Exhibit
10.18





GENERAL
SECURITY AGREEMENT




THIS AGREEMENT is dated with
effect as of this 6th day of November, 2009 by PHYSICIANS FORMULA, INC., a
New York corporation,(the “Borrower”) to and in favour of
WELLS FARGO BANK, NATIONAL
ASSOCIATION, acting through its Wells Fargo Business Credit operating
division (the “Lender”).




RECITALS:




A.
            The
      Borrower is or is about to become indebted to the Lender pursuant to a
      credit and security agreement between the Borrower and the Lender dated
      with effect as of the date hereof (as amended, supplemented, replaced or
      restated from time to time, the “Credit
      Agreement”).




B.
            As
      a condition precedent to the Lender extending such credit to the Borrower,
      the Borrower is required to execute and deliver this Agreement, and to
      grant to the Lender and to create a security interest in all personal
      property of the Borrower, as hereinafter provided as security for the
      payment and performance of the obligations and liabilities of the Borrower
      to the Lender.




NOW THEREFOREin consideration
of the extension of credit by the Lender to the Borrower, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Borrower, the Borrower covenants and agrees to and in favour
of the Lender as follows:




ARTICLE
1 - DEFINITIONS; INTERPRETATION




1.1
            Defined
      Terms




Except as
otherwise expressly provided herein, capitalized terms used in this Agreement
but not defined herein shall have the meanings assigned to such terms in the
Credit Agreement.




1.2
            Terms
      Defined in Ontario Personal Property Security
  Act




Where
applicable and except as defined herein, terms used herein shall have the
meanings assigned to them in the Personal Property Security
Act as the same may, from time to time, be in effect in the Province of
Ontario (the “PPSA”).  Such terms
include: “accounts”,
“chattel paper”, “documents of title”, “equipment”, “intangibles”, “instruments”, “inventory”, “investment property”, “money”, “proceeds” and “security”.




ARTICLE
2 - GRANT OF SECURITY INTEREST; COLLATERAL




2.1
            Grant
      of Security Interest




As
security for the payment and performance of the Secured Obligations (as defined
in Section 3), the Borrower hereby grants to the Lender a security interest
in, to and under all of its personal property, wherever located in and whether
now existing or hereafter acquired or arising, including, without limitation,
the following property (collectively and severally, the “Collateral”):





(a)
            all
      present and future investment property held by the Borrower, including
      securities, security entitlements, securities accounts, future contracts,
      future accounts, shares, options, rights, warrants, joint venture
      interests, interests in limited partnerships, trust units, bonds,
      debentures and all other documents which constitute evidence of a share,
      participation or interest of the Borrower in property or in an enterprise
      or which constitute evidence of an obligation of the issuer; and all
      substitutions therefore, and subject to Section 6.3, dividends and income
      derived therefrom, all of which are herein called the “Pledged
      Collateral”;




(b)
            all
      accounts and book debts of the Borrower, chattel paper, documents of
      title, instruments, and intangibles of the Borrower, including all debts,
      dues, claims choses in action and demands of every nature and kind,
      howsoever arising or secured, including letters of credit, guarantees and
      advices of credit that are now due, owing or accruing or growing due to or
      owned by or which may hereafter become due, owing or accruing or growing
      due to or owned by the Borrower, whether or not arising out of or in
      connection with the sale or lease of goods or the rendering of services,
      and all supporting obligations of any or all of the forgoing (“Accounts”);




(c)
            all
      inventory of the Borrower, including all merchandise, goods and other
      personal property that are held for sale or lease or that have been leased
      by the Borrower or that are to be furnished under a contract of service,
      all raw materials, work in process, materials used or consumed in the
      Borrower’s business and finished goods, all goods in which the Borrower
      has an interest in mass or a joint or other interest or gifts of any kind
      (including goods in which the Borrower has an interest or right as
      consignee), and all goods which are returned to or repossessed by the
      Borrower, together with all additions and accessions thereto and
      replacements therefor and products thereof and documents therefor (“Inventory”);




(d)
            all
      equipment of the Borrower and all parts thereof and all accessions,
      additions, attachments, improvements, substitutions and replacements
      thereto and therefor, including, all machinery, tools, dies, blueprints,
      catalogues, computer hardware and software, furniture, furnishings,
      vehicles and fixtures (“Equipment”);




