SECOND AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
This SECOND AMENDMENT TO MANAGEMENT SERVICES AGREEMENT (this
"AMENDMENT") is dated as of April 30, 1998, and entered into among WHEREHOUSE
ENTERTAINMENT, INC., a Delaware corporation formerly known as WEI Acquisition
Co. (the "COMPANY"), XXXXXXX & MARSAL, INC., a New York corporation ("A&M"), A&M
INVESTMENT ASSOCIATES #3, LLC, a Delaware limited liability company (the
"AFFILIATE") and XXXXXXX X. XXXXXXX XX, an individual ("XXXXXXX"). Reference is
made to that certain Management Service Agreement (the "MANAGEMENT SERVICES
AGREEMENT" and as amended hereby the "AMENDED AGREEMENT") dated as of January
31, 1997 and amended by an Extension and Amendment dated as of February 1, 1998,
among the Company, A&M, the Affiliate, Xxxxxxx and, with respect to Section 2(c)
and 8 thereof only, Cerberus, and binding upon the Support Employees. All
capitalized terms used herein and not otherwise defined shall have the meaning
given to such terms in the Management Services Agreement and the POR.
RECITALS
WHEREAS, the POR provided for the issuance of shares of the Company's
Common Stock (the "COMMON STOCK") to holders of certain Allowed Claims against
the Company's predecessor; and
WHEREAS, the Management Services Agreement currently provides that the
number of Shares to be sold to the Affiliate, pursuant to that certain Stock
Subscription Agreement dated as of January 31, 1997 (the "STOCK SUBSCRIPTION
AGREEMENT") are to be adjusted upward or downward such that the A&M Shares equal
10% of the sum of the Plan Shares and the A&M Shares, with such adjustments to
be made based on the actual number of Plan Shares, which in turn is dependent on
the resolution of Claims under the POR; and
WHEREAS, the Company is still in the process of resolving disputed
Claims under the POR; and
WHEREAS, certain holders of Claims that are entitled to receive shares
of Common Stock under the POR have expressed a preference for receiving their
POR dividend in cash and are willing to enter into settlements with the Company,
which the Company believes are in its interest, providing for payments of cash
in lieu of Common Stock; and
WHEREAS, if such holders of Claims were paid in Common Stock, as
provided for in the POR, the Affiliate would be entitled to count such shares of
Common
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Stock as Plan Shares for purposes of adjusting the number of A&M Shares under
Section 4(b) of the Management Services Agreement; and
WHEREAS, the parties believe that it would be unfair to the Affiliate
and contrary to the original intent of the parties if cash settlements with
holders of Claims entitled to receive Common Stock under the POR had the effect
of reducing the A&M Shares; and
WHEREAS, determining the number of shares of Common Stock that would
have been issued to holders of Claims that settle for cash in lieu of Common
Stock is not subject to precision since such settlements generally involve an
agreement to pay a sum certain in cash without the Company and the holder
agreeing on the correct amount of the Allowed Claim or the value per share of
the Common Stock that the holder would have received under the POR if the
Company and the holder had agreed on the amount of the Allowed Claim; and
WHEREAS, the parties believe that in order to approximate the number
of shares of Common Stock that would have been issued to holders of Claims but
for cash settlements, it is appropriate to divide the cash payments to such
holders by $8.36, which is the fully diluted value of such shares of Common
Stock as set forth in the First Amended Disclosure Statement for Debtors' First
Amended Chapter 11 Plan, as approved by the Bankruptcy Court in the Company's
predecessor's bankruptcy case, and which was used to solicit votes on the POR;
and
WHEREAS, A&M, the Affiliate, Xxxxxxx and the Company desire to amend
the Management Services Agreement to reflect the original intent of the parties
given that the settlement of Claims for cash in lieu of Common Stock was not
contemplated as of the original date of the Management Services Agreement and
the Stock Subscription Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO SECTION 4(b)(1) OF THE MANAGEMENT
SERVICES AGREEMENT
Section 4(b)(1) of the Management Services Agreement is amended to
read in full as follows:
(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 such that the
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total number of A&M Shares is equal to ten percent (10.0%) of the SUM OF:
(A) 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", (B) the QUOTIENT OF (X) the amount in dollars paid to the
Holders of Allowed General Unsecured Claims (as defined in the POR and
exclusive of Eligible Suppliers who elected the Exchange Option, also as
defined in the POR) in lieu of such Holders receiving Plan Shares DIVIDED
BY (Y) $8.36 AND (C) the total number of A&M Shares as adjusted hereby.
The foregoing adjustment shall be made periodically as deemed practicable
by the Company and the Affiliate and in any event an interim adjustment
will be made on September 30, 1998.
SECTION 2. GENERAL
(a) REFERENCE TO AND EFFECT ON THE MANAGEMENT SERVICES
AGREEMENT.
(i) On and after the effective date of this Amendment, each
reference in the Management Services Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to
the Management Services Agreement shall mean and be a reference to the
Amended Agreement; and
(ii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein or therein,
constitute a waiver of any provision of, or operate as a waiver of any
right, power or remedy of the Company under, the Management Services
Agreement or the Stock Subscription Agreement.
(b) AMENDMENT. No modification or amendment of, or waiver
under, this Amendment shall be valid unless in writing and signed by each
of the parties hereto.
(c) BINDING AGREEMENT. This Amendment and the Amended Agreement
shall inure to the benefit of and be binding upon the parties hereto and
their respective successors and assigns.
(d) AUTHORIZATION. Each of the Company, the Affiliate, A&M and
Xxxxxxx represents and warrants that its execution, delivery and
performance of this Amendment has been duly authorized by all necessary
corporate action.
(e) GOVERNING LAW. This Amendment 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.
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(f) 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 Amendment shall remain in full force and
effect and shall in no way be affected, impaired or invalidated thereby.
(g) ENTIRE AGREEMENT. This Amendment and the Amended Agreement
contain the entire understanding of the parties hereto respecting the
subject matter hereof and supersedes all prior discussions and
understandings.
(h) COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one
and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. This
Amendment shall become effective upon the execution of a counterpart hereof
by the Company, A&M, the Affiliate and Xxxxxxx and receipt by the Company
of written or telephonic notification of such execution and authorization
of delivery thereof.
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IN WITNESS THEREOF, the parties have executed this Amendment as of the
day and year first above written.
XXXXXXX & MARSAL, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
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Its: Vice President
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A&M INVESTMENT ASSOCIATES #3, LLC
By: /s/ Xxxxxxx X. Xxxxxxx
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Its: Co-Manager
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XXXXXXX X. XXXXXXX XX
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------
WHEREHOUSE ENTERTAINMENT, INC.
By: /s/ X.X. Xxxxxxxx
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Its: C.F.O.
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