WHEREHOUSE ENTERTAINMENT, INC.
THIRD AMENDMENT AND LIMITED WAIVER
TO CREDIT AGREEMENT
This THIRD AMENDMENT AND LIMITED WAIVER TO CREDIT
AGREEMENT (this "Amendment") is dated as of January 27, 1994 and
entered into by and among WHEREHOUSE ENTERTAINMENT, INC., a
Delaware corporation ("Borrower"), WEI HOLDINGS, INC., a Delaware
corporation ("Holdings"), the lenders listed on the signature
pages hereof ("Lenders") and BANKERS TRUST COMPANY, as agent for
Lenders ("Agent"), and is made with reference to that certain
Credit Agreement dated as of June 11, 1992, as amended by that
certain First Amendment to Credit Agreement dated as of November
17, 1992 and that certain Second Amendment to Credit Agreement
dated as of August 17, 1993 (as so amended, the "Credit Agree-
ment") by and among Borrower, Holdings, Lenders and Agent.
Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Borrower and Holdings have asked Lenders to,
among other things, (i) amend certain financial covenants con-
tained in the Credit Agreement and (ii) waive certain mandatory
prepayments required in connection with the issuance of equity
securities by Holdings; and
WHEREAS, subject to the terms and conditions contained
herein, Requisite Lenders are willing to amend the Credit Agree-
ment and agree to such waiver as set forth below.
NOW, THEREFORE, in consideration of the premises and
the agreements, provisions and covenants herein contained, the
parties hereto agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendments to Section 1: Definitions
A. The definition of Permitted Encumbrances contained
in subsection 1.1 of the Credit Agreement is hereby amended by
deleting the phrase "unperfected Liens on goods for sale on
consignment or a similar basis" from clause (vii) of such defini-
tion and substituting therefor the phrase "Liens on goods not
owned by Borrower but held by Borrower for sale on consignment."
B. Subsection 1.1 of the Credit Agreement is hereby
amended by inserting the following definition in alphabetical
order:
"Net Worth Adjustment Amount' means the aggregate
amount of charges (measured on an after-tax basis) to
Consolidated Net Worth made in the fourth Fiscal
Quarter of Fiscal Year 1994 for anticipated costs
related to a restructuring of Borrower which will be
substantially as described on Schedule 1.1C annexed
hereto; provided that (i) the aggregate amount of such
charges to Consolidated Net Worth shall not exceed
$40,000,000 (measured on a pre-tax basis) and (ii) the
aggregate amount of such charges which reduce Consoli-
dated Adjusted EBITDAV shall not exceed $8,500,000
(measured on a pre-tax basis):"
1.2 Amendments to Section 6: Negative Covenants
A. Subsection 6.6A of the Credit Agreement is hereby
amended by deleting the table set forth therein in its entirety
and substituting the following therefor:
Minimum Consolidated
"Fiscal Quarter Adjusted EBITDAV
--------------- --------------------
Fiscal Year 1994
----------------
Fourth Fiscal Quarter $24,000,000
Fiscal Year 1995
----------------
First Fiscal Quarter 15,100,000
Second Fiscal Quarter 16,300,000
Third Fiscal Quarter 19,600,000
Fourth Fiscal Quarter 32,000,000
Fiscal Year 1996
----------------
First Fiscal Quarter 32,700,000
Second Fiscal Quarter 33,700,000
Third Fiscal Quarter 34,600,000
Fourth Fiscal Quarter 36,900,000
Fiscal Year 1997
----------------
First Fiscal Quarter 39,500,000
Second Fiscal Quarter 40,000,000
Third Fiscal Quarter 40,100,000
Fourth Fiscal Quarter 42,000,000
Fiscal Year 1998
----------------
First Fiscal Quarter 42,500,000
Second Fiscal Quarter 43,200,000
Third Fiscal Quarter 44,000,000
Fourth Fiscal Quarter 46,500,000
B. Subsection 6.6B of the Credit Agreement is hereby
amended by (i) inserting the phrase "plus the Net Worth Adjust-
ment Amount" immediately after the phrase "Consolidated Net
Worth" and (ii) deleting the table set forth therein in its
entirety and substituting the following therefor:
Maximum
"Fiscal Quarter Leverage Ratio
--------------- --------------
Fiscal Year 1994
Fourth Fiscal Quarter 1.90 to 1.00
Fiscal Year 1995
----------------
First Fiscal Quarter 2.00 to 1.00
Second Fiscal Quarter 2.10 to 1.00
Third Fiscal Quarter 2.15 to 1.00
Fourth Fiscal Quarter 1.95 to 1.00
Fiscal Year 1996
----------------
First Fiscal Quarter 2.10 to 1.00
Second Fiscal Quarter 2.15 to 1.00
Third Fiscal Quarter 2.25 to 1.00
Fourth Fiscal Quarter 1.80 to 1.00
Fiscal Year 1997
----------------
First Fiscal Quarter 1.80 to 1.00
Second Fiscal Quarter 1.75 to 1.00
