fourthamendment.htm


    Exhibit 10.1

     

    FOURTH AMENDMENT TO CREDIT
AGREEMENT

     

    This
FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as
of March 30, 2009, is entered into among (1) PHYSICIANS FORMULA, INC., a
New York corporation (the “Borrower”), (2) the
several banks and other lenders from time to time parties to this Amendment (the
“Lenders”) and
(3) UNION BANK, N.A. (formerly known as Union Bank of California, N.A.), as
administrative agent for the Lenders (in such capacity, the “Agent”).

     

    RECITALS

     

    A.           The
Borrower, the Lenders and the Agent entered into that certain Credit Agreement
dated as of November 14, 2006, as amended by that certain First Amendment to
Credit Agreement dated as of July 8, 2008, that certain Second Amendment to
Credit Agreement dated as of September 9, 2008 and that certain Third Amendment
to Credit Agreement dated as of December 5, 2008 (as so amended, the “Credit
Agreement”).  Capitalized terms used herein and not defined
shall have the meanings ascribed to them in the Credit Agreement.

     

    B.           Pursuant
to the Credit Agreement, the Lenders have made available to the Borrower a term
loan facility in the initial aggregate principal amount of $15,000,000 (of which
$10,500,000 in principal amount is outstanding as of the date hereof, prior to
the principal repayment contemplated by Section 2(h) of this Amendment), and a
revolving loan facility in the aggregate maximum principal amount of
$25,000,000, including a letter of credit sublimit of
$2,500,000.  There are no Letters of Credit outstanding.

     

    C.           The
Borrower has requested that the Lenders restructure the credit facilities under
the Credit Agreement as a single revolving loan facility having a maximum
commitment in the aggregate principal amount of $27,500,000.  The
Lenders have agreed to such restructuring, subject to the terms and conditions
set forth herein.

     

    NOW,
THEREFORE, in consideration of the premises and the mutual covenants contained
herein, the parties hereto hereby agree as follows:

     

    SECTION
1. Amendments to Credit
Agreement.  The
Credit Agreement is hereby amended as follows, effective as of the Fourth
Amendment Effective Date:

     

    (a)    Each of
the following definitions is added to Section 1.1, in appropriate alphabetical
order or, if already existing in such Section, is deemed amended in its entirety
to read as follows:

     

        “Accounts”:  all
“accounts,” as such term is defined in the UCC, now owned or hereafter acquired
by any Borrowing Base Party, including (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by “chattel paper,” “documents” or “instruments” (as such
terms are defined in the UCC)), whether arising out of goods sold or services
rendered by it or from any other transaction (including any such obligations
that may be characterized as an account or contract right under the UCC),
(b) all purchase orders or receipts for goods or services, (c) all
rights to any goods represented by any of the foregoing (including

     

    
      
        
           

        

         


      

      
        
        

        
          

        

      

      
         


      

    


    unpaid
sellers’ rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), (d) all monies due or
to become due to such Borrowing Base Party under all purchase orders and
contracts for the sale of goods or the performance of services or both by such
Borrowing Base Party or in connection with any other transaction (whether or not
yet earned by performance on the part of such Borrowing Base Party) now or
hereafter in existence, including the right to receive the proceeds of said
purchase orders and contracts, and (e) all collateral security and
guaranties of any kind, now or hereafter in existence, given by any Person with
respect to any of the foregoing.

     

    “Borrowing
Base”:  as of any date of determination, an amount determined
by the Agent with reference to the most recent Borrowing Base Certificate to be
equal to the sum of (a) the Eligible Accounts Component, plus (b) the
Eligible Inventory Component, plus (c) the Canadian
Pledged Account Balance plus (d) the Eligible
Equipment Component; provided that if on
such date the most recent Borrowing Base Certificate is as of a date more than
31 days prior to such date (other than the Borrowing Base Certificates for
February 2009 and March 2009), the Borrowing Base shall mean such amount as may
be determined by the Agent in its sole discretion.

     

    “Borrowing Base
Certificate”:  a certificate, duly executed by a Responsible
Officer, substantially in the form of Exhibit I hereto.

     

    “Borrowing Base
Parties”:  collectively, the Borrower and its Domestic
Subsidiaries (provided that each such Subsidiary is also a
Guarantor).

     

    “Canadian Blocked
Accounts”:  as defined in the definition of Canadian Pledged
Accounts.

     

    “Canadian Disbursement
Account”:  as defined in the definition of Canadian Pledged
Accounts.

     

    “Canadian Pledged
Accounts”:  collectively, the Borrower’s foreign currency
deposit account, foreign currency time deposit account (collectively, the “Canadian Blocked
Accounts”) and foreign currency disbursement account (the “Canadian Disbursement
Account”), each denominated in Canadian dollars, held by the Agent and
bearing the account name “Physicians Formula, Inc. Collateral Account Union
Bank, N.A. Trustee” or similar designation.

     

    “Canadian Pledged Account
Balance”:  as of any date of determination, the available
balance on deposit in the Canadian Blocked Accounts, expressed in Dollars using
such currency conversion rate as the Agent may reasonably
determine.

     

    “Dilution
Items”:  with respect to the Accounts of the Borrowing Base
Parties, returns, rebates, discounts, credits and allowances with respect
thereto.

     

    “Eligible
Account”:  as of any date of determination, an Account of a
Borrowing Base Party:

     

    
      
        
           

        

         


      

      
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    (a) that
has been the subject of an invoice sent to the account debtor within five days
of shipment of the related goods;

     

    (b) that
conforms to all of the representations and warranties pertaining to Accounts set
forth in this Agreement or any other Loan Document;

     

    (c) (i) that
arises from the sale of goods of such Borrowing Base Party in the ordinary
course of its business and (ii) that is subject to a valid, perfected and
continuing first-priority Lien (other than non-consentual Liens described in
Section 6.3(b), so long as such Liens remain inchoate and no such Lien has
matured into a claim by the relevant taxing authority) remain in favor of the
Agent for the benefit of itself and the Lenders and is owned by such Borrowing
Base Party free and clear of any Liens other than Liens in favor of the Agent
(and other than non-consentual Liens described in Section 6.3(b), so long as
such Liens remain inchoate and no such Lien has matured into a claim by the
relevant taxing authority);

     

    (d) that
(i) is a valid and enforceable obligation of the applicable account debtor
upon which such Borrowing Base Party’s right to receive payment is absolute and
not contingent upon the fulfillment of any condition whatsoever (other than an
account debtor’s customary right of inspection), (ii) does not arise with
respect to (A) goods that are placed on consignment, guaranteed sale, sale
or return or sale on approval or delivered on a bill-and-hold or
cash-on-delivery basis or (B) goods that have been returned, rejected or
repossessed;

     

    (e) with
respect to which the applicable account debtor has not asserted any defense,
counterclaim or dispute (provided that, as to any account as to which the
account debtor disputes only a portion of the applicable invoice, the remaining
balance of such account shall not be ineligible by reason of this clause), and
such Account is not a “contra” Account;

     

    (f) with
respect to which the applicable account debtor is not (i) a federal, state
or local governmental entity or agency (unless, if the account debtor is the
United States of America, or any department, agency or instrumentality thereof,
the Borrower has complied with the Federal Assignment of Claims Act of 1940 with
respect to such account and has delivered to the Agent evidence thereof in form
and substance satisfactory to the Agent), (ii) an Affiliate, a Subsidiary
or an employee of such Borrowing Base Party or (iii)  located outside the
United States of America (such account, a “Foreign Account”)
(unless such Foreign Account is (x) an account of an account debtor located in
Australia or the United Kingdom with respect to which the account debtor has
delivered to the applicable Borrowing Base Party an original irrevocable letter
of credit, which has been delivered to the Agent, along with an amendment to
such Letter of Credit designating the Agent as beneficiary, in each case in form
and substance and on terms acceptable to the Agent, and issued by a U.S.
financial institution acceptable to the Agent, in each case in the Agent’s sole
discretion, covering such account or (y) a Permitted Canadian
Account).

