Document:

Exhibit 10.3

Physicians Formula
Holdings, Inc.

1055 West 8th Street

Azusa, California 91702

November 14, 2006

Jeff Rogers

3323 White Eagle Drive

Naperville, Illinois  60564

Re:                               Physicians
Formula Holdings, Inc.

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

Amended and Restated
Grant of Nonqualified Stock Option 

Dear Jeff:

The Company’s Board of Directors has previously
granted to you, on November 3, 2003, 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 offering
of the Company’s Common Stock (as defined below) (the “Initial Public
Offering”), the Board desires to amend and restate the terms of your
Option, effective upon the closing of the Initial Public Offering, to (among
other things) accelerate the vesting of a portion of your Option upon
completion of the Initial Public Offering. 
This Amended and Restated Grant of Nonqualified Stock Option amends and
restates in its entirety the Grant of Nonqualified Stock Option, dated November
3, 2003, relating to your Option.

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

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

“Cause” shall have the meaning set forth in
that certain Employment Agreement, dated as of November 3, 2003, by and between
you and Pierre Fabre, Inc. (now known as Physicians Formula, Inc.) (as the same
may be amended or modified from time to time in accordance with its terms).

“Code” shall mean the Internal Revenue Code of
1986, as amended, and any successor statute.

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

  
  
 

 

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

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

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

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

“Person” shall mean an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.

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

“Sale of the Company” shall mean the sale of
the Company pursuant to which any “person” or “group” (as those terms are used
in 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 Summit
Partners, L.P. and/or any of its affiliated investment funds) acquires (i)
capital stock of the Company possessing the voting power under normal
circumstances to elect a majority of the Company’s board of directors (whether
by 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 a
consolidated basis.

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

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2.                                       Option.

(a)                                  Terms.  Your Option is for the purchase of up to
291,667 shares of Common Stock (the “Option Shares”) at a price per
share of $0.10 (the “Exercise Price”), payable upon exercise as set
forth in paragraph 2(b) below.  Your
Option shall expire at the close of business on November 3, 2013 (the “Expiration
Date”), subject to earlier expiration as provided in paragraph 3(c) below
or upon termination of your employment as provided in paragraph 4(b) below.
Your Option is not intended to be an “incentive stock option” within the
meaning of Section 422 of the Code.

(b)                                 Payment of Option
Price.  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 Price
multiplied by (ii) the number of Option Shares to be acquired.  Payment shall be made in cash (including
check, bank draft or money order).

3.                                       Exercisability/Vesting.

(a)                                  Normal Vesting.  Your Option may be exercised only to the
extent it has become vested as provided in this paragraph 3.  Upon the closing of the Initial Public
Offering, your Option shall immediately vest and become exercisable with
respect to 225,203 of the Option Shares, and your Option shall vest and become
exercisable with respect to the remaining Option Shares in twenty-four (24)
equal installments on each monthly anniversary of the closing date of the
Initial Public Offering (i.e., monthly “pro-rated” vesting), if and
only if you are, and have been, continuously employed by the Company from
the date of this Agreement through such monthly anniversary date.

(b)                                 Effect on Vesting
in Case of Employment Termination. 
Notwithstanding paragraph 3(a) above, unless otherwise determined by the
Committee, if your employment with the Company terminates prior to the
Expiration Date for any reason other than for Cause, your Option shall be
vested and fully exercisable with respect to that portion of your Option that
was vested and exercisable on the date your employment with the Company ceased
and any portion of your Option that was not vested and exercisable on such date
shall expire and be forfeited.  If you
are discharged for Cause, all of your Option not previously exercised shall
expire and be forfeited whether exercisable or not.  The number of Option Shares with respect to
which your Option may be exercised shall not increase once you cease to be
employed by the Company.

(c)                                  Acceleration of
Vesting on Sale of the Company.  If
you have been continuously employed by the Company from the date of this
Agreement until a Sale of the Company, the portion of your outstanding Option
which has not become vested as of the date of such event shall immediately vest
and become exercisable with respect to 100% of the Option Shares simultaneously
with the consummation of the Sale of the Company.  In any event, any portion of your Option
which has not been exercised prior to or in connection with the Sale of the
Company shall expire and be forfeited, unless otherwise determined by the
Committee or the Board in its sole discretion.

