Document:

EX-10.PP

 

EXHIBIT 10(pp)

As amended, October 18, 2006

DUSA PHARMACEUTICALS, INC.

2006 EQUITY COMPENSATION PLAN

     The purpose of the DUSA Pharmaceuticals, Inc. 2006 Equity Compensation Plan (the “Plan”) is to
provide (i) designated employees of DUSA Pharmaceuticals, Inc. (the “Company”) and its parents and
subsidiaries, (ii) certain consultants and advisors who perform services for the Company or its
parents or subsidiaries, and (iii) non-employee members of the Board of Directors of the Company
(the “Board”) with the opportunity to receive grants of incentive stock options, nonqualified stock
options, stock awards, and stock appreciation rights. The Company believes that the Plan will
encourage the participants to contribute materially to the growth of the Company, thereby
benefiting the Company’s shareholders, and will align the economic interests of the participants
with those of the shareholders.

     1. Administration

     (a) Committee. The Plan shall be administered and interpreted by the members of the
Compensation Committee of the Board (the “Committee”), which consists of “outside directors” as
defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and
related Treasury regulations, and “non-employee directors” as defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). However, the Board may ratify or
approve any grants as it deems appropriate, and the Board shall approve and administer all grants
made to non-employee directors. The Committee may delegate authority to one (1) or more delegates
as it deems appropriate.

     (b) Committee Authority. The Committee or its delegate shall have the sole authority
to (i) determine the individuals to whom grants shall be made under the Plan; (ii) determine the
type, size, and terms of the grants to be made to each such individual; (iii) determine the time
when the grants will be made and the duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration of exercisability; (iv) amend the
terms of any previously issued grant; and (v) deal with any other matters arising under the Plan.
Notwithstanding anything in this Plan to the contrary, in no event may the Board, the Committee or
its or their delegate (i) amend or modify an Option in a manner that would reduce the exercise
price of such Option; (ii) substitute an Option for another Option with a lower exercise price;
(iii) cancel an Option and issue a new Option with a lower exercise price to the holder of the
cancelled Option within six (6) months following the date of the cancellation of the cancelled
Option; (iv) cancel an outstanding Option that is under water (i.e., for which the Fair Market
Value, as defined below, of the underlying Shares are less than the Option’s Exercise Price, as
defined below) for the purpose of granting a replacement Grant (as defined below) of a different
type; (v) grant a full value performance award pursuant to Section 6 that vests in less than one
year from the date of grant; (vi) grant a full value award that is not subject to performance
vesting that vests in less than three years; or (vii) waive the minimum vesting periods described
in Sections 1(b)(v) or (vi) above.

     (c) Committee Determinations. The Committee shall have full power and authority to
administer and interpret the Plan, to make factual determinations and to adopt or amend such rules,
regulations, agreements, and instruments for implementing the Plan and for the conduct of its
business as it deems necessary or advisable, in its sole discretion. The Committee’s
interpretations of the Plan and all determinations made by the Committee pursuant to the powers
vested in it hereunder shall be conclusive and binding on all persons having any interest in the
Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole
discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated individuals.

     (d) Other Equity Awards. The terms of this Plan shall not impact or govern the
administration by the Company or the rights of any holders of an option or stock award granted
pursuant to the DUSA Pharmaceuticals, Inc., 1996 Omnibus Plan, as amended (the “Prior Plan”).
Unless otherwise provided by the Company and agreed to by the recipient of an award under the Prior
Plan, all awards granted pursuant to the Prior Plan shall continue to be governed by the terms of
such plan.

 

 

As amended, October 18, 2006

     2. Grants

     (a) Awards under the Plan may consist of grants of incentive stock options as described in
Section 5 (“Incentive Stock Options”), nonqualified stock options as described in Section 5
(“Nonqualified Stock Options”) (Incentive Stock Options and Nonqualified Stock Options are
collectively referred to as “Options”), stock awards as described in Section 6 (“Stock Awards”) and
Stock Appreciation Rights described in Section 7 (“SARs”) (hereinafter collectively referred to as
“Grants”). All Grants shall be subject to the terms and conditions set forth herein and to such
other terms and conditions consistent with this Plan and as specified in the individual grant
instrument or an amendment to the grant instrument (the “Grant Instrument”). All Grants shall be
made conditional upon the Grantee’s acknowledgement, in writing or by acceptance of the Grant, that
all decisions and determinations of the Company shall be final and binding on the Grantee, his or
her beneficiaries and any other person having or claiming an interest under such Grant. Grants
under a particular Section of the Plan need not be uniform as among the grantees.

     3. Shares Subject to the Plan

     (a) Shares Authorized. Subject to adjustment as described below, (i) the maximum
aggregate number of shares of common stock of the Company (“Company Stock”) that may be issued or
transferred under any forms of grants under the Plan is the lesser of (i) 20% of the total number
of shares of common stock of the Company issued and outstanding at any given time less the number
of shares issued and outstanding under any other equity compensation plan of the Company at such
time; or (ii) 3,888,488 shares less the number of shares issued and outstanding under any other
equity compensation plan of the Company from time to time, all of which may be issued as Incentive
Stock Options. The maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the Plan to any individual during any calendar year shall be 300,000 shares,
subject to adjustment as described below. The shares may be authorized but unissued shares of
Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on
the open market for purposes of the Plan. If and to the extent Options granted under the Plan
terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been
exercised or if any Stock Awards (including restricted Stock Awards received upon the exercise of
Options) are forfeited, the shares subject to such Grants shall again be available for purposes of
the Plan.

     (b) Adjustments. If there is any change in the number or kind of shares of Company
Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split, or
combination or exchange of shares; (ii) by reason of a merger, reorganization, or consolidation;
(iii) by reason of a reclassification or change in par value; or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Company Stock as a class without the
Company’s receipt of consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company’s payment of an extraordinary
dividend or distribution, the maximum number of shares of Company Stock available for Grants, the
maximum number of shares of Company Stock that any individual participating in the Plan may be
granted in any year, the number of shares covered by outstanding Grants, the kind of shares issued
under the Plan, and the price per share of such Grants may be appropriately adjusted by the Company
to reflect any increase or decrease in the number of, or change in the kind or value of, issued
shares of Company Stock to preclude, to the extent practicable, the enlargement or dilution of
rights and benefits under such Grants; provided, however, that any fractional shares resulting from
such adjustment shall be rounded down to the nearest whole share. Any adjustments determined by
the Company shall be final, binding, and conclusive.

     4. Eligibility for Participation

     (a) Eligible Persons. All employees of the Company and its parents or subsidiaries
(“Employees”), including Employees who are officers or members of the Board, and members of the
Board who are not Employees
(“Non-Employee Directors”) shall be eligible to participate in the Plan. Consultants and
advisors who perform services for the Company or any of its parents or subsidiaries (“Key
Advisors”) shall be eligible to participate in the Plan if the Key Advisors render bona fide
services to the Company or its parents or subsidiaries, the services are not in connection with the
offer and sale of securities in a capital-raising transaction, and the Key Advisors do not directly
or indirectly promote or maintain a market for the Company’s securities.

