ASSUMPTION AGREEMENT
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, pursuant to an
Asset Purchase Agreement dated as of January 31, 1997 (the
"AGREEMENT") among Wherehouse Entertainment, Inc. and WEI
Holdings, Inc., each a Delaware corporation (collectively
"SELLER"), and [Reorganized Wherehouse], a Delaware corporation
("BUYER"), and subject to the terms and conditions set forth
therein including, without limitation the acknowledgement set
forth in Section 3.4 thereof, and intending to be legally bound
hereby, Buyer hereby assumes and agrees to pay and otherwise
perform after Closing Date, the liabilities and obligations set
forth as "ASSUMED OBLIGATIONS" in Section 1.6 of the Agreement,
which is incorporated herein by this reference.
Notwithstanding anything to the contrary contained in
this Assignment and Assumption Agreement, Buyer does not hereby
assume any of the liabilities and obligations other than those
identified as Assumed Obligations under Section 1.6 of the
Agreement.
IN WITNESS WHEREOF, the paries hereto have caused this
Assumption Agreement to be executed as of this 31st day of
January, 1997.
WEI ACQUISITION CO.
By _____________________________
Its ____________________________
<PAGE>
EXHIBIT G
EMPLOYEE BENEFIT PLANS ASSIGNMENT AND ASSUMPTION AGREEMENT
This EMPLOYEE BENEFIT PLANS ASSIGNMENT AND ASSUMPTION
AGREEMENT (the "Agreement") is entered into as of January 31,
1997 by and between Wherehouse Entertainment, Inc., a Delaware
corporation ("Assignor"), and WEI Acquisition Co., a Delaware
corporation ("Assignee").
RECITALS
WHEREAS, Assignor and Assignee have entered into an
Asset Purchase Agreement dated as of January 31, 1997 (the "Asset
Purchase Agreement") (all initially capitalized terms not
otherwise defined herein shall have the definitions given to such
terms in the Asset Purchase Agreement);
WHEREAS, pursuant to the Asset Purchase Agreement,
Assignee has agreed to assume sponsorship of the Wherehouse
Entertainment Savings and Vested Earnings 401(k) Plan (the
"401(k) Plan"), the 1993 Amended and Restated Wherehouse
Entertainment, Inc. Associates Vacation Plan (the "VEBA Plan"),
and all the Assignor's health and welfare benefits plans which
are provided through the insurance policies or contracts set
forth in EXHIBIT A hereto (together with the 401(k) Plan and the
VEBA Plan, the "Assumed Plans");
WHEREAS, Assignor currently sponsors and maintains the
Assumed Plans; and
WHEREAS, in furtherance of the Asset Purchase
Agreement, and in order to effect the transactions contemplated
thereby, it is intended that Assignee shall assume sponsorship of
the Assumed Plans from and after the date hereof and be
substituted for Assignor under the provisions of the Assumed
Plans and related documents, all in accordance with the terms of
the Asset Purchase Agreement and the terms hereof.
NOW, THEREFORE, in consideration of the mutual promises
and covenants contained herein, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Plan Assumption. Effective as of the date hereof,
Assignee hereby adopts the Assumed Plans and assumes and shall
succeed to all rights and obligations of Assignor under the
Assumed Plans and related documents. Assignee shall pay, perform
and discharge all debts, obligations and liabilities of Assignor
in respect of the Assumed Plans and related documents, provided,
however, that Assignor shall make all Matching Contributions (as
such term is defined in the 401(k) Plan) on compensation deferred
under the 401(k) Plan through January 31, 1997.
2. Plan Substitution. Effective as of the date
hereof, Assignee is hereby substituted for Assignor as the
"Company" and "Employer" and all such similar terms under the
Assumed Plans.
3. Committee. Effective as of the date hereof, the
individuals serving as the administrators or members of the
administrative committees of the Assumed Plans are reappointed to
such positions by Assignee.
4. Nontermination of Employment. The employment of
any employee of Assignor, who continues employment with the
Assignee in accordance with transactions contemplated by the
Asset Purchase Agreement and who is a participant under any
Assumed Plan as of the date hereof ("Transferred Employee"),
shall not be deemed to have been terminated or severed for any
purpose under such Assumed Plan by reason of the transactions
contemplated by this Agreement or the Asset Purchase Agreement.
5. Agreement Self-Executing. Effective as of the date
hereof, the Assumed Plans are hereby amended to reflect the
substitutions provided for in Sections 1 through 4 hereof and to
reflect any other changes necessary or appropriate to effectuate
the terms and intent of this Agreement. The assumption and
substitution of the Assumed Plans provided for in this Agreement
shall be self-executing and shall become effective on the date
hereof without any further action required by any person;
provided, however, that the parties hereto agree to take such
further action as may be necessary or appropriate to effectuate
the terms and intent of this Agreement, and provided, further,
that the officers of Assignee are hereby authorized to execute
any amendments to the Assumed Plans or related documents
(including, but not limited to, insurance contracts and trust
agreements) that may be desirable or appropriate to reflect the
assumption and substitution pursuant to this Agreement.
6. Amendment. Assignee may make any amendment
required to maintain the qualified status of the Assumed Plans
and under Sections 401(a) and 501(a) of the Internal Revenue Code
of 1986, as amended, or otherwise required by applicable law, and
any such amendment may be made effective retroactive to a date
preceding the date hereof, if so required or appropriate.
7. No Release. No provision of this Agreement shall
be interpreted or construed to release the parties to the Asset
Purchase Agreement from any of their duties, obligations or
liabilities arising under the Asset Purchase Agreement, and any
and all rights derived under the Asset Purchase Agreement shall
survive this Agreement.
8. No Implied Rights in Third Parties. Nothing
expressed or implied in this Agreement is intended to confer upon
any Transferred Employee or any other person, other than the
parties hereto (in their capacities as such), any rights or
remedies, including, without limitation, any rights to employment
or continuance thereof, or any rights under or with respect to
any Assumed Plan or any benefits thereunder.
9. Counterparts. This Agreement may be executed in
any number of counterparts, each of which when executed shall be
deemed to be one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be executed on its behalf by its duly authorized
officer, as of the date and year first above written.
WHEREHOUSE ENTERTAINMENT, INC.
By:_________________________________
Title: _____________________________
WEI ACQUISITION CO.
By:_________________________________
Title: _____________________________
<PAGE>
EXHIBIT A
Assumed Plans
<PAGE>
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (as it may be
amended, supplemented or otherwise modified from time to time,
the "AGREEMENT") is entered into as of January 31, 1997 among WEI
ACQUISITION CO., a Delaware corporation (the "COMPANY"), ALVAREZ
& MARSAL, INC., a New York corporation ("A&M"), A&M INVESTMENT
ASSOCIATES #3, LLC, a Delaware limited liability company (the
"AFFILIATE"), ANTONIO C. ALVAREZ II, an individual ("ALVAREZ"),
and CERBERUS PARTNERS, L.P., a Delaware limited partnership, as
Agent under that certain Credit Agreement dated June 11, 1992, as
amended ("CERBERUS") with respect to Sections 2(c) and 8 only,
and shall bind the SUPPORT EMPLOYEES (as hereinafter defined),
each an individual.
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and December
13, 1996 (the "POR"), and an Asset Purchase Agreement dated as of
January 31, 1997 (the "ASSET PURCHASE AGREEMENT"), the Company
will acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively,
the "DEBTORS"), in Case No. 95-911 (HSB) (Jointly Administered)
(the "BANKRUPTCY CASE") in the United States Bankruptcy Court for
the District of Delaware (the "BANKRUPTCY COURT");
WHEREAS, A&M, Cerberus and the other holders of the
SENIOR LENDER CLAIMS (as defined in the POR) have previously
entered into a letter agreement dated as of October 14, 1996 (the
"INTERIM MANAGEMENT AGREEMENT"), pursuant to which the holders of
the Senior Lender Claims, in anticipation of this Agreement
agreed to pay A&M, and A&M agreed to analyze the transactions
contemplated by the POR and to provide for a smooth management
transition to the arrangement contemplated by this Agreement;
WHEREAS, the Company desires to retain A&M, Alvarez and
the Support Employees to provide their services to the Company
upon termination of the Interim Management Agreement;
NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
10. RETENTION. The Company hereby retains A&M, and its
employee, Alvarez, and the Support Employees, and A&M, Alvarez
and the Support Employees hereby agree to perform services for
the Company, upon the terms and subject to the conditions
hereinafter set forth.
11. TERM, RENEWAL.
(a) Original Term. Subject to the provisions of
Sections 7 and 8 and Section 2(c) below, the original term (the
"ORIGINAL TERM") of this Agreement shall commence (the
"COMMENCEMENT DATE") effective as of the date on which the POR
becomes effective and shall, unless extended pursuant to Section
2(b), terminate on October 14, 1998, or the date this Agreement
is earlier terminated in accordance with its terms (the date of
termination of this Agreement in accordance with this paragraph
being referred to as the "TERMINATION DATE").
(b) Extension. At least six months prior to the
expiration of the Original Term, A&M and the Company shall notify
the other as to whether it desires to extend the Original Term.
If both A&M and the Company desire to extend the Original Term,
they will promptly commence and pursue good faith negotiations
regarding the terms and conditions of such extension. If either
A&M or the Company does not desire to extend the Original Term,
or if the parties are unable to reach agreement on the terms and
conditions under which the Original Term shall be extended, each
of A&M and the Company shall use its best efforts and shall
provide full cooperation to the other in making a smooth
transition in the management of the Company to the new management
selected by the Company. If so terminated by expiration of the
Original Term, except as provided in Section 6(d) and except for
accrued but unpaid fees due to A&M pursuant to Section 4(a) and
amounts due pursuant to Section 5, neither party shall have any
further obligation to the other hereunder.
(c) Reimbursement of Senior Lenders. Notwithstanding
Section 2(a) above, this Agreement shall not be effective unless
and until Cerberus shall have received from the Company an
executed Reimbursement Letter Agreement in the form attached
hereto as Exhibit A.
12. SERVICES.
(a) A&M Personnel. During the term of this Agreement:
(i) A&M shall furnish the services of, and the Company shall
accept the services of, Alvarez, who shall serve as the Company's
Chairman of the Board and Chief Executive Officer and shall
report to the Company's Board of Directors; (ii) Alvarez shall
serve as a full-time officer of the Company and devote
substantially all of his business time, energy and abilities to
the business, affairs and interest of the Company and shall
perform the services contemplated by this Agreement in accordance
with policies established by and under the direction of the
Company's Board of Directors; (iii) A&M shall from time to time
furnish the services of such other employees of A&M (the "SUPPORT
EMPLOYEES") as A&M shall determine to be necessary to provide
sufficient assistance and support to Alvarez in the performance
of his duties hereunder; and (iv) notwithstanding the foregoing,
the parties acknowledge and agree that each of Alvarez and each
Support Employee shall be permitted to render limited services to
other A&M clients and to otherwise function as an A&M consultant
to such clients who are not, in the reasonable judgment of the
Company's Board of Directors, in direct or indirect competition
with the Company or any of its affiliates; provided that his and
their rendering of such services and functioning as such
consultants does not in the Company's reasonable judgment
interfere in any significant respect with their duties hereunder;
and provided further that neither Alvarez nor any of the Support
Employees who are assigned on a full-time or substantially full-
time basis to the Company shall be assigned on an ongoing basis
to, nor act as the principal consultant in any other A&M
consulting engagement during the term of this Agreement. During
the term of this Agreement, Alvarez and the Support Employees, as
officers of the Company, shall owe a fiduciary duty to the
Company and shall perform their respective duties in accordance
with such fiduciary duty and the responsibilities of their
various offices.
(b) Duties of Alvarez. Alvarez agrees to observe and
comply with the policies of the Company as adopted by the
Company's Board of Directors respecting the performance of
Alvarez's duties and agrees to carry out and perform orders,
directions and policies of the Company and its Board of Directors
as they may be, from time to time, stated either orally or in
writing.
(c) No Benefits. The parties acknowledge and agree
that: (i) by furnishing the services of Alvarez and the Support
Employees, A&M is functioning as an independent contractor to the
Company; (ii) Alvarez and the Support Employees are and shall
remain employees of A&M, and A&M retains the right (subject to
the terms hereof) to direct and control the performance of
Alvarez and the Support Employees and is solely responsible for
the payment of salary, employee benefits and any other employee
compensation due Alvarez and the Support Employees and for all
applicable federal, state and local tax withholding with respect
to compensation and benefits payable to them under this Agreement
or otherwise; (iii) the compensation set forth in Section 4 and
the reimbursement of expenses set forth in Section 5 shall be
exclusive and Alvarez and the Support Employees shall not
participate in or be eligible to participate in any compensation
or benefit plan or perquisite of the Company; and (iv) all
amounts of cash, and other compensation, including stock and
stock options, paid to Alvarez or any Support Employees pursuant
to this Agreement are being paid to and received by Alvarez and
such Support Employees solely as nominees for and on behalf of
A&M and not for their own account.
13. FEES; SALE OF STOCK; ISSUANCE OF OPTIONS.
(a) Fees. In consideration for the services of A&M,
Alvarez and the Support Employees, for the account, and on behalf
of A&M hereunder, the Company shall pay A&M during the term of
this Agreement a management fee of $50,000 (or a pro-rated
portion thereof) per month irrespective of the number of Support
Employees provided by A&M to the Company; provided, that the
Company's obligation to pay such compensation may be accelerated
or terminated in accordance with Sections 7 or 8.
(b) Sale of Stock.
(1) Number of Shares. On the Commencement Date,
and pursuant to a Stock Subscription Agreement in the form
attached hereto as Exhibit B (the "STOCK SUBSCRIPTION
AGREEMENT"), the Company shall issue and sell to the
Affiliate and the Affiliate shall purchase, 1,100,000 shares
(the "A&M SHARES") of the Company's Common Stock, par value
$0.01 per share (the "COMMON STOCK"), subject to upward or
downward adjustment based on the total number of Shares
issued pursuant to the POR (the "PLAN SHARES") other than
upon exercise of the Warrants, as defined in the POR (the
"WARRANTS"), such that after the issuance of the Plan Shares
and the A&M Shares, the A&M Shares shall equal ten percent
(10%) of the sum of the Plan Shares and the A&M Shares.
(2) Purchase Price. The purchase price for the
A&M Shares (the "PURCHASE PRICE") shall be $6,340,000.
(3) Payment. Payment for the A&M Shares shall be
made in accordance with the following procedure: (i) the
Company shall make a loan of $5,340,000 to Alvarez and
Alvarez shall execute and deliver to the Company the Alvarez
Promissory Note in the form attached hereto as Exhibit C to
evidence such loan (the "ALVAREZ PROMISSORY NOTE"); (ii)
Alvarez shall make a loan of $5,340,000 to the Affiliate,
which loan shall be a non-recourse loan secured by the A&M
Shares; (iii) the Affiliate shall pay to the Company
$6,340,000 in cash via federal wire transfer as the purchase
price for the A&M Shares, and in exchange therefor, the
Company shall issue to the Affiliate a stock certificate
representing the A&M Shares, registered in the name of the
Affiliate in the stock ledger of the Company; (iv) Alvarez
shall instruct the Affiliate to, and the Affiliate shall,
execute and deliver to the Company a Secured Recourse
Promissory Note in the aggregate principal amount of
$335,000 in the form attached hereto as Exhibit D (the
"RECOURSE PROMISSORY NOTE"), a Secured Non-Recourse
Promissory Note in the aggregate principal amount of
$5,005,000 in the form attached hereto as Exhibit E (the
"NON-RECOURSE PROMISSORY NOTE"; and together with the
Recourse Promissory Note, the "PROMISSORY NOTES"), a Stock
Pledge Agreement in the form attached hereto as Exhibit F
(the "STOCK PLEDGE AGREEMENT") and the certificate for the
A&M Shares, together with stock powers executed in blank, to
be held by the Company pursuant to the terms of the Stock
Pledge Agreement; and (v) in exchange for the actions taken
by Alvarez and the Affiliate pursuant to clause (iv) above,
the Company shall cancel the Alvarez Promissory Note and
shall deliver such cancelled note to Alvarez.
(4) Voting Rights; Dividends. After the
Commencement Date, the Affiliate shall be entitled to
dividends and other distributions, voting rights and other
rights applicable to the Company's Common Stock in
accordance with the terms of the Stock Pledge Agreement.
(5) Restrictions on Transfer. The A&M Shares
shall be subject to the transfer and other restrictions set
forth in the Stock Subscription Agreement and the Stock
Pledge Agreement; provided that such restrictions shall not
limit the operation of Sections 7 and 8 of this Agreement.
(6) Registration Rights. The Affiliate shall
have the registration rights set forth in the Registration
Rights Agreement attached hereto as Exhibit G.
(c) Issuance of Options. On the Commencement Date,
the Company and A&M or the Affiliate shall issue and deliver to
the other an executed counterpart of the Non-Transferrable Stock
Option Agreement in the form attached hereto as Exhibit H (the
"A&M OPTIONS").
14. EXPENSES AND FACILITIES. During the term of this
Agreement, the Company shall reimburse A&M, Alvarez and the
Support Employees for all reasonable out-of-pocket expenses that
Alvarez and the Support Employees incur in connection with
services rendered hereunder, including the Travel Expenses (as
defined below) and reasonable local living expenses, including
the cost of renting apartments for Alvarez and the Support
Employees, upon presentation from time to time of an itemized
account of such expenses. Alvarez and the Support Employees
shall work at the Company's corporate offices in Torrance,
California, and the Company shall supply them with adequate
facilities and support services. As used in this paragraph,
"Travel Expenses" shall mean the costs of travel incurred by
Alvarez and the Support Parties in the performance of their
duties hereunder; provided that (i) in the case of Alvarez, air
travel shall be (A) by business class seating if available, or
first class seating if business class seating is not available,
and (ii) in the case of the Support Employees, by business class
seating, or coach class seating if business class seating is not
available.
15. INDEMNIFICATION.
(a) Indemnified Parties. Except as otherwise
expressly provided in other provisions of this Agreement, the
Company agrees to indemnify and hold Alvarez, the Support
Employees, A&M, A&M's directors, officers, employees and agents
and all of A&M's other affiliates (as that term is defined in
Rule 144 under the Securities Act of 1933, as amended)
(collectively, the "INDEMNIFIED PARTIES") harmless from and
against any and all actions, claims, damages, and liabilities
(and all actions in respect thereof and any legal or other
expenses in giving testimony or furnishing documents in response
to a subpoena or otherwise), including the costs of
investigating, preparing or defending any such action or claim,
whether or not in connection with litigation in which an
Indemnified Party is a party, and as and when incurred, caused
by, relating to, based upon or arising out of (directly or
indirectly) such Indemnified Party's acceptance of or the
performance or non-performance of its material obligations under
this Agreement; provided, however, that such indemnity shall not
apply to any such action, claim, damage, liability or cost to the
extent it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) to have resulted
from gross negligence or willful misconduct of that Indemnified
Party or to constitute a breach of this Agreement.
(b) Indemnification Demand. If any action, proceeding
or investigation is commenced for which an Indemnified Party
proposes to demand such indemnification, it will notify the
Company with reasonable promptness; provided, however, that any
failure by an Indemnified Party to notify the Company will not
relieve the Company from its obligations hereunder, except to the
extent that such failure shall have prejudiced the defense of
such action. The Company shall promptly pay or reimburse
expenses reasonably and actually incurred by an Indemnified Party
in defending or settling any action, proceeding or investigation
in which an Indemnified Party is a party or is threatened to be
made a party by reason of its relationship with the Company
hereunder, in advance of the final disposition of such action,
proceeding, or investigation upon submission of invoices therefor
pursuant to this Agreement. A&M, on behalf of each Indemnified
Party, hereby undertakes, and the Company hereby accepts its
undertaking, to repay any and all such amounts so advanced if it
shall ultimately be determined that such Indemnified Party is not
entitled to be indemnified therefor. If any such action,
proceeding, or investigation in which an Indemnified Party is a
party is also against the Company or any of its subsidiaries, the
Company may, in lieu of advancing the expenses of separate
counsel for such Indemnified Party, provide such Indemnified
Party with legal representation by the same counsel who
represents the Company or its subsidiaries, as applicable, at no
cost to such Indemnified Party; provided, however, that if such
counsel or counsel to such Indemnified Party shall determine that
due to the existence of actual or potential conflicts of interest
between such Indemnified Party and any one or more of the Company
or its subsidiaries, such counsel is unable to represent both the
Indemnified Party and one or more of the Company or its
subsidiaries, then the Indemnified Party shall be entitled to use
separate counsel of its own choice, and, subject to the preceding
sentence, the Company shall promptly pay the Indemnified Party's
reasonable expenses of such separate counsel upon submission of
invoices therefor. Nothing herein shall prevent any Indemnified
Party from using separate counsel of its own choice at its own
expense. The Company shall only be liable for settlements of
claims against any Indemnified Party made with the Company's
written consent, which consent shall not be unreasonably
withheld.
(c) Contribution If Indemnification Provisions Not
Enforced. In order to provide for just and equitable
contribution if a claim for indemnification pursuant to these
indemnification provisions is made but it is found in a final
judgment by a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in
such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand,
and the Indemnified Party, on the other hand, shall contribute to
the amount paid or payable as a result of the losses, claims,
damages, liabilities and costs in such proportion as is
appropriate to reflect the relative fault of the Company and
Indemnified Party in connection with the acts or omissions which
resulted in such losses, claims, damages, liabilities and costs,
as well as any other relevant equitable considerations. The
amount paid or payable by a party as a result of the losses,
claims, damages and liabilities and expenses referred to above
shall be deemed to include, subject to the limitations set forth
in Section 6(b) above, any legal or other fees or expenses
reasonably incurred by such party in connection with any
investigation or proceeding. The parties hereto agree that it
would not be just and equitable if the contribution pursuant to
this Section 6(c) were determined by pro rata allocation or by
any other method of allocation which does not take into account
the equitable considerations referred to in this Section 6(c).
No person found liable for a fraudulent misrepresentation shall
be entitled to contribution hereunder from any person who is not
also found liable for such fraudulent misrepresentation. The
aggregate amount of contribution from A&M due under this Section
6 shall not exceed the aggregate amount of compensation received
or receivable by A&M and its affiliates under this Agreement,
including the monthly fees referred to in Section 4(a) and the
difference between the Fair Market Value (as defined in Section
7(e)) of any shares of Common Stock purchased by it or them
pursuant to this Agreement and the Stock Subscription Agreement,
on the one hand, and the amount paid by A&M for such shares,
including any shares purchased upon exercise of any A&M Option,
on the other hand.
(d) Indemnification Remains in Effect; Limitations.
Neither termination nor nonrenewal of this Agreement nor
completion of the retention of A&M, Alvarez and the Support
Employees hereunder shall affect these indemnification
provisions, which shall hereafter remain operative and in full
force and effect.
(e) Indemnification Under Agreement Not Exclusive;
Limitation. The rights provided in this Section 6 shall not be
deemed exclusive of any other rights to which the Indemnified
Parties may be entitled under the certificate of incorporation
and bylaws of the Company, any other agreements, any vote of
stockholders or disinterested directors of the Company, any
applicable law or otherwise, but shall nevertheless in all
respects be limited to the maximum extent permitted by applicable
law.
16. TERMINATION. This Agreement shall be terminated prior
to October 14, 1998 only as provided in this Section 7 and
Section 8.
(a) Termination by the Company for Cause. The Company
shall have the right to terminate this Agreement for cause at any
time by giving written notice to A&M and Alvarez. The Company
shall have "cause" if, prior to such termination, (i) the
Company's Board of Directors makes a determination in good faith
of A&M's, Alvarez's or any Support Employee's willful misconduct
or breach of fiduciary duty, (ii) any of A&M, Alvarez or any
Support Employee (the "A&M PARTIES") commits any material act of
fraud, dishonesty, embezzlement or misappropriation of funds or
property in connection with the services rendered hereunder, or
(iii) any of the A&M Parties commits a material breach of any of
their respective obligations hereunder, and shall fail to remedy
such breach within 30 days after having received written notice
from the Company.
If this Agreement is terminated by the Company for
cause under this Section 7(a), then (i) the A&M Parties shall not
be entitled to receive any further compensation under this
Agreement, (ii) all unexercised A&M Options, whether or not then
vested, shall expire, and (iii) the Company shall have the
option, for a period of 12 months after such termination, to
purchase all of shares of Common Stock then owned by A&M or the
Affiliate at a purchase price equal to the lesser of the amount
paid by A&M or the Affiliate for such shares of Common Stock or
the Fair Market Value (as defined in Section 7(e) below) of such
shares of Common Stock, which purchase price shall be applied and
set-off first against the amounts outstanding under the Recourse
Promissory Note and second against the amounts outstanding under
the Non-Recourse Promissory Note, in each case, first to accrued
interest and then to principal (such application being referred
to as the "REQUIRED APPLICATION OF PROCEEDS"). The Company shall
provide A&M written notice of the Company's intention to exercise
its option to purchase the Common Stock owned by A&M or the
Affiliate under clause (iii) above prior to the expiration of the
12 month period referred to in clause (iii), and the closing of
such purchase shall occur as soon as practically possible after
the giving of such notice.
(b) Termination by the Company Without Cause;
Constructive Termination; Unconsented Change-in-Control. The
Company shall have the right to terminate this Agreement without
cause at any time. If this Agreement is terminated by the
Company without cause or if a Constructive Termination (as
defined below) shall occur prior to October 14, 1998, then
(i) A&M and/or the Affiliate shall have the right to require the
Company to purchase from A&M and/or the Affiliate the shares of
Common Stock then owned by A&M or the Affiliate, and the Company
shall also have the option to purchase such shares of Common
Stock from A&M and/or the Affiliate, in each case for a period of
3 months after such termination and at a sale or purchase price
equal to the greater of the amount paid by A&M or the Affiliate
for such shares of Common Stock or the Fair Market Value of such
shares of Common Stock, which purchase or sale price shall be
subject to the Required Application of Proceeds, (ii) A&M or the
Affiliate, as the case may be, shall have the right to require
the Company to purchase from A&M or the Affiliate, as the case
may be, all unexercised A&M Options, whether or not then vested,
and the Company shall also have the option to purchase all such
A&M Options, in each case for a period of 3 months after such
termination and at a sale or purchase price equal to the then
Intrinsic Value (as defined in Section 7(e)) of such A&M Options,
(iii) the Company shall pay A&M cash in a lump sum amount equal
to $50,000 multiplied by the number of months (or portion
thereof) remaining until October 14, 1998, (iv) the Company shall
be relieved of any obligation under this Agreement to pay for the
services of the A&M Parties for periods after such termination
and (v) A&M shall be relieved of its obligations to provide
services hereunder for periods after such termination; provided,
however, that if such termination occurs in connection with a
transaction that would qualify under Section 8 of this Agreement,
then Section 8, rather than this Section, shall govern. For
purposes of this Section 7(b), "Constructive Termination" shall
mean the material diminution by the Board of Directors of the
Company of the duties and responsibilities of Alvarez such that
as so diminished Alvarez's duties and responsibilities shall be
materially inconsistent with his title under this Agreement. The
Company and A&M and/or the Affiliate, as the case may be, shall
provide the other written notice of its intention to exercise its
right to sell or purchase the Common Stock owned by A&M and/or
the Affiliate or the A&M Options under clauses (i) and (ii) above
prior to the expiration of the three month period referred to in
such clauses and the closing of the purchase or sale of the
Common Stock owned by A&M or the A&M Options, as the case may be,
shall occur as soon as practically possible after the giving of
such notice.
If there shall occur a Change-in-Control (as defined
below) on or prior to the first anniversary of the Commencement
Date, and A&M shall provide written notice to the Company at
least 30 days prior to the occurrence of such Change-in-Control
(or within 10 days after the occurrence of the Change-in-Control
if A&M had no prior notice thereof) that it does not consent to
such Change-in-Control and if neither A&M nor Alvarez theretofore
consented to or through Alvarez sponsored or voted in favor of
such Change-in-Control, then this Agreement shall immediately
terminate, and clauses (i) through (iv) and the last sentence of
the immediately preceding paragraph shall apply; provided,
however, that if a Change-in-Control occurs in connection with a
transaction that would qualify under Section 8 of this Agreement,
then Section 8, rather than this Section 7(b), shall govern. For
purposes of this Agreement, a "Change-in-Control" shall mean a
change in the membership of the Board of Directors of the Company
such that a majority of the members of the Company's Board of
Directors shall not have been nominated by either Cerberus
Partners, L.P. or A&M or Alvarez or by at least a majority of
persons who were any of their respective previously appointed
nominees.
(c) Termination by A&M. If prior to October 14, 1998,
A&M terminates or breaches this Agreement other than an account
of a Constructive Termination or Alvarez terminates his
employment by A&M or resigns as Chairman of the Board of
Directors of the Company or as Chief Executive Officer of the
Company for any reason, then (i) all unexercised A&M Options,
whether or not then vested, shall expire, (ii) the Company shall
have the option for a period of 12 months after any such event to
purchase all of the shares of Common Stock then owned by A&M or
the Affiliate at a purchase price equal to the lesser of the
amount paid by A&M or the Affiliate for such shares of Common
Stock or the Fair Market Value of such shares of Common Stock,
which purchase price shall be subject to the Required Application
of Proceeds, and (iii) the Company shall have no obligation to
pay for the services of the A&M Parties for periods after any
such event. The Company shall provide A&M written notice of the
Company's intention to exercise its option to purchase the Common
Stock owned by A&M or the Affiliate under clause (ii) above prior
to the expiration of the 12 month period referred to in clause
(ii), and the closing of such purchase shall occur as soon as
practically possible after the giving of such notice.
(d) Termination Due to Death or Disability of Alvarez.
The Company shall have the right to terminate this Agreement at
any time by giving notice to A&M and Alvarez (if not deceased) if
Alvarez dies or is disabled. For purposes of this Agreement,
Alvarez shall be deemed to be disabled if any ailment, illness or
other physical or mental incapacity has prevented, or in the
opinion of a medical physician or psychiatrist selected by the
Company and acceptable to A&M will prevent, Alvarez from
performing his duties as specified in this Agreement for a period
of 60 days during any 180-day period or 90 days in any 360-day
period. If the Company shall terminate this Agreement in
accordance with this Section 7(d), then (i) A&M or the Affiliate,
as the case may be, shall have the right to require the Company
to purchase from A&M or the Affiliate, as the case may be, all
vested and unexercised A&M Options, and the Company shall also
have the option to purchase all such A&M Options, in each case
for a period of 6 months after such termination and at a sale or
purchase price equal to the then Intrinsic Value of such A&M
Options, (ii) A&M and/or the Affiliate shall have the right to
require the Company to purchase from A&M and/or the Affiliate the
shares of Common Stock then owned by A&M or the Affiliate, and
the Company shall also have the option to purchase such shares of
Common Stock from A&M and the Affiliate, in each case for a
period of 6 months after such termination and at a sale or
purchase price equal to the then Fair Market Value of such shares
of Common Stock, which purchase price shall be subject to the
Required Application of Proceeds, and (iii) the Company shall be
relieved of any obligation under this Agreement to pay for the
services of the A&M Parties for periods after such termination.
The Company and A&M shall provide the other written notice of its
intention to exercise its right to sell or purchase the Common
Stock owned by A&M or the Affiliate or the A&M Options, as the
case may be, under clauses (i) and (ii) above prior to the
expiration of the three month period referred to in such clauses
and the closing of the purchase or sale of the Common Stock owned
by A&M or the Affiliate or the A&M Options, as the case may be,
shall occur as soon as practically possible after the giving of
such notice.
(e) Definition of Fair Market Value and Intrinsic
Value. For purposes of this Agreement, the "Fair Market Value"
of any shares of Common Stock shall mean an amount agreed to by
A&M and the Company as being the fair market value of such shares
of Common Stock as of the date of termination. If A&M and the
Company are unable to agree on the fair market value of the
Common Stock, the "Fair Market Value" of the Common Stock shall
equal an amount therefor determined by a majority vote of three
independent valuation firms, one each selected by A&M and the
Company and the third (the "THIRD APPRAISER") selected by the two
independent valuation firms selected by A&M and the Company. If
two of the three appraisers cannot agree on the Fair Market
Value, the determination of the Third Appraiser shall control.
Each of A&M and the Company shall pay the fees and expenses of
the appraiser selected by it. The fees and expenses of the Third
Appraiser shall be paid (i) solely by the party whose appraiser's
determination of the Fair Market Value deviates by more than 10%
from that of the Third Appraiser, or (ii) equally by A&M and the
Company if the determination of both of the appraisers selected
by them deviates by more or less than 10% from that of the Third
Appraiser. The "Intrinsic Value" of the A&M Options shall mean
the difference between the then Fair Market Value of the Common
Stock and the applicable exercise price of the A&M Options.
17. SALE OF THE COMPANY DURING THE FIRST YEAR. If, prior
to the first anniversary of the Commencement Date (x) (1) all or
at least 80% of the assets of the Company are sold in a single or
series of related transactions other than in the ordinary course
of business, or (2) a majority of the shares of Common Stock held
by Cerberus are sold to an unaffiliated entity in a single
transaction or series of related transactions (such sale of stock
being a "MAJORITY SALE") or (3) there shall occur a merger,
consolidation or other form of reorganization or series of
related reorganizations, and (y) after giving effect to such
transaction or transactions, the level of Cerberus' ownership
interest in the surviving entity (including a group of affiliated
surviving entities) shall be less than one-half of the level of
Cerberus' ownership interest in the Company immediately prior to
such transaction or series of transactions, and A&M shall have
provided written notice to the Company at least 30 days prior to
the occurrence of any such transaction or transactions (or within
10 days after the occurrence of any such transaction or
transactions if A&M had no prior notice thereof) that it does not
consent to such transaction or transactions, and if neither A&M
nor Alvarez theretofore consented to or through Alvarez sponsored
or voted for such transaction or transactions, then (i) this
Agreement shall immediately terminate, (ii) the Company shall pay
to A&M $1,500,000 in cash, except that in the case of a Majority
Sale in which neither of the events described in clauses (x)(1)
and (x)(3) above has occurred, Cerberus shall pay A&M $1,500,000
in cash, (iii) other than in the case of a Majority Sale, all
unexpired and unvested A&M Options shall immediately vest and be
subject to the provisions of Sections 8(k) and (l) of the A&M
Option Agreement, (iv) in the case of a Majority Sale, all
unexpired and unvested A&M Options shall immediately vest and the
shares of Common Stock then owned by A&M, and the shares of
Common Stock subject to the A&M Options as so vested, shall all
be subject to tag along and drag along rights and duties on terms
and conditions set forth in Exhibit I attached hereto (with the
proceeds received upon the exercise of such rights being applied
as set forth in Exhibit I), and all A&M Options not sold pursuant
to the exercise of such tag along and drag along rights shall
immediately expire, and (v) the Company will be relieved of any
obligation under this Agreement to make payment for the services
of Alvarez or the Support Employees for periods after the closing
of the Majority Sale.
18. GENERAL.
(a) Amendment. No modification or amendment of, or
waiver under, this Agreement shall be valid unless in writing and
signed by each of the parties hereto.
(b) Binding Agreement. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
(c) Authorization. Each of the Company and the A&M
Parties represents and warrants that its execution, delivery and
performance of this Agreement has been duly authorized by all
necessary corporate action.
(d) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York without regard to conflict of law principles.
(e) Severability. If any term, provision, covenant or
restriction herein is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated thereby.
(f) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given when delivered personally or sent by
overnight courier express service or two days after having been
deposited in the United States mail, registered or certified,
return receipt requested, postage prepaid, addressed as follows:
(1) If to the A&M Parties, to:
Alvarez & Marsal, Inc.
885 Third Avenue, Suite 1700
New York, New York 10022-4802
Attention: Antonio C. Alvarez II
(2) If to the Company, to:
19701 Hamilton Avenue
Torrance, California 90502-1334
Attention: Henry Del Castillo
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: Ben H. Logan, Esq. and
C. James Levin Esq.
and a copy to:
Cerberus Partners, L.P.
950 Third Avenue
New York, New York 10022
Attention: Robert Davenport
or to such other address or addresses as each of the parties
hereto may communicate in writing to the other. Written notice
given by any other method shall be deemed effective only when
actually received by the party to whom given.
(g) Tax Indemnification. A&M, Alvarez and each
Support Employee agree jointly and severally to indemnify and
hold the Company harmless against and reimburse the Company on
demand for any federal, state or local taxes, workers
compensation, health or disability benefits, and any penalties
and interest thereon, payable by or on behalf of the Company in
respect of the services of A&M, Alvarez and the Support Employees
furnished to the Company pursuant to this Agreement.
(h) Entire Agreement. This Agreement contains the
entire understanding of the parties hereto respecting the subject
matter hereof and supersedes all prior discussions and
understandings.
(i) Confidentiality; Agreement of A&M Not to Solicit
Employees or Compete. The A&M Parties acknowledge that none of
them or any of their agents or employees will at any time prior
to or during the term of this Agreement and thereafter, directly
or indirectly, use for his or their own account or disclose any
Confidential Information (as hereinafter defined) to any person,
firm or corporation other than authorized officers, directors and
employees of the Company or its subsidiaries and, to the extent
necessary in connection with the services provided hereunder, to
A&M personnel who in Alvarez's good faith judgment have a need to
be familiar with or aware of the Confidential Information in
order to perform their responsibilities to the Company and who
are bound by the terms of this Agreement. As used herein,
Confidential Information of the Company means information of any
kind, nature or description which is disclosed to or otherwise
known to the A&M Parties as a direct or indirect consequence of
their association with the Company (which information is not
generally known in the businesses in which the Company is engaged
or otherwise publicly available) or which information relates to
specific investment opportunities within the scope of the
Company's business which were considered by the A&M Parties or
the Company prior to or during the term of this Agreement.
During a period of two years following the termination of this
Agreement, the A&M Parties shall not induce any employee of the
Company or its subsidiaries to terminate his or her employment by
the Company or its subsidiaries in order to obtain employment
with any person, firm or corporation. In addition, for a period
of 12 months following the termination of this Agreement, neither
A&M nor Alvarez shall serve as an officer, director, employee of
or consultant to any entity that has retail locations that
compete in the sale and rental of prerecorded music and video
products and electronic games and computer programs with the
Company's retail locations in markets that account for more than
25% of the then current number of the Company's retail locations;
provided that the foregoing shall not prohibit A&M or Alvarez
from serving as an officer, director, employee of or consultant
to any entity that does directly so compete with the Company but
whose lines of products that directly or indirectly compete with
the Company do not exceed 15% of such entity's gross revenues.
For the purposes of this paragraph one retail location shall be
deemed to be in the same market with another if the two locations
are within 10 miles of each other.
(j) Specific Performance. The parties hereto agree
that the services to be rendered by A&M and Alvarez pursuant to
this Agreement, and the rights and privileges granted to Company
pursuant to this Agreement, and the rights and privileges granted
to A&M and Alvarez by virtue of Alvarez' position, are of a
special, unique, extraordinary and intellectual character, which
gives them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in any action at
law, and that a breach by A&M and Alvarez of any of the terms of
this Agreement will cause the Company great and irreparable
injury and damage. A&M and Alvarez hereby expressly agrees that
the Company shall be entitled to the remedies of injunction,
specific performance and other equitable relief to prevent a
breach of this Agreement by A&M and Alvarez. This subsection
shall not be construed as a waiver of any other rights or
remedies which the Company may have for damages or otherwise.
Such remedies and all other remedies provided for in this
Agreement shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies that a party may have
under this Agreement.
(k) Assignment. This Agreement may not be assigned
A&M or Alvarez without the written consent of the Company.
(l) Right of Set-Off. In addition to any rights now
or hereafter granted under applicable law and not by way of
limitation of any such rights, upon the occurrence of a default
by A&M, Alvarez or any Support Employee under this Agreement, the
Promissory Notes or otherwise, the Company is hereby authorized
by A&M, Alvarez and the Support Employees at any time or from
time to time, without notice to A&M, Alvarez or any Support
Employee, any such notice being hereby expressly waived, to set
off against any amounts owed to A&M and to appropriate and to
apply any and all deposits (including, but not limited to, the
Promissory Notes and the stock certificate for the A&M Shares) to
any indebtedness or other obligation owing by A&M, Alvarez or any
Support Employee to the Company.
<PAGE>
IN WITNESS THEREOF, the parties have executed this
Agreement as of the day and year first above written.
ALVAREZ & MARSAL, INC.
/s/ Antonio C. Alvarez
By: _____________________________
Its: Vice President
A&M INVESTMENT ASSOCIATES #3, LLC
/s/ Antonio C. Alvarez
By: _____________________________
Its: Manager
ANTONIO C. ALVAREZ
/s/ Antonio C. Alvarez
_________________________________
WEI ACQUISITION CO.
/s/ Bob Davenport
By: _____________________________
Its: Chief Financial Officer and
Secretary
Accepted and agreed with respect
to Sections 2(c) and 8 only:
CERBERUS PARTNERS, L.P.
/s/ Stephen Feinberg
By: _________________________________
Its: General Partner
<PAGE>
EXHIBIT C
ALVAREZ PROMISSORY NOTE DUE JANUARY 31, 2004
$5,340,000 January 31, 1997
New York, New York
ANTONIO C. ALVAREZ II ("PAYOR"), for value received,
hereby promises to pay to WEI ACQUISITION CO., a Delaware
corporation ("PAYEE"), the principal sum of $5,340,000 on
January 31, 2004 (the seventh anniversary of the date of this
Note), with no mandatory interim principal or interest payments.
Interest on the unpaid principal amount hereof will
accrue from the date hereof through the fourth anniversary of the
date hereof (the "Fourth Anniversary"), at the rate of seven
percent (7%) per annum, and from the Fourth Anniversary through
maturity, at the rate of eleven percent (11%) per annum; provided
that in no event will the amount of interest due under this Note
exceed the maximum amount permitted by law. Interest due under
this Note shall be computed on the basis of a 360-day year, based
on the actual number of days elapsed. Interest due under this
Note shall compound annually and shall be due and payable at the
principal office of Payee only on the maturity of this Note.
Payor shall have the right at any time or from time to
time to prepay any of the principal amount and/or interest due
hereunder without penalty or premium.
This Note is the "Alvarez Promissory Note" referred to
in that certain Management Services Agreement, dated as of
January 31, 1997, by and among Payor, Alvarez & Marsal, Inc., A&M
Investment Associates #3, LLC, Cerberus Partners, L.P. and Payee
(the "MANAGEMENT SERVICES AGREEMENT").
Payor hereby waives presentment, demand, protest,
notice of protest and notice of dishonor.
To the full extent permitted by law, the obligations of
Payor under this Note shall not be subject to any counterclaim,
set-off, deduction, diminution, abatement, recoupment,
suspension, deferment, reduction or defense (other than the full
and strict compliance by Payor with those obligations) based on
any claim that Payor may have against Payee or any other person.
No provision of this Note may be waived, modified or
discharged orally, but only by an agreement in writing signed by
the party against whom enforcement is sought.
This Note shall be governed by and construed in
accordance with the internal laws of the State of New York
without regard to conflict of law principles.
[remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, Payor has duly executed and
delivered this Note as of the date and at the place first written
above.
______________________________
ANTONIO C. ALVAREZ II
<PAGE>
EXHIBIT I
DRAG ALONG AND TAG ALONG RIGHTS
Pursuant to Section 8(iv) of the Management Services
Agreement, dated as of January 31, 1997 among Alvarez & Marsal,
Inc. ("A&M"), Antonio C. Alvarez II, A&M Investment Associates
#3, LLC (the "AFFILIATE"), certain other employees of A&M, WEI
Acquisition Co. (the "COMPANY") and Cerberus Partners, L.P.
("CERBERUS") (the "MANAGEMENT SERVICES AGREEMENT"), A&M and/or
the Affiliate, shall have the following drag-along and tag-along
rights:
1. Drag-Along Rights.
(i) Cerberus shall have the right (the "DRAG-
ALONG RIGHT"), but not the obligation, to cause A&M, and/or the
Affiliate, as the case may be, to tender to the third party
offeror (the "THIRD PARTY") for purchase, at the same price per
share and on the same terms and conditions as apply to Cerberus,
a number of shares of Common Stock held by A&M or the Affiliate
(the "HELD SHARES") plus the number of shares of Common Stock
subject to the A&M Options (as defined in the Management Services
Agreement) and that have an exercise price that is less than the
price per share offered by the Third Party (the "IN-THE-MONEY
OPTION SHARES") equal to (x) the total number of Held Shares and
In-the-Money Option Shares multiplied by (v) a fraction, the
numerator of which is the number of shares of Common Stock
Cerberus proposes to transfer and the denominator of which is the
total number of shares of Common Stock held by Cerberus.
(ii) If Cerberus elects to exercise its Drag-Along
Right under this Section 1, then Cerberus shall so notify the
Company and A&M in writing (the "DRAG-ALONG NOTICE"). Each Drag-
Along Notice shall set forth (i) the name of the Third Party to
which Cerberus proposes to transfer shares of Common Stock and
the number of shares of Common Stock proposed to be transferred,
(ii) the address of the Third Party, (iii) the proposed amount
and form of consideration and terms and conditions of payment
offered by the Third Party, and any other material terms
pertaining to the transfer (the "THIRD PARTY TERMS"), and (iv)
that the Third Party has been informed of the rights provided for
in this Section 1 and has agreed to purchase the Held Shares and
the In-the-Money Option Shares in accordance with the terms
hereof. The Drag-Along Notice shall be given at least thirty
(30) days before the closing of the proposed transfer.
(iii) Upon the giving of a Drag-Along Notice,
A&M and/or the Affiliate, as the case may be, shall be entitled
and obligated to sell the number of Held Shares and/or In-the-
Money Option Shares set forth therein to the Third Party on the
Third Party Terms, and neither Cerberus nor A&M or the Affiliate
shall be obligated to consummate the sale of any shares of Common
Stock if the Third Party does not purchase all Held Shares and/or
In-the-Money Option Shares which A&M and/or the Affiliate is
obligated to sell pursuant hereto.
(iv) At the closing of any transfer pursuant to
this Section 1, the Third Party shall remit to the Company the
consideration for the total sales price of the Held Shares and/or
In-the-Money Option Shares sold pursuant hereto, upon delivery by
A&M and/or the Affiliate, as the case may be (or the Company in
the case of the In-the-Money Option Shares) of certificate(s) for
such shares duly endorsed in blank for transfer or accompanied by
stock power(s) duly executed in blank, and the compliance by A&M
and/or the Affiliate, as the case may be, with all other
conditions to closing generally applicable to Cerberus (including
the provision by A&M and/or the Affiliate, as the case may be, to
the Third Party of representations and warranties covering the
same subject matter as those provided by Cerberus). The proceeds
received by the Company in respect of the Held Shares and/or In-
the-Money Option Shares shall be applied first to the payment of
the applicable exercise price of the In-the-Money Option Shares
sold to the Third-Party, second, to the repayment of the Non-
Recourse Promissory Note (as defined in the Management Services
Agreement), third, to the repayment of the Recourse Promissory
Note (as defined in the Management Services Agreement) and
fourth, the remainder shall be promptly remitted to A&M.
2. Tag-Along Rights.
(i) A&M and/or the Affiliate, as the case may be,
shall have the right (the "TAG-ALONG RIGHT") to require the
proposed purchaser in a Majority Sale (as defined in the
Management Services Agreement) to purchase from A&M and/or the
Affiliate, as the case may be, up to the number of whole Held
Shares and In-the-Money Option Shares not to exceed the number
derived by multiplying the total number of shares of Common Stock
to be purchased by the proposed purchaser(s) in such
transaction(s) from Cerberus by a fraction, the numerator of
which is the total number of Held Shares and In-the-Money Option
Shares, and the denominator of which is the total number of
Shares of Common Stock owned by Cerberus plus the total number of
Held Shares and In-the-Money Option Shares. The purchase price
for any Held Shares and/or In-the-Money Option Shares purchased
from A&M and/or the Affiliate, as the case may be, pursuant to
this Section 2 shall be the same price per share and terms and
conditions as such proposed transfer by Cerberus (the "TRANSFER
TERMS").
(ii) Cerberus shall promptly notify A&M in the
event it proposes to make a transfer pursuant to a Majority Sale
giving rise to the Tag-Along Right, and shall furnish A&M with
the Transfer Terms and a copy of any written offer or agreement
pertaining thereto. The Tag-Along Right may be exercised by A&M
and/or the Affiliate, as the case may be, by delivery of a
written notice to Cerberus (the "TAG-ALONG NOTICE") within
fifteen (15) days following its receipt of such notice from
Cerberus. The Tag-Along Notice shall state the amount of shares
that A&M and/or the Affiliate, as the case may be, proposes to
include in such transfer to the proposed purchaser (not to exceed
the number determined in accordance with clause (i) above). In
the event that the proposed purchaser does not purchase the
specified number of shares of Common Stock from A&M and/or the
Affiliate, as the case may be, on the Transfer Terms, and subject
to the same terms and conditions as are applicable to Cerberus in
such transaction, then Cerberus shall not be permitted to sell
any shares to the proposed in the proposed transfer.
