Exhibit 10.1
TERM LOAN
AGREEMENT
Dated as of September 4,
2009
between
PHYSICIANS FORMULA, INC.
and
MILL ROAD CAPITAL, L.P.
THIS LOAN
AGREEMENT, THE OTHER LOAN DOCUMENTS (AS DEFINED BELOW), THE TERM
LOAN (AS DEFINED BELOW) AND ALL OTHER OBLIGATIONS (AS DEFINED
BELOW), AND THE LIENS CREATED BY THE LOAN DOCUMENTS ARE SUBJECT TO
THAT CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT DATED AS OF
EVEN DATE HEREWITH AMONG PHYSICIANS FORMULA, INC., MILL ROAD
CAPITAL, L.P., UNION BANK, N.A. AND THE OTHER PARTIES REFERRED TO
THEREIN, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME IN
ACCORDANCE WITH THE TERMS THEREOF.
TERM LOAN
AGREEMENT
This Term Loan Agreement (the “ Loan
Agreement ”) is made as of the 4th day of September, 2009
by and among PHYSICIANS FORMULA, INC. , a New York
corporation (the “ Borrower ”) having its
principal place of business at 1055 West 8 th Street,
Azusa, CA 91702, and MILL ROAD CAPITAL, L.P. , a Delaware
limited partnership (the “ Lender ”) having its
principal place of business at Two Sound View Drive, Greenwich, CT
06830.
RECITALS
WHEREAS, Borrower has requested Lender provide a
$4,200,000 term loan facility; and
WHEREAS, the term loan facility shall be used
for working capital and for other general corporate purposes;
and
WHEREAS, Lender is willing to provide such loan
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties, in consideration of
their mutual covenants and agreements hereinafter set forth, and
intending to be legally bound hereby, covenant and agree as
follows:
1.
DEFINITIONS AND RULES OF INTERPRETATION .
1.1.
Definitions . The following terms shall
have the meanings set forth in this §1 or elsewhere in the
provisions of this Loan Agreement referred to below:
Affiliate . As to any Person, (a) any Person
which, directly or indirectly, controls, is controlled by or is
under common control with the first Person or (b) any Person who is
a director, officer, shareholder, member or partners (i) of such
Person, (ii) of a Subsidiary of such Person or (iii) of any Person
described in the preceding clause
(a). “Control” of a Person means the power,
directly or indirectly, (a) to vote 10% or more of the Capital
Stock (on a fully diluted basis) of the Person having ordinary
voting power for the election of directors, managing members or
general partners (as applicable); or (b) to direct or cause the
direction of the management and policies of the Person (whether by
contract or otherwise).
Balance Sheet Date . June 30, 2009.
Borrower . As defined in the preamble
hereto.
Borrower Affiliate . An Affiliate of the Borrower, any
Subsidiary of Borrower or any Guarantor.
Business Day . Any day which is neither a Saturday
or Sunday nor a legal holiday on which commercial banks are
authorized or required to be closed in Greenwich, Connecticut, the
State of New York or the State of California.
Capital Stock . Any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership or
economic interests in a Person other than a corporation and any and
all warrants, rights or options to purchase any of the
foregoing.
Change of Control . Either (i) any Person or
“group” (within the meaning of Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, as amended) shall have
obtained the power (whether or not exercised) to elect a majority
of the members of the board of directors (or similar governing
body) of the Guarantor; or (ii) the Guarantor is no longer the
legal and beneficial owner of 100% of the Capital Stock of the
Borrower; or (iii) the Borrower ceases to own 100% of the Capital
Stock of each of its Subsidiaries.
Closing Date . The first date on which the
conditions set forth in §10 have been satisfied.
Code . The Internal Revenue Code of
1986.
Collateral . As defined in the Security
Agreement.
Default . An event that but for the
giving of notice or the lapse of time or both would be an Event of
Default.
Dollars or $ . Dollars in lawful
currency of the United States of America.
Domestic Subsidiary . Each Subsidiary organized under the
laws of the United States or any state thereof.
Eligible Assignee . Either (i) an Affiliate of the
Lender (who is under common control with such Lender) or (ii) any
fund that is administered, managed, advised or underwritten by (a)
the Lender or (b) an Affiliate of the Lender (who is under common
control with such Lender).
Environmental Laws . The Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Clean Water Act, the
Federal Clean Air Act, the Toxic Substances Control Act, or any
state, local or foreign law, statute, regulation, ordinance, order
or decree relating to health, safety or the environment.