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As amended, October 18, 2006

     (b) Selection of Grantees. The Company shall select the Employees, Non-Employee
Directors, and Key Advisors to receive Grants and shall determine the number of shares of Company
Stock subject to a particular Grant. Employees, Key Advisors, and Non-Employee Directors who
receive Grants under this Plan shall hereinafter be referred to as “Grantees.”

     5. Granting of Options

     The Company may grant an Option to an Employee, Non-Employee Director, or Key Advisor. The
following provisions are applicable to Options.

     (a) Number of Shares. The Company shall determine the number of shares of Company
Stock that will be subject to each Grant of Options to Employees, Non-Employee Directors, and Key
Advisors.

     (b) Type of Option and Price.

          (i) Incentive Stock Options are intended to satisfy the requirements of Section 422 of the
Code. Nonqualified Stock Options are not intended to so qualify. Incentive Stock Options may be
granted only to employees of the Company or its parents or subsidiaries, as defined in Section 424
of the Code. Nonqualified Stock Options may be granted to Employees, Non-Employee Directors, and
Key Advisors.

          (ii) The purchase price (the “Exercise Price”) of Company Stock subject to an Option may be
equal to or greater than the Fair Market Value (as defined below) of a share of Company Stock on
the date the Option is granted; provided, however, that (x) the Exercise Price of an Incentive
Stock Option shall be equal to, or greater than, the Fair Market Value of a share of Company Stock
on the date the Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns or beneficially owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of stock of the Company or
any parent or subsidiary of the Company, unless the Exercise Price per share is not less than one
hundred ten percent (110%) of the Fair Market Value of Company Stock on the date of grant.

          (iii) So long as the Company Stock is publicly traded, the Fair Market Value per share shall
be determined as follows: (x) if the principal trading market for the Company Stock is a national
securities exchange or the NASDAQ National Market, the last reported sale price thereof on the
relevant date or (if there were no trades on that date) the latest preceding date upon which a sale
was reported, or (y) if the Company Stock is not principally traded on such exchange or market, the
mean between the last reported “bid” and “asked” prices of Company Stock on the relevant date, as
reported on NASDAQ or, if not so reported, as reported by the National Daily Quotation Bureau, Inc.
or as reported in a customary financial reporting service, as applicable and as the Company
determines. If the Company Stock is not publicly traded or, if publicly traded, is not subject to
reported transactions or “bid” or “asked” quotations as set forth above, the Fair Market Value per
share shall be as determined by the Company.

     (c) Option Term. The term of any Option shall not exceed seven (7) years from the
date of grant. However, an Incentive Stock Option that is granted to an Employee who, at the time
of grant, owns or beneficially owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, or any parent or subsidiary of the
Company, may not have a term that exceeds five (5) years from the date of grant.

     (d) Exercisability of Options.

          (i) Options shall become exercisable in accordance with such terms and conditions of the Plan
and specified in the Grant Instrument. The Company may accelerate the exercisability of any or all
outstanding Options at any time for any reason.

          (ii) The Company may provide in a Grant Instrument that the Grantee may elect to exercise part
or all of an Option before it otherwise has become exercisable. Any shares so purchased shall be
restricted shares and shall be subject to a repurchase right in favor of the Company during a
specified restriction period, with

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As amended, October 18, 2006

the repurchase price equal to the lesser of (i) the Exercise
Price or (ii) the Fair Market Value of such shares at the time of repurchase, and (iii) any other
restrictions determined by the Company.

     (e) Grants to Non-Exempt Employees. Options granted to persons who are non-exempt
employees under the Fair Labor Standards Act of 1938, as amended, shall have an Exercise Price not
less than one hundred percent (100%) of the Fair Market Value of the Company Stock on the date of
grant, and may not be exercisable for at least six (6) months after the date of grant (except that
such Options may become exercisable upon the Grantee’s death, Disability or retirement, or upon a
Change in Control or other circumstances permitted by applicable regulations).

     (f) Termination of Employment, Disability, or Death.

          (i) Except as provided below, an Option may only be exercised while the Grantee is employed
by, or providing service to, the Employer (as defined below) as an Employee, Key Advisor or member
of the Board. In the event that a Grantee ceases to be employed by, or provide service to, the
Employer for any reason other than Disability, death, termination for Misconduct, or as set forth
in subsection 5(f)(v) of this Plan, any Option which is otherwise exercisable by the Grantee shall
terminate unless exercised within ninety (90) days after the date on which the Grantee ceases to be
employed by, or provide service to, the Employer (or within such other period of time as may be
specified by the Company), but in any event no later than the date of expiration of the Option
term. Except as otherwise provided, any of the Grantee’s Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by, or provide service to,
the Employer shall terminate as of such date.

          (ii) In the event the Grantee ceases to be employed by, or provide service to, the Employer on
account of a termination by the Employer for Misconduct, any Option held by the Grantee shall
terminate at the time that the Grantee ceases to be employed by, or provide service to, the
Employer or the date on which such Option would otherwise expire, if earlier. In addition,
notwithstanding any other provisions of this Section 5, if the Company determines that the Grantee
has engaged in conduct that constitutes Misconduct at any time while the Grantee is employed by, or
providing service to, the Employer or after the Grantee’s termination of employment or service, any
Option held by the Grantee shall terminate as of the thirtieth (30th) day after the date
on which such Misconduct first occurred, or the date on which such Option would otherwise expire,
if earlier. Upon any exercise of an Option, the Company may withhold delivery of share
certificates pending resolution of an inquiry that could lead to a finding resulting in a
forfeiture.

          (iii) In the event the Grantee ceases to be employed by, or provide service to, the Employer
because the Grantee is Disabled, any Option which is otherwise exercisable by the Grantee shall
terminate unless exercised within one (1) year after the date on which the Grantee ceases to be
employed by, or provide service to, the Employer (or within such other period of time as may be
specified by the Company), but in any event no later than the date of expiration of the Option
term. Except as otherwise provided, any of the Grantee’s Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by, or provide service to,
the Employer shall terminate as of such date.

          (iv) If the Grantee dies while employed by, or providing service to, the Employer, all of the
unexercised outstanding Options of Grantee shall become immediately exercisable and remain
exercisable for a period of one (1) year from his or her date of death, but in no event later than
the date of expiration of the Option term. If the Grantee dies within ninety (90) days after the
date on which the Grantee ceases to be employed or provide service on account of a termination
specified in Section 5(f)(i) above (or within such other period of time as may be specified by the
Company), any Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one (1) year after the date on which the Grantee ceases to be employed by, or
provide service to, the Employer (or within such other period of time as may be specified), but in
any event no later than the date of expiration of the Option term. Except as otherwise provided,
any of the Grantee’s Options that are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by, or provide service to, the Employer shall terminate as of such date.

          (v) Notwithstanding anything herein to the contrary, to the extent that any Company-sponsored
plan or arrangement, or any agreement to which the Company is a party expressly provides for a
longer exercise period for a Grantee’s Options under applicable circumstances than the exercise
period that is provided for

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As amended, October 18, 2006

in this Section 5(f) under those circumstances, then the exercise
period set forth in such plan, arrangement or agreement applicable to such circumstances shall
apply in lieu of the exercise period provided for in this Section 5(f).