(iii) The provisions of Section 1(iv) shall be
applicable to the closing of any transfer pursuant to this
Section 2.
<PAGE>
<PAGE>
A&M INVESTMENT ASSOCIATES #3, LLC
SECURED RECOURSE PROMISSORY NOTE DUE JANUARY 31, 2004
$335,000 January 31, 1997
New York, New York
A&M INVESTMENT ASSOCIATES #3, LLC ("PAYOR"), for value
received, hereby promises to pay to WEI ACQUISITION CO., a
Delaware corporation ("PAYEE"), the principal sum of $335,000 on
January 31, 2004 (the seventh anniversary of the date of this
Note), with no mandatory interim principal or interest payments.
Interest on the unpaid principal amount hereof will
accrue from the date hereof through the fourth anniversary of the
date hereof (the "Fourth Anniversary"), at the rate of seven
percent (7%) per annum, and from the Fourth Anniversary through
maturity, at the rate of eleven percent (11%) per annum; provided
that in no event will the amount of interest due under this Note
exceed the maximum amount permitted by law. Interest due under
this Note shall be computed on the basis of a 360-day year, based
on the actual number of days elapsed. Interest due under this
Note shall compound annually and shall be due and payable at the
principal office of Payee only on the maturity of this Note.
Payor shall have the right at any time or from time to
time to prepay any of the principal amount and/or interest due
hereunder without penalty or premium.
This Note is the "Recourse Promissory Note" referred to
in that certain Management Services Agreement, dated as of
January 31, 1997, by and among Payor, Antonio C. Alvarez II,
Cerberus Partners, L.P. and Payee (the "MANAGEMENT SERVICES
AGREEMENT"). This Note shall be prepaid and the amounts due
hereunder shall be set-off to the extent and in the manner set
forth in Sections 7 and 8 of the Management Services Agreement.
This Note is the "Recourse Promissory Note" referred to
in that certain Stock Pledge Agreement, dated as of January 31,
1997, between Payor and Payee (the "PLEDGE AGREEMENT"). This
Note is a full recourse note and Payor shall be liable for the
full payment of principal of and interest on this Note. This
Note is also secured by, and is entitled to the benefit of, the
Pledge Agreement, the terms and provisions of which are hereby
incorporated herein as if set forth herein in full. This Note
shall become immediately due and payable in its entirety,
including all accrued interest, upon the occurrence of an Event
of Default under the Pledge Agreement.
Payor hereby waives presentment, demand, protest,
notice of protest and notice of dishonor.
To the full extent permitted by law, the obligations of
Payor under this Note shall not be subject to any counterclaim,
set-off, deduction, diminution, abatement, recoupment,
suspension, deferment, reduction or defense (other than the full
and strict compliance by Payor with those obligations) based on
any claim that Payor may have against Payee or any other person.
No provision of this Note may be waived, modified or
discharged orally, but only by an agreement in writing signed by
the party against whom enforcement is sought.
This Note shall be governed by and construed in
accordance with the internal laws of the State of New York
without regard to conflict of law principles.
[remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, Payor has caused this Note to be
duly executed and delivered by its officer thereunto duly
authorized as of the date and at the place first written above.
A&M INVESTMENT ASSOCIATES #3, LLC
/s/ Antonio C. Alvarez
By __________________________
Name: Antonio C. Alvarez II
Title: Manager
<PAGE>
<PAGE>
A&M INVESTMENT ASSOCIATES #3, LLC
SECURED NON-RECOURSE PROMISSORY NOTE DUE JANUARY 31, 2004
$5,005,000 January 31, 1997
New York, New York
A&M INVESTMENT ASSOCIATES #3, LLC ("PAYOR"), for value
received, hereby promises to pay to WEI ACQUISITION CO., a
Delaware corporation ("PAYEE"), the principal sum of $5,005,000
on January 31, 2004 (the seventh anniversary of the date of this
Note), with no mandatory interim principal or interest payments.
Interest on the unpaid principal amount hereof will
accrue from the date hereof through the fourth anniversary of the
date hereof (the "Fourth Anniversary"), at the rate of seven
percent (7%) per annum, and from the Fourth Anniversary through
maturity, at the rate of eleven percent (11%) per annum; provided
that in no event will the amount of interest due under this Note
exceed the maximum amount permitted by law. Interest due under
this Note shall be computed on the basis of a 360-day year, based
on the actual number of days elapsed. Interest due under this
Note shall compound annually and shall be due and payable at the
principal office of Payee only on the maturity of this Note.
Payor shall have the right at any time or from time to
time to prepay any of the principal amount and/or interest due
hereunder without penalty or premium.
This Note is the "Non-Recourse Promissory Note"
referred to in that certain Management Services Agreement, dated
as of January 31, 1997, by and among Payor, Antonio C. Alvarez
II, Cerberus Partners, L.P. and Payee (the "MANAGEMENT SERVICES
AGREEMENT"). This Note shall be prepaid and the amounts due
hereunder shall be set-off to the extent and in the manner set
forth in Sections 7 and 8 of the Management Services Agreement.
This Note is the "Non-Recourse Promissory Note"
referred to in that certain Stock Pledge Agreement, dated as of
January 31, 1997, between Payor and Payee (the "Pledge
Agreement"). This Note is a non-recourse note secured by, and is
entitled to the benefit of, the Pledge Agreement, the terms and
provisions of which are hereby incorporated herein as if set
forth herein in full. This Note shall become immediately due and
payable in its entirety, including all accrued interest, upon the
occurrence of an Event of Default under the Pledge Agreement, but
Payee's sole remedy shall be against the shares of stock pledged
to Payee under the Pledge Agreement.
Payor hereby waives presentment, demand, protest,
notice of protest and notice of dishonor.
To the full extent permitted by law, the obligations of
Payor under this Note shall not be subject to any counterclaim,
set-off, deduction, diminution, abatement, recoupment,
suspension, deferment, reduction or defense (other than the full
and strict compliance by Payor with those obligations) based on
any claim that Payor may have against Payee or any other person.
No provision of this Note may be waived, modified or
discharged orally, but only by an agreement in writing signed by
the party against whom enforcement is sought.
This Note shall be governed by and construed in
accordance with the internal laws of the State of New York
without regard to conflict of law principles.
[remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, Payor has caused this Note to be
duly executed and delivered by its officer thereunto duly
authorized as of the date and at the place first written above.
A&M INVESTMENT ASSOCIATES #3, LLC
/s/ Antonio C. Alvarez
By __________________________
Name: Antonio C. Alvarez II
Title: Manager
<PAGE>
<PAGE>
STOCK PLEDGE AGREEMENT
In order to induce WEI ACQUISITION CO. ("SECURED
PARTY") to accept from A&M INVESTMENT ASSOCIATES #3, LLC
("DEBTOR") (i) its Secured Recourse Promissory Note, dated
January 31, 1997, in the original principal amount of $335,000
(the "RECOURSE PROMISSORY NOTE") and (ii) its Secured Non-
Recourse Promissory Note, dated January 31, 1997, in the original
principal amount of $5,005,000 (the "NON-RECOURSE PROMISSORY
NOTE"; and, together with the Recourse Promissory Note, the
"NOTES") in connection with the issuance by Secured Party to
Debtor of certain shares of Secured Party's common stock, par
value $0.01 per share (the "STOCK"), pursuant to that certain
Stock Subscription Agreement, dated as of January 31, 1997, by
and between Debtor and Secured Party, the parties hereto agree as
follows:
1. Pledge; Grant of Security.
(a) Security Interest. Debtor hereby pledges,
hypothecates, assigns, grants, transfers, sets over and delivers
to Secured Party and hereby grants and assigns to Secured Party
with power of sale, a continuing security interest in all of
Debtor's right, title and interest in and to the Stock, together
with the certificates representing the Stock, all securities
hereafter delivered to Debtor in substitution for or in addition
to the Stock, all certificates and instruments representing or
evidencing such securities, all securities or other non-cash
property at any time and from time to time received, receivable,
or otherwise distributed in respect of any or all of the
foregoing, and all securities, cash or other property at any time
and from time to time received, receivable, or otherwise
distributed in exchange for, or in respect of, any or all of the
foregoing, all of which (to the extent received by Debtor) Debtor
shall deliver to Secured Party promptly upon receipt for
retention by Secured Party hereunder. The Stock, certificates,
instruments, securities, cash and other property which are
subject to the pledge and security interest created hereby, are
herein collectively referred to as the "COLLATERAL".
(b) Delivery of Certificates. Concurrently with
the execution of this Agreement, Debtor shall deliver the
certificate or certificates representing the Stock to Secured
Party, together with a stock power endorsed for transfer in blank
by Debtor, to be held by Secured Party pursuant to this
Agreement.
2. Security for Obligations. This Agreement secures,
and the Collateral is collateral security for, the prompt payment
or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due
but for the operation of the automatic stay under Section 362(a)
of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all
obligations and liabilities of every nature of Debtor now or
hereafter existing under or arising out of the Notes and all
extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing
of a petition in bankruptcy with respect to Debtor, would accrue
on such obligations), fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly
owed with others, and whether or not from time to time decreased
or extinguished and later increased, created or incurred, and all
or any portion of such obligations or liabilities that are paid,
to the extent all or any part of such payment is avoided or
recovered directly or indirectly from Secured Party as a
preference, fraudulent transfer or otherwise (all such
obligations and liabilities being the "UNDERLYING DEBT"), and all
obligations of every nature of Debtor now or hereafter existing
under this Agreement (all such obligations of Debtor, together
with the Underlying Debt, being the "SECURED OBLIGATIONS").
3. Representations and Warranties. Debtor represents
and warrants as follows:
(a) Authorization. Debtor has full power and
authority to grant security interests in the Collateral, and to
execute, deliver, and perform this Agreement, without the consent
or approval of any other person.
(b) Binding Obligation. This Agreement
constitutes the legally valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally.
(c) Ownership of Collateral. Except for the
security interest created by this Agreement, Debtor owns, or at
the time the Collateral comes into existence will own, the
Collateral free and clear of any lien, mortgage, pledge,
assignment, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of
the foregoing (any of the foregoing, a "LIEN"). Except as may
have been filed in favor of Secured Party relating to this
Agreement, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is
on file in any filing or recording office.
(d) No Conflict. The execution, delivery and
performance by Debtor of this Agreement will not (i) violate any
provision of law applicable to Debtor, or any order, judgment or
decree of any court or other agency of government binding on
Debtor, (ii) be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default
under any contractual obligation of Debtor or (iii) result in or
require the creation or imposition of any Lien upon any of his
properties or assets.
(e) Other Information. All information
heretofore, herein or hereafter supplied to Secured Party by or
on behalf of Debtor with respect to the Collateral is accurate
and complete in all respects.
4. Voting Powers. At any time during which an Event
of Default shall not have occurred and be continuing, Debtor
shall retain and be entitled to exercise all voting powers
pertaining to the Stock or any part thereof.
5. Further Assurances. Debtor agrees that from time
to time, at the expense of Debtor, Debtor will promptly execute
and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that
Secured Party may request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, Debtor will (i) execute
and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may request, in order
to perfect and preserve the security interests granted or
purported to be granted hereby and (ii) at Secured Party's
request, appear in and defend any action or proceeding that may
affect Debtor's title to or Secured Party's security interest in
all or any part of the Collateral.
6. Transfers and Other Liens. Prior to the payment
and performance in full of the Secured Obligations, Debtor shall
not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or (ii) except for
the security interest created by this Agreement, create or suffer
to exist any lien upon or with respect to any of the Collateral
to secure the indebtedness or other obligations of any person or
entity; or (iii) do, or permit or suffer to be done, anything
that may impair the value of the Collateral or the security
intended to be effected hereby and shall use its best efforts to
preserve, protect and enhance the value of the Collateral.
7. Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default":
(a) Failure to Make Payments When Due. Failure
of Debtor to pay any principal, interest or other amount due
under the Notes when due, whether by required prepayment,
declaration, acceleration, demand or otherwise, including the
failure to prepay the Notes to the extent required under Sections
7 and 8 of the Management Services Agreement dated as of January
31, 1997, among Alvarez & Marsal, Inc., Antonio C. Alvarez II,
the Debtor, Cerberus Partners, L.P. and Secured Party (the
"MANAGEMENT SERVICES AGREEMENT"); or
(b) Breach of Covenants. Failure of Debtor to
perform or observe any other term, covenant or agreement on his
part to be performed or observed pursuant to this Agreement or
the Notes within five (5) days after written notice of such
failure is given to Debtor by Secured Party; or
(c) Breach of Representation or Warranty. Any
representation or warranty made by Debtor to Secured Party in
connection with this Agreement or the Notes shall prove to have
been false in any material respect when made; or
(d) Involuntary Bankruptcy, etc. (i) A court
having jurisdiction in the premises shall enter a decree or order
for relief in respect of Debtor in an involuntary case under
Title 11 of the United States Code entitled "Bankruptcy" (as now
and hereinafter in effect, or any successor thereto, the
"BANKRUPTCY CODE") or any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, which decree or
order is not stayed; or any other similar relief shall be granted
under any applicable federal or state law or (ii) an involuntary
case shall be commenced against Debtor under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over Debtor or over all or a substantial part of Debtor's
property shall have been entered; or the involuntary appointment
of an interim receiver, trustee or other custodian of Debtor for
all or a substantial part of Debtor's property shall have
occurred; or a warrant of attachment, execution or similar
process shall have been issued against any substantial part of
the property of Debtor, and, in the case of any event described
in this clause (ii), such event shall have continued for 60 days
unless dismissed, bonded or discharged; or
(e) Voluntary Bankruptcy, etc. An order for
relief shall be entered with respect to Debtor, or Debtor shall
commence a voluntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order
for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial
part of Debtor's property.
8. Rights and Remedies. (a) If any Event of Default
shall have occurred, all of the Secured Obligations shall
immediately become due and payable and Secured Party may exercise
in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the
Uniform Commercial Code as in effect in any relevant jurisdiction
(whether or not the Code applies to the affected Collateral).
Secured Party shall have full recourse to the Maker (directly and
as to a deficiency in respect of the Collateral) and the
Collateral in respect of the Secured Obligations arising under
the Recourse Promissory Note, but Secured Party's sole remedy in
respect of the Secured Obligations arising under the Non-Recourse
Promissory Note shall be against the Collateral. In exercising
its remedies against the Collateral, Secured Party may, upon ten
(10) days' written notice to Debtor, but without any other demand
or notice whatsoever, transfer ownership of the Stock to Secured
Party in discharge of the Secured Obligations to the extent of
the fair market value of the shares of the Stock so transferred,
to the extent required to pay all of the Secured Obligations,
such transfer to be free and clear of any right or equity of
redemption, which right or equity is hereby expressly waived and
released.
(b) In the event shares of the Stock are so
transferred in discharge of any or all of the Secured
Obligations, such transfer shall be applied first to the fees
incurred as set forth in Section 13, second to the Obligations
arising in respect of the Non-Recourse Promissory Note and third
to the Obligations arising in respect of the Recourse Promissory
Note, in each case first to liabilities for interest and then to
liabilities for principal. All rights and remedies hereunder are
in addition to whatever other rights the parties hereto may
otherwise have against one another, and no exercise of any such
rights or remedies shall be deemed to preclude the exercise of
any other rights or remedies.
(c) If Debtor and Secured Party are unable to
agree upon the fair market value of the shares of Stock so
transferred, the fair market value shall be determined in the
manner set forth in Section 7(e) of the Management Services
Agreement.
(d) In the event the fair market value of the
Stock exceeds the aggregate amount of the Secured Obligations,
the number of shares of Stock to be transferred to Secured Party
pursuant to Section 8(a) shall be determined by multiplying the
number of shares of Stock, by a fraction, the numerator of which
is the aggregate amount of the Secured Obligations and the
denominator of which is the aggregate fair market value of the
Stock determined as provided herein, with any fractional interest
settled in cash.
9. Continuing Security Interest; Transfer of Notes.
This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until
the payment in full of the Secured Obligations, (ii) be binding
upon Debtor, its successors and assigns and (iii) inure, together
with the rights and remedies of Secured Party hereunder, to the
benefit of Secured Party and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause
(iii), Secured Party may assign or otherwise transfer the Notes
only to any affiliate of Secured Party, and such affiliate shall
thereupon become vested with all the benefits in respect thereof
granted to Secured Party herein or otherwise. Upon the payment
in full of all Secured Obligations, the security interest granted
hereby shall terminate and all rights to the Collateral shall
revert to Debtor. Upon any such termination Secured Party will,
at Debtor's expense, execute and deliver to Debtor such documents
as Debtor shall reasonably request to evidence such termination.
10. Amendments; Etc. No amendment, modification,
termination or waiver of any provision of this Agreement, and no
consent to any departure by Debtor therefrom, shall in any event
be effective unless the same shall be in writing and signed by
Secured Party and, in the case of any such amendment or
modification, by Debtor.
11. Notices. Any communications between Secured Party
and Debtor and any notices or requests provided herein to be
given shall be given in accordance with the provisions set forth
in the Management Services Agreement.
12. Failure or Indulgence Not Waiver. No failure or
delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further
exercise thereof or of any other power, right or privilege.
13. Indemnity and Expenses. Debtor agrees to
indemnify Secured Party from and against any and all claims,
losses and liabilities arising out of or resulting from this
Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting from
Secured Party's negligence or willful misconduct. Debtor will
upon demand pay to Secured Party the amount of any and all
reasonable expenses, including the reasonable fees and
disbursements of counsel and of any experts and agents, which
Secured Party may incur in connection with (i) the administration
of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other
realization upon any of the Collateral, (iii) the exercise or
enforcement of any of its rights hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof.
14. Severability. In case any provision in or
obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not
in any way be affected or impaired thereby.
15. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
16. Governing Law; Terms. This Agreement and the
rights and obligations of the parties hereunder shall be governed
by, and shall be construed and enforced in accordance with, the
internal laws of the State of New York without regard to
conflicts of laws principles, except to the extent that the
Uniform Commercial Code of the applicable jurisdiction provides
that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular
collateral are governed by the laws of a jurisdiction other than
the State of California. Unless otherwise defined herein or in
the Notes, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of California are used herein as
therein defined.
17. Counterparts. This Agreement may be executed in
one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
18. Subject to Management Services Agreement. The
parties hereby agree that, notwithstanding anything to the
contrary contained herein, the Stock shall be subject to the
terms and provisions of Sections 7 and 8 of the Management
Services Agreement, and nothing contained herein shall limit the
operation of such Sections 7 and 8.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of January 31, 1997.
A&M INVESTMENT ASSOCIATES #3, LLC
/s/ Antonio C. Alvarez
By ____________________________
Name: Antonio C. Alvarez II
Title: Manager
WEI ACQUISITION CO.
/s/ Bob Davenport
By ____________________________
Name: Robert C. Davenport
Title: Chief Financial Officer
and Secretary
<PAGE>
<PAGE>
STOCK SUBSCRIPTION AGREEMENT
This Stock Subscription Agreement (the "AGREEMENT") is
entered into as of January 31, 1997, by and among WEI Acquisition
Co., a Delaware corporation (the "COMPANY"), and A&M Investment
Associates #3, LLC, a Delaware limited liability company
(hereinafter referred to as the "PURCHASER.")
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and December
13, 1996 (the "POR") and an Asset Purchase Agreement dated as of
January 31, 1997 (the "ASSET PURCHASE AGREEMENT"), the Company
will acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively,
the "DEBTORS"), in Case No. 95-911 (HSB) (Jointly Administered)
(the "BANKRUPTCY CASE") in the Bankruptcy Court for the District
of Delaware (the "BANKRUPTCY COURT");
WHEREAS, the Company, the Purchaser, Alvarez & Marsal,
Inc. ("A&M"), Cerberus Partners, L.P. and certain of A&M's
employees have entered into a Management Services Agreement dated
as of January 31, 1997 (the "MANAGEMENT SERVICES AGREEMENT"),
which will become effective on the Effective Date (as defined
therein) and, pursuant to the terms of which, the Purchaser has
agreed to purchase from Company, and Company has agreed to sell
to Purchaser a number of shares of common stock, $0.01 par value
per share, of the Company (the "COMMON STOCK"), upon the terms
and subject to the conditions set forth herein; and
WHEREAS, the Purchaser has been formed by its members
(the "MEMBERS") for the purpose of acquiring the A&M Shares.
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. REPRESENTATIONS.
(a) Review of Documents, Investment Risk. The
Purchaser represents and acknowledges that (i) Purchaser and each
Member and their advisers have reviewed the Disclosure Statement
for Debtors' First Amended Chapter 11 Plan dated October 4, 1996
and have been afforded an opportunity to review and receive
certain confidential descriptive information (the "INFORMATION")
relating to the Company, the Company's business and finances, and
any and all other information deemed relevant by Purchaser and
the Members in order to make an informed investment decision
regarding this Agreement and the Shares (as defined in Section
2(a) below, have reviewed and understand the Information and this
Agreement; (ii) Purchaser and each Member have such knowledge and
experience in financial matters, such that Purchaser is properly
able to evaluate the proposed acquisition of the Debtors, the
proposed capital structure of the Company, the business of the
Company and its subsidiaries and the risks inherent therein;
(iii) Purchaser and each Member have been given the opportunity
to obtain any additional information or documents from, and to
ask questions and receive answers of, the officers and
representatives of the Company and its subsidiaries to the extent
necessary to evaluate the merits and risks related to an
investment in the Company and the undertakings evidenced by the
Management Services Agreement; (iv) Purchaser and each Member
have, to the extent Purchaser and each Member deemed necessary,
been advised by legal counsel of Purchaser's choice in connection
with this Agreement and the issuance and sale of the Shares
pursuant hereto; and (v) the purchase of the Shares pursuant
hereto is consistent, in both nature and amount, with Purchaser's
and each Member's overall investment program and financial
condition, and Purchaser's and each Member's financial condition
is such that Purchaser and each Member can afford to bear the
economic risk of holding unregistered Shares for which there is
no market and to suffer a complete loss of Purchaser's and each
Member's investment therein.
(b) Purchase for Investment.
(i) The Purchaser on behalf of itself and each
Member represents and warrants that (i) the Shares acquired by
Purchaser is being acquired for Purchaser's account for
investment and not with a view to or for sale in connection with
any distribution of the Shares, (ii) Purchaser and each Member do
not presently have any reason to anticipate any change in
Purchaser's and each Member's circumstances or any other
particular occasion or event which would cause Purchaser to sell
any of such Shares, and (iii) Purchaser and each Member is fully
aware that in agreeing to sell or issue such Shares to Purchaser
the Company is relying upon the truth and accuracy of these
representations and warranties. The Purchaser agrees that
Purchaser will not sell or otherwise dispose of any Common Stock
except in compliance with the Securities Act of 1933, as amended
(the "ACT"), the rules and regulations of the Securities and
Exchange Commission thereunder, the relevant state securities
laws applicable to Purchaser's and each Member's actions and the
Shares, and the terms of this Agreement and the Management
Services Agreement. Purchaser and each Member is an accredited
investor under the Act.
(ii) In addition to the other restrictions
provided in this Agreement and the Management Services Agreement,
the Purchaser agrees that prior to making any disposition of any
Shares (other than a disposition to the Company), Purchaser will
give written notice to the Company describing the manner of such
proposed disposition. The Purchaser further agrees that
Purchaser will not effect such proposed disposition until either
(A) Purchaser has provided to the Company, if so requested by the
Company, an opinion of counsel reasonably satisfactory in form
and substance to the Company that such proposed disposition is
exempt from registration under the Act and any applicable state
securities laws, or (B) a registration statement under the Act
covering such proposed disposition has been filed by the Company
under the Act and has become effective and compliance with
applicable state securities laws has been effected. The Company
agrees that it will respond as promptly as reasonably practicable
to any notice of sale given hereunder. The Company will use its
best efforts to comply with any such applicable state securities
laws, but shall in no event be required, in connection therewith,
to qualify to do business in any state where it is not then
qualified or to take any action that would subject it to tax or
to the general service of process in any state where it is not
then subject, or, in the case of alternative (A) above, to
qualify the securities for sale in any state.
(iii)The Purchaser acknowledges that: (A) no
trading market for the Common Stock is expected to exist
following the Acquisition and that, as the result, Purchaser may
be unable to sell any of the Common Stock for the foreseeable
future; and (B) the Company has no obligation to register or
qualify any of the Common Stock under the Act or the Securities
Exchange Act of 1934 or any state securities laws.
(c) Company Representations. The Company is
authorized to issue 24,000,000 shares of Common Stock, $.01 par
value per share. Upon the issuance and purchase of the Shares
pursuant hereto, the Shares shall be duly authorized, validly
issued, fully paid and nonassessable.
2. ACQUISITION OF STOCK.
(a) Purchase of Shares. Subject to the terms and
conditions of this Agreement, on the Effective Date (as defined
in the Management Services Agreement) the Purchaser agrees to
purchase from the Company, and the Company agrees to sell to
Purchaser, the number of shares of Common Stock (the "SHARES")
set forth in Section 4(b) of the Management Services at the
Purchase Price (as defined in the Management Services Agreement).
(b) Payment. Purchaser agrees to make payment for the
shares in the manner set forth in Section 4(b)(3) of the
Management Services Agreement.
(c) Termination of Purchase Obligation. In the event
the proposed acquisition of the Debtors is not consummated, the
obligations of the Purchaser to purchase, and the obligation of
the Company to issue and sell, the Common Stock shall terminate
without liability of any party to any other.
3. LEGEND ON CERTIFICATES. Each stock certificate of the
Company issued to represent any of the Shares acquired pursuant
to this Agreement shall bear the following (or substantially
equivalent) legends on the face or reverse side thereof:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY JURISDICTION. SUCH
SHARES MAY NOT BE OFFERED, SOLD, OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT
PURSUANT TO (I) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE
UNDER SUCH ACT AND AS AUTHORIZED UNDER
APPLICABLE STATE SECURITIES LAW, OR (II) ANY
EXEMPTION FROM REGISTRATION UNDER SUCH ACT,
AND APPLICABLE STATE SECURITIES LAW, RELATING
TO THE DISPOSITION OF SECURITIES, INCLUDING
RULE 144, PROVIDED AN OPINION OF COUNSEL IS
FURNISHED, REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY, THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND/OR APPLICABLE STATE SECURITIES
LAW IS AVAILABLE.
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE BEEN PLEDGED TO THE COMPANY PURSUANT TO
A STOCK PLEDGE AGREEMENT DATED JANUARY 31,
1997, ARE SUBJECT TO CALL RIGHTS OF THE
COMPANY AND OTHER LIMITATIONS AND MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
SUCH TRANSFER IS PERMITTED BY THE PROVISIONS
SAID STOCK PLEDGE AGREEMENT, A STOCK
SUBSCRIPTION AGREEMENT DATED AS OF JANUARY
31, 1997 AND A MANAGEMENT SERVICES AGREEMENT
DATED AS OF JANUARY 31, 1997, A COPY OF EACH
OF WHICH IS ON FILE AT THE OFFICES OF THE
COMPANY.
Any stock certificate issued at any time in exchange or
substitution for any certificate bearing such legends (except a
new certificate issued upon the completion of a public
distribution of Common Stock represented thereby) shall also bear
such (or substantially equivalent) legends except to the extent
that the Shares represented by such certificate is no longer
subject to the referenced provisions and in the opinion of
counsel for the Company the Shares represented thereby need no
longer be subject to such restrictions. The Company shall not be
required to transfer on its books any certificate for Shares in
violation of the provisions of this Agreement or the Management
Services Agreement.
4. SALE OR TRANSFER OF STOCK.
(a) No Sale or Transfer. The Purchaser agrees that
Purchaser will not, directly or indirectly, sell, pledge, give,
bequeath, transfer, assign or in any other way whatsoever
encumber or dispose of (a "transfer") any Shares (or any interest
therein), now or hereafter at any time owned by him, except as
permitted by this Agreement, the Management Services Agreement
and the Stock Pledge Agreement (as defined in the Management
Services Agreement), or as may be specifically authorized by the
Board of Directors of the Company in its sole discretion.
(b) During Term of Management Services Agreement or
Rule 144 Holding Period. Prior to (i) October 14, 1998 or (ii)
the expiration of the applicable holding period under Rule 144 of
the Act ("RULE 144"), whichever is later, Purchaser shall not
sell, transfer, encumber or otherwise dispose of any of the
Shares, except as required by Sections 7 and 8 of the Management
Services Agreement, and, after October 14, 1998, only in
accordance with, Rule 144 or pursuant to an effective
registration statement under the Act. Any sale, transfer,
assignment, pledge or hypothecation in contravention of this
proscription shall be void ab initio.
(c) Right of First Refusal. If the holder of any
Shares is permitted to and desires to sell, transfer or otherwise
dispose of the Shares or any interest therein (a "DISPOSITION"),
the holder shall first send a notice to the Company which shall
include the consideration and manner of payment thereof of the
proposed Disposition and identify the potential transferees (the
"DISPOSITION NOTICE"). Such Disposition Notice shall constitute
an offer by the holder to sell the Shares or any interest therein
as set forth in the Disposition Notice to the Company (or its
assignee) upon the terms set forth in the Disposition Notice (the
"HOLDER OFFER"). The Company (or its assignee) shall have a
period of 15 days in which to accept the Holder Offer by delivery
of a notice to the Holder (the "COMPANY ACCEPTANCE"). If the
Company (or its assignee) accepts the Holder Offer, it shall be
obligated to buy, and the holder shall be obligated to sell, on
the terms and conditions of the Holder Offer, the Shares, or any
interest therein to which the offer relates, except that (i) the
closing of such purchase and sale shall take place at the
principal offices of the Company on a date to be selected by the
Company (or its assignee) which shall be no later than 20 days
after the date of the Company Acceptance and (ii) in the event
that the Holder Offer included as all or part of the purchase
consideration any consideration other than cash, the Company (or
its assignee) shall pay, in lieu of such non-cash consideration,
an amount in cash equal to the fair market value of such non-cash
consideration as determined in good faith by the Company's Board
of Directors. In the event that the Company (or its assignee)
does not accept the Holder Offer within the 15-day period
specified above, the holder may make the Holder Offer to any or
all of the parties identified in the Disposition Notice and sell
the Shares or the interest therein for the consideration and
manner of payment no less favorable than as set forth in the
Holder Notice, within 60 days after the end of the first 15-day
period specified above; provided, however, that if the sale of
the Shares or interest therein to such third party has not been
consummated by the date 60 days after the expiration of the first
15-day period specified above, the Shares and any interest
therein shall again become subject to the first refusal right of
the Company set forth above and the holder may not sell, transfer
or otherwise dispose of the Shares or any interest therein except
in accordance with the foregoing. Any election by the Company
not to accept any Holder Offer in any instance shall not
constitute a waiver of its right to receive a Holder Offer in
each case in the future in which the holder desires to sell,
transfer or otherwise dispose of the Shares or any interest
therein.
(d) Evidence of Compliance. Notwithstanding anything
in this Agreement to the contrary, the Company shall have no
obligation to cause any Shares to be transferred to any person
unless (i) the holder-transferor of such Shares shall furnish to
the Company evidence of compliance with, or exemption from, the
Act, as specifically set forth in the next paragraph and shall
comply in all material respects with all conditions set forth in
this Agreement to a transfer of such Shares, and (ii) such
transferee shall assume in writing transferor's obligations under
this Section 4 and agree to be bound by the provisions of this
Agreement, including without limitation this Section 4, which
relate to the transfer of Shares.
(e) Transfer Requirements. Purchaser agrees and each
person to which any Shares are permitted to be transferred (by
acceptance of such transfer) shall agree in writing that it will
not dispose of any Shares except to the extent permitted under
this Agreement, the Management Services Agreement and the Stock
Pledge Agreement and pursuant to (1) an effective registration
statement under the Act and the receipt of all applicable
qualifications under state securities laws or (2) a written
opinion of counsel, reasonably satisfactory in form and substance
to the Company, delivered to the Company, that the Shares may be
transferred without registration under the Act or qualification
under such laws. Each person proposing to transfer Shares, other
than pursuant to an effective registration statement under the
Act, shall, if requested by the Company, as a condition precedent
to the effectiveness of such transfer, deliver to the Company an
investment representation letter and investment covenant
reasonably satisfactory in form and substance to the Company and
its counsel signed by the proposed transferee and the agreement
required under clause (ii) of paragraph (d) above.
(f) Distributions. In the event any securities of the
Company or any other entity shall be distributed on, with respect
to, or in exchange for shares of Common Stock of the Company as a
stock dividend, stock split, reclassification or recapitalization
or in connection with any merger or reorganization, the
restrictions set forth in this Section 4 shall apply with respect
to such other securities to the same extent as they are, or would
have been applicable, to the Common Stock on or with respect to
which such other securities were distributed.
5. NOTICES. All notices or other communications under
this Agreement shall be given in writing and shall be deemed duly
given and received on the third full business day following the
day of the mailing thereof by registered or certified mail or
when delivered personally or sent by facsimile transmission (with
confirmation of delivery to the intended recipient) as follows:
(a) if to the Company, at its principal executive
offices at the time of the giving of such notice, or at such
other place as the Company shall have designated by notice as
herein provided to the Purchaser; and
(b) if to the Purchaser, at the address of Purchaser
as it appears on the signature page hereof or at such other place
as Purchaser shall have designated by notice as herein provided
to the Company.
6. SPECIFIC PERFORMANCE. Due to the fact the securities
of the Company cannot be readily purchased or sold in the open
market, and for other reasons, the parties will be irreparably
damaged in the event that this Agreement is not specifically
enforced. In the event of a breach or threatened breach of the
terms, covenants and/or conditions of this Agreement by any of
the parties hereto, the other parties shall, in addition to all
other remedies, be entitled (without any bond or other security
being required) to a temporary and/or permanent injunction,
without showing any actual damage or that monetary damages would
not provide an adequate remedy, and/or a decree for specific
performance, in accordance with the provisions hereof.
7. MISCELLANEOUS.
(a) Obligations Several. All obligations of the
Purchaser hereunder shall be deemed to be several and not joint
with those of other management purchasers of Common Stock of the
Company.
(b) Amendments. Except as provided in the last
sentence of this paragraph, this Agreement, the Management
Services Agreement and the Stock Pledge Agreement (as defined in
the Management Services Agreement) constitute the entire
agreement of the parties with respect to the subject matter
hereof and may not be modified or amended except by a written
agreement signed by the Company and the Purchaser. Anything in
this Agreement to the contrary notwithstanding, any modification
or amendment of this Agreement by a written agreement signed by,
or binding upon, the "Purchaser" as defined in the introductory
paragraph of this Agreement shall be valid and binding upon any
and all persons or entities who may, at any time, have or claim
any rights under or pursuant to this Agreement in respect of any
Shares acquired by the Purchaser.
(c) Waiver. No waiver of any breach or default
hereunder shall be considered valid unless in writing, and no
such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature. Anything in this
Agreement to the contrary notwithstanding, any waiver, consent or
other instrument under or pursuant to this Agreement signed by,
or binding upon, the "Purchaser" as defined in the introductory
paragraph of this Agreement shall be valid and binding upon any
and all persons. or entities (other than the Company) who may,
at any time, have or claim any rights under or pursuant to this
Agreement in respect of any Shares originally acquired by
Purchaser.
(d) Successors and Assigns. Except as otherwise
expressly provided herein, this Agreement shall be binding upon
and inure to the benefit of the Company, its successors and
assigns, and the Purchaser and its respective successors and
assigns; provided, however, that nothing contained herein shall
be construed as granting to the Purchaser the right to transfer
any of the Common Stock except in strict accordance with this
Agreement, the Management Services Agreement and the Stock Pledge
Agreement and any transferee shall hold such Common Stock having
only those rights as provided for in this Agreement.
(e) Severability. If any provision of this Agreement
shall be invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall
not in any manner affect or render invalid or unenforceable any
other severable provision of this Agreement, and this Agreement
shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
(f) Attorney's Fees. Should any party to this
Agreement be required to commence any litigation concerning any
provision of this Agreement or the rights and duties of the
parties hereunder, the prevailing party in such proceeding shall
be entitled, in addition to such other relief as may be granted,
to the attorneys' fees and court costs incurred by reason of such
litigation.
(g) Section Headings. The section headings contained
herein are for the purposes of convenience only and are not
intended to define or limit the contents of said sections.
(h) Further Assurances. Each party hereto shall
cooperate and shall take such further action and shall execute
and deliver such further documents as may be reasonably requested
by any other party in order to carry out the provisions and
purposes of this Agreement.
(i) Singular and Plural. Words in the singular shall
be read and construed as though in the plural and words in the
plural shall be read and construed as though in the singular in
all cases where they would so apply.
(j) Counterparts. This Agreement may be executed in
one or more counterparts, all of which taken together shall be
deemed one original.
(k) Governing Law. This Agreement shall be deemed to
be a contract under the laws of the State of New York and for all
purposes shall be construed and enforced in accordance with the
internal laws of said state without regard to the principles of
conflicts of law.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the first date written above.
WEI ACQUISITION CO.
By /s/ Bob Davenport
------------------------------
Its Chief Financial Officer and
Secretary
PURCHASER
A&M INVESTMENT ASSOCIATES #3, LLC
By /s/ Antonio C. Alvarez
-------------------------------
Its Manager
Address: 885 Third Avenue
Suite 1700
New York, NY 10022-4802
<PAGE>
<PAGE>
NON-TRANSFERABLE STOCK OPTION AGREEMENT
THIS NON-TRANSFERABLE STOCK OPTION AGREEMENT (as it may
be amended, supplemented or otherwise modified from time to time,
the "AGREEMENT") is dated as of the 31st day of January, 1997,
and is entered into between WEI ACQUISITION CO., a Delaware
corporation (the "COMPANY"), and A&M INVESTMENT ASSOCIATES #3,
LLC, a Delaware limited liability company (the "OPTIONEE").
W I T N E S S E T H
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4,
1996 and Supplemental Amendments on December 2, 1996 and December
13, 1996 (the "POR") and an Asset Purchase Agreement dated as of
January 31, 1997 (the "ASSET PURCHASE AGREEMENT"), the Company
will acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively,
the "DEBTORS"), in Case No. 95-911 (HSB) (Jointly Administered)
(the "BANKRUPTCY CASE") in the Bankruptcy Court for the District
of Delaware (the "BANKRUPTCY COURT"); and
WHEREAS, the Company, the Optionee, Alvarez & Marsal,
Inc. ("A&M"), Cerberus Partners, L.P. and certain of A&M's
employees have entered into a Management Services Agreement dated
as of January 31, 1997 (the "MANAGEMENT SERVICES AGREEMENT"),
which will become effective on the Effective Date (as defined
below) and, pursuant to the terms thereof, the Company has
granted to the Optionee options to purchase authorized but
unissued shares of Common Stock, $0.01 par value per share, of
the Company (the "COMMON STOCK"), upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the services of
Optionee provided and to be provided to the Company under the
Management Services Agreement, the mutual promises and covenants
made herein, the parties agree as follows:
1. DEFINED TERMS, EFFECTIVENESS. This Agreement, and
the options granted hereunder, shall become effective on the date
on which the POR becomes effective by order of the Bankruptcy
Court (the "EFFECTIVE DATE"). Unless otherwise indicated,
capitalized terms used herein and not otherwise defined herein
shall have the meaning assigned to such terms in the POR. The
term "SHARES", as used herein, refers to shares of the Common
Stock and of any stock or any other securities or property into
which the Shares may hereafter be changed.
2. GRANT OF OPTION; EXERCISE PRICE; EXERCISABILITY
PERIOD.
(a) Grant of Option and Exercise Price. Subject to
the terms and conditions set forth herein, this Agreement
evidences the Company's grant to the Optionee of the following
options:
(1) the right and option to purchase all or any
part of an aggregate of 331,127 shares of the Common Stock,
(which, on the Effective Date, equals three and one/third
percent (3 1/3%) of 9,933,808 Shares, which is the total
number of Shares issued and outstanding and into which any
convertible or exercisable securities may be converted or
exercised on a diluted basis, in each case, pursuant to the
POR, taking into account any Warrants issued pursuant to the
POR (the "BASELINE OUTSTANDING SHARES")), at a purchase
price (the "FIRST OPTION EXERCISE PRICE") equal to $9.56, as
such number of shares and purchase price may from time to
time be adjusted hereunder (such option, the "FIRST
OPTION");
(2) the right and option to purchase all or any
part of an aggregate of 331,127 additional Shares (which, on
the Effective Date, equals an additional three and one/third
percent (3 1/3%) of the Baseline Outstanding Shares), at a
purchase price (the "SECOND OPTION EXERCISE PRICE") equal to
$11.58, as such number of shares and purchase price may from
time to time be adjusted hereunder (the "SECOND OPTION");
and
(3) the right and option to purchase all or any
part of an aggregate of 331,126 additional (which, on the
Effective Date, equals an additional three and one/third
percent (3 1/3%) of the Baseline Outstanding Shares), at a
purchase price (the "THIRD OPTION EXERCISE PRICE") equal to
$14.10(1), as such number of shares and purchase price may
--------------------
(1) The First Option Exercise Price, the Second Option
Exercise Price and the Third Option Exercise Price as
set forth in this Section 2(a) have been calculated
based on the following formulas: (i) the First Option
Exercise Price equals the quotient of $95,000,000 divided
by the Baseline Outstanding Shares; (ii) the Second Option
Exercise Price equals the quotient of $115,000,000 divided
by the Baseline Outstanding Shares; and (iii) the Third
Option Exercise Price equals the quotient of $140,000,000
divided by the Baseline Outstanding Shares. The parties
agree and acknowledge that the Company may, after the
Effective Date, issue additional shares of Common Stock
pursuant to Section 5.05(a) of the POR, and in order to
account for the issuance of such additional shares, the
number of Shares purchasable upon exercise of each A&M
Option, and the First Option Exercise Price, the Second
Option Exercise Price and the Third Option Exercise Price
shall be adjusted in the manner set forth in Section 8(a)
of this Agreement.
from time to time be adjusted hereunder (the "THIRD OPTION;
the First Option, the Second Option and the Third Option,
being referred to herein individually as an "A&M OPTION,"
and, collectively, as the "A&M OPTIONS").
(b) Exercisability Period. Subject to Section 6
hereof, the options to purchase Shares under each A&M Option
shall vest and become exercisable in equal monthly installments
on the last day of each month commencing on the last day of the
first month succeeding the Effective Date through October 31,
1998, and each unexpired and unexercised A&M Option shall expire
and cease to become exercisable at 5:00 p.m. (Pacific time) on
the sixth anniversary of the Effective Date (the "EXPIRATION
DATE"). The First Option Exercise Price, the Second Option
Exercise Price and the Third Option Exercise Price and the number
of Shares purchasable upon exercise of each A&M Option shall be
subject to adjustment as provided in Section 8. Notwithstanding
anything to the contrary contained in this Agreement, each A&M
Option, and the rights of the Company and the Optionee with
respect to each A&M Option, shall be subject to, and be governed
by, the provisions of Sections 7 and 8 of the Management Services
Agreement, as such Sections 7 and 8 apply to the A&M Options.
3. EXERCISABILITY OF OPTION. Upon payment of the
exercise price at the time in effect hereunder with respect to
the A&M Option being exercised, the Company shall cause to be
issued and shall deliver to the Optionee a certificate for the
Shares issuable upon such exercise. Such certificate shall be
deemed to have been issued as of the date of the surrender of the
A&M Option being exercised as to such number of Shares and
payment of the exercise price. If less than all of any A&M
Option is exercised, Optionee or the Company may request an
exchange of this Agreement for a new option agreement in
substantially the same form in respect of the remaining number of
Shares subject to such A&M Option. Fractional share interests
shall be disregarded, but may be accumulated. No fewer than 50
Shares may be purchased at any one time, unless the number
purchased is the total number at the time remaining for purchase
under the A&M Option being exercised. No adjustment shall be
made for any cash dividends on Shares issuable on the exercise of
the A&M Option being exercised.
4. METHOD OF EXERCISE OF OPTION. (a) Delivery of
Notice and Purchase Price. Each A&M Option shall be exercisable
by the delivery to the Company of a written notice substantially
in the form of Exhibit A hereto stating the number of Shares to
be purchased pursuant to the A&M Option being exercised and
accompanied by payment in full in accordance with the provisions
of Section 4(b), in an amount equal to the exercise price per
Share of the A&M Option being exercised multiplied by the number
of Shares to be purchased. In addition, the Optionee shall
furnish any written statements required hereby.
(b) Permitted Consideration. The purchase price of any
Shares purchased upon exercise of an A&M Option shall be paid in
full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by electronic funds transfer;
(ii) by check payable to the order of the Company; (iii) by
notice and third party payment in such manner as may be permitted
by the Board of Directors, or the Compensation Committee of the
Board of Directors, of the Company (the "Committee"); (iv) in the
event A&M shall exercise any A&M Options and sell the Shares
acquired upon such exercise to the Company in connection with the
occurrence of any of the events described in Sections 7 and 8 of
the Management Services Agreement and with the prior written
consent of the Company, by a "cashless exercise" whereby A&M
shall pay the applicable exercise price with the proceeds of such
sale; or (v) by the delivery of Shares already owned by the
Optionee (other than shares subject to the Pledge Agreement);
provided, however, that the Committee may in its absolute
discretion limit or deny the Optionee's ability to exercise any
A&M Option by the means set forth in clauses (iii), (iv) or (v)
above. Any Shares that the Committee permits to be used to
satisfy the exercise price of any A&M Option shall be valued at
their Market Price (as defined in Section 8(d)) on the date of
exercise and shall have been owned by the Optionee for at least
six months prior to the exercise.
5. COMPLIANCE WITH LAWS.
(a) Securities Laws. The issuance and delivery of the
Shares are subject to compliance with all applicable federal and
state securities laws, and to such approvals by any listing,
regulatory or governmental authority as may be necessary in
connection therewith. Any securities delivered under this
Agreement shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company,
provide such assurances and representations to the Company as the
Company may reasonably deem necessary to assure compliance with
such legal requirements.
Each certificate for the Shares initially issued upon
exercise of any A&M Option shall bear the following legend,
unless, at the time of exercise, such Shares are subject to a
currently effective registration statement under the Securities
Act of 1933, as amended (the "ACT"):
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD,
EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY
MANNER EXCEPT PURSUANT TO A REGISTRATION OR
AN EXEMPTION FROM SUCH REGISTRATION AND IN
COMPLIANCE WITH THE NON-TRANSFERABLE OPTION
AGREEMENT DATED JANUARY 31, 1997 PURSUANT TO
WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or
substitution for any certificate bearing such legend (except a
new certificate issued upon completion of a public distribution
pursuant to a registration statement under the Act, of the
securities represented thereby) shall also bear the above legend
unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such
restrictions.
(b) Tax Withholding. Upon exercise of any A&M Option,
the Optionee shall be responsible for the payment and shall
indemnify the Company for any nonpayment of any taxes on income
or gain which the Optionee may be required to pay or the Company
may be required to withhold with respect to such event.
(c) Payment of Taxes. The Company shall pay all
documentary stamp taxes, if any, attributable to this Agreement
or the issuance of any of the Shares or other securities upon the
exercise of any A&M Option, provided, however, that the Company
shall not be required to pay any tax or taxes which may be
payable in respect of any permitted transfer involved in the
issue of any certificates for Shares in a name other than that of
the Optionee. The Company shall not be required to issue or
deliver such certificates unless or until the persons requesting
the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(d) Reservation of Shares. The Company will at all
times reserve and keep available, free from preemptive rights,
out of the aggregate of its authorized but unissued Shares or its
authorized and issued Shares held in its treasury, for the
purpose of enabling it to satisfy any obligation to issue Shares
upon exercise of the A&M Options, the full number of Shares
deliverable upon exercise of the A&M Options. Before taking any
action which would cause an adjustment pursuant to Section 8 that
would reduce the exercise price below the then par value (if any)
of the Shares issuable upon exercise of any A&M Option, the
Company will take any corporate action which may, in the opinion
of its counsel (who may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable Shares at the exercise price of the
A&M Option being exercised as so adjusted.
(e) Representations of the Company; Obtaining
Approvals; No Registration Rights. The Company covenants and
represents that all Shares which may be issued upon the exercise
of the A&M Options will, upon issuance, be fully paid and
nonassessable and free from all taxes (other than as provided in
Section 5(b)), liens, charges and security interests with respect
to the issue thereof. The Company will in good faith, and as
expeditiously as reasonably possible, take all action which may
be necessary to obtain and keep effective any and all permits,
consents and approvals of governmental agencies and authorities,
and will make any and all filings under Federal and State
securities laws, necessary in connection with the issuance of the
A&M Options, the exercise of the A&M Options, and the issuance,
sale, transfer and delivery of Shares upon exercise of the A&M
Options to the Optionee, provided that, subject to A&M's rights
under the Registration Rights Agreement (as defined in the
Management Services Agreement), the foregoing provisions of this
sentence shall not be deemed to require registration of the A&M
Options or the Shares issuable on exercise of the A&M Options
under the Securities Act of 1933, as amended, or similar state
securities laws.