Event of Default . See §11.1.
Foreign Subsidiary . Any Subsidiary other than a
Domestic Subsidiary.
GAAP . Generally accepted accounting
principles in the United States in effect from time to
time.
Governing Documents . With respect to any Person, its
certificate or articles of incorporation, certificate of formation,
or, as the case may be, certificate of limited partnership, its
by-laws, operating agreement or, as the case may be, partnership
agreement or other constitutive documents.
Governmental Authority . Any foreign, federal, state,
regional, local, municipal or other government, or any department,
commission, board, bureau, agency, public authority or
instrumentality thereof, or any court or arbitrator.
Guarantees . The Guarantees dated as of the date
hereof in favor of the Lender, substantially in the forms of
Exhibit C-1 and C-2 hereto.
Guarantor . Physicians Formula Holdings, Inc.,
a Delaware corporation and parent of the Borrower.
Hazardous Substances . Any pollutant or contaminant as
defined by 42 U.S.C. §9601(33) and any toxic substances, oil
or hazardous materials or other chemicals or substances regulated
by any Environmental Laws.
Incorporated Affirmative Covenants
. See §7.
Incorporated Negative Covenants
. See §8.
Indebtedness . As to any Person at any time, any
and all indebtedness, obligations or liabilities (whether matured
or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, or joint or several) of such Person for or
in respect of: (a) borrowed money, seller notes or
seller holdbacks, (b) amounts raised under or liabilities in
respect of any note purchase or acceptance credit facility, (c)
reimbursement obligations (contingent or otherwise) under any
letter of credit, currency swap agreement, interest rate swap, cap,
collar or floor agreement or other interest rate management device,
(d) any other transaction (including forward sale or purchase
agreements, capitalized leases and conditional sales agreements)
having the commercial effect of a borrowing of money entered into
by such Person to finance its operations or capital requirements
(but not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a
promissory note or other evidence of indebtedness and which are not
more than 90 days past due), or (e) any guaranty of Indebtedness
for borrowed money.
Interest Rate . A per annum rate equal to the
lesser of 15.0% or the maximum rate permitted by applicable
law.
Lender . Mill Road Capital, L.P. and any
other Person who becomes an assignee of any rights and obligations
of Lender pursuant to §12.
Lender’s Office . The Lender’s office located
at Two Sound View Drive, Greenwich, CT 06830, or at such other
location as the Lender may designate from time to time.
Lender’s Special Counsel
. Foley Hoag LLP or such
other counsel as may be approved by the Lender.
Lien . Any mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge, preference, priority or other
security interest or preferential arrangement in the nature of a
security interest of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement), any easement, right of way or other encumbrance on
title to real property, any financing lease having substantially
the same economic effect as any of the foregoing, and the filing of
any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the
foregoing.
Loan Agreement . This Loan Agreement, including the
Schedules and Exhibits hereto.
Loan Documents . This Loan Agreement, the Term Loan
Note, the Pledge Agreement, the Security Agreement, the Guarantees,
and any other instruments, certificates or documents delivered
or
contemplated to
be delivered hereunder or thereunder or in connection herewith or
therewith, as the same may be supplemented or amended from time to
time in accordance herewith or therewith.
Loan Party . The Borrower, each of its Subsidiaries and the
Guarantor.
Material Adverse Effect . With respect to any event or
occurrence of whatever nature (including any adverse determination
in any litigation, arbitration or governmental investigation or
proceeding) a material adverse effect on:
(a) the
business, properties, financial condition, assets or operations of
the Borrower and its Subsidiaries, taken as a whole;
(b) the
ability of any Loan Party to perform their respective obligations
under any of the Loan Documents; or
(c) the
validity, binding effect or enforceability of the other Loan
Documents or the rights, remedies or benefits available to the
Lender under any Loan Document.
Obligations . The unpaid principal of and
interest on (including, without limitation, interest accruing after
the maturity of the Term Loan and interest accruing on or after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the
Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and whether or not at a
default rate) the Term Loan Note and all other indebtedness,
obligations and liabilities of any of the Borrower and its
Subsidiaries to the Lender or any of its Affiliates, individually
or collectively, existing on the date of this Loan Agreement or
arising thereafter, direct or indirect, joint or several, absolute
or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or
otherwise, in each case arising or incurred under, out of, or in
connection with, this Loan Agreement or any of the other Loan
Documents or any other instrument or document at any time
evidencing any thereof or made, delivered or given in connection
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all reasonable fees and disbursements of counsel to the
Lender that are required to be paid by the Borrower and its
Subsidiaries pursuant to the terms of this Loan Agreement) or
otherwise.
