Exhibit 10.2
EXECUTION COPY
EMPLOYMENT AGREEMENT
     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made as of this 24th day of
June, 2011 between MEDICIS PHARMACEUTICAL CORPORATION, a corporation organized
under the laws of the State of Delaware (the “Company”) with offices located at
7720 North Dobson Road, Scottsdale, Arizona and Jonah Shacknai (the “Executive”)
with an address of 7720 North Dobson Road, Scottsdale, Arizona:
WITNESSETH:
     WHEREAS, the Company and the Executive desire to enter into the Agreement
whereby the Executive will continue to provide personal services to the Company
as Chairman and Chief Executive officer; and
     WHEREAS, in its business, the Company has developed and uses valuable
technical and nontechnical information including information relating to
development, use, manufacture and marketing of certain biologically-active
compounds, and it is necessary for the Company to protect certain of the
information either by patents, copyrights, or by holding it secret or
confidential; and
     WHEREAS, the aforesaid information is vital to the success of the Company’s
business, and the Executive through his activities may become acquainted
therewith, and may contribute thereto, either through research, inventions,
discoveries or otherwise; and
     WHEREAS, in the course of his employment, the Executive has gained and will
gain knowledge of the business affairs, finances, management, marketing programs
and philosophy, customers and methods of operation of the Company; and
     WHEREAS, the Company would suffer irreparable harm if the Executive were to
use such knowledge, information and business acumen in competition with the
Company,
     NOW, THEREFORE, in consideration of the continued employment of Executive
by the Company as Chairman and Chief Executive Officer, the above premises and
the mutual agreements hereinafter set forth, the receipt, adequacy and
sufficiency of which is hereby acknowledged, the parties agree as follows:
     1. Definitions.
     (a) “Business of the Company” shall mean and include the business of
developing, manufacturing, marketing, selling and using certain chemical
compounds for use in the dermatologic industry or such other businesses as the
Company derived substantial revenues from, which revenues exceed twenty (20%)
percent of the Company’s gross annual revenues in the Company’s most recent
fiscal year.
     (b) “Competing Business” shall mean any business which is the same or
essentially the same as the Business of the Company.

 

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     (c) “Confidential Information” shall mean all non public customer lists,
sales and marketing information, customer account records, training and
operations material and memoranda, trade secrets, strategic planning materials
and information product development plans, scientific and technical information,
personnel records, pricing information, and financial information concerning or
relating to the business, accounts, customers, employees and affairs of the
Company, obtained by or furnished, disclosed or disseminated to the Executive,
or obtained, assembled or compiled by the Executive or under his supervision
during the course of his employment by the Company, and all physical embodiments
of the foregoing, all of which are hereby agreed to be the property of and
confidential to the Company, but Confidential Information shall not include any
of the foregoing to the extent the same is or becomes publicly known through no
fault or breach of this Agreement by the Executive.
     2. Terms of Employment; Duties.
     (a) The Company employs the Executive as Chairman of the Board of Directors
of the Company, and Chief Executive Officer of the Company, and the Executive
accepts such employment with the Company in that capacity subject to the terms
and conditions hereof. The Executive shall in such office have the
responsibilities which include presiding over and participating in deliberations
of the Board as its Chairman and as a member of the Board; serving on the
Executive Committee of the Board; exercising ultimate responsibility on a
reporting basis for sales, marketing, research and development, operations,
regulatory compliance, finance, personnel, corporate development, public and
shareholder relations and governmental relations activities of the Company;
exercising ultimate responsibility for strategic planning and evaluation, and
serving as Company’s official spokesman and representative in all matters.
     (b) Throughout his employment hereunder, the Executive shall continue to
work on average a minimum of four (4) days per week, including but not limited
to, conventions, meetings and off-site activities, to the fulfillment of the
duties of his employment, with full recognition of his other obligations as
designated hereinafter which may occur outside the Company’s headquarters in the
Phoenix Metropolitan area. The Executive shall conduct such business activities
at the Company’s headquarters at 7720 North Dobson Road, Scottsdale, Arizona, or
from such other headquarters located in the greater Phoenix area as the Company
may determine. Alternatively, the Executive shall be available during the
business week to meet with Company personnel, attend telephonic meetings, and
participate in other corporate matters from his home during the normal business
week and/or at such other times as the Executive may be available, provided that
the Executive’s children are not in his care at such time. It is expressly
understood and agreed that the Executive may not be available for corporate
matters during such times that he is providing care for his children. Further,
the Company acknowledges and agrees that the participation by the Executive in
philanthropic, community education and/or charitable activities during the
normal business week shall be considered to be in furtherance of the Executive’s
duties of his employment with the Company.
     3. Compensation and Related Matters.
     (a) For his services hereunder, the Company shall pay to the Executive the
compensation and provide the benefits set forth in Exhibit A attached hereto and
incorporated herein as part of this Agreement and such benefits as are otherwise
provided for herein.

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     (b) The Executive shall be eligible to fully participate in all present or
future pension, retirement, medical, dental, disability, life insurance or any
other employee benefit plans of the Company (including, without limitation, any
supplemental executive retirement plan adopted by the Company), and in addition,
the Executive shall be eligible to fully participate in all present or future
incentive compensation, bonus, profit sharing, stock option or stock purchase
plans of the Company as and to the extent granted or approved and determined by
the Board of Directors of the Company, subject to the provisions of Exhibit A
hereof.
     (c) Provided that the Executive maintains a satisfactory or better level of
performance, he shall remain fully eligible for an annual cash bonus at the
discretion of the Company’s executive compensation committee of its board of
directors.
     (d) The Company shall provide the Executive with eight (8) weeks of paid
vacation time per year. The Executive shall endeavor to schedule such vacation
time in a manner that will not material detract from the Executive’s performance
of his duties. In the event the Executive’s employment terminates for any
reason, whether voluntary or involuntary, the Company shall, no later than
thirty (30) days after the Date of Termination, make a payment to the Executive
for the value of all unused vacation.
     4. Term and Termination of This Agreement.
     (a) The Executive’s employment under this Agreement shall be for the period
commencing on June 24, 2011 and expiring on June 30, 2016 (the “Term”), subject
however to the earlier termination thereof pursuant to the provisions of this
Agreement.
     (b) The term of the Executive’s employment hereunder may be terminated
prior to the expiration of the Term (or any extension thereof) in the following
events:
          (i) termination by mutual agreement of the parties;
          (ii) termination by the Company without Cause upon sixty (60) days’
written notice to the Executive, as provided for in Section 5(a)(iii);
          (iii) termination upon the Executive’s death or Disability as defined
in and as provided for in Section 5(a)(v);
          (iv) termination of the Executive for Cause, as provided for in
Sections 5(a)(ii) and 7;
          (v) resignation by the Executive for Good Reason, as provided for in
Sections 5(a)(iii) and 8;
          (vi) termination of the Executive arising as a result of Change in
Ownership or Control, as provided for in Sections 5(a)(iii) and 9; or
          (vii) voluntary resignation by the Executive for reasons other than
those falling within paragraph (i), (v) or (vi) herein.