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4.                                       Expiration
of Option.

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

(b)                                 Early Expiration
Upon Termination of Employment. Any portion of your Option that was not
vested and exercisable as of the date your employment with the Company
terminated shall expire and be forfeited on such date, and any portion of your
Option that was vested and exercisable as of the date your employment with the
Company terminated shall also expire and be forfeited; provided  that:
(i) if you die or become subject to any Disability, the portion of your Option
that is vested and exercisable shall expire 90 days from the date of your death
or 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 days
from 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 your
Option that is vested and exercisable shall expire 30 days from the date of
your discharge, but in no event after the Expiration Date.

5.                                       Procedure
for Exercise.  You may exercise all
or 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
written notice to the Company (to the attention of the Company’s Secretary) and
your written acknowledgement that you have reviewed and have been afforded an
opportunity to ask questions of management of the Company with respect to all financial
and other information provided to you regarding the Company, together with
payment of the Option Price in accordance with the provisions of paragraph 2(b)
above.  As a condition to any exercise of
your Option, you shall permit the Company to deliver to you all financial and
other information regarding the Company it believes necessary to enable you to
make an informed investment decision, and you shall make all customary
investment representations which the Company requires.

6.                                       Securities
Laws Restrictions and Other Restrictions on Transfer of Option Shares.  You represent and warrant that when you
exercise your Option you shall be purchasing Option Shares for your own account
and not on behalf of others.  You
understand and acknowledge that federal and state securities laws govern and
restrict your right to offer, sell or otherwise dispose of any Option Shares
unless your offer, sale or other disposition thereof is registered or qualified
under the Securities Act and applicable state securities laws, or in the
opinion of the Company’s counsel, such offer, sale or other disposition is
exempt from registration or qualification thereunder.  You agree that you shall not offer, sell or
otherwise dispose of any Option Shares in any manner which would: (i) require
the Company to file any registration statement with the Securities and Exchange
Commission (or any similar filing under state law) or to amend or supplement
any such filing or (ii) violate or cause the Company to violate the Securities
Act, the rules and regulations promulgated thereunder or any other state or
federal law.  You further understand that
the certificates for any Option Shares you purchase shall bear such legends as
the Company deems necessary or desirable in connection with the Securities Act
or other rules, regulations or laws.

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7.                                       Non-Transferability
of Option.  Your Option is personal
to you and is not transferable by you other than by will or the laws of descent
and distribution.  During your lifetime
only you (or your guardian or legal representative) may exercise your
Option.  In the event of your death, your
Option may be exercised only (i) by the executor or administrator of your
estate or the person or persons to whom your rights under the Option shall pass
by will or the laws of descent and distribution and (ii) to the extent that you
were entitled hereunder at the date of your death.

8.                                       Conformity
with Plan.  Your Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan (which is incorporated herein by reference).  Inconsistencies between this Agreement and
the Plan shall be resolved in accordance with the terms of the Plan.  By executing and returning the enclosed copy
of this Agreement, you acknowledge your receipt of this Agreement and the Plan
and agree to be bound by all of the terms of this Agreement and the Plan.   Notwithstanding anything to the contrary in
this Agreement, the Company is not making, and you hereby acknowledge that the
Company has not made, any representations or warranties with respect to the tax
treatment of your Option or any tax consequences in connection therewith.

9.                                       Rights
of Participants.  Nothing in this
Agreement shall interfere with or limit in any way the right of the Company to
terminate your employment at any time (with or without Cause), nor confer upon
you any right to continue in the employ of the Company for any period of time
or to continue your present (or any other) rate of compensation, and in the
event of your termination of employment (including, but not limited to,
termination by the Company without Cause), any portion of your Option that was
not previously vested and exercisable shall expire and be forfeited, except as
otherwise provided herein.  Nothing in
this Agreement shall confer upon you any right to be selected again as a Plan
participant, and nothing in the Plan or this Agreement shall provide for any
adjustment to the number of Option Shares subject to your Option upon the
occurrence of subsequent events except as provided in paragraph 11 below.

