Document:

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                                                             Exhibit 10(3)

                         [Solutia, Inc. Letterhead]

                                        January 23, 2001

Mr. Michael E. Miller

Dear Mike:

You have indicated a desire to retire. In order to encourage you to remain
with Solutia and manage the currently contemplated portfolio changes and the
$100 million cost reduction implementation, Solutia agrees that your
employment with Solutia during the period from the date of this letter
through January 23, 2002 (the "Employment Period") shall be on the terms and
conditions set forth in this letter.

EMPLOYMENT
During the Employment Period you will devote all business time to the duties
of employment with Solutia, acting in the best interests of Solutia and its
stockholders and engaging in no conflict of interest with Solutia.

SALARY AND BONUS ELIGIBILITY
Solutia will compensate you in accordance with the terms and conditions as
in effect immediately prior to the date of this Agreement, including
eligibility for an award for the 2001 plan year under the terms of the
Solutia Inc. Annual Incentive Plan. Any award would be paid at the same time
as awards are made to other Solutia employees under the Plan.

RETENTION PAYMENT
Additionally, if you are continuously employed by Solutia on a full-time
basis from the date of this Agreement until January 23, 2002, Solutia will
pay you the sum of $1,100,000, subject to the discretion of the ECDC
described below. Payment shall be made on March 30, 2002. In the event of
your death or permanent and total disability (which shall be determined by
the ECDC in its discretion) prior to January 23, 2002, a pro rata payment
shall be made as soon as practical to your wife if she is then living.
Notwithstanding anything to the contrary in this paragraph, you shall not be
entitled to any payment under this paragraph if prior to January 23, 2002,
you become entitled to payment under Section 6 of the Employment Agreement
between you and Solutia dated February 28, 1998.

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PERFORMANCE-BASED OPTIONS
On January 23, 2001, Solutia granted you 100,000 performance-based stock
options under the Solutia Inc. Stock-Based Incentive Plan, all or part of
which will vest on January 23, 2002, provided that you have been
continuously employed by Solutia from the date of this Agreement through
January 23, 2002. The number which will vest will be determined by the ECDC
upon the recommendation of the CEO based on the evaluation of your
performance in the following areas: (i) managing certain portfolio changes;
(ii) taking appropriate steps for the strategic realignment of Solutia's
interests in its joint ventures; (iii) achieving the cost savings
contemplated by the restructuring and realignment announced by the Company
in fourth quarter 2000. Any options that do not vest on January 23, 2002
will be forfeited.

ECDC DISCRETION
It is the intention of Solutia that performance at the target level will
result in the vesting of 70,000 options on January 23, 2002. The remaining
30,000 options may be vested in the discretion of the ECDC either in
recognition of extraordinary performance or in lieu of some portion of the
$1,100,000 payment described above. For this purpose, options shall be
valued using the Black Scholes methodology with assumptions consistent with
those used for financial reporting purposes.

GENERAL
All amounts required by law to be withheld from any payment made pursuant to
this Agreement including any and all amounts required to be withheld by the
Internal Revenue Code or by the Federal Insurance Contribution Act, will be
withheld.

This Agreement will be binding upon and inure to the benefit of you and your
estate and Solutia and any successor, direct or indirect of Solutia, whether
such succession, direct or indirect of Solutia, results from a merger,
consolidation, liquidation, reorganization, purchase of securities,
acquisition of assets or otherwise.

If you are in agreement with the above, please sign in the space indicated
below.

                                    SOLUTIA INC.

                                    By: /s/ John C. Hunter
                                       ---------------------------
                                       John C. Hunter
                                       Chairman and Chief Executive Officer

Agreed to as of this 23rd day of January 2001

/s/ Michael E. Miller
--------------------------
Michael E. Miller<PAGE>   1
                                                                   EXHIBIT 10.35