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     5. Payments Upon Termination or Expiration of Term.
     (a) In the event that the Executive’s employment hereunder is terminated
pursuant to Section 4(b) above, the Company shall pay to Executive the following
amounts within thirty (30) days of such termination or as otherwise set forth
below:
          (i) If the Executive’s employment is terminated pursuant to subsection
4(b)(i), the Company shall pay to the Executive all amounts owing to the
Executive as Annual Compensation through the Date of Termination (as defined
herein), consisting of Base Salary through the end of the calendar month from
the Date of Termination and a pro rata bonus based upon the Executive’s prior
year’s bonus.
          (ii) If the Executive’s employment is terminated by the Company for
Cause (as defined in Section 7 herein) pursuant to subsection 4(b)(iv), or if
the Executive voluntarily resigns his employment pursuant to Section 4(b)(vii),
the Company shall pay to the Executive all amounts owing to the Executive as
Base Salary through the end of the calendar month of the Date of Termination.
          (iii) (a) If the Executive’s employment is terminated by the Company
without Cause (Section 4(b)(ii)), or in the event of the termination of this
Employment Agreement pursuant to Section 4(b)(v) and Section 8 herein
(Resignation by Executive For Good Reason), or in the event the Company shall
terminate this Employment Agreement for any reason other than pursuant to
Section 4(b)(iv) (Cause) or Section 4(b)(iii) (death or Disability), or
Section 4(b)(vi) and Section 9 (Termination of Employment as a Result of Change
in Ownership or Control):

  •   the Company shall pay the Executive his then current annual compensation,
and a pro rata bonus based on the Executive’s prior year’s bonus, through the
Date of Termination.     •   in lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, the Company shall
pay as severance to the Executive within thirty (30) days following the Date of
Termination (on such date as is determined by the Company), a lump sum payment
equal to the number of months remaining from the Date of Termination until the
expiration date of this Employment Agreement, divided by twelve (12), times the
sum of (a) the Executive’s annual Base Salary at the highest rate in effect
during the twelve (12) months immediately preceding the Date of Termination and
(b) the average of the annual bonus payments, if any, paid to the Executive in
the preceding three (3) years, provided, however, that in no event shall the
amount of such payment exceed three (3) times the sum of (A) the Executive’s
annual Base Salary at the highest rate in effect during the twelve (12) months
immediately preceding the Date of Termination and (B) the average of the Annual
bonus

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      payments, if any, paid to the Executive in the preceding three (3) years.
    •   the Company shall pay all other damages to which the executive may be
entitled as a result of the Company’s termination of his employment under this
Agreement, except for Cause, including damages for any and all loss of benefits
to the Executive under the employee benefit plans which he would have received
had this Agreement not been terminated for reasons set forth in subsections
4(b)(ii), 4(b)(v) and 4(b)(vi) herein, and had the Executive’s employment
continued for the full Term, or for the full period of any extension of the
term, and including all legal fees and expenses incurred by the Executive in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Employment Agreement.

          (iii) (b) In the event of the termination of this Employment Agreement
pursuant to Section 4(b)(vi) and Section 9 herein (Termination of Employment as
a Result of Change in Ownership or Control):

  •   the Company shall pay the Executive his then current annual compensation,
and a pro rata bonus based on the Executive’s prior year’s bonus, through the
Date of Termination.     •   in lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, the Company shall
pay as severance to the Executive within thirty (30) days following the Date of
Termination (on such date as is determined by the Company), a lump sum payment
equal to three (3) times the sum of (a) the Executive’s annual Base Salary at
the highest rate in effect during the twelve (12) months immediately preceding
the Date of Termination and (b) the average of the annual bonus payments, if
any, paid to the Executive in the preceding three (3) years.     •   the Company
shall pay all other damages to which the Executive may be entitled as a result
of the Company’s termination of his employment under this Agreement, except for
Cause, including damages for any and all loss of benefits to the Executive under
the employee benefit plans which he would have received had this Agreement not
been terminated for reasons set forth in subsections 4(b)(ii) 4(b)(v) and
4(b)(vi), herein, and had the Executive’s employment continued for the full
Initial Term, or for the full period of any extension or automatic renewal, and
including all legal fees and expenses incurred by the Executive in contesting or
disputing any such

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      termination or in seeking to obtain or enforce any right or benefit
provided by this Employment Agreement.