10.                                 Withholding
of Taxes.  The Company shall be
entitled, if necessary or desirable, to withhold from you from any amounts due
and payable by the Company to you (or secure payment from you in lieu of
withholding) the amount of any minimum statutory withholding with respect to
any Option Shares issuable under this Plan, and the Company may defer such
issuance 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 change
in the shares of Common Stock, the Board or the Committee shall make 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 Price specified
herein as may be determined to be appropriate and equitable, in order to
prevent the dilution or enlargement of rights under your Option, and (b) any
merger, consolidation or exchange of shares, the Board or the Committee may make
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 Price
specified herein as may be determined to be appropriate and equitable, in order
to prevent the dilution or enlargement of rights under your Option.  The issuance by the Company of shares of
stock of any class, or options or securities exercisable or convertible into 

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shares of stock of any class, 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 upon exercise or conversion of other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock then subject to
any Options.

12.                                 Restrictions
on Transfer.

(a)                                  Restrictive Legend.  The certificates representing the Option
Shares shall bear the following legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON NOVEMBER 3, 2003, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.  THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN
OTHER AGREEMENTS SET FORTH IN AN OPTION AGREEMENT BETWEEN THE COMPANY AND JEFF
ROGERS DATED AS OF NOVEMBER 14, 2006, A COPY OF WHICH MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.”

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

(c)                                  Holdback.  You agree not to effect any public sale or
distribution of any equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 180 days after the effectiveness of any
underwritten public offering, except as part of such underwritten registration
if otherwise permitted by the Company.

13.                                 Remedies.  The parties hereto shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. 
The parties hereto acknowledge and agree that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party hereto shall be entitled to specific performance and/or injunctive
relief (without posting bond or other security) from any court of law or equity
of competent jurisdiction in order to enforce or prevent any violation of the
provisions of this Agreement.

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14.                                 Amendment.  Except as otherwise provided herein and
notwithstanding anything to the contrary in the Plan, any provision of this
Agreement may be amended or waived only with the prior written consent of the
Company and the Plan participants who have been granted options to purchase a
majority of the options under the Plan (based on the number of underlying
shares of Common Stock issuable upon the exercise of all such options)
theretofore granted under the Plan (unless you will be treated in a manner
different from other Plan participants, in which case your individual written
consent will also be required).

15.                                 Successors
and Assigns.  Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and permitted assigns of the parties
hereto whether so expressed or not.

16.                                 Severability.  Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.

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

18.                                 Descriptive
Headings.  The descriptive headings
of this Agreement are inserted for convenience only and do not constitute a
part of this Agreement.

19.                                 Governing
Law.  The corporate law of Delaware
shall govern all questions concerning the relative rights of the Company and
its stockholders.  All other questions
concerning the construction, validity and interpretation of this Agreement
shall be governed by the internal law, and not the law of conflicts, of
California.

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

If to the Optionee:

Jeff Rogers

3323 White Eagle Drive

Naperville, Illinois  60564

If to the Company:

Physicians Formula Holdings, Inc.

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1055 West 8th Street

Azusa, California
91702

Attn:            Chief
Executive Officer

Chief Financial Officer

Telecopy:  (626)
334-3395

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

Summit Partners, L.P.

499 Hamilton Avenue

Palo Alto, California 94301

Attention:                                         Walter
G. Kortschak

                                                                                                Craig
D. Frances

Telephone:                                    (415)
321-1166

Telecopy:                                           (415)
321-1188

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, Illinois 60601

Attention:                                         Ted
H. Zook, P.C.

