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:
10. 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.
11. TERM, RENEWAL.
(a) Original Term. Subject to the provisions of
Sections 7 and 8 and Section 2(c) below, the original term (the
"ORIGINAL TERM") of this Agreement shall commence (the
"COMMENCEMENT DATE") effective as of the date on which the POR
becomes effective and shall, unless extended pursuant to Section
2(b), terminate on October 14, 1998, or the date this Agreement
is earlier terminated in accordance with its terms (the date of
termination of this Agreement in accordance with this paragraph
being referred to as the "TERMINATION DATE").
(b) Extension. At least six months prior to the
expiration of the Original Term, A&M and the Company shall notify
the other as to whether it desires to extend the Original Term.
If both A&M and the Company desire to extend the Original Term,
they will promptly commence and pursue good faith negotiations
regarding the terms and conditions of such extension. If either
A&M or the Company does not desire to extend the Original Term,
or if the parties are unable to reach agreement on the terms and
conditions under which the Original Term shall be extended, each
of A&M and the Company shall use its best efforts and shall
provide full cooperation to the other in making a smooth
transition in the management of the Company to the new management
selected by the Company. If so terminated by expiration of the
Original Term, except as provided in Section 6(d) and except for
accrued but unpaid fees due to A&M pursuant to Section 4(a) and
amounts due pursuant to Section 5, neither party shall have any
further obligation to the other hereunder.
(c) Reimbursement of Senior Lenders. Notwithstanding
Section 2(a) above, this Agreement shall not be effective unless
and until Cerberus shall have received from the Company an
executed Reimbursement Letter Agreement in the form attached
hereto as Exhibit A.
12. SERVICES.
(a) A&M Personnel. During the term of this Agreement:
(i) A&M shall furnish the services of, and the Company shall
accept the services of, 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.
13. 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").
14. 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.
15. 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.
16. TERMINATION. This Agreement shall be terminated prior
to October 14, 1998 only as provided in this Section 7 and
Section 8.
(a) Termination by the Company for Cause. The Company
shall have the right to terminate this Agreement for cause at any
time by giving written notice to A&M and 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.
17. SALE OF THE COMPANY DURING THE FIRST YEAR. If, prior
to the first anniversary of the Commencement Date (x) (1) all or
at least 80% of the assets of the Company are sold in a single or
series of related transactions other than in the ordinary course
of business, or (2) a majority of the shares of Common Stock held
by Cerberus are sold to an unaffiliated entity in a single
transaction or series of related transactions (such sale of stock
being a "MAJORITY SALE") or (3) there shall occur a merger,
consolidation or other form of reorganization or series of
related reorganizations, and (y) after giving effect to such
transaction or transactions, the level of Cerberus' ownership
interest in the surviving entity (including a group of affiliated
surviving entities) shall be less than one-half of the level of
Cerberus' ownership interest in the Company immediately prior to
such transaction or series of transactions, and A&M shall have
provided written notice to the Company at least 30 days prior to
the occurrence of any such transaction or transactions (or within
10 days after the occurrence of any such transaction or
transactions if A&M had no prior notice thereof) that it does not
consent to such transaction or transactions, and if neither A&M
nor 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.
18. GENERAL.
(a) Amendment. No modification or amendment of, or
waiver under, this Agreement shall be valid unless in writing and
signed by each of the parties hereto.
(b) Binding Agreement. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
(c) Authorization. Each of the Company and the A&M
Parties represents and warrants that its execution, delivery and
performance of this Agreement has been duly authorized by all
necessary corporate action.
(d) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York without regard to conflict of law principles.
(e) Severability. If any term, provision, covenant or
restriction herein is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated thereby.
(f) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given when delivered personally or sent by
overnight courier express service or two days after having been
deposited in the United States mail, registered or certified,
return receipt requested, postage prepaid, addressed as follows:
(1) If to the A&M Parties, to:
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.
/s/ Xxxxxxx X. Xxxxxxx
By: _____________________________
Its: Vice President
A&M INVESTMENT ASSOCIATES #3, LLC
/s/ Xxxxxxx X. Xxxxxxx
By: _____________________________
Its: Manager
XXXXXXX X. XXXXXXX
/s/ Xxxxxxx X. Xxxxxxx
_________________________________
WEI ACQUISITION CO.
/s/ Xxx Xxxxxxxxx
By: _____________________________
Its: Chief Financial Officer and
Secretary
Accepted and agreed with respect
to Sections 2(c) and 8 only:
CERBERUS PARTNERS, L.P.
