[Letterhead of Cerberus Partners, L.P.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000 Fax (000) 000-0000]
Dated as of October 14, 1996
Xxxxxxx & Marsal, Inc.
000 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
Re: Interim Management Agreement
Dear Xx. Xxxxxxx:
This letter agreement sets forth our understanding with
respect to the terms and conditions under which Xxxxxxx & Marsal,
Inc. ("A&M") shall provide certain management and consulting
services to Cerberus Partners, L.P., in its capacity as the agent
(the "Agent") under that certain Credit Agreement dated as of June
11, 1992 (the "Credit Agreement") among Wherehouse Entertainment,
Inc ("WEI"), as the Borrower, the Agent and certain other lenders
(collectively, the "Senior Lenders").
As you are aware, WEI and its parent company, WEI
Holdings, Inc., are debtors and debtors-in-possession (the
"Debtors") in Case No. 95-911 (HSB) (Jointly Administered) (the
"Bankruptcy Case") currently pending in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The Debtors' First Amended Chapter 11 Plan, As Revised
for Technical Corrections on October 4, 1996 (the "Plan of
Reorganization") contemplates that the Senior Lenders will acquire
a substantial portion of the shares of common stock of the entity
that will acquire substantially all the assets of the Debtors
("Reorganized Wherehouse").
Commencing on October 14, 1996, A&M shall provide the
management and consulting services of its employee Xxxxxxx X.
Xxxxxxx on a full-time basis, as well as the services of such other
employees of A&M (the "Support Employees") as are reasonably
requested by the Agent or are necessary or appropriate to
effectively analyze the transactions contemplated by the Plan of
Reorganization and to provide for a smooth management transition to
the arrangement contemplated by the Management Services Agreement,
the current draft of which is attached hereto (the "Management
Services Agreement"), which is expected to be entered into between
Reorganized Wherehouse and A&M upon the effectiveness of the Plan
of Reorganization.
For the consulting and management services provided by
A&M under this letter agreement, the Senior Lenders shall pay A&M
a fee of (i) $50,000 per month (or a pro-rata portion thereof) for
the services of Xxxxxxx X. Xxxxxxx, plus (ii) the standard hourly
rate charged by A&M for the services of the Support Employees. The
parties understand that hourly xxxxxxxx of the Support Employees
under this letter agreement are expected to be approximately
$50,000 per month, but may be more or less than that amount. The
Senior Lenders will also reimburse A&M, Xxxxxxx and the Support
Employees for properly documented and reasonable out-of-pocket
travel, lodging and other expenses (including the reasonable fees
and expenses of outside counsel to A&M incurred in the negotiation
of the Management Services Agreement, which fees and expenses are
not expected to exceed $10,000) incurred in performing their duties
hereunder.
If A&M is not engaged by Reorganized Wherehouse under the
Management Services Agreement because (i) Cerberus, as the Agent,
does not support the Plan of Reorganization at the time of the
confirmation hearing in respect thereof in the Bankruptcy Court,
which is currently scheduled for December 13, 1996 (the
"Confirmation Hearing") and supports an alternate plan of
reorganization for the Debtors involving a third party's purchase
of the Debtors or substantially all of their businesses, and such
alternate plan is confirmed by the Bankruptcy Court, or (ii)
Cerberus, as the Agent, does support the Plan of Reorganization at
the time of the Confirmation Hearing, but the Plan of
Reorganization is not confirmed by the Bankruptcy Court prior to
February 15, 1997 and an alternate plan of reorganization for the
Debtors involving a third party's purchase of the Debtors or
substantially all of their businesses and which results in a
distribution to the Senior Lenders with a value of $65,000,000 or
more is confirmed by the Bankruptcy Court on or after February 15,
1997 but prior to July 15, 1997 (each of (i) and (ii) an "Alternate
Plan"), the Senior Lenders shall pay A&M a fee of $1,000,000 to
compensate A&M for the fact that A&M has committed to provide its
services and make the investment described in Section 4(b) of the
Management Services Agreement, and, by virtue thereof, has declined
or failed to pursue other engagements. This amount will be payable
not later than 10 business days after the date on which the
Alternate Plan is confirmed by the Bankruptcy Court.
A&M shall cease providing services pursuant to this
letter agreement on the earliest of (i) the date on which the Plan
of Reorganization becomes effective, (ii) February 15, 1997 (or
such later date as agreed to in writing by the parties) or (iii)
the date on which an Alternate Plan is confirmed by the Bankruptcy
Court.
This letter agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all such
counterparts together shall constitute one and the same instrument.
Please indicate your acceptance of the terms and
conditions of this letter agreement by executing this letter
agreement in the space provided below, as well as the enclosed copy
of this letter agreement, and returning the enclosed copy to us.
[remainder of page intentionally left blank]
By their signatures below each of the Senior Lenders
severally agrees to pay its Pro Rata Share (as defined in the
Credit Agreement) of the fees and expenses owed to A&M pursuant to
this letter agreement.
Very truly yours,
CERBERUS PARTNERS, L.P., as Agent
/s/ Xxxxxxx Xxxxxxxx
By: _____________________
Its: General Partner
By:__________________
Its:_________________
Agreed and Accepted:
XXXXXXX & XXXXXX, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------
Its: Managing Director
-------------------------
CERBERUS PARTNERS, L.P., as Agent and as a Senior Lender
By: /s/ Xxxxxxx Xxxxxxxx
-------------------------
Its: General Partner
-------------------------
CS FIRST BOSTON SECURITIES CORPORATION, as a Senior Lender
By: /s/ Xxxxx X. Xxxxxx
-------------------------
Its: MD
-------------------------
BANK OF AMERICA ILLINOIS, as a Senior Lender
By: /s/ Xxxxx X. Xxxx
--------------------------
Xxxxx X. Xxxx
Its: Attorney-in-Fact
-------------------------