Telephone:                                    (312)
861-2000

Telecopy:                                           (312)
861-2200

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

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

22.                                 Code
Section 280G.  Notwithstanding any
provision of this Agreement to the contrary, if all or any portion of the
payments or benefits received or realized by you pursuant to this Agreement
either alone or together with other payments or benefits which you receive or
realize or are then entitled to receive or realize from the Company or any of
its affiliates would constitute a “parachute payment” within the meaning of
Section 280G of the Code and the regulations promulgated thereunder and/or any
corresponding and applicable state law provision, such payments or benefits
provided to you shall be reduced by reducing the amount of payments or benefits
payable to you pursuant to paragraph 3(c) of this Agreement to the extent necessary
so that no portion of such payments or benefits shall be subject to the excise
tax imposed by Section 4999 of the Code and any corresponding and/or applicable
state law provision; provided  that such reduction shall only be
made if, by reason of such reduction, your net after tax benefit shall 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 pursuant
to this Agreement that would constitute a “parachute payment” within the
meaning of Section 280G of the Code and any corresponding and applicable state
law provision, plus (ii) any other payments or benefits which you receive or
realize or are then entitled to receive or realize from the Company and any of
its affiliates that would constitute a “parachute payment” within the meaning
of Section 280G of the Code and any corresponding and applicable state law
provision, less (iii) the amount of federal and/or state income taxes payable
with respect to the payments or benefits described in (i) and (ii) above
calculated at the maximum marginal individual income tax rate for each year in
which payments or benefits shall be realized by you (based upon the rate in
effect for such year as set forth in the Code, and any corresponding applicable
state law provisions at the time of the first receipt or realization of the
foregoing), less (iv) the amount of excise taxes imposed with respect to the
payments or benefits described in (i) and (ii) above by Section 4999 of the
Code and any corresponding and applicable state law provision.

*     *    
*     *     *

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Please execute the extra copy of this Agreement in the
space below and return it to the Company’s Secretary at its executive offices
to confirm your understanding and acceptance of the agreements contained in
this Agreement.

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  PHYSICIANS FORMULA HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph J. Jaeger

  	
   

  
	
   

  	
   

  	
  Name: Joseph J. Jaeger

  
	
   

  	
   

  	
  Title:  Chief
  Financial Officer

  

 

Enclosures:                                  (1)                                  Extra
copy of this Agreement

(2)                                  Copy
of the Plan

The undersigned hereby acknowledges having read this
Agreement and the Plan and hereby agrees to be bound by all provisions set
forth herein and in the Plan. 

	
  Dated as of November 14, 2006

  	
  OPTIONEE

  
	
   

  	
   

  
	
   

  	
  /s/ Jeff Rogers

  	
   

  
	
   

  	
  Name:  Jeff
  Rogers

  

 

CONSENT

The undersigned spouse of Jeff Rogers hereby
acknowledges that I have read the foregoing Stock Option Agreement and that I
understand its contents.  I am aware that
the Agreement imposes certain restrictions on the transfer of my spouse’s
interest in the Common Stock.  I agree that
my spouse’s interest in the Common Stock is subject to this Agreement and any
interest I may have in such Common Stock shall be irrevocably bound by this
Agreement and further that the my community property interest, if any, shall be
similarly bound by this Agreement.  I am
aware that the legal, financial and other matters contained in this Agreement
are complex and I am free to seek advice with respect thereto from independent
counsel.  I have either sought such
advice or determined after carefully reviewing this Agreement that I will waive
such right.

	
  

  	
  /s/ Kathy Rogers

  	
   

  
	
   

  	
  Name of Spouse:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Linda Kozola

  	
   

  
	
   

  	
  WitnessExhibit 10.4

Physicians Formula
Holdings, Inc.

1055 West 8th Street

Azusa, California 91702

November 14, 2006

Joseph J. Jaeger

801 E. Walnut Street

Pasadena, CA 91101

Re:                               Physicians
Formula Holdings, Inc.

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

Amended and Restated
Grant of Nonqualified Stock Option 

Dear Joe:

The Company’s Board of Directors has previously
granted 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 offering
of the Company’s Common Stock (as defined below) (the “Initial Public
Offering”), the Board desires to amend and restate the terms of your
Option, effective upon the closing of the Initial Public Offering, to (among
other things) accelerate the vesting of a portion of your Option upon
completion of the Initial Public Offering. 
This Amended and Restated Grant of Nonqualified Stock Option amends and
restates 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, the
following terms shall have the meanings set forth below:

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

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

“Code” shall mean the Internal Revenue Code of
1986, as amended, and any successor statute.

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

 

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

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

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

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

“Person” shall mean an individual, a
partnership, a corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.

