PLEDGOR GUARANTEE

Exhibit 10.7

PLEDGOR GUARANTEE

THIS PLEDGOR GUARANTEE (the “ Pledgor Guarantee ”) is executed as of September 4, 2009 by PHYSICIANS FORMULA HOLDINGS, INC., a Delaware corporation (the “ Guarantor ”), for the benefit of MILL ROAD CAPITAL, L.P. (the “ Lender ”).

RECITALS

A.           Concurrently herewith the Lender is entering into that certain Term Loan Agreement dated as of even date herewith (said Agreement, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, being called the “ Loan Agreement ”) with Physicians Formula, Inc., a New York corporation (the “ Borrower ”).  Terms defined in the Loan Agreement and not otherwise defined herein have the same respective meanings when used herein, and the rules of interpretation set forth in Section 1.2 of the Loan Agreement are incorporated herein by reference.

B.           Under the terms of the Loan Agreement, the Borrower is required to cause the Guarantor to execute and deliver this Pledgor Guarantee.  The Guarantor owns 100% of the equity interests in the Borrower.  The Guarantor therefore desires to execute this Pledgor Guarantee because it has a financial interest in the success of the Borrower.

NOW, THEREFORE, in order to induce the Lender to extend credit to the Borrower under the Loan Agreement and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Guarantor hereby agrees as follows:

ARTICLE 1 - AGREEMENTS

(a)           Subject to the limitations set forth in Section 1.1(b), the Guarantor hereby unconditionally, continually and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, and performance of all obligations of the Borrower now or hereafter existing under the Loan Agreement, the Term Loan Note and the other Loan Documents, whether for principal, interest, fees, expenses or otherwise and whether accruing before or after the filing of a petition initiating any insolvency, bankruptcy, reorganization or similar proceeding affecting the Borrower (collectively, the “Guaranteed Obligations”).  Subject to the limitations set forth in Section 1.1(b), this is a guarantee of payment and performance and not of collection or collectibility only and the obligations under this Pledgor Guarantee shall be absolute, independent and unconditional under any and all circumstances and payable to the maximum extent permitted by applicable law.  Without limiting the generality of the foregoing, this Pledgor Guarantee guarantees, to the extent provided herein, the payment of all amounts which constitute part of the Guaranteed Obligations and would be owed by the Borrower to the Lender under any Loan Document but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower.

(b)           Notwithstanding any provision of this Pledgor Guarantee to the contrary and except for the Guarantor’s covenant in Section 1.2 and representations in Sections 2.1, 2.2 and 2.3, each and every obligation of the Guarantor hereunder shall be limited to the assets of the Guarantor pledged to the Lender pursuant to the Pledge Agreement.  In furtherance and not in limitation of the foregoing, if an Event of Default shall occur and be continuing under the Loan Agreement, and/or in the event of a default by the Guarantor hereunder or under the Pledge Agreement, the Lender’s sole recourse against the Guarantor with respect to its obligations hereunder shall be to the Collateral (as defined in the Pledge Agreement) except with respect to the Guarantor’s covenant in Section 1.2 and its representations in Sections 2.1, 2.2 and 2.3.

1.2            Expenses .  The Guarantor agrees to pay all reasonable costs and out-of-pocket expenses, including reasonable legal fees and disbursements of counsel to the Lender and each Lender without duplication thereof and the allocated reasonable cost of internal counsel to the Lender, which may be incurred by the Lender in any effort to collect the Guaranteed Obligations or enforce any of the Loan Documents or the obligations of the Guarantor hereunder, whether or not any lawsuit is filed, including, without limitation, all reasonable costs and attorneys’ fees incurred by the Lender in any Insolvency Proceeding (as defined below) (including, without limitation, any action for relief from the automatic stay of any bankruptcy proceeding) and in any judicial or nonjudicial foreclosure action or in connection with any refinancing or restructuring of the credit arrangements provided under the Loan Agreement involving this Pledgor Guarantee in the nature of a “work-out”.  Such amounts shall bear interest until paid at a rate equal to the rate for overdue payments described in Section 4.5 of the Loan Agreement.

1.3            Obligations Absolute .  Subject to the limitations set forth in Section 1.1(b), the Guarantor guarantees the Guaranteed Obligations will be paid strictly in accordance with the Loan Agreement, the Term Loan Note and the other Loan Documents, regardless of any applicable law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto.  Subject to the limitations set forth in Section 1.1(b), the obligations of the Guarantor hereunder shall remain fully effective without regard to, and shall not be affected or impaired by the following, any of which may be taken, at any time, without the consent of, or notice to, the Guarantor, nor shall any of the following give the Guarantor any recourse or right of action against the Lender:

(a)           Any lack of validity or enforceability of, or any release or discharge of the Borrower or any other Loan Party from liability under, the Loan Agreement or any other Loan Document;

(b)           Any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other amendment or waiver of, or any consent to departure from, the Loan Agreement or any other Loan Document;

(c)           Any subordination, compromise, exchange, release, nonperfection or liquidation of any collateral, or any release, amendment or waiver of, or consent to departure from, any other guaranty, for any or all of the Guaranteed Obligations;

