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, Xxxxxxx & 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.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the first date written above.
WEI ACQUISITION CO.
By /s/ Xxx Xxxxxxxxx
------------------------------
Its Chief Financial Officer and
Secretary
PURCHASER
A&M INVESTMENT ASSOCIATES #3, LLC
By /s/ Xxxxxxx X. Xxxxxxx
-------------------------------
Its Manager
Address: 000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000-0000