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

“Sale of the Company” shall mean the sale of
the Company pursuant to which any “person” or “group” (as those terms are used
in 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 Summit
Partners, L.P. and/or any of its affiliated investment funds) acquires (i)
capital stock of the Company possessing the voting power under normal
circumstances to elect a majority of the Company’s board of directors (whether
by 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 a
consolidated basis.

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

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2.                                       Option.

(a)                                  Terms.  Your Option is for the purchase of up to
75,000 shares of Common Stock (the “Option Shares”) at a price per share
of $0.10 (the “Exercise Price”), payable upon exercise as set forth in
paragraph 2(b) below.  Your Option shall
expire at the close of business on March 8, 2014 (the “Expiration Date”),
subject to earlier expiration as provided in paragraph 3(c) below or upon
termination of your employment as provided in paragraph 4(b) below. Your Option
is not intended to be an “incentive stock option” within the meaning of Section
422 of the Code.

(b)                                 Payment of Option
Price.  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 Price
multiplied by (ii) the number of Option Shares to be acquired.  Payment shall be made in cash (including
check, bank draft or money order).

3.                                       Exercisability/Vesting.

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

(b)                                 Effect on Vesting
in Case of Employment Termination. 
Notwithstanding paragraph 3(a) above, unless otherwise determined by the
Committee, if your employment with the Company terminates prior to the
Expiration Date for any reason other than for Cause, your Option shall be
vested and fully exercisable with respect to that portion of your Option that
was vested and exercisable on the date your employment with the Company ceased
and any portion of your Option that was not vested and exercisable on such date
shall expire and be forfeited.  If you
are discharged for Cause, all of your Option not previously exercised shall
expire and be forfeited whether exercisable or not.  The number of Option Shares with respect to
which your Option may be exercised shall not increase once you cease to be
employed by the Company.

(c)                                  Acceleration of
Vesting on Sale of the Company.  If
you have been continuously employed by the Company from the date of this
Agreement until a Sale of the Company, the portion of your outstanding Option
which has not become vested as of the date of such event shall immediately vest
and become exercisable with respect to 100% of the Option Shares simultaneously
with the consummation of the Sale of the Company.  In any event, any portion of your Option
which has not been exercised prior to or in connection with the Sale of the
Company shall expire and be forfeited, unless otherwise determined by the
Committee or the Board in its sole discretion.

 3
 

 

4.                                       Expiration
of Option.

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

(b)                                 Early Expiration
Upon Termination of Employment. Any portion of your Option that was not
vested and exercisable as of the date your employment with the Company
terminated shall expire and be forfeited on such date, and any portion of your
Option that was vested and exercisable as of the date your employment with the
Company terminated shall also expire and be forfeited; provided  that:
(i) if you die or become subject to any Disability, the portion of your Option
that is vested and exercisable shall expire 90 days from the date of your death
or 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 days
from 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 your
Option that is vested and exercisable shall expire 30 days from the date of
your discharge, but in no event after the Expiration Date.

5.                                       Procedure
for Exercise.  You may exercise all
or 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 written
notice to the Company (to the attention of the Company’s Secretary) and your
written acknowledgement that you have reviewed and have been afforded an
opportunity to ask questions of management of the Company with respect to all
financial and other information provided to you regarding the Company, together
with payment of the Option Price in accordance with the provisions of paragraph
2(b) above.  As a condition to any
exercise of your Option, you shall permit the Company to deliver to you all
financial and other information regarding the Company it believes necessary to
enable you to make an informed investment decision, and you shall make all
customary investment representations which the Company requires.

6.                                       Securities
Laws Restrictions and Other Restrictions on Transfer of Option Shares.  You represent and warrant that when you
exercise your Option you shall be purchasing Option Shares for your own account
and not on behalf of others.  You
understand and acknowledge that federal and state securities laws govern and
restrict your right to offer, sell or otherwise dispose of any Option Shares
unless your offer, sale or other disposition thereof is registered or qualified
under the Securities Act and applicable state securities laws, or in the
opinion of the Company’s counsel, such offer, sale or other disposition is
exempt from registration or qualification thereunder.  You agree that you shall not offer, sell or
otherwise dispose of any Option Shares in any manner which would: (i) require
the Company to file any registration statement with the Securities and Exchange
Commission (or any similar filing under state law) or to amend or supplement
any such filing or (ii) violate or cause the Company to violate the Securities
Act, the rules and regulations promulgated thereunder or any other state or
federal law.  You further understand that
the certificates for any Option Shares you purchase shall bear such legends as
the Company deems necessary or desirable in connection with the Securities Act
or other rules, regulations or laws.

