10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 1999.

Or

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission file number 0-18443

MEDICIS PHARMACEUTICAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	52-1574808
(State of other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4343 East Camelback Road, Phoenix, AZ	85018-2700
(Address of principal executive office)	(Zip Code)

     Registrant’s telephone number, including area code:  (602) 808-8800

     Securities registered pursuant to Section 12(b) of the Act:  Class A Common Stock, $0.014 par value

Preference Share Purchase Rights

(Title of each Class)

     Securities registered pursuant to Section 12(g) of the Act:  NONE

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [X]     No  [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form or any amendment to this Form 10-K  [   ].

      The aggregate market value of the voting stock held on September 9, 1999 by non-affiliates of the registrant was $583,730,041 (calculated by excluding all shares held by executive officers, directors and holders known to the registrant of five percent or more of the voting power of the registrant’s Common Stock, without conceding that such persons are “affiliates” of the Registrant for purposes of the federal securities laws). As of September 9,1999, there were outstanding 28,370,478 shares of Class A Common Stock $0.014 par value and 422,962 shares of Class B Common Stock $0.014 par value.

      Documents incorporated by reference:

      Portions of the Proxy Statement for the Registrant’s 1999 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Form 10-K to the extent stated herein.

      Portions of the 1999 Annual Report to Shareholders are incorporated by reference to Part II and Part IV of this Form 10-K to the extent stated herein.

PART I

      This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements which involve risks and uncertainties. The actual results of Medicis Pharmaceutical Corporation (together with its wholly-owned subsidiaries, the “Company” or “Medicis”) could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in Item 1 under the heading “Additional Factors That May Affect Future Results” in this Form 10-K and the Company’s other Securities and Exchange Commission filings.

Item 1:  Business

The Company

      Medicis is the leading independent pharmaceutical company in the United States focusing primarily on the treatment of dermatological conditions. The Company offers prescription products and an over-the-counter (“OTC”) product, emphasizing the clinical effectiveness, quality, affordability and cosmetic elegance of its products. Medicis has achieved a leading position in branded products for the treatment of acne, acne-related conditions, dyschromias and hyperpigmentation disorders and also offers the leading OTC fade cream product in the United States. The Company has built its business through successfully introducing prescription products such as DYNACIN®(minocycline HCl) and TRIAZ® (benzoyl peroxide) for the treatment of acne, LUSTRA® (hydroquinone USP 4%) for the treatment of skin dyschromia associated with photoaging, as well as by marketing ESOTERICA®, an OTC fade cream product line. In addition, Medicis has acquired the dermatological assets LOPROX® (ciclopirox), TOPICORT® (desoximetasone) and A/ T/ S®(erythromycin) from Hoechst Marion Roussel, Inc. (“HMR”) and the LIDEX®(fluocinonide) and SYNALAR® (fluocinolone acetonide) corticosteroid product lines from Syntex USA Inc. (“Syntex”). The Company derives a majority of its revenue from sales of the DYNACIN®, TRIAZ® and LIDEX® products, the newly developed and expanded LUSTRA® line and the newly acquired LOPROX® and TOPICORT® products (the “Key Products”).

Principal Products and Product Lines

      The Company currently offers products in the following areas of dermatology: acne, acne rosacea, fungal infections, psoriasis, eczema, hyperpigmentation, pediculosis and cosmesis (improvement in the texture and appearance of skin). The Company addresses these areas with a range of prescription products and an OTC product.

Prescription Pharmaceuticals

      Prescription pharmaceuticals accounted for 77.0% of the Company’s net revenues in the fiscal year ended June 30, 1999 (“fiscal 1999”). The Company currently focuses its prescription pharmaceutical efforts primarily on treating acne, acne-related conditions, fungal infections, psoriasis and dyschromias of the skin. The Company’s principal branded pharmaceutical products are as follows:

      DYNACIN® is an oral, systemic antibiotic, available in 50-mg., 75-mg. and 100-mg. dosage forms, prescribed as an adjunctive therapy in the treatment of severe acne. DYNACIN® is the number one brand of minocycline for the treatment of severe acne. Acne-related conditions resulted in over 10 million visits to dermatologists in the United States in 1995. The most commonly prescribed systemic acne treatments are tetracycline and its derivatives, doxycycline and minocycline. Minocycline, the active ingredient in the DYNACIN® products, is widely prescribed for the treatment of acne for several reasons. It has a more convenient schedule of one or two doses per day as compared to other forms of tetracycline, which can require up to four doses per day. Other forms of tetracycline require ingestion on an empty stomach and may increase patient sensitivity to sunlight, creating a greater risk of sunburn. Moreover, the other forms of tetracycline, including doxycycline, often cause gastric irritation. In addition, resistance to several commonly used antibiotics, including erythromycin, clindamycin, doxycycline and tetracycline, by the primary bacterial organism responsible for acne has been documented. Studies suggest that bacterial resistance to erythromycin exceeds 50% and resistance to doxycycline and tetracycline exceeds 50%, while the bacteria showed virtually no resistance to minocycline. The Company

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believes the retail price of DYNACIN® products is approximately 30% lower than the average reported retail price of another branded minocycline product, Minocin®, while selling at approximately 25% to 30% higher than the average reported retail price of generic minocycline. DYNACIN® was launched in the second quarter of the fiscal year ended June 30, 1993 with 50-mg. and 100-mg. dosage forms available. The Company launched DYNACIN® in 75-mg. dosage form, currently the only 75-mg. minocycline product available on the market, in the fourth quarter of fiscal 1999. The Company has entered into a manufacturing and supply agreement with Schein Pharmaceutical, Inc. (“Schein”) for the supply of DYNACIN®products.

      TRIAZ® is an internally developed, patented, topical therapy prescribed for the treatment of all forms and varying degrees of acne, and is available as a gel or cleanser in two concentrations. The combined sales of topically applied prescription acne products were in excess of $500 million in the United States in 1996. TRIAZ® is currently the leading branded benzoyl peroxide product in dermatology. While other topical acne treatments including Cleocin-T® and Benzamycin® are generally effective, TRIAZ® offers advantages over each product, including improved stability, greater convenience of use, reduced cost and fewer side effects. The Company believes it can gain additional market share by focusing its promotional efforts on the benefits of TRIAZ® over Benzamycin®. For example, Benzamycin® requires refrigeration and mixing by a pharmacist and has a relatively short shelf life of three months. In contrast, TRIAZ® comes in a ready-mixed gel that does not require refrigeration and has a two-year shelf life. In addition, TRIAZ® is aesthetically pleasing and minimizes the extreme drying and scaling of skin. The Company believes the average reported retail price of TRIAZ® is less than that of either Cleocin-T® or Benzamycin®. TRIAZ® products are manufactured using the active ingredient benzoyl peroxide in a patented vehicle containing glycolic acid and zinc lactate. Studies conducted by third parties have shown that benzoyl peroxide is the most efficacious agent available for eradicating the bacteria that cause acne with no reported resistance. Glycolic acid is believed by the Company to enhance the effectiveness of benzoyl peroxide by exfoliating the outer layer of the skin and zinc lactate is believed by the Company to act to reduce the appearance of inflammation and irritation often associated with acne. TRIAZ® was developed by the Company and introduced in the second quarter of the fiscal year ended June 30, 1996. The Company has patents and certain licensed patent rights covering varying aspects of TRIAZ®. TRIAZ® products are manufactured to the Company’s specifications on a purchase order basis by West Pharmaceutical Services Lakewood, Inc. (“West”) and in accordance with a supply agreement with Contract Pharmaceuticals, Limited (“Contract Pharmaceuticals”).

      LIDEX® is a high-potency topical corticosteroid brand prescribed for the treatment of inflammatory and hyperproliferative skin diseases such as eczema, psoriasis, atopic dermatitis, poison ivy and other inflammatory skin conditions. Competing steroid brands in the high-potency category include Halog®, Elocon®, and Cyclocort®. LIDEX® was introduced more than 20 years ago and the Company believes it is among the most widely accepted, topical steroid treatments available. Topical corticosteroid treatments represented sales of approximately $480 million in 1996 in the United States. The active ingredient in LIDEX®, fluocinonide, works to alleviate inflammations of the skin by reducing swelling and pain, relieving itching and constricting blood vessels in the skin. The LIDEX® product line consists of various strengths and cosmetically elegant formulations, including gels, ointments, creams, solutions and emollient creams. This broad product line allows dermatologists to prescribe the most appropriate product based on the severity and location of a patient’s condition, as well as the thickness of a patient’s skin. With the exception of the LIDEX®-E Cream, the various forms of LIDEX® are preservative-free, and the active ingredient is fully dissolved in the vehicle of the medication, resulting in better absorption of the medication into the skin. The Company believes LIDEX® is priced comparably to other branded corticosteroid products, but significantly higher than the average reported retail price of generics containing fluocinonide. The Company acquired the rights to LIDEX® in the United States and Canada from Syntex in the third quarter of the fiscal year ended June 30, 1997 (“fiscal 1997”). The Company has a manufacturing and supply agreement with Patheon, Inc. (“Patheon”) for the production of LIDEX®.

      SYNALAR® is a mid- to low-potency topical corticosteroid brand prescribed for the treatment of less severe forms of inflammatory and hyperproliferative skin diseases such as eczema, psoriasis, poison ivy, atopic dermatitis and other inflammatory skin conditions. The active ingredient in SYNALAR®, fluocinolone acetonide, works to alleviate inflammations of the skin by reducing swelling and pain, relieving itching and constricting blood vessels in the skin. The SYNALAR® product line consists of various strengths and cosmetically elegant formulations, including ointments, creams, emollient creams and solutions. This flexibility allows dermatologists to prescribe the most appropriate product based upon the severity and location of a patient’s condition, as well as the thickness of a patient’s skin. Competing steroid brands in the mid- and low-potency categories include Aristocort®,

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Cutivate®, and Valisone®, SYNALAR® is priced comparably to other branded corticosteroid products but higher than the average reported price of generics containing fluocinolone acetonide. The Company has a manufacturing and supply agreement with Patheon for the production of SYNALAR®.

      LUSTRA® and LUSTRA-AF™ are internally developed, patented topical therapies prescribed for the treatment of ultra-violet induced skin discolorations and hyperpigmentation usually associated with the use of oral contraceptives, pregnancy, hormone replacement therapy, sun damage and superficial trauma. Both LUSTRA® and LUSTRA-AF™ contain 4% hydroquinone in a vehicle containing glycolic acid in an anti-oxidant complex. LUSTRA® is the leading prescription topical treatment for dyschromia and hyperpigmentation. In controlled clinical trials sponsored by the Company in 1998, LUSTRA® demonstrated a reduction in pigmented lesions in a two-week period with statistically significant performance over the competing brands Solaquin Forte® and Melanex®. In another clinical trial sponsored by the Company in 1997, LUSTRA® demonstrated a statistically significant reduction of sunburned skin cells when exposed to cumulative ultra-violet radiation as compared with no treatment. Such sunburned cells are a measure of ultra-violet induced skin damage. The Company started shipping LUSTRA® to wholesalers in February 1998. LUSTRA-AF™, a line extension of LUSTRA®, containing broad-spectrum UVA and UVB sunscreen agents, was introduced to the market in June 1999. LUSTRA® and LUSTRA-AF™ are manufactured in accordance with a manufacturing agreement with Contract Pharmaceuticals.

      LOPROX® cream 0.77% and lotion 0.77% are both broad-spectrum prescription antifungal agents indicated for the topical treatment of tinea pedis, tinea corporis, tinea cruris, tinea versicolor and cutaneous candidiasis. LOPROX® is the only hydroxypyridone antifungal agent available in the United States, and unlike other antifungals, does not effect sterol biosynthesis. LOPROX® works with a unique mode of action that has been shown to have fungistatic, fungicidal, sporicidal, enhanced penetration and anti-inflammatory properties and to be active against gram-negative and gram-positive bacteria. This unique mode of action makes LOPROX® an appropriate choice for topical treatment alone, or as concomitant treatment with an oral antifungal. For these reasons, the Company believes LOPROX® may be a better product to manage the often-complicated mix of organisms involved in tinea infections. In clinical trials, LOPROX® was shown to produce clinical improvement of 82% to 93% after a single week of treatment across the range of cutaneous mycoses. The Company believes it is among the lowest priced branded prescription topical antifungals. The United States market for topical antifungal pharmaceuticals reached $367.7 million in 1996. The overall market for antifungals in the United States is approximately $800 million annually. The most frequently prescribed topical antifungal products besides LOPROX® include Spectazole®, Nizoral®, Oxistat® and Lotrisone® (steroid/ antifungal combination). Patients suffering from fungal-related conditions have a variety of other prescription and OTC medications to choose from. LOPROX® was acquired from HMR in November 1998 and re-launched by Medicis in the third quarter of fiscal 1999. LOPROX® products are manufactured to the Company’s specifications and supplied by an agreement with HMR.

      TOPICORT® gel, cream, and ointment are Class II, high-potency corticosteroids indicated for topical use on corticosteroid-responsive inflammatory skin conditions, including psoriasis, contact dermatitis, seborrheic dermatitis, stasis dermatitis, rhus dermatitis, atopic dermatitis and more. The fourth product in the line is TOPICORT® LP cream, a Class III corticosteroid. Class II, or high-potency steroids, offer effective treatment without the risks commonly associated with super-potent, Class I products. Unlike Class I steroids, TOPICORT® has no dosing restrictions, and minimizes the hypothalamic-pituitary-adrenal (HPA) suppression commonly seen with Class I use. The Company believes TOPICORT® cream and gel have long been regarded as preferable to other available creams and gels because of their excellent cosmetic qualities. They do not contain propylene glycol (solvent), parabans (preservatives), or added fragrances that may cause irritation to sensitive-skin patients. Each of the TOPICORT® products currently come in 15- and 60-gram tubes. Topical corticosteroid treatments represent a significant portion of dermatological product sales, with estimated market sales of $500 million in 1998. The Company acquired the rights to TOPICORT® in the United States from HMR during the second quarter of fiscal 1999. The Company has a manufacturing and supply agreement with HMR for the production of TOPICORT®.

      NOVACET® is a topical cream prescribed for the treatment of acne rosacea, a chronic inflammatory skin disorder resembling acne and seborrheic dermatitis. The active ingredients in NOVACET® are sodium sulfacetamide and sulfur. Sales of products to treat acne rosacea in the United States in 1996 were approximately $50 million. NOVACET® was introduced by GenDerm Corporation (“GenDerm”) in 1993 and competes with other topical acne rosacea treatments such as Sulfacet-R®, MetroGel®, MetroCream® and generic treatments, as well as

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various forms of erythromycin, clindamycin and oral metronidazole, which also are used from time to time to treat acne rosacea. In a controlled clinical study sponsored by GenDerm, NOVACET® was shown to reduce the severity of redness and inflammation resulting from acne rosacea by 83% over an eight-week period. By week eight of the study, 98% of the patients in the study showed significant improvements in their condition. The Company believes NOVACET® is priced comparably to competing brands. The Company acquired NOVACET® in December 1997 when it acquired all the capital stock of GenDerm and assumed the marketing of this brand in the United States and Canada. The Company has a manufacturing and supply agreement with DPT Laboratories, Ltd. (“DPT”) for the production of NOVACET®.

      OVIDE® lotion 0.5% is a topical pediculicide indicated for the treatment of pediculus humanus capitis, or head lice, and their ova. Head lice products accounted for $170 million in sales in 1998 in the United States alone. Approximately 10 to 12 million Americans, mostly school-age children, are infested with head lice each year, and a growing body of evidence indicates significant levels of head lice that are resistant to currently available OTC treatments like NIX® and RID®. OVIDE® is a prescription alternative to the OTC treatments, offering both an excellent kill rate and ovicial activity. In addition, in controlled clinical studies, OVIDE® demonstrated residual activity with 90.4% of patients still lice-free 7 days after treatment. Until OVIDE®, the only prescription pediculicide available was lindane. Because of CNS toxicity potential, the FDA required a labeling change that recommends lindane’s use only for patients who have either failed to respond to adequate doses, or are intolerant of other approved therapies. Used as directed, OVIDE® provides safe and effective control of head lice and their ova. OVIDE® lotion is available in 2-ounce bottles. The Company introduced OVIDE® during the fourth quarter of fiscal 1999. OVIDE® is manufactured for the Company by West on a purchase order basis.

Non-Prescription Product

      The Company’s OTC products (including those products that were divested in the third and fourth quarter of fiscal 1999) contract revenue and the physician-dispensed division accounted for 23.0% of the Company’s net revenue in fiscal 1999. The Company’s non-prescription product is as follows:

      ESOTERICA® is a line of topical creams used to treat minor skin discoloration conditions such as age spots, uneven skin tones, dark patches, blotches and freckles. ESOTERICA® is the leading fade cream line in the United States. ESOTERICA® is available in five formulations, consisting of four creams containing various concentrations of the active ingredient hydroquinone and a body lotion. Hydroquinone is the only agent proven to reduce hyperpigmentation and the only product legally sold in the United States for this purpose. Competing OTC products used to treat minor skin discoloration include Porcelana® and AMBI®, which are sold in a variety of creams, gels and lotions. The Company has a manufacturing agreement for the ESOTERICA®products with Contract Pharmaceuticals.

Products in Development

      The Company has developed and obtained rights to certain pharmaceutical agents in various stages of development. The Company has a variety of products under development, ranging from existing product line extensions to new products to reformulations of existing products. Medicis’ strategy involves the rapid evaluation and formulation of new therapeutics by obtaining preclinical safety and efficacy data, when possible, followed by rapid safety and efficacy testing in humans. While development periods may vary, the Company generally selects products for internal development with the objective of proceeding from formulation to product launch within a two-year period.

      The Company directs the efforts of contract laboratory research facilities to perform formulation and research work on active ingredients, as well as to conduct preclinical studies and clinical trials. All products and technologies under development require significant commitments of personnel and financial resources. Several products require extensive clinical evaluation and premarketing clearance by the United Stated Food and Drug Administration (“FDA”) and comparable agencies in other countries prior to commercial sale. Certain of the products and technologies under development have been licensed from third parties. The failure of the Company to meet its obligations under one or more of these agreements could result in the termination of the Company’s rights under such agreements and other liabilities. In addition, the Company regularly reevaluates its product development efforts. On the basis of these reevaluations, the Company has, in the past, and may in the future, abandon

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development efforts for particular products. There can be no assurance that any product or technology under development will result in the successful introduction of any new product.

      The Company’s research and development costs for Company-sponsored and unreimbursed co-sponsored pharmaceutical projects for fiscal 1999, 1998 and 1997 were $3,396,000, $2,885,000 and $1,450,000, respectively. The Company has in the past supplemented, and may in the future supplement, its research and development efforts by entering into research and development agreements with other pharmaceutical companies to defray the cost of product development.

      In July 1997, the Company entered into an agreement with Abbott Laboratories (“Abbott”) for the development, manufacture and marketing of a branded dermatologic product. Abbott is responsible for the development and eventual manufacture of the product. The Company has agreed to pay certain development expenses estimated to be approximately $1,000,000. There can be no assurance that this collaboration will result in the successful introduction of any new product or technology or that the Company will continue the development of the product in the future.

      In December 1997, the Company acquired 100% of the common stock of GenDerm. The acquisition also included several in-process research and development projects. Although the Company intends to continue such development projects, there can be no assurance that any product or technology previously under development by GenDerm will result in the successful introduction of any new product, or that the Company will continue the development of any such projects in the future.

      In November 1998, the Company acquired the right to manufacture, market and sell the LOPROX®, TOPICORT® and A/ T/ S® products from HMR. The acquisition of these products also included several in-process research and development projects. Although the Company intends to continue such development projects, there can be no assurance that any technology previously under development by HMR will result in the successful introduction of any new line extensions, or that the Company will continue the development of any such projects in the future.

Marketing and Sales

      The Company believes that its prescription pharmaceutical marketing and sales organization is one of the most productive in the dermatology sector. The Company’s marketing efforts are focused on assessing and meeting the needs of dermatologists and other specialties that treat conditions of the skin. The Company’s prescription sales team, consisting of 60 members at September 14, 1999, regularly calls on dermatologists, focusing on the approximately 3,200 dermatologists who are responsible for 80% of all prescriptions written by dermatologists in the United States. Additionally, the Company recently began calling on high-prescribing podiatrists. The Company has created an attractive incentive program based upon goals in market share growth and market share maintenance. The Company focuses on cultivating relationships of trust and confidence with the specialists themselves. In addition, the Company uses a variety of marketing techniques to promote its products including: sampling, journal advertising, promotional materials, specialty publications, rebate coupons, product guarantees, a leadership position in educational conferences and exposure of its products on the Internet.

      The Company’s OTC product is promoted to retailers and wholesalers by manufacturers’ representatives who also support a substantial number of products of other manufacturers. The Company also markets its OTC product through trade promotions, radio and print advertising, couponing and consumer awareness.

Warehousing and Distribution

      The Company utilizes an independent national warehousing corporation to store and distribute its products from primarily two regional warehouses in Nevada and Georgia, as well as other warehouses in California and Maryland. Upon the receipt of a purchase order through electronic data input (“EDI”), phone, mail or facsimile, the order is processed into the Company’s inventory systems. An inventory picking sheet is then automatically placed via EDI to the most efficient warehouse location for shipment, usually within 24 hours, to the customer placing the order. Upon shipment, the warehouse sends back to the Company via EDI the necessary information to

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automatically process the invoice in a timely manner. Any delay or interruption in the process could have a material effect on the Company’s business, financial condition and results of operations.

Customers

      The Company’s customers include the nation’s leading wholesale pharmaceutical distributors, such as McKesson HBOC, Inc. (“McKesson”), Bergen Brunswig Corporation (“Bergen Brunswig”), Cardinal Health, Inc. (“Cardinal”), Bindley Western Industries, Inc. (“Bindley”) and other major drug chains. During fiscal 1999, McKesson and Cardinal accounted for 18.0% and 14.1% respectively, of the Company’s revenues. During fiscal 1998, McKesson, Bergen Brunswig and Cardinal accounted for 16.9%, 13.2% and 12.6%, respectively, of the Company’s revenues. During fiscal 1997, McKesson, Cardinal and Bergen Brunswig accounted for 20.6%, 16.3% and 10.9%, respectively, of the Company’s revenues. The distribution network for pharmaceutical products has, in recent years, been subject to increasing consolidation. As a result, a few large wholesale distributors control a significant share of the market. In addition, the number of independent drug stores and small chains has decreased as retail consolidation has occurred. Further consolidation among, or any financial difficulties of, distributors or retailers could result in the combination or elimination of warehouses which may result in product returns to the Company, cause a reduction in the inventory levels of distributors and retailers, or otherwise result in reductions in purchases of the Company’s products, any of which could have a material adverse impact on the Company’s business, financial condition and results of operations. Additionally, the loss of, or deterioration in, any of these customer accounts could have a material adverse effect on the Company’s business, financial condition and results of operations.

Manufacturing

      The Company currently contracts for all of its manufacturing needs and is required by the FDA to contract only with manufacturers that comply with current Good Manufacturing Practices (“cGMP”) regulations and other applicable laws and regulations. The Company typically enters into short-term manufacturing contracts with third-party manufacturers. Whether or not such contracts exist, there can be no assurance that the Company will be able to obtain adequate supplies of its products in a timely fashion, on acceptable terms, or at all.

      Schein manufactures the Company’s DYNACIN® products in compliance with the Company’s specifications and quality standards pursuant to a supply agreement. Under the agreement, Schein manufactures DYNACIN® for sale in the branded market exclusively for the Company, but may manufacture and sell minocycline for itself or others as a generic product. Schein currently manufactures minocycline for the generic market under its own label. The Company’s supply agreement expires in December 2003, but is subject to automatic renewal for successive two-year periods if neither party gives timely notice of termination. It may also be terminated by either party without cause upon twelve months notice to the other party. Schein may also terminate the exclusivity portion of the agreement if its profit margin on sales of DYNACIN® products falls below a specified level. The agreement also provides that the Company will purchase all of its requirements for minocycline from Schein but may purchase some of its requirements from another manufacturer if Schein fails to meet certain cost standards or fails to provide the Company with all of its requirements for two of four consecutive quarters. In addition, the Company may use alternative sources if Schein terminates the Company’s exclusive rights to purchase branded minocycline based upon the Company’s failure to meet the specified profit margins, as defined. Either party may terminate the agreement if one party cannot perform under the agreement for a period of three months or longer for certain reasons beyond its control. The Company believes that it has alternative sources of supply and that it would be able to use these alternative sources to preserve an adequate supply of DYNACIN®. However, the inability of Schein to fulfill the Company’s supply requirements for DYNACIN®, one of the Company’s largest-selling products, in a timely fashion, could have a material adverse effect on the Company’s business, financial condition and results of operations.

      The majority of the Company’s LIDEX® and SYNALAR® products are manufactured primarily by Patheon in accordance with a manufacturing and supply agreement assumed by the Company when it acquired the LIDEX® and SYNALAR® products. Under the terms of an agreement with the Company, F. Hoffman-La Roche, Ltd. supplies, at cost, active ingredients necessary for manufacturing the LIDEX® and SYNALAR® products. The Patheon manufacture and supply agreement expires in January 2000, however, the Company will extend this agreement through an automatic one year extension. The extension is available each year by contract unless either

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party gives timely notice of termination. The inability of Patheon to fulfill the Company’s supply requirements for LIDEX® and SYNALAR® in a timely fashion could have a material adverse effect on the Company’s business, financial condition and results of operations.

      The Company’s LOPROX® and TOPICORT® products are manufactured by HMR in accordance with a supply agreement entered into by the Company in connection with the acquisition of LOPROX® and TOPICORT®. The HMR supply agreement expires in November 2001, but is subject to renewal. The inability of HMR to fulfill the Company’s supply requirements for LOPROX® and TOPICORT® in a timely fashion would have a material adverse effect on the Company’s business, financial condition and results of operation.

      The Company’s NOVACET® product is manufactured for distribution in the United States primarily by DPT and Patheon in accordance with manufacturing and supply agreements assumed by the Company when it acquired GenDerm. Under the agreement, the Company is required to purchase at least 90% of its annual sales requirements from DPT. The DPT manufacturing agreement expires in December 2003. Either party may terminate the agreement upon two-year notice by the Company and three-year notice by DPT. Such termination period becomes 60 days if either party fails to perform, without cure, its obligations under the DPT manufacturing agreement.

      The Company’s ESOTERICA®, LUSTRA®, LUSTRA-AF™ and TRIAZ® products are manufactured by Contract Pharmaceuticals pursuant to manufacturing agreements expiring in July 2001. The inability of Contract Pharmaceuticals to fulfill the Company’s supply requirements for these products could have a material adverse effect on the Company’s business, financial condition and results of operations.

      The remainder of the Company’s principal products are produced on a purchase order basis only; one LIDEX® product, a TRIAZ® product and the OVIDE® product are manufactured by West.

Certain License and Royalty Agreements

      Pursuant to license agreements with third parties, the Company has acquired rights to manufacture, use or market certain of its products, as well as many of its other proposed products and technologies. Such agreements contain provisions requiring the Company to use its best efforts or otherwise exercise diligence in pursuing market development for such products in order to maintain the rights granted under the agreements and may be canceled upon the Company’s failure to perform its payment or other obligations. In addition, the Company has entered into agreements to license certain rights to manufacture, use and sell certain of its technologies outside the United States and Canada to various licensees.

      There can be no assurance that the Company will fulfill its obligations under its license agreements due to insufficient resources, lack of successful product development, lack of product acceptance or other reasons. The failure to satisfy the requirements of any such agreements may result in the loss of the Company’s rights under that agreement or under related agreements and other liabilities. The inability of the Company to continue to license these products or to license other necessary products for use with its products or substantial increases in royalty payments under third-party licenses could have a material adverse effect on the Company’s business, financial condition and results of operations. In addition, the effective implementation of the Company’s strategy depends upon the successful integration of these licensed products with the Company’s products. Therefore, any flaws or limitations of such licensed products may prevent or impair the Company’s ability to market and sell the Company’s products, delay new product introductions, and/or adversely affect the Company’s reputation. Such problems could have a material adverse effect on the Company’s business, financial condition and results of operations.

      In November 1998, the company entered into a license agreement with HMR. The license is for a term of three years with an option to purchase the products at the end of the term. The products licensed from HMR include LOPROX®, TOPICORT® and A/T/S®.

Trademarks

      The Company believes that trademark protection is an important part of establishing product recognition. The Company owns more than 100 registered trademarks and trademark applications. United States federal

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registrations for trademarks remain in force for 10 years and may be renewed every 10 years after issuance, provided the mark is still being used in commerce. There can be no assurance that any such trademark or service mark registrations will afford the Company adequate protection, or that the Company will have the financial resources to enforce its rights under any such trademark or service mark registrations. The inability of the Company to protect its trademarks or service marks from infringement could result in the impairment of any goodwill, which may be developed in such trademarks or service marks. Moreover, the Company’s inability to use one or more of its trademarks or service marks, because of successful third-party claims to such marks, could have a material adverse effect on the Company’s business, financial condition and results of operations.

      From time to time, the Company receives communications from parties who allege that their trademark or service mark interests may be damaged either by the Company’s use of a particular trademark or service mark or its registration of such trademark or service mark, and, on occasion, the Company also sends such communications to third parties. In general, the Company seeks to resolve such conflicts before an actual opposition to registration or suit for infringement is filed. There can, however, be no assurance that such actions will not be filed or that, if filed, they will not have a material adverse effect upon the Company’s business, financial condition or results of operations.

Patents and Proprietary Rights

      The Company is pursuing several United States patent applications. There can be no assurance that patents will be issued with respect to any of these applications. The Company has acquired rights under certain patents and patent applications from third-party licensors. The Company has obtained patents on some of its products directed to aspects of a compound, including a United States patent expiring in October 2015 covering various formulations of its TRIAZ® product line, and a United States patent expiring in August 2017 covering its LUSTRA® and LUSTRA-AF™ products. The Company has recently acquired from certain of its consultants and principals an assignment of their rights to certain United States patents or patent applications. Certain of such patents and patent applications may be subject to claims of rights by third parties by reason of existing relationships with the party who filed such patents or patent applications. There can be no assurance that the Company will be able to obtain any rights under such patents or patent applications as a result of such conflicting claims, or that any rights that the Company may obtain will be sufficient for the Company to market products that may be the subject of such patents or patent applications. The Company may be required to obtain licenses and/or pay royalties to obtain the rights it acquires under such patents or patent applications. There can be no assurance that the Company will be able to obtain rights under such patents or patent applications on terms acceptable to the Company, or at all.

      The Company believes that its success will depend in part on its ability to obtain and maintain patent protection for its own inventions, and to obtain and maintain adequate licenses for the use of patents licensed or sublicensed by third parties. There can be no assurance that any patent issued to, or licensed by, the Company will provide protection that has commercial significance. In this regard, the patent position of pharmaceutical compounds is particularly uncertain. There can be no assurance that challenges will not be instituted against the validity or enforceability of any patent owned by or licensed to the Company or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity and prevent infringement of patents can be substantial and require a significant commitment of management’s time. Furthermore, there can be no assurance that others will not independently develop similar technologies or duplicate the technology owned by or licensed to the Company or design around the patented aspects of such technology. The Company only conducts complete searches to determine whether its products infringe upon any existing patents as it deems appropriate. There can be no assurance that the products and technologies the Company currently markets, or may seek to market in the future, will not infringe patents or other rights owned by others.

      The Company believes that obtaining foreign patents may be more difficult than obtaining domestic patents because of differences in patent laws, and therefore, recognizes that its patent position may be stronger in the United States than in Europe or elsewhere. In addition, the protection provided by foreign patents once they are obtained may be weaker than that provided by domestic patents.

      The Company relies and expects to continue to rely upon unpatented proprietary know-how and continuing technological innovation in the development and manufacture of many of its principal products. The Company’s policy is to require all its employees, consultants and advisors to enter into confidentiality agreements with the

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Company. There can be no assurance, however, that these agreements will provide meaningful protection for the Company’s trade secrets or proprietary know-how in the event of any unauthorized use or disclosure of such information. In addition, there can be no assurance that others will not obtain access to or independently develop similar or equivalent trade secrets or know-how.

Competition

      The pharmaceutical industry is characterized by intense competition, rapid product development and technological change. Competition is intense among manufacturers of prescription pharmaceuticals, such as for the Company’s Key Products for the treatment of dermatological conditions, in the OTC market for ESOTERICA®, as well as other products, which the Company may develop and market in the future. Most of the Company’s competitors are large, well-established pharmaceutical, chemical, cosmetic or health care companies with considerably greater financial, marketing, sales and technical resources than those available to the Company. Additionally, many of the Company’s present and potential competitors have research and development capabilities that may allow such competitors to develop new or improved products that may compete with the Company’s product lines. The Company’s products could be rendered obsolete or made uneconomical by the development of new products to treat the conditions addressed by the Company’s products, technological advances affecting the cost of production, or marketing or pricing actions by one or more of the Company’s competitors. Each of the Company’s products competes for a share of the existing market with numerous products, that have become standard treatments recommended or prescribed by dermatologists.

      DYNACIN® competes with Minocin® a branded minocycline product marketed by American Home Products (“AHP”) and generic minocycline products marketed by Schein, Barr Laboratories, Inc. (“Barr Labs”) and ESI Lederle, Inc. Other oral antibiotics utilized for the treatment of acne include erythromycin, doxycycline and tetracycline marketed in branded and generic form by a variety of companies. LIDEX®, SYNALAR® and TOPICORT® compete with a number of corticosteroid brands in the super-, high-, mid-, and low-potency categories for the treatment of inflammatory and hyperproliferative skin conditions. Competing brands include Halog® and Ultravate®, marketed by Bristol-Myers Squibb Company (“Bristol-Myers”); Elocon® and Diprolene®, marketed by Schering-Plough Corporation (“Schering-Plough”); Cyclocort and Aristocort, marketed by Fujisawa Healthcare, Inc.; Temovate® and Cutivate®, marketed by Glaxo Wellcome, Inc. (“Glaxo Wellcome”); and Psorcon®, marketed by Dermik Laboratories, Inc. (“Dermik Labs”). The Company believes that TRIAZ® competes with Benzamycin®, marketed by Dermik Labs; Cleocin-T® and a generic topical clindamycin, marketed by Pharmacia & Upjohn Co, Inc. (“Pharmacia & Upjohn”); and Benzac®, marketed by Galderma Laboratories, Inc. (“Galderma”). The Company believes that LUSTRA® primarily competes with Solaquin Forte®, marketed by ICN Pharmaceuticals, Inc. and Melanex®, marketed by Neutrogena Dermatologics. ESOTERICA® primarily competes with Porcelana®, marketed by Schwarzkopf & Dep, Inc. and AMBI®, marketed by Kiwi Brands, a division of Sara Lee Brands Corporation. The Company believes that LOPROX® competes primarily with Lamisil®, marketed by Novartis Pharmaceuticals Corporation; Nizoral®, marketed by Janssen Pharmceutica, Inc; and Spectazole®, marketed by Ortho Dermatological. The Company believes that OVIDE® primarily competes with the OTC products NIX®, marketed by Warner-Lambert Consumer Healthcare and RID®, marketed by Pfizer, Inc. (“Pfizer”) and with generic products such as the prescription product lindane, marketed by various manufacturers.

      Several of the Company’s products, including DYNACIN® and LIDEX®, compete with generic (non-branded) pharmaceuticals, which claim to offer equivalent therapeutic benefits at a lower cost. In some cases, insurers and other third-party payors seek to encourage the use of generic products making branded products less attractive, from a cost perspective, to buyers.

Government Regulation

      The manufacture and sale of cosmetics and drugs are subject to regulation principally by the FDA and state and local authorities in the United States, and by comparable agencies in certain foreign countries. The Federal Trade Commission (“FTC”) and state and local authorities regulate the advertising of OTC drugs and cosmetics. The Food and Drug Act and the regulations promulgated thereunder, and other federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of the Company’s products. In general, products falling within the FDA’s definition of “new drugs” require premarketing clearance by the FDA. Products falling within the FDA’s

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definition of “cosmetics” or of “drugs” that are not “new drugs” and that are generally recognized as “safe and effective” do not require premarketing clearance.

      The steps required before a “new drug” may be marketed in the United States include (i) preclinical laboratory and animal testing, (ii) submission to the FDA of an Investigational New Drug (“IND”) application, which must become effective before clinical trials may commence, (iii) adequate and well-controlled clinical trials to establish the safety and efficacy of the drug, (iv) submission to the FDA of a New Drug Application (“NDA”) and (v) FDA approval of the NDA prior to any commercial sale or shipment of the drug. In addition to obtaining FDA approval for each product, each domestic drug-manufacturing establishment must be registered with, and approved by, the FDA. Drug product manufacturing establishments located in California also must be licensed by the State of California in compliance with separate regulatory requirements.

      Preclinical testing is generally conducted in laboratory animals to evaluate the potential safety and the efficacy of a drug. The results of these studies are submitted to the FDA as a part of an IND application, which must be approved before clinical trials in humans can begin. Typically, clinical evaluation involves a time consuming and costly three-phase process. In Phase I, clinical trials are conducted with a small number of subjects to determine the early safety profile, the pattern of drug distribution and metabolism. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large-scale, multi-center, comparative trials are conducted with patients afflicted with a target disease to provide sufficient data to demonstrate the efficacy and safety required by the FDA. The FDA closely monitors the progress of each of the three phases of clinical trials and may, at its discretion, re-evaluate, alter, suspend or terminate the testing based upon the data that have been accumulated to that point and its assessment of the risk/benefit ratio to the patient.

      In general, FDA approval is required before a new drug product may be marketed in the United States. However, most OTC drugs are exempt from the FDA’s premarketing approval requirements. In 1972, the FDA instituted the ongoing OTC Drug Review to evaluate the safety and effectiveness of OTC drug ingredients then in the market. Through this process, the FDA issues monographs that set forth the specific active ingredients, dosages, indications and labeling statements for OTC drug ingredients that the FDA will consider generally recognized as safe and effective and therefore not subject to premarket approval. OTC drug ingredients are classified by the FDA in one of three categories: Category I ingredients which are deemed “safe and effective for OTC use;” Category II ingredients which are deemed “not generally recognized as safe and effective for OTC use;” and Category III ingredients which are deemed “possibly safe and effective with studies ongoing.” Based upon the results of these ongoing studies, the FDA may reclassify all Category III ingredients as Category I or Category II ingredients. For certain categories of OTC drugs not yet subject to a final monograph, the FDA usually permits such drugs to continue to be marketed until a final monograph becomes effective, unless the drug will pose a potential health hazard to consumers. Drugs subject to final monographs, as well as drugs that are subject only to proposed monographs, are subject to various FDA regulations concerning, for example, cGMP, general and specific OTC labeling requirements, prohibitions against promotion for conditions other than those stated in the labeling, and requirement that OTC drugs contain only suitable inactive ingredients. OTC drug manufacturing facilities are subject to FDA inspection, and failure to comply with applicable regulatory requirements may lead to administrative or judicially imposed penalties.

      The active ingredient in DYNACIN® products, minocycline; LOPROX®, ciclopirox; TOPICORT®, desoximetasone; OVIDE® lotion, malathion; BUPHENYL™ powder and tablets, sodium phenylbutyrate; and LIDEX® and SYNALAR®, fluocinonide and fluocinolone acetonide, respectively, have been approved by the FDA under a NDA. The active ingredient in the TRIAZ® products has been classified as a Category III ingredient under a tentative final FDA monograph for OTC use in treatment of labeled conditions. The FDA has requested, and a task force of the Non-Prescription Drug Manufacturers Association (“NDMA”), a trade association of OTC drug manufacturers, has undertaken further studies to confirm that benzoyl peroxide, an active ingredient in the TRIAZ® products, is not a tumor promoter when tested in conjunction with UV light exposure. The TRIAZ® products, which the Company sells on a prescription basis, have the same ingredients at the same dosage levels as the OTC products. When the FDA issues the final monograph, the Company may be required by the FDA to sell TRIAZ® as an OTC drug unless the Company files an NDA covering such product. There can be no assurance as to the results of these studies or any FDA action to reclassify benzoyl peroxide. In addition, there can be no assurance that adverse test results would not result in withdrawal of TRIAZ® from marketing. An adverse decision by the FDA with respect to the safety of benzoyl peroxide could result in the assertion of product liability claims against the Company and could have a material adverse effect on the Company’s business, financial condition and results of operations.

      Certain ESOTERICA® and LUSTRA® products contain the active ingredient hydroquinone at a 2% and 4% concentration, respectively, currently a Category I ingredient. Independent expert dermatologists have formally expressed the view that hydroquinone at a 2% concentration is generally recognized as safe and effective for its intended use. In 1992, with the concurrence of the FDA, the industry initiated dermatological metabolism and toxicity studies to fully support hydroquinone’s continued Category I status. Notwithstanding the pendency or results of these tests, which may

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take up to three years to complete, the FDA may elect to classify hydroquinone as a Category III ingredient. The Company, in conjunction with the NDMA and other manufacturers, is responsible for 50% of the costs associated with these studies. An adverse decision by the FDA on the safety of hydroquinone could result in the assertion of product liability claims against the Company. Moreover, if hydroquinone is not maintained as a Category I or Category III ingredient, the Company would be required to cease marketing the ESOTERICA® and LUSTRA® products containing hydroquinone. An adverse decision by the FDA on the safety of hydroquinone could have a material adverse effect on the Company’s business, financial condition and results of operations.

      The ESOTERICA®, TRIAZ® and LUSTRA® products must meet the composition and labeling requirements established by the FDA for products containing their respective basic ingredients. The Company believes that compliance with those established standards avoids the requirement for premarketing clearance of these products. There can be no assurance that the FDA will not take a contrary position. NOVACET®, which contains the active ingredients sodium sulfacetamide and sulfur, is marketed under the FDA compliance policy entitled “Prescription Drugs Marketed with an NDA.”

      The Company believes that certain of its products, as they are promoted and intended by the Company for use, are exempt from being considered “new drugs” based upon the introduction date of their active ingredients and therefore do not require premarketing clearance. There can be no assurance that the FDA will not take a contrary position. If the FDA were to do so, the Company may be required to seek FDA approval for such products, market such products as OTC products or withdraw such products from the market. The Company believes that such products are subject to regulations governing product safety, use of ingredients, labeling and promotion and manufacturing methods.

      Clinical trials and the marketing and manufacturing of pharmaceutical products are subject to the rigorous testing and approval processes of the FDA and foreign regulatory authorities. The process of obtaining FDA and other required regulatory approvals is lengthy and expensive. There can be no assurance that the Company will be able to obtain the necessary approvals to conduct clinical trials or to manufacture and market such products, that all necessary clearances will be granted to the Company or its licensors for future products on a timely basis, or at all, or that FDA review or other actions will not cause delays adversely affecting the marketing and sale of the Company’s products. In addition, the testing and approval process with respect to certain new products, which the Company may develop or seek to introduce, is likely to take a substantial number of years and involve the expenditure of substantial resources. There can be no assurance that pharmaceutical products currently in development, or those products acquired or licensed by the Company, will be cleared for marketing by the FDA. Failure to obtain any necessary approvals or failure to comply with applicable regulatory requirements could have a material adverse effect on the Company’s business, financial condition and results of operations. Furthermore, future government regulation could prevent or delay regulatory approval of the Company’s products.

      There can be no assurance that any approval will be granted on a timely basis, or at all; that the FDA will not require post-marketing testing and surveillance to monitor the product and continued compliance with regulatory requirements; that the FDA will not require the submission of any lot of any product for inspection and will not restrict the release of any lot that does not comply with FDA standards; that the FDA will not otherwise order the suspension of manufacturing, recall or seizure of products; or that the FDA will not withdraw its marketing clearance of any product if compliance with regulatory standards is not maintained or if problems concerning safety or efficacy of the product are discovered following approval.

      From time to time, the FDA has issued correspondence to pharmaceutical companies, including the Company, alleging that certain advertising or promotional practices are false, misleading or deceptive. The Company seeks to resolve all such complaints without any further adverse action by the FDA and without incurring

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substantial expense. However, there can be no assurance that the Company will not receive such correspondence from the FDA in the future, or that, if such notices are received, they will not result in substantial cost or disruption, including fines and penalties, in material changes to the manner in which the Company promotes its products, in loss of sales of the Company’s products or other material adverse effects on the Company’s business, financial condition and results of operations.

      For both currently marketed and future products, failure to comply with the applicable regulatory requirements could, among other things, result in fines, suspensions of regulatory approvals, product recalls, operating restrictions, criminal prosecution, relabeling costs, delays in product distribution, marketing and sales, or seizure or cessation of manufacture of the products and the imposition of civil or criminal sanctions. There can be no assurance that the FDA or other regulatory agencies will not change its position with regard to the safety or effectiveness of the Company’s current or future products or that the FDA or other regulatory agencies will agree with the Company’s position regarding the regulatory status of its products. In the event that the FDA or other regulatory agencies takes a contrary position regarding any of the Company’s current or future products, the Company may be required to change its labeling or formulation or cease manufacturing and marketing such products. In addition, even prior to any formal regulatory action, the Company could decide voluntarily to cease distribution and sale or to recall any of its products if concern about the safety or efficacy of any of its products was to develop. Any such action could have a material adverse effect on the Company’s business, financial condition and results of operations.

      The Company also will be subject to foreign regulatory authorities governing clinical trials and pharmaceutical sales if it seeks to market its products outside the United States. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The approval process varies from country to country and the time required may be longer or shorter than that required for FDA approval. There can be no assurance that any foreign regulatory agency will approve any product submitted for review by the Company.

Third-Party Reimbursement

      The operating results of the Company will depend in part on the availability of adequate reimbursement for the Company’s products from third-party payors, such as government entities, private health insurers and managed care organizations. Third-party payors increasingly are seeking to negotiate the pricing of medical services and products and to promote the use of generic, non-branded pharmaceuticals through payor-based reimbursement policies designed to encourage their use. In some cases, third-party payors will pay or reimburse users or suppliers of a prescription drug product only a portion of the product purchase price. In the case of the Company’s prescription products, payment or reimbursement by third-party payors of only a portion of the cost of such products could make such products less attractive, from a cost perspective, to users, suppliers and prescribing physicians. There can be no assurance that reimbursement, if available, will be adequate. Moreover, certain of the Company’s products are not of a type generally eligible for third-party reimbursement. If government entities or other third-party payors do not provide adequate reimbursement levels for the Company’s products, or if those reimbursement policies increasingly favor the use of generic products, the Company’s business, financial condition and results of operations would be materially adversely affected. In addition, managed care initiatives to control costs have influenced primary-care physicians to refer fewer patients to dermatologists, resulting in a declining target market for the Company. Further reductions in referrals to dermatologists could have a material adverse effect upon the Company’s business, financial condition and results of operations.

      A number of legislative and regulatory proposals aimed at changing the U.S. health care system have been proposed in recent years. While the Company cannot predict whether any such proposals will be adopted, or the effect that any such proposal may have on its business, such proposals, if enacted, could have a material adverse effect on the Company’s business, financial condition and results of operations.

Product Liability Insurance

      The Company faces an inherent risk of exposure to product liability claims in the event that the use of one or more of its products is alleged to have resulted in adverse effects. Such risk exists even with respect to those products that are manufactured in licensed and regulated facilities or that otherwise received regulatory approval for

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commercial sale. There can be no assurance that the Company will not be subject to significant product liability claims. The Company currently has product liability insurance in the amount of $50.0 million per claim and $50.0 million in the aggregate on a claims-made basis. Many of the Company’s customers require the Company to maintain product liability insurance coverage as a condition to their conducting business with the Company. As the loss of such insurance coverage could result in a loss of such customers, the Company intends to take all reasonable steps necessary to maintain such insurance coverage. There can be no assurance that insurance coverage will be available in the future on commercially reasonable terms, or at all, or that such insurance will be adequate to cover potential product liability claims. The loss of insurance coverage or the assertion of a product liability claim or claims could have a material adverse effect on the Company’s business, financial condition and results of operations.

Employees

      As of June 30, 1999, the Company had 144 full-time employees. The Company believes its relationship with its employees is good. The Company intends to hire additional personnel as needed during the next 12 months.

Additional Factors That May Affect Future Results

      Our disclosure and analysis in this report, in other reports that we file with the Securities and Exchange Commission, in our press releases and in public statements of our officers contain forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current events. They use words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe” and other words of similar meaning in connection with discussion of future operating or financial performance. These include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings and financial results.

      Forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many factors mentioned in this report — for example, governmental regulation and competition in our industry — will be important in determining future results. No forward-looking statement can be guaranteed, and actual results may vary materially from those anticipated in any forward-looking statement.

      We undertake no obligation to update any forward-looking statement. We provide the following discussion of risks and uncertainties relevant to our business. These are factors that we think could cause our actual results to differ materially from expected and historical results. Medicis could also be adversely affected by other factors besides those listed here. The following discussion is provided pursuant to the Private Securities Litigation Reform Act of 1995.

  We Rely on Others to Manufacture Our Products

      Currently, we contract out for all of our product manufacturing needs and do not manufacture any of our products. Typically, these manufacturing contracts are short-term. We are dependent upon renewing agreements with our existing manufacturers or finding replacement manufacturers to satisfy our requirements. As a result, we cannot be certain that manufacturing sources will continue to be available or that we can continue to out-source the manufacturing of our products on reasonable or acceptable terms.

      The underlying cost to Medicis for manufacturing our products is established in our agreements with these outside manufacturers. Because of the short-term nature of these agreements, our expenses for manufacturing are not fixed and could change from contract to contract. If the cost of production increases, our gross margins could be negatively impacted.

      In addition, we rely on outside manufacturers to provide us an adequate and reliable supply of our products on a timely basis. Any loss of a manufacturer or any difficulties which could arise in the manufacturing process could significantly affect our inventories and supply of products available for sale. In some cases, we do not have alternative sources of supply for our products. In the event our primary suppliers are unable to fulfill our requirements for any reason it could have a negative effect on our sales margins and market share, as well as our

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overall business and financial results. If we are unable to supply sufficient amounts of our products on a timely basis, our market share could decrease and, correspondingly, our profitability could decrease.

      We have entered into exclusive supply or manufacturing agreements for several of our largest-selling products, such as DYNACIN® and LIDEX®. Under these agreements, with certain exception, we must purchase most of our product supply from specific manufacturers. If any of these exclusive manufacturer or supplier relationships were terminated, we would be forced to find a replacement manufacturer or supplier. The FDA requires that all manufacturers used by pharmaceutical companies such as Medicis comply with the FDA’s regulations, including those cGMP regulations applicable to manufacturing processes. The cGMP validation of a new facility and the approval of that manufacturer for a new drug product may take a year or more before manufacture can begin at the facility. Delays in obtaining FDA validation of a replacement manufacturing facility could cause an interruption in the supply of our products. Although we have business interruption insurance covering the loss of income for up to 12 months, which may mitigate the harm to Medicis from the interruption of the manufacturing of our largest selling products caused by certain events, the loss of a manufacturer could still have a negative effect on our sales, margins and market share, as well as our overall business and financial results.

  Our Reliance on Third-Party Manufacturers and Suppliers Can Be Disruptive to Our Inventory Planning

      We and the manufacturers of our products rely on suppliers of raw materials used in the production of our products. Some of these materials are available from only one source and others may become available from only one source. Any disruption in the supply of raw materials or an increase in the cost of raw materials to our manufacturers could have a significant effect on their ability to supply us with our products.

      We try to maintain inventory levels that are no greater than necessary to meet our current projections. Any interruption in the supply of finished products could hinder our ability to timely distribute finished products. If we are unable to obtain adequate product supplies to satisfy our customers’ orders, we may lose those orders and our customers may cancel other orders and stock and sell competing products. This in turn could cause a loss of our market share and negatively affect our revenues.

      We cannot be certain that supply interruptions will not occur or that our inventory will always be adequate. Numerous factors could cause interruptions in the supply of our finished products including shortages in raw material required by our manufacturers, changes in our sources for manufacturing, our failure to timely locate and obtain replacement manufacturers as needed and conditions effecting the cost and availability of raw materials.

  The Growth of Managed Care Organizations and Other Third-Party Reimbursement Policies May Have an Adverse Effect on Our Pricing Policies and Our Margins

      Our operating results and business success depends in large part on the availability of adequate third-party payor reimbursement to patients for our prescription-brand products. These third-party payors include governmental entities (such as Medicaid), private health insurers and managed care organizations (“MCOs”). Over 70% of the U.S. population now participates in some version of managed care. Because of the size of the patient population covered by MCOs, marketing of prescription drugs to them and the pharmacy benefit managers (“PBMs”) that serve many of these organizations has become important to our business. MCOs and other third-party payors try to negotiate the pricing of medical services and products to control their costs. MCOs and PBMs typically develop formularies to reduce their cost for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their lower costs, generics are often favored. The breadth of the products covered by formularies varies considerably from one MCO to another, and many formularies include alternative and competitive products for treatment of particular medical conditions. Exclusion of a product from a formulary can lead to its sharply reduced usage in the MCO patient population. Payment or reimbursement of only a portion of the cost of our prescription products could make our products less attractive, from a net-cost perspective, to patients, suppliers and prescribing physicians. We cannot be certain that the reimbursement policies of these entities will be adequate for Medicis’ branded pharmaceutical products to compete on a price basis. If our products are not included within an adequate number of formularies or adequate reimbursement levels are not provided, or if those policies increasingly favor generic products, our market share and gross margins could be negatively affected, as could our overall business and financial condition.

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      Some of our products are not of a type generally eligible for reimbursement. It is possible that products manufactured by others could address the same effects as our products and be subject to reimbursement. If this were the case, our products may be unable to compete on a price basis.

      Managed care initiatives to control costs have influenced primary-care physicians to refer fewer patients to dermatologists and other specialists. The result has been a declining market for dermatological products. Further reductions in these referrals could have a material adverse effect on the size of our potential market as well as our business, financial condition and results of operation.

  Our Continued Growth Depends on Acquisitions

      Medicis’ strategy for continued growth to a material extent involves the acquisition of new product lines or businesses. These acquisitions could be by acquiring other pharmaceutical companies, acquiring a portion of a company’s assets or product lines, or obtaining licenses or other rights to manufacture and distribute products. Currently, we intend to focus our acquisition, licensing and development efforts on skin care products, which has been our historical focus, and possibly on other specialty pharmaceutical niches. We cannot be certain that we will be able to identify suitable acquisition candidates or products or if any will be available at all. In addition, even if suitable acquisitions are identified, we may not be able to secure terms which are beneficial. Other pharmaceutical companies with greater financial, marketing and sales resources than we do also try to grow through these same acquisition and licensing strategies. Because of their greater resources, our competitors may be able to offer better terms for an acquisition than Medicis can offer or they may be able to demonstrate a greater ability than Medicis to market licensed products.

  Our Continued Growth Depends Upon Our Ability to Develop New Products

      Medicis has internally developed potential pharmaceutical compounds and agents; we also have acquired the rights to certain potential compounds and agents in various stages of development. We currently have a variety of new products in various stages of research and development and are working on possible improvements, extensions and reformulations of some existing products. These research and development activities, as well as the clinical testing and regulatory approval process, which must be completed before commercial quantities of these developments can be sold, will require significant commitments of personnel and financial resources. Delays in the research, development, testing or approval processes will cause a corresponding delay in revenue generation from those products. Regardless of whether they are ever released to the market, the expense of such processes will have already been incurred.

      We reevaluate our research and development efforts regularly to assess whether our efforts to develop a particular product or technology are progressing at a rate that justifies our continued expenditures. On the basis of these reevaluations, we have abandoned in the past, and may abandon in the future, our efforts on a particular product or technology. There can be no certainty that any product we are researching or developing will ever be successfully released to the market. If we fail to take a product or technology from the development stage to market on a timely basis, we may incur significant expenses without a near-term financial return.

      We have in the past, and may in the future, supplement our internal research and development by entering into research and development agreements with other pharmaceutical companies. We cannot be sure, however, that we will be able to locate adequate research partners or that supplemental research will be available on terms acceptable to us in the future. If Medicis is unable to enter into additional research partnership arrangements, we may incur additional costs to continue research and development internally or abandon certain projects.

  Our Business Strategy May Cause Fluctuating Operating Results

      Our operating results and financial condition may fluctuate from quarter to quarter and year to year depending upon the relative timing of events or uncertainties which may arise. For example, the following events or occurrences could cause fluctuations in our financial performance from period to period:

•  changes in the levels we spend to develop, acquire or license new product lines

•  changes in the amount we spend to promote our products

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•  delays between our expenditures to acquire new product lines or businesses and the generation of revenues from those acquired products or businesses

•  changes in treatment practices of physicians that currently prescribe our products

•  changes in reimbursement policies of health plans and other similar health insurers, including changes that affect newly developed or newly acquired products

•  increases in the cost of raw materials used to manufacture our products

•  the development of new competitive products by others

•  the mix of products that we sell during any time period

•  our responses to price competition

  Fluctuations in Demand for Our Products Create Inventory Maintenance Uncertainties

      Medicis historically has experienced lower sales levels in the first quarter of our fiscal year (July 1 — September 30). In addition, we typically experience greater revenues and, correspondingly, greater income during the last month of each fiscal quarter. We try to match our expenditures for inventory with these historical fluctuations in demand. However, if these demand patterns change or we experience even a small delay in delivery of inventory, revenue could be deferred or even lost if products are unavailable to meet peak demand. A deferral of revenue to a later period, or the loss of revenue completely, could cause significant period-to-period fluctuations in our operating results, as a significant portion of our operating expenses are fixed in the short term. These fluctuations could result in our not meeting earnings expectations or result in operating losses for a particular period.

  Medicis Is Subject to Extensive Governmental Regulation

      Pharmaceutical companies are subject to heavy regulation by a number of national, state and local agencies. Of particular importance is the FDA in the United States. It has jurisdiction over all of our business and administers requirements covering testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products. In addition, the FTC and state and local authorities regulate the advertising of OTC drugs and cosmetics. Failure to comply with applicable regulatory requirements could, among other things, result in fines; suspensions of regulatory approvals of products; product recalls; delays in product distribution, marketing and sale; and civil or criminal sanctions.

      Our prescription and OTC products receive FDA review regarding their safety and effectiveness. However, the FDA is permitted to revisit and change its prior determinations and we cannot be sure that the FDA will not change its position with regard to the safety or effectiveness of our products. If the FDA’s position changes, we may be required to change our labeling or formulations, or cease to manufacture and market the challenged products. Even prior to any formal regulatory action, we could voluntarily decide to cease distribution and sale or recall any of our products if concerns about the safety or effectiveness develop.

      Before marketing any drug that is considered a “new drug” by the FDA, the FDA must provide its premarketing approval of the product. All products which are considered “cosmetics” or drugs which are not “new drugs” and that generally are recognized as safe and effective for use by the FDA do not require the FDA’s premarketing approval. We believe that some of our products, as they are promoted and intended for use, are exempt from treatment as “new drugs” and are not subject to premarketing approval by the FDA. The FDA, however, could take a contrary position and we could be required to seek FDA approval of those products and the marketing of those products. We could also be required to withdraw those products from the market.

      In recent years, various legislative proposals have been offered in Congress and in some state legislatures that include major changes in the health care system. These proposals have included price or patient reimbursement constraints on medicines and restrictions on access to certain products. We cannot predict the outcome of such initiatives, and it is difficult to predict the future impact of the broad and expanding legislative and regulatory requirements affecting us.

  We Face Significant Competition Within Our Industry

      The pharmaceutical industry is highly competitive. Competition in our industry occurs on a variety of fronts, including developing and bringing new products to market before others, developing new technologies to

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improve existing products, developing new products to provide the same benefits as existing products at less cost and developing new products to provide benefits superior to those of existing products.

      Most of our competitors are large, well-established companies in the fields of pharmaceuticals, chemicals, cosmetics and health care. Our competitors include AHP, Warner Chilcott, Barr Labs, Schering-Plough, Bristol-Myers, Glaxo Wellcome, Galderma, Dermik Labs, Pharmacia & Upjohn and Pfizer. Many of these companies have greater resources than we do to devote to marketing, sales, research and development and acquisitions. As a result, they have a greater ability to undertake more extensive research and development, marketing and pricing policy programs. It is possible that our competitors may develop new or improved products to treat the same conditions as our products treat or make technological advances reducing their cost of production so that they may engage in price competition through aggressive pricing policies to secure a greater market share to our detriment. These competitors also may develop products which make our current or future products obsolete. Any of these events could have a significant negative impact on our business and financial results, including reductions in our market share and gross margins.

      Medicis sells and distributes both prescription brands and an OTC product. Each of these products competes with products produced by others to treat the same conditions. Several of our prescription products, including DYNACIN®, LIDEX®, SYNALAR® and TOPICORT®, compete with generic pharmaceuticals, which claim to offer equivalent benefit at a lower cost. In some cases, insurers and other health care payment organizations try to encourage the use of these less expensive generic brands through their prescription benefits coverages and reimbursement policies. These organizations may make the generic alternative more attractive to the patient by providing different amounts of reimbursement so that the net cost of the generic product to the patient is less than the net cost of our prescription brand product. Aggressive pricing policies by our generic product competitors and the prescription benefits policies of insurers could cause us to lose market share or force us to reduce our margins in response.

  Our Success Depends on the Management of Recent and Future Growth

      Medicis recently experienced a period of rapid growth from both acquisitions and internal expansion of our operations. This growth has placed significant demands on our human and financial resources. We must continue to improve our operational, financial and management information controls and systems and effectively motivate, train and manage our employees to properly manage this growth. Even if these steps are taken, we cannot be sure that our recent acquisitions will be assimilated successfully into our business operations. If we do not manage this growth effectively, maintain the quality of our products despite the demands on our resources and retain key personnel, our business could be negatively impacted.

  There are High Costs of Obtaining FDA and Other Regulatory Approvals

      The process of obtaining FDA and other regulatory approvals is lengthy and expensive. Clinical trials are required and the marketing and manufacturing of pharmaceutical products are subject to rigorous testing procedures. We may not be able to obtain FDA approval to conduct clinical trials or to manufacture and market any of the products we develop, acquire or license. Moreover, the costs to obtain approvals could be considerable and the failure to obtain or delays in obtaining an approval could have a significant negative effect on our business performance and financial results. Even if premarketing approval from the FDA is received, the FDA is authorized to impose post-marketing requirements such as:

•  testing and surveillance to monitor the product and its continued compliance with regulatory requirements

•  submitting products for inspection and, if any inspection reveals that the product is not in compliance, the prohibition of the sale of all products from the same lot

•  suspending manufacturing

•  recalling products

•  withdrawing marketing clearance

      In its regulation of advertising, the FDA from time to time issues correspondence to pharmaceutical companies alleging that some advertising or promotional practices are false, misleading or deceptive. The FDA has

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      the power to impose a wide array of sanctions on companies for such advertising practices, and the receipt of correspondence from the FDA alleging these practices can result in the following:

•  incurring substantial expenses, including fines, penalties, legal fees and costs to comply with the FDA’s requirements

•  changes in the methods of marketing and selling products

•  taking FDA-mandated corrective action, which may include placing advertisements or sending letters to physicians rescinding previous advertisements or promotion

•  disruption in the distribution of products and loss of sales until compliance with the FDA’s position is obtained

  Dependence of Licenses from Others

      We have acquired the right to manufacture, use or market certain products, including our Key Products. We also expect to continue to obtain licenses for other products and technologies in the future. Our license agreements generally require us to develop a market for the licensed products. If we do not exert enough efforts to develop these markets, the licensors may be entitled to terminate these license agreements.

      We cannot be certain that we will fulfill all of our obligations under any particular license agreement for any variety of reasons, including insufficient resources to adequately develop and market a product, lack of market development despite our diligence and lack of product acceptance. Our failure to fulfill our obligations could result in the loss of our rights under a license agreement.

      Our inability to continue the distribution of any particular licensed product could have a material negative effect on our business, market share and profitability. Also, certain products we license are used in connection with other products we own or license. A loss of a license in such circumstances could materially harm our ability to market and distribute these other products.

      Our growth and acquisition strategy depends on the successful integration of licensed products with our existing products. Therefore, any loss, limitation or flaw in a licensed product could impair our ability to market and sell our products, delay new product development and introduction, and/or adversely affect our reputation. These problems, individually or together, could have a material adverse effect on our business and results of operation.

  Adequacy of Trademarks, Patents and Proprietary Rights

      We believe that the protection of our trademarks and service marks is an important factor in product recognition and in maintaining or increasing market share. If we do not adequately protect our rights in our various trademarks and service marks from infringement, any goodwill which has been developed in those marks could be lost or impaired. If the marks we use are found to infringe upon the trademark or service mark of another company, we could be forced to quit using those marks and, as a result, we could lose all the goodwill which has been developed in those marks and could be liable for damages caused by an infringement.

      We are pursuing several U. S. patent applications, although we cannot be sure that any of these patents will ever be issued. We also have acquired rights under certain patents and patent applications in connection with our licenses to distribute products and from the assignment rights to patents and patent applications from certain of our consultants and officers. These patents and patent applications may be subject to claims of rights by third parties. If there are conflicting claims to the same patent or patent application, we may not prevail and, even if we do have some rights in a patent or application, those rights may not be sufficient for the marketing and distribution of products covered by the patent or application.

      The patents and applications in which we have an interest may be challenged as to their validity or enforceability. Challenges may result in potentially significant harm to our business. The cost of responding to these challenges and the inherent costs to defend the validity of our patents, including the prosecution of infringements and the related litigation, could be substantial. Such litigation also could require a substantial commitment of management’s time.

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      The ownership of a patent or an interest in a patent does not always provide significant protection. Others may independently develop similar technologies or design around the patented aspects of our technology. We only conduct patent searches to determine whether our products infringe upon any existing patents, when we think such searches are appropriate. As a result, the products and technologies we currently market, and those we may market in the future, may infringe on patents and other rights owned by others. If we are unsuccessful in any challenge to the marketing and sale of our products or technologies, we may be required to license the disputed rights, if the holder of those rights is willing, or to cease marketing the challenged products, or to modify our products to avoid infringing upon those rights.

      We also rely upon unpatented proprietary know-how and continuing technological innovation in developing and manufacturing many of our principal products. Medicis requires all of its employees, consultants and advisors to enter into confidentiality agreements prohibiting them from taking our proprietary information and technology. Nevertheless, these agreements may not provide meaningful protection of our trade secrets and proprietary know-how if they are used or disclosed. Despite all of the precautions we may take, people who are not parties to confidentiality agreements may obtain access to our trade secrets or know-how. In addition, others may independently develop similar or equivalent trade secrets or know-how.

  Product Liability

      Medicis is exposed to risks of product liability claims from allegations that our products resulted in adverse effects to the patient or others. These risks exist even with respect to those products that are approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA.

      In addition to our desire to reduce the scope of our potential exposure to these types of claims, many of our customers require us to maintain product liability insurance as a condition of conducting business with us. We currently carry product liability insurance in the amount of $50.0 million per claim and $50.0 million in the aggregate on a claims-made basis. Nevertheless, this insurance may not be sufficient to cover all claims made against us. We also cannot be certain that our current coverage will continue to be available in the future on reasonable terms, if at all. If we are liable for any product liability claims in excess of our coverage or outside of our coverage, the cost and expense of such liability could severely damage our business, financial condition and profitability.

  Successful Integration of New Products Is Not Certain

      When we acquire or develop new products and product lines, we must be able to integrate those products and product lines into our systems for marketing, sales and distribution. If these products or product lines are not integrated successfully, the potential for growth is limited. The new products we acquire or develop could have channels of distribution, competition, price limitations or marketing acceptance different from our current products. As a result, we do not know whether we will be able to compete effectively and obtain market acceptance in any new product categories. After acquiring or developing a new product, we may need to significantly increase our sales force and incur additional marketing, distribution and other operational expenses. These additional expenses could negatively affect our gross margins and operating results. In addition, many of these expenses could be incurred prior to the actual distribution of new products. Because of this timing, if the new products are not accepted by the market or if they are not competitive with similar products distributed by others, the ultimate success of the acquisition or development could be substantially diminished.

Item 2:  Properties

      The Company presently occupies approximately 29,000 square feet of office space, at an average annual expense of $433,000, under a lease agreement that expires in May 2005. The lease contains certain rent escalation clauses and, upon expiration, can be renewed for a period of five years. Rent expense was approximately $564,000, $350,000 and $203,000 for fiscal 1999, 1998 and 1997, respectively. The Company is currently evaluating its present office space in conjunction with its estimated personnel growth and is considering acquiring additional space, either at its existing location or, if not available, in another building within the Phoenix metropolitan area.

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      Medicis Canada, Inc., a wholly owned subsidiary, presently leases approximately 7,500 square feet of office and warehouse space in St-Laurent, Quebec, Canada, under a lease agreement that expires in April 2000.

Item 3:  Legal Proceedings

      The Company and certain of its subsidiaries are parties to actions and proceedings incident to their businesses, including certain litigation assumed in connection with the GenDerm acquisition. The Company believes liability in the event of final adverse determinations in any of these matters is either covered by the indemnification provided to the Company under the GenDerm acquisition agreement, insurance and/or established reserves, or, will not, in the aggregate, have a material adverse effect on the business, financial position or results of operations of the Company. There can be no assurance, however, that an adverse determination on any action or proceeding will not have a material adverse effect on the business, financial condition and results of operations of the Company, or that the Company will be able to realize the full amount of any indemnification obligation that any person may have to the Company under the GenDerm acquisition agreement.

Item 4:  Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of the security holders of the Company during the fourth quarter of fiscal 1999.

PART II

Item 5:  Market for Registrant’s Common Equity and Related Stockholder Matters

      The market for the Company’s Class A Common Stock is the New York Stock Exchange. Additional information required by this item is incorporated by reference from page 39 of the Company’s 1999 Annual Report to Shareholders.

Item 6:  Selected Financial Data

      Historical financial information is incorporated by reference from the Selected Financial Data table on page 40 of the 1999 Annual Report to Shareholders.

Item 7:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Information required by this item is incorporated by reference on pages 14-21 of the 1999 Annual Report to Shareholders.

Item 7A:  Quantitative and Qualitative Disclosures about Market Risk

      Information required by this item is incorporated by reference from the discussion under the heading Market Risk and Risk Management Policies on page 21 of the 1999 Annual Report to Shareholders.

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Item 8:  Financial Statements and Supplementary Data

      Information required by this item is incorporated by reference from the Independent Auditors Report found on page 22 and from the Consolidated Financial Statements and Supplementary Data on pages 23-40 of the 1999 Annual Report to Shareholders.

Item 9:  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

PART III

Item 10:  Directors and Executive Officers of the Registrant

Item 11:  Executive Compensation

Item 12:  Security Ownership of Certain Beneficial Owners and Management

Item 13:  Certain Relationships and Related Transactions

      The information called for by Items 10, 11, 12 and 13 are incorporated by reference to the Company’s definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.

PART IV

Item 14:  Exhibits, Financial Statement Schedules and Reports on Form 8-K

Item 14(a)(1):

Financial Statements

      The following consolidated financial statements, related notes and independent auditors report, from the 1999 Annual Report to Shareholders, are incorporated by reference into item 8 of Part II of this report:

	Page(s) In The 1999 Annual
	Report To Shareholders
	Page
Independent Auditors Report		22
Consolidated Balance Sheets		23	-24
Consolidated Statements of Income (Loss)		25
Consolidated Statement of Shareholders’ Equity		26	-27
Consolidated Statements of Cash Flows		28
Notes to Consolidated Financial Statements		29	-38
Quarterly Consolidated Financial Information		38

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Item 14 (a)(2):

Financial Statement Schedules

     Schedule II — Valuation and Qualifying Accounts                         S-1

      The financial statement schedule should be read in conjunction with the consolidated financial statements. Financial Statement schedules not included in this Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Item 14 (a)(3):

Exhibits Filed as Part of This Report

Exhibit No.			Description
	2.1	—	Agreement of Merger by and between Medicis Pharmaceutical Corporation, a Delaware corporation, Medicis Acquisition Corporation, a Delaware corporation, and GenDerm Corporation, a Delaware corporation, dated November 28,  1997(14)
	3.1	—	Certificate of Incorporation of the Company, as amended(7)
	3.3(a)	—	Amended and Restated By-Laws of the Company(16)
	4.1	—	Rights Agreement, dated August 17, 1995, between the Company and American Stock Transfer & Trust Company, as Rights Agent(7)
	4.1b	—	Amendment No. 2 to Rights Agreement, dated March 17, 1997, between the Company and Norwest Bank Minnesota, N.A.(12)
	4.3	—	Form of specimen certificate representing Class A Common Stock(1)
	10.8	—	Medicis Pharmaceutical Corporation 1995 Stock Option Plan (incorporated by reference to Exhibit C to the definitive Proxy Statement for the 1995 Annual Meeting of Shareholders previously filed with the SEC, File No. 0-18443)
	10.9	—	Employment Agreement between the Company and Jonah Shacknai, dated July 24, 1996(11)
	10.10	—	Medicis Pharmaceutical Corporation 1988 Stock Option Plan, as amended(2)
	10.14	—	Non-Exclusive License Agreement between Syosset Laboratories, Inc. and Medicis Dermatologics, Inc., dated July 25, 1990, and the Guaranty of the Company(3)
	10.15	—	Manufacturing Agreement between Syosset Laboratories, Inc. and Medicis Dermatologics, Inc., dated July 25, 1990, and the Guaranty of the Company(3)
	10.16	—	Sales Agency Agreement between Syosset Laboratories, Inc. and Medicis Dermatologics, Inc., dated July 25, 1990, and the Guaranty of the Company(3)
	10.18	—	Medicis Pharmaceutical Corporation 1990 Stock Option Plan, as amended(2)
	10.49	—	Option to Purchase Class A Common Stock granted to Stephen  B. Booke(2)
	10.58	—	Medicis Pharmaceutical Corporation 1992 Stock Option Plan(5)
	10.59	—	Supply Agreement, dated October 21, 1992, between Schein and the Company(4)
	10.70	—	Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between Schein and the Company(6)
	10.72(a)	—	Credit and Security Agreement, dated August 3, 1995, between the Company and Norwest Business Credit, Inc.(8)
	10.72(b)	—	First Amendment to Credit and Security Agreement, dated May  29, 1996, between the Company and Norwest Bank Arizona, N.A.(11)
	10.72(c)	—	Second Amendment to Credit and Security Agreement, dated November 22, 1996, by and between the Company and Norwest Bank Arizona, N.A. as successor-in-interest to Norwest Business Credit, Inc.(13)
	10.72(d)	—	Third Amendment to Credit and Security Agreement, dated November 22, 1998 by and between the Company and Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business Credit, Inc.(15)
	10.73(a)	—	Patent Collateral Assignment and Security Agreement, dated August 3, 1995 by the Company to Norwest Business Credit, Inc.(9)
	10.73(b)	—	First Amendment to Patent Collateral Assignment and Security Agreement, dated May 29, 1996, by the Company to Norwest Bank Arizona, N.A.(11)
	10.73(c)	—	Amended and Restated Patent Collateral Assignment and Security Agreement, dated November 22, 1998, by the Company to Norwest Bank Arizona, N.A.(15)

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Exhibit No.			Description
	10.74(a)	—	Trademark Collateral Assignment and Security Agreement, dated August 3, 1995, by the Company to Norwest Business Credit, Inc.(10)
	10.74(b)	—	First Amendment to Trademark Collateral Assignment and Security Agreement, dated May 29, 1996, by the Company to Norwest Bank Arizona, N.A.(11)
	10.74(c)	—	Amended and Restated Trademark, Tradename, and Service Mark Collateral Assignment and Security Agreement, dated November 22, 1998, by the Company to Norwest Bank Arizona, N.A.(15)
	10.75	—	Assignment and Assumption of Loan Documents, dated May 29, 1996, from Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A.(11)
	10.76	—	Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank Arizona, N.A.(11)
	10.77	—	Securities Account Pledge and Security Agreement, dated November 22, 1996, by and between the Company and Norwest Bank Arizona, N.A.(13)
	10.77(a)	—	First Amendment to Securities Account Pledge and Security Agreement dated November 22, 1998, by and between the Company and Norwest Bank Arizona, N.A.(15)
	10.78	—	Acknowledgment of Control of Pledged Securities Account, dated November 22, 1996, by and among Norwest Bank Arizona, N.A. and the Company and Norwest Bank Minnesota, N.A.(13)
	10.78(a)	—	First Amendment to Acknowledgement of Control of Pledged Securities Account dated November 22, 1998, by and between the Company and Norwest Bank Arizona, N.A.(15)
	10.79	—	Asset Purchase Agreement, dated January 21, 1997, between the Company and Syntex (U.S.A.), Inc.(12)
	10.80	—	Asset Purchase Agreement, dated January 21, 1997, between the Company and Syntex (U.S.A.), Inc.(12)
	10.81	—	Asset Purchase Agreement, dated January 21, 1997, between the Company and F. Hoffman-La Roche, Limited(12)
	10.82	—	Asset Purchase Agreement dated January 21, 1997, between the Company and Syntex Pharmaceuticals International Limited(12)
	10.83	—	Transition Services Agreement dated January 21, 1997, between the Company and F. Hoffman-La Roche, Inc.(12)
	10.84	—	Transition Services Agreement dated January 21, 1997, between the Company and F. Hoffman-La Roche Limited(12)
	10.85	—	Supply Agreement (Fluocinolone Acetonide and Fluocinonide), dated January 21, 1997, between the Company and Syntex Pharmaceuticals International Limited(12)
	10.86	—	License Agreement, dated March 28, 1997, between the Company and Platinum (R) Software Corporation(12)
	10.87	—	Master Software License Agreement, dated March 28, 1997, between the Company and FocusSoft, Inc.(12)
	10.88	—	Replacement Acquisition Revolving Note dated November 22, 1998, by and between the Company and Norwest Bank Arizona, N.A.(15)
	10.89	—	Asset Purchase Agreement dated November 15, 1998, by and among the Company and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMHB and Hoechst Marion Roussel, S.A.(15)
	10.90	—	License and Option Agreement dated November 15, 1998, by and among the Company and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMBH and Hoechst Marion Roussel, S.A.(15)
	10.91	—	Loprox Lotion Supply Agreement dated November 15, 1998, by and between the Company and Hoechst Marion Roussel, Inc.(15)
	10.92	—	Supply Agreement dated November 15, 1998, by and between the Company and Hoechst Marion Roussel Deutschland GMBH(15)
	10.93	—	Asset Purchase Agreement effective January 31, 1999, between the Company and Bioglan Pharma PLC(17)
	10.94	—	Stock Purchase Agreement by and among the Company, Ucyclyd Pharma, Inc. and Syed E. Abidi, William Brusilow, Susan E. Brusilow and Norbert L. Wiech, dated April 19, 1999(17)
	10.95	—	Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc dated June 29, 1999(17)
	10.96	—	Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan Pharma Plc, the Company and IMX Pharmaceuticals, Inc. dated June 29, 1999(17)

24

Exhibit No.			Description
	10.97	—	Medicis Pharmaceutical Corporation Executive Retention Plan(17)
	13	—	1999 Annual Report to Shareholders(17)
	21.1	—	Subsidiaries(17)
	23.1	—	Consent of Ernst & Young LLP, Independent Auditors(17)
	24.1	—	Power of Attorney(17) See signature page(s)
	27.1	—	Financial Data Schedule(17)

(1)	Incorporated by reference to the exhibit with the same number in the Registration Statement on Form S-1 of the Registrant, File No. 33-32918, filed with the SEC on January 16, 1990
(2)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1992, as amended, File No. 0-18443, previously filed with the SEC
(3)	Incorporated by reference to the exhibit with the same number in Amendment No.  2 to the Registration Statement on Form S-1 of the Company, File No. 33-34041, filed with the SEC on August 2, 1990
(4)	Incorporated by reference to the exhibit with the same number in Registration Statement on Form S-1 of the Company, File No.  33-54276, filed with the SEC on June 11, 1993
(5)	Incorporated by reference to Exhibit B to the Company’s definitive Proxy Statement for its 1992 Annual Meeting of Shareholders, File No. 0-18443, previously filed with the SEC.
(6)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 0-18443, filed with the SEC on October 13, 1993
(7)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1995, File No. 0-18443, filed with the SEC on September 27, 1995
(8)	Incorporated by reference to exhibit number 4.2 in the 1995 Form 10-K
(9)	Incorporated by reference to exhibit number 4.4 in the 1995 Form 10-K

(10)	Incorporated by reference to exhibit number 4.5 in the 1995 Form 10-K
(11)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1996, File No. 0-18443, filed with the SEC on September 24, 1996
(12)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-18443, previously filed with the SEC
(13)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, File No. 0-18443, previously filed with the SEC
(14)	Incorporated by reference to the exhibit with the same number in the Company’s Current Report on Form 8-K filed with the SEC on December 15, 1997
(15)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, File No. 0-18443, previously filed with the SEC
(16)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-18443, previously filed with the SEC
(17)	Filed herewith

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(b)  Reports on Form 8-K

      During the fourth quarter of fiscal 1999, the Company filed the following reports on Form 8-K:

(i)	Current report on Form 8-K dated April 23, 1999 reporting under Item 5 that the Company acquired all the issued and outstanding common stock of Ucyclyd Pharma, Inc.
(ii)	Current report on form 8-K dated May 18, 1999 reporting under Item 5 that the Company’s Board of Directors adopted a resolution authorizing the plan to repurchase up to $75 million of the Company’s common stock.

