THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND FORBEARANCE
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THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND
FORBEARANCE (this "Amendment"), dated as of July 20, 2001, is entered into among
(1) POINT.360, a California corporation (the "Borrower"), (2) the Lenders party
to the Credit Agreement referred to below and (3) UNION BANK OF CALIFORNIA,
N.A., as administrative agent for such Lenders (in such capacity, the "Agent").
RECITALS
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A. The Borrower, the Lenders and the Agent previously entered into that
certain Second Amended and Restated Credit Agreement dated as of September 28,
2000, as amended by a First Amendment to Second Amended and Restated Credit
Agreement dated as of April 5, 2001 and a Second Amendment to Second Amended and
Restated Credit Agreement and Forbearance (the "Second Amendment") dated as of
June 11, 2001 (as amended, the "Credit Agreement"). Capitalized terms used
herein and not defined shall have the meanings assigned to them in the Credit
Agreement.
B. At the time of the Second Amendment, the aggregate principal amount of
Loans outstanding exceeded the Borrowing Base, resulting in an Event of Default
(the "First Overadvance Default") under the Credit Agreement. Pursuant to the
Second Amendment, the Agent and the Lenders agreed to forbear, until June 18,
2001, from exercising their rights and remedies under the Credit Agreement as a
result of the First Overadvance Default. The First Overadvance Default was cured
on June 18, 2001.
C. Based on its Borrowing Base Certificate dated June 28, 2001, the
Borrower was again in default of the Borrowing Base provisions of the Credit
Agreement by a principal amount equal to $1,337,500. On or about July 17, 2001,
the Borrower made a repayment in the amount of $100,000, reducing the principal
amount of such overadvance to $1,237,500 (such amount, the "New Overadvance
Amount"). Such overadvance has resulted in a default under Sections 2.1(a) and
2.5(d) of the Credit Agreement, and an Event of Default under Section 7(a) of
the Credit Agreement. In addition, the Borrower has informed the Agent that it
is in default of the minimum net worth covenant contained in Section 6.1(c) of
the Credit Agreement, which has resulted in a default under such Section and an
Event of Default under Section 7(c) of the Credit Agreement.
D. As of the date hereof, prior to the effectiveness of this Amendment, (i)
the Aggregate Commitment is $35,000,000 and (ii) the aggregate principal amount
of Loans outstanding under the Credit Agreement is $29,849,484.
E. The Borrower has requested that the Agent and the Lenders forbear from
exercising their rights and remedies under the Credit Agreement due to the
occurrence of the foregoing defaults. The Agent and the Lenders have agreed to
forbear from exercising such rights and remedies, subject to the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
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SECTION 1. ACKNOWLEDGEMENT OF EXISTING EVENTS OF DEFAULT AND APPLICATION OF
DEFAULT INTEREST RATE .
(a) The Borrower hereby acknowledges that, on or about June 28, 2001,
the outstanding principal amount of Loans equaled $29,271,484 ($29,949,484,
less $678,000 deducted per the last sentence of the definition of
"Borrowing Base") and the Borrowing Base equaled $27,933,984, resulting in
an overadvance of $1,337,500 in violation of Section 2.1(a) of the Credit
Agreement. On or about July 17, 2001, the Borrower made a repayment in the
amount of $100,000, reducing the principal amount of such overadvance to
the New Overadvance Amount of $1,237,500. Such Event of Default is
continuing and has not been cured. Failure to make the immediate repayment,
with interest, required by Section 2.5(d) has resulted in a payment Event
of Default under Section 7(a) of the Credit Agreement. Such Event of
Default is continuing and has not been cured. Nothing in this Amendment is
intended to, or shall be construed to, waive such Event of Default.
(b) The Borrower hereby acknowledges that its Net Worth as of May 31,
2001 was $32,274,060. The Net Worth Requirement as of such date was
$32,400,000, resulting in a default under Section 6.1(c) of the Credit
Agreement, and an Event of Default under Section 7(c) of the Credit
Agreement. Such Event of Default is continuing and has not been cured.
Nothing in this Amendment is intended to, or shall be construed to, waive
such Event of Default.
(c) The Borrower acknowledges that, pursuant to Section 2.8(c) of the
Credit Agreement, all outstanding amounts under the Credit Agreement are
accruing interest at the default rate described therein (the "Default
Rate"), payable on demand. The parties hereto agree that the Default Rate
shall apply to all such outstanding amounts effective as of June 28, 2001.
Nothing in this Section 1(c) shall modify or limit the accrual of interest
at the Default Rate in connection with the First Overadvance Default, as
more fully set forth in the Second Amendment.