(f) Representations and Warranties of Optionee.
Optionee hereby acknowledges, represents and warrants to, and
agrees with, the Company as follows:
(1) Review of Documents, Investment Risk.
Optionee and Optionee's advisers have reviewed the
Disclosure Statement for Debtors' First Amended Chapter 11
Plan dated October 4, 1996 and have been afforded an
opportunity to review and receive certain confidential
descriptive information relating to the Company, the
Company's business and finances, and any and all other
information deemed relevant by Optionee in order to make an
informed investment decision regarding this Agreement, the
A&M Options and the Shares (the "INFORMATION"),
(ii) Optionee has been given the opportunity to obtain any
additional information or documents from, and to ask
questions and receive answers of, the officers and
representatives of the Company and its subsidiaries to the
extent necessary to evaluate the merits and risks related to
an investment in the Company, (iii) Optionee has, to the
extent Optionee deemed necessary, been advised by legal
counsel of Optionee's choice in connection with this
Agreement, the A&M Options and the issuance and sale of the
Shares pursuant hereto, and (iv) Optionee's financial
condition is such that Optionee can afford to bear the
economic risk of holding unregistered Common Stock for which
there is no market and to suffer a complete loss of
Optionee's investment therein.
(2) Purchase for Investment. Optionee represents
and warrants that (i) the Optionee is, and the Shares
acquired upon the exercise of any A&M Options will be,
acquired for Optionee's own account for investment and not
with a view to or for sale in connection with any
distribution of the Common Stock, (ii) Optionee does not
presently have any reason to anticipate any change in
Optionee's circumstances or any other particular occasion or
event which would cause Optionee to sell any of such Shares,
and (iii) Optionee is fully aware that in agreeing to sell
or issue such Shares to Optionee the Company is relying upon
the truth and accuracy of these representations and
warranties. Optionee agrees that Optionee will not sell or
otherwise dispose of any Shares except in compliance with
the Act, the rules and regulations of the Securities and
Exchange Commission thereunder, the relevant state
securities laws applicable to Optionee's actions, and the
terms of this Agreement and the Management Services
Agreement.
(3) No Market. The Optionee acknowledges that no
trading market for the Common Stock is expected to exist
following the proposed acquisition of the Debtors and that,
as the result, Optionee may be unable to sell any of the
Shares for the foreseeable future.
6. LIMITATIONS ON TRANSFERS AND EXCHANGES OF SHARES.
(a) No Sale or Transfer. The Optionee agrees that
Optionee will not, directly or indirectly, sell, pledge, give,
bequeath, transfer, assign or in any other way whatsoever
encumber or dispose of (a "transfer") any Shares issued upon
exercise of an A&M Option (or any interest therein), except as
permitted or required by this Agreement and the Management
Services Agreement, or as may be specifically authorized by the
Board of Directors of the Company in its sole discretion.
(b) During Term of Management Services Agreement or
Rule 144 Holding Period. Prior to (i) October 14, 1998 or, (ii)
the expiration of the applicable holding period under Rule 144 of
the Act ("RULE 144"), whichever is later, Optionee shall not
sell, transfer, encumber or otherwise dispose of any of the
Shares, except as required by Sections 7 and 8 of the Management
Services Agreement, and, after October 14, 1998, only in
accordance with Rule 144 or pursuant to an effective registration
statement under the Act. Any sale, transfer, assignment, pledge
or hypothecation in contravention of this proscription shall be
void ab initio.
(c) Right of First Refusal. If the holder of any
Shares is permitted to and desires to sell, transfer or otherwise
dispose of the Shares or any interest therein (a "DISPOSITION"),
the holder shall first send a notice to the Company which shall
include the consideration and manner of payment thereof of the
proposed Disposition and identify the potential transferees (the
"DISPOSITION NOTICE"). Such Disposition Notice shall constitute
an offer by the holder to sell the Shares or any interest therein
as set forth in the Disposition Notice to the Company ( or its
assignee) upon the terms set forth in the Disposition Notice (the
"HOLDER OFFER"). The Company (or its assignee) shall have a
period of 15 days in which to accept the Holder Offer by delivery
of a notice to the Holder (the "COMPANY ACCEPTANCE"). In the
event the Company (or its assignee) accepts the Holder Offer, it
shall be obligated to buy, and the holder shall be obligated to
sell, on the terms and conditions of the Holder Offer, the
Shares, or any interest therein to which the offer relates,
except that (i) the closing of such purchase and sale shall take
place at the principal offices of the Company on a date to be
selected by the Company (or its assignee) which shall be no later
than 20 days after the date of the Company Acceptance and (ii) in
the event that the Holder Offer included as all or part of the
purchase consideration any consideration other than cash, the
Company (or its assignee) shall pay, in lieu of such non-cash
consideration, an amount in cash equal to the fair market value
of such non-cash consideration as determined in good faith by the
Company's Board of Directors. In the event that the Company (or
its assignee) does not accept the Holder Offer within the 15-day
period specified above, the holder may make the Holder Offer to
any or all of the parties identified in the Disposition Notice
and sell the Shares or the interest therein for the consideration
and manner of payment no less favorable than as set forth in the
Holder Notice, within 60 days after the end of the first 15-day
period specified above; provided, however, that if the sale of
the Shares or interest therein to such third party has not been
consummated by the date 60 days after the expiration of the first
15-day period specified above, the Shares and any interest
therein shall again become subject to the first refusal right of
the Company set forth above and the holder may not sell, transfer
or otherwise dispose of the Shares or any interest therein except
in accordance with the foregoing. Any election by the Company
not to accept any Holder Offer in any instance shall not
constitute a waiver of its right to receive a Holder Offer in
each case in the future in which the holder desires to sell,
transfer or otherwise dispose of the Shares or any interest
therein.
(d) Evidence of Compliance. Notwithstanding anything
in this Agreement to the contrary, the Company shall have no
obligation to cause any Shares to be transferred to any person
unless (i) the holder-transferor of such Shares shall furnish to
the Company evidence of compliance with, or exemption from, the
Act, as specifically set forth in the next paragraph and shall
comply in all material respects with all conditions set forth in
this Agreement to a transfer of such Shares, and (ii) such
transferee shall assume in writing transferor's obligations under
this Section 6 and agree to be bound by the provisions of this
Agreement.
(e) Transfer Requirements. Optionee and each person
to which any Shares are transferred (by acceptance of such
transfer) hereby agrees that it will not dispose of any Shares
except pursuant to (1) an effective registration statement under
the Act and the receipt of all applicable qualifications under
state securities laws or (2) a written opinion of counsel,
reasonably satisfactory in form and substance to the Company,
delivered to the Company, that the Shares may be transferred
without registration under the Act or qualification under such
laws. Each person proposing to transfer Shares, other than
pursuant to an effective registration statement under the Act,
shall, if requested by the Company, as a condition precedent to
the effectiveness of such transfer, deliver to the Company:
(1) an investment representation letter and
investment covenant reasonably satisfactory in form and
substance to the Company and its counsel signed by the
proposed transferee; and
(2) the agreement required to be delivered
pursuant to clause (ii) of paragraph (d) above.
7. NON-TRANSFERABILITY OF OPTION. Each A&M Option
and any other rights of the Optionee under this Agreement are
exercisable only by the Optionee, and are nontransferable and
shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge (other
than to the Company).
8. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES
PURCHASABLE. The First Option Exercise Price, the Second Option
Exercise Price and the Third Option Exercise Price, and the
number of Shares purchasable upon the exercise of each A&M Option
are subject to adjustment from time to time as provided in this
Section 8.
(a) Issuance of Additional Shares. Effective as of
the last day of each fiscal quarter through January 31, 1998, the
First Option Exercise Price, the Second Option Exercise Price and
the Third Option Exercise Price, as the case may be, and the
number of Shares purchasable under each A&M Option shall be
adjusted as follows in order to account for any shares of Common
Stock issued by the Company after the Effective Date pursuant to
Section [5.05(A)] of the POR (such shares being referred to
herein as the "ADDITIONAL SHARES."
(1) The number of Shares purchasable upon
exercise of each A&M Option shall be increased by a number
of shares equal to three and one-third percent (3 1/3%) of
the aggregate number of Additional Shares that have been
issued since (A) the Effective Date, in the case of the
first adjustment made under this Section 8(a)(1), and (B)
the effective date of any adjustment most recently made
pursuant to this Section 8(a) in the case of all other
adjustments made under this Section 8(a)(1) (the "TOTAL
OUTSTANDING PLAN SHARES");
(2) The First Option Exercise Price shall be
adjusted to equal the quotient of (A) $95,000,000 divided by
(B) Total Outstanding Plan Shares (as such Total Outstanding
Plan Shares shall have been adjusted to reflect the increase
required by Section 8(a)(1)), as further adjusted to reflect
any adjustments previously made pursuant to the other
adjustment provisions of this Section 8;
(3) The Second Option Exercise Price shall be
adjusted to equal the quotient of (A) $115,000,000 divided
by (B) Total Outstanding Plan Shares, (as such Total
Outstanding Plan Shares shall have been adjusted to reflect
the increase required by Section 8(a)(1)), as further
adjusted to reflect any adjustments previously made pursuant
to the other adjustment provisions of this Section 8;
(4) The Third Option Exercise Price shall be
adjusted to equal the quotient of (A) $140,000,000 divided
by (B) Total Outstanding Plan Shares, (as such Total
Outstanding Plan Shares shall have been adjusted to reflect
the increase required by Section 8(a)(1)), as further
adjusted to reflect any adjustments previously made pursuant
to the other adjustment provisions of this Section 8.
(b) Stock Dividends, Splits, etc. If the Company
shall at any time after the date of this Agreement (i) pay a
dividend or make a distribution on its Common Stock which is paid
or made (A) in Common Stock or other shares of the Company's
capital stock or (B) in rights to purchase Common Stock or other
securities of the Company if such rights are not exercisable or
separable from the Common Stock except upon the occurrence of a
contingency, (ii) subdivide its outstanding Common Stock into a
greater number of shares of Common Stock, (iii) combine its
outstanding shares into a smaller number of shares of Common
Stock or (iv) issue by reclassification of its Common Stock other
securities of the Company, then, in any such event the number of
Shares purchasable upon exercise of each A&M Option immediately
prior thereto shall be adjusted so that the Optionee shall be
entitled to receive upon exercise of such A&M Option the kind and
number of shares of the Common Stock and rights to purchase
Common Stock or other securities of the Company (or, in the event
of the redemption of any such rights, any cash paid in respect of
such redemption) or another entity that the Optionee would have
owned or have been entitled to receive after the happening of any
of the events described above had such A&M Option been exercised
immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this
paragraph (b) shall become effective immediately after the
opening of business on the next business day following the record
date in the case of dividends or other distributions and shall
become effective immediately after the opening of business on the
next business day following the effective date in the case of a
subdivision or combination.
(c) Distributions of Assets. If the Company shall at
any time after the date of this Agreement distribute to all
holders of its Common Stock evidences of indebtedness of the
Company or assets of the Company (excluding cash dividends or
distributions out of retained earnings) or rights or warrants to
subscribe for securities of the Company (excluding those referred
to in paragraph (b) above), then in each such case the First
Option Exercise Price, the Second Option Exercise Price and the
Third Option Exercise Price, as the case may be, shall be
adjusted to a price determined by multiplying the First Option
Exercise Price, the Second Option Exercise Price and the Third
Option Exercise Price, as the case may be, in effect immediately
prior to such distribution by a fraction, of which the numerator
shall be the then current market price per share of Common Stock
(as defined in paragraph (d) below) on the record date for
determination of shareholders entitled to receive such
distribution, less the then fair value (as determined by the
Board of Directors of the Company, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or
warrants which are applicable to one share of Common Stock, and
of which the denominator shall be such market price per share of
Common Stock; provided, however, that if the then current market
price per share of Common Stock on the record date for
determination of shareholders entitled to receive such
distribution is less than the then fair value of the portion of
the assets or evidences of indebtedness so distributed or of such
subscription rights or warrants which are applicable to one share
of Common Stock, the foregoing adjustment of the First Option
Exercise Price, the Second Option Exercise Price and the Third
Option Exercise Price, as the case may be, shall not be made and
in lieu thereof the number of Shares purchasable upon exercise of
each A&M Option immediately prior to such distribution shall be
adjusted so that the Optionee shall be entitled to receive upon
exercise of such A&M Option the kind and number of assets,
evidences of indebtedness, subscription rights and warrants (or,
in the event of the redemption of any such evidences of
indebtedness, subscription rights and warrants, any cash paid in
respect of such redemption) that Optionee would have owned or
have been entitled to receive after the happening of such
distribution had such A&M Option been exercised immediately prior
to the record date for such distribution. Such adjustment shall
be made whenever any such distribution is made, and shall become
effective on the date of distribution retroactive to the record
date for the determination of shareholders entitled to receive
such distribution.
(d) Computation of Market Price. For the purpose of
any computation under paragraphs (a), (b) and (c) of this
Section, the current market price per share of Common Stock at
any date shall be deemed to be the average of the daily Market
Price (as defined below) per share for the 30 consecutive Trading
Days (as defined below) commencing 45 Trading Days before the
date in question. "Market Price" is defined as the closing sale
price (or, if no closing sale price is reported, the closing bid
price) for the Common Stock in the over-the-counter market, as
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or, if the Common Stock is
not quoted on NASDAQ, as reported by the National Quotation
Bureau Incorporated. In the event that the Common Stock is
hereafter listed for trading on one or more United States
national or regional securities exchanges, Market Price shall be
the closing price on the exchange or system designated by the
Board of Directors of the Company as the principal United States
market in which the Common Stock is traded. If Market Price
cannot be established as described above, Market Price shall be
determined in accordance with the procedure set forth in Section
7(e) of the Management Services Agreement for the determination
of the "Fair Market Value" of the Common Stock thereunder.
"Trading Day" shall mean a Monday, Tuesday, Wednesday, Thursday
or Friday on which banking institutions in the State of
California, are not authorized or obligated by law or executive
order to close or, if the Common Stock is listed or admitted to
trading on a national securities exchange, a day on which the
principal national securities exchange on which the Common Stock
is listed or admitted to trading is open for the transaction of
business.
(e) Minimum Adjustment. No adjustment in the number
of Shares purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at least one
per cent (1%) in the number of Shares purchasable upon the
exercise of each A&M Option; provided, however, that any
adjustments which by reason of this paragraph (e) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment.
(f) Exercise Price Adjustment. Whenever the number of
Shares purchasable upon the exercise of each A&M Option is
adjusted pursuant to Section 8(b), the First Option Exercise
Price, the Second Option Exercise Price and the Third Option
Exercise Price, as the case may be, per Share payable upon
exercise of each A&M Option shall be adjusted (to the nearest
cent) by multiplying such First Option Exercise Price, the Second
Option Exercise Price and the Third Option Exercise Price, as the
case may be, immediately prior to such adjustment by a fraction,
of which the numerator shall be the number of Shares purchasable
upon the exercise of each A&M Option immediately prior to such
adjustment, and of which the denominator shall be the number of
Shares so purchasable immediately thereafter; provided, however,
that if, as a result of an adjustment of the Shares purchasable
upon the exercise of an A&M Option, the Optionee shall be
entitled upon exercise to receive shares of two or more classes
of capital stock or Common Shares and other capital stock of the
Company, the Board of Directors shall determine in good faith the
allocation of the First Option Exercise Price, the Second Option
Exercise Price and the Third Option Exercise Price, as the case
may be, between or among shares of such classes of capital stock
or Common Stock and other capital stock.
(g) Definition of Common Stock. For the purpose of
this Section 8, the term "Common Stock" shall mean (i) the class
of stock designated as the Common Stock of the Company at the
date of this Agreement or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value to
no par value or from no par value to par value. In the event
that at any time, as a result of an adjustment made pursuant to
paragraph (b) above, the Optionee shall become entitled to
purchase any securities of the Company other than Common Stock,
thereafter the number of such other securities so purchasable
upon exercise of each A&M Option and the First Option Exercise
Price, the Second Exercise Price and the Third Option Exercise
Price, as the case may be, of such securities shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Shares contained in this Section 8 with respect to the Shares,
shall apply on like terms to any such other securities.
(h) Readjustment of Exercise Price and Number of
Option Shares. If, upon the expiration of any rights or warrants
with respect to which there shall have been an adjustment of the
number of Shares purchasable upon the exercise of each A&M Option
or of the First Option Exercise Price, the Second Exercise Price
and the Third Option Exercise Price, as the case may be, any of
such rights or warrants shall not have been exercised, the First
Option Exercise Price, the Second Exercise Price and the Third
Option Exercise Price, as the case may be, and the number of
shares of Common Stock purchasable upon the exercise of an A&M
Option shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been originally
adjusted (or had the original adjustment not been required, as
the case may be) on the basis of (A) the fact that the only
shares of Common Stock so issued were the Common Stock, if any,
actually issued or sold upon the exercise of such rights or
warrants and (B) the fact that such shares of Common Stock, if
any, were issued or sold for the consideration actually received
by the Company upon such exercise plus the consideration, if any,
actually received by the Company for the issuance, sale or grant
of all such rights or warrants whether or not exercised;
provided, that no such readjustment shall have the effect of
increasing the First Option Exercise Price, the Second Exercise
Price and the Third Option Exercise Price, as the case may be, or
reducing the number of Common Stock purchasable upon exercise of
an A&M Option by an amount in excess of the amount of the
adjustment initially made in respect of the issuance, sale or
grant of such rights or warrants.
(i) Company May Reduce Exercise Price or Increase
Number of Option Shares Purchasable. The Company may, at its
option, at any time during the term of the A&M Option, reduce the
then current First Option Exercise Price, the Second Exercise
Price and the Third Option Exercise Price, as the case may be, or
increase the number of Common Shares purchasable upon exercise of
each A&M Option, to any amount deemed appropriate by the Board of
Directors of the Company.
(j) No Adjustment for Dividends. Except as provided
in subsections 8(a) through (i), no adjustment in respect of any
dividends shall be made during the term of an A&M Option or upon
the exercise of an A&M Option.
(k) Consolidation, Merger or Sale of Assets. Subject
to any election by the Company pursuant to Section 8(l) hereof,
if (i) the Company shall at any time consolidate with or merge
with or into another corporation and (ii) the Common Stock is
exchanged, cancelled or reclassified in connection with such
transaction, Optionee will thereafter receive, upon the exercise
thereof in accordance with the terms of this Agreement, the
securities, property or cash to which the holder of the number of
shares of Common Stock deliverable upon the exercise of each A&M
Option immediately prior to such transaction would have been
entitled upon such consolidation or merger, and the Company shall
take such steps in connection with such consolidation or merger
as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or property thereafter deliverable
upon the exercise of each A&M Option. Prior to or simultaneously
with such transaction, the Company or the successor corporation,
as the case may be, shall execute and deliver to Optionee a
supplemental agreement so providing. A sale of all or
substantially all the assets of the Company for a consideration
(apart from the assumption of obligations) consisting primarily
of securities shall be deemed a consolidation or merger for the
purposes of clause (i) of the first sentence of this Section
8(k). The provisions of this Section 8(k) shall similarly apply
to successive mergers or consolidations or sales or other
transfers.
(l) Election Upon Merger or Consolidation.
Notwithstanding anything in this Agreement to the contrary, if at
any time prior to the Expiration Date (i) the Company proposes to
consolidate with or merge with or into another corporation (other
than in a merger or consolidation, directly or indirectly, with a
person or entity that is controlled by an affiliate of the
Company), (ii) the Common Stock would be exchanged, cancelled or
reclassified in connection with such transaction, and (iii) as a
result of such transaction and any substantially related
transactions (including, without limitation, a tender offer for
the Common Stock which precedes a merger involving the Company),
the Board of Directors of the Company determines that the
beneficial holders of the Common Stock of the Company immediately
prior to such transaction would beneficially own less than one-
half of the issued and outstanding equity of the surviving or
resulting corporation or the parent corporation thereof following
such transaction or transactions, then the Company may, at its
option, notify A&M that it must exercise all vested and
unexercised A&M Options (in full) into Shares as of a date prior
to the completion of such transaction (or, in the case of a
tender offer for the Common Stock which precedes a merger
involving the Company, immediately prior to the termination of
such tender offer). Any A&M Option (or the portion thereof) not
exercised by A&M by the day immediately prior to the completion
of such a transaction shall be cancelled and be of no further
force and effect. For purposes of clause (i) of the preceding
sentence, "affiliate" shall mean any person or entity
controlling, controlled by or under common control with the
Company, and whether a person or entity is controlled by an
affiliate of the Company shall be tested as of the date of the
merger or consolidation giving rise to the application of this
Section 8(l) (except that in the case of a tender offer for the
Common Stock which precedes a merger involving the Company,
shares of Common Stock acquired pursuant to such tender offer
shall be disregarded). Notwithstanding the giving of a notice as
provided herein, in the event that the proposed transaction which
results in the Company giving such notice is not completed, then
the A&M Options shall be deemed fully reinstated as if such
notice had not been given. A sale of all or substantially all
the assets of the Company for a consideration shall be deemed to
be a merger for the purposes of this Section 8(l). If the
Company shall determine to exercise its option under this Section
8(l), it shall give notice of the proposed transaction at least
30 days prior to the proposed effective date thereof (or, in the
case of a tender offer) to A&M as follows: Notice of such
proposed transaction, specifying the date or approximate date set
for the consummation thereof, shall be mailed to A&M to its last
addresses as it appears upon the registry books of the Company in
accordance with Section 10. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the
holder receives the notice.
(m) Termination of Awards on Dissolution. If any
unexpired and unexercised A&M Option or other right under any
unexpired and unexercised A&M Option is not exercised prior to a
dissolution of the Company, express provision shall be made in
the plan of dissolution or otherwise for the substitution or
other settlement of any unexpired and unexercised A&M Option for
the payment of the fair value thereof, or upon exercise and
payment of the exercise price, for the payment of value
equivalent to that paid in the dissolution to the holders of a
like number of Shares as then are subject to any unexpired and
unexercised A&M Option immediately prior thereto.
(n) Effective Date of Adjustment. Except as provided
herein, adjustments under this Section 8 shall become effective
immediately after the record date for the determination of
shareholders entitled to receive the applicable rights
contemplated thereby. Nevertheless, the Company may elect to
defer the effectiveness of such adjustment (but in no event until
a date later than the effective time of the event or payment
giving rise to such adjustment), in which case the Company shall,
with respect to any unexpired and unexercised A&M Option
exercised after such record date and before such adjustment shall
have become effective (i) defer issuing the number of Shares or
other securities or property of the Company deliverable upon such
exercise in excess of the number of Shares or other securities or
property of the Company issuable thereupon only on the basis of
the First Option Exercise Price, the Second Option Exercise Price
or the Third Option Exercise Price, as the case may be, prior to
adjustment, and (ii) not later than five business days after such
adjustment shall have become effective issue to such holder the
additional Shares or other securities or property of the Company
issuable, if any, on such exercise.
(o) Exercise Price on Certificate. Irrespective of
any adjustments in the First Option Exercise Price, the Second
Option Exercise Price or the Third Option Exercise Price, as the
case may be, or the number or kind of shares that may be acquired
upon the exercise of any A&M Option, this Agreement may continue
to express the same First Option Exercise Price, Second Option
Exercise Price or Third Option Exercise Price, as the case may
be, per Share and number and kind of Shares as are originally set
forth in this Agreement.
(p) Tax Related Adjustments. Anything in this Section
8 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the First Option Exercise Price, the
Second Option Exercise Price or the Third Option Exercise Price,
as the case may be, or increase in the number of Shares
purchasable upon exercise of any A&M Option, in addition to those
required by this Section, as it in its discretion shall
reasonably determine to be advisable in order that any stock
dividend, subdivision of shares, distribution of rights or
warrants to purchase stock or securities, or distribution of
other assets (other than cash dividends) hereafter made by the
Company to its stockholders shall not be taxable.
9. NOTICES TO OPTIONEE.
(a) Adjustments. Subject to Section 8(l), upon any
adjustment of the exercise price or the number of Shares the
Optionee shall be entitled to purchase upon exercise thereof
pursuant to Section 8, the Company within 20 days thereafter
shall (i) mail to the Optionee (at the address last appearing on
the Company's records for such purposes) a certificate of a firm
of independent public accountants of recognized standing selected
by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the exercise price after
such adjustment and the adjusted number of Shares (or fraction
thereof) purchasable upon exercise of any unexpired and
unexercised A&M Option and setting forth in reasonable detail the
method of calculation and the facts upon which the calculation is
based.
(b) Distributions; Certain Major Events. If:
(i) the Company shall declare a dividend (or any
other distribution) payable to the holders of Shares
otherwise than in cash; or
(ii) the Company shall authorize the granting to
the holders of Shares of rights to subscribe for or purchase
any shares of any class or of any other rights; or
(iii) the Company shall authorize any
reclassification or change of the Shares (other than a
subdivision or combination of its outstanding Shares), or
any reclassification, consolidation, merger or other
reorganization to which the Company is a party and for which
approval of any shareholders of the Company is required, or
the sale or conveyance of all or substantially all the
property or business of the Company; or
(iv) there shall be proposed any voluntary or
involuntary dissolution, liquidation or winding up of the
Company;
then, subject to Section 8(l),the Company shall cause to be
mailed to the Optionee, (at the address last appearing on the
Company's records for such purposes), at least 20 days prior to
the applicable record date or effective date hereinafter speci-
fied or as soon thereafter as practicable, by first class mail,
postage prepaid, a written notice stating (i) the date as of
which the holders of record of Shares to be entitled to receive
any such rights, warrants or distribution are to be determined,
or (ii) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of record of Shares shall be entitled to
exchange their Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger,
reorganization, conveyance, transfer, dissolution, liquidation or
winding up. If any action referred to in this Section 9(b)
requires the approval of holders of Shares, the Company shall
cause notice of the proposed action and the record date for the
determination of holders of Shares entitled to vote on such
matter to be mailed to the Optionee (at such address), at least
20 days prior to such record date or as soon thereafter as
practicable, by first class mail, postage prepaid. The failure
to give any notice required by this subsection 9(b) or any defect
therein shall not affect the legality of any such
reclassification, consolidation, merger, reorganization,
conveyance, transfer, dissolution, liquidation or winding up, or
the vote upon any action; provided, however, that the failure to
give any notice will extend the period during which any unexpired
and unexercised A&M Option may be exercised by a like number of
days and during which the holder is entitled to receive
securities or other property, as the case may be, upon exercise
of any unexpired and unexercised A&M Option.
Nothing contained in this Agreement shall be construed
as conferring upon the Optionee (v) the right to vote or receive
dividends or rights or to be deemed for any purpose the holder of
Shares or of any other securities of the Company which may at any
time be issuable on the exercise of any unexpired and unexercised
A&M Option, (w) any other rights of a shareholder of the Company,
(x) any right to vote upon any matter submitted to shareholders
at any meeting thereof, (y) any authority to give or withhold
consent to any corporate action (whether upon any
recapitalization, issue of stock, reclassification of stock,
change of par value, consolidation, merger, conveyance, or
otherwise), or (z) except as provided herein, to receive notice
of meetings, until any unexpired and unexercised A&M Option shall
have been exercised as provided herein.
10. NOTICES. Any notice to be given under the terms
of this Agreement shall be in writing and addressed to the
Company at its principal offices located at 19701 Hamilton
Avenue, Torrance, California 90502-1334, to the attention of the
Chief Financial Officer and Corporate Secretary, and to the
Optionee at the address given beneath the Optionee's signature
hereto, or to such other address as either party may hereafter
designate in writing delivered to the other party expressly for
such purposes. Notices or demands authorized by this Agreement
to be given or made by Optionee to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage
prepaid, to the address set forth above (until another address is
filed in writing). Notices or demands authorized by this
Agreement to be given or made by the Company to the Optionee
shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to Optionee at the address of the
Optionee given beneath its signature hereto.
11. AMENDMENTS. This Agreement may be amended, but
only by writing signed by the Company and the Optionee.
12. SUCCESSORS; BENEFIT. All the covenants and provi-
sions of this Agreement by or for the benefit of the Company or
the Optionee shall bind and inure to the benefit of their
respective successors and permitted assigns hereunder. Nothing
in this Agreement shall be construed to give to any person or
corporation other than the Company and the Optionee any legal or
equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the
Company, the Optionee and any such permitted assigns or
successors.
13. TERMINATION. This Agreement shall terminate at
5:00 p.m. (Pacific time) on the Expiration Date. Notwithstanding
the foregoing, this Agreement will terminate on any earlier date
on which all unexpired and unexercised A&M Options have been
exercised in their entirety.
14. GOVERNING LAW. This Agreement and the A&M Options
shall be deemed to be a contract made under the laws of the State
of New York and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state,
subject to the General Corporation Law of the state of
incorporation of the Company as to matters governed thereby as a
matter of corporation law.
15. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
16. HEADINGS. The headings used in this Agreement are
inserted for convenience only and neither constitute a portion of
this Agreement nor in any manner affect the construction of the
provisions of this Agreement.
17. EFFECTIVE DATE. This Agreement and the A&M
Options evidenced hereby shall be granted as of the Effective
Date and subject to the effectiveness of the POR.
IN WITNESS WHEREOF, each of the Company and the
Optionee has caused this Agreement to be executed on its behalf
by a duly authorized officer.
WEI ACQUISITION CO.
(a Delaware corporation)
By /s/ Bob Davenport
---------------------------------
Title Chief Financial Officer and Secretary
-------------------------------------
A&M INVESTMENT ASSOCIATES #3, LLC
By /s/ Antonio C. Alvarez
--------------------------------
Title Manager
-------------------------------
c/o Alvarez & Marsal, Inc.
885 Third Avenue, Suite 1700
----------------------------------
(Address)
New York, NY 10022
----------------------------------
(City, State, Zip Code)
<PAGE>
Notational Record of Exercise:
First A&M Option
Date Number of Shares Amount Received
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Second A&M Option
Date Number of Shares Amount Received
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Third A&M Option
Date Number of Shares Amount Received
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<PAGE>
EXHIBIT A
FORM OF EXERCISE OF OPTION
( To be executed upon each exercise of any A&M Option )
The undersigned hereby irrevocably elects to exercise
the right, evidenced by the Non-Transferrable Stock Option
Agreement dated as of January 31, 1997 (the "Agreement";
capitalized terms used herein without definition having the
meanings given thereto in the Agreement), to purchase _________
shares (the "Shares") under the [check applicable box(es)] [[ ]
First A&M Option] [ [ ] Second A&M Option] [ [ ] Third A&M Option] and
herewith tenders payment in full for such Shares as follows:
[check applicable box(es)]
[ ] by certified or official bank check payable to the
order of [_______________________] in the amount of $______________
[ ] by delivery of ___________ shares with a value of
$__________ per share, or $______________ in the aggregate
in accordance with the terms of the Agreement.
Optionee requests that a certificate for such Shares be
registered to Optionee [or a designee permitted by the Committee
pursuant to Section 4 of the Agreement] and delivered to Optionee
at: [insert address]
----------------------------------------------------------------
If said number of Shares is less than all of the shares
purchasable under the [check applicable box(es)] [ [ ] First A&M
Option] [[ ] Second A&M Option] [ [ ] Third A&M Option] under the
Agreement, Optionee represents that it has made (and authorizes
the Company to likewise make) notation of the partial exercise
and the date hereof on its executed copy of the Agreement.
Optionee acknowledges that the Shares have not been registered
under the Securities Act of 1933, as amended, or any applicable
state laws and may be sold or otherwise transferred only in
compliance with such laws, and represents that it will comply
with all such laws as to any transactions with respect to the
Shares and as to all restrictions applicable to the Shares under
the Agreement.
Dated: A&M INVESTMENT ASSOCIATES #3, LLC
___________________ By _________________________________
___________________ Its _________________________________
(Insert Taxpayer I.D.
No. of Optionee.)
To be completed by Company after the price, value (if applicable)
and receipt of funds verified:
ACCEPTED BY:
WEI ACQUISITION CO.
By:____________________________
Its: __________________________
<PAGE>
<PAGE>
WEI ACQUISITION CO.
19701 Hamilton Avenue
Torrance, California 90502-1334
Cerberus Partners, L.P., as Agent
950 Third Avenue
New York, New York 10022
Attention: Robert Davenport
January 31, 1997
Dear Mr. Davenport:
Reference is made to (i) that certain letter agreement
dated as of October 14, 1996 (the "Interim Management Agreement")
between Alvarez & Marsal, Inc. ("A&M") and Cerberus Partners,
L.P., as the agent (the "Agent") under that certain Credit
Agreement dated as of June 11, 1992 among the Agent, the other
lenders party thereto (collectively, the "Senior Lenders") and
Wherehouse Entertainment, Inc., as the borrower (the "Credit
Agreement") and (ii) that certain Management Services Agreement
dated as of the date hereof among WEI Acquisition Co. (the
"Company"), A&M, Antonio C. Alvarez, A&M Investment Associates #3
LLC, the Agent and certain other employees of A&M (the
"Management Services Agreement"). Capitalized terms used herein
without definition shall have the meanings given thereto in the
Management Services Agreement.
The Company hereby agrees that on the Effective Date or
promptly thereafter, the Company shall reimburse the Agent for
the benefit of the Senior Lenders all amounts paid by or on
behalf of the Senior Lenders in connection with forming and
organizing WEI Acquisition Co. and retaining A&M for A&M's
services under the Interim Management Agreement, including,
without limitation, all amounts paid in respect of the monthly
fees of A&M and the reimbursement of out-of-pocket expenses of
A&M, and the fees and expenses of outside counsel to the Senior
Lenders.
Very truly yours,
WEI ACQUISITION CO.
/s/ Henry Del Castillo
By:_______________________
Name: Henry Del Castillo
Title: CFO
<PAGE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is
made and entered into as of January 31, 1997 by WEI ACQUISITION
CO., a Delaware corporation (the "COMPANY"), and A&M INVESTMENT
ASSOCIATES #3, LLC, (the "AFFILIATE") as the holders of the
Registrable Shares (as defined below) and for the benefit of any
Eligible Transferee (as defined below). Unless otherwise
indicated, all capitalized terms used in this Agreement shall have
the meanings given thereto in Section 1 of this Agreement, or if
not defined in Section 1, in the section in which such term is
used.
RECITALS
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4, 1996
and Supplemental Amendments on December 2, 1996 and December 13,
1996 (the "POR") and an Asset Purchase Agreement dated as of
January 31, 1997 (the "ASSET PURCHASE AGREEMENT"), the Company will
acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively, the
"DEBTORS"), in Case No. 95-911 (HSB) (Jointly Administered) in the
Bankruptcy Court for the District of Delaware; and
WHEREAS, the Company, Alvarez & Marsal, Inc. ("A&M"), of
which the Affiliate is an affiliate, and certain of A&M's employees
have entered into a Management Services Agreement dated as of
January 31, 1997 (the "MANAGEMENT SERVICES AGREEMENT"), which will
become effective on the Effective Date (as defined therein);
WHEREAS, pursuant to the terms of the Management Services
Agreement, the Company and the Affiliate entered into the Stock
Subscription Agreement, pursuant to which the Affiliate agreed to
purchase from Company, and Company agreed to sell to the Affiliate
a number of shares of the New Common Stock, upon the terms and
subject to the conditions set forth therein;
WHEREAS, pursuant to the terms of the Management Services
Agreement, the Company and the Affiliate entered into the A&M
Option Agreement, pursuant to which the Company granted to A&M the
A&M Options upon the terms and conditions set forth in the A&M
Option Agreement; and
WHEREAS, pursuant to the terms of the Management Services
Agreement, the Company agreed to grant to the Affiliate the
registration rights set forth in this Agreement in respect of the
Registrable Shares.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable considerations, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
The terms set forth below are used herein as so defined:
"A&M OPTIONS" means the options granted to the Affiliate
and evidenced by the A&M Option Agreement.
"A&M OPTION AGREEMENT" means the Non-Transferable Stock
Option Agreement dated as of the date hereof between the Company
and the Affiliate pursuant to which the A&M Options were granted.
"ANTI-DILUTIVE ADJUSTMENTS" has the meaning given thereto
in Section 2(b).
"ASSET PURCHASE AGREEMENT" has the meaning given thereto
in the first WHEREAS paragraph of the Recitals hereto.
"COMMISSION" means the Securities and Exchange
Commission, or any other federal agency at the time administering
the Exchange Act or the Securities Act.
"COMPANY" means WEI ACQUISITION CO., a Delaware
corporation.
"DEMAND REGISTRATION" means a registration requested
pursuant to the terms of Section 2 hereof.
"EFFECTIVE DATE" means the date the POR becomes
effective.
"ELIGIBLE TRANSFEREE" means any successor or permitted
transferee, in a single transaction or series of related
transactions, of all, but not less than all, of the Registrable
Shares.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from
time to time.
"EXPIRATION DATE" means the date that is two years after
the later of (i) the expiration of the holding period under Rule
144 in respect of the Registrable Shares or (ii) the payment in
full or cancellation of the Promissory Notes.
"HOLDER" means the Affiliate or the Eligible Transferee.
"INDEMNIFIED PERSON" has the meaning assigned to that
term in Section 8(a) hereof.
"INSPECTORS" has the meaning assigned to that term in
Section 6(e) hereof.
"MANAGEMENT SERVICES AGREEMENT" has the meaning given
thereto in the second WHEREAS paragraph of the Recitals hereto.
"NEW COMMON STOCK" means the common stock, par value
$0.01 per share, of the Company.
"PARTICIPATING HOLDER" means any Holder that has
Registrable Shares registered for sale pursuant to a Registration
Statement.
"PERSON" means any individual, partnership, joint
venture, corporation, trust, unincorporated organization, or other
entity.
"PIGGY-BACK REGISTRATION" has the meaning assigned to
that term in Section 3(a) of this Agreement.
"POR" has the meaning given thereto in the first WHEREAS
paragraph of the Recitals hereto.
"PROMISSORY NOTES" means the Secured Non-Recourse
Promissory Note in the aggregate principal amount of $5,005,000
issued by the Affiliate in favor of the Company and the Secured
Recourse Promissory Note in the aggregate principal amount of
$335,000 issued by the Affiliate in favor of the Company.
"RECORDS" has the meaning assigned to that term in
Section 6(e) hereof.
"REGISTRABLE SHARES" means the shares of New Common Stock
purchased by the Affiliate pursuant to the Stock Subscription
Agreement and the shares of New Common Stock issued or issuable
upon exercise of an A&M Option and held by a Holder from time to
time. A share of New Common Stock will cease to be a Registrable
Share when (a) a registration statement covering a Registrable
Share has been declared effective by the Commission and such share
has been disposed of by a Holder pursuant to such effective
registration statement, (b) the Registrable Share or an A&M Option
(in respect thereof) is transferred to a Person other than an
Eligible Transferee, or (c) such share (after initial issuance) or
an A&M Option (in respect thereof) is held by the Company or one of
its subsidiaries or otherwise ceases to be outstanding.
"REGISTRATION EXPENSES" has the meaning assigned that
term in Section 7 hereof.
"REGISTRATION STATEMENT" means any registration statement
or comparable document under the Securities Act through which a
public sale or disposition of the Registrable Shares may be
registered, including the prospectus, amendments and supplements to
such registration statement, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference
in such Registration Statement.
"REQUESTING HOLDERS" has the meaning assigned to that
term in Section 2(a) of this Agreement.
"REQUISITE HOLDERS" means Holders holding at least 25% of
the total number of Registrable Shares of New Common Stock that
were issued or issuable pursuant to the Stock Subscription
Agreement or upon exercise of any A&M Option.
"RULE 144" means Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule
(other than Rule 144A) or regulation hereafter adopted by the
Commission providing for offers and sales of securities made in
compliance therewith resulting in offers and sales by subsequent
holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements
of the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be
in effect from time to time.
"SELLING HOLDER" means a Holder who is selling Regis-
trable Shares pursuant to a Registration Statement under this
Agreement.
"STOCK SUBSCRIPTION AGREEMENT" means the Stock
Subscription Agreement dated as of the date hereof between the
Company and the Affiliate pursuant to which the Affiliate purchased
a number of shares of New Common Stock from the Company.
SECTION 2. DEMAND REGISTRATION RIGHTS.
(a) At any time after any shares of New Common Stock
shall have been registered under the Securities Act but prior to
the Expiration Date, Requisite Holders may by written notice to the
Company request that the Company register all or a portion of the
Registrable Shares held by such Holders under the Securities Act
and register or qualify under applicable state securities laws and,
subject to the provisions of this Agreement, the Company shall use
its reasonable best efforts to effect such demand registration
promptly; provided, however, that the Company shall have no
obligation under this Section 2(a) if the public sale of the shares
by the Holders is then covered under any other Registration
Statement (including, pursuant to Section 3 hereof) that includes
such shares on a continuing basis.
Each notice to the Company shall set forth (i) the names
of the Requisite Holders requesting registration ("REQUESTING
HOLDERS") and the number of shares to be sold by each and (ii) the
proposed manner of sale. Within ten (10) days after receipt of
notice from the Requisite Holders, the Company shall notify any
Holder who is not a party to the written notice served on the
Company and offer to them the opportunity to include their shares
in such registration. Each such Holder shall have 20 days
following delivery of such notice to elect, by notice to the
Company, to have such Holder's Registrable Shares included in such
registration. The Company shall have no obligation to effect any
Demand Registration under this Section 2 unless the number of
Registrable Shares in such Demand Registration shall be equal to at
least 250,000 shares or, if lesser, the remaining Registrable
Shares (including shares subject to the A&M Options) but not less
than 125,000 shares, each of such numbers to be subject to
adjustment as contemplated by Section 8 of the A&M Option Agreement
(the "ANTI-DILUTIVE ADJUSTMENTS"). The maximum number of such
demands under this Section 2 shall be one (1); provided, however,
that no such demand may be made after the Expiration Date. A
Registration Statement will not count as a Demand Registration
hereunder unless it is declared effective by the Commission and
remains effective for at least ninety (90) days or such shorter
period which shall terminate when all of the Registrable Shares
covered by such Demand Registration have been sold pursuant to such
Demand Registration; provided, however, that in the event a
Registration Statement is withdrawn at the request of the
Requesting Holders (other than a withdrawal pursuant to Section
2(c) of this Agreement), such Requesting Holders will forfeit the
demand registration rights granted pursuant to this Section 2.
These rights are in addition to, and shall not limit, the
registration rights of the Holders of Registrable Shares granted
pursuant to Section 3 hereunder.
(b) If the managing underwriter of an underwritten
offering under this Section 2 advises the Company in writing that
in its opinion the number of shares requested to be included in
such registration (including, without limitation, shares to be
included in such registration pursuant to "piggyback" rights
heretofore or hereafter granted by the Company) exceeds the number
which can be sold in such offering, the Company will include in
such registration only the number of shares which in the opinion of
such underwriter can be sold. If the number of shares which can be
sold is less than the number of shares proposed to be registered,
the amount to be so registered shall be allocated pro rata among
the Holders of Registrable Shares desiring to participate in such
registration and among other holders of shares of New Common Stock
requested to be included in such registration, based on the numbers
of shares initially proposed to be registered by all such holders.
(c) The Company shall not be obligated to effect any
Demand Registration within three (3) months after the effective
date of a previous registration for an underwritten offering under
which the Holders had piggyback rights pursuant to Section 3 hereof
(irrespective of whether such rights were exercised). The Company
may (i) postpone for up to 60 days the filing or the effectiveness
of a Registration Statement for a Demand Registration if, based on
the good faith judgment of the Company's Board of Directors, such
registration and offering would materially interfere with any
material financing, acquisition, corporate reorganization, security
offering or other material transaction, or such postponement or
withdrawal is necessary in order to avoid premature disclosure of
a matter the Board of Directors of the Company has determined would
not be in the best interest of the Company to be disclosed at such
time or (ii) postpone the filing of a Demand Registration for a
period of not more than 60 days in the event the Company shall be
required to prepare audited financial statements as of a date other
than its fiscal year end (unless the Holders requesting such
registration agree to pay the expenses of such an audit); provided,
however, that in no event shall the Company withdraw a Registration
Statement under clause (i) after such Registration Statement has
been declared effective; and provided, further, that in any of the
events described in clause (i) or (ii) above, the Holders
initiating the request for such Demand Registration shall be
entitled to withdraw such request (without expense to such Holders)
and, if such request is withdrawn, such Demand Registration shall
not count as a permitted Demand Registration. The Company shall
provide prompt written notice to the Requesting Holders of (x) any
postponement or withdrawal of the filing or effectiveness of a
Registration Statement pursuant to this paragraph (c), (y) the
Company's decision to file or seek effectiveness of such
Registration Statement following such withdrawal or postponement
and (z) the effectiveness of such Registration Statement.
(d) If any of the Registrable Shares covered by a Demand
Registration are to be sold in an underwritten offering, the
Company shall have the right to select the managing underwriter(s)
to administer the offering, subject to the approval of the Holders
of a majority in interest of the Registrable Shares initiating the
request for registration, which approval shall not be unreasonably
withheld.
SECTION 3. PIGGY-BACK REGISTRATION RIGHTS.
(a) If the Company, at any time prior to the Expiration
Date, proposes to register any New Common Stock under the
Securities Act (other than pursuant to Section 2 of this Agreement
or pursuant to a registration statement on a form exclusively for
the sale or distribution of securities by the Company to employees
of the Company or its subsidiaries or for use exclusively in
connection with a business combination) whether or not for sale for
its own account, and the registration form to be used may be used
for the registration of Registrable Shares, it will give prompt
written notice to all Holders of the Company's intention to effect
such a registration and include in such registration all
Registrable Shares with respect to which the Company has received
written notice from a Holder for inclusion therein within 20 days
after the date of the Company's notice; provided, that:
(i) if, at any time after giving written notice of
its intention to register any shares and, prior to the
effective date of the Registration Statement filed in
connection with such registration, the Company shall determine
for any reason not to register such shares, the Company may,
at its election, give written notice of such determination to
each Holder requesting inclusion therein, and, thereupon, the
Company shall be relieved of its obligation to register any
Registrable Shares in connection with such withdrawn of
unfiled registration (but not of its obligation to pay the
Registration Expenses in connection therewith);
(ii) if such registration shall be in connection
with an underwritten public offering and the managing
underwriter shall advise the Company in writing that in its
opinion the number of shares requested to be included in such
registration exceeds the number of such securities which can
be sold in such offering or would have an adverse impact on
the price of such securities, the amount to be registered
shall be allocated first, to the Company if such registration
is not being effected as a result of the exercise of any
demand registration rights by a holder of the Company's
securities, and second, pro rata among the Requesting Holders
desiring to participate in such registration and the other
holders of the Company's securities requested to be included
in such registration, based on the numbers of shares initially
proposed to be included by such holders. If such registration
is being effected as a result of the exercise of any demand
registration rights by a holder of the Company's securities,
the amount of securities to be included in such registration
shall be allocated pro rata among the Holders of Registrable
Shares desiring to participate in such registration, the
Company and among other holders of the Company's securities
requested and entitled to be included in such registration,
based on the numbers of shares initially proposed to be
registered by the Company and all such holders;
(iii) with respect to any unissued shares to be
included therein, the Holder delivers a commitment to timely
exercise the A&M Options prior to the effective date of the
registration for inclusion therein of such shares, if the
Registration Statement does not otherwise contemplate a
continuing or "shelf" registration of shares issuable under
the A&M Options; and
(iv) the number of shares to be sold by the Holders
is not less than 50,000 (subject to Anti-Dilutive
Adjustments).
(b) If any Registration pursuant to this Section 3 is an
underwritten primary offering, the Holders shall not have the right
to select the managing underwriter to administer such offering.
(c) The maximum number of Piggy-Back Registrations under
this Section 3 shall be two.
SECTION 4. SUSPENSION OF EFFECTIVENESS.
The Company's obligations under Section 2(a) and Section
3(a) shall not restrict its ability to suspend the effectiveness
of, or direct Holders not to offer or sell securities under, any
Demand Registration or a Piggy-Back Registration, at any time, for
such reasonable period of time not to exceed 60 days which the
Company believes is necessary to prevent the premature disclosure
of any events or information having a material effect on the
Company. In addition, the Company shall not be required to keep a
Piggy-Back Registration or any Demand Registration, effective, or
may, without suspending such effectiveness, instruct the holders of
Registrable Shares included in a Piggy-Back Registration or any
Demand Registration, not to sell such securities, during any period
during which the Company is instructed, directed, ordered or
otherwise requested by any governmental agency or self-regulatory
organization to stop or suspend such trading or sales.
SECTION 5. HOLDBACK AGREEMENT.
(a) In the event of any filing of a prospectus
supplement or the commencement of an underwritten public
distribution of New Common Stock under a Registration Statement,
whether or not Registrable Shares are included, each Holder agrees
not to effect any public sale or distribution of New Common Stock
(except as part of such underwritten public distribution),
including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act, during a period designated by the Company in a
written notice duly given to the Holders in accordance with Section
10(b), which period shall commence approximately 14 days prior to
the effective date of any such filing of such prospectus supplement
or the commencement of such underwritten public distribution of New
Common Stock under a Registration Statement and shall continue for
up to 134 consecutive days.
