Exhibit 7
FORM OF
A&M STOCK PLEDGE AND ACCOUNT AGREEMENT
In order to induce XXXXXXXXX, LLC ("Secured Party") to
accept from A&M INVESTMENT ASSOCIATES #4, LLC ("Debtor") its
Secured Non-Recourse Promissory Note, dated August 28, 1997 in
the original principal amount of $2,599,998.25 (the "Non-Recourse
Promissory Note") in connection with the purchase by Debtor of
385,542 shares of common stock of Wherehouse Entertainment, Inc.
(the "Stock"), the parties hereto agree as follows:
1. Pledge; Grant of Security. Debtor hereby pledges,
hypothecates, assigns, grants, transfers, sets over and delivers
to Secured Party and hereby grants and assigns to Secured Party
with power of sale, a continuing security interest in all of
Debtor's right, title and interest in and to the Stock, together
with the certificates representing the Stock, all securities
hereafter delivered to Debtor in substitution for or in addition
to the Stock, all certificates and instruments representing or
evidencing such securities, all securities or other non-cash
property at any time and from time to time received, receivable,
or otherwise distributed in respect of any or all of the
foregoing, and all securities, cash or other property at any time
and from time to time received, receivable, or otherwise
distributed in exchange for, or in respect of, any or all of the
foregoing, all of which (to the extent received by Debtor) Debtor
shall deliver to Secured Party promptly upon receipt for
retention by Secured Party hereunder. The Stock, certificates,
instruments, securities, cash and other property which are
subject to the pledge and security interest created hereby, are
herein collectively referred to as the "Collateral".
2. Securities Account; Securities Intermediary.
(a) Credit of the Collateral to Securities
Account. Immediately following the Debtor's purchase of the
Stock, Debtor shall cause the Collateral to be credited to a
securities account held in the name of Secured Party (the
"Securities Account" which term shall include any Securities
Account that Secured Party from time to time elects to replace
the then-existing Securities Account), and having account number
1020675227 at the office of Bear Xxxxxxx Securities Corp. (in
such capacity "Securities Intermediary," which term shall include
any successor Securities Intermediary appointed from time to time
by Secured Party), located at Xxx Xxxxxxxxx Xxxxxx Xxxxx,
Xxxxxxxx, Xxx Xxxx 00000-0000.
(b) Disposition of the Collateral in Securities
Account. Debtor agrees that Secured Party may, as provided in
Section 10 of this Agreement, sell or cause the sale of the
Collateral and instruct the Securities Intermediary to transfer
proceeds of such sale.
3. Security for Obligations. This Agreement secures,
and the Collateral is collateral security for, the prompt payment
or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due
but for the operation of the automatic stay under Section 362(a)
of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations
and liabilities of every nature of Debtor now or hereafter
existing under or arising out of the Term Loan Agreement dated as
of the date hereof, between the Debtor and Secured Party (the
"Term Loan Agreement"), and the Non-Recourse Promissory Note and
all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Debtor, would
accrue on such obligations), fees, expenses, indemnities or
otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or
not jointly owed with others, and whether or not from time to
time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such
payment is avoided or recovered directly or indirectly from
Secured Party as a preference, fraudulent transfer or otherwise
(all such obligations and liabilities being the "Underlying
Debt"), and all obligations of every nature of Debtor now or
hereafter existing under this Agreement (all such obligations of
Debtor, together with the Underlying Debt, being the "Secured
Obligations").
4. Representations and Warranties. Debtor represents
and warrants as follows:
(a) Authorization. Debtor has full power and
authority to grant security interests in the Collateral, and to
execute, deliver, and perform this Agreement, without the consent
or approval of any other person.
(b) Binding Obligation. This Agreement
constitutes the legally valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally.
(c) Ownership of Collateral. Except for the
security interest created by this Agreement, Debtor owns, or at
the time the Collateral comes into existence will own, the
Collateral free and clear of any lien, mortgage, pledge,
assignment, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of
the foregoing (any of the foregoing, a "Lien"). Except as may
have been filed in favor of Secured Party relating to this
Agreement, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is
on file in any filing or recording office, and the pledge and
assignment of the Collateral pursuant to this Agreement creates a
valid, perfected and first priority security interest in the
Collateral securing payment of the Secured Obligations.