     

    
      
        
           

        

         


      

      
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    (g) with
respect to which the applicable account debtor is not subject to any event of
the type described in Section 7(g);

     

    (h) the
collection of which, in the Agent’s reasonable discretion (determined from the
perspective of a secured lender), is not doubtful by reason of the applicable
account debtor’s financial condition or otherwise;

     

    (i) that is
not evidenced by any chattel paper, instrument or judgment;

     

    (j) to the
extent that the total unpaid amount of such Account, when added together with
all other Accounts due to the Borrowing Base Parties from the applicable account
debtor, does not exceed 25% of all Accounts of the Borrowing Base Parties
(provided that, in the case of Rite Aid Corporation or any Subsidiary thereof,
such percentage shall not exceed 10%);

     

    (k) that is
payable only in Dollars or, in the case of Permitted Canadian Accounts, Canadian
dollars;

     

    (l) that is
not in default (an Account shall be deemed to be in default under this clause
(l) if (i) such Account is not paid within the earlier of 60 days following
its due date or 90 days following its original invoice date or (ii) such
Account is an obligation of an account debtor with respect to which more than
25% of all Accounts due to the Borrowing Base Parties from such account debtor
are not otherwise eligible under the other criteria set forth in this
clause (l)); and

     

    (m) that is
otherwise acceptable to the Agent in its reasonable discretion (from the
perspective of a secured lender).

     

    “Eligible Accounts
Component”:  with respect to the computation of the Borrowing
Base, 65% of the aggregate book value of the Borrowing Base Parties’ then
existing Eligible Accounts.  Such advance rate may be reduced from
time to time in the exercise of the Agent’s reasonable discretion (from the
perspective of a secured lender), including as a result of audits, appraisals
and examinations.

     

    “Eligible
Equipment”:  as of any date of determination, Equipment of the
Borrowing Base Parties:

     

    (a) that (i)
is subject to a valid, perfected and continuing first-priority Lien in favor of
the Agent for the benefit of the Lenders, and (ii) is owned by such
Borrowing Base Party free and clear of any Liens of any Person other than Liens
in favor of the Agent for the benefit of the Lenders (other than, in each case,
non-consentual Liens described in (x) Section 6.3(b), so long as such Liens
remain inchoate and no such Lien has matured into a claim by the relevant taxing
authority and (y) Section 6.3 which are not overdue);

     

    (b) that is
(i) located on premises owned, leased or operated by such Borrowing Base
Party or (ii) stored on premises owned or operated by a bailee,
warehouseman, processor or similar Person, in each case with respect to which
any

     

    
      
        
           

        

         


      

      
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    applicable
landlord, bailee, warehouseman, processor or similar Person shall have executed
and delivered to the Agent, a landlord waiver, bailee letter or similar
document, in each case, in form and substance acceptable to the
Agent;

     

    (c) that
conforms to all of the representations or warranties pertaining to Equipment set
forth in this Agreement or any other Loan Document;

     

    (d) that is
covered by property and casualty insurance in compliance with Section 5.5;
and

     

    (e) that is
otherwise acceptable to the Agent in its reasonable discretion (from the
perspective of a secured lender).

     

    “Eligible Equipment
Component”:  with respect to the computation of the Borrowing
Base, the orderly liquidation value of Eligible Equipment as determined by the
Agent, provided that the Eligible Equipment Component shall not exceed
$1,000,000 at any time.

     

    “Eligible
Inventory”:  as of any date of determination, Inventory of the
Borrowing Base Parties:

     

    (a) that
(i) consists of first quality finished goods held for sale, and Eligible
Raw Materials held for manufacture, in the ordinary course of such Borrowing
Base Party’s business, (ii) is subject to a valid, perfected and continuing
first-priority Lien in favor of the Agent for the benefit of the Lenders, and
(iii) is owned by such Borrowing Base Party free and clear of any Liens of
any Person other than Liens in favor of the Agent for the benefit of the Lenders
(other than, with respect to clauses (ii) and (iii), non-consentual Liens
described in (x) Section 6.3(b), so long as such Liens remain inchoate and no
such Lien has matured into a claim by the relevant taxing authority and (y)
Section 6.3 which are not overdue);

     

    (b) that is
(i) located on premises owned, leased or operated by such Borrowing Base
Party or (ii) stored on premises owned or operated by a bailee,
warehouseman, processor or similar Person, in each case with respect to which
any applicable landlord, bailee, warehouseman, processor or similar Person shall
have executed and delivered to the Agent, a landlord waiver, bailee letter or
similar document (it being agreed that Inventory located at the premises
referred to in Section 5.15(a) or (b) shall not be ineligible, during the period
referred to in such Sections 5.15(a) and (b), solely as a result of the fact
that the landlord consents and warehouse letters referred to therein have not
been delivered to the Agent), in each case, in form and substance acceptable to
the Agent;

     

    (c) that
conforms to all of the representations or warranties pertaining to Inventory set
forth in this Agreement or any other Loan Document;

     

    (d) that is
not (i) placed on consignment or (ii) in transit;

     

    
      
        
           

        

         


      

      
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    (e) that does
not consist of packaging or shipping materials, pallets, bags, labels, boxes,
capitalized depot freight and handling costs, manufacturing supplies or
replacement parts;

     

    (f) that does
not constitute obsolete, slow-moving, shopworn, unmerchantable, unsalable,
damaged, returned, excess, unusable or unworkable goods or goods unfit for
further processing (it being agreed that, for the purposes of calculating
ineligible Inventory, returned Inventory shall mean that amount for which the
Borrower has established a return recovery reserve, which reserve may be
adjusted by the Borrower from time to time);

     

    (g) that is
covered by property and casualty insurance in compliance with Section
5.5;

     

    (h) that is
only covered by non-negotiable documents of title unless the negotiable document
representing such Inventory has been delivered to the Agent, for the benefit of
itself and the Lenders; and

     

    (i) that is
otherwise acceptable to the Agent in its reasonable discretion (from the
perspective of a secured lender).

     

    “Eligible Inventory
Component”:  with respect to the computation of the Borrowing
Base, the lesser of (a) 15% of the Eligible Inventory of the Borrowing Base
Parties (provided that, for the period from the Fourth Amendment Effective Date
to and including June 30, 2009, such percentage shall be 25%), as determined by
the Agent, and (b) $5,000,000 (provided that, for the period from the
Fourth Amendment Effective Date to and including June 30, 2009, such amount
shall be $8,000,000); provided that in no event shall Eligible Raw Materials
exceed 60% of the Eligible Inventory Component.  Such advance rate may
be reduced from time to time in the exercise of the Agent’s reasonable
discretion (from the perspective of a secured lender), including as a result of
audits, appraisals and examinations.

     

    “Eligible Raw
Materials”:  raw materials Inventory, other than printed
components including any component printed with any Loan Party’s name or
trademark.

     

    “Equipment”:  equipment
in good working order, owned by a Borrowing Base Party and of a type described
in that certain asset appraisal performed by Great American Group and delivered
to the Agent on or about the Fourth Amendment Effective Date.

     

    “Fourth
Amendment”:  that certain Fourth Amendment to Credit Agreement
dated as of March 30, 2009, amending this Agreement.

     

    “Fourth Amendment Effective
Date”:  the date on which the conditions precedent set forth in
Section 2 of the Fourth Amendment are satisfied, and the Fourth Amendment
becomes effective.

     

    
      
        
           

        

         


      

      
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    “Interest Coverage
Ratio”:  for the Borrower and its Subsidiaries on a
consolidated basis, for the fiscal quarter most recently ended and the
immediately preceding three fiscal quarters, the ratio of Adjusted EBITDA to
Interest Expense.

     

    “Permitted Canadian
Accounts”:  those Accounts of the Borrowing Base Parties with
respect to which the account debtors are located in Canada.

     

    “Revolving Loan Commitment
Expiration Date”:  March 31, 2010, or such earlier date as the
Revolving Loan Commitments shall expire in accordance with the terms hereof
(whether by acceleration or otherwise).

     

    “UCC”:  the
Uniform Commercial Code, as enacted and as in effect from time to time in the
State of California.

     

    (b) The
definition of “Adjusted EBITDA” contained in Section 1.1 is revised as
follows:  (1) the introductory clauses reading: “for the Borrower and
its Subsidiaries on a consolidated basis, for the fiscal quarter most recently
ended and the immediately preceding three fiscal quarters,” is changed to: “for
the Borrower and its Subsidiaries on a consolidated basis, for any period,” and
(2) clause (i) is amended in its entirety to read as follows:  “(i)
all one-time costs incurred by the Borrower in connection with the Fourth
Amendment (including the $75,000 amendment fee and all legal, diligence,
appraisal, audit and similar fees and expenses paid by the Borrower in
connection with the closing of the Fourth Amendment) in an aggregate amount up
to $300,000.

     

    (c) The
outstanding Term Loans are hereby converted to outstanding Revolving Loans in
the same principal amount.  On and after the Fourth Amendment
Effective Date, no Term Loans shall be outstanding, and each reference in the
Loan Documents to Term Loans, Term Loan Lenders, Term Notes and other terms
relating solely to the Term Loan facility shall be deemed amended to reflect
such fact.

