**Exhibit 10.4**

Physicians FormulaHoldings, Inc.1055 West 8th StreetAzusa, California 91702

November 14, 2006

Joseph J. Jaeger801 E. Walnut StreetPasadena, CA 91101

Re:                               PhysiciansFormula Holdings, Inc.

(formerly,PFI Holdings Corp.) (the “Company”)

Amended and RestatedGrant of Nonqualified Stock Option 

Dear Joe:

The Company’s Board of Directors has previouslygranted to you, on March 8, 2004, a “performance-vesting” stock option (an “Option”)under the Physicians Formula Holdings, Inc. 2003 Stock Option Plan (the “Plan”),a copy of which is attached hereto and incorporated herein by reference.  In connection with an initial public offeringof the Company’s Common Stock (as defined below) (the “Initial PublicOffering”), the Board desires to amend and restate the terms of yourOption, effective upon the closing of the Initial Public Offering, to (amongother things) accelerate the vesting of a portion of your Option uponcompletion of the Initial Public Offering. This Amended and Restated Grant of Nonqualified Stock Option amends andrestates in its entirety the Grant of Nonqualified Stock Option, dated March 8,2004, relating to your Option.

# 1.                                       Definitions.  For the purposes of this Agreement, thefollowing terms shall have the meanings set forth below:

“Board” shall mean the Board of Directors ofthe Company.

“Cause” shall have the meaning set forth inthat certain Employment Agreement, dated as of March 8, 2004, by and betweenyou and Pierre Fabre, Inc. (now known as Physicians Formula, Inc.) (as the samemay be amended or modified from time to time in accordance with its terms).

“Code” shall mean the Internal Revenue Code of1986, as amended, and any successor statute.

“Committee” shall mean the committee of theBoard which may be designated by the Board to administer the Plan.  The Committee shall be composed of two ormore directors as appointed from time to time to serve by the Board.

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“Common Stock” shall mean the Company’s CommonStock, par value $.01 per share, or, in the event that the outstanding CommonStock is hereafter changed into or exchanged for different stock or securitiesof the Company, such other stock or securities.

“Company” shall mean Physicians FormulaHoldings, Inc., a Delaware corporation, and (except to the extent the contextclearly requires otherwise) any subsidiary corporation of Physicians FormulaHoldings, Inc. as such term is defined in Section 424(f) of the Code.

“Disability” shall mean your inability, due toillness, accident, injury, physical or mental incapacity or other disability,to carry out effectively your duties and obligations as an employee of theCompany or to participate effectively and actively in the management of theCompany for a period of at least 90 consecutive days or for shorter periodsaggregating at least 120 days (whether or not consecutive) during anytwelve-month period, as determined in the reasonable judgment of the Board.

“Option Shares” shall mean (i) all shares ofCommon Stock issued or issuable upon the exercise of the Option and (ii) allshares of Common Stock issued with respect to the Common Stock referred to inclause (i) above by way of stock dividend or stock split or in connection withany conversion, merger, consolidation or recapitalization or otherreorganization affecting the Common Stock. Option Shares shall continue to be Option Shares in the hands of anyholder other than you (except for the Company and, to the extent that you arepermitted to transfer Option Shares pursuant to paragraph 14 hereof, purchaserspursuant to a Public Sale), and each such transferee thereof shall succeed tothe rights and obligations of a holder of Option Shares hereunder.

“Person” shall mean an individual, apartnership, a corporation, a limited liability company, an association, ajoint stock company, a trust, a joint venture, an unincorporated organizationand a governmental entity or any department, agency or political subdivisionthereof.

“Public Sale” shall mean any sale of OptionShares to the public pursuant to an offering registered under the SecuritiesAct or to the public through a broker, dealer or market maker pursuant to theprovisions of Rule 144 adopted under the Securities Act.

“Sale of the Company” shall mean the sale ofthe Company pursuant to which any “person” or “group” (as those terms are usedin Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended,and the rules and regulations promulgated thereunder and other than SummitPartners, L.P. and/or any of its affiliated investment funds) acquires (i)capital stock of the Company possessing the voting power under normalcircumstances to elect a majority of the Company’s board of directors (whetherby merger, consolidation or sale or transfer of the Company’s capital stock) or(ii) all or substantially all of the Company’s assets determined on aconsolidated basis.

“Securities Act” shall mean the Securities Actof 1933, as amended, and any successor statute.

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# 2.                                       Option.