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POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jonah Shacknai and Mark A. Prygocki, Sr., or either of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and a all capacities, to sign any and all amendments to this Annual Report on Form 10-K and any documents related to this report and filed pursuant to the Securities and Exchange Act of 1934, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  September 28, 1999

MEDICIS PHARMACEUTICAL CORPORATION

By:  /s/ JONAH SHACKNAI

Jonah Shacknai

Chairman of the Board and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ JONAH SHACKNAI Jonah Shacknai	Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)	September 28, 1999
/s/ MARK A. PRYGOCKI, SR. Mark A. Prygocki, Sr.	Chief Financial Officer (Principal Financial and Accounting Officer)	September 28, 1999
/s/ ARTHUR G. ALTSCHUL, JR. Arthur G. Altschul, Jr.	Director	September 28, 1999
/s/ SPENCER DAVIDSON Spencer Davidson	Director	September 28, 1999
/s/ RICHARD L DOBSON, M.D. Richard L. Dobson, M.D.	Director	September 28, 1999
/s/ PETER S. KNIGHT, ESQ. Peter S. Knight, Esq.	Director	September 28, 1999
/s/ MICHAEL A. PIETRANGELO Michael A. Pietrangelo	Director	September 28, 1999
/s/ PHILIP S. SCHEIN, M.D. Philip S. Schein, M.D.	Director	September 28, 1999
/s/ LOTTIE SHACKELFORD Lottie Shackelford	Director	September 28, 1999

27

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

			Balance at		Charged to
			beginning of		Costs and			Charged to					Balance at
Description			year		expenses			other accounts			Deductions		end of year
Year Ended June 30, 1999
	Deducted from Asset Accounts:
	Accounts Receivable:
		Allowances	$	2,826,000	$	989,000		$	—		$	—	$	3,815,000
Year Ended June 30, 1998
	Deducted from Asset Accounts:
	Accounts Receivable:
		Allowances		1,150,000		460,000			1,216,000	(1)		—		2,826,000
Year Ended June 30, 1997
	Deducted from Asset Accounts:
	Accounts Receivable:
		Allowances		680,000		470,000			—			—		1,150,000
	Deferred tax assets:
		Valuation allowance		8,600,000		(8,600,000	)		—			—		—

(1)  Allowance related to acquisition of GenDerm.

S-1

EXHIBIT INDEX

Exhibit No.			Description
	2.1	—	Agreement of Merger by and between Medicis Pharmaceutical Corporation, a Delaware corporation, Medicis Acquisition Corporation, a Delaware corporation, and GenDerm Corporation, a Delaware corporation, dated November 28, 1997(14)
	3.1	—	Certificate of Incorporation of the Company, as amended(7)
	3.3(a)	—	Amended and Restated By-Laws of the Company(16)
	4.1	—	Rights Agreement, dated August 17, 1995, between the Company and American Stock Transfer & Trust Company, as Rights Agent(7)
	4.1b	—	Amendment No. 2 to Rights Agreement, dated March 17, 1997, between the Company and Norwest Bank Minnesota, N.A.(12)
	4.3	—	Form of specimen certificate representing Class A Common Stock(1)
	10.8	—	Medicis Pharmaceutical Corporation 1995 Stock Option Plan (incorporated by reference to Exhibit C to the definitive Proxy Statement for the 1995 Annual Meeting of Shareholders previously filed with the SEC, File No. 0-18443)
	10.9	—	Employment Agreement between the Company and Jonah Shacknai, dated July 24, 1996(11)
	10.10	—	Medicis Pharmaceutical Corporation 1988 Stock Option Plan, as amended(2)
	10.14	—	Non-Exclusive License Agreement between Syosset Laboratories, Inc. and Medicis Dermatologics, Inc., dated July 25, 1990, and the Guaranty of the Company(3)
	10.15	—	Manufacturing Agreement between Syosset Laboratories, Inc. and Medicis Dermatologics, Inc., dated July 25, 1990, and the Guaranty of the Company(3)
	10.16	—	Sales Agency Agreement between Syosset Laboratories, Inc. and Medicis Dermatologics, Inc., dated July 25, 1990, and the Guaranty of the Company(3)
	10.18	—	Medicis Pharmaceutical Corporation 1990 Stock Option Plan, as amended(2)
	10.49	—	Option to Purchase Class A Common Stock granted to Stephen  B. Booke(2)
	10.58	—	Medicis Pharmaceutical Corporation 1992 Stock Option Plan(5)
	10.59	—	Supply Agreement, dated October 21, 1992, between Schein and the Company(4)
	10.70	—	Amendment to Manufacturing and Supply Agreement, dated March 2, 1993, between Schein and the Company(6)
	10.72(a)	—	Credit and Security Agreement, dated August 3, 1995, between the Company and Norwest Business Credit, Inc.(8)
	10.72(b)	—	First Amendment to Credit and Security Agreement, dated May  29, 1996, between the Company and Norwest Bank Arizona, N.A.(11)
	10.72(c)	—	Second Amendment to Credit and Security Agreement, dated November 22, 1996, by and between the Company and Norwest Bank Arizona, N.A. as successor-in-interest to Norwest Business Credit, Inc.(13)
	10.72(d)	—	Third Amendment to Credit and Security Agreement, dated November 22, 1998 by and between the Company and Norwest Bank Arizona, N.A., as successor-in-interest to Norwest Business Credit, Inc.(15)
	10.73(a)	—	Patent Collateral Assignment and Security Agreement, dated August 3, 1995 by the Company to Norwest Business Credit, Inc.(9)
	10.73(b)	—	First Amendment to Patent Collateral Assignment and Security Agreement, dated May 29, 1996, by the Company to Norwest Bank Arizona, N.A.(11)
	10.73(c)	—	Amended and Restated Patent Collateral Assignment and Security Agreement, dated November 22, 1998, by the Company to Norwest Bank Arizona, N.A.(15)

Exhibit No.			Description
	10.74(a)	—	Trademark Collateral Assignment and Security Agreement, dated August 3, 1995, by the Company to Norwest Business Credit, Inc.(10)
	10.74(b)	—	First Amendment to Trademark Collateral Assignment and Security Agreement, dated May 29, 1996, by the Company to Norwest Bank Arizona, N.A.(11)
	10.74(c)	—	Amended and Restated Trademark, Tradename, and Service Mark Collateral Assignment and Security Agreement, dated November 22, 1998, by the Company to Norwest Bank Arizona, N.A.(15)
	10.75	—	Assignment and Assumption of Loan Documents, dated May 29, 1996, from Norwest Business Credit, Inc., to and by Norwest Bank Arizona, N.A.(11)
	10.76	—	Multiple Advance Note, dated May 29, 1996, from the Company to Norwest Bank Arizona, N.A.(11)
	10.77	—	Securities Account Pledge and Security Agreement, dated November 22, 1996, by and between the Company and Norwest Bank Arizona, N.A.(13)
	10.77(a)	—	First Amendment to Securities Account Pledge and Security Agreement dated November 22, 1998, by and between the Company and Norwest Bank Arizona, N.A.(15)
	10.78	—	Acknowledgment of Control of Pledged Securities Account, dated November 22, 1996, by and among Norwest Bank Arizona, N.A. and the Company and Norwest Bank Minnesota, N.A.(13)
	10.78(a)	—	First Amendment to Acknowledgement of Control of Pledged Securities Account dated November 22, 1998, by and between the Company and Norwest Bank Arizona, N.A.(15)
	10.79	—	Asset Purchase Agreement, dated January 21, 1997, between the Company and Syntex (U.S.A.), Inc.(12)
	10.80	—	Asset Purchase Agreement, dated January 21, 1997, between the Company and Syntex (U.S.A.), Inc.(12)
	10.81	—	Asset Purchase Agreement, dated January 21, 1997, between the Company and F. Hoffman-La Roche, Limited(12)
	10.82	—	Asset Purchase Agreement dated January 21, 1997, between the Company and Syntex Pharmaceuticals International Limited(12)
	10.83	—	Transition Services Agreement dated January 21, 1997, between the Company and F. Hoffman-La Roche, Inc.(12)
	10.84	—	Transition Services Agreement dated January 21, 1997, between the Company and F. Hoffman-La Roche Limited(12)
	10.85	—	Supply Agreement (Fluocinolone Acetonide and Fluocinonide), dated January 21, 1997, between the Company and Syntex Pharmaceuticals International Limited(12)
	10.86	—	License Agreement, dated March 28, 1997, between the Company and Platinum®Software Corporation(12)
	10.87	—	Master Software License Agreement, dated March 28, 1997, between the Company and FocusSoft, Inc.(12)
	10.88	—	Replacement Acquisition Revolving Note dated November 22, 1998, by and between the Company and Norwest Bank Arizona, N.A.(15)
	10.89	—	Asset Purchase Agreement dated November 15, 1998, by and among the Company and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMHB and Hoechst Marion Roussel, S.A.(15)
	10.90	—	License and Option Agreement dated November 15, 1998, by and among the Company and Hoechst Marion Roussel, Inc., Hoechst Marion Roussel Deutschland GMBH and Hoechst Marion Roussel, S.A.(15)
	10.91	—	Loprox Lotion Supply Agreement dated November 15, 1998, by and between the Company and Hoechst Marion Roussel, Inc.(15)
	10.92	—	Supply Agreement dated November 15, 1998, by and between the Company and Hoechst Marion Roussel Deutschland GMBH(15)
	10.93	—	Asset Purchase Agreement effective January 31, 1999, between the Company and Bioglan Pharma PLC(17)
	10.94	—	Stock Purchase Agreement by and among the Company, Ucyclyd Pharma, Inc. and Syed E. Abidi, William Brusilow, Susan E. Brusilow and Norbert L. Wiech, dated April 19, 1999(17)
	10.95	—	Asset Purchase Agreement by and between the Company and Bioglan Pharma Plc dated June 29, 1999(17)
	10.96	—	Asset Purchase Agreement by and among The Exorex Company, LLC, Bioglan Pharma Plc, the Company and IMX Pharmaceuticals, Inc. dated June 29, 1999(17)

Exhibit No.			Description
	10.97	—	Medicis Pharmaceutical Corporation Executive Retention Plan(17)
	13	—	1999 Annual Report to Shareholders(17)
	21.1	—	Subsidiaries(17)
	23.1	—	Consent of Ernst & Young LLP, Independent Auditors(17)
	24.1	—	Power of Attorney(17) See signature page(s)
	27.1	—	Financial Data Schedule(17)

(1)	Incorporated by reference to the exhibit with the same number in the Registration Statement on Form S-1 of the Registrant, File No. 33-32918, filed with the SEC on January 16, 1990
(2)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1992, as amended, File No. 0-18443, previously filed with the SEC
(3)	Incorporated by reference to the exhibit with the same number in Amendment No.  2 to the Registration Statement on Form S-1 of the Company, File No. 33-34041, filed with the SEC on August 2, 1990
(4)	Incorporated by reference to the exhibit with the same number in Registration Statement on Form S-1 of the Company, File No.  33-54276, filed with the SEC on June 11, 1993
(5)	Incorporated by reference to Exhibit B to the Company’s definitive Proxy Statement for its 1992 Annual Meeting of Shareholders, File No. 0-18443, previously filed with the SEC.
(6)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 0-18443, filed with the SEC on October 13, 1993
(7)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1995, File No. 0-18443, filed with the SEC on September 27, 1995
(8)	Incorporated by reference to exhibit number 4.2 in the 1995 Form 10-K
(9)	Incorporated by reference to exhibit number 4.4 in the 1995 Form 10-K

(10)	Incorporated by reference to exhibit number 4.5 in the 1995 Form 10-K
(11)	Incorporated by reference to the exhibit with the same number in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1996, File No. 0-18443, filed with the SEC on September 24, 1996
(12)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-18443, previously filed with the SEC
(13)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, File No. 0-18443, previously filed with the SEC
(14)	Incorporated by reference to the exhibit with the same number in the Company’s Current Report on Form 8-K filed with the SEC on December 15, 1997
(15)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, File No. 0-18443, previously filed with the SEC
(16)	Incorporated by reference to the exhibit with the same number in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-18443, previously filed with the SEC
(17)	Filed herewith

EX-10.93 2 EX-10.93 1 EXHIBIT 10.93 THIS ASSET PURCHASE AGREEMENT ("AGREEMENT") effective as of this 31st day of JANUARY, 1999, BETWEEN: MEDICIS PHARMACEUTICAL CORPORATION a company incorporated under the laws of Delaware and with its principal place of business at 4343 East Camelback Road, Suite 250, Phoenix, Arizona, United States of America ("Medicis") and BIOGLAN PHARMA PLC, a company incorporated under the laws of England and Wales and with its principal place of business at 5 Hunting Gate, Hitchin, Hertfordshire ("Bioglan"). 1. RECITALS 1.1 Medicis is engaged in the sale of certain human, over-the-counter and ethical pharmaceutical products including the products set forth in Schedule 1 hereto ("the Products"). 1.2 Medicis desires to sell to Bioglan and Bioglan, subject to satisfactory due diligence, desires to purchase from Medicis the Products and all rights associated therewith including the relevant product trademarks, Know-How, authorizations and permits as defined below (together referred to as the "Product Rights") on the terms and conditions set out below. NOW IT IS HEREBY AGREED as follows: 2. Definitions In this Agreement the following terms shall have the following meanings:

"Know-How" means the information known to Medicis relating solely and uniquely to the formulae, manufacturing processes, customer lists, marketing and advertising rights and promotional materials, technology and testing data relating to, the Products, as identified on the Schedule of Know-How made available during due diligence. "Letter of Intent" means that certain letter of even date herewith from Medicis to Bioglan and countersigned by Bioglan. "Product Licenses and means Medicis' authorizations, where such Permits" are required, from the U.S. Food and Drug Administration ("FDA") and the right to refer to the data contained therein and copies of all documents submitted and correspondence between Medicis and the FDA with respect to the Products

2

"Territory" means the United States of America and its territories, possessions and commonwealth. "Trademarks" means the trademarks listed in Schedule 3 hereto together with the goodwill symbolized by such trademarks.

3. DUE DILIGENCE AND SALE OF PRODUCTS 3.1 Immediately following signature hereof Bioglan shall conduct a due diligence investigation of the Products, which shall be completed in time to close this transaction on the date set out in subclause 5.1 hereof. Medicis shall cooperate with Bioglan and provide answers to all reasonable enquiries as fully and completely as it can and all reasonable assistance to Bioglan, including providing Bioglan with access to relevant Medicis facilities, personnel and documents and shall permit Bioglan to obtain copies of relevant Medicis documentation and contracts. Upon completing of due diligence, Bioglan shall provide Medicis with written notice of its acceptance or termination of this Agreement. 3.2 Provided that nothing is revealed during the due diligence process which would result in Bioglan reasonably wishing to terminate this Agreement and upon the basis of the representations and warranties, and the terms and conditions provided herein, Medicis agrees to sell and Bioglan agrees to purchase the Products together with the Product Rights on the terms set out below. 4. PURCHASE PRICE AND PAYMENT SCHEDULE 4.1 Bioglan shall pay to Medicis for the Products and the Product Rights, a net consideration of Eleven Million One Hundred Thousand Dollars US ($11,100,000 US), exclusive of any Value Added Taxes (the "Purchase Price"). The Purchase Price shall be paid to Medicis as follows: 4.1.1 an initial sum of Five Hundred Thousand dollars US ($500,000 US) paid to Medicis within twenty-four hours of the execution of this Agreement; and 4.1.2 a further sum of Ten Million Six Hundred Thousand Dollars US ($10,600,000 US) be paid to Medicis at the Closing Date subject to satisfactory due diligence. 4.2 Upon payment by Bioglan to Medicis of the Purchase Price provided for in sub-clause 4.1 hereof, Medicis shall execute and deliver to Bioglan an assignment in the form of Exhibit "A" hereto of the Trademarks and a Bill of Sale in the form of Exhibit "B" to be attached hereto for the Products and Product Rights. 4.3 Contemporaneously with the Closing (as defined below), Bioglan and Medicis shall enter into a separate agreement pursuant to which Bioglan will license to 3 Medicis use certain technologies in connection with Medicis' products containing the active ingredient ciclopirox. 4.4 For the avoidance of doubt, if Bioglan terminates this Agreement as a result of matters disclosed during the due diligence process, (regardless of the nature of such matters) or Medicis elects to unwind the transaction in accordance with Clause 14.6 hereof, the initial sum payable pursuant to the Clause 4.1.1 hereof shall NOT be refunded to Bioglan. 4.5 All payments made hereunder shall be made in United States Dollars by telegraphic transfer in immediately available funds to the Medicis bank account as previously provided to Bioglan. 5. CLOSING 5.1 Provided that nothing is revealed as a result of the due diligence process that would result in Bioglan reasonably wishing to terminate this Agreement, the consummation of the transaction contemplated herein (the "Closing") shall take place on February 15, 1999 ("Closing Date") at a time to be mutually agreed to by the parties. 5.2 Except as otherwise provided for in this Agreement, after the Closing Date, Medicis shall not use the Know-How. Furthermore, after the Closing Date, Medicis shall not disclose the Know-How to any third party, unless such disclosure is required by law or regulation. 5.3 At the Closing, Medicis (a) shall deliver to Bioglan a Letter of Disclosure as referenced in sub-clause 10.1 hereof, (b) shall transfer to Bioglan ownership of the Product Rights, (c) shall deliver to Bioglan such of the Product Rights which are capable of delivery up to Bioglan, including but not limited to, Medicis' customer lists for the Products, such marketing and promotional materials for the Products, as may be available, and (d) shall transfer to Bioglan possession of Medicis' then-existing inventory of the Products, including components thereof, ("Inventory") at cost, such Inventory being in good condition and bearing a remaining shelf life of not less than twelve (12) months. At the Closing, Bioglan shall pay Medicis for the Inventory at Medicis' cost of the Inventory. 5.4 Not withstanding anything in this Agreement to the contrary, the sale to Bioglan by Medicis of the Products and Product Rights shall not prevent Medicis from continuing to manufacture and sell other products included or expected to be included in its current line or to use other trademarks owned by Medicis. Nor shall the sale restrict the rights of Medicis to develop and sell new products using the same active ingredients as the Products, but using different formulations, or different presentations, and under different product trademarks. 5.5 After the Closing, subject to the terms of the Transition Services Agreement, Bioglan shall bear the entire responsibility for and risk in the manufacture, distribution, marketing and sale of the Products, including those associated with 4 returns of Product previously sold, and compliance with all regulations and laws pertaining to the Products. Medicis shall, for one year following the Closing, use its reasonable best efforts to assist Bioglan in these matters, but they shall remain the sole responsibility of Bioglan. 6. CONDITIONS TO BIOGLAN'S OBLIGATIONS 6.1 Bioglan's obligation to consummate the transactions contemplated herein at the Closing are subject to the fulfillment at or prior to the Closing of each of the following conditions, the fulfillment of any of which may be waived by Bioglan: 6.1.1 The completion of the due diligence process to Bioglan's reasonable satisfaction. 6.1.2 The completion by Medicis of all acts necessary to authorize its execution, delivery and performance of this Agreement and the other agreements provided for herein, and the consummation of the transactions contemplated herein and therein. 6.1.3 The provision by the Secretary of Medicis to Bioglan of a Certificate setting forth copies of the resolutions or other instruments authorizing this Agreement and the transactions contemplated herein. 6.1.4 All the representations and warranties of Medicis contained in this Agreement shall be true and correct in all material respects as of the date of execution of this Agreement by Medicis and all of the covenants and agreements of Medicis which are provided in this Agreement to be performed at or prior to the Closing shall have been duly performed, and Medicis shall have complied with this Agreement in all other material respects. Medicis shall deliver to Bioglan a certificate, dated the Closing Date, and signed by an executive officer of Medicis, to the effect set forth above. 6.1.5 Medicis shall have delivered to Bioglan a copy of any FDA authorizations for the Products, where applicable. 6.1.6 Medicis shall, at Bioglan's request, have assigned to Bioglan the benefit of any agreements including, but not limited to, manufacturing agreements for the Products. 6.1.7 Medicis shall have obtained all consents, approvals and authorizations necessary to consummate the Closing. 6.1.8 Bioglan shall have approved any changes between the unsigned draft Letter of Disclosure referred to in Clause 10.1 thereof and the final version of that Letter of Disclosure delivered at the Closing. 5 7. CONDITIONS TO MEDICIS' OBLIGATIONS 7.1 The obligations of Medicis to consummate the transactions contemplated at the Closing are subject to the fulfillment at or prior to the Closing of each of the following conditions, the fulfillment of any of which may be waived by Medicis: 7.1.1 Medicis shall have been furnished with a certificate of the Company Secretary of Bioglan setting forth copies of the resolutions or other instruments authorizing this Agreement and the transactions contemplated herein. 7.1.2 All the representations and warranties of Bioglan contained in this Agreement shall be true and correct in all material respects as of the date of execution of this Agreement by Bioglan and all of the agreements of Bioglan which are provided in this Agreement to be performed at or prior to the Closing Date shall have been performed, and Bioglan shall have complied with this Agreement in all other material respects. 7.1.3 Bioglan shall deliver to Medicis a certificate, dated the Closing Date and signed by an executive officer of Bioglan, to the effect set forth above. 7.1.4 Payment in full by Bioglan of the Purchase Price and all other sums required by this Agreement to be paid by Bioglan to Medicis prior to the Closing Date. 7.1.5 Medicis shall have obtained all consents, approvals and authorizations necessary to consummate the Closing. 7.1.6 Bioglan shall have approved any changes between the unsigned draft Letter of Disclosure referred to in Clause 10.1 hereof and the final version of that Letter of Disclosure delivered at the Closing. 8. CONTINUING OBLIGATIONS 8.1 Medicis' Continuing Obligations 8.1.1 In order to ensure continued supply of the Products to customers following execution of this Agreement, Medicis hereby agrees to act as distributor of the Products for a period of four (4) months from the execution of this Agreement, or until Bioglan gives written notice to Medicis that Bioglan has developed its own distribution network within the Territory, whichever is the sooner. This period shall be extended, at the written request of Bioglan, for a further two (2) months if, after using its reasonable best efforts, Bioglan has been unable to develop its own distribution system at the end of the four month period. 8.1.2 Bioglan and Medicis shall execute the Transition Services Agreement attached as Exhibit "C" hereto which sets out the terms on which Medicis shall distribute the Products as required in sub-clause 8.1 above. 6 8.1.3 Upon expiration of the period for which Medicis shall distribute Products on behalf of Bioglan as set out above, Medicis shall return to Bioglan any inventory of the Products in its possession as of the date thereof. 8.2 Bioglan's Continuing Obligations 8.2.1 Bioglan shall provide to Medicis, on a quarterly basis a written report setting forth Gross Sales and Returns of all Products during calendar 1999. 9. PRODUCT REGISTRATIONS 9.1 After the Closing, Bioglan will initially market the Products under the Product Licenses and Permits, such Product Licenses and Permits having been varied to permit the same. Such arrangement shall continue until Bioglan obtains regulatory authorization from the FDA to market the Products under its own product licenses (the "New Product Licenses and Permits"). 9.2 To permit Bioglan to market the Products under the Product Licenses and Permits, Medicis shall, promptly following Closing hereof at its own expense, file all necessary instruments with the FDA to obtain a waiver to vary Medicis' Product Licenses and Permits to allow Bioglan to sell the Products. 9.3 Bioglan shall at its expense, file a product license application with the FDA for each of the Products that requires FDA authorization. Medicis shall, at its expense, file all necessary instruments with the FDA to authorize Bioglan to cross-refer to the data contained in the Product Licenses and Permits in order for Bioglan to obtain the New Product Licenses and Permits. 9.4 Within thirty (30) days after the execution of this Agreement, the parties shall each appoint a primary liaison (the "Medical Affairs Liaison") to communicate with each other with regard to the actions and information required pursuant to this Clause 9. 9.5 During the period that Bioglan is selling Products under the Product Licenses and Permits, each party shall advise the other as set forth in 9.5.1 and 9.5.2 below of any adverse drug experience associated with the Products. In addition, Bioglan shall report all adverse drug experience information it obtains, including that obtained from Medicis, to the FDA as set forth in 9.6 below. 9.5.1 Any adverse drug experience information obtained by a party shall be reported to Bioglan's Medical Affairs Liaison, by telephone or in writing (only by facsimile) within three (3) working days after the first party's initial receipt of the information; provided, however, any report of a serious unlabelled side effect or any report of a death shall be reported to Bioglan's Medical Affairs Liaison within twenty-four (24) hours of receipt of the information; and 7 9.5.2 The reports of adverse drug experience shall contain the following information: (i) the date the report was received by Medicis; (ii) the name of the reporter; (iii) the address and telephone number of the reporter; (iv) the patient details; (v) the suspected drug; (vi) other concomitant therapy; (vii) a description of the adverse drug experience; and (viii) any additional relevant information; provided such information is obtainable through the use of reasonable efforts. 9.6 Bioglan shall report all adverse drug experience information associated with the Products, including those received from Medicis under this Clause 9 to the FDA, in accordance with the laws and regulations of the Territory. 9.7 After execution of this Agreement, Bioglan shall take all actions required by FDA regulations and other governmental laws relating to the manufacture, distribution and use of the Products and shall be solely responsible for compliance with all such laws. 10. REPRESENTATIONS AND WARRANTIES OF MEDICIS 10.1 Except as set forth in a Letter of Disclosure which shall be delivered by Medicis to Bioglan, as of the Closing Date (an unsigned draft of which shall be delivered to Bioglan within seven (7) days of the date hereof), Medicis hereby represents and warrants to Bioglan as follows: 10.1.1 Medicis (i) is a corporation duly organized and validly existing and in good standing under the laws of Delaware and (ii) has all necessary corporate power and authority to own its properties and to conduct its business, as currently conducted. 10.1.2 The execution and delivery of this Agreement and the other agreements provided for herein, and the consummation of the transactions contemplated herein and therein, are within the corporate power of Medicis, have been or will be, on or prior to the Closing Date, duly authorized by all necessary corporate proceedings and such other agreements have been or will be, on or prior to the Closing Date, duly executed and delivered by Medicis. 10.1.3 Neither the execution of this Agreement and the other agreements provided for herein nor the consummation of the transactions contemplated herein and therein: (i) requires Medicis to obtain any approval, consent or withholding of objections on the part of any regulatory or governmental body, except as may be provided for above; (ii) will result in any violation or breach of any term or provision of Medicis' Certificate of Incorporation or Bylaws; (iii) will constitute a default under any material indenture, mortgage, deed of trust, license agreement or other contract or agreement to which Medicis is a party or to which it or any of the Products or Product Rights may be subject; or 8 (iv) will violate any provision of any judicial, governmental or administrative order, writ, injunction, award, judgment or decree applicable to Medicis. 10.1.4 This Agreement and the other agreements provided for herein have been duly and validly authorized, executed and delivered by Medicis and, when duly executed and delivered by Bioglan, will constitute valid and binding obligations of Medicis, enforceable against Medicis in accordance with their terms, except as such enforcement may be limited by bankruptcy or other laws of general application affecting creditor rights or general principles of equity or principles of public policy relating to indemnification. 10.1.5 Other than the use of Corporate Development Specialists, Inc., neither Medicis nor any officer, director or agent of Medicis has employed any broker, finder, or agent with respect to this Agreement or the transactions contemplated hereby. 10.1.6 Medicis will have used its best efforts to provide Bioglan with true, complete and accurate information in response to the due diligence requests of Bioglan during the due diligence period. 10.1.7 The amount of Gross Sales, less returns, for the calendar year ended December 31 1998, as accounted for by Medicis in accordance with GAAP, which were provided by Medicis to Bioglen during the due diligence, were correct in all material respects. 10.1.8 EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES HEREIN IN THE BILL OF SALE AND THE ASSIGNMENT OF TRADEMARKS, THE PRODUCTS AND PRODUCT RIGHTS ARE SOLD ON AN "AS IS, WHERE IS" BASIS, AND, OTHER THAN THOSE ARISING AS A RESULT OF A BREACH OF THE REPRESENTATIONS AND WARRANTIES HERETO AND THE BILL OF SALE, BIOGLAN HEREBY WAIVES, ANY AND ALL OTHER REPRESENTATIONS, WARRANTIES, DUTIES, AND GUARANTEES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, CONCERNING THE PRODUCTS OR THE PRODUCT RIGHTS OR THE VALUE, CONDITION, EFFECTIVENESS OR COMPLIANCE WITH SPECIFICATION OF THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR THE QUALITY OF THE MATERIALS OR WORKMANSHIP, AND BIOGLAN HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES IT MAY HAVE AGAINST MEDICIS RELATING TO ANY OF THE FOREGOING AND ARISING BY LAW OR OTHERWISE OR WITH RESPECT TO 9 LOSS OF USE, REVENUE OR PROFIT, THE EXISTENCE OF ANY LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT DISCOVERABLE), OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. 11. INTELLECTUAL PROPERTY 11.1 Except as set forth in the Letter of Disclosure, Medicis hereby represents and warrants to Bioglan in respect of the Intellectual Property as follows: 11.1.1 The Trademarks are currently being used commercially by Medicis and have been properly filed or registered with the US Patent and Trademark Office and will be, to the best of Medicis' knowledge, valid and in full force and effect as of the date of execution of this Agreement. 11.1.2 Except as may be restricted or prohibited by any applicable law, rule, regulation or decision, Medicis has the exclusive right to use, transfer and assign, free and clear of any liens or encumbrances, the registrations for the Trademarks set out in Schedule "3" hereto. 11.1.3. To the best of Medicis' knowledge, the manufacture, use or sale of the Products by Medicis or the use of the Trademarks in the United States of America for the sale of the Products does not infringe the rights of any third party including inter alia intellectual property rights. 11.1.4 Except for any restriction or prohibition set forth in any applicable law, rule, regulation, decision or other governmental action, Medicis is not aware of any restriction or prohibition which would prevent or restrict the disclosure of the Know-How to Bioglan hereunder. 11.1.5 Medicis has informed Bioglan of adverse drug experiences related to the Products of which it has knowledge. 12. REPRESENTATIONS AND WARRANTIES OF BIOGLAN 12.1 Bioglan hereby represents and warrants to Medicis as follows: 12.1.1 Bioglan (i) is a public limited company duly organized, validly existing and in good standing under the Laws of England and Wales (ii) has all necessary power and authority to own its properties and to conduct business as presently conducted. 12.1.2 The execution and delivery of this Agreement and the other agreements provided for herein, and the consummation of the transactions contemplated herein and therein, are within the corporate power of Bioglan, have been or will be, on or prior to the Closing Date, duly authorized by all necessary corporate proceedings and such other 10 agreements have or will be, on or prior to the Closing Date, duly executed and delivered to Bioglan. 12.1.3 Neither the execution of this Agreement and the other agreements provided for herein nor the consummation of the transactions contemplated herein and therein: (i) require Bioglan to obtain the approval, consent or withholding of objection on the part of any governmental body, except as may be provided for above; (ii) will result in any violation or breach of any term or provisions of Bioglan's Memorandum and Articles of Incorporation or By-Laws; (iii) will constitute a default under any indenture, mortgage, deed of trust, license, agreement, or other contract or agreement to which Bioglan is a party or to which it or any of its properties may be subject; or (iv) violates any provision of any judicial, governmental or administrative order, writ, injunction, award, judgment or decree applicable to Bioglan. 12.1.4 This Agreement and the other agreements provided for herein have been duly and validly authorized, executed and delivered by Bioglan, and when duly executed and delivered by Medicis, will constitute valid and binding obligations of Bioglan, enforceable against Bioglan in accordance with their terms, except as such enforcement may be limited by bankruptcy or other laws of general application affecting creditor rights or general principles of equity or principles of public policy relating to indemnification. 12.1.5 Other than the use of Corporate Development Specialists, Inc., neither Bioglan nor any officer, director or agent of Bioglan, has employed any broker, finder or agent with respect to this Agreement or the transactions contemplated hereby. 12.1.6 OTHER THAN THE REPRESENTATIONS AND WARRANTIES OF MEDICIS IN THIS AGREEMENT, BIOGLAN EXPRESSLY AGREES AND ACKNOWLEDGES THAT IT HAS NOT, IN ENTERING INTO THIS AGREEMENT, RELIED ON ANY CONDITION, WARRANTY OR REPRESENTATION BY MEDICIS, EXPRESS OR IMPLIED, WHETHER ARISING BY APPLICABLE LAW OR OTHERWISE IN RELATION TO THE PRODUCTS AND PRODUCT RIGHTS, INCLUDING, WITHOUT LIMITATION, WARRANTIES OR REPRESENTATIONS AS TO THE DESCRIPTION, QUALITY, DURABILITY, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, THE QUALITY OF THE MATERIALS OR WORKMANSHIP, VALUE, CONDITION, AS TO THE ABSENCE OF ANY LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT DISCOVERABLE), AND THE BENEFIT IN FAVOR OF BIOGLAN, OF ANY SUCH CONDITION, 11 WARRANTY OR REPRESENTATION, IS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVED BY BIOGLAN. 13. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING 13.1 The parties agree to cooperate mutually and make all reasonable efforts toward consummating the transactions herein contemplated and fulfilling the purposes of this Agreement prior to and following Closing, including providing and executing such additional documentation and communications as may be appropriate for such purposes. 13.2 Medicis shall not take any action out of the ordinary course of business to significantly increase sales of the Products in the calendar month prior to the month in which the Closing occurs. If the sales in the calendar month prior to the month in which the Closing occurs are greater than 110% of the sales of the Product in the preceding calendar month, Medicis shall credit the Purchase Price for Medicis' gross margin on such incremental sales. 14. POST-CLOSING COVENANTS 14.1 Medicis and Bioglan agree to cooperate in the notification to customers of the transactions contemplated by this Agreement. Neither Medicis nor Bioglan shall notify any customers of such transactions without the consent of the other. Such notification (the "Joint Notice") shall be in such form as is reasonably satisfactory to Bioglan and Medicis. 14.2 Medicis agrees for a period of four (4) months after the Closing Date to use its reasonable best efforts to forward to Bioglan all customer orders for the Products received after the Closing as soon as practicable after receipt by Medicis. Medicis agrees that, for a period of six (6) months from the Closing Date, it will inform any customers ordering the Products or requesting information about the Products, that Bioglan is now supplying the Products. 14.3 During the period that Bioglan is selling Products under the Product Licenses and Permits if Medicis or an appropriate government agency in the Territory determines that the Products or any of them should be recalled, Bioglan shall at its cost, be responsible for all activities to be performed relating to such recall. If such recall occurs during such period, then, prior to implementing such recall, Medicis shall endeavor to advise Bioglan of the situation. Bioglan shall provide Medicis with a prepared statement for use in response to any inquiries regarding the Products' recall which Medicis shall provide to its sales representatives. Medicis and its sales representatives shall use such prepared statements to respond to any inquiries received with regard to the Products recalled and shall not make any other statements regarding the recalls. 14.4 Medicis and Bioglan will coordinate to ensure that all necessary and appropriate language is added to the labeling for the Products so that each party is able to comply with any applicable laws and regulatory requirements. 12 14.5 During the period that Bioglan is selling Products under the Product Licenses and Permits, Bioglan shall not use any promotional material with respect to the Products without first obtaining the written approval of Medicis. 14.6 Simultaneously with the execution of this Agreement, Medicis and Bioglan are entering into a Letter of Intent relating to the license of rights to Medicis' products sold under its Trademarks OCCLUSAL, SALAC and PENTRAX. If Bioglan fails to execute, deliver and consummate the transaction contemplated in the Letter of Intent, Medicis shall have the right, in its sole discretion, to unwind the effect of this Agreement. Medicis shall, in that event, repay to Bioglan the $10.6 million paid by Bioglan to Medicis under Sub-Clause 4.1.2 hereof and Bioglan shall immediately transfer all right, title and interest in and to the Products and ownership of the Product Rights to Medicis. Bioglan agrees to indemnify, defend and hold harmless Medicis (and its directors, employees, affiliates, successors and assigns) from and against all Losses of Medicis based upon, arising out of or otherwise in respect of Bioglan's actions or inactions relating to the Products during the time period from the date of this Agreement until the complete transfer of all Products and Product Rights to Medicis. 15. INDEMNIFICATION BY MEDICIS 15.1 Medicis agrees to indemnify, defend and hold harmless Bioglan (and its directors, officers, employees, affiliates, successors and assigns) from and against all losses, personal injuries, liabilities, damages (other than incidental or consequential), deficiencies, costs or expenses including, without limitation, interest, penalties and reasonable attorneys' fees and disbursements ("Losses") of Bioglan based upon, arising out of or otherwise in respect of: 15.1.1 any material inaccuracy in or material breach of, any representation, warranty, covenant or agreement of Medicis contained in this Agreement, provided however, that any such Losses shall have been first asserted in writing against Medicis within twenty-four months after the Closing Date. 15.1.2 any harm to any third party caused by any defect in the Products manufactured, mandated, distributed, or sold by Medicis, prior to the Closing, or by any negligent or wrongful act of Medicis prior to the Closing in connection with the manufacture, distribution, advertising, or sale of the Products, or any failure to comply with any regulation or statute, provided, however, that any such Losses shall have been first asserted in writing against Medicis within twenty-four months after the Closing Date. 15.1.3 failure of Medicis prior to the Closing Date to conduct its efforts under this Agreement at all times in accordance with all applicable laws and regulations which may materially affect the Products including without limitation the US Foreign Corrupt Practices Act, with the highest commercial standards and in a manner that reflects favorably at all times 13 on the Products and the reputation of Medicis, provided, however, that any such Losses shall have been first asserted in writing against Medicis within twenty-four months after the Closing Date. 16. INDEMNIFICATION BY BIOGLAN 16.1 Bioglan agrees to indemnify, defend and hold harmless Medicis (and its directors, officers, employees, affiliates, successors and assigns) from and against all Loss of Medicis based upon, arising out of or otherwise in respect of: 16.1.1 any material inaccuracy in or material breach of any representation, warranty, covenant or agreement of Bioglan contained in this Agreement, provided however, that any such Loss shall have been first asserted in writing against Bioglan within twenty-four months after the Closing Date. 16.1.2 any harm to any third party caused by any defect in the d Products manufactured, mandated, or distributed sold by Bioglan or by any negligent or wrongful act of Bioglan in connection with the manufacture, distribution, advertising, or sale of the Products, or any failure to comply with any regulation or statute. 16.1.3 failure of Bioglan to conduct its efforts under this Agreement at all times in strict accordance with all applicable laws and regulations which may materially affect the Products including without limitation the US Foreign Corrupt Practices Act, with the highest commercial standards and in a manner that reflects favorably at all times on the Products and the reputation of Medicis. 17. PROCEDURE FOR INDEMNIFICATION 17.1 If any legal proceeding shall be instituted, or any claim or demand made, against an indemnified party in respect of which an indemnifying party may be liable hereunder, or if either party hereto for any reason shall believe that it has a claim against the other pursuant to the respective Clause 15 or 16 hereof, then the indemnified party or the party believing it has a claim against the other, as the case may be (in either case, the "Indemnified Party"), shall give prompt written notice hereunder to the indemnifying party or the party against whom the party giving notice believes it has a claim, as the case may be (in either case, the "Indemnifying Party"). Such notice shall specify in reasonable detail the date such underlying claim or belief first was asserted or arose, the nature of the loss (es) for which payment is claimed, the Clause or Clauses of this Agreement upon which such claim is based, and the amount payable in respect thereto, and shall provide a copy of the underlying claim. 17.2 If an Indemnifying Party shall receive notice pursuant to this Clause 17, the Indemnifying Party may, at its sole option, elect to defend against the loss, which 14 is the subject of such notice. If the Indemnifying Party elects to defend, then the Indemnified Party shall have the right to participate in such defense, trial counsel shall be chosen by the Indemnifying Party and such trial counsel shall be reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not elect to defend, then the Indemnified Party may do so by its own counsel, such counsel shall be reasonably satisfactory to the Indemnifying Party, the costs of which shall be borne by the Indemnifying Party, and the Indemnifying Party agrees to cooperate with the Indemnified Party in such defense. 17.3 If the amount of any actual loss indemnified against hereunder shall at any time subsequent to the payment of any indemnity payable hereunder, be reduced by any recovery, settlement or other payment, then the amount of such reduction, less any expense incurred by the party receiving such recovery, settlement or other payment in connection therewith, shall be repaid promptly to the Indemnifying Party. 17.4 Except as otherwise provided herein, the terms of this Clause 17 shall survive the Closing. 18. GENERAL PROVISION 18.1 All representations, warranties, covenants and agreements set forth herein shall survive the execution and delivery of this Agreement and the transfer of Product Rights hereunder, but shall expire two (2) years after the Closing. Thereafter, no claim for breach of any representation, warranty, covenant, or agreement shall be made. If this Agreement is terminated pursuant to Clause 18.12 hereof, neither Bioglan nor Medicis shall be under any liability whatsoever with respect to any such representation or warranty. 18.2 All communications under this Agreement attached hereto shall be in writing and shall either be faxed, sent by courier or mailed by first class mail, postage prepaid, to the fax number and/or address specified below. If faxed, such communication shall be deemed to given when sent; provided, however, that such fax shall be confirmed by sending a hard copy by courier or first class mail (by methods specified herein) within one (1) working day of the sending of such fax. If sent by courier or mailed by first class mail as specified herein, such communication shall be deemed to be given either two (2) business days after sending (for communications sent by courier) or ten (10) business days after mailing (for communications sent by mail). All communications hereunder shall be sent: 18.2.1 TO BIOGLAN: at its address shown below or such other address as it may give to Bioglan by notice hereunder:

5 Hunting Gate and to: Hitchin, Hertfordshire Roiter Zucker Solicitors England Regent House Attn: Terry I. Sadler Swiss Cottage

15

London NW 3RZ ENGLAND Attention: Warren Roiter

18.2.2 TO MEDICIS, at its address shown below or such other address as it may give to Medicis by notice hereunder: 4343 East Camelback Road, Suite 250 Phoenix, Arizona 85018-2100 USA Attn: Jonah Shacknai 18.3 Prior to the Closing, Bioglan and Medicis shall each hold in confidence all documents and information received by it in connection with the transactions contemplated by this Agreement and, in the event that for any reason the transactions contemplated by this Agreement shall not be consummated, Bioglan and Medicis shall refrain from disclosing or otherwise using such documents and information. 18.4 This Agreement may be amended, modified or supplemented only by written agreement of the parties hereto. 18.5 The rights and obligations of Bioglan and Medicis under this Agreement and the agreements provided for herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but may not be assigned by either party without the prior written consent of the other party; provided however, Bioglan may assign this Agreement without obtaining Medicis' consent if Bioglan has paid the entire Purchase Price to Medicis in accordance with Clause 4. Nothing set forth herein shall prevent either party from assigning its rights or obligations hereunder to an Affiliate of said party provided that no such assignment shall relieve said party of its obligations hereunder. For purposes hereof, an "Affiliate" of a party shall refer to any person or entity controlling, controlled by or under common control with said party. 18.6 Bioglan and Medicis agree to approve jointly the text of an initial press release announcing the consummation of the transactions contemplated hereby and not to use the name of the other party in any press information, marketing or advertising materials or other release to the public without prior written approval of the other, which approval shall not be unreasonably withheld. The foregoing shall not be deemed to prevent either party from making any public announcement which may be required by legislation or any governmental or regulatory body or by the rules and regulations of any national securities exchange upon which the securities of either party are traded; provided that the disclosing party has notified the non-disclosing party of such public announcement and the non-disclosing party has been given an opportunity to comment on such announcement. The disclosing party shall make such changes as reasonably requested. 16 18.7 Except as otherwise provided herein, Bioglan and Medicis agree that each of the parties hereto shall bear one half of the legal costs incurred in connection with the preparation, drafting, execution and delivery of this Agreement and the consummation of the transaction contemplated hereby, but not the cost of Bioglan's due diligence in this transaction. Bioglan shall pay all recording fees and all taxes due by Bioglan in connection with the transfer of the Product Rights to Bioglan hereunder. 18.8 All headings in this Agreement are for convenience only and shall not affect the interpretation or meaning of any provision hereof. 18.9 This Agreement, together with the other agreements provided for herein, and the Schedules and Exhibits attached hereto, constitutes the entire agreement of the parties, merges all prior negotiations, agreements and understandings, and states in full all representations and warranties or warranties other than those herein stated. To the extent there are any inconsistencies between the provisions of this Agreement, the Schedules and Exhibits and any of the other agreements provided for herein, this Agreement shall govern. 18.10 No delay on the part of any party in exercising any right, power, or privilege hereunder shall operate as a waiver thereof; nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of any party based on, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. 18.11 If any provision of this Agreement is found or declared to be invalid or unenforceable by any court or other competent authority having jurisdiction, such finding or declaration shall not invalidate any other provision hereof, and this Agreement shall thereafter continue in full force and effect except that such invalid or unenforceable provision, and (if necessary) other provisions thereof, shall be reformed by a court of competent jurisdiction so as to effect, insofar as is practicable, the intention of the parties as set forth in this Agreement, provided that if such court is unable or unwilling to affect such reformation, the invalid or unenforceable provision shall be deemed deleted to the same extent as if it had never existed. 18.12 In the event any of the conditions specified in Clause 6 or Clause 7 of this Agreement shall not be fulfilled on or before the Closing Date, then Bioglan, with respect to the conditions in Clause 6, or Medicis, with respect to the conditions in Clause 7, shall have the right either to proceed or, upon prompt written notice to 17 the other, terminate and rescind this Agreement without liability to any party. In no circumstances, however, shall Bioglan be entitled to recover the $500,000 US paid under subclause 4.1.1 hereof. The election to proceed shall not affect the right of such electing party to require the other party to use commercially reasonable efforts to fulfill such conditions. 18.13 This Agreement shall be governed by the substantive laws of the State of Arizona, United States of America (without regard to principles of conflict of laws) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. 18.14 Bioglan consents and submits to the personal jurisdiction of the state and federal courts in Arizona. 18.15 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19. ARBITRATION 19.1 The parties shall promptly submit to arbitration any dispute which may arise in connection with this Agreement that is not promptly resolved by them, except that each party may seek injunctive relief for breaches of this Agreement if either party makes a good faith determination that a breach of the terms of this Agreement by the other party will result in irreparable harm and that injunctive relief is the only adequate remedy. 19.2 The American Arbitration Association shall have jurisdiction over the arbitration, which shall be conducted in accordance with the Commercial Arbitration Rules of such Association, except as modified by agreement of the parties. 19.3 In the event a dispute is to be submitted to arbitration pursuant to this Article X, the parties agree that the dispute shall be resolved by a private arbitration conducted by one arbitrator. Within ten (10) days after the submission of such dispute to arbitration, the parties shall agree upon one arbitrator, selected from a panel of five individuals, none of whom is an officer, director or employee of a party or an affiliate of such party, or a person who has a direct or indirect personal or financial interest in the outcome of the arbitration, designated by the American Arbitration Associated from its permanent panel of commercial arbitrators. The parties shall select the arbitrator by alternately striking names of the individuals so designated until only one name remains. A coin toss will determine which party is to strike the first name. 19.4 The arbitrator shall set a hearing date for an arbitration (the "Hearing") within ninety (90) days from the date the arbitrator is selected, unless otherwise agreed by the parties. At least fifteen (15) days before the Hearing, each party shall submit to the arbitrator a list of all witnesses and exhibits, which it intends to present at the Hearing. No later than ten (10) days before the Hearing, each party shall provide to the arbitrator a short (not to exceed five single-spaced pages or such other page limit as the arbitrator permits) statement of its position with regard to the dispute. Notwithstanding the Commercial 18 Arbitration Rules, each party shall have the right to conduct up to a total of two depositions. At the Hearing, each party shall, unless it waives the opportunity, make an oral opening statement and an oral closing statement. The arbitrator shall not be strictly bound by rules of procedure or rules of evidence, but shall use the Federal Rules of Evidence as a guideline in conducting the Hearing. When testimony is complete and each party has introduced its exhibits pursuant to the provisions of this Agreement, and each party has made a closing statement pursuant to the provisions of this Agreement or waived the opportunity to do so, the arbitrator shall declare the Hearing closed; provided that the parties may submit post-hearing briefs pursuant to an agreed upon schedule or a schedule formulated by the arbitrator. The Hearing shall be conducted in private. Attendance at the Hearing shall be limited to the following: (i) the arbitrator; (ii) representatives of each party; (iii) each party's attorneys and attorney's assistants or advisors, if any, including expert witnesses if any; (iv) a court reporter if requested by either party; and (v) any witnesses. The arbitrator may sequester witnesses upon the motion of a party. Within thirty (30) days of the close of the Hearing or submission of the post-hearing briefs, the arbitrator shall issue a written opinion and an award (the "Award") based on evidence, arguments and post-hearing briefs, if any. The Award shall be a decision of the arbitrator, shall resolve the parties' dispute and shall be final and binding on the parties. Except as otherwise provided in this Agreement, there shall be no ex parte communication regarding the subject matter of the Hearing, in which event the arbitrator will render and deliver to the parties a written opinion and Award within thirty (30) days of being notified that the parties waive the Hearing. Notwithstanding any other provision of this Agreement, the arbitrator shall have no power to delete from, add to or modify the terms of this Agreement, and may not award any remedy which effectively conflicts directly or indirectly with any provision of this Agreement. 19.5 In any arbitration, all of the reasonable costs and expenses of the Successful Party (including reasonable attorney's fees and expenses), all fees and expenses of experts retained by the Successful party and all costs of the arbitrator shall be borne the Losing Party in such arbitration. The "Losing Party" and the "Successful party" shall be determined by the arbitrator based on the relative success or failure of each party to such arbitration. IN WITNESS WHEREOF, the parties hereto have executed this Agreement for Purchase and Sale of Assets as of the date first set forth above. MEDICIS PHARMACEUTICAL CORPORATION by: /s/ Mark A. Prygocki, Sr. --------------------------------------- its: Chief Financial Officer --------------------------------------- BIOGLAN PHARMA PLC 19 by: /s/ Terry I. Sadler --------------------------------------- its: Chairman and Chief Executive Officer --------------------------------------- 20 SCHEDULE "1" PRODUCTS 1. BENZASHAVE shaving cream 2. THERAMYCIN Z skin lotion 3. PRAMEGEL topical medication 4. A-FIRM vitamin-A cream 5. A-FIL sunburn protection 6. BETALIFTX skin peel preparation 7. METED hair shampoo 8. TEXACORT dermatosis preparation 9. PACKER'S pine tar soap A total of nine (9) products. 21 SCHEDULE "2" KNOW-HOW [TO BE SUPPLIED] 22 SCHEDULE "3"

----------------------------------------------------------------------------------------------------- NO. TRADEMARK REG. NO. & DATE GOODS ----------------------------------------------------------------------------------------------------- 1 BENZASHAVE 1,612,636 brushless, medicated shaving cream 9/11/1990 ----------------------------------------------------------------------------------------------------- 2 THERAMYCIN Z 2,129,191 dermatologic products, namely, therapeutic skin 1/13/1998 lotion ----------------------------------------------------------------------------------------------------- 3 PRAMEGEL 1,391,339 anti-pruritic topical medication 4/29/1986 ----------------------------------------------------------------------------------------------------- 4 AFIRM 2,197,069 dermatological preparation, namely, a vitamin-A cream 10/20/1998 ----------------------------------------------------------------------------------------------------- 5 A-FIL (Stylized) 532,880 vanishing cream type preparation for use as a 10/31/1950 protection against sunburn ----------------------------------------------------------------------------------------------------- 6 BETA-LIFTX 2,137,236 pharmaceutical preparation, namely, a chemical skin B-LIFTX Design 2,125,549 peel preparation ----------------------------------------------------------------------------------------------------- 7 METED 1,419,732 medicated hair shampoo 12/9/1986 ----------------------------------------------------------------------------------------------------- 8 TEXACORT 1,304,643 preparations for the treatment of dermatosis 11/13/1984 ----------------------------------------------------------------------------------------------------- 9 PACKER'S PINE TAR SOAP & 407,047 soap Design 910,485 hair shampooing preparation PACKER'S & Design -----------------------------------------------------------------------------------------------------

23 SCHEDULE "A"

------------------------------------------------------------------------------------------------------- TRADEMARK REG. NO. & DATE GOODS ------------------------------------------------------------------------------------------------------- BENZASHAVE 1,612,636 brushless, medicated shaving 9/11/1990 cream ------------------------------------------------------------------------------------------------------- THERAMYCIN Z 2,129,191 dermatologic products, 1/13/1998 namely, therapeutic skin lotion ------------------------------------------------------------------------------------------------------- PRAMEGEL 1,391,339 anti-pruritic topical 4/29/1986 medication ------------------------------------------------------------------------------------------------------- AFIRM 2,197,069 dermatological preparation, 10/20/1998 namely, a vitamin-A cream ------------------------------------------------------------------------------------------------------- A-FIL (Stylized) 532,880 vanishing cream type 10/31/1950 preparation for use as a protection against sunburn ------------------------------------------------------------------------------------------------------- BETA-LIFTX 2,137,236 pharmaceutical preparation, 2/17/1998 namely, a chemical skin peel preparation ------------------------------------------------------------------------------------------------------- B-LIFTX Design 2,125,549 pharmaceutical preparation, 12/30/1997 namely, a chemical skin peel preparation ------------------------------------------------------------------------------------------------------- METED 1,419,732 medicated hair shampoo 12/9/1986 ------------------------------------------------------------------------------------------------------- TEXACORT 1,304,643 preparations for the 11/13/1984 treatment of dermatosis ------------------------------------------------------------------------------------------------------- PACKER'S PINE TAR SOAP & Design 407,047 soap 5/16/1944 ------------------------------------------------------------------------------------------------------- PACKER'S & Design 910,485 hair shampooing preparation 3/23/1971 -------------------------------------------------------------------------------------------------------

24 TRANSITION SERVICES AGREEMENT EXHIBIT "C" EX-10.94 3 EX-10.94 1 EXHIBIT 10.94 STOCK PURCHASE AGREEMENT EFFECTIVE AS OF APRIL 1, 1999 BY AND AMONG MEDICIS PHARMACEUTICAL CORPORATION AS BUYER UCYCLYD PHARMA, INC. AS THE COMPANY AND SYED E. ABIDI, WILLIAM BRUSILOW, SUSAN E. BRUSILOW, AND NORBERT L. WIECH AS SELLERS 2 TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS................................................. 1 ARTICLE II SALE AND TRANSFER OF SHARES; CLOSING........................ 7 2.1. Shares...................................................... 7 2.2. Purchase Price.............................................. 7 2.3. Closing..................................................... 8 2.4. Closing Obligations......................................... 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 9 3.1. Organization and Good Standing.............................. 9 3.2. Authority; No Conflict...................................... 10 3.3. Capitalization.............................................. 10 3.4. Financial Statements........................................ 11 3.5. Compliance with Legal Requirements; Food and Drug Administration....................................... 11 3.6. Books and Records........................................... 14 3.7. Title to Properties; Encumbrances........................... 14 3.8. Condition and Sufficiency of Assets......................... 14 3.9. Accounts Receivable......................................... 14 3.10. Inventory................................................... 14 3.11. No Undisclosed Liabilities.................................. 15 3.12. Taxes....................................................... 15 3.13. No Material Adverse Change.................................. 16 3.14. Employee Benefits........................................... 17 3.15. Compliance with Legal Requirements; Governmental Authorizations............................................ 18 3.16. Legal Proceedings; Orders................................... 19 3.17. Absence of Certain Changes and Events....................... 20 3.18. Contracts; No Defaults...................................... 21 3.19. Insurance................................................... 22 3.20. Environmental Matters....................................... 24 3.21. Employees................................................... 24 3.22. Labor Relations; Compliance................................. 25 3.23. Intellectual Property....................................... 25 3.24. Certain Payments............................................ 26 3.25. Disclosure.................................................. 26 3.26. Brokers or Finders.......................................... 26 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..................... 26 4.1. Organization and Good Standing.............................. 27 4.2. Authority; No Conflict...................................... 27 4.3. Investment Intent........................................... 27 4.4. Certain Proceedings......................................... 27 4.5. Brokers or Finders.......................................... 27 i 3 ARTICLE V COVENANTS OF BUYER.......................................... 28 5.1. FDA Drug Filing............................................. 28 5.2. Raw Material Supply......................................... 28 5.3. Post-Closing Filings........................................ 28 ARTICLE VI INDEMNIFICATION; REMEDIES................................... 29 6.1. Survival; Right to Indemnification.......................... 29 6.2. Indemnification and Payment of Damages by Sellers........... 29 6.3. Indemnification and Payment of Damages by Buyer............. 29 6.4. Procedures for Indemnification -- Third Party Claims........ 30 6.5. Procedure for Indemnification -- Other Claims............... 31 6.6. Right of Set-Off............................................ 31 6.7. Limitation.................................................. 31 6.8. Maximum Liability........................................... 31 ARTICLE VII GENERAL PROVISIONS.......................................... 32 7.1. Expenses.................................................... 32 7.2. Public Announcements........................................ 32 7.3. Confidentiality............................................. 32 7.4. Notices..................................................... 32 7.5. Dispute Resolution.......................................... 34 7.6. Further Assurances.......................................... 36 7.7. Waiver...................................................... 36 7.8. Entire Agreement and Modification........................... 36 7.9. Assignments, Successors, and No Third-Party Rights.......... 37 7.10. Severability................................................ 37 7.11. Article and Section Headings, Construction.................. 37 7.12. Time of Essence............................................. 37 7.13. Governing Law............................................... 37 7.14. Counterparts................................................ 37 ii 4 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made effective as of April 1, 1999, by and among MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("BUYER"), UCYCLYD PHARMA, INC., a Maryland corporation (the "COMPANY"), and SYED E. ABIDI, an individual resident in Maryland, WILLIAM BRUSILOW, an individual resident in Michigan, SUSAN E. BRUSILOW, an individual resident in Maryland, and NORBERT L. WIECH, an individual resident in Maryland, (Syed E. Abidi, William Brusilow, Susan E. Brusilow, and Norbert L. Wiech, collectively, "SELLERS"). RECITAL Sellers own and desire to sell all of the issued and outstanding shares of common stock (the "SHARES") of the Company. Each of the Sellers owns and desires to sell one hundred (100) shares of common stock of the Company, which constitute all of the shares of stock of the Company owned by such Seller and, in the aggregate, constitute all of the issued and outstanding shares of stock of the Company. Buyer desires to purchase the Shares for the consideration and on the terms set forth in this Agreement. The parties, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified or referred to in this Article I: "ACCOUNTS RECEIVABLE"-- as defined in Section 3.9. "APPLICABLE CONTRACT"-- any Contract listed or required to be listed in the Disclosure Letter. "AFFILIATE"-- any Person who, at the time such determination is being made, is Controlling, Controlled by or under common Control with, such Person. As used in this Agreement, the term "Control," whether used as a noun or verb, refers to the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and Control will be presumed to exist, with respect to any Person, where any other Person of which the securities or other ownership interests representing fifty percent (50%) or more of the equity or fifty percent (50%) is owned, Controlled or held, directly or indirectly, by such Person. "ARTICLES"-- the articles of incorporation of the Company. 5 "BALANCE SHEET"-- as defined in Section 3.4. "BREACH"-- a "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been (a) any material breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, or (b) any claim (by any Person) has been made in writing to the Company or, to Company's Knowledge otherwise communicated, to the Company that there has occurred a material breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision. "BUSINESS DAY"-- any day other than a Saturday, Sunday, or public holiday under the laws of Arizona. "BUYER"-- as defined in the first paragraph of this Agreement. "BUYER'S CLOSING DOCUMENTS"-- as defined in Section 4.2(a). "BY-LAWS"-- the by-laws of the Company. "CHANGE OF CONTROL"-- any (a) merger, reorganization, recapitalization, consolidation, share exchange, business combination, liquidation, dissolution or other similar transaction involving Buyer pursuant to which Buyer is not the surviving entity; (b) sale, lease, exchange, transfer or other disposition (other than to an Affiliate of Buyer) of all or substantially all of the assets of Buyer, other than inventory disposed of in the ordinary course; or (c) sale, lease, exchange, transfer or other disposition (other than to an Affiliate of Buyer) of all or substantially all of the assets of the Company or a controlling interest in the stock of the Company (other than to an Affiliate of the Buyer). "CLOSING"-- as defined in Section 2.3. "CLOSING DATE"-- the date and time as of which the Closing actually takes place. "COLLECTIVE BARGAINING AGREEMENT"-- any agreement entered into between Company and an employee union that regulates the terms of employment. "COMPANY"-- as defined in the first paragraph of this Agreement. "COMPANY PLAN"-- all Plans of which the Company is or was a Plan Sponsor, or to which the Company otherwise contributes or has contributed, or in which the Company otherwise participates or has participated. All references to Plans are to Company Plans unless the context requires otherwise. "COMPANY'S KNOWLEDGE"-- the actual knowledge as of the date that a specific representation or warranty is made or deemed made, after good faith inquiry, of any Seller or Key Employee. 2 6 "CONSENT"-- any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "CONFIDENTIALITY AGREEMENT"-- as defined in Section 2.4(a)(iii). "CONTRACT"-- any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding (a) under which the Company has or may acquire any rights, (b) under which the Company has or may become subject to any obligation or liability, or (c) by which the Company or any of the assets owned or used by it is or may become bound, in each case to which the Company is a party, or, to Company's Knowledge, exists. "DAMAGES"-- as defined in Section 6.2. "DISCLOSURE LETTER"-- the disclosure letter delivered by the Company and Sellers to Buyer concurrently with the execution and delivery of this Agreement. "DRUG FILING PROCESS"-- as defined in Section 5.1. "ENCUMBRANCE"-- any mortgage, charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction or adverse claim of any kind. "ENVIRONMENT"-- soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"-- any cost, damages, expense, liability, obligation, or other responsibility arising from or under Environmental Law. "ENVIRONMENTAL LAW"-- any Legal Requirement, whether now existing or subsequently enacted or amended, relating to (a) pollution or protection of the Environment, including natural resources, (b) exposure of Persons, including but not limited to employees, to Hazardous Materials, (c) protection of the public health or welfare from the effects of products, by-products, wastes, emissions, discharges, migration, or releases of Hazardous Materials or (d) regulation of the manufacture, use or introduction into commerce of Hazardous Materials including their manufacture, formulation, packaging, labeling, distribution, generation, transportation, handling, treatment, storage or disposal. Without limitation, "Environmental Law" shall also include (a) any Government Authorization issued pursuant to any Environmental Law and the terms and conditions thereof and (b) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. 9601 et seq., Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. 6901 et seq., Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. 1251 et seq., Clean Air Act of 1966, as amended, 42 U.S.C. 7401 et seq., Toxic Substances Control Act of 1976, 15 U.S.C. 2601 et seq., Hazardous Materials Transportation Act, 49 U.S.C. Section 5101, et seq., Occupational Safety and Health Act of 1970, as 3 7 amended, 29 U.S.C. 651 et seq., Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. 11001 et seq., Safe Drinking Water Act of 1974, as amended, 42 U.S.C. 300(f) et seq., and any similar or implementing state law, and all amendments, rules, regulations and guidance documents promulgated thereunder. "ESCROW AGREEMENT"-- escrow agreement to be entered into by Buyer, the Sellers and an escrow agent, in the form of Exhibit 6.6, subject only to the comments, if any, of the escrow agent as to its rights and obligations thereunder. "ERISA"-- the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "FDA"-- the United States Food and Drug Administration. "FDCA"-- as defined in Section 3.5(b)(ii). "FACILITIES"-- any real property or leaseholds currently or formerly owned or operated by the Company. "GAAP"-- generally accepted United States accounting principles, applied on a basis consistent with the basis on which the Balance Sheet and the other financial statements referred to in Section 3.4 were prepared. "GOOD MANUFACTURING PRACTICES"-- manufacturing practices that comply with the rules established by the FDA (as encompassed in the U.S. Code of Federal Regulations) governing the manufacturing, processing, packing or holding of drugs. "GOVERNMENTAL AUTHORIZATION"-- any approval, consent, license, permit, certification, registration or other authorization issued or waiver granted by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "GOVERNMENTAL BODY"-- any: (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); or (d) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "HAZARDOUS ACTIVITY"-- the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, 4 8 treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities or any part thereof into the Environment, and any other act, business, operation, or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property on or off the Facilities, or that may affect the value of the Facilities or the Company. "HAZARDOUS MATERIALS"-- any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor, asbestos or asbestos-containing materials, radon and urea-formaldehyde. "INDEMNIFIED PERSONS"-- as defined in Section 6.2. "INTELLECTUAL PROPERTY ASSETS"-- as defined in Section 3.23. "INTERIM BALANCE SHEET"-- as defined in Section 3.4. "IRC"-- the Internal Revenue Code of 1986 or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "IRS"-- the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury. "IV DRUG" -- the intravenous form of sodium benzoate/sodium phenylacetate sold by the Company which is currently under an Investigational New Drug Status from the FDA. "KEY EMPLOYEE"-- an employee listed in Section 2.4(a)(iii). "LEGAL REQUIREMENT"-- any material federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, court order, consent, decree, regulation, statute, or treaty. "MULTI-EMPLOYER PLAN"-- has the meaning given in ERISA Section 3(37)(A). "NEW DRUG APPLICATION"-- the application required, by 21 U.S.C. Section 355, to be submitted to the FDA for introduction or delivery of a new drug in accordance with the procedures set forth in 21 C.F.R. Section 314.50. "NONCOMPETITION AGREEMENTS"-- as defined in Section 2.4(a)(ii). "NOTES"-- as defined in Section 2.2(a). "OCCUPATIONAL SAFETY AND HEALTH LAW"-- any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions. 5 9 "ORDER"-- any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator, in all cases, having jurisdiction. "OTHER BENEFIT OBLIGATIONS"-- all obligations to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, or agents, other than obligations that are Plans. Other Benefit Obligations include consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, and fringe benefits within the meaning of IRC Section 132. "PBGC"-- the Pension Benefit Guaranty Corporation, or any successor thereto. "PENSION PLAN"-- has the meaning given in ERISA Section 3(2)(A). "PERSON"-- any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "PLAN"-- has the meaning given in ERISA Section 3(3). "PLAN SPONSOR"-- has the meaning given in ERISA Section 3(16)(B). "PROCEEDING"-- any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PROPRIETARY RIGHTS AGREEMENT"-- as defined in Section 3.21. "PURCHASE PRICE"-- as defined in Section 2.2. "QUALIFIED PLAN"-- any Plan that meets or purports to meet the requirements of IRC Section 401(a). "REPRESENTATIVE"-- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "SALE OF IV DRUG"-- any sale, license, lease, exchange, transfer or other disposition (other than to an Affiliate of Buyer) of the rights relating to the IV Drug purchased by Buyer pursuant to this Agreement. "SECTION 338(h)(10) ELECTION"-- as defined in Section 3.12(f)(i). "SECURITIES ACT"-- the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "SELLERS"-- as defined in the first paragraph of this Agreement. "SHARES"-- as defined in the Recitals of this Agreement. 6 10 "TAX"-- any tax, deficiency, or other fee, and any related charge or amount (including any fine, penalty, interest, or addition to tax), imposed, assessed, or collected by or under the authority of any Governmental Body or payable pursuant to any tax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, deficiency, or fee. "TAX RETURN"-- any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "THREATENED"-- a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made in writing or any written notice has been given, or to Company's Knowledge any demand or statement has otherwise been made or to Company's Knowledge, any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. "TITLE IV PLANS"-- all Pension Plans that are subject to Title IV of ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer Plans. "TRANSACTION DOCUMENTS"-- this Agreement and the Noncompetition Agreements. "WELFARE PLAN"-- has the meaning given in ERISA Section 3(1). ARTICLE II SALE AND TRANSFER OF SHARES; CLOSING 2.1 SHARES. Subject to the terms and conditions of this Agreement, at the Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares from Sellers. Each of the Sellers owns, and will sell and transfer to Buyer, and Buyer will purchase, the number of shares of common stock of the Company as follows:

Name Number of Shares - ---- ---------------- Syed E. Abidi 100 William Brusilow 100 Susan E. Brusilow 100 Norbert L. Wiech 100

2.2 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for the Shares shall be the aggregate amount of Twenty Three Million Five Hundred Thousand Dollars ($23,500,000) and will be paid as follows: 7 11 (a) Thirty Seven Thousand Seven Hundred Fifty Dollars ($37,750) per Share (an aggregate of Fifteen Million One Hundred Thousand Dollars ($15,100,000)) at the Closing in the form of one or more promissory notes in the form of Exhibit 2.2(a) (the "NOTES"); (b) Six Thousand Seven Hundred Fifty Dollars ($6,750) per Share (an aggregate of Two Million Seven Hundred Thousand Dollars ($2,700,000)) within fifteen (15) days after the receipt by the Company of regulatory approval of the IV Drug by the FDA or as otherwise provided in Section 5.1; (c) Fourteen Thousand Two Hundred Fifty Dollars ($14,250) per Share (an aggregate of Five Million Seven Hundred Thousand Dollars ($5,700,000), on the first anniversary of the Closing Date, provided that the Company has had an uninterrupted supply of Buphenyl (the "DRUG"). For purposes of this Agreement the term "uninterrupted supply of the Drug" shall mean that (i) Company has received not less than 1,100 kilograms of sodium phenylbutyrate in its raw material form by the one year anniversary of the Closing Date and such raw materials (or an adequate portion thereof) are produced and supplied in accordance with all NDA approved specifications in effect on the Closing Date or (ii) Company is able to maintain in its inventory at all times not less than a three month useable supply of the Drug based on usage levels as of the Closing Date. (d) A Purchase Price payment contained in this Section 2.2 may be withheld by Buyer pursuant to the procedures set forth in Section 6.6 and the Escrow Agreement in the event that any indemnification claim has been made by Buyer against any Seller or Sellers in accordance with Article VI when such payment becomes due. Such indemnification claim shall be resolved in accordance with the dispute resolution procedures set forth in this Agreement. (e) Except as provided in Section 2.2(d), in the event Buyer fails to make the payment due and payable pursuant to Section 2.2(c) within fifteen (15) days of the due date thereof, all amounts payable pursuant to Section 2.2(b) shall become immediately due and payable. (f) Notwithstanding anything to the contrary contained in this Section 2.2, in the event of a Change of Control, all amounts payable pursuant to Section 2.2 shall become immediately due and payable. (g) Notwithstanding anything to the contrary contained in this Section 2.2, in the event that at any time there is a Sale of the IV Drug or there is a change in the formulation of the IV Drug that would substantially and adversely affect the timing of the payments to be made pursuant to Section 2.2(b), all amounts payable pursuant to Section 2.2(b) shall become immediately due and payable. (h) No portion of the Purchase Price is intended as compensation for the undertakings of the parties under the Noncompetition Agreements. 2.3 CLOSING. The purchase and sale (the "CLOSING") provided for in this Agreement will take place at the offices of Buyer's counsel on Monday, at 10:00 a.m. (local time) on April 12, 1999, or at such other time and place as the parties may agree. 8 12 2.4 CLOSING OBLIGATIONS. At the Closing: (a) Sellers will deliver to Buyer: (i) certificates representing the Shares, duly endorsed (or accompanied by duly executed stock powers), for transfer to Buyer; (ii) four noncompetition agreements in the form of Exhibit 2.4(a)(ii), one executed by each of the Sellers (collectively, the "NONCOMPETITION AGREEMENTS"); and (iii) two confidentiality agreements, including terms of continued employment with the Company following the Closing, in the form of Exhibit 2.4(a)(iii), one executed by each Key Employee, namely Chris Wiech and Maureen Varnes (collectively, the "CONFIDENTIALITY AGREEMENTS"). (b) Buyer will deliver to Sellers: (i) a Note in the following principal amounts payable to the order of each of the Sellers, respectively, as follows: $3,775,000 to Syed E. Abidi; $3,775,000 to William Brusilow; $3,775,000 to Susan E. Brusilow; and $3,775,000 to Norbert L. Wiech; and (ii) the Noncompetition Agreements and the Confidentiality Agreements. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Buyer as follows which representations and warranties shall be deemed to be made as of and speak as of the Closing Date: 3.1 ORGANIZATION AND GOOD STANDING. (a) Part 3.1 of the Disclosure Letter contains a complete and accurate list for the Company of its name, its jurisdiction of incorporation, other jurisdictions in which it is authorized to do business, and its capitalization (including the identity of each stockholder and the number of shares held by each). The Company is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under the Applicable Contracts. The Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the 9 13 ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. (b) Buyer has been provided copies of the Articles, the By-laws, and certificates evidencing qualification to do business in the jurisdictions set forth in Part 3.1 of the Disclosure Letter, as currently in effect. 3.2 AUTHORITY; NO CONFLICT. (a) This Agreement constitutes the legal, valid, and binding obligation of the Company and Sellers, enforceable against the Company and Sellers in accordance with its terms. Upon the execution and delivery of the Transaction Documents, the Transaction Documents will constitute the legal, valid, and binding obligations of the Company and Sellers, respectively, enforceable against such parties in accordance with their respective terms. (b) Except as set forth in Part 3.2 of the Disclosure Letter, neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated by the Transaction Documents will (with or without notice or lapse of time): (i) conflict with or result in a violation of (A) any provision of the Articles or By-laws of the Company, or (B) any resolution adopted by the board of directors or the stockholders of the Company; (ii) to Company's Knowledge, conflict with or result in a violation of, any Legal Requirement or any Order to which the Company or any Seller, or any of the assets owned or used by the Company, or the Shares may be subject; (iii) conflict with, or result in a violation of any of the terms or requirements of, any Governmental Authorization that is held by the Company or that otherwise relates to the business of, or any of the assets owned or used by, the Company; (iv) result in a violation or breach of any provision of, or to Company's Knowledge give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or (v) result in the creation of any Encumbrance upon or with respect to any of the assets owned or used by the Company. (c) Except as set forth in Part 3.2 of the Disclosure Letter, the Sellers and the Company will not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated by the Transaction Documents. 3.3 CAPITALIZATION. The authorized equity securities of the Company consist of five thousand (5,000) shares of common stock, with no par value per share, of which four hundred (400) shares are issued and outstanding and constitute the Shares. Sellers are and will 10 14 be on the Closing Date the record and beneficial owners and holders of the Shares free and clear of all Encumbrances as follows:

Name Number of Shares - ---- ---------------- Syed E. Abidi 100 William Brusilow 100 Susan E. Brusilow 100 Norbert L. Wiech 100

