MANUFACTURING AGREEMENT AND LICENSE

        This Manufacturing Agreement and License ("Agreement") is made as of this 3rd day of November, 2003 (the "Effective Date") by and between PIERRE FABRE DERMO-COSMETIQUE S.A., a limited company organized under the laws of France with its head office at 45, Place Abel Gance, Boulogne (92100), France ("PFDC"), and PIERRE FABRE, INC. (to be known as PHYSICIANS FORMULA, INC.), a New York corporation having its address at 1055 West 8th Street, Azusa, California ("PFI," and together with PFDC, the "Parties").

RECITALS

        WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), among PFDC, PFI, PFI Holdings Corp., a Delaware corporation, and PFI Acquisition Corp., a New York corporation, Holdings Corp. will acquire all of the beneficial ownership interests in PFI from PFDC;

        WHEREAS, PFDC has requested that PFI manufacture certain products, and PFI has agreed to manufacture such products for PFDC in accordance with the terms and conditions of this Agreement; and

        WHEREAS, PFI has agreed to grant limited licenses under certain conditions to PFDC.

        NOW, THEREFORE, the Parties agree as follows:

AGREEMENT

ARTICLE IDEFINITIONS

        As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

        1.1   "Accepted Firm Order" shall mean a Firm Order for a month, which has been or is required to be accepted by PFI pursuant to Section 7.4.

        1.2   "Affiliate" shall mean any person or entity which (i) controls any Party to this Agreement; or (ii) is controlled by any such Party; or (iii) is controlled by any such Party as is referred to in (i). A business entity shall be deemed to "control" another business entity if it owns, directly or indirectly, in excess of fifty percent (50%) of the outstanding voting securities or capital stock of such business entity or other comparable equity or ownership interest in respect of a business entity which is not a corporation or if any other relationship between the two business entities legally results in effective control by one entity over the management, business and/or affairs of the other entity.

        1.3   "Agreement" shall have the meaning stated in the preamble.

        1.4   "COGS" shall mean the cost to PHYSICIANS FORMULA to manufacture and sell the Products under this Agreement, calculated in accordance with PHYSICIANS FORMULA's practices during the 2003 fiscal year for "cost of goods sold," which cost shall include, without limitation, the costs and expenses for the Components, manufacturing labor and benefits, workers compensation expenses, allocated utilities and rent for manufacturing facilities, quality control expenses and amoritization expenses, but excluding administrative overhead expenses not directly related to such manufacturing activities.

        1.5   "Components" shall designate raw materials, in bulk and ready for use, and the packaging items for each Product and for all unfinished goods at all stages of Production.

        1.6   "Confidential Information" shall have the meaning set forth in Appendix 8.

        1.7   "Couvrance License Event" shall mean the termination of this Agreement by PFDC permitted by and in accordance with Article XIV.

        1.8   "Delivery Schedules" shall mean the schedule of orders, deliveries and forecasts communicated on a monthly basis from PFDC to PFI in the form shown in Appendix 3, which shall in any case be subject to and consistent with the Standard Lead Times set forth in Appendix 1.

        1.9   "Designated Couvrance Manufacturer" shall have the meaning set forth in Article XVII below.

        1.10 "Direct Competitor" shall mean a competitor of PFI that markets or sells its own retail cosmetic products through one or more third party retail establishments in the United States.

        1.11 "Disputes" shall have the meaning set forth in Section 21.3 below.

        1.12 "Effective Date" shall have the meaning set forth in the preamble above.

        1.13 "Final Determination" shall have the meaning set forth in Section 21.3.3 below.

        1.14 "Firm Order(s)" shall have the meaning set forth in Section 7.1 below.

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