## (a)                                  Terms.  Your Option is for the purchase of up to75,000 shares of Common Stock (the “Option Shares”) at a price per shareof $0.10 (the “Exercise Price”), payable upon exercise as set forth inparagraph 2(b) below.  Your Option shallexpire at the close of business on March 8, 2014 (the “Expiration Date”),subject to earlier expiration as provided in paragraph 3(c) below or upontermination of your employment as provided in paragraph 4(b) below. Your Optionis not intended to be an “incentive stock option” within the meaning of Section422 of the Code.

## (b)                                 Payment of OptionPrice.  Subject to paragraph 3 below,your Option may be exercised in whole or in part upon payment of an amount (the“Option Price”) equal to the product of (i) the Exercise Pricemultiplied by (ii) the number of Option Shares to be acquired.  Payment shall be made in cash (includingcheck, bank draft or money order).

# 3.                                       Exercisability/Vesting.

## (a)                                  Normal Vesting.  Your Option may be exercised only to theextent it has become vested as provided in this paragraph 3.  Upon the closing of the Initial PublicOffering, your Option shall immediately vest and become exercisable withrespect to 57,909 of the Option Shares, and your Option shall vest and becomeexercisable with respect to the remaining Option Shares in twenty-four (24)equal installments on each monthly anniversary of the closing date of theInitial Public Offering (i.e., monthly “pro-rated” vesting), if andonly if you are, and have been, continuously employed by the Company fromthe date of this Agreement through such monthly anniversary date.

## (b)                                 Effect on Vestingin Case of Employment Termination. Notwithstanding paragraph 3(a) above, unless otherwise determined by theCommittee, if your employment with the Company terminates prior to theExpiration Date for any reason other than for Cause, your Option shall bevested and fully exercisable with respect to that portion of your Option thatwas vested and exercisable on the date your employment with the Company ceasedand any portion of your Option that was not vested and exercisable on such dateshall expire and be forfeited.  If youare discharged for Cause, all of your Option not previously exercised shallexpire and be forfeited whether exercisable or not.  The number of Option Shares with respect towhich your Option may be exercised shall not increase once you cease to beemployed by the Company.

## (c)                                  Acceleration ofVesting on Sale of the Company.  Ifyou have been continuously employed by the Company from the date of thisAgreement until a Sale of the Company, the portion of your outstanding Optionwhich has not become vested as of the date of such event shall immediately vestand become exercisable with respect to 100% of the Option Shares simultaneouslywith the consummation of the Sale of the Company.  In any event, any portion of your Optionwhich has not been exercised prior to or in connection with the Sale of theCompany shall expire and be forfeited, unless otherwise determined by theCommittee or the Board in its sole discretion.

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# 4.                                       Expirationof Option.

## (a)                                  Normal Expiration.  In no event shall any part of your Option beexercisable after the Expiration Date set forth in paragraph 2(a) above.

## (b)                                 Early ExpirationUpon Termination of Employment. Any portion of your Option that was notvested and exercisable as of the date your employment with the Companyterminated shall expire and be forfeited on such date, and any portion of yourOption that was vested and exercisable as of the date your employment with theCompany terminated shall also expire and be forfeited; providedthat:(i) if you die or become subject to any Disability, the portion of your Optionthat is vested and exercisable shall expire 90 days from the date of your deathor Disability, but in no event after the Expiration Date, (ii) if you resign,the portion of your Option that is vested and exercisable shall expire 45 daysfrom the date of your resignation, but in no event after the Expiration Date,and (iii) if you are discharged other than for Cause, the portion of yourOption that is vested and exercisable shall expire 30 days from the date ofyour discharge, but in no event after the Expiration Date.

# 5.                                       Procedurefor Exercise.  You may exercise allor any portion of your Option, to the extent it has vested and is exercisable,at any time and from time to time prior to its expiration, by delivering writtennotice to the Company (to the attention of the Company’s Secretary) and yourwritten acknowledgement that you have reviewed and have been afforded anopportunity to ask questions of management of the Company with respect to allfinancial and other information provided to you regarding the Company, togetherwith payment of the Option Price in accordance with the provisions of paragraph2(b) above.  As a condition to anyexercise of your Option, you shall permit the Company to deliver to you allfinancial and other information regarding the Company it believes necessary toenable you to make an informed investment decision, and you shall make allcustomary investment representations which the Company requires.