     

    (d) The
Revolving Loan Commitment amount of Union Bank, N.A. listed on the signature
pages to the Credit Agreement is hereby increased from “$25,000,000” to
“$27,500,000.”

     

    (e) Section
2.1(a) is amended in its entirety to read as follows:

     

    (a)   Subject to the
terms and conditions hereof, each Revolving Loan Lender severally agrees to make
loans on a revolving credit basis through its Applicable Lending Office to the
Borrower from time to time from and including the Closing Date to but excluding
the Revolving Loan Commitment Expiration Date (each a “Revolving Loan”, and
collectively, the “Revolving Loans”) in
accordance with the terms of this Agreement; provided, however, subject to
Section 2.5(a), that the aggregate principal amount of all Revolving Loans
outstanding shall not exceed the Aggregate Revolving Loan Commitment or the
Borrowing Base at any time.  Within the limits of each Revolving Loan
Lender’s Revolving Loan Commitment, the Borrower may borrow, prepay and reborrow
Revolving Loans.

     

    
      
        
           

        

         


      

      
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    With
respect to each Revolving Loan Lender, the principal amount of each Revolving
Loan to be made by such Revolving Loan Lender shall be in an amount equal to the
product of (i) such Revolving Loan Lender’s Revolving Loan Commitment
Percentage (expressed as a fraction) and (ii) the total amount of the
Revolving Loan(s) requested; provided that in no event
shall any Revolving Loan Lender be obligated to make a Revolving Loan if after
giving effect to such Revolving Loan the sum of such Revolving Loan
Lender’s Revolving Loans outstanding would exceed its Revolving Loan
Commitment or if the amount of such requested Revolving Loan is in excess of
such Revolving Loan Lender’s Available Revolving Loan Commitment.

     

    Notwithstanding any provision in this
Agreement to the contrary, the Aggregate Revolving Loan Commitment shall be
permanently and automatically reduced to $25,000,000 on June 30,
2009.  Such reduction shall automatically effect a reduction of the
Revolving Loan Commitment of each Revolving Loan Lender to an amount equal to
the product of (i) the Aggregate Revolving Loan Commitment of all Revolving
Loan Lenders, as so reduced and (ii) the Revolving Loan Commitment
Percentage of such Revolving Loan Lender.  Upon such reduction, the
Borrower shall prepay the amount, if any, by which the aggregate unpaid
principal amount of the Revolving Loans exceeds the amount of the Aggregate
Revolving Loan Commitment as so reduced, together with accrued interest on the
amount being prepaid to the date of such prepayment.

     

    (f) Section
2.1(b) is amended in its entirety to read as follows:

     

    (b)  All Revolving Loans
shall be Base Rate Loans.  Each Revolving Loan Lender may make or
maintain its Revolving Loans to the Borrower or participate in Letters of Credit
to or for the account of the Borrower by or through any Applicable Lending
Office.

     

    For the
avoidance of doubt, on and after the Fourth Amendment Effective Date, LIBOR
Loans shall no longer be available under the Credit Agreement, and each
reference in the Loan Documents to LIBOR, LIBOR Loans, Interest Period and other
terms relating solely to LIBOR Loans shall be deemed amended to reflect such
fact.

     

    (g) Section
2.5(a) is amended in its entirety to read as follows:

     

    (a)  If at any time the
aggregate principal amount of all Revolving Loans outstanding exceeds the
Aggregate Revolving Loan Commitment or the Borrowing Base, then the Borrower
shall, within five Business Days after any Responsible Officer shall have
knowledge of such overadvance, without notice or request by the Agent, prepay
the Revolving Loans in an aggregate amount equal to such excess.

     

    (h) Section
2.8(a) is amended in its entirety to read as follows:

     

    (a)  Each Revolving Loan
shall bear interest at a rate per annum equal to (i) during the period from the
Fourth Amendment Closing Date to and including June 30, 2009, the Base Rate plus
3.50% and (ii) thereafter, the Base Rate plus 3.00%.

     

    (i) The first
sentence of Section 2.9 is amended in its entirety to read as
follows:

     

    
      
        
           

        

         


      

      
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      Interest on the Loans and
all other Obligations shall be calculated on the basis of a year of 365 or 366
days, as applicable, for the actual days elapsed; provided that the unused
commitment fee set forth in Section 2.17 shall be calculated on the basis of a
360-day year, for the actual days elapsed.

     

    (j) In
Section 2.17, the reference to “0.25%” is changed to “0.50%”.

     

    (k) Section
3.14(a) is amended in its entirety to read as follows:

     

    (a)  The
proceeds of the Revolving Loans are intended to be and shall be used by the
Borrower as follows:  (i) to refinance the outstanding Term
Loans, as contemplated by the Fourth Amendment, (ii) for working capital and
general corporate purposes of the Borrower and its Subsidiaries and (ii) to pay
fees and expenses in connection with preparation and negotiation of the Fourth
Amendment.

     

    (l) In
Section 5.2, (1) the word “and” is deleted from the end of clause (g), (2)
clause (h) is redesignated clause (i) and (3) a new clause (h) is added to read
as follows:

     

    (h)  within 30 days after the
end of each month, the Borrower shall deliver to the Agent, (i) a Borrowing Base
Certificate and (ii) an accounts receivable aging report, accounts payable aging
report and inventory report, in each case as of the end of such month and in
form reasonably satisfactory to the Agent; provided that the
Borrowing Base Certificate and such reports (x) with respect to February 2009
shall be due on April 15, 2009 and (y) with respect to March 2009 shall be due
on April 30, 2009; and

     

    (m) The last
sentence of Section 5.6 is amended in its entirety to read as
follows:

     

    In
addition, the Agent shall be permitted to conduct collateral audits of (which
may include audits of the books and records of) the Borrower and the
Subsidiaries up to four times during the period from the Fourth Amendment
Effective Date to the Revolving Loan Expiration Date (or as frequently as the
Agent reasonably deems necessary if a Default has occurred and is
continuing).

     

    (n) Section
5.14 is amended in its entirety to read as follows:

     

    5.14  Canadian Pledged
Accounts.  The Borrower shall at all times maintain the
Canadian Pledged Accounts with the Agent.  Each Canadian Pledged
Account is pledged to the Agent, for the benefit of the Agent and the Lenders,
under the Security Agreement and is subject to the terms thereof.  The
Borrower shall not be permitted to make withdrawals from the Canadian Blocked
Accounts at any time, and all interest and increases, if any, accrued thereon
shall remain in such accounts.  The Borrower shall at all times cause
any and all revenue received by the Borrower or its Subsidiaries in Canadian
dollars to be promptly deposited in the Canadian Blocked Accounts.  So
long as no Default has occurred and is continuing and the Borrower has delivered
to Agent a Borrowing Base Certificate demonstrating availability under the
Borrowing Base of at least $1,500,000 (on a pro forma basis assuming the
transfer requested below had been made, and based on the Borrowing Base
Certificate most recently delivered to the Agent under Section 5.2, but updated
to reflect outstanding

     

    
      
        
           

        

         


      

      
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    Loans as
of the current date), the Borrower may request in writing on a monthly basis, on
or about the first Business Day of each month, that the Agent transfer amounts
from the Canadian Blocked Accounts to the Canadian Disbursement Account in an
aggregate amount that will not cause the balance of the Canadian Disbursement
Account to exceed CN$500,000.  In addition, so long as no Default has
occurred and in continuing, the Borrower may from time to time, without the
prior consent of the Agent, use funds in the Canadian Disbursement Account to
pay amounts due to its Canadian vendors in the ordinary course of
business.  Notwithstanding the foregoing, the Borrower may, at any
time, request that amounts on deposit in the Canadian Blocked Accounts be
applied by the Agent to prepay outstanding Loans, such prepayment to be made in
accordance with Section 2.4.

     

    (o) A new
Section 5.15 is added to read as follows:

     

    5.15  Post-Closing
Covenants.  The Borrower shall deliver the following to the
Agent:

     

    (i)
within 90 days after the Fourth Amendment Effective Date, with respect to the
Borrower’s premises located in Azusa, California, Covina, California and
LaVerne, California, for which no Landlord Consent or warehouse letter, as
applicable, was previously delivered to the Agent, a Landlord Consent or
warehouse letter in form acceptable to the Agent;

     

    (ii) within 90 days after the Fourth
Amendment Effective Date, with respect to the Borrower’s warehouse in London,
Ontario, Canada, a warehouse letter executed by the new warehouse owner/manager,
in substantially the form of the letter previously executed for such
location;

     

    (iii)
within one Business Day after the Fourth Amendment Effective Date, the
Borrower’s audited financial statements for fiscal year 2008, as required by
Section 5.1(a) (including the certificate of the Accountants described therein);
and

     

    (iv)
within 30 days after the Fourth Amendment Effective Date, an updated Schedule B
(Copyrights, Patents and Marks) to each of the Security Agreement and the
Guarantor Security Agreement.