(b) The foregoing provisions shall not apply to any
Holder to the extent such Holder is prohibited by applicable law
from agreeing to withhold from sale pursuant to a binding
commitment entered into prior to receipt of the notice contemplated
by Section 5(a).
SECTION 6. REGISTRATION PROCEDURES.
Except as otherwise expressly provided herein and subject
to Section 7, in connection with any registration of Registrable
Shares pursuant to this Agreement, the Company shall, as
expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement on the appropriate form with respect to such Registrable
Shares and use its reasonable best efforts to cause such
Registration Statement to become effective as soon as practicable
thereafter; and before filing a Registration Statement or
prospectus or any amendments or supplements thereto, furnish to
each Selling Holder copies of such Registration Statement and such
other documents as proposed to be filed (including copies of any
document to be incorporated by reference therein), and thereafter
furnish to each Selling Holder such number of copies of such
Registration Statement, each amendment and supplement thereto
(including copies of any document to be incorporated by reference
therein), at the written request of the Selling Holder, including
all exhibits thereto, the prospectus included in such registration
statement (including each preliminary prospectus), and, promptly
after the effectiveness of a Registration Statement, the definitive
final prospectus filed with the Commission, and such other
documents as such Selling Holder may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by such
Selling Holder;
(b) use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue
sky laws of such jurisdictions within the United States as any
Selling Holder reasonably (in light of such Selling Holder's
intended plan of distribution) requests; provided that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this Section 6(b), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in
any such jurisdiction;
(c) notify each Selling Holder of such Registrable
Shares, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the occurrence of any
event as a result of which the prospectus included in such
Registration Statement (including any document to be incorporated
by reference therein) contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Selling Holder, the
Company shall prepare a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and promptly make available to each Selling
Holder any such supplement or amendment;
(d) in connection with an underwritten public offering,
enter into customary agreements (including, if requested, an
underwriting agreement), reasonably satisfactory in form and
substance to the Company, and take such other actions in connection
therewith as the Holders of at least a majority in interest of the
Registrable Shares being sold or the underwriter shall reasonably
request in order to consummate the disposition of such Registrable
Shares;
(e) make available for inspection during business hours
on reasonable advance notice by any Selling Holder of such
Registrable Shares, any underwriter participating in any
disposition pursuant to a Registration Statement, and any attorney,
accountant or other professional retained by any such Selling
Holder or underwriter (collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "RECORDS") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any
such Inspector in connection with such Registration Statement.
Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a material
misstatement or omission in the Registration Statement or (ii) the
release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction. Each Selling Holder
of such Registrable Shares further agrees that it will, upon
learning that disclosure of such Records is sought in a court of
competent jurisdiction, give written notice to the Company, and
allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records it deemed
confidential. Each Selling Holder of such Registrable Shares
further agrees that information obtained by it as a result of such
inspections which is deemed confidential by the Company shall not
be used or disclosed by it, and it shall cause each of its
Inspectors not to use or disclose such confidential information, as
the basis for any market transactions in securities of the Company
or for any purpose other than any due diligence review with respect
to decisions regarding such Selling Holder's investment in the
Registrable Shares, unless and until such information is made
generally available to the public;
(f) in the event such sale is pursuant to an under-
written offering, use its reasonable best efforts to obtain (i) a
comfort letter or comfort letters from the Company's independent
public accountants in customary form and covering such financial
and accounting matters of the type customarily covered by comfort
letters as the Selling Holders of a majority in interest of the
Registrable Shares being sold or the managing underwriter
reasonably request, and (ii) an opinion or opinions from counsel
for the Company, addressed to the underwriters, covering the
matters customarily covered in opinions given by counsel in similar
transactions; and
(g) notify the Selling Holders and the managing under-
writers, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (i) when the Registration
Statement, the prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for
that purpose and the Company shall promptly use its reasonable best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued and (iii) of the
receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of
a Registration Statement or any of the Registrable Shares for offer
or sale in any jurisdiction, or the initiation or threatening of
any proceeding for such purpose.
The Company may require each Selling Holder of Regis-
trable Shares as to which any registration is being effected to
furnish to the Company such information regarding the Selling
Holder and the distribution of such Registrable Shares as the
Company may from time to time reasonably request in writing and
such other information as may be legally required in connection
with such registration. Each Selling Holder agrees, by its
acquisition of Registrable Shares and its acceptance of the
benefits provided to it hereunder, to furnish promptly to the
Company all information required to be disclosed in order to make
the information previously furnished to the Company by such Selling
Holder not materially misleading.
Each Holder agrees that upon receipt of any notice from
the Company of the happening of any event of the kind described in
Sections 4, 6(c), (g)(ii) or (g)(iii) hereof, such Holder will
forthwith discontinue disposition of Registrable Shares pursuant to
the Registration Statement covering such Registrable Shares until
such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 6(c) hereof, or until it is
advised in writing by the Company that the use of the prospectus
may be resumed, and, if so directed by the Company, such Holder
will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession,
of the prospectus covering such Registrable Shares current at the
time of receipt of such notice. In the event the Company shall
give any such notice under Section 6(c), (g)(ii) or (g)(iii), the
Company shall extend the period during which such Registration
Statement shall be maintained effective by the number of days
during the period from and including the date of the giving of such
notice pursuant to Section 6(c) hereof to and including the date
when each Holder of Registrable Shares covered by such Registration
Statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 6(c) hereof.
SECTION 7. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all
registration and filing fees, fees and expenses of compliance with
securities or "blue sky" laws (including reasonable fees and
disbursements of counsel of the Company and counsel for the
underwriters in connection with "blue sky" qualifications of the
Registrable Shares), fees and expenses associated with filings
required to be made with the National Association of Securities
Dealers, Inc., and with listing on any national securities exchange
or exchanges in which listing may be sought, printing expenses,
messenger and delivery expenses, fees and expenses of counsel for
the Company and its independent certified public accountants
(including the expenses of any special audit or "cold comfort"
letters required by or incident to such performance), securities
acts liability insurance (if the Company elects to obtain such
insurance), the fees and expenses of any special experts retained
by the Company in connection with such registration, and fees and
expenses of other persons retained by the Company (all such
expenses being herein called "REGISTRATION EXPENSES") will be borne
(i) by the Company in respect of a Piggy-Back Registration and (ii)
by the Selling Holders in respect of any Demand Registration, in
each case whether or not any registration statement becomes
effective; provided that in no event shall Registration Expenses
payable by the Company include any (A) underwriting discounts,
commissions, or fees attributable to the sale of the Registrable
Shares, (B) fees and expenses of any counsel, accountants, or other
persons retained or employed by the Holders or underwriters, or (C)
transfer taxes, if any.
SECTION 8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to
indemnify and hold harmless each Selling Holder of Registrable
Shares, its officers, directors, partners and agents and each
Person, if any, who controls such Selling Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred
to as an "INDEMNIFIED PERSON") from and against any and all losses,
claims, damages, liabilities and judgments (including, the
reasonable legal expenses incurred in connection with any action,
suit or proceeding) arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained
in any Registration Statement or prospectus or in any amendment or
supplement thereto or in any preliminary prospectus relating to a
registration hereunder or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light
of the circumstances under which they were made, not misleading, or
(ii) any violation by the Company of any federal, state or common
law rule or regulation applicable to Company and relating to action
or inaction required by the Company in connection with any such
registration; provided, however, that the Company shall not be
liable for any losses, claims, damages, liabilities or judgments
arise out of, or are based upon, any such untrue statement or
omission or allegation thereof based upon information furnished in
writing to the Company by such Selling Holder or on such Selling
Holder's behalf for use therein, or by any Holder's failure to
deliver a copy of the Registration Statement or prospectus or any
amendment or supplement thereto after being furnished with a
sufficient number of copies thereof by the Company.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any
action or proceeding (including any governmental investigation)
shall be brought or asserted against any Indemnified Person in
respect of which indemnity may be sought from the Company, such
Indemnified Person shall promptly notify the Company in writing,
and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Person and the payment of all reasonable expenses. Such Indemni-
fied Person shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) the Company has agreed to pay such
fees and expenses or (ii) the named parties to any such action or
proceeding (including any impleaded parties) include both such
Indemnified Person and the Company, and such Indemnified Person
shall have been advised in writing by the counsel employed by the
Company in accordance with the provisions of this Section 8(b) that
there exists a conflict of interest between such Indemnified Person
and the Company with respect to such claim (in which case, if such
Indemnified Person notifies the Company in writing that it elects
to employ separate counsel at the expense of the Company, the
Company shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Person, it being
understood, however, that the Company shall not, in connection with
any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for such Indemnified Person
and any other Indemnified Persons, which firm shall be designated
in writing by a majority of such Indemnified Persons and be
reasonably acceptable to the Company). The Company shall not be
liable for any settlement of any such action or proceeding effected
without the Company's prior written consent, but if settled with
its prior written consent, or if there be a final, unappealable
judgment for the plaintiff in any such action or proceeding, the
Company agrees to indemnify and hold harmless such Indemnified
Persons from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment.
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SHARES.
Each Selling Holder agrees severally and not jointly to indemnify
and hold harmless the Company, its directors, officers and agents
and each Person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from
the Company to such Selling Holder, but only with respect to
information furnished in writing by such Selling Holder or on such
Selling Holder's behalf for use in any Registration Statement or
prospectus or any amendment or supplement thereto, or any
preliminary prospectus or by any Holder's failure to deliver a copy
of the Registration Statement or prospectus or any amendment or
supplement thereto after being furnished with a sufficient number
of copies thereof by the Company. In case any action or proceeding
shall be brought against the Company or its directors, officers or
agents or any such controlling person, in respect of which indem-
nity may be sought against such Selling Holder, such Selling Holder
shall have the rights and duties given to the Company, and the
Company or its directors, officers or agents or such controlling
person shall have the rights and duties given to such Selling
Holder by the preceding Section 8(b).
(d) CONTRIBUTION. If the indemnification provided for
in this Section 8 is unavailable to or unenforceable by the Company
or the Indemnified Persons in respect of any losses, claims,
damages, liabilities or judgments referred to herein, then each
such indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities and judgments in such proportions as is appropriate to
reflect the relative fault of the Company and the Indemnified
Persons in connection with the actions or inactions which resulted
in such losses, claims, damages, liabilities and judgments, as well
as any other relevant equitable considerations (including the
relative fault and indemnification or contribution obligations of
other relevant parties). The relative fault of the indemnifying
party on the one hand and of the indemnified person on the other
shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the
indemnified party, and by such party's relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Indemnified Persons agree that it
would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten
registration hereunder unless such Person (a) agrees to sell such
Person's securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve
such arrangements, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting
arrangements and (c) agrees to pay such Person's pro rata portion
of all underwriting discounts, commissions and fees.
SECTION 10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers
or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of
Holders of at least a majority in interest of the Registrable
Shares. Notwithstanding the foregoing, (i) if a waiver or consent
to departure from the provisions hereof does not adversely affect
the rights of all of the Holders, the Company shall not be required
to obtain the consent of any such Holder not adversely affected
thereby, and (ii) if such waiver or consent to departure relates
exclusively to the rights of Holders whose Registrable Shares are
being sold pursuant to a Registration Statement and does not
directly or indirectly affect the rights of other Holders, such
waiver or consent to departure may be given by Holders of a least
a majority in interest of the Registrable Shares being sold by such
Holders pursuant to such Registration Statement; provided that the
provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the
immediately preceding sentence.
(b) NOTICES. All notices and other communications
provided for or permitted hereunder shall be in writing and shall
be delivered personally or by first-class mail, telecopier or
overnight courier:
(i) if to a Holder of Registrable Shares, at the
most current address set forth on the books of the Company,
and
(ii) if to the Company, initially at 19701 Hamilton
Avenue; Torrance, California 90502-1334, Attention: Henry
Del Castillo, and thereafter at such other address, notice of
which is given in accordance with the provisions of this
Section 10(b).
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if personally
delivered; five business days after being deposited in the mail
(postage prepaid), if mailed; upon receipt of a telecopy
confirmation sheet, if telecopied; and on the day delivered if sent
by an air courier guaranteeing overnight delivery.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of and be binding upon the successors and, to the
extent set forth herein, the assigns of each of the parties,
including without limitation and without the need for an express
assignment, Eligible Transferees.
(d) COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one
and the same agreement.
(e) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED UNDER AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
(g) SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall not
invalidate the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable any such provision in any other
jurisdiction.
(h) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and is intended to
be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred
to herein with respect to the registration rights granted by the
Company with respect to the Registrable Shares. This Agreement
supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(i) EFFECTIVENESS. This Agreement shall become
effective on the Effective Date.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have
executed this Agreement as of the date first written above.
COMPANY:
WEI ACQUISITION CO.
/s/ Bob Davenport
By ______________________________
Name: Robert C. Davenport
Title: Chief Financial Officer and
Secretary
HOLDER:
A&M INVESTMENT ASSOCIATES #3, LLC
/s/ Antonio C. Alvarez
By ______________________________
Name: Antonio C. Alvarez II
Title: Manager
<PAGE>
<PAGE>
[Letterhead of Cerberus Partners, L.P.
950 Third Avenue, 20th Floor
New York, New York 10022
(212) 421-2600 Fax (212) 421-2947]
Dated as of October 14, 1996
Alvarez & Marsal, Inc.
885 Third Avenue, Suite 170
New York, New York 10022-4802
Attention: Antonio C. Alvarez
Re: Interim Management Agreement
Dear Mr. Alvarez:
This letter agreement sets forth our understanding with
respect to the terms and conditions under which Alvarez & Marsal,
Inc. ("A&M") shall provide certain management and consulting
services to Cerberus Partners, L.P., in its capacity as the agent
(the "Agent") under that certain Credit Agreement dated as of June
11, 1992 (the "Credit Agreement") among Wherehouse Entertainment,
Inc ("WEI"), as the Borrower, the Agent and certain other lenders
(collectively, the "Senior Lenders").
As you are aware, WEI and its parent company, WEI
Holdings, Inc., are debtors and debtors-in-possession (the
"Debtors") in Case No. 95-911 (HSB) (Jointly Administered) (the
"Bankruptcy Case") currently pending in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The Debtors' First Amended Chapter 11 Plan, As Revised
for Technical Corrections on October 4, 1996 (the "Plan of
Reorganization") contemplates that the Senior Lenders will acquire
a substantial portion of the shares of common stock of the entity
that will acquire substantially all the assets of the Debtors
("Reorganized Wherehouse").
Commencing on October 14, 1996, A&M shall provide the
management and consulting services of its employee Antonio C.
Alvarez on a full-time basis, as well as the services of such other
employees of A&M (the "Support Employees") as are reasonably
requested by the Agent or are necessary or appropriate to
effectively analyze the transactions contemplated by the Plan of
Reorganization and to provide for a smooth management transition to
the arrangement contemplated by the Management Services Agreement,
the current draft of which is attached hereto (the "Management
Services Agreement"), which is expected to be entered into between
Reorganized Wherehouse and A&M upon the effectiveness of the Plan
of Reorganization.
For the consulting and management services provided by
A&M under this letter agreement, the Senior Lenders shall pay A&M
a fee of (i) $50,000 per month (or a pro-rata portion thereof) for
the services of Antonio C. Alvarez, plus (ii) the standard hourly
rate charged by A&M for the services of the Support Employees. The
parties understand that hourly billings of the Support Employees
under this letter agreement are expected to be approximately
$50,000 per month, but may be more or less than that amount. The
Senior Lenders will also reimburse A&M, Alvarez and the Support
Employees for properly documented and reasonable out-of-pocket
travel, lodging and other expenses (including the reasonable fees
and expenses of outside counsel to A&M incurred in the negotiation
of the Management Services Agreement, which fees and expenses are
not expected to exceed $10,000) incurred in performing their duties
hereunder.
If A&M is not engaged by Reorganized Wherehouse under the
Management Services Agreement because (i) Cerberus, as the Agent,
does not support the Plan of Reorganization at the time of the
confirmation hearing in respect thereof in the Bankruptcy Court,
which is currently scheduled for December 13, 1996 (the
"Confirmation Hearing") and supports an alternate plan of
reorganization for the Debtors involving a third party's purchase
of the Debtors or substantially all of their businesses, and such
alternate plan is confirmed by the Bankruptcy Court, or (ii)
Cerberus, as the Agent, does support the Plan of Reorganization at
the time of the Confirmation Hearing, but the Plan of
Reorganization is not confirmed by the Bankruptcy Court prior to
February 15, 1997 and an alternate plan of reorganization for the
Debtors involving a third party's purchase of the Debtors or
substantially all of their businesses and which results in a
distribution to the Senior Lenders with a value of $65,000,000 or
more is confirmed by the Bankruptcy Court on or after February 15,
1997 but prior to July 15, 1997 (each of (i) and (ii) an "Alternate
Plan"), the Senior Lenders shall pay A&M a fee of $1,000,000 to
compensate A&M for the fact that A&M has committed to provide its
services and make the investment described in Section 4(b) of the
Management Services Agreement, and, by virtue thereof, has declined
or failed to pursue other engagements. This amount will be payable
not later than 10 business days after the date on which the
Alternate Plan is confirmed by the Bankruptcy Court.
A&M shall cease providing services pursuant to this
letter agreement on the earliest of (i) the date on which the Plan
of Reorganization becomes effective, (ii) February 15, 1997 (or
such later date as agreed to in writing by the parties) or (iii)
the date on which an Alternate Plan is confirmed by the Bankruptcy
Court.
This letter agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all such
counterparts together shall constitute one and the same instrument.
Please indicate your acceptance of the terms and
conditions of this letter agreement by executing this letter
agreement in the space provided below, as well as the enclosed copy
of this letter agreement, and returning the enclosed copy to us.
[remainder of page intentionally left blank]
<PAGE>
By their signatures below each of the Senior Lenders
severally agrees to pay its Pro Rata Share (as defined in the
Credit Agreement) of the fees and expenses owed to A&M pursuant to
this letter agreement.
Very truly yours,
CERBERUS PARTNERS, L.P., as Agent
/s/ Stephen Feinberg
By: _____________________
Its: General Partner
By:__________________
Its:_________________
Agreed and Accepted:
ALVAREZ & MARSAL, INC.
By: /s/ Antonio C. Alvarez
-------------------------
Its: Managing Director
-------------------------
CERBERUS PARTNERS, L.P., as Agent and as a Senior Lender
By: /s/ Stephen Feinberg
-------------------------
Its: General Partner
-------------------------
CS FIRST BOSTON SECURITIES CORPORATION, as a Senior Lender
By: /s/ David J. Matlin
-------------------------
Its: MD
-------------------------
BANK OF AMERICA ILLINOIS, as a Senior Lender
By: /s/ Moira A. Cary
--------------------------
Moira A. Cary
Its: Attorney-in-Fact
-------------------------
<PAGE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this ``AGREEMENT'')
is made and entered into as of January 31, 1997 by WEI ACQUISITION
CO., a Delaware corporation (the ``COMPANY''), and Cerberus
Partners, L.P. (``CERBERUS''), CS First Boston Securities
Corporation (``FIRST BOSTON'') and Bank of America Illinois
(``BOFA'') (collectively, the ``SHAREHOLDERS''), as the holders of
the Registrable Shares (as defined below) and for the benefit of
any Eligible Transferee (as defined below). Unless otherwise
indicated, all capitalized terms used in this Agreement shall have
the meanings given thereto in Section 1 of this Agreement, or if
not defined in Section 1, in the section in which such term is
used.
RECITALS
WHEREAS, pursuant to the Debtors' First Amended Chapter
11 Plan, as Revised for Technical Corrections dated October 4, 1996
and Supplemental Amendments on December 2, 1996 and December 13,
1996 (the ``POR'') and an Asset Purchase Agreement dated as of
January 31, 1997 (the ``ASSET PURCHASE AGREEMENT''), the Company
will acquire substantially all of the assets of Wherehouse
Entertainment, Inc., and its parent, WEI Holdings, Inc., which
companies are debtors and debtors-in-possession (collectively, the
``DEBTORS''), in Case No. 95-911 (HSB) (Jointly Administered) in
the Bankruptcy Court for the District of Delaware; and
WHEREAS, the POR and the Asset Purchase Agreement provide
that the Registrable Shares shall be issued to the Shareholders in
connection with the closing of the Asset Purchase Agreement; and
WHEREAS, the Company desires to grant, and the
Shareholders desire to accept, the registration rights set forth in
this Agreement in respect of the Registrable Shares.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable considerations, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
The terms set forth below are used herein as so defined:
``ANTI DILUTIVE ADJUSTMENTS'' has the meaning given
thereto in Section 2(b).
``ASSET PURCHASE AGREEMENT'' has the meaning given
thereto in the first WHEREAS paragraph of the Recitals hereto.
``COMMISSION'' means the Securities and Exchange
Commission, or any other federal agency at the time administering
the Exchange Act or the Securities Act.
``COMPANY'' means WEI Acquisition Co., a Delaware
corporation.
``DEMAND REGISTRATION'' means a registration requested
pursuant to the terms of Section 2 hereof.
``EFFECTIVE DATE'' means the date the POR becomes
effective.
``ELIGIBLE TRANSFEREE'' means any successor or permitted
transferee, in a single transaction or series of related
transactions, of all, but not less than all, of the Registrable
Shares.
``EXCHANGE ACT'' means the Securities Exchange Act of
1934, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be
in effect from time to time.
``EXPIRATION DATE'' means the date that is two years
after the expiration of the holding period under Rule 144 in
respect of the Registrable Shares.
``HOLDER'' means the Shareholders or the Eligible
Transferees.
``INDEMNIFIED PERSON'' has the meaning assigned to that
term in Section 8(a) hereof.
``INSPECTORS'' has the meaning assigned to that term in
Section 6(e) hereof.
``NEW COMMON STOCK'' means the common stock, par value
$0.01 per share, of the Company.
``PARTICIPATING HOLDER'' means any Holder that has
Registrable Shares registered for sale pursuant to a Registration
Statement.
``PERSON'' means any individual, partnership, joint
venture, corporation, trust, unincorporated organization, or other
entity.
``PIGGY-BACK REGISTRATION'' has the meaning assigned to
that term in Section 3(a) of this Agreement.
``POR'' has the meaning given thereto in the first
WHEREAS paragraph of the Recitals hereto.
``RECORDS'' has the meaning assigned to that term in
Section 6(e) hereof.
``REGISTRABLE SHARES'' means the shares of New Common
Stock issued to the Shareholders pursuant to the POR and the Asset
Purchase Agreement and held by the Holder from time to time. A
share of New Common Stock will cease to be a Registrable Share when
(a) a registration statement covering a Registrable Share has been
declared effective by the Commission and such share has been
disposed of by a Holder pursuant to such effective registration
statement, (b) the Registrable Share is transferred to a Person
other than an Eligible Transferee, (c) such share (after initial
issuance) is held by the Company or one of its subsidiaries or
otherwise ceases to be outstanding, or (d) the share of New Common
Stock may be traded without restriction pursuant to paragraph (k)
of Rule 144, if applicable.
``REGISTRATION EXPENSES'' has the meaning assigned that
term in Section 7 hereof.
``REGISTRATION STATEMENT'' means any registration
statement or comparable document under the Securities Act through
which a public sale or disposition of the Registrable Shares may be
registered for public sale, including the prospectus, amendments
and supplements to such registration statement, all exhibits, and
all material incorporated by reference or deemed to be incorporated
by reference in such Registration Statement.
``REQUESTING HOLDERS'' has the meaning assigned to that
term in Section 2(a) of this Agreement.
``REQUISITE HOLDERS'' means Holders holding at least 35%
of the initial total number of Registrable Shares of New Common
Stock.
``RULE 144'' means Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule
(other than Rule 144A) or regulation hereafter adopted by the
Commission providing for offers and sales of securities made in
compliance therewith resulting in offers and sales by subsequent
holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements
of the Securities Act.
``SECURITIES ACT'' means the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be
in effect from time to time.
``SELLING HOLDER'' means a Holder who is selling Regis-
trable Shares pursuant to a Registration Statement under this
Agreement.
SECTION 2. DEMAND REGISTRATION RIGHTS.
(a) At any time prior to the Expiration Date, Requisite
Holders may by written notice to the Company request that the
Company register all or a portion of the Registrable Shares held by
such Holders under the Securities Act and register or qualify under
applicable securities laws, including in connection with an initial
public offering of the New Common Stock, and, subject to the
provisions of this Agreement, the Company shall use its reasonable
best efforts to effect such demand registration promptly; provided,
however, that the Company shall have no obligation under this
Section 2(a) if the sale of the shares by the Holders is then
covered under any other Registration Statement (including, pursuant
to Section 3 hereof) that includes such shares on a continuing
basis.
Each notice to the Company shall set forth (i) the names
of the Requisite Holders requesting registration (``REQUESTING
HOLDERS'') and the number of shares to be sold by each and (ii) the
proposed manner of sale. Within ten (10) days after receipt of
notice from the Requisite Holders, the Company shall notify any
Holder who is not a party to the written notice served on the
Company and offer to them the opportunity to include their shares
in such registration. Each such Holder shall have 20 days
following delivery of such notice to elect, by notice to the
Company, to have such Holder's Registrable Shares included in such
registration. The Company shall have no obligation to effect any
Demand Registration under this Section 2 unless the number of
Registrable Shares in such Demand Registration shall be equal to at
least 250,000 shares or, if lesser, the remaining Registrable
Shares (including shares subject to the A&M Options) but not less
than 125,000 shares, each of such numbers to be subject to
adjustment to reflect any antidilutive adjustments made to the
Registrable Shares (the ``ANTI-DILUTIVE ADJUSTMENTS''). The
maximum number of such demands under this Section 2 shall be two
(2); provided, however, that no such demand may be made after the
Expiration Date. A Registration Statement will not count as a
Demand Registration hereunder unless it is declared effective by
the Commission and remains effective for at least ninety (90) days
or such shorter period which shall terminate when all of the
Registrable Shares covered by such Demand Registration have been
sold pursuant to such Demand Registration; provided, however, that
in the event a Registration Statement is withdrawn at the request
of the Requesting Holders (other than a withdrawal pursuant to
Section 2(c) of this Agreement), such Requesting Holders will
forfeit the demand registration rights granted pursuant to this
Section 2. These rights are in addition to, and shall not limit,
the registration rights of the Holders of Registrable Shares
granted pursuant to Section 3 hereunder.
(b) If the managing underwriter of an underwritten
offering under this Section 2 advises the Company in writing that
in its opinion the number of shares requested to be included in
such registration (including, without limitation, shares to be
included in such registration pursuant to ``piggyback'' rights
heretofore or hereafter granted by the Company) exceeds the number
which can be sold in such offering, the Company will include in
such registration only the number of shares which in the opinion of
such underwriter can be sold. If the number of shares which can be
sold is less than the number of shares proposed to be registered,
the amount to be so registered shall be allocated pro rata among
the Holders of Registrable Shares desiring to participate in such
registration, the Company and the other holders of the Company's
securities requested and entitled to be included in such
registration, based on the numbers of shares initially proposed to
be registered by all such holders.
(c) The Company shall not be obligated to effect any
Demand Registration within three (3) months after the effective
date of a previous registration for an underwritten offering under
which the Holders had piggyback rights pursuant to Section 3 hereof
(irrespective of whether such rights were exercised). The Company
may (i) postpone for up to 60 days the filing or the effectiveness
of a Registration Statement for a Demand Registration if, based on
the good faith judgment of the Company's Board of Directors, such
registration and offering would materially interfere with any
material financing, acquisition, corporate reorganization, security
offering or other material transaction, or such postponement or
withdrawal is necessary in order to avoid premature disclosure of
a matter the Board of Directors of the Company has determined would
not be in the best interest of the Company to be disclosed at such
time or (ii) postpone the filing of a Demand Registration for a
period of not more than 60 days in the event the Company shall be
required to prepare audited financial statements as of a date other
than its fiscal year end (unless the Holders requesting such
registration agree to pay the expenses of such an audit); provided,
however, that in no event shall the Company withdraw a Registration
Statement under clause (i) after such Registration Statement has
been declared effective; and provided, further, that in any of the
events described in clause (i) or (ii) above, the Holders
initiating the request for such Demand Registration shall be
entitled to withdraw such request (without expense to such Holders)
and, if such request is withdrawn, such Demand Registration shall
not count as a permitted Demand Registration. The Company shall
provide prompt written notice to the Requesting Holders of (x) any
postponement or withdrawal of the filing or effectiveness of a
Registration Statement pursuant to this paragraph (c), (y) the
Company's decision to file or seek effectiveness of such
Registration Statement following such withdrawal or postponement
and (z) the effectiveness of such Registration Statement.
(d) If any of the Registrable Shares covered by a Demand
Registration are to be sold in an underwritten offering, the
Company shall have the right to select the managing underwriter(s)
to administer the offering, subject to the approval of the Holders
of a majority in interest of the Registrable Shares initiating the
request for registration, which approval shall not be unreasonably
withheld.
SECTION 3. PIGGY-BACK REGISTRATION RIGHTS.
(a) If the Company, at any time prior to the Expiration
Date, proposes to register any New Common Stock under the
Securities Act (other than pursuant to Section 2 of this Agreement
or pursuant to a registration statement on a form exclusively for
the sale or distribution of securities by the Company to employees
of the Company or its subsidiaries or for use exclusively in
connection with a business combination) whether or not for sale for
its own account, and the registration form to be used may be used
for the registration of Registrable Shares, it will give prompt
written notice to all Holders of the Company's intention to effect
such a registration and include in such registration all
Registrable Shares with respect to which the Company has received
written notice from a Holder for inclusion therein within 20 days
after the date of the Company's notice; provided, that:
(i) if, at any time after giving written notice of
its intention to register any shares and, prior to the
effective date of the Registration Statement filed in
connection with such registration, the Company shall determine
for any reason not to register such shares, the Company may,
at its election, give written notice of such determination to
each Holder requesting inclusion therein, and, thereupon, the
Company shall be relieved of its obligation to register any
Registrable Shares in connection with such withdrawn or
unfiled registration (but not of its obligation to pay the
Registration Expenses in connection therewith);
(ii) if such registration shall be in connection
with an underwritten public offering and the managing
underwriter shall advise the Company in writing that in its
opinion the number of shares requested to be included in such
registration exceeds the number of such securities which can
be sold in such offering or would have an adverse impact on
the price of such securities, the amount to be registered
shall be allocated first, to the Company if such registration
is not being effected as a result of the exercise of any
demand registration rights by a holder of the Company's
securities, and second, pro rata among the Requesting Holders
desiring to participate in such registration and the other
holders of the Company's securities requested to be included
in such registration, based on the numbers of shares initially
proposed to be included by such holders. If such registration
is being effected as a result of the exercise of any demand
registration rights by a holder of the Company's securities,
the amount of securities to be included in such registration
shall be allocated pro rata among the Holders of Registrable
Shares desiring to participate in such registration, the
Company and among other holders of the Company's securities
requested and entitled to be included in such registration,
based on the numbers of shares initially proposed to be
registered by the Company and all such holders; and
(iii) the number of shares to be sold by the
Holders is not less than 50,000 (subject to Anti-Dilutive
Adjustments).
(b) If any Registration pursuant to this Section 3 is an
underwritten primary offering, the Holders shall not have the right
to select the managing underwriter to administer such offering.
(c) The maximum number of Piggy-Back Registrations under
this Section 3 shall be two.
SECTION 4. SUSPENSION OF EFFECTIVENESS.
The Company's obligations under Section 2(a) and Section
3(a) shall not restrict its ability to suspend the effectiveness
of, or direct Holders not to offer or sell securities under, any
Demand Registration or a Piggy-Back Registration, at any time, for
such reasonable period of time not to exceed 60 days which the
Company believes is necessary to prevent the premature disclosure
of any events or information having a material effect on the
Company. In addition, the Company shall not be required to keep a
Piggy-Back Registration or any Demand Registration, effective, or
may, without suspending such effectiveness, instruct the holders of
Registrable Shares included in a Piggy-Back Registration or any
Demand Registration, not to sell such securities, during any period
during which the Company is instructed, directed, ordered or
otherwise requested by any governmental agency or self-regulatory
organization to stop or suspend such trading or sales.
SECTION 5. HOLDBACK AGREEMENT.
(a) In the event of any filing of a prospectus
supplement or the commencement of an underwritten public
distribution of New Common Stock under a Registration Statement,
whether or not Registrable Shares are included, each Holder agrees
not to effect any public sale or distribution of New Common Stock
(except as part of such underwritten public distribution),
including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act, during a period designated by the Company in a
written notice duly given to the Holders in accordance with Section
10(b), which period shall commence approximately 14 days prior to
the effective date of any such filing of such prospectus supplement
or the commencement of such underwritten public distribution of New
Common Stock under a Registration Statement and shall continue for
up to 134 consecutive days.
(b) The foregoing provisions shall not apply to any
Holder to the extent such Holder is prohibited by applicable law
from agreeing to withhold from sale pursuant to a binding
commitment entered into prior to receipt of the notice contemplated
by Section 5(a).
SECTION 6. REGISTRATION PROCEDURES.
Except as otherwise expressly provided herein and subject
to Section 7, in connection with any registration of Registrable
Shares pursuant to this Agreement, the Company shall, as
expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement on the appropriate form with respect to such Registrable
Shares and use its reasonable best efforts to cause such
Registration Statement to become effective as soon as practicable
thereafter; and before filing a Registration Statement or
prospectus or any amendments or supplements thereto, furnish to
each Selling Holder copies of such Registration Statement and such
other documents as proposed to be filed (including copies of any
document to be incorporated by reference therein), and thereafter
furnish to each Selling Holder such number of copies of such
Registration Statement, each amendment and supplement thereto
(including copies of any document to be incorporated by reference
therein), at the written request of the Selling Holder, including
all exhibits thereto, the prospectus included in such registration
statement (including each preliminary prospectus), and, promptly
after the effectiveness of a Registration Statement, the definitive
final prospectus filed with the Commission, and such other
documents as such Selling Holder may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by such
Selling Holder;
(b) use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue
sky laws of such jurisdictions within the United States as any
Selling Holder reasonably (in light of such Selling Holder's
intended plan of distribution) requests; provided that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this Section 6(b), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in
any such jurisdiction;
(c) notify each Selling Holder of such Registrable
Shares, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the occurrence of any
event as a result of which the prospectus included in such
Registration Statement (including any document to be incorporated
by reference therein) contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Selling Holder, the
Company shall prepare a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and promptly make available to each Selling
Holder any such supplement or amendment;
(d) in connection with an underwritten public offering,
enter into customary agreements (including, if requested, an
underwriting agreement), reasonably satisfactory in form and
substance to the Company, and take such other actions in connection
therewith as the Holders of at least a majority in interest of the
Registrable Shares being sold or the underwriter shall reasonably
request in order to consummate the disposition of such Registrable
Shares;
(e) make available for inspection during business hours
on reasonable advance notice by any Selling Holder of such
Registrable Shares, any underwriter participating in any
disposition pursuant to a Registration Statement, and any attorney,
accountant or other professional retained by any such Selling
Holder or underwriter (collectively, the ``INSPECTORS''), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the ``RECORDS'') as shall
be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably
requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in
good faith, to be confidential and which it notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct
a material misstatement or omission in the Registration Statement
or (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction.
Each Selling Holder of such Registrable Shares further agrees that
it will, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give written notice to the
Company, and allow the Company, at the Company's expense, to under-
take appropriate action to prevent disclosure of the Records it
deemed confidential. Each Selling Holder of such Registrable
Shares further agrees that information obtained by it as a result
of such inspections which is deemed confidential by the Company
shall not be used or disclosed by it, and it shall cause each of
its Inspectors not to use or disclose such confidential
information, as the basis for any market transactions in securities
of the Company or for any purpose other than any due diligence
review with respect to decisions regarding such Selling Holder's
investment in the Registrable Shares, unless and until such
information is made generally available to the public;
(f) in the event such sale is pursuant to an under-
written offering, use its reasonable best efforts to obtain (i) a
comfort letter or comfort letters from the Company's independent
public accountants in customary form and covering such financial
and accounting matters of the type customarily covered by comfort
letters as the Selling Holders of a majority in interest of the
Registrable Shares being sold or the managing underwriter
reasonably request, and (ii) an opinion or opinions from counsel
for the Company, addressed to the underwriters, covering the
matters customarily covered in opinions given by counsel in similar
transactions; and
(g) notify the Selling Holders and the managing under-
writers, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (i) when the Registration
Statement, the prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for
that purpose and the Company shall promptly use its reasonable best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued and (iii) of the
receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of
a Registration Statement or any of the Registrable Shares for offer
or sale in any jurisdiction, or the initiation or threatening of
any proceeding for such purpose.
The Company may require each Selling Holder of Regis-
trable Shares as to which any registration is being effected to
furnish to the Company such information regarding the Selling
Holder and the distribution of such Registrable Shares as the
Company may from time to time reasonably request in writing and
such other information as may be legally required in connection
with such registration. Each Selling Holder agrees, by its
acquisition of Registrable Shares and its acceptance of the
benefits provided to it hereunder, to furnish promptly to the
Company all information required to be disclosed in order to make
the information previously furnished to the Company by such Selling
Holder not materially misleading.
Each Holder agrees that upon receipt of any notice from
the Company of the happening of any event of the kind described in
Sections 4, 6(c), (g)(ii) or (g)(iii) hereof, such Holder will
forthwith discontinue disposition of Registrable Shares pursuant to
the Registration Statement covering such Registrable Shares until
such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 6(c) hereof, or until it is
advised in writing by the Company that the use of the prospectus
may be resumed, and, if so directed by the Company, such Holder
will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession,
of the prospectus covering such Registrable Shares current at the
time of receipt of such notice. In the event the Company shall
give any such notice under Section 6(c), (g)(ii) or (g)(iii), the
Company shall extend the period during which such Registration
Statement shall be maintained effective by the number of days
during the period from and including the date of the giving of such
notice pursuant to Section 6(c) hereof to and including the date
when each Holder of Registrable Shares covered by such Registration
Statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 6(c) hereof.
SECTION 7. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all
registration and filing fees, fees and expenses of compliance with
securities or ``blue sky'' laws (including reasonable fees and
disbursements of counsel of the Company and counsel for the
underwriters in connection with ``blue sky'' qualifications of the
Registrable Shares), fees and expenses associated with filings
required to be made with the National Association of Securities
Dealers, Inc., and with listing on any national securities exchange
or exchanges in which listing may be sought, printing expenses,
messenger and delivery expenses, fees and expenses of counsel for
the Company and its independent certified public accountants
(including the expenses of any special audit or ``cold comfort''
letters required by or incident to such performance), securities
acts liability insurance (if the Company elects to obtain such
insurance), the fees and expenses of any special experts retained
by the Company in connection with such registration, and fees and
expenses of other persons retained by the Company (all such
expenses being herein called ``REGISTRATION EXPENSES'') will be
borne (i) by the Company in respect of a Piggy-Back Registration
and (ii) by the Selling Holders in respect of any Demand
Registration, in each case whether or not any registration
statement becomes effective; provided that in no event shall
Registration Expenses payable by the Company include any (A)
underwriting discounts, commissions, or fees attributable to the
sale of the Registrable Shares, (B) fees and expenses of any
counsel, accountants, or other persons retained or employed by the
Holders or underwriters, or (C) transfer taxes, if any.
SECTION 8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to
indemnify and hold harmless each Selling Holder of Registrable
Shares, its officers, directors, partners and agents and each
Person, if any, who controls such Selling Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred
to as an ``INDEMNIFIED PERSON'') from and against any and all
losses, claims, damages, liabilities and judgments (including, the
reasonable legal expenses incurred in connection with any action,
suit or proceeding) arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained
in any Registration Statement or prospectus or in any amendment or
supplement thereto or in any preliminary prospectus relating to a
registration hereunder or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light
of the circumstances under which they were made, not misleading, or
(ii) any violation by the Company of any federal, state or common
law rule or regulation applicable to Company and relating to action
or inaction required by the Company in connection with any such
registration; provided, however, that the Company shall not be
liable for any losses, claims, damages, liabilities or judgments
arise out of, or are based upon, any such untrue statement or
omission or allegation thereof based upon information furnished in
writing to the Company by such Selling Holder or on such Selling
Holder's behalf for use therein, or by any Holder's failure to
deliver a copy of the Registration Statement or prospectus or any
amendment or supplement thereto after being furnished with a
sufficient number of copies thereof by the Company.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any
action or proceeding (including any governmental investigation)
shall be brought or asserted against any Indemnified Person in
respect of which indemnity may be sought from the Company, such
Indemnified Person shall promptly notify the Company in writing,
and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Person and the payment of all reasonable expenses. Such Indemni-
fied Person shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) the Company has agreed to pay such
fees and expenses or (ii) the named parties to any such action or
proceeding (including any impleaded parties) include both such
Indemnified Person and the Company, and such Indemnified Person
shall have been advised in writing by the counsel employed by the
Company in accordance with the provisions of this Section 8(b) that
there exists a conflict of interest between such Indemnified Person
and the Company with respect to such claim (in which case, if such
Indemnified Person notifies the Company in writing that it elects
to employ separate counsel at the expense of the Company, the
Company shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Person, it being
understood, however, that the Company shall not, in connection with
any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for such Indemnified Person
and any other Indemnified Persons, which firm shall be designated
in writing by a majority of such Indemnified Persons and be
reasonably acceptable to the Company). The Company shall not be
liable for any settlement of any such action or proceeding effected
without the Company's prior written consent, but if settled with
its prior written consent, or if there be a final, unappealable
judgment for the plaintiff in any such action or proceeding, the
Company agrees to indemnify and hold harmless such Indemnified
Persons from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment.
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SHARES.
Each Selling Holder agrees severally and not jointly to indemnify
and hold harmless the Company, its directors, officers and agents
and each Person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from
the Company to such Selling Holder, but only with respect to
information furnished in writing by such Selling Holder or on such
Selling Holder's behalf for use in any Registration Statement or
prospectus or any amendment or supplement thereto, or any
preliminary prospectus or by any Holder's failure to deliver a copy
of the Registration Statement or prospectus or any amendment or
supplement thereto after being furnished with a sufficient number
of copies thereof by the Company. In case any action or proceeding
shall be brought against the Company or its directors, officers or
agents or any such controlling person, in respect of which indem-
nity may be sought against such Selling Holder, such Selling Holder
shall have the rights and duties given to the Company, and the
Company or its directors, officers or agents or such controlling
person shall have the rights and duties given to such Selling
Holder by the preceding Section 8(b).
(d) CONTRIBUTION. If the indemnification provided for
in this Section 8 is unavailable to or unenforceable by the Company
or the Indemnified Persons in respect of any losses, claims,
damages, liabilities or judgments referred to herein, then each
such indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities and judgments in such proportions as is appropriate to
reflect the relative fault of the Company and the Indemnified
Persons in connection with the actions or inactions which resulted
in such losses, claims, damages, liabilities and judgments, as well
as any other relevant equitable considerations (including the
relative fault and indemnification or contribution obligations of
other relevant parties). The relative fault of the indemnifying
party on the one hand and of the indemnified person on the other
shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the
indemnified party, and by such party's relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Indemnified Persons agree that it
would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten
registration hereunder unless such Person (a) agrees to sell such
Person's securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve
such arrangements, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting
arrangements and (c) agrees to pay such Person's pro rata portion
of all underwriting discounts, commissions and fees.
SECTION 10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers
or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of
Holders of at least a majority in interest of the Registrable
Shares. Notwithstanding the foregoing, (i) if a waiver or consent
to departure from the provisions hereof does not adversely affect
the rights of all of the Holders, the Company shall not be required
to obtain the consent of any such Holder not adversely affected
thereby, and (ii) if such waiver or consent to departure relates
exclusively to the rights of Holders whose Registrable Shares are
being sold pursuant to a Registration Statement and does not
directly or indirectly affect the rights of other Holders, such
waiver or consent to departure may be given by Holders of a least
a majority in interest of the Registrable Shares being sold by such
Holders pursuant to such Registration Statement; provided that the
provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the
immediately preceding sentence.
(b) NOTICES. All notices and other communications
provided for or permitted hereunder shall be in writing and shall
be delivered personally or by first-class mail, telecopier or
overnight courier:
(i) if to a Holder of Registrable Shares, at the
most current address set forth on the books of the Company,
and
(ii) if to the Company, initially at 19701 Hamilton
Avenue; Torrance, California 90502-1334, Attention: Henry
Del Castillo, and thereafter at such other address, notice of
which is given in accordance with the provisions of this
Section 10(b).
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if personally
delivered; five business days after being deposited in the mail
(postage prepaid), if mailed; upon receipt of a telecopy
confirmation sheet, if telecopied; and on the day delivered if sent
by an air courier guaranteeing overnight delivery.
(c) CERBERUS APPOINTED ATTORNEY-IN-FACT;
INDEMNIFICATION. First Boston and BofA hereby irrevocably appoint
Cerberus as their attorney-in-fact, with full authority in the
place and stead of First Boston and BofA, from time to time in
Cerberus' discretion to take any action and to execute any
instrument that Cerberus may deem necessary or advisable to
accomplish the purposes of this Agreement, including without
limitation, to exercise the registration rights set forth in
Sections 2 and 3 of this Agreement. First Boston and BofA agree to
indemnify Cerberus from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting
from this Agreement and the transactions contemplated hereby,
except to the extent such claims, losses or liabilities result
solely from Cerberus' gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of and be binding upon the successors and, to the
extent set forth herein, the assigns of each of the parties,
including without limitation and without the need for an express
assignment, Eligible Transferees.
(e) COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one
and the same agreement.
(f) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED UNDER AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
(h) SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall not
invalidate the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable any such provision in any other
jurisdiction.
(i) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and is intended to
be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred
to herein with respect to the registration rights granted by the
Company with respect to the Registrable Shares. This Agreement
supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(j) EFFECTIVENESS. This Agreement shall become
effective on the Effective Date.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have
executed this Agreement as of the date first written above.
COMPANY:
WEI ACQUISITION CO.
/s/ Bob Davenport
By ______________________________
Name: Robert C. Davenport
Title: Chief Financial Officer and
Secretary
HOLDERS:
CERBERUS PARTNERS, L.P.
/s/ Stephen Feinberg
By ______________________________
Name: Stephen Feinberg
Title: General Partner Cerberus
Associates, L.P.
