WHEREHOUSE ENTERTAINMENT, INC.
WEI HOLDINGS, INC.
STANDSTILL AGREEMENT
Dated as of June 16, 1995
This STANDSTILL AGREEMENT dated as of June 16, 1995 (this
"Agreement") is made in respect of the Credit Agreement dated as
of June 11, 1992, as amended by that certain First Agreement to
Credit Agreement dated as of November 17, 1992, that certain
Second Amendment to Credit Agreement dated as of August 17, 1993
and that certain Third Agreement and Limited Waiver to Credit
Agreement dated as of January 27, 1994 (as so amended, the
"Credit Agreement") among WEI Holdings, Inc. ("Holdings"),
Wherehouse Entertainment, Inc. ("Borrower"), the lenders party
thereto ("Lenders"), Bankers Trust Company, as agent for Lenders
("Agent"), and Heller Financial, Inc., as co-agent for Lenders
("Co-Agent"). Capitalized terms not defined herein shall have
the definitions ascribed to them in the Credit Agreement.
I. FINANCING ACCOMMODATIONS AND DEFAULTS.
1. The Lenders have extended Loans and made other exten-
sions of credit to Borrower. Holdings has guarantied the
Obligations pursuant to the Guaranty.
2. Holdings and Borrower (a) have failed to satisfy the
requirements of Section 6.6B of the Credit Agreement for the
fourth Fiscal Quarter of Fiscal Year 1995, (b) have failed to
satisfy the requirements of Sections 6.6A, B and C of the Credit
Agreement for the first Fiscal Quarter of Fiscal Year 1996 and
may fail to satisfy the requirements of such Sections for the
second and third Fiscal Quarters of 1996, (c) have failed to
satisfy the requirement of Section 5.1(iii) to deliver an
unqualified audit opinion with respect to the financial state-
ments for Fiscal Year 1995, (d) have advised Lenders that they
will not, through the Standstill Termination Date (as hereinafter
defined), pay interest owing under Section 2.3E of the Credit
Agreement that accrues from the date hereof at the increased
default rate to the extent that such interest exceeds interest
calculated at the non-default rate under Section 2.3A of the
Credit Agreement and (e) have advised Lenders that from the date
hereof through the Standstill Termination Date defaults under the
Subordinated Debt Documents may occur that in turn may constitute
Events of Default under Section 8.2 of the Credit Agreement (such
defaults, together with any default resulting solely from a
failure to pay principal due as a result of an acceleration of
the Obligations on account of one of the defaults described in
clauses (a)-(e) of this paragraph (but not an acceleration on
account of any other defaults), being referred to herein as the
"Designated Defaults").
3. The Designated Defaults entitle the Lenders to declare
all Loans and other Obligations to be immediately due and payable
and to commence immediate enforcement and collection actions.
Holdings and Borrower have requested that Agent and Lenders agree
to forbear from taking certain enforcement and collection
actions. Agent and Lenders have agreed to do so, but only to the
extent, and on the terms, set forth expressly below.
II. ACKNOWLEDGMENTS.
Each of Holdings and Borrower acknowledges and agrees that
Events of Default have occurred and are continuing that entitle
the Lenders and Agent to declare the Obligations immediately due
and payable.
III. REQUEST FOR FORBEARANCE.
1. Subject to the terms hereof, Agent, Collateral Agent
and Lenders agree to forbear from commencing an action to collect
the Obligations including exercising a right of setoff, institut-
ing suit, exercising collection rights and taking possession of,
or foreclosing against, the Collateral as a result of any
Designated Default until the earlier of (a) September 30, 1995
and (b) the date upon which any of the Standstill Conditions (as
hereinafter defined) is not satisfied by the applicable date set
forth in this Agreement or ceases to continue to be satisfied
(the earlier of clause (a) and (b) being referred to as the
"Standstill Termination Date"); provided that (i) Lenders, Agent
and Collateral Agent expressly reserve their rights to exercise
any and all remedies with respect to any indebtedness subordi-
nated to the obligations under the Credit Agreement (including
without limitation the Subordinated Debt), (ii) Lenders and Agent
expressly reserve the right to declare the Obligations immedi-
ately due and payable, (iii) no Loans may be converted to a
Eurodollar Rate Loan, or continued as a Eurodollar Loan and (iv)
interest shall accrue at the default rate pursuant to Section
2.3E of the Credit Agreement. For the purposes hereof, "Stand-
still Conditions" shall mean the requirements that: (A) no
Potential Event of Default or Event of Default (other than a
Designated Default) shall occur or become known to Agent or any
Lender and (B) each of the conditions set forth in Section IV of
this Agreement shall be performed or satisfied, as and when
required, TIME BEING OF THE ESSENCE in all respects.