     

    The Agent
and the Lenders agree that the failure by the Borrower to deliver the Landlord
Consents and warehouse letters contemplated by clauses (i) and (ii) above shall
not constitute an Event of Default, so long as the Borrower has demonstrated to
the Agent’s reasonable satisfaction that it has used commercially reasonable
efforts to obtain such documents.  (Nothing in the foregoing sentence
shall change the effect failure to obtain such documents may have on calculation
of the Borrowing Base.)

     

    (p) Section
6.1(a) is amended in its entirety to read as follows:

     

    (a)  Interest Coverage
Ratio.  Permit the Interest Coverage Ratio, as of the end of
any fiscal quarter set forth below, to be less than the ratio set forth opposite
such period:

     

    
      
        
           

        

         


      

      
        -10-

        
          

        

      

      
         


      

    

     

                    
Quarter                                                                                                     Ratio

     

    January
1, 2009 to and including                        3.85:1

    March 31,
2009

    


    April 1,
2009 to and including                            
5.00:1

    June 30,
2009

    


    July 1,
2009 to and including                              
3.25:1

    September
30, 2009

    


    October
1, 2009 and thereafter                        4.25:1

    


    (q) Section
6.1(b) is deleted and replaced with the following:

     

    (b)  Minimum
EBITDA.  Permit Adjusted EBITDA, as of the end of any fiscal
quarter set forth below, to be less than the amount set forth opposite such
quarter:

     

                 Period                                  
    Quarter

     

    Fiscal
quarter ended March 31, 2009                        
$(1,900,000)

    


    Fiscal
quarter ended June 30, 2009                            $    
800,000

    


    Fiscal
quarter ended September 30, 2009                         
$1,200,000

    


    Four-quarter
period ended December 31, 2009            $4,500,000

    


    (r) Section
6.1(c) is amended in its entirety to read as follows:

     

    (c)  Minimum Tangible Net
Worth.  Permit Tangible Net Worth of the Borrower and its
Subsidiaries, on a consolidated basis, as of the end of any fiscal quarter, to
be less than the amount set forth below opposite such period:

     

    Quarter                                                                                     
Amount

     

    January
1, 2009 to and
including                                                                        $6,000,000

    March 31,
2009

    


    April 1,
2009 to and
including                                                                           
 $7,000,000

    September
30, 2009

    


    October
1, 2009 and
thereafter                                                                          
 $9,500,000

    


    (s) Section
6.1(d) is amended in its entirety as follows:

     

    (d)  Capital
Expenditures.  Permit Capital Expenditures of the Borrower and
its Subsidiaries on a consolidated basis for any fiscal year to be more than
$2,000,000.


    
      
        
           

        

         


      

      
        -11-

        
          

        

      

      
         


      

    


    (t) Section
6.2(h) is deleted and replaced with “[Intentionally Omitted]”.

     

    (u) Sections
6.6 is amended as follows:  (1) in clause (ii), the reference to
$500,000 is changed to $300,000 and (2) clauses (iii) and (iv) are each deleted
and replaced with “[Intentionally Omitted]”.

     

    (v) Section
6.7(d) is deleted and replaced with “[Intentionally Omitted]”.

     

    (w) In
Section 7.1(c), the reference to “or 5.14” is changed to “, 5.14 or
5.15”.

     

    (x) The
Schedules to the Credit Agreement are hereby deleted and replaced with the
Schedules attached hereto as Exhibit A.

     

    (y) Exhibit F
(Form of Covenant Compliance Certificate) is deleted and replaced with Exhibit F
attached hereto.

     

    (z) A new
Exhibit I (Form of Borrowing Base Certificate) is added to the Credit Agreement,
in the form of Exhibit I attached hereto.

     

    SECTION
2. Conditions
Precedent.  This
Amendment shall become effective as of the date first set forth above upon
receipt by the Agent of the following, in each case in form and substance
satisfactory to the Agent:

     

    (a) this
Amendment, duly executed by the Borrower and the Lenders;

     

    (b) a consent
to this Amendment, substantially in the form of Exhibit A
hereto;

     

    (c) a
Revolving Note, duly executed by the Borrower in favor of UBOC, in form and
substance acceptable to the Agent and reflecting UBOC’s increased Revolving Loan
Commitment;

     

    (d) resolutions
of the board of directors, or similar authorizing body, of the Borrower,
authorizing this Amendment, certified by an appropriate officer of the
Borrower;

     

    (e) a
Borrowing Base Certificate as of the Closing Date (provided that Eligible
Accounts Receivable, Eligible Inventory and Eligible Equipment shall be as of
January 31, 2009), in form and substance satisfactory to the Agent and
reflecting a Borrowing Base of at least $2,000,000;

     

    (f) evidence
that the Canadian Pledged Accounts shall have been established at Union Bank,
N.A. in accordance with the terms of the Loan Documents, and that the balance
thereof shall be at least C$5,300,000;

     

    (g) (i) the
$750,000 Term Reduction Installment contemplated by Section 2.2(d) and (ii)
amounts due under Section 2.15, as notified by the Agent to the Borrower, as a
result of consummation of the transactions contemplated by this Amendment, in
each case in immediately available funds;

     

    
      
        
           

        

         


      

      
        -12-

        
          

        

      

      
         


      

    


    (h) an
inventory appraisal and a fixed asset appraisal, in each case satisfactory to
the Agent;

     

    (i) receipt
by the Agent of an amendment fee in the amount of $75,000, in immediately
available funds (it being agreed that such fee shall be deemed earned in full
upon execution of this Amendment by the Lenders and shall be nonrefundable,
notwithstanding any subsequent termination of the Agreement or
otherwise);

     

    (j) payment
to the Agent of its costs and expenses incurred in connection with the
negotiation and preparation of this Amendment and its due diligence fees related
thereto, including but not limited to its attorneys’ fees and expenses, and the
fees and expenses of performing the audits and appraisals referred to
herein;

     

    (k) updated
Schedules to the Credit Agreement and the other Loan Documents, as needed;
and

     

    (l) such
other approvals, opinions, evidence and documents as any Lender, through the
Agent, may reasonably request; and the Agent’s reasonable satisfaction as to all
legal matters incident to this Amendment.

     

    SECTION
3. 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,” “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,” “therein” 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, each of which is
hereby reaffirmed.

     

    SECTION
4. Representations and
Warranties.  The
Borrower represents and warrants, for the benefit of the Lenders and the Agent,
as follows:  (i) it has all requisite power and authority under
applicable law and under its Organic 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 it 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
it enforceable against it in accordance with the terms hereof, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors’ rights

     

    
      
        
           

        

         


      

      
        -13-

        
          

        

      

      
         


      

    


    generally
or by equitable principles relating to enforceability; (iv) the execution,
delivery and performance of this Amendment, and the performance of the Credit
Agreement, as amended hereby, will not (a) violate or contravene any
Requirement of Law, (b) result in any material breach or violation of, or
constitute a material default under, any agreement or instrument by which it or
any of its property may be bound or (c) result in or require the creation
of any Lien upon or with respect to any of its properties, whether such
properties are now owned or hereafter acquired, except such as are permitted
under the Credit Agreement; (v) the representations and warranties contained in
the Credit Agreement and the other Loan Documents are correct in all material
respects on and as of the date of this Amendment as though made on and as of
such date, except to the extent that such representations and warranties
specifically relate to an earlier date, in which case, such representations and
warranties were true, correct and complete on and as of such earlier date; (vi)
no Default has occurred and is continuing and (vii) neither the Borrower nor any
Subsidiary owns any equipment that are fixtures with a book value in excess of
$300,000.

     

    SECTION
5. 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.

     

    SECTION
6. Governing
Law.

     

      This
Amendment and the rights and obligations of the parties under this Amendment
shall be governed by, and construed and interpreted in accordance with, the law
of the State of California (without reference to its choice of law
rules).

     

    


     

    [Signature
page follows.]

     

    
      
        
           

        

         


      

      
        -14-

        
          

        

      

      
         


      

    


    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.