     (vi) For purposes of this Section 5(f) and Section 6:

     (A) The term “Employer” shall mean the Company and its parent and subsidiary
corporations or other entities, as determined by the Board.

     (B) “Employed by, or provide service to, the Employer” shall mean employment
or service as an Employee, Key Advisor or member of the Board (so that, for purposes of
exercising Options or SARs and satisfying conditions with respect to Stock Awards, a Grantee
shall not be considered to have terminated employment or service until the Grantee ceases to
be an Employee, Key Advisor or member of the Board).

     (C) “Disability” shall mean a Grantee’s becoming disabled within the meaning
of the Employer’s long-term disability plan applicable to the Grantee, as determined in the
sole discretion of the Committee or its delegate.

     (D) “Misconduct” means (i) any activity that constitutes a material violation
of a provision of the Company’s handbook or a breach of any conduct clause in an employment
agreement between the Company and Grantee; (ii) indictment for, or conviction of, a crime
that constitutes a felony or for which imprisonment for more than one year is a possible
penalty; or (iii) habitual or regular intoxication.

     (g) Exercise of Options. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the Company. The Grantee
shall pay the Exercise Price for an Option as specified by the Company (i) in cash, (ii) payment
through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve
Board, or (iii) by such other method as the Company may approve. Shares of Company Stock used to
exercise an Option shall have been held by the Grantee for the requisite period of time to avoid
adverse accounting consequences to the Company with respect to the Option. The Grantee shall pay
the Exercise Price and the amount of any withholding tax due (pursuant to Section 8).

     (h) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide
that, if the aggregate Fair Market Value of the Company Stock on the date of the grant with respect
to which Incentive Stock Options are exercisable for the first time by a Grantee during any
calendar year, under the Plan or any other stock option plan of the Company or a parent or
subsidiary, exceeds One Hundred Thousand Dollars ($100,000), then the Option, as to the excess,
shall be treated as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted to
any person who is not an Employee of the Company or a parent or subsidiary (within the meaning of
Section 424(f) of the Code) of the Company.

     (i) Formula Grants. Non-Employee Directors shall be eligible to receive a
nonqualified stock option under the Plan. Each individual who agrees to become a Non-Employee
Director shall receive, on June 30th of the first year of such service or as of the
close of business thirty (30) days following his/her election, whichever shall first occur, and
without the exercise of the discretion of any person, an Option relating to the purchase of 15,000
shares of Company Stock at an exercise price equal to the Fair Market Value on the date the Option
is granted. Thereafter, on June 30th of each year, each individual who is a continuing
Non-Employee Director shall receive,
without the exercise of the discretion of any person, an Option under the Plan relating to the
purchase of 10,000 shares of Company Stock. Each Option granted under this paragraph shall vest in
full on the date of the grant and have a term not to exceed seven (7) years from the date of grant,
or, if later, the date the Grantee becomes a Non-Employee Director. Notwithstanding the exercise
period of any such Option, all such Options shall immediately become exercisable upon (i) the death
of Non-Employee Director while serving as such, or (ii) upon a Change of Control.

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As amended, October 18, 2006

     6. Stock Awards

     The Company may transfer shares of Company Stock or cash to an Employee, Non-Employee
Director, or Key Advisor under a Stock Award. The following provisions are applicable to Stock
Awards:

     (a) General Requirements. Shares of Company Stock issued or transferred pursuant to
Stock Awards may be issued or transferred for consideration or for no consideration, and subject to
a minimum of a one (1) year vesting period for performance awards and a minimum three (3) year
vesting period for awards not subject to performance vesting. The Committee shall not be permitted
to waive such vesting periods except in the case of death, disability, retirement, change in
control or termination of a Grantee without cause. Restrictions on Stock Awards shall lapse over a
period of time or according to such other criteria as set forth in the Grant Instrument. The
period of time during which the Stock Award will remain subject to restrictions will be designated
in the Grant Instrument as the “Restriction Period.”

     (b) Number of Shares. The Grant Instrument shall set forth the number of shares of
Company Stock to be issued or transferred pursuant to a Stock Award and the restrictions applicable
to such shares.

     (c) Requirement of Employment or Service. If the Grantee ceases to be employed by, or
provide service to, the Employer (as defined in Section 5(f)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Stock
Award shall terminate as to all shares covered by the award as to which the restrictions have not
lapsed, and those shares of Company Stock must be immediately returned to the Company. The Company
may, however, provide for complete or partial exceptions to this requirement as it deems
appropriate.

     (d) Restrictions on Transfer and Legend on Stock Certificate. During the Restriction
Period, a Grantee may not sell, assign, transfer, pledge, or otherwise dispose of the shares of the
Stock Award except to a successor under Section 9(a). Each certificate for Stock Awards shall
contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be
entitled to have the legend removed from the stock certificate covering the shares subject to
restrictions when all restrictions on such shares have lapsed. The Company may determine that it
will not issue certificates for Stock Awards until all restrictions on such shares have lapsed, or
that the Company will retain possession of certificates for Stock Awards until all restrictions on
such shares have lapsed.

     (e) Right to Vote and to Receive Dividends. During the Restriction Period, the
Grantee shall not have the right to vote shares subject to Stock Awards or to receive any dividends
or other distributions paid on such shares.

     (f) Lapse of Restrictions. All restrictions imposed on Stock Awards shall lapse upon
the expiration of the applicable Restriction Period and the satisfaction of all conditions. The
Company may determine, as to any or all Stock Awards, that the restrictions shall lapse without
regard to any Restriction Period.

     (g) Designation as Qualified Performance-Based Compensation. The Committee may
determine that Stock Awards granted to an Employee shall be considered “qualified performance-based
compensation” under Section 162(m) of the Code. The provisions of this paragraph (g) shall apply
to Stock Awards that are to be considered “qualified performance-based compensation” under Section
162(m) of the Code.

          (i) Performance Goals. When Stock Awards that are to be considered “qualified
performance-based compensation” are granted, the Committee shall establish in writing (A) the
objective performance goals that must be met, (B) the performance period during which the
performance goals must be met (the “Performance Period”), (C) the threshold, target and maximum
amounts that may be paid if the performance
goals are met, and (D) any other conditions that the Committee deems appropriate and
consistent with the Plan and Section 162(m) of the Code. The performance goals may relate to the
Employee’s business unit or the performance of the Company and its parents and subsidiaries as a
whole, or any combination of the foregoing. The Committee shall use objectively determinable
performance goals based on one or more of the following criteria: stock price, earnings per share,
net earnings, operating earnings, return on assets, shareholder return, return on equity, growth in
assets, unit volume, sales, market share, or strategic business criteria consisting of one or more
objectives based on

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As amended, October 18, 2006

meeting specified revenue goals, market penetration goals, geographic business
expansion goals, cost targets or goals relating to acquisitions or divestitures.

