March 7, 1997
The Musicland Group, Inc.
Musicland Stores Corporation
00000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Re: Waivers and Agreements under Credit Agreement
Ladies/Gentlemen:
Please refer to the Credit Agreement dated as of October 7, 1994 (as
previously amended, the "Credit Agreement") among The Musicland Group, Inc.,
Musicland Stores Corporation, various financial institutions and Xxxxxx
Guaranty Trust Company of New York, as Agent. Terms defined in the Credit
Agreement are, unless otherwise defined herein, used herein as so defined.
Pursuant to the Borrower's request, the Required Banks agree as follows:
1. The Required Banks hereby waive through May 29, 1997 any Default or
Event of Default which now or hereafter may exist under Section 5.7, 5.8, 5.9
or 5.23 of the Credit Agreement; it being understood that upon the expiration
of such waiver on May 30, 1997, the Agent and the Banks may exercise any or
all of their rights with respect to any such Default or Event of Default.
2. The Borrower and certain of its Subsidiaries have incurred obligations
under (a) the Participation Agreement dated as of May 12, 1995 among NatWest
Leasing Corporation, Media Play Trust, Yasuda Bank and Trust Company,
National Westminster Bank Plc, various other lenders and Media Play, Inc.,
and the Master Lease and other documents referred to therein and (b) the
Participation Agreement dated as of March 31, 1994 among Musicland Retail,
Inc., Shawmut Bank Connecticut, National Association, Kleinwort Xxxxxx
Limited, The Long Term Credit Bank of Japan, Ltd., Chicago Branch, Credit
Lyonnais Cayman Island Branch and The Fuji Bank, Limited, and the Master
Lease and other documents referred to therein. The transactions contemplated
by the documents described in the foregoing sentence are
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collectively called the "Synthetic Lease Transactions".
As a result of certain payments which have been or may be made under the
Synthetic Lease Transactions, the Synthetic Lease Transactions have been or
may be required to be classified for accounting purposes as financing leases
(rather than operating leases). Such reclassification would result in
technical defaults under the Credit Agreement because the existing
obligations of the Borrower and its Subsidiaries under the Synthetic Lease
Transactions would be recharacterized as Debt, the existing interest of the
lessors under the Synthetic Lease Transactions would be recharacterized as
Liens and certain payments under the Synthetic Lease Transactions would be
recharacterized as Capital Expenditures.
Accordingly, the Required Banks hereby agree that (i) to the extent that
the existing obligations of the Company and its Subsidiaries under the
Synthetic Lease Transactions constitute Debt, such existing Debt shall be
permitted under Section 5.11 of the Credit Agreement; (ii) to the extent that
the property subject to the Synthetic Lease Transactions is deemed to be
owned by the Company or any Subsidiary and subject to existing Liens arising
under the Synthetic Lease Transactions, such existing Liens shall be
permitted under Section 5.14 of the Credit Agreement; and (iii) for purposes
of computing Capital Expenditures under Section 5.16 of the Credit Agreement,
payments under the Synthetic Lease Transactions shall continue to be deemed
to be operating lease payments and shall not constitute Capital Expenditures.
Without limiting the foregoing, the Required Banks waive any Default or
Event of Default arising solely from the recharacterization of the Synthetic
Lease Transactions as financing leases.
3. The Required Banks further agree that subclauses (i) and (ii) of clause
(b) of the definition of "Eligible Inventory Limit" set forth in the Credit
Agreement are amended in their entirety to read as follows:
"(i) during the fiscal months of May, June, July, August, September
and October of each year, and during November and December of 1996 and
January, February, March and April of 1997, 60%;
(ii) during the fiscal months of March and April of 1996, 55%;".
The waivers and agreements set forth above shall become effective when the
Agent has received counterparts of this letter
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executed by the Required Banks (it being understood that the Agent may rely
upon facsimile confirmation of the execution of a counterpart hereof by any
Bank for purposes of determining such effectiveness).
This letter may be executed in any number of counterparts and by the
different parties on separate counterparts, and each such counterpart shall
be deemed to be an original but all such counterparts shall together
constitute one and the same letter. This letter shall be a contract made
under and governed by the internal laws of the State of New York applicable
to contracts made and to be performed within such State.
XXXXXX GUARANTY TRUST COMPANY OF
NEW YORK
By
-------------------------------
Title:
FIRST BANK NATIONAL ASSOCIATION
By
-------------------------------
Title:
THE BANK OF TOKYO - MITSUBISHI,
LTD.
By
-------------------------------
Title:
THE BANK OF NOVA SCOTIA
By
-------------------------------
Title:
CITIBANK, N.A.
By
-------------------------------
Title:
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CREDIT AGRICOLE
By
-------------------------------
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By
-------------------------------
Title:
XXXXX FARGO BANK
By
-------------------------------
Title:
THE FUJI BANK, LIMITED
By
-------------------------------
Title:
THE HOKKAIDO TAKUSHOKU BANK, LTD.,
NEW YORK BRANCH
By
-------------------------------
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By
-------------------------------
Title:
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NBD BANK, N.A.
By
-------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By
-------------------------------
Title:
THE SAKURA BANK, LIMITED
By
-------------------------------
Title:
SOCIETE GENERALE
By
-------------------------------
Title:
BANK AUSTRIA AKTIENGESELLSCHAFT
By
-------------------------------
Title:
BEAR XXXXXXX GOVERNMENT SECURITIES,
INC.
By
-------------------------------
Title:
XXXXXXX LYNCH, XXXXXX, XXXXXX &
XXXXX INCORPORATED
By
-------------------------------
Title:
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BANK OF AMERICA ILLINOIS
By
-------------------------------
Title:
DLJ CAPITAL FUNDING, INC.
By
-------------------------------
Title:
MORGENS WATERFALL DOMESTIC
PARTNERS, L.L.C.
By
-------------------------------
Title:
NATIONSBANK, N.A.
By
-------------------------------
Title:
XXXXXX GUARANTY TRUST COMPANY OF
NEW YORK, as Agent
By
-------------------------------
Title:
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