Third Fiscal Quarter 1.70 to 1.00
Fourth Fiscal Quarter 1.55 to 1.00
Fiscal Year 1998
----------------
First Fiscal Quarter 1.55 to 1.00
Second Fiscal Quarter 1.55 to 1.00
Third Fiscal Quarter 1.50 to 1.00
Fourth Fiscal Quarter 1.25 to 1.00
C. Subsection 6.6C of the Credit Agreement is hereby
amended by deleting the table set forth therein in its entirety
and substituting the following therefor:
Minimum Fixed
"Fiscal Quarter Charge Coverage Ratio
--------------- ---------------------
Fiscal Year 1994
----------------
Fourth Fiscal Quarter 0.66 to 1.00
Fiscal Year 1995
----------------
First Fiscal Quarter 0.42 to 1.00
Second Fiscal Quarter 0.44 to 1.00
Third Fiscal Quarter 0.52 to 1.00
Fourth Fiscal Quarter 0.82 to 1.00
Fiscal Year 1996
----------------
First Fiscal Quarter 0.82 to 1.00
Second Fiscal Quarter 0.83 to 1.00
Third Fiscal Quarter 0.83 to 1.00
Fourth Fiscal Quarter 0.86 to 1.00
Fiscal Year 1997
----------------
First Fiscal Quarter 0.91 to 1.00
Second Fiscal Quarter 0.92 to 1.00
Third Fiscal Quarter 0.91 to 1.00
Fourth Fiscal Quarter 0.93 to 1.00
Fiscal Year 1998
----------------
First Fiscal Quarter 0.92 to 1.00
Second Fiscal Quarter 0.94 to 1.00
Third Fiscal Quarter 0.96 to 1.00
Fourth Fiscal Quarter 1.00 to 1.00
D. Subsection 6.6D of the Credit Agreement is hereby
amended by deleting the table set forth therein in its entirety
and substituting the following therefor:
Capital
"Fiscal Year Expenditure Amount
------------ ------------------
1994 $17,000,000
1995 18,233,000
1996 19,767,000
1997 18,733,000
1998 19,267,000"
1.3 Amendments to Schedules to Credit Agreement
The Credit Agreement is hereby amended by adding
Schedule 1.1C attached to this Amendment as Schedule 1.1C to the
Credit Agreement.
Section 2. LIMITED WAIVER
The undersigned Lenders, constituting Requisite
Lenders, hereby waive compliance with the provisions of subsec-
tion 2.5A(ii)(b) of the Credit Agreement to the extent, and only
to the extent, that such provisions require a prepayment of the
Loans as a result of the receipt by Holdings or any of its
Subsidiaries of Cash Proceeds from the sale of Holdings Common
Stock to MLCP or its Affiliates contemplated by Section 3(a) of
this Amendment.
Without limiting the generality of the provisions of
subsection 10.7 of the Credit Agreement, the waiver set forth
herein shall be limited precisely as written and relates solely
to the noncompliance by Holdings and its Subsidiaries with the
provisions of subsection 2.5A(ii)(b) of the Credit Agreement in
the manner and to the extent described above, and nothing in this
Amendment shall be deemed to constitute a waiver of compliance
by Holdings or its Subsidiaries with respect to (i) subsection
2.5A(ii)(b) of the Credit Agreement in any other instance or (ii)
any other term, provision or condition of the Credit Agreement or
any other instrument or agreement referred to therein.
Section 3. CONDITIONS TO EFFECTIVENESS
Sections 1 and 2 of this Amendment shall become
effective only upon the satisfaction of all of the following
conditions precedent:
(a) Borrower shall have delivered evidence to Agent
(which evidence shall be satisfactory in form and substance
to Agent) that (i) MLCP and its Affiliates have purchased
Holdings Common Stock for a purchase price of not less than
$30,000,000 and (ii) the net Cash Proceeds to Holdings from
such purchase are not less than $29,700,000; and
(b) Agent shall have received an aggregate amendment
fee equal to the product of (i) .5% multiplied by (ii) the
sum of the respective Working Capital Loan Commitments of,
and the aggregate outstanding principal amount of Term Loans
made by, (in each case measured as of January 15, 1994) each
Lender for distribution to each Lender in proportion to such
Lender's Pro Rata Share.
Section 4. BORROWER'S AND HOLDINGS' REPRESENTATIONS
AND WARRANTIES
In order to induce Agent and Lenders to enter into this
Amendment and to amend the Credit Agreement in the mannerprovided
herein, each of Borrower and Holdings represents andwarrants to
Agent and Lenders that the following statements aretrue, correct
and complete:
A. Corporate Power and Authority. Each of Borrower
and Holdings has all requisite corporate power and authority to
enter into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "Amended Agreement").
B. Authorization of Agreements. The execution and
delivery of this Amendment and have been duly authorized by all
necessary corporate action on the part of Borrower and Holdings.
