Exhibit 10.1
 
FIRST AMENDMENT TO
SENIOR SUBORDINATED NOTE PURCHASE AND SECURITY AGREEMENT
 
Physicians Formula, Inc.
1055 West 8th Street
Azusa, CA 91702
 

 
Dated as of February 3, 2010
 
Mill Road Capital, L.P.,
   as the Purchaser, a Holder and
   the Holder Representative,
Two Sound View Drive
Greenwich, CT 06830

 
Ladies and Gentlemen:
 
    Physicians Formula, Inc., a New York corporation (the “Borrower”),
Physicians Formula Holdings, Inc., a Delaware corporation (“Holdings”), and the
direct parent of the Borrower, and the other direct and indirect Subsidiaries of
Holdings from time to time party to the Purchase and Security Agreement (as
defined below), as Guarantors, hereby agree with you as follows:
 
    WHEREAS, the Borrower, Holdings and the other direct and indirect
Subsidiaries of Holdings are parties to a Senior Subordinated Note Purchase and
Security Agreement, dated as of November 6, 2009 (the “Purchase and Security
Agreement”), providing for the issuance and sale of Senior Subordinated Notes
due May 6, 2013 of the Borrower (the “Notes”) to Mill Road Capital, L.P.
(“MRC”).
 
    WHEREAS, the Purchase and Security Agreement contemplates that upon the
approval of certain terms and conditions by the stockholders of Holdings, the
parties shall amend the terms of the Notes and issue warrants to MRC, upon the
terms and conditions set forth in the Purchase and Security Agreement and the
Annexes thereto, and the parties to the Purchase and Security Agreement shall
execute and deliver documentation to effect these terms and conditions,
including an amendment to the Purchase and Security Agreement substantially in
the form of Annex A-1 to the Purchase and Security Agreement, and a warrant
substantially in the form of Annex A-3 to the Purchase and Security Agreement.
 
    WHEREAS, the Purchase and Security Agreement and the Annexes thereto
contemplate that the number of warrants issuable upon the approval by the
stockholders of Holdings shall be determined based on a formula tied to the
30-day average closing price of Holdings’ common stock (the “Common Stock”) as
of the date of the amendment contemplated by Annex A to the Purchase and
Security Agreement.
 
    WHEREAS, the parties desire to enter into an amendment to the Purchase and
Security Agreement (the “First Amendment”) to amend Annexes A, A-1, A-2 and A-3
thereto, to agree upon the number shares of Holdings’ Common Stock issuable upon
exercise of the warrants, in lieu of determining such number based on a formula.
 
    NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration (the receipt of which is hereby acknowledged), the
parties hereto agree as follows:
 
    1.1 The Amendments.
 
       (a) Annex A to the Purchase and Security Agreement is hereby superseded
and replaced in its entirety with the form attached hereto as Annex A.
 
 
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       (b) Annex A-1 to the Purchase and Security Agreement is hereby superseded
and replaced in its entirety with the form attached hereto as Annex A-1.
 
       (c) Annex A-2 to the Purchase and Security Agreement is hereby superseded
and replaced in its entirety with the form attached hereto as Annex A-2.
 
       (d) Annex A-3 to the Purchase and Security Agreement is hereby superseded
and replaced in its entirety with the form attached hereto as Annex A-3.
 
    1.2 Acknowledgement.  The parties hereby acknowledge and agree that if the
stockholders of Holdings approve the issuance of the warrants to MRC, the number
of shares of Holdings’ Common Stock issuable upon exercise of the warrants shall
be 650,000.
 
    1.3 Miscellaneous Provisions.
 
       (a) Conditions to Effectiveness.  This First Amendment shall become
effective upon execution and delivery of this First Amendment by each of the
parties hereto.
 
       (b) Survival of Other Provisions.  Unless specifically amended herein,
all of the other covenants, agreements, representations, warranties or other
terms and conditions of the Purchase and Security Agreement shall remain in full
force and effect without any change whatsoever.
 
       (c) Defined Terms.  Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Purchase and
Security Agreement.
 
       (d) Governing Law.  THIS FIRST AMENDMENT IS A CONTRACT UNDER THE LAWS OF
THE STATE OF NEW YORK AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OR CHOICE OF LAW).
 
       (e) Section Headings; Construction.  The descriptive headings in this
First Amendment have been inserted for convenience only and shall not be deemed
to limit or otherwise affect the construction of any provision thereof or
hereof.
 
       (f) Counterparts.  This First Amendment may be executed simultaneously in
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document.  Any counterpart may be executed by the delivery of a
facsimile signature thereon by telecopier or by electronic mail, each of which
shall be of the same legal effect, validity and enforceability as an original
manually executed signature page.
 
[The remainder of this page has been left blank intentionally.]
 
 
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    IN WITNESS WHEREOF, the parties hereto have duly authorized and executed
this First Amendment under seal as of the date first above written.
 

  BORROWER:            
PHYSICIANS FORMULA, INC.,
a New York Corporation 
            By:   /s/ Jeff Rogers       Name: Jeff Rogers        Title:
President             
Federal Employer Identification No. 13-3015258
Organization Identification No. N/A 
            GUARANTORS:            
PHYSICIANS FORMULA HOLDINGS, INC.,
a Delaware Corporation 
            By:   /s/ Jeff Rogers       Name: Jeff Rogers        Title:
President             
PHYSICIANS FORMULA COSMETICS, INC.,
a Delaware Corporation 
            By:   /s/ Jeff Rogers       Name: Jeff Rogers        Title:
President             
PHYSICIANS FORMULA DRTV, LLC,
a Delaware Limited Liability Company 
            By:   /s/ Jeff Rogers       Name: Jeff Rogers        Title:
President   

 
 
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  ACCEPTED AND AGREED:            
PURCHASER AND INITIAL
HOLDER REPRESENTATIVE:
           
MILL ROAD CAPITAL, L.P.,
a Delaware Limited Partnership 
            By:   /s/ Charles Goldman       Name: Charles Goldman       Title:
Managing Director  

 
 
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ANNEX A
 
MEZZANINE FINANCING

If Holdings Stockholder approval is obtained, then the terms of the Operative
Documents shall be modified as follows and Holdings shall issue warrants to MRC
under the terms set forth below.  The parties will execute and deliver
documentation to effect the below changes.

SENIOR SUBORDINATED NOTES MODIFICATIONS

Maturity:
5 years from the Closing Date of the existing Senior Subordinated Notes Purchase
and Security Agreement.
Coupon:
10.0% per annum payable in cash and 4.0% per annum payable-in-kind
 
Cash interest payable monthly by automatic bank draft in arrears on a 360 day
basis and actual days elapsed; PIK accrued annually and added to the principal
balance of the Senior Subordinated Notes
 
 
Fees:
No additional fees; provided, that, whether closing occurs or not, all
reasonable out-of-pocket expenses, including legal expenses, will be reimbursed.
 
Security:
The same as set forth in the existing Senior Subordinated Notes Purchase and
Security Agreement and the other Operative Documents, except that there shall be
no cap on MRC’s lien.
 
Optional Redemption:
The Senior Subordinated Notes will be redeemable at the option of the Company,
in whole or in part, at any time prior to maturity, at the following redemption
prices (expressed as a percentage of principal amount), together, in each case,
with accrued and unpaid interest, if any, to the date of redemption:
   
Percentage
5 years prior to Maturity Date
105%
4 years prior to Maturity Date
104%
3 years prior to Maturity Date
102%
2 years prior to Maturity Date
101%
1 year prior to Maturity Date
100%
Closing Conditions:
As set forth for the initial closing of the existing Senior Subordinated Notes
Purchase and Security Agreement plus the following:
 
    · Approval by the Issuer’s shareholders of the transaction as set forth in
this Term Sheet, all in accordance with Section 203 of the Delaware General
Corporation Law and the Nasdaq Rules.

WARRANTS

Issuer:
Physicians Formula Holdings, Inc. (“Holdings”)
 
Amount:
650,000 warrants
 
Strike Price:
$0.25
 
Maturity:
Seven (7) Years
 
Registration Rights:
Holdings agrees, at its expense,  (1) to file a registration statement on Form
S-3 (or on Form S-1 if the filing has not been made on or prior to April 30,
2010) providing for the resale of the shares of Common Stock underlying the
warrants within 30 days of the closing date of the mezzanine financing (i.e. the
closing date of the amendment of the Senior Subordinated Notes) and (2) to use
its reasonable efforts to cause the registration statement to be declared
effective within 120 days of the closing date; provided that Holdings shall use
reasonable efforts to cause the registration statement to be declared effective
promptly, but in any event, within five days after the SEC reaches a no comment
position with respect to the registration statement.  Holdings shall pay
liquidated damages in the amount of 0.5% of the invested amount per month for up
to 6 months and 1.0% for the following 6 months if it fails to file on time or
fails to cause the registration statement to become effective on time.  In
addition, MRC will have piggyback rights to participate in any underwritten
offerings by Holdings, subject to customary underwriter cut backs. The agreement
covering MRC’s registration rights shall cover additional terms usual and
customary in transactions such as this, including required periods of
effectiveness and penalties for lapse.
 