2. Notwithstanding the existence of the Designated
Defaults, prior to September 30, 1995 (unless the Standstill
Termination Date occurs before September 30, 1995) and subject to
the terms and conditions of the Credit Agreement (except with
respect to the existence of the Designated Defaults but including
without limitation the provisions relating to the Borrowing Base
and Letter of Credit Usage), Borrower may borrow Working Capital
Loans in an aggregate principal amount up to the aggregate
Working Capital Loan Commitment of $45,000,000.
3. Borrower may not request Letters of Credit and, after
June 22, 1995, may not borrow Swing Line Loans.
IV. CERTAIN STANDSTILL CONDITIONS.
1. Holdings and Borrower (a) will maintain their cash
management system in accordance with their past practices, (b)
will maintain all cash concentration accounts at financial
institutions located in California, (c) will not open or, after
June 26, 1995, maintain any deposit account at a financial
institution located in California unless a notice satisfactory to
Agent has been sent pursuant to Section 9303(g) of the California
Uniform Commercial Code to the applicable financial institution
with respect to such account, (d) will use their reasonable best
efforts to cause each financial institution located outside
California at which Holdings or Borrower maintains a deposit
account to enter into a cash collateral agreement reasonably
satisfactory to Agent which shall provide, among other things,
that Holdings and Borrower may maintain their current cash
remittance system prior to the Termination Forbearance Date and
(e) will not open any new account at a financial institution
located outside California unless such financial institution has
entered into such agreement.
2. Borrower shall pay by June 20, 1995, the April and May
statements for the fees and expenses of O'Melveny & Myers in the
aggregate amount of $23,760.60. In addition, Borrower shall
deposit no later than June 20, 1995 with Policano & Manzo,
O'Melveny & Myers and Paul, Hastings, Janofsky and Walker
retainers in the amount of $75,000, $100,000 and $25,000,
respectively. Agent, Co-Agent and Lenders agree that, prior to
August 1, 1995, they will not submit to Borrower for payment any
additional invoices with respect to their fees and expenses;
provided that (a) all such fees and expenses shall continue to
accrue and (b) all amounts deposited as a retainer in accordance
with this paragraph IV.2 may be applied against accrued and
unpaid fees and expenses.
3. On or prior to June 26, 1995, Borrower shall deliver to
Agent and Lenders the Borrower's Fiscal Year 1996 business plan.
4. On or prior to July 10, 1995, Holdings and Borrower
shall deliver to Agent and Lenders a restructuring plan for
Holdings' and Borrower's capital structure based on and supported
by the Fiscal Year 1996 business plan delivered pursuant to
paragraph IV.3 above.
5. The aggregate amount of Inventory, as measured on the
last Business Day of each two-week period commencing June 23,
1995 and reported by Borrower to Agent and Lenders in a format
(consistent with the current systems capability) to be developed
by Borrower and Policano & Manzo, shall not be less than
$90,000,000.
6. No holder of any subordinated debt of Holdings or
Borrower (including, without limitation, the Subordinated Debt)
nor any trustee for any issue of any subordinated debt of
Holdings or Borrower (including, without limitation, the Subordi-
nated Debt) shall have accelerated any such debt or commenced any
legal proceeding in respect thereof.
7. Neither Holdings nor Borrower shall have made or set
apart any payment on account of any subordinated debt, including,
without limitation, the Subordinated Debt.
V. PENDING DISCUSSIONS.
1. Holdings and Borrower acknowledge and affirm that,
except as expressly set forth in this Agreement, Agent, Co-Agent,
Collateral Agent and the Lenders are not committing or offering
to extend any forbearance or accommodations whatsoever and
Holdings and Borrower agree to conduct their affairs accordingly.
