A&M STOCK PLEDGE AND ACCOUNT AGREEMENT
In order to induce XXXXXXXXX, LLC ("Secured Party") to accept from A&M
INVESTMENT ASSOCIATES #8, LLC ("Debtor") its Secured Non-Recourse Promissory
Note, dated May 28, 1998 in the original principal amount of $154,700.00 (the
"Non-Recourse Promissory Note") in connection with the purchase by Debtor of
16,000 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
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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
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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.
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, as extended or amended from time to time or (ii) is terminated from
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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,
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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.
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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
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single counterpart so that all signature pages are physically attached to the
same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of May
28, 1998.
A&M INVESTMENT ASSOCIATES #8, LLC
By:________________________________
Name:
Title:
XXXXXXXXX, LLC
By:______________________________
Name:
Title:
S-1
