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, 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
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 00000 Xxxxxxxx
Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000-0000, 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/ Xxx Xxxxxxxxx
---------------------------------
Title Chief Financial Officer and Secretary
-------------------------------------
A&M INVESTMENT ASSOCIATES #3, LLC
By /s/ Xxxxxxx X. Xxxxxxx
--------------------------------
Title Manager
-------------------------------
x/x Xxxxxxx & Xxxxxx, Xxx.
000 Xxxxx Xxxxxx, Xxxxx 0000
----------------------------------
(Address)
Xxx Xxxx, XX 00000
----------------------------------
(City, State, Zip Code)
Notational Record of Exercise:
First A&M Option
Date Number of Shares Amount Received
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Second A&M Option
Date Number of Shares Amount Received
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Third A&M Option
Date Number of Shares Amount Received
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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]
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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: __________________________