(e)
            all
      intangible property and Intellectual Property
  Rights;




(f)
            all
      money maintained in a deposit or other account in the Borrower’s name with
      any financial institution, and all certificates, instruments and other
      writings, if any, from time to time representing, evidencing or deposited
      into such accounts, and all interest, dividends, cash, instruments and
      other property from time to time received, receivable or otherwise
      distributed in respect of or in exchange for any or all of the
      foregoing;


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(g)
            all
      now existing and hereafter arising contracts and agreements to which the
      Borrower is party (each, an “Assigned Agreement”),
      including, without limitation, all rights of the Borrower to receive
      moneys due and to become due under or pursuant to the Assigned Agreements,
      all rights of the Borrower to receive proceeds of any insurance,
      indemnity, warranty or guaranty with respect to the Assigned Agreements,
      all claims of the Borrower for damages arising out of or for breach of or
      default under the Assigned Agreements, and all rights of the Borrower to
      terminate, amend, supplement or modify the Assigned Agreements, to perform
      thereunder and to compel performance and otherwise exercise all remedies
      thereunder;




(h)
            all
      books, records, writings, databases, information and other property
      relating to, used or useful in connection with, embodying, incorporating
      or referring to, any of the foregoing
  Collateral;




(i)
            all
      cash and cash equivalents held by the Borrower not otherwise included in
      the foregoing Collateral; and




(j)
            all
      products and proceeds of the foregoing Collateral (with the term “proceeds” having the
      meaning provided in the PPSA and also including any voluntary or
      involuntary disposition, and all rights to payment, including return
      premiums, with respect to any
insurance).




2.2
            Excluded
      Collateral




Notwithstanding
Section 2.1, the Collateral shall not include (collectively, “Excluded
Collateral”): (a) any property held in trust by the Borrower and lawfully
belonging to others, (b) the last day of the term of any lease of real property,
provided that the Borrower shall stand possessed of such last day and shall
assign and transfer such interest as instructed by the Lender; (c) with respect
to Section 2.1(c), any consumer goods used as such by the Borrower, (d) any
permit, lease or license or any contractual obligation entered into by Borrower
(i) that prohibits or requires the consent of any Person other than Borrower and
its Subsidiaries which has not been obtained as a condition to the creation by
Borrower of a Lien on any right, title or interest in such permit, lease,
license or contractual obligation or any Capital Stock or equivalent thereof
related thereto or that contains terms stating that the granting of a lien
therein would otherwise result in a material loss by Borrower of any material
rights therein, (ii) to the extent that any law applicable thereto prohibits the
creation of a Lien thereon or (iii) to the extent that a Lien thereon would
give any other party a legally enforceable right to terminate such permit,
lease, license or any contractual obligation, but only, with respect to the
prohibition in (i), (ii) and (iii) to the extent, and for as long as, such
prohibition is not terminated or rendered unenforceable or otherwise deemed
ineffective by the PPSA or any other applicable law, (e) property or assets
owned by Borrower that is subject to a purchase money Lien or a Capital Lease
Obligation if the contractual obligation pursuant to which such Lien is granted
(or in the document providing for such Capital Lease Obligation) prohibits or
requires the consent of any Person other than Borrower and its Subsidiaries
which has not been obtained as a condition to the creation of any other Lien on
such property or such assets, (f) any Intent To Use
Trademark or any similar Trademark existing under Canadian law and (g)
shares of capital stock having voting power in excess of 65% of the voting power
of all classes of capital stock of a first tier controlled foreign corporation
(as that term is described in the IRC); provided, however, “Excluded Collateral”
shall not include any proceeds, products, substitutions or replacements of
Excluded Collateral (unless such proceeds, products, substitutions or
replacements would otherwise constitute Excluded Collateral).


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2.3
            Borrower
      Remains Liable




Anything
herein to the contrary notwithstanding, (a) the Borrower shall remain
liable under all Assigned Agreements, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Lender of any
of the rights hereunder shall not release the Borrower from any of its duties or
obligations under such Assigned Agreements, and (c) the Lender shall not
have any obligation or liability under any Assigned Agreements by reason of this
Agreement, nor shall the Lender be obligated to perform any of the obligations
or duties of the Borrower thereunder or to take any action to collect or enforce
any such contract, agreement or other document included in the Collateral
hereunder.




