Exhibit
10.20




Execution
Version





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.




SENIOR
SUBORDINATED NOTE




$8,000,000.00
            November
      6, 2009





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 of even date herewith
among the Maker, MRC and the Guarantors (as defined therein), as amended,
restated, supplemented or otherwise modified from time to time in accordance
with its terms (the “Purchase
Agreement”).  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 quarterly on the first day of each calendar
quarter.  Cash interest on this Note shall be payable monthly in
arrears on each Interest Payment Date commencing on December 1, 2009 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.







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 May 6, 2013.  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 the date
hereof 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.




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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.




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.




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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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IN WITNESS WHEREOF, the Maker has
caused this 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:
            /s/ Ingrid JackelName:  Ingrid
      JackelTitle:    Chief
      Executive Officer




Signature
Page to Senior Subordinated Note