          (iv) If Executive’s employment is terminated pursuant to subsection
4(b)(iii) by reason of Executive’s death, the Company agrees to pay to the legal
representative of his estate, for a period of twenty-four (24) months
(commencing with the Date of Termination), an amount equal to and payable at the
same rate at his then current Base Salary.
          (v) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to his physical or mental or emotional
illness, the Executive shall continue to receive his full Base Salary along with
any bonus payments awarded by the Board of Directors until the Executive returns
to his duties or until his employment is terminated for reason of Disability
pursuant to Section 4(b)(iii).
          “Disability” shall mean the inability of the Executive to perform the
duties of Chairman and Chief Exchange Officer of the Company due to physical,
mental or emotional incapacity or illness, where such inability is expected to
result in death or to be of long-continued and indefinite duration, but in no
event shall such duration be less than One Hundred Eighty (180) consecutive
days. The determination of “Disability” shall be made by the Board of Directors
of the Company (“the Board”) and the Executive, as determined by an independent
physician selected by both the Board and the Executive. In the event of such
Disability, the Company may, at its election and by providing written notice
thereof to the Executive within sixty (60) days after such determination,
terminate the Executive’s employment hereunder effective on the date set forth
in such notice. If the Board or the Company does not timely give notice to the
Executive of its election to terminate the Executive for such Disability, then
the Company shall be deemed to have waived its right to terminate the Executive
based upon such Disability.
          After such termination because of the Executive’s Disability, the
Executive shall be paid, in substantially equal monthly installments, one
hundred percent (100%) of his Base Salary (at the rate in effect at the time
Notice of Termination is given) for twenty-four (24) months, and thereafter an
annual amount equal to fifty percent (50%) of such Base Salary for the balance
of the Term, but in no event for less than a twelve (12) month period.
     (b) Should any payment or provision of benefit provided for in Section 5
constitute an “excess parachute payment” as defined in Section 280G of the
Internal Revenue Code of 1986 and the regulations and interpretations of the
Internal Revenue Service promulgated thereunder, the successor to the Company
shall make all payments and provide all benefits to the Executive as set forth
in this Section 5, subject to the provisions of Exhibit B hereof.
     (c) Unless the Executive is terminated for Cause pursuant to
Section 4(b)(iii) or voluntarily resigns his employment pursuant to
Section 4(b)(vii), the Company shall maintain in full force and effect, for the
continued benefit of the Executive, for a period of three (3) years following
the Date of Termination all employee benefit plans and programs in which
Executive was entitled to participate immediately prior to the Date of
Termination, provided that the

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Executive’s continued participation in such employee benefit plans is possible
under the general terms and provisions of such plans and programs. In the event
that the Executive’s participation in any such plan or program is barred at any
time during this three (3) year period, the Company shall arrange to provide the
Executive with benefits substantially similar to those which the Executive would
otherwise have been entitled to receive under such plans and programs from which
his continued participation is barred, or alternatively, to provide to the
Executive the economic after-tax equivalent of the participation in all of said
employee benefit plans in which the Executive’s participation is barred. At the
end of the period of coverage, the Executive shall have the option to have
assigned to him at no cost and with no apportionment of prepaid premiums any
assignable insurance policy owned by the Company which relate specifically to
the Executive.
(d) (i) In addition to the foregoing, if the Executive’s employment is
terminated by the Company without Cause pursuant to Section 4(b)(ii), upon the
Executive’s death or Disability pursuant to Section 4(b)(iii), upon the
Executive’s resignation for Good Reason pursuant to Section 4(b)(v), as a result
of a Change in Ownership or Control pursuant to Section 4(b)(vi), or upon the
expiration of the Term, all stock options, restricted stock, restricted stock
units or stock appreciation rights, if any, awarded to the Executive on or
before the Date of Termination under the Company’s equity incentive plans (the
“Equity Incentives”), shall immediately vest to the Executive’s benefit or the
benefit of the Executive’s estate, in the event of his death. Further, the
Executive shall retain the right to exercise all options or stock appreciation
rights that are Equity Incentives (the “Options”) for the full term(s) thereof,
and the Company shall take all actions as are necessary to transfer the Options
from the Company’s qualified stock option plan(s) to the Company’s nonqualified
stock option plan(s) or such other plans as may be applicable. The intent of
this provision is to ensure that in the event of termination of the Executive’s
employment for reasons referenced in this subsection, or upon expiration of the
Term, the Executive shall be fully vested in the Equity Incentives and shall
have the full term of each such Option or Options to exercise the same.
          (ii) In the event the Executive’s employment is terminated in
accordance with Section 4(b)(vi) and, as a consequence of such Change in
Ownership or Control, the Executive’s right to exercise the Options is
terminated prior to the expiration of such rights as provided under
Section 5(d)(i) above without the receipt of cash compensation therefore, then
the Executive shall have the right to a payment for such Options in an amount
equal to the amount calculated under Section 9(b)(ii)(A).
     (e) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 5 by seeking other employment or otherwise,
and no compensation earned by the Executive after his termination of employment
with the Company shall be applied to offset any payment provided for in this
Agreement.
     (f) Any termination of the Executive’s employment by the Company or by the
Executive (other than termination by reason of the Executive’s death) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with provisions set forth in this Agreement.

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     (g) “Date of Termination” shall mean:
          (i) if the Executive’s employment is terminated by his death, the date
of his death,
          (ii) if the Executive’s employment is terminated by reason of the
Executive’s Disability, sixty (60) days after Notice of Termination is given
(provided that the Executive shall not have returned to the performance of his
duties on a reasonable full-time basis during such sixty (60) day period),
          (iii) if the Executive’s employment is terminated for any other
reason, the date specified in the Notice of Termination; provided that if within
sixty (60) days after the Notice of Termination is given the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
said dispute is finally determined, either by mutual written agreement of the
parties, or by a final arbitration award as provided for in Section 18 (the time
for appeal therefrom having expired and no appeal having been perfected), and
          (iv) if the Term expires, the expiration date.
     (h) Except in the event the Agreement is terminated for Cause as defined in
and pursuant to the terms of Section 7, the Company shall provide the Executive,
at a cost to the Executive identical to the Executive’s health insurance
premium, with coverage under the Company’s Health/Medical and Dental plans for
the Executive and for all eligible dependents of the Executive. Such coverage
shall be provided for the remainder of the life of the Executive. Pursuant to
this subsection (h), the Company shall provide the Executive and the Executive’s
eligible dependents with coverage identical to that provided by the Company to
its senior officers at the time of this Agreement. Whether the Executive’s
dependents are “eligible” dependents in a given calendar year shall be
determined under the terms and conditions of the Health/Medical and dental
plans, assuming that the Executive and the Executive’s dependents would have
participated in such plans.
     (i) If the Executive’s employment is terminated by the Company without
Cause (Section 4(b)(ii)), or in the event of a termination of the Executive’s
employment arising as a result of a Change in Ownership or Control as provided
for in Sections 5(a)(iii) and 9, the Company will provide the Executive with a
STIPEND of Seventy Five Thousand ($75,000) annually for administrative support
and services. Said STIPEND shall be made to the Executive for a period of three
(3) years following the Date of Termination, or for the balance of the term of
this amended Agreement, whichever is greater, and shall be provided
semi-annually commencing on the first day of the month following the Date of
Termination.
     (j) Notwithstanding anything to the contrary contained in the Agreement, in
the event the Agreement is extended beyond June 30, 2016, the terms of the
Agreement setting forth the payments by the Company to the Executive, and the
other entitlements of the Executive, to be provided upon the termination by the
Company of the Executive’s employment, including but not limited to a
termination of employment as a result of Change in Ownership or Control of the