SECTION 2. ACKNOWLEDGEMENT OF OUTSTANDING LOANS, OUTSTANDING LETTER OF
CREDIT AND EXISTING LOAN DOCUMENTS.
(a) The Borrower hereby acknowledges that, as of the date hereof, the
outstanding principal amount of Loans under the Credit Agreement is
$29,849,484.
(b) The parties hereto hereby acknowledge and agree that (i) on or
about January 30, 1998, UBOC issued that certain letter of credit bearing
letter of credit no. S230996, dated such date, expiring on May 31, 2004,
for the benefit of O.D.S. Technologies LP and in the face amount of
$92,239.20 (the "Existing Letter of Credit") and (ii) it is the intent of
the parties that the Existing Letter of Credit constitute a Letter of
Credit under the Credit Agreement, in all respects as if such Letter of
Credit had been originally issued hereunder. In furtherance and not in
limitation of the foregoing, as of the Restatement Date the Existing Letter
of Credit shall be deemed to be a Letter of Credit, entitled to all of the
benefits of the Loan Documents including but not limited to all Guarantees,
all Collateral Documents and all Guarantor Collateral Documents.
(c) The Borrower acknowledges and agrees that each Loan Document
executed by any Obligor pursuant to the Credit Agreement remains in full
force and effect, including but not limited to those documents and
instruments described in Section 2(b) of the Second Amendment.
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SECTION 3. FORBEARANCE. Subject to fulfillment of the conditions set forth
below, the Agent and the Lenders agree to forbear from exercising until August
27, 2001 (the "Forbearance Period"), their rights and remedies under the Credit
Agreement due to the Events of Default described in Section 1 hereof. The
Borrower agrees and acknowledges that in the event that it fails to cure such
Events of Default prior to such date in accordance with the terms of this
Agreement, (i) such failure shall constitute an immediate Event of Default under
Section 7 of the Credit Agreement having no grace period, and (ii) the Agent and
the Lenders may immediately exercise their rights and remedies under the Credit
Agreement and the other Loan Documents due to such Event of Default.
Furthermore, the Agent and the Lenders may exercise their rights and remedies
under the Credit Agreement and the other Loan Documents immediately upon the
occurrence of any Default other than that described in Section 1 hereof,
including any Default of the terms of this Agreement or the Second Amendment.
Nothing contained in this Agreement shall be interpreted as or be deemed a
release or a waiver by the Agent or the Lenders of any of the terms or
conditions of the Loan Documents. Unless specifically amended herein, all terms
and provisions of the Loan Documents shall remain in full force and effect in
accordance with their original terms. For the avoidance of doubt, the parties
hereto agree that no borrowings under the Credit Agreement, or issuance of
Letters of Credit, shall made during the Forbearance Period.
SECTION 4. ADDITIONAL COVENANTS OF THE BORROWER. In addition to the
covenants set forth in the Credit Agreement, the other Loan Documents (including
the Second Amendment) and this Agreement, the Borrower hereby agrees as follows:
(a) Cure of New Overadvance Amount Default. Notwithstanding any
provision of the Credit Agreement to the contrary, the Borrower shall cause
(either by repayment, or by delivery of a Borrowing Base Certificate
pursuant to Section 5.13 of the Credit Agreement, on or before the
applicable Reduction Date, showing an increase in the Borrowing Base as of
the immediately preceding Monday), on or before each Reduction Date set
forth below, the New Overadvance Amount to be reduced to not more than the
corresponding Amount set forth below, as follows:
REDUCTION DATE OVERADVANCE AMOUNT
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July 23, 2001 $1,037,500
July 30, 2001 $ 837,500
August 6, 2001 $ 637,500
August 13, 2001 $ 437,500
August 20, 2001 $ 237,500
August 27, 2001 $ 0
In the event that, on any Reduction Date, the New Overadvance Amount is reduced
to an amount less than that required for such date in the foregoing table (such
excess reduction, an "Excess Payment"), then such Excess Payment shall be
applied to the remaining payments due under such table in inverse order of
maturity. Any payment made by the Borrower pursuant to this Section 4.1(a) shall
be received by the Agent, at the office of the Agent set forth in the Credit
Agreement for repayments, on or before 12:00 Noon, Los Angeles time. Interest
accruing on amounts so repaid shall be due and payable on the next Interest
Payment Date.
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(b) FINANCIAL CONSULTANT. The Borrower agrees to engage, on or before
July 20, 2001, a business advisor and/or financial consultant acceptable to
the Lenders. All fees, costs and expenses of such advisor and/or consultant
shall be for the account of the Borrower. This Section 4(b) replaces in its
entirety Section 4(c) of the Second Amendment.