# 6.                                       SecuritiesLaws Restrictions and Other Restrictions on Transfer of Option Shares.  You represent and warrant that when youexercise your Option you shall be purchasing Option Shares for your own accountand not on behalf of others.  Youunderstand and acknowledge that federal and state securities laws govern andrestrict your right to offer, sell or otherwise dispose of any Option Sharesunless your offer, sale or other disposition thereof is registered or qualifiedunder the Securities Act and applicable state securities laws, or in theopinion of the Company’s counsel, such offer, sale or other disposition isexempt from registration or qualification thereunder.  You agree that you shall not offer, sell orotherwise dispose of any Option Shares in any manner which would: (i) requirethe Company to file any registration statement with the Securities and ExchangeCommission (or any similar filing under state law) or to amend or supplementany such filing or (ii) violate or cause the Company to violate the SecuritiesAct, the rules and regulations promulgated thereunder or any other state orfederal law.  You further understand thatthe certificates for any Option Shares you purchase shall bear such legends asthe Company deems necessary or desirable in connection with the Securities Actor other rules, regulations or laws.

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# 7.                                       Non-Transferabilityof Option.  Your Option is personalto you and is not transferable by you other than by will or the laws of descentand distribution.  During your lifetimeonly you (or your guardian or legal representative) may exercise yourOption.  In the event of your death, yourOption may be exercised only (i) by the executor or administrator of yourestate or the person or persons to whom your rights under the Option shall passby will or the laws of descent and distribution and (ii) to the extent that youwere entitled hereunder at the date of your death.

# 8.                                       Conformitywith Plan.  Your Option is intendedto conform in all respects with, and is subject to all applicable provisionsof, the Plan (which is incorporated herein by reference).  Inconsistencies between this Agreement andthe Plan shall be resolved in accordance with the terms of the Plan.  By executing and returning the enclosed copyof this Agreement, you acknowledge your receipt of this Agreement and the Plan andagree to be bound by all of the terms of this Agreement and the Plan.   Notwithstanding anything to the contrary inthis Agreement, the Company is not making, and you hereby acknowledge that theCompany has not made, any representations or warranties with respect to the taxtreatment of your Option or any tax consequences in connection therewith.

# 9.                                       Rightsof Participants.  Nothing in thisAgreement shall interfere with or limit in any way the right of the Company toterminate your employment at any time (with or without Cause), nor confer uponyou any right to continue in the employ of the Company for any period of timeor to continue your present (or any other) rate of compensation, and in theevent of your termination of employment (including, but not limited to,termination by the Company without Cause), any portion of your Option that wasnot previously vested and exercisable shall expire and be forfeited, except asotherwise provided herein.  Nothing inthis Agreement shall confer upon you any right to be selected again as a Planparticipant, and nothing in the Plan or this Agreement shall provide for anyadjustment to the number of Option Shares subject to your Option upon theoccurrence of subsequent events except as provided in paragraph 11 below.

# 10.                                 Withholdingof Taxes.  The Company shall beentitled, if necessary or desirable, to withhold from you from any amounts dueand payable by the Company to you (or secure payment from you in lieu ofwithholding) the amount of any minimum statutory withholding with respect toany Option Shares issuable under this Plan, and the Company may defer suchissuance unless indemnified by you to its satisfaction.

# 11.                                 Adjustments.  In the event of (a) a reorganization,recapitalization, stock dividend or stock split, or combination or other changein the shares of Common Stock, the Board or the Committee shall make suchadjustments in the number and type of shares authorized by the Plan, the numberand type of shares covered by your Option and the Exercise Price specifiedherein as may be determined to be appropriate and equitable, in order toprevent the dilution or enlargement of rights under your Option, and (b) anymerger, consolidation or exchange of shares, the Board or the Committee maymake such adjustments in the number and type of shares authorized by the Plan,the number and type of shares covered by your Option and the Exercise Pricespecified herein as may be determined to be appropriate and equitable, in orderto prevent the dilution or enlargement of rights under your Option.  The issuance by the Company of shares ofstock of any class, or options or securities exercisable or convertible into 

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# shares of stock of anyclass, for cash or property, or for labor or services either upon direct sale,or upon the exercise of rights or warrants to subscribe therefore, or uponexercise or conversion of other securities, shall not affect, and no adjustmentby reason thereof shall be made with respect to, the number or price of sharesof Common Stock then subject to any Options.

