thirdcreditamendment.htm


    Exhibit 10.1

     

    THIRD AMENDMENT TO CREDIT
AGREEMENT

     

    This
THIRD AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as
of December 5, 2008, 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 OF CALIFORNIA, N.A. (“Union Bank”), 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 and by that certain Second Amendment
to Credit Agreement dated as of September 9, 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.           The
Borrower has requested that the Lenders increase the existing Aggregate
Revolving Loan Commitment of $20,000,000 to a total amount of $25,000,000, and
amend certain provisions of the Credit Agreement in connection
therewith.  The Lenders have agreed to such requests and are entering
into this Amendment to fulfill such requests, 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:

     

    (a) The
Revolving Loan Commitment amount of Union Bank listed on the signature pages to
the Credit Agreement is hereby increased from “$20,000,000” to
“$25,000,000.”

     

    (b) In the
definition of “EBITDA” contained in Section 1.1, clause (g) is amended in its
entirety to read as follows:  “(g) all other non-cash charges
(including, for the avoidance of doubt, all non-cash stock compensation
expenses) of Borrower and its Subsidiaries for that period plus”.

     

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

     

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

     

    
      
        	 	
                Quarter

              	 
      	
                Ratio

              	 
	 	 
      	 
      	 
      	 
	 	
                January
      1, 2007 to and including December 31, 2007

              	 
      	
                2.00:1

              	 
	 	 
      	 
      	 
      	 
	 	
                January
      1, 2008 to and including December 31, 2009

              	 
      	
                1.75:1

              	 


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              January
      1, 2010 and thereafter

            	 
      	
              1.50:1

            	 


    

     

     

    (d) 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

            	 
	 	 
      	 
      	 
      	 
	 	
              July
      1, 2008 to and including September 30, 2008

            	 
      	
              $2,000,000

            	 
	 	 
      	 
      	 
      	 
	 	
              October
      1, 2008 to and including December 31, 2008

            	 
      	
              $4,700,000

            	 
	 	 
      	 
      	 
      	 
	 	
              January
      1, 2009 to and including March 31, 2009

            	 
      	
              $6,700,000

            	 
	 	 	 	 	 
	 	April
      1, 2009 to and including June 30, 2009	 	
              $8,700,000

            	 
	 	 	 	 	 
	 	July
      1, 2009 to and including September 30, 2009	 	
              $10,700,000

            	 
	 	 	 	 	 
	 	October
      1, 2009 to and including December 31, 2009	 	
              $13,000,000

            	 
	 	 	 	 	 
	 	January
      1, 2010 and thereafter	 	
              $14,000,000

            	 


    

     

    (e) Section
6.6(iv) is amended in its entirety to read as follows:

     

    (iv)   
the Borrower may directly purchase, make Restricted Payments to Pledgor to
permit Pledgor to repurchase shares of the Pledgor’s publicly traded common
stock from time to time so long as (1) no Default or Event of Default has
occurred and is continuing at the time of such Restricted Payment or would occur as a
consequence of such Restricted Payment; (2) the aggregate amount of Restricted
Payments made to repurchase shares of the Pledgor's publicly traded common
stock over the period since November 14, 2006 shall not exceed $12,000,000
and (3) immediately after giving effect to any such Restricted Payment, the
aggregate Available Revolving Loan Commitment shall be at least
$6,250,000.

    


    (f) The
address for notices for UBOC, in its capacity as the Agent and as a Lender, is
amended to read as follows:

     

    Union
Bank of California, N.A.

    17800
Castleton Street

    City of
Industry, CA  91748

    Attention:  Stephen
W. Dunne

    Telephone:  (626)
810-6561

    Facsimile:  (626)
810-6558

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    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
reasonably 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) receipt
by the Agent of an amendment fee in the amount of $12,500, 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);
and

     

    (f) 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 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; and (vi) no Default has occurred and is
continuing.

    

     

    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.]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    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 Jaeger	 
	 	Name:	Joseph
    Jaeger	 
	 	Title:	Chief
      Financial Officer	 


      

    

     

                                                                    

    
      	 	UNION
      BANK OF CALIFORNIA, N.A., as Agent and as sole Lender	 
	 	 	 	 
	 	By:	/s/
      Stephen W. Dunne	 
	 	Name:	Stephen W.
      Dunne	 
	 	Title:	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 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 and by that certain Second Amendment to
Credit Agreement dated as of September 9, 2008 (as so amended, the “Credit
Agreement”).

     

    In
connection herewith, the Credit Agreement is being amended by that certain Third
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:
December __, 2008

     

    
      	 	PHYSICIANS
      FORMULA HOLDINGS INC., a Delaware corporation	 
	 	 	 	 
	 	By:	 	 
	 	Name:	Joseph
      Jaeger	 
	 	Title:	Chief
      Financial Officer	 


    

     

     

    
      	 	PHYSICIANS
      FORMULA COSMETICS INC., a Delaware corporation	 
	 	 	 	 
	 	By:	 	 
	 	Name:	Joseph
      Jaeger	 
	 	Title:	Chief
      Financial Officer