Without limiting the generality of the foregoing, neither
Holdings nor Borrower will claim that any prior action or course
of conduct by Agent, Co-Agent, Collateral Agent or any of the
Lenders constitutes an agreement or obligation to continue such
action or course of conduct in the future.
2. Holdings, Borrower, Agent, Co-Agent and the Lenders
may, from time to time, engage in negotiations concerning the
Obligations, which may be lengthy and complex. None of Holdings,
Borrower, Agent and the Lenders shall have any obligation to
modify, amend and/or restructure the Obligations or any of the
Loan Documents in connection with the negotiations or otherwise.
Each of Agent, Co-Agent and the Lenders may terminate the negoti-
ations at any time, in their sole discretion, with or without
notice, and without liability of any kind. Unless a written
agreement as described in paragraph V.3 hereof is executed and
delivered by each of the applicable parties, none of Holdings,
Borrower, Agent, Co-Agent and the Lenders (including the Agent)
shall have any obligation or liability by virtue of the commence-
ment, prosecution or termination of negotiations concerning the
Obligations and/or the Loan Documents. None of Agent, Co-Agent
and the Lenders shall waive any rights or incur any liability by
negotiation or by the passage of time associated therewith unless
and until a written agreement as described in paragraph V.3
hereof is executed and delivered by Holdings, Borrower, Agent,
Co-Agent and the Lenders.
Holdings, Borrower, Agent, Co-Agent and the Lenders
each acknowledge that the negotiations are in the nature of
settlement negotiations, and therefore statements made in the
course of negotiations may not be used for any other purposes
including, without limitation, proof of admissions of liability
or for other evidentiary purposes.
Subject only to the terms of this Agreement (including,
without limitation, Section II hereof) and subject to any
applicable notice, grace or cure periods, Agent, Collateral Agent
and Lenders, may exercise any right or remedy available to them
pursuant to the Loan Documents or by applicable law or in equity
during the pendency of the negotiations contemplated herein, and
nothing herein shall operate to restrict, inhibit or prohibit
Agent, Collateral Agent and the Lenders, from exercising any such
right or remedy or from the prosecution or continued prosecution
of any action or proceeding against Holdings, Borrower and/or the
Collateral in furtherance of the foregoing.
3. While Holdings, Borrower, Agent, Co-Agent and the
Lenders may reach agreement on one or more preliminary issues
that are part of the overall issues such parties are trying to
resolve, Holdings, Borrower, Agent, Co-Agent and the Lenders have
agreed that (except with respect to any written agreement
executed by the parties expressly waiving this paragraph V.3 for
the purposes of such agreement) none of Holdings, Borrower,
Agent, Co-Agent and the Lenders shall be bound by any agreement
on individual issues until (a) agreement is reached on all issues
and the agreement so states, and (b) such agreement on all issues
has been reduced to a written agreement executed and delivered by
both Holdings, Borrower, Agent, Co-Agent and the Lenders (such a
written agreement complying with (a) and (b) is hereinafter
referred to as a "Restructuring Agreement"). Furthermore, in
order to avoid any confusion or misunderstanding, each of
Holdings, Borrower, Agent, Co-Agent and the Lenders also agrees
that this Agreement may only be amended in writing. Without
limiting the generality of the foregoing, any of Holdings,
Borrower, Agent, Co-Agent or the Lenders may prepare or cause to
be prepared term sheets or memoranda outlining or describing
their discussions and/or proposals made in connection with those
discussions. None of the preparation, distribution, response to
or failure to respond to any such document shall constitute an
agreement or the basis on which any party may claim reliance on
any agreement unless and until a Restructuring Agreement is
executed and delivered by the parties hereto.
4. The Loan Documents are in full force and effect, and
shall remain in full force and effect and until a Restructuring
Agreement modifying the Loan Documents is executed and delivered
by the applicable parties, and then only to the extent the
Restructuring Agreement actual modifies such Loan Documents.