2.4
            Continuing
      Security Interest




The
Borrower agrees that this Agreement shall create a general collateral continuing
security interest in the Collateral which shall remain in effect until
terminated in accordance with Section 10.14.




2.5
            Attachment




The
Borrower and the Lender intend that the security interest created hereby
attaches to existing Collateral upon the execution of this Agreement and that
the security interest will attach to Collateral acquired after the date of
execution of this Agreement at the time that the Borrower acquires rights in
that Collateral.  The Borrower and the Lender agree that value has
been given.  The Borrower represents and warrants that it has rights
in the existing Collateral.




ARTICLE
3 - SECURED OBLIGATIONS




3.1
            Secured
      Obligations




The
obligations secured by this Agreement shall consist of all Indebtedness
(collectively, the “Secured
Obligations”).




ARTICLE
4 - REPRESENTATIONS AND WARRANTIES




[Reserved]




ARTICLE
5 - COVENANTS AND AGREEMENTS




[Reserved]


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ARTICLE
6 - AUTHORIZED ACTION BY THE LENDER; RIGHTS TO PAYMENT




[Reserved]




ARTICLE
7 - ADDITIONAL PROVISIONS REGARDING


INTELLECTUAL
PROPERTY




[Reserved]




ARTICLE
8 - REMEDIES; NOTICE OF SALE; RECEIVERS




8.1
            Remedies




During a
Default Period, the Lender may at its option, without notice to or demand on the
Borrower subject to applicable law and in addition to all rights and remedies
available to the Lender with respect to the Secured Obligations, at law, in
equity or otherwise, do any one or more of the following:




(a)
            foreclose
      or otherwise enforce the Lender’s security interest in any manner
      permitted by law or provided for in this
  Agreement;




(b)
            sell,
      lease or otherwise dispose of any Collateral at one or more public or
      private sales at the Lender’s place of business or any other place or
      places, including any broker’s board or securities exchange, whether or
      not such Collateral is present at the place of sale, for cash or credit or
      future delivery, on such terms and in such manner as the Lender may
      determine;




(c)
            use
      or transfer the Borrower’s rights and interests in any Intellectual
      Property Collateral by license, by sublicense (to the extent permitted by
      an applicable license), assignment or otherwise, on such conditions and in
      such manner as the Lender may
determine;




(d)
            recover
      from the Borrower all costs and expenses, including reasonable legal fees
      and disbursements, incurred or paid by the Lender in exercising any right,
      power or remedy provided by this
Agreement;




(e)
            require
      the Borrower to assemble the Collateral and make it available to the
      Lender at a place to be designated by the
  Lender;




(f)
            enter
      onto property where any Collateral is located and take possession thereof
      with or without judicial process;
and




(g)
            prior
      to the disposition of the Collateral, store, process, repair or
      recondition it or otherwise prepare it for disposition in any manner and
      to the extent the Lender deems appropriate and in connection with such
      preparation and disposition, without charge, use any trade-mark,
      tradename, copyright, patent or technical process used by the
      Borrower.


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8.2
            Notice
      of Sale




The
Borrower shall be given ten (10) days prior notice of the time and place of any
public sale or of the time after which any private sale or other intended
disposition of Collateral is to be made, which notice the Borrower hereby agrees
shall be deemed reasonable notice thereof.  Upon any sale or other
disposition pursuant to this Agreement, the Lender shall have the right to
deliver, assign and transfer to the purchaser thereof, the Collateral or portion
thereof so sold or disposed of.  The Lender shall have the right,
subject to applicable law, upon any public sale, and, to the extent permitted by
law, upon any private sale, to purchase the whole or any part of the Collateral
so sold.  Each purchaser at any such sale or other disposition
(including the Lender) shall hold the Collateral free from any claim or right of
whatever kind, including any equity or right of redemption of the Borrower and
the Borrower specifically waives (to the extent permitted by applicable law) all
rights of redemption, stay or appraisal which it has or may have under any rule
of law or statute now existing or hereafter adopted.




8.3
            License




For the
purpose of enabling the Lender to exercise its rights and remedies under
Section 8.1 or otherwise in connection with this Agreement, during a
Default Period, the Borrower hereby grants to the Lender an irrevocable,
non-exclusive and assignable license (exercisable without payment or royalty or
other compensation to the Borrower) or (to the extent permitted by the
applicable license) sublicense to use, license or sublicense any Intellectual
Property Collateral, subject with respect to trade-marks to reasonable and
appropriate quality control provisions.




