PLEDGE AGREEMENT

Exhibit 10.4

PLEDGE AGREEMENT

This Pledge Agreement (this “ Agreement ”), dated as of September 4, 2009, is made by PHYSICIANS FORMULA HOLDINGS, INC., a Delaware corporation (the “ Pledgor ”), in favor of MILL ROAD CAPITAL, L.P., a Delaware limited partnership having its principal place of business at Two Sound View Drive, Greenwich, CT 06830 (the “ Lender ”).

Recitals

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

B.           The Pledgor is concurrently herewith entering into that certain Pledgor Guarantee dated as of even date herewith in favor of the Lender (as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, the “ Pledgor Guarantee ”).

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

AGREEMENT

NOW, THEREFORE, in order to induce the Lender to enter into the Loan Agreement and for other good and valuable consideration, the receipt and adequacy of which hereby is acknowledged, the Pledgor hereby represents, warrants, covenants, agrees, assigns and grants as follows:

1.            Definitions .  Unless the context otherwise requires, terms defined in the Uniform Commercial Code of the State of New York (the “ Uniform Commercial Code ”) and not otherwise defined in this Agreement or in the Loan Agreement shall have the meanings defined for those terms in the Uniform Commercial Code.  In addition, the term “ Secured Party ” shall mean the Lender and the term “ Subordination Agreement ” shall mean that certain Intercreditor and Subordination Agreement dated as of September 4, 2009 among the Borrower, the Lender,

UB (for the benefit of the Lenders under the UB Credit Agreement) and the other parties referred to therein, as such Subordination Agreement may be amended, modified or restated from time to time.

2.            Grant of Security .  The Pledgor hereby assigns and pledges to the Lender, and hereby grants to the Lender, a security interest in, all of the Pledgor’s right, title and interest in and to the following, whether now owned or hereafter acquired, whether now or hereafter existing and wherever located (all of the following herein called the “ Collateral ”):

(a)           all shares of capital stock, equity interests or other interests in the Borrower owned by the Pledgor or in which the Pledgor has an interest (the “ Pledged Interests ”); all rights to vote or participate in the management of the Borrower and to receive information concerning the business and affairs of the Borrower; all preferences and privileges with respect thereto, and all distributions (including any redemption payments or liquidation payments), dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Interests; notwithstanding the foregoing, the security interest granted herein shall not include, and the term Collateral shall not include, equity interests in any direct Foreign Subsidiary of the Pledgor in excess of 65% of the Capital Stock having voting power in such Foreign Subsidiary (unless a greater amount of such equity interests shall not cause the Pledgor to incur material adverse tax consequences under Section 956 of the Code); and

(b)           any and all proceeds and products of the foregoing, including, without limitation, all money, accounts, general intangibles, deposit accounts, documents, instruments, letter-of-credit rights, investment property, chattel paper, goods, insurance proceeds and any other tangible or intangible property received upon the sale or disposition of any of the foregoing and, to the extent not otherwise included, all books and records with respect to the foregoing Collateral.

3.            Delivery of Pledged Collateral .  With respect to any provision in this Agreement which requires the Pledgor to deliver possession or control of any negotiable document, instrument, certificated securities, promissory notes, deposit accounts, security accounts, commodity accounts, and letter of credit rights or other Collateral requiring possession or control thereof in order to perfect the security interest of the Lender therein under the Uniform Commercial Code, no such delivery or giving of control to the Lender shall be required to the extent such Collateral is required to be delivered to or control is required to be given to UB in accordance with the UB Credit Agreement, it being understood that the UB is acting as agent and bailee for the benefit of the Lender pursuant to the terms of the Subordination Agreement.

4.            Security for Obligations .  This Agreement and the pledges made and security interests granted herein secure the prompt payment and full performance of all obligations of the Pledgor now or hereafter existing under the Pledgor Guarantee, whether for principal, interest, fees, expenses or otherwise, including, without limitation, all obligations of the Pledgor now or hereafter existing under this Agreement, all interest that accrues (whether or not allowed) at the then applicable rate (including interest at the rate for overdue payments described in Section 4.5 of the Loan Agreement) specified in the Loan Agreement on all or any part of any of such

obligations after the filing of any petition or pleading against the Pledgor for a proceeding under any bankruptcy or related law (collectively, the “ Secured Obligations ”).