     

     

    
      
        
          
            	 	PHYSICIANS
      FORMULA, INC., a New York corporation	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/ Joseph
      J. Jaeger	 
	 	Name:	Joseph J.
      Jaeger	 
	 	Title:	Chief Financial
      Officer	 
	 	 	 	 


          

        

      

    

     

     

    
      
        
          	 	UNION
      BANK, N.A., as Agent and as sole Lender	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Myra
      Juetten	 
	 	Name:	Myra
    Juetten	 
	 	Title:	Senior Relationship
      Manager/Vice President	 
	 	 	 	 


        

      

    

     

    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
A

     

    GUARANTORS’
CONSENT

     

    Each of
the undersigned is a “Guarantor” under that certain Pledgor Guarantee dated as
of November 14, 2006 or that certain Subsidiary Guarantee dated as of November
14, 2006 (each a “Guarantee”) made by
the undersigned in favor of Union Bank, N.A. (formerly known as Union Bank of
California, N.A.), as administrative agent (the “Agent”) for the
lenders from time to time party to that certain Credit Agreement dated as of
November 14, 2006 among PHYSICIANS FORMULA, INC., a New York corporation (the
“Borrower”),
such lenders and the Agent, as amended by that certain First Amendment to Credit
Agreement dated as of July 8, 2008, by that certain Second Amendment to Credit
Agreement dated as of September 9, 2008 and by that certain Third Amendment to
Credit Agreement dated as of December 5, 2008 (as so amended, the “Credit
Agreement”).

     

    In
connection herewith, the Credit Agreement is being amended by that certain
Fourth Amendment to Credit Agreement dated as of even date herewith (the “Amendment”).  Each
Guarantor hereby acknowledges that it has received a copy of the
Amendment.  Each Guarantor hereby consents to the Amendment, and
hereby confirms and agrees that the Guarantee to which it is a party is and
shall continue to be in full force and effect and is hereby ratified and
confirmed in all respects except that, on and after the effective date of the
Amendment, each reference in such Guarantee to “the Credit Agreement,”
“thereunder,” “thereof,” “therein” or words of like import referring to the
Credit Agreement shall mean and be a reference to the Credit Agreement, as
amended by the Amendment.

     

    Dated:  March
30, 2009

     

    
       

      
        
          
            
              
                
                  	 	PHYSICIANS
      FORMULA HOLDINGS, INC.,	 
	 	a
      Delaware corporation	 
	 	 	 	 
	
                           

                        	
                          By:
      

                        	/s/ 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 


                

              

            

          

        

      

       

      
        
          
            
              
                
                  
                    	 	PHYSICIANS
      FORMULA COSMETICS, INC.,	 
	 	a
      Delaware corporation	 
	 	 	 	 
	
                             

                          	
                            By:
      

                          	/s/ 	 
	 	Name:	 	 
	 	Title:	 	 
	 


                  

                

              

               

            

          

        

      

    

    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    

     

    
      
        
          
            
              
                
                  	 	PHYSICIANS
      FORMULA DRTV, LLC,	 
	 	a
      Delaware corporation	 
	 	 	 	 
	
                           

                        	
                          By:
      

                        	/s/ 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 


                

              

            

          

        

      

    

     

    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
A

     

    REPLACEMENT SCHEDULES TO
CREDIT AGREEMENT

     

    SCHEDULE
3.2

    QUALIFICATION
JURISDICTIONS

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            	
                                                    Entity

                                                  	
                                                    Jurisdictions of
    Qualification

                                                  
	
                                                    Physicians
      Formula Cosmetics, Inc.

                                                  	
                                                    California

                                                  
	
                                                    Physicians
      Formula, Inc.

                                                  	
                                                    California

                                                  
	
                                                    Physicians
      Formula DRTV, LLC

                                                  	
                                                    California,
      Michigan

                                                  


                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    SCHEDULE
3.5

    LITIGATION

    None.

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    SCHEDULE
3.6

    LEGAL AND
OPERATING NAMES

    


    None.

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

     

    
      SCHEDULE
3.7

      ENVIRONMENTAL MATTERS


    

    
      
        	1.	
                All
      matters set forth as “Potentially Significant Findings” in Section II.B
      and as “Noteworthy Issues” in Section II.C of that certain ENVIRON
      International Corporation report entitled “Environmental Review of
      Physicians Formula Cosmetics, Inc., City of Industry, California and dated
      as of October 2, 2003.

              


      

    

     

    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    SCHEDULE
3.8

    INTELLECTUAL
PROPERTY MATTERS

    


    None.

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    SCHEDULE
3.13

    SUBSIDIARIES

    


    Borrower
owns 100% of Physicians Formula Cosmetics, Inc. and Physicians Formula DRTV,
LLC.

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    SCHEDULE
3.16

    REAL
PROPERTY

    


    
      	
              1.  

            	
              Leased
      Real Property

            


    

     

    
      	
              (a)  

            	
              1055
      W. Eighth Street, Azusa, California

            


    

     

    
      	
              (b)  

            	
              230
      South Ninth Avenue, City of Industry,
California

            


    

     

    
      	
              (c)  

            	
              250
      South Ninth Avenue, City of Industry,
California

            


    

     

    
      	
              (d)  

            	
              753-755
      Arrow Grand Circle Way, Covina,
California

            


    

     

    
      	
              2.  

            	
              Other
      Locations (Collateral in the possession of Third
      Parties)

            


    

     

    
      	
              (a)  

            	
              Agility,
      3886 Commerce Road, London, Ontario N6N 1P6,
  Canada

            


    

     

    
      	
              (b)  

            	
              Scholl’s,
      435 Park Court, Lino Lakes, Minnesota
55014

            


    

     

    
      	
              (c)  

            	
              Jet,
      2169 Wright Ave., La Verne CA 91750

            


    

     

    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    SCHEDULE
3.19

    CAPITAL
STRUCTURE AND EQUITY OWNERSHIP (PRE-IPO)

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            	
                                                                    Issuer

                                                                  	
                                                                    Name of Holder

                                                                  	
                                                                    Number of Shares

                                                                  	
                                                                    Par Value

                                                                  	
                                                                    Percentage of Shares of Common
      Stock

                                                                  
	
                                                                    Physicians
      Formula, Inc.

                                                                  	
                                                                    Physicians
      Formula Holdings, Inc.

                                                                  	
                                                                    100

                                                                  	
                                                                    $1.00

                                                                  	
                                                                    100%

                                                                  
	
                                                                    Physicians
      Formula Cosmetics, Inc.

                                                                  	
                                                                    Physicians
      Formula, Inc.

                                                                  	
                                                                    1000

                                                                  	
                                                                    $0.01

                                                                  	
                                                                    100%

                                                                  
	
                                                                    Physicians
      Formula DRTV, LLC

                                                                  	
                                                                    Physicians
      Formula, Inc.

                                                                  	
                                                                    1000

                                                                  	
                                                                    N/A

                                                                  	
                                                                    100%

                                                                  


                                                          

                                                           

                                                          Physicians Formula Holdings, Inc.

                                                          Capitalization
Table

                                                           

                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          	
                                                                                  Equityholder

                                                                                	 
      	
                                                                                  %
      of Common Stock owned by Officers/Directors

                                                                                	 	
                                                                                  Shares
      of Preferred Stock

                                                                                	 
      	
                                                                                  Shares
      of Common Stock

                                                                                	 
      	
                                                                                  Time
      Vesting Options to acquire Common Stock

                                                                                	 
      	
                                                                                  Performance
      Vesting Options to acquire shares of Common Stock

                                                                                	 
      	
                                                                                  Forfeited
      Options

                                                                                	 
      	
                                                                                  Shares
      of Common Stock on a fully diluted basis

                                                                                	 
      	 Initial
      Principal Amount of Subordinated Promissory Notes	 
      
	 
      	 
      	 
      	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	
                                                                                  Summit
      Ventures V, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  1,419,000

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  1,419,000

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      V Companion Fund, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  962,500

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  962,500

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      V Advisors (QP) Fund, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  136,470

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  136,470

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      V Advisors Fund, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  41,700

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  41,700

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      Ventures VI-A, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  3,463,490

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  3,463,490

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      Ventures VI-B, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  1,444,420

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  1,444,420

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      VI Advisors Fund, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  72,030

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  72,030

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      VI Entrepreneurs Fund, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  110,590

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  110,590

                                                                                	 
      	 	 
      
	
                                                                                  Summit
      Investors VI, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  28,790

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  28,790

                                                                                	 
      	
                                                                                  $36,884

                                                                                	 
      
	
                                                                                  Summit
      Subordinated Debt Fund II, L.P.