 4
 

 

7.                                       Non-Transferability
of Option.  Your Option is personal
to you and is not transferable by you other than by will or the laws of descent
and distribution.  During your lifetime
only you (or your guardian or legal representative) may exercise your
Option.  In the event of your death, your
Option may be exercised only (i) by the executor or administrator of your
estate or the person or persons to whom your rights under the Option shall pass
by will or the laws of descent and distribution and (ii) to the extent that you
were entitled hereunder at the date of your death.

8.                                       Conformity
with Plan.  Your Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan (which is incorporated herein by reference).  Inconsistencies between this Agreement and
the Plan shall be resolved in accordance with the terms of the Plan.  By executing and returning the enclosed copy
of this Agreement, you acknowledge your receipt of this Agreement and the Plan and
agree to be bound by all of the terms of this Agreement and the Plan.   Notwithstanding anything to the contrary in
this Agreement, the Company is not making, and you hereby acknowledge that the
Company has not made, any representations or warranties with respect to the tax
treatment of your Option or any tax consequences in connection therewith.

9.                                       Rights
of Participants.  Nothing in this
Agreement shall interfere with or limit in any way the right of the Company to
terminate your employment at any time (with or without Cause), nor confer upon
you any right to continue in the employ of the Company for any period of time
or to continue your present (or any other) rate of compensation, and in the
event of your termination of employment (including, but not limited to,
termination by the Company without Cause), any portion of your Option that was
not previously vested and exercisable shall expire and be forfeited, except as
otherwise provided herein.  Nothing in
this Agreement shall confer upon you any right to be selected again as a Plan
participant, and nothing in the Plan or this Agreement shall provide for any
adjustment to the number of Option Shares subject to your Option upon the
occurrence of subsequent events except as provided in paragraph 11 below.

10.                                 Withholding
of Taxes.  The Company shall be
entitled, if necessary or desirable, to withhold from you from any amounts due
and payable by the Company to you (or secure payment from you in lieu of
withholding) the amount of any minimum statutory withholding with respect to
any Option Shares issuable under this Plan, and the Company may defer such
issuance 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 change
in the shares of Common Stock, the Board or the Committee shall make 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 Price specified
herein as may be determined to be appropriate and equitable, in order to
prevent the dilution or enlargement of rights under your Option, and (b) any
merger, consolidation or exchange of shares, the Board or the Committee may
make 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 Price
specified herein as may be determined to be appropriate and equitable, in order
to prevent the dilution or enlargement of rights under your Option.  The issuance by the Company of shares of
stock of any class, or options or securities exercisable or convertible into 

 5
 

 

shares of stock of any
class, 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 upon
exercise or conversion of other securities, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock then subject to any Options.

12.                                 Restrictions
on Transfer.

(a)                                  Restrictive Legend.  The certificates representing the Option
Shares shall bear the following legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON MARCH 8, 2004, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.  THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN
OTHER AGREEMENTS SET FORTH IN AN OPTION AGREEMENT BETWEEN THE COMPANY AND
JOSEPH J. JAEGER DATED AS OF NOVEMBER 14, 2006, A COPY OF WHICH MAY BE OBTAINED
BY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE.”

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

(c)                                  Holdback.  You agree not to effect any public sale or
distribution of any equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 180 days after the effectiveness of any
underwritten public offering, except as part of such underwritten registration
if otherwise permitted by the Company.

13.                                 Remedies.  The parties hereto shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. 
The parties hereto acknowledge and agree that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party hereto shall be entitled to specific performance and/or injunctive
relief (without posting bond or other security) from any court of law or equity
of competent jurisdiction in order to enforce or prevent any violation of the
provisions of this Agreement.