(d) No Conflict. The execution, delivery and
performance by Debtor of this Agreement will not (i) violate any
provision of law applicable to Debtor, or any order, judgment or
decree of any court or other agency of government binding on
Debtor, (ii) be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default
under any contractual obligation of Debtor or (iii) result in or
require the creation or imposition of any Lien upon any of
Debtor's properties or assets.
(e) Other Information. All information
heretofore, herein or hereafter supplied to Secured Party by or
on behalf of Debtor with respect to the Collateral is accurate
and complete in all respects.
5. Voting Powers. At any time during which an Event
of Default shall not have occurred and be continuing, Debtor
shall retain and be entitled to exercise all voting powers
pertaining to the Stock or any part thereof.
6. Further Assurances. Debtor agrees that from time
to time, at the expense of Debtor, Debtor will promptly execute
and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that
Secured Party may request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, Debtor will (i) execute
and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may request, in order
to perfect and preserve the security interests granted or
purported to be granted hereby and (ii) at Secured Party's
request, appear in and defend any action or proceeding that may
affect Debtor's title to or Secured Party's security interest in
all or any part of the Collateral.
7. Transfers and Other Liens. Prior to the payment
and performance in full of the Secured Obligations, Debtor shall
not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral; or (ii) except for
the security interest created by this Agreement, create or suffer
to exist any lien upon or with respect to any of the Collateral
to secure the indebtedness or other obligations of any person or
entity; or (iii) do, or permit or suffer to be done, anything
that may impair the value of the Collateral or the security
intended to be effected hereby and shall use its best efforts to
preserve, protect and enhance the value of the Collateral.
8. Secured Party Appointed Attorney-in-Fact; Secured
Party Performance.
(a) Secured Party Appointed Attorney-in-Fact.
Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of
Debtor and in the name of Debtor, Secured Party or otherwise,
from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem
necessary or advisable to accomplish the purposes of this
Agreement or the Third-Party Account Agreement, including (a) to
file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Collateral
without the signature of Debtor and (b) to receive, endorse and
collect any instruments made payable to Debtor representing any
dividend, principal or interest payment or other distribution in
respect of the Collateral or any part thereof and to give full
discharge for the same.
(b) Performance by Secured Party. If Debtor
fails to perform any agreement contained herein, Secured Party
may itself perform, or cause performance of, such agreement, and
the expenses of Secured Party incurred in connection therewith
shall be payable by Debtor under Section 15.
9. Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default":
(a) Failure to Make Payments When Due. Failure
of Debtor to pay any principal, interest or other amount due
under the Non-Recourse Promissory Note when due, whether by
required prepayment, declaration, acceleration, demand or
otherwise, including the failure to repay the Non-Recourse
Promissory Note to the extent required under Sections 2(c) and
2(d) of the Term Loan Agreement; or
(b) Breach of Covenants. Failure of Debtor to
perform or observe any other term, covenant or agreement on
Debtor's part to be performed or observed pursuant to this
Agreement, the Term Loan Agreement or the Non-Recourse Promissory
Note within five (5) days after written notice of such failure is
given to Debtor by Secured Party; or
(c) Breach of Representation or Warranty. Any
representation or warranty made by Debtor to Secured Party in
connection with this Agreement, the Term Loan Agreement or the
Non-Recourse Promissory Note shall prove to have been false in
any material respect when made; or
(d) Resignation or Termination of Service of
Xxxxxxx X. Xxxxxxx XX to Wherehouse Entertainment, Inc. In the
event Xxxxxxx X. Xxxxxxx XX ("Xxxxxxx"), co-manager of A&M (i)
resigns from either or both of his positions as Chief Executive
Officer and Chairman of the Board of Wherehouse Entertainment,
Inc. (X) prior to the termination of that certain Management
Services Agreement, dated January 31, 1997 (the "Management
Services Agreement"), by and among WEI Acquisition Co. (presently
named Wherehouse Entertainment, Inc.), Xxxxxxx & Marsal, Inc.,
A&M Investment Associates #3, LLC, Cerberus Partners, L.P. and
Xxxxxxx or (Y) prior to any extensions of the Management Services
Agreement as provided by Section 2(b) thereof, or (ii) is
terminated from either or both such positions for cause, as
provided in the Management Services Agreement; or
(e) Breach of Management Services Agreement.