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  321,010

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  321,010

                                                                                	 
      	
                                                                                  $9,767,767

                                                                                	 
	
                                                                                  COFILANCE
      SA*

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  1,800,000

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  1,800,000

                                                                                	 
      	
                                                                                  $2,451,163

                                                                                	 
      
	
                                                                                  Claude
      Gros

                                                                                	
                                                                                  Director

                                                                                	
                                                                                  1.92%

                                                                                	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  200,000

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  200,000

                                                                                	 
      	 	 
      
	
                                                                                  Ingrid
      Jackel-Marken

                                                                                	
                                                                                  Officer

                                                                                	
                                                                                  1.64%

                                                                                	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  171,416

                                                                                	 
      	
                                                                                  166,667

                                                                                	 
      	
                                                                                  291,667

                                                                                	 
      	 
      	 
      	
                                                                                  629,750

                                                                                	 
      	
                                                                                   

                                                                                  $5,810

                                                                                	
                                                                                  Exercised
      166,666 Shares on 1/26/2006

                                                                                
	
                                                                                  Jeff
      Rogers

                                                                                	
                                                                                  Officer

                                                                                	
                                                                                  1.78%

                                                                                	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  185,000

                                                                                	 
      	
                                                                                  167,333

                                                                                	 
      	
                                                                                  291,667

                                                                                	 
      	 
      	 
      	
                                                                                  644,000

                                                                                	 
      	
                                                                                   

                                                                                  $23,241

                                                                                	
                                                                                  Exercised
      166,000 Shares on 1/5/2006

                                                                                
	
                                                                                  André
      Pieters

                                                                                	
                                                                                  Officer/Director

                                                                                	
                                                                                  0.22%

                                                                                	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  28,000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  28,000

                                                                                	 
      	 	
                                                                                  Exercised
      Shares on 4/1/2005 - Resigned 3/31/2005

                                                                                
	
                                                                                  Mike
      Carter

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Vivian
      Dura

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Kevin
      Jacobson

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  10,000

                                                                                	 
      	
                                                                                  10,000

                                                                                	 
      	 
      	 
      	
                                                                                  20,000

                                                                                	 
      	 	 
      
	
                                                                                  Debra
      Green

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Debbie
      Johnson

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Rae
      Kearney

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Rick
      Kirchhoff

                                                                                	
                                                                                  Officer

                                                                                	
                                                                                  0.00%

                                                                                	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  25,000

                                                                                	 
      	
                                                                                  25,000

                                                                                	 
      	 
      	 
      	
                                                                                  50,000

                                                                                	 
      	 	 
      
	
                                                                                  JoEllen
      Scasino

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  10,000

                                                                                	 
      	
                                                                                  10,000

                                                                                	 
      	 
      	 
      	
                                                                                  20,000

                                                                                	 
      	 	 
      
	
                                                                                  Manuel
      Scates

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Jennifer
      Sharp

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  0

                                                                                	 
      	
                                                                                  10,000

                                                                                	 
      	
                                                                                  10,000

                                                                                	 
      	 
      	 
      	
                                                                                  20,000

                                                                                	 
      	 	 
      
	
                                                                                  Joseph
      J. Jaeger

                                                                                	
                                                                                  Officer

                                                                                	
                                                                                  0.00%

                                                                                	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  37,500

                                                                                	 
      	
                                                                                  37,500

                                                                                	 
      	
                                                                                  75,000

                                                                                	 
      	 
      	 
      	
                                                                                  150,000

                                                                                	 
      	 	
                                                                                  Exercised
      18,750 Shares on 1/5/2006 & 18,750 in March 2006.

                                                                                
	
                                                                                  Leslie
      H. Keegan

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Louis
      T. Lembo

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Martha
      Everhart

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Vida
      Naranjo

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Melisa
      K. Firedl

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  5,000

                                                                                	 
      	 	 
      
	
                                                                                  Barbara
      Ocampo-Victorio

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  4,000

                                                                                	 
      	 
      	 
      	
                                                                                  (3,000)

                                                                                	 
      	
                                                                                  1,000

                                                                                	 
      	 	
                                                                                  Resigned
      1/27/06, thus forfeiting unvested portion of shares

                                                                                
	
                                                                                  Khristen
      A. Nicholas

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  4,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  4,000

                                                                                	 
      	 	 
      
	
                                                                                  Delphine
      F. Bodin

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	
                                                                                  4,000

                                                                                	 
      	 
      	 
      	 
      	 
      	
                                                                                  4,000

                                                                                	 
      	 	 
      
	 
      	 
      	 
      	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	
                                                                                  Shares
      Remaining under Stock Option Plan (2,500,000 shares in
      aggregate)

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  898,000

                                                                                	 
      	 	 
      
	
                                                                                  Other

                                                                                	 
      	 
      	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                  476,250

                                                                                	 
      	 	 
      
	
                                                                                  TOTAL

                                                                                	 
      	 
      	 	
                                                                                  0.000

                                                                                	 
      	
                                                                                  10,421,916

                                                                                	 
      	
                                                                                  493,500

                                                                                	 
      	
                                                                                  713,334

                                                                                	 
      	
                                                                                  (3,000)

                                                                                	 
      	
                                                                                  13,000,000

                                                                                	 
      	
                                                                                  $12,284,865

                                                                                	 
      
	 
      	 
      	 
      	 	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      
	
                                                                                  *
      Transferred from Pierre Fabre Dermo-Cosmetique, S.A. as of December 12,
      2003

                                                                                	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 	 
      


                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                           

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    SCHEDULE
6.7

    ACQUISITIONS,
INVESTMENTS, LOANS AND ADVANCES

    


    None.

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    
       

      SCHEDULE
6.8

      AFFILIATE TRANSACTIONS

    

    
      
        	 	
              
	1.	
                Stock
      Subscription Agreement between PFI Acquisition Corp. and Physicians
      Formula Holdings, Inc., a Delaware corporation formerly known as PFI
      Holdings Corp., dated November 3, 2003.

              
	2.	
                Stock
      Purchase Agreement dated as of November 3, 2003 among PFI Acquisition
      Corp., Pierre Fabre Dermo-Cosmetique S.A., a French societe anonyme,
      Pierre Fabre, Inc., a New York corporation, the Physicians Formula
      Holdings, Inc., a Delaware corporation formerly known as PFI Holdings
      Corp. and Pierre Fabre, S.A., a French societe anonyme, as amended,
      modified, supplemented or restated.

              
	3.	
                Galenic
      side letter by and among Pierre Fabre Dermo-Cosmetique, a French societe
      anonyme and Pierre Fabre, Inc. dated November 3, 2003.

              
	4.	
                Stockholders
      Agreement, by and among Physicians Formula Holdings, Inc., a Delaware
      corporation formerly known as PFI Holdings Corp., the Summit Stockholders
      (as defined therein) and the PFDC Stockholders (as defined therein), dated
      November 3, 2003.

              
	5.	
                Employment
      Agreements between Pierre Fabre, Inc. and each of the following executives
      of Pierre Fabre, Inc.

              
	 	(a)  
      Ingrid Jackel-Marken
	 	(b)  
      Jeff Rogers
	6.	
                Protection
      of Trade Secrets, Nonsolicitation and Confidentiality Agreements between
      Pierre Fabre, Inc. and each of the following executives of Pierre Fabre,
      Inc.

              
	 	(a)  
      Ingrid Jackel-Marken
	 	(b)  
      Jeff Rogers
	7.	
                Employment
      Agreement and Nonsolicitation and Confidentiality Agreement, between
      Physicians Formula, Inc. and Joseph J. Jaeger, dated March 8,
      2004.

              
	8.	
                Custodial
      arrangement in connection with the distribution referenced in Section
      6.7(i) of the Credit
Agreement.

              


      

    

     

    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

     

    EXHIBIT
F

     

    FORM OF COVENANT COMPLIANCE
CERTIFICATE

     

    PHYSICIANS
FORMULA INC., a New York corporation (the “Borrower”), refers to
that certain Credit Agreement dated as of November 14, 2006 among (1) the
Borrower, (2) the Lenders parties thereto (the “Lenders”) and (3)
UNION BANK, N.A., as administrative agent for the Lenders (formerly known as
Union Bank of California, N.A.) (in such capacity, the “Agent”) (as it may be
amended, modified, restated or supplemented from time to time, the “Credit Agreement”;
capitalized terms used herein and not defined shall have the meanings assigned
to them in the Credit Agreement) and certifies as to the accuracy of the
following as of ___________________, ____ (the “Compliance
Date”):

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    
                                                                                      
                                                                                        
                                                                                          
                                                                                            
                                                                                              
                                                                                                
                                                                                                  
                                                                                                    
                                                                                                      
                                                                                                        
                                                                                                          
                                                                                                            
                                                                                                              
                                                                                                                
                                                                                                                  
                                                                                                                    
                                                                                                                      
                                                                                                                        
                                                                                                                          
                                                                                                                            
                                                                                                                              
                                                                                                                                
                                                                                                                                  
                                                                                                                                    
                                                                                                                                      
                                                                                                                                        	
                                                                                                                                                1.  Interest Coverage
      Ratio

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                a.