8.4
            Appointment
      of Receiver




The
Lender may, during a Default Period, in addition to any other rights it may
have, appoint by instrument in writing a receiver, monitor, consultant,
liquidator or receiver and manager (all of which are herein called a “Receiver”) of all or any part
of the Collateral or may institute proceedings in any court of competent
jurisdiction for the appointment of such a Receiver.  Any such
Receiver is hereby given and shall have the same powers and rights and
exclusions and limitations of liability as the Lender has under this Agreement,
at law or in equity.  In exercising any such powers, any such Receiver
shall, to the extent permitted by applicable law, act as and for all purposes be
deemed to be the agent of the Borrower, and the Lender shall not be responsible
for any act or default of any such Receiver, except for any act or default that
results from the gross negligence or wilful misconduct of such
Receiver.  During a Default Period, Lender may appoint one or more
Receivers hereunder and may remove any such Receiver or Receivers and appoint
another or others in his or their stead from time to time.  Any
Receiver so appointed may be an officer or employee of the Lender, except as
prohibited under applicable law.  A court need not appoint, ratify the
appointment by the Lender of or otherwise supervise in any manner the actions of
any Receiver, except as required under applicable law.  Upon the
Borrower receiving notice from the Lender of the taking of possession of the
Collateral or the appointment of a Receiver, all powers, functions, rights and
privileges of the Borrower and, to the extent permitted by applicable law, its
directors and officers with respect to the Collateral shall cease, unless
specifically continued by the written consent of the Lender.


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8.5
            Carrying
      on Business




During a
Default Period, the Lender may carry on, or concur in the carrying on of, all or
any part of the business or undertaking of the Borrower, and may, subject to the
rights and liens of third parties but to the exclusion of the Borrower, enter
upon, occupy and use all or any of the premises, buildings, plant and
undertakings of or occupied or used by the Borrower and may use all or any of
the tools, machinery, equipment and intangibles of the Borrower for such time as
the Lender sees fit, free of charge, to carry on the business of the Borrower
and, if applicable, to manufacture or complete the manufacture of any Inventory
and to pack and ship the finished product.




8.6
            Dealing
      with Collateral




During a
Default Period, the Lender may seize, collect, realize, dispose of, enforce,
release to third parties or otherwise deal with the Collateral or any part
thereof in such manner, upon such terms and conditions and at such time or times
as may seem to it advisable, all without notice to the Borrower except as
otherwise required by any applicable law.  During a Default Period,
the Lender may demand, sue for and receive any Accounts with or without notice
to the Borrower, give such receipts, discharges and extensions of time and make
such compromises in respect of any Accounts which may, in the Lender’s absolute
discretion, seem bad or doubtful.  The Lender may charge on its own
behalf and pay to others, sums for costs and expenses incurred including,
without limitation, legal fees and expenses on a solicitor and his own client
scale and Receivers’ and accounting fees, in or in connection with seizing,
collecting, realizing, disposing, enforcing or otherwise dealing with the
Collateral and in connection with the protection and enforcement of the rights
of the Lender hereunder including, without limitation, in connection with advice
with respect to any of the foregoing.  The amount of such sums shall
be deemed advanced to the Borrower by the Lender, shall become part of the
Secured Obligations, shall bear interest at the highest rate per annum charged
by the Lender on the Secured Obligations or any part thereof and shall be
secured by this Agreement.




8.7
            Right
      to Use




During a
Default Period, the Borrower hereby grants to the Lender a license or other
right to use, without charge, all of the Borrower’s present and future property,
whether real or personal, including, without limitation, labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trade-marks,
services marks, and advertising matter, or any other property of any nature or
of a similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale, and selling of any Collateral and the Borrower’s
rights under all licenses and all franchise agreements shall inure to the
Lender.




8.8
            Retention
      of Collateral




Upon
notice to the Borrower and subject to any obligation to dispose of any of the
Collateral, as provided in the PPSA and subject to any applicable law, during a
Default Period, the Lender may elect to retain all or any part of the Collateral
in satisfaction of the Secured Obligations or any of them.


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8.9
            Pay
      Liens




During a
Default Period, the Lender may pay any Liens that may exist or be threatened
against the Collateral.




