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Private Equity Firm to Acquire Physicians Formula

Posted: August 15, 2012

Physicians Formula Holdings, Inc. and private equity firm Swander Pace Capital have entered into a definitive merger agreement under which affiliates of Swander Pace will acquire Physicians Formula. Under the terms of the merger agreement, Swander Pace, through its affiliates, will acquire all outstanding shares of the common stock of Physicians Formula for $4.25 per share in cash, or approximately $65 million. The per share price represents a premium of approximately 15% over Physicians Formula's closing stock price on Aug. 14, 2012, and a 21% premium to the company's one-month volume-weighted average price of $3.50 per share. The Physicians Formula's board of directors, acting upon the unanimous recommendation of its special committee, composed solely of independent directors, unanimously approved the merger agreement and resolved to recommend that the company's stockholders vote to adopt the merger agreement.

Upon close of the merger, Physicians Formula will be privately owned and will continue to be operated by the company's current management team and employees. Physicians Formula, founded in 1937 by Dr. Frank Crandall, will remain based in Azusa, California.

"Our board of directors, following a thorough analysis by its special committee, has determined that this transaction offers the best value for our stockholders," said Ingrid Jackel, Physicians Formula chairwoman and CEO. "We are pleased that Swander Pace has agreed to purchase our company. The firm has a record of success in acquiring and operating companies in the consumer space, and we believe they will add value to our business as we continue to successfully execute our growth initiatives."

"The acquisition of Physicians Formula reinforces Swander Pace's investment focus on lower middle-market consumer products industry companies," said Mo Stout, a Swander Pace managing director. "Physicians Formula is a pioneer in the cosmetics industry, and we are committed to working with its management team on this next stage of growth and innovation for the company."

The transaction, subject to various closing conditions including receipt of Physicians Formula stockholder approval, is expected to close later this year. This approval will be sought at a special

meeting of stockholders. In connection with the transaction, certain stockholders of the company who collectively own approximately 22% of the outstanding shares of the company's common stock have entered into voting agreements pursuant to which they have agreed to, among other things, vote their shares in favor of the merger, subject to the certain exceptions.

Blackstone Advisory Partners L.P. is serving as exclusive financial advisor to the special committee, and has delivered a fairness opinion in connection with this transaction. Sheppard Mullin Richter & Hampton LLP is serving as legal advisor to the company, and Kirkland & Ellis LLP provided legal counsel to Swander Pace in connection with the transaction.