          (ii) Establishment of Goals. The Committee shall establish the performance goals in
writing either before the beginning of the Performance Period or during a period ending no later
than the earlier of (i) ninety (90) days after the beginning of the Performance Period or (ii) the
date on which twenty-five percent (25%) of the Performance Period has been completed, or such other
date as may be required or permitted under applicable regulations under Section 162(m) of the Code.
The performance goals shall satisfy the requirements for “qualified performance-based
compensation,” including the requirement that the achievement of the goals be substantially
uncertain at the time they are established and that the goals be established in such a way that a
third party with knowledge of the relevant facts could determine whether and to what extent the
performance goals have been met. The Committee shall not have discretion to increase the amount of
compensation that is payable upon achievement of the designated performance goals.

          (iii) Maximum Payment. If Stock Awards, measured with respect to the Fair Market
Value of Company Stock, are granted, not more than one hundred thousand (100,000) shares of Company
Stock may be granted to an Employee under the Stock Award for any Performance Period.

          (iv) Announcement of Grants. The Committee shall certify and announce the results for
each Performance Period to all Grantees immediately following the announcement of the Company’s
financial results for the Performance Period. If and to the extent that the Committee does not
certify that the performance goals have been met, the grants of Stock Awards for the Performance
Period shall be forfeited or shall not be made, as applicable.

          (v) Death, Disability or Other Circumstances. The Committee may provide that Stock
Awards shall be payable or restrictions on Stock Awards shall lapse, in whole or in part, in the
event of the Grantee’s death or Disability during the Performance Period, or under other
circumstances consistent with the Treasury regulations and rulings under Section 162(m) of the
Code.

     (h) Restricted Stock Units. The Committee or its delegate may grant restricted stock
units (“Restricted Units”) to an Employee or Key Advisor. Each Restricted Unit shall represent the
right of the Grantee to receive an amount in cash or Common Stock (as determined by the Committee
or its delegate) based on the value of the Restricted Unit, if performance goals established by the
Committee are met or upon the lapse of a specified vesting period. A Restricted Unit shall be
based on the Fair Market Value of a share of Company Stock or on such other measurement base as the
Committee or its delegate deems appropriate. The Committee or its delegate shall determine the
number of Restricted Units to be granted and the requirements applicable to such Restricted Units.

     7. Stock Appreciation Rights

     The Company may grant SARs to an Employee, Non-Employee Director, or Key Advisor. The
following provisions are applicable to SARs.

     (a) General Requirements. The Company may grant SARs to an Employee, Non-Employee
Director or Key Advisor separately or in tandem with any Option (for all or a portion of the
applicable Option). Tandem SARs may be granted either at the time the Option is granted or at any
time thereafter while the Option remains outstanding; provided, however, that, in the case of an
Incentive Stock Option, SARs may be granted only at the time of the grant of the Incentive Stock
Option. Unless otherwise specified in the Grant Instrument, the base amount of each SAR shall be
equal to the per share Exercise Price of the related Option or, if there is no related Option, the
Fair Market Value of a share of Company Stock as of the date of grant of the SAR.

     (b) Tandem SARs. In the case of tandem SARs, the number of SARs granted to a Grantee
that shall be exercisable during a specified period shall not exceed the number of shares of
Company Stock that the Grantee may purchase upon the exercise of the related Option during such
period. Upon the exercise of an Option, the SARs relating to the Company Stock covered by such
Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.

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As amended, October 18, 2006

     (c) Exercisability. A SAR shall be exercisable during the period specified in the
Grant Instrument and shall be subject to such vesting and other restrictions as may be specified.
The Company may accelerate the exercisability of any or all outstanding SARs at any time for any
reason. SARs may only be exercised while the Grantee is employed by, or providing service to, the
Employer or during the applicable period after termination of employment or service as described in
Section 5(f). A tandem SAR shall be exercisable only during the period when the Option to which it
is related is also exercisable.

     (d) Grants to Non-Exempt Employees. Notwithstanding the foregoing, SARs granted to
persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, shall
have a base amount not less than one hundred percent (100%) of the Fair Market Value of the Company
Stock on the date of grant, and may not be exercisable for at least six (6) months after the date
of grant (except that such SARs may become exercisable, as determined by the Committee, upon the
Grantee’s death, Disability or retirement, or upon a Change of Control or other circumstances
permitted by applicable regulations).

     (e) Value of SARs. When a Grantee exercises SARs, the Grantee shall receive in
settlement of such SARs an amount equal to the value of the stock appreciation for the number of
SARs exercised, payable in Company Stock. The stock appreciation for a SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of the SAR exceeds
the base amount of the SAR as described in subsection (a). For purposes of calculating the number
of shares of Company Stock to be received, shares of Company Stock shall be valued at their Fair
Market Value on the date of exercise of the SAR. Notwithstanding anything to the contrary, the
Company may pay the appreciation of a SAR in the form of cash, shares of Company Stock, or a
combination of the two, so long as the ability to pay such amount in cash does not result in the
Grantee incurring taxable income related to the SAR prior to the Grantee’s exercise of the SAR.

     (f) Number of SARs Authorized for Issuance. For purposes of 3(a) of the Plan, stock
appreciation rights to be settled in shares of Company Stock shall be counted in full against the
number of shares available for award under the Plan, regardless of the number of exercise gain
shares issued upon the settlement of the stock appreciation right.

     8. Withholding of Taxes

     (a) Required Withholding. All Grants under the Plan shall be subject to applicable
federal (including FICA), state, and local tax withholding requirements. The Employer may require
that the Grantee or other person receiving or exercising Grants pay to the Employer the amount of
any federal, state, or local taxes that the Employer is required to withhold with respect to such
Grants, or the Employer may deduct from other wages paid by the Employer the amount of any
withholding taxes due with respect to such Grants.

     (b) Election to Withhold Shares. If the Company so permits, a Grantee may elect to
satisfy the Employer’s income tax withholding obligation with respect to a Grant by having shares
withheld up to an amount that does not exceed the Grantee’s minimum applicable withholding tax rate
for federal (including FICA), state, and local tax liabilities. The election must be in a form and
manner prescribed by the Company.

     9. Transferability of Grants

     (a) Nontransferability of Grants. Except as provided below, only the Grantee may
exercise rights under a Grant during the Grantee’s lifetime. A Grantee may not transfer those
rights except (i) by will or by the laws of descent and distribution or (ii) with respect to SARs
and Option grants other than Incentive Stock Options, pursuant to a domestic relations order or
otherwise as permitted by the Company. When a Grantee dies, the personal representative or other
person entitled to succeed to the rights of the Grantee may exercise such rights. Any such
successor must furnish proof satisfactory to the Company of his or her right to receive the
Grant under the Grantee’s will or under the applicable laws of descent and distribution.

     (b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing, the Grant
Instrument may provide that a Grantee may transfer Nonqualified Stock Options to family members, or
one or more trusts or other entities for the benefit of or owned by family members, consistent with
applicable securities laws, provided

-8-

 

As amended, October 18, 2006

that the Grantee receives no consideration for the transfer of
an Option and the transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.