8.10
            Application
      of Payments




Any and
all payments made in respect of the Secured Obligations from time to time and
moneys realized on the Collateral shall be applied in accordance with the Credit
Agreement.  Any insurance moneys received by the Lender pursuant to
this Agreement shall be applied in accordance with the Credit
Agreement.




8.11
            Set-off




The
Secured Obligations will be paid by the Borrower without regard to any equities
between the Borrower and the Lender or any right of set-off or
cross-claim.  During a Default Period, any indebtedness owing by the
Lender to the Borrower may be set-off and applied by the Lender against the
Secured Obligations either before or after maturity, without demand upon or
notice to anyone and regardless of the currency in which the indebtedness is
denominated; provided, that in no event shall Lender offset against Borrower’s
payroll account number 4121973010 maintained with Lender so long as the funds
held in such payroll account are limited to the amount required to satisfy the
Borrower’s payroll obligations during the following seven day period (as of any
date of determination).




8.12
            Deficiency




If the
proceeds of the realization of the Collateral are insufficient to repay to the
Lender all amounts owing to it, the Borrower shall forthwith pay such deficiency
or cause such deficiency to be paid to the Lender.




8.13
            Lender
      Not Liable




The
Lender shall not be liable or accountable for any failure to seize, collect,
realize, dispose of, enforce or otherwise deal with the Collateral, shall not be
bound to institute proceedings for any such purposes or for the purpose of
preserving any rights of the Lender, the Borrower or any other person, firm or
corporation in respect of the Collateral and shall not be liable or responsible
for any loss, cost or damage whatsoever which may arise in respect of any such
failure including, without limitation, resulting from the negligence of the
Lender or any of its officers, servants, agents, solicitors, attorneys,
Receivers or otherwise unless arising from gross negligence or wilful
misconduct.  Neither the Lender nor its officers, servants, agents, or
Receivers shall be liable by reason of any entry into possession of the
Collateral or any part thereof, to account as a mortgagee in possession, for
anything except actual receipts, for any loss on realization, for any act or
omission for which a mortgagee in possession might be liable, for any negligence
in the carrying on or occupation of the business or undertaking of the Borrower
or for any loss, cost, damage or expense whatsoever which may arise in respect
of any such actions, omissions or negligence unless arising from gross
negligence or wilful misconduct.


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8.14
            Extensions
      of Time




The
Lender may grant renewals, extensions of time and other indulgences, take and
give up securities, accept compositions, grant releases and discharges, perfect
or fail to perfect any securities, release its security interest in any part of
the Collateral and otherwise deal or fail to deal with the Borrower,
subsidiaries of the Borrower, guarantors, sureties and others and with the
Collateral and other securities as the Lender may see fit, all without prejudice
to the liability of the Borrower to the Lender or the Lender’s rights and powers
under this Security Agreement.




8.15
            Rights
      in Addition




The
rights and powers conferred by this Section are in supplement of and in addition
to and not in substitution for any other rights or powers the Lender may have
from time to time under this Agreement or under applicable law.  The
Lender may proceed by way of any action, suit, remedy or other proceeding at law
or in equity and no such remedy for the enforcement of the rights of the Lender
shall be exclusive of or dependent on any other such remedy.  Any one
or more of such remedies may from time to time be exercised separately or in
combination.




ARTICLE
9 - PERFECTION AND PRIORITY




9.1
            Financing
      Statements, Etc.




The
Borrower hereby authorizes the Lender to file at any time and from time to time
any financing statements describing the Collateral, and the Borrower shall
execute and deliver to the Lender, and the Borrower hereby authorizes the Lender
to file (with or without the Borrower’s signature), at any time and from time to
time, all amendments to financing statements, continuation financing statements,
termination statements, security agreements relating to the Intellectual
Property Collateral, assignments, fixture filings, affidavits, reports, notices
and all other documents and instruments, in form reasonably satisfactory to the
Lender, as the Lender may reasonably request, to perfect and continue perfected,
maintain the priority of or provide notice of the Lender’s security interest in
the Collateral and to accomplish the purposes of this
Agreement.  Without limiting the generality of the foregoing, the
Borrower ratifies and authorizes the filing by the Lender of any financing
statements filed prior to the date hereof.