General Partner Cerberus
Partners
CS FIRST BOSTON SECURITIES
CORPORATION
/s/ David J. Matlin
By ______________________________
Name: David J. Matlin
Title: Managing Director
BANK OF AMERICA ILLINOIS
/s/ Christopher S. Field
By ______________________________
Name: Christopher S. Field
Title: Attorney-in-Fact
<PAGE>
<PAGE>
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (WESTERN)
as Lender
and
WEI ACQUISITION CO.
as Borrower
Dated: January 31, 1997
<PAGE>
TABLE OF CONTENTS
PAGE(S)
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES. . . . . . . . . . . . . 10
2.1 Revolving Loans. . . . . . . . . . . . . . 10
2.2 Letter of Credit Accommodations. . . . . . 11
SECTION 3. INTEREST AND FEES. . . . . . . . . . . . . 13
3.1 Interest . . . . . . . . . . . . . . . . . 13
3.2 Closing Fee. . . . . . . . . . . . . . . . 14
3.3 Loan Servicing and Audit Fee . . . . . . . 14
3.4 Changes in Laws and Increased Costs of Loans 15
3.5 Compensation Adjustment . . . . . . . . . 15
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . 17
4.1 Conditions Precedent to Initial Loans and the
Letter of Credit Accommodations . . . . . . . . 17
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations . . . . . . . . . . . . . 19
4.3 Condition Subsequent To All Loans And Letter Of
Credit Accommodations.. . . . . . . . . . . . . 20
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . 20
SECTION 6. COLLECTION AND ADMINISTRATION. . . . . . . 21
6.1 Borrower's Loan Account. . . . . . . . . . 21
6.2 Statements . . . . . . . . . . . . . . . . 21
6.3 Collection of Accounts . . . . . . . . . . 22
6.4 Payments . . . . . . . . . . . . . . . . . 23
6.5 Authorization to Make Loans. . . . . . . . 24
6.6 Use of Proceeds. . . . . . . . . . . . . . 24
SECTION 7. COLLATERAL REPORTING AND COVENANTS . . . . 24
7.1 Collateral Reporting . . . . . . . . . . . 24
7.2 Accounts Covenants . . . . . . . . . . . . 25
7.3 Inventory Covenants. . . . . . . . . . . . 26
7.4 Equipment Covenants. . . . . . . . . . . . 27
7.5 Power of Attorney. . . . . . . . . . . . . 27
7.6 Right to Cure. . . . . . . . . . . . . . . 28
7.7 Access to Premises . . . . . . . . . . . . 28
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . 29
8.1 Corporate Existence, Power and Authority;
Subsidiaries. . . . . . . . . . . . . . . . . . 29
8.2 Financial Statements; No Material Adverse
Change. . . . . . . . . . . . . . . . . . . . . 29
8.3 Chief Executive Office; Collateral Locations. 29
8.4 Priority of Liens; Title to Properties . . 29
8.5 Tax Returns. . . . . . . . . . . . . . . . 30
8.6 Litigation . . . . . . . . . . . . . . . . 30
8.7 Compliance with Other Agreements and Applicable
Laws. . . . . . . . . . . . . . . . . . . . . . 30
8.8 Environmental Compliance . . . . . . . . . 30
8.9 Acquisition of Purchased Assets. . . . . . 31
8.10 Capitalization . . . . . . . . . . . . . . 32
8.11 Employee Benefits. . . . . . . . . . . . . 32
8.12 Accuracy and Completeness of Information.. 33
8.13 Survival of Warranties; Cumulative . . . . 33
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS . . . . 33
9.1 Maintenance of Existence . . . . . . . . . 33
9.2 New Collateral Locations . . . . . . . . . 33
9.3 Compliance with Laws, Regulations, Etc . . 34
9.4 Payment of Taxes and Claims. . . . . . . . 34
9.5 Insurance. . . . . . . . . . . . . . . . . 35
9.6 Financial Statements and Other Information 35
9.7 Sale of Assets, Consolidation, Merger, Dissolution,
Etc . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Encumbrances . . . . . . . . . . . . . . . 37
9.9 Indebtedness . . . . . . . . . . . . . . . 37
9.10 Loans, Investments, Guarantees; Dividends and
Redemptions . . . . . . . . . . . . . . . . . . 38
9.11 Transactions with Affiliates . . . . . . . 39
9.12 Compliance with ERISA. . . . . . . . . . . 39
9.13 Adjusted Net Worth . . . . . . . . . . . . 39
9.14 Costs and Expenses . . . . . . . . . . . . 39
9.15 Further Assurances . . . . . . . . . . . . 40
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . 40
10.1 Events of Default. . . . . . . . . . . . . 40
10.2 Remedies . . . . . . . . . . . . . . . . . 42
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW. . . . . . . . . . . . . . 44
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver . . . . . . . . . . . . . . . 44
11.2 Waiver of Notices. . . . . . . . . . . . . 45
11.3 Amendments and Waivers . . . . . . . . . . 45
11.4 Indemnification. . . . . . . . . . . . . . 45
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS . . . . . 46
12.1 Term . . . . . . . . . . . . . . . . . . . 46
12.2 Notices. . . . . . . . . . . . . . . . . . 48
12.3 Partial Invalidity . . . . . . . . . . . . 48
12.4 Successors . . . . . . . . . . . . . . . . 48
12.5 Entire Agreement . . . . . . . . . . . . . 48
12.6 Publicity. . . . . . . . . . . . . . . . . 49
12.7 Confidentiality. . . . . . . . . . . . . . 49
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated January 31, 1997 is
entered into by and between Congress Financial Corporation
(Western), a California corporation ("Lender"), and WEI
Acquisition Co., a Delaware corporation (which will change its
name to Wherehouse Entertainment, Inc.) ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into
certain financing arrangements with Borrower pursuant to which
Lender may make loans and provide other financial accommodations
to Borrower; and
WHEREAS, Lender is willing to make such loans and provide
such financial accommodations on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual conditions
and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or
Article 9 of the California Uniform Commercial Code shall have
the respective meanings given therein unless otherwise defined in
this Agreement. All references to the plural herein shall also
mean the singular and to the singular shall also mean the plural.
All references to Borrower and Lender pursuant to the definitions
set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this
Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meaning customarily
given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings
given to them below:
1.1 "Accounts" shall mean all present and future rights of
Borrower to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or chattel
paper, and whether or not earned by performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to
each Interest Period for any Eurodollar Rate Loan, the rate per
annum (rounded upwards, if necessary, to the next one-sixteenth
(1/16) of one percent (1%), determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the reserve
percentage, expressed as a decimal, prescribed by any United
States or foreign banking authority for determining the reserve
requirement which is or would be applicable to deposits of United
States dollars in a non-United States or an international banking
office of Reference Bank used to provide funding for a Eurodollar
Rate Loan or any Eurodollar Rate Loan made with the proceeds of
such deposit, whether or not the Reference Bank actually holds or
has made any such deposits or loans. The Adjusted Eurodollar
Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at
any time, in accordance with GAAP (except as otherwise
specifically set forth below), on a consolidated basis for such
Person and its subsidiaries (if any), the amount equal to: (a)
the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book
value of inventory for this purpose on a first-in-first-out
basis, at the lower of cost or market, after deducting from such
book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence,
depreciation and amortization) and (ii) the aggregate amount of
the indebtedness and other liabilities of such Person and its
subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries which is
subordinated in right of payment to the full and final payment of
all of the Obligations on terms and conditions acceptable to
Lender.
1.4 "Adjusted Appraised Value" shall mean, with respect to
Eligible Inventory, the appraised value of such Eligible
Inventory, determined as of any date on a "going out of business
sale" basis, net of all estimated liquidation expenses, shrinkage
and markdowns, based on the appraisal percentages and
methodologies set forth in the then most recent appraisal, which
appraisal shall be conducted by an independent appraisal firm
acceptable to Lender in its sole and absolute discretion,
adjusted to reflect the amount of Eligible Inventory as of the
date of any Loan.
1.5 "Availability Reserves" shall mean, as of any date of
determination, such amounts (without duplication of reductions in
value in this definition or the effect of the definition of
Eligible Inventory) as Lender may from time to time establish and
revise in good faith and in a commercially reasonable manner
reducing the amount of Revolving Loans and Letter of Credit
Accommodations which would otherwise be available to Borrower
under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined
by Lender in commercially reasonable good faith, do or may affect
either (i) the Collateral or any other property which is security
for the Obligations or its value, (ii) the assets, business or
prospects of Borrower, (iii) the security interests and other
rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof), or (iv) to reflect markdowns in
excess of historical amounts experienced in Borrower's business
or (b) to reflect Lender's good faith belief that any Collateral
report or financial information furnished by or on behalf of
Borrower to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) to reflect any state of
facts which Lender determines in good faith constitutes an Event
of Default. Without limiting the generality of the foregoing,
Lender (i) shall establish on the date hereof and maintain
throughout the term of this Agreement and throughout any renewal
term an Availability Reserve for an amount equal to two months of
Borrower's gross rent and other obligations as lessee for all
locations where Eligible Inventory is or is permitted hereunder
to be located (other than in California), and where Lender has
determined a landlord may have lien rights with respect to the
Collateral to secure unpaid rent and such landlord has not waived
such lien in an agreement acceptable to Lender, (ii) shall
establish Availability Reserves equal to the Shrinkage Reserve,
and (iii) shall establish temporary Availability Reserves equal
to five percent (5%) of Eligible Inventory for Inventory test
count variances with such amount to be adjusted in Lender's
reasonable determination based upon results of audits, Inventory
counts, test counts and other matters Lender reasonably deems
necessary. Notwithstanding the foregoing, Lender agrees that, to
the extent that a particular item of Inventory is excluded from
Eligible Inventory, no Availability Reserve shall be established
with respect to such item of Inventory.
1.6 "Bankruptcy Case" shall mean that Chapter 11 Case No.
95-911 (HSB) (Jointly Administered) in the United States
Bankruptcy Court for the District of Delaware wherein Seller is
the debtor.
1.7 "Blocked Account" shall have the meaning set forth in
Section 6.3 hereof.
1.8 "Business Day" shall mean (a) for the Prime Rate Loans,
any day (1) other than a Saturday, Sunday, or other day on which
commercial banks are authorized or required to close under the
laws of the State of California or the Commonwealth of
Pennsylvania, and (2) a day on which the Reference Bank and
Lender are open for the transaction of business, and (b) for all
Eurodollar Rate Loans, any such day as described in (a) above in
this definition of Business Day, excluding any day on which banks
are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
1.9 "Cerberus" means Cerberus Partners, L.P., a Delaware
limited partnership.
1.10 "Confirmation Order" shall mean the Findings of Fact,
Conclusions of Law and Order Confirming Debtors' First Amended
Chapter 11 Plan Under Chapter 11 of the Bankruptcy Code dated
January 7, 1997 and entered in the Bankruptcy Case.
1.11 "Confirmation Plan" shall mean the Debtors' First
Amended Chapter 11 Plan in the Bankruptcy Case dated October 4,
1996, as amended.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as
the same now exists or may from time to time hereafter be
amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related
thereto.
1.13 "Collateral" shall have the meaning set forth in
Section 5 hereof.
1.14 "Credit Card Agreements" shall mean all agreements now
or hereafter entered into by Borrower with any Credit Card Issuer
or Credit Card Processor as the same may now exist or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.15 "Credit Card Issuer" shall mean any person who issues
or whose members issue credit cards used by customers of the
Borrower to purchase goods, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank
credit or debit cards, and American Express, Discover, Diners
Club, Carte Blanche, and other non-bank credit or debit cards.
1.16 "Credit Card Processor" shall mean any servicing or
processing agent or any factor or financial intermediary who
facilities, services, processes or manages the credit
authorization, billing transfer and/or payment from a Credit Card
Issuer or Credit Card Processor and other procedures with respect
to any sales transactions of the Borrower involving credit card
or debit card purchases by customers using credit cards or debit
cards issued by any Credit Card Issuer.
1.17 "Credit Card Receivables" shall mean all Accounts
consisting of the present and future rights of Borrower to
payment by Credit Card Issuers or Credit Card Processors for
merchandise sold and delivered to customers of Borrower who have
purchased such goods using a credit card or a debit card issued
by a Credit Card Issuer.
1.18 "Distributions" shall have the meaning set forth in
Section 9.10 hereof.
1.19 "Eligible Inventory" shall mean Inventory consisting of
finished merchandise held for sale in the ordinary course of the
business of Borrower which are located either at one of
Borrower's retail stores, its distribution center in the United
States, or in transit between any such location of Borrower,
provided that, in any case, such location is in a jurisdiction
where Lender has a first priority security interest in the
Collateral, and which are acceptable to Lender based on the
criteria set forth below. In general, Eligible Inventory shall
not include (without duplication in the following exclusions or
the effect of the definition of Availability Reserves) (a) raw
materials, (b) work-in-process; (c) components which are not part
of finished goods; (d) spare parts for equipment; (e) packaging
and shipping materials; (f) supplies used or consumed in
Borrower's business; (g) Inventory at premises not owned or
controlled by Borrower, (h) Inventory in transit (other than
Inventory in transit from one location of Borrower to another
location satisfying the requirements set forth in this Section
1.19); (i) Inventory subject to a security interest or lien in
favor of any person other than Lender except those permitted in
this Agreement; (j) layaway; (k) unserviceable Inventory; (l)
Inventory which is not subject to the first priority, valid and
perfected security interest of Lender; (m) damaged and/or
defective Inventory; (n) Inventory held for return to vendors;
(o) liquidation Inventory; (p) Inventory consisting of samples;
(q) display or used Inventory (including, without limitation,
used Inventory returned by customers); (r) Rental Inventory; (s)
Inventory purchased or sold on consignment; (t) Inventory which
is not actively held by Borrower for sale to retail customers;
(u) clothing Inventory; (v) overstocked Inventory (it being
understood that any such Inventory may be considered Eligible
Inventory if it is moved to one of Borrower's locations
satisfying the requirements set forth in this Section 1.19 where
it does not constitute overstocked Inventory, and such Inventory
otherwise satisfies the requirements for Eligible Inventory set
forth in this Section 1.19); (w) clearance Inventory or Inventory
located at supermarkets or grocery stores; and (x) printed
materials including, but not limited to, software manuals,
booklets, magazines and paperback books. General criteria for
Eligible Inventory may be established and revised from time to
time by Lender in its reasonable credit judgment. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the
Collateral.
1.20 "Environmental Laws" shall mean all federal, state,
district, local and foreign laws, rules, regulations, ordinances,
and consent decrees relating to hazardous substances, pollution
and environmental matters, as now or at any time hereafter in
effect, applicable to Borrower's business and facilities (whether
or not owned by it), including laws relating to emissions,
discharges, releases or threatened releases of pollutants,
contamination, hazardous or toxic substances, materials or wastes
into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata)
or otherwise relating to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, hazardous or toxic
substances, materials or wastes.
1.21 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles,
tools, furniture, fixtures, all attachments, accessions and
property now or hereafter affixed thereto or used in connection
therewith, and substitutions and replacements thereof, wherever
located and used by Borrower or useful in connection with the
sale of the Inventory to customers (including, without
limitation, shelving, display racks and computer and cash
register equipment).
1.22 "ERISA" shall mean the United States Employee
Retirement Income Security Act of 1974, as the same now exists or
may hereafter from time to time be amended, modified, recodified
or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.23 "ERISA Affiliate" shall mean any person required to be
aggregated with Borrower or any of its affiliates under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.
1.24 "Eurodollar Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the terms hereof.
1.25 "Eurodollar Rate" shall mean with respect to the
Interest Period for a Eurodollar Rate Loan, the interest rate per
annum equal to the rate of interest per annum (rounded upwards,
if necessary, to the next one-sixteenth (1/16) of one percent
(1%)) at which Reference Bank offers deposits of United States
dollars in the London interbank market (or other Eurodollar Rate
market selected by Borrower and approved by Lender) on or about
9:00 a.m. (New York time) two (2) Business Days prior to the
commencement of such Interest Period (whether such rate is higher
or lower than any rate previously quoted to Borrower) in amounts
substantially equal to the principal amount of the Eurodollar
Rate Loans requested by and available to Borrower in accordance
with this Agreement, with a maturity of comparable duration to
the Interest Period selected by Borrower.
1.26 "Event of Default" shall mean the occurrence or
existence of any event or condition described in Section 10.1
hereof.
1.27 "Excess Availability" shall mean the amount, as
determined by Lender, calculated at any time, equal to:
(a) the lesser of (i) the amount of the Revolving
Loans available to Borrower as of such time (based
on the applicable advance rate set forth in
Section 2.1(a)(i) hereof multiplied by the Value
or Adjusted Appraised Value, as applicable, as
determined by Lender and without deducting
outstanding Obligations) plus cash or deposit
accounts which are Collateral (other than cash in
Borrower's cash registers) and in which Lender has
a perfected and first priority security interest,
subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder
and (ii) the Maximum Credit,
minus (b) the sum of: (i) the liquidated and non-
contingent amount of all then outstanding and
unpaid Obligations, (ii) the aggregate amount of
all trade payables of Borrower which are more than
sixty (60) days past due as of such time, and
(iii) the aggregate amount of Borrower's book
overdrafts.
1.28 "Excess Cash Flow Available for Investments and
Distributions" shall mean for the period (treated as a single
accounting period) from January 31, 1997 and ending on the last
day of the fiscal quarter of the Borrower most recently ended an
amount equal to 75% of (y) the sum of (i) Borrower's net income
or loss (without providing for tax benefits and excluding unusual
or extraordinary gains) for such period plus (ii) depreciation
and amortization expense for such period plus (or minus if a
negative number) (iii) the excess of the amount of Working
Capital on the first day of such period over the amount of
Working Capital on the last day of such period less (z) the sum
of (i) capital expenditures made during such period, plus (ii)
principal payments on capital lease obligations and on long-term
Indebtedness made during such period plus (iii) Investments and
Distributions made during such period pursuant to the exception
provided by Section 9.10(e) hereof.
1.29 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and
other agreements, documents and instruments now or at any time
hereafter executed and/or delivered by Borrower in connection
with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
1.30 "GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect from time
to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Boards which
are applicable to the circumstances as of the date of
determination consistently applied, except that, for purposes of
Section 9.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with
those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.31 "Hazardous Materials" shall mean any hazardous or toxic
substances, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum
and hydrocarbons), flammable explosives, asbestos, urea
formaldehyde insulation, radioactive materials, polychlorinated
biphenyls, pesticides, herbicides and any other kind and/or type
of pollutants or contaminants (including, without limitation,
materials which include hazardous constituents), sewage, sludge,
industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any
Environmental Law (including, without limitation any that are or
become classified as hazardous or toxic under any Environmental
Law); provided, however, that Hazardous Materials shall not
include any materials in a non-hazardous form such as asphalt
contained in road-surfacing materials or hazardous materials
customarily used in the operation of retail businesses and
properly stored and maintained or hazardous materials customarily
used in the maintenance and cleaning (including janitorial
services) of commercial facilities and properly stored and
maintained.
1.32 "Indebtedness", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations
with respect to capital leases that is properly classified as a
liability on a balance sheet in conformity with GAAP, (iii) notes
payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv)
any obligation owed for all or any part of the deferred purchase
price of property or services (excluding any such obligations
incurred under ERISA), which purchase price is (a) due more than
six months from the date of incurrence of the obligation in
respect thereof or (b) evidenced by a note or similar written
instrument, and (v) all indebtedness secured by any lien on any
property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed
by that Person or is nonrecourse to the credit of that Person.
1.33 "Information Certificate" shall mean the Information
Certificate of Borrower constituting Exhibit A hereto containing
material information with respect to Borrower, its business and
assets provided by or on behalf of Borrower to Lender in
connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for
herein.
1.34 "Interest Period" shall mean for any Eurodollar Rate
Loan, a period of approximately one (1), two (2) or three (3)
months duration as Borrower may elect, the exact duration to be
determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, Borrower may
not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.35 "Interest Rate" shall mean, as to Prime Rate Loans, a
rate equal to the Prime Rate and, as to Eurodollar Rate Loans, a
rate of two and one-half (2.50) percentage points per annum in
excess of the Adjusted Eurodollar Rate; provided however, the
Interest Rate shall mean the rate of two (2.0) percentage points
per annum in excess of the Prime Rate as to Prime Rate Loans and
the rate of four and one-half (4.50) percentage points percent
per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (a)
for the period on and after the date of termination or non-
renewal hereof, until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment
against Borrower) or during the period in which an Event of
Default has occurred and is continuing and (b) on the Revolving
Loans at any time outstanding in excess of the amounts available
to Borrower under Section 2 (whether or not such excess(es) arise
or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default).
1.36 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or
nature, wherever located, but shall not include Rental Inventory.
1.37 "Inventory Advance Rate" shall mean the advance rate
applicable to Eligible Inventory as determined in accordance with
subsections 2.1(a).
1.38 "Investments" shall have the meaning set forth in
Section 9.10 hereof.
1.39 "Letter of Credit Accommodations" shall mean the
letters of credit, merchandise purchase or other guaranties which
are from time to time either (a) issued or opened by Lender for
the account of Borrower or (b) with respect to which Lender has
agreed to indemnify the issuer or guaranteed to the issuer the
performance by Borrower of its obligations to such issuer.
1.40 "Loans" shall mean the Revolving Loans.
1.41 "Maximum Credit" shall mean, with reference to the
Revolving Loans and the Letter of Credit Accommodations, the
amount of Thirty Million Dollars ($30,000,000).
1.42 "Obligations" shall mean any and all Revolving Loans,
the Letter of Credit Accommodations and all other obligations,
liabilities and indebtedness of every kind, nature and
description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether arising under this Agreement or
otherwise, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term
of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code
(including payments made pursuant to the Confirmation Plan) or
any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Lender.
1.43 "Participant" shall mean any person which at any time
participates with Lender in respect of the Loans, the Letter of
Credit Accommodations or other Obligations or any portion
thereof.
1.44 "Payment Account" shall have the meaning set forth in
Section 6.3 hereof.
1.45 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without
limitation, any corporation which elects subchapter S status
under the Internal Revenue Code of 1986, as amended), business
trust, unincorporated association, joint stock corporation,
trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.46 "Purchase Agreements" shall mean, individually and
collectively, the Asset Purchase Agreement, dated January 31,
1997, between Borrower and Seller, together with bills of sale,
quitclaim deeds, assignment and assumption agreements and such
other instruments of transfer as are referred to therein and all
side letters with respect thereto, and all agreements, documents
and instruments executed and/or delivered in connection
therewith, as all of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced, all pursuant to the Confirmation Plan and the
Confirmation Order; provided, that, the term "Purchase
Agreements" as used herein shall not include any of the
"Financing Agreements" as such term is defined herein.
1.47 "Purchased Assets" shall mean all of the assets and
properties acquired by Borrower from Seller pursuant to the
Purchase Agreements and the Confirmation Plan and the
Confirmation Order.
1.48 "Prime Rate" shall mean the rate from time to time
publicly announced by CoreStates Bank, N.A., or its successors,
at its office in Philadelphia, Pennsylvania, as its prime rate,
whether or not such announced rate is the best rate available at
such bank.
1.49 "Prime Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Prime Rate in
accordance with the terms thereof.
1.50 "Records" shall mean all of Borrower's present and
future books of account of every kind or nature, purchase and
sale agreements, invoices, ledger cards, bills of lading and
other shipping evidence, statements, correspondence, memoranda,
credit files and other data relating to the Collateral or any
account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets
or containers in or on which the foregoing are stored (including
any rights of Borrower with respect to the foregoing maintained
with or by any other person).
1.51 "Reference Bank" shall mean CoreStates Bank, N.A., or
such other bank as Lender may from time to time designate.
1.52 "Renewal Date" shall have the meaning set forth in
Section 12.1(a) hereof.
1.53 "Rental Inventory" means all finished merchandise of
Borrower held for rental to retail customers, provided that such
merchandise has not previously been reported to Congress as
comprising part of the Borrower's Inventory.
1.54 "Revolving Loans" shall mean the loans now or hereafter
made by Lender to or for the benefit of Borrower on a revolving
basis (involving advances, repayments and readvances) as set
forth in Section 2.1 hereof.
1.55 "Seasonal Period" shall mean the period from October 1
through December 31 of each calendar year.
1.56 "Seller" shall mean WEI Holdings, Inc. and Wherehouse
Entertainment, Inc., debtors and debtors-in-possession, and
Delaware corporations.
1.57 "Shrinkage Reserve" shall mean an amount equal to the
Value of Eligible Inventory (less Availability Reserves) divided
by the Value of Inventory multiplied by the amount of Borrower's
shrinkage reserve on its general ledger as such amount may be
reasonably adjusted by Lender from time-to-time based upon
results of physical Inventory counts, audits, adjustments made by
Borrower and other matters which Lender reasonably deems
necessary in order to calculate the potential shrinkage of
Inventory.
1.58 "Value" shall mean, as determined by Lender in good
faith, with respect to Inventory, the lower of (a) cost under the
first-in-first-out method, net of vendor discounts or (b) market
value.
1.59 "Working Capital" shall mean the current assets of the
Borrower (other than cash or cash equivalents) minus the current
liabilities of the Borrower, expressed as either a positive or
negative arithmetic result.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to
Borrower from time to time in amounts requested by Borrower up to
the amount equal to the sum of:
(i) the lesser of: (A) the sum of fifty-four
percent (54%) (sixty percent (60%) during the
Seasonal Period) of the Value of Eligible Inventory
consisting of music products, plus forty-five percent
(45%) (forty-nine percent (49%) during the Seasonal
Period) of the Value of Eligible Inventory consisting
of video products, plus forty-eight percent (48%)
(fifty-three percent (53%) during the Seasonal
Period) of the Value of all other Eligible Inventory,
or (B) fifty percent (50%) (fifty-five percent (55%)
during the Seasonal Period) of the aggregate Value of
Eligible Inventory, or (C) eighty-five percent (85%)
of the Adjusted Appraised Value of Eligible
Inventory; minus
(ii) the then undrawn amounts of outstanding
Letter of Credit Accommodations, minus
(iii) any Availability Reserves.
(b) Lender may, in its good faith determination, from
time to time, upon not less than seven (7) Business Days prior
notice to Borrower, reduce the lending formula(s) with respect to
Eligible Inventory to the extent that Lender determines that: (A)
the number of days of the turnover of such Inventory for any
period has changed in any materially adverse respect or (B) the
nature and quality of the Inventory has deteriorated in any
material respect. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies
or risks which are also considered in determining Eligible
Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate
amount of the Loans, the Letter of Credit Accommodations and
other Obligations outstanding at any time shall not exceed the
Maximum Credit. In the event that the outstanding amount of any
component of the Loans and Letter of Credit Accommodations or the
aggregate amount of the outstanding Loans and Letter of Credit
Accommodations and other Obligations exceeds the amounts
available under the lending formulas set forth in Section 2.1(a)
hereof, the sublimits for Letter of Credit Accommodations set
forth in Section 2.2(c), or the Maximum Credit, as applicable,
such event shall not limit, waive or otherwise affect any rights
of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire
amount of any such excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions
contained herein, at the request of Borrower, Lender agrees to
provide or arrange for Letter of Credit Accommodations with the
Reference Bank, Swiss Bank Corporation or The Chase Manhattan
Bank, or if none of the foregoing, an issuer reasonably
acceptable to Borrower and Lender, for the account of Borrower
containing terms and conditions acceptable to Lender and the
issuer thereof. Any payments made by Lender to any issuer
thereof and/or related parties in connection with the Letter of
Credit Accommodations shall constitute additional Revolving Loans
to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses
charged by any bank or issuer in connection with the Letter of
Credit Accommodations, Borrower shall pay to Lender a letter of
credit fee at a rate equal to one and one-half percent (1.5%) per
annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each
succeeding month; provided, however, that such letter of credit
fee shall be increased, at Lender's option without notice, to
three and one-half percent (3.5%) per annum for the period on or
after the date of termination or non-renewal of this Agreement,
or upon the occurrence and during the continuation of an Event of
Default. Such letter of credit fee shall be calculated on the
basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrower to pay such fee shall
survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance of any
Letter of Credit Accommodations, the Revolving Loans available to
Borrower (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than an amount equal to one
hundred percent (100%) of the face amount of the proposed Letter
of Credit Accommodation and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on
the issuance of each Letter of Credit Accommodation, the amount
of Revolving Loans which might otherwise be available to Borrower
shall be reduced by the applicable amount set forth in this
Section.
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other
commitments and obligations made or incurred by Lender in
connection therewith shall not at any time exceed Ten Million
Dollars ($10,000,000). At any time an Event of Default exists or
has occurred and is continuing, upon Lender's request, Borrower
will either furnish cash collateral to secure the reimbursement
obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the
Revolving Loans otherwise available to Borrower shall not be
reduced as provided in Section 2.2(c) to the extent of such cash
collateral.
(e) Borrower shall indemnify and hold Lender harmless
from and against any and all losses, claims, damages,
liabilities, costs and expenses which Lender may suffer or incur
in connection with any Letter of Credit Accommodations and any
documents, drafts or acceptances relating thereto, including, but
not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or
correspondent with respect to any Letter of Credit Accommodation
unless caused by the gross negligence or willful misconduct of
such issuer or correspondent. Borrower assumes all risks with
respect to the acts or omissions of the drawer under or
beneficiary of any Letter of Credit Accommodation and for such
purposes the drawer or beneficiary shall be deemed Borrower's
agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies
relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances
thereunder. Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions,
whether caused by Borrower, by any issuer or correspondent or
otherwise, unless caused by the gross negligence or willful
misconduct of Lender, with respect to or relating to any Letter
of Credit Accommodation. The provisions of this Section 2.2(e)
shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or
construed to grant Borrower any right or authority to pledge the
credit of Lender in any manner. Lender shall have no liability
of any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such
Letter of Credit Accommodation. Borrower shall be bound by any
interpretation made in good faith by Lender, or any other issuer
or correspondent under or in connection with any Letter of Credit
Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower. Lender shall have the sole and
exclusive right and authority to, and Borrower shall not: (i) at
any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-
compliance of documents, (B) give any instructions as to
acceptance or rejection of any documents or goods or (C) execute
any and all applications for steamship or airway guaranties,
indemnities or delivery orders, and (ii) at all times, (A) grant
any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and
(B) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any
of the applications, Letter of Credit Accommodations, or docu-
ments, drafts or acceptances thereunder or any letters of credit
included in the Collateral. Lender may take such actions either
in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations
granted or undertaken by Borrower to any issuer or correspondent
in any application for any Letter of Credit Accommodation, or any
other agreement in favor of any issuer or correspondent relating
to any Letter of Credit Accommodation, shall be deemed to have
been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent
in any application for any Letter of Credit Accommodation, or any
other agreement by Lender in favor of any issuer or correspondent
relating to any Letter of Credit Accommodation, in each case in
good faith and in accordance with this Agreement, shall be deemed
to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at
the Interest Rate. All interest accruing hereunder on and after
the date of any Event of Default or termination or non-renewal
hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime
Rate Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional
Interest Period. Such request from Borrower shall specify the
amount of the Prime Rate Loans which will constitute Eurodollar
Rate Loans (subject to the limits set forth below) and the
Interest Period to be applicable to such Eurodollar Rate Loans.
Subject to the terms and conditions contained herein, three (3)
Business Days (or such later date as specified in such request)
after receipt by Lender of such a request from Borrower, such
Prime Rate Loans shall be converted to Eurodollar Rate Loans or
such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or event of which with
notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party
hereto shall have sent any notice of termination or non-renewal
of this Agreement, (iii) Borrower shall have complied with such
customary procedures as are established by Lender and specified
by Lender to Borrower from time to time for requests by Borrower
for Eurodollar Rate Loans, (iv) no more than four (4) Interest
Periods may be in effect at any one time, (v) the aggregate
amount of the Eurodollar Rate Loans must be in an amount not less
than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof; (vi) the maximum amount of the Eurodollar Rate Loans at
any time requested by Borrower shall not exceed the amount equal
to eighty percent (80%) of the daily average of the principal
amount of the Revolving Loans which it is anticipated will be
outstanding during the applicable Interest Period, in each case
as determined by Lender (but with no obligation of Lender to make
such Revolving Loans) and (vii) Lender shall have determined that
the Interest Period or Adjusted Eurodollar Rate is available to
Lender through the Reference Bank and can be readily determined
as of the date of the request for such Eurodollar Rate Loan by
Borrower. Any request by Borrower to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate
Loans shall be irrevocable. Notwithstanding anything to the
contrary contained herein, Lender and Reference Bank shall not be
required to purchase United States Dollar deposits in the London
interbank market or other applicable Eurodollar Rate market to
fund any Eurodollar Rate Loans, but the provisions hereof shall
be deemed to apply as if Lender and Reference Bank had purchased
such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically
convert to Prime Rate Loans upon the last day of the applicable
Interest Period, unless Lender has received and approved a
request to continue such Eurodollar Rate Loan at least three (3)
Business Days prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Lender's option,
upon notice by Lender to Borrower, convert to Prime Rate Loans in
the event that (i) an Event of Default or event which with the
notice or passage of time or both would constitute an Event of
Default, shall exist, (ii) this Agreement shall terminate or not
be renewed, or (iii) the aggregate principal amount of the Prime
Rate Loans which have previously been converted to Eurodollar
Rate Loans or existing Eurodollar Rate Loans continued, as the
case may be, at the beginning of an Interest Period shall at any
time during such Interest Period exceed the Revolving Loans then
available to Borrower under Section 2 hereof. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with
Lender for any loss (other than loss of anticipated profits),
cost or expense incurred by such person, as a result of the
conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant
to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender
monthly in arrears not later than the first day of each calendar
month and shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed. Such interest
shall be charged against Borrower's loan account. The interest
rate on non-contingent Obligations (other than Eurodollar Rate
Loans) shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day
of the month after any change in such Prime Rate is announced
based on the Prime Rate in effect on the last day of the month in
which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or
regulation, and if any such part or provision of this Agreement
is in contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing
fee (inclusive of any commitment fees paid to Lender by Borrower
or Seller) of One Hundred Fifty Thousand Dollars ($150,000),
which fee shall be fully earned as of the date hereof. The
commitment fee of Seventy-Five Thousand Dollars ($75,000)
previously paid by Seller to Lender shall be applied to the
closing fee. The remaining Seventy-Five Thousand Dollars
($75,000) shall be paid on the first anniversary of the date of
this Agreement.
3.3 Loan Servicing and Audit Fee. Borrower shall pay to
Lender quarterly, in advance, a loan servicing and audit fee in
an amount equal to Six Thousand Dollars ($6,000), plus out-of-
pocket costs and expenses, in respect of Lender's services for
each fiscal quarter (or part thereof) other than the fiscal
quarter ended January 31, 1997 while this Agreement remains in
effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be fully earned as of and payable in
advance on the date hereof and on the first day of each quarter
hereafter.
3.4 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained
herein, all Eurodollar Rate Loans shall, upon notice by Lender to
Borrower, convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for
Lender or Reference Bank to make or maintain Eurodollar Rate
Loans or to comply with the terms hereof in connection with the
Eurodollar Rate Loans, by an amount deemed by Lender to be
material, or (B) shall result in the increase in the costs to
Lender or Reference Bank of making or maintaining any Eurodollar
Rate Loans or (C) reduce the amounts received or receivable by
Lender in respect thereof, by an amount deemed by Lender to be
material or (ii) the cost to Lender or Reference Bank of making
or maintaining any Eurodollar Rate Loans shall otherwise increase
by an amount deemed by Lender to be material. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender or the Reference Bank for any loss (including
loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without
limitation, any such loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the Eurodollar Rate
Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrower and
shall be conclusive, absent manifest error.
(b) If any payments (other than regularly scheduled
payments of interest) or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of
the applicable Interest Period (whether pursuant to acceleration,
upon maturity or otherwise), including any payments pursuant to
the application of collections under Section 6.3 or any other
payments made with the proceeds of Collateral, Borrower shall pay
to Lender upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender or the Reference Bank for any additional loss
(including loss of anticipated profits), cost or expense incurred
by such person as a result of such prepayment or payment,
including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or reemployment of deposits or other
funds acquired by such person to make or maintain such Eurodollar
Rate Loans or any portion thereof.
3.5 Compensation Adjustment
(a) If after the date of this Agreement the
introduction of, or any change in, any law or any governmental
rule, regulation, policy, guideline or directive (whether or not
having the force of law), or any interpretation thereof, or
compliance by Lender or any Participant therewith:
(i) subjects Lender to any tax, duty, charge or
withholding on or from payments due from Borrower (excluding
franchise taxes imposed upon, and taxation of the overall net
income of, Lender or any Participant), or changes the basis of
taxation of payments, in either case in respect of amounts due it
hereunder, or
(ii) imposes or increases or deems applicable any
reserve requirement or other reserve, assessment, insurance
charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by Lender
or any Participant, or
(iii) imposes any other condition the result
of which is to increase the cost to Lender or any Participant of
making, funding or maintaining the Revolving Loans or Letter of
Credit Accommodations or reduces any amount receivable by Lender
or any Participant in connection with the Loans or Letter of
Credit Accommodations, or requires Lender or any Participant to
make payment calculated by references to the amount of loans held
or interest received by it, by an amount deemed material by
Lender or any Participant, or
(iv) imposes or increases any capital requirement
or affects the amount of capital required or expected to be
maintained by Lender or any Participant or any corporation
controlling Lender or any Participant, and Lender or any
Participant determines that such imposition or increase in
capital requirements or increase in the amount of capital
expected to be maintained is based upon the existence of this
Agreement or the Loans or Letter of Credit Accommodations
hereunder, all of which may be determined by Lender's reasonable
allocation of the aggregate of its impositions or increases in
capital required or expected to be maintained, and the result of
any of the foregoing is to increase the cost to Lender or any
Participant of making, renewing or maintaining the Loans or
Letter of Credit Accommodations, or to reduce the rate of return
to Lender or any Participant on the Loans or Letter of Credit
Accommodations, then, to the extent consistent with Lender's
treatment of other similarly situated customers, upon demand by
Lender, Borrower shall pay to Lender, and continue to make
periodic payments to Lender or any Participant, such additional
amounts as may be necessary to compensate Lender or any
Participant for any such additional cost incurred or reduced rate
of return realized.
(b) A certificate of Lender claiming entitlement to
compensation as set forth above will be conclusive in the absence
of manifest error. Such certificate will set forth the nature of
the occurrence giving rise to such compensation, the additional
amount or amounts to be paid and the compensation and the method
by which such amounts were determined. In determining any
additional amounts due from Borrower under this Section 3.5,
Lender shall act reasonably and in good faith and will, to the
extent that the increased costs, reductions, or amounts received
or receivable relate to the Lender's or a Participant's loans or
commitments generally and are not specifically attributable to
the Loans and commitments hereunder, use averaging and
attribution methods which are reasonable and equitable and which
cover all loans and commitments under this Agreement by the
Lender or such Participant, as the case may be, whether or not
the loan documentation for such other loans and commitments
permits the Lender or such Participant to receive compensation
costs of the type described in this Section 3.5.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and the Letter of
Credit Accommodations. Each of the following is a condition
precedent to Lender making the initial Loans and the initial
Letter of Credit Accommodations hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other
documents as Lender may request to evidence and effectuate the
termination of any interest in and to any Collateral (including
assets and property sold by Seller constituting part of the
Collateral), duly authorized, executed and delivered by it or
each of them, including, but not limited to, UCC termination
statements for all UCC financing statements and Lender shall have
satisfied itself that it has valid, perfected, fully enforceable
(including, without limitation, no contractual or other
restrictions or limitations held by third parties with respect to
Lender's rights to take a security interest in or dispose of the
Collateral) and first priority security interests in and liens
upon the Collateral and any other property which is intended as
security for the Obligations, subject only to the security
interests and liens permitted herein or in the other Financing
Agreements;
(b) Lender shall have received, in form and substance
satisfactory to Lender, evidence that the Purchase Agreements
have been duly executed and delivered by and to the appropriate
parties thereto and the transactions contemplated under the terms
of the Purchase Agreements have been or will be consummated prior
to or contemporaneously with the execution of this Agreement;
(c) Lender shall have received, in form and substance
satisfactory to Lender, a pro-forma balance sheet of Borrower
reflecting the initial transactions contemplated hereunder,
including, but not limited to, (i) the consummation of the
acquisition of the Purchased Assets by Borrower from Seller and
the other transactions contemplated by the Purchase Agreements
and the Confirmation Plan and (ii) the Loans and Letter of Credit
Accommodations provided by Lender to Borrower on the date hereof
and the use of the proceeds of the initial Loans as provided
herein, accompanied by a certificate, dated of even date
herewith, of the chief financial officer of Borrower stating that
such pro-forma balance sheet represents the reasonable, good
faith opinion of such officer as to the subject matter thereof as
of the date of such certificate;
(d) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements
shall be satisfactory in form and substance to Lender, and Lender
shall have received all information and copies of all documents,
including, without limitation, records of requisite corporate
action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or
its counsel to be certified by appropriate corporate officers or
governmental authorities;
(e) no material adverse change shall have occurred in
the assets, business or prospects of Borrower since January 1,
1997 and no change or event shall have occurred which would
impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which
it is a party or of Lender to enforce the Obligations or realize
upon the Collateral;
(f) Not more than five (5) Business Days prior
thereto, Lender shall have completed a field review of the
Records and such other information with respect to the Collateral
as Lender may require to determine the amount of Revolving Loans
available to Borrower, the results of which shall be satisfactory
to Lender (including, without limitation, approval of the results
of such field review by Lender's senior credit committee in its
sole discretion); and Lender shall have received current
perpetual Inventory records and/or rollforwards of Inventory
through the date hereof, together with all supporting
documentation and such other documents and information as Lender
shall request in its sole discretion to enable Lender to
accurately identify and verify the Eligible Inventory at or
before the date hereof in a manner satisfactory to Lender,
including, but not limited to, Inventory in transit, and goods in
bonded warehouses or at third party locations.
(g) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments
and other agreements from third persons which Lender reasonably
may deem necessary or desirable in order to permit, protect and
perfect its security interests in and liens upon the Collateral
or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements.
(h) all Credit Card Issuers and Credit Card Processors
shall have been irrevocably directed by the parties to Credit
Card Agreements, and such Credit Card Companies and Credit Card
Processors shall agree, that all proceeds of Credit Card
Receivables shall be remitted to the Blocked Account;
(i) Lender shall have received evidence of insurance
and loss payee endorsements required hereunder and under the
other Financing Agreements, in form and substance satisfactory to
Lender, and certificates of insurance policies and/or endorse-
ments naming Lender as loss payee, in each case, in respect of
the Collateral;
(j) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to
Borrower with respect to the Financing Agreements, the Purchase
Agreements and the Confirmation Order and such other matters as
Lender may reasonably request;
(k) the Excess Availability as determined by Lender as
of the date hereof, shall be not less than Five Million Dollars
($5,000,000) after giving effect to the initial Loans made or to
be made hereunder and the payment of all fees and expenses
payable upon the consummation of the initial transactions
contemplated by this Agreement;
(l) each of the depository banks used by Borrower's
retail store locations for the deposit of receipts from the sale
of merchandise or for the deposit of other proceeds of Collateral
and other property which is security for the Obligations shall
have been notified of Lender's security interested therein and
shall have been irrevocably authorized and directed to send all
funds on deposit with such banks only to the Blocked Account or
as Lender otherwise directs;
(m) the other Financing Agreements and all instruments
and documents hereunder and thereunder shall have been duly
executed and delivered to Lender, in form and substance
satisfactory to Lender;
(n) the Confirmation Order approving the Confirmation
Plan has become a final order, is acceptable to Lender in all
respects (and a certified copy of which has been delivered to
Lender). The Confirmation Order shall be accompanied by findings
of fact and conclusions of law, and the Confirmation Order shall
determine and order that in making the financing pursuant to this
commitment, Lender is a good faith lender within the meaning of,
and subject to the protections and benefits of Bankruptcy Code
Section 364(e), and shall further provide that:
(i) if the Confirmation Order is reversed or
modified and the Seller resumes operations as
a debtor in possession, subject to a Chapter
11 trustee, or if following such reversal or
modification the case is converted to Chapter
7, then the Seller shall be obligated for
Borrower's Obligations to Lender and Lender
shall have a first and superpriority lien,
security interest and administrative claim
pursuant to Sections 503(b), 507(b) and
364(c) and (d) of the Bankruptcy Code in all
of the Seller's present and future inventory
and all proceeds (including accounts)
therefrom, all general intangibles and all of
the Seller's unencumbered assets and the
proceeds therefrom;
(ii) if the Confirmation Order is reversed or the
Plan is later modified in a manner that
affects the rights, liens or priorities of
Lender, Lender shall receive subordination
agreements from the holders of the Seller's
senior debt in form and substance
satisfactory to Lender;
(iii) the liens, security interests and
administrative priorities granted to
Lender shall be irrevocably in full
force and effect without subsequent
modification; and
(o) any holders of a security interest in any portion
of the Collateral, including, without limitation, vendors of
Inventory to Borrower, shall have executed such intercreditor and
subordination agreements in form and substance satisfactory to
Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition
precedent to Lender making Loans and/or providing Letter of
Credit Accommodations to Borrower, including the initial Loans
and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained
herein and in the other Financing Agreements shall be true and
correct in all material respects with the same effect as though
such representations and warranties had been made on and as of
the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto;
and
(b) no Event of Default and no event or condition
which, with notice or passage of time or both, would constitute
an Event of Default, shall exist or have occurred and be
continuing on and as of the date of the making of such Loan or
providing each such Letter of Credit Accommodation and after
giving effect thereto.
4.3 Condition Subsequent To All Loans And Letter Of Credit
Accommodations.
Each of the following is an additional condition subsequent to
Lender making Loans and/or providing Letter of Credit
Accommodations to Borrower, including the initial Loans and
Letter of Credit Accommodations and any future Loans and Letter
of Credit Accommodations. Failure to complete the foregoing
condition subsequent within said time period shall constitute an
Event of Default under this Agreement:
(a) No later than forty-five (45) days from the date
hereof, Borrower shall have entered into a Blocked Account
Agreement with Bank of America, N.A., or such other institution
reasonably acceptable to Lender, in form and substance reasonably
satisfactory to Lender;
(b) No later than sixty (60) days after January 31 and
August 31 of each year, Lender shall have received a physical
count of the Inventory by RGIS or another third party acceptable
to Lender;
(c) No later than sixty (60) days from the date
hereof, Lender shall have received projections of Borrower which
are in form and substance satisfactory to Lender; and
(d) No later than sixty (60) days from the date
hereof, Borrower shall have received a reconciliation to the
general ledger of Borrower in form and substance satisfactory to
Lender.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations,
Borrower hereby grants to Lender a continuing security interest
in, a lien upon, and a right of set off against, and hereby
assigns to Lender as security, the following property and
interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts, Credit Card Receivables and other
indebtedness owed to the Borrower;
5.2 general intangibles (including, but not limited to,
registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade
secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold
interests in equipment, real estate and fixtures), insofar as any
such general intangibles are necessary or useful in connection
with the sale or other disposition of the Collateral by Lender,
but which in no case shall include the trademarks, "Wherehouse",
"The Wherehouse", "Wherehouse Entertainment" and other
derivations thereof;
5.3 all present and future monies, securities, investment
property, credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received by or in
transit to Lender or its affiliates or at any other depository or
other institution from or for the account of Borrower, whether
for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of
Accounts, Credit Card Receivables, and other Collateral,
including, without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of
credit and credit and other insurance related to the Collateral,
(b) rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts, Credit Card Receivables, or
other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property
of account debtors or other persons securing the obligations of
account debtors;
5.4 Inventory;
5.5 Records; and
5.6 All products and proceeds of the foregoing, in any
form, including, without limitation, insurance proceeds and all
claims against third parties for loss or damage to or destruction
of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or
more loan account(s) on its books in which shall be recorded (a)
all Loans, all Letter of Credit Accommodations and all other
Obligations and the Collateral, (b) all payments made by or on
behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without
limitation, fees, charges, costs, expenses and interest. All
entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month
a statement setting forth the balance in the Borrower's loan
account(s) maintained by Lender for Borrower pursuant to the
provisions of this Agreement, including principal, interest,
fees, costs and expenses. Each such statement shall be subject
to subsequent adjustment by Lender but shall, absent manifest
errors or omissions, be considered correct and deemed accepted by
Borrower and conclusively binding upon Borrower as an account
stated except to the extent that Lender receives a written notice
from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been
mailed by Lender. Until such time as Lender shall have rendered
to Borrower a written statement as provided above, the balance in
Borrower's loan account(s) shall be presumptive evidence of the
amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its
expense, deposit account arrangements and merchant payment
arrangements with the banks set forth on Schedule 6.3 and after
prior written notice to Lender, such other banks as Borrower may
hereafter select as are acceptable to Lender. The banks set
forth on Schedule 6.3 constitute all of the banks with whom
Borrower has deposit account arrangements and merchant payment
arrangements as of the date hereof and identifies each of the
deposit accounts at such banks to a retail store location of
Borrower or otherwise describes the nature of the use of such
deposit account by Borrower.
(i) Borrower shall deposit all proceeds from
sales of Inventory and rentals of Rental Inventory in every form
(including, without limitation, cash, checks, credit card sales
drafts, credit card sales or charge slip or receipts and other
forms of daily store receipts, from each retail store location of
Borrower, and all other proceeds of Collateral, on each business
day into the deposit accounts of Borrower used solely for such
purpose and identified to each retail store location as set forth
on Schedule 6.3. Borrower shall irrevocably authorize and direct
in writing, in form and substance satisfactory to Lender, each of
the banks into which proceeds from sales of Inventory and rentals
of Rental Inventory from each retail store location of Borrower
and any and all other proceeds of Collateral are at any time
deposited as provided above to send by wire transfer on a daily
basis all funds deposited in such account, and shall irrevocably
authorize and direct in writing its account debtors, Credit Card
Issuers and Credit Card Processors to directly remit payments on
its Accounts, Credit Card Receivables and all other payments
constituting proceeds of Inventory and rentals of Rental
Inventory to the Blocked Accounts described in Section 6.3(a)(ii)
below. Such authorizations and directions shall not be
rescinded, revoked or modified without the prior written consent
of Lender.
(ii) Borrower shall establish and maintain, at its
expense, pursuant to an agreement described in the following
sentence, one or more blocked accounts with such bank or banks as
are acceptable to Lender (each a "Blocked Account" and
collectively the "Blocked Accounts"). Each bank at which a
Blocked Account is established shall enter into an agreement, in
form and substance satisfactory to Lender, providing (unless
otherwise agreed to by Lender) that all items received or
deposited in such Blocked Account are the Collateral of Lender,
that the depository bank has no lien upon, or right to setoff
against, the Blocked Accounts, the items received for deposit
therein, or the funds from time to time on deposit therein, and
that the depository bank will wire, or otherwise transfer, in
immediately available funds, on a daily basis, all funds received
or deposited into such Blocked Account to such bank account of
Lender as Lender may from time to time designate for such purpose
(the "Payment Account"); provided, however, if there has occurred
no Event of Default and, at such time, Borrower has Excess
Availability of at least Fifteen Million Dollars ($15,000,000),
Borrower may receive such funds directly from the Blocked
Accounts (rather than remittance to the Payment Account) so long
as Borrower is in compliance with the conditions of this
sentence. If at any time Borrower fails to meet the requirements
of this paragraph, Lender may withdraw its consent and take all
steps in order that all funds are immediately remitted to the
Payment Account. Borrower agrees that all amounts deposited in
the Blocked Account(s) or other funds received and collected by
Lender, whether as proceeds of Inventory, the collection of
Accounts or other Collateral or otherwise shall be the Collateral
of Lender.