C. No Conflict. The execution and delivery by
Borrower and Holdings of this Amendment and the performance by
Borrower and Holdings of the Amended Agreement do not and will
not (i) violate any provision of any law or any governmental rule
or regulation applicable to Holdings or any of its Subsidiaries,
the Certificate or Articles of Incorporation or Bylaws of
Holdings or any of its Subsidiaries or any order, judgment or
decree of any court or other agency of government binding on
Holdings or any of its Subsidiaries, (ii) 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 Holdings or
any of its Subsidiaries, (iii) result in or require the creation
or imposition of any Lien upon any of the properties or assets of
Holdings or any of its Subsidiaries (other than any Liens created
under any of the Loan Documents in favor of Collateral Agent), or
(iv) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of
Holdings or any of its Subsidiaries.
D. Governmental Consents. The execution and delivery
by Borrower and Holdings of this Amendment and the performance by
Borrower and Holdings of the Amended Agreement do not and will
not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or
other governmental authority or regulatory body.
E. Binding Obligation. This Amendment and the
Amended Agreement have been duly executed and delivered by
Borrower and Holdings and are the legally valid and binding
obligations of Borrower and Holdings, enforceable against
Borrower and Holdings in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganiza-
tion, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating
to enforceability.
F. Incorporation of Representations and Warranties
From Credit Agreement. The representations and warranties
contained in Section 4 of the Credit Agreement are true, correct
and complete in all material respects on and as of the date
hereof to the same extent as though made on and as of such date,
except to the extent such representations and warranties specifi-
cally relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such
earlier date.
G. Absence of Default. No event has occurred and is
continuing or will result from the consummation of the transac-
tions contemplated by this Amendment that would constitute an
Event of Default or a Potential Event of Default.
Section 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement
and the Other
Loan Documents.
(i) On and after the date hereof, each reference in
the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the
Credit Agreement, and each reference in the other Loan
Documents to the "Credit Agreement", "thereunder", "thereof"
or words of like import referring to the Credit Agreement
shall mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment,
the Credit Agreement and the other Loan Documents shall
remain in full force and effect and are hereby ratified and
confirmed.
(iii)The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a
waiver of any right, power or remedy of Agent or Lenders
under, the Credit Agreement or any of the other Loan
Documents.
B. Fees and Expenses. Borrower acknowledges that all
costs, fees and expenses as described in subsection 10.3 of the
Credit Agreement incurred by Agent and its counsel with respect
to this Amendment and the documents and transactions contemplated
hereby shall be for the account of Borrower.
C. 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.
D. Applicable Law. THIS AMENDMENT 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.
E. 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 (other than the provisions of Section 1
hereof) shall become effective upon the execution of a counter-
part hereof by Borrower, Holdings and Requisite Lenders and
receipt by Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first written
above.
WHEREHOUSE ENTERTAINMENT, INC.
By: /s/ Scott Young
-------------------------
Title: Chief Executive Officer
WEI HOLDINGS, INC.
By: /s/ Scott Young
-------------------------
Title: Chief Executive Officer
BANKERS TRUST COMPANY, individually
and as Agent
By: /s/ Mary Zadroza
-------------------------
Title: Vice President
HELLER FINANCIAL, INC.
By: /s/ Andrew D. Marek
-------------------------
Title: Vice President
PRIME INCOME TRUST
By: /s/ Rafael Scolari
-------------------------
Title: Vice President
UNITED STATES NATIONAL BANK OF
OREGON
By: /s/ Janet Jordan
-------------------------
Title: Vice President
SCHEDULE 1.1C
ESTIMATED RESTRUCTURING CHARGES
NON-CASH DEPRECIATION/AMORTIZATION CHARGES
- ------------------------------------------
RENTAL INVENTORY - VHS
Write off remaining step-up $ 1,400
RENTAL INVENTORY - VHS
Change in depreciation policy $ 0
Eliminate salvage value $ 9,062
RENTAL INVENTORY - VIDEO GAMES
Change in estimated useful life $ 2,505
FIXED ASSETS & SOFTWARE
Write off remaining step-up balance $ 7,892
BENEFICIAL LEASEHOLD
Write off remaining step-up balance $ 7,041
DEFERRED REAL ESTATE & LEGAL
FEE WRITE-OFF $ 110
CAPITALIZED SALARIES WRITE-OFF $ 700
MALL STORE SIGN WRITE-OFF $ 303
--------
Subtotal Non-Cash $29,013
--------
EBITDAV DEDUCTIONS
- ------------------
OBSOLETE SUPPLIES WRITE-OFF $ 600
SALARY CONTINUATION/REORGANIZATION
TERMINATION $ 400
REORGANIZATION $ 1,800
INVENTORY WRITE DOWN $ 5,000
--------
Subtotal EBITDAV Deductions $ 7,800
--------
TOTAL RESTRUCTURING CHARGES $36,813
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