# 12.                                 Restrictionson Transfer.

## (a)                                  Restrictive Legend.  The certificates representing the OptionShares shall bear the following legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE WEREORIGINALLY ISSUED ON MARCH 8, 2004, HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY STATESECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF ANEFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIESLAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.  THE SECURITIES REPRESENTED BY THISCERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAINOTHER AGREEMENTS SET FORTH IN AN OPTION AGREEMENT BETWEEN THE COMPANY ANDJOSEPH J. JAEGER DATED AS OF NOVEMBER 14, 2006, A COPY OF WHICH MAY BE OBTAINEDBY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE OF BUSINESS WITHOUTCHARGE.”

## (b)                                 Opinion of Counsel.  You may not sell, transfer or dispose of anyOption Shares (except pursuant to an effective registration statement under theSecurities Act) without first delivering to the Company an opinion of counselreasonably acceptable in form and substance to the Company that registrationunder the Securities Act or any applicable state securities law is not requiredin connection with such transfer.

## (c)                                  Holdback.  You agree not to effect any public sale ordistribution of any equity securities of the Company, or any securitiesconvertible into or exchangeable or exercisable for such securities, during theseven days prior to and the 180 days after the effectiveness of anyunderwritten public offering, except as part of such underwritten registrationif otherwise permitted by the Company.

# 13.                                 Remedies.  The parties hereto shall be entitled toenforce their rights under this Agreement specifically, to recover damages byreason of any breach of any provision of this Agreement and to exercise allother rights existing in their favor. The parties hereto acknowledge and agree that money damages would not bean adequate remedy for any breach of the provisions of this Agreement and thatany party hereto shall be entitled to specific performance and/or injunctiverelief (without posting bond or other security) from any court of law or equityof competent jurisdiction in order to enforce or prevent any violation of theprovisions of this Agreement.

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# 14.                                 Amendment.  Except as otherwise provided herein andnotwithstanding anything to the contrary in the Plan, any provision of thisAgreement may be amended or waived only with the prior written consent of theCompany and the Plan participants who have been granted options to purchase amajority of the options under the Plan (based on the number of underlyingshares of Common Stock issuable upon the exercise of all such options) theretoforegranted under the Plan (unless you will be treated in a manner different fromother Plan participants, in which case your individual written consent willalso be required).

# 15.                                 Successorsand Assigns.  Except as otherwiseexpressly provided herein, all covenants and agreements contained in thisAgreement by or on behalf of any of the parties hereto shall bind and inure tothe benefit of the respective successors and permitted assigns of the partieshereto whether so expressed or not.

# 16.                                 Severability. Whenever possible, each provision ofthis Agreement shall be interpreted in such manner as to be effective and validunder applicable law, but if any provision of this Agreement is held to beprohibited by or invalid under applicable law, such provision shall beineffective only to the extent of such prohibition or invalidity, withoutinvalidating the remainder of this Agreement.

# 17.                                 Counterparts.  This Agreement may be executed simultaneouslyin two or more counterparts (including by means of telecopied signature pages),each of which shall constitute an original, but all of which taken togethershall constitute one and the same Agreement.

# 18.                                 DescriptiveHeadings.  The descriptive headingsof this Agreement are inserted for convenience only and do not constitute apart of this Agreement.

# 19.                                 GoverningLaw.  The corporate law of Delawareshall govern all questions concerning the relative rights of the Company andits stockholders.  All other questionsconcerning the construction, validity and interpretation of this Agreementshall be governed by the internal law, and not the law of conflicts, ofCalifornia.

# 20.                                 Notices.  All notices, demands or other communicationsto be given or delivered under or by reason of the provisions of this Agreementshall be in writing and shall be deemed to have been given when deliveredpersonally or mailed by certified or registered mail, return receipt requestedand postage prepaid, to the recipient. Such notices, demands and other communications shall be sent to you andto the Company at the addresses indicated below:

If to the Optionee:

Joseph J. Jaeger801 E. Walnut StreetPasadena, CA 91101

If to the Company:

Physicians Formula Holdings, Inc.

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1055 West 8th Street

Azusa, California91702

Attn:            Chief Executive OfficerChief Financial Officer

Telecopy:  (626)334-3395

With a copy to (which shall not constitute notice to the Company):

Summit Partners, L.P.499 Hamilton AvenuePalo Alto, California 94301

Attention:                                         Walter G.KortschakCraig D. Frances

Telephone:                                    (415) 321-1166

Telecopy:                                           (415)321-1188

Kirkland & Ellis LLP200 East Randolph DriveChicago, Illinois 60601Attention:                                         TedH. Zook, P.C.Telephone:                                    (312)861-2000Telecopy:                                           (312)861-2200

or to such other address or to the attention of suchother person as the recipient party has specified by prior written notice tothe sending party.