9.2
            Bailees




Any
Person (other than the Lender) at any time and from time to time holding all or
any portion of the Collateral shall be deemed to, and shall, hold the Collateral
as the agent of, and as pledge holder for, the Lender.  At any time
and from time to time, the Lender may give notice to any such Person holding all
or any portion of the Collateral that such Person is holding the Collateral as
the agent and bailee of, and as pledge holder for, the Lender, and obtain such
Person’s written acknowledgment thereof.  Without limiting the
generality of the foregoing, upon the written request of Lender, the Borrower
will join with the Lender in notifying any Person who has possession of any
Collateral of the Lender’s security interest therein and obtaining an
acknowledgment from such Person that it is holding the Collateral for the
benefit of the Lender.


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9.3
            Control




If any of
the Collateral consists of Investment Property, (a) the Borrower authorizes the
Lender, during any Default Period, to transfer such Collateral or any part
thereof into its own name or that of its nominee so that the Lender or its
nominee may appear of record as the sole owner thereof; provided, that until the
security hereby constituted becomes enforceable, the Lender shall deliver
promptly to the Borrower all notices, statements or other communications
received by it or its nominee as such registered owner, and upon demand and
receipt of payment of necessary expenses thereof, shall give to the Borrower or
its designee a proxy or proxies to vote and take all action with respect to such
property; provided further that after the security hereby constituted becomes
enforceable, the Borrower waives all rights to be advised of or to receive any
notices, statements or communications received by the Lender or its nominee as
such record owner, and agrees that no proxy or proxies given by the Lender to
the Borrower or its designee as aforesaid shall thereafter be effective; and (b)
the Borrower further agrees to execute such other documents and to perform such
other acts, and to cause any issuer or securities intermediary to execute such
other documents and to perform such other acts as may be necessary or
appropriate in order to give the Lender “control” of such Investment Property,
as defined in the Securities
Transfer Act, 2006(Ontario), which “control” shall be in such manner as
the Lender shall designate in its reasonable judgement and discretion,
including, without limitation, an agreement by an issuer or securities
intermediary that it will comply with instructions in the case of an issuer or
entitlement orders in the case of a securities intermediary, originated by the
Lender, whether before or after security hereby constituted becomes enforceable,
without further consent by the Borrower.




ARTICLE
10 - MISCELLANEOUS




10.1
            Amendments
      and Waivers




Except to
the extent otherwise provided herein or in any other Document, (a) no
amendment to any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed by the Borrower and the Lender
and (b) no waiver of any provision of this Agreement, or consent to any
departure by the Borrower or other party therefrom, shall in any event be
effective unless the same shall be in writing and signed by the
Lender.  Any such amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which
given.




10.2
            Notices




All
notices required or permitted under this Agreement shall be given in the manner
and to the addresses specified in the Credit Agreement.




10.3
            No
      Waiver; Cumulative Remedies




No
failure on the part of the Lender to exercise, and no delay in exercising, any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, remedy,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.  The rights
and remedies under this Agreement are cumulative and not exclusive of any
rights, remedies, powers and privileges that may otherwise be available to the
Lender.


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10.4
            Binding
      Effect




This
Agreement shall be binding upon the Borrower and its successors and assigns,
including any successor by reason of amalgamation, and inure to the benefit of
and be enforceable by the Lender and its successors, endorsees, transferees and
assigns.




10.5
            Assignment




The
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of the Lender, and any attempted
assignment in violation of this provision shall be null and void.  The
Lender may assign this Agreement in whole or in part to any Person acquiring an
interest in the Secured Obligations in accordance with the provisions of the
Credit Agreement.




10.6
            Costs
      and Expenses




The
Borrower agrees to pay on demand all reasonable costs and expenses of the
Lender, any Receiver, or the agents of the Lender or any Receiver, and
reasonable legal fees and disbursements in connection with the perfection,
enforcement, or preservation of any rights under, this Agreement and the other
Documents.




10.7
            Severability




Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under all applicable laws and
regulations.  If, however, any provision of this Agreement shall be
prohibited by or invalid under any such law or regulation, it shall be deemed
modified to conform to the minimum requirements of such law or regulation, or,
if for any reason it is not deemed so modified, it shall be ineffective and
invalid only to the extent of such prohibition or invalidity without affecting
the remaining provisions of this Agreement.