No legend or other reference to any purported Encumbrance appears on any certificate representing equity securities of the Company. All of the outstanding equity securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any equity securities or other securities of the Company. None of the outstanding equity securities or other securities of the Company were issued in violation of the Securities Act or any other Legal Requirement. The Company does not own, and does not have any Contract to acquire any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business. 3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) balance sheets of the Company as at December 31 in each of the years 1996 and 1997 and the related statements of income and cash flow for each of the fiscal years then ended, and (b) a balance sheet of the Company as at December 31, 1998 (including the notes thereto, the "BALANCE SHEET"), and the related statements of income and cash flow for the fiscal year then ended, together with the compilation report thereon of Glass, Jacobson & Associates, PA, independent Certified Public Accountants, including in each case the notes thereto and (c) a balance sheet of the Company as of March 31, 1999 (the "INTERIM BALANCE SHEET"). Subject to the limitations expressed in the accompanying reports of such accountants and, with regard to the Interim Balance Sheet subject to normal year-end adjustments, such financial statements and notes fairly present in all material respects the financial condition and the results of operations and cash flow of the Company as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP; the financial statements referred to in this Section 3.4 reflect the consistent application of such accounting principles throughout the periods. No financial statements of any Person other than the Company are required by GAAP to be included in the financial statements of the Company. 3.5 COMPLIANCE WITH LEGAL REQUIREMENTS; FOOD AND DRUG ADMINISTRATION. (a) Part 3.5 of the Disclosure Letter contains a complete and accurate list of each Governmental Authorization that is held by the Company or that otherwise relates to the business of, or to any of the assets owned or used by, the Company. Each Governmental Authorization listed or required to be listed in Part 3.5 of the Disclosure Letter is valid and in full force and effect. 11 15 (b) Except as set forth in Part 3.5 of the Disclosure Letter: (i) the Company has obtained all Governmental Authorizations required by the FDA to permit the Company to lawfully manufacture, market and export products in the manner that it currently conducts and operates its business operations and to permit the Company to own and use its assets in the manner in which it currently owns and uses such assets. These include: (A) approval by the FDA of a New Drug Application for Buphenyl (sodium phenylbutyrate) in tablet dosage form (NDA 20-572) dated May 13, 1996; (B) approval by the FDA of a New Drug Application for Buphenyl (sodium phenylbutyrate) in powder dosage form (NDA 20-573) dated April 30, 1996; (C) a grant of orphan drug status to sodium phenylbutyrate in powder and tablet dosage form, number 93-778 dated 11/22/93; and (D) the Company's acknowledgement of transfer of responsibility dated January 25, 1996 relating to the investigational new drug application (IND) for the intravenous administration of sodium benzoate/sodium phenylacetate, IND 17-123, and certain supplements thereto. (ii) the Company is, and at all times since April 30, 1996 has been, in compliance in all material respects with each Legal Requirement of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. Section 201 et seq., ("FDCA") and the regulations of the FDA, for holders of New Drug Applications that is, or was, applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets. These include, but are not limited to, the following: (A) all product-specific, post-approval study requirements known as the "Phase IV Commitments" for the New Drug Application approvals of Buphenyl have been met, discharged, or otherwise lifted by FDA; (B) the Company and to the Company's Knowledge, its contract manufacturers have complied in all material respects with all requirements regarding registration as drug manufacturing establishments. All documents necessary to update or renew such registration by the Company have been filed with the FDA; (C) the Company and to the Company's Knowledge, its contract manufacturers have complied in all material respects with all requirements regarding listing of all drug products that it manufactures, sells or distributes, including process validations. 12 16 All documents necessary to update or renew such listing by the Company have been filed with the FDA; (D) the Company and to the Company's Knowledge, its contract manufacturers have complied in all material respects with all requirements regarding the labeling and distribution of its products, including but not limited to submission of sample labels and promotional materials to the FDA for review, and revision of labeling at the direction of the FDA; (E) the Company and its contract manufacturers are in compliance in all material respects with all FDA requirements for current Good Manufacturing Practices. Production and distribution can continue without interruption upon Closing; and (F) the Company has been inspected by the FDA. No outstanding matters remain to be corrected from the most recent FDA inspection of the Company. (iii) no event has occurred or circumstance exists that (with or without notice or lapse of time) (A) may constitute or result in a violation of, or a failure to comply with, any Legal Requirement of the FDCA, regulations of the FDA, by the Company, or to the Company's Knowledge its contract manufacturers or their successors, (B) may give rise to any obligation on the part of the Company, or to the Company's Knowledge its contract manufacturers or their successors to undertake, or to bear all or any portion of the cost of, any remedial action of any nature or (C) may result directly or indirectly in the revocation, withdrawal, suspension, compliance action, cancellation, or termination of, or any modification to, any FDA or other Governmental Authorization listed or required to be listed in this part or in Part 3.15 of the Disclosure Letter; (iv) the Company and to Company's Knowledge, its contract manufacturers, have not received any notice or other communication (whether oral or written) from FDA or any Governmental Body or any other Person regarding any actual, proposed, possible, or potential revocation, withdrawal, suspension, compliance action, cancellation, termination of, or modification to any Governmental Authorization; (v) the Company and the Sellers will cooperate in any necessary notification to the FDA of any change in ownership resulting from the execution and consummation of this Agreement; and (vi) to the Company's Knowledge, there is no reason why the Governmental Authorizations it has obtained from FDA will not be reissued or transferred in the ordinary course if required as a result of the execution and consummation of this Agreement. (c) Notwithstanding anything to the contrary contained in this Agreement, no representations or warranties whatsoever are made regarding the Drug Filing Process and the Company's rights in and to the Drug Filing Process, and the status thereof shall be deemed 13 17 received on an "AS IS, WHERE IS" basis; provided, however, that nothing in this Section 3.5(c) shall be interpreted to limit the representations and warranties regarding the IV Drug contained in this Agreement other than as set forth in this Section 3.5(c). 3.6 BOOKS AND RECORDS. The shareholder and board of director minutes and stock records which have been made available to Buyer, have been maintained by the Company in accordance with sound business practices and are complete and correct. At the Closing, all of those minutes and records will be in the possession of the Company. 3.7 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.7 of the Disclosure Letter contains a complete and accurate list of all real property, leaseholds, or other interests therein owned by the Company. The Company owns all the assets (whether real, personal, or mixed and whether tangible or intangible) that it purports to own, located in the facilities owned or operated by the Company or reflected as owned in the books and records of the Company, including all of the properties and assets reflected in the Balance Sheet and the Interim Balance Sheet (except for assets held under capitalized leases disclosed or not required to be disclosed in Part 3.7 of the Disclosure Letter and personal property sold since the date of the Balance Sheet and the Interim Balance Sheet, as the case may be, in the ordinary course of business), and all of the assets purchased or otherwise acquired by the Company since the date of the Balance Sheet (except for personal property acquired and sold since the date of the Balance Sheet in the ordinary course of business and consistent with past practice), which subsequently purchased or acquired assets (other than inventory and short-term investments) are listed in Part 3.7 of the Disclosure Letter. All material assets reflected in the Balance Sheet and Interim Balance Sheet are free and clear of all Encumbrances. 3.8 CONDITION AND SUFFICIENCY OF ASSETS. The equipment of the Company is structurally sound, is in good operating condition and repair, and is adequate for the uses to which it is being put. 3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company that are reflected on the Balance Sheet or the Interim Balance Sheet or on the accounting records of the Company as of the Closing Date (collectively, the "ACCOUNTS RECEIVABLE") represent or will represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible net of a two percent (2%) reserve (which reserve is adequate) and prompt payment discounts reflected on Schedule 3.9. Subject to such reserves, each of the Accounts Receivable either has been or will be collected in full, without any set-off, within one hundred twenty (120) days after the day on which it first becomes due and payable. There is no contest, claim, or right of set-off, other than returns in the ordinary course of business, under any Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Part 3.9 of the Disclosure Letter contains a complete and accurate list of all Accounts Receivable as of the date of the Interim Balance Sheet, which list sets forth the aging of such Accounts Receivable. 3.10 INVENTORY. All inventory of the Company is usable and salable in the ordinary course of business, except for advance orders of inventory that have been disclosed to the Buyer and obsolete items and items of below-standard quality, all of which have been written 14 18 off or written down to net realizable value in the Balance Sheet or the Interim Balance Sheet or on the accounting records of the Company as of the Closing Date, as the case may be. All inventories not written off have been priced at the lower of cost or market on a first in, first out basis. 3.11 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.11 of the Disclosure Letter, the Company has no liabilities or obligations of any nature except for liabilities or obligations reflected or reserved against in the Balance Sheet and current liabilities incurred in the ordinary course of business since the respective dates thereof. 3.12 TAXES. (a) The Company has filed or caused to be filed all Tax Returns that are or were required to be filed on or before the Closing Date by or with respect to it pursuant to applicable Legal Requirements, including any Tax Return of any consolidated, unitary or combined group of which the Company is or was a member. Sellers have delivered to Buyer copies of, and Part 3.12 of the Disclosure Letter contains a complete and accurate list of, all such Tax Returns filed since 1995. The Company has paid, or made provision for the payment of, all Taxes that have or may have become due on or before the Closing Date pursuant to those Tax Returns or otherwise, or pursuant to any assessment received by Sellers or the Company, except such Taxes, if any, as are listed in Part 3.12 of the Disclosure Letter and are being contested in good faith and as to which adequate reserves (determined in accordance with GAAP) have been provided in the Balance Sheet and the Interim Balance Sheet. (b) The United States federal and state income Tax Returns of the Company subject to such Taxes have not been audited by the IRS or relevant state tax authorities, including any Tax Return of any consolidated, unitary or combined group of which the Company is or was a member. Except as described in Part 3.12 of the Disclosure Letter, the Sellers or Company have not given or been requested to give waivers or extensions (or is or would be subject to a waiver or extension given by any other Person) of any statute of limitations relating to the payment of Taxes of the Company or for which the Company may be liable. No audit or other proceeding by any Governmental Body is pending or threatened with respect to any Taxes due from or with respect to the Company or any Tax Return filed by or with respect to the Company. (c) The charges, accruals, and reserves with respect to Taxes on the respective books of the Company are adequate (determined in accordance with GAAP and the IRC) and are at least equal to the Company's liability for Taxes imposed with respect to periods ending on or before the Closing Date, including any liability for Taxes of any consolidated, unitary or combined group of which the Company is or was a member and for which the Company could be held liable. There exists no proposed tax assessment against the Company except as disclosed in the Balance Sheet or in Part 3.12 of the Disclosure Letter. No consent to the application of Section 341(f)(2) of the IRC has been filed with respect to any property or assets held, acquired, or to be acquired by the Company. All Taxes that the Company is or was required by Legal Requirements to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Body or other Person. The Company is not currently subject to an agreement or requirement to make any adjustment pursuant to Section 481 of the IRC by reason of any change in any accounting method of the Company and there is no 15 19 application pending with any Governmental Body requesting permission for any changes in any accounting period. The Company is not a "foreign person" within the meaning of Section 1445(b)(12) of the IRC. (d) All Tax Returns filed by the Company are true, correct, and complete. There is no tax sharing agreement that will require any payment by the Company after the date of this Agreement. (e) The Company has duly and validly filed an election for Subchapter S corporation status under the IRC and such Subchapter S election has not been revoked or terminated, and, except for the execution of this Agreement, neither the Company nor the Sellers has taken any action which would cause a termination of such Subchapter S election. (f) Tax Election. (i) Sellers shall join with the Buyer in making an election under Sections 338(g) and 338(h)(10) of the Code (and any corresponding elections under state, local or foreign tax law) (collectively a "SECTION 338(h)(10) ELECTION") with respect to the purchase and sale of the Shares. Sellers and Buyer also agree to make the state law equivalent of the Section 338(h)(10) Election wherever such election is available. Buyer shall prepare Forms 8023 and submit them to Sellers for signing. Buyer and Sellers shall fully cooperate in making the Section 338(h)(10) Election and similar available elections pursuant to applicable state and local laws. The parties agree to allocate the deemed purchase price of the assets of the Company pursuant to the procedures in Section 3.12(f)(ii) below. Sellers will pay any Tax attributable to the making of the Section 338(h)(10) Election and, without duplication, indemnify the Buyer against any financial obligations arising out of any failure to pay such Tax. Sellers will also pay any state, local, or foreign Tax and, without duplication, indemnify Buyer against any financial obligations arising out of any failure to pay such Tax attributable to an election under state, local, or foreign law similar to the Section 338(h)(10) Election (or which results from the making of a Section 338(h)(10) Election) with respect to the purchase and sale of the Shares hereunder where the state, local, or foreign tax jurisdiction (A) does not provide or recognize a Section 338(h)(10) Election or (B) does not apply its provisions corresponding to Section 338(h)(10) of the Code to the purchase and sale of the Shares. (ii) The Purchase Price, as adjusted, the liabilities of the Company, and any additional contingent consideration paid pursuant to this Agreement, shall be allocated among the assets of the Company as provided in Section 338 of the Code and the Treasury Regulations thereunder. Such allocations shall be as agreed upon by Buyer and Sellers. Upon agreement as to the final allocation, Buyer and Sellers shall not take any position on their respective Tax Returns that is inconsistent with such allocation of the Purchase Price, and Buyer and Sellers shall duly prepare and timely file such reports and information returns as may be required to report the allocation of the Purchase Price pursuant to this Section 3.12(f). 3.13 NO MATERIAL ADVERSE CHANGE. Except as contained in Part 3.13 of the Disclosure Letter, since the date of the Balance Sheet, there has not been any material adverse 16 20 change in the business, operations, properties, assets, or financial condition of the Company, other than changes that have occurred in the ordinary course substantially consistent with past practice, and to the Company's Knowledge no event has occurred or circumstance exists that may result in such a material adverse change. 3.14 EMPLOYEE BENEFITS. (a) Part 3.14 of the Disclosure Letter contains a complete and accurate list of all Company Plans and Company Other Benefit Obligations, and identifies as such all Company Plans that are defined benefit Pension Plans. (i) There is not now nor has there ever been a Company Plan which is a Title IV Plan or Multi-Employer Plan or which is otherwise subject to the minimum funding requirements imposed under IRC Section 412 and ERISA Section 302. (ii) There is not now nor have there ever been any Collective Bargaining Agreements. (iii) There is not now nor have there ever been any Company Plans which are Qualified Plans or Welfare Plans. (b) Sellers have delivered to Buyer: (i) all documents and related materials including all governmental notices that set forth the terms of each Company Plan or Company Other Benefit Obligation and any related trust; custodial account or other funding vehicle; (ii) all personnel, payroll, and employment manuals and policies applicable to employees of the Company; (iii) all insurance policies purchased by or to provide benefits under any Company Plan; (iv) all contracts with third party administrators, actuaries, investment managers, consultants, and other independent contractors that relate to any Company Plan or Company Other Benefit Obligation; and (v) a reasonably representative sample of notifications to employees of the Company of their rights under ERISA Section 601 et seq. and IRC Section 4980B. (c) Except as set forth in Part 3.14 of the Disclosure Letter: (i) The Company is in compliance in all material respects with ERISA. (ii) Other than claims for benefits submitted by participants or beneficiaries in the ordinary course of business, no claim against, or legal proceeding involving, any Company Plan or Company Other Benefit Obligation is pending or, to the Company's Knowledge, is Threatened. 17 21 (iii) No payment that is owed or may become due to any director, officer, employee, or agent of the Company will be non-deductible to the Company or subject to tax under IRC Section 280G or Section 4999; nor will the Company be required to "gross up" or otherwise compensate any such person because of the imposition of any excise tax on a payment to such person. (iv) The consummation of the transactions contemplated by the Transaction Documents will not result in the payment, vesting, or acceleration of any benefit. 3.15 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. (a) Except as set forth in Part 3.5 and Part 3.15 of the Disclosure Letter and except for Legal Requirements of the FDA and the FDCA: (i) The Company is, and at all times since November, 1994 has been, in compliance in all material respects with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets; (ii) To the Company's Knowledge, no event has occurred or circumstance exists that (A) may constitute or result in a violation by the Company of, or a failure on the part of the Company to comply with, any Legal Requirement, (B) may give rise to any obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any material nature or (C) may result in the imposition of a material lien against the Company or any of its property under any Legal Requirement; and (iii) The Company has not received, at any time since November 1994, any written notice or, to Company's Knowledge, any other communication, from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (B) any actual, alleged, possible, or potential obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any material nature. (b) Part 3.5 and Part 3.15 of the Disclosure Letter contain a complete and accurate list of each material Governmental Authorization that is held by the Company or that otherwise relates to the business of, or to any of the assets owned or used by, the Company. Each material Governmental Authorization listed or required to be listed in Part 3.5 and Part 3.15 of the Disclosure Letter is valid and in full force and effect. Except as set forth in Part 3.5 and Part 3.15 of the Disclosure Letter: (i) The Company is, and at all times since November 1994 has been, in compliance in all material respects with all of the terms and requirements of each Governmental Authorization identified or required to be identified in Part 3.5 and Part 3.15 of the Disclosure Letter. (ii) To the Company's Knowledge, no event has occurred or circumstance exists that may (A) constitute or result directly or indirectly in a violation of or a failure 18 22 to comply with any term or requirement of any Governmental Authorization listed or required to be listed in Part 3.5 and Part 3.15 of the Disclosure Letter, or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental Authorization listed or required to be listed in Part 3.5 and Part 3.15 of the Disclosure Letter. (iii) The Company has not received, at any time since November, 1994, any written notice or, to Company's Knowledge, any other communication, from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization, or (B) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization. (iv) All applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed in Part 3.5 and Part 3.15 of the Disclosure Letter have been duly filed, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made. The Governmental Authorizations listed in Part 3.5 and Part 3.15 of the Disclosure Letter collectively constitute all of the Governmental Authorizations necessary to permit the Company to lawfully conduct and operate its businesses in the manner it currently conducts and operates such businesses and to permit the Company to own and use its assets in the manner in which it currently owns and uses such assets. 3.16 LEGAL PROCEEDINGS; ORDERS. (a) Except as set forth in Part 3.16 of the Disclosure Letter, there is no pending Proceeding: (i) that has been commenced by or against the Company or that otherwise relates to or may affect the business of, or any of the assets owned or used by, the Company; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by the Transaction Documents. To the Company's Knowledge, (1) no such Proceeding has been Threatened, and (2) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. The Proceedings listed in Part 3.16 of the Disclosure Letter will not have a material adverse effect on the business, operations, properties, assets or financial condition of the Company. (b) Except as set forth in Part 3.16 of the Disclosure Letter: (i) there is no Order to which the Company, or any of the assets owned or used by the Company, is subject; 19 23 (ii) no Seller or Key Employee is subject to any Order that relates to the business of, or any of the assets owned or used by, the Company; and (c) Except as set forth in Part 3.16 of the Disclosure Letter: (i) the Company is, and at all times since November, 1994 has been, in compliance in all material respects with all of the terms and requirements of each Order to which it, or any of the assets owned or used by it, is or has been subject; (ii) no event has occurred or circumstance exists that may constitute or result in a violation of or failure to comply with any term or requirement of any Order to which the Company, or any of the assets owned or used by the Company, is subject; and (iii) the Company has not received, at any time since November, 1994, any written notice or, to Company's Knowledge other communication, from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company, or any of the assets owned or used by the Company, is or has been subject. 3.17 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part 3.17 of the Disclosure Letter, since the date of the Balance Sheet, the Company has conducted its business only in the ordinary course of business and there has not been any: (a) change with respect to the existing securities and rights pursuant thereto; (b) amendment to the Articles or By-laws of the Company, except as set forth in Part 3.17 of the Disclosure Letter; (c) except in the ordinary course of business, payment or increase by the Company of any bonuses, salaries, or other compensation to any stockholder, director, officer, or employee or entry into any employment, severance, or similar Contract with any director, officer, or employee; (d) except in the ordinary course of business, adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company; (e) except in the ordinary course of business and consistent with the Company's prior practice, any expense, dividend or other expenditure or transfer of any nature of the Company's cash by or from the Company; provided that (i) the Company may make distributions to the Sellers for the Company's profits during the period January 1, 1999 through March 31, 1999 to the extent that the sum of consolidated cash and 98% of the accounts receivable of the Company exceeds the sum of consolidated accrued expenses and Medicaid payables of the Company calculated using the Interim Balance Sheet (the "DISTRIBUTABLE PROFITS") or (ii) the Company may pay the following expenses from and in reduction of the Distributable Profits, such payments and expenses not to exceed $672,000 in the aggregate: cost 20 24 of product and general liability insurance covering an extended reporting period, severance pay to Key Employees, and legal and accounting fees and the Company may distribute any remaining Distributable Profits to the Sellers. Sellers shall not be entitled to the benefits of and shall not be liable for any obligations relating to changes in the results of operations or changes in financial condition of the Company from April 1, 1999 through Closing. Nothing contained in this Section 3.17(e) shall entitle Sellers to any distributions relating to any period on or after April 1, 1999; (f) damage to or destruction or loss of any asset or property of the Company, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company, taken as a whole; (g) entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, credit, or similar agreement, or (ii) any Contract or transaction involving a total remaining commitment by or to the Company of at least Ten Thousand Dollars ($10,000); (h) sale, lease, or other disposition of any asset or property of the Company (other than sales of inventory in the ordinary course of business), or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset or property of the Company, including the sale, lease, or other disposition of any of the Intellectual Property Assets; (i) cancellation or waiver of any claims or rights with a value to the Company in excess of One Thousand Dollars ($1,000); (j) material change in the accounting methods used by the Company; or (k) agreement, whether oral or written, by the Company to do any of the foregoing. 3.18 CONTRACTS; NO DEFAULTS. (a) Part 3.18(a) of the Disclosure Letter contains a complete and accurate list, and Sellers have delivered to Buyer true and complete copies, of: (i) each Contract that involves performance of services or delivery of goods or materials by the Company of an amount or value in excess of Ten Thousand Dollars ($10,000); (ii) each Contract that was out of the ordinary course of business and that involves expenditures, receipts or potential liability of the Company in excess of One Thousand Dollars ($1,000); (iii) each Contract (including any licensing agreement) to which the Company is a party with respect to patents, trademarks, copyrights, or other intellectual property, including Contracts to which the Company is a party with current or former employees, consultants, or contractors regarding the appropriation or the non-disclosure of any of the Intellectual Property Assets; 21 25 (b) Except as set forth in Part 3.18(b) of the Disclosure Letter, to Company's Knowledge, except as contemplated in the Transaction Documents, no Seller or Key Employee of the Company is bound by any Contract to which the Company is a party that purports to limit the ability of such Seller or Key Employee to (A) engage in or continue any conduct, activity, or practice relating to the business of the Company, or (B) assign to the Company or to any other Person any rights to any invention, improvement, or discovery relating to the business of the Company; (c) Except as set forth in Part 3.18(c) of the Disclosure Letter, each Applicable Contract is in full force and effect, and is valid and enforceable in accordance with its terms. (d) Except as set forth in Part 3.18(d) of the Disclosure Letter: (i) the Company is in compliance in all material respects with all applicable terms and requirements of each Applicable Contract; (ii) to Company's Knowledge, no event has occurred or circumstance exists that (with or without notice or lapse of time) may conflict with, or result in a violation or breach of, or give the Company or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; and (e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to the Company under current or completed Applicable Contracts with any Person and no such Person has made written demand for such renegotiation. (f) The Applicable Contracts relating to the sale, manufacture, or provision of products by the Company have been entered into in the ordinary course of business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. 3.19 INSURANCE. (a) Sellers have delivered to Buyer: (i) true and complete copies of all policies of insurance to which the Company is a party or under which the Company, or any director of the Company, is or has been covered at any time since November 1994; and (ii) true and complete copies of all pending applications for policies of insurance. (b) Except as set forth in Part 3.19(b) of the Disclosure Letter there are no: 22 26 (i) self-insurance arrangements by or affecting the Company, including any reserves established thereunder; (ii) contracts or arrangements, other than a policy of insurance, for the transfer or sharing of any risk by the Company; and (iii) obligations of the Company to third parties with respect to insurance. (c) Part 3.19(c) of the Disclosure Letter sets forth, by year, for the current policy year and each of the three (3) preceding policy years: (i) a summary of the loss experience under each policy; (ii) a statement describing each claim under an insurance policy for an amount in excess of One Thousand Dollars ($1,000), which sets forth: (A) the name of the claimant; (B) a description of the policy by insurer, type of insurance, and period of coverage; and (C) the amount and a brief description of the claim. (iii) a statement describing the loss experience for all claims that were self-insured, including the number and aggregate cost of such claims. (d) Except as set forth on Part 3.19(d) of the Disclosure Letter: (i) All policies to which the Company is a party or that provide coverage to any Seller, the Company, or any director or officer of the Company: (A) are valid, outstanding, and enforceable; (B) are issued by an insurer that is financially sound and reputable, as Buyer in its discretion may determine; (C) taken together, provide reasonable insurance coverage for the assets and the operations of the Company; (D) are sufficient for compliance with all Legal Requirements and Applicable Contracts to which the Company is a party or by which any of them is bound; (E) will be in full force and effect upon the consummation of the transactions contemplated by the Transaction Documents; and (F) do not provide for any retrospective premium adjustment or other experienced-based liability on the part of the Company. 23 27 (ii) The Sellers or Company have not received (A) any refusal of coverage or any notice that a defense will be afforded with reservation of rights, or (B) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder. (iii) The Company has paid all premiums due, and have otherwise performed all of their respective obligations, under each policy to which the Company is a party or that provides coverage to the Company or director thereof. (iv) The Company has given notice to the insurer of all claims that may be insured thereby. 3.20 ENVIRONMENTAL MATTERS. Except as set forth in part 3.20 of the Disclosure Letter: (a) The Company is, and at all times has been, in compliance in all material respects with, and has not been and is not in violation of or liable under, any Environmental Law. (b) There are no pending or, to the Company's Knowledge, Threatened, claims, Encumbrances, or other restrictions of any nature, resulting from any Environmental, Health, and Safety Liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the Facilities or any other properties and assets in which the Company has or had an interest. (c) The Sellers or Company have not received any communication that relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential violation or failure to comply with any Environmental Law, or of any alleged, actual, or potential obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Facilities. (d) There are no Hazardous Materials present on or in the Environment at the Facilities, including any Hazardous Materials contained on the Facilities. The Company has not permitted or conducted, and to Company's Knowledge no Hazardous Activity has been conducted, with respect to the Facilities. (e) There are no reports, studies, analyses or tests possessed or initiated by the Company pertaining to Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or concerning compliance by the Company with Environmental Laws. 3.21 EMPLOYEES. (a) Part 3.21 of the Disclosure Letter contains a complete and accurate list of the following information for each employee or director of the Company: job title; current compensation paid or payable; vacation accrued; and service credited for purposes of vesting and eligibility to participate under the Company's pension, retirement, insurance, medical, welfare, vacation or any other plan or Other Benefit Obligations. There are no employees on leave of absence or layoff status. 24 28 (b) Except as set forth in the Transaction Documents, no employee of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such employee and any other Person ("PROPRIETARY RIGHTS AGREEMENT") that in any way adversely affects or will affect (i) the performance of his duties as an employee of the Company, or (ii) the ability of the Company to conduct its business. (c) Part 3.21 of the Disclosure Letter also contains a complete and accurate list of the names and respective benefits, in any form, for each retired employee or director of the Company, or their dependents, receiving benefits or scheduled to receive benefits in the. 3.22 LABOR RELATIONS; COMPLIANCE. There is no Proceeding against or affecting the Company relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, organizational activity, or other labor or employment dispute against or affecting the Company or their premises, or (c) any application for certification of a collective bargaining agent. The Company has complied in all material respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. 3.23 INTELLECTUAL PROPERTY. Part 3.23 of the Disclosure Letter contains a complete and accurate list and summary description of all patents, trademark, trade names, service marks, copyrights, proprietary software, trade secrets, and know-how, owned, used or licensed by the Company (the "INTELLECTUAL PROPERTY ASSETS"). The Intellectual Property Assets owned by the Company, listed in Part 3.23 of the Disclosure Letter, are free and clear of all Encumbrances, other than claims of licensors identified in Part 3.23 of the Disclosure Letter. (a) To the Company's actual knowledge, the Company is not in default under, and has not received any written notice of any claim of infringement or any other claim or proceeding relating to any Intellectual Property Assets. Except as set forth in the Transaction Documents and in Part 3.23 of the Disclosure Letter, no present or former employee of the Company and no other Person owns or has any proprietary, financial or other interest, direct or indirect, in whole or in part, in any Intellectual Property Asset. Except as set forth in Part 3.23 of the Disclosure Letter, to the Company's actual knowledge, the Company has taken all steps reasonably necessary to ensure the validity and enforceability of its Intellectual Property Assets. Except as set forth in Part 3.18 of the Disclosure Letter, there are no confidentiality or non-disclosure agreements to which the Company or to Company's Knowledge any Key Employees of the Company is a party which relate to the Intellectual Property Assets. To the Company's actual knowledge, having made no infringement searches, the Company has not used or sold and does not use or sell in its business any information, processes, or things which have violated or do violate the trademark rights, trade secret rights or copyrights of others. To the Company's actual knowledge, having made no patent infringement searches, the Company has not used or sold and does not use or sell in its business any information, processes or things which have 25 29 infringed or do infringe the patent rights of others. The Company has not received any notification, warning, threat of civil action, or other written notice that the Company has violated or is violating the patent, copyright, trademark or trade secret rights of others. To the Company's actual knowledge and other than as set forth in Part 3.23 of the Disclosure Letter, having made no patent infringement searches, there are no pending patent applications owned by any third parties which, if granted, would be infringed by the Company's current operations. (b) With regard to those Intellectual Property Assets that relate directly to urea cycle disorders, except as set forth in Part 3.23 of the Disclosure Letter (i) the Company is not in default under, and has not received any written notice of any claim of infringement or any other claim or proceeding; (ii) no present or former employee of the Company and no other Person owns or has any proprietary, financial or other interest, direct or indirect, in whole or in part; (iii) the Company has taken all steps reasonably necessary to ensure validity and enforceability; (iv) except as set forth in Part 3.18 of the Disclosure Letter, there are no confidentiality or non-disclosure agreements to which the Company or any Key Employees of the Company is a party; (v) the Company has not used or sold and does not use or sell in its business any information, processes or things which have infringed or do infringe the patent rights of others; and (vi) to the Company's actual knowledge, having made no patent infringement searches, there are no pending patent applications owned by any third parties which, if granted, would be infringed by the Company's current operations. (c) The Company has not used, sold or developed any patents, trade secrets or copyrights other than the Intellectual Property Assets. 3.24 CERTAIN PAYMENTS. The Company or its directors, officers, agents, or employees, or any other Person associated with or acting for or on behalf of the Company, have not directly or indirectly (a) made any illegal contribution or payment to any Person, private or public, regardless of form, whether in money, property, or services, or (b) established or maintained any fund or asset that has not been recorded in the books and records of the Company. 3.25 DISCLOSURE. No representation or warranty of Sellers in this Agreement and no statement in the Disclosure Letter omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. 3.26 BROKERS OR FINDERS. Except for Corporate Development Specialists Inc. (all of the fees and expenses of which shall be paid by the Sellers), the Company, Sellers and their agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows: 26 30 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. 4.2 AUTHORITY; NO CONFLICT. (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Buyer will cause the Company to execute and deliver the Consulting Agreement, the Noncompetition Agreements and the Confidentiality Agreements (collectively, the "BUYER'S CLOSING DOCUMENTS"). Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. (b) Neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated by the Transaction Documents will give any Person the right to prevent, delay, or otherwise interfere with any of the transactions contemplated by the Transaction Documents pursuant to: (i) any provision of Buyer's Organizational Documents; (ii) any resolution adopted by the board of directors or the stockholders of Buyer; (iii) any Legal Requirement or Order to which Buyer may be subject; or (iv) any material Contract to which Buyer is a party or by which Buyer may be bound. Except as set forth in Part 4.2 of the Disclosure Letter, Buyer is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated by the Transaction Documents. 4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. 4.4 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by the Transaction Documents. To Buyer's knowledge, no such Proceeding has been Threatened. 4.5 BROKERS OR FINDERS. Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold Sellers harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents. 4.6 WAIVERS OF FUTURE USER FEES. Buyer has actual knowledge that Sellers have informed Buyer that after the consummation of the transfer of the Shares as contemplated 27 31 by this Agreement, the Buyer and the Company may not be able to obtain waivers of certain future user fees based on the size or assets of the Company. 4.7 CHARGES FOR IV DRUG. Buyer has actual knowledge that Sellers have informed Buyer that after the consummation of the transfer of the Shares as contemplated by this Agreement, the Buyer and the Company may not be permitted to charge for the IV Drug with respect to compassionate IND sales. ARTICLE V COVENANTS OF BUYER 5.1 FDA DRUG FILING. (a) Buyer will at all times after Closing until the payment under Section 2.2(b) is made to the Sellers use reasonable best efforts to promptly complete and diligently pursue the NDA filing and FDA approval process for the IV Drug ("DRUG FILING PROCESS"). Buyer acknowledges that the costs associated with the Drug Filing Process may exceed the accrued expenses reflected on the Interim Balance Sheet for such purposes. Buyer will keep a designated representative of the Sellers reasonably informed of the status of the Drug Filing Process. In the event of a dispute regarding the Buyer's use of reasonable best efforts in diligently pursuing the Drug Filing Process, the Seller's designated representative may elect to have an independent consultant reasonably acceptable to both Buyer and Sellers review the status of the Drug Filing Process. Buyer shall use reasonable best efforts to follow such consultant's recommendations. Disputes regarding the Buyer's compliance with this Section 5.1(a) shall be subject to arbitration pursuant to Section 7.5 and in the event of a finding by the arbitrator that the Buyer has not complied in all material respects with its obligations contained in this Section 5.1(a), all amounts payable pursuant to Section 2.2(b) shall be immediately due and payable. (b) If Buyer, after complying in all material respects with its obligations contained in Section 5.1(a), has not obtained FDA approval for the IV Drug on or prior to the fourth anniversary of the Closing Date, Buyer may (i) continue to seek FDA approval for the IV Drug in accordance with its obligations under Section 5.1(a), (ii) pay to the Sellers the amounts set forth in Section 2.2(b) in full satisfaction of Buyer's obligations under Sections 2.2(b) and 5.1 or (iii) surrender all rights and information relating to the IV Drug or the IV NDA to Sellers in full satisfaction of Buyer's obligations under Sections 2.2(b) and 5.1. 5.2 RAW MATERIAL SUPPLY. Within 30 days of the Closing Date, Buyer shall cause the Company to place purchase orders on an expedited delivery basis with the Company's current bulk drug substance supplier such that if the orders are properly satisfied on a timely basis, Buyer will be provided with an "uninterrupted supply of the Drug" (as defined in Section 2.2(c)). Buyer shall cause the Company to pay all invoices incurred at the Company's sole cost and on a timely basis. 5.3 POST-CLOSING FILINGS. Buyer shall be responsible for all filings of the Company with Governmental Bodies that become due after the Closing Date (other than those relating to Sellers). 28 32 ARTICLE VI INDEMNIFICATION; REMEDIES 6.1 SURVIVAL; RIGHT TO INDEMNIFICATION. All representations, warranties, covenants, and obligations in this Agreement and the Disclosure Letter will survive the Closing for a period of three (3) years, except for (i) all representations, warranties, covenants and obligations in Sections 3.5 and 3.15 and the Disclosure Letter Sections 3.5 and 3.15, which will survive the Closing for a period of 30 months and (ii) unpaid Taxes which shall survive the Closing for the applicable statute of limitations and (iii) matters concerning title to the Shares, which will survive the Closing without limitation. Except as otherwise set forth in Section 6.2, the right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation by the Buyer prior to or after the Closing, or information capable of being acquired prior to the Closing, except to the extent that the Buyer had been informed in writing by Sellers or the Company prior to the Closing Date or to the extent Buyer had actual knowledge (but only to the extent of such knowledge) prior to the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. 6.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. By virtue of their execution of this Agreement, each of the Sellers shall be deemed to have agreed that, subject to the provisions of this Article VI, each of the Sellers, severally, will indemnify and hold harmless Buyer, the Company, and their respective Representatives, stockholders, controlling persons, and affiliates (collectively, the "INDEMNIFIED PERSONS") for, and each of the Sellers will pay to the Indemnified Persons Twenty-Five Percent (25%) of the amount of, any actual loss, liability, claim, damage, expense (including costs of investigation and defense and reasonable attorneys' fees), whether or not involving a third-party claim (collectively, "DAMAGES"), arising, directly or indirectly, from or in connection with: (a) any Breach of any representation or warranty made by the Company or the Sellers in this Agreement; (b) any Breach by the Company or any Seller of any covenant or obligation of the Company or such Seller in this Agreement; (c) any product sold, shipped or manufactured by, or any services provided by, the Company prior to the Closing Date except to the extent that any Damages are covered by insurance of the Company; or (d) any claim by any Person for brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with any Seller or the Company (or any Person acting on their behalf) in connection with any of the transactions contemplated by the Transaction Documents. 6.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the amount of any Damages arising, directly or indirectly, from or in connection with (a) any Breach of any representation or warranty made by Buyer in this Agreement, (b) any Breach by Buyer of any covenant or 29 33 obligation of Buyer in this Agreement, (c) any product sold, shipped or manufactured or any services provided by the Company subsequent to the Closing Date except to the extent that any Damages are covered by insurance, or (d) any claim by any Person for brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by such Person with Buyer (or any Person acting on its behalf) in connection with any of the transactions contemplated by the Transaction Documents. 6.4 PROCEDURES FOR INDEMNIFICATION -- THIRD PARTY CLAIMS. (a) Promptly after receipt by an indemnified party of notice of the commencement of any Proceeding against it, such indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnifying party's failure to give such notice. (b) If any Proceeding referred to in this Section 6.4 is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party will be entitled to participate in such Proceeding and, to the extent that it wishes (unless the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume and control the defense of such Proceeding with counsel reasonably satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense (and settlement, upon obtaining the prior written consent of the indemnified party) of such Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under this Article VI for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (i) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the indemnified party, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; (ii) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent; and (iii) the indemnifying party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within fifteen (15) days after the indemnified party's notice is given, give notice to the indemnified party of its election to assume the defense and control the defense and settlement of such Proceeding, the indemnifying party will be bound by any determination made in such Proceeding to which indemnification is applicable or any compromise or settlement effected by the indemnified party. (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its 30 34 affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). (d) Sellers hereby consent to the non-exclusive jurisdiction of any court (with right of removal to federal court) in which a Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree that process may be served on Sellers with respect to such a claim anywhere in the United States. 6.5 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought. Such claims shall be resolved in accordance with the procedures of Section 7.5 of this Agreement. 6.6 RIGHT OF SET-OFF. In the event that any indemnification claim has been made by Buyer against any Seller or Sellers prior to or when a Purchase Price payment becomes due as set forth in Section 2.2 herein, Buyer shall be entitled to withhold the amount of such indemnification claim (or portion thereof) that is not subject to dispute by the Sellers. To the extent all or any portion of such indemnification claim is subject to dispute when a Purchase Price payment is due, Buyer shall deposit cash in the amount of such indemnification claim subject to dispute in escrow in accordance with the terms of the Escrow Agreement. The amount deposited in escrow pursuant to this Section 6.6 shall be held pursuant to the terms of the Escrow Agreement pending the resolution of the dispute in accordance with the dispute resolution procedures set forth in this Agreement. The parties shall in good faith select a mutually agreeable bank doing business in Delaware as escrow agent. 6.7 LIMITATION. Notwithstanding anything to the contrary contained herein, neither the Buyer nor the Sellers (as a group) shall be entitled to indemnification from any Seller or the Buyer, respectively, for Damages except and to the extent that such Damages, in the aggregate, exceed the amount of One Hundred Thousand Dollars ($100,000). 6.8 MAXIMUM LIABILITY. The indemnification rights provided in this Article VI shall be the exclusive remedy for the breach by any party of any representation, warranty, covenant or obligation by such party in this Agreement. The parties hereby agree that (a) the maximum aggregate liability of any Seller under this Article VI shall in no event exceed such Seller's pro rata portion of the Purchase Price received by such Seller or to which such Seller would be entitled to be paid but for the provisions of this Article VI and (b) the maximum aggregate liability of Buyer under this Article VI shall in no event exceed Twenty Four Million Dollars ($24,000,000), not including any unpaid portions of the Purchase Price. 31 35 ARTICLE VII GENERAL PROVISIONS 7.1 EXPENSES. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated by the Transaction Documents, including all fees and expenses of agents, representatives, counsel, and accountants. Sellers will cause the Company not to incur any out-of-pocket expenses in connection with this Agreement. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a Breach of this Agreement by another party. 7.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity with respect to this Agreement or the transactions contemplated by the Transaction Documents will be issued, if at all, at such time and in such manner as Buyer determines. Unless consented to by Buyer or Sellers, as the case may be, in advance or required by Legal Requirements, prior to the Closing, Sellers and Buyer shall, and shall cause the Company to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Sellers and Buyer will consult with each other concerning the means by which the Company' employees, customers, and suppliers and others having dealings with the Company will be informed of the transactions contemplated by the Transaction Documents, and Buyer will have the right to be present for any such communication. 7.3 CONFIDENTIALITY. Between the date of this Agreement and the Closing Date, Buyer and Sellers will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Company to maintain in confidence, any written, oral, or other information obtained in confidence from another party or the Company in connection with this Agreement or the transactions contemplated by the Transaction Documents, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated by the Transaction Documents, or (c) the furnishing or use of such information is required by legal proceedings. If the transactions contemplated by the Transaction Documents are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request. 7.4 NOTICES. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand, with written confirmation of receipt, (b) sent by telecopier, with written confirmation of receipt, provided that a copy is mailed by registered or certified mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): 32 36 Buyer: Medicis Pharmaceutical Corporation 4343 East Camelback Road, Suite 250 Phoenix, Arizona 85018-2700 Attention: Jonah Shacknai, Chairman and CEO Facsimile No.: (602) 808-3874 With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue Suite 4100 Dallas, Texas 75201 Attention: Alan M. Utay Facsimile No.: (214) 969-4343 The Company: Ucyclyd Pharma, Inc. 500 McCormick Drive, Suite J Glen Burnie, Maryland 21031 Attention: President Facsimile No.: (410) 785-2465 with a copy to each Seller and his/her counsel and to: Kauffman and Forman, P.A. 401 W. Pennsylvania Avenue Towson, Maryland 21204 Attention: Bruce E. Kauffman, Esquire Facsimile No.: 410-296-7349 Sellers: Syed E. Abidi 9 Timberwood Court Hunt Valley, Maryland 21030 Attention: Syed E. Abidi, Ph.D. Facsimile No.: (410) 785-2465 with a copy to: James S. Jacobs Jacobs & Dembert, P.A. One South Street, Suite 1910 Baltimore, Maryland 21202-3201 33 37 Facsimile No.: (410) 752-8105 William Brusilow, Ph.D. 1411 Iroquois Street Detroit, Michigan 48214 Facsimile No.: (313) 577-2765 Susan E. Brusilow Solomon, CFRE 5230 Elliott Road Bethesda, Maryland 20816 Facsimile No.: (301) 263-0765 with a copy to: John B. Ward, Jr. Thomsen and Burke LLP One North Charles Street, Suite 400 Baltimore, Maryland 21201 Facsimile No.: (410) 783-0710 Norbert L. Wiech, Ph.D. 10 Overshot Court Phoenix, Maryland 21131 Facsimile No.: (410) 683-4523 with a copy to: M. Peter Moser Piper & Marbury L.L.P. 36 South Charles Street Baltimore, Maryland 21201-3018 Facsimile No.: (410) 576-5050 7.5 DISPUTE RESOLUTION. (a) Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity of this Agreement or the rights of any party for indemnification hereunder (each, a "CLAIM"), shall be submitted for resolution in the first instance to one or more Persons designated by Sellers, for Sellers and the Chief Executive Officer of Buyer for Buyer. (b) If any Claim cannot be resolved by the individuals designated in Section 7.5(a) within thirty (30) days after being submitted to them, and except for the right of any party to apply to a court of competent jurisdiction for a temporary restraining order to preserve the status quo or to prevent irreparable harm pending the selection and confirmation of an arbitrator in accordance herewith, such Claim shall be settled by arbitration in accordance with the 34 38 Commercial Arbitration Rules (the "RULES") of the American Arbitration Association (the "AAA") in effect on the day the arbitration is commenced in accordance with this Agreement, except as modified by this Section 7.5. After expiration of such thirty (30) day period, any party may commence arbitration by serving upon the other party a written demand for arbitration sent by a courier service of internationally recognized reputation, in accordance with this Agreement, with a copy of the same delivered by a courier service of internationally recognized reputation, to the AAA regional office in which either party is then located. The number of impartial arbitrators shall be three if the parties cannot within thirty (30) days of the first demand for arbitration agree on one impartial arbitrator. In the event that either party shall fail to appoint an arbitrator within thirty (30) days after the commencement of the arbitration proceeding, such arbitrator(s) shall be appointed by the AAA in accordance with the Rules. The arbitration award shall be rendered by a majority of the members of the board of arbitration. Except as expressly provided in Section 7.5 hereof, the arbitrator(s) shall not be entitled to modify this Agreement or the transactions contemplated herein. The arbitration proceeding shall be conducted in the English language and shall be brought in Delaware unless the parties agree in writing to conduct the arbitration in another location. The AAA shall have jurisdiction over all parties to this Agreement for purposes of the arbitration. (c) The arbitration decision shall be final and binding and shall not be appealable to any court in any jurisdiction. The prevailing party may enter such decision in any court having competent jurisdiction. (d) Any statute of limitations or other equitable or legal doctrine which would otherwise be applicable to any action brought by either of the parties shall be applicable in the arbitration. In the event any party to this Agreement files a petition under the bankruptcy laws of the United States or has a petition filed against it which results in an order for relief or other indicia that a bankruptcy case has commenced, it is the express intention of the parties that this Agreement shall control and be enforced in accordance with its terms and conditions that any Claim shall remain subject to arbitration to the maximum extent permitted by law. (e) A court reporter shall record the arbitration hearing, and the reporter's transcript shall be the official record of the proceedings. (f) The arbitrator(s) shall have the authority to grant injunctive relief in form substantially similar to that which would otherwise be granted by a court. (g) The arbitrator(s) shall have no authority to award punitive damages. The arbitrator(s) shall specify the basis for any award and the types of any damages awarded. Any prevailing party (as determined by the arbitrator(s)) shall be awarded reasonable attorneys' fees, expert witness costs and expenses, and all other costs and expenses incurred in connection with the proceedings, unless the arbitrator(s) shall for good cause determine otherwise. (h) Upon the request of any party, the arbitrator(s) shall have the authority to permit discovery to the extent they deem appropriate, provided that absent extraordinary circumstances, depositions may be allowed only for the purposes of preserving evidence or filing in the hearing in lieu of the witness's appearance in person. 35 39 (i) The arbitrators shall issue a final award not more than thirty (30) days following the conclusion of the hearing. (j) The arbitrator(s) shall be entitled to receive reasonable compensation at an hourly or daily rate to be established between the arbitrators and the AAA and made known to the parties in advance. If required by the arbitrators, Buyer on the one hand, and Sellers, on the other, will deposit with the AAA an equal share of the total anticipated fee of the arbitrators in an amount to be estimated by the AAA. The non-prevailing party or parties (as determined by the arbitrator(s)) in the proceedings shall be ordered to pay, and shall have the ultimate responsibility for, all arbitrator(s)' fees and the fees of the AAA and such fees shall be included in the award to be entered against the non-prevailing party. (k) Notwithstanding any other provision of this Agreement, any party may apply to a court of competent jurisdiction within the United States, for an order in true nature of a temporary restraining order or preliminary injunction for purposes of maintaining the status quo pending the final resolution of any dispute pursuant to the arbitration provisions hereof. (l) Each party consents to the jurisdiction and administration of the AAA for purposes of the arbitration proceedings contemplated herein. Buyer expressly agrees that in any arbitration under a Noncompetition Agreement any Seller may join Buyer as a party to such arbitration. 7.6 FURTHER ASSURANCES. The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 7.7 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 7.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior agreements between the parties with respect to its subject matter (including the Letter of Intent between Buyer and Sellers dated November 3, 1998) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be 36 40 amended except by a written agreement executed by the party to be charged with the amendment. 7.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties, which will not be unreasonably withheld, except that Buyer may assign any of its rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 7.10 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the Agreement will remain in effect but shall be reformed and construed so as to as nearly as possible give effect to the intent of the parties in entering into this Agreement. 7.11 ARTICLE AND SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Article", "Articles", "Section" or "Sections" refer to the corresponding Article, Articles, Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 7.12 TIME OF ESSENCE. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. 7.13 GOVERNING LAW. This Agreement will be governed by the laws of the State of Delaware without regard to conflicts of laws principles. 7.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. [SIGNATURE PAGE FOLLOWS] 37 41 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. BUYER: MEDICIS PHARMACEUTICAL CORPORATION By: /s/ Mark A. Prygocki, Sr. ------------------------------------------ Name: Mark A. Prygocki, Sr. ------------------------------------------ Title: Chief Financial Officer ------------------------------------------ THE COMPANY: UCYCLYD PHARMA, INC. By: /s/ Syed E. Abidi ------------------------------------------ Name: Syed E. Abidi ------------------------------------------ Title: Co-President ------------------------------------------ By: /s/ Susan E. Brusilow ------------------------------------------ Name: Susan E. Brusilow ------------------------------------------ Title: Co-President ------------------------------------------ SELLERS: /s/ Syed E. Abidi ------------------------------------------------ SYED E. ABIDI /s/ William Brusilow ------------------------------------------------ WILLIAM BRUSILOW /s/ Susan E. Brusilow ------------------------------------------------ SUSAN E. BRUSILOW /s/ Norbert L. Wiech ------------------------------------------------ NORBERT L. WIECH 38 EX-10.95 4 EX-10.95 1 EXHIBIT 10.95 =============================================================================== ASSET PURCHASE AGREEMENT by and between MEDICIS PHARMACEUTICAL CORPORATION and BIOGLAN PHARMA PLC ------------------------------- Dated as of June 29, 1999 ------------------------------- =============================================================================== 2 TABLE OF CONTENTS

Page ---- ARTICLE I DEFINITIONS............................................................................................. 1 ARTICLE II SALE AND PURCHASE OF ASSETS; PURCHASE PRICE; ASSUMPTION OF OBLIGATIONS................................. 4 Section 2.1 Sale and Purchase of Assets..................................................................... 4 Section 2.2 Purchase Price.................................................................................. 5 Section 2.3 Deferred Purchase Payments...................................................................... 5 Section 2.4 Payments........................................................................................ 6 Section 2.5 Records and Audit............................................................................... 6 Section 2.6 Taxes........................................................................................... 7 Section 2.7 Currency Conversion............................................................................. 7 Section 2.8 Form of Payment................................................................................. 7 Section 2.9 Assumption of Obligations....................................................................... 7 Section 2.10 Excluded Assets and Liabilities............................................................... 8 ARTICLE III CLOSING............................................................................................... 8 Section 3.1 Closing......................................................................................... 8 Section 3.2 Closing Deliveries of Medicis................................................................... 8 Section 3.3 Closing Deliveries of Bioglan................................................................... 9 ARTICLE IV CONDITIONS TO CLOSING................................................................................. 10 Section 4.1 Conditions to Bioglan's Obligations............................................................ 10 Section 4.2 Conditions to Medicis' Obligations............................................................. 11 ARTICLE V OTHER MATTERS.......................................................................................... 11 Section 5.1 Use of Know-How................................................................................ 11 Section 5.2 New Product Development........................................................................ 12 Section 5.3 Risks Associated With the Products............................................................. 12 Section 5.4 Agreement to Distribute........................................................................ 12 Section 5.5 Notification of Customers...................................................................... 12 Section 5.6 Customer Orders................................................................................ 12 Section 5.7 Accounts Receivable............................................................................ 12 Section 5.8 Product Registration........................................................................... 13 Section 5.9 Recall and Return of Products.................................................................. 14 Section 5.10 Enforcement of GenDerm Warranties.............................................................. 14 Section 5.11 Similar Marks.................................................................................. 14 Section 5.12 GenDerm Earnout................................................................................ 15 Section 5.13 Payment of Royalties........................................................................... 15 Section 5.14 Title to Assets................................................................................ 15 ARTICLE VI REPRESENTATIONS AND WARRANTIES........................................................................ 15 Section 6.1 Representations and Warranties of Medicis...................................................... 15 Section 6.2 Representations and Warranties of Bioglan...................................................... 18

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ARTICLE VII CONDUCT PRIOR TO CLOSING............................................................................. 20 Section 7.1 Cooperation.................................................................................... 20 Section 7.2 Conduct of Business by Medicis................................................................. 20 Section 7.3 Conduct of Private Label Litigation............................................................ 20 Section 7.4 Review......................................................................................... 20 Section 7.5 Shareholder's Meeting.......................................................................... 20 Section 7.6 Validation Claims.............................................................................. 20 ARTICLE VIII INDEMNIFICATION..................................................................................... 21 Section 8.1 Indemnification by Medicis..................................................................... 21 Section 8.2 Indemnification by Bioglan..................................................................... 21 Section 8.3 Procedure for Indemnification.................................................................. 22 ARTICLE IX GENERAL PROVISIONS.................................................................................... 23 Section 9.1 Survival of Representations and Warranties..................................................... 23 Section 9.2 Notices.:...................................................................................... 23 Section 9.3 Confidential Information....................................................................... 23 Section 9.4 Amendment...................................................................................... 24 Section 9.5 Binding Effect................................................................................. 24 Section 9.6 Press Releases................................................................................. 24 Section 9.7 Expenses; Taxes................................................................................ 25 Section 9.8 Headings....................................................................................... 25 Section 9.9 Entire Agreement............................................................................... 25 Section 9.10 Waiver......................................................................................... 25 Section 9.11 Severability................................................................................... 25 Section 9.12 Termination.................................................................................... 25 Section 9.13 Governing Law.................................................................................. 26 Section 9.14 Counterparts................................................................................... 26 Section 9.15 Shareholder Approval........................................................................... 26 ARTICLE X ARBITRATION............................................................................................ 26 Section 10.1 Submission to Arbitration.................................................................... 26 Section 10.2 Arbitrator and Rules of Arbitration.......................................................... 26 Section 10.3 Selection of Arbitrators..................................................................... 26 Section 10.4 Procedure.................................................................................... 27 Section 10.5 Arbitration Costs............................................................................ 27 ARTICLE XI DERMASTICK............................................................................................ 28 Section 11.1 Assignment of Dermastick License............................................................. 28 Section 11.2 Consideration................................................................................ 28 Section 11.3 Offset....................................................................................... 28 Section 11.4 Warranties................................................................................... 28 Section 11.5 Form of Assignment........................................................................... 28 Section 11.6 Deliveries................................................................................... 28

ii 4 SCHEDULES AND EXHIBITS SCHEDULES

Schedule 1 License Agreements Schedule 2 Trademarks Schedule 3 Deferred Payment Assets Schedule 4 Territory Schedule 5 Other Agreements Schedule 6 Previous Agreements Products

EXHIBITS Exhibit A Form of License Assignment Exhibit B Form of Trademark Assignment Exhibit C Form of Bill of Sale Exhibit D Form of Transition Services Agreement Exhibit E Form of Canadian License Agreement Exhibit F Form of License Agreement Exhibit G Form of Promissory Note Exhibit H Form of Security Agreement Exhibit I Form of License Termination Exhibit J Form of Trademark Security Agreement iii 5 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT (the "Agreement") dated as of this 29th day of June, 1999, by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Medicis"),and BIOGLAN PHARMA PLC, a company incorporated under the laws of England and Wales under company registration number 1779870 ("Bioglan"). W I T N E S S E T H: WHEREAS, Medicis or its Affiliate is the licensee (or, where stipulated, a sublicensee) under the license agreements set forth in Schedule 1 hereto (collectively, the "License Agreements"); and WHEREAS, Medicis or its Affiliate desires to sell to Bioglan and Bioglan desires to purchase from Medicis or its Affiliate all of Medicis' or its Affiliate's right, title and interest in, to and under the Purchased Assets (as defined) on the terms and conditions set forth below; and WHEREAS, Bioglan AB, an Affiliate of Bioglan, desires to grant to Medicis and Medicis desires to accept from Bioglan AB, the License Agreement on the terms and conditions set forth below; and WHEREAS, in connection with and as a condition to the transactions contemplated hereby, Bioglan and The Exorex Company, LLC (a 51% owned Affiliate of Medicis) will enter into and consummate a Purchase Agreement (the "Exorex Asset Purchase Agreement") pursuant to which Bioglan will acquire all of the assets and liabilities as of June 1, 1999 of The Exorex Company, LLC. NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereby agree as follows: ARTICLE I DEFINITIONS In this Agreement the following terms shall have the following meanings: "Affiliate" means any person, firm, corporation or other business entity, directly or indirectly controlling, controlled by or under direct or indirect common control with another person. A person shall be deemed to control another person if such person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities, by contract or otherwise. "Authorizations" means Medicis' or its Affiliates' authorizations relating to the Products, where such are required, from the U.S. Food and Drug Administration ("FDA") and the right to refer to the data contained therein and copies of all documents submitted and correspondence between Medicis or its Affiliates and the FDA with respect to the Products. 6 "Contribution Margin" means the amount equal to Net Sales (assuming for purposes of Contribution Margin only that the definition of Net Sales relates to Medicis or its Affiliate) less (i) all reasonable charges from June 1, 1999 to the Closing for overhead directly associated with the Products (which costs shall not exceed US $500,000) and the direct and indirect cost of goods (absent the cost of Inventory paid at the Closing Date by Bioglan), and (ii) returns from the period from June 1, 1999 to the Closing. "Dermastick License" means the license by and between Bioglan AB and GenDerm Corporation dated January 31, 1998 relating to a topical steroid preparation known as `Dermastick'. "Disclosure Letter" means the disclosure letter as of the date hereof from Medicis to Bioglan relating to the representations and warranties of Medicis set out in Section 6.1. "GenDerm Warranties" means the representations and warranties which relate to the Products as are contained in Section 3 of the Merger Agreement. "Improvements" means any findings, discoveries, inventions, additions, modifications, formulations or changes made by Bioglan or its Affiliates or sublicensees during the term specified in Section 2.3 which relate to the products set forth in Schedule 3 including, without, limitation, new or improved methods of administration, improved side effect profile, new medical indications and improvements in the manufacturing process. The term "Improvements" shall not include findings, discoveries or inventions which are developed independently by Bioglan or its agents and are not derived from or based on the Products or Know-How. "Know-How" means the information known to Medicis or its Affiliate relating solely and uniquely to the formulae, manufacturing processes, customer lists, marketing and advertising rights and promotional materials, technology and testing data for the Products including, without limitation, all chemical, pharmacological, toxicological, clinical, assay, and control data relating solely to the Products, if any. "Merger Agreement" means the Merger Agreement by and among GenDerm Corporation, Medicis and Medicis Acquisition Corporation dated as of December 1, 1997. "Net Sales" means the gross amount invoiced by Bioglan, its Affiliates and/or its sublicensees to third parties on all sales of Products and any improvements (as defined in the respective License Agreements), less deductions for: (i) sales taxes, value-added taxes and excise taxes, tariffs, import or export duties, and duties paid or allowed by a selling party and any other governmental charges imposed upon the import, use or sale of such Products (except income taxes of Bioglan and sublicensees) which are included in the gross amount invoiced; (ii) allowed customary trade and quantity discounts (such discounts not to exceed 10% of the sales price) and sales discounts (as defined in accordance with GAAP, such discounts not to exceed 5% of the sales price); (iii) transportation, bulk packaging, handling and freight charges (such charges not to exceed 3% of the sales price) and reasonable and customary insurance where such are separately stated as part of the sales price and are included in the gross amount invoiced; and (iv) allowances and credits to its Affiliates or sublicensees which shall be excluded from the computation of Net Sales, but Net Sales shall include subsequent sales to third parties by such 2 7 Affiliates or sublicensees. For purposes of determining Net Sales, a sale shall be deemed to have occurred when the Products have been shipped by Bioglan, its Affiliates or a sublicensee. "Previous Agreements" means collectively the Asset Purchase Agreement by and between Medicis and Bioglan dated as of January 31, 1999 and the Trademark License Agreement and Option to Purchase by and between Medicis and Bioglan dated March 24, 1999. "Previous Agreements Products" means the pharmaceutical products listed in Schedule 6 and referred to in the Previous Agreements. "Products" means each of the pharmaceutical products which are subject to the License Agreements. "Trademarks" means the trademarks and tradenames (whether registered or unregistered) listed in Schedule 2 (other than the rights to such trademarks in Canada which shall be retained by Medicis) hereto together with the goodwill symbolized by such trademarks and tradenames. "Warranties" means the warranties and representations of Medicis set out in Section 6.1. The following terms have the meanings defined for such terms in the Sections set forth below:

Term Section - ---- ------- Agreement............................................................................................. Recitals Arbitrator............................................................................................ 2.5 Assumed Liabilities................................................................................... 2.9 Average Exchange Rate................................................................................. 2.7 Award................................................................................................. 10.4 Base Purchase Price................................................................................... 2.2(a) Basket................................................................................................ 8.3(e) Bill of Sale.......................................................................................... 3.2(c) Bioglan............................................................................................... Recitals Branded Litigation.................................................................................... 2.10 Canadian License Agreement............................................................................ 3.2(h) Chemsyn Agreement..................................................................................... 7.6 Closing............................................................................................... 3.1 Closing Date.......................................................................................... 3.1 Deferred Payment Assets............................................................................... 2.3 Deferred Purchase Payments............................................................................ 2.3 Deposit............................................................................................... 2.2(b) Exorex Asset Purchase Agreement....................................................................... Recitals GAAP.................................................................................................. 6.1(f) Hearing............................................................................................... 10.4 HSR Act............................................................................................... 4.1(d) Indemnified Party..................................................................................... 8.3(a) Indemnifying Party.................................................................................... 8.3(a) Inventory............................................................................................. 2.1(c)

3 8 Joint Notice.......................................................................................... 5.5 License Agreements.................................................................................... Recitals License Termination................................................................................... 4.1(g) Losing Party.......................................................................................... 10.5 Losses................................................................................................ 8.1 Material Adverse Effect............................................................................... 6.1(c) Medical Affairs Liaison............................................................................... 5.8(d) Medicis............................................................................................... Recitals License Agreement............................................................................. 3.2(i) New Authorizations.................................................................................... 5.8(a) Private Label Litigation.............................................................................. 2.9 Prevailing Interest Rate.............................................................................. 2.5 Promissory Note....................................................................................... 2.2(b) Purchased Assets...................................................................................... 2.1 Required Consents..................................................................................... 4.1(e) Security Agreement.................................................................................... 3.2(k) Successful Party...................................................................................... 10.5 Territory............................................................................................. 2.3 Trademark Security Agreement.......................................................................... 3.2(l) Transition Services Agreement......................................................................... 3.2(d) ARTICLE II SALE AND PURCHASE OF ASSETS; PURCHASE PRICE; ASSUMPTION OF OBLIGATIONS Section 2.1 Sale and Purchase of Assets. Subject to the terms and conditions set forth herein, and in reliance upon the representations and warranties contained herein, Medicis will (or will cause its relevant Affiliate to) sell, assign, convey, transfer and deliver to Bioglan or to the nominated Affiliate of Bioglan, and Bioglan will purchase and acquire from Medicis or its Affiliate all of Medicis' or its Affiliate's right, title and interest in, to and under the following assets: (a) License Agreements. Each of the License Agreements and the right to license the formulation of Lincoln Ventures, Inc. as it exists as of the date hereof with respect to Theraplex pursuant to that letter dated December 12, 1988 from Medicis to Lincoln Ventures, Inc. so long as Bioglan fulfills its obligation to pay Lincoln Ventures, Inc. the 1.75% royalty rate of net sales of Theraplex in the United States or other countries; (b) Trademarks, Know-How and Authorizations. The Trademarks, Know-How and Authorizations; (c) Inventory. All inventory (the "Inventory") of the Products as of June 1, 1999 with a remaining shelf life as of June 1, 1999 of no less than twelve (12) months; (d) Contribution Margin. An amount equal to the Contribution Margin to be paid pursuant to the Transition Services Agreement; 4 9 (e) Extension of Territory. An extension to the licensed territories set forth in the Previous Agreements in respect of the Previous Agreements Products as set forth on Schedule 6 with respect to the territories specified on Schedule 6; and (f) Litigation. Subject to the provisions of Section 7.3, any benefits and settlements relating to the Private Label Litigation and any non-financial benefits relating to the Branded Litigation (each as set forth and described as such in the Disclosure Letter) accruing after the Closing Date. The assets to be sold, assigned, conveyed, transferred and delivered to Bioglan by Medicis pursuant to this Agreement are herein collectively referred to as the "Purchased Assets." Section 2.2 Purchase Price. (a) In consideration for the sale, assignment, conveyance, transfer and delivery of the Purchased Assets hereunder and all of the assets and liabilities as of June 1, 1999 of The Exorex Company, LLC under the Exorex Asset Purchase Agreement, Bioglan will (i) pay to Medicis the net sum of United States Forty Million Dollars (US $40,000,000), exclusive of any value added taxes (the "Base Purchase Price"); Bioglan AB is also granting to Medicis a product license, valued by Bioglan at ), for the product which and Medicis will evaluate each component of the overall transaction individually and independently from Bioglan based on its own criteria and its own accounting policies, and Bioglan will accordingly cause its Affiliate Bioglan AB to grant the Micanol License Agreement to Medicis, (ii) assume the Assumed Liabilities, and (iii) pay to Medicis an amount equal to Medicis' cost in the Inventory. (b) United States Nine Hundred Thousand Dollars (US $900,000) of the Base Purchase Price (the "Deposit") shall be payable to Medicis upon the execution of this Agreement. At Closing Bioglan shall issue a promissory note (the "Promissory Note") for the balance of the Base Purchase Price (US $39,100,000) substantially in the form of Exhibit G attached hereto to Medicis. The Deposit shall be non-refundable to Bioglan unless the transactions contemplated hereby are not consummated because any of the conditions set forth in Section 4.1 are not satisfied. If the Deposit becomes refundable to Bioglan pursuant to any of the provisions of this Agreement and Medicis shall not have refunded the Deposit within five (5) business days of written demand by Bioglan requesting repayment, then interest at the Prevailing Interest Rate shall be due thereon to Bioglan from the date of such demand until such Deposit is repaid to Bioglan. Section 2.3 Deferred Purchase Payments. In addition to the Base Purchase Price, in consideration for the sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Bioglan will pay to Medicis an additional purchase price (the "Deferred Purchase Payments"), equal to five percent (5%) of Net Sales of each of the products set forth in Schedule 3 in each of the countries set forth in Schedule 4 (the "Territory"), except as otherwise expressly provided in Schedule 4, and any Improvements thereon (the "Deferred Payment Assets") for a period of ten years from the Closing Date; provided however, that if any of the Deferred Payment Assets have not been used commercially in any of the countries specified in the Territory, then the Deferred Purchase Payments with respect to such Deferred Payment 5 10 Assets in such country shall be payable for a period of ten years from the date of the first commercial use of each such Deferred Payment Asset in each such country in the Territory; further provided that the total liability of Bioglan pursuant to this provision taken together with its liability to make royalty payments pursuant to the License Agreement by and between Joel E. Bernstein M.D. and GenDerm Corporation dated January 1, 1995 and the License Agreement by and between Jaye-Boern Laboratories, Inc. and GenDerm Corporation dated May 21, 1985 and the Assumption Agreement, Acceptance and Consent, dated December 15, 1993 between Joel Bernstein, the successor in interest to Jaye-Boern Laboratories, Inc. and GenDerm Corporation (being two of the License Agreements) (which are currently 3.5% of Net Sales and shall not be amended or extended without Medicis' written consent, which may be withheld at Medicis' sole discretion) shall not exceed eight percent (8%) of Net Sales but, to the extent that such liability would (but for this provision) exceed eight per cent (8%) the rate of royalty due to Medicis hereunder shall be reduced accordingly (but never below 4.5%) so that such liability to Medicis under this Section 2.3 shall never exceed five per cent (5%). Section 2.4 Payments. Bioglan shall furnish to Medicis within forty (40) days from the last day of each calendar quarter a written report setting forth the amount of Deferred Payment Assets sold, the gross selling price and the Net Sales by Bioglan, its Affiliates and sublicensees, during the preceding quarter and the amount of Deferred Purchase Payment due, together with payment of the Deferred Purchase Payment, in United States Dollars based on the applicable Average Exchange Rate. If the Deferred Purchase Payment earned for any quarter is not paid within such forty (40) day period, interest shall accrue on all amounts outstanding at the Prevailing Interest Rate from the date such payment is due until payment. If no Deferred Purchase Payment is due Bioglan shall so advise Medicis. Medicis shall promptly issue receipt of payment to Bioglan in respect of all payments of Deferred Purchase Payment made by Bioglan. Section 2.5 Records and Audit. Bioglan shall furnish to Medicis copies of its annual report and audited accounts at the same time that such information is made available to Bioglan's shareholders. Bioglan shall keep and require its Affiliates and sublicensees to keep complete and accurate records of all sales of the Deferred Payment Assets. Medicis shall have the right, at Medicis' expense (except as provided below), through a certified public accountant or like person reasonably acceptable to Bioglan, to examine such relevant records during regular business hours during the term of Section 2.3 of this Agreement and for two years thereafter to verify the calculation of any Deferred Purchase Payment reflected in such report. If Medicis does not agree that any such accounting correctly states Bioglan's Net Sales or the applicable Deferred Purchase Payment, it shall not later than sixty (60) days after the delivery of such accounting give notice to Bioglan of any exceptions thereto. If Bioglan and Medicis reconcile their differences, the accounting shall be adjusted accordingly and shall thereupon become final and binding upon the parties hereto. If Bioglan and Medicis are unable to reconcile their differences in writing within twenty (20) days after written notice of exceptions is received by Bioglan, the items in dispute shall be submitted to an accounting firm selected by Medicis from among the five largest accounting firms in the United States in terms of gross revenues (the "Arbitrator"), provided that such firm shall not be performing accounting services for Medicis or Bioglan, for final determination and the accounting shall be deemed adjusted in accordance with the determination of the Arbitrator and 6 11 shall become final and binding upon all of the parties hereto. The Arbitrator shall be instructed to act within thirty (30) days to resolve all items in dispute. In the event that any such examination shall reveal an underpayment of Deferred Purchase Payment to Medicis, Bioglan shall pay to Medicis the amount of the underpayment and interest at the prevailing prime rate during such period (as set forth in the New York edition of The Wall Street Journal) (the "Prevailing Interest Rate"). If the underpayment is five percent (5%) or more with respect to the period under examination the fees and expenses of such examination (including Medicis' initial audit) will be paid solely by Bioglan. In the event that any such examination shall reveal an overpayment of five percent (5%) or more with respect to the period under examination Bioglan shall be entitled to deduct from any Deferred Purchase Payment that may become due to Medicis the amount of such overpayment together with interest on such sum at the Prevailing Interest Rate from the date of the overpayment until such overpayment has been fully refunded to Bioglan. Section 2.6 Taxes. Any and all taxes paid or required to be paid by Medicis on account of or directly related to the Deferred Purchase Payment payable to Medicis under this Agreement shall be the sole and exclusive responsibility of Medicis. All taxes assessed or imposed against, or required to be withheld from the Deferred Purchase Payment due Medicis shall be deducted from the amount payable hereunder and Bioglan shall promptly pay the appropriate fiscal or tax authorities on behalf of Medicis. Tax receipts received by Bioglan evidencing payment of such taxes shall be forwarded promptly to Medicis. Section 2.7 Currency Conversion. Monetary conversions from the currency of a foreign country, in which Deferred Payment Assets are sold, into U.S. currency shall be determined using the Average Exchange Rate. The "Average Exchange Rate" shall be the average of the official exchange rate in force in that country for financial transactions on the first and last business day of the calendar quarter for which the Deferred Purchase Payment is being paid. If there is no such official exchange rate, the conversion shall be made at the rate for such remittances on the date as published in The New York edition of The Wall Street Journal. Section 2.8 Form of Payment. Except as otherwise provided herein, all payments made hereunder shall be made in United States Dollars by wire transfer in immediately available funds to an account designated in writing by Medicis to Bioglan. Section 2.9 Assumption of Obligations. Subject to the terms and conditions set forth herein, and in reliance upon the representations and warranties contained herein, at the Closing, in consideration for the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Bioglan, Medicis will assign, convey and transfer to Bioglan, and Bioglan will unconditionally assume and undertake to pay, perform and discharge, in a timely manner and in accordance with the terms thereof, all liabilities related to or arising out of the Purchased Assets as are incurred and become due at any time following the Closing Date and, subject to the provisions of Section 7.3, any and all obligations relating to the litigation (the "Private Label Litigation") set forth and described as such in the Disclosure Letter, including any claim related to the Private Label Litigation arising prior to the Closing Date (collectively, the "Assumed Liabilities"). Without limiting the generality of the foregoing, Bioglan hereby agrees to assume, undertake and perform all obligations of Medicis under the Assumed Liabilities to the extent such obligations arise or are to be performed after June 1, 1999. 7 12 Section 2.10 Excluded Assets and Liabilities. Notwithstanding anything in this Article II to the contrary (but subject to the provisions of Section 7.3), any and all benefits and expenses relating to the litigation (the "Branded Litigation") set forth and described as such in the Disclosure Letter shall be retained by Medicis and Bioglan will not purchase or acquire any right, title or interest therein or obligation thereunder except as set forth in Section 2.1(f). ARTICLE III CLOSING Section 3.1 Closing. The consummation of the transactions contemplated herein (the "Closing") shall take place within five (5) business days of satisfaction of the conditions set forth in Article IV, or at such other date and time as mutually agreed to by the parties (the "Closing Date"). Section 3.2 Closing Deliveries of Medicis. At the Closing, and subject always to Section 9.15, Medicis shall (if appropriate) execute and deliver or cause the appropriate Affiliate to execute (if appropriate) and deliver to Bioglan: (a) a License Assignment for each of the License Agreements substantially in the form of Exhibit A attached hereto; (b) a Trademark Assignment for each of the Trademarks substantially in the form of Exhibit B attached hereto, (c) a Bill of Sale substantially in the form of Exhibit C attached hereto, (d) a Transition Services Agreement (the "Transition Services Agreement") substantially in the form of Exhibit D attached hereto, pursuant to which the parties hereto shall agree that Medicis shall pay the Contribution Margin; (e) a Secretary's Certificate of Medicis setting forth copies of the resolutions or other instruments authorizing this Agreement and the transactions contemplated herein; (f) an Officer's Certificate of Medicis as required under Section 4.1(b) hereof; (g) a copy of all consents, approvals and authorizations as required under Section 4.1(e) hereof; (h) a counterpart license agreement (the "Canadian License Agreement") pursuant to which Bioglan will license to Medicis the right to market and sell certain of the Products in Canada substantially in the form of Exhibit E attached hereto; (i) a counterpart license agreement pursuant to which Bioglan AB will grant a semi exclusive license to Medicis to use in its sole discretion in the United States of America only but which shall not include the right to use the trademark or tradename or any name colorably similar thereto substantially in the form of Exhibit F attached hereto; 8 13 (j) the Inventory; (k) a counterpart security agreement (the "Security Agreement") substantially in the form of Exhibit H attached hereto pursuant to which Bioglan or its Affiliate will grant a first priority security interest in the Purchased Assets at Closing until the Promissory Note is paid in full or otherwise cancelled in accordance with its terms or pursuant to the terms of this Agreement; (l) a trademark security agreement (the "Trademark Security Agreement") substantially in the form of Exhibit J attached hereto pursuant to which Bioglan or its Affiliate will grant a first priority trademark security interest in the Trademarks at Closing until the Promissory Note is paid in full or otherwise cancelled in accordance with its terms or pursuant to the terms of this Agreement; (m) a receipt of payment for the Deposit and cost of Inventory; and (n) a counterpart of the License Termination as required under Section 4.1(g); (o) the originals of all the License Agreements; and (p) such other documents as Bioglan shall reasonably request. Section 3.3 Closing Deliveries of Bioglan. At the Closing, and subject always to Section 9.15, Bioglan shall (if appropriate) execute and deliver or cause Bioglan AB or Bioglan Pharma, Inc. (as appropriate) to execute (if appropriate) and deliver to Medicis: (a) an amount equal to Medicis' cost of the Inventory being delivered pursuant to Section 3.2(j). (b) a counterpart License Assignment for each of the License Agreements substantially in the form of Exhibit A attached hereto, (c) a counterpart Trademark Assignment for each of the Trademarks substantially in the form of Exhibit B attached hereto, (d) a counterpart Transition Services Agreement substantially in the form of Exhibit D attached hereto; (e) a Secretary's Certificate of Bioglan setting forth copies of the resolutions or other instruments authorizing this Agreement and the transactions contemplated herein; (f) an Officer's Certificate of Bioglan as required under Section 4.2(b) hereof; (g) the Canadian License Agreement substantially in the form of Exhibit E attached hereto; (h) the substantially in the form of Exhibit F attached hereto; 9 14 (i) the Promissory Note substantially in the form of Exhibit G attached hereto; (j) the Security Agreement substantially in the form of Exhibit H attached hereto and related financing statements; (k) the Trademark Security Agreement substantially in the form of Exhibit J attached hereto; (l) the License Termination as required under Section 4.1(g); and (m) such other documents as Medicis shall reasonably request. ARTICLE IV CONDITIONS TO CLOSING Section 4.1 Conditions to Bioglan's Obligations. Bioglan's obligation to consummate the transactions contemplated herein at the Closing are subject to the fulfillment at or prior to the Closing of each of the following conditions, the fulfillment of any of which may be waived, in whole or in part or subject to conditions, by Bioglan: (a) The completion by Medicis of all acts necessary to authorize its execution, delivery and performance of this Agreement and the other agreements provided for herein, and the consummation of the transactions contemplated herein and therein. (b) All the representations and warranties (including the disclosures made in the Disclosure Letter) of Medicis contained in this Agreement being true and correct in all material respects as of the date of execution of this Agreement and at the Closing Date by Medicis and all of the agreements of Medicis which are provided in this Agreement to be performed at or prior to the Closing having been duly performed, and Medicis having complied with this Agreement in all other material respects, except as otherwise provided in Section 6.1(k), and Medicis having delivered to Bioglan a certificate, dated as of the Closing Date, and signed by an executive officer of Medicis, to the effect set forth in this Section 4.1(b). (c) Medicis or its relevant Affiliate having assigned to Bioglan (with the consent of the other parties thereto) the benefit of the Chemsyn Agreement and having assigned to Bioglan AB the Dermastick License. (d) All applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), having expired or been terminated. (e) Medicis having obtained all consents, approvals, releases, discharges and authorizations necessary to be obtained on the part of Medicis to consummate the transactions contemplated hereby including without limitation, all necessary consents of shareholders, mortgagees, lienholders, encumbrancers, assignees and licensors (pursuant to the License Agreements) (the "Required Consents"). 10 15 (f) The simultaneous consummation of the transactions contemplated pursuant to the Exorex Asset Purchase Agreement. (g) The termination of the license agreements by and between GenDerm Corporation and Bioglan Laboratories Limited dated February 1, 1998 relating to (i) pharmaceutical topical anti-pruritic preparations containing tricyclic anti-depressant compounds and (ii) a pharmaceutical topical preparation containing capsaicin to be effected by the execution by Medicis or its Affiliate of a license termination substantially in the form of the license termination (the "License Termination") set forth in Exhibit I attached hereto. Section 4.2 Conditions to Medicis' Obligations. The obligations of Medicis to consummate the transactions contemplated at the Closing are subject to the fulfillment at or prior to the Closing of each of the following conditions, the fulfillment of any of which may be waived, in whole or in part or subject to conditions, by Medicis: (a) All applicable waiting periods under the HSR Act having expired or been terminated. (b) All the representations and warranties of Bioglan contained in this Agreement being true and correct in all material respects as of the date of execution of this Agreement and at the Closing Date by Bioglan and all of the agreements of Bioglan which are provided in this Agreement to be performed at or prior to the Closing Date having been duly performed, and Bioglan having complied with this Agreement in all other material respects, and Bioglan having delivered to Medicis a certificate, dated as of the Closing Date and signed by an executive officer of Bioglan, to the effect set forth in this Section 4.2(b). (c) Payment in full having been made by Bioglan of the Deposit and all other sums (other than Deferred Purchase Payments) required by this Agreement to be paid by Bioglan to Medicis at or prior to the Closing. (d) The simultaneous consummation of the transactions contemplated pursuant to the Exorex Asset Purchase Agreement. (e) The simultaneous termination of the license agreements by and between GenDerm Corporation and Bioglan Laboratories Limited dated February 1, 1998 referred to in Section 4.1(g) above to be effected by the execution by Bioglan or its Affiliate of a license termination substantially in the form of the License Termination set forth in Exhibit I attached hereto. ARTICLE V OTHER MATTERS Section 5.1 Use of Know-How. Except as otherwise provided for in this Agreement, after the Closing, Medicis shall not use the Know-How. Furthermore, after the Closing Medicis shall not disclose the Know-How to any third party, unless such disclosure is required by law or regulation. 11 16 Section 5.2 New Product Development. Notwithstanding anything in this Agreement to the contrary, the transfer and assignment to Bioglan by Medicis or its Affiliate of the Purchased Assets shall not prevent Medicis or its Affiliate from continuing to manufacture and sell other products included or expected to be included in its current line or to use other trademarks owned by Medicis and its Affiliates or restrict the rights of Medicis and its Affiliates to develop and sell new products using the same active ingredients contained in the Products, but using different formulations, or different presentations, and under different product trademarks; provided that such new products do not contain capsaicin or doxepin, either alone or in combination with other ingredients. Section 5.3 Risks Associated With the Products. After the Closing Date, subject to the terms of the Transition Services Agreement, Bioglan shall bear the entire responsibility for and risk in the use, manufacture, distribution, marketing and sale of the Products, including those associated with returns of Product after June 1, 1999 sold by Medicis and its Affiliates prior to June 1, 1999, and compliance with all regulations and laws pertaining to the Products. Medicis shall, for one year following the Closing Date, use its reasonable best efforts to assist Bioglan in these matters, but they shall remain the sole responsibility of Bioglan. Section 5.4 Agreement to Distribute. In order to ensure continued supply of the Products to customers following consummation of this Agreement, Medicis hereby agrees to act as distributor of the Products for the earlier of (i) a period of four (4) months from the consummation of this Agreement, or (ii) until Bioglan gives written notice to Medicis that Bioglan has developed its own distribution network. This period shall be extended, at the written request of Bioglan, for a further two (2) months if, after using its reasonable best efforts, Bioglan has been unable to develop its own distribution system at the end of the four month period. Upon expiration of the period for which Medicis shall distribute Products on behalf of Bioglan as set forth above, Medicis shall return to Bioglan any inventory of the Products in Medicis' possession as of the date thereof. Section 5.5 Notification of Customers. Medicis and Bioglan agree to cooperate in the notification to customers of the transactions contemplated by this Agreement. Neither Medicis nor Bioglan shall notify any customers of such transactions without the written consent of the other. Such notification (the "Joint Notice") shall be in such form as is reasonably satisfactory to Bioglan and Medicis and shall also inform such customers of Bioglan's address. Section 5.6 Customer Orders. Medicis agrees for a period of four (4) months after the Closing Date to use its reasonable best efforts to forward to Bioglan all customer orders or inquiries for the Products received after the Closing as soon as practicable after receipt by Medicis. Medicis agrees that, for a period of six (6) months from the Closing Date, it will inform any customers ordering the Products or requesting information about the Products, that Bioglan is now supplying the Products and provide such customers with Bioglan's address. Section 5.7 Accounts Receivable. (a) In the event that Medicis or any of Medicis' Affiliates receive any payment relating to any accounts receivable that accrued on or after the date on which the Transition Services Agreement is terminated or expires, such payment will be the property of, and will be 12 17 immediately forwarded and remitted to Bioglan. Medicis or any such Affiliates will promptly endorse and deliver to Bioglan any cash, checks or other documents received by Medicis or any such Affiliate on account of any such accounts receivable and will advise Bioglan of any counterclaims or set-offs that may arise subsequent to the Closing Date with respect to such accounts receivable. (b) In the event that Bioglan or any of Bioglan's Affiliates receive any payment relating to any accounts receivable that accrued prior to the date on which the Transition Services Agreement is terminated or expires, such payment will be the property of, and will be immediately forwarded and remitted to Medicis. Bioglan or any such Affiliates will promptly endorse and deliver to Medicis any cash, checks or other documents received by Bioglan or any such Affiliate on account of any such accounts receivable and will advise Medicis of any counterclaims or set-offs that may arise subsequent to the Closing Date with respect to such accounts receivable. Section 5.8 Product Registration. (a) After the Closing, Bioglan will initially market the Products under the Authorizations, such Authorizations having been varied to permit the same. Such distribution relationship shall continue until Bioglan obtains regulatory authorization from the FDA to market the Products under its own authorizations (the "New Authorizations"). (b) To permit Bioglan to distribute and sell the Products, Bioglan shall, promptly following signature hereof at its own expense, file all necessary instruments with the FDA to obtain a waiver to vary Medicis' Authorizations to allow Bioglan to sell the Products. (c) Bioglan shall, at its sole expense, file a product license application with the FDA for each of the Products. Medicis shall, at its expense, file all necessary instruments with the FDA to authorize Bioglan to cross-refer to the data contained in the Authorizations in order for Bioglan to obtain the New Authorizations. (d) Within thirty (30) days after the Closing Date, the parties shall each appoint a primary liaison (the "Medical Affairs Liaison") to communicate with each other with regard to the actions and information required pursuant to this Section 5.8 and shall notify the other of the name, address and telephone number of the person so appointed. (e) During the period that Bioglan is selling the Products under the Authorizations, each party shall advise the other as set forth in (i) and (ii) below of any adverse drug experience associated with the Products. In addition, Bioglan shall report all adverse drug experience information it obtains, including that obtained from Medicis, to the FDA as set forth in Section 5.8(f) below: (i) Any adverse drug experience information obtained by a party shall be reported to Bioglan's Medical Affairs Liaison, by telephone or in writing (only by facsimile) within three (3) working days after the first party's initial receipt of the information; provided, however, that any report of a serious unlabelled side effect or any report of a death shall be reported to Bioglan's Medical Affairs Liaison within twenty-four (24) hours of receipt of the information; and 13 18 (ii) The reports of adverse drug experience shall contain the following information: (i) the date the report was received; (ii) the name of the reporter; (iii) the address and telephone number of the reporter; (iv) the patient details; (v) the suspected drug; (vi) other concomitant therapy; (vii) a description of the adverse drug experience; and (viii) any additional relevant information; provided such information is obtainable through the use of reasonable efforts and is not subject to any duty of non-disclosure or confidence. (f) Bioglan shall report all adverse drug experience information associated with the Products, including those received from Medicis under this Section 5.8 to the FDA, in accordance with the laws and regulations of the United States. (g) After the Closing, Bioglan shall bear the entire responsibility for the manufacture, distribution, advertising and sale of the Products and for all actions required by the FDA and other governmental laws and regulations relating to the manufacture, distribution, and use of the Products after June 1, 1999. (h) Upon the grant to Bioglan of the New Authorizations, Medicis agrees at its own expense to take all reasonably necessary steps to cancel, transfer or assign forthwith at Bioglan's option its Authorizations in the United States. Section 5.9 Recall and Return of Products. During the period that Bioglan is selling Products pursuant to the Authorizations, Bioglan shall, at its cost, be responsible for all activities to be performed relating to any recall or return of such Products and Medicis shall during such period promptly notify Bioglan of all decisions and notifications of the FDA relating to the Products. Section 5.10 Enforcement of GenDerm Warranties. In further consideration of Bioglan entering into this Agreement, Medicis agrees that for a period of two (2) years from the Closing Date, upon written request by Bioglan, it shall take all reasonable actions necessary to enforce any and all of the GenDerm Warranties in accordance with terms of the Merger Agreement by and among GenDerm Corporation, Medicis and Medicis Acquisition Corporation for the benefit of Bioglan; provided that Bioglan shall be responsible for all out of pocket expenses relating to such enforcement and provided further that Medicis shall not be required to take any position or pursue any claim that is adverse, in any respect, to Medicis. Notwithstanding anything in this Section 5.10 to the contrary, any and all claims by Medicis pursuant to the Merger Agreement pending as of the date hereof are solely for the benefit of Medicis. Section 5.11 Similar Marks. Medicis is the owner of the trademark GLYCOTHERAPLEX, U.S. Registration No. 2,179,275, issued August 4, 1998 for the mark GLYCOTHERAPLEX, and Community Trademark Registration No. 510,784 issued January 20, 1999, for the mark GLYCOTHERAPLEX. An Affiliate of Medicis is the owner of the trademark KERAPLEX and U.S. Trademark Application Serial No. 75/368,443, filed on October 6, 1997, for the mark KERAPLEX. Medicis is also the owner of the following marks and registrations, which by this Agreement, Medicis transfers to Bioglan: THERAPLEX; THERAPLEX CLEARLOTION; U.S. registration No. 1,639,471, issued April 2, 1991, for the 14 19 mark THERAPLEX; and U.S. Registration No. 1,797,498, issued October 12, 1993, for the mark THERAPLEX CLEARLOTION. The parties acknowledge each other's right in and to the noted marks, registrations and application, and further agree that concurrent use of the marks THERAPLEX and/or THERAPLEX CLEARLOTION by Bioglan and its Affiliates, and KERAPLEX, or GLYCOTHERAPLEX and/or GLYCOPLEX by Medicis and its Affiliates, all for dermatological or cosmetic products, is not likely to cause confusion. Bioglan hereby consents to use and registration of the marks KERAPLEX, GLYCOTHERAPLEX and GLYCOPLEX for dermatological or cosmetic products by Medicis and its Affiliates and agrees that it will not interfere with issued registrations for the marks for such products. Likewise, Medicis agrees that it will not interfere with use or oppose registration of the marks THERAPLEX or THERAPLEX CLEARLOTION by Bioglan and its Affiliates for dermatological or cosmetic products and agrees that it will not interfere with issued registrations for the marks for such products. The parties agree to assist one another, to the extent reasonably required and at the expense of the trademark owner, to obtain registrations for their respective marks for dermatological and/or cosmetic products. Section 5.12 GenDerm Earnout. Bioglan agrees to fulfill all of the obligations of Medicis or its Affiliates pursuant to Section 2(h)(iv) and 2(h)(v) of the Merger Agreement; provided always that Bioglan shall have no liability to GenDerm Corporation or the Target Stockholders or the Target Stockholders Representative (each as defined therein) in connection with the Merger Agreement, including, without limitation, the payment of the Earnout Amount. Section 5.13 Payment of Royalties. Medicis agrees that it will pay all royalties which accrued under the License Agreements prior to June 1, 1999 in accordance with the terms of such License Agreements. Section 5.14 Title to Assets. Bioglan agrees that Bioglan Pharma, Inc. shall be the sole owner of the Purchased Assets and it shall not permit Bioglan Pharma, Inc. to sell, assign, encumber or sublicense any right, title or interest in any of the Purchased Assets, other than in the ordinary course of business, until such time as the Promissory Note is fully paid or otherwise cancelled in accordance with its terms. ARTICLE VI REPRESENTATIONS AND WARRANTIES Section 6.1 Representations and Warranties of Medicis. Except as set forth in the Disclosure Letter, Medicis hereby represents and warrants to Bioglan as of the date hereof as follows: (a) Organization. Medicis and each of its Affiliates that is a party to any of the License Agreements or to any of the agreements contemplated hereby (i) is a corporation duly organized and validly existing and in good standing under the laws of its state of incorporation and (ii) has all necessary corporate power and authority to own its properties and to conduct its business, as currently conducted. (b) Authorization. The execution and delivery of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby 15 20 and thereby, are within the corporate power of Medicis and any relevant Affiliate of Medicis, have been or will be, on or prior to the Closing Date, duly authorized by all necessary corporate proceedings and such agreements have been or will be, on or prior to the Closing, duly executed and delivered by Medicis or such Affiliate (where appropriate). (c) Execution and Delivery. Neither the execution of this Agreement and the other agreements contemplated hereby nor the consummation of the transactions contemplated herein and therein: (i) requires Medicis to obtain any approval, consent or withholding of objections on the part of any regulatory or governmental body; (ii) will result in any violation or breach of any term or provision of Medicis' Certificate of Incorporation or Bylaws; (iii) will constitute a default under any material indenture, mortgage, deed of trust, license agreement or other contract or agreement to which Medicis or any Affiliate of Medicis that is a party to any of the License Agreements or any of the agreements contemplated hereby is a party or to which the Purchased Assets may be subject; or (iv) will violate any provision of any judicial, governmental or administrative order, writ, injunction, award, judgment or decree applicable to Medicis or any Affiliate of Medicis that is a party to any of the License Agreements or any of the agreements contemplated hereby which would result in a material adverse effect in the condition, business or operations ("Material Adverse Effect") of Medicis. (d) Binding Obligation. As of the Closing, this Agreement and the other agreements contemplated hereby will have been duly and validly authorized, executed and delivered by Medicis or the relevant Affiliate of Medicis as provided hereunder and, when duly executed and delivered by Bioglan or Bioglan AB as provided hereunder, will constitute valid and binding obligations of Medicis or the relevant Affiliate of Medicis, enforceable against Medicis and the relevant Affiliate of Medicis in accordance with their terms, except as such enforcement may be limited by bankruptcy or other laws of general application affecting creditor rights or general principles of equity or principles of public policy relating to indemnification. (e) Broker. Except for Corporate Development Specialists, Inc., neither Medicis nor any officer, director or agent of Medicis has employed any broker, finder, or agent with respect to this Agreement or the transactions contemplated hereby. (f) Gross Sales. The amount of gross sales, less returns, for the calendar year ended December 31 1998, and for the calendar quarter ended March 31, 1999 as accounted for by Medicis in accordance with United States generally accepted account principles ("GAAP"), which has been provided by Medicis to Bioglan prior to the date of this Agreement as contained in the Disclosure Letter, was correct in all material respects. Medicis has also provided Bioglan in the Disclosure Letter with information regarding shipments and returns for the period from April 1, 1999 to May 31, 1999, which information was correct in all material respects. (g) Trademarks. The Trademarks are currently being used commercially by Medicis and have been properly filed or registered with the U.S. Patent and Trademark Office and are valid and in full force and effect as of the date of execution of this Agreement. Except as may be restricted or prohibited by any applicable law, rule, regulation or decision, Medicis or its Affiliates has the exclusive right to use, transfer and assign, free and clear of any material liens, royalties or encumbrances, the registrations for the Trademarks. 16 21 To the best of Medicis' knowledge, the manufacture, use or sale of the Products by Medicis or the use of the Trademarks in the United States of America for the sale of the Products does not infringe the rights of any third party including inter alia intellectual property rights. Except for any restriction or prohibition set forth in any applicable law, rule, regulation, decision or other governmental action, Medicis is not aware of any restriction or prohibition which would prevent or restrict the disclosure of the Know-How to Bioglan hereunder. (h) Adverse Drug Experiences. Medicis has informed Bioglan of all material adverse drug experiences related to the Products of which it has knowledge. (i) License Agreements. Each License Agreement is in full force and effect, and a full and complete copy thereof including all amendments thereof (if any), as duly executed by all parties, is attached to the Disclosure Letter. There have been and are no other amendments, changes or waivers by either party of any of the terms thereof, written or otherwise. Medicis or its Affiliates have the full legal right, power and authority to convey the License Agreements. Neither Medicis nor its Affiliates have assigned, sublicensed or granted, nor is there otherwise outstanding, any material lien or encumbrance of any kind in, any License Agreement. Medicis and its Affiliates are in compliance with all material terms of each License Agreement. To the knowledge of Medicis, there are no counterclaims, defenses or offsets against any obligation of Medicis or any of its Affiliates to perform under any of the License Agreements. (j) Inventory. Medicis has good and valid title to the Inventory, free and clear of any material lien or encumbrance, and has not sold or contracted to sell any of the Inventory other than in the ordinary course of business. All Inventory is held under and in accordance with all material requirements of the License Agreements. All Inventory is in good and marketable condition, has an anticipated remaining shelf life as of June 1, 1999 of not less than twelve (12) months, and does not include any patently damaged, obsolete, or outdated material; provided that if the representation made in the foregoing sentence is not materially true and correct Medicis shall refund to Bioglan any amounts paid pursuant to Section 2.2(a) relating to such Inventory or provide substitute Inventory in the same amount to replace the Inventory which does not conform with this representation and such breach of the representation shall not be sufficient reason for Bioglan not to consummate the transactions contemplated hereby. 17 22 All Products sold by Medicis or its Affiliates after June 1, 1999 to the Closing Date or in Inventory as of the Closing Date were manufactured in accordance with Good Manufacturing Practices, are adequately packaged and labeled and are in conformity with all applicable Authorizations. (k) Litigation. There is no litigation, arbitration proceeding, governmental investigation, action or claims of any kind, pending or, to the knowledge of Medicis, threatened, or facts which could reasonably be expected to give rise thereto, by or against Medicis or any of its Affiliates which would affect Bioglan as the purchaser hereunder or relative to the License Agreements or the Products, other than the Private Label Litigation and the Branded Litigation, including, without limitation, regarding breach of express or implied warranty or representation or failure to warn or relating to personal injury, property damage or other liability arising from or caused by the Products. Notwithstanding anything set forth in the Disclosure Letter, Medicis warrants that Bioglan is not and will not be materially adversely affected by any dispute or litigation directly related to the Products based upon claims up to the Closing Date by Medicis against the Target Shareholders under the Merger Agreement. (l) Customer and Supplier Lists. Medicis has, or prior to the Closing will have, provided Bioglan with complete and accurate lists of the names and addresses of all material customers and suppliers of the Products. (m) DISCLAIMER. OTHER THAN THOSE ARISING AS A RESULT OF A BREACH OF THE REPRESENTATIONS AND WARRANTIES HERETO AND THE BILL OF SALE, BIOGLAN HEREBY WAIVES ANY AND ALL OTHER REPRESENTATIONS, WARRANTIES, DUTIES, AND GUARANTEES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, CONCERNING THE PURCHASED ASSETS OR THE VALUE, CONDITION, EFFECTIVENESS OR COMPLIANCE WITH SPECIFICATION OF THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR THE QUALITY OF THE MATERIALS OR WORKMANSHIP, AND BIOGLAN HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES IT MAY HAVE AGAINST MEDICIS RELATING TO ANY OF THE FOREGOING AND ARISING BY LAW OR OTHERWISE OR WITH RESPECT TO LOSS OF USE, REVENUE OR PROFIT, THE EXISTENCE OF ANY LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT DISCOVERABLE), OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. Section 6.2 Representations and Warranties of Bioglan. Bioglan hereby represents and warrants to Medicis as of the date hereof as follows: (a) Organization. Bioglan (i) is a public limited company duly organized, validly existing under the Laws of England and Wales and (ii) has all necessary power and authority to own its properties and to conduct its business as presently conducted. 18 23 (b) Authority. The execution and delivery of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, are within the corporate power of Bioglan and any relevant Affiliate of Bioglan, have been or will be, on or prior to the Closing Date, duly authorized by all necessary corporate proceedings except for shareholder approval, the obtaining of which shall be governed by and subject to Section 7.5, and such agreements have been or will be, on or prior to the Closing, duly executed and delivered by Bioglan and any relevant Affiliate of Bioglan. (c) has good and marketable title to the which is the subject of the and has the full legal right, power and authority to license such formulation to Medicis. Bioglan has not otherwise assigned, sublicensed or granted any rights to the which could conflict with the . (d) Execution and Delivery. Subject to the approval of the shareholders of Bioglan at the shareholders' meeting as contemplated in Section 7.5, neither the execution of this Agreement and the other agreements contemplated hereby nor the consummation of the transactions contemplated hereby and thereby: (i) requires Bioglan to obtain the approval, consent or withholding of objection on the part of any governmental body; (ii) will result in any violation or breach of any term or provisions of Bioglan's memorandum and articles of association; (iii) will constitute a default under any indenture, mortgage, deed of trust, license, agreement, or other contract or agreement to which Bioglan or any Affiliate of Bioglan that is a party to any of the agreements contemplated hereby is a party; or (iv) will violate any provision of any judicial, governmental or administrative order, writ, injunction, award, judgment or decree applicable to Bioglan or any Affiliate of Bioglan that is a party to any of the agreements contemplated hereby which could reasonably be expected to result in a Material Adverse Effect on Bioglan. (e) Binding Obligation. Subject to the approval of the shareholders of Bioglan at the shareholders' meeting as contemplated in Section 7.5, as of the Closing this Agreement and the other agreements contemplated hereby will have been duly and validly authorized, executed and delivered by Bioglan or the relevant Affiliate of Bioglan, and when duly executed and delivered by Medicis and any relevant Affiliate of Medicis, will constitute valid and binding obligations of Bioglan or the relevant Affiliate of Bioglan, enforceable against Bioglan in accordance with their terms, except as such enforcement may be limited by bankruptcy or other laws of general application affecting creditor rights or general principles of equity or principles of public policy relating to indemnification. (f) Broker. Neither Bioglan nor any officer, director or agent of Bioglan, has employed any broker or finder with respect to this Agreement or the transactions contemplated hereby. (g) Shareholders' Meeting. Bioglan has obtained irrevocable undertakings to vote for the transactions contemplated by this Agreement from holders of a majority of Bioglan's issued ordinary shares. 19 24 ARTICLE VII CONDUCT PRIOR TO CLOSING Section 7.1 Cooperation. The parties agree to cooperate mutually and make all reasonable efforts toward consummating the transactions contemplated hereby and fulfilling the purposes of this Agreement prior to and following Closing, including providing and executing such additional documentation and communications as may be appropriate for such purposes. Section 7.2 Conduct of Business by Medicis. Upon execution of this Agreement, Medicis shall not without the prior written consent of Bioglan take any action out of the ordinary course of business in relation to the Products prior to Closing nor will it do, procure or allow anything which may cause, constitute or result in a breach of the Warranties. After the execution of this Agreement through the Closing Date, Medicis shall provide Bioglan, its agents, representatives and professional advisors reasonable access to all information and facilities relating to the Purchased Assets, as reasonably requested by Bioglan during normal business hours. Section 7.3 Conduct of Private Label Litigation. From the date of this Agreement until the Closing Date, Medicis agrees that it will take no material actions, including the settlement of any claims, relating to the Private Label Litigation without the consent of Bioglan, which consent shall not be unreasonably withheld, conditioned or delayed. During such period Medicis shall provide Bioglan with all information reasonably necessary for Bioglan to evaluate the Private Label Litigation. If Bioglan notifies Medicis within one (1) day prior to the Closing Date, Medicis shall no longer pursue the Private Label Litigation. Section 7.4 Review. Medicis shall permit Bioglan's auditors to inspect Medicis' records relating to sales of the Products to enable the said auditors to adequately validate the financial receipts relating to the sales of the Purchased Assets (as required under the Listing Rules of the London Stock Exchange) since January 1, 1998; provided, however, that Medicis shall have no liability whatsoever in connection with the review described herein, unless the review shall indicate the existence of a material breach of the Warranties. Section 7.5 Shareholders' Meeting. Bioglan shall cause a shareholders' meeting to be called to vote on the transactions contemplated by this Agreement as soon as possible, but no later than July 24, 1999 and shall use its best efforts to cause the shareholders to approve the transactions contemplated by this Agreement. Section 7.6 Validation Claims. Bioglan will remit to Medicis bills for validation in connection with (i) that certain Civamide/Capsaicin Development and Supply Agreement dated October 13, 1998 ("Chemsyn Agreement") by and between GenDerm and Eagle Picher Technologies LLC and (ii) that certain Contract Manufacturing Agreement dated December 15, 1993 by and between GenDerm and DPT Laboratories, Inc. ("DPT Agreement") and Medicis shall reimburse Bioglan for all validation expenses under such agreements; provided, however, that Medicis shall not be liable for reimbursements on (i) the Chemsyn Agreement for amounts greater than US $250,000 less any validation costs previously paid by Medicis or its Affiliates for validation costs under the Chemsyn Agreement; and (ii) the DPT 20 25 Agreement for amounts greater than US $250,000 less any validation costs previously paid by Medicis or any of its Affiliates for validation costs under the DPT Agreement. ARTICLE VIII INDEMNIFICATION Section 8.1 Indemnification by Medicis. Medicis agrees to indemnify, defend and hold harmless Bioglan (and its directors, officers, employees, Affiliates, successors and assigns) from and against all losses, personal injuries, liabilities, damages (other than incidental or consequential), deficiencies, costs or expenses including, without limitation, interest, penalties and reasonable attorneys' fees and disbursements ("Losses") of Bioglan and its Affiliates based upon, arising out of or otherwise in respect of: (a) any material inaccuracy in or material breach of, any representation, warranty, covenant or agreement (other than with respect to the covenant set forth in Section 7.4, for which Medicis shall have no liability, unless the review shall indicate the existence of a material breach of the Warranties) of Medicis or any relevant Affiliate contained in this Agreement. (b) any harm to any third party caused by any defect in the Products manufactured, mandated, distributed, or sold by Medicis or any relevant Affiliate, prior to June 1, 1999, or by any negligent or wrongful act of Medicis or any relevant Affiliate prior to the Closing in connection with the manufacture, distribution, advertising, or sale of the Products, or any failure to comply with any regulation or statute in connection with the Products. (c) failure of Medicis or any relevant Affiliate prior to the Closing Date to use its reasonable best efforts to conduct its efforts under this Agreement at all times in accordance with all applicable laws and regulations which may materially affect the Products including without limitation the U.S. Foreign Corrupt Practices Act. (d) all liabilities (other than for royalties referred to in Section 2.1(a)) due to Dr. Gans pursuant to that letter dated December 12, 1988 from Medicis to Lincoln Ventures, Inc. Section 8.2 Indemnification by Bioglan. Bioglan agrees to indemnify, defend and hold harmless Medicis (and its directors, officers, employees, Affiliates, successors and assigns) from and against all Losses of Medicis and its Affiliates based upon, arising out of or otherwise in respect of: (a) any material inaccuracy in or material breach of any representation, warranty, covenant or agreement of Bioglan or any of its Affiliates contained in this Agreement. (b) any harm to any third party caused by any defect in the Products manufactured, mandated, distributed or sold by Bioglan or any relevant Affiliate after June 1, 1999 or by any negligent or wrongful act of Bioglan in connection with the manufacture, distribution, advertising, or sale of the Products after the Closing Date, or any failure after the Closing Date to comply with any regulation or statute. (c) failure of Bioglan or any relevant Affiliate to use its reasonable best efforts to conduct its efforts under this Agreement at all times in accordance with all applicable laws and 21 26 regulations which may materially affect the Products including without limitation the US Foreign Corrupt Practices Act. Section 8.3 Procedure for Indemnification. (a) If any legal proceeding shall be instituted, or any claim or demand made, against an indemnifying party in respect of which an indemnifying party may be liable hereunder, or if either party hereto for any reason shall believe that it has a claim against the other pursuant to the respective Sections 8.1 or 8.2 hereof, then the indemnified party or the party believing it has a claim against the other, as the case may be (in either case, the "Indemnified Party"), shall give prompt written notice hereunder to the indemnifying party or the party against whom the party giving notice believes it has a claim, as the case may be (in either case, the "Indemnifying Party"). Such notice shall specify in reasonable detail the date such underlying claim or belief first was asserted or arose, the nature of the Loss(es) for which payment is claimed, the Section or Sections of this Agreement upon which such claim is based, and the amount payable in respect thereto, and shall provide a copy of all pleadings relating to the underlying claim. (b) If an Indemnifying Party shall receive notice pursuant to this Section 8.3, the Indemnifying Party may, at its sole option, elect to defend against the Loss, which is the subject of such notice. If the Indemnifying Party elects to defend, then the Indemnified Party shall have the right to participate in such defense, and the trial counsel for the Indemnified Party shall be chosen by the Indemnifying Party provided that such trial counsel shall be reasonably satisfactory to the Indemnified Party, the costs of which shall be borne by the Indemnified Party. If the Indemnifying Party does not elect to defend, then the Indemnified Party may do so by its own counsel provided that such counsel shall be reasonably satisfactory to the Indemnifying Party, the costs of which shall be borne by the Indemnifying Party, and the Indemnifying Party agrees to cooperate with the Indemnified Party in such defense. (c) If the amount of any actual Loss indemnified against hereunder shall at any time subsequent to the payment of any indemnity payable hereunder, be reduced by any recovery, settlement or other payment, then the amount of such reduction, less any expense incurred by the party receiving such recovery, settlement or other payment in connection therewith, shall be repaid promptly to the Indemnifying Party. (d) The aggregate indemnification obligations of each of the parties hereto under Section 8.1 or 8.2 hereof, as the case may be, will not exceed United States Thirty-Seven Million Dollars (US $37,000,000). (e) Neither party shall be obligated to indemnify the other for any Losses hereunder, unless and until the aggregate amount of all Losses exceeds US $250,000 (the "Basket"), and shall be liable only for amounts in excess of the Basket; provided, however, that if the amount of Losses with respect to a breach solely of either Section 6.1(f) or 6.1(i) exceeds US $250,000, Medicis shall be liable for all Losses with respect to such breaches of either Section 6.1(f) or 6.1(i) from the first dollar and provided further that the Basket shall not apply to Section 8.1(d). 22 27 ARTICLE IX GENERAL PROVISIONS Section 9.1 Survival of Representations and Warranties. All representations or warranties set forth herein shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby for a period of two (2) years after the Closing Date. Thereafter, no claim for breach of any representation or warranty shall be made. If this Agreement is terminated pursuant to Section 9.12 hereof, neither Bioglan nor Medicis shall be under any liability whatsoever with respect to any such representation or warranty. The covenants and agreements shall survive indefinitely, unless otherwise specified herein. Section 9.2 Notices. All communications under this Agreement shall be in writing and shall either be faxed, sent by courier or mailed by first class mail, postage prepaid, to the fax number and/or address specified below. If faxed, such communication shall be deemed to be given when sent; provided, however, that any fax shall be confirmed by sending a hard copy by express courier or first class mail (by methods specified herein) within one (1) business day of the sending of such fax. If sent by courier or mailed by first class mail as specified herein, such communication shall be deemed to be given either two (2) business days after sending (for communications sent by courier) or ten (10) business days after mailing (for communications sent by mail). All communications hereunder shall be sent: TO BIOGLAN: at its address shown below or such other address as it may give to Medicis by notice hereunder: 5 Hunting Gate and to: Hitchin, Hertfordshire SG4 0TJ Roiter Zucker Solicitors England Regent House 5-7 Broadhurst Gardens Attn: Terry I. Sadler Swiss Cottage London NW6 3RZ England Attn: Warren Roiter TO MEDICIS, at its address shown below or such other address as it may give to Bioglan by notice hereunder: 4343 East Camelback Road, and to: Suite 250 Akin, Gump, Strauss, Hauer & Phoenix, Arizona 85018-2100 USA Feld, L.L.P. Attn: Jonah Shacknai 590 Madison Avenue New York, New York 10022 Attn: Stephen E. Older, Esq. Section 9.3 Confidential Information. Bioglan and Medicis shall each hold (and shall cause their respective Affiliates to hold) in confidence all documents and information received by it in connection with the transactions contemplated by this Agreement and, in the event that for any reason the transactions contemplated by this Agreement shall not be 23 28 consummated, Bioglan and Medicis shall refrain (and shall cause their respective Affiliates to refrain) from disclosing or otherwise using such documents and information except in connection with any legal proceeding that may be contemplated or instigated by either party against the other in relation to any matter arising out of or under this Agreement, or as required by law or regulation. This Section 9.3 shall not apply to information generally available to the public through no fault of the disclosing party. Nothing in this Section 9.3 shall prevent either party from disclosing such information as may be required by applicable law or any governmental or regulatory body or by the rules or regulations of any national securities exchange upon which the securities of either party are listed. If either party is requested to disclose confidential information pursuant to the preceding sentence, (i) such party will notify the other party immediately of the existence, terms and circumstances surrounding such a request so that the other party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement, and (ii) if, in the absence of a protective order, such disclosure is required in the opinion of the disclosing party's counsel, such party may make such disclosure without liability hereunder, provided that only that portion of the confidential information which is legally required is disclosed, the other party receives notice of the information to be disclosed as far in advance of its disclosure as practicable and will use its reasonable best efforts to ensure that confidential treatment will be accorded to all such disclosed information. Bioglan shall not disclose confidential information to any third party in connection with the marketing and selling of Bioglan's securities to such third party without the prior written consent of Medicis (which consent shall not be unreasonably withheld), provided that such consent shall be deemed granted if Medicis has not responded to a request by Bioglan for such consent within twenty-four (24) hours after Medicis receives actual notice of such request with sufficient information regarding the terms and conditions of such proposed disclosure to allow Medicis to evaluate the proposed disclosure. Section 9.4 Amendment. This Agreement may be amended, modified or supplemented only by written agreement of the parties hereto. Section 9.5 Binding Effect. The rights and obligations of Bioglan and Medicis under this Agreement and the agreements contemplated hereby shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but may not be assigned by either party without the prior written consent of the other party. Nothing set forth herein shall prevent either party from assigning its rights or obligations hereunder to an Affiliate of said party provided that no such assignment shall relieve said party of its obligations hereunder. Section 9.6 Press Releases. Bioglan and Medicis agree to approve jointly the text of an initial press release announcing the execution of this Agreement or the consummation of the transactions contemplated hereby and not to use the name of the other party in any press information, marketing or advertising materials or other release to the public without the prior written approval of the other, which approval shall not be unreasonably withheld. The foregoing shall not be deemed to prevent either party from making any public announcement or issuing any circular which may be required by legislation or any governmental or regulatory body or by the rules and regulations of any national securities exchange upon which the securities of either party are traded; provided that the disclosing party has notified the non-disclosing party of the intended text of such public announcement and the non-disclosing party has been given an opportunity to 24 29 comment on such text prior to its announcement. The disclosing party shall make such changes as are reasonably requested. Section 9.7 Expenses; Taxes. Medicis and Bioglan shall each be responsible for their respective costs incurred in connection with this Agreement and the transactions contemplated hereby. Except as otherwise provided herein, Bioglan shall pay all recording fees and all taxes due by Bioglan in connection with the transfer of the Purchased Assets to Bioglan hereunder. Section 9.8 Headings. All headings in this Agreement are for convenience only and shall not affect the interpretation or meaning of any provision hereof. Section 9.9 Entire Agreement. This Agreement and the Disclosure Letter, together with the other agreements provided for herein, and the Schedules and Exhibits attached hereto, constitutes the entire agreement of the parties, merges all prior negotiations, agreements and understandings, and states in full all representations and warranties applicable to this Agreement. To the extent there are any inconsistencies between the provisions of this Agreement and the Disclosure Letter, the Schedules and Exhibits and any of the other agreements provided for herein, this Agreement shall govern. Section 9.10 Waiver. No delay on the part of any party in exercising any right, power, or privilege hereunder shall operate as a waiver thereof; nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of any party based on, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. Section 9.11 Severability. If any provision of this Agreement is found or declared to be invalid or unenforceable by any court or other competent authority having jurisdiction, such finding or declaration shall not invalidate any other provision hereof, and this Agreement shall thereafter continue in full force and effect except that such invalid or unenforceable provision, and (if necessary) other provisions thereof, shall be reformed by a court of competent jurisdiction so as to effect, insofar as is practicable, the intention of the parties as set forth in this Agreement, provided that if such court is unable or unwilling to affect such reformation, the invalid or unenforceable provision shall be deemed deleted to the same extent as if it had never existed. Section 9.12 Termination. If the Closing does not occur on or prior to August 30, 1999 this Agreement shall terminate, but without prejudice to the provisions of Section 2.2(b); provided that Medicis may, at its option, extend this Agreement to a date no later than December 31, 1999 by providing notice to Bioglan and Bioglan may, at its option, extend this Agreement to a date no later than December 31, 1999 by providing notice to Medicis if the 25 30 Closing has not occurred by that date because any of the conditions set forth in Section 4.1 have not been satisfied; provided, however, that the provisions of Sections 9.3, 9.7, 9.12 and 9.13 and Article X shall survive the termination of this Agreement; and provided further that such termination shall not relieve any party hereto of any liability for any breach of this Agreement. Section 9.13 Governing Law. This Agreement shall be governed by the substantive laws of the State of Arizona, United States of America (without regard to principles of conflict of laws) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Bioglan consents and submits to the personal jurisdiction of the state and federal courts in Arizona. Section 9.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 9.15 Shareholder Approval. Subject to Section 9.12, notwithstanding the Closing having taken place, if Bioglan shall for any reason whatsoever fail to procure shareholder approval as provided in Section 7.5, then (other than the assignment of the Dermastick License provided in Article XI, which shall survive) the Closing shall be deemed for all purposes never to have taken place and all documents delivered at the Closing shall be cancelled and deemed to be null and void and all the Purchased Assets and Assumed Liabilities shall be re-transferred to Medicis in the condition that they are in at such time and the Micanol License Agreement shall be terminated; provided that the Deposit shall be forfeited to Medicis and subject thereto, except for the Security Agreement and the Trademark Security Agreement, neither party shall be under any further liability or obligation to the other whether pursuant to this Agreement or otherwise howsoever; provided, further, that the Security Agreement and the Trademark Security Agreement shall remain in full force and effect. ARTICLE X ARBITRATION Section 10.1 Submission to Arbitration. The parties shall promptly submit to arbitration any dispute which may arise in connection with this Agreement that is not promptly resolved by them, except that each party may seek injunctive relief for breaches of this Agreement if either party makes a good faith determination that a breach of the terms of this Agreement by the other party will result in irreparable harm and that injunctive relief is the only adequate remedy. Section 10.2 Arbitrator and Rules of Arbitration. The American Arbitration Association shall have jurisdiction over the arbitration, which shall be conducted in accordance with the Commercial Arbitration Rules of such Association, except as modified by agreement of the parties. Section 10.3 Selection of Arbitrators. In the event a dispute is to be submitted to arbitration pursuant to this Article X, the parties agree that the dispute shall be resolved by a private arbitration conducted by one arbitrator. Within ten (10) days after the submission of such dispute to arbitration, the parties shall agree upon one arbitrator, selected from a panel of 26 31 five individuals, none of whom is an officer, director or employee of a party or an Affiliate of such party, or a person who has a direct or indirect personal or financial interest in the outcome of the arbitration, designated by the American Arbitration Association from its permanent panel of commercial arbitrators. The parties shall select the arbitrator by alternately striking names of the individuals so designated until only one name remains. A coin toss will determine which party is to strike the first name. Section 10.4 Procedure. The arbitrator shall set a hearing date for an arbitration (the "Hearing") within ninety (90) days from the date the arbitrator is selected, unless otherwise agreed by the parties. At least fifteen (15) days before the Hearing, each party shall submit to the arbitrator a list of all witnesses and exhibits which it intends to present at the Hearing. No later than five (5) days before the Hearing, each party shall provide to the arbitrator a short (not to exceed five single-spaced pages or such other page limit as the arbitrator permits) statement of its position with regard to the dispute. Notwithstanding the Commercial Arbitration Rules, each party shall have the right to conduct up to a total of two (2) depositions. At the Hearing, each party shall, unless it waives the opportunity, make an oral opening statement and an oral closing statement. The arbitrator shall not be strictly bound by rules of procedure or rules of evidence, but shall use the Federal Rules of Evidence as a guideline in conducting the Hearing. When testimony is complete and each party has introduced its exhibits pursuant to the provisions of this Agreement, and each party has made a closing statement pursuant to the provisions of this Agreement or waived the opportunity to do so, the arbitrator shall declare the Hearing closed; provided that the parties may submit post-hearing briefs pursuant to an agreed upon schedule or a schedule formulated by the arbitrator. The Hearing shall be conducted in private. Attendance at the Hearing shall be limited to the following: (i) the arbitrator; (ii) representatives of each party; (iii) each party's attorneys and such attorneys' assistants or advisors, if any, including expert witnesses if any; (iv) a court reporter if requested by either party; and (v) any witnesses. The arbitrator may sequester witnesses upon the motion of a party. Within thirty (30) days of the close of the Hearing or submission of the post-hearing briefs, the arbitrator shall issue a written opinion and an award (the "Award") based on evidence, arguments and post-hearing briefs, if any. The Award shall be a decision of the arbitrator, shall resolve the parties' dispute and shall be final and binding on the parties. Except as otherwise provided in this Agreement, there shall be no ex parte communication regarding the subject matter of the Hearing, in which event the arbitrator will render and deliver to the parties a written opinion and Award within thirty (30) days of being notified that the parties waive the Hearing. Notwithstanding any other provision of this Agreement, the arbitrator shall have no power to delete from, add to or modify the terms of this Agreement, and may not award any remedy which effectively conflicts directly or indirectly with any provision of this Agreement. Section 10.5 Arbitration Costs. In any arbitration, all of the reasonable costs and expenses of the successful party ("Successful Party") (including reasonable attorneys' fees and expenses), all fees and expenses of experts retained by the Successful Party and all costs of the arbitrator shall be borne by the losing party ("Losing Party") in such arbitration. The "Losing Party" and the "Successful Party" shall be determined by the arbitrator based on the relative success or failure of each party to such arbitration. 27 32 ARTICLE XI DERMASTICK Section 11.1 Assignment of Dermastick License. Notwithstanding any of the other provisions of this Agreement, on June 30, 1999 Medicis will (or will cause its relevant Affiliate to) sell, assign, convey, transfer and deliver to Bioglan AB, and Bioglan will cause its Affiliate Bioglan AB to acquire from Medicis or its Affiliate all of Medicis' or its Affiliate's right, title and interest in, to and under the Dermastick License free from any liens, charges, encumbrances, sub-licenses or other third party rights whatsoever. Section 11.2 Consideration. The consideration for the assignment of the Dermastick License shall be the sum of US $1,600,000 which sum shall (subject to Section 11.3) be paid by Bioglan to Medicis on June 30, 1999. Section 11.3 Offset. Provided that Bioglan shall obtain the shareholder approval as provided in Section 7.5, the consideration paid pursuant to Section 11.2 shall be offset against and deducted from the sums otherwise due to Medicis pursuant to the Promissory Note. Section 11.4 Warranties. Medicis hereby represents and warrants to Bioglan as of the date hereof as follows: (a) neither Medicis nor any of its Affiliates has assigned, sublicensed or granted, nor is there otherwise outstanding, any material lien or encumbrance of any kind in or affecting the Dermastick License. (b) Medicis or its relevant Affiliate has the full legal right, power and authority to convey the Dermastick License. (c) there are no material disputes or litigation known to Medicis relating in any way to the Dermastick License. Section 11.5 Form of Assignment. The assignment of the Dermastick License shall be substantially in the form of the License Assignment set forth in Exhibit A attached hereto with such amendments thereto as are appropriate having regard to the identity of the assignor and assignee therein and the consideration as are provided for in this Section 11. Section 11.6 Deliveries. On June 30, 1999 Medicis shall (or shall cause it relevant Affiliate to) execute and deliver to Bioglan AB an assignment of the Dermastick License duly executed, together with the original Dermastick License and Bioglan shall (or shall cause Bioglan AB to) execute and deliver to Medicis a counterpart assignment of the Dermastick License duly executed, together with payment of the consideration referred to in Section 11.2. [SIGNATURE PAGE FOLLOWS] 28 33 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. MEDICIS PHARMACEUTICAL CORPORATION By: /s/ Mark A. Prygocki, Sr. ----------------------------- Mark A. Prygocki, Sr. Chief Financial Officer BIOGLAN PHARMA PLC By: /s/ Terry I. Sadler ----------------------------- Terry I. Sadler Chairman and Chief Executive Officer 29 34 SCHEDULE 2 TRADEMARKS

- ------------------------------ ----------------- ---------- --------------- --------------------------------------------- TRADEMARK COUNTRY REG. NO. REG. DATE CLASS & GOODS/ SERVICES - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- THERAPLEX US 1639471 4/2/91 IC3: DERMATOLOGICAL OINTMENT, NAMELY, SKIN MOISTURIZERS. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- THERAPLEX CLEARLOTION US 1797498 10/12/93 IC5: Dermatologic products; namely, a therapeutic skin emollient for the treatment of dry or damaged skin. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZONALON JP 3302703 5/9/97 IC5: Pharmaceutical preparations. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZONALON MX 495222 6/20/95 IC5: Topical dermatological preparations. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZONALON US 1864160 11/22/94 IC5: Topical dermatological preparations. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX CL 516,028 7/6/98 IC5: Topical analgesic preparation. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX FR 1484342 7/7/87 IC5: Topical analgesic preparation. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX JP 2242915 7/30/90 Class 1: Chemicals, medicines, medical accessories. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX KR 324198 10/17/95 IC10: Drugs for central nervous system, drugs for peripheral nervous system, drugs for sensory organs, drugs for skin, drugs for dispensing use. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ACTIVATED CONDITIONING SYSTEM PU IC5: Conditioning component of a dermatologic hair shampoo. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ACTIVATED CONDITIONING SYSTEM US IC5: Conditioning component of a dermatologic hair shampoo. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ACTIVATED CONDITIONING SYSTEM US 1732211 11/10/92 Supplemental Register: IC3: Dermatologic conditioning component of a hair shampoo. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ACTIVATED DELIVERY SYSTEM PU IC5: Conditioning component of a dermatologic hair shampoo. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ACTIVATED DELIVERY SYSTEM US Principal Register: IC5: Carrier component of a dermatologic hair shampoo. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ACTIVATED DELIVERY SYSTEM US 1744076 12/29/92 Supplemental Register: IC5: Carrier component of dermatologic hair shampoo, containing coal, tar, and conditioners. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ACTIVATED HYDROSILICONE US 1853452 9/13/94 IC5: Dermatologic preparation; namely a component of a thermapeutic

30 35

- ------------------------------ ----------------- ---------- --------------- --------------------------------------------- TRADEMARK COUNTRY REG. NO. REG. DATE CLASS & GOODS/ SERVICES - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- skin emollient which functions to prevent moisture loss through the skin. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX MX 477353 10/20/94 IC5: Topical analgesic products. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX US 1423561 1/6/87 IC5: Cream for relief of herpes zoster (shingles). - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX US 1978408 6/4/96 IC5: Topical analgesic pharmaceutical preparations. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX & DESIGN US 1989291 7/23/96 IC5: Topical analgesic preparations. - ------------------------------ ----------------- ---------- --------------- --------------------------------------------- ZOSTRIX HP TRIPLE STRENGTH & US 1992073 8/6/96 IC5: Topical analgesic preparations. Design - ------------------------------ ----------------- ---------- --------------- ---------------------------------------------

31 36 SCHEDULE 3 DEFERRED PAYMENT ASSETS All pharmaceutical topical preparations that are currently sold under the U.S. tradenames: Zostrix Zonalon Theramycin Z Benzashave (Except in such territories described in the Letter of Disclosure and Schedule 4 to this Agreement) Pramegel Texacort A-Fil Meted Packer's Pine Tar Soap Occlusal Pentrax Medicis makes no representation or warranty to the salability of the products outside the U.S. 32 37 SCHEDULE 4 TERRITORIES Bioglan is granted the right to manufacture, market and sell the products listed in Schedule 3 subject to the terms and conditions of the Licensing Agreements in all territories of the world in which Bioglan decides to market the products, except that with respect to the Benzashave product, Medicis has granted rights to Embil Pharmaceutical Co. LTD to sell Benzashave in Turkey, Cyprus, Morocco, Tunisia, Turkmenistan and Algeria. 33 38 SCHEDULE 5 OTHER AGREEMENTS Chemsyn Agreement 34 39 SCHEDULE 6 PREVIOUS AGREEMENTS PRODUCTS Theramycin Z Benzashave Pramegel Texacort A-Fil Meted Packer's Pine Tar Soap Pentrax Occlusal TERRITORIES All countries other than Canada 35 40 EXHIBIT A FORM OF LICENSE ASSIGNMENT 36 41 EXHIBIT B FORM OF TRADEMARK ASSIGNMENT 37 42 EXHIBIT C FORM OF BILL OF SALE 38 43 EXHIBIT D FORM OF TRANSITION SERVICES AGREEMENT 39 44 EXHIBIT E FORM OF CANADIAN LICENSE AGREEMENT 40 45 EXHIBIT F FORM OF LICENSE AGREEMENT 41 46 EXHIBIT G FORM OF PROMISSORY NOTE 42 47 EXHIBIT H FORM OF SECURITY AGREEMENT 43 48 EXHIBIT I FORM OF LICENSE TERMINATION 44 49 EXHIBIT J FORM OF TRADEMARK SECURITY AGREEMENT 45 EX-10.96 5 EX-10.96 1 EXHIBIT 10.96 ASSET PURCHASE AGREEMENT by and among THE EXOREX COMPANY, LLC BIOGLAN PHARMA PLC MEDICIS PHARMACEUTICAL CORPORATION and IMX PHARMACEUTICALS, INC. ------------------------------- Dated as of June 29, 1999 ------------------------------- 2 TABLE OF CONTENTS

Page ARTICLE I DEFINITIONS.......................................................................................... 1 ARTICLE II SALE AND PURCHASE; PURCHASE PRICE................................................................... 3 Section 2.1 Sale and Purchase of Assets................................................................ 3 Section 2.2 Purchase Price............................................................................. 4 Section 2.3 Form of Payment............................................................................ 4 Section 2.4 Assumption of Obligations.................................................................. 4 ARTICLE III CLOSING............................................................................................ 4 Section 3.1 Closing.................................................................................... 4 Section 3.2 Closing Deliveries of the LLC.............................................................. 4 Section 3.3 Closing Deliveries of Bioglan.............................................................. 5 ARTICLE IV CONDITIONS TO CLOSING............................................................................... 5 Section 4.1 Conditions to Bioglan's Obligations........................................................ 5 Section 4.2 Conditions to the LLC's Obligations........................................................ 6 ARTICLE V OTHER MATTERS........................................................................................ 6 Section 5.1 Use of Know-How............................................................................ 6 Section 5.2 New Product Development.................................................................... 7 Section 5.3 Risks Associated With the Products......................................................... 7 Section 5.4 Agreement to Distribute.................................................................... 7 Section 5.5 Notification of Customers.................................................................. 7 Section 5.6 Customer Orders............................................................................ 7 Section 5.7 Accounts Receivable........................................................................ 7 Section 5.8 Product Registration....................................................................... 8 Section 5.9 Recall and Return of Products.............................................................. 9 Section 5.10 Dissolution of the LLC..................................................................... 9 Section 5.11 Payment of Royalties....................................................................... 9 ARTICLE VI REPRESENTATIONS AND WARRANTIES...................................................................... 9 Section 6.1 Representations and Warranties of the LLC.................................................. 9 Section 6.2 Representations and Warranties of Bioglan.................................................. 12 ARTICLE VII CONDUCT PRIOR TO CLOSING........................................................................... 13 Section 7.1 Cooperation................................................................................ 13 Section 7.2 Conduct of Business by LLC................................................................. 13 Section 7.3 Review..................................................................................... 13 Section 7.4 Contribution Margin........................................................................ 13 ARTICLE VIII INDEMNIFICATION................................................................................... 14 Section 8.1 Indemnification by Medicis and IMX......................................................... 14 Section 8.2 Indemnification by Bioglan................................................................. 15

i 3

Section 8.4 Discontinuance of Operations............................................................... 16 Section 8.5 Returns of Products........................................................................ 16 ARTICLE IX GENERAL PROVISIONS.................................................................................. 16 Section 9.1 Survival of Representations and Warranties................................................. 16 Section 9.2 Notices.................................................................................... 16 Section 9.3 Confidential Information................................................................... 17 Section 9.4 Amendment.................................................................................. 18 Section 9.5 Binding Effect............................................................................. 18 Section 9.6 Press Releases............................................................................. 18 Section 9.7 Expenses; Taxes............................................................................ 18 Section 9.8 Headings................................................................................... 19 Section 9.9 Entire Agreement........................................................................... 19 Section 9.10 Waiver..................................................................................... 19 Section 9.11 Severability............................................................................... 19 Section 9.12 Termination................................................................................ 19 Section 9.13 Governing Law.............................................................................. 19 Section 9.14 Counterparts............................................................................... 20 Section 9.15 Shareholder Approval....................................................................... 20 ARTICLE X ARBITRATION.......................................................................................... 20 Section 10.1 Submission to Arbitration.................................................................. 20 Section 10.2 Arbitrator and Rules of Arbitration........................................................ 20 Section 10.3 Selection of Arbitrators................................................................... 20 Section 10.4 Procedure.................................................................................. 20 Section 10.5 Arbitration Costs.......................................................................... 21

ii 4 SCHEDULES AND EXHIBITS SCHEDULES Schedule 1.............................................................Products Schedule 2...........................................................Trademarks EXHIBITS Exhibit A.................................................Form of Bill of Sale Exhibit B.................................Form of Transition Services Agreement Exhibit C............................................Form of License Assignment Exhibit D..........................................Form of Trademark Assignment iii 5 PURCHASE AGREEMENT PURCHASE AGREEMENT (the "Agreement") dated as of this 29th day of June 1999, by and among THE EXOREX COMPANY, LLC, a Delaware limited liability company (the "LLC"), BIOGLAN PHARMA PLC, a company incorporated under the laws of England and Wales under company registration number 1779870 ("Bioglan"), MEDICIS PHARMACEUTICAL CORPORATION ("Medicis") and IMX PHARMACEUTICALS, INC. ("IMX"). W I T N E S S E T H: WHEREAS, Medicis and Bioglan have entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of June 29, 1999 whereby Medicis has agreed to sell to Bioglan and Bioglan has agreed to purchase from Medicis all of Medicis' right, title and interest in, to and under the Purchased Assets (as defined therein); WHEREAS, in connection with the transactions contemplated by the Asset Purchase Agreement the parties thereto have conditioned execution of the Asset Purchase Agreement on the execution of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereby agree as follows: ARTICLE I DEFINITIONS In this Agreement the following terms shall have the following meanings: "Affiliate" means any person, firm, corporation or other business entity, directly or indirectly controlling, controlled by or under direct or indirect common control with another person. A person shall be deemed to control another person if such person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities, by contract or otherwise. "Business" means the development, manufacture, marketing and sale of the Exorex Product Line and the related telephone product information and ordering services provided to customers and distributors and product fulfillment center. "Contribution Margin" means the amount equal to Net Sales less (i) all reasonable charges from June 1, 1999 to the Closing for overhead directly associated with the Products and the direct and indirect cost of goods (absent the cost of Inventory paid at the Closing Date by Bioglan), and (ii) returns from the period from June 1, 1999 to the Closing. "Disclosure Letter" means the disclosure letter as of the date hereof from the LLC to Bioglan relating to the representations and warranties set out in Section 6.1. "Exorex Product Line" means all skin care products developed by the LLC for the treatment of and relief from psoriasis or other dermatological conditions including, without 1 6 limitation, shampoos and cream products and marketed under the trademark or tradename "Exorex," including without limitation the Products listed on Schedule 1. "Know-How" means the information known to the LLC relating solely and uniquely to the formulae, manufacturing processes, customer lists, marketing and advertising rights and promotional materials, technology and testing data for the Products. "Products" means the pharmaceutical products which are set forth on Schedule 1. "Net Sales" means the gross amount invoiced by the LLC and its Affiliates to third parties on all sales of Products and any improvements (as defined in the License Agreement), less deductions for: (i) sales taxes, value-added taxes and excise taxes, tariffs, import or export duties, and duties paid or allowed by a selling party and any other governmental charges imposed upon the import, use or sale of such Products (except income taxes of the LLC, its Affiliates and sublicensees) which are included in the gross amount invoiced; (ii) allowed customary trade and quantity discounts (such discounts not to exceed 10% of the sales price) and sales discounts (as defined in accordance with GAAP, such discounts not to exceed 5% of the sales price); (iii) transportation, bulk packaging, handling and freight charges (such charges not to exceed 3% of the sales price) and reasonable and customary insurance where such are separately stated as part of the sales price and are included in the gross amount invoiced; and (iv) allowances and credits to its Affiliates or sublicensees which shall be excluded from the computation of Net Sales, but Net Sales shall include subsequent sales to third parties by such Affiliates or sublicensees. For purposes of determining Net Sales, a sale shall be deemed to have occurred when the Products have been shipped by the LLC, its Affiliates or a sublicensee. "Trademarks" means the trademarks listed in Schedule 2 hereto together with the goodwill symbolized by such trademarks. "Warranties" means the warranties and representations of the LLC set out in Section 6.1. The following terms have the meanings defined for such terms in the Sections set forth below: Term Section Agreement.............................................................Recitals Asset Purchase Agreement..............................................Recitals Assumed Liabilities........................................................2.4 Award.....................................................................10.4 Basket..................................................................8.3(e) Bill of Sale ..........................................................3.2 (a) Bioglan...............................................................Recitals Closing....................................................................3.1 Closing Date...............................................................3.1 Excluded Assets............................................................2.1 GAAP....................................................................6.1(g) Hearing...................................................................10.4 IMX...................................................................Recitals 2 7 Indemnified Party.......................................................8.3(a) Indemnifying Party......................................................8.3(a) Inventory..................................................................2.2 Joint Notice...............................................................5.5 License Agreement..........................................................2.1 LLC...................................................................Recitals Losing Party..............................................................10.5 Losses.....................................................................8.1 Material Adverse Effect.................................................6.1(d) Medical Affairs Liaison.................................................5.8(d) Medicis...............................................................Recitals New Authorizations......................................................5.8(a) Purchase Price.............................................................2.2 Purchased Assets...........................................................2.1 Required Consents.......................................................4.1(c) Successful Party..........................................................10.5 ARTICLE II SALE AND PURCHASE; PURCHASE PRICE Section 2.1 Sale and Purchase of Assets. Subject to the terms and conditions set forth herein, and in reliance upon the representations and warranties contained herein, the LLC will sell, assign, convey, transfer and deliver to Bioglan or to the nominated Affiliate of Bioglan, and Bioglan will purchase and acquire from the LLC the following assets of the LLC, including, without limitation, (i) the Exorex Product Line in the United States, (ii) all rights related to the Exorex Product Line in the United States, (iii) the Exorex trademark, (iv) an assignment of the license by and between Pegasus Dermasearch (Pty) Limited and Interderm Limited dated June 23, 1995 as subsequently amended on September 18, 1995, September 1, 1996, January 15, 1998, and March [ ], 1998 (the "License Agreement") to the extent it relates to the Exorex Product, (v) the helpline, including all employees of the Business and all obligations relating to such employees, (vi) the Facility Agreement between the LLC and IMX dated June 18, 1998, (vii) the Inventory (as defined herein), (viii) an amount equal to the Contribution Margin to be paid pursuant to the Transition Services Agreement, (ix) the Software License Agreement from IMX to LLC, dated as of June 18, 1998, and (x) all other ordinary course obligations, including obligations and contracts related to distribution, sales and marketing obligations related to the Business (the "Purchased Assets") except: (i) the New Product Agreement between Medicis and IMX dated June 18, 1998; (ii) the non-Disclosure and Invention Agreements entered into by (a) Adele Folk, dated as of June 18, 1998, (b) Gary Spielfogel, dated as of June 18, 1998, (c) Marc Falkin, dated as of June 18, 1998 and (d) Bill Forster, dated as of June 18, 1998; (iii) the Consulting, Confidentiality and Non-Compete Agreement between the LLC and IMX dated June 18, 1998 ; (iv) the Exclusive Distribution Assignment Agreement between IMX and the LLC, dated June 18, 1998; and (v) the Assignment and Assumption Agreement between IMX and the LLC, dated June 18, 1998 (the "Excluded Assets"). 3 8 Section 2.2 Purchase Price. In consideration for the sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Bioglan will pay the LLC consideration as set forth in Section 2.2(a) of the Asset Purchase Agreement and LLC's cost (less the sum of US $200,000) for all inventory (the "Inventory") of the Products as of June 1, 1999 with a remaining shelf life of no less than twelve (12) months as of June 1, 1999 (the "Purchase Price") and in the manner herein and therein provided and the LLC hereby gives its consent to the payment of the Purchase Price being satisfied in such manner. The parties hereby agree that any Inventory with a shelf life of less than twelve (12) months shall be transferred by the LLC to IMX. Medicis agrees to accept payment of the balance of the sum due in respect of that portion of the Inventory related to raw material and bulk inventory (after allowing for the sum paid therefor on the Closing in accordance with Section 3.3(f)) on September 30, 1999. Section 2.3 Form of Payment. Except as otherwise provided herein, all payments made hereunder shall be made in United States Dollars by wire transfer in immediately available funds to an account designated in writing by Medicis to Bioglan. Section 2.4 Assumption of Obligations. Subject to the terms and conditions set forth herein, and in reliance upon the representations and warranties contained herein, at the Closing, in consideration for the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Bioglan, the LLC will assign, convey and transfer to Bioglan, and Bioglan will unconditionally assume and undertake to pay, perform and discharge, in a timely manner and in accordance with the terms thereof, all liabilities related to or arising out of the Purchased Assets as are incurred and become due at any time following June 1, 1999 (collectively, the "Assumed Liabilities"). Without limiting the generality of the foregoing, Bioglan hereby agrees to assume, undertake and perform all obligations of the LLC under the Assumed Liabilities to the extent such obligations arise or are to be performed after June 1, 1999. ARTICLE III CLOSING Section 3.1 Closing. The consummation of the transactions contemplated herein (the "Closing") shall take place within five (5) business days of satisfaction of the conditions set forth in Article IV, or at such other date and time as mutually agreed to by the parties (the "Closing Date"). Section 3.2 Closing Deliveries of the LLC. At the Closing, and subject always to Section 9.15, the LLC shall execute (where appropriate) and deliver to Bioglan: (a) a Bill of Sale substantially in the form of Exhibit A attached hereto, executed by the LLC; (b) a Transition Services Agreement substantially in the form of Exhibit B attached hereto, executed by the LLC, Medicis and IMX; (c) a Secretary's Certificate of the LLC setting forth copies of the resolutions or other instruments authorizing this Agreement and the transactions contemplated herein; 4 9 (d) an Officer's Certificate of the LLC as required under Section 4.1(b) hereof; (e) a copy of all consents, approvals and authorizations as required under Section 4.1(c) hereof; (f) a License Assignment for the License Agreement substantially in the form of Exhibit C attached hereto; (g) a Trademark Assignment substantially in the form of Exhibit D attached hereto; (h) the Inventory, together with a receipt of payment for the sum paid on account therefor pursuant to Section 3.3(f); (i) a certified true copy of the License Agreement and all amendments thereto; and (j) such other documents as Bioglan shall reasonably request. Section 3.3 Closing Deliveries of Bioglan. At the Closing, and subject always to Section 9.15, Bioglan shall deliver to the LLC: (a) a Transition Services Agreement substantially in the form of Exhibit B attached hereto, executed by Bioglan; (b) a Secretary's Certificate of Bioglan setting forth copies of the resolutions or other instruments authorizing this Agreement and the transactions contemplated herein; (c) an Officer's Certificate of Bioglan as required under Section 4.2(a) hereof; (d) a counterpart License Assignment for the License Agreement substantially in the form of Exhibit C attached hereto; (e) a counterpart Trademark Assignment substantially in the form of Exhibit D attached hereto; (f) an amount equal to the LLC's cost for the finished goods included in the Inventory; and (g) such other documents as the LLC shall reasonably request. ARTICLE IV CONDITIONS TO CLOSING Section 4.1 Conditions to Bioglan's Obligations. Bioglan's obligation to consummate the transactions contemplated herein at the Closing are subject to the fulfillment at 5 10 or prior to the Closing of each of the following conditions, the fulfillment of any of which may be waived, in whole or in part or subject to conditions, by Bioglan: (a) The completion by the LLC, Medicis and IMX of all acts necessary to authorize their execution, delivery and performance of this Agreement and the other agreements provided for herein, and the consummation of the transactions contemplated herein and therein. (b) All the representations and warranties (including the disclosures made in the Disclosure Letter) of the LLC contained in this Agreement being true and correct in all material respects as of the date of execution of this Agreement and at the Closing Date and all of the agreements of the LLC which are provided in this Agreement to be performed at or prior to the Closing having been duly performed, and the LLC having complied with this Agreement in all other material respects and the LLC having delivered to Bioglan a certificate, dated as of the Closing Date, and signed by an executive officer of the LLC, to the effect set forth in this Section 4.1(b). (c) The LLC, Medicis and IMX having obtained all consents, approvals, releases, discharges and authorizations necessary to be obtained on the part of the LLC, Medicis and IMX to consummate the transactions contemplated hereby, including without limitation, all necessary consents of shareholders, mortgagees, lienholders, encumbrancers, assignees and licensors (pursuant to the License Agreement) (the "Required Consents"). (d) The simultaneous consummation of the transactions contemplated pursuant to the Asset Purchase Agreement. Section 4.2 Conditions to the LLC's Obligations. The obligations of the LLC to consummate the transactions contemplated at the Closing are subject to the fulfillment at or prior to the Closing of each of the following conditions, the fulfillment of any of which may be waived, in whole or in part or subject to conditions, by the LLC: (a) All the representations and warranties of Bioglan contained in this Agreement being true and correct in all material respects as of the date of execution of this Agreement and at the Closing Date and all of the agreements of Bioglan which are provided in this Agreement to be performed at or prior to the Closing Date having been duly performed, and Bioglan having complied with this Agreement in all other material respects, and Bioglan having delivered to the LLC a certificate, dated as of the Closing Date and signed by an executive officer of Bioglan, to the effect set forth in this Section 4.2(a). (b) The simultaneous consummation of the transactions contemplated pursuant to the Asset Purchase Agreement. ARTICLE V OTHER MATTERS Section 5.1 Use of Know-How. Except as otherwise provided for in this Agreement, after the Closing, the LLC shall not use the Know-How. Furthermore, after the Closing the LLC shall not disclose the Know-How to any third party, unless such disclosure is required by law or regulation. 6 11 Section 5.2 New Product Development. Notwithstanding anything in this Agreement to the contrary, the transfer and assignment to Bioglan by the LLC of the Purchased Assets shall not prevent the LLC, IMX or Medicis from continuing to manufacture and sell other products included or expected to be included in their current line or to use other trademarks owned by the LLC, IMX or Medicis or restrict the rights of the LLC, IMX or Medicis to develop and sell new products using the same active ingredients contained in the Products, but using different formulations, or different presentations, and under different product trademarks. Section 5.3 Risks Associated With the Products. After the Closing Date, subject to the terms of the Transition Services Agreement, Bioglan shall bear the entire responsibility for and risk in the manufacture, distribution, marketing and sale of the Products, including, subject to Section 8.5, those associated with returns of Product sold by the LLC prior to June 1, 1999, and compliance with all regulations and laws pertaining to the Products. The LLC shall, for one year following the Closing Date, use its reasonable best efforts to assist Bioglan in these matters, but they shall remain the sole responsibility of Bioglan. Section 5.4 Agreement to Distribute. In order to ensure continued supply of the Products to customers following consummation of this Agreement, the LLC hereby agrees to act as distributor of the Products for the earlier of (i) a period of four (4) months from the consummation of this Agreement, or (ii) until Bioglan gives written notice to the LLC that Bioglan has developed its own distribution network. This period shall be extended, at the written request of Bioglan, for a further two (2) months if, after using its reasonable best efforts, Bioglan has been unable to develop its own distribution system at the end of the four month period. Upon expiration of the period for which the LLC shall distribute Products on behalf of Bioglan as set forth above, the LLC shall return to Bioglan any inventory of the Products in the LLC possession as of the date thereof. Section 5.5 Notification of Customers. The LLC and Bioglan agree to cooperate in the notification to customers of the transactions contemplated by this Agreement. Neither the LLC nor Bioglan shall notify any customers of such transactions without the written consent of the other. Such notification (the "Joint Notice") shall be in such form as is reasonably satisfactory to Bioglan and the LLC and shall also inform such customers of Bioglan's address. Section 5.6 Customer Orders. The LLC agrees for a period of four (4) months after the Closing Date to use its reasonable best efforts to forward to Bioglan all customer orders or inquiries for the Products received after the Closing as soon as practicable after receipt by the LLC. The LLC agrees that, for a period of six (6) months from the Closing Date, it will inform any customers ordering the Products or requesting information about the Products, that Bioglan is now supplying the Products and provide such customers with Bioglan's address. Section 5.7 Accounts Receivable. (a) In the event that the LLC receives any payment relating to any accounts receivable that accrued on or after the date on which the Transition Services Agreement is terminated or expires, such payment will be the property of, and will be immediately forwarded and remitted to Bioglan. The LLC will promptly endorse and deliver to Bioglan any cash, checks or other documents received by the LLC on account of any such accounts receivable and 7 12 will advise Bioglan of any counterclaims or set-offs that may arise subsequent to the Closing Date with respect to such accounts receivable. (b) In the event that Bioglan or any of Bioglan's Affiliates receive any payment relating to any accounts receivable that accrued prior to the date on which the Transition Services Agreement is terminated or expires, such payment will be the property of, and will be immediately forwarded and remitted to the LLC. Bioglan or any such Affiliates will promptly endorse and deliver to the LLC any cash, checks or other documents received by Bioglan or any such Affiliate on account of any such accounts receivable and will advise the LLC of any counterclaims or set-offs that may arise subsequent to the Closing Date with respect to such accounts receivable. Section 5.8 Product Registration. (a) After the Closing, Bioglan will initially market the Products under the Authorizations, such Authorizations having been varied to permit the same. Such distribution relationship shall continue until Bioglan obtains regulatory authorization from the FDA to market the Products under its own authorizations (the "New Authorizations"). (b) To permit Bioglan to distribute and sell the Products, Bioglan shall, promptly following signature hereof at its own expense, file all necessary instruments with the FDA to obtain a waiver to vary the LLC's Authorizations to allow Bioglan to sell the Products. (c) Bioglan shall, at its sole expense, file a product license application with the FDA for each of the Products. The LLC shall, at its expense, file all necessary instruments with the FDA to authorize Bioglan to cross-refer to the data contained in the Authorizations in order for Bioglan to obtain the New Authorizations. (d) Within thirty (30) days after the Closing Date, the parties shall each appoint a primary liaison (the "Medical Affairs Liaison") to communicate with each other with regard to the actions and information required pursuant to this Section 5.8 and shall notify the other of the name, address and telephone number of the person so appointed. (e) During the period that Bioglan is selling the Products under the Authorizations, each party shall advise the other as set forth in (i) and (ii) below of any adverse drug experience associated with the Products. In addition, Bioglan shall report all adverse drug experience information it obtains, including that obtained from the LLC, to the FDA as set forth in Section 5.8(f) below: (i) Any adverse drug experience information obtained by a party shall be reported to Bioglan's Medical Affairs Liaison, by telephone or in writing (only by facsimile) within three (3) business days after the first party's initial receipt of the information; provided, however, that any report of a serious unlabelled side effect or any report of a death shall be reported to Bioglan's Medical Affairs Liaison within twenty-four (24) hours of receipt of the information; and (ii) The reports of adverse drug experience shall contain the following information: (i) the date the report was received; (ii) the name of the reporter; 8 13 (iii) the address and telephone number of the reporter; (iv) the patient details; (v) the suspected drug; (vi) other concomitant therapy; (vii) a description of the adverse drug experience; and (viii) any additional relevant information; provided such information is obtainable through the use of reasonable efforts and is not subject to any duty of non-disclosure or confidence. (f) Bioglan shall report all adverse drug experience information associated with the Products, including those received from the LLC under this Section 5.8 to the FDA, in accordance with the laws and regulations of the United States. (g) After the Closing, Bioglan shall bear the entire responsibility for the manufacture, distribution, advertising and sale of the Products and for all actions required by the FDA and other governmental laws and regulations relating to the manufacture, distribution, and use of the Products after June 1, 1999. (h) Upon the grant to Bioglan of the New Authorizations, the LLC agrees at its own expense to take all reasonably necessary steps to cancel, transfer or assign forthwith at Bioglan's option its Authorizations in the United States. Section 5.9 Recall and Return of Products. During the period that Bioglan is selling Products pursuant to the Authorizations, Bioglan shall, at its cost, be responsible for all activities to be performed relating to any recall or return of such Products and the LLC shall during such period promptly notify Bioglan of all decisions and notifications of the FDA relating to the Products. Section 5.10 Dissolution of the LLC. Medicis shall dissolve the LLC within eight (8) months of the Closing Date and shall not use the name Exorex in connection with any of its Affiliates or any Products sold by Medicis or its Affiliates. Medicis shall not infringe or seek to infringe on the Exorex Trademark pursuant to applicable United States law. Section 5.11 Payment of Royalties. The LLC agrees that it will pay all royalties which accrued under the License Agreement prior to June 1, 1999 in accordance with the terms of the License Agreement, failing which, Medicis will pay the royalties on behalf of the LLC. ARTICLE VI REPRESENTATIONS AND WARRANTIES Section 6.1 Representations and Warranties of the LLC. Except as set forth in the Disclosure Letter or Section 6.1(g) and Section 6.1(k), the LLC hereby warrants to Bioglan as of the date hereof as follows: (a) Ownership of LLC Interests. Prior to Closing, Medicis will own 100% of the LLC interests. Prior to Closing, no person will hold any membership interest or any right to receive any income, profits, distributions or assets of the LLC, other than Medicis. None of the LLC Interests were issued in violation of any preemptive or similar rights. 9 14 (b) Organization. The LLC (i) is a corporation duly organized and validly existing and in good standing under the laws of Delaware and (ii) has all necessary corporate power and authority to own its properties and to conduct its business, as currently conducted. (c) Authorization. The execution and delivery of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, are within the corporate power of the LLC, Medicis and IMX and have been or will be, on or prior to the Closing Date, duly authorized by all necessary corporate proceedings, if required, and such agreements have been or will be, on or prior to the Closing, duly executed and delivered by the LLC, Medicis and IMX. (d) Execution and Delivery. Neither the execution of this Agreement and the other agreements contemplated hereby nor the consummation of the transactions contemplated herein and therein: (i) requires the LLC, Medicis or IMX to obtain any approval, consent or withholding of objections on the part of any regulatory or governmental body, (ii) will result in any violation or breach of any term or provision of the LLC's Certificate of Formation or the organizational documentation of Medicis or IMX; (iii) will constitute a default under any material indenture, mortgage, deed of trust, license agreement or other contract or agreement to which the LLC, Medicis or IMX is a party or to which the LLC interests may be subject; or (iv) will violate any provision of any judicial, governmental or administrative order, writ, injunction, award, judgment or decree applicable to the LLC, Medicis or IMX which could result in a material adverse effect in the condition, business or operations ("Material Adverse Effect") of the LLC. (e) Binding Obligation. As of the Closing, this Agreement and the other agreements contemplated hereby will have been duly and validly authorized, executed and delivered by the LLC, Medicis and IMX and, when duly executed and delivered by Bioglan, will constitute valid and binding obligations of the LLC, , Medicis and IMX enforceable against each of the LLC, Medicis and IMX in accordance with their terms, except as such enforcement may be limited by bankruptcy or other laws of general application affecting creditor rights or general principles of equity or principles of public policy relating to indemnification. (f) Broker. Except for Corporate Development Specialists, Inc., neither the LLC nor any officer, director or agent of the LLC has employed any broker, finder, or agent with respect to this Agreement or the transactions contemplated hereby. (g) Gross Sales. Medicis represents and warrants that the amount of gross sales, less returns, for the calendar year ended December 31 1998, and for the calendar quarter ended March 31, 1999 as accounted for by the LLC in accordance with United States generally accepted account principles ("GAAP"), which has been provided by the LLC to Bioglan prior to the date of this Agreement as contained in the Disclosure Letter, was correct in all material respects. The LLC has also provided Bioglan in the Disclosure Letter with information regarding shipments and returns for the period from April 1, 1999 to May 31, 1999, which information Medicis represents and warrants was correct in all material respects. 10 15 (h) Trademarks. The Trademarks are currently being used commercially by the LLC and have been properly filed or registered with the U.S. Patent and Trademark Office and are valid and in full force and effect as of the date of execution of this Agreement. Except as may be restricted or prohibited by any applicable law, rule, regulation or decision, the LLC has the exclusive right to use, transfer and assign, free and clear of any liens or encumbrances, the registrations for the Trademarks. To the LLC's knowledge, the manufacture, use or sale of the Products by the LLC or the use of the Trademarks in the United States of America for the sale of the Products does not infringe the rights of any third party including inter alia intellectual property rights. Except for any restriction or prohibition set forth in any applicable law, rule, regulation, decision or other governmental action, the LLC is not aware of any restriction or prohibition which would prevent or restrict the disclosure of the Know-How to Bioglan hereunder. (i) Adverse Drug Experiences. The LLC has informed Bioglan of all material adverse drug experiences related to the Products of which it has knowledge. (j) License Agreement. The License Agreement is in full force and effect, and a full and complete copy thereof including all amendments thereof (if any), as duly executed by all parties, is attached to the Disclosure Letter. There have been and are no other amendments, changes or waivers by either party of any of the terms thereof, written or otherwise. The LLC has the full legal right, power and authority to convey the License Agreement. The LLC has not assigned, sublicensed or granted, nor is there otherwise outstanding, any material lien or encumbrance of any kind in, the License Agreement. The LLC is in compliance with all material terms of the License Agreement. To the knowledge of the LLC, there are no counterclaims, defenses or offsets against any obligation of the LLC or any of its Affiliates to perform under the License Agreement. (k) Inventory. Medicis represents and warrants that the LLC has good and valid title to the Inventory, free and clear of any material lien or encumbrance, and has not sold or contracted to sell any of the Inventory other than in the ordinary course of business. Medicis represents and warrants that all Inventory to be sold hereunder is in good and marketable condition and has a remaining shelf life as of June 1, 1999 of not less than twelve (12) months and does not include any patently damaged, obsolete, or outdated material. All Products sold by the LLC after June 1, 1999 to the Closing Date or in Inventory as of the Closing Date were manufactured in accordance with Good Manufacturing Practices, are adequately packaged and labeled and in conformity with all applicable authorizations. 11 16 (l) Litigation. There is no litigation, arbitration, proceeding, governmental investigation, action or claims of any kind, pending or, to the knowledge of the LLC, threatened, or facts which could reasonably be expected to give rise thereto, by or against the LLC which would affect Bioglan as the purchaser hereunder or relative to the License Agreements or the Products, including, without limitation, regarding breach of express or implied warranty or representation or failure to warn or relating to personal injury, property damage or other liability arising from or caused by the Products. (m) Contractual Obligations. There are no material obligations or agreements between the LLC and either or both of Medicis and IMX except for those obligations and agreements which are included in the Purchased Assets and the Excluded Assets. (n) Employees. The Disclosure Letter contains details of all employees and consultants of the Business and their current salaries. There are no written employment contracts with respect to the employees and consultants of the Business. (o) DISCLAIMER. OTHER THAN THOSE ARISING AS A RESULT OF A BREACH OF THE REPRESENTATIONS AND WARRANTIES HERETO AND THE BILL OF SALE, BIOGLAN HEREBY WAIVES ANY AND ALL OTHER REPRESENTATIONS, WARRANTIES, DUTIES, AND GUARANTEES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, CONCERNING THE PURCHASED ASSETS OR THE VALUE, CONDITION, EFFECTIVENESS OR COMPLIANCE WITH SPECIFICATION OF THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR THE QUALITY OF THE MATERIALS OR WORKMANSHIP, AND BIOGLAN HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES IT MAY HAVE AGAINST MEDICIS RELATING TO ANY OF THE FOREGOING AND ARISING BY LAW OR OTHERWISE OR WITH RESPECT TO LOSS OF USE, REVENUE OR PROFIT, THE EXISTENCE OF ANY LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT DISCOVERABLE), OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. Section 6.2 Representations and Warranties of Bioglan. Bioglan hereby represents and warrants to the LLC as of the date hereof as follows: (a) Organization. Bioglan (i) is a public limited company duly organized, validly existing under the Laws of England and Wales and (ii) has all necessary power and authority to own its properties and to conduct business as presently conducted. (b) Authority. The execution and delivery of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, are within the corporate power of Bioglan and any relevant Affiliate of Bioglan, have been or will be, on or prior to the Closing Date, duly authorized by all necessary corporate proceedings except for shareholder approval, the obtaining of which shall be governed by and subject to Section 7.5 of the Asset Purchase Agreement and such agreements have been or will be, on or prior to the Closing, duly executed and delivered by Bioglan and any relevant Affiliate of Bioglan. 12 17 (c) Execution and Delivery. Subject to the approval of the shareholders of Bioglan at the shareholders' meeting as contemplated in Section 7.5 of the Asset Purchase Agreement, neither the execution of this Agreement and the other agreements contemplated hereby nor the consummation of the transactions contemplated hereby and thereby: (i) requires Bioglan to obtain the approval, consent or withholding of objection on the part of any governmental body; (ii) will result in any violation or breach of any term or provisions of Bioglan's memorandum and articles of association; (iii) will constitute a default under any indenture, mortgage, deed of trust, license, agreement, or other contract or agreement to which Bioglan or any Affiliate of Bioglan that is a party to any of the agreements contemplated hereby; or (iv) will violate any provision of any judicial, governmental or administrative order, writ, injunction, award, judgment or decree applicable to Bioglan or any Affiliate of Bioglan that is a party to any of the agreements contemplated hereby which could reasonably be expected to result in a Material Adverse Effect on Bioglan. (d) Binding Obligation. Subject to the approval of the shareholders of Bioglan at the shareholders' meeting as contemplated in Section 7.5 of the Asset Purchase Agreement, as of the Closing, this Agreement and the other agreements contemplated hereby will have been duly and validly authorized, executed and delivered by Bioglan, and when duly executed and delivered by the LLC, will constitute valid and binding obligations of Bioglan, enforceable against Bioglan in accordance with their terms, except as such enforcement may be limited by bankruptcy or other laws of general application affecting creditor rights or general principles of equity or principles of public policy relating to indemnification. (e) Broker. Neither Bioglan nor any officer, director or agent of Bioglan, has employed any broker or finder with respect to this Agreement or the transactions contemplated hereby. ARTICLE VII CONDUCT PRIOR TO CLOSING Section 7.1 Cooperation. The parties agree to cooperate mutually and make all reasonable efforts toward consummating the transactions contemplated hereby and fulfilling the purposes of this Agreement prior to and following Closing, including providing and executing such additional documentation and communications as may be appropriate for such purposes. Section 7.2 Conduct of Business by LLC. Upon execution of this Agreement, the LLC shall not without the prior written consent of Bioglan take any action out of the ordinary course of business in relation to the Products prior to Closing nor will it do, procure or allow anything which may cause, constitute or result in a breach of the Warranties. After the execution of this Agreement through the Closing Date, the LLC shall provide Bioglan, its agents, representatives and professional advisors reasonable access to all information and facilities relating to the Purchased Assets, as reasonably requested by Bioglan during normal business hours. Section 7.3 Review. The LLC shall permit Bioglan's auditors to inspect the LLC's records relating to sales of the Products to enable the said auditors to adequately validate 13 18 the financial receipts relating to the sales of the Products (as required under the Listing Rules of the London Stock Exchange) since January 1, 1998; provided, however, that the LLC shall have no liability whatsoever in connection with the review described herein, unless the review shall indicate the existence of a material breach of the Warranties. Section 7.4 Contribution Margin. Medicis covenants that if the Contribution Margin is less than zero (0), then Medicis shall pay to Bioglan an amount equal to the deficit in the Contribution Margin. However, any payment required to be made by Medicis to Bioglan under this Section 7.4 shall be reduced by the total value of all returns received after June 1, 1999 by the LLC from CVS, Jack Eckerd and Walgreens. ARTICLE VIII INDEMNIFICATION Section 8.1 Indemnification by Medicis and IMX. Medicis and IMX, jointly and severally, agree to indemnify, defend and hold harmless Bioglan (and its directors, officers, employees, Affiliates, successors and assigns) from and against all losses, personal injuries, liabilities, damages (other than incidental or consequential), deficiencies, costs or expenses including, without limitation, interest, penalties and reasonable attorneys' fees and disbursements ("Losses") of Bioglan and its Affiliates based upon, arising out of or otherwise in respect of: (a) any material inaccuracy in or material breach of, any representation, warranty, covenant or agreement (other than with respect to the covenant set forth in Section 7.3, for which the LLC shall have no liability, unless the review shall indicate the existence of a material breach of the Warranties) of the LLC contained in this Agreement. (b) any harm to any third party caused by any defect in the Products manufactured, mandated, distributed, or sold by the LLC or any relevant Affiliate, prior to June 1, 1999, or by any negligent or wrongful act of the LLC or any relevant Affiliate prior to the Closing in connection with the manufacture, distribution, advertising, or sale of the Products, or any failure to comply with any regulation or statute in connection with the Products. (c) failure of the LLC prior to the Closing Date to use its reasonable best efforts to conduct its efforts under this Agreement at all times in accordance with all applicable laws and regulations which may materially affect the Products including without limitation the U.S. Foreign Corrupt Practices Act. Section 8.2 Indemnification by Bioglan. Bioglan agrees to indemnify, defend and hold harmless the LLC (and its directors, officers, employees, Affiliates, successors and assigns) from and against all Losses of the LLC based upon, arising out of or otherwise in respect of: (a) any material inaccuracy in or material breach of any representation, warranty, covenant or agreement of Bioglan, any of its Affiliates or sublicensees contained in this Agreement. 14 19 (b) any harm to any third party caused by any defect in the Products manufactured, mandated, distributed or sold by Bioglan or any relevant Affiliate after June 1, 1999 or by any negligent or wrongful act of Bioglan in connection with the manufacture, distribution, advertising, or sale of the Products after the Closing Date, or any failure after the Closing Date to comply with any regulation or statute. (c) failure of Bioglan to use its reasonable best efforts to conduct its efforts under this Agreement at all times in strict accordance with all applicable laws and regulations which may materially affect the Products including without limitation the US Foreign Corrupt Practices Act. Section 8.3 Procedure for Indemnification. (a) If any legal proceeding shall be instituted, or any claim or demand made, against an indemnifying party in respect of which an indemnifying party may be liable hereunder, or if either party hereto for any reason shall believe that it has a claim against the other party pursuant to the respective Section 8.1 or 8.2 hereof, then the indemnified party or the party believing it has a claim against the other party, as the case may be (in either case, the "Indemnified Party"), shall give prompt written notice hereunder to the indemnifying party or the party against whom the party giving notice believes it has a claim, as the case may be (in either case, the "Indemnifying Party"). Such notice shall specify in reasonable detail the date such underlying claim or belief first was asserted or arose, the nature of the Loss(es) for which payment is claimed, the Section or Sections of this Agreement upon which such claim is based, and the amount payable in respect thereto, and shall provide a copy of all pleadings relating to the underlying claim. (b) If an Indemnifying Party shall receive notice pursuant to this Section 8.3, the Indemnifying Party may, at its sole option, elect to defend against the Loss, which is the subject of such notice. If the Indemnifying Party elects to defend, then the Indemnified Party shall have the right to participate in such defense, and the trial counsel for the Indemnified Party shall be chosen by the Indemnifying Party and such trial counsel shall be reasonably satisfactory to the Indemnified Party, the costs of which shall be borne by the Indemnified Party. If the Indemnifying Party does not elect to defend, then the Indemnified Party may do so by its own counsel, such counsel shall be reasonably satisfactory to the Indemnifying Party, the costs of which shall be borne by the Indemnifying Party, and the Indemnifying Party agrees to cooperate with the Indemnified Party in such defense. (c) If the amount of any actual Loss indemnified against hereunder shall at any time subsequent to the payment of any indemnity payable hereunder, be reduced by any recovery, settlement or other payment, then the amount of such reduction, less any expense incurred by the party receiving such recovery, settlement or other payment in connection therewith, shall be repaid promptly to the Indemnifying Party. (d) The aggregate indemnification obligations of Bioglan on the one hand and Medicis and IMX on the other hand under Section 8.1 or 8.2 hereof, as the case may be, will not exceed United States Three Million Dollars (US $3,000,000). 15 20 (e) Neither party shall be obligated to indemnify the other for any Losses hereunder, unless and until the aggregate amount of all Losses exceeds United States Fifty Thousand Dollars (US $50,000) (the "Basket"), and shall be liable only for amounts in excess of the Basket; provided that the Basket shall not apply to Section 8.4 or Section 8.5. (f) IMX shall have no obligation to indemnify Bioglan with respect to Section 6.1(g) or Section 6.1(k). Section 8.4 Discontinuance of Operations. In addition to the other indemnification obligations set forth in this Article VIII, Medicis shall indemnify Bioglan for any out of pocket expense incurred by Bioglan in excess of United States Four Hundred Thousand Dollars (US $400,000) with respect to the discontinuance of the operations relating to the Purchased Assets if such operations are discontinued within two (2) months of the Closing Date and are not incurred due to actions taken by Bioglan other than those costs directly related to discontinuing such operations; provided, however, that the LLC shall not be responsible for more than two (2) weeks of severance pay for any employee of the LLC in connection with such discontinuance. Section 8.5 Returns of Products. In addition to the other indemnification obligations set forth in this Article VIII, Medicis shall, indemnify Bioglan for any return of Products returned within two (2) years of June 1, 1999 by CVS, Walgreens and Jack Eckerd; provided that such indemnification obligation shall not exceed United States Six Hundred Thousand Dollars (US $600,000). ARTICLE IX GENERAL PROVISIONS Section 9.1 Survival of Representations and Warranties. All representations or warranties set forth herein shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby for a period of two (2) years after the Closing Date. Thereafter, no claim for breach of any representation or warranty shall be made. If this Agreement is terminated pursuant to Section 9.12 hereof, none of the parties hereto shall be under any liability whatsoever with respect to any such representation or warranty. The covenants and agreements shall survive indefinitely, unless otherwise specified herein. Section 9.2 Notices. All communications under this Agreement shall be in writing and shall either be faxed, sent by courier or mailed by first class mail, postage prepaid, to the fax number and/or address specified below. If faxed, such communication shall be deemed to be given when sent; provided, however, that any fax shall be confirmed by sending a hard copy by express courier or first class mail (by methods specified herein) within one (1) business day of the sending of such fax. If sent by express courier or mailed by first class mail as specified herein, such communication shall be deemed to be given either two (2) business days after sending (for communications sent by courier) or ten (10) business days after mailing (for communications sent by mail). All communications hereunder shall be sent: 16 21 TO BIOGLAN: at its address shown below or such other address as it may give to Medicis on behalf of the LLC by notice hereunder: 5 Hunting Gate and to: Hitchin, Hertfordshire SG4 0TJ Roiter Zucker Solicitors England Regent House Attn: Terry I. Sadler 5-7 Broadhurst Gardens Swiss Cottage London NW6 3RZ England Attn: Warren Roiter TO MEDICIS, at the address shown below or such other address as it may give to Bioglan by notice hereunder:

c/o Medicis Pharmaceutical Corporation and to: 4343 East Camelback Road, Akin, Gump, Strauss, Hauer & Feld, L.L.P. Suite 250 590 Madison Avenue Phoenix, Arizona 85018-2100 USA New York, New York 10022 Attn: Jonah Shacknai Attn: Stephen E. Older, Esq.

TO IMX, at the address shown below or such other address as it may give to Bioglan by notice hereunder:

IMX Pharmaceuticals, Inc. and to: 2295 Corporate Boulevard Nason, Yeager, Gerson, White, Lioce, P.A. Boca Raton, Florida 33431 1645 Palm Beach Lakes Boulevard Attn: William Forster Suite 1200 West Palm Beach, Florida 33401 Attn: Gary N. Gerson

Section 9.3 Confidential Information. The parties hereto shall each hold (and shall cause their respective Affiliates to hold) in confidence all documents and information received by them in connection with the transactions contemplated by this Agreement and, in the event that for any reason the transactions contemplated by this Agreement shall not be consummated, the parties hereto shall refrain (and shall cause their respective Affiliates to refrain) from disclosing or otherwise using such documents and information except in connection with any legal proceeding that may be contemplated or instigated by any party against the other in relation to any matter arising out of or under this Agreement, or as required by law or regulation. This Section 9.3 shall not apply to information generally available to the public through no fault of the disclosing party. Nothing in this Section 9.3 shall prevent any party hereto from disclosing such information as may be required by applicable law or any governmental or regulatory body or by the rules or regulations of any national securities exchange upon which the securities of either party are listed. If any party hereto is requested to 17 22 disclose confidential information pursuant to the preceding sentence, (i) such party will notify the other parties immediately of the existence, terms and circumstances surrounding such a request so that the other parties may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement, and (ii) if, in the absence of a protective order, such disclosure is required in the opinion of the disclosing party's counsel, such party may make such disclosure without liability hereunder, provided that only that portion of the confidential information which is legally required is disclosed, the other parties receive notice of the information to be disclosed as far in advance of its disclosure as practicable and will use its reasonable best efforts to ensure that confidential treatment will be accorded to all such disclosed information. Bioglan shall not disclose confidential information to any third party in connection with the marketing and selling of Bioglan's securities to such third party without the prior written consent of Medicis (which consent shall not be unreasonably withheld), provided that such consent shall be deemed granted if Medicis has not responded to a request by Bioglan for such consent within twenty - four (24) hours after Medicis receives actual notice of such request with sufficient information regarding the terms and conditions of such proposed disclosure to allow Medicis to evaluate the proposed disclosure. Section 9.4 Amendment. This Agreement may be amended, modified or supplemented only by written agreement of the parties hereto. Section 9.5 Binding Effect. The rights and obligations of the parties hereto under this Agreement and the agreements contemplated hereby shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but may not be assigned by either party without the prior written consent of the other parties hereto. Nothing set forth herein shall prevent such party from assigning its rights or obligations hereunder to an Affiliate of said party provided that no such assignment shall relieve said party of its obligations hereunder. Section 9.6 Press Releases. Bioglan, and Medicis for itself and on behalf of the LLC and IMX, agree to approve jointly the text of an initial press release announcing the consummation of the transactions contemplated hereby and not to use the name of any of the other parties in any press information, marketing or advertising materials or other release to the public without the prior written approval of the other, which approval shall not be unreasonably withheld. The foregoing shall not be deemed to prevent such party from making any public announcement or issuing any circular which may be required by legislation or any governmental or regulatory body or by the rules and regulations of any national securities exchange upon which the securities of such party are traded; provided that the disclosing party has notified the non-disclosing party of such public announcement and the non-disclosing party has been given an opportunity to comment on such announcement. The disclosing party shall make such changes as are reasonably requested. Section 9.7 Expenses; Taxes. The parties hereto shall each be responsible for their respective costs incurred in connection with this Agreement and the transactions contemplated hereby. Except as otherwise provided herein, Bioglan shall pay all recording fees and all taxes due by Bioglan in connection with the transfer of the Purchased Assets to Bioglan hereunder. 18 23 Section 9.8 Headings. All headings in this Agreement are for convenience only and shall not affect the interpretation or meaning of any provision hereof. Section 9.9 Entire Agreement. This Agreement, the promissory note to be entered into pursuant to the Closing of the Asset Purchase Agreement and the Disclosure Letter, together with the other agreements provided for herein, and the Schedules and Exhibits attached hereto, constitutes the entire agreement of the parties, merges all prior negotiations, agreements and understandings, and states in full all representations and warranties or warranties other than those herein stated. To the extent there are any inconsistencies between the provisions of this Agreement and the Disclosure Letter, the Schedules and Exhibits and any of the other agreements provided for herein, this Agreement shall govern. Section 9.10 Waiver. No delay on the part of any party in exercising any right, power, or privilege hereunder shall operate as a waiver thereof; nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of any party based on, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. Section 9.11 Severability. If any provision of this Agreement is found or declared to be invalid or unenforceable by any court or other competent authority having jurisdiction, such finding or declaration shall not invalidate any other provision hereof, and this Agreement shall thereafter continue in full force and effect except that such invalid or unenforceable provision, and (if necessary) other provisions thereof, shall be reformed by a court of competent jurisdiction so as to effect, insofar as is practicable, the intention of the parties as set forth in this Agreement, provided that if such court is unable or unwilling to affect such reformation, the invalid or unenforceable provision shall be deemed deleted to the same extent as if it had never existed. Section 9.12 Termination. This Agreement may be terminated or extended as set forth in Section 9.12 of the Asset Purchase Agreement; provided, however, that the provisions of Sections 9.3, 9.7 and 9.13 and Article X shall survive the termination of this Agreement; and provided further that such termination shall not relieve any party hereto of any liability for any breach of this Agreement. Section 9.13 Governing Law. This Agreement shall be governed by the substantive laws of the State of Arizona, United States of America (without regard to principles of conflict of laws) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Bioglan consents and submits to the personal jurisdiction of the state and federal courts in Arizona. 19 24 Section 9.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 9.15 Shareholder Approval. Subject to Section 9.12, notwithstanding the Closing having taken place, if Bioglan shall for any reason whatsoever fail to procure shareholder approval as provided in Section 7.5 of the Asset Purchase Agreement, the Closing shall be deemed for all purposes never to have taken place and all documents delivered at the Closing shall be cancelled and deemed to be null and void and all the Purchased Assets and Assumed Liabilities shall be re-transferred to the LLC in the condition that they are in at such time and subject thereto, except for the Security Agreement and the Trademark Security Agreement (as defined in the Asset Purchase Agreement), no party hereto shall be under any further liability or obligation to any other whether pursuant to this Agreement or otherwise howsoever; provided, further, that the Security Agreement and the Trademark Security Agreement shall remain in full force and effect. ARTICLE X ARBITRATION Section 10.1 Submission to Arbitration. The parties shall promptly submit to arbitration any dispute which may arise in connection with this Agreement that is not promptly resolved by them, except that each party may seek injunctive relief for breaches of this Agreement if either party makes a good faith determination that a breach of the terms of this Agreement by the other party will result in irreparable harm and that injunctive relief is the only adequate remedy. Section 10.2 Arbitrator and Rules of Arbitration. The American Arbitration Association shall have jurisdiction over the arbitration, which shall be conducted in accordance with the Commercial Arbitration Rules of such Association, except as modified by agreement of the parties. Section 10.3 Selection of Arbitrators. In the event a dispute is to be submitted to arbitration pursuant to this Article X, the parties agree that the dispute shall be resolved by a private arbitration conducted by one arbitrator. Within ten (10) days after the submission of such dispute to arbitration, the parties shall agree upon one arbitrator, selected from a panel of five individuals, none of whom is an officer, director or employee of a party or an Affiliate of such party, or a person who has a direct or indirect personal or financial interest in the outcome of the arbitration, designated by the American Arbitration Association from its permanent panel of commercial arbitrators. The parties shall select the arbitrator by alternately striking names of the individuals so designated until only one name remains. A coin toss will determine which party is to strike the first name. Section 10.4 Procedure. The arbitrator shall set a hearing date for an arbitration (the "Hearing") within ninety (90) days from the date the arbitrator is selected, unless otherwise agreed by the parties. At least fifteen (15) days before the Hearing, each party shall submit to the arbitrator a list of all witnesses and exhibits which it intends to present at the Hearing. No later than five (5) days before the Hearing, each party shall provide to the arbitrator a short (not to 20 25 exceed five (5) single-spaced pages or such other page limit as the arbitrator permits) statement of its position with regard to the dispute. Notwithstanding the Commercial Arbitration Rules, each party shall have the right to conduct up to a total of two (2) depositions. At the Hearing, each party shall, unless it waives the opportunity, make an oral opening statement and an oral closing statement. The arbitrator shall not be strictly bound by rules of procedure or rules of evidence, but shall use the Federal Rules of Evidence as a guideline in conducting the Hearing. When testimony is complete and each party has introduced its exhibits pursuant to the provisions of this Agreement, and each party has made a closing statement pursuant to the provisions of this Agreement or waived the opportunity to do so, the arbitrator shall declare the Hearing closed; provided that the parties may submit post-hearing briefs pursuant to an agreed upon schedule or a schedule formulated by the arbitrator. The Hearing shall be conducted in private. Attendance at the Hearing shall be limited to the following: (i) the arbitrator; (ii) representatives of each party; (iii) each party's attorneys and such attorneys' assistants or advisors, if any, including expert witnesses if any; (iv) a court reporter if requested by either party; and (v) any witnesses. The arbitrator may sequester witnesses upon the motion of a party. Within thirty (30) days of the close of the Hearing or submission of the post-hearing briefs, the arbitrator shall issue a written opinion and an award (the "Award") based on evidence, arguments and post-hearing briefs, if any. The Award shall be a decision of the arbitrator, shall resolve the parties' dispute and shall be final and binding on the parties. Except as otherwise provided in this Agreement, there shall be no ex parte communication regarding the subject matter of the Hearing, in which event the arbitrator will render and deliver to the parties a written opinion and Award within thirty (30) days of being notified that the parties waive the Hearing. Notwithstanding any other provision of this Agreement, the arbitrator shall have no power to delete from, add to or modify the terms of this Agreement, and may not award any remedy which effectively conflicts directly or indirectly with any provision of this Agreement. Section 10.5 Arbitration Costs. In any arbitration, all of the reasonable costs and expenses of the successful party ("Successful Party") (including reasonable attorneys' fees and expenses), all fees and expenses of experts retained by the Successful Party and all costs of the arbitrator shall be borne by the losing party ("Losing Party") in such arbitration. The Losing Party and the Successful Party shall be determined by the arbitrator based on the relative success or failure of each party to such arbitration. [SIGNATURE PAGE FOLLOWS] 21 26 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. THE EXOREX COMPANY, LLC By: /s/ Mark A. Prygocki, Sr ------------------------------------------ Name: Mark A. Prygocki, Sr. Title: BIOGLAN PHARMA PLC By: /s/ Terry I. Sadler ------------------------------------------ Terry I. Sadler Chairman and Chief Executive Officer MEDICIS PHARMACEUTICAL CORPORATION By: /s/ Mark A. Prygocki, Sr. ------------------------------------------ Mark A. Prygocki, Sr. Chief Financial Officer IMX PHARMACEUTICALS, INC. By: /s/ William Forster ------------------------------------------ Name: William Forster Title: President 22 27 SCHEDULE 1 PRODUCTS Exorex Aqueous Cleanser Exorex Body Combo Pack Exorex Display-Large Exorex Display-Small Exorex Excema Formula 4 oz. Gentle Exorex Excema Formula 4 oz. Regular Exorex Excema Formula 8 oz. Regular Exorex Leave on Scalp Conditioner Exorex Penetrating Emulsion Exorex Prepak Exorex Scalp Combo Exorex Shampoo Exorex Stabilizing Cream 8 oz. 1 28 SCHEDULE 2 TRADEMARKS

TRADEMARK COUNTRY REG. NO. REG. DATE CLASS & GOODS/ SERVICES EXOREX US 2049968 4/1/97 Medicated lotions and topical gels for use in the treatment of psoriasis.

2 29 EXHIBIT A FORM OF BILL OF SALE A 30 EXHIBIT B FORM OF TRANSITION SERVICES AGREEMENT B 31 EXHIBIT C FORM OF LICENSE ASSIGNMENT C EX-10.97 6 EX-10.97 1 EXHIBIT 10.97 MEDICIS PHARMACEUTICAL CORPORATION EXECUTIVE RETENTION PLAN. ARTICLE I BACKGROUND AND PURPOSE 1.1 PURPOSE. The purpose of the Medicis Pharmaceutical Corporation ("Medicis" or the "Company") Executive Retention Plan (the "Plan") is have the continued dedication of executives notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below), to improve the recruitment and retention of executives by Medicis and to ensure that executive benefits are competitive with those of other corporations. 1.2 EFFECTIVE DATE. The effective date of this Plan shall be April 1, 1999. 1.3 PLAN NAME. This Plan shall be known as the Medicis Executive Retention Plan and shall include the following provisions. ARTICLE II DEFINITIONS As used herein, the following terms shall have the meanings set forth in this Article II, unless a different meaning is plainly required by the context. 2.1 BOARD. The term "Board" means the Board of Directors of Medicis. 2.2 CAUSE. The term "Cause" shall mean the willful and continued failure to substantially perform the duties of the Company (other than a failure resulting from the Employee's disability), the willful engaging in conduct which is demonstrably injurious to the Company or any subsidiary, monetarily or otherwise, commission of a felony, or a significant violation of any statutory or common law duty of loyalty to the Company. 2.3 CHANGE IN CONTROL. The term "Change in Control" shall mean (a) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2.3; 2 (b) individuals who, as of the date hereof constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to such date whose election or nomination for election by the Company's stockholders was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (c) consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (i) all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Common Stock and the Outstanding Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 75% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Common Stock and the Outstanding Voting Securities, as the case may be, (ii) no Person (other than: the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 25% or more of the Outstanding Common Stock or the Outstanding Voting Securities, as the case may be) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (d) the filing by the Company of a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a Change in Control of the Company has occurred or will or may occur in the future pursuant to any then-existing contract or transaction; provided, that, such Change in Control does in fact occur. 2.4 COMPANY. The term "Company" refers to Medicis or any successor thereto. 2 3 2.5 EMPLOYEE. The term "Employee" means any person listed on Exhibit "A" to this Plan who reports directly to the Chief Executive Officer or are determined by the Board of Directors of the Company to be appropriate to include and listed on Exhibit "A" or any other person designated by the Chief Executive Officer and listed on Exhibit "A." When an Employee is listed on Exhibit "A," Employee and Company shall execute an Acceptance Agreement in the form of Exhibit "B" hereto. The Secretary of the Company shall maintain Exhibit "A" and shall be responsible for coordinating the execution of Exhibit "B" as appropriate. No person shall be considered an Employee by reason of service to the Company solely as a member of the Board of Directors or during a period of service as a consultant. 2.6 GOOD REASON. An Employee shall have "good reason" to terminate employment with the Company when on or within twenty four (24) months after the effective date of the Change in Control: (a) the Employee's duties, responsibilities or authority are materially reduced or diminished without the Employee's prior written consent, (b) the Employee's compensation or benefits are reduced from the compensation and benefits which exist for the Employee on the effective date of the Change in Control (other than ordinary course diminutions in potential bonuses based on poor performance), (c) the Company reduces the potential earnings of the Employee under any performance-based bonus or incentive plan of the Company in effect immediately prior to the effective date of a Change in Control which is disproportionate as compared to other executives employed by the Company or any newly-created organization of which the Company may become a part, (d) the Company amends or terminates any performance-based bonus or incentive plan of the Company in effect immediately prior to the effective date of a Change in Control or (e) the Company requires the Employee's principal place of employment to be greater than 25 miles from Employee's principal place of employment on the date of the Change in Control. 2.7 INVOLUNTARY TERMINATION. The term "Involuntary Termination" refers to termination of employment by determination of the Company as opposed to termination of employment by determination of the Employee. 2.8 SALARY. The term "Salary" means an Employee's regular, fixed rate of salary or wages for the twelve (12) month period immediately preceding the date Employee becomes eligible for a Benefit Allowance and other allowances enumerated in Article IV hereof, plus all bonuses (annualized in the event that Employee is employed by the Company for less than twelve (12) months during such period). For purposes of determining Salary, an Employee's bonus shall be an amount equal to his or her highest annual bonus for any year during the Company's last three fiscal years preceding the date the Employee becomes eligible for a Benefit Allowance and other allowances enumerated in Article IV hereof. 2.9 BENEFIT ALLOWANCE AND OTHER ALLOWANCES. The term "Benefit Allowance" means the benefit payable under this Plan, and together with the other allowances provided for by this Plan, shall be calculated in accordance with Article IV hereof. If any payment or benefit received or to be received by the Employee in connection with a Change in Control of the Company or termination of the Employee's employment (whether payable pursuant to the terms of this Plan, a stock option plan or any other plan or arrangement with the Company) (the "total payments") will be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code"), the Company will pay to the Employee, within thirty (30) days of any payments giving rise to excise tax, an additional amount (the "gross-up payment") such that the net amount retained by the Employee, after deduction of any excise tax on the total payments and any federal and state and local income and employment tax and excise tax on the gross-up payment provided for by this Section 2.9, will equal the total payments. For purposes of determining the amount of the gross-up payment, the Employee will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year that the payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Employee's residence on the date of termination or the date that excise tax is withheld by the Company, net of the maximum reduction in federal income taxes that could be obtained by deducting such state and local taxes. For purposes of determining whether any of the total payments would not be deductible by the Company and would be subject to the excise tax, and the amount of such excise tax, (1) total payments will be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all parachute payments in excess of the base amount within the meaning of Section 280G(b)(3) will be treated as subject to the excise tax unless, in the opinion of tax counsel selected by the Company's independent auditors prior to the Change in Control and acceptable to the Employee, such total payments (in whole or in part) are not parachute payments, or such parachute payments in excess of the base amount (in whole 3 4 or in part) are otherwise not subject to the excise tax, and (2) the value of any non-cash benefits or any deferred payment will be determined by the Company's independent auditors in accordance with Sections 280G(d)(3) and (4) of the Code. If the excise tax is subsequently determined to be less than the amount originally taken into account hereunder, the Employee will repay to the Company, when such reduction in excise tax is finally determined, the portion of the gross-up payment attributable to such reduction. If the excise tax is determined to exceed the amount originally taken into account hereunder (including by reason of any payment, the existence or amount of which cannot be determined at the time of the gross-up payment), the Company will make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) when such excess is finally determined. 2.10 DISABILITY. The term "Disability" shall have the same meaning as provided in the Company's long-term disability plan, or, if no such plan exists, the meaning set forth in Section 22(e)(3) of the Code. ARTICLE III ELIGIBILITY FOR ALLOWANCES 3.1 ELIGIBILITY FOR BENEFIT ALLOWANCE AND OTHER ALLOWANCES. Except as provided below, the Employees listed in the eligibility list attached hereto as Exhibit "A" shall be eligible for a Benefit Allowance and other allowances under the Plan under the following circumstances: (a) the Employee experiences an Involuntary Termination other than for Cause on or within twenty four (24) months after the effective date of a Change in Control; or (b) the Employee terminates his or her employment with the Company for Good Reason on or within twenty four (24) months after the effective date of a Change in Control; or (c) the Employee's employment is terminated on or within twelve (12) months after the effective date of a Change in Control by reason of death or Disability. 3.2 INELIGIBILITY FOR BENEFIT ALLOWANCE AND OTHER ALLOWANCES. An Employee shall be ineligible for a Benefit Allowance and other allowances under the Plan if: (a) the Employee terminates his or her employment with the Company without Good Reason; or (b) the Employee experiences an Involuntary Termination for Cause. 3.3 CONTRACTUAL BENEFITS. If the Employee has an employment contract or other arrangement with the Company which provides for severance or similar benefits, the Employee shall receive the benefit of whichever agreement provides for greater benefits. ARTICLE IV AMOUNT OF BENEFIT ALLOWANCE AND OTHER ALLOWANCES 4.1 AMOUNT OF BENEFIT ALLOWANCE AND OTHER ALLOWANCES. An Employee who satisfies the provisions of Article III hereof shall: (a) receive a Benefit Allowance equal to the amount indicated on Exhibit "A;" 4 5 (b) be provided with medical, health, life, and/or disability insurance benefits for the periods listed on Exhibit A, or, at the option of the Employee, shall receive a cash payment in lieu of and equivalent to such insurance benefits (the "Insurance Payment"); provided, however, that in no event shall such insurance benefits be less than those provided to Employee by the Company any time within the twelve (12) months preceding the date Employee becomes eligible for the Benefit Allowance and other allowances; (c) receive all reasonable legal fees and expenses incurred as a result of termination (including all such fees and expenses, if any, incurred in contesting or disputing any termination, in seeking to obtain or enforce any right or benefit provided by this Plan, or in interpreting this Plan) unless the Employee's claim is determined by a court of competent jurisdiction to be frivolous or otherwise without merit; (d) be entitled to the continued benefit for the time period specified on "Exhibit A," of all active and retired employee benefit plans and programs or arrangements in which he or she was entitled to participate immediately prior to the effective date of the Change in Control, provided that continued participation is possible under the general terms and provisions of such plans and programs; (e) receive a lump sum payment in cash at Employee's normal retirement age (or earlier retirement age should he or she so elect) as defined in the retirement plans or programs in which Employee participates or any successor plans or programs in effect immediately prior to the effective date of the Change in Control, in an amount equal to the lump sum value of the retirement pension to which Employee would have been entitled under the Company's pension plan, excess benefit plan and supplemental retirement plan, if any, if Employee's employment had continued through the periods set forth on Exhibit "A" determined as of the Employee's normal retirement age (or earlier retirement age, should he or she elect) reduced by the present value of the Employee's actual benefits under the Company's pension plan, excess benefit plan and supplement retirement plan; and (f) the forfeiture provisions of any stock option agreements with the Employee regarding the Company's rights to profits from the exercise of options within three (3) years of the Employee's termination shall be null and void. 4.2 TIMING. The Benefit Allowance, the Insurance Payment referred to in Section 4.1(b) above, if any, under this Plan shall be paid in a lump sum cash payment or transferred, as applicable, within thirty (30) business days following an Employee becoming eligible. 4.3 EFFECT ON OTHER BENEFITS. There shall not be drawn from the provision of benefits under this Plan any implication of accrued vacation days, paid holidays, paid sick leave or any other fringe or regular benefits normally associated with employment by the Company for any part of the period during which benefits are payable under this Plan, unless otherwise specifically provided in writing by the Company. The fact that any such benefits are specifically provided in writing by the Company shall not be construed to confer any right to an additional Benefit Allowance or other allowance under this Plan. ARTICLE V GENERAL PROVISIONS 5 6 5.1 PLAN ADMINISTRATION. The Company shall be the Plan's Named Fiduciary and Administrator and subject to the terms of the Plan, shall have complete discretion with respect to the administration, operation and interpretation of the Plan. The Company may consult with an attorney, accountant, actuary or other experts and rely upon their opinions as it deems necessary and proper. Any decisions, actions or interpretations to be made under the Plan by the Company shall be made in its sole reasonable discretion. The determination or action of the Company with respect to any questions arising out of or in connection with the administration, operation and interpretation of the Plan shall be conclusive and binding upon all persons having an interest in the Plan, unless determined to be arbitrary and capricious. 5.2 FUNDING OF THE PLAN. All amounts required to be paid under the Plan shall be provided out of the general assets of the Company. The Company may, in its sole discretion, establish any funding or accounting mechanism permitted by law. No terminated Employee shall have any right to, or interest in, any assets of the Company which may be applied by the Company to make payments under the Plan. 5.3 RIGHT TO AMEND. The Company may modify, alter, amend, or terminate the Plan at any time and to any extent that it may deem advisable in its sole discretion; provided, however, that, within twenty four (24) months following a Change in Control, the Company may not modify, alter, amend or terminate the Plan in any manner, without the written approval of all Employees then listed on "Exhibit A" hereto. Any change shall be set forth in a written instrument which shall be approved by the Board of Directors. Any amendment to the Plan made prior to an actual Change in Control, but subsequent to the execution of a definitive agreement or arrangement to effectuate such a Change in Control or caused by the person effectuating the Change in Control which is detrimental to the Employees listed on Exhibit A (as of the date of such amendment) shall be deemed to have been made immediately following that Change in Control and such amendment shall not be deemed effective unless approved by all of the affected Employees. 5.4 BENEFIT CLAIMS PROCEDURES. In the event a claim by a terminated Employee relating to the amount of any distribution or its method of payment is denied, such person will be given written notice by the Company of such denial, which notice will set forth the reason for the denial. The terminated Employee may, within sixty (60) days after receiving the notice, request a review of such denial by filing a notice in writing with the Company. The Company, in its discretion, may request a meeting with the terminated Employee to clarify any matters it deems pertinent. The Company will render a written decision within sixty (60) days after receipt of such request stating the reasons for its decision. 5.5 NON-ALIENATION OF BENEFIT ALLOWANCE. None of the payments, benefits or rights of any Employee shall be subject to any claims of any creditor and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustees' process or any other legal or equitable process available to any creditor of such Employee. No Employee shall have the right to alienate, commute, pledge, encumber or assign any of the benefits or payouts which the Employee may expect or receive, contingently or otherwise, under the Plan. 5.6 NO RIGHT TO EMPLOYMENT. Nothing herein shall be deemed to give any Employee the right to be retained in the service of the Company or to interfere with the rights of the Company to discharge any Employee at any time and for any reason and to treat him or her without regard to the effect which such treatment might have upon him or her under the Plan. 5.7 PAYMENT DUE PERSONS UNDER DISABILITY. If the Company determines that any person to whom a payment is due hereunder is unable to care for his or her affairs by reasons of physical or mental incapacity, the Company shall have the power to direct that any benefit payment due or becoming due to such person, unless claim shall have been made therefore by a duly appointed legal representative, be paid to his or her spouse, mother, father, child or children, or other blood relative, or to a person with whom he or she resides, without any responsibility of the Company to see to the application of such payment, and any such payment so made shall be a complete discharge of the liabilities of the Plan therefore. 5.8 RECORDS, REPORTING AND DISCLOSURE. The Company shall keep all records necessary for the proper operation of the Plan. Such records shall be made available to each Employee for examination during 6 7 regular business hours except that an Employee shall examine only such records as pertain exclusively to such examining Employee and to the Plan text. The Company shall prepare and shall file, as required by law or regulation, all reports, forms, documents and other items required by the Code, and every other relevant statute, each as amended, and all regulations thereunder, including without limitation, all forms relating to withholding of income or wage taxes, Social Security taxes, and other amounts which may be similarly reportable. 5.9 APPENDICES. Subject to the provisions of Section 5.3, from time to time, the Company may elect to append provisions of limited duration to this Plan to govern what the Company determines to be special circumstances. Each such appendix, during the period stipulated therein, shall be deemed a part of this Plan. The rights of such Employee, as stated in such appendix, shall supersede the rights provided under this Plan; however, the benefits provided under such appendix shall not be less than the benefits which exist under this Plan, and there shall be no duplication of benefits. 5.10 EXPENSES. All expenses of administering, interpreting and enforcing the Plan shall be paid by the Company. 5.11 SUCCESSORS AND ASSIGNS. If any person or entity acquires forty percent (40%) or more of the stock, assets or earning power of the Company, the Company agrees to require such person or entity to assume the Company's obligations under this Plan. If the Company fails to secure such assumption, an Involuntary Termination without Cause shall be deemed to have occurred for all Employees as of the effective date of such acquisition. 5.12 TITLES AND HEADINGS. The titles of articles and headings of paragraphs in this Plan are for convenience of reference only and in case of any conflict, the text of the Plan, rather than such titles and headings, shall control. 5.13 GOVERNING LAW. This Plan shall be construed and enforced according to the internal laws of the State of Arizona, to the extent not preempted by federal law. In the event that any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of the Plan, but the Plan shall be construed and enforced as if said illegal or invalid provision had never been included. 5.14 ARBITRATION. Any and all controversies, claims or disputes arising out of or in any way relating to the Plan shall be resolved by final and binding arbitration in Phoenix, Arizona before a single arbitrator licensed to practice law and in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA"). The arbitration shall be commenced by filing a demand for arbitration with the AAA within sixty (60) days after the occurrence of the facts giving rise to any such controversy, claim or dispute. The arbitrator shall decide all issues relating to arbitrability. If the arbitrator determines that (i) the Company has breached its agreement with the Employee under the Plan, and (ii) the Company was unjustified in failing to make the payments required under the Plan to the Employee, the Company shall pay the Employee, as liquidated damages and not as a penalty, an additional amount equal to ten percent (10%) of the amount involved in the arbitration with respect to the Plan. 7 8 IN WITNESS WHEREOF, and as evidence of its adoption of this Plan, the Company has caused the same to be executed by its duly authorized officers and its corporate seal to be affixed hereto as of April 1, 1999. Attest: MEDICIS PHARMACEUTICAL CORPORATION /s/ Mark A. Prygocki, Sr. By: /s/ Jonah Shacknai - ------------------------- ---------------------- Secretary Its: Chairman and Chief Executive Officer ------------------------------------ 8 9 EXHIBIT A MEDICIS PHARMACEUTICAL CORPORATION EXECUTIVE RETENTION PLAN

INSURANCE AND RETIREMENT BENEFIT POSITION / NAME OF EMPLOYEE BENEFIT ALLOWANCE PAYMENT AND MAINTENANCE PERIOD --------------------------- ----------------- ------------------------------ Persons Who Currently Report Directly to An amount equal to two (2) times the Two (2) years the Chief Executive Officer and all other Employee's Salary persons who subsequent to the date hereof report directly to the Chief Executive Officer as follows, or such other persons as the Board of Directors shall deem appropriate to include in this category: Other Persons Designated by the Chief An amount equal to one (1) times the One (1) year Executive Officer as follows: Employee's Salary

10 EXHIBIT B ACCEPTANCE AGREEMENT THIS AGREEMENT made as of the _________ day of _________, 1999, by and between, Medicis Pharmaceutical Corporation and any successor thereto (the "Company") and ____________ (the "Key Employee"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distraction of the Company's key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders for the Company to retain the services of the Key Employee in the event of a threat or occurrence of a Change in Control and to ensure the Key Employee's continued dedication and efforts in such event without undue concern for the Key Employee's personal financial and employment security; and WHEREAS, in order to induce the Key Employee to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Key Employee to provide the Key Employee with certain benefits in the event the Key Employee's employment is terminated as a result of, or in connection with, a Change in Control and to provide the Key Employee with the Gross-Up Payment (as hereinafter defined) in accordance with the Medicis Pharmaceutical Executive Retention Plan. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. This Agreement shall commence as of the date hereof, and shall continue in effect until June 30, 2000 (the "Term"); provided, however, that on June 30, 2000 and on each year thereafter, the Term shall automatically be extended for one (1) year unless either the Key Employee or the Company shall have given written notice to the other at least ninety (90) days prior thereto that the Term shall not be so extended; provided, further, however, that following the occurrence of a Change in Control, the Term shall not expire prior to the expiration of twenty four (24) months after such occurrence. 2. Termination of Employment. If, during the Term, the Key Employee's employment with the Company or any successor shall be terminated within twenty four (24) months following a Change in Control due to an Involuntary Termination (as defined below), the Key Employee shall be entitled to the following compensation and benefits: (a) a lump sum payment equal to [2][1] times his or her Salary (as defined below) to be paid within 30-days following such termination; (b) be provided with medical, health, life, and/or disability insurance benefits for [twenty-four (24)] [twelve (12)] months, or, at the option of the Key Employee, shall receive a cash payment in lieu of and equivalent to such insurance benefits (the "Insurance Payment"); provided, however, that in no event shall such insurance benefits be less than those provided to Key Employee by the Company any time within the twelve (12) months preceding the date Key Employee becomes eligible for the benefits hereunder; (c) receive all reasonable legal fees and expenses incurred as a result of termination (including all such fees and expenses, if any, incurred in contesting or disputing any termination, in seeking to obtain or enforce any right or benefit provided by this Agreement, or in interpreting this Agreement) unless the Key Employee's claim is determined by a court of competent jurisdiction to be frivolous or otherwise without merit; (d) be entitled to the continued benefit for [twenty-four (24)] [twelve (12)] months of all active and retired employee benefit plans and programs or arrangements in which he or she was entitled to 1 11 participate immediately prior to the effective date of the Change in Control, provided that continued participation is possible under the general terms and provisions of such plans and programs; (e) receive a lump sum payment in cash at Key Employee's normal retirement age (or earlier retirement age should he or she so elect) as defined in the retirement plans or programs in which Key Employee participates or any successor plans or programs in effect immediately prior to the effective date of the Change in Control, in an amount equal to the lump sum value of the retirement pension to which Key Employee would have been entitled under the Company's pension plan, excess benefit plan and supplemental retirement plan, if any, if Key Employee's employment had continued for [twenty- four (24)] [twelve (12)] months following his or her termination, determined as of the Key Employee's normal retirement age (or earlier retirement age, should he or she elect) reduced by the present value of the Key Employee's actual benefits under the Company's pension plan, excess benefit plan and supplement retirement plan; (f) the forfeiture provisions of any stock option agreements with the Key Employee regarding the Company's rights to profits from the exercise of options within three (3) years of the Key Employee's termination shall be null and void; (g) the Key Employee's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefits plans and other applicable programs and practices then in effect; provided, that, if the Key Employee has an employment contract or other arrangement with the Company which provides for severance or similar benefits, the Key Employee shall receive the benefit of whichever agreement provides for greater benefits; (h) in the event it shall be determined that any payment or distribution of any type to or for the benefit of the Key Employee, by the Company, any affiliate, any Person (as defined below) who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder) or any affiliate of such Person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), is or will be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then the Key Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Key Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any income tax, employment tax or Excise Tax, imposed upon the Gross Up Payment, the Key Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. All mathematical determinations, and all determinations as to whether any of the Total Payments are "parachute payments" (within the meaning of Section 280G of the Code), that are required to be made under this Section 2(h), including determinations as to whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and amounts relevant to the last sentence of this Section 2(h), shall be made by an independent accounting firm selected by the Company (the "Accounting Firm"), which shall provide its determination (the "Determination"), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter, both to the Company and the Key Employee by no later than thirty (30) days following the Termination Date, if applicable, or such earlier time as is requested by the Company or the Key Employee (if the Key Employee reasonably believes that any of the Total Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Key Employee, it shall furnish the Key Employee and the Company with a written statement that such Accounting Firm has concluded that no Excise Tax is payable (including the reasons therefor) and that the Key Employee has substantial authority not to report any Excise Tax on his or her federal income tax return. If a Gross-Up Payment is determined to be payable, it shall be paid to the Key Employee within thirty (30) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Company by the Accounting Firm. Any determination by the Accounting Firm shall be binding upon the Company and the Key Employee, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Company should have been made ("Underpayment"), or that Gross-Up Payments will have been made by the Company which should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the Underpayment 2 12 or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment shall be promptly paid by the Company to or for the benefit of the Key Employee. In the case of an Overpayment, the Key Employee shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment, provided, however, that (i) the Key Employee shall not in any event be obligated to return to the Company an amount greater than the net after-tax portion of the Overpayment that he or she has retained or has recovered as a refund from the applicable taxing authorities and (ii) this provision shall be interpreted in a manner consistent with the intent of Section 2(h), which is to make the Key Employee whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Key Employee repaying to the Company an amount which is less than the Overpayment; and (i) the Key Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Key Employee in any subsequent employment. If Key Employee's employment is terminated for any other reason than an Involuntary Termination, he shall not be entitled to any of the payments and benefits set forth above. 3. Definitions. For purposes hereof, the following terms shall have the meanings set forth below: (a) "Involuntary Termination" shall mean a termination of Key Employee's employment (i) by the Company or its successors for any reason other than due to Cause, (ii) by the Key Employee for Good Reason or (iii) due to Key Employee's death or Disability. (b) "Disability" shall have the same meaning as provided in the Company's long-term disability plan, or, if no such plan exists, the meaning set forth in Section 22(e)(3) of the Code. (c) "Cause" shall mean the willful and continued failure of Key Employee to substantially perform the duties of the Company (other than a failure resulting from the Key Employee's Disability), the willful engaging in conduct which is demonstrably injurious to the Company or any subsidiary by the Key Employee, monetarily or otherwise, commission of a felony by the Key Employee, or a significant violation of any statutory or common law duty of loyalty to the Company by the Key Employee. (d) Key Employee shall have "Good Reason" to terminate employment with the Company when on or within twenty four (24) months after the effective date of the Change in Control: (a) the Key Employee's duties, responsibilities or authority are materially reduced or diminished without the Key Employee's prior written consent, (b) the Key Employee's compensation or benefits are reduced from the compensation and benefits which exist for the Key Employee on the effective date of the Change in Control (other than ordinary course diminution in potential bonuses based on poor performance), (c) the Company reduces the potential earnings of the Key Employee under any performance-based bonus or incentive plan of the Company in effect immediately prior to the effective date of a Change in Control which is disproportionate as compared to other executives employed by the Company or any newly-created organization of which the Company may become a part, (d) the Company amends or terminates any performance-based bonus or incentive plan of the Company in effect immediately prior to the effective date of a Change in Control or (e) the Company requires the Key Employee's principal place of employment to be greater than 25 miles from Key Employee's principal place of employment on the date of the Change in Control. (e) "Salary" shall mean Key Employee's regular, fixed rate of salary or wages for the twelve (12) month period immediately preceding the date Key Employee becomes eligible for the benefit and other allowances set forth in Section 2 hereof, plus all bonuses (annualized in the event that Key Employee is employed by the Company for less than twelve (12) months during such period). For purposes of determining Salary, an Key Employee's bonus shall be an amount equal to his or her highest annual bonus for any year during the Company's 3 13 last three fiscal years preceding the date the Key Employee becomes eligible for the benefits and other allowances set forth herein. (f) The term "Change in Control" shall mean (a) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c); (b) individuals who, as of the date hereof constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to such date whose election or nomination for election by the Company's stockholders was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (c) consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (i) all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Common Stock and the Outstanding Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 75% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Common Stock and the Outstanding Voting Securities, as the case may be, (ii) no Person (other than: the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 25% or more of the Outstanding Common Stock or the Outstanding Voting Securities, as the case may be) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (d) the filing by the Company of a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a Change in Control of the Company has occurred or will or may occur in the future pursuant to any then existing contract or transaction; provided, that, such Change in Control does in fact occur. 4. Notice of Termination. Following a Change in Control, any intended termination of the Key Employee's employment by the Company shall be communicated by a notice of termination ("Notice of Termination") from the Company to the Key Employee, and any intended termination of the Key Employee's employment by the Key Employee for Good Reason shall be communicated by a Notice of Termination from the Key Employee to the Company. 5. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Key 4 14 Employee if to the Company or by a duly authorized officer of the Company if to the Key Employee, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 6. Nature of Rights. The Key Employee shall have the status of a mere unsecured creditor of the Company with respect to his or her right to receive any payment under this Agreement. This Agreement shall constitute a mere promise by the Company to make payments in the future of the benefits provided for herein. It is the intention of the parties hereto that the arrangements reflected in this Agreement shall be treated as unfunded for tax purposes. 7. Settlement of Claims. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, defense, recoupment, or other right which the Company may have against the Key Employee or others. 8. Agreement Subject to Plan. The Key Employee acknowledges that this Agreement is subject to the provisions and continuance of the Plan. The Company may modify, alter, amend, or terminate the Plan at any time and to any extent that it may deem advisable in its sole discretion; provided, however, that, within twenty four (24) months following a Change in Control, the Company may not modify, alter, amend or terminate the Plan in any manner, without the approval of all employees then listed on "Exhibit A" hereto. Any change shall be set forth in a written instrument which shall be approved by the Board of Directors. Any amendment to the Plan made prior to an actual Change in Control, but subsequent to the execution of a definitive agreement or arrangement to effectuate such a Change in Control which is detrimental to the employees listed on Exhibit A (as of the date of such amendment) shall be deemed to have been made immediately following that Change in Control and such amendment shall not be deemed effective unless approved by all of the affected employees. 9. Miscellaneous. Except as provided above, no provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Key Employee and the Company. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 10. Binding Agreement. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns. The Company shall require its successors and assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Key Employee, his or her beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Key Employee's legal personal representative. 11. Governing Law, Arbitration. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Arizona without giving effect to the conflict of laws principles thereof. Any and all controversies, claims or disputes arising out of or in any way relating to the Agreement shall be resolved by final and binding arbitration in Phoenix, Arizona before a single arbitrator licensed to practice law and in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA"). The arbitration shall be commenced by filing a demand for arbitration with the AAA within sixty (60) days after the 5 15 occurrence of the facts giving rise to any such controversy, claim or dispute. Except as specifically provided herein, the arbitrator shall decide all issues relating to arbitrability. If the arbitrator determines that (i) the Company has breached this Agreement and (ii) the Company was unjustified in failing to make the payments required under this Agreement to the Key Employee, the Company shall pay the Key Employee, as liquidated damages and not as a penalty, an additional amount equal to ten percent (10%) of the amount involved in the arbitration with respect to the Agreement. 12. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 13. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officers and the Key Employee has executed this Agreement as of the day and year first above written. Medicis Pharmaceutical Corporation By: _______________________________ Jonah Shacknai Chairman and Chief Executive Officer ATTEST: ____________________________ Secretary By: _______________________________ Name 6 EX-13 7 EX-13 1 EXHIBIT 13 THE FOLLOWING INFORMATION IS INCORPORATED BY REFERENCE TO PART II ITEMS 5-8 OF THE ANNUAL REPORT ON FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors (see "Factors that May Affect Future Results" below). OVERVIEW Medicis is the leading independent pharmaceutical company in the United States focusing primarily on the treatment of dermatological conditions. The Company offers prescription products and an over-the-counter ("OTC") product, emphasizing the clinical effectiveness, quality, affordability and cosmetic elegance of its products. Medicis has achieved a leading position in branded products for the treatment of acne, acne-related conditions, dyschromias and hyperpigmentation disorders and also offers the leading OTC fade cream product in the United States. The Company has built its business through successfully introducing prescription products such as DYNACIN(R) and TRIAZ(R) for the treatment of acne, LUSTRA(R) for the treatment of skin dyschromia and photoaging, as well as marketing ESOTERICA,(R) an OTC fade cream product line. In addition, Medicis has acquired the dermatological assets LOPROX,(R) TOPICORT(R) and A/T/S(R) from Hoechst Marion Roussel ("HMR") and LIDEX(R) and SYNALAR(R) corticosteroid product lines from Syntex USA, Inc. ("Syntex"). Prescription pharmaceuticals accounted for 77.0%, 77.0% and 86.5% of net revenues in the fiscal years ending June 30, 1999 ("fiscal 1999"), June 30, 1998 ("fiscal 1998") and June 30, 1997 ("fiscal 1997"), respectively. The Company derives a majority of its revenue from sales of the DYNACIN,(R) TRIAZ,(R) and LIDEX(R) products, the newly developed and expanded LUSTRA(R) line and the newly acquired LOPROX(R) and TOPICORT(R) products (collectively the "Key Products"). The Company believes that sales of the Key Products will constitute the majority of net revenues for the foreseeable future. Accordingly, any factor adversely affecting the sale of the Key Products, individually or collectively, would have a material adverse effect on the Company's business, financial condition and results of operations. Each of the Key Products could be rendered obsolete or uneconomical by regulatory or competitive changes. The sale of Key Products could also be adversely affected by other factors, including manufacturing or supply interruptions; the development of new competitive pharmaceuticals to treat the conditions addressed by the Key Products; technological advances; factors affecting the cost of production; marketing or pricing actions by one or more of the Company's competitors; changes in the prescribing practices of dermatologists; changes in the reimbursement policies of third-party payors; product liability claims; the outcome of disputes relating to trademarks, patents and other rights or other factors. The Company's results of operations may vary from period to period due to a variety of factors, including expenditures incurred to acquire, license and promote pharmaceuticals; expenditures and timing relating to the acquisition and integration of businesses; changes in the prescribing practices of dermatologists; the introduction of new products by the Company or its competitors; cost increases from third-party manufacturers; manufacturing and supply interruptions; the availability and cost of raw materials; the mix of products sold by the Company; changes in marketing and sales expenditures; market acceptance of the Company's products; competitive pricing pressures; the outcome of disputes relating to trademarks, patents and other rights; general economic and industry conditions that affect customer demand and the Company's level of research and development activities. In addition, the Company's business has historically been subject to seasonal fluctuations, with lower sales generally being experienced in the first quarter of each fiscal year. As a result of customer buying patterns, a substantial portion of the Company's revenues has been in the last month of each quarter. The Company schedules its inventory purchases to meet anticipated customer demand. As a result, relatively small delays in the receipt of manufactured products by the Company could result in revenues being deferred or lost. The Company's operating expenses are based upon anticipated sales levels, and a high percentage of the Company's operating expenses are relatively fixed in the short term. Consequently, variations in the timing of revenue recognition could cause significant fluctuations in operating results from period to period and may result in unanticipated earnings shortfalls or losses. There can be no assurance that the Company will maintain or increase revenues or profitability or avoid losses in any future period. 1 2 The Company recognizes revenues from sales upon shipment to its customers. At the time of sale, the Company records reserves for returns based upon estimates using historical experience. Sales are reported net of actual and estimated product returns and net of pricing adjustments and/or discounts. The Company applies royalty obligations to the cost of sales in the period the corresponding sales are recognized. Medicis' customers include the nation's leading wholesale pharmaceutical distributors, such as McKesson HBOC, Inc. ("McKesson"), Bergen Brunswig Corporation ("Bergen Brunswig"), Cardinal Health, Inc. ("Cardinal"), Bindley Western Industries, Inc. ("Bindley") and other major drug chains. During fiscal 1999, McKesson and Cardinal accounted for 18.0% and 14.1%, respectively, of the Company's sales. During fiscal 1998, McKesson, Bergen Brunswig and Cardinal accounted for 16.9%, 13.2% and 12.6%, respectively, of the Company's sales. During fiscal 1997, McKesson, Cardinal and Bergen Brunswig accounted for 20.6%, 16.3% and 10.9%, respectively, of the Company's sales. The loss of any of these customers' accounts could have a material adverse effect upon the Company's business, financial condition or results of operations. The Company plans to spend substantial amounts of capital to continue the research and development of pharmaceutical products. Actual expenditures will depend upon the Company's financial condition, as well as the results of clinical testing, delays or changes in government-required testing and approval procedures, technological and competitive developments and strategic marketing decisions. The Company may increase total expenditures for research and development and expects that research and development expenditures as a percentage of net revenues will fluctuate from period to period. The Company can give no assurance that the research and development projects will provide technologies or products that will be patentable, commercially feasible or acceptable to government agencies whose approval may be necessary. The Company intends to seek additional acquisitions of products or companies to leverage its existing distribution channels and marketing infrastructure, and to aggressively market formulations of existing products. The success of the Company's efforts is subject to a number of risks and uncertainties including: dependence on sales of Key Products; integration of new product acquisitions; risks associated with the GenDerm Corporation and subsidiaries ("GenDerm") acquisition; reliance upon third-party manufacturers to produce certain Key Products; the ability to effectively manage a changing business; uncertainties related to pharmaceutical pricing and reimbursement; the uncertainty of competitive forces within the pharmaceutical industry that affect both the market for its products and the availability of product lines for acquisitions that meet the Company's acquisition criteria. The future results of operations, both annually and from quarter to quarter, are subject to a variety of factors applicable to the Company and to the industries and markets in which it operates. To enable Medicis to focus on its core marketing and sales activities, the Company selectively out-sources certain non-sales and non-marketing functions, such as laboratory research, manufacturing and warehousing. As the Company expands its activities in these areas, additional financial resources are expected to be utilized. The Company typically does not enter into long-term manufacturing contracts with third-party manufacturers. Whether or not such contracts exist, there can be no assurance that the Company will be able to obtain adequate supplies of its products in a timely fashion, on acceptable terms, or at all. RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements contained elsewhere herein. The following table sets forth certain data as a percentage of net revenues for the periods indicated.

PERCENTAGE OF REVENUES June 30, ----------------------------------------------- 1999* 1998** 1997 - -------------------------------------------------------------------------------------------------- Net revenues 100.0% 100.0% 100.0% Gross profit 81.5 82.0 77.3 Operating expenses 40.6 42.8 46.0 Operating income 40.9 39.2 31.3 Interest income, net 8.3 9.0 9.2 Income tax (expense) benefit (17.8) (18.6) 1.6 ------------------------------------------------ Net income 31.4% 29.6% 42.1% - --------------------------------------------------------------------------------------------------

2 3 *Absent tax-effected special charge for in-process research and development and tax-effected gain on divested products **Absent special charge for in-process research and development The following table reflects certain selected unaudited quarterly operating results of the Company for each of the last eight quarters through the quarter ended June 30, 1999. The Company believes that all necessary adjustments have been included to fairly present the quarterly information. The operating results for any quarter are not necessarily indicative of the results for any future period. Gross profit does not include amortization of the related intangibles. FISCAL 1999* AND FISCAL 1998** ANALYSIS (in thousands, except per share data)

September December March June - ---------------------------------------------------------------------------------- Net revenues $ 24,780 $ 28,016 $ 30,183 $ 33,892 $ 13,911 $ 16,928 $ 22,527 $ 24,205 Gross profit 20,073 22,700 25,158 27,305 11,365 13,924 18,535 19,768 Operating expenses 10,279 10,964 11,739 14,443 6,403 7,718 9,871 9,220 Operating income 9,794 11,736 13,419 12,862 4,962 6,206 8,664 10,548 Net income 8,089 8,976 9,708 9,883 3,751 4,349 6,434 8,459

NET INCOME PER COMMON SHARE:

September December March June - ---------------------------------------------------------------------------------- Basic $ 0.29 $ 0.32 $ 0.34 $ 0.35 $ 0.17 $ 0.20 $ 0.25 $ 0.30 Diluted 0.28 0.30 0.33 0.34 0.17 0.19 0.24 0.29

SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE:

September December March June - ---------------------------------------------------------------------------------- Basic 28,161 28,279 28,576 28,645 21,471 21,552 25,326 28,127 Diluted 28,791 29,585 29,811 29,343 22,366 22,429 26,329 28,909

*Absent tax-effected special charge for in-process research and development in December quarter; absent tax effected gain on divested products in March and June quarters **Absent special charge December quarter Quarterly results may vary from period to period due to a variety of factors including: expenditures incurred to acquire, license and promote pharmaceutical products; expenditures and timing relating to the acquisition and integration of products or businesses; changes in the prescribing practices of physicians; the introduction of new products by the Company or its competitors; cost increases from third-party manufacturers; supply interruptions; the availability and cost of raw materials; the mix of products sold by the Company; changes in marketing and sales expenditures; market acceptance of the Company's products; competitive pricing pressures; the outcome of disputes relating to trademarks, patents and other rights; general economic and industry conditions that affect customer demand and the Company's level of research and development activities. There can be no assurance that the Company will maintain or increase revenues or profitability or avoid losses in any future period. YEARS ENDED JUNE 30, 1999 AND 1998 NET REVENUES. Net revenues for fiscal 1999 increased 50.7%, or $39.3 million, to $116.9 million from $77.6 million for fiscal 1998. The Company's net revenues increased in fiscal 1999 primarily as a result of both unit and dollar sales growth associated with the Company's prescription products. The Company's prescription products accounted for 77.0% of net revenues in fiscal 1999 and in fiscal 1998. Net revenues of the Company's prescription 3 4 products grew 50.8%, or $30.3 million, to $90.0 million in 1999 from $59.7 million in fiscal 1998, primarily due to the continued growth of the DYNACIN(R) and LUSTRA(R) products and the newly acquired LOPROX(R) line. In fiscal 1999, the Company's OTC products, contract revenue and the physician-dispensed division accounted for 23.0% of net revenues. In fiscal 1998, the Company's OTC products and physician-dispensed division accounted for 23.0% of net revenues. GROSS PROFIT. Gross profit during fiscal 1999 increased 49.8%, or $31.6 million, to $95.2 million from $63.6 million in fiscal 1998. As a percentage of net revenues, gross profit was 81.5% and 82.0% in fiscal 1999 and fiscal 1998, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses in fiscal 1999 increased 39.4%, or $10.8 million, to $38.2 million from $27.4 million in fiscal 1998. This increase was primarily attributable to an increase in personnel costs. The increase in personnel costs was primarily due to an increase in the number of employees to 144 in fiscal 1999 from 125 in fiscal 1998 and yearly salary escalations for existing employees. The increase was also due to promotional costs associated with the sampling and advertising of the Company's products, promotional and administrative costs associated with the EXOREX(TM) joint venture with IMX Pharmaceuticals, Inc. ("IMX") and variable costs commensurate with increased sales volumes. Selling, general and administrative expenses as a percentage of net revenues in fiscal 1999 decreased 2.7 percentage points, to 32.7% from 35.4% in fiscal 1998, primarily attributable to a decrease in promotional and personnel costs as a percentage of sales. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in fiscal 1999 increased 17.7%, or $0.5 million, to $3.4 million from $2.9 million in fiscal 1998. The increase is primarily due to development efforts on LUSTRA-AF(TM) and DYNACIN(R) 75 mg. line extensions in the fourth quarter of fiscal 1999, development efforts related to new products and expenses associated with the clinical support of the Company's existing products. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses in fiscal 1999 increased 100.1%, or $2.9 million, to $5.8 million from $2.9 million in fiscal 1998. This increase is primarily attributable to the amortization of the purchase price of the LOPROX,(R) TOPICORT(R) and A/T/S(R) products purchased by the Company in November 1998. The Company is amortizing this purchase price over a 25-year period. The Company's depreciation and amortization also increased due to the full year of amortization of the intangible assets acquired in connection with the acquisition of GenDerm in December 1997. IN-PROCESS RESEARCH AND DEVELOPMENT. In fiscal 1999, the Company recorded a $9.5 million charge to operations as in-process research and development as part of the allocated purchase price on the acquisition of the LOPROX, (R) TOPICORT(R) and A/T/S(R) products. The acquired in-process research and development consists of technologies related to new indications and forms of certain products acquired. The acquired in-process research and development projects are in various stages of development, have not reached technological feasibility and have no known alternative uses. The nature and efforts required to develop the acquired in-process research and development into commercially viable products include completion of the development stages of the commercially viable products, clinical trial testing and FDA approval and commercialization. Due to the nature of the pharmaceutical development process, the Company anticipates incurring additional costs to develop these products. However, there is no certainty that any of these development efforts will result in commercially viable products. During the upcoming fiscal year, the Company anticipates research and development expenditures of approximately $500,000 relating to the development of commercially viable products. Such amounts may increase if the FDA should require additional studies, testing or supplemental information. In fiscal 1998, the Company recorded a $35.4 million charge to operations as in-process research and development as part of the allocated purchase price of GenDerm. The value of the acquired in-process research and development was determined by estimating the projected net cash flows related to such products, including costs to complete the development, and future revenues to be earned upon commercialization of the products. These cash flows were discounted back to their net present value. The resulting projected net cash flows from such projects were based upon management's estimates of revenues and 4 5 operating profits at the time of the acquisition related to such projects. Management also reviewed the probability of product success which was estimated using certain probability factors for each stage of development. OPERATING INCOME (LOSS). Operating income for fiscal 1999 increased $43.3 million, to $38.3 million from a $5.0 million operating loss in fiscal 1998. This increase is primarily a result of the $35.4 million in-process research and development charge relating to the Company's purchase of GenDerm in fiscal 1998 and a $9.5 million in-process research and development charge relating to the LOPROX,(R) TOPICORT(R) and A/T/S(R) product acquisition in fiscal 1999. Absent special charges in fiscal 1999 and 1998, operating income in fiscal 1999 increased 57.4%, or $17.4 million, to $47.8 million from $30.4 million in fiscal 1998. This increase was primarily a result of higher sales volume and a decrease of 2.7 percentage points in selling, general and administrative expenses as a percentage of sales offset by an increase in research and development and depreciation and amortization expenses. NET INTEREST INCOME (EXPENSE). Interest income in fiscal 1999 increased $4.4 million, to $11.5 million from $7.1 million in fiscal 1998, primarily due to higher average cash, cash equivalent and short-term investment balances during fiscal 1999. The Company's higher average cash, cash equivalent and short-term investment balances are due to a full year of proceeds from the Company's February 1998 public offering. The Company raised offering proceeds of $209.4 million before related expenses, or $197.9 million net of related expenses. Interest expense in fiscal 1999 increased $1.8 million, to $1.8 million from $23,600 in fiscal 1998. This increase is primarily related to interest expense of $1.8 million related to the contract obligation recorded in connection with the acquisition of the LOPROX,(R) TOPICORT(R) and A/T/S(R) products. INCOME TAX (EXPENSE) BENEFIT. Income tax expense during fiscal 1999 increased $9.8 million, to $24.2 million from $14.4 million in fiscal 1998. The provision for income taxes recorded for fiscal 1999 reflects management's estimate of the effective tax rate. The increase in income tax expense in fiscal 1999, as compared to fiscal 1998, is primarily due to an increase in pre-tax income offset by the special charge for in-process research and development in fiscal 1998 for which no tax benefit was realized. The decrease in the effective tax rate in fiscal 1999, as compared to fiscal 1998, is primarily attributable to the implementation of tax saving strategies, an increase in tax-exempt interest income and the non-deductible in-process research and development recorded in fiscal 1998. NET INCOME (LOSS). Net income during fiscal 1999 increased approximately $53.8 million, to $41.4 million from a $12.4 million loss in fiscal 1998. Fiscal 1999 and 1998 included special charges to operations for in-process research and development related to the LOPROX,(R) TOPICORT(R) and A/T/S(R) acquisition in fiscal 1999 and the purchase of GenDerm in fiscal 1998. Net income in fiscal 1999 also included $17.7 million related to a gain on the sale of assets to Bioglan Pharma Plc ("Bioglan"). Absent tax-effected special charges and tax-effected gain on divested products in fiscal 1999, net income increased approximately 59.4%, or $13.6 million, to $36.6 million from $23.0 million in fiscal 1998. This increase was due primarily to an increase in sales volume, a decrease in selling, general and administrative costs as a percentage of net revenues and an increase in interest income offset by an increase in depreciation and amortization and research and development expenses. YEARS ENDED JUNE 30, 1998 AND 1997 NET SALES. Net sales for fiscal 1998 increased 88.5%, or $36.4 million, to $77.6 million from $41.2 million for fiscal 1997. The Company's net sales increased in fiscal 1998 primarily as a result of both unit and dollar sales growth associated with an increase in market share of the existing prescription products, the launch of the Company's internally developed LUSTRA(R) product and the acquisition of GenDerm in December 1997. The Company's prescription products accounted for 77.0% of net sales in fiscal 1998 and 86.5% in fiscal 1997. Net sales of the Company's prescription products grew 67.7%, or $24.1 million, to $59.7 million in 1998 from $35.6 million in fiscal 1997, primarily due to the continued growth of the TRIAZ(R) products, a full year of sales of the LIDEX(R) and SYNALAR(R) products acquired in February 1997, the purchase of the prescription products from GenDerm and the launch of the Company's LUSTRA(R) product which was introduced in the third quarter of fiscal 1998. The Company's OTC products and physician-dispensed division accounted for 23.0% of net sales for fiscal 1998 and 13.5% in fiscal 1997. OTC sales increased approximately 222.2%, primarily due to the acquisition of the OTC products from GenDerm in the second quarter of fiscal 1998. 5 6 GROSS PROFIT. Gross profit during fiscal 1998 increased 100.0%, or $31.8 million, to $63.6 million from $31.8 million in fiscal 1997. As a percentage of net sales, gross profit grew to 82.0% in fiscal 1998 from 77.3% in fiscal 1997, primarily as a result of a full year of sales of the LIDEX(R) and SYNALAR(R) products, the increase in sales of TRIAZ(R) products, sales of NOVACET(R) and ZONALON(R) products, which were acquired in the GenDerm acquisition, and sales of LUSTRA,(R) which was launched by the Company in the third quarter of fiscal 1998, all of which enjoy margins in excess of the aggregate corporate gross profit percentages. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses in fiscal 1998 increased 66.4%, or $10.9 million, to $27.4 million from $16.5 million in fiscal 1997. This increase was primarily attributable to an increase in promotional costs associated with the sampling and advertising of the Company's products, promotional costs associated with the launch of LUSTRA, (R) an internally developed prescription product, and variable costs commensurate with increased sales volumes. The increase in personnel costs is attributable to an increase in the number of employees to 125 in fiscal 1998 from 85 in fiscal 1997 and yearly salary escalation for existing employees. Selling, general and administrative expenses as a percentage of net sales in fiscal 1998 decreased 4.7 percentage points to 35.4% from 40.1% in fiscal 1997. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in fiscal 1998 increased 99.0%, or $1.4 million, to $2.9 million from $1.5 million in fiscal 1997, primarily due to development efforts relating to the Company's LUSTRA(R) product and expenses associated with the clinical support of the Company's existing products. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses in fiscal 1998 increased 190.6%, or $1.9 million, to $2.9 million from $1.0 million in fiscal 1997. This increase is primarily attributable to the amortization of a full year of the purchase price of the LIDEX(R) and SYNALAR(R) products purchased by the Company in February 1997. The Company is amortizing this purchase price over a 25-year period. The Company's depreciation and amortization also increased due to the amortization of the intangible assets acquired in connection with the acquisition of GenDerm in December 1997. IN-PROCESS RESEARCH AND DEVELOPMENT. The Company recorded $35.4 million as in-process research and development during the second quarter of fiscal 1998 as part of the allocated purchase price of GenDerm. The amount allocated to in-process research and development was based upon an independent appraisal of GenDerm's completed and in-process technologies. The in-process research and development of $35.4 million was charged to operations as required under generally accepted accounting principles with the recording of the purchase price allocation. No such amount was recorded in fiscal 1997. OPERATING (LOSS) INCOME. Operating income for fiscal 1998 decreased 139.0%, or $17.9 million, to a $5.0 million operating loss from $12.9 million in income in fiscal 1997. This decrease is a result of a $35.4 million in-process research and development charge relating to the Company's purchase of GenDerm in December 1997. Absent this special charge, operating income in fiscal 1998 increased 136.2%, or $17.5 million to $30.4 million from $12.9 million in fiscal 1997 as a result of higher sales volume, coupled with a 4.7 percentage points increase in the Company's gross profit as a percentage of net sales and a decrease of 4.7 percentage points in selling, general and administrative expenses as a percentage of sales offset by an increase in research and development and depreciation and amortization expenses. NET INTEREST INCOME (EXPENSE). Interest income in fiscal 1998 increased $3.2 million, to $7.0 million from $3.8 million in fiscal 1997, primarily due to higher cash, cash equivalent and short-term investment balances during fiscal 1998, attributable to the Company's public offering of its common stock in February 1998, which resulted in offering proceeds of $209.4 million before related expenses or $197.9 million net of related expenses. Interest expense in fiscal 1998 decreased 13.8%, or $3,800, to $23,600, from $27,400 in fiscal 1997. INCOME TAX (EXPENSE) BENEFIT. Income tax expense during fiscal 1998 increased $15.1 million, to an expense of $14.4 million from a benefit of $0.7 million in fiscal 1997. The Company's tax provision is recorded at an effective tax rate of 39%. No income tax benefit is associated with the charge for in-process research and development. The income tax benefit for fiscal 1997 is a result of management reducing the valuation allowance required to reduce 7 deferred tax assets in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes," to an amount the Company believes appropriate. NET (LOSS) INCOME. Net income during fiscal 1998 decreased approximately 171.5%, or $29.7 million, to a $12.4 million loss from $17.3 million in income for fiscal 1997. This decrease is the result of a special charge for in-process research and development relating to the Company's purchase of GenDerm in December 1997. Absent this special charge, net income for fiscal 1998 increased 32.6%, or $5.7 million, to $23.0 million from $17.3 million in fiscal 1997. This increase was a result of an increase in sales volume, an increase in gross profit as a percentage of net sales, a decrease in selling, general and administrative costs as a percentage of net sales and an increase in interest income offset by an increase in income taxes and research and development expenses. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1999 and June 30, 1998, the Company had cash equivalents and short-term investments of approximately $237.3 million and $237.9 million, respectively. The Company's working capital was $278.4 million and $263.0 million at June 30, 1999 and June 30, 1998, respectively. In fiscal 1999, the Company's cash position was affected by the divestiture of nine dermatological products to Bioglan for a net cash payment of $9.8 million in the third quarter. The variation between net income of $41.4 million and cash flow from operations of $25.4 million was primarily due to the inclusion of the gain on the June 29, 1999 sale of assets to Bioglan in the Company's net income which was in the form of a note paid in July 1999. The generation of $25.4 million in cash flow from operations was offset by the Company's payment of $22.0 million to enter into a licensing agreement with HMR for the products LOPROX,(R) TOPICORT(R) and A/T/S(R) and $14.3 million for the purchase of Ucyclyd Pharma, Inc. ("Ucyclyd"), a privately held pharmaceutical company. The variation between the net loss of $12.4 million and cash flow from operations of $14.7 million in fiscal 1998 was primarily attributable to a non-cash in-process research and development charge of $35.4 million relating to the acquisition of GenDerm. In fiscal 1998, the Company paid a net cash amount of $55.0 million for the acquisition of GenDerm and raised net proceeds of $197.9 million from the sale of common equity securities in a public offering. At June 30, 1999 and June 30, 1998, the Company had net accounts receivable of $31.6 million and $18.9 million, respectively. The increase in the Company's accounts receivable balances is related primarily to a 40.0% increase in sales volume in the fourth quarter of fiscal 1999 as compared to the quarter ended June 30, 1998. At June 30, 1999 and June 30, 1998, the Company had inventories of $7.3 million and $9.2 million, respectively. The decrease in the Company's inventory balances is related primarily to the divestiture of 13 products and the license of three products in fiscal 1999. OTHER MATTERS On June 29, 1999, the Company sold the OTC products ZOSTRIX,(R) EXOREX(TM) and THERAPLEX(R) and the prescription product ZONALON.(R) Medicis received cash of $900,000 and issued a note receivable for $39.1 million, which was collected in July 1999. Under terms of the agreement, the Company paid IMX $3.6 million subsequent to fiscal 1999 for the sale of their interest in the EXOREX(TM) joint venture. On April 19, 1999, the Company acquired 100% of the common stock of Ucyclyd for net cash of approximately $14.3 million. Ucyclyd's primary product, the orphan drug BUPHENYL,(TM) is indicated in the treatment of Urea Cycle Disorders. Under terms of the agreement, the Company paid $15.1 million at the close of the transaction and may be required to pay an additional contingent consideration of $5.7 million on the first anniversary of the closing date, subject to certain manufacturing conditions, and $2.7 million upon regulatory approval of a product line extension. On March 17, 1999, the Company sold nine dermatological products for a net cash payment of $9.8 million. The products included in the sale were: A-FIL,(TM) AFIRM,(R) BENZASHAVE,(R) BETA-LIFTx,(R) METED,(R) PRAMEGEL,(R) PACKER'S TAR SOAP,(R) THERAMYCIN Z(R) and TEXACORT.(R) Under a separate agreement, the Company licensed three additional products for a period of three years with a buyout option of $15.5 million at the end of the term. Under this agreement, the Company will receive quarterly license revenues. The products included in this license agreement were: OCCLUSAL-HP,(R) PENTRAX(R) and SALAC.(R) In November 1998, the Company agreed to license, with an option to purchase, the LOPROX,(R) TOPICORT(R) and A/T/S(R) products from HMR. The Company, using cash reserves, paid $22.0 million and will make two additional annual payments of $22.0 million. The Company then has the option to purchase the products for $16.5 million after three years. The $22.0 million due on the first anniversary of the transaction is recorded as a short-term 7 8 obligation and the remaining balance is recorded at its discounted value as a long-term obligation. The discount is being recorded as an interest expense over the related period. For accounting purposes, the Company has recorded the transaction as an acquisition. In conjunction with this acquisition, the Company recorded a charge to operations of $9.5 million, based upon an independent valuation relating to acquired in-process research and development for projects that are in various stages of development, have not reached technological feasibility and have no known alternative future uses. Inflation did not have a significant impact upon the results of the Company during fiscal 1999, 1998 or 1997. YEAR 2000 The Year 2000 issue results from the inability of some computer programs to identify the year 2000 properly, potentially leading to errors or system failure. A company's business may be adversely affected if it, or any of its suppliers and customers or others with whom it transacts business (including its banks and governmental agencies), have not timely resolved the Year 2000 issue. In response to its rapid growth, the Company selected a new management information system in fiscal 1997, which was implemented in fiscal 1998, that is expected to meet its presently anticipated needs. In selecting a system, Year 2000 compliance was one of the criteria. The Company has completed its analysis and testing of its information systems hardware and software and believes all of its existing systems are Year 2000 compliant in all material respects. To date, the Company has not incurred any material costs in identifying or evaluating Year 2000 compliance issues. The total costs of the Year 2000 systems assessments and conversions are currently funded through cash flows from operating activities, and these costs are expensed as they are incurred. Most of the Company's expenses have related to, and are expected to continue to relate to, the operating costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters in general. Most of these costs have already been incurred, and the Company does not anticipate significant future costs with respect to the remaining efforts. To date, the Company has not deferred any information technology initiatives as a result of its Year 2000 project. The Company continues to work with critical third parties including customers, vendors and suppliers, who account for a significant portion of the Company's business, to determine the impact of Year 2000 issues on their business and operations and potential collateral impact on the business and operations of the Company and to determine such third parties' plans to remediate Year 2000 issues where their systems interface with the Company's systems. The Company believes approximately 90% of its Year 2000 compliance work is complete with the remaining work scheduled for completion by the end of the first quarter of fiscal 2000. The Company's continuing efforts relating to Year 2000 compliance are focused on testing new hardware, software and equipment and following up with significant vendors, suppliers and customers to ensure continued compliance. To date, the Company has not discovered any significant negative third-party Year 2000 compliance issues. The Company believes that its most significant risk with respect to Year 2000 issues relates to the performance and readiness status of third parties. A reasonable worst case Year 2000 scenario would be the result of failures of third parties, including without limitation, governmental entities, utilities and financial and telecommunications systems, or a general infrastructure collapse, that negatively impacts the Company's ability, or the ability of its critical third parties, to provide products and services to its customers, or the ability of its customers to purchase products, or events affecting regional, national or global economies generally. The impact of these failures cannot be estimated at this time; however, the Company is considering contingency plans to limit, to the extent possible, the financial impact of these failures on its results of operations. MARKET RISK AND RISK MANAGEMENT POLICIES The Company has minimal operations outside of the United States and therefore has no significant risk to changes in foreign currencies. In addition, the Company has only one form of debt, that is in the form of a discounted contract obligation, which, in effect, is a fixed rate debt not subject to market rate fluctuations. The Company is exposed to interest rate fluctuations on its short-term investments, that are comprised of U.S. corporate securities and other debt securities, which it holds on an available-for-sale basis. A 100 basis point change in the prime rate or other indicative base rates would not materially change the interest income the Company expects to receive. FACTORS THAT MAY AFFECT FUTURE RESULTS This Annual Report contains forward-looking statements that anticipate results based upon Management's plans that are subject to uncertainties. Forward-looking statements are based upon current expectations of future results. These 8 9 statements may be identified by use of the words "expects," "plans," "anticipates," "believes" and similar words used in conjunction with discussions of future operations or financial performance. The Company cannot ensure that any forward-looking statements will be accurate. Actual results could differ materially if underlying assumptions prove inaccurate or unknown risks or uncertainties develop. The Company assumes no obligation to update forward-looking statements as a result of future events or developments. In Item 1 of the Company's Annual Report on Form 10-K for the year ended June 30, 1999, as well as in the Company's filings on Form 10-Q, the Company discusses in more detail various factors that could cause actual results to vary from expectations. The Company notes these factors as permitted by the Private Securities Litigation Reform Act of 1995. Investors should understand that it is not possible to predict or identify all such factors and should not consider such factors to be a complete statement of all potential risks and uncertainties that may affect the Company's business. 9 10 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MEDICIS PHARMACEUTICAL CORPORATION We have audited the accompanying consolidated balance sheets of Medicis Pharmaceutical Corporation and subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of income (loss), stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial condition of Medicis Pharmaceutical Corporation and subsidiaries at June 30, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Phoenix, Arizona August 6, 1999 10 11 CONSOLIDATED BALANCE SHEETS

June 30, --------------------------------------------- ASSETS 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 87,718,718 $ 147,411,127 Short-term investments 149,585,195 90,510,029 Accounts receivable, less allowances: 1999: $3,815,000; 1998: $2,826,000 31,582,935 18,899,868 Inventories 7,273,142 9,208,384 Deferred tax assets 4,525,085 3,300,000 Note receivable 39,100,000 --- Other current assets 15,635,164 8,800,434 --------------------------------------------- Total current assets 335,420,239 278,129,842 Property and equipment, net 1,704,663 1,343,603 Intangible assets: Intangible assets related to acquisitions 137,508,154 70,386,665 Other intangible assets 973,414 6,874,626 --------------------------------------------- 138,481,568 77,261,291 Less: accumulated amortization 9,505,319 5,977,399 --------------------------------------------- Net intangible assets 128,976,249 71,283,892 Other non-current assets 1,237,195 1,592,907 --------------------------------------------- $ 467,338,346 $ 352,350,244 - -----------------------------------------------------------------------------------------------------------------------

See accompanying notes. 11 12 CONSOLIDATED BALANCE SHEETS

June 30, ------------------------------------ LIABILITIES 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 9,346,244 $ 5,496,526 Notes payable 100,000 11,364 Short-term contract obligation 22,000,000 --- Income taxes payable 10,659,944 597,189 Other accrued liabilities 14,873,736 9,068,593 ------------------------------------ Total current liabilities 56,979,924 15,173,672 Long-term liabilities: Notes payable --- 94,556 Other non-current liabilities 130,278 124,115 Long-term contract obligation 34,716,456 --- Deferred tax liability 1,935,272 10,502,416 COMMITMENTS AND CONTINGENCIES MINORITY INTEREST --- 1,960,000 STOCKHOLDERS' EQUITY Preferred Stock, $0.01 par value; shares authorized: 5,000,000; no shares issued --- --- Class A Common Stock, $0.014 par value; shares authorized: 50,000,000; issued and outstanding: 28,239,269 and 27,712,837 at June 30, 1999 and 1998, respectively 395,350 387,980 Class B Common Stock, $0.014 par value; shares authorized: 1,000,000; issued and outstanding: 422,962 at June 30, 1999 and 1998 5,921 5,921 Additional paid-in capital 352,155,845 343,976,037 Accumulated other comprehensive (loss) income (465,784) 77,689 Accumulated earnings (deficit) 21,485,084 (19,952,142) ------------------------------------ Total stockholders' equity 373,576,416 324,495,485 ------------------------------------ $ 467,338,346 $ 352,350,244 - -------------------------------------------------------------------------------------------------------------------

See accompanying notes. 12 13 CONSOLIDATED STATEMENTS OF INCOME (LOSS)

June 30, ----------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Net revenues $ 116,870,540 $ 77,571,419 $ 41,158,860 Operating costs and expenses: Cost of sales 21,633,902 13,979,793 9,361,383 Selling, general and administrative 38,219,119 27,423,574 16,484,329 Research and development 3,396,393 2,884,479 1,449,620 In-process research and development 9,500,000 35,400,000 -- Depreciation and amortization 5,810,288 2,903,423 999,113 ----------------------------------------------------------- Operating costs and expenses 78,559,702 82,591,269 28,294,445 ----------------------------------------------------------- Operating income (loss) 38,310,838 (5,019,850) 12,864,415 Interest income 11,503,256 7,060,354 3,814,435 Interest expense (1,825,200) (23,635) (27,403) Gain on sale of assets 17,650,903 -- -- ----------------------------------------------------------- Income before taxes 65,639,797 2,016,869 16,651,447 Income tax (expense) benefit (24,202,571) (14,424,045) 693,467 ----------------------------------------------------------- NET INCOME (LOSS) $ 41,437,226 $ (12,407,176) $ 17,344,914 ----------------------------------------------------------- Basic net income (loss) per common share $ 1.46 $ (0.51) $ 0.88 Diluted net income (loss) per common share $ 1.41 $ (0.51) $ 0.83 Shares used in computing basic net income (loss) per common share 28,413,608 24,101,658 19,787,785 Shares used in computing diluted net income (loss) per common share 29,462,311 24,101,658 20,890,570 - -----------------------------------------------------------------------------------------------------------------------------

See accompanying notes. 13 14 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Class A Class B Additional Common Stock Common Stock Paid-In Shares Amount Shares Amount Capital - ---------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1996 15,370,008 $ 215,180 422,962 $ 5,921 $ 44,128,431 - ---------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss): Net income -- -- -- -- -- Net unrealized losses on available-for-sale -- -- -- -- -- securities Comprehensive income Exercise of stock options 813,681 11,392 -- -- 3,479,265 Tax effect of stock options exercised -- -- -- -- 1,165,000 Options issued in lieu of payment for services rendered -- -- -- -- 59,500 Public offering 4,785,834 67,002 -- -- 90,041,167 - ---------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1997 20,969,523 293,574 422,962 5,921 138,873,363 - ---------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss): Net loss -- -- -- -- -- Net unrealized gains on available-for-sale securities -- -- -- -- -- Comprehensive loss Exercise of stock options 233,314 3,266 -- -- 954,296 Tax effect of stock options exercised -- -- -- -- 6,305,311 Options issued in lieu of payment for services rendered -- -- -- -- 57,500 Public offering 6,510,000 91,140 -- -- 197,785,567 - ---------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1998 27,712,837 387,980 422,962 5,921 343,976,037 - ---------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss): Net income -- -- -- -- -- Net unrealized losses on available-for-sale securities -- -- -- -- -- Net unrealized gain on foreign currency translation -- -- -- -- -- Comprehensive income Exercise of stock options 526,432 7,370 -- -- 3,834,839 Tax effect of stock options exercised -- -- -- -- 4,329,969 Options issued in lieu of payment for services rendered -- -- -- -- 15,000 - ---------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1999 28,239,269 $ 395,350 422,962 $ 5,921 $ 352,155,845 - ----------------------------------------------------------------------------------------------------------------------

Accumulated Other Accumulated Comprehensive (Deficit) (Loss) Income Earnings Total - --------------------------------------------------------------------------------------- Balance at June 30, 1996 $ -- $ (24,889,880) $ 19,459,652 - --------------------------------------------------------------------------------------- Comprehensive income (loss): Net income -- 17,344,914 17,344,914 Net unrealized losses on available-for-sale securities (63,075) -- (63,075) ------------- Comprehensive income 17,281,839 Exercise of stock options -- -- 3,490,657 Tax effect of stock options exercised -- -- 1,165,000 Options issued in lieu of payment for services rendered -- -- 59,500 Public offering -- -- 90,108,169 - --------------------------------------------------------------------------------------- Balance at June 30, 1997 (63,075) (7,544,966) 131,564,817 - --------------------------------------------------------------------------------------- Comprehensive income (loss): Net loss -- (12,407,176) (12,407,176) Net unrealized gains on available-for-sale securities 140,764 -- 140,764 ------------- Comprehensive loss (12,266,412) Exercise of stock options -- -- 957,562 Tax effect of stock options exercised -- -- 6,305,311 Options issued in lieu of payment for services rendered -- -- 57,500 Public offering -- -- 197,876,707 - --------------------------------------------------------------------------------------- Balance at June 30, 1998 77,689 (19,952,142) 324,495,485 - --------------------------------------------------------------------------------------- Comprehensive income (loss): Net income -- 41,437,226 41,437,226 Net unrealized losses on available-for-sale securities (543,619) -- (543,619) Net unrealized gain on foreign currency translation 146 -- 146 ------------- Comprehensive income 40,893,753 Exercise of stock options -- -- 3,842,209 Tax effect of stock options exercised -- -- 4,329,969 Options issued in lieu of payment for services rendered -- -- 15,000 - --------------------------------------------------------------------------------------- Balance at June 30, 1999 $ (465,784) $ 21,485,084 $ 373,576,416 - ---------------------------------------------------------------------------------------

See accompanying notes. 14 15 CONSOLIDATED STATEMENTS OF CASH FLOWS

June 30, ----------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income (loss) $ 41,437,226 $ (12,407,176) $ 17,344,914 Adjustments to reconcile net income (loss) to net cash provided by operating activities: In-process research and development 9,500,000 35,400,000 -- Gain on sale of assets (17,650,903) -- -- Depreciation and amortization 5,810,288 2,903,423 999,113 (Gain) loss on sale of available-for-sale investments 14,658 (50,931) (37,591) Other non-cash expenses 15,000 57,500 59,500 Deferred income tax (benefit) expense (9,792,229) 13,787,173 (2,092,000) Provision for doubtful accounts and returns 897,000 460,000 470,000 Accretion of premium (discount) on investments 179,649 (344,454) (422,032) Accretion of discount on contract obligation 1,801,885 -- -- Changes in operating assets and liabilities (net of acquired amounts): Accounts receivable (13,285,268) (10,944,095) (1,612,136) Inventories 2,390,397 (4,772,069) (901,863) Other current assets (4,134,323) (5,353,132) (1,579,594) Accounts payable 2,975,103 35,575 757,186 Income taxes payable 10,062,755 597,189 -- Other accrued liabilities (4,796,891) (4,623,987) 801,681 ----------------------------------------------- Net cash provided by operating activities 25,424,347 14,745,016 13,787,178 - ----------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of property and equipment (725,165) (833,111) (430,691) Proceeds from sale of product rights 10,712,402 -- -- Acquisition of businesses, net of cash acquired (14,278,840) (54,982,386) -- Payments for purchase of product rights (25,110,371) (5,012,483) (28,636,227) Purchase of available-for-sale investments (202,169,056) (147,656,185) (75,297,924) Sale of available-for-sale investments 52,644,964 74,690,916 9,685,861 Maturity of available-for-sale investments 89,711,000 34,500,000 14,500,000 Change in other assets 355,712 (490,000) (1,500,000) ----------------------------------------------- Net cash used in investing activities (88,859,354) (99,783,249) (81,678,981) - ----------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from the sale of common equity securities, net -- 197,876,707 90,108,169 Payment of notes payable (105,920) (10,660) (10,000) Change in other non-current liabilities 6,163 2,354 (29,676) Proceeds from the exercise of options 3,842,209 957,562 3,490,657 ----------------------------------------------- Net cash provided by financing activities 3,742,452 198,825,963 93,559,150 - ----------------------------------------------------------------------------------------------------------- Effect of foreign currency exchange rate on cash and cash equivalents 146 -- -- Net (decrease) increase in cash and cash equivalents (59,692,409) 113,787,730 25,667,347 Cash and cash equivalents at beginning of year 147,411,127 33,623,397 7,956,050 ----------------------------------------------- Cash and cash equivalents at end of year $ 87,718,718 $ 147,411,127 $ 33,623,397 - -----------------------------------------------------------------------------------------------------------

See accompanying notes. 15 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 NOTE 1. FORMATION AND DEVELOPMENT OF THE COMPANY Medicis Pharmaceutical Corporation and its wholly owned subsidiaries ("Medicis" or the "Company") is the leading independent pharmaceutical company in the United States offering prescription products and an over-the-counter ("OTC") product primarily for the treatment of dermatological conditions. The Company has built its business by successfully introducing new prescription products as well as acquiring rights to manufacture and sell certain dermatological products pursuant to several license and asset purchase agreements. The Company sells these products for use in various segments of the skin care market, including acne, acne-related conditions, fungal infections, psoriatic conditions, inflammatory skin conditions and pigmentation disorders. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial statements include the accounts of Medicis and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. The Company records minority interest to the extent the subsidiary is not wholly owned. CASH AND CASH EQUIVALENTS. At June 30, 1999, cash and cash equivalents included highly liquid investments invested in money market accounts consisting of government securities and high-grade commercial paper. These investments are stated at cost, which approximates fair value. The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. INVESTMENTS. The Company accounts for investments under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company's debt securities are classified as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized gains and losses reported in stockholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and interest and dividends on securities are included in interest income. The cost of securities sold is based upon the specific identification method. INVENTORIES. The Company utilizes third parties to manufacture and package inventories held for sale, takes title to certain inventories once manufactured, and warehouses such goods until packaged for final distribution and sale. Inventories consist of salable products held at the Company's warehouses, as well as at the manufacturers' facilities, and are valued at the lower of cost or market using the first-in, first-out method. Inventories are as follows:

June 30, --------------------------- 1999 1998 - ---------------------------------------------------------------- Raw materials $1,799,082 $1,086,585 Finished goods 5,474,060 8,121,799 --------------------------- Total inventories $7,273,142 $9,208,384 - ----------------------------------------------------------------

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of property and equipment (three to five years). Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining lease term. INTANGIBLE ASSETS. Intangible assets resulting from acquisitions of products and businesses principally consist of the excess of the fair value attributed to the related developed products and are being amortized on a straight-line basis over a 10-to 25-year period. The Company assesses the recoverability of intangible assets resulting from these acquisitions based upon expected future undiscounted cash flows on a product-line basis along with other relevant information. 16 17 OTHER CURRENT LIABILITIES. Other current liabilities are as follows:

June 30, ----------------------------- 1999 1998 - --------------------------------------------------------------------- Accrued incentives $ 2,739,245 $ 1,786,392 Accrued royalties 1,697,439 1,040,993 Payable to affiliate -- 1,366,846 Marketing allowance 774,056 1,141,000 Payable to IMX 3,600,000 -- Other accrued expenses 6,062,996 3,733,362 ----------------------------- $14,873,736 $ 9,068,593 - ---------------------------------------------------------------------

REVENUE RECOGNITION. Revenue from product sales is recognized upon shipment, net of discounts, rebates and estimated allowances for chargebacks and returns. The Company principally authorizes returns for damaged products and exchanges for expired products in accordance with its "Return Goods Policy and Procedures," and establishes reserves for such amounts at the time of sale. The Company has not experienced significant returns of damaged or expired products. ADVERTISING. The Company expenses advertising as incurred. Advertising expenses for the fiscal years ended June 30, 1999 ("fiscal 1999"), June 30, 1998 ("fiscal 1998") and June 30, 1997 ("fiscal 1997") were approximately $11,922,000, $8,347,000 and $3,806,000, respectively. STOCK-BASED COMPENSATION. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and, accordingly, recognizes no compensation expense for employee stock option grants. RESEARCH AND DEVELOPMENT COSTS. All research and development costs, including payments related to products under development and research consulting agreements, are expensed as incurred. INCOME TAXES. Income taxes have been provided using the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." EARNINGS (LOSS) PER SHARE. Basic and diluted earnings (loss) per common share are calculated in accordance with the requirements of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). All earnings (loss) per common share amounts for all periods have been presented, and where appropriate, restated to conform to the requirements of SFAS No. 128. STATEMENTS OF CASH FLOWS. Non-cash investing and financing activities were as follows:

June 30, ------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- Tax benefit of stock options exercised $ 4,329,969 $ 6,305,311 $ 1,165,000 Intangibles acquired under accrued contract costs -- -- 600,000 Note receivable from the sale of assets 39,100,000 -- -- - -----------------------------------------------------------------------------------------------------------------------

USE OF ESTIMATES. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates based upon future events, which could include, among other risks, changes in the regulations governing the manner 17 18 in which the Company sells its products, changes in the health care environment and the reliance on contract manufacturing services. FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities reported in the consolidated balance sheets approximates fair value because of the immediate or short-term maturity of these financial instruments. COMPREHENSIVE INCOME. The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 established standards for the reporting and display of comprehensive income and its components. SFAS No. 130 requires certain items, such as foreign currency translation adjustments and unrealized gains or losses on the Company's available-for-sale securities, to be included in other comprehensive income. SEGMENT INFORMATION. The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 established standards for reporting information regarding operating segments in annual financial statements and requires selected information to be presented in interim financial reports issued to stockholders. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas and major customers (see Note 11). The adoption of SFAS No. 131 did not affect the Company's consolidated financial position, results of operations or financial statement disclosures, as the Company operates only one business segment. NOTE 3. ACQUISITIONS AND DIVESTITURES On June 29, 1999, the Company sold the OTC products ZOSTRIX,(R) EXOREX(TM) and THERAPLEX(R) and the prescription product ZONALON(R) to Bioglan Pharma Plc ("Bioglan"). Bioglan paid cash of $900,000 and issued a note receivable for $39.1 million, which was collected in July 1999. Under terms of the agreement, the Company purchased IMX Pharmaceutical Inc.'s ("IMX") 49.0% interest in the EXOREX(TM) joint venture for $3.6 million. On June 25, 1998, the Company paid $4.0 million for its 51.0% interest in the EXOREX(TM) joint venture. On April 19, 1999, the Company acquired 100% of the common stock of Ucyclyd Pharma, Inc. ("Ucyclyd"), a privately held pharmaceutical company based in Baltimore, Maryland, for net cash of approximately $14.3 million. Ucyclyd's primary product, the orphan drug BUPHENYL,(TM) is indicated in the treatment of Urea Cycle Disorders. Under terms of the agreement, the Company paid $15.1 million at the close of the transaction and may be required to pay an additional contingent consideration of $5.7 million on the first anniversary of the closing date, subject to certain manufacturing conditions, and $2.7 million upon regulatory approval of a product line extension. On March 17, 1999, the Company sold nine dermatological products to Bioglan for a net cash payment of $9.8 million. The products included in the transaction were: A-FIL,(TM) AFIRM,(R) BENZASHAVE,(R) BETA-LIFTx,(R) METED,(R) PRAMEGEL,(R) PACKER'S TAR SOAP,(R) THERAMYCIN Z(R) and TEXACORT.(R) Under a separate agreement, the Company licensed three additional products to Bioglan for a period of three years with a buyout option of $15.5 million at the end of the term. Under this agreement, the Company will receive quarterly license revenues. The products included in this license agreement were: OCCLUSAL-HP,(R) PENTRAX(R) and SALAC.(R) On November 29, 1998, the Company agreed to license, with an option to purchase, the LOPROX,(R) TOPICORT(R) and A/T/S(R) products from Hoechst Marion Roussel ("HMR"). The Company, using cash reserves, paid $22.0 million and plans to make two additional annual payments of $22.0 million. The Company then has the option to purchase the products for $16.5 million after three years. The $22.0 million due on the first anniversary of the transaction is recorded as a short-term obligation, and the remaining balance is recorded at its discounted value as a long-term obligation. The discount is being recorded as an interest expense over the related period. For accounting purposes, the Company recorded the transaction as an acquisition. In conjunction with this acquisition, the Company recorded a charge to operations of $9.5 million, based upon an independent valuation relating to acquired in-process research and development for projects that are in various stages of development, have not reached technological feasibility and have no known alternative future uses. The nature and efforts required to develop the acquired in-process research and development into commercially viable products include completion of the development stages of the commercially viable products, clinical trial testing and FDA approval and commercialization. Due to the nature of the pharmaceutical development process, the Company anticipates incurring additional costs to develop the products. However, there is no certainty that any of these development efforts will result in commercially viable products. 18 19 On December 3, 1997, the Company acquired 100% of the common stock of GenDerm Corporation and subsidiary ("GenDerm") for net cash of approximately $55.0 million. The Company could pay an additional sum not to exceed $20.0 million if sales of GenDerm products, as defined in the acquisition agreement, are in excess of $31.0 million during calendar 1999 and certain other conditions are met. GenDerm marketed the prescription brands NOVACET(R) and ZONALON,(R) as well as the OTC brands ZOSTRIX,(R) OCCLUSAL-HP,(R) PENTRAX(R) and SALAC.(R) In conjunction with the acquisition, the Company recorded a charge to operations of $35.4 million, based upon an independent valuation, relating to acquired in-process research and development for projects that are in various stages of development, have not reached technological feasibility and have no known alternative future uses. The $35.4 million charge is not deductible for tax purposes. The Ucyclyd and GenDerm acquisitions were accounted for using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB No. 16"). Under APB No. 16, purchase price allocations were made to the assets acquired and the liabilities assumed based upon their respective fair values. The operations of Ucyclyd and GenDerm have been included in the consolidated statements of income (loss), as of the acquisition date. Unaudited pro forma operating results for the Company, assuming the acquisitions occurred at the beginning of the year in which they were acquired and the immediately preceding fiscal year, are as follows:

June 30, --------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------- Net revenues $120,653,854 $ 95,263,143 $ 69,625,259 Net income (loss) 42,529,400 (11,293,208) 12,698,944 Basic net income (loss) per common share $ 1.50 $ (0.47) $ 0.64 Diluted net income (loss) per common share $ 1.44 $ (0.47) $ 0.61 - -----------------------------------------------------------------------------------------------------

For purposes of these pro forma operating results, the charges for in-process research and development are presented in the year the charge was incurred. The pro forma information does not necessarily represent the actual results that would have occurred had the acquisitions taken place at the beginning of each fiscal year, given the manner that the Company assimilated the acquisitions into its business. On February 25, 1997, the Company acquired the LIDEX(R) and SYNALAR(R) products from a third party for $28.0 million, with the option to pay an additional $3.0 million, in $1.0 million installments, on the anniversary of the purchase for each of the next three years if certain market conditions are met. The Company paid the first installment of $1.0 million in February 1998 and the second installment of $1.0 million in February 1999. NOTE 4. DEBT The Company has a revolving line of credit facility of up to $25.0 million from Norwest Bank Arizona, N.A. The facility may be drawn upon by the Company, at its discretion, and is collateralized by principal assets of the Company. The outstanding balance of the credit facility bears interest at a floating rate of 150 basis points in excess of the 30-day London Interbank Offered Rate and expires in November 2000. The agreement requires the Company to comply with certain covenants, including covenants relating to the Company's financial condition and results of operation. The Company has not drawn on this credit facility. NOTE 5. SHORT-TERM INVESTMENTS The Company's short-term investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to the Company's investment guidelines and market conditions. The following is a summary of available-for-sale securities: 19 20

June 30, 1999 --------------------------------------------------------- Gross Gross Gross Unrealized Unrealized Fair Available-for-Sale Securities Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------ U.S. corporate securities $ 27,757,402 $ 10,003 $ 542,000 $ 27,225,405 Other debt securities 122,293,723 155,512 89,445 122,359,790 --------------------------------------------------------- Total securities $150,051,125 $ 165,515 $ 631,445 $149,585,195 - ------------------------------------------------------------------------------------------------------

June 30, 1998 --------------------------------------------------------- Gross Gross Gross Unrealized Unrealized Fair Available-for-Sale Securities Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------ U.S. corporate securities $ 46,070,979 $ 42,348 $ 10,209 $ 46,103,118 Other debt securities 44,298,286 109,686 1,061 44,406,911 --------------------------------------------------------- Total securities $ 90,369,265 $ 152,034 $ 11,270 $ 90,510,029 - ------------------------------------------------------------------------------------------------------

During the years ended June 30, 1999 and 1998, the gross realized gains on sales of available-for-sale securities totaled $22,800 and $63,602, respectively, and the gross realized losses totaled $37,458 and $12,671, respectively. The net adjustment to unrealized gains (losses) during fiscal 1999 and fiscal 1998 on available-for-sale securities included in stockholders' equity totaled $(543,619) and $140,764, respectively. The amortized cost and estimated fair value of the available-for-sale securities at June 30, 1999, by maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties, and the Company views its available-for-sale securities as available for current operations.

June 30, 1999 ----------------------------------- Cost Estimated Fair Value - ------------------------------------------------------------------------------------ Available-for-sale Due in one year or less $ 19,831,930 $ 19,816,312 Due after one year through two years 113,938,386 113,474,878 Due after two years 16,280,809 16,294,005 ----------------------------------- $150,051,125 $149,585,195 - ------------------------------------------------------------------------------------

NOTE 6. COMMITMENTS AND CONTINGENCIES OCCUPANCY ARRANGEMENTS. The Company presently occupies approximately 29,000 square feet of office space, at an average annual expense of $433,000, under a lease agreement that expires in May 2005. The lease contains certain rent escalation clauses and, upon expiration, can be renewed for a period of five years. Rent expense was approximately $564,000, $350,000 and $203,000 for fiscal 1999, 1998 and 1997, respectively. The Company is currently evaluating its present office space in conjunction with its estimated personnel growth and is considering acquiring additional space, either at its existing location or, if not available, in another building within the Phoenix metropolitan area. Medicis Canada, Inc., a wholly owned subsidiary, presently leases approximately 7,500 square feet of office and warehouse space in St-Laurent, Quebec, Canada, under a lease agreement, that expires in April 2000. RESEARCH AND DEVELOPMENT AND CONSULTING CONTRACTS. The Company has, in the past, and may in the future enter into agreements with various research organizations and individuals under which the Company acquires certain patent and marketing rights for therapeutics developed under such agreements in exchange for providing funding for collaborative research. It is also anticipated that, before any commercial marketing can be commenced, the Company will be required to secure certain regulatory approvals on the technological processes involved. The Company has various consulting agreements with certain scientists in exchange for the assignment of certain rights and consulting services. In addition, the Company has granted options to purchase shares of Class A Common Stock that are included in the stock option plan described in Note 9. These options vest annually over the commitment periods. At June 30, 1999, the Company had approximately $843,000 of commitments (solely attributable to the 20 21 Chairman of the Central Research Committee of the Company) payable over the remaining five years under an agreement, that is cancelable by either party under certain conditions. LICENSING, MARKETING AND MANUFACTURING AGREEMENTS. The Company has entered into licensing and marketing agreements under which it has obtained rights to market certain existing and future pharmaceutical products. Generally, the terms of such agreements vary, but range from 10 to 20 years from the date of the first sale of the related product or until the expiration of the patent applicable to the product. The agreements provide for varying royalties with certain stated minimum annual amounts, which vary by agreement from $35,000 to $50,000. Total minimum royalties required to be paid on products currently being sold are approximately $85,000 per year. In July 1997, the Company entered into a joint product development and distribution agreement with an unrelated third party whereby the Company will pay certain costs with respect to certain product approvals estimated to be approximately $1.0 million. The Company purchases its inventory from third party manufacturers, many of whom are the sole source of products for the Company. The failure of such manufacturers to provide an uninterrupted supply of products would adversely impact the Company's ability to sell such products. OTHER. The Company and certain of its subsidiaries are parties to other actions and proceedings incident to their business. Liability in the event of final adverse determinations in any of these matters is either covered by insurance and/or established reserves, or, in the current opinion of management, after consultation with counsel, should not, in the aggregate, have a material adverse effect on the consolidated financial condition or results of operations of the Company. NOTE 7. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

June 30, ------------------------------------------------------------------------ 1999 1998 ------------------------------------------------------------------------ CURRENT LONG-TERM Current Long-term - ------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carry forwards $ -- $ 416,000 $ -- $ 599,000 Reserves and liabilities 4,525,000 -- 3,300,000 -- Research and development credits -- 94,000 -- 1,137,000 Alternative minimum tax credits -- -- -- 129,584 ------------------------------------------------------------------------ 4,525,000 510,000 3,300,000 1,865,584 Excess of net book value over tax basis of intangible assets -- (2,445,000) -- (12,368,000) ------------------------------------------------------------------------ Deferred tax assets (liabilities) $ 4,525,000 $ (1,935,000) $ 3,300,000 $(10,502,416) - -------------------------------------------------------------------------------------------------------------------------

During fiscal 1998, the Company acquired all of the outstanding stock of GenDerm in a taxable stock acquisition. As a result of the GenDerm acquisition, net deferred tax liabilities and current taxes payable were recorded. The deferred tax liability related to acquired intangible assets that have no tax basis. The deferred tax assets acquired related to reserves, acquired net operating loss carry forwards, research and development credits and other tax credits. All of the net operating losses and tax credits acquired in the GenDerm acquisition are limited for tax purposes under both the separate return limitation year rules and Internal Revenue Code sections 382 and 383, which limit the annual utilization of net operating losses and tax credits. At June 30, 1999, the Company had net operating loss carry forwards for federal income tax purposes of approximately $1,100,000 and research and development credits of approximately $94,000, which begin expiring in varying amounts in the years 2003 through 2012 if not previously utilized. All of the net operating loss and tax credit carry forwards are attributable to the Company's acquisition of GenDerm. As such, they are limited for tax purposes under both the separate return limitation year rules and Internal Revenue Code sections 382 and 383, which limit the annual utilization of net operating losses. 21 22 During fiscal 1999, 1998 and 1997, the Company made tax payments of $19,837,000, $1,874,000 and $1,133,000, respectively. Components of the provision for income taxes (benefit) are as follows:

June 30, ---------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------ Current Federal $ 30,562,000 $ 3,221,629 $ 272,000 State 3,415,000 1,570,000 1,126,533 Foreign 19,000 -- -- ---------------------------------------------------- 33,996,000 4,791,629 1,398,533 - ------------------------------------------------------------------------------------ Deferred Federal (9,049,000) 8,644,416 (1,830,000) State (744,000) 988,000 (262,000) ---------------------------------------------------- (9,793,000) 9,632,416 (2,092,000) - ------------------------------------------------------------------------------------ Total $ 24,203,000 $ 14,424,045 $ (693,467) - ------------------------------------------------------------------------------------

Income tax expense (benefit) for the three years ended June 30, 1999, 1998 and 1997 differs from the amount computed applying the federal statutory rates as follows:

June 30, ---------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State tax rate, net of federal benefit 2.5 4.0 5.0 Change in valuation allowance -- -- (44.2) Tax exempt interest (2.0) (14.4) -- In-process research and development -- 684.5 -- Other 1.4 6.0 -- ---------------------------------- 36.9% 715.1% (4.2%) - ----------------------------------------------------------------------------------------

NOTE 8. STOCK TRANSACTIONS Class A Common Stock has one vote per share, and Class B Common Stock has 10 votes per share. Each share of Class B Common Stock may be converted into one share of Class A Common Stock at the option of the holder or, in some circumstances, may automatically be converted upon a vote of the Board of Directors and the majority of the Class B Common Stock shareholders. On January 12, 1999, the Board of Directors declared a 3-for-2 stock split effected in the form of a 50% stock dividend payable February 16, 1999, to common shareholders of record at the close of business on January 29, 1999. Per share amounts and the weighted average number of shares outstanding have been retroactively revised for all periods presented. In February 1998, the Company completed a public offering for 6,000,000 primary shares of the Company's Class A Common Stock at a price of $32.17 per share. The underwriters also exercised the over-allotment option of 510,000 primary shares at a price of $32.17 per share. Gross proceeds from the offering before related expenses totaled $209,405,000. On March 7, 1997, the Board of Directors declared a 3-for-2 stock split effected in the form of a 50% stock dividend payable March 28, 1997, to common shareholders of record at the close of business on March 17, 1997. Per share amounts and the weighted average number of shares outstanding have been retroactively revised for all periods presented. On October 2, 1996, the Company completed a public offering for approximately 4,200,000 primary shares of the Company's Class A Common Stock at a price of $20.00 per share. The underwriters also exercised the over-allotment option of approximately 600,000 primary shares at a price of $20.00 per share. Gross proceeds from the offering before related expenses totaled approximately $95.7 million. 22 23 On July 23, 1996, the Board of Directors declared a 3-for-2 stock split effected in the form of a 50% stock dividend payable August 2, 1996, to common shareholders of record at the close of business on July 22, 1996. Per share amounts and the weighted average number of shares have been retroactively revised for all periods presented. NOTE 9. STOCK OPTION PLANS The Company has six Stock Option Plans (the 1998, 1996, 1995, 1992, 1990 and 1988 Plans or, collectively, the "Plans"). The 1998, 1996, 1995, 1992, 1990 and 1988 Plans have the following options outstanding: 0; 2,299,591; 424,011; 345,456; 45,942; and 133,847, respectively. The Plans allow the Company to designate options as qualified incentive or non-qualified on an as-needed basis. Qualified and non-qualified stock options vest over a period determined at the time the options are granted ranging from one to five years. Options are granted at the fair market value on the grant date. Options outstanding at June 30, 1999, vary in price from $1.03 to $44.67, with a weighted average of $20.76 outlined in the following chart:

Range of Exercise Weighted Number Weighted Average Average Exercise Weighted Number Average Exercise Prices Outstanding Contractual Life Price Exercisable Price - ------------------------------------------------------------------------------------------------------------------- $1.03-$1.83 241,867 .62 $ 1.53 190,482 $ 1.53 $1.95-$8.44 316,669 1.74 $ 2.57 307,256 $ 2.44 $12.11-$23.33 510,881 7.33 $14.82 172,187 $15.84 $23.83-$26.42 1,166,944 9.08 $24.03 11,058 $24.24 $26.44-$30.29 759,668 8.26 $28.72 148,394 $28.81 $30.33-$33.29 128,780 8.27 $30.78 52,095 $30.67 $33.33-$38.29 35,125 9.08 $35.12 2,385 $34.20 $39.38-$44.67 88,913 9.53 $40.80 0 $ 0.00 - -------------------------------------------------------------------------------------------------------------------

A summary of stock options granted within the Plans and related information for the years ended June 30, 1999, 1998 and 1997 is as follows:

Weighted Average Qualified Nonqualified Total Price - --------------------------------------------------------------------------------------- Balance at June 30, 1996 739,952 1,209,642 1,949,594 $ 2.92 - --------------------------------------------------------------------------------------- Granted 426,890 252,641 679,531 $ 14.71 Exercised (236,433) (512,411) (748,844) $ 3.79 Terminated/expired (61,461) (7,232) (68,693) $ 7.32 ---------------------------------------------------- Balance at June 30, 1997 868,948 942,640 1,811,588 $ 6.79 - --------------------------------------------------------------------------------------- Granted 566,630 495,554 1,062,184 $ 29.18 Exercised (87,434) (145,880) (233,314) $ 4.11 Terminated/expired (83,645) (2,781) (86,426) $ 18.26 ---------------------------------------------------- Balance at June 30, 1998 1,264,499 1,289,533 2,554,032 $ 15.70 - --------------------------------------------------------------------------------------- Granted 718,023 703,103 1,421,126 $ 25.47 Exercised (296,708) (222,224) (518,932) $ 7.36 Terminated/expired (191,854) (15,525) (207,379) $ 25.63 ---------------------------------------------------- Balance at June 30, 1999 1,493,960 1,754,887 3,248,847 $ 20.76 - ---------------------------------------------------------------------------------------

Options exercisable under the Plans at June 30, 1999 were 883,857 with an average exercisable price of $11.30. During fiscal 1999, 7,500 non-qualified stock options not subject to the Plans were exercised at a price of $6.47. An additional 1,875 non-qualified stock options not subject to the Plans were issued and outstanding to outside parties at June 30, 1999, with an exercise price of $6.47. 23 24 The Company elected the adoption of the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") in fiscal 1998. In accordance with the provisions of SFAS No. 123, the Company applies APB No. 25 and related interpretations in accounting for option grants to employees under its stock option plans. If the Company had elected to recognize compensation costs based upon the fair value of the options granted at grant date as prescribed by SFAS No. 123, operating results would have changed to the pro forma amounts indicated in the table below:

1999 1998 1997 - ----------------------------------------------------------------------------------------- Net income (loss) - as reported $ 41,437,226 $ (12,407,176) $ 17,344,914 Net income (loss) - pro forma $ 36,930,216 $ (15,346,543) $ 15,742,000 Diluted earnings (loss) Per common share as reported $ 1.41 $ (0.51) $ 0.83 Per common share pro forma $ 1.25 $ (0.64) $ 0.75 - -----------------------------------------------------------------------------------------

The weighted average fair value of options granted during fiscal 1999, 1998 and 1997 was $12.03, $16.27 and $9.19, respectively. Pro forma results disclosed are based upon the provisions of SFAS No. 123 using the Black-Scholes option pricing model and are not likely to be representative of the effect on pro forma net income for future years. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which, unlike options granted by the Company, have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from options traded on an exchange, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

1999 1998 1997 - -------------------------------------------------------------------- Expected dividend yield 0.0% 0.0% 0.0% Expected stock price volatility 0.50 0.50 0.70 Risk-free interest rate 5.5% 5.5% 5.7% Expected life options 5 YEARS 5 Years 5 Years - --------------------------------------------------------------------

NOTE 10. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per common share:

June 30, ------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- Numerator Net income (loss) $ 41,437,226 $(12,407,176) $ 17,344,914 Denominator for basic net income (loss) per common share 28,413,608 24,101,658 19,787,785 Effect of dilutive securities: Stock options 1,048,703 -- 1,102,785 Denominator for dilutive net income (loss) per common share 29,462,311 24,101,658 20,890,570 Basic net income (loss) per common share $ 1.46 $ (0.51) $ 0.88 Diluted net income (loss) per common share $ 1.41 $ (0.51) $ 0.83 - -------------------------------------------------------------------------------------------------------------

Options that are anti-dilutive because the exercise price was greater than the average market price of the common shares are not included in the computation of diluted earnings per share. There were no dilutive securities in 1998 given that the Company had a net loss. 24 25 NOTE 11. SIGNIFICANT CUSTOMERS For fiscal 1999, two customers accounted for approximately 18.0% and 14.1% of sales. For fiscal 1998, three customers accounted for approximately 16.9%, 13.2% and 12.6% of sales. For fiscal 1997, three customers accounted for approximately 20.6%, 16.3% and 10.9% of sales. NOTE 12. FINANCIAL INSTRUMENTS - CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company maintains cash, cash equivalents and short-term investments primarily with two financial institutions that invest funds in short-term, interest-bearing, investment-grade, marketable securities. The Company performs periodic evaluations of the relative credit standing of these financial institutions. At June 30, 1999 and 1998, three customers comprised approximately 58.1% and 46.9%, respectively, of accounts receivable. The Company does not require collateral from its customers, but performs periodic credit evaluations of its customers' financial condition. Management does not believe a significant credit risk existed at June 30, 1999. NOTE 13. DEFINED CONTRIBUTION PLAN The Company has a defined contribution plan (the "Contribution Plan") that is intended to qualify under Section 401(k) of the Internal Revenue Code. All employees, except those who have not attained the age of 21, are eligible to participate in the Contribution Plan. Participants may contribute, through payroll deductions, up to 20.0% of their basic compensation, not to exceed Internal Revenue Code limitations. Although the Contribution Plan provides for profit sharing contributions by the Company, the Company has not made any such contributions since its inception. NOTE 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The table below lists the quarterly financial information for fiscal 1999 and 1998. All figures are in thousands, except per share data, and certain amounts do not total to the annual amounts due to rounding.

Fiscal Year Ended June 30, 1999 ----------------------------------------------------------------------- (For the Quarters Ended) September 30, 1998 December 31, 1998 March 31, 1999 June 30, 1999 - -------------------------------------------------------------------------------------------------------- Net revenues $ 24,780 $ 28,016 $ 30,183 $ 33,892 Gross profit 20,073 22,700 25,158 27,305 Net income 8,089 3,181 13,975 16,192 Basic net income per common share $ 0.29 $ 0.11 $ 0.49 $ 0.57 Diluted net income per common share $ 0.28 $ 0.11 $ 0.47 $ 0.55 - --------------------------------------------------------------------------------------------------------

Fiscal Year Ended June 30, 1998 ----------------------------------------------------------------------- (For the Quarters Ended) September 30, 1997 December 31, 1997 March 31, 1998 June 30, 1998 - -------------------------------------------------------------------------------------------------------- Net revenues $ 13,911 $ 16,928 $ 22,527 $ 24,205 Gross profit 11,365 13,924 18,535 19,768 Net income (loss) 3,751 (31,051) 6,434 8,459 Basic net income (loss) per common share $ 0.17 $ (1.44) $ 0.25 $ 0.30 Diluted net income (loss) per common share $ 0.17 $ (1.44) $ 0.24 $ 0.29 - --------------------------------------------------------------------------------------------------------

The quarterly net income per share data disclosed above does not agree with the amounts reported in the Company's Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission, as the amounts have been revised to reflect the stock splits discussed in Note 8, and the effect of SFAS No. 128 related to basic and diluted earnings per share. Gross profit does not include amortization of the related intangibles. 25 26 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS DIVIDEND POLICY. The Company declared a 3-for-2 stock split in the form of a 50% stock dividend paid on February 16, 1999 to holders of record on January 29, 1999. The Company has never declared a cash dividend. The Company intends to retain any earnings to fund future growth and the operation of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. PRICE RANGE OF COMMON STOCK. The Company's Class A Common Stock during fiscal 1999 was traded on the Nasdaq National Market under the symbol "MDRX" through September 23, 1998. At market open on September 24, 1998, the Company's Class A Common Stock began trading on the New York Stock Exchange under the symbol "MRX." The following table sets forth for the fiscal periods indicated, the range of high and low sales prices for the Class A Common Stock of the Company on the Nasdaq National Market and the New York Stock Exchange, as adjusted to reflect (i) the 3-for-2 stock split in the form of a 50% stock dividend paid on February 16, 1999 to holders of record as of January 29, 1999, as adjusted to the nearest 1/16.

High Low - --------------------------------------------------------------------------------------- Fiscal year ended June 30, 1999 First Quarter $ 29-15/16 $ 19-7/8 Second Quarter 43-3/16 25-5/8 Third Quarter 47-3/4 25-7/8 Fourth Quarter 31 23-1/4 - --------------------------------------------------------------------------------------- Fiscal year ended June 30, 1998 First Quarter $ 37 $ 25 Second Quarter 37-5/16 26-11/16 Third Quarter 34-1/16 25-11/16 Fourth Quarter 32-1/4 22-3/16 - ---------------------------------------------------------------------------------------

On September 2, 1999, the last reported sale price on the New York Stock Exchange for the Company's Class A Common Stock was $27.06 per share. As of such date, there were approximately 323 holders of record of Class A Common Stock. 26 27 SELECTED FINANCIAL DATA The following selected financial data has been derived from the consolidated financial statements of Medicis Pharmaceutical Corporation for the fiscal years 1999, 1998, 1997, 1996 and 1995. Gross profit does not include amortization of the related intangibles. STATEMENT OF OPERATIONS DATA:

June 30, --------------------------------------------------------------------------- (in thousands, except per share data) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- Net revenues $ 116,871 $ 77,571 $ 41,159 $ 25,310 $ 19,132 Gross profit 95,236 63,592 31,797 18,354 13,282 Operating expenses: Selling, general and administrative 38,219 27,424 16,484 10,868 10,330 Research and development expenses 3,396 2,885 1,450 952 770 In-process research and development 9,500 35,400 -- -- -- Depreciation and amortization 5,810 2,903 999 559 522 --------------------------------------------------------------------------- Total operating expenses 56,925 68,612 18,933 12,379 11,622 Operating income (loss) 38,311 (5,020) 12,864 5,975 1,660 Other: Gain on sale of assets 17,650 -- -- -- 107 Net interest income (expense) 9,678 7,037 3,787 79 (94) Income tax (expense) benefit (24,202) (14,424) 694 1,826 (60) --------------------------------------------------------------------------- Net income (loss) $ 41,437 $ (12,407) $ 17,345 $ 7,880 $ 1,613 - ----------------------------------------------------------------------------------------------------------------------------- Basic net income (loss) per common share $ 1.46 $ (0.51) $ 0.88 $ 0.52 $ 0.11 Diluted net income (loss) per common share $ 1.41 $ (0.51) $ 0.83 $ 0.50 $ 0.11 Number of shares used in computing basic net income (loss) per common share 28,414 24,102 19,788 15,195 14,836 Number of shares used in computing diluted net income (loss) per common share 29,462 24,102 20,891 15,882 14,836 - -----------------------------------------------------------------------------------------------------------------------------

BALANCE SHEET DATA:

June 30, -------------------------------------------------------------------- (in thousands) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Cash, cash equivalents and short-term investments $237,304 $237,921 $ 85,132 $ 7,956 $ 953 Working capital 278,440 262,956 94,803 12,401 619 Total assets 467,338 352,350 140,537 26,313 13,850 Long-term obligations 34,716 95 111 117 694 Stockholders' equity 373,576 324,495 131,565 19,460 7,387 - ---------------------------------------------------------------------------------------------------------------------------

27 EX-21.1 8 EX-21.1 1 EXHIBIT 21.1 SUBSIDIARIES - - Medicis, The Dermatology Company(R) - - Medicis Dermatologics, Inc. - - Dermavest, Inc. - - Advanced Pharmaceutical Research - - Medicis Acquisition Corporation - - Medicis Manufacturing Corporation - - Medicis Partners, Inc. - - GenDerm Corporation - - Medicis Canada, Ltd. - - Ucyclyd Pharma, Inc. EX-23.1 9 EX-23.1 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Medicis Pharmaceutical Corporation of our report dated August 6, 1999, included in the 1999 Annual Report to Shareholders of Medicis Pharmaceutical Corporation. Our audit also included the financial statement schedule of Medicis Pharmaceutical Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-45573) pertaining to the 1988 and 1990 Stock Option Plans, in the Registration Statement (Form S-8 No. 33-88590) pertaining to the 1992 Stock Option Plan, in the Registration Statement (Form S-8 No. 33-311419) pertaining to the 1995 Stock Option Plan, in the Registration Statement (Form S-8 No. 33-333647) pertaining to the 1996 Stock Option Plan, and in the Registration Statement (Form S-8 No. 333-81647) pertaining to the 1998 Stock Option Plan of Medicis Pharmaceutical Corporation of our report dated August 6, 1999, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Medicis Pharmaceutical Corporation. /s/ ERNST & YOUNG LLP --------------------- Phoenix, Arizona September 24, 1999 EX-27 10 FDS

<ARTICLE> 5 <PERIOD-TYPE> 12-MOS <FISCAL-YEAR-END> JUN-30-1999 <PERIOD-START> JUL-01-1998 <PERIOD-END> JUN-30-1999 <CASH> 87,718,718 <SECURITIES> 149,585,195 <RECEIVABLES> 35,397,935 <ALLOWANCES> 3,815,000 <INVENTORY> 7,273,142 <CURRENT-ASSETS> 335,420,239 <PP&E> 2,550,684 <DEPRECIATION> 846,021 <TOTAL-ASSETS> 467,338,346 <CURRENT-LIABILITIES> 56,979,924 <BONDS> 0 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 401,271 <OTHER-SE> 373,175,145 <TOTAL-LIABILITY-AND-EQUITY> 467,338,346 <SALES> 116,870,540 <TOTAL-REVENUES> 116,870,540 <CGS> 21,633,902 <TOTAL-COSTS> 21,633,902 <OTHER-EXPENSES> 56,925,800 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> (9,678,056) <INCOME-PRETAX> 65,639,797 <INCOME-TAX> 24,202,571 <INCOME-CONTINUING> 41,437,226 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 41,437,226 <EPS-BASIC> 1.46 <EPS-DILUTED> 1.41

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.93

   1
                                                                   EXHIBIT 10.93

THIS ASSET PURCHASE AGREEMENT ("AGREEMENT") effective as of this 31st day of
JANUARY, 1999,

BETWEEN:

         MEDICIS PHARMACEUTICAL CORPORATION a company incorporated under the
laws of Delaware and with its principal place of business at 4343 East Camelback
Road, Suite 250, Phoenix, Arizona, United States of America ("Medicis") and

         BIOGLAN PHARMA PLC, a company incorporated under the laws of England
and Wales and with its principal place of business at 5 Hunting Gate, Hitchin,
Hertfordshire ("Bioglan").

1.       RECITALS

         1.1      Medicis is engaged in the sale of certain human,
                  over-the-counter and ethical pharmaceutical products including
                  the products set forth in Schedule 1 hereto ("the Products").

         1.2      Medicis desires to sell to Bioglan and Bioglan, subject to
                  satisfactory due diligence, desires to purchase from Medicis
                  the Products and all rights associated therewith including the
                  relevant product trademarks, Know-How, authorizations and
                  permits as defined below (together referred to as the "Product
                  Rights") on the terms and conditions set out below.

NOW IT IS HEREBY AGREED as follows:

2.       Definitions

In this Agreement the following terms shall have the following meanings:



                                 
"Know-How"                          means the information known to Medicis
                                    relating solely and uniquely to the
                                    formulae, manufacturing processes, customer
                                    lists, marketing and advertising rights and
                                    promotional materials, technology and
                                    testing data relating to, the Products, as
                                    identified on the Schedule of Know-How made
                                    available during due diligence.

"Letter of Intent"                  means that certain letter of even date
                                    herewith from Medicis to Bioglan and
                                    countersigned by Bioglan.

"Product Licenses and               means Medicis' authorizations, where such
Permits"                            are required, from the U.S. Food and Drug
                                    Administration ("FDA") and the right to
                                    refer to the data contained therein and
                                    copies of all documents submitted and
                                    correspondence between Medicis and the FDA
                                    with respect to the Products

   2


                                 
"Territory"                         means the United States of America and its
                                    territories, possessions and commonwealth.

"Trademarks"                        means the trademarks listed in Schedule 3
                                    hereto together with the goodwill symbolized
                                    by such trademarks.



3.       DUE DILIGENCE AND SALE OF PRODUCTS

         3.1      Immediately following signature hereof Bioglan shall conduct a
                  due diligence investigation of the Products, which shall be
                  completed in time to close this transaction on the date set
                  out in subclause 5.1 hereof. Medicis shall cooperate with
                  Bioglan and provide answers to all reasonable enquiries as
                  fully and completely as it can and all reasonable assistance
                  to Bioglan, including providing Bioglan with access to
                  relevant Medicis facilities, personnel and documents and shall
                  permit Bioglan to obtain copies of relevant Medicis
                  documentation and contracts. Upon completing of due diligence,
                  Bioglan shall provide Medicis with written notice of its
                  acceptance or termination of this Agreement.

         3.2      Provided that nothing is revealed during the due diligence
                  process which would result in Bioglan reasonably wishing to
                  terminate this Agreement and upon the basis of the
                  representations and warranties, and the terms and conditions
                  provided herein, Medicis agrees to sell and Bioglan agrees to
                  purchase the Products together with the Product Rights on the
                  terms set out below.

4.       PURCHASE PRICE AND PAYMENT SCHEDULE

         4.1      Bioglan shall pay to Medicis for the Products and the Product
                  Rights, a net consideration of Eleven Million One Hundred
                  Thousand Dollars US ($11,100,000 US), exclusive of any Value
                  Added Taxes (the "Purchase Price"). The Purchase Price shall
                  be paid to Medicis as follows:

                  4.1.1    an initial sum of Five Hundred Thousand dollars US
                           ($500,000 US) paid to Medicis within twenty-four
                           hours of the execution of this Agreement; and

                  4.1.2    a further sum of Ten Million Six Hundred Thousand
                           Dollars US ($10,600,000 US) be paid to Medicis at the
                           Closing Date subject to satisfactory due diligence.

         4.2      Upon payment by Bioglan to Medicis of the Purchase Price
                  provided for in sub-clause 4.1 hereof, Medicis shall execute
                  and deliver to Bioglan an assignment in the form of Exhibit
                  "A" hereto of the Trademarks and a Bill of Sale in the form of
                  Exhibit "B" to be attached hereto for the Products and Product
                  Rights.

         4.3      Contemporaneously with the Closing (as defined below), Bioglan
                  and Medicis shall enter into a separate agreement pursuant to
                  which Bioglan will license to
   3
                  Medicis use certain technologies in connection with Medicis'
                  products containing the active ingredient ciclopirox.

         4.4      For the avoidance of doubt, if Bioglan terminates this
                  Agreement as a result of matters disclosed during the due
                  diligence process, (regardless of the nature of such matters)
                  or Medicis elects to unwind the transaction in accordance with
                  Clause 14.6 hereof, the initial sum payable pursuant to the
                  Clause 4.1.1 hereof shall NOT be refunded to Bioglan.

         4.5      All payments made hereunder shall be made in United States
                  Dollars by telegraphic transfer in immediately available funds
                  to the Medicis bank account as previously provided to Bioglan.

5.       CLOSING

         5.1      Provided that nothing is revealed as a result of the due
                  diligence process that would result in Bioglan reasonably
                  wishing to terminate this Agreement, the consummation of the
                  transaction contemplated herein (the "Closing") shall take
                  place on February 15, 1999 ("Closing Date") at a time to be
                  mutually agreed to by the parties.

         5.2      Except as otherwise provided for in this Agreement, after the
                  Closing Date, Medicis shall not use the Know-How. Furthermore,
                  after the Closing Date, Medicis shall not disclose the
                  Know-How to any third party, unless such disclosure is
                  required by law or regulation.

         5.3      At the Closing, Medicis (a) shall deliver to Bioglan a Letter
                  of Disclosure as referenced in sub-clause 10.1 hereof, (b)
                  shall transfer to Bioglan ownership of the Product Rights, (c)
                  shall deliver to Bioglan such of the Product Rights which are
                  capable of delivery up to Bioglan, including but not limited
                  to, Medicis' customer lists for the Products, such marketing
                  and promotional materials for the Products, as may be
                  available, and (d) shall transfer to Bioglan possession of
                  Medicis' then-existing inventory of the Products, including
                  components thereof, ("Inventory") at cost, such Inventory
                  being in good condition and bearing a remaining shelf life of
                  not less than twelve (12) months. At the Closing, Bioglan
                  shall pay Medicis for the Inventory at Medicis' cost of the
                  Inventory.

         5.4      Not withstanding anything in this Agreement to the contrary,
                  the sale to Bioglan by Medicis of the Products and Product
                  Rights shall not prevent Medicis from continuing to
                  manufacture and sell other products included or expected to be
                  included in its current line or to use other trademarks owned
                  by Medicis. Nor shall the sale restrict the rights of Medicis
                  to develop and sell new products using the same active
                  ingredients as the Products, but using different formulations,
                  or different presentations, and under different product
                  trademarks.

         5.5      After the Closing, subject to the terms of the Transition
                  Services Agreement, Bioglan shall bear the entire
                  responsibility for and risk in the manufacture, distribution,
                  marketing and sale of the Products, including those associated
                  with
   4
                  returns of Product previously sold, and compliance with all
                  regulations and laws pertaining to the Products. Medicis
                  shall, for one year following the Closing, use its reasonable
                  best efforts to assist Bioglan in these matters, but they
                  shall remain the sole responsibility of Bioglan.

6.       CONDITIONS TO BIOGLAN'S OBLIGATIONS

         6.1      Bioglan's obligation to consummate the transactions
                  contemplated herein at the Closing are subject to the
                  fulfillment at or prior to the Closing of each of the
                  following conditions, the fulfillment of any of which may be
                  waived by Bioglan:

                  6.1.1    The completion of the due diligence process to
                           Bioglan's reasonable satisfaction.

                  6.1.2    The completion by Medicis of all acts necessary to
                           authorize its execution, delivery and performance of
                           this Agreement and the other agreements provided for
                           herein, and the consummation of the transactions
                           contemplated herein and therein.

                  6.1.3    The provision by the Secretary of Medicis to Bioglan
                           of a Certificate setting forth copies of the
                           resolutions or other instruments authorizing this
                           Agreement and the transactions contemplated herein.

                  6.1.4    All the representations and warranties of Medicis
                           contained in this Agreement shall be true and correct
                           in all material respects as of the date of execution
                           of this Agreement by Medicis and all of the covenants
                           and agreements of Medicis which are provided in this
                           Agreement to be performed at or prior to the Closing
                           shall have been duly performed, and Medicis shall
                           have complied with this Agreement in all other
                           material respects. Medicis shall deliver to Bioglan a
                           certificate, dated the Closing Date, and signed by an
                           executive officer of Medicis, to the effect set forth
                           above.

                  6.1.5    Medicis shall have delivered to Bioglan a copy of any
                           FDA authorizations for the Products, where
                           applicable.

                  6.1.6    Medicis shall, at Bioglan's request, have assigned to
                           Bioglan the benefit of any agreements including, but
                           not limited to, manufacturing agreements for the
                           Products.

                  6.1.7    Medicis shall have obtained all consents, approvals
                           and authorizations necessary to consummate the
                           Closing.

                  6.1.8    Bioglan shall have approved any changes between the
                           unsigned draft Letter of Disclosure referred to in
                           Clause 10.1 thereof and the final version of that
                           Letter of Disclosure delivered at the Closing.
   5
7.       CONDITIONS TO MEDICIS' OBLIGATIONS

         7.1      The obligations of Medicis to consummate the transactions
                  contemplated at the Closing are subject to the fulfillment at
                  or prior to the Closing of each of the following conditions,
                  the fulfillment of any of which may be waived by Medicis:

                  7.1.1    Medicis shall have been furnished with a certificate
                           of the Company Secretary of Bioglan setting forth
                           copies of the resolutions or other instruments
                           authorizing this Agreement and the transactions
                           contemplated herein.

                  7.1.2    All the representations and warranties of Bioglan
                           contained in this Agreement shall be true and correct
                           in all material respects as of the date of execution
                           of this Agreement by Bioglan and all of the
                           agreements of Bioglan which are provided in this
                           Agreement to be performed at or prior to the Closing
                           Date shall have been performed, and Bioglan shall
                           have complied with this Agreement in all other
                           material respects.

                  7.1.3    Bioglan shall deliver to Medicis a certificate, dated
                           the Closing Date and signed by an executive officer
                           of Bioglan, to the effect set forth above.

                  7.1.4    Payment in full by Bioglan of the Purchase Price and
                           all other sums required by this Agreement to be paid
                           by Bioglan to Medicis prior to the Closing Date.

                  7.1.5    Medicis shall have obtained all consents, approvals
                           and authorizations necessary to consummate the
                           Closing.

                  7.1.6    Bioglan shall have approved any changes between the
                           unsigned draft Letter of Disclosure referred to in
                           Clause 10.1 hereof and the final version of that
                           Letter of Disclosure delivered at the Closing.

8.       CONTINUING OBLIGATIONS

         8.1      Medicis' Continuing Obligations

                  8.1.1    In order to ensure continued supply of the Products
                           to customers following execution of this Agreement,
                           Medicis hereby agrees to act as distributor of the
                           Products for a period of four (4) months from the
                           execution of this Agreement, or until Bioglan gives
                           written notice to Medicis that Bioglan has developed
                           its own distribution network within the Territory,
                           whichever is the sooner. This period shall be
                           extended, at the written request of Bioglan, for a
                           further two (2) months if, after using its reasonable
                           best efforts, Bioglan has been unable to develop its
                           own distribution system at the end of the four month
                           period.

                  8.1.2    Bioglan and Medicis shall execute the Transition
                           Services Agreement attached as Exhibit "C" hereto
                           which sets out the terms on which Medicis shall
                           distribute the Products as required in sub-clause 8.1
                           above.
   6
                  8.1.3    Upon expiration of the period for which Medicis shall
                           distribute Products on behalf of Bioglan as set out
                           above, Medicis shall return to Bioglan any inventory
                           of the Products in its possession as of the date
                           thereof.

         8.2      Bioglan's Continuing Obligations

                  8.2.1    Bioglan shall provide to Medicis, on a quarterly
                           basis a written report setting forth Gross Sales and
                           Returns of all Products during calendar 1999.

9.       PRODUCT REGISTRATIONS

         9.1      After the Closing, Bioglan will initially market the Products
                  under the Product Licenses and Permits, such Product Licenses
                  and Permits having been varied to permit the same. Such
                  arrangement shall continue until Bioglan obtains regulatory
                  authorization from the FDA to market the Products under its
                  own product licenses (the "New Product Licenses and Permits").

         9.2      To permit Bioglan to market the Products under the Product
                  Licenses and Permits, Medicis shall, promptly following
                  Closing hereof at its own expense, file all necessary
                  instruments with the FDA to obtain a waiver to vary Medicis'
                  Product Licenses and Permits to allow Bioglan to sell the
                  Products.

         9.3      Bioglan shall at its expense, file a product license
                  application with the FDA for each of the Products that
                  requires FDA authorization. Medicis shall, at its expense,
                  file all necessary instruments with the FDA to authorize
                  Bioglan to cross-refer to the data contained in the Product
                  Licenses and Permits in order for Bioglan to obtain the New
                  Product Licenses and Permits.

         9.4      Within thirty (30) days after the execution of this Agreement,
                  the parties shall each appoint a primary liaison (the "Medical
                  Affairs Liaison") to communicate with each other with regard
                  to the actions and information required pursuant to this
                  Clause 9.

         9.5      During the period that Bioglan is selling Products under the
                  Product Licenses and Permits, each party shall advise the
                  other as set forth in 9.5.1 and 9.5.2 below of any adverse
                  drug experience associated with the Products. In addition,
                  Bioglan shall report all adverse drug experience information
                  it obtains, including that obtained from Medicis, to the FDA
                  as set forth in 9.6 below.

                  9.5.1    Any adverse drug experience information obtained by a
                           party shall be reported to Bioglan's Medical Affairs
                           Liaison, by telephone or in writing (only by
                           facsimile) within three (3) working days after the
                           first party's initial receipt of the information;
                           provided, however, any report of a serious unlabelled
                           side effect or any report of a death shall be
                           reported to Bioglan's Medical Affairs Liaison within
                           twenty-four (24) hours of receipt of the information;
                           and
   7
                  9.5.2    The reports of adverse drug experience shall contain
                           the following information: (i) the date the report
                           was received by Medicis; (ii) the name of the
                           reporter; (iii) the address and telephone number of
                           the reporter; (iv) the patient details; (v) the
                           suspected drug; (vi) other concomitant therapy; (vii)
                           a description of the adverse drug experience; and
                           (viii) any additional relevant information; provided
                           such information is obtainable through the use of
                           reasonable efforts.

         9.6      Bioglan shall report all adverse drug experience information
                  associated with the Products, including those received from
                  Medicis under this Clause 9 to the FDA, in accordance with the
                  laws and regulations of the Territory.

         9.7      After execution of this Agreement, Bioglan shall take all
                  actions required by FDA regulations and other governmental
                  laws relating to the manufacture, distribution and use of the
                  Products and shall be solely responsible for compliance with
                  all such laws.

10.      REPRESENTATIONS AND WARRANTIES OF MEDICIS

         10.1     Except as set forth in a Letter of Disclosure which shall be
                  delivered by Medicis to Bioglan, as of the Closing Date (an
                  unsigned draft of which shall be delivered to Bioglan within
                  seven (7) days of the date hereof), Medicis hereby represents
                  and warrants to Bioglan as follows:

                  10.1.1   Medicis (i) is a corporation duly organized and
                           validly existing and in good standing under the laws
                           of Delaware and (ii) has all necessary corporate
                           power and authority to own its properties and to
                           conduct its business, as currently conducted.

                  10.1.2   The execution and delivery of this Agreement and the
                           other agreements provided for herein, and the
                           consummation of the transactions contemplated herein
                           and therein, are within the corporate power of
                           Medicis, have been or will be, on or prior to the
                           Closing Date, duly authorized by all necessary
                           corporate proceedings and such other agreements have
                           been or will be, on or prior to the Closing Date,
                           duly executed and delivered by Medicis.

                  10.1.3   Neither the execution of this Agreement and the other
                           agreements provided for herein nor the consummation
                           of the transactions contemplated herein and therein:
                           (i) requires Medicis to obtain any approval, consent
                           or withholding of objections on the part of any
                           regulatory or governmental body, except as may be
                           provided for above; (ii) will result in any violation
                           or breach of any term or provision of Medicis'
                           Certificate of Incorporation or Bylaws; (iii) will
                           constitute a default under any material indenture,
                           mortgage, deed of trust, license agreement or other
                           contract or agreement to which Medicis is a party or
                           to which it or any of the Products or Product Rights
                           may be subject; or
   8
                           (iv) will violate any provision of any judicial,
                           governmental or administrative order, writ,
                           injunction, award, judgment or decree applicable to
                           Medicis.

                  10.1.4   This Agreement and the other agreements provided for
                           herein have been duly and validly authorized,
                           executed and delivered by Medicis and, when duly
                           executed and delivered by Bioglan, will constitute
                           valid and binding obligations of Medicis, enforceable
                           against Medicis in accordance with their terms,
                           except as such enforcement may be limited by
                           bankruptcy or other laws of general application
                           affecting creditor rights or general principles of
                           equity or principles of public policy relating to
                           indemnification.

                  10.1.5   Other than the use of Corporate Development
                           Specialists, Inc., neither Medicis nor any officer,
                           director or agent of Medicis has employed any broker,
                           finder, or agent with respect to this Agreement or
                           the transactions contemplated hereby.

                  10.1.6   Medicis will have used its best efforts to provide
                           Bioglan with true, complete and accurate information
                           in response to the due diligence requests of Bioglan
                           during the due diligence period.

                  10.1.7   The amount of Gross Sales, less returns, for the
                           calendar year ended December 31 1998, as accounted
                           for by Medicis in accordance with GAAP, which were
                           provided by Medicis to Bioglen during the due
                           diligence, were correct in all material respects.

                  10.1.8   EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES HEREIN
                           IN THE BILL OF SALE AND THE ASSIGNMENT OF TRADEMARKS,
                           THE PRODUCTS AND PRODUCT RIGHTS ARE SOLD ON AN "AS
                           IS, WHERE IS" BASIS, AND, OTHER THAN THOSE ARISING AS
                           A RESULT OF A BREACH OF THE REPRESENTATIONS AND
                           WARRANTIES HERETO AND THE BILL OF SALE, BIOGLAN
                           HEREBY WAIVES, ANY AND ALL OTHER REPRESENTATIONS,
                           WARRANTIES, DUTIES, AND GUARANTEES OF ANY KIND
                           WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY OR
                           OTHERWISE, CONCERNING THE PRODUCTS OR THE PRODUCT
                           RIGHTS OR THE VALUE, CONDITION, EFFECTIVENESS OR
                           COMPLIANCE WITH SPECIFICATION OF THE PRODUCTS,
                           INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES
                           OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR
                           PURPOSE, THE ABSENCE OF OBLIGATIONS BASED ON STRICT
                           LIABILITY IN TORT, OR THE QUALITY OF THE MATERIALS OR
                           WORKMANSHIP, AND BIOGLAN HEREBY WAIVES ANY AND ALL
                           RIGHTS AND REMEDIES IT MAY HAVE AGAINST MEDICIS
                           RELATING TO ANY OF THE FOREGOING AND ARISING BY LAW
                           OR OTHERWISE OR WITH RESPECT TO
   9
                           LOSS OF USE, REVENUE OR PROFIT, THE EXISTENCE OF ANY
                           LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT
                           DISCOVERABLE), OR OTHER INCIDENTAL OR CONSEQUENTIAL
                           DAMAGES.

11.      INTELLECTUAL PROPERTY

         11.1 Except as set forth in the Letter of Disclosure, Medicis hereby
         represents and warrants to Bioglan in respect of the Intellectual
         Property as follows:

                  11.1.1   The Trademarks are currently being used commercially
                           by Medicis and have been properly filed or registered
                           with the US Patent and Trademark Office and will be,
                           to the best of Medicis' knowledge, valid and in full
                           force and effect as of the date of execution of this
                           Agreement.

                  11.1.2   Except as may be restricted or prohibited by any
                           applicable law, rule, regulation or decision, Medicis
                           has the exclusive right to use, transfer and assign,
                           free and clear of any liens or encumbrances, the
                           registrations for the Trademarks set out in Schedule
                           "3" hereto.

                  11.1.3.  To the best of Medicis' knowledge, the manufacture,
                           use or sale of the Products by Medicis or the use of
                           the Trademarks in the United States of America for
                           the sale of the Products does not infringe the rights
                           of any third party including inter alia intellectual
                           property rights.

                  11.1.4   Except for any restriction or prohibition set forth
                           in any applicable law, rule, regulation, decision or
                           other governmental action, Medicis is not aware of
                           any restriction or prohibition which would prevent or
                           restrict the disclosure of the Know-How to Bioglan
                           hereunder.

                  11.1.5   Medicis has informed Bioglan of adverse drug
                           experiences related to the Products of which it has
                           knowledge.

12.      REPRESENTATIONS AND WARRANTIES OF BIOGLAN

         12.1     Bioglan hereby represents and warrants to Medicis as follows:

                  12.1.1   Bioglan (i) is a public limited company duly
                           organized, validly existing and in good standing
                           under the Laws of England and Wales (ii) has all
                           necessary power and authority to own its properties
                           and to conduct business as presently conducted.

                  12.1.2   The execution and delivery of this Agreement and the
                           other agreements provided for herein, and the
                           consummation of the transactions contemplated herein
                           and therein, are within the corporate power of
                           Bioglan, have been or will be, on or prior to the
                           Closing Date, duly authorized by all necessary
                           corporate proceedings and such other
   10
                           agreements have or will be, on or prior to the
                           Closing Date, duly executed and delivered to Bioglan.

                  12.1.3   Neither the execution of this Agreement and the other
                           agreements provided for herein nor the consummation
                           of the transactions contemplated herein and therein:
                           (i) require Bioglan to obtain the approval, consent
                           or withholding of objection on the part of any
                           governmental body, except as may be provided for
                           above; (ii) will result in any violation or breach of
                           any term or provisions of Bioglan's Memorandum and
                           Articles of Incorporation or By-Laws; (iii) will
                           constitute a default under any indenture, mortgage,
                           deed of trust, license, agreement, or other contract
                           or agreement to which Bioglan is a party or to which
                           it or any of its properties may be subject; or (iv)
                           violates any provision of any judicial, governmental
                           or administrative order, writ, injunction, award,
                           judgment or decree applicable to Bioglan.

                  12.1.4   This Agreement and the other agreements provided for
                           herein have been duly and validly authorized,
                           executed and delivered by Bioglan, and when duly
                           executed and delivered by Medicis, will constitute
                           valid and binding obligations of Bioglan, enforceable
                           against Bioglan in accordance with their terms,
                           except as such enforcement may be limited by
                           bankruptcy or other laws of general application
                           affecting creditor rights or general principles of
                           equity or principles of public policy relating to
                           indemnification.

                  12.1.5   Other than the use of Corporate Development
                           Specialists, Inc., neither Bioglan nor any officer,
                           director or agent of Bioglan, has employed any
                           broker, finder or agent with respect to this
                           Agreement or the transactions contemplated hereby.

                  12.1.6   OTHER THAN THE REPRESENTATIONS AND WARRANTIES OF
                           MEDICIS IN THIS AGREEMENT, BIOGLAN EXPRESSLY AGREES
                           AND ACKNOWLEDGES THAT IT HAS NOT, IN ENTERING INTO
                           THIS AGREEMENT, RELIED ON ANY CONDITION, WARRANTY OR
                           REPRESENTATION BY MEDICIS, EXPRESS OR IMPLIED,
                           WHETHER ARISING BY APPLICABLE LAW OR OTHERWISE IN
                           RELATION TO THE PRODUCTS AND PRODUCT RIGHTS,
                           INCLUDING, WITHOUT LIMITATION, WARRANTIES OR
                           REPRESENTATIONS AS TO THE DESCRIPTION, QUALITY,
                           DURABILITY, MERCHANTABILITY, FITNESS FOR ANY
                           PARTICULAR PURPOSE, THE ABSENCE OF OBLIGATIONS BASED
                           ON STRICT LIABILITY IN TORT, THE QUALITY OF THE
                           MATERIALS OR WORKMANSHIP, VALUE, CONDITION, AS TO THE
                           ABSENCE OF ANY LATENT, INHERENT OR ANY OTHER DEFECT
                           (WHETHER OR NOT DISCOVERABLE), AND THE BENEFIT IN
                           FAVOR OF BIOGLAN, OF ANY SUCH CONDITION,
   11
                           WARRANTY OR REPRESENTATION, IS HEREBY IRREVOCABLY AND
                           UNCONDITIONALLY WAIVED BY BIOGLAN.

13.      CONDUCT AND TRANSACTIONS PRIOR TO CLOSING

         13.1     The parties agree to cooperate mutually and make all
                  reasonable efforts toward consummating the transactions herein
                  contemplated and fulfilling the purposes of this Agreement
                  prior to and following Closing, including providing and
                  executing such additional documentation and communications as
                  may be appropriate for such purposes.

         13.2     Medicis shall not take any action out of the ordinary course
                  of business to significantly increase sales of the Products in
                  the calendar month prior to the month in which the Closing
                  occurs. If the sales in the calendar month prior to the month
                  in which the Closing occurs are greater than 110% of the sales
                  of the Product in the preceding calendar month, Medicis shall
                  credit the Purchase Price for Medicis' gross margin on such
                  incremental sales.

14.      POST-CLOSING COVENANTS

         14.1     Medicis and Bioglan agree to cooperate in the notification to
                  customers of the transactions contemplated by this Agreement.
                  Neither Medicis nor Bioglan shall notify any customers of such
                  transactions without the consent of the other. Such
                  notification (the "Joint Notice") shall be in such form as is
                  reasonably satisfactory to Bioglan and Medicis.

         14.2     Medicis agrees for a period of four (4) months after the
                  Closing Date to use its reasonable best efforts to forward to
                  Bioglan all customer orders for the Products received after
                  the Closing as soon as practicable after receipt by Medicis.
                  Medicis agrees that, for a period of six (6) months from the
                  Closing Date, it will inform any customers ordering the
                  Products or requesting information about the Products, that
                  Bioglan is now supplying the Products.

         14.3     During the period that Bioglan is selling Products under the
                  Product Licenses and Permits if Medicis or an appropriate
                  government agency in the Territory determines that the
                  Products or any of them should be recalled, Bioglan shall at
                  its cost, be responsible for all activities to be performed
                  relating to such recall. If such recall occurs during such
                  period, then, prior to implementing such recall, Medicis shall
                  endeavor to advise Bioglan of the situation. Bioglan shall
                  provide Medicis with a prepared statement for use in response
                  to any inquiries regarding the Products' recall which Medicis
                  shall provide to its sales representatives. Medicis and its
                  sales representatives shall use such prepared statements to
                  respond to any inquiries received with regard to the Products
                  recalled and shall not make any other statements regarding the
                  recalls.

         14.4     Medicis and Bioglan will coordinate to ensure that all
                  necessary and appropriate language is added to the labeling
                  for the Products so that each party is able to comply with any
                  applicable laws and regulatory requirements.
   12
         14.5     During the period that Bioglan is selling Products under the
                  Product Licenses and Permits, Bioglan shall not use any
                  promotional material with respect to the Products without
                  first obtaining the written approval of Medicis.

         14.6     Simultaneously with the execution of this Agreement, Medicis
                  and Bioglan are entering into a Letter of Intent relating to
                  the license of rights to Medicis' products sold under its
                  Trademarks OCCLUSAL, SALAC and PENTRAX. If Bioglan fails to
                  execute, deliver and consummate the transaction contemplated
                  in the Letter of Intent, Medicis shall have the right, in its
                  sole discretion, to unwind the effect of this Agreement.
                  Medicis shall, in that event, repay to Bioglan the $10.6
                  million paid by Bioglan to Medicis under Sub-Clause 4.1.2
                  hereof and Bioglan shall immediately transfer all right, title
                  and interest in and to the Products and ownership of the
                  Product Rights to Medicis. Bioglan agrees to indemnify, defend
                  and hold harmless Medicis (and its directors, employees,
                  affiliates, successors and assigns) from and against all
                  Losses of Medicis based upon, arising out of or otherwise in
                  respect of Bioglan's actions or inactions relating to the
                  Products during the time period from the date of this
                  Agreement until the complete transfer of all Products and
                  Product Rights to Medicis.

15.      INDEMNIFICATION BY MEDICIS

         15.1     Medicis agrees to indemnify, defend and hold harmless Bioglan
                  (and its directors, officers, employees, affiliates,
                  successors and assigns) from and against all losses, personal
                  injuries, liabilities, damages (other than incidental or
                  consequential), deficiencies, costs or expenses including,
                  without limitation, interest, penalties and reasonable
                  attorneys' fees and disbursements ("Losses") of Bioglan based
                  upon, arising out of or otherwise in respect of:

                  15.1.1   any material inaccuracy in or material breach of, any
                           representation, warranty, covenant or agreement of
                           Medicis contained in this Agreement, provided
                           however, that any such Losses shall have been first
                           asserted in writing against Medicis within
                           twenty-four months after the Closing Date.

                  15.1.2   any harm to any third party caused by any defect in
                           the Products manufactured, mandated, distributed, or
                           sold by Medicis, prior to the Closing, or by any
                           negligent or wrongful act of Medicis prior to the
                           Closing in connection with the manufacture,
                           distribution, advertising, or sale of the Products,
                           or any failure to comply with any regulation or
                           statute, provided, however, that any such Losses
                           shall have been first asserted in writing against
                           Medicis within twenty-four months after the Closing
                           Date.

                  15.1.3   failure of Medicis prior to the Closing Date to
                           conduct its efforts under this Agreement at all times
                           in accordance with all applicable laws and
                           regulations which may materially affect the Products
                           including without limitation the US Foreign Corrupt
                           Practices Act, with the highest commercial standards
                           and in a manner that reflects favorably at all times
   13
                           on the Products and the reputation of Medicis,
                           provided, however, that any such Losses shall have
                           been first asserted in writing against Medicis within
                           twenty-four months after the Closing Date.



16.      INDEMNIFICATION BY BIOGLAN

         16.1     Bioglan agrees to indemnify, defend and hold harmless Medicis
                  (and its directors, officers, employees, affiliates,
                  successors and assigns) from and against all Loss of Medicis
                  based upon, arising out of or otherwise in respect of:

                  16.1.1   any material inaccuracy in or material breach of any
                           representation, warranty, covenant or agreement of
                           Bioglan contained in this Agreement, provided
                           however, that any such Loss shall have been first
                           asserted in writing against Bioglan within
                           twenty-four months after the Closing Date.

                  16.1.2   any harm to any third party caused by any defect in
                           the d Products manufactured, mandated, or distributed
                           sold by Bioglan or by any negligent or wrongful act
                           of Bioglan in connection with the manufacture,
                           distribution, advertising, or sale of the Products,
                           or any failure to comply with any regulation or
                           statute.

                  16.1.3   failure of Bioglan to conduct its efforts under this
                           Agreement at all times in strict accordance with all
                           applicable laws and regulations which may materially
                           affect the Products including without limitation the
                           US Foreign Corrupt Practices Act, with the highest
                           commercial standards and in a manner that reflects
                           favorably at all times on the Products and the
                           reputation of Medicis.

17.      PROCEDURE FOR INDEMNIFICATION

         17.1     If any legal proceeding shall be instituted, or any claim or
                  demand made, against an indemnified party in respect of which
                  an indemnifying party may be liable hereunder, or if either
                  party hereto for any reason shall believe that it has a claim
                  against the other pursuant to the respective Clause 15 or 16
                  hereof, then the indemnified party or the party believing it
                  has a claim against the other, as the case may be (in either
                  case, the "Indemnified Party"), shall give prompt written
                  notice hereunder to the indemnifying party or the party
                  against whom the party giving notice believes it has a claim,
                  as the case may be (in either case, the "Indemnifying Party").
                  Such notice shall specify in reasonable detail the date such
                  underlying claim or belief first was asserted or arose, the
                  nature of the loss (es) for which payment is claimed, the
                  Clause or Clauses of this Agreement upon which such claim is
                  based, and the amount payable in respect thereto, and shall
                  provide a copy of the underlying claim.

         17.2     If an Indemnifying Party shall receive notice pursuant to this
                  Clause 17, the Indemnifying Party may, at its sole option,
                  elect to defend against the loss, which
   14
                  is the subject of such notice. If the Indemnifying Party
                  elects to defend, then the Indemnified Party shall have the
                  right to participate in such defense, trial counsel shall be
                  chosen by the Indemnifying Party and such trial counsel shall
                  be reasonably satisfactory to the Indemnified Party. If the
                  Indemnifying Party does not elect to defend, then the
                  Indemnified Party may do so by its own counsel, such counsel
                  shall be reasonably satisfactory to the Indemnifying Party,
                  the costs of which shall be borne by the Indemnifying Party,
                  and the Indemnifying Party agrees to cooperate with the
                  Indemnified Party in such defense.

         17.3     If the amount of any actual loss indemnified against hereunder
                  shall at any time subsequent to the payment of any indemnity
                  payable hereunder, be reduced by any recovery, settlement or
                  other payment, then the amount of such reduction, less any
                  expense incurred by the party receiving such recovery,
                  settlement or other payment in connection therewith, shall be
                  repaid promptly to the Indemnifying Party.

         17.4     Except as otherwise provided herein, the terms of this Clause
                  17 shall survive the Closing.

18.      GENERAL PROVISION

         18.1     All representations, warranties, covenants and agreements set
                  forth herein shall survive the execution and delivery of this
                  Agreement and the transfer of Product Rights hereunder, but
                  shall expire two (2) years after the Closing. Thereafter, no
                  claim for breach of any representation, warranty, covenant, or
                  agreement shall be made. If this Agreement is terminated
                  pursuant to Clause 18.12 hereof, neither Bioglan nor Medicis
                  shall be under any liability whatsoever with respect to any
                  such representation or warranty.

         18.2     All communications under this Agreement attached hereto shall
                  be in writing and shall either be faxed, sent by courier or
                  mailed by first class mail, postage prepaid, to the fax number
                  and/or address specified below. If faxed, such communication
                  shall be deemed to given when sent; provided, however, that
                  such fax shall be confirmed by sending a hard copy by courier
                  or first class mail (by methods specified herein) within one
                  (1) working day of the sending of such fax. If sent by courier
                  or mailed by first class mail as specified herein, such
                  communication shall be deemed to be given either two (2)
                  business days after sending (for communications sent by
                  courier) or ten (10) business days after mailing (for
                  communications sent by mail). All communications hereunder
                  shall be sent:

                  18.2.1   TO BIOGLAN: at its address shown below or such other
                           address as it may give to Bioglan by notice
                           hereunder:



                                                     
                           5 Hunting Gate               and to:
                           Hitchin, Hertfordshire       Roiter Zucker Solicitors
                           England                      Regent House
                           Attn:  Terry I. Sadler       Swiss Cottage

   15


                                                     
                                                        London NW 3RZ ENGLAND
                                                        Attention: Warren Roiter


                  18.2.2   TO MEDICIS, at its address shown below or such other
                           address as it may give to Medicis by notice
                           hereunder:

                           4343 East Camelback Road, Suite 250
                           Phoenix, Arizona  85018-2100 USA
                           Attn:  Jonah Shacknai


         18.3     Prior to the Closing, Bioglan and Medicis shall each hold in
                  confidence all documents and information received by it in
                  connection with the transactions contemplated by this
                  Agreement and, in the event that for any reason the
                  transactions contemplated by this Agreement shall not be
                  consummated, Bioglan and Medicis shall refrain from disclosing
                  or otherwise using such documents and information.

         18.4     This Agreement may be amended, modified or supplemented only
                  by written agreement of the parties hereto.

         18.5     The rights and obligations of Bioglan and Medicis under this
                  Agreement and the agreements provided for herein shall be
                  binding upon and inure to the benefit of the parties hereto
                  and their respective successors and permitted assigns, but may
                  not be assigned by either party without the prior written
                  consent of the other party; provided however, Bioglan may
                  assign this Agreement without obtaining Medicis' consent if
                  Bioglan has paid the entire Purchase Price to Medicis in
                  accordance with Clause 4. Nothing set forth herein shall
                  prevent either party from assigning its rights or obligations
                  hereunder to an Affiliate of said party provided that no such
                  assignment shall relieve said party of its obligations
                  hereunder. For purposes hereof, an "Affiliate" of a party
                  shall refer to any person or entity controlling, controlled by
                  or under common control with said party.

         18.6     Bioglan and Medicis agree to approve jointly the text of an
                  initial press release announcing the consummation of the
                  transactions contemplated hereby and not to use the name of
                  the other party in any press information, marketing or
                  advertising materials or other release to the public without
                  prior written approval of the other, which approval shall not
                  be unreasonably withheld. The foregoing shall not be deemed to
                  prevent either party from making any public announcement which
                  may be required by legislation or any governmental or
                  regulatory body or by the rules and regulations of any
                  national securities exchange upon which the securities of
                  either party are traded; provided that the disclosing party
                  has notified the non-disclosing party of such public
                  announcement and the non-disclosing party has been given an
                  opportunity to comment on such announcement. The disclosing
                  party shall make such changes as reasonably requested.
   16
         18.7     Except as otherwise provided herein, Bioglan and Medicis agree
                  that each of the parties hereto shall bear one half of the
                  legal costs incurred in connection with the preparation,
                  drafting, execution and delivery of this Agreement and the
                  consummation of the transaction contemplated hereby, but not
                  the cost of Bioglan's due diligence in this transaction.
                  Bioglan shall pay all recording fees and all taxes due by
                  Bioglan in connection with the transfer of the Product Rights
                  to Bioglan hereunder.

         18.8     All headings in this Agreement are for convenience only and
                  shall not affect the interpretation or meaning of any
                  provision hereof.

         18.9     This Agreement, together with the other agreements provided
                  for herein, and the Schedules and Exhibits attached hereto,
                  constitutes the entire agreement of the parties, merges all
                  prior negotiations, agreements and understandings, and states
                  in full all representations and warranties or warranties other
                  than those herein stated. To the extent there are any
                  inconsistencies between the provisions of this Agreement, the
                  Schedules and Exhibits and any of the other agreements
                  provided for herein, this Agreement shall govern.

         18.10    No delay on the part of any party in exercising any right,
                  power, or privilege hereunder shall operate as a waiver
                  thereof; nor shall any waiver on the part of any party of any
                  such right, power or privilege, nor any single or partial
                  exercise of any such right, power or privilege, preclude any
                  further exercise thereof or the exercise of any other such
                  right, power or privilege. The rights and remedies of any
                  party based on, arising out of or otherwise in respect of any
                  inaccuracy in or breach of any representation, warranty,
                  covenant or agreement contained in this Agreement shall in no
                  way be limited by the fact that the act, omission, occurrence
                  or other state of facts upon which any claim of any such
                  inaccuracy or breach is based may also be the subject matter
                  of any other representation, warranty, covenant or agreement
                  contained in this Agreement (or in any other agreement between
                  the parties) as to which there is no inaccuracy or breach.

         18.11    If any provision of this Agreement is found or declared to be
                  invalid or unenforceable by any court or other competent
                  authority having jurisdiction, such finding or declaration
                  shall not invalidate any other provision hereof, and this
                  Agreement shall thereafter continue in full force and effect
                  except that such invalid or unenforceable provision, and (if
                  necessary) other provisions thereof, shall be reformed by a
                  court of competent jurisdiction so as to effect, insofar as is
                  practicable, the intention of the parties as set forth in this
                  Agreement, provided that if such court is unable or unwilling
                  to affect such reformation, the invalid or unenforceable
                  provision shall be deemed deleted to the same extent as if it
                  had never existed.

         18.12    In the event any of the conditions specified in Clause 6 or
                  Clause 7 of this Agreement shall not be fulfilled on or before
                  the Closing Date, then Bioglan, with respect to the conditions
                  in Clause 6, or Medicis, with respect to the conditions in
                  Clause 7, shall have the right either to proceed or, upon
                  prompt written notice to
   17
                  the other, terminate and rescind this Agreement without
                  liability to any party. In no circumstances, however, shall
                  Bioglan be entitled to recover the $500,000 US paid under
                  subclause 4.1.1 hereof. The election to proceed shall not
                  affect the right of such electing party to require the other
                  party to use commercially reasonable efforts to fulfill such
                  conditions.

         18.13    This Agreement shall be governed by the substantive laws of
                  the State of Arizona, United States of America (without regard
                  to principles of conflict of laws) as to all matters,
                  including but not limited to matters of validity,
                  construction, effect, performance and remedies.

         18.14    Bioglan consents and submits to the personal jurisdiction of
                  the state and federal courts in Arizona.

         18.15    This Agreement may be executed in two or more counterparts,
                  each of which shall be deemed an original, but all of which
                  together shall constitute one and the same instrument.

19.      ARBITRATION

         19.1     The parties shall promptly submit to arbitration any dispute
                  which may arise in connection with this Agreement that is not
                  promptly resolved by them, except that each party may seek
                  injunctive relief for breaches of this Agreement if either
                  party makes a good faith determination that a breach of the
                  terms of this Agreement by the other party will result in
                  irreparable harm and that injunctive relief is the only
                  adequate remedy.

         19.2     The American Arbitration Association shall have jurisdiction
                  over the arbitration, which shall be conducted in accordance
                  with the Commercial Arbitration Rules of such Association,
                  except as modified by agreement of the parties.

         19.3     In the event a dispute is to be submitted to arbitration
                  pursuant to this Article X, the parties agree that the dispute
                  shall be resolved by a private arbitration conducted by one
                  arbitrator. Within ten (10) days after the submission of such
                  dispute to arbitration, the parties shall agree upon one
                  arbitrator, selected from a panel of five individuals, none of
                  whom is an officer, director or employee of a party or an
                  affiliate of such party, or a person who has a direct or
                  indirect personal or financial interest in the outcome of the
                  arbitration, designated by the American Arbitration Associated
                  from its permanent panel of commercial arbitrators. The
                  parties shall select the arbitrator by alternately striking
                  names of the individuals so designated until only one name
                  remains. A coin toss will determine which party is to strike
                  the first name.

         19.4     The arbitrator shall set a hearing date for an arbitration
                  (the "Hearing") within ninety (90) days from the date the
                  arbitrator is selected, unless otherwise agreed by the
                  parties. At least fifteen (15) days before the Hearing, each
                  party shall submit to the arbitrator a list of all witnesses
                  and exhibits, which it intends to present at the Hearing. No
                  later than ten (10) days before the Hearing, each party shall
                  provide to the arbitrator a short (not to exceed five
                  single-spaced pages or such other page limit as the arbitrator
                  permits) statement of its position with regard to the dispute.
                  Notwithstanding the Commercial
   18
                  Arbitration Rules, each party shall have the right to conduct
                  up to a total of two depositions. At the Hearing, each party
                  shall, unless it waives the opportunity, make an oral opening
                  statement and an oral closing statement. The arbitrator shall
                  not be strictly bound by rules of procedure or rules of
                  evidence, but shall use the Federal Rules of Evidence as a
                  guideline in conducting the Hearing. When testimony is
                  complete and each party has introduced its exhibits pursuant
                  to the provisions of this Agreement, and each party has made a
                  closing statement pursuant to the provisions of this Agreement
                  or waived the opportunity to do so, the arbitrator shall
                  declare the Hearing closed; provided that the parties may
                  submit post-hearing briefs pursuant to an agreed upon schedule
                  or a schedule formulated by the arbitrator. The Hearing shall
                  be conducted in private. Attendance at the Hearing shall be
                  limited to the following: (i) the arbitrator; (ii)
                  representatives of each party; (iii) each party's attorneys
                  and attorney's assistants or advisors, if any, including
                  expert witnesses if any; (iv) a court reporter if requested by
                  either party; and (v) any witnesses. The arbitrator may
                  sequester witnesses upon the motion of a party. Within thirty
                  (30) days of the close of the Hearing or submission of the
                  post-hearing briefs, the arbitrator shall issue a written
                  opinion and an award (the "Award") based on evidence,
                  arguments and post-hearing briefs, if any. The Award shall be
                  a decision of the arbitrator, shall resolve the parties'
                  dispute and shall be final and binding on the parties. Except
                  as otherwise provided in this Agreement, there shall be no ex
                  parte communication regarding the subject matter of the
                  Hearing, in which event the arbitrator will render and deliver
                  to the parties a written opinion and Award within thirty (30)
                  days of being notified that the parties waive the Hearing.
                  Notwithstanding any other provision of this Agreement, the
                  arbitrator shall have no power to delete from, add to or
                  modify the terms of this Agreement, and may not award any
                  remedy which effectively conflicts directly or indirectly with
                  any provision of this Agreement.

         19.5     In any arbitration, all of the reasonable costs and expenses
                  of the Successful Party (including reasonable attorney's fees
                  and expenses), all fees and expenses of experts retained by
                  the Successful party and all costs of the arbitrator shall be
                  borne the Losing Party in such arbitration. The "Losing Party"
                  and the "Successful party" shall be determined by the
                  arbitrator based on the relative success or failure of each
                  party to such arbitration.



IN WITNESS WHEREOF, the parties hereto have executed this Agreement for Purchase
and Sale of Assets as of the date first set forth above.

MEDICIS PHARMACEUTICAL CORPORATION

by:  /s/ Mark A. Prygocki, Sr.
     ---------------------------------------
its: Chief Financial Officer
     ---------------------------------------


BIOGLAN PHARMA PLC
   19
by:  /s/ Terry I. Sadler
     ---------------------------------------
its: Chairman and Chief Executive Officer
     ---------------------------------------
   20
                                  SCHEDULE "1"

                                    PRODUCTS

                        1.      BENZASHAVE shaving cream

                        2.      THERAMYCIN Z  skin lotion

                        3.      PRAMEGEL topical medication

                        4.      A-FIRM vitamin-A cream

                        5.      A-FIL sunburn protection

                        6.      BETALIFTX skin peel preparation

                        7.      METED hair shampoo

                        8.      TEXACORT dermatosis preparation

                        9.      PACKER'S pine tar soap

                        A total of nine (9) products.
   21
                                  SCHEDULE "2"

                                    KNOW-HOW



                                [TO BE SUPPLIED]
   22
                                  SCHEDULE "3"




                 -----------------------------------------------------------------------------------------------------
                      NO.        TRADEMARK                      REG. NO. & DATE                GOODS
                 -----------------------------------------------------------------------------------------------------
                                                                                
                       1         BENZASHAVE                        1,612,636             brushless, medicated
                                                                                         shaving cream
                                                                   9/11/1990
                 -----------------------------------------------------------------------------------------------------
                       2         THERAMYCIN Z                      2,129,191             dermatologic products,
                                                                                         namely, therapeutic skin
                                                                   1/13/1998             lotion
                 -----------------------------------------------------------------------------------------------------
                       3         PRAMEGEL                          1,391,339             anti-pruritic topical
                                                                                         medication
                                                                   4/29/1986
                 -----------------------------------------------------------------------------------------------------
                       4         AFIRM                             2,197,069             dermatological preparation,
                                                                                         namely, a vitamin-A cream
                                                                   10/20/1998
                 -----------------------------------------------------------------------------------------------------
                       5         A-FIL (Stylized)                  532,880               vanishing cream type
                                                                                         preparation for use as a
                                                                   10/31/1950            protection against sunburn
                 -----------------------------------------------------------------------------------------------------
                       6         BETA-LIFTX                        2,137,236             pharmaceutical preparation,
                                                                                         namely, a chemical skin
                                 B-LIFTX Design                    2,125,549             peel preparation
                 -----------------------------------------------------------------------------------------------------
                       7         METED                             1,419,732             medicated hair shampoo

                                                                   12/9/1986
                 -----------------------------------------------------------------------------------------------------
                       8         TEXACORT                          1,304,643             preparations for the
                                                                                         treatment of dermatosis
                                                                   11/13/1984
                 -----------------------------------------------------------------------------------------------------
                       9         PACKER'S PINE TAR SOAP &          407,047               soap
                                 Design
                                                                   910,485               hair shampooing preparation
                                 PACKER'S & Design
                 -----------------------------------------------------------------------------------------------------


   23
                                  SCHEDULE "A"




                 -------------------------------------------------------------------------------------------------------
                     TRADEMARK                                REG. NO. & DATE          GOODS
                 -------------------------------------------------------------------------------------------------------
                                                                                 
                     BENZASHAVE                               1,612,636                brushless, medicated shaving
                                                              9/11/1990                cream
                 -------------------------------------------------------------------------------------------------------
                     THERAMYCIN Z                             2,129,191                dermatologic products,
                                                              1/13/1998                namely, therapeutic skin
                                                                                       lotion
                 -------------------------------------------------------------------------------------------------------
                     PRAMEGEL                                 1,391,339                anti-pruritic topical
                                                              4/29/1986                medication
                 -------------------------------------------------------------------------------------------------------
                     AFIRM                                    2,197,069                dermatological preparation,
                                                              10/20/1998               namely, a vitamin-A cream
                 -------------------------------------------------------------------------------------------------------
                     A-FIL (Stylized)                         532,880                  vanishing cream type
                                                              10/31/1950               preparation for use as a
                                                                                       protection against sunburn
                 -------------------------------------------------------------------------------------------------------
                     BETA-LIFTX                               2,137,236                pharmaceutical preparation,
                                                              2/17/1998                namely, a chemical skin peel
                                                                                       preparation
                 -------------------------------------------------------------------------------------------------------
                     B-LIFTX Design                           2,125,549                pharmaceutical preparation,
                                                              12/30/1997               namely, a chemical skin peel
                                                                                       preparation
                 -------------------------------------------------------------------------------------------------------
                     METED                                    1,419,732                medicated hair shampoo
                                                              12/9/1986
                  -------------------------------------------------------------------------------------------------------
                     TEXACORT                                 1,304,643                preparations for the
                                                              11/13/1984               treatment of dermatosis
                  -------------------------------------------------------------------------------------------------------
                     PACKER'S PINE TAR SOAP & Design          407,047                  soap
                                                              5/16/1944
                  -------------------------------------------------------------------------------------------------------
                     PACKER'S & Design                        910,485                  hair shampooing preparation
                                                              3/23/1971
                  -------------------------------------------------------------------------------------------------------

   24
                          TRANSITION SERVICES AGREEMENT



















                                   EXHIBIT "C"

EX-10.94

   1

                                                                   EXHIBIT 10.94


                            STOCK PURCHASE AGREEMENT

                          EFFECTIVE AS OF APRIL 1, 1999

                                  BY AND AMONG

                       MEDICIS PHARMACEUTICAL CORPORATION
                                    AS BUYER

                              UCYCLYD PHARMA, INC.
                                 AS THE COMPANY

                                       AND

                                 SYED E. ABIDI,

                                WILLIAM BRUSILOW,

                               SUSAN E. BRUSILOW,
                                       AND
                                NORBERT L. WIECH
                                   AS SELLERS
   2
                                TABLE OF CONTENTS
                                                                            PAGE

ARTICLE I     DEFINITIONS.................................................     1
ARTICLE II    SALE AND TRANSFER OF SHARES; CLOSING........................     7
     2.1.     Shares......................................................     7
     2.2.     Purchase Price..............................................     7
     2.3.     Closing.....................................................     8
     2.4.     Closing Obligations.........................................     9
ARTICLE III   REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............     9
     3.1.     Organization and Good Standing..............................     9
     3.2.     Authority; No Conflict......................................    10
     3.3.     Capitalization..............................................    10
     3.4.     Financial Statements........................................    11
     3.5.     Compliance with Legal Requirements; Food and
                Drug Administration.......................................    11
     3.6.     Books and Records...........................................    14
     3.7.     Title to Properties; Encumbrances...........................    14
     3.8.     Condition and Sufficiency of Assets.........................    14
     3.9.     Accounts Receivable.........................................    14
     3.10.    Inventory...................................................    14
     3.11.    No Undisclosed Liabilities..................................    15
     3.12.    Taxes.......................................................    15
     3.13.    No Material Adverse Change..................................    16
     3.14.    Employee Benefits...........................................    17
     3.15.    Compliance with Legal Requirements; Governmental
                Authorizations............................................    18
     3.16.    Legal Proceedings; Orders...................................    19
     3.17.    Absence of Certain Changes and Events.......................    20
     3.18.    Contracts; No Defaults......................................    21
     3.19.    Insurance...................................................    22
     3.20.    Environmental Matters.......................................    24
     3.21.    Employees...................................................    24
     3.22.    Labor Relations; Compliance.................................    25
     3.23.    Intellectual Property.......................................    25
     3.24.    Certain Payments............................................    26
     3.25.    Disclosure..................................................    26
     3.26.    Brokers or Finders..........................................    26
ARTICLE IV    REPRESENTATIONS AND WARRANTIES OF BUYER.....................    26
     4.1.     Organization and Good Standing..............................    27
     4.2.     Authority; No Conflict......................................    27
     4.3.     Investment Intent...........................................    27
     4.4.     Certain Proceedings.........................................    27
     4.5.     Brokers or Finders..........................................    27


                                       i
   3
ARTICLE V     COVENANTS OF BUYER..........................................    28
     5.1.     FDA Drug Filing.............................................    28
     5.2.     Raw Material Supply.........................................    28
     5.3.     Post-Closing Filings........................................    28
ARTICLE VI    INDEMNIFICATION; REMEDIES...................................    29
     6.1.     Survival; Right to Indemnification..........................    29
     6.2.     Indemnification and Payment of Damages by Sellers...........    29
     6.3.     Indemnification and Payment of Damages by Buyer.............    29
     6.4.     Procedures for Indemnification -- Third Party Claims........    30
     6.5.     Procedure for Indemnification -- Other Claims...............    31
     6.6.     Right of Set-Off............................................    31
     6.7.     Limitation..................................................    31
     6.8.     Maximum Liability...........................................    31
ARTICLE VII   GENERAL PROVISIONS..........................................    32
     7.1.     Expenses....................................................    32
     7.2.     Public Announcements........................................    32
     7.3.     Confidentiality.............................................    32
     7.4.     Notices.....................................................    32
     7.5.     Dispute Resolution..........................................    34
     7.6.     Further Assurances..........................................    36
     7.7.     Waiver......................................................    36
     7.8.     Entire Agreement and Modification...........................    36
     7.9.     Assignments, Successors, and No Third-Party Rights..........    37
     7.10.    Severability................................................    37
     7.11.    Article and Section Headings, Construction..................    37
     7.12.    Time of Essence.............................................    37
     7.13.    Governing Law...............................................    37
     7.14.    Counterparts................................................    37


                                       ii
   4
                            STOCK PURCHASE AGREEMENT

         This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made effective as
of April 1, 1999, by and among MEDICIS PHARMACEUTICAL CORPORATION, a Delaware
corporation ("BUYER"), UCYCLYD PHARMA, INC., a Maryland corporation (the
"COMPANY"), and SYED E. ABIDI, an individual resident in Maryland, WILLIAM
BRUSILOW, an individual resident in Michigan, SUSAN E. BRUSILOW, an individual
resident in Maryland, and NORBERT L. WIECH, an individual resident in Maryland,
(Syed E. Abidi, William Brusilow, Susan E. Brusilow, and Norbert L. Wiech,
collectively, "SELLERS").

                                     RECITAL

         Sellers own and desire to sell all of the issued and outstanding shares
of common stock (the "SHARES") of the Company.

         Each of the Sellers owns and desires to sell one hundred (100) shares
of common stock of the Company, which constitute all of the shares of stock of
the Company owned by such Seller and, in the aggregate, constitute all of the
issued and outstanding shares of stock of the Company.

         Buyer desires to purchase the Shares for the consideration and on the
terms set forth in this Agreement.

         The parties, intending to be legally bound, hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

         For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:

         "ACCOUNTS RECEIVABLE"-- as defined in Section 3.9.

         "APPLICABLE CONTRACT"-- any Contract listed or required to be listed in
the Disclosure Letter.

         "AFFILIATE"-- any Person who, at the time such determination is being
made, is Controlling, Controlled by or under common Control with, such Person.
As used in this Agreement, the term "Control," whether used as a noun or verb,
refers to the possession, directly or indirectly, of the power to direct, or
cause the direction of, the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise, and Control will
be presumed to exist, with respect to any Person, where any other Person of
which the securities or other ownership interests representing fifty percent
(50%) or more of the equity or fifty percent (50%) is owned, Controlled or held,
directly or indirectly, by such Person.

         "ARTICLES"-- the articles of incorporation of the Company.
   5
         "BALANCE SHEET"-- as defined in Section 3.4.

         "BREACH"-- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any material breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) has been made in writing to the Company or, to Company's
Knowledge otherwise communicated, to the Company that there has occurred a
material breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision.

         "BUSINESS DAY"-- any day other than a Saturday, Sunday, or public
holiday under the laws of Arizona.

         "BUYER"-- as defined in the first paragraph of this Agreement.

         "BUYER'S CLOSING DOCUMENTS"-- as defined in Section 4.2(a).

         "BY-LAWS"-- the by-laws of the Company.

         "CHANGE OF CONTROL"-- any (a) merger, reorganization, recapitalization,
consolidation, share exchange, business combination, liquidation, dissolution or
other similar transaction involving Buyer pursuant to which Buyer is not the
surviving entity; (b) sale, lease, exchange, transfer or other disposition
(other than to an Affiliate of Buyer) of all or substantially all of the assets
of Buyer, other than inventory disposed of in the ordinary course; or (c) sale,
lease, exchange, transfer or other disposition (other than to an Affiliate of
Buyer) of all or substantially all of the assets of the Company or a controlling
interest in the stock of the Company (other than to an Affiliate of the Buyer).

         "CLOSING"-- as defined in Section 2.3.

         "CLOSING DATE"-- the date and time as of which the Closing actually
takes place.

         "COLLECTIVE BARGAINING AGREEMENT"-- any agreement entered into between
Company and an employee union that regulates the terms of employment.

         "COMPANY"-- as defined in the first paragraph of this Agreement.

         "COMPANY PLAN"-- all Plans of which the Company is or was a Plan
Sponsor, or to which the Company otherwise contributes or has contributed, or in
which the Company otherwise participates or has participated. All references to
Plans are to Company Plans unless the context requires otherwise.

         "COMPANY'S KNOWLEDGE"-- the actual knowledge as of the date that a
specific representation or warranty is made or deemed made, after good faith
inquiry, of any Seller or Key Employee.


                                       2
   6
         "CONSENT"-- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).

         "CONFIDENTIALITY AGREEMENT"-- as defined in Section 2.4(a)(iii).

         "CONTRACT"-- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding (a) under which the Company has or may acquire any rights, (b)
under which the Company has or may become subject to any obligation or
liability, or (c) by which the Company or any of the assets owned or used by it
is or may become bound, in each case to which the Company is a party, or, to
Company's Knowledge, exists.

         "DAMAGES"-- as defined in Section 6.2.

         "DISCLOSURE LETTER"-- the disclosure letter delivered by the Company
and Sellers to Buyer concurrently with the execution and delivery of this
Agreement.

         "DRUG FILING PROCESS"-- as defined in Section 5.1.

         "ENCUMBRANCE"-- any mortgage, charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction or adverse claim of any kind.

         "ENVIRONMENT"-- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.

         "ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"-- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law.

         "ENVIRONMENTAL LAW"-- any Legal Requirement, whether now existing or
subsequently enacted or amended, relating to (a) pollution or protection of the
Environment, including natural resources, (b) exposure of Persons, including but
not limited to employees, to Hazardous Materials, (c) protection of the public
health or welfare from the effects of products, by-products, wastes, emissions,
discharges, migration, or releases of Hazardous Materials or (d) regulation of
the manufacture, use or introduction into commerce of Hazardous Materials
including their manufacture, formulation, packaging, labeling, distribution,
generation, transportation, handling, treatment, storage or disposal. Without
limitation, "Environmental Law" shall also include (a) any Government
Authorization issued pursuant to any Environmental Law and the terms and
conditions thereof and (b) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. 9601 et seq., Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976 and Solid
and Hazardous Waste Amendments of 1984, 42 U.S.C. 6901 et seq., Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. 1251
et seq., Clean Air Act of 1966, as amended, 42 U.S.C. 7401 et seq., Toxic
Substances Control Act of 1976, 15 U.S.C. 2601 et seq., Hazardous Materials
Transportation Act, 49 U.S.C. Section 5101, et seq., Occupational Safety and
Health Act of 1970, as


                                       3
   7
amended, 29 U.S.C. 651 et seq., Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. 11001 et seq., Safe Drinking Water Act of 1974, as
amended, 42 U.S.C. 300(f) et seq., and any similar or implementing state law,
and all amendments, rules, regulations and guidance documents promulgated
thereunder.

         "ESCROW AGREEMENT"-- escrow agreement to be entered into by Buyer, the
Sellers and an escrow agent, in the form of Exhibit 6.6, subject only to the
comments, if any, of the escrow agent as to its rights and obligations
thereunder.

         "ERISA"-- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.

         "FDA"-- the United States Food and Drug Administration.

         "FDCA"-- as defined in Section 3.5(b)(ii).

         "FACILITIES"-- any real property or leaseholds currently or formerly
owned or operated by the Company.

         "GAAP"-- generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4 were prepared.

         "GOOD MANUFACTURING PRACTICES"-- manufacturing practices that comply
with the rules established by the FDA (as encompassed in the U.S. Code of
Federal Regulations) governing the manufacturing, processing, packing or holding
of drugs.

         "GOVERNMENTAL AUTHORIZATION"-- any approval, consent, license, permit,
certification, registration or other authorization issued or waiver granted by
or under the authority of any Governmental Body or pursuant to any Legal
Requirement.

         "GOVERNMENTAL BODY"-- any:

                  (a)      nation, state, county, city, town, village, district,
                           or other jurisdiction of any nature;

                  (b)      federal, state, local, municipal, foreign, or other
                           government;

                  (c)      governmental or quasi-governmental authority of any
                           nature (including any governmental agency, branch,
                           department, official, or entity and any court or
                           other tribunal); or

                  (d)      body exercising, or entitled to exercise, any
                           administrative, executive, judicial, legislative,
                           police, regulatory, or taxing authority or power of
                           any nature.

         "HAZARDOUS ACTIVITY"-- the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation,


                                       4
   8
treatment, or use (including any withdrawal or other use of groundwater) of
Hazardous Materials in, on, under, about, or from the Facilities or any part
thereof into the Environment, and any other act, business, operation, or thing
that increases the danger, or risk of danger, or poses an unreasonable risk of
harm to persons or property on or off the Facilities, or that may affect the
value of the Facilities or the Company.

         "HAZARDOUS MATERIALS"-- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor, asbestos or asbestos-containing materials, radon and
urea-formaldehyde.

         "INDEMNIFIED PERSONS"-- as defined in Section 6.2.

         "INTELLECTUAL PROPERTY ASSETS"-- as defined in Section 3.23.

         "INTERIM BALANCE SHEET"-- as defined in Section 3.4.

         "IRC"-- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.

         "IRS"-- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.

         "IV DRUG" -- the intravenous form of sodium benzoate/sodium
phenylacetate sold by the Company which is currently under an Investigational
New Drug Status from the FDA.

         "KEY EMPLOYEE"-- an employee listed in Section 2.4(a)(iii).

         "LEGAL REQUIREMENT"-- any material federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, court order, consent,
decree, regulation, statute, or treaty.

         "MULTI-EMPLOYER PLAN"-- has the meaning given in ERISA Section
3(37)(A).

         "NEW DRUG APPLICATION"-- the application required, by 21 U.S.C. Section
355, to be submitted to the FDA for introduction or delivery of a new drug in
accordance with the procedures set forth in 21 C.F.R. Section 314.50.

         "NONCOMPETITION AGREEMENTS"-- as defined in Section 2.4(a)(ii).

         "NOTES"-- as defined in Section 2.2(a).

         "OCCUPATIONAL SAFETY AND HEALTH LAW"-- any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.


                                       5
   9
         "ORDER"-- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator, in all
cases, having jurisdiction.

         "OTHER BENEFIT OBLIGATIONS"-- all obligations to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations that are Plans. Other
Benefit Obligations include consulting agreements under which the compensation
paid does not depend upon the amount of service rendered, sabbatical policies,
severance payment policies, and fringe benefits within the meaning of IRC
Section 132.

         "PBGC"-- the Pension Benefit Guaranty Corporation, or any successor
thereto.

         "PENSION PLAN"-- has the meaning given in ERISA Section 3(2)(A).

         "PERSON"-- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.

         "PLAN"-- has the meaning given in ERISA Section 3(3).

         "PLAN SPONSOR"-- has the meaning given in ERISA Section 3(16)(B).

         "PROCEEDING"-- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.

         "PROPRIETARY RIGHTS AGREEMENT"-- as defined in Section 3.21.

         "PURCHASE PRICE"-- as defined in Section 2.2.

         "QUALIFIED PLAN"-- any Plan that meets or purports to meet the
requirements of IRC Section 401(a).

         "REPRESENTATIVE"-- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.

         "SALE OF IV DRUG"-- any sale, license, lease, exchange, transfer or
other disposition (other than to an Affiliate of Buyer) of the rights relating
to the IV Drug purchased by Buyer pursuant to this Agreement.

         "SECTION 338(h)(10) ELECTION"-- as defined in Section 3.12(f)(i).

         "SECURITIES ACT"-- the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.

         "SELLERS"-- as defined in the first paragraph of this Agreement.

         "SHARES"-- as defined in the Recitals of this Agreement.


                                       6
   10
         "TAX"-- any tax, deficiency, or other fee, and any related charge or
amount (including any fine, penalty, interest, or addition to tax), imposed,
assessed, or collected by or under the authority of any Governmental Body or
payable pursuant to any tax-sharing agreement or any other Contract relating to
the sharing or payment of any such tax, deficiency, or fee.

         "TAX RETURN"-- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.

         "THREATENED"-- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made in writing or any written notice has been given, or to Company's Knowledge
any demand or statement has otherwise been made or to Company's Knowledge, any
other event has occurred or any other circumstances exist, that would lead a
prudent Person to conclude that such a claim, Proceeding, dispute, action, or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.

         "TITLE IV PLANS"-- all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer Plans.

         "TRANSACTION DOCUMENTS"-- this Agreement and the Noncompetition
Agreements.

         "WELFARE PLAN"-- has the meaning given in ERISA Section 3(1).

                                   ARTICLE II
                      SALE AND TRANSFER OF SHARES; CLOSING

         2.1 SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers. Each of the Sellers owns, and will sell and
transfer to Buyer, and Buyer will purchase, the number of shares of common stock
of the Company as follows:



Name                                                           Number of Shares
- ----                                                           ----------------
                                                            
Syed E. Abidi                                                        100
William Brusilow                                                     100
Susan E. Brusilow                                                    100
Norbert L. Wiech                                                     100


         2.2 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for the
Shares shall be the aggregate amount of Twenty Three Million Five Hundred
Thousand Dollars ($23,500,000) and will be paid as follows:


                                       7
   11
         (a) Thirty Seven Thousand Seven Hundred Fifty Dollars ($37,750) per
Share (an aggregate of Fifteen Million One Hundred Thousand Dollars
($15,100,000)) at the Closing in the form of one or more promissory notes in the
form of Exhibit 2.2(a) (the "NOTES");

         (b) Six Thousand Seven Hundred Fifty Dollars ($6,750) per Share (an
aggregate of Two Million Seven Hundred Thousand Dollars ($2,700,000)) within
fifteen (15) days after the receipt by the Company of regulatory approval of the
IV Drug by the FDA or as otherwise provided in Section 5.1;

         (c) Fourteen Thousand Two Hundred Fifty Dollars ($14,250) per Share (an
aggregate of Five Million Seven Hundred Thousand Dollars ($5,700,000), on the
first anniversary of the Closing Date, provided that the Company has had an
uninterrupted supply of Buphenyl (the "DRUG"). For purposes of this Agreement
the term "uninterrupted supply of the Drug" shall mean that (i) Company has
received not less than 1,100 kilograms of sodium phenylbutyrate in its raw
material form by the one year anniversary of the Closing Date and such raw
materials (or an adequate portion thereof) are produced and supplied in
accordance with all NDA approved specifications in effect on the Closing Date or
(ii) Company is able to maintain in its inventory at all times not less than a
three month useable supply of the Drug based on usage levels as of the Closing
Date.

         (d) A Purchase Price payment contained in this Section 2.2 may be
withheld by Buyer pursuant to the procedures set forth in Section 6.6 and the
Escrow Agreement in the event that any indemnification claim has been made by
Buyer against any Seller or Sellers in accordance with Article VI when such
payment becomes due. Such indemnification claim shall be resolved in accordance
with the dispute resolution procedures set forth in this Agreement.

         (e) Except as provided in Section 2.2(d), in the event Buyer fails to
make the payment due and payable pursuant to Section 2.2(c) within fifteen (15)
days of the due date thereof, all amounts payable pursuant to Section 2.2(b)
shall become immediately due and payable.

         (f) Notwithstanding anything to the contrary contained in this Section
2.2, in the event of a Change of Control, all amounts payable pursuant to
Section 2.2 shall become immediately due and payable.

         (g) Notwithstanding anything to the contrary contained in this Section
2.2, in the event that at any time there is a Sale of the IV Drug or there is a
change in the formulation of the IV Drug that would substantially and adversely
affect the timing of the payments to be made pursuant to Section 2.2(b), all
amounts payable pursuant to Section 2.2(b) shall become immediately due and
payable.

         (h) No portion of the Purchase Price is intended as compensation for
the undertakings of the parties under the Noncompetition Agreements.

         2.3 CLOSING. The purchase and sale (the "CLOSING") provided for in this
Agreement will take place at the offices of Buyer's counsel on Monday, at 10:00
a.m. (local time) on April 12, 1999, or at such other time and place as the
parties may agree.


                                       8
   12
         2.4 CLOSING OBLIGATIONS. At the Closing:

         (a) Sellers will deliver to Buyer:

         (i) certificates representing the Shares, duly endorsed (or accompanied
by duly executed stock powers), for transfer to Buyer;

         (ii) four noncompetition agreements in the form of Exhibit 2.4(a)(ii),
one executed by each of the Sellers (collectively, the "NONCOMPETITION
AGREEMENTS"); and

         (iii) two confidentiality agreements, including terms of continued
employment with the Company following the Closing, in the form of Exhibit
2.4(a)(iii), one executed by each Key Employee, namely Chris Wiech and Maureen
Varnes (collectively, the "CONFIDENTIALITY AGREEMENTS").

         (b) Buyer will deliver to Sellers:

         (i) a Note in the following principal amounts payable to the order of
each of the Sellers, respectively, as follows:

                        $3,775,000 to Syed E. Abidi;

                        $3,775,000 to William Brusilow;

                        $3,775,000 to Susan E. Brusilow; and

                        $3,775,000 to Norbert L. Wiech; and

         (ii) the Noncompetition Agreements and the Confidentiality Agreements.

                                   ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company represents and warrants to Buyer as follows which
representations and warranties shall be deemed to be made as of and speak as of
the Closing Date:

         3.1 ORGANIZATION AND GOOD STANDING.

         (a) Part 3.1 of the Disclosure Letter contains a complete and accurate
list for the Company of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each stockholder and the number of shares held by
each). The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under the Applicable Contracts. The
Company is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the


                                       9
   13
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.

         (b) Buyer has been provided copies of the Articles, the By-laws, and
certificates evidencing qualification to do business in the jurisdictions set
forth in Part 3.1 of the Disclosure Letter, as currently in effect.

         3.2 AUTHORITY; NO CONFLICT.

         (a) This Agreement constitutes the legal, valid, and binding obligation
of the Company and Sellers, enforceable against the Company and Sellers in
accordance with its terms. Upon the execution and delivery of the Transaction
Documents, the Transaction Documents will constitute the legal, valid, and
binding obligations of the Company and Sellers, respectively, enforceable
against such parties in accordance with their respective terms.

         (b) Except as set forth in Part 3.2 of the Disclosure Letter, neither
the execution and delivery of this Agreement nor the consummation or performance
of any of the transactions contemplated by the Transaction Documents will (with
or without notice or lapse of time):

                  (i) conflict with or result in a violation of (A) any
         provision of the Articles or By-laws of the Company, or (B) any
         resolution adopted by the board of directors or the stockholders of the
         Company;

                  (ii) to Company's Knowledge, conflict with or result in a
         violation of, any Legal Requirement or any Order to which the Company
         or any Seller, or any of the assets owned or used by the Company, or
         the Shares may be subject;

                  (iii) conflict with, or result in a violation of any of the
         terms or requirements of, any Governmental Authorization that is held
         by the Company or that otherwise relates to the business of, or any of
         the assets owned or used by, the Company;

                  (iv) result in a violation or breach of any provision of, or
         to Company's Knowledge give any Person the right to declare a default
         or exercise any remedy under, or to accelerate the maturity or
         performance of, or to cancel, terminate, or modify, any Applicable
         Contract; or

                  (v) result in the creation of any Encumbrance upon or with
         respect to any of the assets owned or used by the Company.

         (c) Except as set forth in Part 3.2 of the Disclosure Letter, the
Sellers and the Company will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the transactions
contemplated by the Transaction Documents.

         3.3 CAPITALIZATION. The authorized equity securities of the Company
consist of five thousand (5,000) shares of common stock, with no par value per
share, of which four hundred (400) shares are issued and outstanding and
constitute the Shares. Sellers are and will


                                       10
   14
be on the Closing Date the record and beneficial owners and holders of the
Shares free and clear of all Encumbrances as follows:




Name                                                             Number of Shares
- ----                                                             ----------------
                                                              
Syed E. Abidi                                                          100
William Brusilow                                                       100
Susan E. Brusilow                                                      100
Norbert L. Wiech                                                       100


No legend or other reference to any purported Encumbrance appears on any
certificate representing equity securities of the Company. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company were issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own, and does not have any
Contract to acquire any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business.

         3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) balance
sheets of the Company as at December 31 in each of the years 1996 and 1997 and
the related statements of income and cash flow for each of the fiscal years then
ended, and (b) a balance sheet of the Company as at December 31, 1998 (including
the notes thereto, the "BALANCE SHEET"), and the related statements of income
and cash flow for the fiscal year then ended, together with the compilation
report thereon of Glass, Jacobson & Associates, PA, independent Certified Public
Accountants, including in each case the notes thereto and (c) a balance sheet of
the Company as of March 31, 1999 (the "INTERIM BALANCE SHEET"). Subject to the
limitations expressed in the accompanying reports of such accountants and, with
regard to the Interim Balance Sheet subject to normal year-end adjustments, such
financial statements and notes fairly present in all material respects the
financial condition and the results of operations and cash flow of the Company
as at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP; the financial statements referred to in
this Section 3.4 reflect the consistent application of such accounting
principles throughout the periods. No financial statements of any Person other
than the Company are required by GAAP to be included in the financial statements
of the Company.

         3.5 COMPLIANCE WITH LEGAL REQUIREMENTS; FOOD AND DRUG ADMINISTRATION.

         (a) Part 3.5 of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by the Company or that
otherwise relates to the business of, or to any of the assets owned or used by,
the Company. Each Governmental Authorization listed or required to be listed in
Part 3.5 of the Disclosure Letter is valid and in full force and effect.


                                       11
   15
         (b) Except as set forth in Part 3.5 of the Disclosure Letter:

         (i) the Company has obtained all Governmental Authorizations required
by the FDA to permit the Company to lawfully manufacture, market and export
products in the manner that it currently conducts and operates its business
operations and to permit the Company to own and use its assets in the manner in
which it currently owns and uses such assets. These include:

                  (A)      approval by the FDA of a New Drug Application for
                           Buphenyl (sodium phenylbutyrate) in tablet dosage
                           form (NDA 20-572) dated May 13, 1996;

                  (B)      approval by the FDA of a New Drug Application for
                           Buphenyl (sodium phenylbutyrate) in powder dosage
                           form (NDA 20-573) dated April 30, 1996;

                  (C)      a grant of orphan drug status to sodium
                           phenylbutyrate in powder and tablet dosage form,
                           number 93-778 dated 11/22/93; and

                  (D)      the Company's acknowledgement of transfer of
                           responsibility dated January 25, 1996 relating to the
                           investigational new drug application (IND) for the
                           intravenous administration of sodium benzoate/sodium
                           phenylacetate, IND 17-123, and certain supplements
                           thereto.

         (ii) the Company is, and at all times since April 30, 1996 has been, in
compliance in all material respects with each Legal Requirement of the Federal
Food, Drug, and Cosmetic Act, 21 U.S.C. Section 201 et seq., ("FDCA") and the
regulations of the FDA, for holders of New Drug Applications that is, or was,
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets. These include, but are not limited to, the
following:

                  (A)      all product-specific, post-approval study
                           requirements known as the "Phase IV Commitments" for
                           the New Drug Application approvals of Buphenyl have
                           been met, discharged, or otherwise lifted by FDA;

                  (B)      the Company and to the Company's Knowledge, its
                           contract manufacturers have complied in all material
                           respects with all requirements regarding registration
                           as drug manufacturing establishments. All documents
                           necessary to update or renew such registration by the
                           Company have been filed with the FDA;

                  (C)      the Company and to the Company's Knowledge, its
                           contract manufacturers have complied in all material
                           respects with all requirements regarding listing of
                           all drug products that it manufactures, sells or
                           distributes, including process validations.


                                       12
   16
                           All documents necessary to update or renew such
                           listing by the Company have been filed with the FDA;

                  (D)      the Company and to the Company's Knowledge, its
                           contract manufacturers have complied in all material
                           respects with all requirements regarding the labeling
                           and distribution of its products, including but not
                           limited to submission of sample labels and
                           promotional materials to the FDA for review, and
                           revision of labeling at the direction of the FDA;

                  (E)      the Company and its contract manufacturers are in
                           compliance in all material respects with all FDA
                           requirements for current Good Manufacturing
                           Practices. Production and distribution can continue
                           without interruption upon Closing; and

                  (F)      the Company has been inspected by the FDA. No
                           outstanding matters remain to be corrected from the
                           most recent FDA inspection of the Company.

            (iii) no event has occurred or circumstance exists that (with or
        without notice or lapse of time) (A) may constitute or result in a
        violation of, or a failure to comply with, any Legal Requirement of the
        FDCA, regulations of the FDA, by the Company, or to the Company's
        Knowledge its contract manufacturers or their successors, (B) may give
        rise to any obligation on the part of the Company, or to the Company's
        Knowledge its contract manufacturers or their successors to undertake,
        or to bear all or any portion of the cost of, any remedial action of any
        nature or (C) may result directly or indirectly in the revocation,
        withdrawal, suspension, compliance action, cancellation, or termination
        of, or any modification to, any FDA or other Governmental Authorization
        listed or required to be listed in this part or in Part 3.15 of the
        Disclosure Letter;

            (iv) the Company and to Company's Knowledge, its contract
        manufacturers, have not received any notice or other communication
        (whether oral or written) from FDA or any Governmental Body or any other
        Person regarding any actual, proposed, possible, or potential
        revocation, withdrawal, suspension, compliance action, cancellation,
        termination of, or modification to any Governmental Authorization;

            (v) the Company and the Sellers will cooperate in any necessary
        notification to the FDA of any change in ownership resulting from the
        execution and consummation of this Agreement; and

            (vi) to the Company's Knowledge, there is no reason why the
        Governmental Authorizations it has obtained from FDA will not be
        reissued or transferred in the ordinary course if required as a result
        of the execution and consummation of this Agreement.

         (c) Notwithstanding anything to the contrary contained in this
Agreement, no representations or warranties whatsoever are made regarding the
Drug Filing Process and the Company's rights in and to the Drug Filing Process,
and the status thereof shall be deemed


                                       13
   17
received on an "AS IS, WHERE IS" basis; provided, however, that nothing in this
Section 3.5(c) shall be interpreted to limit the representations and warranties
regarding the IV Drug contained in this Agreement other than as set forth in
this Section 3.5(c).

         3.6 BOOKS AND RECORDS. The shareholder and board of director minutes
and stock records which have been made available to Buyer, have been maintained
by the Company in accordance with sound business practices and are complete and
correct. At the Closing, all of those minutes and records will be in the
possession of the Company.

         3.7 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.7 of the Disclosure
Letter contains a complete and accurate list of all real property, leaseholds,
or other interests therein owned by the Company. The Company owns all the assets
(whether real, personal, or mixed and whether tangible or intangible) that it
purports to own, located in the facilities owned or operated by the Company or
reflected as owned in the books and records of the Company, including all of the
properties and assets reflected in the Balance Sheet and the Interim Balance
Sheet (except for assets held under capitalized leases disclosed or not required
to be disclosed in Part 3.7 of the Disclosure Letter and personal property sold
since the date of the Balance Sheet and the Interim Balance Sheet, as the case
may be, in the ordinary course of business), and all of the assets purchased or
otherwise acquired by the Company since the date of the Balance Sheet (except
for personal property acquired and sold since the date of the Balance Sheet in
the ordinary course of business and consistent with past practice), which
subsequently purchased or acquired assets (other than inventory and short-term
investments) are listed in Part 3.7 of the Disclosure Letter. All material
assets reflected in the Balance Sheet and Interim Balance Sheet are free and
clear of all Encumbrances.

         3.8 CONDITION AND SUFFICIENCY OF ASSETS. The equipment of the Company
is structurally sound, is in good operating condition and repair, and is
adequate for the uses to which it is being put.

         3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company that
are reflected on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (collectively, the
"ACCOUNTS RECEIVABLE") represent or will represent valid obligations arising
from sales actually made or services actually performed in the ordinary course
of business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of a two percent
(2%) reserve (which reserve is adequate) and prompt payment discounts reflected
on Schedule 3.9. Subject to such reserves, each of the Accounts Receivable
either has been or will be collected in full, without any set-off, within one
hundred twenty (120) days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than returns in
the ordinary course of business, under any Contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Part 3.9 of the Disclosure Letter contains a complete and accurate
list of all Accounts Receivable as of the date of the Interim Balance Sheet,
which list sets forth the aging of such Accounts Receivable.

         3.10 INVENTORY. All inventory of the Company is usable and salable in
the ordinary course of business, except for advance orders of inventory that
have been disclosed to the Buyer and obsolete items and items of below-standard
quality, all of which have been written


                                       14
   18
off or written down to net realizable value in the Balance Sheet or the Interim
Balance Sheet or on the accounting records of the Company as of the Closing
Date, as the case may be. All inventories not written off have been priced at
the lower of cost or market on a first in, first out basis.

         3.11 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.11 of
the Disclosure Letter, the Company has no liabilities or obligations of any
nature except for liabilities or obligations reflected or reserved against in
the Balance Sheet and current liabilities incurred in the ordinary course of
business since the respective dates thereof.

         3.12 TAXES.

         (a) The Company has filed or caused to be filed all Tax Returns that
are or were required to be filed on or before the Closing Date by or with
respect to it pursuant to applicable Legal Requirements, including any Tax
Return of any consolidated, unitary or combined group of which the Company is or
was a member. Sellers have delivered to Buyer copies of, and Part 3.12 of the
Disclosure Letter contains a complete and accurate list of, all such Tax Returns
filed since 1995. The Company has paid, or made provision for the payment of,
all Taxes that have or may have become due on or before the Closing Date
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Sellers or the Company, except such Taxes, if any, as are listed in
Part 3.12 of the Disclosure Letter and are being contested in good faith and as
to which adequate reserves (determined in accordance with GAAP) have been
provided in the Balance Sheet and the Interim Balance Sheet.

         (b) The United States federal and state income Tax Returns of the
Company subject to such Taxes have not been audited by the IRS or relevant state
tax authorities, including any Tax Return of any consolidated, unitary or
combined group of which the Company is or was a member. Except as described in
Part 3.12 of the Disclosure Letter, the Sellers or Company have not given or
been requested to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of the Company or for which the Company may be
liable. No audit or other proceeding by any Governmental Body is pending or
threatened with respect to any Taxes due from or with respect to the Company or
any Tax Return filed by or with respect to the Company.

         (c) The charges, accruals, and reserves with respect to Taxes on the
respective books of the Company are adequate (determined in accordance with GAAP
and the IRC) and are at least equal to the Company's liability for Taxes imposed
with respect to periods ending on or before the Closing Date, including any
liability for Taxes of any consolidated, unitary or combined group of which the
Company is or was a member and for which the Company could be held liable. There
exists no proposed tax assessment against the Company except as disclosed in the
Balance Sheet or in Part 3.12 of the Disclosure Letter. No consent to the
application of Section 341(f)(2) of the IRC has been filed with respect to any
property or assets held, acquired, or to be acquired by the Company. All Taxes
that the Company is or was required by Legal Requirements to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the proper Governmental Body or other Person. The Company is not currently
subject to an agreement or requirement to make any adjustment pursuant to
Section 481 of the IRC by reason of any change in any accounting method of the
Company and there is no


                                       15
   19
application pending with any Governmental Body requesting permission for any
changes in any accounting period. The Company is not a "foreign person" within
the meaning of Section 1445(b)(12) of the IRC.

        (d) All Tax Returns filed by the Company are true, correct, and
complete. There is no tax sharing agreement that will require any payment by the
Company after the date of this Agreement.

        (e) The Company has duly and validly filed an election for Subchapter S
corporation status under the IRC and such Subchapter S election has not been
revoked or terminated, and, except for the execution of this Agreement, neither
the Company nor the Sellers has taken any action which would cause a termination
of such Subchapter S election.

        (f) Tax Election.

        (i) Sellers shall join with the Buyer in making an election under
    Sections 338(g) and 338(h)(10) of the Code (and any corresponding elections
    under state, local or foreign tax law) (collectively a "SECTION 338(h)(10)
    ELECTION") with respect to the purchase and sale of the Shares. Sellers and
    Buyer also agree to make the state law equivalent of the Section 338(h)(10)
    Election wherever such election is available. Buyer shall prepare Forms 8023
    and submit them to Sellers for signing. Buyer and Sellers shall fully
    cooperate in making the Section 338(h)(10) Election and similar available
    elections pursuant to applicable state and local laws. The parties agree to
    allocate the deemed purchase price of the assets of the Company pursuant to
    the procedures in Section 3.12(f)(ii) below. Sellers will pay any Tax
    attributable to the making of the Section 338(h)(10) Election and, without
    duplication, indemnify the Buyer against any financial obligations arising
    out of any failure to pay such Tax. Sellers will also pay any state, local,
    or foreign Tax and, without duplication, indemnify Buyer against any
    financial obligations arising out of any failure to pay such Tax
    attributable to an election under state, local, or foreign law similar to
    the Section 338(h)(10) Election (or which results from the making of a
    Section 338(h)(10) Election) with respect to the purchase and sale of the
    Shares hereunder where the state, local, or foreign tax jurisdiction (A)
    does not provide or recognize a Section 338(h)(10) Election or (B) does not
    apply its provisions corresponding to Section 338(h)(10) of the Code to the
    purchase and sale of the Shares.

        (ii) The Purchase Price, as adjusted, the liabilities of the Company,
    and any additional contingent consideration paid pursuant to this Agreement,
    shall be allocated among the assets of the Company as provided in Section
    338 of the Code and the Treasury Regulations thereunder. Such allocations
    shall be as agreed upon by Buyer and Sellers. Upon agreement as to the final
    allocation, Buyer and Sellers shall not take any position on their
    respective Tax Returns that is inconsistent with such allocation of the
    Purchase Price, and Buyer and Sellers shall duly prepare and timely file
    such reports and information returns as may be required to report the
    allocation of the Purchase Price pursuant to this Section 3.12(f).

        3.13 NO MATERIAL ADVERSE CHANGE. Except as contained in Part 3.13 of the
Disclosure Letter, since the date of the Balance Sheet, there has not been any
material adverse


                                       16
   20
change in the business, operations, properties, assets, or financial condition
of the Company, other than changes that have occurred in the ordinary course
substantially consistent with past practice, and to the Company's Knowledge no
event has occurred or circumstance exists that may result in such a material
adverse change.

        3.14 EMPLOYEE BENEFITS.

        (a) Part 3.14 of the Disclosure Letter contains a complete and accurate
list of all Company Plans and Company Other Benefit Obligations, and identifies
as such all Company Plans that are defined benefit Pension Plans.

        (i) There is not now nor has there ever been a Company Plan which is a
    Title IV Plan or Multi-Employer Plan or which is otherwise subject to the
    minimum funding requirements imposed under IRC Section 412 and ERISA Section
    302.

        (ii) There is not now nor have there ever been any Collective Bargaining
    Agreements.

        (iii) There is not now nor have there ever been any Company Plans which
    are Qualified Plans or Welfare Plans.

        (b) Sellers have delivered to Buyer:

        (i) all documents and related materials including all governmental
    notices that set forth the terms of each Company Plan or Company Other
    Benefit Obligation and any related trust; custodial account or other funding
    vehicle;

        (ii) all personnel, payroll, and employment manuals and policies
    applicable to employees of the Company;

        (iii) all insurance policies purchased by or to provide benefits under
    any Company Plan;

        (iv) all contracts with third party administrators, actuaries,
    investment managers, consultants, and other independent contractors that
    relate to any Company Plan or Company Other Benefit Obligation; and

        (v) a reasonably representative sample of notifications to employees of
    the Company of their rights under ERISA Section 601 et seq. and IRC Section
    4980B.

        (c) Except as set forth in Part 3.14 of the Disclosure Letter:

        (i) The Company is in compliance in all material respects with ERISA.

        (ii) Other than claims for benefits submitted by participants or
    beneficiaries in the ordinary course of business, no claim against, or legal
    proceeding involving, any Company Plan or Company Other Benefit Obligation
    is pending or, to the Company's Knowledge, is Threatened.


                                       17
   21
        (iii) No payment that is owed or may become due to any director,
    officer, employee, or agent of the Company will be non-deductible to the
    Company or subject to tax under IRC Section 280G or Section 4999; nor will
    the Company be required to "gross up" or otherwise compensate any such
    person because of the imposition of any excise tax on a payment to such
    person.

        (iv) The consummation of the transactions contemplated by the
    Transaction Documents will not result in the payment, vesting, or
    acceleration of any benefit.

        3.15 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.

        (a) Except as set forth in Part 3.5 and Part 3.15 of the Disclosure
Letter and except for Legal Requirements of the FDA and the FDCA:

        (i) The Company is, and at all times since November, 1994 has been, in
    compliance in all material respects with each Legal Requirement that is or
    was applicable to it or to the conduct or operation of its business or the
    ownership or use of any of its assets;

        (ii) To the Company's Knowledge, no event has occurred or circumstance
    exists that (A) may constitute or result in a violation by the Company of,
    or a failure on the part of the Company to comply with, any Legal
    Requirement, (B) may give rise to any obligation on the part of the Company
    to undertake, or to bear all or any portion of the cost of, any remedial
    action of any material nature or (C) may result in the imposition of a
    material lien against the Company or any of its property under any Legal
    Requirement; and

        (iii) The Company has not received, at any time since November 1994, any
    written notice or, to Company's Knowledge, any other communication, from any
    Governmental Body or any other Person regarding (A) any actual, alleged,
    possible, or potential violation of, or failure to comply with, any Legal
    Requirement, or (B) any actual, alleged, possible, or potential obligation
    on the part of the Company to undertake, or to bear all or any portion of
    the cost of, any remedial action of any material nature.

        (b) Part 3.5 and Part 3.15 of the Disclosure Letter contain a complete
and accurate list of each material Governmental Authorization that is held by
the Company or that otherwise relates to the business of, or to any of the
assets owned or used by, the Company. Each material Governmental Authorization
listed or required to be listed in Part 3.5 and Part 3.15 of the Disclosure
Letter is valid and in full force and effect. Except as set forth in Part 3.5
and Part 3.15 of the Disclosure Letter:

        (i) The Company is, and at all times since November 1994 has been, in
    compliance in all material respects with all of the terms and requirements
    of each Governmental Authorization identified or required to be identified
    in Part 3.5 and Part 3.15 of the Disclosure Letter.

        (ii) To the Company's Knowledge, no event has occurred or circumstance
    exists that may (A) constitute or result directly or indirectly in a
    violation of or a failure


                                     18
   22
    to comply with any term or requirement of any Governmental Authorization
    listed or required to be listed in Part 3.5 and Part 3.15 of the Disclosure
    Letter, or (B) result directly or indirectly in the revocation, withdrawal,
    suspension, cancellation, or termination of, or any modification to, any
    Governmental Authorization listed or required to be listed in Part 3.5 and
    Part 3.15 of the Disclosure Letter.

        (iii) The Company has not received, at any time since November, 1994,
    any written notice or, to Company's Knowledge, any other communication, from
    any Governmental Body or any other Person regarding (A) any actual, alleged,
    possible, or potential violation of or failure to comply with any term or
    requirement of any Governmental Authorization, or (B) any actual, proposed,
    possible, or potential revocation, withdrawal, suspension, cancellation,
    termination of, or modification to any Governmental Authorization.

        (iv) All applications required to have been filed for the renewal of the
    Governmental Authorizations listed or required to be listed in Part 3.5 and
    Part 3.15 of the Disclosure Letter have been duly filed, and all other
    filings required to have been made with respect to such Governmental
    Authorizations have been duly made.

The Governmental Authorizations listed in Part 3.5 and Part 3.15 of the
Disclosure Letter collectively constitute all of the Governmental Authorizations
necessary to permit the Company to lawfully conduct and operate its businesses
in the manner it currently conducts and operates such businesses and to permit
the Company to own and use its assets in the manner in which it currently owns
and uses such assets.

        3.16 LEGAL PROCEEDINGS; ORDERS.

        (a) Except as set forth in Part 3.16 of the Disclosure Letter, there is
no pending Proceeding:

        (i) that has been commenced by or against the Company or that otherwise
    relates to or may affect the business of, or any of the assets owned or used
    by, the Company; or

        (ii) that challenges, or that may have the effect of preventing,
    delaying, making illegal, or otherwise interfering with, any of the
    transactions contemplated by the Transaction Documents.

To the Company's Knowledge, (1) no such Proceeding has been Threatened, and (2)
no event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding. The Proceedings listed in
Part 3.16 of the Disclosure Letter will not have a material adverse effect on
the business, operations, properties, assets or financial condition of the
Company.

        (b) Except as set forth in Part 3.16 of the Disclosure Letter:

        (i) there is no Order to which the Company, or any of the assets owned
    or used by the Company, is subject;


                                       19
   23
                  (ii) no Seller or Key Employee is subject to any Order that
         relates to the business of, or any of the assets owned or used by, the
         Company; and

                  (c) Except as set forth in Part 3.16 of the Disclosure Letter:

                  (i) the Company is, and at all times since November, 1994 has
         been, in compliance in all material respects with all of the terms and
         requirements of each Order to which it, or any of the assets owned or
         used by it, is or has been subject;

                  (ii) no event has occurred or circumstance exists that may
         constitute or result in a violation of or failure to comply with any
         term or requirement of any Order to which the Company, or any of the
         assets owned or used by the Company, is subject; and

                  (iii) the Company has not received, at any time since
         November, 1994, any written notice or, to Company's Knowledge other
         communication, from any Governmental Body or any other Person regarding
         any actual, alleged, possible, or potential violation of, or failure to
         comply with, any term or requirement of any Order to which the Company,
         or any of the assets owned or used by the Company, is or has been
         subject.

                  3.17 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set
forth in Part 3.17 of the Disclosure Letter, since the date of the Balance
Sheet, the Company has conducted its business only in the ordinary course of
business and there has not been any:

                  (a) change with respect to the existing securities and rights
pursuant thereto;

                  (b) amendment to the Articles or By-laws of the Company,
except as set forth in Part 3.17 of the Disclosure Letter;

                  (c) except in the ordinary course of business, payment or
increase by the Company of any bonuses, salaries, or other compensation to any
stockholder, director, officer, or employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;

                  (d) except in the ordinary course of business, adoption of, or
increase in the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any employees of the Company;

                  (e) except in the ordinary course of business and consistent
with the Company's prior practice, any expense, dividend or other expenditure or
transfer of any nature of the Company's cash by or from the Company; provided
that (i) the Company may make distributions to the Sellers for the Company's
profits during the period January 1, 1999 through March 31, 1999 to the extent
that the sum of consolidated cash and 98% of the accounts receivable of the
Company exceeds the sum of consolidated accrued expenses and Medicaid payables
of the Company calculated using the Interim Balance Sheet (the "DISTRIBUTABLE
PROFITS") or (ii) the Company may pay the following expenses from and in
reduction of the Distributable Profits, such payments and expenses not to exceed
$672,000 in the aggregate: cost


                                       20
   24
of product and general liability insurance covering an extended reporting
period, severance pay to Key Employees, and legal and accounting fees and the
Company may distribute any remaining Distributable Profits to the Sellers.
Sellers shall not be entitled to the benefits of and shall not be liable for any
obligations relating to changes in the results of operations or changes in
financial condition of the Company from April 1, 1999 through Closing. Nothing
contained in this Section 3.17(e) shall entitle Sellers to any distributions
relating to any period on or after April 1, 1999;

                  (f) damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Company, taken as a whole;

                  (g) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to the Company of at least Ten Thousand Dollars
($10,000);

                  (h) sale, lease, or other disposition of any asset or property
of the Company (other than sales of inventory in the ordinary course of
business), or mortgage, pledge, or imposition of any lien or other encumbrance
on any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Intellectual Property Assets;

                  (i) cancellation or waiver of any claims or rights with a
value to the Company in excess of One Thousand Dollars ($1,000);

                  (j) material change in the accounting methods used by the
Company; or

                  (k) agreement, whether oral or written, by the Company to do
any of the foregoing.

                  3.18 CONTRACTS; NO DEFAULTS.

                  (a) Part 3.18(a) of the Disclosure Letter contains a complete
and accurate list, and Sellers have delivered to Buyer true and complete copies,
of:

                  (i) each Contract that involves performance of services or
         delivery of goods or materials by the Company of an amount or value in
         excess of Ten Thousand Dollars ($10,000);

                  (ii) each Contract that was out of the ordinary course of
         business and that involves expenditures, receipts or potential
         liability of the Company in excess of One Thousand Dollars ($1,000);

                  (iii) each Contract (including any licensing agreement) to
         which the Company is a party with respect to patents, trademarks,
         copyrights, or other intellectual property, including Contracts to
         which the Company is a party with current or former employees,
         consultants, or contractors regarding the appropriation or the
         non-disclosure of any of the Intellectual Property Assets;


                                       21
   25
                  (b) Except as set forth in Part 3.18(b) of the Disclosure
Letter, to Company's Knowledge, except as contemplated in the Transaction
Documents, no Seller or Key Employee of the Company is bound by any Contract to
which the Company is a party that purports to limit the ability of such Seller
or Key Employee to (A) engage in or continue any conduct, activity, or practice
relating to the business of the Company, or (B) assign to the Company or to any
other Person any rights to any invention, improvement, or discovery relating to
the business of the Company;

                  (c) Except as set forth in Part 3.18(c) of the Disclosure
Letter, each Applicable Contract is in full force and effect, and is valid and
enforceable in accordance with its terms.

                  (d) Except as set forth in Part 3.18(d) of the Disclosure
Letter:

                  (i) the Company is in compliance in all material respects with
         all applicable terms and requirements of each Applicable Contract;

                  (ii) to Company's Knowledge, no event has occurred or
         circumstance exists that (with or without notice or lapse of time) may
         conflict with, or result in a violation or breach of, or give the
         Company or other Person the right to declare a default or exercise any
         remedy under, or to accelerate the maturity or performance of, or to
         cancel, terminate, or modify, any Applicable Contract; and

                  (e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or payable to the
Company under current or completed Applicable Contracts with any Person and no
such Person has made written demand for such renegotiation.

                  (f) The Applicable Contracts relating to the sale,
manufacture, or provision of products by the Company have been entered into in
the ordinary course of business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in violation of
any Legal Requirement.

                  3.19 INSURANCE.

                  (a) Sellers have delivered to Buyer:

                  (i) true and complete copies of all policies of insurance to
         which the Company is a party or under which the Company, or any
         director of the Company, is or has been covered at any time since
         November 1994; and

                  (ii) true and complete copies of all pending applications for
         policies of insurance.

                  (b) Except as set forth in Part 3.19(b) of the Disclosure
Letter there are no:


                                       22
   26
                  (i) self-insurance arrangements by or affecting the Company,
         including any reserves established thereunder;

                  (ii) contracts or arrangements, other than a policy of
         insurance, for the transfer or sharing of any risk by the Company; and

                  (iii) obligations of the Company to third parties with respect
         to insurance.

                  (c) Part 3.19(c) of the Disclosure Letter sets forth, by year,
for the current policy year and each of the three (3) preceding policy years:

                  (i) a summary of the loss experience under each policy;

                  (ii) a statement describing each claim under an insurance
         policy for an amount in excess of One Thousand Dollars ($1,000), which
         sets forth:

                           (A)      the name of the claimant;

                           (B)      a description of the policy by insurer, type
                                    of insurance, and period of coverage; and

                           (C)      the amount and a brief description of the
                                    claim.

                  (iii) a statement describing the loss experience for all
         claims that were self-insured, including the number and aggregate cost
         of such claims.

                  (d) Except as set forth on Part 3.19(d) of the Disclosure
         Letter:

                  (i) All policies to which the Company is a party or that
         provide coverage to any Seller, the Company, or any director or officer
         of the Company:

                           (A)      are valid, outstanding, and enforceable;

                           (B)      are issued by an insurer that is financially
                                    sound and reputable, as Buyer in its
                                    discretion may determine;

                           (C)      taken together, provide reasonable insurance
                                    coverage for the assets and the operations
                                    of the Company;

                           (D)      are sufficient for compliance with all Legal
                                    Requirements and Applicable Contracts to
                                    which the Company is a party or by which any
                                    of them is bound;

                           (E)      will be in full force and effect upon the
                                    consummation of the transactions
                                    contemplated by the Transaction Documents;
                                    and

                           (F)      do not provide for any retrospective premium
                                    adjustment or other experienced-based
                                    liability on the part of the Company.


                                       23
   27
                  (ii) The Sellers or Company have not received (A) any refusal
         of coverage or any notice that a defense will be afforded with
         reservation of rights, or (B) any notice of cancellation or any other
         indication that any insurance policy is no longer in full force or
         effect or will not be renewed or that the issuer of any policy is not
         willing or able to perform its obligations thereunder.

                  (iii) The Company has paid all premiums due, and have
         otherwise performed all of their respective obligations, under each
         policy to which the Company is a party or that provides coverage to the
         Company or director thereof.

                  (iv) The Company has given notice to the insurer of all claims
         that may be insured thereby.

         3.20 ENVIRONMENTAL MATTERS. Except as set forth in part 3.20 of the
Disclosure Letter:

         (a) The Company is, and at all times has been, in compliance in all
material respects with, and has not been and is not in violation of or liable
under, any Environmental Law.

         (b) There are no pending or, to the Company's Knowledge, Threatened,
claims, Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets in which the Company has or had an interest.

         (c) The Sellers or Company have not received any communication that
relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities.

         (d) There are no Hazardous Materials present on or in the Environment
at the Facilities, including any Hazardous Materials contained on the
Facilities. The Company has not permitted or conducted, and to Company's
Knowledge no Hazardous Activity has been conducted, with respect to the
Facilities.

         (e) There are no reports, studies, analyses or tests possessed or
initiated by the Company pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance by the
Company with Environmental Laws.

         3.21 EMPLOYEES.

         (a) Part 3.21 of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of the Company:
job title; current compensation paid or payable; vacation accrued; and service
credited for purposes of vesting and eligibility to participate under the
Company's pension, retirement, insurance, medical, welfare, vacation or any
other plan or Other Benefit Obligations. There are no employees on leave of
absence or layoff status.


                                       24
   28
         (b) Except as set forth in the Transaction Documents, no employee of
the Company is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee and any other Person ("PROPRIETARY
RIGHTS AGREEMENT") that in any way adversely affects or will affect (i) the
performance of his duties as an employee of the Company, or (ii) the ability of
the Company to conduct its business.

         (c) Part 3.21 of the Disclosure Letter also contains a complete and
accurate list of the names and respective benefits, in any form, for each
retired employee or director of the Company, or their dependents, receiving
benefits or scheduled to receive benefits in the.

         3.22 LABOR RELATIONS; COMPLIANCE. There is no Proceeding against or
affecting the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting the Company or their premises, or (c) any application for
certification of a collective bargaining agent.

         The Company has complied in all material respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing.

         3.23 INTELLECTUAL PROPERTY. Part 3.23 of the Disclosure Letter contains
a complete and accurate list and summary description of all patents, trademark,
trade names, service marks, copyrights, proprietary software, trade secrets, and
know-how, owned, used or licensed by the Company (the "INTELLECTUAL PROPERTY
ASSETS"). The Intellectual Property Assets owned by the Company, listed in Part
3.23 of the Disclosure Letter, are free and clear of all Encumbrances, other
than claims of licensors identified in Part 3.23 of the Disclosure Letter.

         (a) To the Company's actual knowledge, the Company is not in default
under, and has not received any written notice of any claim of infringement or
any other claim or proceeding relating to any Intellectual Property Assets.
Except as set forth in the Transaction Documents and in Part 3.23 of the
Disclosure Letter, no present or former employee of the Company and no other
Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, in any Intellectual Property Asset. Except as set
forth in Part 3.23 of the Disclosure Letter, to the Company's actual knowledge,
the Company has taken all steps reasonably necessary to ensure the validity and
enforceability of its Intellectual Property Assets. Except as set forth in Part
3.18 of the Disclosure Letter, there are no confidentiality or non-disclosure
agreements to which the Company or to Company's Knowledge any Key Employees of
the Company is a party which relate to the Intellectual Property Assets. To the
Company's actual knowledge, having made no infringement searches, the Company
has not used or sold and does not use or sell in its business any information,
processes, or things which have violated or do violate the trademark rights,
trade secret rights or copyrights of others. To the Company's actual knowledge,
having made no patent infringement searches, the Company has not used or sold
and does not use or sell in its business any information, processes or things
which have


                                       25
   29
infringed or do infringe the patent rights of others. The Company has not
received any notification, warning, threat of civil action, or other written
notice that the Company has violated or is violating the patent, copyright,
trademark or trade secret rights of others. To the Company's actual knowledge
and other than as set forth in Part 3.23 of the Disclosure Letter, having made
no patent infringement searches, there are no pending patent applications owned
by any third parties which, if granted, would be infringed by the Company's
current operations.

         (b) With regard to those Intellectual Property Assets that relate
directly to urea cycle disorders, except as set forth in Part 3.23 of the
Disclosure Letter (i) the Company is not in default under, and has not received
any written notice of any claim of infringement or any other claim or
proceeding; (ii) no present or former employee of the Company and no other
Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part; (iii) the Company has taken all steps reasonably
necessary to ensure validity and enforceability; (iv) except as set forth in
Part 3.18 of the Disclosure Letter, there are no confidentiality or
non-disclosure agreements to which the Company or any Key Employees of the
Company is a party; (v) the Company has not used or sold and does not use or
sell in its business any information, processes or things which have infringed
or do infringe the patent rights of others; and (vi) to the Company's actual
knowledge, having made no patent infringement searches, there are no pending
patent applications owned by any third parties which, if granted, would be
infringed by the Company's current operations.

         (c) The Company has not used, sold or developed any patents, trade
secrets or copyrights other than the Intellectual Property Assets.

         3.24 CERTAIN PAYMENTS. The Company or its directors, officers, agents,
or employees, or any other Person associated with or acting for or on behalf of
the Company, have not directly or indirectly (a) made any illegal contribution
or payment to any Person, private or public, regardless of form, whether in
money, property, or services, or (b) established or maintained any fund or asset
that has not been recorded in the books and records of the Company.

         3.25 DISCLOSURE. No representation or warranty of Sellers in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.

         3.26 BROKERS OR FINDERS. Except for Corporate Development Specialists
Inc. (all of the fees and expenses of which shall be paid by the Sellers), the
Company, Sellers and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.

                                   ARTICLE IV
                     REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer represents and warrants to Sellers as follows:


                                       26
   30
                  4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware.

                  4.2 AUTHORITY; NO CONFLICT.

                  (a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Buyer will cause the Company to execute and deliver the Consulting Agreement,
the Noncompetition Agreements and the Confidentiality Agreements (collectively,
the "BUYER'S CLOSING DOCUMENTS"). Buyer has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement.

                  (b) Neither the execution and delivery of this Agreement nor
the consummation or performance of any of the transactions contemplated by the
Transaction Documents will give any Person the right to prevent, delay, or
otherwise interfere with any of the transactions contemplated by the Transaction
Documents pursuant to:

                  (i) any provision of Buyer's Organizational Documents;

                  (ii) any resolution adopted by the board of directors or the
         stockholders of Buyer;

                  (iii) any Legal Requirement or Order to which Buyer may be
         subject; or

                  (iv) any material Contract to which Buyer is a party or by
         which Buyer may be bound.

Except as set forth in Part 4.2 of the Disclosure Letter, Buyer is not and will
not be required to obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the transactions contemplated by the Transaction Documents.

                  4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.

                  4.4 CERTAIN PROCEEDINGS. There is no pending Proceeding that
has been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated by the Transaction Documents. To Buyer's knowledge, no
such Proceeding has been Threatened.

                  4.5 BROKERS OR FINDERS. Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Sellers harmless from any such
payment alleged to be due by or through Buyer as a result of the action of Buyer
or its officers or agents.

                  4.6 WAIVERS OF FUTURE USER FEES. Buyer has actual knowledge
that Sellers have informed Buyer that after the consummation of the transfer of
the Shares as contemplated


                                       27
   31
by this Agreement, the Buyer and the Company may not be able to obtain waivers
of certain future user fees based on the size or assets of the Company.

         4.7 CHARGES FOR IV DRUG. Buyer has actual knowledge that Sellers have
informed Buyer that after the consummation of the transfer of the Shares as
contemplated by this Agreement, the Buyer and the Company may not be permitted
to charge for the IV Drug with respect to compassionate IND sales.

                                   ARTICLE V
                               COVENANTS OF BUYER

         5.1 FDA DRUG FILING.

         (a) Buyer will at all times after Closing until the payment under
Section 2.2(b) is made to the Sellers use reasonable best efforts to promptly
complete and diligently pursue the NDA filing and FDA approval process for the
IV Drug ("DRUG FILING PROCESS"). Buyer acknowledges that the costs associated
with the Drug Filing Process may exceed the accrued expenses reflected on the
Interim Balance Sheet for such purposes. Buyer will keep a designated
representative of the Sellers reasonably informed of the status of the Drug
Filing Process. In the event of a dispute regarding the Buyer's use of
reasonable best efforts in diligently pursuing the Drug Filing Process, the
Seller's designated representative may elect to have an independent consultant
reasonably acceptable to both Buyer and Sellers review the status of the Drug
Filing Process. Buyer shall use reasonable best efforts to follow such
consultant's recommendations. Disputes regarding the Buyer's compliance with
this Section 5.1(a) shall be subject to arbitration pursuant to Section 7.5 and
in the event of a finding by the arbitrator that the Buyer has not complied in
all material respects with its obligations contained in this Section 5.1(a), all
amounts payable pursuant to Section 2.2(b) shall be immediately due and payable.

         (b) If Buyer, after complying in all material respects with its
obligations contained in Section 5.1(a), has not obtained FDA approval for the
IV Drug on or prior to the fourth anniversary of the Closing Date, Buyer may (i)
continue to seek FDA approval for the IV Drug in accordance with its obligations
under Section 5.1(a), (ii) pay to the Sellers the amounts set forth in Section
2.2(b) in full satisfaction of Buyer's obligations under Sections 2.2(b) and 5.1
or (iii) surrender all rights and information relating to the IV Drug or the IV
NDA to Sellers in full satisfaction of Buyer's obligations under Sections 2.2(b)
and 5.1.

         5.2 RAW MATERIAL SUPPLY. Within 30 days of the Closing Date, Buyer
shall cause the Company to place purchase orders on an expedited delivery basis
with the Company's current bulk drug substance supplier such that if the orders
are properly satisfied on a timely basis, Buyer will be provided with an
"uninterrupted supply of the Drug" (as defined in Section 2.2(c)). Buyer shall
cause the Company to pay all invoices incurred at the Company's sole cost and on
a timely basis.

         5.3 POST-CLOSING FILINGS. Buyer shall be responsible for all filings of
the Company with Governmental Bodies that become due after the Closing Date
(other than those relating to Sellers).


                                       28
   32
                                   ARTICLE VI
                            INDEMNIFICATION; REMEDIES

         6.1 SURVIVAL; RIGHT TO INDEMNIFICATION. All representations,
warranties, covenants, and obligations in this Agreement and the Disclosure
Letter will survive the Closing for a period of three (3) years, except for (i)
all representations, warranties, covenants and obligations in Sections 3.5 and
3.15 and the Disclosure Letter Sections 3.5 and 3.15, which will survive the
Closing for a period of 30 months and (ii) unpaid Taxes which shall survive the
Closing for the applicable statute of limitations and (iii) matters concerning
title to the Shares, which will survive the Closing without limitation. Except
as otherwise set forth in Section 6.2, the right to indemnification, payment of
Damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation by the Buyer prior to
or after the Closing, or information capable of being acquired prior to the
Closing, except to the extent that the Buyer had been informed in writing by
Sellers or the Company prior to the Closing Date or to the extent Buyer had
actual knowledge (but only to the extent of such knowledge) prior to the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation.

         6.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. By virtue of
their execution of this Agreement, each of the Sellers shall be deemed to have
agreed that, subject to the provisions of this Article VI, each of the Sellers,
severally, will indemnify and hold harmless Buyer, the Company, and their
respective Representatives, stockholders, controlling persons, and affiliates
(collectively, the "INDEMNIFIED PERSONS") for, and each of the Sellers will pay
to the Indemnified Persons Twenty-Five Percent (25%) of the amount of, any
actual loss, liability, claim, damage, expense (including costs of investigation
and defense and reasonable attorneys' fees), whether or not involving a
third-party claim (collectively, "DAMAGES"), arising, directly or indirectly,
from or in connection with:

         (a) any Breach of any representation or warranty made by the Company or
the Sellers in this Agreement;

         (b) any Breach by the Company or any Seller of any covenant or
obligation of the Company or such Seller in this Agreement;

         (c) any product sold, shipped or manufactured by, or any services
provided by, the Company prior to the Closing Date except to the extent that any
Damages are covered by insurance of the Company; or

         (d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with any Seller or the Company (or
any Person acting on their behalf) in connection with any of the transactions
contemplated by the Transaction Documents.