/s/ Xxxxxxx Xxxxxxxx
By: _________________________________
Its: General Partner
EXHIBIT C
XXXXXXX PROMISSORY NOTE DUE JANUARY 31, 2004
$5,340,000 January 31, 0000
Xxx Xxxx, Xxx Xxxx
XXXXXXX X. XXXXXXX XX ("PAYOR"), for value received,
hereby promises to pay to WEI ACQUISITION CO., a Delaware
corporation ("PAYEE"), the principal sum of $5,340,000 on
January 31, 2004 (the seventh anniversary of the date of this
Note), with no mandatory interim principal or interest payments.
Interest on the unpaid principal amount hereof will
accrue from the date hereof through the fourth anniversary of the
date hereof (the "Fourth Anniversary"), at the rate of seven
percent (7%) per annum, and from the Fourth Anniversary through
maturity, at the rate of eleven percent (11%) per annum; provided
that in no event will the amount of interest due under this Note
exceed the maximum amount permitted by law. Interest due under
this Note shall be computed on the basis of a 360-day year, based
on the actual number of days elapsed. Interest due under this
Note shall compound annually and shall be due and payable at the
principal office of Payee only on the maturity of this Note.
Payor shall have the right at any time or from time to
time to prepay any of the principal amount and/or interest due
hereunder without penalty or premium.
This Note is the "Xxxxxxx Promissory Note" referred to
in that certain Management Services Agreement, dated as of
January 31, 1997, by and among Payor, Xxxxxxx & Marsal, Inc., A&M
Investment Associates #3, LLC, Cerberus Partners, L.P. and Payee
(the "MANAGEMENT SERVICES AGREEMENT").
Payor hereby waives presentment, demand, protest,
notice of protest and notice of dishonor.
To the full extent permitted by law, the obligations of
Payor under this Note shall not be subject to any counterclaim,
set-off, deduction, diminution, abatement, recoupment,
suspension, deferment, reduction or defense (other than the full
and strict compliance by Payor with those obligations) based on
any claim that Payor may have against Payee or any other person.
No provision of this Note may be waived, modified or
discharged orally, but only by an agreement in writing signed by
the party against whom enforcement is sought.
This Note shall be governed by and construed in
accordance with the internal laws of the State of New York
without regard to conflict of law principles.
[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, Payor has duly executed and
delivered this Note as of the date and at the place first written
above.
______________________________
XXXXXXX X. XXXXXXX XX
EXHIBIT I
DRAG ALONG AND TAG ALONG RIGHTS
Pursuant to Section 8(iv) of the Management Services
Agreement, dated as of January 31, 1997 among Xxxxxxx & Marsal,
Inc. ("A&M"), Xxxxxxx X. Xxxxxxx XX, A&M Investment Associates
#3, LLC (the "AFFILIATE"), certain other employees of A&M, WEI
Acquisition Co. (the "COMPANY") and Cerberus Partners, L.P.
("CERBERUS") (the "MANAGEMENT SERVICES AGREEMENT"), A&M and/or
the Affiliate, shall have the following drag-along and tag-along
rights:
1. Drag-Along Rights.
(i) Cerberus shall have the right (the "DRAG-
ALONG RIGHT"), but not the obligation, to cause A&M, and/or the
Affiliate, as the case may be, to tender to the third party
offeror (the "THIRD PARTY") for purchase, at the same price per
share and on the same terms and conditions as apply to Cerberus,
a number of shares of Common Stock held by A&M or the Affiliate
(the "HELD SHARES") plus the number of shares of Common Stock
subject to the A&M Options (as defined in the Management Services
Agreement) and that have an exercise price that is less than the
price per share offered by the Third Party (the "IN-THE-MONEY
OPTION SHARES") equal to (x) the total number of Held Shares and
In-the-Money Option Shares multiplied by (v) a fraction, the
numerator of which is the number of shares of Common Stock
Cerberus proposes to transfer and the denominator of which is the
total number of shares of Common Stock held by Cerberus.