(b) For purposes of calculating interest on the
Obligations, such payments or other funds received will be
applied (conditional upon final collection) to the Obligations
one (1) Business Day following the date of receipt of immediately
available funds by Lender in the Payment Account if such funds
are received by Lender by 10:00 a.m. California time. In
addition, with respect to all proceeds of Accounts, Credit Card
Receivables and Inventory deposited in the Blocked Accounts or
otherwise received by Borrower, which are not remitted to the
Payment Account (which shall only be in accordance with Section
6.3 hereof or as hereafter specifically permitted in writing by
Lender), Borrowers shall pay to Lender a collection fee on the
first day of each month, for the preceding month, in arrears,
equal to the amount of the Interest Rate on Prime Rate Loans with
respect to such proceeds (a) from the earlier of the date of
receipt of such proceeds by Borrowers or the date of deposit of
such proceeds in the Blocked Accounts and (b) until the next
Business Day. For purposes of calculating the amount of the
Revolving Loans available to Borrower such payments will be
applied (conditional upon final collection) to the Obligations on
the Business Day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance
with Lender's usual and customary practices as in effect from
time to time) to credit Borrower's loan account on such day, and
if not, then on the next Business Day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as
trustee for Lender, receive, as the property of Lender, any
monies, cash, checks, credit card sales drafts, credit card sales
or charge slips or receipts, notes, drafts and all forms of daily
store receipts or any other payment relating to and/or proceeds
from sales of Inventory or other Collateral which come into their
possession or under their control and immediately upon receipt
thereof, shall deposit or cause the same to be deposited in the
Blocked Accounts. Except as otherwise permitted hereunder, in no
event shall any such monies, checks, credit card sales drafts,
credit card sales or charge slips or receipts, notes, drafts or
other payments be commingled with Borrower's own funds. Borrower
agrees to reimburse Lender on demand for any amounts owed or paid
to any bank at which a Blocked Account is established or any
other bank or person involved in the transfer of funds to or from
the Blocked Accounts arising out of Lender's payments to or
indemnification of such bank or person, unless such payment or
indemnification obligation of Lender was a result of Lender's
gross negligence or wilful misconduct. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this
Section 6.3 shall survive the termination or non-renewal of this
Agreement.
6.4 Payments. All Obligations shall be payable to the
Payment Account as provided in Section 6.3 or such other place as
Lender may designate from time to time. Lender may apply
payments received or collected from Borrower or for the account
of Borrower (including, without limitation, the monetary proceeds
of collections or of realization upon any Collateral) to such of
the Obligations, whether or not then due, in such order and
manner as Lender determines. At Lender's option, all principal,
interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrower. Borrower shall make
all payments to Lender on the Obligations free and clear of, and
without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any
kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations,
Lender is required to surrender or return such payment or
proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be
reinstated and continue and this Agreement shall continue in full
force and effect as if such payment or proceeds had not been
received by Lender. Borrower shall be liable to pay to Lender,
and does hereby indemnify and hold Lender harmless for the amount
of any payments or proceeds surrendered or returned. This
Section 6.4 shall remain effective notwithstanding any contrary
action which may be taken by Lender in reliance upon such payment
or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to
make the Loans and provide Letter of Credit Accommodations based
upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized
person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or
Letter of Credit Accommodations hereunder shall specify the date
on which the requested advance is to be made or Letter of Credit
Accommodations established (which day shall be a Business Day)
and the amount of the requested Loan. Requests received after
10:30 a.m. California time on any day shall be deemed to have
been made as of the opening of business on the immediately
following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or
otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and
conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial
proceeds of the Loans provided by Lender to Borrower hereunder
only for: (a) payments to each of the persons listed in the
disbursement direction letter furnished by Borrower to Lender on
or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements.
All other Loans made or Letter of Credit Accommodations provided
by Lender to Borrower pursuant to the provisions hereof shall be
used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be
used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose
which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender
with the following documents in a form satisfactory to Lender:
(a) on Tuesday of each week, as of the close of business of the
immediately preceding Saturday, a schedule of Eligible Inventory
of Borrower, setting forth the location thereof, aggregate cost
of such Eligible Inventory (currently reported on the "STAR"
system) (including vendor discounts): (b) on Wednesday of each
week for the immediately preceding week ending on the close of
business on Saturday of that week or more frequently as Lender
may request, (i) reports of deposits in each of Borrower's
depository accounts and in the Blocked Account and amounts
retained by Borrower, together with the separate amounts thereof
arising from cash sales, Credit Card Receivables, (ii) except as
otherwise agreed in writing by Lender, reports of the cost and
other information as required by Lender of Inventory and other
goods which are either acquired by Borrower with Letter of Credit
Accommodations which are the subject of bills of lading and which
have not been delivered to Borrower at the permitted locations of
Eligible Inventory in the United States and (iii) an aging of
merchandise accounts payable and other payables (other than lease
payables); (c) once each month, on or before the fifteenth (15th)
Business Day of such month for the immediately preceding month or
more frequently as Lender may request, (i) agings of lease
payables, (ii) a schedule of Accounts, Credit Card Receivables,
and other indebtedness owed to Borrower, (iii) the aggregate
amount of all sales of Inventory for all Borrower's retail
stores, and (iv) a certificate from an authorized officer of
Borrower representing that Borrower has made payment of sales and
use taxes during such month or, at Lender's request, other
evidence of such payment, (d) upon Lender's reasonable request,
(i) perpetual inventory reports, (ii) copies of deposit slips and
bank statements, (iii) copies of shipping and delivery documents,
and (iv) copies of purchase orders and invoices for Inventory
acquired by Borrower; (e) semi-annual reports of Inventory
shrinkage; and (f) such other reports as to the Collateral and
other property which is security for the Obligations as Lender
shall reasonably request from time to time. If any of Borrower's
records or reports of the Collateral or other property which is
security for the Obligations are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower
hereby irrevocably authorizes such service, contractor, shipper
or agent to deliver such records, reports, and related documents
to Lender and to follow Lender's instructions with respect to
further services at any time that an Event of Default exists or
has occurred and is continuing.
7.2 Accounts Covenants.
(a) So long as no Event of Default exists or has
occurred and is continuing, Borrower shall settle, adjust or
compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or
has occurred and is continuing, Lender shall, at its option, have
the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) In the event any customer returns Inventory when
an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Lender's request, (i) dispose of the
returned Inventory in accordance with Borrower's historical
practices, and (ii) not issue any credits, discounts or
allowances not in accordance with Borrower's historical practices
with respect thereto without Lender's prior written consent.
(c) With respect to each Account and Credit Card
Receivable: (i) the amounts shown on any invoice delivered to
Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments
made pursuant to the terms of this Agreement, (iii) none of the
transactions giving rise thereto will violate any applicable
State or Federal laws or regulations and all documentation will
be legally enforceable in accordance with its terms, and (iv)
there shall be compliance with the provisions of Section 4.1(f)
hereof as to each Credit Card Issuer obligated on any Credit Card
Receivables.
(d) Lender shall have the right at any time or times,
in Lender's name or in the name of a nominee of Lender, to verify
the validity, amount or any other matter relating to any Account,
Credit Card Receivable, or other Collateral or property which is
security for the Obligations, by mail, telephone, facsimile
transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full
recourse to Borrower, all chattel paper and instruments which
Borrower now owns or may at any time acquire immediately upon
Borrower's receipt thereof in respect of any proceeds of
Collateral except as Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any
or all account debtors that the Accounts, Credit Card Receivables
and other obligations included in the Collateral have been
assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of
payment of, compromise, settle or adjust for cash, credit, return
of merchandise or otherwise, and upon any terms or conditions,
any and all Accounts, Credit Card Receivables or other
obligations included in the Collateral and thereby discharge or
release the account debtor or any other party or parties in any
way liable for payment thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any
Accounts, Credit Card Receivables or such other obligations, but
without any duty to do so, and Lender shall not be liable for its
failure to collect or enforce the payment thereof and (iv) take
whatever other action Lender may deem necessary or desirable for
the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's
request, all invoices and statements sent to any account debtor
shall state that the Accounts, Credit Card Receivables and such
other obligations have been assigned to Lender and are payable
directly and only to Lender and Borrower shall deliver to Lender
such originals of documents evidencing the sale and delivery of
goods or the performance of services giving rise to any Accounts
as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory:
(a) Borrower shall at all times maintain inventory records
reasonably satisfactory to Lender, keeping correct and accurate
records itemizing and describing the kind, type, quality and
quantity of Inventory, Borrower's cost therefor, and daily
withdrawals therefrom and additions thereto; (b) Borrower shall
cause, at Borrower's expense, RGIS or such other third party firm
acceptable to Lender to conduct a complete physical count of the
Inventory at a minimum of once every twelve (12) months but at
any time as Lender may request upon the occurrence of an Event of
Default, and promptly following such physical count such firm
shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any
Inventory from the locations set forth or permitted herein,
without the prior written consent of Lender, except for sales of
Inventory in the ordinary course of Borrower's business and
except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's
request, Borrower shall, at its expense, no more than twice in
any twelve (12) month period, but at any time or times as Lender
may request upon the occurrence of an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals
as to the Inventory in form, scope and methodology acceptable to
Lender by an appraiser acceptable to Lender, addressed to Lender
or upon which Lender is expressly permitted to rely; (e) Borrower
shall produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or
any other basis which entitles the customer to return or may
obligate Borrower to repurchase such Inventory with the exception
of Inventory sold in the ordinary course of Borrower's business
subject to Borrower's normal and customary return policy; (h)
Borrower shall keep the Inventory in good and marketable
condition; (i) Borrower shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or
approval except as set forth on Schedule 7.3(i) hereto; (j)
Borrower shall not convert any Inventory to Rental Inventory
without five (5) Business Days' prior written notice to Congress
in order that Congress may exclude such Inventory from Eligible
Inventory in calculating the amount of Revolving Loans available
to Borrower hereunder; and (k) Borrower may return Inventory to
vendors of such Inventory pursuant to normal returns policies
free and clear of Lender's lien; provided, however that upon an
Event of Default, Borrower shall not return any Inventory to
vendors of such Inventory without Lender's prior written consent.
7.4 Equipment Covenants. With respect to the Equipment:
(a) Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear
excepted), in conformance with Borrower's historical practices;
(b) Borrower shall continue to maintain Equipment which is
adequate to sell the Inventory to customers in the ordinary
course of Borrower's business; and (c) after the occurrence of an
Event of Default, Borrower shall not take any action with respect
to the Equipment that would impair the saleability of the
Inventory at the highest retail price available in Lender's sole
discretion.
7.5 Power of Attorney. Borrower hereby irrevocably
designates and appoints Lender (and all persons designated by
Lender) as Borrower's true and lawful attorney-in-fact, and
authorizes Lender, in Borrower's or Lender's name, to: (a) at any
time an Event of Default exists (i) demand payment on Accounts or
other proceeds of Inventory or other Collateral, (ii) enforce
payment of Accounts, Credit Card Receivables or other obligations
that in each case are included in the Collateral by legal
proceedings or otherwise, (iii) exercise all of Borrower's rights
and remedies to collect any Account, Credit Card Receivables or
other proceeds of Inventory or other Collateral, (iv) sell or
assign any Account upon such terms, for such amount and at such
time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and
release any Account, Credit Card Receivables or other obligations
included in the Collateral, (vii) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or other
similar document against an account debtor, and (viii) do all
acts and things which are necessary, in Lender's determination,
to fulfill Borrower's obligations under this Agreement and the
other Financing Agreements and (b) at any time, subject to the
terms of the agreement(s) relating to the Blocked Account(s), to
(i) take control in any manner of any item of payment or proceeds
thereof, (ii) endorse Borrower's name upon any items of payment
or proceeds thereof and deposit the same in the Lender's account
for application to the Obligations, (iii) endorse Borrower's name
upon any chattel paper, document, instrument, invoice, or similar
document or agreement relating to any Account or Credit Card
Receivables or any goods pertaining thereto or any other
Collateral, (iv) sign Borrower's name on any verification of
Accounts or Credit Card Receivables and notices thereof to
account debtors and (v) execute in Borrower's name and file any
UCC financing statements or amendments thereto. Notwithstanding
anything to the contrary contained in this Section 7.5, the power
granted to Lender in this Section 7.5 shall apply only in respect
of the Collateral. Borrower hereby releases Lender and its
officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as
a result of Lender's own gross negligence or wilful misconduct.
7.6 Right to Cure. Lender may, at its option, (a) cure any
default by Borrower under any agreement with a third party or pay
or bond on appeal any judgment entered against Borrower, (b)
discharge taxes, liens, security interests or other encumbrances
at any time levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense or perform any act
which, in Lender's reasonable judgment, is necessary or
appropriate to preserve, protect, insure or maintain the
Collateral and the rights of Lender with respect thereto. Lender
may add any amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be repayable by
Borrower on demand. Lender shall be under no obligation to
effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by
Lender, at the cost and expense of Borrower, if an Event of
Default has occurred and otherwise at the expense of Lender, (a)
Lender or its designee shall have complete access to all of
Borrower's premises during normal business hours and after notice
to Borrower, or at any time and without notice to Borrower if an
Event of Default exists or has occurred and is continuing, for
the purposes of inspecting, verifying and auditing the Collateral
and all of Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall promptly furnish
to Lender such copies of such books and records or extracts ther-
efrom as Lender may request, and (c) use during normal business
hours such of Borrower's personnel, equipment, supplies and
premises as may be reasonably necessary for the foregoing and if
an Event of Default exists or has occurred and is continuing for
the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the
following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which are (except for the
representations and warranties that relate to a particular date)
a continuing condition of the making of Loans and the providing
of Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing
under the laws of its state of incorporation and is duly
qualified as a foreign corporation and in good standing in all
states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which
the failure to so qualify would not have a material adverse
effect on Borrower's financial condition, results of operation or
business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Borrower's corporate
powers, have been duly authorized and are not in contravention of
law or the terms of Borrower's certificate of incorporation, by-
laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which
Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their
respective terms. Borrower does not have any subsidiaries except
as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrower which have been or may
hereafter be delivered by Borrower to Lender have been prepared
in accordance with GAAP and fairly present in all material
respects the financial condition and the results of operations of
Borrower as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished
by Borrower to Lender prior to the date of this Agreement, there
has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower,
since the date of the most recent audited financial statements
furnished by Borrower to Lender prior to the date of this
Agreement.
8.3 Chief Executive Office; Collateral Locations. The
chief executive office of Borrower and Borrower's Records
concerning Accounts are located only at the address set forth
below and its only other places of business and the only other
locations of Collateral, if any, are the addresses set forth in
the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below.
The Information Certificate correctly identifies any of such
locations which are not owned by Borrower and sets forth the
owners and/or operators thereof.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and
the other Financing Agreements constitute valid and perfected
first priority liens and security interests in and upon the
Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof.
Borrower has good and marketable title to all of its properties
and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those
granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be
filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it (without
requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects.
Borrower has paid or caused to be paid all taxes due and payable
or claimed due and payable in any assessment received by it,
except taxes of Seller treated in the Confirmation Plan and taxes
the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been
set aside on its books. Adequate provision has been made for the
payment of all accrued and unpaid Federal, State, county, local,
foreign and other taxes whether or not yet due and payable and
whether or not disputed.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any
governmental agency pending, or to the best of Borrower's
knowledge threatened, against or affecting Borrower, its assets
or business and there is no action, suit, proceeding or claim by
any Person pending, or to the best of Borrower's knowledge
threatened, against Borrower or its assets or goodwill, or
against or affecting any transactions contemplated by this
Agreement, which if adversely determined against Borrower would
result in any material adverse change in the assets, business or
prospects of Borrower or would impair the ability of Borrower to
perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to
enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
Borrower is not in default in any material respect under, or in
violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets are bound
and Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or
local governmental authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto,
Borrower has not generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises (whether or not owned by it) in
any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval
or similar authorization thereunder which would have a material
adverse effect on Borrower or its business, operations or assets
and the operations of Borrower comply in all material respects
with all Environmental Laws applicable thereto and all licenses,
permits, certificates, approvals and similar authorizations
thereunder.
(b) Except as set forth on Schedule 8.8 hereto,
Borrower has received no notice of any past or pending
investigation, proceeding, complaint, order, directive, claim,
citation or notice by any governmental authority or any other
person nor to the best of Borrower's knowledge is any threatened,
with respect to any non-compliance with or violation of the
requirements of any Environmental Law by Borrower or the release,
spill or discharge, threatened or actual, of any Hazardous
Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of
any Hazardous Materials or any other environmental matter, which
affects Borrower or its business, operations or assets or any
properties at which Borrower has transported, stored or disposed
of any Hazardous Materials.
(c) To the best of Borrower's knowledge, Borrower has
no material liability (contingent or otherwise) in connection
with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of
any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or
filed in connection with the operations of Borrower under any
Environmental Law and all of such licenses, permits, certif-
icates, approvals or similar authorizations are valid and in full
force and effect.
8.9 Acquisition of Purchased Assets.
(a) Prior to or as of the date hereof, the Purchase
Agreements and the transactions contemplated thereunder have been
duly executed, delivered and performed in accordance with their
terms by the respective parties thereto in all respects,
including the fulfillment (not merely the waiver, except as may
be disclosed to Lender and consented to in writing by Lender) of
all conditions precedent set forth therein and giving effect to
the terms of the Purchase Agreements and the assignments to be
executed and delivered by Seller (or any of its affiliates or
subsidiaries) thereunder, Borrower has acquired and has good and
marketable title to the Purchased Assets and the Purchased Assets
comprising the Collateral are free and clear of all claims,
liens, pledges and encumbrances of any kind, except as provided
in the Confirmation Plan or permitted hereunder.
(b) All actions and proceedings, required by the
Purchase Agreements, applicable law or regulation (including, but
not limited to, compliance with the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended) have been taken and the
transactions required thereunder have been or contemporaneously
herewith will be duly and validly taken and consummated.
(c) No court of competent jurisdiction has issued any
injunction, restraining order or other order which prohibits
consummation of the transactions described in the Purchase
Agreements and no governmental or other action or proceeding has
been threatened or commenced, seeking any injunction, restraining
order or other order which seeks to void or otherwise modify the
transactions described in the Purchase Agreements.
(d) Borrower has delivered, or caused to be delivered,
to Lender, true, correct and complete copies of the Purchase
Agreements.
(e) The Confirmation Plan has been or
contemporaneously herewith will be effectuated and the
Confirmation Order is a final order effectuating the Confirmation
Plan and the Purchase Agreements.
8.10 Capitalization.
(a) As of the date of hereof, at least fifty-one
percent (51%) of the issued and outstanding shares of voting
stock of Borrower (excluding unexercised options and warrants) as
of the date hereof are directly and beneficially owned and held
by Cerberus and/or its affiliates, participants and accounts for
which Cerberus is the investment manager with sole investment
discretion and all of such shares have been duly authorized and
are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed
in writing to Lender.
(b) Borrower is solvent and will continue to be
solvent after the creation of the Obligations, the security
interests of Lender and the other transaction contemplated
hereunder, is able to pay its debts as they mature and has (and
has reason to believe it will continue to have) sufficient
capital (and not unreasonably small capital) to carry on its
business and all businesses in which it is about to engage. The
assets and properties of Borrower at a fair valuation and at
their present fair salable value are, and will be, greater than
the Indebtedness of Borrower, and including subordinated and
contingent liabilities computed at the amount which, to the best
of Borrower's knowledge, represents an amount which can
reasonably be expected to become an actual or matured liability.
8.11 Employee Benefits.
(a) Borrower has not engaged in any transaction in
connection with which Borrower or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, including any accumulated funding deficiency described in
Section 8.11(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.11(d) hereof.
(b) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by Borrower to be incurred
with respect to any employee pension benefit plan of Borrower or
any of its ERISA Affiliates. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension benefit
plan of Borrower or any of its ERISA Affiliates which presents a
risk of termination of any such plan by the Pension Benefit
Guaranty Corporation.
(c) Full payment has been made of all amounts which
Borrower or any of its ERISA Affiliates is required under Section
302 of ERISA and Section 412 of the Code to have paid under the
terms of each employee pension benefit plan as contributions to
such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with
respect to any employee pension benefit plan, including any
penalty or tax described in Section 8.11(a) hereof and any
deficiency with respect to vested accrued benefits described in
Section 8.11(d) hereof.
(d) The current value of all vested accrued benefits
under all employee pension benefit plans maintained by Borrower
that are subject to Title IV of ERISA does not exceed the current
value of the assets of such plans allocable to such vested
accrued benefits, including any penalty or tax described in
Section 8.11(a) hereof and any accumulated funding deficiency
described in Section 8.11(c) hereof. The terms "current value"
and "accrued benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates
is or has ever been obligated to contribute to any "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA)
that is subject to Title IV of ERISA.
8.12 Accuracy and Completeness of Information. All
information furnished by or on behalf of Borrower in writing to
Lender in connection with this Agreement or any of the other
Financing Agreements or any transaction contemplated hereby or
thereby, including, without limitation, all information on the
Information Certificate is true and correct in all material
respects on the date as of which such information is dated or
certified and does not omit any material fact necessary in order
to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be
expected to have a material adverse affect on the business,
assets or prospects of Borrower, which has not been fully and
accurately disclosed to Lender in writing.
8.13 Survival of Warranties; Cumulative. All representa-
tions and warranties contained in this Agreement or any of the
other Financing Agreements shall survive the execution and
delivery of this Agreement and shall be deemed to have been made
again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed
to have been relied on by Lender regardless of any investigation
made or information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition
to any other representations or warranties which Borrower shall
now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times
preserve, renew and keep in full force and effect its corporate
existence and rights and franchises with respect thereto and
maintain in full force and effect all permits, licenses,
trademarks, trade names, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or
proposed to be conducted. Borrower shall give Lender thirty (30)
days prior written notice of any proposed change in its corporate
name (other than the change to "Wherehouse Entertainment, Inc.")
which notice shall set forth the new name and Borrower shall
deliver to Lender a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new
location within the continental United States provided Borrower
(a) gives Lender thirty (30) days prior written notice of the
intended opening of any such new location, and (b) executes and
delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC
financing statements and, if Borrower leases such new location,
provides a favorable landlord waiver or subordination, or, in the
alternative, Lender may apply an Availability Reserve in an
amount equal to two (2) months gross rent in a manner consistent
with the Availability Reserve established to cover rent as
defined in Section 1.5 hereof.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all
material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly observe
all requirements of any Federal, State or local governmental
authority, including, without limitation, the Employee Retirement
Income Security Act of 1974, as amended, the Occupational Safety
and Hazard Act of 1970, as amended, the Fair Labor Standards Act
of 1938, as amended, and all statutes, rules, regulations,
orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Borrower shall take prompt and appropriate action
to respond to any non-compliance with any of the Environmental
Laws and shall report to Lender on such response.
(c) Borrower shall give both oral and written notice
to Lender immediately upon Borrower's receipt of any notice of,
or Borrower's otherwise obtaining knowledge of, (i) the
occurrence of any event involving the release, spill or
discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive,
claim, citation or notice with respect to: (A) any non-compliance
with or violation of any Environmental Law by Borrower or (B) the
release, spill or discharge, threatened or actual, of any
Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other
environmental matter, which affects Borrower or its business,
operations or assets or any properties at which Borrower
transported, stored or disposed of any Hazardous Materials.
(d) Borrower shall indemnify and hold harmless Lender,
its directors, officers, employees, agents, invitees, representa-
tives, successors and assigns, from and against any and all
losses, claims, damages, liabilities, costs, and expenses
(including reasonable attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use,
generation, manufacture, reproduction, storage, release,
threatened release, spill, discharge, disposal or presence of a
Hazardous Material (including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial
work), with respect to any property of Borrower and the
preparation and implementation of any closure, remedial or other
required plans in connection with such property. All
representations, warranties, covenants and indemnifications in
this Section 9.3 shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay
and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or
assets, except for taxes of Seller treated in the Confirmation
Plan and taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available
to Borrower and with respect to which adequate reserves have been
set aside on its books. Borrower shall be liable for any tax or
penalties imposed on Lender as a result of the financing
arrangements provided for herein and Borrower agrees to indemnify
and hold Lender harmless with respect to the foregoing, and to
repay to Lender on demand the amount thereof, and until paid by
Borrower such amount shall be added and deemed part of the Loans,
provided, that, nothing contained herein shall be construed to
require Borrower to pay any income or franchise taxes
attributable to the income of Lender from any amounts charged or
paid hereunder to Lender. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal
of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect
to the Collateral against loss or damage and all other insurance
of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the
same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount
and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such
insurance, and, if Borrower fails to do so, Lender is authorized,
but not required, to obtain such insurance at the expense of
Borrower. All policies shall provide for at least thirty (30)
days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for
Borrower in obtaining, and at any time an Event of Default exists
or has occurred and is continuing, adjusting, settling, amending
and canceling such insurance. Borrower shall cause Lender to be
named as a loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements
shall specify that the proceeds of such insurance shall be
payable to Lender as its interests may appear and further specify
that Lender shall be paid regardless of any act or omission by
Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to
the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order
and in such manner as Lender may determine or hold such proceeds
as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in
which true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the business
of Borrower and its subsidiaries (if any) in accordance with GAAP
and Borrower shall furnish or cause to be furnished to Lender:
(i) within thirty (30) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and, if
Borrower has any subsidiaries, unaudited consolidating financial
statements (including in each case balance sheets, statements of
income and loss and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its subsidiaries as
of the end of and through such fiscal month, (ii) within thirty
(30) days after the end of each fiscal quarter, a store-by-store
profitability report for each of Borrower's retail locations, and
(iii) within one hundred twenty (120) days after the end of each
fiscal year, audited consolidated financial statements and, if
Borrower has any subsidiaries, audited consolidating financial
statements of Borrower and its subsidiaries (including in each
case balance sheets, statements of income and loss, statements of
cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and
for such fiscal year, together with the opinion of independent
certified public accountants, which accountants shall be an
independent accounting firm selected by Borrower and reasonably
acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results
of operations and financial condition of Borrower and its
subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing
of the details of (i) any loss not reserved for by Borrower or
claim relating to the Collateral having a Value of $50,000 or
more or any other property which is security for the Obligations
or which would result in any material adverse change in
Borrower's business, properties, assets, goodwill or condition,
financial or otherwise and (ii) the occurrence of any Event of
Default or event which, with the passage of time or giving of
notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or
filing thereof furnish or cause to be furnished to Lender copies
of all financial reports which Borrower sends to its stockholders
generally and copies of all reports and registration statements
which Borrower files with the Securities and Exchange Commission,
any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information
in respect of the Collateral and the business of Borrower, as
Lender may, from time to time, reasonably request. Lender is
hereby authorized to deliver a copy of any financial statement or
any other information relating to the business of Borrower to any
court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby
irrevocably authorizes and directs all accountants or auditors to
deliver to Lender, at Borrower's expense, copies of the financial
statements of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of Borrower
and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrower
to Lender in writing.
(e) Borrower shall deliver, or cause to be delivered,
to Lender, within one hundred twenty (120) days from the date
hereof, opening balance sheets prepared by independent certified
public accountants, which accountants shall be a nationally
recognized independent accounting firm selected by Borrower and
reasonably acceptable to Lender, and certified by such
accountants to the effect that such opening balance sheets have
been prepared in accordance with GAAP and present fairly the
financial condition of Borrower as of such date.
9.7 Sale of Assets, Consolidation, Merger, Dissolution,
Etc. Borrower shall not, directly or indirectly (other than as
permitted by Section 9.10), (a) merge into or with or consolidate
with any other Person or permit any other Person to merge into or
with or consolidate with it, or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or
indebtedness to any other Person or any of its assets to any
other Person (except for (i) sales of Inventory in the ordinary
course of business, (ii) the sale or other disposition of
Equipment in the event of a store closure, and (iii) the
disposition of worn-out or obsolete Equipment or Equipment no
longer used in the business of Borrower, or (c) form or acquire
any subsidiaries, provided, however, that Borrower may form
subsidiaries so long as (i) any such subsidiary provides to
Lender an unlimited continuing guaranty in form and substance
satisfactory to Lender, (ii) Lender obtains a first-priority
perfected security interest in all assets of any such subsidiary
which are of the type included within the definition of
"Collateral" hereunder in order to secure subsidiary's
obligations under such guaranty and (iii) the creation of any
such subsidiary and the transfer by Borrower of any assets of
Borrower to such subsidiary would not cause a material adverse
change in the business, assets or prospects of Borrower; or (d)
wind up, liquidate or dissolve or (e) agree to do any of the
foregoing or (f) following an Event of Default, return any
Inventory to vendors.
9.8 Encumbrances. Borrower shall not create, incur, assume
or suffer to exist any security interest, mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on any of
the Collateral, except: (1) the liens and security interests of
Lender; (2) liens junior in priority to the liens of Lender
hereunder securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been
set aside on its books; (3) security and other deposits
(including customs and revenue deposits) in the ordinary course
of business; (4) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of
Borrower's business; (5) liens in favor of credit card processors
with respect to Credit Card Receivables processed by them; (6)
the liens and security interests of the trade creditors (the
"Trade Creditors"), which liens and security interests are, in
all respects, subject and subordinate in priority to the liens
and security interests of Lender who are signatories to that
certain Intercreditor Agreement and Subordination Agreement among
Lender, said Trade Creditors and United States Trust Company of
New York, as Collateral Agent for said Trade Creditors; and (7)
the security interests and liens set forth on Schedule 8.4
hereto.
9.9 Indebtedness. Borrower shall not incur, create,
assume, become or be liable in any manner with respect to, or
permit to exist, any Indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the
ordinary course of business not yet due and payable (including,
without limitation, Indebtedness in respect of liens permitted
under Section 9.8), or with respect to which Borrower is
contesting in good faith the amount or validity thereof by
appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been
set aside on its books;
(c) purchase money indebtedness (including capital
leases) to the extent not incurred or secured by liens (including
capital leases) in violation of any other provision of this
Agreement;
(d) obligations or indebtedness set forth on the
Information Certificate; provided, that, except with respect to
capital leases (which Borrower may modify provided no Event of
Default has occurred), Borrower shall not, directly or
indirectly, (i) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related
thereto as in effect on the date hereof, or (ii) except as
otherwise permitted under this Agreement, redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set
aside or otherwise deposit or invest any sums for such purposes,
and (iii) Borrower shall furnish to Lender all notices or demands
in connection with such indebtedness either received by Borrower
or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof,
as the case may be; and
(e) obligations or indebtedness incurred pursuant to
the Confirmation Plan, Confirmation Order or other bankruptcy
court order or the Purchase Agreements.
9.10 Loans, Investments, Guarantees; Dividends and
Redemptions. Borrower shall not (i) directly or indirectly, make
any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase
or repurchase the stock or indebtedness or all or a substantial
part of the assets or property of any person, or guarantee,
assume, endorse, or otherwise become responsible for (directly or
indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing
(collectively, "Investments"); or (ii) directly or indirectly,
declare or pay any dividends on account of any shares of any
class of capital stock of Borrower now or hereafter outstanding,
or set aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise
acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any
sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of
the foregoing (collectively, "Distributions"), except: (a) the
endorsement of instruments for collection or deposit in the
ordinary course of business; (b) Investments in: (i) short-term
direct obligations of the United States Government, (ii)
negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or
to bearer and delivered to Lender, and (iii) commercial paper
rated A1 or P1; (c) the guarantees set forth in the Information
Certificate; (d) Loan to Antonio C. Alvarez II and A&M Investment
Associates #3, LLC provided for in that certain Management
Services Agreement dated as of January 31, 1997 by and among
Borrower, Alvarez & Marsal, Inc., A&M Investment Associates #3,
LLC, Antonio C. Alvarez II and Cerberus in the aggregate amount
of approximately $5,340,000 to be made substantially
contemporaneously with the date of this Agreement; and (e)
Investments or Distributions outstanding in the aggregate at any
one time an amount not exceeding the sum of Six Million Dollars
($6,000,000) plus Excess Cash Flow Available for Investments and
Distributions on a cumulative basis commencing on the date of
this Agreement, rolled forward and tested every three (3) months,
commencing three (3) months after the closing date hereunder,
provided that: (i) immediately prior to any such Investments or
Distributions and immediately after giving effect thereto,
Borrower has Excess Availability of Twelve Million Five Hundred
Thousand Dollars ($12,500,000), and (ii) prior to and after
giving effect to any such Investments or Distributions, no Event
of Default has or shall have occurred.
9.11 Transactions with Affiliates. Borrower shall not enter
into any transaction for the purchase, sale or exchange of
property or the rendering of any service to or by any affiliate,
except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would
obtain in a comparable arm's length transaction with an
unaffiliated person; provided, however, that Borrower shall be
permitted to reimburse Cerberus for amounts paid by Cerberus to
Alvarez & Marsal, Inc. ("A & M") pursuant to that certain letter
agreement dated as of October 14, 1996 between the Borrower,
Cerberus, A & M, CS First Boston and Bank of America, Illinois,
so long as prior to and after giving effect to any such payment,
no Event of Default has or shall have occurred.
9.12 Compliance with ERISA. Borrower shall not with
respect to any "employee pension benefit plans" maintained by
Borrower or any of its ERISA Affiliates:
(a) (i) terminate any of such employee pension benefit
plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or
suffer to exist any prohibited transaction involving any of such
employee pension benefit plans or any trust created thereunder
which would subject Borrower or such ERISA Affiliate to a tax or
penalty or other liability on prohibited transactions imposed
under Section 4975 of the Code or ERISA, (iii) fail to pay to any
such employee pension benefit plan any contribution which it is
obligated to pay under Section 302 of ERISA, Section 412 of the
Code or the terms of such plan, (iv) allow or suffer to exist any
accumulated funding deficiency, whether or not waived, with
respect to any such employee pension benefit plan, (v) allow or
suffer to exist any occurrence of a reportable event or any other
event or condition which presents a material risk of termination
by the Pension Benefit Guaranty Corporation of any such employee
pension benefit plan that is a single employer plan, which
termination could result in any liability to the Pension Benefit
Guaranty Corporation or (vi) incur any withdrawal liability with
respect to any multiemployer pension plan.
(b) As used in this Section 9.12, the term "employee
pension benefit plans," "employee benefit plans", "accumulated
funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and Section 406 of ERISA.
9.13 Adjusted Net Worth. Borrower shall, at all times,
maintain Adjusted Net Worth of not less than the greater of Sixty
Million Dollars ($60,000,000) or eighty percent (80%) of its
Adjusted Net Worth reflected in its audited opening balance sheet
as of January 31, 1997; provided, this covenant shall not apply
if no Event of Default has occurred and during the period when
Excess Availability equals or exceeds Ten Million Dollars
($10,000,000).
9.14 Costs and Expenses. Borrower shall pay to Lender on
demand all costs, expenses, filing fees and taxes paid or payable
in connection with the preparation, negotiation, execution,
delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in
the Collateral, this Agreement, the other Financing Agreements
and all other documents related hereto or thereto, including any
amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect
hereof and thereof, including, but not limited to: (a) all costs
and expenses of filing or recording (including Uniform Commercial
Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees,
if applicable); (b) costs and expenses and fees for title
insurance and other insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections,
appraisal fees and search fees; (c) costs and expenses of
remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations;
(e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security
interests and liens of Lender, selling or otherwise realizing
upon the Collateral, and otherwise enforcing the provisions of
this Agreement and the other Financing Agreements or defending
any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any
such matters); (g) all out-of-pocket expenses and costs incurred
by Lender's examiners in the conduct of their periodic field
examinations of the Collateral and Borrower's operations, plus a
per diem charge at the rate of $600 per person per day for
Lender's examiners in the field and office following an Event of
Default; and (h) the fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the
foregoing.
9.15 Further Assurances. At the request of Lender at any
time and from time to time, Borrower shall, at its expense, duly
execute and deliver, or cause to be duly executed and delivered,
such further agreements, documents and instruments, and do or
cause to be done such further acts as may be necessary or proper
to evidence, perfect, maintain and enforce the security interests
and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of
the other Financing Agreements. Lender may at any time and from
time to time reasonably request a certificate from an officer of
Borrower representing on behalf of the Borrower that all
conditions precedent to the making of Loans and providing Letter
of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease
to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in
addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrower hereby authorizes
Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any
one or more of the following events are referred to herein
individually as an "Event of Default", and collectively as
"Events of Default":
(a) Borrower fails to pay within three (3) Business
Days after falling due any of the Obligations or fails to perform
any of the other terms, covenants, conditions or provisions
contained in this Agreement within three (3) Business Days after
the date such performance is required pursuant to the terms of
this Agreement, unless such non-performance relates to a non-
monetary covenant which has not been breached during the
immediately preceding six (6) months, which covenant is still
capable of being performed by Borrower, in which case Borrower
shall have ten (10) Business Days in which to cure;
(b) any representation, warranty or statement of fact
made by Borrower to Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory
assignment or otherwise shall when made or deemed made be false
or misleading in any material respect;
(c) any judgment for the payment of money is rendered
against Borrower in excess of Five Hundred Thousand Dollars
($500,000) in any one case or in excess of One Million Dollars
($1,000,000) in the aggregate and shall remain undischarged,
unpaid or unvacated for a period in excess of sixty (60) days or
execution shall at any time not be effectively stayed, or any
material judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered
against Borrower or any of its assets;
(d) Borrower becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors or
makes or sends notice of a bulk transfer;
(e) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under
any insolvency, reorganization, receivership, readjustment of
debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or in
equity) is filed against Borrower or all or any part of its
properties and such petition or application is not dismissed
within thirty (30) days after the date of its filing or Borrower
shall file any answer admitting or not contesting such petition
or application or indicates its consent to, acquiescence in or
approval of, any such action or proceeding or the relief
requested is granted sooner;
(f) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under
any insolvency, reorganization, receivership, readjustment of
debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at a law or
equity) is filed by Borrower or for all or any part of its
property; or
(g) any default by Borrower under any agreement,
document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized
lease obligations, contingent indebtedness in connection with any
guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lender, in any case
in an amount in excess of Two Hundred Fifty Thousand Dollars
($250,000), which default continues for more than the applicable
cure period, if any, with respect thereto, or any default by
Borrower under any material contract, lease, license or other
obligation to any person other than Lender, which default
continues for more than the applicable cure period, if any, with
respect thereto, except, in either case, excluding defaults as to
which Borrower has contested in good faith and as to which
Lender, in its sole discretion, has established adequate
Availability Reserves;
(h) a change in the control of Borrower as follows:
(i) Cerberus, its partners, affiliates and accounts for which it
is the investment manager with sole investment discretion shall
cease to hold at least 35% of the voting stock of the Borrower;
or (ii) Cerberus, its partners, affiliates and accounts for which
it is the investment manager with sole investment discretion
shall hold less than 45% of the voting stock of the Borrower and
another Person shall acquire ownership of at least 30% or more of
the voting stock of the Borrower, in each case excluding
unexercised options and warrants;
(i) the indictment or threatened indictment of
Borrower under any criminal statute, or the commencement or
threatened commencement of criminal or civil proceedings against
Borrower, pursuant to which statute or proceedings the penalties
or remedies sought or available include forfeiture of any of the
property of Borrower;
(j) there shall be a material adverse change in the
business, assets or prospects of Borrower after the date hereof;
(k) there shall be an event of default under any of
the other Financing Agreements.
An Event of Default shall exist or continue or be
continuing until such Event of Default is waived in accordance
with Section 11.3.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and
remedies provided in this Agreement, the other Financing
Agreements, the Uniform Commercial Code and other applicable law,
all of which rights and remedies may be exercised without notice
to or consent by Borrower, except as such notice or consent is
expressly provided for hereunder or required by applicable law.
All rights, remedies and powers granted to Lender hereunder,
under any of the other Financing Agreements, the Uniform
Commercial Code or other applicable law, are cumulative, not
exclusive and enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court
of equity for an injunction to restrain a breach or threatened
breach by Borrower of this Agreement or any of the other
Financing Agreements. Lender may, at any time or times, proceed
directly against Borrower to collect the Obligations without
prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an
Event of Default exists or has occurred and is continuing, Lender
may, in its discretion and without limitation, (i) accelerate the
payment of all Obligations and demand immediate payment thereof
to Lender (provided, that, upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h), all
Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any
of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (iii) require Borrower, at
Borrower's expense, to assemble and make available to Lender any
part or all of the Collateral at any place and time designated by
Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the
Collateral from any premises on or in which the same may be
located for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other purpose, (vi) sell,
lease, transfer, assign, deliver or otherwise dispose of any and
all Collateral (including, without limitation, entering into
contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere)
at such prices or terms as Lender may deem reasonable, for cash,
upon credit or for future delivery, with the Lender having the
right to purchase the whole or any part of the Collateral at any
such public sale, all of the foregoing being free from any right
or equity of redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by Borrower
and/or (vii) terminate this Agreement. If any of the Collateral
is sold or leased by Lender upon credit terms or for future
delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender.
If notice of disposition of Collateral is required by law, ten
(10) days prior notice by Lender to Borrower designating the time
and place of any public sale or the time after which any private
sale or other intended disposition of Collateral is to be made,
shall be deemed to be reasonable notice thereof and Borrower
waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrower waives the
posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of the
Obligations, in whole or in part and in such order as Lender may
elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the
highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal
expenses.
(d) Without limiting the foregoing, upon the
occurrence of an Event of Default or an event which with notice
or passage of time or both would constitute an Event of Default,
Lender may, at its option, without notice, (i) cease making Loans
or arranging Letter of Credit Accommodations or reduce the
lending formulas or amounts of Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any
provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Lender to Borrower.
(e) Borrower hereby grants Congress a license to
utilize any and all of Borrower's trademarks, service marks,
trade names, packaging, labeling, logos and trade dress to the
extent they are not Collateral (collectively, the "Trademarks")
following the occurrence and during the continuance of an Event
of Default for the limited purposes of completing production of,
selling, disposing or otherwise realizing upon the Collateral;
provided, that such license shall terminate upon such sale or
disposition.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver.
(a) The validity, interpretation and enforcement of
this Agreement and the other Financing Agreements and any dispute
arising out of the relationship between the parties hereto,
whether in contract, tort, equity or otherwise, shall be governed
by the internal laws of the State of California (without giving
effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit
to the non-exclusive jurisdiction of the state courts of the
County of Los Angeles, State of California and of the United
States District Court for the Central District of California and
waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other
Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising,
and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard
only in the courts described above (except that Lender shall have
the right to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction which Lender
deems necessary or appropriate in order to realize on the
Collateral or to otherwise enforce its rights against Borrower or
its property).
(c) Borrower hereby waives personal service of any and
all process upon it and consents that all such service of process
may be made by certified mail (return receipt requested) directed
to its address set forth on the signature pages hereof and
service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails,
or, at Lender's option, by service upon Borrower in any other
manner provided under the rules of any such courts.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
(i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses
suffered by Borrower in connection with, arising out of, or in
any way related to the transactions or relationships contemplated
by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross
negligence or willful misconduct.
11.2 Waiver of Notices. Borrower hereby expressly waives
demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and commercial
paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind
or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrower which
Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged
orally or by course of conduct, but only by a written agreement
signed by an authorized officer of Lender. Lender shall not, by
any act, delay, omission or otherwise be deemed to have expressly
or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be
enforceable only to the extent specifically set forth therein. A
waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such
right, power and/or remedy which Lender would otherwise have on
any future occasion, whether similar in kind or otherwise.
11.4 Indemnification. Borrower shall indemnify and hold
Lender, and its directors, agents, employees and counsel,
harmless from and against any and all losses, claims, damages,
liabilities, costs or expenses imposed on, incurred by or
asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened
related to the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this Agreement, any
other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any
act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court
costs, and the fees and expenses of counsel. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in
this Section may be unenforceable because it violates any law or
public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction
of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements
shall become effective as of the date set forth on the first page
hereof and shall continue in full force and effect for a term
ending on the date three (3) years from the date hereof (the
"Renewal Date"), and from year to year thereafter, unless sooner
terminated pursuant to the terms hereof. Lender or Borrower
(subject to Lender's right to extend the Renewal Date as provided
above) may terminate this Agreement and the other Financing
Agreements effective on the Renewal Date or on the anniversary of
the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this
Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-
renewal of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall
furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss
(including attorneys' fees and legal expenses) arising out of any
claims then asserted by third parties in connection with any
contingent Obligations, including issued and outstanding Letter
of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which
Lender has not yet received final and indefeasible payment. Such
cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, as Lender may, in its
discretion, designate in writing to Borrower for such purpose.
Interest shall be due until and including the next business day,
if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 10:30
a.m., California time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge Borrower of its
respective duties, obligations and covenants under this Agreement
or the other Financing Agreements until all Obligations have been
fully and finally discharged and paid, and Lender's continuing
security interest in the Collateral and the rights and remedies
of Lender hereunder, under the other Financing Agreements and
applicable law, shall continue to secure Lender against all loss
arising out of any claims then asserted by Lender in connection
with the Obligations until all such claims have been fully and
finally discharged and paid.
(c) If for any reason this Agreement is terminated
prior to the end of the then current term or a renewal term of
this Agreement, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement
of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender,
upon the effective date of such termination, an early termination
fee in the amount set forth below if such termination is
effective in the period indicated:
<TABLE>
<S> <C>
Amount Period
- ------------------------------- ----------------------------------
(i) 2% of the Maximum Credit from the date of this Agreement to
and including the day preceding the
first anniversary of this
Agreement
(ii) 0.5% of the Maximum Credit from the first anniversary of
this Agreement to and including the
day preceding the second
anniversary of this Agreement
(iii) 0.25% of the Maximum Credit from the second anniversary of this
Agreement to and including the Renewal
Date, and if the Renewal Date is
extended as provided in Section
12.1(a), at any time during a renewal
term, if any.
</TABLE>
Notwithstanding the above, provided there has occurred no Event
of Default, Borrower shall not be obligated to pay the early
termination fee if:
(i) Borrower merges with or acquires substantially all of
the capital stock or the assets of an entity, pursuant
to an arms-length, bona fide transaction, and Borrower
prepays all Obligations simultaneously with such merger
or acquisition and obtains financing for such merger or
acquisition on terms no more advantageous to the new
financer than those offered to Lender, which financing
Lender refuses to provide after being provided with
reasonable time and information to consider; provided,
however, and notwithstanding the above, that if the
Borrower sells substantially all of its assets or
capital stock or is not the surviving entity in any
such merger, Lender shall be entitled to receive one-
quarter percent (1/4%) of the Maximum Credit; or
(ii) Lender (A) acting pursuant to Section 2.1(b) reduces
the lending percentage formulas (i.e., the actual
percentages, not the arithmetic reduction in borrowing
availability due to a reduction in Value or Adjusted
Appraised Value) under Section 2.1(a)(i), and/or (B)
establishes discretionary Availability Reserves (other
than the reserves established as of closing of this
Agreement), and/or (C) revises the criteria for
Eligible Inventory from the criteria established as of
the closing of this Agreement, the aggregate effect of
(A), (B) and/or (C) is to reduce Borrower's borrowing
availability under Section 2.1(a)(i) by more than 5%,
and Borrower, at any time during a period ninety (90)
days following the date of such action taken by Lender,
fully refinances the Obligations hereunder with another
lender willing to provide Borrower with Inventory
financing at lending formulas better than those in
effect hereunder immediately after the reduction and on
other terms, conditions and funding levels
substantially similar to or better than those provided
by Lender, and Borrower fully repays the Obligations by
the end of such ninety (90) day period and terminates
this Agreement as provided in Section 12.1(a) hereof.
Such early termination fee shall be presumed to be the amount of
damages sustained by Lender as a result of such early termination
and Borrower agrees that it is reasonable under the circumstances
currently existing. The early termination fee provided for in
this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder
shall be in writing and (a) made to Lender at its address set
forth below and to Borrower at its chief executive office set
forth below, or to such other address as either party may
designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and
upon confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after
mailing.
12.3 Partial Invalidity. If any provision of this Agreement
is held to be invalid or unenforceable, such invalidity or
unenforceability shall not invalidate this Agreement as a whole,
but this Agreement shall be construed as though it did not
contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be
permitted by applicable law.
