compensation by the Company, except for any salary he is entitled to receive pursuant toSection 4(a) herein and any litigation support service fee he is entitled to receivepursuant to the Release Agreement (Section references in the title of the each of the followingsubsections refer to Sections in the Employment Agreement): a. Accrued Base Salary (Section 4.3(a)): Executive acknowledgesreceipt of his Base Salary through the Transition Date.  b. Accrued Vacation Payment (Section 4.3(b)): As of October 31,2008, Executive has 12 days of unused accrued vacation days (the “AccruedVacation Days”). The Company will reimburse Executive for the Accrued VacationDays in an amount equal to $525,000 multiplied by a fraction the numerator of whichis the Accrued Vacation Days and the denominator of which is 260. On or promptlyfollowing the effectiveness of this Separation Agreement, the Company will payExecutive $24,231, less all applicable taxes, for these Accrued Vacation Days.  c. Accrued Reimbursable Expenses (Section 4.3(c)): The Companywill, in accordance with its standard policies, reimburse Executive for allreasonable travel and other business expenses incurred by Executive in his capacityas President and Chief Executive Officer prior to the Transition Date and submittedfor reimbursement on or before December 12, 2008.  d. Accrued Benefits (Section 4.3(d)): The Company will provide toExecutive (or Executive’s estate or beneficiaries) any accrued and vested benefitsrequired to be provided by the terms of any Company-sponsored benefit plans orprograms or under applicable law.  e. Accrued Annual Incentive Bonus (Section 4.3(e)): Executiveacknowledges that there is no Accrued Annual Incentive Bonus.  f. Severance Payment (Section 4.3(f)): The Company will payExecutive $525,000, less all lawfully required withholdings, payable bi-weekly overthe course of 12 months; provided, however, that no payments willbe made until the end of the six-month period following the Transition Date, or May1, 2009. Amounts that would have been paid during the six-month period will,instead, be paid in one lump sum on May 1, 2009, plus interest accruing at the rateof interest per annum publicly announced from time to time by JPMorgan Chase Bank,N.A., as its prime rate in effect at its principal office in New York City. Thebi-weekly payments of the remaining severance payment will commence on May 1, 2009.If Executive dies before the end of the 12-month period described in thisAgreement, the Company will pay to Executive’s beneficiary in one lump sum paymentwithin 30 days following Executive’s death the amount of any severance payment towhich Executive is entitled under this Section 2(f) that has not been paidto Executive as of the date of his death.
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 g. Continued Benefits (Section 4.3(g)): The Company will maintainin full force and effect at the Company’s expense, for Executive’s and Executive’seligible beneficiaries’ continued benefit, until the first to occur of (x) hisattainment of alternative employment which provides substantially similar healthbenefits or (y) twelve (12) months following the Transition Date, the benefitsprovided pursuant to Company-sponsored benefit plans, programs, or otherarrangements in which Executive was entitled to participate as a full-time employeeimmediately prior to the Transition Date, subject to the terms and conditions ofsuch plans and programs. If Executive’s continued participation is not permittedunder the general terms and provisions of such plans, programs, and arrangements,the Company, at the Company’s expense, will arrange to provide Executive withContinued Benefits substantially similar to those which Executive would have beenentitled to receive under such plans, programs, and arrangements. Executive’sright to receive continued health benefits for himself and his eligiblebeneficiaries pursuant to COBRA shall commence upon the Transition Date and shallnot be extended by Executive’s rights under this Agreement.  h. Life Insurance. The Company will convey, transfer and assignto Executive that certain Estate Whole Life Policy No. 16-084-015 dated April 18,2002 on the life of Executive from The Northwestern Mutual Life Insurance Company(the “Policy”). The Company will make such transfer and assignment on May1, 2009. In addition, the Company will pay to Executive an amount equal to theamount of any additional federal and state income taxes that are imposed onExecutive due to the transfer and assignment of the Policy. No adjustments will bemade in this combined rate for the deduction of state taxes on the federal return,the loss of itemized deductions or exemptions, or for any other purpose. Executiveshall be responsible for paying the actual taxes. Executive agrees to provide tothe Company sufficient information so that the Company may calculate the amount duepursuant to this Section 2(h). Such payment will be made to Executivewithin thirty (30) days following the Company’s receipt of such returns, but in noevent later than December 31 of the calendar year following the year in whichExecutive remits such taxes. The Company and Executive acknowledge and agree thatthe tax payment provided pursuant to this Section 2(h) replaces andsupersedes the tax payment described in Section 2.4(d) of the Employment Agreement.  i. Exercise of Vested Options and Warrants (Section 4.3(h)): TheCompany and Executive agree that pursuant to grants made under the Company’s 2001Long-Term Incentive Plan, Executive holds vested options to purchase up to 119,400shares of the Company’s common stock. In accordance with the terms of such plan,Executive shall have 90 days from the date he ceases to be an employee of theCompany in which to exercise these options.     3. Resignation. Pursuant to the Letter Agreement, Executive retired from thepositions of President and Chief Executive Officer as of the Transition Date. Subject toExecutive’s continued employment on a part-time basis, as described in Section 4(a),Executive