Any failure of the Borrower to perform any of the covenants set forth in this
Section 4 in accordance with their terms shall constitute an immediately Event
of Default having no grace period.
SECTION 5. AMENDMENTS TO CREDIT AGREEMENT. Effective as of the date first
set forth above, the Credit Agreement is hereby amended as follows:
(a) The Aggregate Commitment is reduced from $35,000,000 to
$30,050,000. In connection therewith, Schedule 2.1 to the Credit Agreement
is replaced with Schedule 2.1 hereto.
(b) Section 2.1(d) is restated in its entirety to read as follows:
"(d) All outstanding Loans shall be due and payable, to the extent
not previously paid in accordance with the terms hereof, on the Loan
Commitment Expiration Date."
(c) Section 5.1(c) is restated in its entirety to read as follows:
"(c) MONTHLY REPORTS. The Borrower shall deliver to the Agent, with
sufficient copies for each Lender, within 30 days of the end of each of
the first two months in each quarter, (i) consolidated and
consolidating statements of income, retained earnings and cash flows of
the Borrower and its Subsidiaries for such month, and the related
consolidated balance sheets of the Borrower and its Subsidiaries as at
the end of such month, accompanied by a certificate of a senior
financial officer of the Borrower, which certificate shall state that
said consolidated financial statements fairly present the consolidated
financial condition and results of operations of the Borrower and its
Subsidiaries, in each case in accordance with GAAP consistently
applied, as at the end of, and for, such period (subject to normal
year-end audit adjustments) and (ii) a report in form reasonably
satisfactory to the Agent providing information with respect to the
Borrower's Accounts Receivable agings."
SECTION 6. CONDITIONS PRECEDENT. This Amendment shall become effective as
of the date first set forth above upon receipt by the Agent of the following:
(a) this Amendment, duly executed by the Borrower and each Lender;
(b) evidence of the Guarantors' consent to this Amendment, in form and
substance acceptable to the Agent;
(c) a release of claims, executed by the Borrower and the Guarantors,
in form and substance acceptable to the Agent;
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(d) resolutions of the board of directors of the Borrower, authorizing
this Amendment, certified by an appropriate officer of the Borrower;
(e) all outstanding legal fees incurred by the Agent and/or the Lenders
in connection with the Credit Agreement, to the extent requested by the
Agent or the Lenders to be paid in connection herewith; and
(f) such other documents, agreements and opinions that the Agent or any
Lender may request.
SECTION 7. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
(a) Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," 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 Credit Agreement, as amended hereby.
(b) Except as specifically amended herein, the Credit Agreement and all
other Loan Documents are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Agent or the
Lenders under the Credit Agreement or any other Loan Documents, nor
constitute a waiver of any provision of the Credit Agreement or any other
Loan Documents, except as specifically set forth herein.
SECTION 8. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants, for the benefit of the Lenders and the Agent, as follows: (i) the
Borrower has all requisite power and authority under applicable law and under
its charter documents to execute, deliver and perform this Amendment, and to
perform the Credit Agreement as amended hereby; (ii) all actions, waivers and
consents (corporate, regulatory and otherwise) necessary or appropriate for the
Borrower to execute, deliver and perform this Amendment, and to perform the
Credit Agreement as amended hereby, have been taken and/or received; (iii) this
Amendment, and the Credit Agreement, as amended by this Amendment, constitute
the legal, valid and binding obligation of the Borrower enforceable against it
in accordance with the terms hereof; and (iv) each of the Borrower's
representations and warranties set forth in the Credit Agreement and the other
Loan Documents is true and correct as of the date hereof, except to the extent
that such representations and warranties expressly relate to an earlier date.
SECTION 9. EXECUTION IN COUNTERPARTS. 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 to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
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SECTION 10. GOVERNING LAW. This Amendment shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California (without reference to its choice of law rules).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
POINT.360 (formerly known as VDI Multimedia)
By:
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Name:
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Title:
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UNION BANK OF CALIFORNIA, N.A.,
as Agent and a Lender
By:
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Name:
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Title:
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SANWA BANK CALIFORNIA, as a Lender
By:
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Name:
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Title:
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U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
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Name:
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Title:
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SCHEDULE 2.1
COMMITMENTS
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REVOLVING LOAN
LENDER COMMITMENT
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Union Bank of California, N.A. $16,694,444
United California Bank $ 6,677,778
U.S. Bank National Association $ 6,677,778
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Total $30,050,000