Exhibit 10.1
 
THIRD AMENDMENT TO
SENIOR SUBORDINATED NOTE PURCHASE AND SECURITY AGREEMENT

 
THIS THIRD AMENDMENT TO SENIOR SUBORDINATED NOTE PURCHASE AND SECURITY AGREEMENT
dated as of June 3, 2010 (the “Amendment”) amends the Senior Subordinated Note
Purchase and Security Agreement dated as of November 6, 2009 (as the same may be
amended from time to time, the “Original Agreement”), by and among Mill Road
Capital, L.P., a Delaware limited partnership (the “Holder”), Physicians
Formula, Inc., a New York corporation (the “Borrower”), Physicians Formula
Holdings, Inc., a Delaware corporation (“Holdings”) and the Guarantors party to
the Original Agreement.
 
WHEREAS, the Holder, the Borrower, Holdings and the Guarantors desire to amend
the Original Agreement to change the duration and terms of the Holder’s right to
nominate one individual to serve as a member of the Board of Directors of
Holdings; and
 
WHEREAS, the Holder holds Notes representing at least a majority of the
aggregate principal amount of the Notes outstanding on the date hereof;
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Amendment hereby agree as follows:
 
1.  
Defined Terms

 
Capitalized terms used herein, unless specified otherwise, shall have the same
meanings and/or references as contained in the Original Agreement.
 
2.  
Original Agreement Modifications

 
(a) Section 7.33(a) of the Original Agreement is hereby amended and restated in
its entirety as follows:
 
“(a)           As of April 29, 2010 (the “Designee Date”), and for so long as
(i) the outstanding principal amount under the Note is no less than $2,000,000
and MRC owns shares of, or securities convertible into, or exercisable for,
capital stock of Holdings, or (ii) MRC owns no less than 5% of the issued and
outstanding capital stock of Holdings (on a fully diluted basis) and any part of
the Note is outstanding, MRC shall have the right to nominate one individual to
serve as a member of Holdings’ Board of Directors (“MRC’s Designee”), and
Holdings agrees (x) to increase the size of Holdings’ Board of Directors and
appoint MRC’s Designee to Holdings’ Board of Directors as of the Designee Date,
and (y) to recommend to Holdings’ stockholders that MRC’s Designee be elected to
Holdings’ Board of Directors at annual meetings of stockholders occurring after
the Designee Date and thereafter for as long as the conditions stated in
subsections (i) or (ii) above are met.”
 
 
 

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3.  
Amendment to Operative Documents; Consistent Changes

 
References to the “Purchase Agreement” or the “Note Purchase Agreement” in the
Operative Documents shall be deemed to be references to the Original Agreement
as amended by this Amendment.  Furthermore, the Operative Documents are hereby
amended wherever necessary to reflect the changes described herein.
 
4.  
Confirmation of Certain Terms and Other Matters

 
1. Each of the Borrower, Holdings, the Guarantors and the Holder hereby ratify
and confirm all terms and provisions of the Operative Documents and all other
documents, instruments, or agreements executed in connection therewith and agree
that, except as expressly amended herein, all of such terms and provisions
remain in full force and effect.  The Borrower , Holdings, the Guarantors and
the Holder hereby confirm and acknowledge that the obligations of the Borrower,
Holdings and the Guarantors under the Original Agreement include all obligations
and liabilities of the Borrower, Holdings and the Guarantors under the Original
Agreement, as amended from time to time including, but not limited to, this
Amendment.  Each of the Borrower, Holdings and the Guarantors also confirm and
acknowledge that this Amendment and the documents, instruments or agreements
executed in connection therewith shall constitute Operative Documents.  Except
as expressly provided herein, this Amendment shall not be deemed a waiver of any
term or condition of any Operative Document and shall not be deemed to prejudice
any right or rights which the Holder may now have or may have in the future
under or in connection with any Operative Document or any of the instruments or
agreements referred to therein, as the same may be amended from time to time.
 
5.  
Miscellaneous

 
(a) This Amendment shall be governed by, and construed and enforced in
accordance with, the substantive laws of the State of New York, without regard
to its principles of conflicts of laws.
 
(b) This Amendment may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.  Any counterpart may be executed by the delivery of a
facsimile signature thereon by telecopier or by electronic mail, each of which
shall be of the same legal effect, validity and enforceability as an original
manually executed signature page.
 
(c) Each of the Borrower, Holdings and the Guarantors shall, from time to time,
at its expense, execute and deliver to the Holder all such other and further
instruments, agreements and documents and take or cause to be taken all such
other and future action as the Holder shall reasonably request in order to
effect and confirm or vest more securely all rights contemplated by this
Amendment, the Original Agreement or any Operative Document.
 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.

 
BORROWER:

 
PHYSICIANS FORMULA, INC.,
a New York Corporation

 
By:
/s/ Jeffrey Rogers
 

 
Name: Jeffrey P. Rogers

 
Title: President

 
GUARANTORS:

 
PHYSICIANS FORMULA HOLDINGS, INC.,

 
a Delaware Corporation

 
 
  

 
By:
/s/ Jeffrey Rogers
 

 
Name: Jeffrey P. Rogers

 
Title: President

 
 
PHYSICIANS FORMULA COSMETICS, INC.,

 
a Delaware Corporation

 
 
 

 
By:
/s/ Jeffrey Rogers
 

 
Name: Jeffrey P. Rogers

 
Title: President

 

 
 
PHYSICIANS FORMULA DRTV, LLC,

 
a Delaware Limited Liability Company

 
 

 
By:
/s/ Jeffrey Rogers
 

 
Name: Jeffrey P. Rogers

 
Title: President

 

 
 
 

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HOLDER:

 
MILL ROAD CAPITAL, L.P.,
a Delaware Limited Partnership

 
 
 

 
By:
/s/ Charles Goldman
 

 
Name: Charles Goldman

 
Title: Managing Director