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Company as provided in Section 9 of the Agreement, or to be provided upon the
resignation by the Executive of his employment for Good Reason as provided in
Section 8 of the Agreement, shall remain in full force and effect for the
duration of such extension term.
     (k) Effect of Section 409A of the Code. Notwithstanding anything to the
contrary in this Agreement, if, upon the advice of its counsel, the Company
determines that any payments or benefits to be provided to Executive pursuant to
this Agreement is or may become subject to the additional tax under
Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under
Section 409A (“409A Taxes”) if provided at the time otherwise required under
this Agreement, then:

  (A)   (i) Such payments shall be delayed until the date that is six months
after the date of Executive’s “separation from service” (as such term is defined
under Section 409A) with the Company, or such shorter period that, in the
opinion of such counsel, is sufficient to avoid the imposition of 409A Taxes
(the “Payments Delay Period”), and (ii) such payments shall be increased by an
amount equal to interest on such payments for the Payments Delay Period at a
rate equal to the rate of earnings then credited on accounts in the Company’s
Deferred Compensation Plan, or any successor plan.     (B)   (i) With respect to
the provision of such benefits, for a period of six months following the date of
Executive’s “separation from service” (as such term is defined under
Section 409A) with the Company, or such shorter period, that, in the opinion of
such counsel, is sufficient to avoid the imposition of 409A Taxes (the “Benefits
Delay Period”), Executive shall be responsible for the full cost of providing
such benefits, and (ii) on the first day following the Benefits Delay Period,
the Company shall reimburse Executive for the costs of providing such benefits
imposed on Executive during the Benefits Delay Period, plus interest accrued at
a rate equal to the rate of earnings then credited on accounts in the Company’s
Deferred Compensation Plan, or any successor plan.     (C)   The Company shall
fund any payments to Executive that are to be delayed as a result of the
imposition of a Payment Delay Period (including the interest to be paid with
respect to such delayed payments) and/or any payments that are expected to be
paid to Executive as a result of the imposition of a Benefits Delay Period
(including any interest to be paid with respect thereto) (collectively, the
“Delayed Payments”) by establishing and irrevocably funding a trust for the
benefit of Executive. Such trust shall be a grantor trust described in
Section 671 of the Code. The trust shall provide for distribution of amounts to
Executive in order to pay taxes, if any, that become due prior to payment of the

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      Delayed Payments pursuant to the trust. The amount of such fund shall
equal a good faith estimate of the Delayed Payments determined by the Company in
consultation with Executive. The establishment and funding of such trust shall
not affect the obligation of the Company to pay the Delayed Payments pursuant to
this Section 5(k).

  (D)   Executive will be considered to have terminated employment with the
Company only when Executive incurs a “separation from service” with the Company
within the meaning of Treasury Regulation Section 1.409A-1(h).     (E)   The
severance and benefit payments payable under Sections 5(a)(i), 5(a)(ii),
5(a)(iii)(a), 5(a)(iii)(b), 5(c), and 5(h) and the stipend payable under
Section 5(i), shall be construed to be compliant payments that are payable in
connection with Executive’s “separation from service.” The lump sum severance
payments payable under Sections 5(a)(i), 5(a)(ii), 5(a)(iii) and 5(c) shall be
paid within thirty (30) days following the Date of Termination (on such date as
is determined by the Company). The severance payments payable under
Section 5(a)(iv) shall be construed to be compliant payments that are payable in
connection with Executive’s death.     (F)   The provision of continued benefits
pursuant to Sections 5(c), 5(h) and 6(b) shall be provided in a manner that is
exempt from Section 409A of the Code in accordance with Treasury
Regulation Section 1.409A-1(a)(5), and, to the extent such continued benefits
are not exempt from Section 409A, in a manner that complies with Section 409A in
accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv). For the
avoidance of doubt, the Executive shall not be entitled to payments under
Section 5(c)(i) and 5(h) for the same benefit at the same time.     (G)   The
payment of damages under the third paragraph of Section 5(a)(iii)(a) and the
third paragraph of Section 5(a)(iii)(b) shall be construed to be exempt payments
of settlements or awards resolving bona fide legal claims in accordance with
Treasury Regulation Section 1.409A-1(b)(11) and paid in a manner consistent with
such intent; provided, however, that if the payment of such damages cannot be
provided in a manner that is exempt from Section 409A, such payment shall be
made in a cash lump sum payment within five (5) days from the date such
obligation arises.     (H)   The tax gross-up payments payable under
Sections 5(b), 9(b)(A) and 9(c) shall be paid in a manner that complies with
Section 409A

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      in accordance with Treasury Regulation Section 1.409A-3(i)(1)(v),
including, without limitation, that each such gross-up payment shall be made by
the end of the Executive’s taxable year next following the Executive’s taxable
year in which the Executive remits the related taxes.     (I)   The
reimbursement of expenses and/or provision of in-kind benefits under
Sections 9(c), 15, 16 and 17 shall be provided in a manner that complies with
Section 409A in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv),
including, without limitation, that the reimbursement of expenses or provision
of in-kind benefits in Executive’s taxable year may not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided, in any other
taxable year.

     6. Reserved.
     7. Termination for Cause.
     (a) If the Company reasonably shall determine that there are grounds for
discharging the Executive for Cause (as hereinafter defined), the Company may,
through the Board, at its election within thirty (30) days thereafter, give the
Executive notice of its intention to terminate the Executive for Cause, stating
the grounds for termination and specifying a date, within thirty (30) days of
such notice, on which the Executive shall be given an opportunity to discuss
such grounds for termination at a meeting of the Board.
     (b) If the grounds for termination are those specified in clause (ii),
(iii) or (iv) of paragraph (d) hereof, at such Board meeting the Board and the
Executive shall discuss in good faith and shall determine and set forth in
writing what actions the Executive might take, and by what date, to cure the
material adverse impact or default, as the case may be, to the reasonable
satisfaction of the Board, but in no event earlier than sixty (60) days after
said meeting. When the Board and the Executive have agreed in writing upon a
cure and the date by which it shall be provided, the Board shall take no further
action regarding termination for Cause on such grounds until such date, and on
such date it shall provide written notice to the Executive that either (i) the
cure has been satisfactorily provided, and the Board shall continue to employ
the Executive under this Agreement pursuant to the terms hereof, or (ii) the
cure has not been satisfactorily provided and the Board is terminating the
Executive’s employment for Cause effective immediately.
     (c) If the grounds for termination are those specified in clause (i) of
paragraph (d) hereof, it is understood and agreed that no satisfactory cure is
available. If following discussion with the Executive of the grounds for his
termination (as specified in clause (i) of paragraph (d) hereof, at the Board
meeting the Board shall continue intent on discharging the Executive for Cause
on such grounds, the Company shall provide written notice of termination to the
Executive within thirty (30) days of the date of such meeting, and such
termination shall be effective upon the date set forth in such notice.