In the event Holdings is not currently S-3 eligible, Holdings may delay the
initial filing of the registration statement until April 30, 2010 without
penalty.

 
 
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Annex A-1
 
SECOND AMENDMENT TO
SENIOR SUBORDINATED NOTE PURCHASE AND SECURITY AGREEMENT

 
    THIS SECOND AMENDMENT TO SENIOR SUBORDINATED NOTE PURCHASE AND SECURITY
AGREEMENT dated as of ________, 20__ (the “Amendment”) amends the Senior
Subordinated Note Purchase and Security Agreement dated as of November 6, 2009
(the “Original Agreement”), by and among Mill Road Capital, L.P., a Delaware
limited partnership (the “Holder”), Physicians Formula, Inc., a New York
corporation (the “Borrower”), Physicians Formula Holdings, Inc., a Delaware
corporation (“Holdings”) and the Guarantors party to the Original Agreement.
 
    WHEREAS, the Holder, the Borrower, Holdings and the Guarantors desire to
amend the Original Agreement to change the terms of the Notes sold under the
Original Agreement and to permit the issuance and sale by Holdings of warrants
to the Holder; and
 
    WHEREAS, the Holder holds Notes representing at least a majority of the
aggregate principal amount of the Notes outstanding on the date hereof;
 
    NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Amendment hereby agree as follows:
 
   1. Defined Terms
 
       Capitalized terms used herein, unless specified otherwise, shall have the
same meanings and/or references as contained in the Original Agreement.
 
   2. Original Agreement Modifications
 
       (a) Section 1.1(a) of the Original Agreement is hereby amended and
restated in its entirety as follows:
 
          “(a) The Borrower has authorized the issuance and sale of its amended
and restated Senior Subordinated Notes due November 6, 2014 in the aggregate
original principal amount of eight million dollars ($8,000,000) in the form set
forth as Exhibit A attached hereto (referred to herein individually as a “Note”
and collectively as the “Notes”, which terms shall also include any notes
delivered in exchange therefor or replacement thereof).  Commencing on the
Second Amendment Effective Date, the Notes will accrue interest on the unpaid
principal amount thereof at an interest rate per annum (the “Interest Rate”)
consisting of (i) ten percent (10.00%) per annum in cash interest plus (ii) four
percent (4.00%) per annum to be added automatically to the unpaid principal
amount of the Notes (“PIK Interest”) on each Interest Payment Date.”
 
       (b) The third sentence of Section 1.1(b) of the Original Agreement is
hereby amended by amending and restating such sentence in its entirety as
follows:
 
          “All accrued PIK Interest shall be compounded annually on the first
day of each calendar year.”
 
       (c) Section 1.4(a) of the Original Agreement is hereby amended by
deleting the reference to “May 6, 2013” in the first sentence of such section
and replacing it with “November 6, 2014”.
 
 
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       (d) Section 1.4(d) of the Original Agreement is amended and restated in
its entirety as follows:
 
          “(d) Prepayment Premium.  In the event of any prepayment or repurchase
of the Notes prior to the Maturity Date pursuant to clauses (b) or (c) above,
the Borrower shall pay to the Holder Representative (on behalf of the Holders)
the prepayment premium indicated below corresponding to the time period in which
such prepayment or repurchase occurs or is required to occur (the “Prepayment
Premium”) (which prepayment premium shall be paid to the Holder Representative
(on behalf of the Holders) as liquidated damages and compensation for the costs
of making funds available with respect to the loans evidenced by the Notes):
 
 

 
 Period
 
 
 Prepayment Premium
(% of the aggregate principal amount of the Notes prepaid or repurchased)
 
    Closing Date through November 5, 2010  5%      November 6, 2010 through
November 5, 2011  4%      November 6, 2011 through November 5, 2012  2%     
November 6, 2012 through November 5, 2013  1%      November 6, 2013 and
thereafter  0%   

          ”
 
       (e) Section 1.8 of the Original Agreement is amended and restated in its
entirety as follows:
 
          “1.8 Transfer and Exchange of Notes and Warrants.  The Borrower shall
keep a register in which it shall provide for the registration of the Notes and
the Warrants and the registration of transfers of Notes and the Warrants.  The
Holder of any Note or Warrant may, prior to maturity, prepayment or repurchase
of such Note or the expiration of such Warrant, surrender such Note or Warrant
at the principal office of the Borrower for transfer or exchange.  Any Holder
desiring to transfer or exchange any Note or Warrant (including, but not limited
to, any assignment of a Note or Notes or a Warrant or Warrants contemplated by
Section 11.5 hereof) shall first notify the Borrower in writing at least ten
(10) Business Days in advance of such transfer or exchange.  Promptly, but in
any event within ten (10) Business Days after such notice to the Borrower from
the Holder Representative (on behalf of a Holder of one or more Notes) of  a
Holder’s intention to make such an exchange of such Holder’s Note(s) and without
expense (other than transfer taxes, if any) to such Holder, the Borrower shall
issue in exchange therefor another Note or Notes in the same aggregate principal
amount, as of the date of such issuance, as the unpaid principal amount of the
Note so surrendered and having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and conditions as
the Note so surrendered (provided that no minimum shall apply to a liquidating
distribution of Notes to investors in a Holder and any Notes so distributed may
be subsequently transferred by such investor and its successors in the original
denomination thereof without further restriction).  Each new Note shall be made
payable to such Person or Persons, or assigns, as the Holder of such surrendered
Note may designate, and such transfer or exchange shall be made in such a manner
that no gain or loss of principal or interest shall result therefrom.  The
Borrower shall have no obligation or liability under any Note to any Person
other than the registered Holder of each such Note.  Assignments and transfers
of Notes by the Holders shall be made in compliance with Section 11.5
hereof.  Assignments, transfers and exchanges of Warrants shall be made in
compliance with the terms set forth in the Warrants.
 
       (f) Section 2.10 of the Original Agreement is hereby deleted in its
entirety.
 
 
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       (g) The Original Agreement is hereby amended by inserting the following
new Article IIA as follows:
 
ARTICLE IIA
ISSUANCE OF THE WARRANTS
 
    2A.1 The Warrants.  Holdings has authorized the issuance and sale of
warrants for the purchase of an aggregate of 650,000 shares of Common Stock (the
“Warrant Shares”) (subject to adjustment as provided therein) in the form set
forth as Exhibit G attached hereto (referred to herein individually as a
“Warrant” and collectively as the “Warrants”, which terms shall also include any
warrants delivered in exchange therefor or replacement thereof).  The Warrants
shall be exercisable at a purchase price equal to $0.25 per Warrant Share
(subject to adjustment as provided in the Warrants).
 
    2A.2 Purchase and Sale of the Warrants.  For no additional consideration,
Holdings agrees to issue to the Purchaser on the Second Amendment Effective
Date, the Warrant.
 
    2A.3 Registration Rights.  The Purchaser and its successors and assigns
shall have the registration rights with respect to the Common Stock purchasable
under the Warrants as set forth in the Registration Rights Agreement.
 
    2A.4 Representations and Warranties of the Purchaser regarding the Warrants.
 
       The Purchaser hereby represents and warrants, which representations and
warranties shall survive the Second Amendment Effective Date, that:
 
       (a) It is the present intention of the Purchaser to acquire its Warrant
and the Warrant Shares for its own account, and not as nominee or agent.
 