Failure of Xxxxxxx to perform or observe any material term,
covenant or agreement on Xxxxxxx'x part to be performed or
observed pursuant to the Management Services Agreement, which
failure has not been remedied 30 days after written notice of
such failure is given to Debtor by Secured Party; or
(f) Involuntary Bankruptcy, etc. (i) A court
having jurisdiction in the premises shall enter a decree or order
for relief in respect of Debtor in an involuntary case under
Title 11 of the United States Code entitled "Bankruptcy" (as now
and hereinafter in effect, or any successor thereto, the
"Bankruptcy Code") or any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, which decree or
order is not stayed; or any other similar relief shall be granted
under any applicable federal or state law or (ii) an involuntary
case shall be commenced against Debtor under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over Debtor or over all or a substantial part of Debtor's
property shall have been entered; or the involuntary appointment
of an interim receiver, trustee or other custodian of Debtor for
all or a substantial part of Debtor's property shall have
occurred; or a warrant of attachment, execution or similar
process shall have been issued against any substantial part of
the property of Debtor, and, in the case of any event described
in this clause (ii), such event shall have continued for 60 days
unless dismissed, bonded or discharged; or
(g) Voluntary Bankruptcy, etc. An order for
relief shall be entered with respect to Debtor, or Debtor shall
commence a voluntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order
for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial
part of Debtor's property.
10. Rights and Remedies.
(a) If any Event of Default shall have occurred,
all of the Secured Obligations shall immediately become due and
payable and Secured Party may exercise in respect of the
Collateral, in addition to all other rights and remedies provided
for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction
(whether or not the Code applies to the affected Collateral).
Secured Party's sole remedy in respect of the Secured Obligations
arising under the Non-Recourse Promissory Note shall be against
the Collateral. In exercising its remedies against the
Collateral, Secured Party may, upon ten (10) days' written notice
to Debtor, but without any other demand or notice whatsoever,
transfer ownership of the Stock to Secured Party in discharge of
the Secured Obligations to the extent of the Fair Market Value,
as defined in Section 10(c) of this Agreement, of the shares of
the Stock so transferred, to the extent required to pay all of
the Secured Obligations, such transfer to be free and clear of
any right or equity of redemption, which right or equity is
hereby expressly waived and released.
(b) In the event shares of the Stock are so
transferred in discharge of any or all of the Secured
Obligations, such transfer shall be applied first to the amounts
payable as set forth in Section 15 and second to the Obligations
arising in respect of the Non-Recourse Promissory Note and the
Term Loan Agreement, in each case first to liabilities for
interest and then to liabilities for principal. All rights and
remedies hereunder are in addition to whatever other rights the
parties hereto may otherwise have against one another, and no
exercise of any such rights or remedies shall be deemed to
preclude the exercise of any other rights or remedies.
(c) For purposes of this Agreement, the "Fair
Market Value" of any shares of the Stock shall mean an amount
agreed to by Debtor and Secured Party as being the fair market
value of such shares of the Stock. If Debtor and Secured Party
are unable to agree upon the Fair Market Value of the shares of
the Stock, the "Fair Market Value" of the Stock shall equal an
amount therefor determined by a majority vote of three
independent valuation firms, one each selected by A&M and Secured
Party and the third (the "Third Appraiser") selected by the two
independent valuation firms selected by A&M and Secured Party.
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 Secured Party 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
Secured Party if the determination of both of the appraisers
selected by them deviates by more or less than 10% from that of
the Third Appraiser.