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     (d) For purposes of this Agreement the term “Cause” shall mean:
          (i) the conviction of the Executive for a felony involving fraud or
moral turpitude;
          (ii) The Executive’s engaging in activities prohibited by Section 10
hereof;
          (iii) the Executive’s frequent willful gross neglect (other than as a
result of physical, mental or emotional illness) of his duties and
responsibilities under this Agreement that has a material adverse impact on the
business or reputation of the Company; or
          (iv) the Executive’s willful gross misconduct that has a material
adverse impact on the business or reputation of the Company.
     (e) For each act or occurrence giving rise to a basis for termination for
Cause, failure by the Company to timely give all written notices as set forth in
this Section, from the date the Board or any of its members were either
(i) aware of such act or occurrence giving rise to a basis for termination for
Cause, or (ii) with reasonable due diligence should have known of such act or
occurrence giving rise to a basis for termination for Cause, shall constitute a
waiver of the Company’s right to terminate based upon such Cause, but such
waiver shall not prejudice the Company’s right to terminate pursuant to this
Section based upon another act or occurrence giving rise to a basis for
termination for Cause, whether of the same or a different type.
     8. Resignation by Executive for “Good Reason”. In the event that the
Company shall during the term of this contract (i) fail to continue the
appointment of the Executive as Chairman and Chief Executive Officer,
(ii) reduce the Executive’s annual salary below the minimum amount specified in
Appendix A, (iii) materially diminish the duties or responsibilities of the
Executive as Chairman and Chief Executive Officer, as the same are set forth
hereinabove, (iv) assign to the Executive such duties and responsibilities
inconsistent with his position as Chairman and Chief Executive Officer, or
(v) materially change the geographic location of the Executive’s principal
office to a location that is more than thirty (30) miles away (each of the
foregoing hereinafter referred to as a “Triggering Event”), then the Executive
may give notice to the Company of his election to terminate this Agreement
pursuant to this Section, effective sixty (60) days from the date of such
notice, unless the Company shall have cured the default giving rise to his
Notice of Termination. Such notice from the Executive shall state the Triggering
Event that provides the grounds for his termination, and such notice must be
given, if at all, within one hundred and twenty (120) days of the occurrence of
the Triggering Event referred to as providing such grounds for termination.
Within the sixty (60) day period specified in the Executive’s notice to the
Company, the Executive and the Board shall discuss in good faith what actions
the Board might take, and by what date, to cure the default involved in the
Triggering Event specified by the Executive. If within that sixty (60) day
period the Board and the Executive are unable to agree in writing upon a cure or
the date by which such cure shall be provided, the Executive’s termination shall
be effective on the date specified in his original notice to the Company. If
within such sixty (60) day period the Board and the Executive shall agree in
writing upon a cure and the date by which it shall be provided, then on such
date the

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Executive shall notify the Board either (i) that the cure has been
satisfactorily provided, and the Executive is willing to continue his employment
under this Agreement pursuant to the terms hereof (except as such terms may have
been altered by the agreed-upon cure), or (ii) that the cure has not been
satisfactorily provided and the Executive is terminating his employment
hereunder effective immediately.

  9.   Termination of Employment as a Result of Change in Ownership or Control
of the Company.

     (a) In the event that the Company shall merge with, or sell or otherwise
dispose of all or substantially all of its assets or stock to, or is acquired by
another corporation or other entity (hereinafter, a “Change in Ownership or
Control”), and the parties to such agreement (i) do not appoint the Executive as
Chairman and Chief Executive Officer (or to such other position of authority and
responsibility as may be acceptable to the Executive in his sole discretion) of
the newly created or merged entity or purchaser, or (ii) in connection with or
following such a Change in Ownership or Control, cause a material change in the
geographic location of the Executive’s principal office to a location that is
more than thirty (30) miles away from its location immediately prior to the
Change in Ownership or Control, then the Board shall notify the Executive in
writing, specifying such other senior executive position with the new entity
purchaser, or controlling entity, in which the Executive is to serve, the duties
to be assigned to such position, and any other amendments to the terms and
provisions of this Agreement that the above-mentioned parties propose. In no
event, however, shall the remuneration, benefit coverage, stock option
entitlements or severance payments be less than that provided for in this
Agreement. At any time during the period following such notice and ending six
(6) months from the effective date of the Change in Ownership or Control, the
Executive may elect to give notice to the Company, to the purchaser, to the new
entity, or to the controlling entity as the case may be, that he is terminating
this Agreement pursuant to this Section, effective on the date specified in such
notice. If the Agreement is terminated pursuant to this Section the Company
shall provide the Executive all benefits and obligations as provided in
Section 5 hereof; provided, however, that prior to the effective date of the
Change in Ownership or Control, the Company shall make arrangements satisfactory
to the Executive by providing adequate security that the new entity, purchaser
or controlling entity following the Change in Ownership or Control will have the
financial resources to make the payments and provide for the payments and
benefits (or the economic equivalent thereof) to the Executive on a timely basis
in accordance with the terms of this Agreement.
     (b) In the event the Change in Ownership or Control results in the
dissolution, elimination or modification of the Company’s equity incentive
plans, and the Executive becomes employed by the successor entity in accordance
with Section 9(a) above, the Executive may, at his sole discretion, elect to
(i) accept participation in and the award of equity incentives in such plans of
the successor or controlling entity, as offered to him by such successor or
controlling entity, or (ii) have all Equity Incentives not previously vested,
become vested and to receive a payment in cash for and in lieu of such Equity
Incentives as calculated in accordance with the following formula:

  (A)   The cash equivalent of the Options shall be the average of the then
present value of all options and stock appreciation rights granted to

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      the Executive over the prior three (3) years, and shall be determined
pursuant to the “Black-Scholes” options pricing model. The cash equivalent of
any restricted stock , restricted stock units or other stock payments which are
vested by reasons of this Section 9(b)(ii) will equal the same amount as if such
restricted stock, restricted stock units or stock payments were unrestricted
stock at the time of the Change in Ownership or Control.         The Executive
will be provided with a lump-sum payment, within 30 days of the dissolution,
elimination or modification of the Company’s equity incentive plans, equal to
the calculated cash equivalent of the Equity Incentives, plus an additional cash
amount (grossed up) to cover all taxes required to be paid by the Executive on
this cash equivalent, provided, that Executive remains employed with the
successor entity through the date of such dissolution, elimination or
modification of the Company’s equity incentive plans.     (B)   In addition, the
Executive will be credited, for the purpose of this Section 9(b), with
additional equity incentives equal to 0.5 percent (0.5%) of the fully diluted
capitalization of the Company calculated as of the day before the Change in
Ownership or Control, multiplied by the number of years (including fraction
thereof) from that date to the end of the Term of this Agreement as set forth in
Section 4(a) (the “Cash Equivalency Obligation of Successor”).         On the
first anniversary date of this Agreement following the Change in Ownership or
Control, the successor entity shall provide the Executive with a cash payment to
be calculated as follows: the Cash Equivalency Obligation of Successor
multiplied by a fraction the numerator of which is the number of months or
fraction thereof from the effective date of the Change in Ownership or Control
to the anniversary date and the denominator of which is the total number of
months or fraction thereof from the effective date of the Change in Ownership or
Control and the end of the Term of this Agreement; provided, that Executive
remains employed with the successor entity through the date of the first
anniversary following a Change in Ownership or Control, and such cash payment is
paid in a lump sum within thirty (30) days following such date. On each
succeeding anniversary date through the end of the Term of this Agreement, the
successor entity shall provide the Executive with a cash payment to be
calculated as follows: the Cash Equivalency Obligation of Successor multiplied
by a fraction, the numerator of which is 12 and the denominator of which is the
total number of months between the effective date of the Change in Ownership or
Control and the end of the Term of this Agreement;

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      provided, however, that Executive will be eligible to receive each such
cash payment due upon each successive anniversary following a Change in
Ownership or Control only if: (i) Executive remains employed with the successor
entity through the date of such successive anniversary and the cash payment
payable upon such anniversary is paid in a lump sum within thirty (30) days
following such anniversary date, or (ii) if Executive is terminated by the
Company without Cause (under Section 4(b)(ii)) or has an “involuntary separation
from service” within the meaning of Treasury Regulation
Section 1.409A-1(n)(2)(i), the cash payment payable during the period in which
the Date of Termination occurs is paid in a lump sum within thirty (30) days
following the Date of Termination.

     (c) In the event the Change in Ownership or Control results in the
Executive’s participation in a medical insurance plan which provides a lesser
amount of benefits or coverage than the Company’s medical plan for the Executive
and/or members of his immediate family, the successor or controlling entity
shall provide the Executive with a cash payment sufficient to reimburse the
Executive for all medical expenses incurred by the Executive for himself and for
members of his immediate family, and the successor or controlling entity shall
provide the Executive with an additional cash amount (gross up) to cover all
taxes required to be paid by the Executive on such medical expense
reimbursement.
     10. Agreement Not to Compete. The Executive agrees that during his
employment by the Company, and for a period of one (1) year following the
termination of such employment, except if the Executive’s termination arises as
a result of a Change in Ownership or Control as provided for in
Section 5(a)(iii) and 9 herein, in which case the Executive shall not be bound
by any post-termination agreement not to compete, he will not, without the prior
written consent of the Company, either directly or indirectly, on his own behalf
or in the service or on behalf of others as a shareholder (other than ownership
of less than five percent (5%) of the outstanding voting securities of an entity
whose voting securities are traded on a national securities exchange), officer,
trustee, consultant, or executive or managerial employee, engage in, consult
with or be employed by any Competing Business.
     11. Agreement Not to Solicit Customers. The Executive agrees that during
his employment by the Company and for a period of one (1) year following the
termination of such employment, except if the Executive’s termination is for
Cause under Section 7 or voluntary resignation under Section 4(b)(vii), or if
the Executive’s termination arises as a result of a Change in Ownership or
Control as provided for in Section 5(a)(iii) and 9 herein, in which case the
Executive shall not be bound by any post-termination agreement not to solicit
customers, he will not without the prior written consent of the Company, either
directly or indirectly, on his own behalf or in the service or on behalf of
others, solicit, divert or appropriate, or attempt to solicit, divert or
appropriate, to any Competing Business, any person or entity whose account with
the Company was sold or serviced by or under the supervision of the Executive
during the two (2) years preceding the termination of such employment. For the
purposes hereof, such persons or entities shall not include wholesale
pharmaceutical distributors, major drug chains or other distribution
intermediaries.