       (b) The Warrants and the Warrant Shares are being and will be acquired
for the purpose of investment and not with a view to distribution or resale
thereof in violation of the securities laws; subject, nevertheless, to the
condition that, except as otherwise provided herein and subject to compliance
with applicable securities laws, the disposition of the property of the
Purchaser shall at all times be within its control.  The Purchaser was not
formed solely for the purpose of making an investment in the Borrower.  The
Purchaser is an “accredited investor” as that term is defined in Regulation D
promulgated under the Securities Act with such knowledge and experience in
financial and business matters as are necessary in order to evaluate the merits
and risks of an investment in the Warrants and Warrant Shares.  In making its
decision to acquire the Warrant, the Purchaser has relied upon independent
investigations made by the Purchaser and the Purchaser’s representatives,
including the Purchaser’s own professional, tax and other advisors.  The
Purchaser and its representatives have been given the opportunity to ask
questions of, and to receive answers from, the Borrower concerning the terms and
conditions of the acquisition of the Warrant.  The Purchaser has reviewed, or
has had the opportunity to review, all information it deems necessary and
appropriate for the Purchaser to evaluate the financial risks inherent in the
acquisition of the Warrant.  The Purchaser understands that its acquisition of
the Warrant involves a high degree of risk and that no governmental authority
has passed on or made any recommendation or endorsement of the Warrant.
 
       (c) The Purchaser understands that it must bear the economic risk of its
investment for an indefinite period of time because the Warrants and the Warrant
Shares are not, and will not be, registered under the Securities Act or any
applicable state securities laws and may not be resold unless subsequently
registered under the Securities Act and such other laws or unless an exemption
from such registration is available.  The Purchaser acknowledges that, in
issuing the Purchaser’s Warrant and the Warrant Shares, the Borrower is relying
on the representations and warranties of the Purchaser in this Section 2A.4.
 
 
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       (d) The Purchaser hereby acknowledges that its Warrant and each
certificate, if any, representing Warrant Shares (unless no longer required in
the written opinion of counsel delivered to the Borrower, which opinion and
counsel shall be reasonably satisfactory to the Borrower and its legal counsel,
it being agreed that Foley Hoag LLP shall be satisfactory counsel) shall bear a
legend substantially in the following form (in addition to any other legend
required by the Operative Documents):
 
    NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
 
    The acquisition by the Purchaser of the its Warrant Shares shall constitute
a confirmation by it of the foregoing representations.
 
    2A.5 Representations and Warranties of Holdings regarding the Warrants.
 
       Holdings hereby represents and warrants, which representations and
warranties shall survive the Second Amendment Effective Date, that:
 
       (a) Authority; No Conflicts.
 
          (i) The execution, delivery and performance of the Operative Documents
and the transactions contemplated thereby by Holdings (including the issuance of
the Warrants and the issuance of the Warrant Shares upon exercise of the
Warrants) are within the power and authority of Holdings and have been
authorized by all corporate or other organizational proceedings of Holdings and
its stockholders and do not and will not (i) contravene any provision of the
certificate of incorporation or bylaws or any other organizational documents of
Holdings or any law, rule or regulation applicable to Holdings, (ii) contravene
any provision of, or constitute an event of default or event that, but for the
requirement that time elapse or notice be given, or both, would constitute an
event of default under, any order, agreement, lease, mortgage, note, bond,
indenture, license, or other instrument or undertaking to which Holdings is a
party or by which any of its properties are bound, or (iii) result in or require
the imposition of any Lien on any of the properties, assets or rights of
Holdings, except in favor of the Holders.
 
          (ii) The Warrants being purchased hereunder and the Warrant Shares
issuable upon exercise of the Warrants, when issued, delivered and paid for in
the manner set forth in this Agreement or, in the case of the Warrant Shares,
when issued, delivered and paid for in the manner set forth in the Warrant, will
be duly authorized and validly issued and outstanding.  No preemptive rights or
other rights of any Person to subscribe for or purchase, and no anti-dilution
adjustment or similar rights of any Person, exist or will be triggered with
respect to the issuance and sale of the Warrants or the issuance of the Warrant
Shares upon the exercise of the Warrants.  Holdings will at all times hereafter
keep available, solely for issuance and delivery upon exercise of the Warrants,
such number of shares of Common Stock as from time to time shall be issuable
upon exercise of the Warrants.
 
       (b) Securities Act.  Neither Holdings, nor anyone acting on its behalf
has offered or will offer to sell Warrants, Common Stock or other securities to,
or has solicited or will solicit offers with respect thereto from, or has
entered into or will enter into any preliminary conversations or negotiations
relating thereto with, any Person, so as to bring the issuance and sale of the
Warrants, or the issuance of the Warrant Shares issuable upon exercise of the
Warrants, under the registration provisions of the Securities Act or the
registration provisions of any securities or Blue Sky laws of any applicable
jurisdiction.  Assuming the accuracy of the representations and warranties of
the Purchaser set forth herein, neither the issuance of the Warrants, nor the
issuance of the Warrant Shares upon exercise of the Warrants, is required to be
registered under the Securities Act or any applicable state securities laws, and
such issuances shall be in compliance with all applicable federal and state
securities laws.
 
 
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    (h) Section 3.1 of the Original Agreement is hereby amended by amending and
restating the following definitions therein:
 
       “Holder” or “Holders” shall mean the Purchaser (so long as it holds one
or more Notes or one or more Warrants, as the context requires) and any other
holder or holders from time to time of one or more Notes and/or one or more
Warrants, as the context requires.
 
       “Maturity Date” shall be November 6, 2014.
 
       “Operative Documents” means this Agreement, the Notes, the Guaranties,
the Security Documents, the Intercreditor Agreement, the Warrants, the
Registration Rights Agreement and each other agreement, instrument or document
now or hereafter executed and pursuant to or in connection with any of the
foregoing.
 
    (i) Section 3.1 of the Original Agreement is hereby further amended by
inserting the following definitions therein in appropriate alphabetical order:
 
       “Common Stock” is the common stock, par value $0.01 per share, of
Holdings.
 
       “Second Amendment Effective Date” is _______, 20__ .
 
       “Registration Rights Agreement” means that certain Registration Rights
Agreement dated as of the Second Amendment Effective Date among Purchaser,
Holdings and the other Persons party thereto in the form attached hereto as
Exhibit H.
 
       “Warrant” or “Warrants” shall have the meaning given to such term in
Section 2A.1 hereof.
 
       “Warrant Shares” shall have the meaning given to such term in Section
2A.1 hereof.
 
    (j) The third sentence of Section 3.2 of the Original Agreement is hereby
amended by amending and restating such sentence in its entirety as follows:
 
       “The words “party” or “parties” when used with reference to this
Agreement shall include each party to this Agreement and, by their acceptance of
a Note or Warrant, each Holder.”
 
    (k) Section 8.1 of the Original Agreement is hereby amended by inserting the
following new sentence at the end thereof as follows:
 
       “Without in any way limiting the rights of the Holders, Holdings hereby
agrees that the Holders of the Warrants or the Warrant Shares would have no
adequate remedy at law, for monetary compensation or otherwise, for the damages
that would be suffered if Holdings or the Borrower were to fail to comply with
its obligations under Article IIA and/or Article VII hereof, and that Holdings
therefore agrees that the Holders of the Warrants and the Warrant Shares shall
be entitled to obtain specific performance of the Holdings’ obligations under
Article IIA and/or Article VII hereof.”
 
    (l) Article X of the Original Agreement is hereby amended by deleting the
references to the clause “Each Holder, by acceptance of any Note(s) held by it,”
throughout such Article and replacing it with the clause “Each Holder, by
acceptance of any Note(s) or Warrant(s) held by it,”.
 
    (m) Section 10.8 of the Original Agreement is hereby amended by deleting the
references to the clause “with respect to its Note” throughout such Section and
replacing it with the clause “with respect to its Note and its Warrant”.
 
 
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    (n) Section 11.2 of the Original Agreement is hereby amended and restated in
its entirety as follows:
 
       “11.2 Amendments, Waivers and Consents.  Any provision in this Agreement,
the Notes or the other Operative Documents (other than the Warrants) to the
contrary notwithstanding, changes in or additions to this Agreement and the
other Operative Documents may be made, and compliance with any covenant or
provision set forth herein or therein may be omitted or waived, if the Borrower
shall obtain consent thereto in writing from the Required Holders, and shall, in
any case, deliver copies of such consent in writing to all other Holders of
Notes and/or Warrants; provided that (i) without the consent of all Holders of
Notes, no such consent or waiver shall be effective to reduce the amount of, to
postpone the date fixed for the payment of, the principal of (including any
required redemption) or interest or Prepayment Premium payable on any Note, to
decrease the Interest Rate or the Prepayment Premium, to decrease or postpone
any prepayments or redemptions, to increase the proportion of interest payable
as PIK Interest rather than as cash interest, to alter, amend or waive
compliance with Section 8.1(a), to alter or amend the consent mechanism provided
for under Section 8.3 or this Section 11.2, or to release any material Guarantor
from its guaranty hereunder or any Guaranty, and (ii) without the consent of the
Holder Representative, no such consent or waiver shall be effective to alter the
rights or obligations of the Holder Representative.  The provisions of the
Warrants may be amended or waived in the manner provided, and with the consent
of the Persons required, under Section 12 of the Warrants.  If the Required
Holders vote to alter, amend or waive compliance with the Intercreditor
Agreement or any subordination or intercreditor agreement relating to any
Subordinated Debt, then all Holders shall be bound by such vote and agree to
sign such consent or other document as may be necessary to effectuate such
alteration, amendment or waiver.  Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.  Written notice of any waiver or consent effected under this subsection
shall promptly be delivered by the Borrower to any Holders who did not execute
the same.”
 