(d) In the event the Fair Market Value of the
Stock exceeds the aggregate amount of the Secured Obligations,
the number of shares of Stock to be transferred to Secured Party
pursuant to Section 10(a) shall be determined by multiplying the
number of shares of Stock, by a fraction, the numerator of which
is the aggregate amount of the Secured Obligations and the
denominator of which is the aggregate Fair Market Value of the
Stock determined as provided herein, with any fractional interest
settled in cash.
11. Continuing Security Interest; Transfer of the Non-Recourse
Promissory Note. This Agreement shall create a
continuing security interest in the Collateral and shall (i)
remain in full force and effect until the payment in full of the
Secured Obligations, (ii) be binding upon Debtor, its successors
and assigns and (iii) inure, together with the rights and
remedies of Secured Party hereunder, to the benefit of Secured
Party and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), Secured
Party may assign or otherwise transfer the Non-Recourse
Promissory Note only to any affiliate of Secured Party, and such
affiliate shall thereupon become vested with all the benefits in
respect thereof granted to Secured Party herein or otherwise.
Upon the payment in full of all Secured Obligations, the security
interest granted hereby shall terminate and all rights to the
Collateral shall revert to Debtor. Upon any such termination
Secured Party will, at Debtor's expense, execute and deliver to
Debtor such documents as Debtor shall reasonably request to
evidence such termination.
12. Amendments; Etc. No amendment, modification,
termination or waiver of any provision of this Agreement, and no
consent to any departure by Debtor therefrom, shall in any event
be effective unless the same shall be in writing and signed by
Secured Party and, in the case of any such amendment or
modification, by Debtor.
13. Notices. Any communications between Secured Party
and Debtor and any notices or requests provided herein to be
given shall be given in accordance with the provisions set forth
in the Term Loan Agreement.
14. Failure or Indulgence Not Waiver. No failure or
delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further
exercise thereof or of any other power, right or privilege.
15. Expenses. Debtor will upon demand pay to Secured
Party the amount of any and all reasonable expenses, including
the reasonable fees and disbursements of counsel and of any
experts and agents, which Secured Party may incur in connection
with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection
from or other realization upon any of the Collateral, (iii) the
exercise or enforcement of any of its rights hereunder or (iv)
the failure by Debtor to perform or observe any of the provisions
hereof.
16. Severability. In case any provision in or
obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not
in any way be affected or impaired thereby.
17. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
18. Governing Law; Terms; Jurisdiction. This
Agreement and the rights and obligations of the parties hereunder
shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of New York
without regard to conflicts of laws principles, except to the
extent that the Uniform Commercial Code of the applicable
jurisdiction provides that the validity or perfection of the
security interest hereunder, or remedies hereunder, in respect of
any particular collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Non-Recourse Promissory Note, terms used
in Articles 8 and 9 of the Uniform Commercial Code in the State
of New York are used herein as therein defined. Any action or
proceeding arising out of or relating to this Agreement, the
Promissory Note or the Term Loan Agreement shall be heard and
determined in an appropriate state or federal court in the State
of New York.
19. Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY AGREES TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT, THE PROMISSORY NOTE OR THE TERM LOAN
AGREEMENT, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THE PROMISSORY NOTE AND THIS AGREEMENT AND THE
LENDER/BORROWER AND SECURED PARTY/DEBTOR RELATIONSHIP THAT IS
BEING ESTABLISHED. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction,
including without limitation, contract claims, tort claims,
breach of duty claims, and all other common law and statutory
claims. Each party hereto acknowledges that this waiver is a
material inducement to enter into a business relationship, that
each has already relied on the waiver in entering into this
Agreement, and that each will continue to rely on the waiver in
their related future dealings. Each party hereto further
warrants and represents that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT, THE PROMISSORY NOTE, THE TERM LOAN AGREEMENT OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE PROMISSORY
NOTE. In the event of litigation, this Agreement may be filed as
a written consent to a trial by the court.
20. Counterparts. This Agreement may be executed in
one or more 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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of August 28, 1997.
A&M INVESTMENT ASSOCIATES #4, LLC
By ____________________________
Name:
Title:
XXXXXXXXX, LLC
By ____________________________
Name:
Title:
