Exhibit 4
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (as it may be
amended, supplemented or otherwise modified from time to time,
the "Agreement") is entered into as of January 31, 1997 among WEI
ACQUISITION CO., a Delaware corporation (the "Company"), XXXXXXX
& MARSAL, INC., a New York corporation ("A&M"), A&M INVESTMENT
ASSOCIATES #3, LLC, a Delaware limited liability company (the
"Affiliate"), XXXXXXX X. XXXXXXX XX, an individual ("Xxxxxxx"),
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, Xxxxxxx and
the Support Employees to provide their services to the Company
upon termination of the Interim Management Agreement;
NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Retention. The Company hereby retains A&M, and its
employee, Xxxxxxx, and the Support Employees, and A&M,
Xxxxxxx and the Support Employees hereby agree to perform
services for the Company, upon the terms and subject to the
conditions hereinafter set forth.
2. Term, Renewal.
(a) Original Term. Subject to the
provisions of Sections 7 and 8 and
Section 2(c) below, the original term
(the "Original Term") of this Agreement
shall commence (the "Commencement Date")
effective as of the date on which the
POR becomes effective and shall, unless
extended pursuant to Section 2(b),
terminate on October 14, 1998, or the
date this Agreement is earlier
terminated in accordance with its terms
(the date of termination of this
Agreement in accordance with this
paragraph being referred to as the
"Termination Date").
(b) Extension. At least six months
prior to the expiration of the Original
Term, A&M and the Company shall notify
the other as to whether it desires to
extend the Original Term. If both A&M
and the Company desire to extend the
Original Term, they will promptly
commence and pursue good faith
negotiations regarding the terms and
conditions of such extension. If either
A&M or the Company does not desire to
extend the Original Term, or if the
parties are unable to reach agreement on
the terms and conditions under which the
Original Term shall be extended, each of
A&M and the Company shall use its best
efforts and shall provide full
cooperation to the other in making a
smooth transition in the management of
the Company to the new management
selected by the Company. If so
terminated by expiration of the Original
Term, except as provided in Section 6(d)
and except for accrued but unpaid fees
due to A&M pursuant to Section 4(a) and
amounts due pursuant to Section 5,
neither party shall have any further
obligation to the other hereunder.
(c) Reimbursement of Senior Lenders.
Notwithstanding Section 2(a) above, this
Agreement shall not be effective unless
and until Cerberus shall have received
from the Company an executed
Reimbursement Letter Agreement in the
form attached hereto as Exhibit A.
3. Services.
(a) A&M Personnel. During the term of
this Agreement: (i) A&M shall furnish
the services of, and the Company shall
accept the services of, Xxxxxxx, 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) Xxxxxxx 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
Xxxxxxx in the performance of his duties
hereunder; and (iv) notwithstanding the
foregoing, the parties acknowledge and
agree that each of Xxxxxxx 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 Xxxxxxx
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, Xxxxxxx 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 Xxxxxxx. Xxxxxxx agrees
to observe and comply with the policies
of the Company as adopted by the
Company's Board of Directors respecting
the performance of Xxxxxxx'x 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 Xxxxxxx and
the Support Employees, A&M is
functioning as an independent contractor
to the Company; (ii) Xxxxxxx 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
Xxxxxxx and the Support Employees and is
solely responsible for the payment of
salary, employee benefits and any other
employee compensation due Xxxxxxx 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
Xxxxxxx 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 Xxxxxxx or
any Support Employees pursuant to this
Agreement are being paid to and received
by Xxxxxxx and such Support Employees
solely as nominees for and on behalf of
A&M and not for their own account.
4. Fees; Sale of Stock; Issuance of Options.
(a) Fees. In consideration for the
services of A&M, Xxxxxxx 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 Xxxxxxx and
Xxxxxxx shall execute and deliver to the Company the Xxxxxxx
Promissory Note in the form attached hereto as Exhibit C to
evidence such loan (the "Xxxxxxx Promissory Note"); (ii)
Xxxxxxx 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) Xxxxxxx
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 Xxxxxxx and the Affiliate pursuant to clause (iv) above,
the Company shall cancel the Xxxxxxx Promissory Note and
shall deliver such cancelled note to Xxxxxxx.
(4) Voting Rights; Dividends. After the
Commencement Date, the Affiliate shall be entitled to
dividends and other distributions, voting rights and other
rights applicable to the Company's Common Stock in
accordance with the terms of the Stock Pledge Agreement.
(5) Restrictions on Transfer. The A&M Shares
shall be subject to the transfer and other restrictions set
forth in the Stock Subscription Agreement and the Stock
Pledge Agreement; provided that such restrictions shall not
limit the operation of Sections 7 and 8 of this Agreement.
(6) Registration Rights. The Affiliate shall
have the registration rights set forth in the Registration
Rights Agreement attached hereto as Exhibit G.
(c) Issuance of Options. On the
Commencement Date, the Company and A&M
or the Affiliate shall issue and deliver
to the other an executed counterpart of
the Non-Transferrable Stock Option
Agreement in the form attached hereto as
Exhibit H (the "A&M Options").
5. Expenses and Facilities. During the term of this
Agreement, the Company shall reimburse A&M, Xxxxxxx and the
Support Employees for all reasonable out-of-pocket expenses
that Xxxxxxx 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
Xxxxxxx and the Support Employees, upon presentation from
time to time of an itemized account of such expenses.
Xxxxxxx 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 Xxxxxxx
and the Support Parties in the performance of their duties
hereunder; provided that (i) in the case of Xxxxxxx, air
travel shall be (A) by business class seating if available,
or first class seating if business class seating is not
available, and (ii) in the case of the Support Employees, by
business class seating, or coach class seating if business
class seating is not available.
6. Indemnification.
(a) Indemnified Parties. Except as
otherwise expressly provided in other
provisions of this Agreement, the
Company agrees to indemnify and hold
Xxxxxxx, 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,
Xxxxxxx and the Support Employees
hereunder shall affect these
indemnification provisions, which shall
hereafter remain operative and in full
force and effect.
(e) Indemnification Under Agreement Not
Exclusive; Limitation. The rights
provided in this Section 6 shall not be
deemed exclusive of any other rights to
which the Indemnified Parties may be
entitled under the certificate of
incorporation and bylaws of the Company,
any other agreements, any vote of
stockholders or disinterested directors
of the Company, any applicable law or
otherwise, but shall nevertheless in all
respects be limited to the maximum
extent permitted by applicable law.
7. Termination. This Agreement shall be terminated prior
to October 14, 1998 only as provided in this Section 7 and
Section 8.
(a) Termination by the Company for
Cause. The Company shall have the right
to terminate this Agreement for cause at
any time by giving written notice to A&M
and Xxxxxxx. 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, Xxxxxxx'x or any Support
Employee's willful misconduct or breach
of fiduciary duty, (ii) any of A&M,
Xxxxxxx 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 Xxxxxxx such
that as so diminished Xxxxxxx'x 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 Xxxxxxx theretofore
consented to or through Xxxxxxx 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 Xxxxxxx 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
Xxxxxxx 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 Xxxxxxx. The Company
shall have the right to terminate this
Agreement at any time by giving notice
to A&M and Xxxxxxx (if not deceased) if
Xxxxxxx dies or is disabled. For
purposes of this Agreement, Xxxxxxx
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, Xxxxxxx
from performing his duties as specified
in this Agreement for a period of 60
days during any 180-day period or 90
days in any 360-day period. If the
Company shall terminate this Agreement
in accordance with this Section 7(d),
then (i) A&M or the Affiliate, as the
case may be, shall have the right to
require the Company to purchase from A&M
or the Affiliate, as the case may be,
all vested and unexercised A&M Options,
and the Company shall also have the
option to purchase all such A&M Options,
in each case for a period of 6 months
after such termination and at a sale or
purchase price equal to the then
Intrinsic Value of such A&M Options,
(ii) A&M and/or the Affiliate shall have
the right to require the Company to
purchase from A&M and/or the Affiliate
the shares of Common Stock then owned by
A&M or the Affiliate, and the Company
shall also have the option to purchase
such shares of Common Stock from A&M and
the Affiliate, in each case for a period
of 6 months after such termination and
at a sale or purchase price equal to the
then Fair Market Value of such shares of
Common Stock, which purchase price shall
be subject to the Required Application
of Proceeds, and (iii) the Company shall
be relieved of any obligation under this
Agreement to pay for the services of the
A&M Parties for periods after such
termination. The Company and A&M shall
provide the other written notice of its
intention to exercise its right to sell
or purchase the Common Stock owned by
A&M or the Affiliate or the A&M Options,
as the case may be, under clauses (i)
and (ii) above prior to the expiration
of the three month period referred to in
such clauses and the closing of the
purchase or sale of the Common Stock
owned by A&M or the Affiliate or the A&M
Options, as the case may be, shall occur
as soon as practically possible after
the giving of such notice.