    (o) The last sentence of Section 11.4(a) of the Original Agreement is hereby
amended by amending and restating such sentence in its entirety as follows:
 
       “In addition, the Borrower agrees to pay the expenses of preparing Notes
and Warrants from time to time in connection with exchanges and transfers of
Notes and/or Warrants and the expenses of delivering copies of Operative
Documents to Holders, and the Borrower agrees to indemnify, pay and hold each
Holder harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay taxes (other than transfer
taxes) and filing fees with respect to such transfer.”
 
    (p) Section 11.4(c) of the Original Agreement is hereby amended and restated
in its entirety as follows:
 
       “(c) The provisions of this Section 11.4 shall survive the payment in
full of all amounts due under this Agreement, the Notes and the other Operative
Documents, the exercise in full or termination of the Warrants, and the
termination of this Agreement and the other Operative Documents.”
 
    (q) Section 11.5 of the Original Agreement is hereby amended by inserting
the following new sentence at the end thereof as follows:
 
       “Any holder of one or more Warrants may assign its Warrants in compliance
with the terms set forth in the Warrants.”
 
 
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    (r) Section 11.7 of the Original Agreement is hereby amended and restated in
its entirety as follows:
 
       “11.7 Payments in Respect of Warrants.  The Holders of the Warrants, by
their acceptance thereof, agree that, with respect to the sale to, or repurchase
by, Holdings or any Person directly or indirectly affiliated with Holdings or
any of its managers, directors, officers, members or other equityholders, of the
Warrants, equitable adjustment will be made among them so that, in effect, all
such sums shall be shared ratably by all of the Holders of the Warrants in
proportion to their respective holdings of Warrants.  If any Holder of one or
more Warrants receives any such sum in respect of its Warrants in excess of its
pro rata portion, then such Holder receiving such excess payment shall purchase
for cash from the other Holders of Warrants an interest in their Warrants in
such amount as shall result in a ratable participation by all of the Holders of
the Warrants in the aggregate of all Warrants then outstanding.”
 
    (s) Clause (ii) of Section 11.8 of the Original Agreement is hereby amended
and restated in its entirety as follows:
 
       “(ii) the Holders’ agreement to purchase the Notes and Warrants, or the
use or intended use of the proceeds of the Notes and Warrants hereunder,”
 
    (t) The last sentence of Section 11.8 of the Original Agreement is hereby
amended by amending and restating such sentence in its entirety as follows:
 
       “This indemnification shall survive the payment and satisfaction of all
Obligations, the exercise in full or termination of the Warrants, and the
termination of this Agreement and the other Operative Documents, and shall
remain in force beyond the expiration of any applicable statute of limitations
and payment or satisfaction in full of any single claim under this
indemnification.”
 
    (u) The parenthetical in the first sentence of Section 11.14 of the Original
Agreement is hereby amended by amending and restating such parenthetical in its
entirety as follows:
 
       “(BY ACCEPTANCE OF ANY NOTE(S) OR WARRANT(S) HELD BY IT)”
 
    (v) Section 11.20 of the Original Agreement is hereby amended and restated
in its entirety as follows:
 
       “11.20 Specific Performance.  Upon breach or default by the Borrower or
any Guarantor with respect to any obligation hereunder under the Notes, the
Warrants (or the Warrant Shares) or under any other Operative Document, each
Holder shall be entitled to protect and enforce its rights at law, or in equity
or by other appropriate proceedings for specific performance of such obligation,
or for an injunction against such breach or default, or in aid of the exercise
of any power or remedy granted hereby or thereby or by law.”
 
    (w) The parenthetical in the first sentence of Section 11.22 of the Original
Agreement is hereby amended by amending and restating such parenthetical in its
entirety as follows:
 
       “(by the acceptance of any Note(s) or Warrant(s) held by it)”
 
    (x) Clause (f)(A) of Section 11.22 of the Original Agreement is hereby
amended and restated in its entirety as follows:
 
       “(A) any assignee of or participant in, or any prospective assignee of or
participant in, any of its rights or obligations under this Agreement, any
Note(s) or any Warrant(s) or”
 
 
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   3. Amendments to Exhibits
 
       The Exhibits to the Credit Agreement are amended (i) by replacing Exhibit
A, with the form of Amended and Restated Senior Subordinated Note attached
hereto as Annex B and (ii) by adding the following new Exhibit G (Warrant),
attached hereto as Annex C, and Exhibit H (Registration Rights Agreement),
attached hereto as Annex D.
 
   4. Amendment to Operative Documents; Consistent Changes
 
       References to the “Purchase Agreement” or the “Note Purchase Agreement”
in the Operative Documents shall be deemed to be references to the Original
Agreement as amended by this Amendment.  Furthermore, the Operative Documents
are hereby amended wherever necessary to reflect the changes described herein.
 
    5. Confirmation of Certain Terms and Other Matters
 
       Each of the Borrower, Holdings, the Guarantors and the Holder hereby
ratify and confirm all terms and provisions of the Operative Documents and all
other documents, instruments, or agreements executed in connection therewith and
agree that, except as expressly amended herein, all of such terms and provisions
remain in full force and effect.  The Borrower , Holdings, the Guarantors and
the Holder hereby confirm and acknowledge that the obligations of the Borrower,
Holdings and the Guarantors under the Original Agreement include all obligations
and liabilities of the Borrower, Holdings and the Guarantors under the Original
Agreement, as amended from time to time including, but not limited to, this
Amendment.  Each of the Borrower, Holdings and the Guarantors also confirm and
acknowledge that this Amendment and the documents, instruments or agreements
executed in connection therewith shall constitute Operative Documents.  Except
as expressly provided herein, this Amendment shall not be deemed a waiver of any
term or condition of any Operative Document and shall not be deemed to prejudice
any right or rights which the Holder may now have or may have in the future
under or in connection with any Operative Document or any of the instruments or
agreements referred to therein, as the same may be amended from time to time.
 
    6. Collateral Security
 
       Each of the Borrower, Holdings and the Guarantors further acknowledge and
agree that the Security Documents continue to secure the Borrower’ prompt,
punctual and faithful payment and performance of (i) the Original Agreement, as
amended by this Amendment and any further extensions, renewals, substitutions,
modifications, amendments or replacements thereof; (ii) the Notes and any
further extensions, renewals, substitutions, modifications, amendments or
replacements of any thereof; (iii) any and all liabilities of the Borrower to
the Holders (including, without limitation, those arising under the Operative
Documents and this Amendment); (iv) any and all liabilities, debts and
obligations, whether now existing or hereafter arising, or at any time owing by
the Borrower to the Holders, including without limitation, costs, costs of
collection, attorneys’ reasonable fees and all court and litigation costs and
expenses, and (v) all sums, bearing interest at the rate provided in the
Original Agreement, as modified, advanced to or on behalf of the Borrower by the
Holders for any purposes, whether dependent or independent of this transaction,
all of which shall be equally secured with and have the same priority as the
original advances under the Notes.
 
    7. Representations and Warranties
   
       Each of the Borrower, Holdings and the Guarantors hereby represent and
warrant that except as otherwise disclosed on the list of “Exceptions to
Representations” annexed hereto as Annex A: (a) they have complied and are now
in compliance with, all of the terms and provisions set forth in the Operative
Documents, as amended, on their part to be observed and performed; (b) no Event
of Default specified in Section 8.1 of the Original Agreement has occurred or is
continuing or would occur as a result of the transactions contemplated by this
Amendment (including the issuance of the Warrants); and (c) the execution,
delivery and performance of this Amendment (including the issuance of the
Warrants): (i) has been duly authorized by all requisite corporation action,
including approval by the stockholders of Holdings, (ii) will not violate either
(x) any provision of law applicable to the Borrower, Holdings or any Guarantor,
any governmental regulation, or its charter documents, or (y) any order of any
court or other agency of government binding on the Borrower, Holdings or any
Guarantor or any indenture, agreement, or other instrument to which the
Borrower, Holdings or any Guarantor is a party, or by which they or any of its
property is bound, and (iii) will not be in conflict with, result in a breach
of, or constitute (with due notice and/or lapse of time) a default under, any
such indenture, agreement, or other instrument.
 
 
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    8. Conditions to Holder's Obligations
 
       The willingness of the Holder to consent to and enter into this Amendment
is subject to the satisfaction of the following conditions concurrently with the
execution and delivery of this Amendment:
 
       (a) The Holder shall have received approving resolutions of the Board of
Directors (or other appropriate governing body) and the shareholders or members
of each of the Borrower, Holdings and the Guarantors, certified as of the date
hereof by the Secretary of the Borrower, Holdings and the Guarantors authorizing
the execution and delivery by the Borrower, Holdings and the Guarantors of this
Amendment and all documents referenced herein.
 
       (b) The Borrower, Holdings and the Guarantors shall have executed and
delivered to the Holder, as applicable, (i) this Amendment, (ii) the Amended and
Restated Senior Subordinated Note attached hereto as Annex B, (iii) the Warrant
attached hereto as Annex C, and (iv) the Registration Rights Agreement attached
hereto as Annex D.
 
       (c) The Holder shall have received a certificate of a Responsible Officer
of each of the Borrower and Holdings as to the accuracy of the Borrower’s and
Holdings’ representations and warranties in the Original Note Purchase Agreement
in all material respects and in this Amendment and as to such other matters as
the Holder may reasonably request.
 
       (d) The Holder shall have received the favorable written opinion of
Kirkland & Ellis LLP, counsel to the Borrower and the Guarantors regarding,
among other things, the issuance of the warrants, in form and substance
reasonably satisfactory to the Holder.
 
       (e) This Amendment and all documents referenced herein or to be delivered
in connection herewith shall be on terms reasonably satisfactory to Holder’s tax
counsel.
 
       (f) The Borrower shall have paid to the Holder all outstanding legal and
other out of pocket fees and expenses incurred relative to the Holder’s
relationship with the Borrower and all costs and fees associated with this
Amendment.
 
       (g) The Holder shall have received such other documents, certificates,
instruments, and agreements from the Borrower as the Holder may reasonably
request.
 
    9. Miscellaneous
 
       (a) This Amendment shall be governed by, and construed and enforced in
accordance with, the substantive laws of the State of New York, without regard
to its principles of conflicts of laws.
 
       (b) This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
 
       (c) Each of the Borrower, Holdings and the Guarantors shall, from time to
time, at its expense, execute and deliver to the Holder all such other and
further instruments, agreements and documents and take or cause to be taken all
such other and future action as the Holder shall reasonably request in order to
effect and confirm or vest more securely all rights contemplated by this
Amendment, the Original Agreement or any Operative Document.
 
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.

  BORROWER:            
PHYSICIANS FORMULA, INC.,
a New York Corporation 
            By:          Name:       Title:             GUARANTORS:            
PHYSICIANS FORMULA HOLDINGS, INC.,
a Delaware Corporation 
            By:          Name:        Title:            
PHYSICIANS FORMULA COSMETICS, INC.,
a Delaware Corporation 
            By:          Name:       Title:            
PHYSICIANS FORMULA DRTV, LLC,
a Delaware Limited Liability Company 
            By:          Name:       Title:  

 
 
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HOLDER:
           
MILL ROAD CAPITAL, L.P.,
a Delaware Limited Partnership 
            By:          Name:       Title:  

 
 
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Annex A

Exceptions to Representations

 
[Borrower to complete]
 
 
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Annex A-2
 
THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE
IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN INTERCREDITOR
AGREEMENT (THE “INTERCREDITOR AGREEMENT”) DATED AS OF NOVEMBER 6, 2009 BY AND
AMONG WELLS FARGO BANK, NATIONAL ASSOCIATION ACTING THROUGH ITS WELLS FARGO
BUSINESS CREDIT OPERATING DIVISION, MILL ROAD CAPITAL, L.P. AND PHYSICIANS
FORMULA, INC.; AND EACH HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF,
IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE INTERCREDITOR AGREEMENT.
 
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF
APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
 
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR U.S. FEDERAL INCOME
TAX PURPOSES.  FOR FURTHER INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF OID,
ISSUE DATE, THE YIELD TO MATURITY OF THIS NOTE AND ANY OTHER INFORMATION
REQUIRED UNDER TREASURY REGULATIONS SECTION 1.275-3(b)(1)(i), THE HOLDER OF THIS
NOTE SHOULD CONTACT THE OFFICE OF THE CHIEF FINANCIAL OFFICER OF PHYSICIANS
FORMULA INC. AT 1055 WEST 8TH STREET, AZUSA, CA 91702, TEL NO. (626) 334-3395 AT
ANY TIME BEGINNING 10 DAYS AFTER THE DATE OF ISSUANCE.
 
PHYSICIANS FORMULA, INC.
 
AMENDED AND RESTATED SENIOR SUBORDINATED NOTE
 
$8,000,000.00                                                                                                                [_________],
20__
 
    FOR VALUE RECEIVED, Physicians Formula, Inc., a New York corporation
(the “Maker”), hereby promises to pay to the order of Mill Road Capital, L.P., a
Delaware limited partnership (“MRC”), or its registered assigns and transferees
(collectively, the “Payee”) the principal sum of Eight Million Dollars
($8,000,000.00), plus the aggregate amount of accrued interest from time to time
capitalized thereon, less the aggregate amount of principal prepaid or repaid
from time to time, in each case, pursuant to the terms and conditions of and at
the times provided in the Purchase Agreement (as defined below).
 
    1. Notes.  This Senior Subordinated Note (this “Note”) is issued pursuant
to, and is subject to the terms and entitled to the benefits of, the Senior
Subordinated Note Purchase and Security Agreement dated as of November 6, 2009
among the Maker, MRC and the Guarantors (as defined therein), as amended,
restated, supplemented or otherwise modified from time to time, including by
that certain First Amendment to Senior Subordinated Note Purchase and Security
Agreement dated as of February __, 2010 and that certain Second Amendment to
Senior Subordinated Note Purchase and Security Agreement dated as of the date
hereof (the “Purchase Agreement”), in accordance with its terms.  The Payee is
entitled to enjoy the benefits of and to enforce the provisions of the Purchase
Agreement as a Holder and is subject to the obligations thereunder of
Holder.  Terms used herein and not otherwise defined herein shall have the
meanings ascribed thereto in the Purchase Agreement.
 
    2. Interest.  Commencing on the date of issuance, this Note will accrue
interest on the unpaid principal amount thereof at the Interest Rate specified
in, and subject to adjustment as provided in, the Purchase Agreement.  Interest
on this Note shall be computed based on a 360-day year and actual days elapsed,
and all PIK Interest on this Note shall be compounded annually on the first day
of each calendar year.  Cash interest on this Note shall be payable monthly in
arrears on each Interest Payment Date commencing on [___________] by wire
transfer of immediately available funds to one or more accounts designated by
the Payee.  The records of the Payee shall, absent manifest error, be conclusive
evidence of the outstanding principal balance of this Note, including all PIK
Interest added to the principal amount thereof and the compounding thereof, but
any failure of the Payee to record, or any error in so recording, any such
amount on the Payee’s records shall not limit or otherwise affect the
obligations of the Maker under this Note to make all payments of principal of
and interest thereon when due.
 
 
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    If an Event of Default has occurred and is continuing, from and after the
date such Event of Default has occurred the entire outstanding unpaid principal
balance of this Note and any unpaid interest from time to time in default shall
(both before and after acceleration and entry of judgment) bear interest,
payable in cash on demand, at a rate per annum equal to the Interest Rate
payable pursuant to Section 1.1 of the Purchase Agreement plus three percent
(3%); provided, however, that upon the cessation or cure of such Event of
Default, if no other Event of Default is then continuing, this Note shall again
bear interest at the applicable Interest Rate as set forth in Section 1.1 of the
Purchase Agreement.
 
    The obligations of the Maker to pay interest under this Note are subject in
all events to the provisions of Section 1.6 of the Purchase Agreement relating
to Excess Interest and the Maximum Rate.
   
    3. Maturity; Required Redemption.  Unless the maturity of this Note is
accelerated pursuant to Article VIII of the Purchase Agreement, this Note shall
mature and be redeemed by the Maker in one installment which shall be paid on
November 6, 2014.  On the stated or accelerated maturity date of the Notes, the
Maker will pay in cash the principal amount of the Notes then outstanding
together with all accrued and unpaid interest thereon, including, without
limitation, all PIK interest.
 
    4. Optional Prepayments.  The Maker may voluntarily prepay this Note, in
whole or in part, at any time.  Optional prepayments permitted pursuant to the
Purchase Agreement may only be made upon payment to the Payee of an amount equal
to the sum of the principal amount to be prepaid, together with all accrued and
unpaid interest (including PIK Interest) on the amount so prepaid through the
date of prepayment, plus the Prepayment Premium, if any, as provided in the
Purchase Agreement.
 
    5. Repurchase upon a Change of Control.  The Maker is obligated upon the
occurrence of a Change of Control to repurchase this Note in whole on the terms
and conditions set forth in Section 1.4(c) of the Purchase Agreement.
 
    6. Prepayment Premium.  In the event of any prepayment of this Note prior to
the Maturity Date pursuant to Sections 1.4(b) and (c) of the Purchase Agreement,
the Maker shall pay to the Payee the Prepayment Premium indicated in the
Purchase Agreement corresponding to the time period in which such prepayment
occurs or is required to occur.
 
    7. Guaranty and Security.  The payment and performance of this Note is and
shall at all times be guaranteed (the “Guaranty”) by each Guarantor pursuant to
Article IX of the Purchase Agreement.  This Note is secured pursuant to the
terms of (a) the security interest granted by the Borrower under Article II of
the Purchase Agreement, (b) the Guarantor Security Agreement dated as of
November 6, 2009 among the Guarantors and the Payee and (c) the other Security
Documents.  The Payee is entitled to the benefits of the Guaranty, the Guarantor
Security Agreement, the other Security Documents and the other Operative
Documents, and may enforce the agreements of the Maker contained therein, and
the Payee may exercise the remedies provided for thereby or otherwise available
in respect thereof, all in accordance with the terms thereof.
 
    8. Remedies on Default. Etc.  Reference is made to the Purchase Agreement
for the remedies available to the Payee upon the occurrence of an Event of
Default as described in the Purchase Agreement.  The Maker hereby agrees to pay
on demand all reasonable costs and expenses, including without limitation
attorneys’ fees and costs of collection, incurred or paid by the holder of this
Note in enforcing this Note in accordance with the Purchase Agreement.
 
 
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    9. No Impairment.  No provision of the Purchase Agreement or this Note shall
alter or impair the obligation of the Maker, which is absolute and
unconditional, to pay the principal and interest on this Note at the times,
places and rates, and in the currency, provided.
 
    10. Waivers; Amendments.  The Maker and each endorser and guarantor hereby
waives presentment, demand, protest and notice of any kind.  No failure or delay
on the part of the Maker or the Payee or holder hereof in exercising any right,
power, privilege or remedy hereunder or under the Purchase Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power, privilege or remedy preclude any other or further exercise
thereof or the exercise of any other right, power, privilege or remedy.  The
remedies provided for herein and in the Purchase Agreement are cumulative and
are not exclusive of any remedies that may be available to the Maker or the
Payee at law or in equity or otherwise.  This Note may not be amended and the
provisions hereof may not be waived, except in accordance with the terms of the
Purchase Agreement.
 
    11. Lost Notes, etc.  If this Note is mutilated, destroyed, lost or stolen,
upon receipt of evidence satisfactory to the Maker of such loss, theft,
destruction or mutilation of this Note and, if requested in the case of any such
loss, theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Maker, or, in the case of any such mutilation, upon
surrender and cancellation of this Note, the Maker shall issue a new Note of
like tenor and amount and dated the date to which interest has been paid, in
lieu of this Note; provided, however, if Payee, its nominee, or any of its
partners or members is the holder of this Note and this Note is lost, stolen or
destroyed, the affidavit of an authorized partner, member or officer of such
holder setting forth the circumstances with respect to such loss, theft or
destruction shall be accepted as satisfactory evidence thereof, and no
indemnification shall be required as a condition to the execution and delivery
by the Maker of a new Note in replacement of this Note other than the holder’s
written agreement to indemnify the Maker.
 
    12. Waiver of Jury Trial.  EACH OF THE MAKER, EACH GUARANTOR AND THE PAYEE
HEREBY WAIVES ITS RIGHT TO JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THE PURCHASE AGREEMENT, THIS NOTE
OR ANY OF THE OTHER OPERATIVE DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY, INCLUDING , WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS OR ACTIONS OF THE PAYEE RELATING TO THE ADMINISTRATION OR
ENFORCEMENT OF THE NOTES AND THE OPERATIVE DOCUMENTS, AND AGREES THAT IT WILL
NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  EXCEPT AS PROHIBITED BY LAW, EACH OF
THE MAKER, EACH GUARANTOR AND THE PAYEE HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES.  EACH OF THE MAKER, EACH GUARANTOR AND THE
PAYEE (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER OF
SUCH PERSONS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT  SUCH PERSON WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (b)
ACKNOWLEDGES THAT EACH OTHER SUCH PERSON HAS BEEN INDUCED TO ENTER INTO THE
PURCHASE AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS TO WHICH IT IS A PARTY
BECAUSE OF, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED
THEREIN.
 
    13. Governing Law; Jurisdiction; Venue.  THIS NOTE AND EACH OF THE OTHER
OPERATIVE DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE STATE OF NEW YORK AND
SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SAID STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW).  THE MAKER AND EACH GUARANTOR CONSENT TO THE JURISDICTION OF THE FEDERAL
AND STATE COURTS LOCATED IN NEW YORK COUNTY IN THE STATE OF NEW YORK IN
CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE PAYEE UNDER THIS NOTE OR
ANY OF THE OTHER OPERATIVE DOCUMENTS AND CONSENT TO SERVICE OF PROCESS IN ANY
SUCH SUIT BEING MADE UPON THE MAKER OR ANY SUCH GUARANTOR, AS THE CASE MAY BE,
BY MAIL AT THE MAKER’S OR SUCH GUARANTOR’S ADDRESS SET FORTH IN THE PURCHASE
AGREEMENT.  THE MAKER AND EACH GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION BROUGHT
IN THE COURTS REFERRED TO IN THIS SECTION AND IRREVOCABLY WAIVES AND AGREES NOT
TO PLEAD OR CLAIM IN ANY SUCH ACTION THAT SUCH ACTION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.  ANY SUIT OR JUDICIAL PROCEEDING BY THE MAKER OR ANY
GUARANTOR AGAINST THE PAYEE INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS NOTE OR ANY OTHER
OPERATIVE DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE OPERATIVE
DOCUMENTS SHALL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT LOCATED IN NEW YORK
COUNTY IN THE STATE OF NEW YORK.
 
 
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    14. This Note amends and restates and is substituted for that certain
promissory note dated November 6, 2009 in the original principal amount of
$8,000,000 made by Borrower in favor of Payee (the “Prior Note”) and this Note
is in substitution for (but not in payment of) the Prior Note.
 
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    IN WITNESS WHEREOF, the Maker has caused this Amended and Restated Senior
Subordinated Note to be duly executed under seal on the date set forth above by
a duly authorized representative of the Maker.
 

 
PHYSICIANS FORMULA, INC.
            By:          Name:       Title:  

 
 
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Annex A-3
 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

Warrant No. [20__] - #__
 
 
Void After [____, 20___]
Right to Purchase 650,000 (subject to the qualifications and adjustments set
forth herein) shares of  Common Stock of Physicians Formula Holdings, Inc.

PHYSICIANS FORMULA HOLDINGS, INC.

Common Stock Purchase Warrant

[_______, 20___]
 
    Physicians Formula Holdings, Inc., a Delaware corporation (the “Company”),
hereby certifies that for good and valuable consideration, MILL ROAD CAPITAL,
L.P., and its successors and assigns (the “Holder”), is entitled to subscribe
for and purchase from the Company an aggregate of 650,000 validly issued, fully
paid and nonassessable shares of Common Stock, par value $0.01 per share, of the
Company (“Common Stock”) at a purchase price per share equal to $0.25 (the
“Exercise Price”), all subject to the terms, conditions and adjustments as
hereinafter provided.  The Exercise Price shall be subject to adjustment from
time to time pursuant to the provisions of Section 6 hereof.
 
    This Warrant is issued pursuant to, and in accordance with, the Senior
Subordinated Note Purchase and Security Agreement dated as of November 6, 2009
by and among the Company, Physicians Formula, Inc. (a wholly-owned subsidiary of
the Company), the Guarantors party thereto and Holder, as amended, restated,
supplemented or otherwise modified from time to time, including by that certain
First Amendment to Senior Subordinated Note Purchase and Security Agreement
dated as of February 3, 2010 and that certain Second Amendment to Senior
Subordinated Note Purchase and Security Agreement dated as of the date hereof
(the “Purchase Agreement”), and is subject to the terms thereof.
 
    Section 1. Definitions.  Unless otherwise defined herein, capitalized terms
shall have the meaning given to them in the Purchase Agreement.  As used herein,
the following terms shall have the following meanings, unless the context
otherwise requires:
 
       (a) “Fair Market Value” shall mean, as of the date of determination: (i)
if the Common Stock is listed on a national securities exchange, the Fair Market
Value shall be the last reported sale price of the Common Stock on such exchange
or market system on the last Business Day prior to the date of exercise of this
Warrant or, if no such sale is made on such day, the average closing bid and
asked price for such day on such exchange or market system; (ii) if the Common
Stock is not listed, the Fair Market Value shall be the mean of the last
reported bid and asked prices reported by OTC Bulletin Board or other similar
over-the-counter quotation service on the last Business Day prior to the date of
exercise of this Warrant or (iii) if the Common Stock is not so listed and bid
and asked prices are not so reported, the Fair Market Value shall be an amount
determined mutually by (x) a majority of the members of the Board of Directors
of the Company, and (y) the Holder.  If the Board of Directors and the Holder
are unable to agree on the Fair Market Value within five (5) Business Days, the
Fair Market Value shall be determined by an Independent Appraiser (as defined
below) selected by agreement of the Board of Directors and the Holder. If the
parties cannot agree upon an Independent Appraiser within five (5) Business
Days, then, within a further five (5) Business Days, the parties shall each
select one Independent Appraiser and the two Independent Appraisers shall,
within a further five (5) Business Days, select a third Independent Appraiser
who shall determine the Fair Market Value.  “Independent Appraiser” shall mean
any nationally recognized independent auditing firm or investment banking firm
that does not provide services directly to either party.  Any determination of
the Fair Market Value by an Independent Appraiser shall be based on a valuation
of the Company as an entirety without regard to any discount for minority
interests or disparate voting rights among classes of Capital Stock.
 
 
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       (b) “Warrant Expiration Date” shall mean 5:00 p.m., Pacific Time, on the
seventh anniversary of the date of this Warrant; provided, that, if such date is
not a Business Day, the next Business Day immediately thereafter.
 
    Section 2. Transfers; Negotiability.  This Warrant and the shares of Common
Stock issuable upon exercise of this Warrant may not be transferred or assigned
in whole or in part without compliance with applicable federal and state
securities laws by the transferor and the transferee.  Subject to compliance
with any applicable securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and this Warrant shall promptly be cancelled.  Until this Warrant
is transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.
 
    Section 3. Exercise of Warrant.
 
       3.1 Manner of Exercise.  Subject to the terms and conditions set forth
herein, this Warrant may be exercised, in whole or in part (but not as to a
fractional share of Common Stock), by the Holder at any time or from time to
time, on any Business Day on or prior to the Warrant Expiration Date by (i) the
delivery of a duly executed exercise form in the form attached as Exhibit A
hereto (an “Exercise Form”) to the Company at its office at 1055 West 8th
Street, Azusa, California 91702, or at such other office as the Company may
designate by notice in writing, and (ii) the delivery of payment to the Company
by cash, check made payable to the order of the Company, wire transfer of funds
to a bank account designated by the Company or any other means approved by the
Company, an amount equal to the aggregate Exercise Price for all shares of
Common Stock as to which this Warrant is exercised.  In lieu of payment of the
aggregate Exercise Price, the Holder may from time to time convert this Warrant,
in whole or in part, into a number of shares of Common Stock determined by using
the following net issuance formula:

X=((P)(A-B))/A

where
 

 X =  the number of shares of Common Stock to be issued to the holder for the
portion of this Warrant being exercised; 
 P
 
= 
 
the number of shares of Common Stock purchasable under this Warrant or, if only
a portion of the Warrant is being exercised, the portion of the Warrant being
exercised, at the date of calculation;   A =  the Fair Market Value of one share
of Common Stock as of the exercise date; and   B =  the Exercise Price as in
effect on the exercise date. 

        
 
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       3.2 Issuance of Common Stock.
 
          (a) Upon receipt of the documents and payments described in Section
3.1 hereof, the Company shall, within five (5) Business Days, (x) if a
registration statement relating to the shares of Common Stock issuable upon
exercise of this Warrant is effective, and the Company’s transfer agent for its
Common Stock (the “Transfer Agent”) is participating in The Depository Trust
Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of
the Holder, cause to be credited such aggregate number of shares of Common Stock
to which the Holder is entitled pursuant to such exercise to the Holder’s or its
designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (y) issue and deliver to the address as specified in the
Exercise Form, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise, together with an amount in cash in lieu of
any fraction of a share, as hereinafter provided.  The credit or stock
certificate or certificates so delivered shall be in the denomination specified
in the Exercise Form and shall be registered in the name of the Holder or its
permitted designee (as specified in the Exercise Form).  This Warrant shall be
deemed to have been exercised and a certificate or certificates for shares of
Common Stock shall be deemed to have been issued, and the Holder or its
permitted designee (as specified in the Exercise Form) shall be deemed to have
become a holder of such shares for all purposes as of the close of business on
the date on which the Exercise Form and payments described in Section 3.1
hereof, are received by the Company as aforesaid.  The Holder of the Warrant
shall tender this Warrant to the Company within a reasonable period of time
after exercise pursuant to Section 3.1, but in any event within five (5)
Business Days.  Upon receipt of the tendered Warrant, unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall deliver to the Holder or its permitted designee (as specified
in the Exercise Form) a new Warrant evidencing the rights of such holder to
purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this
Warrant.  The tender and exchange of this Warrant when partially exercised and
the delivery by the Company of a replacement Warrant pursuant to the preceding
sentence, shall not be required for the Holder to exercise this Warrant to
purchase any unpurchased shares of Common Stock called for by this Warrant.  The
Company shall pay any documentary or issue stamp taxes attributable to the
issuance of this Warrant, a replacement Warrant or the shares of Common Stock
issuable upon exercise of this Warrant.
 
          (b) Upon any exercise of this Warrant, the Company may require
customary representations from the Holder that the Holder is an “accredited
investor” as defined in 501(a) under the Securities Act, to assure that the
issuance of the Common Stock hereunder shall not require registration or
qualification under the Securities Act of 1933, as amended (the “Securities
Act”), or any state securities laws.
 
       3.3 Fractional Shares.  No fractional Shares shall be issuable upon
exercise of the Warrant and the number of shares of Common Stock to be issued
upon exercise of the Warrant shall be rounded down to the nearest whole share of
Common Stock.  If a fractional share interest arises upon any exercise of the
Warrant, the Company shall eliminate such fractional share interest by paying
Holder the amount computed by multiplying the fractional interest by the Fair
Market Value of a whole share of Common Stock as of the exercise date over the
Exercise Price for such fractional share.
 
    Section 4. Mutilated or Missing Warrant.  In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of shares of Common Stock, but
only upon receipt of a written statement reasonably satisfactory to the Company
of such loss, theft or destruction of the Warrant, and with respect to a lost,
stolen or destroyed Warrant, indemnity reasonably satisfactory to the Company
with respect thereto.
 
    Section 5. Reservation of Common Stock.  The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved until issued (if necessary) as contemplated by this Section
5, out of the authorized and unissued shares of Common Stock, 100% of the number
of shares issuable upon exercise of the rights of purchase represented by this
Warrant.  The Company agrees that all shares of Common Stock issued upon due
exercise of the Warrant shall be, at the time of delivery of the certificates
for such shares of Common Stock, duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company.
 
 
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    Section 6. Adjustments.  Subject and pursuant to the provisions of this
Section 6, the Exercise Price and number of shares of Common Stock subject to
this Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
 
       6.1 Dividend, Subdivision or Combination of Common Stock.  If the Company
at any time or from time to time, after the issuance of this Warrant but prior
to the exercise thereof subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the aggregate number of shares
of Common Stock for which this Warrant is exercisable (the “Warrant Share
Number”) shall be proportionately increased.  If the Company at any time
combines (by reverse stock split, recapitalization or otherwise) its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased
and the Warrant Share Number shall be proportionately decreased.  An adjustment
made pursuant to this Section 6.1 shall become effective retroactively (x) in
the case of any such dividend or distribution, to a date immediately following
the close of business on the record date for the determination of holders of
shares of Common Stock entitled to receive such dividend or distribution or (y)
in the case of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action becomes effective.
 
       6.2 Certain Distributions.  In case the Company shall at any time or from
time to time, after the issuance of this Warrant but prior to the exercise
hereof, distribute to all holders of shares of Common Stock (including any such
distribution made in connection with a merger or consolidation in which the
Company is the resulting or surviving entity and shares of Common Stock are not
changed or exchanged) cash, evidences of indebtedness of the Company or another
issuer, securities of the Company or another issuer or other assets (excluding
dividends or distributions payable in shares of Common Stock for which
adjustment is made under Section 6.1) or rights or warrants to subscribe for or
purchase any of the foregoing, then, and in each such case, (i) the Exercise
Price then in effect shall be adjusted (and any other appropriate actions shall
be taken by the Company) by being multiplied by a fraction (x) the numerator of
which shall be the Fair Market Value of Common Stock immediately prior to the
date of distribution less the then fair market value (in the case of
distributions other than cash, as determined by a majority of the members of the
Board of Directors of the Company) of the portion of the cash, evidences of
indebtedness, securities, other assets or rights so distributed or of such
rights or warrants applicable to one share of Common Stock and (y) the
denominator of which shall be the Fair Market Value of the Common Stock
immediately prior to the date of distribution (but such fraction shall not be
greater than one) and (ii) the Warrant Share Number shall be increased by being
multiplied by a fraction (x) the numerator of which shall be the Fair Market
Value of one share of Common Stock immediately prior to the record date for the
distribution of such cash, evidences of indebtedness, securities, other assets
or rights or warrants and (y) the denominator of which shall be the Fair Market
Value of one share of Common Stock immediately prior to such record date less
the fair market value (in the case of distributions other than cash, as
determined by a majority of the members of the Board of Directors of the
Company) of the portion of such cash, evidences of indebtedness, securities,
other assets or rights or warrants so distributed.  Such adjustment shall be
made whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
 
       6.3 Consolidation, Merger, etc.  If any (i) capital reorganization, (ii)
reclassification, (iii) consolidation, merger, tender offer or other business
combination of the Company with another entity that involves a transfer of more
than fifty percent (50%) of the voting power of the Company, (iv) the sale of
all or substantially all of the Company’s assets to another entity, or (v)
voluntary sale, conveyance, exchange or transfer of the voting Capital Stock of
the Company that involves the sale, conveyance, exchange or transfer of more
than fifty percent (50%) of the voting power of the Company (each, an
“Extraordinary Event”) shall be effected, then, prior to the consummation of
such Extraordinary Event, the Company shall make appropriate provision,
including providing written notice of the Extraordinary Event to the Holder at
least ten (10) Business Days prior to effecting such Extraordinary Event, to
ensure that the Holder shall thereafter have the right to purchase and receive,
upon exercise hereof and the payment of the Exercise Price, in lieu of the
shares of Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of this Warrant, such shares of stock, securities
or property (including cash) as may be issued or payable with respect to or in
exchange for a number of shares of Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of this Warrant had
such Extraordinary Event not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the Holder
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Exercise Price and of the number of shares purchasable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or property thereafter
deliverable upon the exercise hereof (without duplication with Sections 6.1 and
6.2 hereof).  The Holder agrees to keep all information it receives regarding
the Extraordinary Event confidential until such time as the Company has
disclosed such information publicly. The foregoing provisions shall similarly
apply to successive Extraordinary Events.
 
 
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       6.4 Other Changes.  In case the Company at any time or from time to time,
after the issuance of this Warrant but prior to the exercise hereof, shall take
any action affecting its Common Stock similar to or having an effect similar to
any of the actions described in any of Sections 6.1, 6.2 or 6.3 (but not
including any action described in any such Section) and it would be equitable in
the circumstances to adjust the Exercise Price and Warrant Share Number as a
result of such action, then, and in each such case, the Exercise Price and
Warrant Share Number shall be adjusted in such manner and at such time as a
majority of the Board of Directors and the Holder in good faith determine would
be equitable in the circumstances.
 
       6.5 No Impairment.  The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Warrant and in taking all such action as may be necessary or appropriate to
protect Holder’s rights against impairment.
 
       6.6 Certificate as to Adjustments.  Upon each adjustment of the Exercise
Price, and/or number of shares of Common Stock, the Company shall promptly
notify Holder in writing, and, at the Company’s expense, promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Exercise Price and number of shares of Common Stock in effect upon the
date thereof and the series of adjustments leading to such Exercise Price and
number of shares of Common Stock.
 
    Section 7. Notices.  Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or facsimile, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) five days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one day after delivery to
such carrier.  All notices to Holder shall be addressed to the Holder’s address
set forth on the signature page hereto, or at such other address as shall have
been furnished to the other parties hereto in writing, or if to the Company at:
1055 West 8th Street, Azusa, California 91702.
 
    Section 8. Registration Rights.  The initial holder of this Warrant is
entitled to the benefit of certain registration rights with respect to the
shares of Common Stock issuable upon the exercise of this Warrant as provided in
the Registration Rights Agreement dated as of the date hereof, by and between
the Holder and the Company, and any subsequent holder hereof shall be entitled
to such rights to the extent provided in the Registration Rights Agreement.
 
 
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    Section 9. Successors.  All the covenants and provisions hereof by or for
the benefit of the Holder shall bind and inure to the benefit of its respective
successors and assigns hereunder.
 
    Section 10. Governing Law.  This Warrant shall be governed by, and construed
in accordance with, the internal laws of the State of New York, without regard
to the provisions thereof relating to conflict of laws.
 
    Section 11. No Rights as Shareholder.  Prior to the exercise of this
Warrant, the Holder shall not have or exercise any voting rights or other rights
as a shareholder of the Company by virtue of its ownership of this Warrant.
 
    Section 12. Amendments.  This Warrant shall not be amended without the prior
written consent of the Company and the Holder; provided, that with the written
consent of the Holder (which consent shall not be unreasonably withheld) the
Company may amend this Warrant in a manner not adverse to the Holder to effect
any adjustments required to comply with the Company’s obligations hereunder as
described in Section 6.3.
 
    Section 13. Section Headings.  The section headings in this Warrant are for
the convenience of the Company and the Holder and in no way alter, modify,
amend, limit or restrict the provisions hereof.
 
[remainder of this page intentionally left blank]
 
 
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    IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed,
as of the ___ day of [_______, 20___].
 

 
PHYSICIANS FORMULA HOLDINGS, INC.
            By:        Name:        Title:     

 

HOLDER           MILL ROAD CAPITAL, L.P.            
By: 
 
Mill Road Capital GP LLC,
its General Partner 
            By:        Name:        Title:       
Address:
 
Two Sound View Drive, Suite 300
Greenwich, Connecticut 06830 
   

 
 
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APPENDIX A
PHYSICIANS FORMULA HOLDINGS, INC.
WARRANT EXERCISE FORM

To: PHYSICIANS FORMULA HOLDINGS, INC.
 
    The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant (“Warrant”) for, and to purchase thereunder by
the payment of the Exercise Price and surrender of the Warrant, _______________
shares of Common Stock (“Warrant Shares”) provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:

_______________________________
Name
________________________________
Address
________________________________
________________________________
Federal Tax ID or Social Security No.
 
    and delivered by
 

  r certified mail to the above address, or    r electronically (provide DWAC
Instructions:___________________), or    r other (specify:
__________________________________________).

 
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Holder or the undersigned’s Assignee as below
indicated and delivered to the address stated below.

Dated: ___________________, ____

Signature:______________________
______________________________
Name (please print)
______________________________
______________________________
Address:
______________________________

Assignee:
_______________________________
_______________________________
_______________________________
 
 
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APPENDIX B
PHYSICIANS FORMULA HOLDINGS, INC.
NET ISSUE ELECTION NOTICE

To: PHYSICIANS FORMULA HOLDINGS, INC.

Date:_________________________

 
    The undersigned hereby elects under Section 3.1 of the Warrant to surrender
the right to purchase ____________ shares of Common Stock pursuant to this
Warrant and hereby requests the issuance of _____________ shares of Common
Stock.  The certificate(s) for the shares issuable upon such net issue election
shall be issued in the name of the undersigned or as otherwise indicated below.

_________________________________________
Signature

_________________________________________
Name for Registration

_________________________________________
Mailing Address
 
 
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