5.            Delivery of Certificates and Instruments/Control of Collateral .  All certificates or instruments representing or evidencing the Collateral shall be delivered to and held by or on behalf of the Lender pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Lender.  Subject to the revocable rights specified in Section 9(a), the Lender shall have the right, at any time after the occurrence and during the continuation of any Event of Default, in its discretion and without notice to the Pledgor, to transfer to or register in the name of the Lender or any of its nominees any or all of Collateral.  In addition, the Lender shall have the right to exchange certificates or instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations.  On or prior to the Closing Date, the Pledgor will cause the Lender to receive, and at all times to have, control over the Collateral, including, without limitation, in the case of any security entitlement, by causing the Lender to become the entitlement holder with respect thereto.

6.            Representations and Warranties .  The Pledgor represents and warrants as set forth below.

(a)            Location of Pledgor and Collateral, Etc .  The place of business of the Pledgor or, if the Pledgor has more than one place of business, the chief executive office of the Pledgor and the place where the Pledgor keeps its records concerning the Collateral, are located at the address referred to for the Pledgor in Section 20, or at such other location as to which the Pledgor has provided 30 days’ prior written notice to the Lender.  The Pledgor’s exact legal name and state of incorporation are as set forth in the Pledgor’s signature block to this Agreement.  The Pledgor has taken all action (if any) required by Section 7.

(b)            Ownership of Collateral .  As of the Closing Date, the Pledgor is the legal and beneficial owner of the Pledged Interests specified in Schedule 1.

(c)            Pledged Interests .  The Pledged Interests have been duly authorized and validly issued and are fully paid and nonassessable.  All of the Pledged Interests are in certificated form (as contemplated by Article 8 of the Uniform Commercial Code).  The Pledged Interests constitute the percentage of the issued and outstanding shares of the Borrower as specified in Schedule 1.

(d)            Pledge Agreement Authorized and Binding .  The execution, delivery and performance of this Agreement have been duly authorized by the Pledgor and do not require the consent or approval of any Governmental Authority (except (i) any consent or approval which has been made or obtained and is in full force and effect and (ii) material consents or approvals required by the Pledgor in the ordinary course of business none of which it believes will not be duly given, made or taken as needed in such ordinary course); and are not in contravention of, or in conflict with, any applicable law.  This Agreement is a valid and legally binding obligation of the Pledgor enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the

enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

(e)            Valid and Perfected Security Interest .  This Agreement and the delivery to UB, as agent for the Lender, of the certificates or instruments representing or evidencing the Collateral, accompanied by stock powers or endorsements, as applicable, executed in blank, create a valid and perfected security interest in the Collateral, securing the payment of the Secured Obligations.

(f)            Third-Party Authorizations, Etc .  No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority is required either (i) for the grant by the Pledgor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Pledgor or (ii) for the perfection of or exercise by the Lender of its rights provided for in this Agreement or the remedies in respect of the Collateral provided pursuant to this Agreement (except (A) as may be required in connection with the disposition of the Collateral by laws affecting the offering and sale of securities generally, (B) any consent, authorization, filing or other act which has been made or obtained and is in full force and effect and (C) material consents, authorizations, filings or other acts required by the Pledgor in the ordinary course of business none of which it believes will not be duly given, made or taken as needed in such ordinary course).

7.            Further Assurances .

(a)           The Pledgor agrees that from time to time, at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that the Lender may reasonably request, in order to perfect and protect the security interest granted or purported to be granted hereby by the Pledgor or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.  Without limiting the generality of the foregoing, the Pledgor (i) will not take any action that would cause any of the representations and warranties of the Pledgor in Section 6 to become untrue and (ii) will execute and file such financing and continuation statements, and amendments thereto, and such other instruments and notices, as may be necessary or reasonably desirable, or as the Lender may reasonably request, in order to perfect and preserve the security interest granted or purported to be granted hereby.

(b)           The Pledgor hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Pledgor where permitted by law.  A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

(c)           The Pledgor will furnish to the Lender from time to time statements and schedu