(e) Definition of Fair Market Value and
Intrinsic Value. For purposes of this
Agreement, the "Fair Market Value" of
any shares of Common Stock shall mean an
amount agreed to by A&M and the Company
as being the fair market value of such
shares of Common Stock as of the date of
termination. If A&M and the Company are
unable to agree on the fair market value
of the Common Stock, the "Fair Market
Value" of the Common Stock shall equal
an amount therefor determined by a
majority vote of three independent
valuation firms, one each selected by
A&M and the Company and the third (the
"Third Appraiser") selected by the two
independent valuation firms selected by
A&M and the Company. If two of the
three appraisers cannot agree on the
Fair Market Value, the determination of
the Third Appraiser shall control. Each
of A&M and the Company shall pay the
fees and expenses of the appraiser
selected by it. The fees and expenses
of the Third Appraiser shall be paid (i)
solely by the party whose appraiser's
determination of the Fair Market Value
deviates by more than 10% from that of
the Third Appraiser, or (ii) equally by
A&M and the Company if the determination
of both of the appraisers selected by
them deviates by more or less than 10%
from that of the Third Appraiser. The
"Intrinsic Value" of the A&M Options
shall mean the difference between the
then Fair Market Value of the Common
Stock and the applicable exercise price
of the A&M Options.
8. Sale of the Company During the First Year. If, prior
to the first anniversary of the Commencement Date (x) (1)
all or at least 80% of the assets of the Company are sold in
a single or series of related transactions other than in the
ordinary course of business, or (2) a majority of the shares
of Common Stock held by Cerberus are sold to an unaffiliated
entity in a single transaction or series of related
transactions (such sale of stock being a "Majority Sale") or
(3) there shall occur a merger, consolidation or other form
of reorganization or series of related reorganizations, and
(y) after giving effect to such transaction or transactions,
the level of Cerberus' ownership interest in the surviving
entity (including a group of affiliated surviving entities)
shall be less than one-half of the level of Cerberus'
ownership interest in the Company immediately prior to such
transaction or series of transactions, and A&M shall have
provided written notice to the Company at least 30 days
prior to the occurrence of any such transaction or
transactions (or within 10 days after the occurrence of any
such transaction or transactions if A&M had no prior notice
thereof) that it does not consent to such transaction or
transactions, and if neither A&M nor Xxxxxxx theretofore
consented to or through Xxxxxxx 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 Xxxxxxx or the
Support Employees for periods after the closing of the
Majority Sale.
9. General.
(a) Amendment. No modification or
amendment of, or waiver under, this
Agreement shall be valid unless in
writing and signed by each of the
parties hereto.
(b) Binding Agreement. This Agreement
shall inure to the benefit of and be
binding upon the parties hereto and
their respective successors and assigns.
(c) Authorization. Each of the Company
and the A&M Parties represents and
warrants that its execution, delivery
and performance of this Agreement has
been duly authorized by all necessary
corporate action.
(d) Governing Law. This Agreement
shall be governed by and construed in
accordance with the internal laws of the
State of New York without regard to
conflict of law principles.
(e) Severability. If any term,
provision, covenant or restriction
herein is held by a court of competent
jurisdiction to be invalid, void or
unenforceable, the remainder of the
terms, provisions, covenants and
restrictions of this Agreement shall
remain in full force and effect and
shall in no way be affected, impaired or
invalidated thereby.
(f) Notices. All notices, requests,
demands and other communications
hereunder shall be in writing and shall
be deemed to have been duly given when
delivered personally or sent by
overnight courier express service or two
days after having been deposited in the
United States mail, registered or
certified, return receipt requested,
postage prepaid, addressed as follows:
(1) If to the A&M Parties, to:
Xxxxxxx & Marsal, Inc.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxx XX
(2) If to the Company, to:
00000 Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx Del Xxxxxxxx
with a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxx X. Xxxxx, Esq. and
C. Xxxxx Xxxxx Esq.
and a copy to:
Cerberus Partners, L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxxx
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, Xxxxxxx
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, Xxxxxxx 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 Xxxxxxx'x 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
Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx by
virtue of Xxxxxxx' 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
Xxxxxxx of any of the terms of this
Agreement will cause the Company great
and irreparable injury and damage. A&M
and Xxxxxxx 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 Xxxxxxx. 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 Xxxxxxx 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, Xxxxxxx
or any Support Employee under this
Agreement, the Promissory Notes or
otherwise, the Company is hereby
authorized by A&M, Xxxxxxx and the
Support Employees at any time or from
time to time, without notice to A&M,
Xxxxxxx 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, Xxxxxxx or any
Support Employee to the Company.
IN WITNESS THEREOF, the parties have executed this
Agreement as of the day and year first above written.
XXXXXXX & MARSAL, INC.
By: _____________________________
Its: ____________________________
A&M INVESTMENT ASSOCIATES #3, LLC
By: _____________________________
Its: ____________________________
XXXXXXX X. XXXXXXX
_________________________________
WEI ACQUISITION CO.
By: _____________________________
Its: ____________________________
Accepted and agreed with respect
to Sections 2(c) and 8 only:
CERBERUS PARTNERS, L.P.
By: _________________________________
Its: General Partner