(ii) If Cerberus elects to exercise its Drag-Along
Right under this Section 1, then Cerberus shall so notify the
Company and A&M in writing (the "DRAG-ALONG NOTICE"). Each Drag-
Along Notice shall set forth (i) the name of the Third Party to
which Cerberus proposes to transfer shares of Common Stock and
the number of shares of Common Stock proposed to be transferred,
(ii) the address of the Third Party, (iii) the proposed amount
and form of consideration and terms and conditions of payment
offered by the Third Party, and any other material terms
pertaining to the transfer (the "THIRD PARTY TERMS"), and (iv)
that the Third Party has been informed of the rights provided for
in this Section 1 and has agreed to purchase the Held Shares and
the In-the-Money Option Shares in accordance with the terms
hereof. The Drag-Along Notice shall be given at least thirty
(30) days before the closing of the proposed transfer.
(iii) Upon the giving of a Drag-Along Notice,
A&M and/or the Affiliate, as the case may be, shall be entitled
and obligated to sell the number of Held Shares and/or In-the-
Money Option Shares set forth therein to the Third Party on the
Third Party Terms, and neither Cerberus nor A&M or the Affiliate
shall be obligated to consummate the sale of any shares of Common
Stock if the Third Party does not purchase all Held Shares and/or
In-the-Money Option Shares which A&M and/or the Affiliate is
obligated to sell pursuant hereto.
(iv) At the closing of any transfer pursuant to
this Section 1, the Third Party shall remit to the Company the
consideration for the total sales price of the Held Shares and/or
In-the-Money Option Shares sold pursuant hereto, upon delivery by
A&M and/or the Affiliate, as the case may be (or the Company in
the case of the In-the-Money Option Shares) of certificate(s) for
such shares duly endorsed in blank for transfer or accompanied by
stock power(s) duly executed in blank, and the compliance by A&M
and/or the Affiliate, as the case may be, with all other
conditions to closing generally applicable to Cerberus (including
the provision by A&M and/or the Affiliate, as the case may be, to
the Third Party of representations and warranties covering the
same subject matter as those provided by Cerberus). The proceeds
received by the Company in respect of the Held Shares and/or In-
the-Money Option Shares shall be applied first to the payment of
the applicable exercise price of the In-the-Money Option Shares
sold to the Third-Party, second, to the repayment of the Non-
Recourse Promissory Note (as defined in the Management Services
Agreement), third, to the repayment of the Recourse Promissory
Note (as defined in the Management Services Agreement) and
fourth, the remainder shall be promptly remitted to A&M.
2. Tag-Along Rights.
(i) A&M and/or the Affiliate, as the case may be,
shall have the right (the "TAG-ALONG RIGHT") to require the
proposed purchaser in a Majority Sale (as defined in the
Management Services Agreement) to purchase from A&M and/or the
Affiliate, as the case may be, up to the number of whole Held
Shares and In-the-Money Option Shares not to exceed the number
derived by multiplying the total number of shares of Common Stock
to be purchased by the proposed purchaser(s) in such
transaction(s) from Cerberus by a fraction, the numerator of
which is the total number of Held Shares and In-the-Money Option
Shares, and the denominator of which is the total number of
Shares of Common Stock owned by Cerberus plus the total number of
Held Shares and In-the-Money Option Shares. The purchase price
for any Held Shares and/or In-the-Money Option Shares purchased
from A&M and/or the Affiliate, as the case may be, pursuant to
this Section 2 shall be the same price per share and terms and
conditions as such proposed transfer by Cerberus (the "TRANSFER
TERMS").
(ii) Cerberus shall promptly notify A&M in the
event it proposes to make a transfer pursuant to a Majority Sale
giving rise to the Tag-Along Right, and shall furnish A&M with
the Transfer Terms and a copy of any written offer or agreement
pertaining thereto. The Tag-Along Right may be exercised by A&M
and/or the Affiliate, as the case may be, by delivery of a
written notice to Cerberus (the "TAG-ALONG NOTICE") within
fifteen (15) days following its receipt of such notice from
Cerberus. The Tag-Along Notice shall state the amount of shares
that A&M and/or the Affiliate, as the case may be, proposes to
include in such transfer to the proposed purchaser (not to exceed
the number determined in accordance with clause (i) above). In
the event that the proposed purchaser does not purchase the
specified number of shares of Common Stock from A&M and/or the
Affiliate, as the case may be, on the Transfer Terms, and subject
to the same terms and conditions as are applicable to Cerberus in
such transaction, then Cerberus shall not be permitted to sell
any shares to the proposed in the proposed transfer.
(iii) The provisions of Section 1(iv) shall be
applicable to the closing of any transfer pursuant to this
Section 2.