VI. WAIVER DATED AS OF MAY 11, 1995.
Notwithstanding anything to the contrary contained in that
certain Limited Waiver dated as of May 11, 1995 (the "Limited
Waiver") by and among Holdings, Borrower, Agent and Lenders
constituting Requisite Lenders, upon the Effective Date, the
Limited Waiver shall be superseded in its entirety by this
Agreement, shall be rescinded and shall cease to be of any
further force or effect.
VII. OTHER MATTERS; ENTIRETY OF AGREEMENT.
1. Holdings and Borrower ratify and affirm their obliga-
tions in respect of expenses and indemnity payments under
Sections 10.3 and 10.4 of the Credit Agreement, including,
without limitation, their obligation to pay all legal and other
fees and expenses incurred by the Agent and each of the Lenders
in connection with this agreement and the Loan Documents.
Nothing herein (including without limitation paragraph IV.2 of
this Agreement) shall be construed to limit, affect, modify or
alter the Holdings and Borrower obligations under Credit
Agreement or elsewhere under the Loan Documents.
2. At any time on or after the Standstill Termination
Date, the Agent and the Lender shall be entitled to exercise all
rights and remedies available, whether under the Loan Documents
or at law or in equity, without further notice or demand.
3. Each of Holdings, Borrower, Agent and the Lenders
understands that this is a legally binding agreement that may
affect such party's rights. Each represents to the other that it
has received legal advice from counsel of its choice in connec-
tion with the negotiation, drafting, meaning and legal signifi-
cance of this Agreement and that it is satisfied with its legal
counsel and the advice received from it. Should any provision of
this Agreement require judicial interpretation, it is agreed that
a court interpreting or construing the same shall not apply a
presumption that the terms hereof shall be more strictly
construed against any party by reason of the rule of construction
that a document is to be construed more strictly against the
party who itself or through its agent prepared the same.
4. When executed by Holdings, Borrower, Agent and
Requisite Lenders, this Agreement shall be effective as to and
for the benefit of Holdings, Borrower, Agent and the Lenders (the
date of such effectiveness being referred to herein as the
"Effective Date"), and thereupon shall be binding upon and inure
to the benefit of each of such parties and their respective
heirs, successors and assigns, except that neither Holdings nor
Borrower shall have the right to assign its rights hereunder or
any interest herein without the prior written consent of the
Lenders.
5. This Agreement constitutes the entire agreement of
Holdings, Borrower, Agent and the Lenders concerning the subject
matter hereof, and all prior or contemporaneous understandings,
oral representations or agreements had among the parties with
respect to the subject matter hereof are merged in, and are
contained in, this Agreement.
6. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, NEW YORK LAW WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAW.
7. Section headings used in this agreement are for
convenience only and shall not be used to interpret, limit or
amplify any term of this agreement.
8. This Agreement may be executed in one or more counter-
parts, each of which shall constitute an original and all of
which are taken together shall constitute one agreement.
9. If any provision of this Agreement shall be unenforce-
able under applicable law, such provision shall be ineffective
without invalidating the remaining provisions of this Agreement.
10. Pursuant to the provisions of Section 10.9 of the
Credit Agreement, Holdings and Borrower hereby notify Agent,
Co-Agent, Collateral Agent and Lenders that the address for notices
to Holdings and Borrower pursuant to the Credit Agreement and the
other Loan Documents is:
Wherehouse Entertainment, Inc.
19701 Hamilton Avenue
Torrance, California 90502
Attention: Jerry E. Goldress
with a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, CA 90071
Attention: Hendrik de Jong
[remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective duly authorized
officers of the date first written above.
WHEREHOUSE ENTERTAINMENT, INC.
By: /s/ Kathy J. Ford
------------------------------
Title: Vice President
Chief Financial Officer
HOLDINGS:
WEI HOLDINGS, INC.
By: /s/ Kathy J. Ford
------------------------------
Title: Assistant Secretary
BANKERS TRUST COMPANY, individually
and as Agent
By: /s/
-----------------------------
Title:
HELLER FINANCIAL, INC.
By: /s/
-----------------------------
Title:
PRIME INCOME TRUST
By: /s/
-----------------------------
Title:
UNITED STATES NATIONAL BANK
OF OREGON
By: /s/
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Title:
S-1