                                                                                                                                              	
                                                                                                                                                Adjusted
      EBITDA

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                                                                                                                                                i.

                                                                                                                                              	
                                                                                                                                                EBITDA
      of the Borrower and its Subsidiaries on a consolidated
    basis

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 
      	
                                                                                                                                                (a)

                                                                                                                                              	
                                                                                                                                                Net
      Income

                                                                                                                                              	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                (b)

                                                                                                                                              	
                                                                                                                                                non-recurring
      loss reflected in Net Income

                                                                                                                                              	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                (c)

                                                                                                                                              	
                                                                                                                                                non-recurring
      gain (excluding any gain received from sale of Inventory in the ordinary
      course of business, provided such sales is not in connection with a
      winding up or liquidation of the Borrower or any Subsidiary) reflected in
      Net Income

                                                                                                                                              	 
      	 
      	 
      	
                                                                                                                                                 

                                                                                                                                                 

                                                                                                                                                 

                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                (d)

                                                                                                                                              	
                                                                                                                                                Interest
      Expense of the Borrower and its Subsidiaries (only to the extent reflected
      in Net Income)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	
                                                                                                                                                (i)

                                                                                                                                              	
                                                                                                                                                interest,
      fees, charges and related expenses paid or payable (without duplication)
      to a lender in connection with borrowed money (including any obligation
      for fees, charges and related expenses payable to the issuer of any letter
      of credit) or the deferred purchase price of assets that are considered
      "interest expense" under GAAP

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                 

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	$	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	
                                                                                                                                                 

                                                                                                                                              	
                                                                                                                                                rent
      paid or payable (without duplication) under Capital Lease Obligations that
      should be treated as interest in accordance with Financial Accounting
      Standards Board Statement No. 13

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 (ii)	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	
                                                                                                                                                (iii)

                                                                                                                                              	
                                                                                                                                                (i)
      + (ii)

                                                                                                                                              	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	
                                                                                                                                                    

                                                                                                                                              	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                 

                                                                                                                                              	
                                                                                                                                                the
      aggregate amount of each of the following:  federal and state
      taxes, property taxes and sales taxes (whether or not payable during that
      period) (only to the extent reflected in Net Income)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	(e)	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                (f)

                                                                                                                                              	
                                                                                                                                                depreciation
      and amortization expense of Borrower and its Subsidiaries (only to the
      extent reflected in Net Income)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                (g)

                                                                                                                                              	
                                                                                                                                                all
      other non-cash charges (including all non-cash stock compensation
      expenses) of Borrower and its Subsidiaries (only to the extent reflected
      in Net Income)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                 

                                                                                                                                              	
                                                                                                                                                all
      other non-recurring expense of Borrower and its Subsidiaries acceptable to
      the Agent (only to the extent reflected in Net Income)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	      
                                                                                                                                                (h)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                 

                                                                                                                                              	
                                                                                                                                                all
      one-time costs in connection with the Fourth Amendment, including the
      $75,000 amendment fee and all legal, diligence, appraisal, audit and
      similar fees and expenses paid by the Borrower in connection with the
      closing of the Fourth Amendment up to $300,000 (only to the extent
      reflected in Net Income)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	(i)	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                                                                                                                                                (j)

                                                                                                                                              	
                                                                                                                                                (a)
      + (b) - (c) + (d) + (e) + (f) + (g) + (h) + (i)

                                                                                                                                              	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	
                                                                                                                                                               -

                                                                                                                                              	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                b.

                                                                                                                                              	
                                                                                                                                                Interest
      Expense

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                                                                                                                                                i.

                                                                                                                                              	
                                                                                                                                                all
      interest, fees, charges and related expenses paid or payable (without
      duplication) in connection with borrowed money (including any obligation
      for fees, charges and related expenses payable to the issuer of any letter
      of credit) or the deferred purchase price of assets that are considered
      "interest expense" under GAAP

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                                                                                                                                                ii.

                                                                                                                                              	
                                                                                                                                                rent
      paid or payable (without duplication) under Capital Lease Obligations that
      should be treated as interest in accordance with Financial Accounting
      Standards Board Statement No. 13

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	
                                                                                                                                                iii.

                                                                                                                                              	
                                                                                                                                                (i)
      + (ii)

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	
                                                                                                                                                         

                                                                                                                                              	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                c.

                                                                                                                                              	
                                                                                                                                                Ratio
      of a. to b.

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                 

                                                                                                                                              	
                                                                                                                                                (1)

                                                                                                                                              	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                (1)
      Section 6.1(a) of the Credit Agreement requires that Interest Coverage
      Ratio, as of the end of any fiscal quarter indicated, not be less than (i)
      as of January 1, 2009 to and including March 31, 2009, 3.85 : 1; (ii) as
      of April 1, 2009 to and including June 30, 2009, 5.00 : 1; (iii) as of
      July 1, 2009 to and including September 30, 2009, 3.25 : 1; and (iv) as of
      October 1, 2009 and thereafter, 4.25 : 1.

                                                                                                                                              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                2.  Minimum
      EBITDA

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 	Adjusted
      EBITDA (see 1.a. above)	 	 	 	 	 	 	 	 
	
                                                                                                                                                a.

                                                                                                                                              	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	(2)	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                (2)
      Section 6.1(b) of the Credit Agreement requires that Adjusted EBITDA of
      the Borrower and its Subsidiaries on a consolidated basis as of the end of
      any fiscal quarter not be less than the following amounts for the quarters
      indicated: (i) as of March 31, 2009, $1,900,000; (ii) as of June 30, 2009,
      $800,000; (iii) as of September 30, 2009, $1,200,000; and (iv) as of
      December 31, 2009, $4,500,000.

                                                                                                                                              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                3.  Minimum Tangible Net
      Worth

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                     Tangible
      Net Worth

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                a.

                                                                                                                                              	
                                                                                                                                                net
      worth

                                                                                                                                              	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                b.

                                                                                                                                              	
                                                                                                                                                intangible
      assets (including goodwill)

                                                                                                                                              	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                c.

                                                                                                                                              	
                                                                                                                                                accumulated
      amortization

                                                                                                                                              	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                d.

                                                                                                                                              	
                                                                                                                                                a.
      - b. - c.

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	
                                                                                                                                                               

                                                                                                                                              	(3)	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                (3)
      Section 6.1(c) of the Credit Agreement requires that Tangible Net Worth of
      the Borrower and its Subsidiaries on a consolidated basis as of the end of
      any fiscal quarter not be less than the following amounts for the quarters
      indicated: (i) as of January 1, 2009 to and including March 31, 2009,
      $6,000,000; (ii) as of April 1, 2009 to and including September 30, 2009,
      $7,000,000; and (iii) as of October 1, 2009 and thereafter,
      $9,500,000.

                                                                                                                                              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                4.  Capital
      Expenditures

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                 

                                                                                                                                              	
                                                                                                                                                aggregate
      of all expenditures (whether paid in cash or accrued as liabilities) for
      property, plant or equipment and which would be reflected as additions to
      property, plant or equipment on a balance sheet, including all Capitalized
      Lease Obligations.

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                 
      a.

                                                                                                                                              	
                                                                                                                                                 
      

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	(4)	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                (4)
      Section 6.1(d) of the Credit Agreement requires that Capital Expenditures
      of the Borrower and its Subsidiaries on a consolidated basis as of the end
      of any fiscal year not be greater than $2,000,000.

                                                                                                                                              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                5.  Funds Subject to
      Mandatory Prepayment - Asset Dispositions

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                a.

                                                                                                                                              	
                                                                                                                                                Asset
      Dispositions during the current fiscal year

                                                                                                                                              	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	(5) 	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                (5)
      Asset Dispositions under Section 6.5 of the Credit Agreement cannot, when
      aggregated with the consideration for all previous Asset Dispositions
      during the same fiscal year, exceed $1,000,000.  Under Section
      2.5(b) of the Credit Agreement, so long as no Event of Default has
      occurred and is continuing, no prepayment shall be required with respect
      to and Asset Disposition to the extent that, within 90 days following such
      disposition, such net Proceeds are used to invest in assets of the same or
      similar type and use as those disposed of and provided that the Agent
      shall have a first-priority Lien thereon (subject to Section 6.3 of the
      Credit Agreement).