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     12. Agreement Not to Solicit Employees. The Executive agrees that during
his employment by the Company and for a period of one (1) year following the
termination of such employment, except if the Executive’s termination is for
Cause under Section 7, or voluntary resignation under Section 4(b)(vii), or if
the Executive’s termination arises as a result of a Change in Ownership or
Control as provided for in Section 5(a)(iii) and 9 herein, in which case the
Executive shall not be bound by any post-termination agreement not to solicit
employees, he will not, either directly or indirectly, on his own behalf or in
the service or on behalf of others, solicit, divert or hire away, or attempt to
solicit, divert or hire away, to any Competing Business any person employed by
the Company, whether or not such employee is a full-time employee or a temporary
employee of the Company, whether or not such employment is pursuant to written
agreement and whether or not such employment is for a determined period or is at
will.
     13. Ownership, Non-Disclosure and Non-Use of Confidential Information.
     (a) The Executive acknowledges and agrees that all Confidential Information
as defined in Section 1(c), hereof, and all physical embodiments thereof, are
confidential to and shall be and remain the sole and exclusive property of the
Company. Upon request by the Company, and in any event upon termination of his
employment with the Company for any reason, the Executive shall promptly deliver
to the Company all property belonging to the Company, including without
limitation, all Confidential Information (and all embodiments thereof), then in
his custody, control or possession.
     (b) The Executive agrees that he will not, either during the term of his
employment by the Company, or for a period of five (5) years after the
termination of his employment, without the prior written consent of the Company,
disclose or make available any Confidential Information, as defined in Section
1(c) hereof, to any person or entity, nor shall he make or cause to be made, or
permit or allow, either on his own behalf or on behalf of others, any use of
such Confidential Information other than in the proper performance of his duties
hereunder.
     14. Ownership of Inventions.
     (a) The Executive shall promptly disclose to the Company all discoveries,
inventions, and improvements, patentable or unpatentable, conceived or made by
the Executive, individually or jointly with any other person or persons, during
the period of his employment by the Company (whether or not during working
hours) relating in any manner to the business or activities of the Company,
whether such discovery, invention or improvement be a machine, apparatus,
process, composition, article, or other subject. All such discoveries,
inventions and improvements shall be the sole and exclusive property of the
Company in respect to any and all countries, their territories and possessions.
The Executive shall, during his employment within the Company and thereafter,
perform at the request and expense of the Company all lawful acts and execute,
acknowledge and deliver all such instruments deemed necessary by the Company to
vest in the Company the entire right, title and interest in and to such
discoveries, inventions and improvements, and to enable the Company to properly
prepare, file and prosecute applications for and obtain patents (including like
kinds of industrial property) thereon in any and all countries selected by the
Company as well as reissues, renewals and extensions thereof, and to obtain and
record title to such applications and patents so that the Company shall be the
sole and absolute owner thereof in any and all countries in which it may desire
patent or like protection.

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     (b) Any provision in this Agreement requiring the Executive to assign his
rights in any invention does not apply to an invention for which no equipment,
supplies, facility, or trade secret information of the Company was used and
which was developed entirely on the Executive’s own time, and: (a) which does
not relate (i) to the Business of the Company or (ii) to the Company’s actual or
demonstrably anticipated research or development, or (b) which does not result
from any work performed by the Executive for the Company.
     15. Business and Travel Expense. The Executive shall be reimbursed for his
out-of-pocket expenses incurred in carrying out the Company’s business,
including all travel and entertainment expenses reasonably required by the
Executive in his position as Chairman and Chief Executive officer, in accordance
with Company policy and upon proof of such expenditures. It is understood that
the Executive’s significant other may accompany him on business travel when the
Executive determines that her presence will enable him to further the interests
of the Company and in such circumstances the Executive shall be reimbursed for
her reasonable out-of-pocket travel and entertainment expenses as well.
     16. Financial Planning Expenses. The Company shall reimburse the Executive
for reasonable costs and expenses incurred by the Executive for financial,
estate and tax planning up to an aggregate of Ten Thousand Dollars ($10,000)
annually.
     17. Legal and Consulting Fees. The Company shall pay all reasonable legal
fees and consulting expenses incurred by the Executive in connection with the
negotiation and preparation of this Agreement.
     18. Resolution of Disputes.
     (a) Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in the City of Phoenix,
in accordance with the rules of the American Arbitration Association (the
“AAA”). The arbitration shall be before three (3) arbitrators, all of whom shall
be attorneys. One arbitrator shall be appointed by the Executive; one arbitrator
shall be appointed by the Company, and the third Arbitrator shall be selected by
the two appointed Arbitrators. In the event the two appointed Arbitrators are
unable to agree upon the third Arbitrator, either party may petition the
Superior Court of the State of Arizona, Maricopa County, for appointment of the
third arbitrator. The arbitrators shall not have the authority to add to,
subtract from or in any way modify the express written terms of the Agreement,
and in rendering an award, the arbitrators shall be required to adhere to the
express written provisions of this Agreement and the intention of the parties
appearing therefrom. The decision of the arbitrators shall be final and binding
on the parties hereto and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
     (b) The costs for the arbitration shall be borne equally by both parties.
     (c) Pending the outcome or resolution of any arbitration, the Company shall
continue payment of all amounts when and as due the Executive under this
Agreement without regard to any dispute; provided, however, that if the
arbitration shall be decided in favor of the Company, the, Executive shall
promptly repay to the Company, with interest at the prime rate as published from
time to time by Chemical Bank, all amounts he would not have been entitled to
receive

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under this Agreement had the dispute not been taken to arbitration, and the
arbitration award in favor of the Company shall be deemed an award in the amount
of the repayment due to the Company.
     19. Compliance With Securities Laws. The Executive shall comply with all
federal and state securities laws and Company policies and guidelines relating
thereto concerning insider trading, reporting requirements, and confidentiality
of undisclosed internal material information about the Company.
     20. Severability, etc.
     (a) The Executive agrees that the covenants and agreements contained in
Sections 10, 11, 12 and 13 of this Agreement, and the subsections of those
Sections, are of the essence of this Agreement; that each of such covenants is
reasonable and necessary to protect and preserve the interests and properties of
the Company and the Business of the Company; that the company is engaged in the
Business of the company; that irreparable loss and damage will be suffered by
the Company should the Executive breach any of such covenants and agreements;
that each of such covenants and agreements is separate, distinct and severable
not only from the other of such covenants and agreements but also from the other
and remaining provisions of this Agreement; that the unenforceability of any
such covenant or agreement shall not affect the validity or enforceability of
any other such covenant or agreements or any other provision or provisions of
this Agreement; and that, in addition to other remedies available to it, the
Company shall be entitled to seek both temporary and permanent injunctive relief
to prevent a breach or contemplated breach by the Executive of any of such
covenants or agreements.
     (b) In the event any provision of this Agreement is held by a court of
competent jurisdiction to be unenforceable because it is invalid or in conflict
with any law of any relevant jurisdiction, the validity of the remaining
provisions shall not be affected, and the rights and obligations of the parties
shall be construed and enforced as if this Agreement did not contain such
invalid or unenforceable provisions.
     21. No Set-Off By the Company. The Company shall continue to provide to the
Executive all compensation, benefits and prerequisites of the office of Chairman
and Chief Executive Officer provided for in this Agreement notwithstanding the
existence of any claim, dispute, action or cause of action by the Company
against the Executive, whether based upon this Agreement or otherwise. Such
dispute, claim or cause of action by the Company against the Executive shall be
resolved in accordance with Section 18 hereof, with the exception of the
Company’s right to seek injunctive relief provided for in Section 20 hereof.
     22. Headings. The headings of the Sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
     23. Notices. Any notice to either party hereunder shall be in writing, and
shall be deemed to be sufficiently given to or served on such party, for all
purposes, if the same shall be personally delivered to such party, or sent to
such party by registered mail, postage prepaid, at the address of such party
given above. Either party hereto may change the address to which