     10. Change in Control of the Company

     (a) “Change in Control” means the consummation of a transaction that is the subject of a
determination (which may be made effective as of a particular date specified by the Board) by the
Board, made by a majority vote that a change in control has occurred, or is about to occur. Such a
change shall not include, however, a restructuring, reorganization, merger or other change in
capitalization in which the Persons who own an interest in the Company on the date hereof (the
“Current Owners”) (or any individual or entity which receives from a Current Owner an interest in
the Company through will or the laws of descent and distribution) maintain more than a fifty
percent (50%) interest in the resultant entity. Regardless of the vote of the Board or whether or
not the Board votes, a Change in Control will be deemed to have occurred as of the first day any
one (1) or more of the following subsections shall have been satisfied:

     (b) Any Person (other than the Person in control of the Company as of the date of this Plan,
or other than a trustee or other fiduciary holding securities under an employee benefit plan of the
Company, or a company owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company), becomes the
beneficial owner, directly or indirectly, of securities of the Company representing more than
thirty-five percent (35%) of the combined voting power of the Company’s then outstanding
securities; or

     (c) The shareholders of the Company approve:

          (i) A plan of complete liquidation of the Company;

          (ii) An agreement for the sale or disposition of all or substantially all of the Company’s
assets; or

          (iii) A merger, consolidation or reorganization of the Company with or involving any other
company, other than a merger, consolidation or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity) at
least fifty percent (50%) of the combined voting power of the voting securities of the Company (or
such surviving entity) outstanding immediately after such merger, consolidation or reorganization.

     (d) However, in no event shall a Change in Control be deemed to have occurred, with respect to
a Grantee, if the Employee is part of a purchasing group which consummates the Change in Control
transaction. A Grantee shall be deemed “part of the purchasing group” for purposes of the
preceding sentence if the Grantee is an equity participant or has agreed to become an equity
participant in the purchasing company or group (except for (i) passive ownership of less than five
percent (5%) of the voting securities of the purchasing company; or (ii) ownership of equity
participation in the purchasing company or group which is otherwise deemed not to be significant,
as determined prior to the Change in Control by a majority of the non-employee continuing Directors
of the Board).

     11. Consequences of a Change in Control

     (a) Notice and Acceleration. Upon a Change in Control, unless the Company determines
otherwise, (i) the Company shall provide each Grantee with outstanding Grants written notice of
such Change in Control, (ii)
all outstanding Options and SARs shall automatically accelerate and become fully exercisable,
and (iii) the restrictions and conditions on all outstanding Stock Awards shall immediately lapse.

     (b) Assumption of Grants. Upon a Change in Control where the Company is not the
surviving corporation (or survives only as a subsidiary of another corporation), unless the Board
determines otherwise, all outstanding Options and SARs that are not exercised shall be assumed by,
or replaced with comparable options or

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As amended, October 18, 2006

stock appreciation rights by, the surviving corporation (or
a parent or subsidiary of the surviving corporation), and outstanding Stock Awards shall be
converted to Stock Awards of the surviving corporation (or a parent or subsidiary of the surviving
corporation). However, the Board may require each Grantee to surrender his or her outstanding
Options, SARs, or Stock Awards in exchange for a payment by the Company, in cash or Company Stock
(as the Board may determine) in an amount equal to the amount by which the then Fair Market Value
of the shares of Company Stock underlying the Option or SAR exceeds the Exercise Price of the
Grantee’s unexercised Options or the based amount of the Grantee’s unexercised SARs or for the then
Fair Market Value of shares of Company Stock underlying the Grantee’s Stock Awards.

     12. Requirements for Issuance or Transfer of Shares

     (a) Limitations on Issuance or Transfer of Shares. No Company Stock shall be issued
or transferred in connection with any Grant hereunder unless and until all legal requirements
applicable to the issuance or transfer of such Company Stock have been complied with. Any Grant
made shall be conditioned on the Grantee’s undertaking in writing to comply with such restrictions
on his or her subsequent disposition of such shares of Company Stock, and certificates representing
such shares may be legended to reflect any such restrictions. Certificates representing shares of
Company Stock issued or transferred under the Plan will be subject to such stop-transfer orders and
other restrictions as may be required by applicable laws, regulations and interpretations,
including any requirement that a legend be placed thereon.

     (b) Lock-Up Period. If so requested by the Company or any representative of the
underwriters (the “Managing Underwriter”) in connection with any underwritten offering of
securities of the Company under the Securities Act of 1933, as amended (the “Securities Act”), a
Grantee (including any successor or assigns) shall not sell or otherwise transfer any shares or
other securities of the Company during the thirty (30) day period preceding and the one hundred
eighty (180)-day period following the effective date of a registration statement of the Company
filed under the Securities Act for such underwriting (or such shorter period as may be requested by
the Managing Underwriter and agreed to by the Company) (the “Market Standoff Period”). The Company
may impose stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.

     13. Amendment and Termination of the Plan

     (a) Amendment. The Board or its delegate may amend or terminate the Plan at any time;
provided, however, that neither the Board nor its delegate shall have the authority to amend the
Plan without shareholder approval if such approval is required in order to comply with the Code or
other applicable laws, or to comply with applicable stock exchange requirements.

     (b) Termination of Plan. The Plan shall terminate on the day immediately preceding
the tenth (10th) anniversary of its effective date, unless the Plan is terminated
earlier by the Company or is extended by the Company with the approval of the shareholders.

     (c) Termination and Amendment of Outstanding Grants. A termination or amendment of
the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee
unless the Grantee consents or unless the Company acts under Section 19(b). The termination of the
Plan shall not impair the power and authority of the Company with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under
Section 19(b) or may be amended by agreement of the Company and the Grantee consistent with the
Plan.

     (d) Governing Document. The Plan shall be the controlling document. No other
statements, representations, explanatory materials or examples, oral or written, may amend the Plan
in any manner. The Plan shall be binding upon and enforceable against the Company and its
successors and assigns.

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As amended, October 18, 2006

     14. Funding of the Plan

     This Plan shall be unfunded. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the payment of any Grants under
this Plan. In no event shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.

     15. Rights of Participants

     Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee Director, or other
person to any claim or right to be granted a Grant under this Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any individual any rights to be retained by or
in the employ of the Employer or any other employment rights.

     16. No Fractional Shares

     No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any
Grant. The Company shall determine whether cash, other awards or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

     17. Headings

     Section headings are for reference only. In the event of a conflict between a title and the
content of a Section, the content of the Section shall control.

     18. Effective Date of the Plan

     The Plan shall be effective on April 11, 2006.

     19. Miscellaneous

     (a) Grants in Connection with Corporate Transactions and Otherwise. Nothing contained
in this Plan shall be construed to (i) limit the right of the Company to make Grants under this
Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business or assets of any corporation, firm or association, including Grants to employees
thereof who become Employees, or for other proper corporate purposes, or (ii) limit the right of
the Company to grant stock options or make other awards outside of this Plan. Without limiting the
foregoing, the Company may make a Grant to an employee of another corporation who becomes an
Employee by reason of a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company, the parent or any of their subsidiaries in
substitution for a stock option or Stock Awards grant made by such corporation. The terms and
conditions of the substitute grants may vary from the terms and conditions required by the Plan and
from those of the substituted stock incentives. The Company shall prescribe the provisions of the
substitute grants.