                                                                                                                                              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                6.  Funds Subject to
      Mandatory Prepayment - Insurance and Condemnation
      Proceeds

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                a.

                                                                                                                                              	
                                                                                                                                                insurance
      proceeds aggregating more than $200,000 (or in any amount after the
      occurrence and during the continuance of an Event of Default) after the
      Closing Date with respect to any Property which are not fully applied (or
      contractually committed and approved by the Agent if such proceeds equal
      or exceed $500,000) toward repair or replacement of such damaged Property
      by the earlier of (i) 90 days after the receipt thereof and (ii) the
      occurrence of a Default

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                                                                                                                                 

                                                                                                                                              	
                                                                                                                                                condemnation
      proceeds aggregating more than $200,000 (or in any amount after the
      occurrence and during the continuance of an Event of Default) after the
      Closing Date with respect to any Property which are not fully applied (or
      contractually committed and approved by the Agent if such proceeds equal
      or exceed $500,000) toward repair or replacement of such condemned
      Property by the earlier of (i) 90 days after the receipt thereof and (ii)
      the occurrence of Default

                                                                                                                                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	           
      b.	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	
                                                                                                                                                $

                                                                                                                                              	 
      	 
      	 
      
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	           
      c.	
                                                                                                                                                [Borrower
      to insert language describing any insurance proceeds or condemnation
      proceeds that it has received, including the date of receipt, the amount
      of such proceeds received and a description of the affected
      properties.]

                                                                                                                                              	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 


                                                                                                                                      

                                                                                                                                    

                                                                                                                                  

                                                                                                                                

                                                                                                                              

                                                                                                                            

                                                                                                                          

                                                                                                                        

                                                                                                                      

                                                                                                                    

                                                                                                                  

                                                                                                                

                                                                                                              

                                                                                                            

                                                                                                          

                                                                                                        

                                                                                                      

                                                                                                    

                                                                                                  

                                                                                                

                                                                                              

                                                                                            

                                                                                          

                                                                                        

                                                                                      

                                                                                    

                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      As of the
Compliance Date, the undersigned represents and warrants to the Agent and the
Lenders as follows:

       

      a.           The
calculations made and the information contained herein are derived from the
financial statements and books and records of the Borrower and its Subsidiaries
and each and every calculation contained herein correctly reflects in all
material respects those financial statements and books and records.

       

      b.           The
representations and warranties contained in the Credit Agreement and in each
other Loan Document and certificate or other writing delivered to the Agent or
any Lender prior to, on or after the Closing Date are correct on and as of the
date hereof in all material respects as though made on and as of the date hereof
except to the extent that such representations and warranties expressly relate
to an earlier date; and

       

      c.           No
Default has occurred and is continuing.

       

      d.           No
event has occurred and is continuing, or condition exists, which reasonably
could have a Material Adverse Effect.

       

       

      IN
WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SIGNED HIS/HER RESPECTIVE NAME AS
OF THIS _____ DAY OF __________, ____:

      
         

        
          
            
              
                
                  
                    
                      	 	PHYSICIANS
      FORMULA INC.,	 
	 	a New
      York corporation	 
	 	 	 	 
	
                               

                            	
                              By:
      

                            	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 


                    

                  

                

              

            

          

        

         

      

    

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
I

     

    FORM OF BORROWING BASE
CERTIFICATE

     

    

      
        
           


        

        
           


          
            

          

        

        
           


        

      


      
        
          	 	 	 	 	 	
                  Union
      Bank, N.A.

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	
                   Borrowing
      Base Certificate

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 
	 	A.	 	 	
                  ACCOUNTS
      RECEIVABLE ACTIVITY

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	1	 	
                  Accounts
      Receivable Balance as of ______________

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	
                  (From
      Line 11 of Previous Month Certificate)

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	2	 	
                  ADD
      - Gross Sales

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	3	 	
                  LESS
      - Credits

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	4	 	
                  NET SALES (Line 2 - Line
      3)

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	5	 	
                  LESS
      - Net Collections

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	6	 	
                  LESS
      - Returns and Allowances

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	7	 	
                  LESS
      - Miscellaneous Adjustments

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	8	 	
                  LESS
      - Discounts Allowed

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	9	 	
                  GROSS COLLECTIONS (Lines
      5+6+7+8)

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	10	 	
                  PLUS
      OR MINUS - Net Miscellaneous Adjustments

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	11	 	
                  GROSS
      ACCOUNTS RECEIVABLE as of

                	 	 	 	 	 	 	 	 	0	 
	 	 	 	 	 	 	 	
                  (Line
      1+ Line 4 - Line 9 +/- Line 10)

                	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	12	 	
                  LESS
      - Ineligible Accounts as of

                	 	 	 	 	 	 	 	 	0	 
	 	 	 	 	 	13	 	
                  ELIGIBLE ACCOUNTS RECEIVABLE
      (Line 11 - Line
      12)

                	 	 	 	 	 	 	 	 	0	 
	 	 	 	 	 	14	 	
                  GROSS
      ACCOUNTS RECEIVABLE AVAILABILITY

                	 	 	 	 	 	 	 	 	0	 
	 	 	 	 	 	 	 	
                  (Line
      13 X 65% Advance Rate)

                	 	 	 	 	 	 	 	 	 	 
	 	B.	 	 	
                  INVENTORY

                	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	15	 	
                  INVENTORY
      PER STOCK STATUS REPORT DATED ______________

                	 	 	0	 	 	 	 	 
	 	 	 	 	 	16	 	
                  Less
      Ineligible Inventory:

                	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	17	 	
                  Printed
      Components

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	18	 	
                  Work
      in Process

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	19	 	
                  Promotional
      Inventory

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	20	 	
                  Returns

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	21	 	
                  Inventory
      in Transit

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	22	 	
                  Raw
      materials in excess of 60%

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	23	 	
                  Other
      (Describe)

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	24	 	
                  Total
      Ineligible Inventory

                	 	 	 	 	 	 	0	 	 	 	 	 
	 	 	 	 	 	 	 	
                  (Line
      15- Sum of Lines 17-23)

                	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	25	 	
                  Net
      Eligible Inventory

                	 	 	 	 	 	 	0	 	 	 	 	 
	 	 	 	 	 	 	 	
                  (Line
      15- Line 24)

                	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	26	 	
                  Inventory Availability
      (Line 25 x 25% or
      15% Advance Rate or Sublimit Whichever is
Less)

                	 	 	 	0	 
	 	C	 	 	
                  EQUIPMENT

                	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	27	 	
                  ORDERLY
      LIQUIDATION VALUE AS OF March 2009

                	 	 	 	 	 	 	 	 	 	 	0	 
	 	D	 	 	
                  CANADIAN
      PLEDGED ACCOUNTS

                	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	28	 	
                  FOREIGN
      CURRENCY DEMAND ACCOUNT

                	 	 	 	 	 	 	0	 	 	 	 	 
	 	 	 	 	 	29	 	
                  FOREIGN
      CURRENCY TIME DEPOSIT

                	 	 	 	 	 	 	0	 	 	 	 	 
	 	 	 	 	 	30	 	
                  CONVERSION
      RATE AS OF ______________

                	 	 	0	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	31	 	
                  CANADIAN
      PLEDGED ACCOUNT BALANCE

                	 	 	 	 	 	 	 	 	 	 	0	 
	 	E	 	 	
                  BORROWING
      BASE

                	 	 	 	 	 	 	 	 	 	 	0	 
	 	 	 	 	 	 	 	
                  (Sum
      of Line 14, 26, 27 and 31)

                	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	32	 	
                   LOAN
      BALANCE as of   _____________

                	 	 	 	 	 	 	 	 	 	 	0	 
	 	 	 	 	 	33	 	
                  NET AVAILABILITY (Lesser of Borrowing Base or
      Commitment Amount Minus Line 32)

                	 	 	 	0	 
	 	 	 	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  The
      undersigned represents and warrants that the foregoing information is
      true, complete, and correct, and the receivables

                	 
	
                  and
      inventory reflected herein comply with the representations and warranties
      set forth in the security agreement and

                	 
	
                  supplements
      or amendments, if any, thereto between the undersigned and Union Bank,
      N.A.

                	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  By:
      _____________________________________

                	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
                  (Signature
      and Title)

                	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Date:
      __________________