# 21.                                 EntireAgreement.  This Agreement and thePlan constitute the entire understanding between you and the Company, andsupersedes all other agreements, whether written or oral, with respect to theacquisition by you of Common Stock of the Company.  If there are any conflicts in terms andconditions between this Agreement and the Plan, the terms and conditions of thePlan shall govern, unless otherwise determined by the Committee or the Board.

# 22.                                 CodeSection 280G.  Notwithstanding anyprovision of this Agreement to the contrary, if all or any portion of thepayments or benefits received or realized by you pursuant to this Agreementeither alone or together with other payments or benefits which you receive orrealize or are then entitled to receive or realize from the Company or any ofits affiliates would constitute a “parachute payment” within the meaning ofSection 280G of the Code and the regulations promulgated thereunder and/or anycorresponding and applicable state law provision, such payments or benefitsprovided to you shall be reduced by reducing the amount of payments or benefitspayable to you pursuant to paragraph 3(c) of this Agreement to the extentnecessary so that no portion of such payments or benefits shall be subject tothe excise tax imposed by Section 4999 of the Code and any corresponding and/orapplicable state law provision; providedthat such reductionshall only be made if, by reason of such reduction, your net after tax benefitshall exceed the net after tax benefit if such reduction were not made.  For purposes of this paragraph, 

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# “net after tax benefit”shall mean the sum of (i) the total amount received or realized by you pursuantto this Agreement that would constitute a “parachute payment” within themeaning of Section 280G of the Code and any corresponding and applicable statelaw provision, plus (ii) any other payments or benefits which you receive orrealize or are then entitled to receive or realize from the Company and any ofits affiliates that would constitute a “parachute payment” within the meaningof Section 280G of the Code and any corresponding and applicable state lawprovision, less (iii) the amount of federal and/or state income taxes payablewith respect to the payments or benefits described in (i) and (ii) abovecalculated at the maximum marginal individual income tax rate for each year inwhich payments or benefits shall be realized by you (based upon the rate ineffect for such year as set forth in the Code, and any corresponding applicablestate law provisions at the time of the first receipt or realization of theforegoing), less (iv) the amount of excise taxes imposed with respect to thepayments or benefits described in (i) and (ii) above by Section 4999 of theCode and any corresponding and applicable state law provision.

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Please execute the extra copy of this Agreement in thespace below and return it to the Company’s Secretary at its executive officesto confirm your understanding and acceptance of the agreements contained inthis Agreement.
|        | Very truly yours,                 |
|--------|-----------------------------------|
|   |                              |   |
|   | PHYSICIANS FORMULA HOLDINGS, INC. |
|   |                              |   |
|   | By:                               | /s/ Jeff Rogers |   |
|   |                              | Name: Jeff Rogers |
|   |                              | Title:  President |
|        |                                   |  |  |  |

 

Enclosures:                                  (1)                                  Extracopy of this Agreement

(2)                                  Copyof the Plan

The undersigned hereby acknowledges having read thisAgreement and the Plan and hereby agrees to be bound by all provisions setforth herein and in the Plan. 
| Dated as of November 14, 2006 | OPTIONEE               |
|-------------------------------|------------------------|
|                          |                   |
|                          | /s/ Joseph J. Jaeger   |   |
|                          | Name: Joseph J. Jaeger |

 

CONSENT

The undersigned spouse of Joseph J. Jaeger herebyacknowledges that I have read the foregoing Stock Option Agreement and that Iunderstand its contents.  I am aware thatthe Agreement imposes certain restrictions on the transfer of my spouse’sinterest in the Common Stock.  I agreethat my spouse’s interest in the Common Stock is subject to this Agreement andany interest I may have in such Common Stock shall be irrevocably bound by thisAgreement and further that the my community property interest, if any, shall besimilarly bound by this Agreement.  I amaware that the legal, financial and other matters contained in this Agreementare complex and I am free to seek advice with respect thereto from independentcounsel.  I have either sought suchadvice or determined after carefully reviewing this Agreement that I will waivesuch right.
|        | /s/ Laraine P. Jaeger |   |
|--------|-----------------------|--------|
|   | Name of Spouse:       |
|   |                  |
|   | /s/ Rae Kearney       |   |
|   | Witness               |

 

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