     (b) Compliance with Law. The Plan, the exercise of Options and SARs, and the
obligations of the Company to issue or transfer shares of Company Stock under Grants shall be
subject to all applicable laws and to approvals by any governmental or regulatory agency as may be
required. With respect to persons subject to Section 16 of the Exchange Act it is the intent of
the Company that the Plan and all transactions under the Plan comply with all applicable provisions
of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the
Company that the Plan and applicable Grants under the Plan comply with the applicable provisions of
Section 162(m) of the Code and Section 422 of the Code. To the extent that any legal requirement
of Section 16 of the Exchange Act or Section 162(m) or 422 of the Code as set forth in the Plan
ceases to be required under Section 16 of the Exchange Act or Section 162(m) or 422 of the Code,
that Plan provision shall cease to apply. The Company
may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Company may also adopt rules regarding the
withholding of taxes on payments to Grantees. The Company may, in its sole discretion, agree to
limit its authority under this Section.

-11-

 

As amended, October 18, 2006

     (c) Employees Subject to Taxation Outside the United States. With respect to Grantees
who are subject to taxation in countries other than the United States, Grants may be made on such
terms and conditions as the Company deems appropriate to comply with the laws of the applicable
countries, and the Company may create such procedures, addenda and subplans and make such
modifications as may be necessary or advisable to comply with such laws.

     (d) Governing Law. The validity, construction, interpretation, and effect of the Plan
and Grant Instruments issued under the Plan shall be governed and construed by and determined in
accordance with the laws of the State of New Jersey, without giving effect to the conflict of laws
provisions thereof.

-12-EX-10.QQ:

 

EXHIBIT 10(qq)

DUSA Pharmaceuticals, Inc.

Non-Qualified Deferred Compensation Plan

 

 

ARTICLE 1

PURPOSE

     DUSA Pharmaceuticals, Inc. (the “Company”) has adopted, effective as of October 18, 2006, the
DUSA Pharmaceuticals, Inc. Deferred Compensation Plan (the “Plan”). The Plan is intended to be a
non-qualified, supplemental retirement plan that is unfunded and maintained primarily for the
purpose of providing deferred compensation for a select group of management or highly compensated
employees of the Company (the “Participants”) pursuant to Sections 201(2), 301(a)(3), and 401(a)(1)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and, as such, to be
exempt from the provisions of Parts II, III, and IV of Title I of ERISA. It is intended that this
Plan, by providing this deferral opportunity, will assist the Company in retaining and attracting
individuals of exceptional ability by providing them with these benefits.

ARTICLE 2

DEFINITIONS

     2.01 Administrator. “Administrator” means the Committee as defined below.

     2.02 Board. “Board” means the Board of Directors of the Company.

     2.03 Change of Control. “Change of Control” means

          (a) “Change in Control” means the consummation of a transaction that is the subject of a
determination (which may be made effective as of a particular date specified by the Board) by the
Board, made by a majority vote that a change in control has occurred, or is about to occur. Such a
change shall not include, however, a restructuring, reorganization, merger or other change in
capitalization in which the persons who own an interest in the Company on the date hereof (the
“Current Owners”) (or any individual or entity which receives from a Current Owner an interest in
the Company through will or the laws of descent and distribution) maintain more than a fifty
percent (50%) interest in the resultant entity. Regardless of the vote of the Board or whether or
not the Board votes, a Change in Control will be deemed to have occurred as of the first day any
one (1) or more of the following subsections shall have been satisfied:

          (b) Any person (other than the person in control of the Company as of the date of this Plan,
or other than a trustee or other fiduciary holding securities under an employee benefit plan of the
Company, or a company owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company), becomes the
beneficial owner, directly or indirectly, of securities of the Company representing more than
thirty-five percent (35%) of the combined voting power of the Company’s then outstanding
securities; or

          (c) The stockholders of the Company approve:

               (i) A plan of complete liquidation of the Company;

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               (ii) An agreement for the sale or disposition of all or substantially all of the Company’s
assets; or

               (iii) A merger, consolidation or reorganization of the Company with or involving any other
company, other than a merger, consolidation or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity) at
least fifty percent (50%) of the combined voting power of the voting securities of the Company (or
such surviving entity) outstanding immediately after such merger, consolidation or reorganization.

          (d) However, in no event shall a Change in Control be deemed to have occurred, with respect to
a Participant, if the Participant is part of a purchasing group which consummates the Change in
Control transaction. A Participant shall be deemed “part of the purchasing group” for purposes of
the preceding sentence if the Participant is an equity participant or has agreed to become an
equity participant in the purchasing company or group (except for (i) passive ownership of less
than five percent (5%) of the voting securities of the purchasing company; or (ii) ownership of
equity participation in the purchasing company or group which is otherwise deemed not to be
significant, as determined prior to the Change in Control by a majority of the non-employee
continuing Directors of the Board).

     2.04 Company. “Company” means DUSA Pharmaceuticals, Inc.

     2.05 Committee. “Committee” means the Compensation Committee of the Board or its
delegate.

     2.06 Compensation. “Compensation” means a Participant’s base salary, fees, and
bonuses (other than performance-related bonuses).

     2.07 Crediting Date. “Crediting Date” means the date on which Deferred Amounts or
deemed dividends related thereto are credited to a Participant’s Deferred Account. Unless the
Committee determines otherwise, the Crediting Date is the Valuation Date this is coincident with or
next following the date on which the Deferred Amounts would have been paid to the Participant if
this Plan did not exist.

     2.08 Deferred Account. “Deferred Account” means the bookkeeping account maintained by
the Company to record the Participant’s Deferred Amount and other amounts credited by the Company.

     2.09 Deferred Amount. “Deferred Amount” means the amount of Compensation and
performance-related bonus that the Participant elects to defer pursuant to Section 4.01.

     2.10 Disability. “Disability” means that a Participant is (i) unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a continuous period of not
less than 12 months; or (ii) by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a

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continuous period of not less than 12 months, receiving income replacement benefits for a
period of not less than 3 months under an accident and health plan covering the Company’s
employees.

     2.11 Effective Date. “Effective Date” means                     , 2006.

     2.12 Normal Retirement Age. “Normal Retirement Age” shall mean the day the
Participant reaches his or her 65th birthday.

     2.13 Participant. “Participant” means a member of the Board or a highly compensated
or managerial employee selected by the Committee to participate in the Plan.

     2.14 Payment Date. “Payment Date” means the applicable date selected by the
Participant pursuant to Section 4.07.

     2.15 Plan. “Plan” means the DUSA Pharmaceuticals, Inc. Deferred Compensation Plan as
it may be amended from time to time.

     2.16 Termination Date. “Termination Date” shall mean the date that the Participant
separates from service or ceases to be an employee of the Company.