12.4 Successors. This Agreement, the other Financing
Agreements and any other document referred to herein or therein
shall be binding upon and inure to the benefit of and be
enforceable by Lender, Borrower and their respective successors
and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written
consent of Lender. Lender may, after notice to Borrower, assign
its rights and delegate its obligations under this Agreement and
the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of
Credit Accommodations or any other interest herein, up to an
aggregate maximum of Ten Million Dollars ($10,000,000), to
another financial institution or other person, in which event,
the assignee or participant shall have, to the extent of such
assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise
provided by the terms of such assignment or participation. No
holder of any participation or any assignee shall be entitled to
require Lender to take or omit to take any action hereunder
except an action to (i) extend the scheduled final maturity date
of any Loan allocated to such participation or assigned to such
assignee, (ii) reduce or forgive the principal amount of or the
rate of interest or other amounts payable on any Loan allocated
to such participation or assigned to such assignee, (iii) release
any Collateral from the lien or the security interest created
hereby or (iv) waive an Event of Default under this Agreement.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instru-
ments or documents delivered or to be delivered in connection
herewith or therewith represents the entire agreement and
understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior
agreements, understandings, negotiations and discussions,
representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or
written.
12.6 Publicity. Borrower consents to Lender publishing a
tombstone or similar advertising material relating to the
financing transaction contemplated by this Agreement.
12.7 Confidentiality. Lender hereby agrees that all written
or oral information disseminated by Borrower to Lender concerning
Borrower, now or hereafter, is confidential (the "Information").
Such Information: (i) shall be kept confidential by Lender and
will not be disclosed, divulged or provided to any Person without
Borrower's prior written consent; provided, however, that such
Information may be disclosed: (A) to the smallest practicable
number of Lender's officers and employees or any of Lender's
affiliated companies' officers and employees, independent
attorneys, accountants, loan participants and appraisers who need
to know such Information for the sole purpose of evaluating the
financing of Borrower hereunder, and who have been advised by
Lender that such Information shall be treated as confidential; or
(B) if such disclosure is required by operation of law; (ii)
shall not knowingly be used by Lender in a manner or for a
purpose detrimental to Borrower; and (iii) shall not be deemed to
include information which: (A) is public knowledge or becomes
generally available to the public; (B) becomes available to
Lender, on a non-confidential basis, from a source (other than
Borrower or its agents) who is not bound by a confidentiality
agreement with Borrower; or (c) is in Lender's possession prior
to disclosure by Borrower. Lender agrees that, unless required
by law, Lender will not disclose any of the Information for a
period of two (2) years after the date of the completion of a
financing hereunder.
IN WITNESS WHEREOF, Lender and Borrower have caused these
presents to be duly executed as of the day and year first above
written.
LENDER BORROWER
CONGRESS FINANCIAL WEI Acquisition Co.
CORPORATION (WESTERN)
/s/ Donald A. McLeod /s/ Henry Del Castillo
- -------------------------- -----------------------------
By: Donald A. McLeod By: Henry Del Castillo
Title: Senior Vice President Title: Chief Financial Oficer
Address: Chief Executive Office:
- --------------------------- -----------------------------
225 South Lake Avenue 19701 Hamilton Way
Suite 1000 Torrance, California 90502-1334
Pasadena, California 91101
<PAGE>
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of January 31, 1997, is
between WEI Acquisition Co., a Delaware corporation (which will
change its name to Wherehouse Entertainment, Inc.) ("Borrower"),
and United States Trust Company of New York, a New York banking
corporation, as collateral agent ("Collateral Agent") for
Alliance Entertainment Corp., Baker & Taylor, Inc., BMG
Distribution, EMI Music Distribution, Paramount Pictures,
Polygram Group Distribution, Inc., RED Inc., Sony Music
Corporation, Inc., Universal Music and Video Distribution and
Warner/Elektra/Atlantic Corporation and such other entities that
are added hereto pursuant to paragraph 15 (collectively "Trade
Creditors").
WHEREAS, Borrower is obligated to Trade Creditors for the
repayment of certain indebtedness created by the extension of
credit by each of the Trade Creditors; and
WHEREAS, the parties hereto desire to secure the obligations
of Borrower to Trade Creditors.
NOW, THEREFORE, intending to be legally bound, Borrower, Trade
Creditors and Collateral Agent agree as follows:
1. Definitions.
Whenever used herein the following terms shall, unless the
context otherwise requires, have the following respective
meanings:
a. "Account" means any right to payment for goods sold or
leased or for services rendered which is not evidenced by an
instrument or chattel paper.
b. "Account Debtor" means the Person who is obligated on an
Account or Contract Right.
c. "Collateral" means all of Borrower's now owned or
hereafter existing Inventory and all products and proceeds of
Inventory, in any form, including, without limitation, insurance
proceeds and all claims against third parties for loss or damage
to or destruction of any or all of the Inventory.
d. "Contract Right" means any right to payment under a
contract (including, but not limited to, contracts for the sale or
leasing of goods or for the rendering of services) not yet earned
by performance and not evidenced by an instrument or chattel paper.
e. "Document of Title" means a bill of lading, dock warrant,
dock receipt, warehouse receipt or order for the delivery of goods,
and also any other document which in the regular course of business
or financing is treated as adequately evidencing that the Person in
possession of it is entitled to receive, hold and dispose of the
document and the goods it covers.
f. "Interest Rate" means the prime rate as publicly announced
from time to time by CoreStates Bank, N.A., or its successors, at its
office in Philadelphia, Pennsylvania, plus two (2) percent.
g. "Inventory" means tangible personal property held for sale
and raw materials, work in process and materials used, produced or
consumed in business, and shall include tangible personal property sold
on a sale or return basis, tangible personal property returned by the
purchaser following a sale thereof and tangible personal property
represented by Documents of Title, but shall not include Rental
Inventory.
h. "Liabilities" means all existing and future liabilities,
whether absolute or contingent, of Borrower to Trade Creditors of any
nature whatsoever arising under the then existing and outstanding
extension of credit.
i. "Permitted Encumbrances" means (1) liens securing the payment
of taxes, either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves
have been set aside on its books, (2) security and other deposits
(including customs and revenue deposits) in the ordinary course
of Borrower's business, (3) liens in favor of credit card
processors with respect to credit card receivables processed by
them, and (4) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of
Borrower's business.
j. "Person" means an individual, a corporation, a government or
governmental subdivision or agency or instrumentality, a business trust,
an estate, a trust, a partnership, a cooperative, an association, two
or more Persons having a joint or common interest, or any other legal
or commercial entity.
k. "Proceeds" means whatever is received when Collateral or
Proceeds of Collateral is sold, exchanged, collected or otherwise
disposed of and also includes payments and rights to payment under
any policies of insurance with respect to any Collateral. The term
includes the Account arising when the right to payment is earned under
a Contract Right representing such Proceeds and, without limitation,
any accounts receivable representing such Proceeds.
l. "Rental Inventory" means all finished merchandise of Borrower
held for rental to retail customers, provided that such merchandise
has not previously been reported to Collateral Agent as comprising
part of Borrower's Inventory.
m. "Required Trade Creditors" shall mean Trade Creditors that have
extended trade credit in a principal amount at least equal to 66.6% in
principal amount of the aggregate trade credit then extended by all Trade
Creditors.
2. Grant of Security Interest.
To secure the payment, promptly when due, and the punctual
performance of all of the Liabilities, Borrower hereby grants to
Collateral Agent, for the benefit of Trade Creditors, a
continuing lien upon and security interest in all of the
Collateral, subject only to the terms of that certain
Intercreditor and Subordination Agreement, dated as of
January 31, 1997 (the "Congress Intercreditor Agreement"),
between and among Collateral Agent, Trade Creditors and Congress
Financial Corporation (Western), a California corporation
("Congress"). The Borrower, at its expense, shall take such
actions (including, without limitation, the filing of Uniform
Commercial Code financing statements) as shall be necessary or
appropriate to perfect, and maintain the perfection of, the
security granted hereby.
3. Records and Certifications.
Borrower shall faithfully keep complete and accurate books,
records and lists and make all necessary entries therein to
reflect the quantities, costs, current values and locations of
its Inventory and the transactions and facts giving rise to its
Accounts and Contract Rights constituting Proceeds of the
Collateral, and Borrower shall keep the Collateral Agent fully
and accurately informed as to the locations of all such books,
lists and records. Borrower shall permit Collateral Agent's
agents to have access during normal business hours to such books,
lists and records on Borrower's premises for the purpose of
examining, auditing and copying them. If Borrower refuses
Collateral Agent access in accordance with this provision, then
Collateral Agent shall have the right to take possession of such
books, lists and records, which right shall be enforceable by an
action of replevin or by any other appropriate remedy at law or
in equity.
4. Title, etc.
Borrower has acquired absolute and exclusive title to each and
every item or unit of the Collateral free and clear of all liens,
claims, security interests and other encumbrances, except (x) the
security interest granted by Borrower to Congress, (y) the
security interest created hereby in favor of Collateral Agent,
for the benefit of Trade Creditors, and (z) Permitted
Encumbrances. Borrower will warrant and defend its title to the
Collateral, subject to the rights of Collateral Agent and
Congress, against the claims and demands of all other persons
whomsoever. Without limiting the generality of the foregoing,
Borrower will not pledge, assign or otherwise encumber, or permit
any liens or security interests to attach to, any of the
Collateral, nor permit any of the Collateral to be levied upon
under any legal process, other than those liens described above.
Upon any breach of the foregoing covenant against encumbrances,
Collateral Agent may, at its sole election but without obligation
to do so, discharge the encumbrance for the account of and
without notice to Borrower, and all expenses incurred by
Collateral Agent in so doing, together with interest thereon at
the Interest Rate, shall be added to the Liabilities and shall be
payable by Borrower on demand. Without the prior written consent
of Collateral Agent in each case, Borrower will not sell,
exchange, lease, lend, salvage, replace or otherwise dispose of
any item or unit of the Collateral or any of Borrower's rights
therein, except that so long as Borrower is not in default
hereunder, Borrower shall have the right in the ordinary course
of its business to process and sell its Inventory and collect
payment therefor in the ordinary course of business and to return
Inventory to the suppliers thereof in the ordinary course of its
business, in each case free and clear of the security interest in
favor of Collateral Agent granted herein.
5. Taxes and Liens.
Borrower will immediately notify Collateral Agent in the event
there ever arises against any of the Collateral any lien,
assessment or tax or other liability other than the lien of
Congress, the lien created hereby in favor of Collateral Agent or
Permitted Encumbrances, whether or not entitled to priority over
Collateral Agent's security interest hereunder. In any such
event, whether or not such notice is given, Collateral Agent
shall (unless such lien, assessment, tax or other liability is
the subject of an appeal by Borrower and an appropriate bond has
been posted to stay the effect of any resulting lien) have the
right (but shall be under no obligation) to pay any tax or other
liability of Borrower deemed by Collateral Agent in good faith to
affect Collateral Agent's interests hereunder. Borrower shall
repay to Collateral Agent on demand all sums which Collateral
Agent shall have paid under this section in respect of taxes or
other liabilities of Borrower, with interest thereon at the
Interest Rate, and Borrower's liability to Collateral Agent for
such repayment with interest shall be included in the
Liabilities. Collateral Agent shall be subrogated to the extent
of any such payment by it to all the rights and liens of the
payee against Borrower's assets.
6. Insurance.
Borrower shall bear all risk of loss, destruction and damage
to any and all of the Inventory from any cause whatsoever at any
time during the term of this Agreement, and shall at its own cost
and expense obtain and keep in full force and effect, with
insurers of recognized standing in the financial community or
otherwise approved by Collateral Agent, all risk of physical loss
or damage insurance covering the Inventory wherever the same may
be, insuring against the risks of fire, explosion, theft and such
other risks as are customarily insured against by corporations
engaged in the same business and similarly situated with Borrower
(and specifically including vandalism and malicious mischief
coverage), in an amount or amounts usually carried by
corporations engaged in the same business and similarly situated
with Borrower. All policies of such insurance shall be written
for the benefit of Borrower, Congress and Collateral Agent as the
insured, shall bear an endorsement naming Collateral Agent,
Congress and Borrower as loss payees, as their respective
interests may appear, and shall provide for at least ten (10)
days' advance written notice to Collateral Agent of any
cancellation. Collateral Agent and Borrower agree that all
insurance proceeds shall be payable to Borrower if at the time of
such payment no Event of Default then exists. A copy of all such
policies (or certificates therefor) shall be delivered to
Collateral Agent. If Borrower fails to pay any premium on any
such insurance, Collateral Agent shall have the right, but shall
be under no obligation, to pay such premium for Borrower's
account. Borrower shall repay to Collateral Agent on demand all
sums which Collateral Agent shall have paid under this section in
respect of insurance premiums, with interest thereon at the
Interest Rate, and Borrower's liability to Collateral Agent for
such repayment with interest shall be included in the
Liabilities. Borrower hereby assigns to Collateral Agent and
Congress, as their interests may appear, any return or unearned
premium which may be due upon the cancellation for any reason
whatsoever of any policy of insurance maintained in respect of
the Collateral and hereby directs the insurer to pay Collateral
Agent and Congress, as their interests may appear, any amount so
due, except that Collateral Agent shall have no right to any such
amount unless and until there exists an Event of Default.
Borrower's rights to receive payment of any such return or
unearned premium and the proceeds of any such insurance shall
constitute a part of the Collateral to the extent allocable to
Inventory that constitutes Collateral for all purposes hereof.
7. Control of and Access to Inventory
Borrower shall maintain possession and control of its
Inventory at all times, provided that upon the occurrence of an
Event of Default, Collateral Agent shall have the right to take
possession of such Inventory as constitutes Collateral or any
portion thereof, subject only to the provisions of the Congress
Intercreditor Agreement, and for the purpose of taking custody of
such Inventory Borrower agrees that upon request of Collateral
Agent it will lease warehousing space in Borrower's own premises
to Collateral Agent and will erect such structures and post such
signs as Collateral Agent may require in order to place such
Inventory under the exclusive control of Collateral Agent.
Notwithstanding any taking of possession by Collateral Agent of
any Inventory, the same shall remain at all times at Borrower's
sole risk, and to the full extent permitted by law Collateral
Agent shall not be responsible for any loss, damage or diminution
in the value thereof. If any of Borrower's Inventory
constituting Collateral is or becomes evidenced by a Document of
Title, Collateral Agent may require Borrower to promptly deliver
the same to Collateral Agent appropriately endorsed to the order
of Collateral Agent subject only to the provisions of the
Congress Intercreditor Agreement. All costs of transportation,
packaging, custody, processing, storage, insurance and salvage of
any unit or item of Borrower's Inventory which may be incurred by
Collateral Agent shall be promptly repaid to Collateral Agent by
Borrower together with interest thereon at the Interest Rate, and
Borrower's liability to Collateral Agent for such repayment with
interest shall be included in the Liabilities. Borrower will
afford Collateral Agent's agents reasonable access during normal
business hours to Borrower's Inventory from time to time upon
request for purposes of examination, inspection and appraisal and
to verify Borrower's records pertaining thereto.
8. Notices of Loss, etc.
Borrower will immediately notify Collateral Agent of any event
causing any material deterioration, loss or depreciation in value
of such of Borrower's Inventory as constitutes the Collateral.
9. Accounts and Contract Rights.
a. Collateral Agent hereby authorizes Borrower to collect all
Accounts constituting Proceeds of Collateral from the Account Debtors.
Upon the occurrence of an Event of Default, Collateral Agent shall
have the right, acting if it so chooses in Borrower's name, acting in a
commercially reasonable manner, to collect Borrower's Accounts
constituting Proceeds of the Collateral itself, to sell, assign,
compromise, discharge or extend the time for payment of any
Account, to institute legal action for the collection of any
Account, and to do all reasonable acts and things necessary or
incidental thereto; provided, however, that such rights shall be
subject to the provisions of the Congress Intercreditor
Agreement. Borrower hereby ratifies all that Collateral Agent
shall do in accordance with the terms hereof. Collateral Agent
may at any time, after the occurrence of an Event of Default and
subject to the provisions of the Congress Intercreditor
Agreement, notify any Account Debtor that the Account
constituting Proceeds of Collateral payable by such Account
Debtor has been assigned to Collateral Agent and is to be paid
directly to Collateral Agent. At Collateral Agent's request,
after the occurrence of an Event of Default and subject to the
provisions of the Congress Intercreditor Agreement, Borrower
shall so notify Account Debtors and shall indicate on all
billings to Account Debtors that payments thereon are to be made
to Collateral Agent.
10. Significant Locations.
Borrower represents and warrants to Collateral Agent as
follows: (i) the chief executive office of Borrower is located
in Los Angeles County, California, and such chief executive
office is the sole location where Borrower maintains the records
with respect to the Collateral; (ii) the locations set forth in
Schedule A hereto are the only locations where Borrower stores or
processes Inventory. Borrower will notify Collateral Agent in
writing prior to any change in the location specified above and
will reimburse Collateral Agent for the costs of any additional
Uniform Commercial Code filings requested by Collateral Agent as
a result thereof. Borrower agrees to notify Collateral Agent
promptly in the event of a change in the location of any place of
business or the establishment of any additional place of business
of Borrower.
11. Further Assurances; Information.
Without limiting Borrower's obligations under paragraph 2
hereof, Borrower will execute and deliver to Collateral Agent
from time to time all such other agreements, instruments and
other documents (including without limitation all requested
financing and continuation statements) and do all such other
further acts and things as Collateral Agent may reasonably
request in order to further evidence or carry out the intent of
this Agreement or to perfect the lien and security interest
created hereby or intended so to be. Borrower will provide to
Collateral Agent and each of Trade Creditors all reports and
appraisals relating to the Collateral required by Congress at the
same time such reports are delivered to Congress.
12. Default and Remedies.
Borrower shall be in default of this Agreement upon:
(1) the failure by Borrower to observe any material provision
of this Agreement, which failure shall continue fifteen
days after written notice thereof provided by Collateral
Agent; or
(2) notice to Collateral Agent by Required Trade Creditors of
the failure by Borrower to observe any material provision
of any currently existing credit agreements or arrangements
between Borrower and Required Trade Creditors.
Upon the occurrence of any Event of Default which shall be
continuing, (i) upon notice by Collateral Agent to Borrower, the
entire unpaid amount of such of the Liabilities as are not then
otherwise due and payable shall become immediately due and
payable without notice to or demand on Borrower or any guarantor
of any of the Liabilities (Borrower and all such guarantors,
collectively, the "Obligors") and (ii) subject to the provisions
of the Congress Intercreditor Agreement, Collateral Agent may at
its option exercise from time to time any and all rights and
remedies available to it under the Uniform Commercial Code or
otherwise, including the right to collect, assemble, receipt for
or foreclose or otherwise realize upon any of the Collateral and
to dispose of any of the Collateral at one or more public or
private sales or other proceedings, and Borrower agrees that
Collateral Agent or its nominee may become the purchaser at any
such sale or sales. Borrower agrees that ten (10) days shall be
reasonable prior notice of the date of any public sale or other
disposition of all or any part of the Collateral, or of the date
on or after which any private sale or other disposition of the
same may be made.
Subject to the provisions of the Congress Intercreditor
Agreement, all rights and remedies granted Collateral Agent
hereunder or under any other agreement between Collateral Agent
and Borrower shall be deemed concurrent and cumulative and not
alternative, and Collateral Agent may proceed with any number of
remedies at the same time or at different times until all the
Liabilities are fully satisfied. The exercise of any one right
or remedy shall not be deemed a waiver or release of or an
election against any other right or remedy, and Collateral Agent
may proceed against any one or more of the Obligors and the
Collateral and any other Collateral granted by Borrower to
Collateral Agent under any other agreement, all in any order and
through any available remedies. A waiver on any one occasion
shall not be construed as a waiver or bar on any future occasion.
All property of any kind held at any time by Collateral Agent as
Collateral shall stand as one general continuing collateral
security for all the Liabilities and may be retained by
Collateral Agent as security until all the Liabilities are fully
satisfied.
13. Payment of Expenses
Borrower will pay to Collateral Agent on demand any and all
expenses (including reasonable attorneys' fees and legal
expenses) which may have been incurred by Collateral Agent with
interest at the Interest Rate (i) in connection with the
interpretation or enforcement of this Agreement, (ii) in the
prosecution or defense of any action growing out of or connected
with the subject matter of this Agreement, the Liabilities, the
Collateral or any of Collateral Agent's rights therein or
thereto; or (iii) in connection with the custody, preservation,
use, operation, preparation for sale or sale of any of the
Collateral, the incurring of all of which are hereby authorized
to the extent Collateral Agent in good faith deems the same
advisable or is directed to do so by Trade Creditors. Borrower's
liability to Collateral Agent for any such payment with interest
shall be included in the Liabilities. The enumeration of specific
Events of Default shall not compromise the demand character of
any Liability which by its terms is payable on demand and demand
may be made thereon at any time irrespective of the non-
occurrence of any such Event of Default, any provision hereof to
the contrary notwithstanding. The Proceeds of any Collateral
received by Collateral Agent at any time before or after default,
whether from a sale or other disposition of Collateral or
otherwise, or the Collateral itself, may be applied with
reasonable promptness to the payment in full or in part of such
of the Liabilities and in such order and manner as Collateral
Agent may elect or shall be directed by Trade Creditors.
Borrower to the extent of its rights in the Collateral waives and
releases any right to require Collateral Agent to collect any of
the Liabilities from any other of the Collateral or any other
Collateral then held by Collateral Agent under any theory of
marshaling of assets or otherwise, provided, however, that
Collateral Agent be subject to the obligations of a Collateral
Agent under the Uniform Commercial Code to act in a commercially
reasonable manner.
14. Power of Attorney.
Borrower hereby irrevocably appoints any officer, employee or
agent of Collateral Agent as Borrower's true and lawful attorney-
in-fact with power, upon the occurrence of an Event of Default,
to (i) endorse Borrower's name upon any notes, checks, drafts,
money orders, or other instruments of payment that may come into
Collateral Agent's possession and which constitute proceeds of
any Collateral; (ii) sign and endorse Borrower's name upon any
documents of title, invoices, freight or express bills,
assignments, verifications and notices in connection with any of
the Collateral, and any instruments or documents relating thereto
or to Borrower's rights therein; and (iii) execute in Borrower's
name and file one or more financing statements covering the
Collateral. Any such attorney of Borrower shall have full power
to do any and all things necessary to be done with respect to the
above transactions as fully and effectually as Borrower might do,
and Borrower hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof.
15. Additional Trade Creditors
Borrower may add additional entities as Trade Creditors under
this Agreement in its discretion so long as any such additional
Trade Creditor has agreed to provide Borrower, as of the date it
is added, with credit of $250,000 or more on terms acceptable to
Borrower. Such additional Trade Creditor shall be added as a
Trade Creditor under this Security Agreement effective upon the
delivery by Borrower to Collateral Agent and Congress of an
Agreement Regarding Additional Trade Creditor in the form
attached hereto as Exhibit A, executed by Borrower and such
additional Trade Creditor. Upon delivery of such Agreement
Regarding Additional Trade Creditor, the entity designated
therein as an Additional Trade Creditor shall be deemed a Trade
Creditor for all purposes under this Security Agreement, entitled
to all benefits and subject to all obligations set forth in this
Security Agreement. Notwithstanding anything herein to the
contrary, this Section 15 may not be amended without the consent
of Borrower.
16. Miscellaneous.
a. At no time during the past five years has Borrower been known
by or used any name, including any trade or fictitious name, other than
that set forth in the premises of this Agreement. Borrower will give
Collateral Agent notice prior to any change in its name.
b. This Agreement shall commence on the date hereof and shall
continue in full force and effect so long as any of the Liabilities shall
exist from time to time. If after the discharge of all Liabilities
Borrower should subsequently incur additional Liabilities, this Agreement
shall automatically be revived and thereafter continue in full force
and effect until such time as Borrower, having no Liabilities
then outstanding and not then being entitled to incur any
additional Liabilities, shall give written notice to Collateral
Agent of its election to terminate this Agreement.
c. Absent manifest error, statements of account rendered to Borrower
by Collateral Agent hereunder shall become final and be effective unless
objection thereto is made within thirty (30) days of receipt by Borrower.
d. No modification or waiver of any provision hereof shall be
effective unless the same is in writing and signed by the party against
whom its enforcement is sought.
e. This Agreement may be signed in any number of counterparts and
by different parties in separate counterparts, all with the same effect
as if the signatures were on the same counterpart, and all counterparts
hereof, taken together, shall constitute but one and the same
Agreement.
f. Words of any gender shall include any other gender, and singular
words shall include the plural and vice versa, whenever the same is
necessary to produce a fair and meaningful construction.
g. All the rights and remedies of Collateral Agent hereunder shall
be cumulative with and not alternative to or in lieu of Collateral
Agent's rights and remedies under any other agreement or agreements.
h. This Agreement shall bind and inure to the benefit of the parties
and their respective successors and assigns, except that Borrower shall
not assign any of its respective rights hereunder without the prior
written consent of the other party hereto, which shall not be
unreasonably withheld.
i. Captions in this Agreement are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose.
j. Any provision hereof which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without affecting the validity or
enforceability of the remainder of this Agreement or the validity or
enforceability of such provision in any other jurisdiction.
k. This Agreement and all issues arising hereunder shall be governed by
the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been duly executed
under due authorization on the day and year first set forth
above.
WEI Acquisition Co.
By: /s/ Eliot Cobb
----------------------------
Title: VP/Treasurer
-------------------------
United States Trust Company of
New York, Collateral Agent
By: /s/ Louis P. Young
----------------------------
Title: Vice President
---------------------------
<PAGE>
EXHIBIT A
Agreement Regarding Additional Trade Creditor
This Agreement Regarding Additional Trade Creditor
("Agreement") is dated as of_____________, l9__ by and between
_________________ ("Additional Trade Creditor") and Wherehouse
Entertainment, Inc. ("Borrower"), as successor to WEI Acquisition
Co .
A. Certain of Borrower's trade creditors have
entered into that certain Intercreditor and Subordination
Agreement (the "Intercreditor Agreement") dated as of January __,
1997, by and among _________________, as Collateral Agent for the
trade creditors named therein ("Collateral Agent") and Congress
Financial Corporation (Western), a California corporation
("Congress").
B. Pursuant to that certain Security Agreement dated
as of January __, 1997, by and between Borrower and Collateral
Agent (the "Trade Security Agreement"), Borrower granted to
Collateral Agent, for the benefit of Trade Creditors (as defined
therein), a lien in its sale inventory and proceeds thereof.
Section ___ of the Trade Security Agreement provides that
Borrower may designate additional entities as Trade Creditors
entitled to the benefits of such lien granted pursuant to the
Trade Security Agreement.
C. The Trade Creditors who are parties to the
Intercreditor Agreement and the Trade Security Agreement have
entered into that certain [Collateral Agent Agreement] dated as
of __________, 1997 pursuant to which Collateral Agent has been
appointed by such Trade Creditors. Section ____ of the
Collateral Agent Agreement provides that Borrower may designate
additional entities as Trade Creditors for purposes of the
Collateral Agent Agreement.
D. Borrower and Additional Trade Creditor desire to
add Additional Trade Creditor as a Trade Creditor for purposes of
the Intercreditor Agreement, the Trade Security Agreement and the
Collateral Agent Agreement.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Section 1. Additional Trade Creditor acknowledges
that it has committed to extend an open line of credit to
Borrower equal to $250,000 or more and Borrower acknowledges that
the terms and conditions of this line of credit are acceptable to
it; provided, however, that nothing herein shall obligate
Additional Trade Creditor to maintain this open line of credit
for any period of time and the parties acknowledge that the
Additional Trade Creditor is free to adjust the terms and
conditions (or eliminate) this line of credit at any time.
Section 2. Additional Trade Creditor acknowledges
that it has received copies of and agrees to be bound by the
terms of the Intercreditor Agreement, the Trade Security
Agreement and the Collateral Agent Agreement and appoints
Collateral Agent pursuant to the terms of the Collateral Agent
Agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers hereunder
to duly authorize, as of the date first above written.
WHEREHOUSE ENTERTAINMENT, INC.
By:______________________________
Its:_____________________________
[ADDITIONAL TRADE CREDITOR]
By:______________________________
Its:_____________________________
<PAGE>
<PAGE>
-----------------------------------------------------------------
WEI ACQUISITION CO.
Trade Creditors
________________________________________
INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT
________________________________________
Dated as of January 31, 1997
------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . .2
1.1 Defined Terms . . . . . . . . . . . . . .2
1.2 Other Definitional Provisions . . . . . .3
SECTION 2 THE COLLATERAL AGENT. . . . . . . . . . . . . .3
2.1 Appointment . . . . . . . . . . . . . . .3
2.2 Control by the Collateral
Agent and Required Trade
Creditors . . . . . . . . . . . . . . . .4
SECTION 3 NEW TRADE CREDITORS . . . . . . . . . . . . . . 5
SECTION 4 MANNER OF DISTRIBUTIONS . . . . . . . . . . . . 5
4.1 Distributions of Proceeds Upon
Exercise of Remedies. . . . . . . . . . . 5
SECTION 5 RELEASE OF COLLATERAL; TERMINATION
OF SECURITY AGREEMENT. . . . . . . . . . . . . .6
SECTION 6 CONCERNING THE COLLATERAL AGENT. . . . . . . . .7
6.1 Absence of Duties Not Specified, etc. . . 7
6.2 Reliance by Collateral Agent. . .. . .. .7
6.3 Default Notices . . . . . . . . . . . . . .8
6.4 Rights to Conduct Ordinary Business.. . . .8
6.5 Failure to Act. . . . . . . . . . . . . . .8
6.6 Resignation or Removal of Collateral
Agent. . . . . . . . . . . . . . . . . .. .8
6.7 Additional or Separate Agents . . . . . .. 9
SECTION 7 COVENANTS OF THE COMPANY. . . . . . . . . . . . .9
7.1 Payment of Expenses and Taxes . . . . . . .9
7.2 Indemnity . . . . . . . . . . . . . . . . 10
7.3 Additional Secured Obligations . . . . . 10
7.4 Survival. . . . . . . . . . . . . . .. . 10
SECTION 8 MISCELLANEOUS . . . . . . . . . . . . . . . . . 10
8.1 Indemnification . . . . . . . . . . . . . 10
8.2 Expenses as Obligations . . . . . . . .. .11
8.3 Governing Law . . . . . . . . . . . . . ..11
8.4 Survival of Representations,
Warranties and Covenants. . . . . . . . . 11
8.5 Counterparts. . . . . . . . . . . . . . . 11
8.6 Successors and Assigns. . . . . . . . . ..11
8.7 Table of Contents and Headings. . . . . . 11
8.8 WAIVER OF JURY TRIAL. . . . . . . . . . . 11
8.9 Severability. . . . . . . . . . . . . . . 12
8.10 Entire Agreement. . . . . .. .. . . . .. 12
8.11 Amendments, Etc.. . . . . . . . . . . . . .12
8.12 Waiver. . . . . . . . . . . . . . . . . . .12
8.13 Notices and Distribution. . . . . . . . . .12
8.14 Benefit of Covenants. . . . . . . . . . .. 13
<PAGE>
INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT
INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT (the "Agreement"),
dated as of January 31, 1997, among WEI ACQUISITION CO., a Delaware
corporation (which will change its name to Wherehouse Entertainment,
Inc.) (the "Company"), each of the TRADE CREDITORS listed on the signature
pages hereof (the "Trade Creditors"), and UNITED STATES TRUST COMPANY
OF NEW YORK, in its capacity as collateral agent for the Trade Creditors.
Capitalized terms used herein without other definition have the
respective meanings assigned or referred to in Section 1.
W I T N E S S E T H:
WHEREAS, WEI Acquisition Co. ("Borrower") has acquired substantially
all of the assets of Wherehouse Entertainment, Inc. and WEI Holdings, Inc.,
debtors and debtors-in- possession, Delaware corporations ("Sellers")
pursuant to that certain Asset Purchase Agreement dated January 31, 1997
between Borrower and Sellers (the "Asset Purchase Agreement"). The terms
of the Asset Purchase Agreement have been approved pursuant to the terms
of the Confirmation Plan and the Confirmation Order (as hereinafter
defined); and
WHEREAS, Borrower and the Trade Creditors have entered into certain
agreements, documents and instruments pursuant to which the Trade Creditors
have agreed to extend certain trade financing to Borrower on the terms and
conditions set forth therein and, as a condition to such trade financing,
Borrower has granted security interests in certain Collateral to the
Collateral Agent for the benefit of the Trade Creditors pursuant to that
certain Security Agreement of even date herewith (the "Security Agreement");
and
WHEREAS, Congress Financial Corporation (Western) ("Congress") and
Borrower have entered into various agreements, including that certain Loan
and Security Agreement and other agreements, documents and instruments, of
even date herewith, as amended or modified from time to time
(collectively, the "Senior Loan Agreement"), pursuant to which
Congress has agreed to extend certain loans and financial
accommodations to Borrower, and, as a condition to such facility,
Borrower has granted security interests in certain Collateral to
Congress; and
WHEREAS, the Collateral Agent, the Trade Creditors and Congress
have entered into that certain Intercreditor and Subordination Agreement,
of even date herewith (the "Congress Intercreditor Agreement") relating
to the parties' respective interests in Collateral of Borrower; and
WHEREAS, the Trade Creditors desire to approve the Collateral Agent
and agree upon the parties' respective rights in and to the Collateral,
subject to the security interest of the Collateral Agent.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
DEFINITIONS
1.1 Defined Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meaning assigned to such terms
in the Security Agreement. For purposes of this Agreement, the following
terms shall have the following respective meanings:
"Accelerated Secured Principal" shall mean any Secured Principal
which shall have been declared or become due and payable prior to its
scheduled maturity because of an Event of Default.
"Affiliate" of any Person shall mean such Person, any subsidiary
of such Person, and any entity directly or indirectly controlled by or
under common control with such Person, including without limitation any
entity in which such Person holds, directly or indirectly, 20% or more of
the voting securities or other equity interests.
"Agreement" shall mean this Intercreditor and Collateral Agency
Agreement, including all and any amendments hereto and modifications hereof
and all schedules and exhibits hereto and thereto.
"Acceptance Instrument" shall mean an agreement entered into by a
prospective Secured Creditor substantially in the form of Exhibit A hereto.
"Business Day" shall mean each day other than Saturdays, Sundays and
each day on which national banking institutions in California are permitted
or required to be closed.
"Collateral Agent" shall mean United States Trust Company of New York,
solely in its role as collateral agent for the Trade Creditors under this
Agreement, or any successor collateral agent hereunder.
"Company" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Confirmation Order" means the Findings of Fact, Conclusions of
Law and Order Confirming Debtors' First Amended Chapter 11 Plan Under
Chapter 11 of the Bankruptcy Code dated January 7, 1997 and entered in
the Bankruptcy Case.
"Confirmation Plan" means the Debtors' First Amended Chapter 11
Plan in the Bankruptcy Case, dated September 26, 1996, as revised for
Technical Corrections on October 4, 1996 and Supplemental Amendments on
December 2, 1996 and December 13, 1996.
"Congress Intercreditor Agreement" shall have the meaning set
forth in the recitals.
"Event of Default" shall mean any event or condition which,
under the terms of any agreement with a Trade Creditor, allows such Trade
Creditor to accelerate the obligations of the Company thereunder.
"Indemnified Liabilities" shall have the meaning set forth in
Section 9.3 hereof.
"Lien" shall mean any mortgage, lien, pledge, charge, lease,
claim, security interest or encumbrance of any kind, including, without
limitation, the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Obligations" shall mean all obligations and liabilities of
the Company the payment or performance of which is secured or is purported
to be secured under the Security Agreement.
"Person" shall mean any individual, corporation, partnership,
trust, joint venture, unincorporated association or other enterprise or
any government or any agency, instrumentality or political subdivision
thereof.
"Required Trade Creditors" shall mean Trade Creditors that
have extended trade credit in a principal amount at least equal to 66.6%
in dollar amount of the aggregate trade credit then extended by all Trade
Creditors.
"Security Agreement" shall have the meaning set forth in the
recitals.
"Secured Principal" shall mean at any time the principal amount
of trade credit extended by the Trade Creditors.
1.2 Other Definitional Provisions.
(a) Definitions hereunder shall be equally applicable to the
singular and plural forms of the terms defined.
(b) The words "include," "includes" and "including" shall
be deemed to be followed by the words "without limitation" unless the
context otherwise requires.
(c) References to any Person shall include a reference to
such Person's permitted successors and assigns.
SECTION 2
THE COLLATERAL AGENT
2.1 Appointment. The Trade Creditors appoint and authorize
United States Trust Company of New York (or its successor as appointed
hereunder) to act as collateral agent hereunder with such powers as are
specifically granted to the Collateral Agent by the terms of this Agreement
or by the Security Agreement. The Collateral Agent accepts the
appointment contained in the preceding sentence and agrees to
serve as "Collateral Agent" hereunder and as "Secured Party"
under the Security Agreement. The Collateral Agent shall be
entitled to all of the benefits and immunities set forth herein.
2.2 Control by the Collateral Agent and Required Trade
Creditors.
(a) Subject to the provisions of this Section 2.2 and of
Section 6.5 hereof and the Congress Intercreditor Agreement, the
Collateral Agent shall take only those actions (i) which it is expressly
required to take by the terms of this Agreement; or (ii) as it may from
time to time be directed in writing by the Required Trade Creditors,
such direction to be evidenced by an instrument or instruments in
writing executed by the Required Trade Creditors and delivered to
the Collateral Agent. Notwithstanding the provisions of clause
(ii) above, the Collateral Agent may in its discretion refrain
from acting pursuant to any directions from the Required Trade
Creditors unless and until it shall have received an opinion of
counsel, reasonably satisfactory to it, to the effect that such
direction in not in conflict with the terms of this Agreement,
the Security Agreement, the Congress Intercreditor Agreement or
law. The Collateral Agent shall be under no obligation to
request or obtain such an opinion of counsel and shall be fully
protected if it acts or refrains from acting as instructed by the
Required Trade Creditors. Any action taken by or failure to act
of the Collateral Agent pursuant to directions given to the
Collateral Agent in accordance with this Section 2.2(a) shall be
binding on all Trade Creditors.
(b) The Collateral Agent shall maintain a list of the names
and addresses for notices of all Trade Creditors and shall provide such
list on request to any Trade Creditor.
(c) Any direction by the Required Trade Creditors shall state
the principal amount of trade credit extended by each such Trade Creditor
providing such direction. The Company will supply to the Collateral
Agent upon request a schedule of the Trade Credit then extended by each
Trade Creditor and the aggregate Trade Credit then extended by all Trade
Creditors, upon which the Collateral Agent shall be entitled to
rely except to the extent any Trade Creditor states that its
Trade Credit differs from such schedule.
SECTION 3
NEW TRADE CREDITORS
The Company may, from time to time, request that additional trade
creditors of the Company be added as Trade Creditors hereunder and
entitled to the benefits of this Agreement. Such request shall be in
writing delivered to the Collateral Agent and each Trade Creditor, and
shall include a representation that the proposed Trade Creditor has
extended to the Company open trade credit in an amount not less than
$250,000. Upon receipt of such notice, and upon execution by the
proposed Trade Creditor of an Acceptance Instrument and delivery
thereof to the Collateral Agent, such Person shall be deemed to
be a Trade Creditor for all purposes of this Agreement and the
Security Agreement, and shall have all of the rights and shall be
bound by all of the obligations of a Trade Creditor hereunder and
a Secured Party under the Security Agreement.
SECTION 4
MANNER OF DISTRIBUTIONS
4.1 Distributions of Proceeds Upon Exercise of Remedies. The
proceeds of any collection, sale or other realization of all or any part
of the Collateral, and of all proceeds of the enforcement of any Lien
created under the Security Agreement, shall be applied in the following
order of priority:
FIRST: To the Collateral Agent in an amount equal
to the fees, indemnities, costs and expenses incurred by
the Collateral Agent in the taking of any actions
required by or pursuant to this Agreement, the Security
Agreement, or the Congress Intercreditor Agreement
including, without limitation, reasonable compensation
for and expenses of the Collateral Agent's
representatives and counsel, and all charges, expenses,
liabilities and advances incurred or made by the
Collateral Agent whether provided for under the Security
Agreement, this Agreement or otherwise;
SECOND: To the Trade Creditors in an aggregate
amount equal to the sum of the unpaid interest incurred
through the date of such distribution, provided that if
such proceeds (after distribution of a portion thereof as
provided in paragraph FIRST of this Section 4.1) shall be
insufficient to pay in full such aggregate amount owed to
the Trade Creditors, then such payment shall be made to
each Trade Creditor on a pro rata basis in the proportion
the respective amounts of such interest owed to each
Trade Creditor on such date bear to the total amount of
such interest then owed;
THIRD: To the Trade Creditors in an aggregate
amount equal to the sum of the then unpaid principal
amount of trade credit then extended as of the date of
such distribution, provided that if such proceeds (after
distribution of a portion thereof as provided in
paragraphs FIRST and SECOND of this Section 4.1) shall be
insufficient to pay in full such aggregate amount owed to
the Trade Creditors, then such payment shall be made to
each Trade Creditor on a pro rata basis in the proportion
the outstanding principal amount of its Loans or the
outstanding principal amount of its trade credit extended
on such date bear to the total outstanding principal
amount of trade credit then owed to the Trade Creditors;
and
FOURTH: Any surplus then remaining to the Company
or the Person who may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
4.2 Address for Distributions. All distributions under
Section 4.1 to be made by the Collateral Agent to any Trade
Creditor shall be made to it at its address for payments set forth
on the signature page hereto or in the applicable Acceptance
Instrument, or as otherwise have been stated by notice in writing
by such Trade Creditor to the Collateral Agent.
4.3 Outstanding Trade Credit. Prior to making any
distribution under Section 4.1 or at such other time or times as is
deemed advisable in its sole discretion by the Collateral Agent,
the Collateral Agent may request an officer's certificate from each
Trade Creditor setting forth the aggregate amount owed to such
Trade Creditor, and may request from the Company an officer's
certificate setting forth the amount owed to each Trade Creditor.
The Collateral Agent shall be entitled to conclusively rely on the
amount provided by each Trade Creditor. If any Trade Creditor
fails to provide such officer's certificate within 10 days of the
request therefor, the Collateral Agent shall be entitled to rely
upon the officer's certificate of the Company with respect to such
Trade Creditor.
SECTION 5
RELEASE OF COLLATERAL;
TERMINATION OF SECURITY AGREEMENT
Except as expressly provided herein, without the prior written
consent of all of the Trade Creditors, the Collateral Agent shall
not consent to or permit the termination of the Lien of the
Security Agreement or the release of any of the Collateral from any
such Lien except for sales or returns of Collateral in the ordinary
course of business. The Collateral Agent may release its Lien on
all or any portion of the Collateral (i) upon the written request
of the Company, which request will be provided simultaneously by
the Company to each Trade Creditor; (ii) receipt by the Collateral
Agent of a direction in writing by the Trade Creditors holding
66.6% of the trade credit to the Company extended by the Trade
Creditors to release said Lien; and (iii) if the Collateral Agent
has not received written notice from any Trade Creditor that an
Event of Default has occurred and is continuing or would exist as
a result of such release. In such case the Collateral Agent shall
execute for recordation in public offices, at the expense of the
Company, such instrument or instruments in writing as reasonably
shall be requested by the Company in order to release the Lien of
the Security Agreement as to, and to make clear upon public records
the Company's title to, all or such portion of the Collateral under
the law of any jurisdiction. After the conditions set forth in
this Section 5 have been satisfied as to all of the Collateral,
title to all Collateral shall vest in the Company, free and clear
of any Lien of the Collateral Agent. Any direction by the Trade
Creditors under this Section 5 shall comply with Section 2.2(c)
hereof.
SECTION 6
CONCERNING THE COLLATERAL AGENT
The Collateral Agent shall be entitled to the rights and
privileges set forth in this Section 6.
6.1 Absence of Duties Not Specified, etc.
(a) The Collateral Agent (which term as used in this sentence
and in Section 6.4 hereof shall include reference to its officers,
directors, employees, agents, Affiliates and its Affiliates'
officers, directors, employees and agent(s)) (i) shall have no
duties or responsibilities except those expressly set forth in this
Agreement, in the Security Agreement, and the Congress
Intercreditor Agreement and shall not by reason of this Agreement,
the Security Agreement or the Congress Intercreditor Agreement, be
a trustee for any Trade Creditor; (ii) shall not be responsible to
any Trade Creditor for any recitals, statements, representations or
warranties contained in this Agreement, the Security Agreement or
the Congress Intercreditor Agreement or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, or the Security Agreement or the Collateral thereunder
(other than the due authorization of the Collateral Agent to
execute this Agreement or the Security Agreement) or for any
failure by the Company or any Person other than the Collateral
Agent to perform any of its obligations hereunder or thereunder;
and (iii) shall not be responsible for any action taken or omitted
to be taken by it hereunder, except for its own gross negligence or
willful misconduct.
(b) The Collateral Agent may consult with counsel,
accountants and other skilled Persons selected by it in good faith
prior to taking any act or refraining to act under this Agreement,
the Security Agreement and the Congress Intercreditor Agreement,
and shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the advice or opinion of any
such counsel, accountant or other skilled Person so long as such
advice or opinion is within the scope of such Person's professional
competence.
(c) The Collateral Agent may employ agents and attorneys-in-
fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by the Collateral
Agent except to the extent such selection is the result of gross
negligence or willful misconduct of the Collateral Agent.
(d) The obligations of the Collateral Agent hereunder are
only those expressly set forth herein, in the Security Agreement
and in the Congress Intercreditor Agreement. Without limiting the
generality of the foregoing and subject to the provisions of
Section 2.2, the Collateral Agent shall not be required to take any
action with respect to any Event of Default unless it receives a
written direction from the Required Trade Creditors.
6.2 Reliance by Collateral Agent. The Collateral Agent shall
be entitled to rely conclusively upon any certification, notice or
other communication (including any thereof by telephone, telecopy,
telex, telegram or cable) believed by it in good faith to be
genuine and correct and to have been signed or sent by or on behalf
of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected
by the Collateral Agent. The Collateral Agent shall in all cases
be fully protected in acting, or in refraining from acting,
hereunder in accordance with written instructions signed by the
Required Trade Creditors and such instructions and any action taken
or failure to act pursuant thereto shall be binding on all of the
Trade Creditors. The Collateral Agent shall be entitled to rely
conclusively upon an officer's certificate of a Trade Creditor as
to the principal amount of trade credit then outstanding to that
Trade Creditor and, in the absence of such certificate, shall be
entitled to rely upon a certificate of an officer of the Company as
to the principal amount of any such trade credit then outstanding.
6.3 Default Notices. The Collateral Agent shall not be
deemed to have knowledge of the occurrence of an Event of Default
unless the Collateral Agent has received a written notice of such
Event of Default from a Trade Creditor or the Company. If the
Collateral Agent receives such a written notice of such Event of
Default, the Collateral Agent shall give prompt notice thereof to
the Trade Creditors.
6.4 Rights to Conduct Ordinary Business. The Collateral
Agent and its Affiliates may (without having to account therefor to
any Trade Creditor) accept deposits from, lend money to, act as
warrant, stock exchange or distribution agent for and generally
engage in any kind of banking, trust or other business with the
Company and any of its Affiliates as if it were not acting as the
Collateral Agent.
6.5 Failure to Act. The Collateral Agent shall in all cases
be fully justified in failing or refusing to act under this
Agreement, the Security Agreement and the Congress Intercreditor
Agreement unless it shall have received assurances to its
satisfaction from the Trade Creditors of their indemnification
obligations under Section 8.1 hereof in respect of any liability
and expense which may be incurred by the Collateral Agent by reason
of taking or continuing to take any such action.
6.6 Resignation or Removal of Collateral Agent. Subject to
the appointment and acceptance of a successor Collateral Agent as
provided below, the Collateral Agent may resign at any time by
giving at least 30 days' written notice thereof to the Trade
Creditors and the Company, such resignation to be effective upon
the acceptance of the position of Collateral Agent by a successor
Collateral Agent. The Collateral Agent may be removed at any time
with or without cause by written notice from the Required Trade
Creditors, and shall be so removed at any time the Collateral Agent
ceases to be the Secured Party under the Security Agreement. Upon
any such resignation or removal, the Required Trade Creditors shall
have the right to appoint a successor Collateral Agent which shall
be a bank or trust company selected by the Required Trade Creditors
and, so long as no Default shall have occurred and be continuing,
reasonably acceptable to the Company, if there be such an
institution willing, able and legally qualified to perform the
duties of the Collateral Agent hereunder upon reasonable or
customary terms. If, within 90 days of notice of resignation of
the Collateral Agent, a successor Collateral Agent shall not have
been appointed, the Collateral Agent may petition a court of
competent jurisdiction for the appointment of a successor
Collateral Agent. Upon the acceptance of any appointment as
Collateral Agent hereunder by a successor Collateral Agent, such
successor Collateral Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the
resigning or removed Collateral Agent, and the resigning or removed
Collateral Agent shall be discharged from its duties and
obligations hereunder. After any resigning or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the
provisions of this Section 6 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Collateral Agent. Any successor
Collateral Agent shall also be appointed as successor Secured Party
under the Security Agreement.