Participant . See §12.3.
Person . Any individual, firm, partnership,
joint venture, corporation, limited liability company, association,
trust, other unincorporated association, business, or other legal
entity, and any Governmental Authority.
Pledge Agreement . The Pledge Agreement, dated as of
the Closing Date made by each of the Borrower’s shareholders
and the Borrower in favor of the Lender, substantially in the form
of Exhibit D hereto.
Related Parties . With respect to any specified
Person, such Person’s Affiliates and the respective
directors, officers, employees, agents and advisors of such Person
and such Person’s Affiliates.
Security Agreement . That certain Security Agreement of
even date herewith in substantially the form of Exhibit B
hereto by and among the Borrower, the Subsidiary Guarantors and the
Lender.
Subordination Agreement . That certain Intercreditor and
Subordination Agreement dated as of September 4, 2009 among the
Borrower, the Lender, UB (for the benefit of the Lenders under the
UB Credit Agreement) and the other parties referred to therein, as
such Subordination Agreement may be amended, modified or restated
from time to time.
Subsidiary . Any corporation, association,
trust, or other business entity of which the designated parent
shall at any time own directly or indirectly through a Subsidiary
or Subsidiaries at least a majority (by number of votes) of the
outstanding Voting Stock.
Subsidiary Guarantors . Certain Subsidiaries of the
Borrower party to the Guarantee substantially in the form of
Exhibit C-2 hereto.
Taxes . See §4.4.
Term Loan . See §2.1.
Term Loan Commitment . The sum of $4,200,000.
Term Loan Note . See §2.2.
Term Loan Maturity Date . December 3, 2009.
Voting Stock . Stock or similar interests, of any
class or classes (however designated), the holders of which are at
the time entitled, as such holders, to vote for the election of a
majority of the directors (or persons performing similar functions)
of the corporation, association, trust or other business entity
involved, whether or not the right so to vote exists by reason of
the happening of a contingency.
UB . Union Bank, N.A., formerly known as
Union Bank of California, N.A.
UB Credit Agreement . That certain Credit Agreement dated
as of November 14, 2006 among the Borrower, the lenders party
thereto and UB, as agent and a lender, including any notes,
guarantees, collateral and security documents, instruments and
agreements executed in connection therewith, and in each case as
amended, restated, supplemented or otherwise modified from time to
time before, on or after the date of this Loan
Agreement.
Uniform Commercial Code . The Uniform Commercial Code as in
effect in the State of New York from time to time.
1.2.
Rules of Interpretation .
(a) A
reference to any document or agreement shall include such document
or agreement as amended, modified or supplemented from time to time
in accordance with its terms and the terms of this Loan
Agreement.
(b) The
singular includes the plural and the plural includes the
singular.
(c) A
reference to any law includes any amendment or modification to such
law.
(d) A
reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting
terms not otherwise defined herein have the meanings assigned to
them by GAAP applied on a consistent basis by the accounting entity
to which they refer.
(f) The
words “include”, “includes” and
“including” are not limiting.
(g) All
terms not specifically defined herein or by GAAP, which terms are
defined in the Uniform Commercial Code, have the meanings assigned
to them therein, with the term “instrument” being that
defined under Article 9 of the Uniform Commercial Code.
(h) Reference
to a particular “§” refers to that section of this
Loan Agreement unless otherwise indicated.
(i) The
words “herein”, “hereof”,
“hereunder” and words of like import shall refer to
this Loan Agreement as a whole and not to any particular section or
subdivision of this Loan Agreement.
(j) Unless
otherwise expressly indicated, in the computation of periods of
time from a specified date to a later specified date, the word
“from” means “from and including,” the
words “to” and “until” each mean “to
but excluding,” and the word “through” means
“to and including.”
(k) This
Loan Agreement and the other Loan Documents are the result of
negotiation among, and have been reviewed by counsel to, among
others, the Lender and the Borrower and are the product of
discussions and negotiations among all
parties. Accordingly, this Loan Agreement and the other
Loan Documents are not intended to be construed against the Lender
merely on account of the Lender’s involvement in the
preparation of such documents.
2.
THE TERM LOAN .
2.1.