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hereby resigns from his positions as Director, including any and all Committees of the Boardof Directors, and any other positions and offices he holds with each of the Company and theCompany’s subsidiaries and affiliated entities and the Company hereby accepts the resignations. Atthe request of Company, Executive agrees to execute any documents reasonably requested toeffectuate or to facilitate his resignations. Executive agrees he did not resign as a result of adisagreement of the type referred to in Item 5.02(a)(1) of Form 8-K.     4. Additional Benefits. a. Continued Employment Period. For a period beginning on theTransition Date and ending on March 31, 2009 (the “Continued EmploymentPeriod”), Executive agrees to serve as an advisor to the Acting President orhis successor, on an as needed and as requested basis (no more than seven hours inany one week or more than 30 hours in any one month), as an employee (and not as anindependent contractor), to assist in the transition of Executive’s duties to otherCompany employees. Executive will be paid a salary during the Continued EmploymentPeriod of $7,500 per month. Executive shall provide such advisory services solelyat the request of William J. Hemelt and/or any another person designated by theBoard of Directors. The parties each acknowledge that during the 36-month periodpreceding the Transition Date, Executive worked in excess of 50 hours per week.  b. Vesting of Restricted Stock. The Company agrees thatExecutive’s restricted stock shall continue to vest during the Continued EmploymentPeriod, resulting in the vesting of an additional 35,421 shares, provided thatExecutive satisfactorily performs his advisory services and complies with any andall obligations of this Agreement, the Release Agreement, and the EmploymentAgreement that survive his retirement.  c. Fiscal Year 2009 Bonus Opportunity. Executive will receive acash bonus pursuant to the cash bonus plan approved by the Compensation Committeeon May 8, 2008, to the extent the Company satisfies the performance criteria insuch plan. Any such bonus will be pro rated for the nine-month period endedDecember 31, 2008 (April through December) and will be payable at such time as thebonus is payable to the Company’s executive officers.  d. Attorney’s Fees. On or promptly following the effectiveness ofthis Separation Agreement, the Company will pay Executive $10,000 to defray aportion of Executive’s attorneys’ fees and costs.     5. Code Section 409A Compliance. The Company has concluded that the SeveranceBenefits described in Sections 2(f), (g) and (h) constitute “non-qualified deferredcompensation” that is subject to Code Section 409A. The Company intends that the severancepayments described in Section 2(f) and the transfer of the Policy described in Section2(h) are payable upon Executive’s “Separation from Service” as defined in Treasury RegulationSection 1.409A-1(h).
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As a result, the payments are subject to the six-month delay for payments to a“specified employee” required under Treasury Regulation Section 1.409A-3(i)(2). The installmentpayments described in Section 2(h) shall be treated as a series of separate paymentspursuant to Treasury Regulation Section 1.409A-2(b)(2)(iii). The Company also intends that thepayment of health insurance premiums pursuant to Section 2(g) fit within the exception toCode Section 409A for certain reimbursements as defined in Treasury Regulation Section1.409A-1(b)(9)(v). The Company further intends that the tax payment described in Section2(h) is payable at a specified time as described in Treasury Regulation Section1.409A-3(i)(1)(iv)(v).     (b) If Company fails to make a payment, either intentionally or unintentionally, within theperiods described in Section 2, but the payment is made within the same calendar year, itwill be treated as made within the period required by Section 2 pursuant to TreasuryRegulation Section 1.409A 3(d). In addition, if a payment is not made due to a dispute between theCompany and Executive, payments may be delayed in accordance with Treasury Regulation Section1.409A 3(g).     (c) Under no circumstances may the time or schedule of any payment made or benefit providedpursuant to this Agreement be accelerated or subject to a further deferral except as otherwisepermitted or required pursuant to regulations and other guidance issued pursuant to Section 409A ofthe Code.     (d) Executive does not have any right to make any election regarding the time or form of anypayment due under this Agreement.     (e) This Agreement shall be operated in compliance with Section 409A and each provision ofthis Agreement shall be interpreted, to the extent possible, to comply with Section 409A.     IN WITNESS WHEREOF, the parties hereto have duly executed this Separation Agreement as of theday and year first above written.             Date: December ___, 2008     **Carl J. Johnson**           **MATRIXX INITIATIVES, INC.**                 Date: December ___, 2008     **By:**             **Its:**             
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