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notices are to be sent to such party hereunder by written notice of such new
address given to the other party hereto.
     24. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Arizona applicable to
contracts to be performed therein, without regard to conflict of laws
principles.
     25. Assignment. This Agreement may not be assigned by the Company without
the prior written consent of the Executive. The Executive shall have the right
to designate a beneficiary, his executor, his administrator or his estate to
receive any payments or benefits payable under this Agreement upon his death.
     26. Waiver. Except as otherwise provided for in this Agreement, no term or
condition of this Agreement shall be deemed to have been waived, nor shall there
be any estoppel against the enforcement of any provision of this Agreement,
except by written instrument of the party charged with such waiver or estoppel.
No such written waiver shall be deemed a continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or condition
for the future or as to any act other than that specifically waived.
     27. Amendment of Agreement. This Agreement may not be modified or amended
except by an instrument in writing signed by the parties hereto.
     28. Entire Agreement. This Agreement represents the entire understanding of
the parties hereto and supersedes any prior understandings or agreements between
the parties, except that this Agreement shall not affect or operate to reduce
any benefit or compensation inuring to the Executive of a kind elsewhere
provided and not expressly provided in this Agreement.
     29. Counterparts.
     This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which shall constitute the same
instrument.
[Remainder of page intentionally left blank]

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     IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by its representative thereunto
duly authorized as of the date set forth above.

            MEDICIS PHARMACEUTICAL CORPORATION
      By:   /s/ Jason D. Hanson         Jason D. Hanson        Chief Operating
Officer              By:   /s/ Spencer Davidson         Spencer Davidson       
Chairman, Stock Option and Compensation Committee, Member of Board of Directors 
            By:   /s/ Jonah Shacknai         Jonah Shacknai           

 

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EXHIBIT A
     The following sets forth the Executive’s compensation in accordance with
paragraph 3(a):

     
1. Annual base compensation* (“Base Salary”)
  $1,100,000 per year
 
   
2. Health/Medical and other Employee benefits provided to other employees of the
Company.
  Actual cost
 
   
3. Stock Options and Restricted Stock Grants
  Grants as determined by Stock Option and Compensation Committee from time to
time
 
   
4. Annual Cash Bonus
  The Board agrees to determine, in good faith, the annual cash bonus to be
provided to the Executive based upon the Executive’s performance and the
performance of the Company measured against the Company’s fiscal plan for the
prior fiscal year calculated in accordance with the Company’s bonus plans as
they may be in effect from time to time.

 

*    The Stock Option and Compensation Committee will review the base salary
amount annually and provide an increase in the Executive’s base annual
compensation as appropriate and within its discretion.

Exhibit A — Page 1

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EXHIBIT B
Limitation on Payments.
     (a) Notwithstanding any other provisions of this Agreement, in the event
that any payment or benefit received or to be received by the Executive
(including any payment or benefit received in connection with a Change in
Ownership or Control or the termination of the Executive’s employment, whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement) (all such payments and benefits, including the payments and benefits
under Sections 5, 8 and 9 of this Agreement, being hereinafter referred to as
the “Total Payments”) would be subject (in whole or part), to the excise tax
imposed under Section 4999 of the Code (the “Excise Tax”), then, after taking
into account any reduction in the Total Payments provided by reason of
Section 280G of the Code in such other plan, arrangement or agreement, the cash
severance payments shall first be reduced, and the noncash severance payments
shall thereafter be reduced, to the extent necessary so that no portion of the
Total Payments is subject to the Excise Tax but only if (i) the net amount of
such Total Payments, as so reduced (and after subtracting the net amount of
federal, state and local income taxes on such reduced Total Payments and after
taking into account the phase out of itemized deductions and personal exemptions
attributable to such reduced Total Payments) is greater than or equal to
(ii) the net amount of such Total Payments without such reduction (but after
subtracting the net amount of federal, state and local income taxes on such
Total Payments and the amount of Excise Tax to which the Executive would be
subject in respect of such unreduced Total Payments and after taking into
account the phase out of itemized deductions and personal exemptions
attributable to such unreduced Total Payments). The Total Payments shall be
reduced by the Company in its reasonable discretion in the following order:
(A) reduction of any cash severance payments otherwise payable to the Executive
that are exempt from Section 409A of the Code, (B) reduction of any other cash
payments or benefits otherwise payable to the Executive that are exempt from
Section 409A of the Code, but excluding any payment attributable to the
acceleration of vesting or payment with respect to any stock option or other
equity award with respect to the Company’s Common Stock that are exempt from
Section 409A of the Code, (C) reduction of any other payments or benefits
otherwise payable to the Executive on a pro-rata basis or such other manner that
complies with Section 409A of the Code, but excluding any payment attributable
to the acceleration of vesting and payment with respect to any stock option or
other equity award with respect to the Company’s common stock that are exempt
from Section 409A of the Code, and (D) reduction of any payments attributable to
the acceleration of vesting or payment with respect to any stock option or other
equity award with respect to the Company’s common stock that are exempt from
Section 409A of the Code.
     (b) For purposes of determining whether and the extent to which the Total
Payments will be subject to the Excise Tax, (i) no portion of the Total Payments
the receipt or enjoyment of which the Executive shall have waived at such time
and in such manner as not to constitute a “payment” within the meaning of
Section 280G(b) of the Code shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which, in the written opinion of
independent auditors of nationally recognized standing (“Independent Advisors”)
selected by the Company, does not constitute a “parachute payment” within the
meaning of Section 280G(b)(2) of the Code (including by reason of
Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no
portion of such Total Payments shall be taken into account which, in the opinion
Exhibit B — Page 1

 

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of Independent Advisors, constitutes reasonable compensation for services
actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in
excess of the Base Amount (as defined in Section 280G(b)(3) of the Code)
allocable to such reasonable compensation, and (iii) the value of any non cash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Independent Advisors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
Exhibit B — Page 2