Term Loan . Subject to the terms and
conditions set forth in this Loan Agreement and upon satisfaction
of the conditions precedent referred to in §10 hereof, the
Lender agrees to make a term loan (the “ Term Loan
”) to the Borrower on the Closing Date in the aggregate
principal amount of the Term Loan Commitment. On the
Closing Date, subject to the terms and conditions of this Loan
Agreement, the Term Loan shall be made available to Borrower no
later than 2:00 p.m. Connecticut time by a deposit as instructed by
the Borrower in writing in the full principal amount of the Term
Loan. Borrower shall not have the right to borrow,
repay, and reborrow under this §2.
2.2.
Term Loan Note . The Term Loan shall be
evidenced by a promissory note of the Borrower in substantially the
form of Exhibit A hereto (the “ Term Loan Note
”), dated as of the Closing Date and completed with
appropriate insertions. The Term Loan Note shall be
payable to the order of the Lender in a principal amount equal to
the Term Loan Commitment. The principal amount as
provided therein of the Term Note shall be payable in full on the
Term Loan Maturity Date, along with all accrued interest as set
forth in §2.3.
2.3.
Interest on Term Loan . Except as
otherwise provided in §4.5, interest on the outstanding
principal amount of the Term Loan shall accrue at a fixed per annum
rate equal to the Interest Rate and shall be payable on the Term
Loan Maturity Date.
3.
REPAYMENT OF THE LOANS .
3.1.
Maturity . The Borrower promises to pay
on the Term Loan Maturity Date, and there shall become absolutely
due and payable on the Term Loan Maturity Date, the balance of the
Term Loan outstanding on such date, together with any and all
accrued and unpaid interest thereon.
3.2.
Optional Prepayments of Term Loan . The
Borrower shall have the right, at its election and with at least 10
days prior written notice to the Lender, to prepay the outstanding
amount of the Term Loan, in whole or in part, at any time, without
penalty or premium, provided that any such prepayment shall be
accompanied by the payment of (a) all accrued interest on the
principal amount to be prepaid through the date of prepayment and
(b) all other amounts then due and payable hereunder.
4.
CERTAIN GENERAL PROVISIONS .
4.1.
Closing Fee . There shall be no Closing
Fee.
4.2.
Payments to Lender . Except as otherwise
provided herein, all payments of principal, interest, fees and any
other amounts due hereunder or under any of the other Loan
Documents shall be made on the due date thereof to the Lender in
Dollars at the Lender’s Office or at such other place that
the Lender may from time to time designate, in each case at or
about 2:00 p.m. (Greenwich, Connecticut, time or other local time
at the place of payment) and in immediately available
funds.
4.3.
Computations . All computations of
interest on the Term Loan and of fees shall be based on a 365 or
366 day year and paid for the actual number of days
elapsed. Whenever a payment hereunder or under any of
the other Loan Documents becomes due on a day that is not a
Business Day, the due date for such payment shall be extended to
the next succeeding Business Day, and interest shall accrue during
such extension.
4.4.
Taxes . All amounts payable hereunder
shall be made free and clear of and without deduction for any
present or future income, excise, stamp or franchise taxes and
other taxes, fees, duties, withholdings or other charges of any
nature whatsoever imposed by any taxing authority, but excluding
franchise taxes and taxes imposed on or measured by the
Lender’s net income or receipts (such non-excluded items
being called “ Taxes ”). In the event
that any withholding or deduction from any payment to be made by
the Borrower hereunder is required in respect of any Taxes pursuant
to any applicable law, rule or regulation, then the Borrower
will
(a) pay
directly to the relevant authority the full amount required to be
so withheld or deducted;
(b) promptly
forward to the Lender an official receipt or other documentation
satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay
to the Lender such additional amount or amounts as is necessary to
ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received had no such
withholding or deduction been required.
Moreover, if
any Taxes are directly asserted against the Lender with respect to
any payment received by the Lender hereunder, the Lender may pay
such Taxes and the Borrower will promptly pay such additional
amount (including any penalties, interest or expenses) as is
necessary in order that the net amount received by the Lender after
the payment of such Taxes (including any Taxes on such additional
amount) shall equal the amount the Lender would have received had
not such Taxes been asserted. A statement of the Lender
as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest
error, be conclusive and binding on the Borrower.
If the Borrower
fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the
Lender for any incremental Taxes, interest or penalties that may
become payable by the Lender as a result of any such
failure.
4.5.