     2.17 Valuation Date. “Valuation Date” means each trading day recognized by any
national exchange selected by the Committee or its delegate or any other date as determined by the
Committee on which the amount of a Participant’s Deferred Account is valued as provided in Article
V.

ARTICLE 3

ELIGIBILITY

     3.01 Eligibility. Each of the nonemployee members of the Board and any employee
selected by the Committee to participate in the Plan shall be eligible to participate in the Plan.

     3.02 Termination of Participant. A Participant shall cease to be a Participant when
his or her Deferred Account has been fully distributed.

ARTICLE 4

DEFERRED COMPENSATION

     4.01 Deferral of Compensation. Prior to January 1, of any year, a Participant may
elect to defer a percentage of his or her Compensation (in whole percentages from 1% to 80%) which
such Participant may earn in such year.

     4.02 Performance-Based Bonus. Prior to July 1, of any year, a Participant may elect
to defer a percentage of his or her performance-based bonus (in whole percentages from 1% to 100%)
relating to a performance period that ends on or after the last day of such year.

-3-

 

     4.03 Initial Election. Notwithstanding Sections 4.01 and 4.02, a Participant may
elect to defer a percentage of his or her unpaid Compensation or performance-based bonus (in whole
percentages from 1% to 100%) at any time within the first thirty days of becoming eligible to
participate in the Plan.

     4.04 Manner of Making Election. A Participant’s election under this Article 4 shall
be made by written notice delivered to the Company in a form provided by the Company, and shall
specify the percentage of any Compensation or performance-based bonus to be deferred.

     4.05 Deferred Accounts. On the applicable Crediting Date, any amount deferred
hereunder shall be credited to the Participant’s Deferred Account. A Participant shall be 100%
vested in his or her Deferred Account at all times. In addition, the Company may, at its sole
discretion, credit a Participant’s Deferred Account with a deemed employer contribution. A
Participant shall become vested with respect to 20% of the portion of his or her Deferred Account
attributable to employer contributions on a 20% on each of the first five anniversaries of the date
on which the deemed employer contribution is credited to the Participant’s Deferred Account.
Notwithstanding the foregoing, in the event of a Change of Control, the Participant shall become
100% vested in this entire Deferred Account.

     4.06 Earnings. The Committee from time to time shall designate eligible investment
options for a Participant to select to determine the deemed earnings on the amounts credited to the
Participant’s Deferred Account. The Committee may change such options from time to time and
establish procedures for investing gains and losses. The Company shall adjust each Participant’s
Deferred Account for any investment gains or losses attributable to the Participant’s Deferred
Account. A Participant shall be vested in the earnings attributable to his or her Deferred Account
in the same proportion as he or she is vested in the remainder of his or her Deferred Account.

     4.07 Timing of Payment of Participant’s Deferred Account. In accordance with the
procedures established by the Committee, at the time that a Participant makes a deferral election
pursuant to Section 4.01, 4.02, or 4.03 of the Plan, he or she must elect the time and form of
distribution applicable to the amounts deferred pursuant to such deferral election (adjusted to
reflect any deemed earnings or losses thereon) on one of the following dates:

          (a) The date he or she incurs a separation from service;

          (b) April 1 of any year selected by the Participant;

          (c) August 1 of any year elected by the Participant; or

          (d) His or her Normal Retirement Date;

     4.08 Overriding Elections. In addition to the election made under Section 4.07 above,
the Participant may, at the same time that he or she makes an election under Section 4.07 above,
also elect to commence receiving his or her distribution upon the occurrence of any of the
following events to the extent that they occur before the date selected under Section 4.07 above.

          (a) The date on which the Participant incurs a Disability;

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          (b) The Participant’s Termination Date that follows a Change of Control.

     4.09 Subsequent Deferrals. Notwithstanding anything herein to the contrary, a
Participant may elect to further defer any scheduled payment to any date permissible under Section
4.07 provided that the Participant’s election to do so is made at least 12 months prior to the date
on which the payment was otherwise scheduled to be made and that the election to defer results in a
deferral of the scheduled payment for a period of at least five years.

     4.10 Form of Payment of Participant’s Deferred Account. The Participant may elect (at
the time that the initial deferral election is made) to receive his or her Deferred Account in
either a lump sum or in up to ten annual installment payments, each calculated by dividing the
account balance by the number of remaining installment payments. In the event that a Participant
fails to make an election, the lump sum form of benefits shall be the default. Notwithstanding the
foregoing, if the Participant’s entire Deferred Account balance is less than $5,000 on his or her
Termination Date, his or her entire Deferred Account will be distributed on such date in a lump
sum.

     4.11 Six-Month Delay. Notwithstanding anything herein to the contrary, no
distribution shall be made by reason of the Participant’s separation from service (including
retirement) prior to a date which is six months after the Participant’s separation from service.

     4.12 Death. In the event of the Participant’s death, his or her entire Deferred
Account balance shall be paid in a single sum to his or her designated beneficiary (or, if none, to
his or her estate) as soon as reasonably practicable following his or her death.

     4.13 Hardship Distribution. Notwithstanding anything herein to the contrary, in the
event that a Participant has an unforeseeable immediate and heavy financial need (as determined by
the Committee or its delegate in a manner consistent with Section 409A of the Code), the
Participant shall be entitled to a distribution of that portion of his Deferred Account that is
necessary to satisfy such need after considering all other sources of funds available to the
Participant to satisfy the need and any taxes required to be paid as a result of such distribution.

     4.14 Status of Payments. The obligations of the Company to pay an amount under this
Article 4 constitutes the unsecured promise of the Company to make payments as provided herein, and
the Participant or any other person shall not have any interest in, or lien or prior claim upon,
any property of the Company, except as provided hereunder. Benefits payable under this Article
shall be paid out of the general assets of the Company and the Company shall be under no obligation
to segregate or reserve any funds or other assets for purposes of this Article. The Company shall
establish the DUSA Pharmaceuticals Rabbi Trust (the “Trust”) to serve as the funding vehicle for
the benefit described in this Article. Notwithstanding any segregation of assets or transfer to a
grantor trust, with respect to payments not yet made to the Participant, in the event of the
Company’s insolvency, nothing contained herein shall give a Participant any rights whatsoever in or
with respect to any funds or assets of the Company that are greater than those of a general
creditor of the Company.

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ARTICLE 5

ACCOUNTS

     5.01 Valuation of Accounts. As of each Valuation Date, a Participant’s Deferred
Account shall consist of the balance of the Participant’s Deferred Account as of the immediately
preceding Valuation Date, plus the Participant’s Deferred Amounts that are credited pursuant to
Article 4 since the immediately preceding Valuation Date, plus or minus deemed investment gain or
loss credited as of such Valuation Date pursuant to Section 5.02, minus the aggregate amount of
distributions, if any, made from the Deferred Account since the immediately preceding Valuation
Date.

     5.02 Crediting of Deemed Investment Return. As of each Valuation Date, each
Participant’s Deferred Account shall be increased or decreased by the amount of deemed investment
gain or loss earned since the immediately preceding Valuation Date. The Company shall establish a
procedure to credit earnings or losses on the Participant’s Deferred Account.