(d)           Any express or implied amendment, modification, renewal, supplement, extension (including, without limitation, extensions beyond the original term) or acceleration of the Guaranteed Obligations or any of the Loan Documents;

(e)           Any exercise or non-exercise by the Lender of any right or privilege under this Pledgor Guarantee or any of the other Loan Documents;

(f)           Any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding (each, an “ Insolvency Proceeding ”) relating to the Guarantor, the Borrower or any other guarantor of the Guaranteed Obligations or any action taken with respect to this Pledgor Guarantee by any trustee or receiver, or by any court, in any Insolvency Proceeding, whether or not the Guarantor shall have had notice or knowledge of any of the foregoing;

(g)          Any assignment or other transfer of this Pledgor Guarantee in whole or in part or of any of the other Loan Documents;

(h)          Any acceptance of partial performance of the Guaranteed Obligations or the obligations of the Borrower under the Loan Documents or of any obligations of the Guarantor under this Pledgor Guarantee;

(i)           Any consent to the transfer of any Collateral or any portion thereof;

(j)           Any bid or purchase at any sale of any Collateral; or

The Guarantor understands and acknowledges that by virtue of this Pledgor Guarantee, it has specifically assumed any and all risks of a bankruptcy or reorganization case or proceeding with respect to the Borrower.  As an example and not in any way of limitation, a subsequent modification of the Guaranteed Obligations in any reorganization case concerning the Borrower shall not affect the obligation of the Guarantor to pay and perform the Guaranteed Obligations in accordance with their respective terms prior to such reorganization case.  If a claim is ever made upon the Lender for repayment of any amount or amounts received by it in payment of the Guaranteed Obligations and the Lender repays all or any part of said amount, then, notwithstanding any revocation or termination of this Pledgor Guarantee or any other instrument evidencing the Guaranteed Obligations, the Guarantor shall be and remain liable to the Lender in accordance with the terms of this Pledgor Guarantee for the amount so repaid to the same extent as if such amount had never originally been received by the Lender.

(a)           All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Pledgor Guarantee;

(b)           Any right to require the Lender to proceed against the Borrower or any other guarantor of the Guaranteed Obligations at any time, or to proceed against or exhaust any security held by the Lender or any Lender at any time, or to pursue any other remedy whatsoever at any time;

(c)           The defense of any statute of limitations affecting the liability of the Guarantor hereunder, the liability of the Borrower or any other guarantor of the Guaranteed Obligations, or the enforcement hereof, to the extent permitted by law;

(d)           Any defense arising by reason of any invalidity or unenforceability of any of the Loan Documents or any provision thereof, or any disability of the Borrower or any guarantor of the Guaranteed Obligations or of any manner in which the Lender has exercised its rights and remedies under the Loan Documents, or by any cessation from any cause whatsoever of the liability of the Borrower or any guarantor of the Guaranteed Obligations;

(e)           Any defense based on any action taken or omitted by the Lender in any Insolvency Proceeding involving the Borrower or the Guarantor, including any election to have the Lender’s or any Lender’s claim allowed as being secured, partially secured or unsecured, any extension of credit by the Lender to the Borrower in any Insolvency Proceeding and the taking and holding by the Lender of any security for any such extension of credit;

(f)           Any defense based upon an election of remedies by the Lender, including, without limitation, any election to proceed by judicial or nonjudicial foreclosure of any Lien, whether on real property or personal property, or by deed in lieu thereof, and whether or not every aspect of any foreclosure sale is commercially reasonable, or any election of remedies, including but not limited to, remedies relating to real property or personal property security, that destroys or otherwise impairs any subrogation rights of the Guarantor or the rights of the Guarantor to proceed against the Borrower or any other guarantor of the Guaranteed Obligations for reimbursement, or both;

(g)           Any right the Guarantor may have under applicable law to a hearing with respect to the fair market value of the Collateral, either before or after foreclosure, and any right the Guarantor may have to require the Lender to proceed against any Collateral before seeking to obtain a judgment against the Guarantor hereunder;

(h)           Any duty of the Lender to advise the Guarantor of any information known to the Lender regarding the financial condition of the Borrower and all other circumstances affecting the Borrower’s ability to perform its obligations to the Lender; it being agreed that the Guarantor assumes the responsibility for being and keeping informed regarding such condition or any such circumstances;

(i)           Any right of subrogation, reimbursement, exoneration, contribution, indemnity or otherwise against the Borrower that may arise out of or be caused by this Pledgor Guarantee, all rights and/or claims against the Borrower which may arise against the Borrower

(j)           Any right the Guarantor might have to revoke this Pledgor Guarantee as to any advances made by the Lender to or on behalf of the Borrower or pursuant to the terms of any of the Loan Documents;

(k)          Any failure by the Lender to perfect or continue the perfection of any lien or security interest in any collateral, including, but not limited to, the collateral given under the Loan Documents or any failure by the Lender to protect the property covered by any such lien or security interest;

(l)           Any right to interpose any defense, counter-claim or offset (other than payment in full) of any nature and descript