Interest After Default . During the
continuance of an Event of Default the principal of the
Term Loan shall, until such Event of Default has been
cured or remedied or such Event of Default has been waived by the
Lender, bear interest at a rate per annum equal to the lesser of
(a) 2% above the rate of interest otherwise applicable to such Term
Loan or (b) the maximum rate permitted by applicable
law.
5.
SECURITY ARRANGEMENTS .
5.1.
Security Agreement, Pledge Agreement . The
payment and performance of the Obligations shall be secured by (i)
the Collateral (including a pledge of all equity securities and
rights to acquire equity securities of the Subsidiary Guarantors)
pursuant to the Security Agreement among the Lender, the Borrower
and the Subsidiary Guarantors, and (ii) a pledge of all equity
securities and rights to acquire equity securities of the Borrower
pursuant to the Pledge Agreement among the Lender, the Borrower and
the Guarantor.
5.2.
Guarantees . The payment and performance
of the Obligations shall be guaranteed by the Guarantor and the
Subsidiary Guarantors pursuant to the terms of the
Guarantees.
6.
REPRESENTATIONS AND WARRANTIES .
6.1.
Corporate Authority.
6.1.1.
Incorporation; Good Standing . The
Borrower is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation,
and each of the Borrower’s Subsidiaries is a corporation (or
similar business entity) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation
or formation except where a failure to be so qualified would not
have a Material Adverse Effect. Each of the Borrower and
its Subsidiaries (a) has all requisite corporate (or the equivalent
company) power to own its property and conduct its business as now
conducted and as currently contemplated, and (b) is in good
standing as a foreign corporation (or similar business entity) and
is duly authorized to do business in each jurisdiction where such
qualification is necessary except where a failure to be so
qualified would not have a Material Adverse Effect.
6.1.2.
Authorization . The execution, delivery
and performance of this Loan Agreement and the other Loan Documents
to which the Borrower or any of its Subsidiaries is or is to become
a party and the transactions contemplated hereby and thereby (a)
are within the corporate (or the equivalent company) authority of
such Person, (b) have been duly authorized by all necessary
corporate (or the equivalent company) proceedings, (c) do not and
will not conflict with or result in any breach or contravention of
any provision of law, statute, rule or regulation to which the
Borrower or any of its Subsidiaries is subject or any judgment,
order, writ, injunction, license or permit applicable to the
Borrower or any of its Subsidiaries, and (d) do not conflict with
any provision of the Governing Documents of, or any agreement or
other instrument binding upon, the Borrower or any of its
Subsidiaries.
6.1.3.
Enforceability . The execution and
delivery of this Loan Agreement and the other Loan Documents to
which the Borrower or any of its Subsidiaries is or is to become a
party will result in valid and legally binding obligations of such
Person enforceable against it in accordance
with the
respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or fraudulent
transfer or other laws relating to or affecting generally the
enforcement of creditors’ rights and except to the extent
that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before
which any proceeding therefor may be brought.
6.2.
Consents; Approvals . No consent,
approval or authorization of, filing with or other act by or in
respect of, any Governmental Authority or any other Person is
required (or, with respect to those transactions and agreements
previously entered into, was required) in connection with the
borrowings hereunder or the execution, delivery, performance,
validity or enforceability of this Loan Agreement, the Term Loan
Note or the other Loan Documents other than those already
obtained.
6.3.
Title to Properties; Leases . As of the
Closing Date the Borrower and its Subsidiaries own all of the
assets reflected in the consolidated balance sheet of the Borrower
and its Subsidiaries as at the Balance Sheet Date or acquired since
that date (except property and assets sold or otherwise disposed of
in the ordinary course of business since that date), subject to no
Liens except Liens permitted or granted hereunder or under the UB
Credit Agreement.
6.4.
Financial Condition . The (i) audited
consolidated financial statements of the Borrower and its
Subsidiaries for the fiscal year ended December 31, 2008 and (ii)
unaudited consolidated financial statements of the Borrower and its
Subsidiaries for the six-month period ended as of the Balance Sheet
Date, copies of which have heretofore been furnished to the Lender,
present, to the best knowledge of the Borrower, fairly in all
material respects the financial condition of the Borrower and its
Subsidiaries. The foregoing financial statements,
including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout
the periods involved. Neither the Borrower nor any
Subsidiary has, as of such date, any obligation, contingent
liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any
interest rate or foreign currency swap or exchange transaction, in
an aggregate amount for all such obligations, liabilities and
commitments in excess of $200,000, which is not reflected in the
foregoing statements or in the notes thereto.
6.5.
No Mat