     5.03 Statement of Accounts. The Company shall regularly provide to each Participant a
statement setting forth the balance of the Participant’s Deferred Account.

ARTICLE 6

ADMINISTRATION OF THE PLAN AND DISCRETION

     6.01 In General. The Administrator shall have full power and authority to interpret
the Plan, to prescribe, amend, and rescind any rules, forms, and procedures as it deems necessary
or appropriate for the proper administration of the Plan and to make any other determinations and
to take any other such actions as it deems necessary or advisable in carrying out its duties under
the Plan. All actions taken by the Administrator arising out of, or in connection with, the
administration of the Plan or any rules adopted thereunder, shall, in each case, lie within its
sole discretion, and shall be final, conclusive, and binding upon the Company, the Board, all
employees, and all persons and entities having an interest therein.

     6.02 Indemnification. The Company shall indemnify and hold harmless the Administrator
from any and all claims, losses, damages, expenses (including counsel fees), and liability
(including any amounts paid in settlement of any claim or any other matter with the consent of the
Board) arising from any act or omission of the Administrator, except when the same is due to gross
negligence or willful misconduct.

     6.03 Interpretation of Plan. Any decisions, actions, or interpretations to be made
under the Plan by the Administrator shall be made in its sole discretion, not as a fiduciary and
need not be uniformly applied to similarly situated individuals and shall be final, binding and
conclusive on all persons interested in the Plan.

     6.04 Claims Procedures. The following procedures shall apply to any claim related
solely to a Participant’s Deferred Account.

          (a) Any claim by a Participant or Beneficiary with respect to eligibility, participation,
contributions, benefits, or other aspects of the operation of the Plan shall be made in writing to
the Administrator.

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          (b) The person filing the claim (the “Claimant”) shall receive notice of the decision on the
claim within 90 days of the receipt of the claim, except that the period for providing the notice
shall be extended by up to an additional 90 days in the event that special circumstances exist (in
the event of a delay, the Claimant shall receive a notice of the delay within the original 90-day
period; such notice shall include the reason for the delay and the date by which a decision is
expected to be rendered).

          (c) In the event that a claim is denied, the Claimant shall receive notice of the denial. The
notice shall be drafted in a manner calculated to be understood by the Claimant and shall set forth
the specific reason or reasons for the adverse decision with reference to the specific Plan
provisions on which the adverse decision is based; a description of additional material or
information, if any, necessary to perfect such claim and a statement of why such material or
information is necessary; and an explanation of the Plan’s review procedures, including any time
limits applicable to such procedures. The notice shall also include a statement of the Claimant’s
right to bring an action under ERISA Section 502(a) following an adverse benefit determination on
review.

          (d) In the event of an initial adverse decision, either in whole or in part, as to the payment
of benefits or amounts, the Claimant shall have the right to request a review by the Administrator.
Such request must be made within 60 days of receipt of the written notice of claim denial. In
such review, the Claimant (or his authorized representative) shall have the right to submit
documents, records, and other information relating to the claim for benefits; and the Claimant
shall be provided, upon request and free of charge, reasonable access to and copies of all
documents, records, and other information that is relevant to the claim for benefits.

          (e) The Administrator shall submit its decision in writing within 60 days after the request
for review, or in special circumstances such as where the Administrator determines that there is a
need to hold a hearing, within 120 days of the request for review (in which case notice of the
delay shall be provided to the Claimant during the initial 60-day period; the notice shall include
the reason for the delay and the date by which a final decision is expected to be rendered). The
review by the Administrator shall take into account all comments, documents, records, and other
information submitted by the Claimant, without regard to whether such information was submitted or
considered in the initial benefit determination.

          (f) In the event that the claim is denied on review, the decision shall set forth, in a manner
calculated to be understood by the Claimant, specific reasons for the decision and specific
references to the pertinent Plan provisions upon which the decision is based. In addition, the
written notice of the decision denying a claim shall contain (i) a statement that the Claimant is
entitled to receive, upon request and free of charge, reasonable access to and copies of all
documents, records, and other information that is relevant to the Claimant’s claim for benefits,
and (ii) a statement of the Claimant’s right to bring an action under ERISA Section 502(a).

          (g) All interpretations, determinations, and decisions of the Administrator, with respect to
any claim under the Plan shall be made in its sole and absolute discretion, based upon the Plan
document and other related documents, and shall be final and conclusive.

-7-

 

ARTICLE 7

MISCELLANEOUS

     7.01 Amendment and Termination. The Plan may be amended, suspended, discontinued, or
terminated at any time by the Committee.

     7.02 Limitation of Participant’s Right. Nothing in this Plan shall be construed as
conferring upon any Participant any right as a stockholder of the Company, to continue in the
employment of the Company, nor shall it interfere with the right of the Company to terminate the
employment of any Participant and/or to take any personnel action affecting any Participant without
regard to the effect which such action may have upon such Participant as a recipient or prospective
recipient of benefits under the Plan.

     7.03 No Limitation on the Company Actions. Nothing contained in the Plan shall be
construed to prevent the Company from taking any action that is deemed by it to be appropriate or
in the best interest of the Company and its respective shareholders. No Participant or other
person shall have any claim against the Company as a result of any such action.

     7.04 Obligations to the Company. If a Participant becomes entitled to a distribution
of benefits under the Plan, and if at such time the Participant has outstanding any debt,
obligation, or other liability representing an amount owing to the Company, then the Company may
offset such amount owed to it against the amount of benefits otherwise distributable. Such
determination shall be made by the Administrator.

     7.05 Nonalienation of Benefits. Except as expressly provided herein, no Participant
shall have the power or right to transfer, alienate, or otherwise encumber his or her interest
under the Plan. The Company’s obligations under this Plan are not assignable or transferable
except to (a) any corporation or partnership that acquires all or substantially all of the
Company’s assets or (b) any corporation or partnership into which the Company may be merged or
consolidated and such event does not constitute a Change of Control. The provisions of the Plan
shall inure solely to the benefit of each Participant.

     7.06 Protective Provisions. Each Participant shall cooperate with the Company by
furnishing any and all information requested by the Company in order to facilitate the payment of
benefits hereunder.

     7.07 Withholding Taxes. The Company may make such provisions and take such action as
it deems necessary or appropriate for the withholding of any taxes which the Company is required by
any law or regulation of any governmental authority, whether Federal, state, or local, to withhold
in connection with any benefits under the Plan.

     7.08 Severability. If any provision of this Plan is held unenforceable, the remainder
of the Plan shall continue in full force and effect without regard to such unenforceable provision
and shall be applied as though the unenforceable provision were not contained in the Plan.

-8-

 

     7.09 Governing Law. The Plan shall be construed in accordance with and governed by
the laws of the State of New Jersey without reference to the principles of conflict of laws.

     7.10 Headings. Headings are inserted in this Plan for convenience of reference only
and are to be ignored in the construction of the provisions of the Plan.

     7.11 Gender, Singular, and Plural. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may
require. As the context may require, the singular may read as the plural and the plural as the
singular.

-9-

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