 6
 

 

14.                                 Amendment.  Except as otherwise provided herein and
notwithstanding anything to the contrary in the Plan, any provision of this
Agreement may be amended or waived only with the prior written consent of the
Company and the Plan participants who have been granted options to purchase a
majority of the options under the Plan (based on the number of underlying
shares of Common Stock issuable upon the exercise of all such options) theretofore
granted under the Plan (unless you will be treated in a manner different from
other Plan participants, in which case your individual written consent will
also be required).

15.                                 Successors
and Assigns.  Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and permitted assigns of the parties
hereto whether so expressed or not.

16.                                 Severability.
 Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.

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

18.                                 Descriptive
Headings.  The descriptive headings
of this Agreement are inserted for convenience only and do not constitute a
part of this Agreement.

19.                                 Governing
Law.  The corporate law of Delaware
shall govern all questions concerning the relative rights of the Company and
its stockholders.  All other questions
concerning the construction, validity and interpretation of this Agreement
shall be governed by the internal law, and not the law of conflicts, of
California.

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

If to the Optionee:

Joseph J. Jaeger

801 E. Walnut Street

Pasadena, CA 91101

If to the Company:

Physicians Formula Holdings, Inc.

 7
 

 

 

1055 West 8th Street

Azusa, California
91702

Attn:            Chief Executive Officer

Chief Financial Officer

Telecopy:  (626)
334-3395

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

Summit Partners, L.P.

499 Hamilton Avenue

Palo Alto, California 94301

Attention:                                         Walter G.
Kortschak

Craig D. Frances

Telephone:                                    (415) 321-1166

Telecopy:                                           (415)
321-1188

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, Illinois 60601

Attention:                                         Ted
H. Zook, P.C.

Telephone:                                    (312)
861-2000

Telecopy:                                           (312)
861-2200

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

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

22.                                 Code
Section 280G.  Notwithstanding any
provision of this Agreement to the contrary, if all or any portion of the
payments or benefits received or realized by you pursuant to this Agreement
either alone or together with other payments or benefits which you receive or
realize or are then entitled to receive or realize from the Company or any of
its affiliates would constitute a “parachute payment” within the meaning of
Section 280G of the Code and the regulations promulgated thereunder and/or any
corresponding and applicable state law provision, such payments or benefits
provided to you shall be reduced by reducing the amount of payments or benefits
payable to you pursuant to paragraph 3(c) of this Agreement to the extent
necessary so that no portion of such payments or benefits shall be subject to
the excise tax imposed by Section 4999 of the Code and any corresponding and/or
applicable state law provision; provided  that such reduction
shall only be made if, by reason of such reduction, your net after tax benefit
shall exceed the net after tax benefit if such reduction were not made.  For purposes of this paragraph, 

 8
 

 

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

*     *    
*     *     *

 9

 

Please execute the extra copy of this Agreement in the
space below and return it to the Company’s Secretary at its executive offices
to confirm your understanding and acceptance of the agreements contained in
this Agreement.

	
  

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
  PHYSICIANS FORMULA HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeff Rogers

  	
   

  
	
   

  	
   

  	
  Name: Jeff Rogers

  
	
   

  	
   

  	
  Title:  President

  
					

 

Enclosures:                                  (1)                                  Extra
copy of this Agreement

(2)                                  Copy
of the Plan

The undersigned hereby acknowledges having read this
Agreement and the Plan and hereby agrees to be bound by all provisions set
forth 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 hereby
acknowledges that I have read the foregoing Stock Option Agreement and that I
understand its contents.  I am aware that
the Agreement imposes certain restrictions on the transfer of my spouse’s
interest in the Common Stock.  I agree
that my spouse’s interest in the Common Stock is subject to this Agreement and
any interest I may have in such Common Stock shall be irrevocably bound by this
Agreement and further that the my community property interest, if any, shall be
similarly bound by this Agreement.  I am
aware that the legal, financial and other matters contained in this Agreement
are complex and I am free to seek advice with respect thereto from independent
counsel.  I have either sought such
advice or determined after carefully reviewing this Agreement that I will waive
such right.

	
  

  	
  /s/ Laraine P. Jaeger

  	
   

  
	
   

  	
  Name of Spouse:

  
	
   

  	
   

  
	
   

  	
  /s/ Rae Kearney

  	
   

  
	
   

  	
  Witness

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