6.7 Additional or Separate Agents. At any time or times, in
order to comply with any legal requirement in any jurisdiction, the
Collateral Agent may appoint another bank or trust company or one
or more other persons, either to act as co-agent or co-agents,
jointly with the Collateral Agent, or to act as separate agent or
agents on behalf of the Trade Creditors, or subclasses thereof,
with such power and authority as may be necessary for the effectual
operation of the provisions hereof and may be specified in the
instrument of appointment (which may, in the discretion of the
Collateral Agent, include provisions for the protection of such co-
agent or separate agent similar to the provisions of this Section
6).
6.8 Authorization. The Collateral Agent is duly authorized
to (a) act on behalf of the Trade Creditors in accordance with the
terms of this Agreement, (b) execute and deliver the Security
Agreement and the Congress Intercreditor Agreement and (c) perform
in accordance with the terms of this Agreement, the Security
Agreement and the Congress Intercreditor Agreement.
SECTION 7
COVENANTS OF THE COMPANY
7.1 Payment of Expenses and Taxes. The Company will:
(a) pay or reimburse the Collateral Agent for all of its
reasonable out-of-pocket costs and expenses incurred in connection
with the preparation, execution and delivery of, and any amendment,
consent or waiver, supplement or modification to, this Agreement,
the Security Agreement, and the Congress Intercreditor Agreement
and other documents prepared in connection with this Agreement, the
Security Agreement, and the Congress Intercreditor Agreement and
the consummation of the transactions contemplated by this
Agreement, the Security Agreement, and the Congress Intercreditor
Agreement, including the fees and disbursements of counsel to the
Collateral Agent, such payments or reimbursements to be made, to
the extent due and payable on the date hereof and, thereafter, from
time to time upon demand;
(b) pay or reimburse the Collateral Agent on demand for all
of its reasonable costs and expenses incurred in connection with
the interpretation, enforcement or preservation of, or any waiver
of or consent with respect to, any rights under this Agreement, the
Security Agreement, and the Congress Intercreditor Agreement,
including, without limitation, the fees and disbursements of
counsel of the Collateral Agent;
(c) pay, indemnify, and hold the Collateral Agent harmless on
demand from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from, any stamp, excise
and other similar taxes, if any, which may be payable or determined
to be payable in connection with the execution and delivery of, or
consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent
under or in respect of, this Agreement, the Security Agreement and
the Congress Intercreditor Agreement; and
(d) pay to the Collateral Agent a fee for its services
provided hereunder and under the Security Agreement as set forth on
the Schedule attached hereto.
7.2 Indemnity. The Company shall indemnify the Collateral
Agent, the Trade Creditors, their Affiliates, and any such party's
officers, directors, employees, agents, attorneys-in-fact, against
any and all claims, suits, losses, penalties, demands, causes of
action and judgments of any nature whatsoever and all liabilities
and indebtedness of any and every kind and nature now or hereafter
owing, arising, due or payable, including all costs and expenses
(including, without limitation, attorneys' fees and expenses) (all
of the foregoing being herein collectively called "Indemnified
Liabilities"), which may be imposed on, incurred by or asserted
against any of them and that in any way relate to or arise out of
this Agreement, the Security Agreement and the Congress
Intercreditor Agreement or the enforcement of any of the terms
hereof or thereof including without limitation all amounts payable
by any Trade Creditor under Section 8.1 hereof; provided, however,
that the Company shall not be liable for any of the foregoing to
the extent that the liability incurred by the indemnitee has been
determined by a court of competent jurisdiction to be the result of
gross negligence or wilful misconduct of the party to be
indemnified.
7.3 Additional Secured Obligations. All amounts payable by
Company to the Collateral Agent under this Section 7 shall
constitute additional Obligations of the Company secured under the
Security Agreement and payable on demand.
7.4 Survival. The obligations of the Company under this
Section 7 shall survive the termination of this Agreement.
SECTION 8
MISCELLANEOUS
8.1 Indemnification. Each Trade Creditor will indemnify the
Collateral Agent, its Affiliates, their respective officers,
directors, employees, agents, attorneys-in-fact (to the extent not
reimbursed by the Company within 10 days of demand therefor) in the
proportion the then outstanding principal amount of Trade Credit
extended by such Trade Creditor bears to the total outstanding
principal amount of all Trade Credit for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever
which may be imposed on, incurred by or asserted against the
Collateral Agent in any way relating to or arising out of this
Agreement or the Security Agreement (including, without limitation,
the costs and expenses which the Company is obligated to pay to the
Collateral Agent hereunder or under the Security Agreement or the
enforcement of any of the terms hereof or thereof); provided,
however, that no Trade Creditor shall be liable for any of the
foregoing to the extent that the liability incurred by such
indemnitee has been determined by a court of competent jurisdiction
to be the result of gross negligence or willful misconduct of the
party to be indemnified.
8.2 Expenses as Obligations. If at any time or times
hereafter the Collateral Agent incurs expenses pursuant to action
taken pursuant to the provisions of this Agreement, the Security
Agreement, or the Congress Intercreditor Agreement, or to
intervene, file a petition, answer, complaint, motion or other
pleading in any suit or proceeding relating to this Agreement, the
Security Agreement, or the Congress Intercreditor Agreement or
relating to any Collateral, or to protect, take possession of, or
liquidate any Collateral, or to attempt to enforce any security
interest in or lien on any Collateral, or to enforce any rights of
the Collateral Agent against any other person, firm or corporation
which may be obligated to the Collateral Agent by virtue of this
Agreement, the Security Agreement, or the Congress Intercreditor
Agreement, or any other agreements, instruments or documents
contemplated hereby by the Security Agreement now or hereafter
delivered to the Collateral Agent by or for the benefit of the
Debtor, then in any of such events, all of the expenses including,
without limitation, reasonable attorneys' fees arising from such
services and any expenses, costs and charges (including costs and
expenses of servicing agents) relating to any such actions, and
interest on such sums at the prevailing Interest Rate, shall become
additional Obligations secured under the Security Agreement by the
Collateral, payable on demand.
8.3 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
8.4 Survival of Representations, Warranties and Covenants.
The representations, warranties and covenants of the Company
contained in this Agreement and in any of the Security Agreement
shall survive the date hereof.
8.5 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties
thereto may execute this Agreement by signing any such counterpart.
8.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, each party
that is or shall hereafter become a Trade Creditor hereunder and
their respective successors and permitted assigns; provided,
however, that the Company may not assign its rights or obligations
under this Agreement or the Security Agreement to any Person
without the consent of the Collateral Agent and each Trade
Creditor.
8.7 Table of Contents and Headings. The table of contents to
this Agreement and the headings of the various sections herein are
for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
8.8 WAIVER OF JURY TRIAL. THE COMPANY, THE COLLATERAL AGENT
AND THE TRADE CREDITORS HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE SECURITY AGREEMENT OR
TRANSACTIONS CONTEMPLATED THEREBY.
8.9 Severability. If any term, provision, covenant or
condition of this Agreement, or the application thereof to any
person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement, or such term, provision, covenant or
condition as applied to other persons, places and circumstances, as
applicable, shall remain in full force and effect.
8.10 Entire Agreement. This Agreement, the Security
Agreement, and the Congress Intercreditor Agreement set forth the
entire understanding among the parties with respect to the subject
matter hereof and all prior agreements, contracts, promises,
representations and statements between them, if any, whether
written or oral, with respect thereto are merged into this
Agreement.
8.11 Amendments, Etc. Except as expressly provided in
this Agreement or the Security Agreement, any provision of this
Agreement may be amended only by an instrument in writing signed by
the Company, the Collateral Agent and the Required Trade Creditors,
and any provision of this Agreement may be waived by the Collateral
Agent and the Trade Creditors, acting together; provided, however,
that any amendment hereof that does not adversely affect the
rights, privileges, immunities, duties or obligations of the
Company, shall not require the consent of the Company.
8.12 Waiver. No failure on the part of the Collateral Agent
or any Trade Creditor to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power or privilege
under this Agreement, the Security Agreement, the Congress
Intercreditor Agreement, any loan or any note shall operate as a
waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement, the Security
Agreement, the Congress Intercreditor Agreement, any loan or any
note preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by
law.
8.13 Notices and Distribution. All notices, directions and
other communications provided for herein (including, without
limitation, any waivers or consents under this Agreement) shall be
in writing, shall be sent by telecopy, telex, personal delivery,
courier or registered or certified mail, return receipt requested,
addressed to the party or parties for which intended, at the
address specified below its name on the signature pages hereto (or
such other address as any party may designate in a notice to each
other party hereto and shall be deemed to have been given when
transmission is verified (if telecopied), answered back (if
telexed), so delivered (if by personal delivery or courier) or five
Business Days after deposit thereof, postage prepaid, in a United
States Postal depository or with an authorized employee of the
United States Postal Service (if by registered or certified mail,
return receipt requested), in each case given or addressed as
aforesaid; provided that a notice of a change of address shall not
be deemed to have been given until actually received by the party
hereto distributing such communication.
8.14 Benefit of Covenants. The covenants of the Company and
the Collateral Agent set forth herein are solely for the benefit of
the Trade Creditors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above
written.
WEI ACQUISITION CO.
/s/ Eliot Cobb
By:___________________________________
Title: VP/Treasurer
ALLIANCE ENTERTAINMENT CORP.
/s/ Christopher Joyce
By:___________________________________
Title: Executive Vice President
BAKER & TAYLOR, Inc.
By Baker & Taylor Entertainment
/s/ Sherry Sawyer
By:___________________________________
Title: Vice President, Finance
BMG MUSIC DISTRIBUTION
/s/ Joseph Heslin
By:___________________________________
Title: Director of Credit
EMI MUSIC DISTRIBUTION
/s/ Scott Simons
By:___________________________________
Title: Vice President, Credit
PARAMOUNT PICTURES
/s/ Gari Ann Douglass
By:___________________________________
Title: SVP Finance & Operations-Video
POLYGRAM GROUP DISTRIBUTION, INC.
/s/ Robert M. Baker
By:___________________________________
Title: VP, Credit
RED INC.
/s/ Carl A. Schnock
Carl A. Schnock
By:___________________________________
Title: VP-Customer Financial Relations
SONY MUSIC ENTERTAINMENT, INC.
/s/ Carl A. Schnock
Carl A. Schnock
By:___________________________________
Title: VP- Customer Financial Relations
UNIVERSAL MUSIC AND VIDEO DISTRIBUTION
/s/ David Durchin
By:___________________________________
Title: VP NTL Credit
WARNER\ELEKTRA\ATLANTIC CORP.
/s/ Gregory B. Askey
By:___________________________________
Title: Senior Vice President, Credit
UNITED STATES TRUST COMPANY OF NEW YORK,
as Collateral Agent
/s/ Louis P. Young
By:___________________________________
Title: Vice President
EXHIBIT A
Agreement Regarding Additional Trade Creditor
This Agreement Regarding Additional Trade Creditor
("Agreement") is dated as of_____________, l9__ by and between
_________________ ("Additional Trade Creditor") and Wherehouse
Entertainment, Inc. ("Borrower"), as successor to WEI Acquisition
Co .
A. Certain of Borrower's trade creditors have
entered into that certain Intercreditor and Subordination
Agreement (the "Intercreditor Agreement") dated as of January __,
1997, by and among _________________, as Collateral Agent for the
trade creditors named therein ("Collateral Agent") and Congress
Financial Corporation (Western), a California corporation
("Congress").
B. Pursuant to that certain Security Agreement dated
as of January __, 1997, by and between Borrower and Collateral
Agent (the "Trade Security Agreement"), Borrower granted to
Collateral Agent, for the benefit of Trade Creditors (as defined
therein), a lien in its sale inventory and proceeds thereof.
Section ___ of the Trade Security Agreement provides that
Borrower may designate additional entities as Trade Creditors
entitled to the benefits of such lien granted pursuant to the
Trade Security Agreement.
C. The Trade Creditors who are parties to the
Intercreditor Agreement and the Trade Security Agreement have
entered into that certain [Collateral Agent Agreement] dated as
of __________, 1997 pursuant to which Collateral Agent has been
appointed by such Trade Creditors. Section ____ of the
Collateral Agent Agreement provides that Borrower may designate
additional entities as Trade Creditors for purposes of the
Collateral Agent Agreement.
D. Borrower and Additional Trade Creditor desire to
add Additional Trade Creditor as a Trade Creditor for purposes of
the Intercreditor Agreement, the Trade Security Agreement and the
Collateral Agent Agreement.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Section 1. Additional Trade Creditor acknowledges
that it has committed to extend an open line of credit to
Borrower equal to $250,000 or more and Borrower acknowledges that
the terms and conditions of this line of credit are acceptable to
it; provided, however, that nothing herein shall obligate
Additional Trade Creditor to maintain this open line of credit
for any period of time and the parties acknowledge that the
Additional Trade Creditor is free to adjust the terms and
conditions (or eliminate) this line of credit at any time.
Section 2. Additional Trade Creditor acknowledges
that it has received copies of and agrees to be bound by the
terms of the Intercreditor Agreement, the Trade Security
Agreement and the Collateral Agent Agreement and appoints
Collateral Agent pursuant to the terms of the Collateral Agent
Agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers hereunder
to duly authorize, as of the date first above written.
WHEREHOUSE ENTERTAINMENT, INC.
By:______________________________
Its:_____________________________
[ADDITIONAL TRADE CREDITOR]
By:______________________________
Its:_____________________________
<PAGE>
<PAGE>
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INTERCREDITOR AND SUBORDINATION AGREEMENT
Dated as of January 31, 1997
Among
THE TRADE CREDITORS NAMED HEREIN,
UNITED STATES TRUST COMPANY OF NEW YORK,
as COLLATERAL AGENT FOR THE TRADE CREDITORS
And
CONGRESS FINANCIAL CORPORATION (WESTERN)
--------------------------------------------------------------
<PAGE>
INTERCREDITOR AND SUBORDINATION AGREEMENT ("Agreement")
dated as of January 31, 1997, by and among ALLIANCE ENTERTAINMENT
CORP. ("Alliance"), BAKER & TAYLOR ("B&T"), BMG MUSIC
DISTRIBUTION ("BMG"), EMI MUSIC DISTRIBUTION ("EMI"), PARAMOUNT
PICTURES ("Paramount"), POLYGRAM GROUP DISTRIBUTION ("Polygram"),
RED INC. ("RED"), SONY MUSIC ENTERTAINMENT, INC. ("Sony"),
UNIVERSAL MUSIC AND VIDEO DISTRIBUTION ("Universal"), and
WARNER/ELEKTRA/ATLANTIC CORP. ("WEA") (Alliance, B&T, BMG, EMI,
Paramount, Polygram, RED, Sony, Universal, WEA and such other
trade creditors that execute an Agreement Regarding Additional
Trade Creditor pursuant to Section 3.13 are hereafter referred to
collectively as the "Trade Creditors"), UNITED STATES TRUST
COMPANY OF NEW YORK, a New York banking corporation, as
collateral agent (in such capacity, the "Collateral Agent") for
the Trade Creditors and CONGRESS FINANCIAL CORPORATION (WESTERN),
a California corporation ("Congress").
A. WEI Acquisition Co. ("Borrower") has acquired
substantially all of the assets of Wherehouse Entertainment,
Inc., debtor and debtor-in-possession, a Delaware corporation
("Seller") pursuant to that certain Asset Purchase Agreement
dated as of even date herewith between Borrower and Seller (the
"Asset Purchase Agreement"). The terms of the Asset Purchase
Agreement have been approved pursuant to the terms of the
Confirmation Plan and the Confirmation Order (as hereinafter
defined.)
B. Borrower, the Trade Creditors and the Collateral
Agent have entered into that certain Security Agreement and other
agreements, documents and instruments dated as of even date
herewith, as amended or modified from time to time (collectively,
the "Trade Financing Agreement"), pursuant to which the Trade
Creditors have agreed to extend certain trade financing to
Borrower on the terms and conditions set forth therein.
C. Pursuant to the terms of the Trade Financing
Agreement, the Borrower has granted security interests in the
Trade Collateral (as hereinafter defined) to the Collateral Agent
for the benefit of the Trade Creditors.
D. Borrower has requested that Congress enter into
various agreements with Borrower, including that certain Loan and
Security Agreement and other agreements, documents and
instruments, of even date herewith, as amended or modified from
time to time (collectively, the "Senior Loan Agreement"),
pursuant to which Congress would extend certain loans and
financial accommodations to Borrower. Pursuant to the terms of
the Senior Loan Agreement, Congress would take a security
interest in the Congress Collateral (as hereinafter defined).
E. Congress in unwilling to enter into the Senior
Loan Agreement with Borrower and to extend to Borrower the loans
contemplated thereunder unless the Trade Creditors and the
Collateral Agent enter into this Agreement.
F. The Trade Creditors and the Collateral Agent are
interested in the financial success of Borrower and will benefit
by the loans which Congress proposes to extend to Borrower under
the Senior Loan Agreement.
G. Accordingly, to induce Congress to enter into the
Senior Loan Agreement with Borrower and to extend to Borrower the
loans contemplated thereunder, all pursuant to the Confirmation
Plan and the Confirmation Order, the Trade Creditors and the
Collateral Agent are willing to enter into this Agreement with
Congress.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement,
the following terms have the meanings specified below.
"Advances" means Revolving Loans as defined in the
Senior Loan Agreement.
"Agreement" has the meaning set forth in the preamble
of this Agreement.
"Bankruptcy Case" means that Chapter 11 Case No. 95-911
(HSB) in the United States Bankruptcy Court for the District of
Delaware wherein Seller is the debtor.
"Blockage Commencement Date" has the meaning set forth
in Section 2.02 of this Agreement.
"Blockage Period" has the meaning set forth in Section
2.02 of this Agreement.
"Borrower" has the meaning set forth in the recitals of
this Agreement.
"Compliance Period" has the meaning set forth in
Section 2.03 of this Agreement.
"Confirmation Order" means the Findings of Fact,
Conclusions of Law and Order Confirming Debtor's First Amended
Chapter 11 Plan Under Chapter 11 of the Bankruptcy Code dated
January 7, 1997 and entered in the Bankruptcy Case.
"Confirmation Plan" means the Debtor's First Amended
Chapter 11 Plan in the Bankruptcy Case dated October 4, 1996, as
amended.
"Congress Collateral" means the "Collateral" as defined
in the Senior Loan Agreement.
"Congress Obligations" means the "Obligations" as
defined in the Senior Loan Agreement; provided, the Obligations
shall not include any Advances to the extent such Advances would,
at the time made, cause the Obligations to exceed by more than
$4,000,000 the maximum amount Borrower may be entitled to borrow
or be obligated to repay under the formulas set forth in Sections
2.1 and 2.2 of the Senior Loan Agreement and Congress has actual
knowledge that such Advances exceed such amount.
"Default Notice" has the meaning set forth in Section
2.02 of this Agreement.
"Enforcement Action" has the meaning set forth in
Section 2.02 of this Agreement.
"Expired Blockage Days" has the meaning set forth in
Section 2.03 hereof.
"Majority Trade Creditors" means the holders of at
least 66-2/3% in dollar amount of the Trade Obligations existing
at a point in time when measured.
"Person" means any individual, corporation,
partnership, limited liability company, limited liability
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Seller" has the meaning set forth in the recitals to
this Agreement.
"Senior Loan Agreement" has the meaning set forth in
the recitals of this Agreement.
"Subsidiary" means any person at least a majority of
the outstanding voting securities or other voting interests of
which is at the time owned or controlled directly or indirectly
by any of the Company, Seller, or one or more Subsidiaries.
"Trade Collateral" means the collateral the Collateral
Agent was granted a security interest in for the benefit of the
Trade Creditors as set forth in Exhibit A hereto.
"Trade Default" has the meaning set forth in Section
2.02 of this Agreement.
"Trade Obligations" means all obligations of Borrower
to the Trade Creditors pursuant to the terms of the Trade
Financing Agreement.
SECTION 1.02. Terms Generally. The definitions in
Section 1.01 shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without
limitation". All references herein to Articles and Sections shall
be deemed references to Articles and Sections of this Agreement
unless the context shall otherwise require.
ARTICLE II.
INTERCREDITOR ARRANGEMENTS
SECTION 2.01. Priority of Security Interests. Each of
the Trade Creditors and the Collateral Agent hereby agrees that
any security interest, lien, or other right or interest in the
Congress Collateral acquired by any of them at any time, present
or future, shall at all times prior to the indefeasible payment
and satisfaction in full of the Congress Obligations be junior,
subordinate and subject to any present or future security
interest, lien or other right or interest Congress now has or may
hereafter acquire in the Congress Collateral. The subordination
provided in this Section 2.01 shall apply irrespective of the
time or order of attachment or perfection of any security
interest, irrespective of the time or order of filing or
recording of any financing statement or other document, and
irrespective of any statute, rule, law, or court decision to the
contrary.
SECTION 2.02. Standstill of Enforcement Remedies Upon
Default Under Trade Obligations. Except as provided below, upon
the occurrence of any default with respect to any Trade
Obligations or any other secured obligation owing to any Trade
Creditor, none of the Trade Creditors or the Collateral Agent may
institute an Enforcement Action (as hereinafter defined). Upon
the occurrence and during the continuance of a payment default
with respect to 25% or more of the then outstanding dollar amount
of the Trade Obligations, measured on a daily basis (a "Trade
Default"), the Collateral Agent may initiate an Enforcement
Action on behalf of the Trade Creditors against the Borrower or
Seller or with respect to the Congress Collateral (i) provided
that the Majority Trade Creditors or the Collateral Agent on
behalf of the Majority Trade Creditors shall have first given
Congress and Borrower written notice of such default and their or
its intention to exercise such Enforcement Action (a "Default
Notice"), and (ii) only after the expiration of a period (a
"Blockage Period"), commencing upon the date of the receipt by
Congress of said Default Notice (the "Blockage Commencement
Date") and ending on that date which is one hundred fifty (150)
days after the Blockage Commencement Date, minus the cumulative
number (up to a maximum of sixty (60)) Expired Blockage Days (as
hereinafter defined), if any, incurred as of the Blockage
Commencement Date within the relevant Compliance Period (as
hereinafter defined). For purposes of this Agreement, an
"Enforcement Action" means: (i) exercise any right, remedy or
power with respect to, or otherwise take any action to enforce,
any lien on or security interest in, or realize upon any Trade
Collateral or Congress Collateral; (ii) seek to have a trustee,
receiver, liquidator or similar official appointed for or over
any Trade Collateral or Congress Collateral; or (iii) pursue any
judicial action or otherwise enforce any rights or remedies in or
to any Trade Collateral or Congress Collateral. Upon the
expiration of the Blockage Period, the Majority Trade Creditors
(or the Collateral Agent on behalf and upon the direction of the
Majority Trade Creditors) may institute an action against the
Borrower, Seller or any Subsidiary to enforce the Trade
Obligations; provided, however, that in no event shall the Trade
Creditors or the Collateral Agent take any action described in
clauses (i) through (iii) of the immediately preceding sentence
if Congress has commenced or given notice of the intention to
commence an action with respect to the Congress Collateral or the
exercise of any right or remedy under this Agreement, the Senior
Loan Agreement or applicable law and the Trade Creditors or the
Collateral Agent have notice of such action, unless such Trade
Creditors or the Collateral Agent have obtained Congress' prior
written consent.
SECTION 2.03. (a) Calculation of Blockage Period. In
the event a Trade Default giving rise to a Default Notice is
cured or waived (including, for example, if Borrower has made
payments to Trade Creditors such that no amounts then due remain
unpaid with respect to at least 25% of the dollar amount of the
Trade Obligations then outstanding) after the Blockage
Commencement Date with respect to such Trade Default, but prior
to the expiration of the Blockage Period with respect to such
Trade Default, then Borrower shall promptly notify Congress in
writing of such cure or waiver, and upon Congress' receipt of
said notice, the Blockage Period with respect to said Trade
Default shall cease to run (and consequently, the conditions to
the initiation of an Enforcement Action by the Collateral Agent
which are set forth in the second sentence of Section 2.02 shall
not be deemed to have been satisfied), the number of days (up to
a maximum of sixty (60)) having elapsed between the Blockage
Commencement Date and the date of Congress' receipt of notice of
said cure or waiver being referred to as the "Expired Blockage
Days") and said number (up to a maximum of sixty (60)) of Expired
Blockage Days shall be subtracted from the one hundred fifty
(150) day period in calculating the Blockage Period with respect
to any subsequent Trade Default by Borrower, if any, during the
relevant Compliance Period, as set forth in clause (ii) of the
second sentence of Section 2.02. By way of example, if on
January 1 of a given Compliance Period, Congress receives a
Default Notice in accordance with Section 2.02, and on February 1
of that same Compliance Period, Congress receives a notice from
Borrower that the Trade Default giving rise to such Default
Notice has been cured or waived, the Blockage Period with respect
to such Trade Default shall cease to run as of February 1 and
thirty-one (31) Expired Blockage Days shall have elapsed. If on
March 1 of that same Compliance Period, Congress receives a
second Default Notice (with respect to a subsequent Trade
Default) in accordance with Section 2.02, the Blockage Period in
respect of said subsequent Trade Default shall commence on the
date of the receipt by Congress of said second Default Notice
(the second Blockage Commencement Date) and shall expire one
hundred and nineteen (119) days thereafter (representing a period
of one hundred fifty (150) days minus the thirty-one (31) Expired
Blockage Days incurred as of the second Blockage Commencement
Date). The method of calculating the applicable Blockage Period
shall be repeated in like manner, cumulating and then subtracting
the Expired Blockage Days for such subsequent Trade Default
occurring during a given Compliance Period, subject, however, to
the provisions of paragraph (b) of this Section 2.03.
(b) Expired Blockage Days shall be cumulated and
subtracted from the initial one hundred fifty (150) day maximum
blockage period in calculating the Blockage Period with respect
to any specific Trade Default in accordance with Section 2.03(a)
only within the applicable Compliance Period, and upon the
expiration date of such Compliance Period, Expired Blockage Days
accumulated prior to such expiration date shall no longer be
subtracted in calculating any Blockage Period commencing after
such expiration date. For purposes of this Agreement,
"Compliance Period" means initially the period commencing on the
date of receipt by Congress of the first Default Notice in
accordance with Section 2.02, and expiring (i) on that date which
is 364 days later, provided that no Trade Default is continuing
as of such later date, or (ii) in the event a Trade Default is
continuing as of such date, on such later date on which said
Trade Default is cured or waived. After the expiration of an
initial Compliance Period, the next (and each subsequent)
Compliance Period shall commence on the date of the receipt by
Congress of a subsequent Default Notice and shall continue until
the later to occur of (i) that date which is 364 days after the
commencement of such Compliance Period provided that no Trade
Default is continuing on such date, or (ii) the date on which
such continuing Trade Default is either cured or waived.
SECTION 2.04. Election of Remedies by Trade Creditors.
To the extent that any Trade Creditor elects to pursue its
default remedies it may otherwise have against the Trade
Collateral or the Congress Collateral, in violation of the terms
of this Agreement and the result is a material impairment of
Congress' ability to exercise its rights with respect to the
Congress Collateral, then regardless of the outcome of such
action with respect to Collateral action, such action shall
constitute an irrevocable relinquishment by such Trade Creditor
of any and all lien rights it may have against the Trade
Collateral and such Trade Creditor's actions thereafter shall be
limited to those of a general unsecured creditor.
SECTION 2.05. Remittance of Proceeds to Congress. If
any Trade Creditor, the Collateral Agent, any agent of any Trade
Creditor or the Collateral Agent, or any Person engaged by any
Trade Creditor or the Collateral Agent to sell or otherwise
dispose of the Trade Collateral or the Congress Collateral,
receives any proceeds from the sale or disposition of Congress
Collateral (regardless of whether or not such sale is made in
accordance with the terms of this Agreement) as a result of or
arising in any way from any Enforcement Action by any Person,
such Trade Creditor or Trade Creditors or Collateral Agent, as
the case may be, shall be deemed to hold any such payment or
distribution in trust for Congress' benefit. In such case, such
Trade Creditor or Collateral Agent shall immediately remit such
payment or distribution to Congress in satisfaction of the
Congress Obligations.
SECTION 2.06. Remedies of Congress. If any Trade
Creditor or the Collateral Agent attempts to violate this
Agreement (i) Congress (in Congress' or Borrower's name) or
Borrower may seek injunctive or other equitable relief to prevent
or stop such Trade Creditor's or the Collateral Agent's actions,
it being agreed that legal remedies may be inadequate and/or (ii)
Borrower may interpose as a defense or plea the making of this
Agreement, and Congress may intervene and interpose such defense
or plea in its own or Borrower's name. The remedies provided in
this Section 2.06 are not exclusive; Congress shall be entitled
to all other remedies available at law or in equity.
SECTION 2.07. Sale of Licensed Inventory by Congress;
Waiver of Rights by Trade Creditors. The parties acknowledge
that the Congress Collateral may consist of, in part, of licensed
inventory sold to Borrower by the Trade Creditors. The Trade
Creditors hereby irrevocably grant Congress the right to sell or
otherwise dispose of such licensed inventory pursuant to the
terms of the Senior Loan Agreement.
SECTION 2.08. Acknowledgement. Each of the parties
hereto hereby acknowledges and agrees that, except as otherwise
provided in this Agreement, any other party hereto may, without
notice or demand and without affecting or impairing the
obligations of such party under this Agreement, from time to time
(i) waive any default under this Agreement, the Senior Loan
Agreement or the Trade Financing Agreement, and (ii) exercise or
refrain from exercising any rights against the Borrower or any
other person under this Agreement, the Senior Loan Agreement, or
the Trade Financing Agreement.
SECTION 2.09. Obligations Hereunder Not Affected. All
rights, obligations, agreements and interests of the parties
hereto under this Agreement shall remain in full force and effect
irrespective of:
(a) any lack of validity or enforceability of the
Senior Loan Agreement or the Trade Financing Agreement;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Congress
Obligations or any other amendment or waiver of, or consent to
departure from, the Senior Loan Agreement;
(c) any exchange, release or non-perfection of any
security interest in any Congress Collateral or Trade Collateral,
or any release or amendment or waiver of, or consent or departure
from, any guaranty of all or any of the Congress Obligations or
the Trade Obligations;
(d) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, the
Borrower or any other person in respect of the Congress
Obligations or the Trade Obligations;
(e) any filing of a voluntary or involuntary bankruptcy
petition in respect of Borrower; or
(f) the invalidation or any modification whatsoever of
the Confirmation Plan or the Confirmation Order upon appeal.
If a voluntary or involuntary bankruptcy petition shall
be filed respecting Borrower none of the Trade Creditors shall
take any action themselves or shall direct the Collateral Agent
to take any action on their behalf in the bankruptcy proceeding
which might adversely affect Congress' rights and interests
respecting the Congress Obligations without the prior written
consent of Congress.
SECTION 2.10. Amendment of Trade Financing Agreement.
The Trade Financing Agreement may not be amended without the
prior written consent of Congress, if, in Congress' reasonable
determination, such amendment may impair the discretion or
ability of Congress to take any action or refrain from taking any
action permitted or contemplated by this Agreement or the Senior
Loan Agreement with respect to the Congress Collateral.
SECTION 2.11. No Action to Violate Senior Loan
Agreement. None of the Trade Creditors shall take any action or
shall direct the Collateral Agent to take any action on their
behalf which might cause Borrower to violate the Senior Loan
Agreement or any other agreement between Borrower and Congress
without the prior written consent of Congress. Nothing contained
in this Section 2.11 shall prevent the Trade Creditors or the
Collateral Agent from taking any action otherwise permitted under
this Agreement.
SECTION 2.12. Extensions, Compromises, etc. Without
having to obtain the consent of any Trade Creditor or the
Collateral Agent, Congress may grant to Borrower extensions of
the time of payment or performance, and may enter into
compromises (including releases of Congress Collateral and
settlements) with Borrower with respect to the Congress
Obligations.
SECTION 2.13. Waiver. Each of the Trade Creditors and
the Collateral Agent waives any right it may now or hereafter
have to require Congress to marshall assets, to exercise rights
or remedies in a particular manner, or to forbear from exercising
such rights and remedies in any particular manner or order.
SECTION 2.14. No Constraint on Congress. Nothing
contained in this Agreement shall preclude Congress from
discontinuing its extension of credit to Borrower (whether under
the Senior Loan Agreement or otherwise) or from taking (without
notice to the Trade Creditors, Collateral Agent, Borrower, or any
other individual or entity) any other action in respect of the
Congress Obligations or the Congress Collateral which Congress is
otherwise entitled to take with respect to the Congress
Obligations or the Congress Collateral. Among the actions which
Congress may take in accordance with this Section 2.14 are:
renewing, extending, and increasing the amount of the Congress
Obligations, otherwise changing the terms of the Congress
Obligations; settling, releasing, compromising, and collecting on
the Congress Obligations; making (and refraining from making)
other secured and unsecured loans and advances to Borrower;
amending any present or future agreement between Congress and
Borrower; and all other actions which Congress deems
advisable.
SECTION 2.15. No Constraint on Trade Creditors and
Collateral Agent. Nothing contained in this Agreement shall
preclude any Trade Creditor from discontinuing its extension of
trade financing to Borrower (whether under the Trade Financing
Agreement or otherwise) or from taking (without notice to
Congress or Borrower, or any individual or entity) any other
action in respect of the Trade Obligations which such Trade
Creditor is otherwise entitled to take as an unsecured creditor
or, from taking any action which such Trade Creditor or the
Collateral Agent, subject to this Agreement, may take with
respect to the Trade Collateral. Among the actions which any
Trade Creditor may take in accordance with this Section 2.15 are:
(1) renewing, extending, and increasing and decreasing the amount
of the Trade Obligations, (2) otherwise changing the terms of the
Trade Obligations; (3) settling, raising, compromising and
collecting on the Trade Obligations, subject to this Agreement;
(4) making (and refraining from making) other secured and
unsecured credit extensions to Borrower; (5) amending any present
or future agreement between any Trade Creditor and Borrower; and
(6) all other actions which any Trade Creditor deems advisable,
subject to this Agreement.
ARTICLE III.
MISCELLANEOUS
SECTION 3.01. Notices. All notices and other
communications provided for in this Agreement shall be in writing
and shall be delivered by hand or sent by registered or certified
mail, postage prepaid, return receipt requested, or by prepaid
telex, facsimile, telecopy, telegram (with messenger delivery
specified), or other method of electronic communication as
follows:
(i) if to Congress, to it at: Congress Financial
Corporation (Western), 225 South Lake Avenue, Suite 1000,
Pasadena, California 91101, Attention of Vicky Balmot (Telecopy
No. (818) 304-4949; Confirmation Tel. No. (818) 304-4900);
with a copy to: Kelley Drye & Warren LLP, 515 South Flower
Street, Los Angeles, California 90071, Attention of Marshall C.
Stoddard, Jr., Esq. (Telecopy No. (213) 688-8150; Confirmation
Tel. No. (213) 689-1300);
(ii) if to any of the Trade Creditors or the Collateral
Agent, as follows:
United States Trust Company of New York, 114 West 47th Street,
New York, New York 10036, Attention of Louis Young, Corporate
Trust Department (Telecopy No. (212) 852-1626; Confirmation Tel.
No. (212) 852-1671);
with a copy, in the case of any notice pursuant to this clause
(ii), to:
Larry I. Glick, P.C., 1205 Franklin Avenue, Garden City, New York
11520, Attention of Larry I. Glick, Esq. (Telecopy No. (516) 739-
0896; Confirmation Telephone No.
(516) 739-1111)); and
Michael Pedrick, Esq., Morgan, Lewis & Bockius LLP, 2000 One
Logan Square, Philadelphia, Pennsylvania 19103-6993 (Telecopy
No. (215) 963-5299; Confirmation Telephone No. (215) 963-5000)).
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed
to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by telex, telecopy or other
telegraphic communications equipment of the sender, or on the
date five Business Days after dispatch by certified or registered
mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 3.01 or in
accordance with the latest unrevoked direction from such party.
SECTION 3.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by the parties in
this Agreement shall be considered to have been relied upon by
the other parties hereto and shall survive the execution and
delivery of this Agreement, and shall continue in full force and
effect as long as any Congress Obligation is outstanding and
unpaid.
SECTION 3.03. Authority of Collateral Agent; Binding
Effect; Successors and Assigns. Each Trade Creditor hereby
represents and warrants to Congress that (i) such Trade Creditor
has duly authorized the execution and delivery of this Agreement;
(ii) the Collateral Agent is duly authorized to act for such
Trade Creditor as provided herein, (iii) the execution, delivery
and performance of this Agreement and the transactions
contemplated hereunder are all within the corporate powers of
such Trade Creditor, and are not in contravention of law or the
terms of the certificate of incorporation, by-laws or other
organizational documentation of such Trade Creditor, or any
indenture, agreement or undertaking to which such Trade Creditor
is a party or by which such Trade Creditor or any of its property
is bound and (iv) this Agreement constitutes the legal, valid and
binding obligation of such Trade Creditor, enforceable in
accordance with its terms. The Collateral Agent hereby
represents and warrants to Congress that (i) the Collateral Agent
has duly authorized the execution and delivery of this Agreement,
and (ii) the execution, delivery and performance of this
Agreement and the transactions contemplated hereunder are all
within the corporate powers of the Collateral Agent, and are not
in contravention of law or the terms of the certificate of
incorporation, by-laws or other organizational documentation of
Collateral Agent, or any indenture, agreement or undertaking to
which Collateral Agent is a party or by which Collateral Agent or
any of its property is bound. This Agreement shall become
effective when it shall have been executed by each of the parties
hereto, and thereafter shall be binding upon and inure to the
benefit of such parties and their respective successors and
permitted assigns, except that none of the parties hereto shall
have the right to assign or delegate its rights or duties
hereunder, without the prior written consent of all the other
parties; provided, however, that each of the Trade Creditors
shall be permitted to consolidate with, or merge with or into,
any person if (i) such consolidation or merger is bona fide, in
good faith and not agreed to or consummated to avoid the
prohibition on assignments contained in this Section 3.03 and
(ii) in the case of a consolidation or a merger where such Trade
Creditor is not the surviving corporation, the consolidated
corporation or the surviving corporation, as the case may be,
shall expressly assume in writing all of such Trade Creditors
rights and duties under this Agreement, in form and substance
satisfactory to the Company. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed
to include the successors and permitted assigns of such party.
Notwithstanding the foregoing, in the event that Seller shall
succeed to the obligations of Borrower under the Senior Loan
Agreement as a result of the Confirmation Plan or Confirmation
Order being overturned or otherwise modified on appeal, the
parties hereto agree that all references herein to "Borrower"
shall be deemed to be references also to "Seller", and no further
consent of the parties shall be required in order to effectuate
such change.
SECTION 3.04. Applicable Law. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE
CONFLICTS OF LAWS PROVISIONS AND PRINCIPLES OF SUCH STATE.
SECTION 3.05. Waivers; Amendments. (a) No failure or
delay of any of the parties hereto in exercising, any power or
right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any
abandonment or discontinuation of steps to enforce such a right
or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of
the parties hereunder are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or consent to any departure by
any party therefrom shall in any event be effective unless the
same shall be in writing and signed by each of the parties
hereto, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. No
notice or demand on any party hereto in any case shall entitle
such party to any other or further notice or demand in similar or
other circumstances. No failure to exercise nor any delay in
exercising on the part of any party hereto, any right, power or
privilege under this Agreement, shall operate as a waiver
thereof; further, no single or partial exercise of any right,
power or privilege under this Agreement shall preclude any other
or further exercise thereof or the exercise of any other right,
power or privilege.
(b) Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by each of the parties hereto.
Each of the parties hereto shall be bound by any waiver,
amendment or modification authorized by this Section 3.05.
SECTION 3.06. Entire Agreement. This Agreement
constitutes the entire contract among the parties relative to the
subject matter hereof. Any previous agreement among the parties
with respect to the subject matter hereof is superseded by this
Agreement.
SECTION 3.07. Waiver of Jury Trial. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (I) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
3.07.
SECTION 3.08. Severability. In the event any one or
more of the provisions contained in this Agreement should be held
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired
thereby. To the extent permissible, the parties waive any law
that renders this Agreement prohibited or unenforceable.
SECTION 3.09. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall
constitute an original but all of which when taken together shall
constitute but one contract.
SECTION 3.10. Headings. Article and Section headings
and the Table of Contents used in this Agreement are for
convenience of reference only, are not part of this Agreement and
are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 3.11. Jurisdiction: Consent to Service of
Process. (a) Each of the parties hereto irrevocably submits to
the nonexclusive jurisdiction of the United States District Court
for the Central District of California in any action or
proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be
heard and determined in such Federal court (except that Congress
shall have the right to bring any action or proceeding against
Borrower or its property in the courts of any other jurisdiction
which Congress deems necessary or appropriate in order to realize
on the Congress Collateral). Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.
(b) Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection it may now or hereafter have to
the laying of venue of any suit, action or proceeding pursuant to
this Agreement. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each of the parties hereto irrevocably consents to
service of process in the manner provided for notices in Section
3.01. Nothing in this Agreement will affect the right of any
party hereto to serve process in any other manner permitted by
law.
SECTION 3.12. Termination of Agreement. This Agreement
shall terminate upon the indefeasible payment in full of the
Congress Obligations.
SECTION 3.13. Additional Trade Creditors. Borrower
may add additional entities as Trade Creditors under this
Agreement in its discretion so long as any such additional Trade
Creditor has agreed to provide Borrower, as of the Date it is
added, with credit of $250,000 or more on terms acceptable to
Borrower. Such additional Trade Creditor shall be added as a
Trade Creditor under this Agreement effective upon the delivery
by Borrower to the Collateral Agent and Congress of an Agreement
Regarding Additional Trade Creditor in the form attached hereto
as Exhibit B, executed by Borrower and such additional Trade
Creditor. Upon delivery of such Agreement Regarding Additional
Trade Creditor, the entity designated therein as an Additional
Trade Creditor shall be deemed a Trade Creditor for all purposes
under this Agreement, entitled to all benefits and subject to all
obligations set forth in this Agreement. Notwithstanding
anything herein to the contrary, this Section 3.13 may not be
amended without the prior written consent of Borrower.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers hereunto
duly authorized, as of the date first above written.
UNITED STATES TRUST COMPANY OF
NEW YORK, AS COLLATERAL AGENT
By: /s/ Louis P. Young
--------------------------------
Its: Vice President
TRADE CREDITORS:
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Christopher Joyce
----------------------------------
Its: Executive Vice President
BAKER & TAYLOR, INC.
By Baker & Taylor Entertainment
By: /s/ Sherry Sawyer
-----------------------------------
Its: Vice President, Finance
BMG MUSIC DISTRIBUTION
By: /s/ Joseph Heslin
------------------------------------
Its: Director of Credit
EMI MUSIC DISTRIBUTION
By: /s/ Scott Simons
-------------------------------------
Its: Vice President, Credit
PARAMOUNT PICTURES
By: /s/ Gari Ann Douglass
--------------------------------------
Its: SVP Finance & Operations-VideO
<PAGE>
POLYGRAM GROUP DISTRIBUTION
By: /s/ Robert M. Baker
-------------------------------------
Its: VP, Credit
RED INC.
By: /s/ Carl A. Schnock
-------------------------------------
Its: VP-Customer Financial Relations
SONY MUSIC ENTERTAINMENT, INC.
By: /s/ Carl A. Schnock
--------------------------------------
Its: VP-Customer Financial Relations
UNIVERSAL MUSIC AND VIDEO DISTRIBUTION
By: /s/ David Durchin
---------------------------------------
Its: VP NTL Credit
WARNER/ELEKTRA/ATLANTIC CORP.
By: /s/ Gregory B. Askey
----------------------------------------
Its: Senior Vice President, Credit
CONGRESS FINANCIAL CORPORATION (WESTERN),
a California corporation
By: /s/ Donald A. McLeod
----------------------------------------
Its: Senior Vice President
<PAGE>
ACKNOWLEDGMENT OF BORROWER AND SELLER
Each of the undersigned Borrower and Seller hereby approves
of, and agrees and consents to, the foregoing Intercreditor and
Subordination Agreement, dated as of January 31, 1997 as the same
may be amended, modified or supplemented from time to time (the
"Intercreditor Agreement") among United States Trust Company of
New York, a New York banking corporation, as collateral agent for
the Trade Creditors named therein (the "Collateral Agent"), the
Trade Creditors, and Congress Financial Corporation (Western)
(the "Intercreditor Agreement"). Unless otherwise defined in
this Acknowledgment, terms defined in the Intercreditor Agreement
have the same meanings when used in this Acknowledgment.
Each of Borrower and Seller agrees to be bound by the
Intercreditor Agreement and any amendments, modifications or
supplements. Each of Borrower and Seller further agrees that the
Intercreditor Agreement may be amended by Congress, the
Collateral Agent and/or the Trade Creditors without notice to, or
the consent of, Borrower or Seller.
BORROWER
WEI ACQUISITION CO.,
a Delaware corporation
By:/s/ Eliot Cobb
----------------------------
Title: VP/Treasurer
SELLER
WHEREHOUSE ENTERTAINMENT, INC.,
Debtor and Debtor-In-Possession,
a Delaware corporation
By: /s/ Eliot Cobb
---------------------------------
Title: VP/Treasurer
<PAGE>
EXHIBIT A
Description of Trade Collateral
All of Borrower's now owned or hereafter existing
Inventory (as defined below) and all products and proceeds of
Inventory, in any form, including, without limitation, insurance
proceeds and all claims against third parties for loss or damage
to or destruction of any or all of the Inventory.
For purposes of this description: (i) "Inventory"
shall mean tangible personal property held for sale and raw
materials, work in process and materials used, produced or
consumed in business, and shall include tangible personal
property sold on a sale or return basis, tangible personal
property returned by the purchaser following a sale thereof and
tangible personal property represented by Documents of Title, but
shall not include Rental Inventory; and (ii) "Documents of Title"
shall mean a bill of lading, dock warrant, dock receipt,
warehouse receipt or order for the delivery of goods, and also
any other document which in the regular course of business or
financing is treated as adequately evidencing that the person in
possession of it is entitled to receive, hold and dispose of the
document and the goods it covers, and (iii) "Rental Inventory"
shall mean all finished merchandise of Borrower held for rental
to retail customers, provided that such merchandise has not
previously been reported to the Collateral Agent as comprising
part of Borrower's Inventory.
<PAGE>
EXHIBIT B
Agreement Regarding Additional Trade Creditor
This Agreement Regarding Additional Trade Creditor
("Agreement") is dated as of_____________, l9__ by and between
_________________ ("Additional Trade Creditor") and Wherehouse
Entertainment, Inc. ("Borrower"), as successor to WEI Acquisition
Co .
A. Certain of Borrower's trade creditors have
entered into that certain Intercreditor and Subordination
Agreement (the "Intercreditor Agreement") dated as of January __,
1997, by and among _________________, as Collateral Agent for the
trade creditors named therein ("Collateral Agent") and Congress
Financial Corporation (Western), a California corporation
("Congress").
B. Pursuant to that certain Security Agreement dated
as of January __, 1997, by and between Borrower and Collateral
Agent (the "Trade Security Agreement"), Borrower granted to
Collateral Agent, for the benefit of Trade Creditors (as defined
therein), a lien in its sale inventory and proceeds thereof.
Section ___ of the Trade Security Agreement provides that
Borrower may designate additional entities as Trade Creditors
entitled to the benefits of such lien granted pursuant to the
Trade Security Agreement.
C. The Trade Creditors who are parties to the
Intercreditor Agreement and the Trade Security Agreement have
entered into that certain [Collateral Agent Agreement] dated as
of __________, 1997 pursuant to which Collateral Agent has been
appointed by such Trade Creditors. Section ____ of the
Collateral Agent Agreement provides that Borrower may designate
additional entities as Trade Creditors for purposes of the
Collateral Agent Agreement.
D. Borrower and Additional Trade Creditor desire to
add Additional Trade Creditor as a Trade Creditor for purposes of
the Intercreditor Agreement, the Trade Security Agreement and the
Collateral Agent Agreement.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Section 1. Additional Trade Creditor acknowledges
that it has committed to extend an open line of credit to
Borrower equal to $250,000 or more and Borrower acknowledges that
the terms and conditions of this line of credit are acceptable to
it; provided, however, that nothing herein shall obligate
Additional Trade Creditor to maintain this open line of credit
for any period of time and the parties acknowledge that the
Additional Trade Creditor is free to adjust the terms and
conditions (or eliminate) this line of credit at any time.
Section 2. Additional Trade Creditor acknowledges
that it has received copies of and agrees to be bound by the
terms of the Intercreditor Agreement, the Trade Security
Agreement and the Collateral Agent Agreement and appoints
Collateral Agent pursuant to the terms of the Collateral Agent
Agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers hereunder
to duly authorize, as of the date first above written.
WHEREHOUSE ENTERTAINMENT, INC.
By:______________________________
Its:_____________________________
[ADDITIONAL TRADE CREDITOR]
By:______________________________
Its:_____________________________
<PAGE>
