FIRST AMENDMENT TO NON-TRANSFERABLE STOCK OPTION AGREEMENT
This FIRST AMENDMENT TO NON-TRANSFERABLE STOCK OPTION AGREEMENT (this
"AMENDMENT") is dated as of April 30, 1998, and entered into between WHEREHOUSE
ENTERTAINMENT, INC., a Delaware corporation formerly known as WEI Acquisition
Co. (the "COMPANY") and A&M INVESTMENT ASSOCIATES #3, LLC, a Delaware limited
liability company (the "OPTIONEE"). Reference is made to that certain
Non-Transferable Stock Option Agreement (the "STOCK OPTION AGREEMENT" and as
amended hereby the "AMENDED AGREEMENT") dated as of January 31, 1997, between
the Company and the Optionee. All capitalized terms used herein and not
otherwise defined shall have the meaning given to such terms in the Stock Option
Agreement and the POR.
RECITALS
WHEREAS, the Stock Option Agreement as originally executed does not
correctly reflect the intention of the parties with respect to the dilutive
impact of the (i) options issued to the Optionee, (ii) the shares of stock sold
to the Optionee under that certain Management Services Agreement dated as of
January 31, 1997, as amended (the "Management Services Agreement") and that
certain Stock Subscription Agreement dated as of January 31, 1997, as amended
(the "Stock Subscription Agreement"), and (iii) the Warrants issued pursuant to
the POR; and
WHEREAS, the Stock Option Agreement currently provides that the shares
of Common Stock subject to the option would be adjusted to reflect the dilutive
effect of additional shares to be issued under the POR through January 31, 1998
under the assumption that all shares of Common Stock to be issued under the POR
would be issued by January 31, 1998; and
WHEREAS, the Company is still in the process of resolving Claims under
the POR and, accordingly, all shares of Common Stock to be issued under the POR
were not issued by January 31, 1998 and will not be issued for some indefinite
period in the future; and
WHEREAS, certain holders of Claims entitled to receive Common Stock
under the POR have expressed a willingness to resolve disputes with the Company
over the proper amount of their Claims if such Claims are paid in cash in lieu
of Common Stock; and
WHEREAS, the Company believes that it is in its interest to resolve
such Claims disputes by payments of cash in lieu of Common Stock; and
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WHEREAS, if such Claims were paid in Common Stock, as provided for in
the POR, the Optionee would be entitled under the Stock Option Agreement to
adjustments increasing the number of shares of Common Stock subject to the A&M
Options and reducing the A&M Options' exercise prices; and
WHEREAS, the parties believe that it would be unfair to the Optionee
and contrary to their original intent if the Optionee did not receive an
adjustment in the number of shares of Common Stock subject to the A&M Options
and the A&M Options' exercise prices because of such settlements for cash in
lieu of Common Stock; and
WHEREAS, the Management Services Agreement is being amended
contemporaneously herewith to make a corresponding adjustment in the number of
shares of Common Stock sold to the Optionee pursuant to the Management Services
Agreement and the Stock Subscription Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO SECTION 8(a) OF THE STOCK OPTION
AGREEMENT
Section 8(a) of the Stock Option Agreement is amended to read in full
as follows:
(a) ADJUSTMENTS FOR POR DISTRIBUTIONS, SETTLEMENTS OF
CLAIMS FOR CASH, AND SHARES SOLD TO OPTIONEE. The First Option
Exercise Price, the Second Option Exercise Price and the Third Option
Exercise Price, as the case may be, and the number of Shares
purchasable under each A&M Option (such number of Shares being
referred to herein as the "UNDERLYING OPTION SHARES") shall be
adjusted as described below in order to account for: (i) any shares of
Common Stock issued by the Company (other than Common Stock issued
upon exercise of the Warrants, as defined in the POR) pursuant to
Section 5.05(a) of the POR (such shares being referred to herein as
the "POR SHARES"), (ii) the number of shares of Common Stock that
would have been issued by the Company pursuant to Section 5.05(a) of
the POR but for the prospective issuee's election to receive cash in
lieu of such shares (such number of unissued shares being referred to
herein as the "UNISSUED SHARES" and being equal to the QUOTIENT OF (A)
the amount in dollars paid to the Holders of Allowed General Unsecured
Claims (as defined in the POR and exclusive of Eligible Suppliers who
elected the Exchange Option, also as defined in the POR) in lieu of
such Holders receiving POR Shares DIVIDED BY (Y) $8.36.), (iii) the
number of shares of Common Stock sold to A&M pursuant to the
Management Services Agreement and subject to adjustment as provided
therein (the "A&M SHARES") and (iv) the Underlying Option Shares. The
adjustment
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provided in this Section 8 shall be made periodically as deemed practicable
by the Company and the Optionee and in any event an interim adjustment will
be made on September 30, 1998.
(1) The Underlying Option Shares shall be adjusted so
that they equal three and one-third percent (3 1/3%) of the
aggregate number of: (i) the POR Shares, (ii) the Unissued
Shares, (iii) the A&M Shares and (iv) the Underlying Option
Shares collectively (the "TOTAL BASELINE SHARES");
(2) The First Option Exercise Price shall be adjusted
to equal the QUOTIENT OF (A) $95,000,000 DIVIDED BY (B) the
difference between the Total Baseline Shares and the Underlying
Option Shares (as such Total Baseline Shares and Underlying
Option Shares shall have been adjusted);
(3) The Second Option Exercise Price shall be adjusted
to equal THE QUOTIENT of (A) $115,000,000 DIVIDED BY (B) the
difference between the Total Baseline Shares and the Underlying
Option Shares (as such Total Baseline Shares and Underlying
Option Shares shall have been adjusted);
(4) The Third Option Exercise Price shall be adjusted
to equal THE QUOTIENT of (A) $140,000,000 DIVIDED BY (B) the
difference between the Total Baseline Shares and the Underlying
Option Shares (as such Total Baseline Shares and Underlying
Option Shares shall have been adjusted).
SECTION 2. GENERAL
(a) REFERENCE TO AND EFFECT ON THE STOCK OPTION AGREEMENT.
(i) On and after the effective date of this Amendment, each
reference in the Stock Option Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to
the Stock Option Agreement shall mean and be a reference to the
Amended Agreement; and
(ii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein or therein,
constitute a waiver of any provision of, or operate as a waiver of any
right, power or remedy of the Company under, the Stock Option
Agreement.
(b) BINDING AGREEMENT. This Amendment and the Amended Agreement
shall inure to the benefit of and be binding upon the parties hereto and
their respective successors and assigns.
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(c) AUTHORIZATION. Each of the Company and the Optionee
represents and warrants that its execution, delivery and performance of
this Amendment has been duly authorized by all necessary corporate action.
(d) GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the internal laws of the State of New York
without regard to conflict of law principles.
(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 Amendment shall remain in full force and
effect and shall in no way be affected, impaired or invalidated thereby.
(f) ENTIRE AGREEMENT. This Amendment and the Amended Agreement
contain the entire understanding of the parties hereto respecting the
subject matter hereof and supersedes all prior discussions and
understandings.
(g) COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one
and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. This
Amendment shall become effective upon the execution of a counterpart hereof
by the Company and the Optionee and receipt by the Company of written or
telephonic notification of such execution and authorization of delivery
thereof.
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IN WITNESS THEREOF, the parties have executed this Amendment as of the
day and year first above written.
A&M INVESTMENT ASSOCIATES #3, LLC
By: /s/ Antonio C. Alvarez
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Its: Co-Manager
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WHEREHOUSE ENTERTAINMENT, INC.
By: /s/ R.S. Kelleher
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Its: C.F.O.
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