                      EXTENSION OF AND FIFTH AMENDMENT TO
                        THE MANAGEMENT SERVICES AGREEMENT

        This EXTENSION OF AND FIFTH AMENDMENT TO THE MANAGEMENT SERVICES
AGREEMENT (this "Amendment") is dated as of June 30, 2000 and entered into among
WHEREHOUSE ENTERTAINMENT, INC., a Delaware corporation (the "Company"), ALVAREZ
& MARSAL, INC., a New York corporation ("A&M), A&M INVESTMENT ASSOCIATES #3 LLC,
a Delaware limited liability company (the "Affiliate") and ANTONIO C. ALVAREZ
II, and individual ("Alvarez"). Reference is made to that certain Management
Services Agreement (the "Management Services Agreement") dated as of January 31,
1997, amended by an Extension and Amendment dated as of February 1, 1998, by an
Extension of and Third Amendment dated as of April 28, 1999, and by a Fourth
Amendment dated as of April 13, 2000, among the Company, A&M, the Affiliate,
Alvarez and, with respect to Section 2(c) and 8 thereof only, Cerberus, and is
binding upon the Support Employees. All capitalized terms used herein and not
otherwise defined shall have the meaning given to such terms in the Management
Services Agreement.

                                    RECITALS

        WHEREAS, A&M, Alvarez, the Affiliate and the Company desire to extend
the term of the Management Services Agreement as provided herein;

        WHEREAS, the parties hereto agree to waive the requirement under Section
2(b) of the Management Services Agreement, as amended, for one party to notify
the other of its desire to extend the term, at least six (6) months prior to the
Second Extended Term;

        NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:

               SECTION 1. EXTENSION OF THE MANAGEMENT SERVICES

                                    AGREEMENT

        Pursuant to Section 2(b) of the Management Services Agreement, the
Company and A&M hereby agree to extend the term of the Management Services
Agreement such that the Amended Agreement shall terminate on October 14, 2001,
subject to earlier termination pursuant to Section 7 of the Amended Agreement
(such extended term the "THIRD EXTENDED TERM"); PROVIDED, HOWEVER, that at least
six months prior to the expiration of the Third Extended Term, A&M and the
Company shall notify the other as to whether it desires to extend the Third
Extended Term. If both A&M and the Company desire to extend the Third Extended
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 Third Extended Term, or if the parties are unable to
reach agreement on the terms and conditions under which the Third Extended Term
shall be extended, the Amended Agreement shall terminate on October 14, 2001,
except that 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

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Company to new management, selected by the Company. If so terminated by
expiration of the Third Extended Term, except as provided in Section 6(d) of the
Amended Agreement and except for accrued but unpaid fees due to A&M pursuant to
Section 4(a) of the Amended Agreement and amounts due pursuant to Section 5 of
the Amended Agreement, neither party shall have any further obligations to the
other either hereunder or under the Amended Agreement.

               SECTION 2. GENERAL

               (a) Reference to and Effect on the Management Services Agreement.

                      (i) On and after the effective date of this Agreement,
               each reference in the Management Services Agreement to "this
               Agreement", "hereunder", "hereof", "herein" or words of like
               import referring to the Management Services 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
               Management Services Agreement.

               (b) Amendment. No modification or amendment of, or waiver under,
this Amendment shall be valid unless in writing and signed by each of the
parties hereto.

               (c) 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.

               (d) Authorization. Each of the Company and A&M Parties represents
and warrants that its execution, delivery and performance of this Amendment has
been duly authorized by all necessary corporate action.

               (e) 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.

               (f) 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.

               (g) Tax Indemnification. A&M, Alvarez 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, Alvarez and the Support Employees furnished to the Company
pursuant to this Amendment or the Amended Agreement.

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               (h) 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.

               (i) Headings. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.

               (j) 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, A&M, the
Affiliate and Alvarez and receipt by the Company of written or telephonic
notification of such execution and authorization of delivery thereof.

               IN WITNESS THEREOF, the parties have executed this Amendment as
of the day and year first above written.

                                         ALVAREZ & MARSAL, INC.

                                         By: ___________________________
                                         Its: __________________________

                                         A&M INVESTMENT ASSOCIATES #3 LLC

                                         By: ___________________________
                                         Its: __________________________

                                         ANTONIO C. ALVAREZ II

                                         By: ___________________________
                                         Its: __________________________

                                         WHEREHOUSE ENTERTAINMENT, INC.

                                         By: ___________________________
                                         Its: __________________________

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