10.8
            Governing
      Law




This
Agreement is to be exclusively construed in accordance with and governed by the
internal laws of the Province of Ontario and the federal laws of Canada
applicable therein without giving effect to any choice of law rule or principle
that would cause the application of the laws of any jurisdiction other than the
internal laws of the Province of Ontario and the federal laws of Canada
applicable therein to the rights and duties of the Borrower and the
Lender.




10.9
            Submission
      to Jurisdiction




The
Borrower hereby (a) submits to the non-exclusive jurisdiction of the courts
of the Province of Ontario sitting in Toronto for the purpose of any action or
proceeding arising out of or relating to this Agreement and the other Loan
Documents, (b) agrees that all claims in respect of any such action or
proceeding may be heard and determined in such courts, (c) irrevocably
waives (to the extent permitted by applicable law) any objection which it now or
hereafter may have to the laying of venue of any such action or proceeding
brought in any of the foregoing courts, and any objection on the ground that any
such action or proceeding in any such court has been brought in an inconvenient
forum and (d) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner permitted by law.


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10.10
            Judgment
      Currency




If, for
the purposes of obtaining judgment in any court, it is necessary to convert a
sum due hereunder or any Loan Document in one currency into another currency,
the rate of exchange used shall be that at which in accordance with practices of
the Lender could purchase the first currency with such other currency on the
Business Day preceding that on which final judgment is given.  The
obligation of the Borrower in respect of any such sum due from it to the Lender
hereunder or under the other Loan Documents shall, notwithstanding any judgment
in a currency (the “Judgment
Currency”) other than that in which such sum is denominated in accordance
with the applicable provisions of the Loan Documents or other relevant document
(the “Agreement
Currency”), be discharged only to the extent that on the Business Day
following receipt by the Lender of any sum adjudged to be so due in the Judgment
Currency, the Lender may in accordance with normal practices purchase the
Agreement Currency with the Judgment Currency.  If the amount of the
Agreement Currency so purchased is less than the sum originally due to the
Lender from the Borrower in the Agreement Currency, the Borrower agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify the
Lender against such loss.  If the amount of the Agreement Currency so
purchased is greater than the sum originally due to the Lender in such currency,
the Lender agrees to return the amount of any excess to the Borrower (or to any
other Person who may be entitled thereto under applicable law).  The
agreements in this Section 10.10 shall survive the repayment of all Secured
Obligations.




10.11
            Entire
      Agreement




This
Agreement and the other Loan Documents constitutes the entire agreement of the
parties hereto with respect to the matters set forth herein and supersede any
prior agreements, commitments, drafts, communications, discussions and
understandings, oral or written, with respect thereto.




10.12
            Counterparts




This
Agreement may be executed in several counterparts by facsimile transmission or
PDF, each of which shall be deemed an original and all of which when taken
together shall constitute one and the same agreement.


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10.13
            Termination




Upon
payment and performance in full of all Secured Obligations, the security
interests created by this Agreement shall terminate and the Lender shall execute
and deliver to the Borrower, at the Borrower’s sole cost and expense, such
documents and instruments reasonably requested by the Borrower as shall be
necessary to evidence termination of all security interests given by the
Borrower to the Lender hereunder.




10.14
            Indemnity




The
Borrower hereby agrees to indemnify the Lender, and its successors, assigns,
agents and employees, from and against any and all liabilities, damages,
penalties, suits, costs, and expenses of any kind and nature (including, without
limitation, all reasonable expenses of litigation or preparation therefor
whether or not the Lender is a party thereto) imposed on, incurred by or
asserted against the Lender, or its successors, assigns, agents and employees,
in any way relating to or arising out of this Agreement, or the manufacture,
purchase, acceptance, rejection, ownership, delivery, lease, possession, use,
operation, condition, sale, return or other disposition of any Collateral
(including, without limitation, latent and other defects, whether or not
discoverable by the Lender or the Borrower, and any claim for patent, trade-mark
or copyright infringement), except for the gross negligence or wilful misconduct
of the Lender.




10.15
            Acknowledgement
      of Receipt




The
Borrower acknowledges receipt of a copy of this Agreement.




[SIGNATURE
PAGE FOLLOWS]


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IN WITNESS WHEREOF the
undersigned has executed and delivered this Agreement under seal with effect as
of the date first written above.




PHYSICIANS
      FORMULA, INC.By:
            /s/
      Ingrid JackelName: Ingrid
      JackelAuthorized
      Signing Officer







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