         6.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer in this Agreement, (b)
any Breach by Buyer of any covenant or


                                       29
   33
obligation of Buyer in this Agreement, (c) any product sold, shipped or
manufactured or any services provided by the Company subsequent to the Closing
Date except to the extent that any Damages are covered by insurance, or (d) any
claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Buyer (or any Person acting on its behalf) in connection with
any of the transactions contemplated by the Transaction Documents.

         6.4 PROCEDURES FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.

         (a) Promptly after receipt by an indemnified party of notice of the
commencement of any Proceeding against it, such indemnified party will, if a
claim is to be made against an indemnifying party under such Section, give
notice to the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the indemnifying party
of any liability that it may have to any indemnified party, except to the extent
that the indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party's failure to give such notice.

         (b) If any Proceeding referred to in this Section 6.4 is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless the
indemnifying party fails to provide reasonable assurance to the indemnified
party of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume and control the
defense of such Proceeding with counsel reasonably satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense (and settlement, upon
obtaining the prior written consent of the indemnified party) of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Article VI for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless (A) there is
no finding or admission of any violation of Legal Requirements or any violation
of the rights of any Person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief provided is monetary
damages that are paid in full by the indemnifying party; (ii) the indemnified
party will have no liability with respect to any compromise or settlement of
such claims effected without its consent; and (iii) the indemnifying party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within
fifteen (15) days after the indemnified party's notice is given, give notice to
the indemnified party of its election to assume the defense and control the
defense and settlement of such Proceeding, the indemnifying party will be bound
by any determination made in such Proceeding to which indemnification is
applicable or any compromise or settlement effected by the indemnified party.

         (c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its


                                       30
   34
affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will not be
bound by any determination of a Proceeding so defended or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld).

         (d) Sellers hereby consent to the non-exclusive jurisdiction of any
court (with right of removal to federal court) in which a Proceeding is brought
against any Indemnified Person for purposes of any claim that an Indemnified
Person may have under this Agreement with respect to such Proceeding or the
matters alleged therein, and agree that process may be served on Sellers with
respect to such a claim anywhere in the United States.

         6.5 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought. Such claims shall be
resolved in accordance with the procedures of Section 7.5 of this Agreement.

         6.6 RIGHT OF SET-OFF. In the event that any indemnification claim has
been made by Buyer against any Seller or Sellers prior to or when a Purchase
Price payment becomes due as set forth in Section 2.2 herein, Buyer shall be
entitled to withhold the amount of such indemnification claim (or portion
thereof) that is not subject to dispute by the Sellers. To the extent all or any
portion of such indemnification claim is subject to dispute when a Purchase
Price payment is due, Buyer shall deposit cash in the amount of such
indemnification claim subject to dispute in escrow in accordance with the terms
of the Escrow Agreement. The amount deposited in escrow pursuant to this Section
6.6 shall be held pursuant to the terms of the Escrow Agreement pending the
resolution of the dispute in accordance with the dispute resolution procedures
set forth in this Agreement. The parties shall in good faith select a mutually
agreeable bank doing business in Delaware as escrow agent.

         6.7 LIMITATION. Notwithstanding anything to the contrary contained
herein, neither the Buyer nor the Sellers (as a group) shall be entitled to
indemnification from any Seller or the Buyer, respectively, for Damages except
and to the extent that such Damages, in the aggregate, exceed the amount of One
Hundred Thousand Dollars ($100,000).

         6.8 MAXIMUM LIABILITY. The indemnification rights provided in this
Article VI shall be the exclusive remedy for the breach by any party of any
representation, warranty, covenant or obligation by such party in this
Agreement. The parties hereby agree that (a) the maximum aggregate liability of
any Seller under this Article VI shall in no event exceed such Seller's pro rata
portion of the Purchase Price received by such Seller or to which such Seller
would be entitled to be paid but for the provisions of this Article VI and (b)
the maximum aggregate liability of Buyer under this Article VI shall in no event
exceed Twenty Four Million Dollars ($24,000,000), not including any unpaid
portions of the Purchase Price.


                                       31
   35
                                  ARTICLE VII
                               GENERAL PROVISIONS

         7.1 EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated by the Transaction Documents, including all
fees and expenses of agents, representatives, counsel, and accountants. Sellers
will cause the Company not to incur any out-of-pocket expenses in connection
with this Agreement. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a Breach of this Agreement by another party.

         7.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated by the
Transaction Documents will be issued, if at all, at such time and in such manner
as Buyer determines. Unless consented to by Buyer or Sellers, as the case may
be, in advance or required by Legal Requirements, prior to the Closing, Sellers
and Buyer shall, and shall cause the Company to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
Sellers and Buyer will consult with each other concerning the means by which the
Company' employees, customers, and suppliers and others having dealings with the
Company will be informed of the transactions contemplated by the Transaction
Documents, and Buyer will have the right to be present for any such
communication.

         7.3 CONFIDENTIALITY. Between the date of this Agreement and the Closing
Date, Buyer and Sellers will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Company to
maintain in confidence, any written, oral, or other information obtained in
confidence from another party or the Company in connection with this Agreement
or the transactions contemplated by the Transaction Documents, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated by the Transaction Documents, or
(c) the furnishing or use of such information is required by legal proceedings.
If the transactions contemplated by the Transaction Documents are not
consummated, each party will return or destroy as much of such written
information as the other party may reasonably request.

         7.4 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand, with written confirmation of receipt, (b) sent
by telecopier, with written confirmation of receipt, provided that a copy is
mailed by registered or certified mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):


                                       32
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                 Buyer:

                          Medicis Pharmaceutical Corporation
                          4343 East Camelback Road, Suite 250
                          Phoenix, Arizona 85018-2700
                          Attention: Jonah Shacknai, Chairman and CEO
                          Facsimile No.:  (602) 808-3874

                 With a copy to:

                          Akin, Gump, Strauss, Hauer & Feld, L.L.P.
                          1700 Pacific Avenue
                          Suite 4100
                          Dallas, Texas  75201
                          Attention:  Alan M. Utay
                          Facsimile No.:  (214) 969-4343

                 The Company:

                          Ucyclyd Pharma, Inc.
                          500 McCormick Drive, Suite J
                          Glen Burnie, Maryland  21031
                          Attention:  President
                          Facsimile No.: (410) 785-2465

                 with a copy to each Seller and his/her counsel and to:

                          Kauffman and Forman, P.A.
                          401 W. Pennsylvania Avenue
                          Towson, Maryland  21204
                          Attention:  Bruce E. Kauffman, Esquire
                          Facsimile No.:  410-296-7349

                 Sellers:

                          Syed E. Abidi
                          9 Timberwood Court
                          Hunt Valley, Maryland  21030
                          Attention:  Syed E. Abidi, Ph.D.
                          Facsimile No.: (410) 785-2465

                 with a copy to:

                              James S. Jacobs
                              Jacobs & Dembert, P.A.
                              One South Street, Suite 1910
                              Baltimore, Maryland  21202-3201


                                       33
   37
                              Facsimile No.:  (410) 752-8105

                          William Brusilow, Ph.D.
                          1411 Iroquois Street
                          Detroit, Michigan  48214
                          Facsimile No.:  (313) 577-2765

                          Susan E. Brusilow Solomon, CFRE
                          5230 Elliott Road
                          Bethesda, Maryland 20816
                          Facsimile No.:  (301) 263-0765

                 with a copy to:

                              John B. Ward, Jr.
                              Thomsen and Burke LLP
                              One North Charles Street, Suite 400
                              Baltimore, Maryland  21201
                              Facsimile No.:  (410) 783-0710

                          Norbert L. Wiech, Ph.D.
                          10 Overshot Court
                          Phoenix, Maryland  21131
                          Facsimile No.:  (410) 683-4523

                 with a copy to:

                              M. Peter Moser
                              Piper & Marbury L.L.P.
                              36 South Charles Street
                              Baltimore, Maryland  21201-3018
                              Facsimile No.:  (410) 576-5050


         7.5 DISPUTE RESOLUTION.

         (a) Any dispute, controversy or claim arising out of or relating to
this Agreement, or the breach, termination or invalidity of this Agreement or
the rights of any party for indemnification hereunder (each, a "CLAIM"), shall
be submitted for resolution in the first instance to one or more Persons
designated by Sellers, for Sellers and the Chief Executive Officer of Buyer for
Buyer.

         (b) If any Claim cannot be resolved by the individuals designated in
Section 7.5(a) within thirty (30) days after being submitted to them, and except
for the right of any party to apply to a court of competent jurisdiction for a
temporary restraining order to preserve the status quo or to prevent irreparable
harm pending the selection and confirmation of an arbitrator in accordance
herewith, such Claim shall be settled by arbitration in accordance with the


                                       34
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Commercial Arbitration Rules (the "RULES") of the American Arbitration
Association (the "AAA") in effect on the day the arbitration is commenced in
accordance with this Agreement, except as modified by this Section 7.5. After
expiration of such thirty (30) day period, any party may commence arbitration by
serving upon the other party a written demand for arbitration sent by a courier
service of internationally recognized reputation, in accordance with this
Agreement, with a copy of the same delivered by a courier service of
internationally recognized reputation, to the AAA regional office in which
either party is then located. The number of impartial arbitrators shall be three
if the parties cannot within thirty (30) days of the first demand for
arbitration agree on one impartial arbitrator. In the event that either party
shall fail to appoint an arbitrator within thirty (30) days after the
commencement of the arbitration proceeding, such arbitrator(s) shall be
appointed by the AAA in accordance with the Rules. The arbitration award shall
be rendered by a majority of the members of the board of arbitration. Except as
expressly provided in Section 7.5 hereof, the arbitrator(s) shall not be
entitled to modify this Agreement or the transactions contemplated herein. The
arbitration proceeding shall be conducted in the English language and shall be
brought in Delaware unless the parties agree in writing to conduct the
arbitration in another location. The AAA shall have jurisdiction over all
parties to this Agreement for purposes of the arbitration.

         (c) The arbitration decision shall be final and binding and shall not
be appealable to any court in any jurisdiction. The prevailing party may enter
such decision in any court having competent jurisdiction.

         (d) Any statute of limitations or other equitable or legal doctrine
which would otherwise be applicable to any action brought by either of the
parties shall be applicable in the arbitration. In the event any party to this
Agreement files a petition under the bankruptcy laws of the United States or has
a petition filed against it which results in an order for relief or other
indicia that a bankruptcy case has commenced, it is the express intention of the
parties that this Agreement shall control and be enforced in accordance with its
terms and conditions that any Claim shall remain subject to arbitration to the
maximum extent permitted by law.

         (e) A court reporter shall record the arbitration hearing, and the
reporter's transcript shall be the official record of the proceedings.

         (f) The arbitrator(s) shall have the authority to grant injunctive
relief in form substantially similar to that which would otherwise be granted by
a court.

         (g) The arbitrator(s) shall have no authority to award punitive
damages. The arbitrator(s) shall specify the basis for any award and the types
of any damages awarded. Any prevailing party (as determined by the
arbitrator(s)) shall be awarded reasonable attorneys' fees, expert witness costs
and expenses, and all other costs and expenses incurred in connection with the
proceedings, unless the arbitrator(s) shall for good cause determine otherwise.

         (h) Upon the request of any party, the arbitrator(s) shall have the
authority to permit discovery to the extent they deem appropriate, provided that
absent extraordinary circumstances, depositions may be allowed only for the
purposes of preserving evidence or filing in the hearing in lieu of the
witness's appearance in person.


                                       35
   39
         (i) The arbitrators shall issue a final award not more than thirty (30)
days following the conclusion of the hearing.

         (j) The arbitrator(s) shall be entitled to receive reasonable
compensation at an hourly or daily rate to be established between the
arbitrators and the AAA and made known to the parties in advance. If required by
the arbitrators, Buyer on the one hand, and Sellers, on the other, will deposit
with the AAA an equal share of the total anticipated fee of the arbitrators in
an amount to be estimated by the AAA. The non-prevailing party or parties (as
determined by the arbitrator(s)) in the proceedings shall be ordered to pay, and
shall have the ultimate responsibility for, all arbitrator(s)' fees and the fees
of the AAA and such fees shall be included in the award to be entered against
the non-prevailing party.

         (k) Notwithstanding any other provision of this Agreement, any party
may apply to a court of competent jurisdiction within the United States, for an
order in true nature of a temporary restraining order or preliminary injunction
for purposes of maintaining the status quo pending the final resolution of any
dispute pursuant to the arbitration provisions hereof.

         (l) Each party consents to the jurisdiction and administration of the
AAA for purposes of the arbitration proceedings contemplated herein. Buyer
expressly agrees that in any arbitration under a Noncompetition Agreement any
Seller may join Buyer as a party to such arbitration.

         7.6 FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.

         7.7 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.

         7.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Letter of Intent between Buyer and Sellers dated November 3,
1998) and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be


                                       36
   40
amended except by a written agreement executed by the party to be charged with
the amendment.

         7.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, which will not be unreasonably withheld, except that Buyer
may assign any of its rights under this Agreement to any Subsidiary of Buyer.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.

         7.10 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the Agreement will
remain in effect but shall be reformed and construed so as to as nearly as
possible give effect to the intent of the parties in entering into this
Agreement.

         7.11 ARTICLE AND SECTION HEADINGS, CONSTRUCTION. The headings of
Sections in this Agreement are provided for convenience only and will not affect
its construction or interpretation. All references to "Article", "Articles",
"Section" or "Sections" refer to the corresponding Article, Articles, Section or
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.

         7.12 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.

         7.13 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Delaware without regard to conflicts of laws principles.

         7.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.

                            [SIGNATURE PAGE FOLLOWS]


                                       37
   41
         IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.


                                BUYER:

                                MEDICIS PHARMACEUTICAL CORPORATION

                                By:   /s/ Mark A. Prygocki, Sr.
                                      ------------------------------------------
                                Name: Mark A. Prygocki, Sr.
                                      ------------------------------------------
                                Title: Chief Financial Officer
                                      ------------------------------------------


                                THE COMPANY:

                                UCYCLYD PHARMA, INC.

                                By:   /s/ Syed E. Abidi
                                      ------------------------------------------
                                Name: Syed E. Abidi
                                      ------------------------------------------
                                Title: Co-President
                                      ------------------------------------------

                                By:   /s/ Susan E. Brusilow
                                      ------------------------------------------
                                Name: Susan E. Brusilow
                                      ------------------------------------------
                                Title: Co-President
                                      ------------------------------------------

                                SELLERS:

                                /s/ Syed E. Abidi
                                ------------------------------------------------
                                SYED E. ABIDI

                                /s/ William Brusilow
                                ------------------------------------------------
                                WILLIAM BRUSILOW

                                /s/ Susan E. Brusilow
                                ------------------------------------------------
                                SUSAN E. BRUSILOW

                                /s/ Norbert L. Wiech
                                ------------------------------------------------
                                NORBERT L. WIECH


38

EX-10.95

   1
                                                                   EXHIBIT 10.95






===============================================================================






                            ASSET PURCHASE AGREEMENT

                                 by and between

                       MEDICIS PHARMACEUTICAL CORPORATION

                                       and

                               BIOGLAN PHARMA PLC



                         -------------------------------

                            Dated as of June 29, 1999
                         -------------------------------





===============================================================================
   2



                               TABLE OF CONTENTS



                                                                                                                        Page
                                                                                                                        ----
                                                                                                                  
ARTICLE I DEFINITIONS.............................................................................................        1

ARTICLE II SALE AND PURCHASE OF ASSETS; PURCHASE PRICE; ASSUMPTION OF OBLIGATIONS.................................        4
   Section 2.1    Sale and Purchase of Assets.....................................................................        4
   Section 2.2    Purchase Price..................................................................................        5
   Section 2.3    Deferred Purchase Payments......................................................................        5
   Section 2.4    Payments........................................................................................        6
   Section 2.5    Records and Audit...............................................................................        6
   Section 2.6    Taxes...........................................................................................        7
   Section 2.7    Currency Conversion.............................................................................        7
   Section 2.8    Form of Payment.................................................................................        7
   Section 2.9    Assumption of Obligations.......................................................................        7
   Section 2.10   Excluded Assets and Liabilities...............................................................          8

ARTICLE III CLOSING...............................................................................................        8
   Section 3.1    Closing.........................................................................................        8
   Section 3.2    Closing Deliveries of Medicis...................................................................        8
   Section 3.3    Closing Deliveries of Bioglan...................................................................        9

ARTICLE IV CONDITIONS TO CLOSING.................................................................................         10
   Section 4.1    Conditions to Bioglan's Obligations............................................................         10
   Section 4.2    Conditions to Medicis' Obligations.............................................................         11

ARTICLE V OTHER MATTERS..........................................................................................         11
   Section 5.1    Use of Know-How................................................................................         11
   Section 5.2    New Product Development........................................................................         12
   Section 5.3    Risks Associated With the Products.............................................................         12
   Section 5.4    Agreement to Distribute........................................................................         12
   Section 5.5    Notification of Customers......................................................................         12
   Section 5.6    Customer Orders................................................................................         12
   Section 5.7    Accounts Receivable............................................................................         12
   Section 5.8    Product Registration...........................................................................         13
   Section 5.9    Recall and Return of Products..................................................................         14
   Section 5.10   Enforcement of GenDerm Warranties..............................................................         14
   Section 5.11   Similar Marks..................................................................................         14
   Section 5.12   GenDerm Earnout................................................................................         15
    Section 5.13  Payment of Royalties...........................................................................         15
    Section 5.14  Title to Assets................................................................................         15

ARTICLE VI REPRESENTATIONS AND WARRANTIES........................................................................         15
   Section 6.1    Representations and Warranties of Medicis......................................................         15
   Section 6.2    Representations and Warranties of Bioglan......................................................         18

   3


                                                                                                                  
ARTICLE VII CONDUCT PRIOR TO CLOSING.............................................................................         20
   Section 7.1    Cooperation....................................................................................         20
   Section 7.2    Conduct of Business by Medicis.................................................................         20
   Section 7.3    Conduct of Private Label Litigation............................................................         20
   Section 7.4    Review.........................................................................................         20
   Section 7.5    Shareholder's Meeting..........................................................................         20
   Section 7.6    Validation Claims..............................................................................         20

ARTICLE VIII INDEMNIFICATION.....................................................................................         21
   Section 8.1    Indemnification by Medicis.....................................................................         21
   Section 8.2    Indemnification by Bioglan.....................................................................         21
   Section 8.3    Procedure for Indemnification..................................................................         22

ARTICLE IX GENERAL PROVISIONS....................................................................................         23
   Section 9.1    Survival of Representations and Warranties.....................................................         23
   Section 9.2    Notices.:......................................................................................         23
   Section 9.3    Confidential Information.......................................................................         23
   Section 9.4    Amendment......................................................................................         24
   Section 9.5    Binding Effect.................................................................................         24
   Section 9.6    Press Releases.................................................................................         24
   Section 9.7    Expenses; Taxes................................................................................         25
   Section 9.8    Headings.......................................................................................         25
   Section 9.9    Entire Agreement...............................................................................         25
   Section 9.10   Waiver.........................................................................................         25
   Section 9.11   Severability...................................................................................         25
   Section 9.12   Termination....................................................................................         25
   Section 9.13   Governing Law..................................................................................         26
   Section 9.14   Counterparts...................................................................................         26
   Section 9.15   Shareholder Approval...........................................................................         26

ARTICLE X ARBITRATION............................................................................................         26
   Section 10.1     Submission to Arbitration....................................................................         26
   Section 10.2     Arbitrator and Rules of Arbitration..........................................................         26
   Section 10.3     Selection of Arbitrators.....................................................................         26
   Section 10.4     Procedure....................................................................................         27
   Section 10.5     Arbitration Costs............................................................................         27

ARTICLE XI DERMASTICK............................................................................................         28
   Section 11.1     Assignment of Dermastick License.............................................................         28
   Section 11.2     Consideration................................................................................         28
   Section 11.3     Offset.......................................................................................         28
   Section 11.4     Warranties...................................................................................         28
   Section 11.5     Form of Assignment...........................................................................         28
   Section 11.6     Deliveries...................................................................................         28




                                       ii
   4
SCHEDULES AND EXHIBITS
                                    SCHEDULES




               
Schedule 1        License Agreements
Schedule 2        Trademarks
Schedule 3        Deferred Payment Assets
Schedule 4        Territory
Schedule 5        Other Agreements
Schedule 6        Previous Agreements Products



                                    EXHIBITS

               
Exhibit A         Form of License Assignment
Exhibit B         Form of Trademark Assignment
Exhibit C         Form of Bill of Sale
Exhibit D         Form of Transition Services Agreement
Exhibit E         Form of Canadian License Agreement
Exhibit F         Form of         License Agreement
Exhibit G         Form of Promissory Note
Exhibit H         Form of Security Agreement
Exhibit I         Form of License Termination
Exhibit J         Form of Trademark Security Agreement



                                      iii
   5
                            ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT (the "Agreement") dated as of this 29th day of June,
1999, by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation
("Medicis"),and BIOGLAN PHARMA PLC, a company incorporated under the laws of
England and Wales under company registration number 1779870 ("Bioglan").

                              W I T N E S S E T H:

         WHEREAS, Medicis or its Affiliate is the licensee (or, where
stipulated, a sublicensee) under the license agreements set forth in Schedule 1
hereto (collectively, the "License Agreements"); and

         WHEREAS, Medicis or its Affiliate desires to sell to Bioglan and
Bioglan desires to purchase from Medicis or its Affiliate all of Medicis' or its
Affiliate's right, title and interest in, to and under the Purchased Assets (as
defined) on the terms and conditions set forth below; and

         WHEREAS, Bioglan AB, an Affiliate of Bioglan, desires to grant to
Medicis and Medicis desires to accept from Bioglan AB, the         License
Agreement on the terms and conditions set forth below; and

         WHEREAS, in connection with and as a condition to the transactions
contemplated hereby, Bioglan and The Exorex Company, LLC (a 51% owned Affiliate
of Medicis) will enter into and consummate a Purchase Agreement (the "Exorex
Asset Purchase Agreement") pursuant to which Bioglan will acquire all of the
assets and liabilities as of June 1, 1999 of The Exorex Company, LLC.

         NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereby agree as follows:

                                   ARTICLE I
                                   DEFINITIONS

         In this Agreement the following terms shall have the following
meanings:

         "Affiliate" means any person, firm, corporation or other business
entity, directly or indirectly controlling, controlled by or under direct or
indirect common control with another person. A person shall be deemed to control
another person if such person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such entity,
whether through ownership of voting securities, by contract or otherwise.

         "Authorizations" means Medicis' or its Affiliates' authorizations
relating to the Products, where such are required, from the U.S. Food and Drug
Administration ("FDA") and the right to refer to the data contained therein and
copies of all documents submitted and correspondence between Medicis or its
Affiliates and the FDA with respect to the Products.
   6
         "Contribution Margin" means the amount equal to Net Sales (assuming for
purposes of Contribution Margin only that the definition of Net Sales relates to
Medicis or its Affiliate) less (i) all reasonable charges from June 1, 1999 to
the Closing for overhead directly associated with the Products (which costs
shall not exceed US $500,000) and the direct and indirect cost of goods (absent
the cost of Inventory paid at the Closing Date by Bioglan), and (ii) returns
from the period from June 1, 1999 to the Closing.

         "Dermastick License" means the license by and between Bioglan AB and
GenDerm Corporation dated January 31, 1998 relating to a topical steroid
preparation known as `Dermastick'.

         "Disclosure Letter" means the disclosure letter as of the date hereof
from Medicis to Bioglan relating to the representations and warranties of
Medicis set out in Section 6.1.

         "GenDerm Warranties" means the representations and warranties which
relate to the Products as are contained in Section 3 of the Merger Agreement.

         "Improvements" means any findings, discoveries, inventions, additions,
modifications, formulations or changes made by Bioglan or its Affiliates or
sublicensees during the term specified in Section 2.3 which relate to the
products set forth in Schedule 3 including, without, limitation, new or improved
methods of administration, improved side effect profile, new medical indications
and improvements in the manufacturing process. The term "Improvements" shall not
include findings, discoveries or inventions which are developed independently by
Bioglan or its agents and are not derived from or based on the Products or
Know-How.

         "Know-How" means the information known to Medicis or its Affiliate
relating solely and uniquely to the formulae, manufacturing processes, customer
lists, marketing and advertising rights and promotional materials, technology
and testing data for the Products including, without limitation, all chemical,
pharmacological, toxicological, clinical, assay, and control data relating
solely to the Products, if any.

         "Merger Agreement" means the Merger Agreement by and among GenDerm
Corporation, Medicis and Medicis Acquisition Corporation dated as of December 1,
1997.

         "Net Sales" means the gross amount invoiced by Bioglan, its Affiliates
and/or its sublicensees to third parties on all sales of Products and any
improvements (as defined in the respective License Agreements), less deductions
for: (i) sales taxes, value-added taxes and excise taxes, tariffs, import or
export duties, and duties paid or allowed by a selling party and any other
governmental charges imposed upon the import, use or sale of such Products
(except income taxes of Bioglan and sublicensees) which are included in the
gross amount invoiced; (ii) allowed customary trade and quantity discounts (such
discounts not to exceed 10% of the sales price) and sales discounts (as defined
in accordance with GAAP, such discounts not to exceed 5% of the sales price);
(iii) transportation, bulk packaging, handling and freight charges (such charges
not to exceed 3% of the sales price) and reasonable and customary insurance
where such are separately stated as part of the sales price and are included in
the gross amount invoiced; and (iv) allowances and credits to its Affiliates or
sublicensees which shall be excluded from the computation of Net Sales, but Net
Sales shall include subsequent sales to third parties by such



                                       2
   7
Affiliates or sublicensees. For purposes of determining Net Sales, a sale shall
be deemed to have occurred when the Products have been shipped by Bioglan, its
Affiliates or a sublicensee.

         "Previous Agreements" means collectively the Asset Purchase Agreement
by and between Medicis and Bioglan dated as of January 31, 1999 and the
Trademark License Agreement and Option to Purchase by and between Medicis and
Bioglan dated March 24, 1999.

         "Previous Agreements Products" means the pharmaceutical products listed
in Schedule 6 and referred to in the Previous Agreements.

         "Products" means each of the pharmaceutical products which are subject
to the License Agreements.

         "Trademarks" means the trademarks and tradenames (whether registered or
unregistered) listed in Schedule 2 (other than the rights to such trademarks in
Canada which shall be retained by Medicis) hereto together with the goodwill
symbolized by such trademarks and tradenames.

         "Warranties" means the warranties and representations of Medicis set
out in Section 6.1.

         The following terms have the meanings defined for such terms in the
Sections set forth below:



Term                                                                                                    Section
- ----                                                                                                    -------
                                                                                                     
Agreement.............................................................................................   Recitals
Arbitrator............................................................................................   2.5
Assumed Liabilities...................................................................................   2.9
Average Exchange Rate.................................................................................   2.7
Award.................................................................................................   10.4
Base Purchase Price...................................................................................   2.2(a)
Basket................................................................................................   8.3(e)
Bill of Sale..........................................................................................   3.2(c)
Bioglan...............................................................................................   Recitals
Branded Litigation....................................................................................   2.10
Canadian License Agreement............................................................................   3.2(h)
Chemsyn Agreement.....................................................................................   7.6
Closing...............................................................................................   3.1
Closing Date..........................................................................................   3.1
Deferred Payment Assets...............................................................................   2.3
Deferred Purchase Payments............................................................................   2.3
Deposit...............................................................................................   2.2(b)
Exorex Asset Purchase Agreement.......................................................................   Recitals
GAAP..................................................................................................   6.1(f)
Hearing...............................................................................................   10.4
HSR Act...............................................................................................   4.1(d)
Indemnified Party.....................................................................................   8.3(a)
Indemnifying Party....................................................................................   8.3(a)
Inventory.............................................................................................   2.1(c)



                                       3
   8
                                                                                                     
Joint Notice..........................................................................................   5.5
License Agreements....................................................................................   Recitals
License Termination...................................................................................   4.1(g)
Losing Party..........................................................................................   10.5
Losses................................................................................................   8.1
Material Adverse Effect...............................................................................   6.1(c)
Medical Affairs Liaison...............................................................................   5.8(d)
Medicis...............................................................................................   Recitals
        License Agreement.............................................................................   3.2(i)
New Authorizations....................................................................................   5.8(a)
Private Label Litigation..............................................................................   2.9
Prevailing Interest Rate..............................................................................   2.5
Promissory Note.......................................................................................   2.2(b)
Purchased Assets......................................................................................   2.1
Required Consents.....................................................................................   4.1(e)
Security Agreement....................................................................................   3.2(k)
Successful Party......................................................................................   10.5
Territory.............................................................................................   2.3
Trademark Security Agreement..........................................................................   3.2(l)
Transition Services Agreement.........................................................................   3.2(d)







                                   ARTICLE II
     SALE AND PURCHASE OF ASSETS; PURCHASE PRICE; ASSUMPTION OF OBLIGATIONS

         Section 2.1 Sale and Purchase of Assets. Subject to the terms and
conditions set forth herein, and in reliance upon the representations and
warranties contained herein, Medicis will (or will cause its relevant Affiliate
to) sell, assign, convey, transfer and deliver to Bioglan or to the nominated
Affiliate of Bioglan, and Bioglan will purchase and acquire from Medicis or its
Affiliate all of Medicis' or its Affiliate's right, title and interest in, to
and under the following assets:

         (a) License Agreements. Each of the License Agreements and the right to
license the formulation of Lincoln Ventures, Inc. as it exists as of the date
hereof with respect to Theraplex pursuant to that letter dated December 12, 1988
from Medicis to Lincoln Ventures, Inc. so long as Bioglan fulfills its
obligation to pay Lincoln Ventures, Inc. the 1.75% royalty rate of net sales of
Theraplex in the United States or other countries;

         (b) Trademarks, Know-How and Authorizations. The Trademarks, Know-How
and Authorizations;

         (c) Inventory. All inventory (the "Inventory") of the Products as of
June 1, 1999 with a remaining shelf life as of June 1, 1999 of no less than
twelve (12) months;

         (d) Contribution Margin. An amount equal to the Contribution Margin to
be paid pursuant to the Transition Services Agreement;


                                       4
   9
         (e) Extension of Territory. An extension to the licensed territories
set forth in the Previous Agreements in respect of the Previous Agreements
Products as set forth on Schedule 6 with respect to the territories specified on
Schedule 6; and

         (f) Litigation. Subject to the provisions of Section 7.3, any benefits
and settlements relating to the Private Label Litigation and any non-financial
benefits relating to the Branded Litigation (each as set forth and described as
such in the Disclosure Letter) accruing after the Closing Date.

         The assets to be sold, assigned, conveyed, transferred and delivered to
Bioglan by Medicis pursuant to this Agreement are herein collectively referred
to as the "Purchased Assets."

         Section 2.2 Purchase Price.

         (a) In consideration for the sale, assignment, conveyance, transfer and
delivery of the Purchased Assets hereunder and all of the assets and liabilities
as of June 1, 1999 of The Exorex Company, LLC under the Exorex Asset Purchase
Agreement, Bioglan will (i) pay to Medicis the net sum of United States Forty
Million Dollars (US $40,000,000), exclusive of any value added taxes (the "Base
Purchase Price"); Bioglan AB is also granting to Medicis a product license,
valued by Bioglan at                                    ), for the product which
                                                            and Medicis will
evaluate each component of the overall transaction individually and
independently from Bioglan based on its own criteria and its own accounting
policies, and Bioglan will accordingly cause its Affiliate Bioglan AB to grant
the Micanol License Agreement to Medicis, (ii) assume the Assumed Liabilities,
and (iii) pay to Medicis an amount equal to Medicis' cost in the Inventory.

         (b) United States Nine Hundred Thousand Dollars (US $900,000) of the
Base Purchase Price (the "Deposit") shall be payable to Medicis upon the
execution of this Agreement. At Closing Bioglan shall issue a promissory note
(the "Promissory Note") for the balance of the Base Purchase Price (US
$39,100,000) substantially in the form of Exhibit G attached hereto to Medicis.
The Deposit shall be non-refundable to Bioglan unless the transactions
contemplated hereby are not consummated because any of the conditions set forth
in Section 4.1 are not satisfied. If the Deposit becomes refundable to Bioglan
pursuant to any of the provisions of this Agreement and Medicis shall not have
refunded the Deposit within five (5) business days of written demand by Bioglan
requesting repayment, then interest at the Prevailing Interest Rate shall be due
thereon to Bioglan from the date of such demand until such Deposit is repaid to
Bioglan.

         Section 2.3 Deferred Purchase Payments. In addition to the Base
Purchase Price, in consideration for the sale, assignment, conveyance, transfer
and delivery of the Purchased Assets, Bioglan will pay to Medicis an additional
purchase price (the "Deferred Purchase Payments"), equal to five percent (5%) of
Net Sales of each of the products set forth in Schedule 3 in each of the
countries set forth in Schedule 4 (the "Territory"), except as otherwise
expressly provided in Schedule 4, and any Improvements thereon (the "Deferred
Payment Assets") for a period of ten years from the Closing Date; provided
however, that if any of the Deferred Payment Assets have not been used
commercially in any of the countries specified in the Territory, then the
Deferred Purchase Payments with respect to such Deferred Payment



                                       5
   10
Assets in such country shall be payable for a period of ten years from the date
of the first commercial use of each such Deferred Payment Asset in each such
country in the Territory; further provided that the total liability of Bioglan
pursuant to this provision taken together with its liability to make royalty
payments pursuant to the License Agreement by and between Joel E. Bernstein M.D.
and GenDerm Corporation dated January 1, 1995 and the License Agreement by and
between Jaye-Boern Laboratories, Inc. and GenDerm Corporation dated May 21, 1985
and the Assumption Agreement, Acceptance and Consent, dated December 15, 1993
between Joel Bernstein, the successor in interest to Jaye-Boern Laboratories,
Inc. and GenDerm Corporation (being two of the License Agreements) (which are
currently 3.5% of Net Sales and shall not be amended or extended without
Medicis' written consent, which may be withheld at Medicis' sole discretion)
shall not exceed eight percent (8%) of Net Sales but, to the extent that such
liability would (but for this provision) exceed eight per cent (8%) the rate of
royalty due to Medicis hereunder shall be reduced accordingly (but never below
4.5%) so that such liability to Medicis under this Section 2.3 shall never
exceed five per cent (5%).

         Section 2.4 Payments. Bioglan shall furnish to Medicis within forty
(40) days from the last day of each calendar quarter a written report setting
forth the amount of Deferred Payment Assets sold, the gross selling price and
the Net Sales by Bioglan, its Affiliates and sublicensees, during the preceding
quarter and the amount of Deferred Purchase Payment due, together with payment
of the Deferred Purchase Payment, in United States Dollars based on the
applicable Average Exchange Rate. If the Deferred Purchase Payment earned for
any quarter is not paid within such forty (40) day period, interest shall accrue
on all amounts outstanding at the Prevailing Interest Rate from the date such
payment is due until payment. If no Deferred Purchase Payment is due Bioglan
shall so advise Medicis. Medicis shall promptly issue receipt of payment to
Bioglan in respect of all payments of Deferred Purchase Payment made by Bioglan.

         Section 2.5 Records and Audit. Bioglan shall furnish to Medicis copies
of its annual report and audited accounts at the same time that such information
is made available to Bioglan's shareholders. Bioglan shall keep and require its
Affiliates and sublicensees to keep complete and accurate records of all sales
of the Deferred Payment Assets.

         Medicis shall have the right, at Medicis' expense (except as provided
below), through a certified public accountant or like person reasonably
acceptable to Bioglan, to examine such relevant records during regular business
hours during the term of Section 2.3 of this Agreement and for two years
thereafter to verify the calculation of any Deferred Purchase Payment reflected
in such report. If Medicis does not agree that any such accounting correctly
states Bioglan's Net Sales or the applicable Deferred Purchase Payment, it shall
not later than sixty (60) days after the delivery of such accounting give notice
to Bioglan of any exceptions thereto. If Bioglan and Medicis reconcile their
differences, the accounting shall be adjusted accordingly and shall thereupon
become final and binding upon the parties hereto. If Bioglan and Medicis are
unable to reconcile their differences in writing within twenty (20) days after
written notice of exceptions is received by Bioglan, the items in dispute shall
be submitted to an accounting firm selected by Medicis from among the five
largest accounting firms in the United States in terms of gross revenues (the
"Arbitrator"), provided that such firm shall not be performing accounting
services for Medicis or Bioglan, for final determination and the accounting
shall be deemed adjusted in accordance with the determination of the Arbitrator
and



                                       6
   11
shall become final and binding upon all of the parties hereto. The Arbitrator
shall be instructed to act within thirty (30) days to resolve all items in
dispute. In the event that any such examination shall reveal an underpayment of
Deferred Purchase Payment to Medicis, Bioglan shall pay to Medicis the amount of
the underpayment and interest at the prevailing prime rate during such period
(as set forth in the New York edition of The Wall Street Journal) (the
"Prevailing Interest Rate"). If the underpayment is five percent (5%) or more
with respect to the period under examination the fees and expenses of such
examination (including Medicis' initial audit) will be paid solely by Bioglan.
In the event that any such examination shall reveal an overpayment of five
percent (5%) or more with respect to the period under examination Bioglan shall
be entitled to deduct from any Deferred Purchase Payment that may become due to
Medicis the amount of such overpayment together with interest on such sum at the
Prevailing Interest Rate from the date of the overpayment until such overpayment
has been fully refunded to Bioglan.

         Section 2.6 Taxes. Any and all taxes paid or required to be paid by
Medicis on account of or directly related to the Deferred Purchase Payment
payable to Medicis under this Agreement shall be the sole and exclusive
responsibility of Medicis. All taxes assessed or imposed against, or required to
be withheld from the Deferred Purchase Payment due Medicis shall be deducted
from the amount payable hereunder and Bioglan shall promptly pay the appropriate
fiscal or tax authorities on behalf of Medicis. Tax receipts received by Bioglan
evidencing payment of such taxes shall be forwarded promptly to Medicis.

         Section 2.7 Currency Conversion. Monetary conversions from the currency
of a foreign country, in which Deferred Payment Assets are sold, into U.S.
currency shall be determined using the Average Exchange Rate. The "Average
Exchange Rate" shall be the average of the official exchange rate in force in
that country for financial transactions on the first and last business day of
the calendar quarter for which the Deferred Purchase Payment is being paid. If
there is no such official exchange rate, the conversion shall be made at the
rate for such remittances on the date as published in The New York edition of
The Wall Street Journal.

         Section 2.8 Form of Payment. Except as otherwise provided herein, all
payments made hereunder shall be made in United States Dollars by wire transfer
in immediately available funds to an account designated in writing by Medicis to
Bioglan.

         Section 2.9 Assumption of Obligations. Subject to the terms and
conditions set forth herein, and in reliance upon the representations and
warranties contained herein, at the Closing, in consideration for the sale,
assignment, conveyance, transfer and delivery of the Purchased Assets to
Bioglan, Medicis will assign, convey and transfer to Bioglan, and Bioglan will
unconditionally assume and undertake to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, all liabilities related to or
arising out of the Purchased Assets as are incurred and become due at any time
following the Closing Date and, subject to the provisions of Section 7.3, any
and all obligations relating to the litigation (the "Private Label Litigation")
set forth and described as such in the Disclosure Letter, including any claim
related to the Private Label Litigation arising prior to the Closing Date
(collectively, the "Assumed Liabilities"). Without limiting the generality of
the foregoing, Bioglan hereby agrees to assume, undertake and perform all
obligations of Medicis under the Assumed Liabilities to the extent such
obligations arise or are to be performed after June 1, 1999.


                                       7
   12
         Section 2.10 Excluded Assets and Liabilities. Notwithstanding anything
in this Article II to the contrary (but subject to the provisions of Section
7.3), any and all benefits and expenses relating to the litigation (the "Branded
Litigation") set forth and described as such in the Disclosure Letter shall be
retained by Medicis and Bioglan will not purchase or acquire any right, title or
interest therein or obligation thereunder except as set forth in Section 2.1(f).

                                  ARTICLE III
                                     CLOSING

         Section 3.1 Closing. The consummation of the transactions contemplated
herein (the "Closing") shall take place within five (5) business days of
satisfaction of the conditions set forth in Article IV, or at such other date
and time as mutually agreed to by the parties (the "Closing Date").

         Section 3.2 Closing Deliveries of Medicis. At the Closing, and subject
always to Section 9.15, Medicis shall (if appropriate) execute and deliver or
cause the appropriate Affiliate to execute (if appropriate) and deliver to
Bioglan:

         (a) a License Assignment for each of the License Agreements
substantially in the form of Exhibit A attached hereto;

         (b) a Trademark Assignment for each of the Trademarks substantially in
the form of Exhibit B attached hereto,

         (c) a Bill of Sale substantially in the form of Exhibit C attached
hereto,

         (d) a Transition Services Agreement (the "Transition Services
Agreement") substantially in the form of Exhibit D attached hereto, pursuant to
which the parties hereto shall agree that Medicis shall pay the Contribution
Margin;

         (e) a Secretary's Certificate of Medicis setting forth copies of the
resolutions or other instruments authorizing this Agreement and the transactions
contemplated herein;

         (f) an Officer's Certificate of Medicis as required under Section
4.1(b) hereof;

         (g) a copy of all consents, approvals and authorizations as required
under Section 4.1(e) hereof;

         (h) a counterpart license agreement (the "Canadian License Agreement")
pursuant to which Bioglan will license to Medicis the right to market and sell
certain of the Products in Canada substantially in the form of Exhibit E
attached hereto;

         (i) a counterpart license agreement
pursuant to which Bioglan AB will grant a semi exclusive license to Medicis to
use in its sole discretion in the United States of America only
                                                       but which shall not
include the right to use the trademark or tradename           or any name
colorably similar thereto substantially in the form of Exhibit F attached
hereto;


                                       8
   13
         (j) the Inventory;

         (k) a counterpart security agreement (the "Security Agreement")
substantially in the form of Exhibit H attached hereto pursuant to which Bioglan
or its Affiliate will grant a first priority security interest in the Purchased
Assets at Closing until the Promissory Note is paid in full or otherwise
cancelled in accordance with its terms or pursuant to the terms of this
Agreement;

         (l) a trademark security agreement (the "Trademark Security Agreement")
substantially in the form of Exhibit J attached hereto pursuant to which Bioglan
or its Affiliate will grant a first priority trademark security interest in the
Trademarks at Closing until the Promissory Note is paid in full or otherwise
cancelled in accordance with its terms or pursuant to the terms of this
Agreement;

         (m) a receipt of payment for the Deposit and cost of Inventory; and

         (n) a counterpart of the License Termination as required under Section
4.1(g);

         (o) the originals of all the License Agreements; and

         (p) such other documents as Bioglan shall reasonably request.

         Section 3.3 Closing Deliveries of Bioglan. At the Closing, and subject
always to Section 9.15, Bioglan shall (if appropriate) execute and deliver or
cause Bioglan AB or Bioglan Pharma, Inc. (as appropriate) to execute (if
appropriate) and deliver to Medicis:

         (a) an amount equal to Medicis' cost of the Inventory being delivered
pursuant to Section 3.2(j).

         (b) a counterpart License Assignment for each of the License Agreements
substantially in the form of Exhibit A attached hereto,

         (c) a counterpart Trademark Assignment for each of the Trademarks
substantially in the form of Exhibit B attached hereto,

         (d) a counterpart Transition Services Agreement substantially in the
form of Exhibit D attached hereto;

         (e) a Secretary's Certificate of Bioglan setting forth copies of the
resolutions or other instruments authorizing this Agreement and the transactions
contemplated herein;

         (f) an Officer's Certificate of Bioglan as required under Section
4.2(b) hereof;

         (g) the Canadian License Agreement substantially in the form of Exhibit
E attached hereto;

         (h) the                           substantially in the form of Exhibit
F attached hereto;



                                       9
   14
         (i) the Promissory Note substantially in the form of Exhibit G attached
hereto;

         (j) the Security Agreement substantially in the form of Exhibit H
attached hereto and related financing statements;

         (k) the Trademark Security Agreement substantially in the form of
Exhibit J attached hereto;

         (l) the License Termination as required under Section 4.1(g); and

         (m) such other documents as Medicis shall reasonably request.


                                   ARTICLE IV
                              CONDITIONS TO CLOSING

         Section 4.1 Conditions to Bioglan's Obligations. Bioglan's obligation
to consummate the transactions contemplated herein at the Closing are subject to
the fulfillment at or prior to the Closing of each of the following conditions,
the fulfillment of any of which may be waived, in whole or in part or subject to
conditions, by Bioglan:

         (a) The completion by Medicis of all acts necessary to authorize its
execution, delivery and performance of this Agreement and the other agreements
provided for herein, and the consummation of the transactions contemplated
herein and therein.

         (b) All the representations and warranties (including the disclosures
made in the Disclosure Letter) of Medicis contained in this Agreement being true
and correct in all material respects as of the date of execution of this
Agreement and at the Closing Date by Medicis and all of the agreements of
Medicis which are provided in this Agreement to be performed at or prior to the
Closing having been duly performed, and Medicis having complied with this
Agreement in all other material respects, except as otherwise provided in
Section 6.1(k), and Medicis having delivered to Bioglan a certificate, dated as
of the Closing Date, and signed by an executive officer of Medicis, to the
effect set forth in this Section 4.1(b).

         (c) Medicis or its relevant Affiliate having assigned to Bioglan (with
the consent of the other parties thereto) the benefit of the Chemsyn Agreement
and having assigned to Bioglan AB the Dermastick License.

         (d) All applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), having expired
or been terminated.

         (e) Medicis having obtained all consents, approvals, releases,
discharges and authorizations necessary to be obtained on the part of Medicis to
consummate the transactions contemplated hereby including without limitation,
all necessary consents of shareholders, mortgagees, lienholders, encumbrancers,
assignees and licensors (pursuant to the License Agreements) (the "Required
Consents").



                                       10
   15
         (f) The simultaneous consummation of the transactions contemplated
pursuant to the Exorex Asset Purchase Agreement.

         (g) The termination of the license agreements by and between GenDerm
Corporation and Bioglan Laboratories Limited dated February 1, 1998 relating to
(i) pharmaceutical topical anti-pruritic preparations containing tricyclic
anti-depressant compounds and (ii) a pharmaceutical topical preparation
containing capsaicin to be effected by the execution by Medicis or its Affiliate
of a license termination substantially in the form of the license termination
(the "License Termination") set forth in Exhibit I attached hereto.

         Section 4.2 Conditions to Medicis' Obligations. The obligations of
Medicis to consummate the transactions contemplated at the Closing are subject
to the fulfillment at or prior to the Closing of each of the following
conditions, the fulfillment of any of which may be waived, in whole or in part
or subject to conditions, by Medicis:

         (a) All applicable waiting periods under the HSR Act having expired or
been terminated.

         (b) All the representations and warranties of Bioglan contained in this
Agreement being true and correct in all material respects as of the date of
execution of this Agreement and at the Closing Date by Bioglan and all of the
agreements of Bioglan which are provided in this Agreement to be performed at or
prior to the Closing Date having been duly performed, and Bioglan having
complied with this Agreement in all other material respects, and Bioglan having
delivered to Medicis a certificate, dated as of the Closing Date and signed by
an executive officer of Bioglan, to the effect set forth in this Section 4.2(b).

         (c) Payment in full having been made by Bioglan of the Deposit and all
other sums (other than Deferred Purchase Payments) required by this Agreement to
be paid by Bioglan to Medicis at or prior to the Closing.

         (d) The simultaneous consummation of the transactions contemplated
pursuant to the Exorex Asset Purchase Agreement.

         (e) The simultaneous termination of the license agreements by and
between GenDerm Corporation and Bioglan Laboratories Limited dated February 1,
1998 referred to in Section 4.1(g) above to be effected by the execution by
Bioglan or its Affiliate of a license termination substantially in the form of
the License Termination set forth in Exhibit I attached hereto.

                                   ARTICLE V
                                  OTHER MATTERS

         Section 5.1 Use of Know-How. Except as otherwise provided for in this
Agreement, after the Closing, Medicis shall not use the Know-How. Furthermore,
after the Closing Medicis shall not disclose the Know-How to any third party,
unless such disclosure is required by law or regulation.


                                       11
   16
         Section 5.2 New Product Development. Notwithstanding anything in this
Agreement to the contrary, the transfer and assignment to Bioglan by Medicis or
its Affiliate of the Purchased Assets shall not prevent Medicis or its Affiliate
from continuing to manufacture and sell other products included or expected to
be included in its current line or to use other trademarks owned by Medicis and
its Affiliates or restrict the rights of Medicis and its Affiliates to develop
and sell new products using the same active ingredients contained in the
Products, but using different formulations, or different presentations, and
under different product trademarks; provided that such new products do not
contain capsaicin or doxepin, either alone or in combination with other
ingredients.

         Section 5.3 Risks Associated With the Products. After the Closing Date,
subject to the terms of the Transition Services Agreement, Bioglan shall bear
the entire responsibility for and risk in the use, manufacture, distribution,
marketing and sale of the Products, including those associated with returns of
Product after June 1, 1999 sold by Medicis and its Affiliates prior to June 1,
1999, and compliance with all regulations and laws pertaining to the Products.
Medicis shall, for one year following the Closing Date, use its reasonable best
efforts to assist Bioglan in these matters, but they shall remain the sole
responsibility of Bioglan.

         Section 5.4 Agreement to Distribute. In order to ensure continued
supply of the Products to customers following consummation of this Agreement,
Medicis hereby agrees to act as distributor of the Products for the earlier of
(i) a period of four (4) months from the consummation of this Agreement, or (ii)
until Bioglan gives written notice to Medicis that Bioglan has developed its own
distribution network. This period shall be extended, at the written request of
Bioglan, for a further two (2) months if, after using its reasonable best
efforts, Bioglan has been unable to develop its own distribution system at the
end of the four month period. Upon expiration of the period for which Medicis
shall distribute Products on behalf of Bioglan as set forth above, Medicis shall
return to Bioglan any inventory of the Products in Medicis' possession as of the
date thereof.

         Section 5.5 Notification of Customers. Medicis and Bioglan agree to
cooperate in the notification to customers of the transactions contemplated by
this Agreement. Neither Medicis nor Bioglan shall notify any customers of such
transactions without the written consent of the other. Such notification (the
"Joint Notice") shall be in such form as is reasonably satisfactory to Bioglan
and Medicis and shall also inform such customers of Bioglan's address.

         Section 5.6 Customer Orders. Medicis agrees for a period of four (4)
months after the Closing Date to use its reasonable best efforts to forward to
Bioglan all customer orders or inquiries for the Products received after the
Closing as soon as practicable after receipt by Medicis. Medicis agrees that,
for a period of six (6) months from the Closing Date, it will inform any
customers ordering the Products or requesting information about the Products,
that Bioglan is now supplying the Products and provide such customers with
Bioglan's address.

         Section 5.7 Accounts Receivable.

         (a) In the event that Medicis or any of Medicis' Affiliates receive any
payment relating to any accounts receivable that accrued on or after the date on
which the Transition Services Agreement is terminated or expires, such payment
will be the property of, and will be



                                       12
   17
immediately forwarded and remitted to Bioglan. Medicis or any such Affiliates
will promptly endorse and deliver to Bioglan any cash, checks or other documents
received by Medicis or any such Affiliate on account of any such accounts
receivable and will advise Bioglan of any counterclaims or set-offs that may
arise subsequent to the Closing Date with respect to such accounts receivable.

         (b) In the event that Bioglan or any of Bioglan's Affiliates receive
any payment relating to any accounts receivable that accrued prior to the date
on which the Transition Services Agreement is terminated or expires, such
payment will be the property of, and will be immediately forwarded and remitted
to Medicis. Bioglan or any such Affiliates will promptly endorse and deliver to
Medicis any cash, checks or other documents received by Bioglan or any such
Affiliate on account of any such accounts receivable and will advise Medicis of
any counterclaims or set-offs that may arise subsequent to the Closing Date with
respect to such accounts receivable.

         Section 5.8 Product Registration.

         (a) After the Closing, Bioglan will initially market the Products under
the Authorizations, such Authorizations having been varied to permit the same.
Such distribution relationship shall continue until Bioglan obtains regulatory
authorization from the FDA to market the Products under its own authorizations
(the "New Authorizations").

         (b) To permit Bioglan to distribute and sell the Products, Bioglan
shall, promptly following signature hereof at its own expense, file all
necessary instruments with the FDA to obtain a waiver to vary Medicis'
Authorizations to allow Bioglan to sell the Products.

         (c) Bioglan shall, at its sole expense, file a product license
application with the FDA for each of the Products. Medicis shall, at its
expense, file all necessary instruments with the FDA to authorize Bioglan to
cross-refer to the data contained in the Authorizations in order for Bioglan to
obtain the New Authorizations.

         (d) Within thirty (30) days after the Closing Date, the parties shall
each appoint a primary liaison (the "Medical Affairs Liaison") to communicate
with each other with regard to the actions and information required pursuant to
this Section 5.8 and shall notify the other of the name, address and telephone
number of the person so appointed.

         (e) During the period that Bioglan is selling the Products under the
Authorizations, each party shall advise the other as set forth in (i) and (ii)
below of any adverse drug experience associated with the Products. In addition,
Bioglan shall report all adverse drug experience information it obtains,
including that obtained from Medicis, to the FDA as set forth in Section 5.8(f)
below:

                  (i) Any adverse drug experience information obtained by a
         party shall be reported to Bioglan's Medical Affairs Liaison, by
         telephone or in writing (only by facsimile) within three (3) working
         days after the first party's initial receipt of the information;
         provided, however, that any report of a serious unlabelled side effect
         or any report of a death shall be reported to Bioglan's Medical Affairs
         Liaison within twenty-four (24) hours of receipt of the information;
         and



                                       13
   18
                  (ii) The reports of adverse drug experience shall contain the
         following information: (i) the date the report was received; (ii) the
         name of the reporter; (iii) the address and telephone number of the
         reporter; (iv) the patient details; (v) the suspected drug; (vi) other
         concomitant therapy; (vii) a description of the adverse drug
         experience; and (viii) any additional relevant information; provided
         such information is obtainable through the use of reasonable efforts
         and is not subject to any duty of non-disclosure or confidence.

         (f) Bioglan shall report all adverse drug experience information
associated with the Products, including those received from Medicis under this
Section 5.8 to the FDA, in accordance with the laws and regulations of the
United States.

         (g) After the Closing, Bioglan shall bear the entire responsibility for
the manufacture, distribution, advertising and sale of the Products and for all
actions required by the FDA and other governmental laws and regulations relating
to the manufacture, distribution, and use of the Products after June 1, 1999.

         (h) Upon the grant to Bioglan of the New Authorizations, Medicis agrees
at its own expense to take all reasonably necessary steps to cancel, transfer or
assign forthwith at Bioglan's option its Authorizations in the United States.

         Section 5.9 Recall and Return of Products. During the period that
Bioglan is selling Products pursuant to the Authorizations, Bioglan shall, at
its cost, be responsible for all activities to be performed relating to any
recall or return of such Products and Medicis shall during such period promptly
notify Bioglan of all decisions and notifications of the FDA relating to the
Products.

         Section 5.10 Enforcement of GenDerm Warranties. In further
consideration of Bioglan entering into this Agreement, Medicis agrees that for a
period of two (2) years from the Closing Date, upon written request by Bioglan,
it shall take all reasonable actions necessary to enforce any and all of the
GenDerm Warranties in accordance with terms of the Merger Agreement by and among
GenDerm Corporation, Medicis and Medicis Acquisition Corporation for the benefit
of Bioglan; provided that Bioglan shall be responsible for all out of pocket
expenses relating to such enforcement and provided further that Medicis shall
not be required to take any position or pursue any claim that is adverse, in any
respect, to Medicis. Notwithstanding anything in this Section 5.10 to the
contrary, any and all claims by Medicis pursuant to the Merger Agreement pending
as of the date hereof are solely for the benefit of Medicis.

         Section 5.11 Similar Marks. Medicis is the owner of the trademark
GLYCOTHERAPLEX, U.S. Registration No. 2,179,275, issued August 4, 1998 for the
mark GLYCOTHERAPLEX, and Community Trademark Registration No. 510,784 issued
January 20, 1999, for the mark GLYCOTHERAPLEX. An Affiliate of Medicis is the
owner of the trademark KERAPLEX and U.S. Trademark Application Serial No.
75/368,443, filed on October 6, 1997, for the mark KERAPLEX. Medicis is also the
owner of the following marks and registrations, which by this Agreement, Medicis
transfers to Bioglan: THERAPLEX; THERAPLEX CLEARLOTION; U.S. registration No.
1,639,471, issued April 2, 1991, for the



                                       14
   19
mark THERAPLEX; and U.S. Registration No. 1,797,498, issued October 12, 1993,
for the mark THERAPLEX CLEARLOTION. The parties acknowledge each other's right
in and to the noted marks, registrations and application, and further agree that
concurrent use of the marks THERAPLEX and/or THERAPLEX CLEARLOTION by Bioglan
and its Affiliates, and KERAPLEX, or GLYCOTHERAPLEX and/or GLYCOPLEX by Medicis
and its Affiliates, all for dermatological or cosmetic products, is not likely
to cause confusion. Bioglan hereby consents to use and registration of the marks
KERAPLEX, GLYCOTHERAPLEX and GLYCOPLEX for dermatological or cosmetic products
by Medicis and its Affiliates and agrees that it will not interfere with issued
registrations for the marks for such products. Likewise, Medicis agrees that it
will not interfere with use or oppose registration of the marks THERAPLEX or
THERAPLEX CLEARLOTION by Bioglan and its Affiliates for dermatological or
cosmetic products and agrees that it will not interfere with issued
registrations for the marks for such products. The parties agree to assist one
another, to the extent reasonably required and at the expense of the trademark
owner, to obtain registrations for their respective marks for dermatological
and/or cosmetic products.

         Section 5.12 GenDerm Earnout. Bioglan agrees to fulfill all of the
obligations of Medicis or its Affiliates pursuant to Section 2(h)(iv) and
2(h)(v) of the Merger Agreement; provided always that Bioglan shall have no
liability to GenDerm Corporation or the Target Stockholders or the Target
Stockholders Representative (each as defined therein) in connection with the
Merger Agreement, including, without limitation, the payment of the Earnout
Amount.

         Section 5.13 Payment of Royalties. Medicis agrees that it will pay all
royalties which accrued under the License Agreements prior to June 1, 1999 in
accordance with the terms of such License Agreements.

         Section 5.14 Title to Assets. Bioglan agrees that Bioglan Pharma, Inc.
shall be the sole owner of the Purchased Assets and it shall not permit Bioglan
Pharma, Inc. to sell, assign, encumber or sublicense any right, title or
interest in any of the Purchased Assets, other than in the ordinary course of
business, until such time as the Promissory Note is fully paid or otherwise
cancelled in accordance with its terms.

                                   ARTICLE VI
                         REPRESENTATIONS AND WARRANTIES

         Section 6.1 Representations and Warranties of Medicis. Except as set
forth in the Disclosure Letter, Medicis hereby represents and warrants to
Bioglan as of the date hereof as follows:

         (a) Organization. Medicis and each of its Affiliates that is a party to
any of the License Agreements or to any of the agreements contemplated hereby
(i) is a corporation duly organized and validly existing and in good standing
under the laws of its state of incorporation and (ii) has all necessary
corporate power and authority to own its properties and to conduct its business,
as currently conducted.

         (b) Authorization. The execution and delivery of this Agreement and the
other agreements contemplated hereby, and the consummation of the transactions
contemplated hereby


                                       15
   20
and thereby, are within the corporate power of Medicis and any relevant
Affiliate of Medicis, have been or will be, on or prior to the Closing Date,
duly authorized by all necessary corporate proceedings and such agreements have
been or will be, on or prior to the Closing, duly executed and delivered by
Medicis or such Affiliate (where appropriate).

         (c) Execution and Delivery. Neither the execution of this Agreement and
the other agreements contemplated hereby nor the consummation of the
transactions contemplated herein and therein: (i) requires Medicis to obtain any
approval, consent or withholding of objections on the part of any regulatory or
governmental body; (ii) will result in any violation or breach of any term or
provision of Medicis' Certificate of Incorporation or Bylaws; (iii) will
constitute a default under any material indenture, mortgage, deed of trust,
license agreement or other contract or agreement to which Medicis or any
Affiliate of Medicis that is a party to any of the License Agreements or any of
the agreements contemplated hereby is a party or to which the Purchased Assets
may be subject; or (iv) will violate any provision of any judicial, governmental
or administrative order, writ, injunction, award, judgment or decree applicable
to Medicis or any Affiliate of Medicis that is a party to any of the License
Agreements or any of the agreements contemplated hereby which would result in a
material adverse effect in the condition, business or operations ("Material
Adverse Effect") of Medicis.

         (d) Binding Obligation. As of the Closing, this Agreement and the other
agreements contemplated hereby will have been duly and validly authorized,
executed and delivered by Medicis or the relevant Affiliate of Medicis as
provided hereunder and, when duly executed and delivered by Bioglan or Bioglan
AB as provided hereunder, will constitute valid and binding obligations of
Medicis or the relevant Affiliate of Medicis, enforceable against Medicis and
the relevant Affiliate of Medicis in accordance with their terms, except as such
enforcement may be limited by bankruptcy or other laws of general application
affecting creditor rights or general principles of equity or principles of
public policy relating to indemnification.

         (e) Broker. Except for Corporate Development Specialists, Inc., neither
Medicis nor any officer, director or agent of Medicis has employed any broker,
finder, or agent with respect to this Agreement or the transactions contemplated
hereby.

         (f) Gross Sales. The amount of gross sales, less returns, for the
calendar year ended December 31 1998, and for the calendar quarter ended March
31, 1999 as accounted for by Medicis in accordance with United States generally
accepted account principles ("GAAP"), which has been provided by Medicis to
Bioglan prior to the date of this Agreement as contained in the Disclosure
Letter, was correct in all material respects. Medicis has also provided Bioglan
in the Disclosure Letter with information regarding shipments and returns for
the period from April 1, 1999 to May 31, 1999, which information was correct in
all material respects.

         (g) Trademarks. The Trademarks are currently being used commercially by
Medicis and have been properly filed or registered with the U.S. Patent and
Trademark Office and are valid and in full force and effect as of the date of
execution of this Agreement.

         Except as may be restricted or prohibited by any applicable law, rule,
regulation or decision, Medicis or its Affiliates has the exclusive right to
use, transfer and assign, free and clear of any material liens, royalties or
encumbrances, the registrations for the Trademarks.



                                       16
   21
         To the best of Medicis' knowledge, the manufacture, use or sale of the
Products by Medicis or the use of the Trademarks in the United States of America
for the sale of the Products does not infringe the rights of any third party
including inter alia intellectual property rights.

         Except for any restriction or prohibition set forth in any applicable
law, rule, regulation, decision or other governmental action, Medicis is not
aware of any restriction or prohibition which would prevent or restrict the
disclosure of the Know-How to Bioglan hereunder.

         (h) Adverse Drug Experiences. Medicis has informed Bioglan of all
material adverse drug experiences related to the Products of which it has
knowledge.

         (i) License Agreements. Each License Agreement is in full force and
effect, and a full and complete copy thereof including all amendments thereof
(if any), as duly executed by all parties, is attached to the Disclosure Letter.
There have been and are no other amendments, changes or waivers by either party
of any of the terms thereof, written or otherwise.

                  Medicis or its Affiliates have the full legal right, power and
authority to convey the License Agreements.

                  Neither Medicis nor its Affiliates have assigned, sublicensed
or granted, nor is there otherwise outstanding, any material lien or encumbrance
of any kind in, any License Agreement.

                  Medicis and its Affiliates are in compliance with all material
terms of each License Agreement. To the knowledge of Medicis, there are no
counterclaims, defenses or offsets against any obligation of Medicis or any of
its Affiliates to perform under any of the License Agreements.

         (j) Inventory. Medicis has good and valid title to the Inventory, free
and clear of any material lien or encumbrance, and has not sold or contracted to
sell any of the Inventory other than in the ordinary course of business.

                  All Inventory is held under and in accordance with all
material requirements of the License Agreements.

                  All Inventory is in good and marketable condition, has an
anticipated remaining shelf life as of June 1, 1999 of not less than twelve (12)
months, and does not include any patently damaged, obsolete, or outdated
material; provided that if the representation made in the foregoing sentence is
not materially true and correct Medicis shall refund to Bioglan any amounts paid
pursuant to Section 2.2(a) relating to such Inventory or provide substitute
Inventory in the same amount to replace the Inventory which does not conform
with this representation and such breach of the representation shall not be
sufficient reason for Bioglan not to consummate the transactions contemplated
hereby.




                                       17
   22
                  All Products sold by Medicis or its Affiliates after June 1,
1999 to the Closing Date or in Inventory as of the Closing Date were
manufactured in accordance with Good Manufacturing Practices, are adequately
packaged and labeled and are in conformity with all applicable Authorizations.

         (k) Litigation. There is no litigation, arbitration proceeding,
governmental investigation, action or claims of any kind, pending or, to the
knowledge of Medicis, threatened, or facts which could reasonably be expected to
give rise thereto, by or against Medicis or any of its Affiliates which would
affect Bioglan as the purchaser hereunder or relative to the License Agreements
or the Products, other than the Private Label Litigation and the Branded
Litigation, including, without limitation, regarding breach of express or
implied warranty or representation or failure to warn or relating to personal
injury, property damage or other liability arising from or caused by the
Products.

         Notwithstanding anything set forth in the Disclosure Letter, Medicis
warrants that Bioglan is not and will not be materially adversely affected by
any dispute or litigation directly related to the Products based upon claims up
to the Closing Date by Medicis against the Target Shareholders under the Merger
Agreement.

         (l) Customer and Supplier Lists. Medicis has, or prior to the Closing
will have, provided Bioglan with complete and accurate lists of the names and
addresses of all material customers and suppliers of the Products.

         (m) DISCLAIMER. OTHER THAN THOSE ARISING AS A RESULT OF A BREACH OF THE
REPRESENTATIONS AND WARRANTIES HERETO AND THE BILL OF SALE, BIOGLAN HEREBY
WAIVES ANY AND ALL OTHER REPRESENTATIONS, WARRANTIES, DUTIES, AND GUARANTEES OF
ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, CONCERNING THE
PURCHASED ASSETS OR THE VALUE, CONDITION, EFFECTIVENESS OR COMPLIANCE WITH
SPECIFICATION OF THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, THE ABSENCE
OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR THE QUALITY OF THE
MATERIALS OR WORKMANSHIP, AND BIOGLAN HEREBY WAIVES ANY AND ALL RIGHTS AND
REMEDIES IT MAY HAVE AGAINST MEDICIS RELATING TO ANY OF THE FOREGOING AND
ARISING BY LAW OR OTHERWISE OR WITH RESPECT TO LOSS OF USE, REVENUE OR PROFIT,
THE EXISTENCE OF ANY LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT
DISCOVERABLE), OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES.

         Section 6.2 Representations and Warranties of Bioglan. Bioglan hereby
represents and warrants to Medicis as of the date hereof as follows:

         (a) Organization. Bioglan (i) is a public limited company duly
organized, validly existing under the Laws of England and Wales and (ii) has all
necessary power and authority to own its properties and to conduct its business
as presently conducted.



                                       18
   23
         (b) Authority. The execution and delivery of this Agreement and the
other agreements contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby, are within the corporate power of Bioglan and
any relevant Affiliate of Bioglan, have been or will be, on or prior to the
Closing Date, duly authorized by all necessary corporate proceedings except for
shareholder approval, the obtaining of which shall be governed by and subject to
Section 7.5, and such agreements have been or will be, on or prior to the
Closing, duly executed and delivered by Bioglan and any relevant Affiliate of
Bioglan.

         (c)                                       has good and marketable title
to the                     which is the subject of the
and has the full legal right, power and authority to license such formulation to
Medicis. Bioglan has not otherwise assigned, sublicensed or granted any rights
to the                     which could conflict with the
         .

         (d) Execution and Delivery. Subject to the approval of the shareholders
of Bioglan at the shareholders' meeting as contemplated in Section 7.5, neither
the execution of this Agreement and the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby and thereby: (i)
requires Bioglan to obtain the approval, consent or withholding of objection on
the part of any governmental body; (ii) will result in any violation or breach
of any term or provisions of Bioglan's memorandum and articles of association;
(iii) will constitute a default under any indenture, mortgage, deed of trust,
license, agreement, or other contract or agreement to which Bioglan or any
Affiliate of Bioglan that is a party to any of the agreements contemplated
hereby is a party; or (iv) will violate any provision of any judicial,
governmental or administrative order, writ, injunction, award, judgment or
decree applicable to Bioglan or any Affiliate of Bioglan that is a party to any
of the agreements contemplated hereby which could reasonably be expected to
result in a Material Adverse Effect on Bioglan.

         (e) Binding Obligation. Subject to the approval of the shareholders of
Bioglan at the shareholders' meeting as contemplated in Section 7.5, as of the
Closing this Agreement and the other agreements contemplated hereby will have
been duly and validly authorized, executed and delivered by Bioglan or the
relevant Affiliate of Bioglan, and when duly executed and delivered by Medicis
and any relevant Affiliate of Medicis, will constitute valid and binding
obligations of Bioglan or the relevant Affiliate of Bioglan, enforceable against
Bioglan in accordance with their terms, except as such enforcement may be
limited by bankruptcy or other laws of general application affecting creditor
rights or general principles of equity or principles of public policy relating
to indemnification.

         (f) Broker. Neither Bioglan nor any officer, director or agent of
Bioglan, has employed any broker or finder with respect to this Agreement or the
transactions contemplated hereby.

         (g) Shareholders' Meeting. Bioglan has obtained irrevocable
undertakings to vote for the transactions contemplated by this Agreement from
holders of a majority of Bioglan's issued ordinary shares.



                                       19
   24
                                  ARTICLE VII
                            CONDUCT PRIOR TO CLOSING

         Section 7.1 Cooperation. The parties agree to cooperate mutually and
make all reasonable efforts toward consummating the transactions contemplated
hereby and fulfilling the purposes of this Agreement prior to and following
Closing, including providing and executing such additional documentation and
communications as may be appropriate for such purposes.

         Section 7.2 Conduct of Business by Medicis. Upon execution of this
Agreement, Medicis shall not without the prior written consent of Bioglan take
any action out of the ordinary course of business in relation to the Products
prior to Closing nor will it do, procure or allow anything which may cause,
constitute or result in a breach of the Warranties. After the execution of this
Agreement through the Closing Date, Medicis shall provide Bioglan, its agents,
representatives and professional advisors reasonable access to all information
and facilities relating to the Purchased Assets, as reasonably requested by
Bioglan during normal business hours.

         Section 7.3 Conduct of Private Label Litigation. From the date of this
Agreement until the Closing Date, Medicis agrees that it will take no material
actions, including the settlement of any claims, relating to the Private Label
Litigation without the consent of Bioglan, which consent shall not be
unreasonably withheld, conditioned or delayed. During such period Medicis shall
provide Bioglan with all information reasonably necessary for Bioglan to
evaluate the Private Label Litigation. If Bioglan notifies Medicis within one
(1) day prior to the Closing Date, Medicis shall no longer pursue the Private
Label Litigation.

         Section 7.4 Review. Medicis shall permit Bioglan's auditors to inspect
Medicis' records relating to sales of the Products to enable the said auditors
to adequately validate the financial receipts relating to the sales of the
Purchased Assets (as required under the Listing Rules of the London Stock
Exchange) since January 1, 1998; provided, however, that Medicis shall have no
liability whatsoever in connection with the review described herein, unless the
review shall indicate the existence of a material breach of the Warranties.

         Section 7.5 Shareholders' Meeting. Bioglan shall cause a shareholders'
meeting to be called to vote on the transactions contemplated by this Agreement
as soon as possible, but no later than July 24, 1999 and shall use its best
efforts to cause the shareholders to approve the transactions contemplated by
this Agreement.

         Section 7.6 Validation Claims. Bioglan will remit to Medicis bills for
validation in connection with (i) that certain Civamide/Capsaicin Development
and Supply Agreement dated October 13, 1998 ("Chemsyn Agreement") by and between
GenDerm and Eagle Picher Technologies LLC and (ii) that certain Contract
Manufacturing Agreement dated December 15, 1993 by and between GenDerm and DPT
Laboratories, Inc. ("DPT Agreement") and Medicis shall reimburse Bioglan for all
validation expenses under such agreements; provided, however, that Medicis shall
not be liable for reimbursements on (i) the Chemsyn Agreement for amounts
greater than US $250,000 less any validation costs previously paid by Medicis or
its Affiliates for validation costs under the Chemsyn Agreement; and (ii) the
DPT



                                       20
   25
Agreement for amounts greater than US $250,000 less any validation costs
previously paid by Medicis or any of its Affiliates for validation costs under
the DPT Agreement.

                                  ARTICLE VIII
                                 INDEMNIFICATION

         Section 8.1 Indemnification by Medicis. Medicis agrees to indemnify,
defend and hold harmless Bioglan (and its directors, officers, employees,
Affiliates, successors and assigns) from and against all losses, personal
injuries, liabilities, damages (other than incidental or consequential),
deficiencies, costs or expenses including, without limitation, interest,
penalties and reasonable attorneys' fees and disbursements ("Losses") of Bioglan
and its Affiliates based upon, arising out of or otherwise in respect of:

         (a) any material inaccuracy in or material breach of, any
representation, warranty, covenant or agreement (other than with respect to the
covenant set forth in Section 7.4, for which Medicis shall have no liability,
unless the review shall indicate the existence of a material breach of the
Warranties) of Medicis or any relevant Affiliate contained in this Agreement.

         (b) any harm to any third party caused by any defect in the Products
manufactured, mandated, distributed, or sold by Medicis or any relevant
Affiliate, prior to June 1, 1999, or by any negligent or wrongful act of Medicis
or any relevant Affiliate prior to the Closing in connection with the
manufacture, distribution, advertising, or sale of the Products, or any failure
to comply with any regulation or statute in connection with the Products.

         (c) failure of Medicis or any relevant Affiliate prior to the Closing
Date to use its reasonable best efforts to conduct its efforts under this
Agreement at all times in accordance with all applicable laws and regulations
which may materially affect the Products including without limitation the U.S.
Foreign Corrupt Practices Act.

         (d) all liabilities (other than for royalties referred to in Section
2.1(a)) due to Dr. Gans pursuant to that letter dated December 12, 1988 from
Medicis to Lincoln Ventures, Inc.

         Section 8.2 Indemnification by Bioglan. Bioglan agrees to indemnify,
defend and hold harmless Medicis (and its directors, officers, employees,
Affiliates, successors and assigns) from and against all Losses of Medicis and
its Affiliates based upon, arising out of or otherwise in respect of:

         (a) any material inaccuracy in or material breach of any
representation, warranty, covenant or agreement of Bioglan or any of its
Affiliates contained in this Agreement.

         (b) any harm to any third party caused by any defect in the Products
manufactured, mandated, distributed or sold by Bioglan or any relevant Affiliate
after June 1, 1999 or by any negligent or wrongful act of Bioglan in connection
with the manufacture, distribution, advertising, or sale of the Products after
the Closing Date, or any failure after the Closing Date to comply with any
regulation or statute.

         (c) failure of Bioglan or any relevant Affiliate to use its reasonable
best efforts to conduct its efforts under this Agreement at all times in
accordance with all applicable laws and



                                       21
   26
regulations which may materially affect the Products including without
limitation the US Foreign Corrupt Practices Act.

         Section 8.3 Procedure for Indemnification.

         (a) If any legal proceeding shall be instituted, or any claim or demand
made, against an indemnifying party in respect of which an indemnifying party
may be liable hereunder, or if either party hereto for any reason shall believe
that it has a claim against the other pursuant to the respective Sections 8.1 or
8.2 hereof, then the indemnified party or the party believing it has a claim
against the other, as the case may be (in either case, the "Indemnified Party"),
shall give prompt written notice hereunder to the indemnifying party or the
party against whom the party giving notice believes it has a claim, as the case
may be (in either case, the "Indemnifying Party"). Such notice shall specify in
reasonable detail the date such underlying claim or belief first was asserted or
arose, the nature of the Loss(es) for which payment is claimed, the Section or
Sections of this Agreement upon which such claim is based, and the amount
payable in respect thereto, and shall provide a copy of all pleadings relating
to the underlying claim.

         (b) If an Indemnifying Party shall receive notice pursuant to this
Section 8.3, the Indemnifying Party may, at its sole option, elect to defend
against the Loss, which is the subject of such notice. If the Indemnifying Party
elects to defend, then the Indemnified Party shall have the right to participate
in such defense, and the trial counsel for the Indemnified Party shall be chosen
by the Indemnifying Party provided that such trial counsel shall be reasonably
satisfactory to the Indemnified Party, the costs of which shall be borne by the
Indemnified Party. If the Indemnifying Party does not elect to defend, then the
Indemnified Party may do so by its own counsel provided that such counsel shall
be reasonably satisfactory to the Indemnifying Party, the costs of which shall
be borne by the Indemnifying Party, and the Indemnifying Party agrees to
cooperate with the Indemnified Party in such defense.

         (c) If the amount of any actual Loss indemnified against hereunder
shall at any time subsequent to the payment of any indemnity payable hereunder,
be reduced by any recovery, settlement or other payment, then the amount of such
reduction, less any expense incurred by the party receiving such recovery,
settlement or other payment in connection therewith, shall be repaid promptly to
the Indemnifying Party.

         (d) The aggregate indemnification obligations of each of the parties
hereto under Section 8.1 or 8.2 hereof, as the case may be, will not exceed
United States Thirty-Seven Million Dollars (US $37,000,000).

         (e) Neither party shall be obligated to indemnify the other for any
Losses hereunder, unless and until the aggregate amount of all Losses exceeds US
$250,000 (the "Basket"), and shall be liable only for amounts in excess of the
Basket; provided, however, that if the amount of Losses with respect to a breach
solely of either Section 6.1(f) or 6.1(i) exceeds US $250,000, Medicis shall be
liable for all Losses with respect to such breaches of either Section 6.1(f) or
6.1(i) from the first dollar and provided further that the Basket shall not
apply to Section 8.1(d).



                                       22
   27
                                   ARTICLE IX
                               GENERAL PROVISIONS

         Section 9.1 Survival of Representations and Warranties. All
representations or warranties set forth herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby for a period of two (2) years after the Closing Date. Thereafter, no
claim for breach of any representation or warranty shall be made. If this
Agreement is terminated pursuant to Section 9.12 hereof, neither Bioglan nor
Medicis shall be under any liability whatsoever with respect to any such
representation or warranty. The covenants and agreements shall survive
indefinitely, unless otherwise specified herein.

         Section 9.2 Notices. All communications under this Agreement shall be
in writing and shall either be faxed, sent by courier or mailed by first class
mail, postage prepaid, to the fax number and/or address specified below. If
faxed, such communication shall be deemed to be given when sent; provided,
however, that any fax shall be confirmed by sending a hard copy by express
courier or first class mail (by methods specified herein) within one (1)
business day of the sending of such fax. If sent by courier or mailed by first
class mail as specified herein, such communication shall be deemed to be given
either two (2) business days after sending (for communications sent by courier)
or ten (10) business days after mailing (for communications sent by mail). All
communications hereunder shall be sent:

         TO BIOGLAN: at its address shown below or such other address as it may
give to Medicis by notice hereunder:

                                                         
         5 Hunting Gate                                     and to:
         Hitchin, Hertfordshire SG4 0TJ                     Roiter Zucker Solicitors
         England                                            Regent House
                                                            5-7 Broadhurst Gardens
         Attn:  Terry I. Sadler                             Swiss Cottage
                                                            London NW6 3RZ England
                                                            Attn: Warren Roiter




         TO MEDICIS, at its address shown below or such other address as it may
give to Bioglan by notice hereunder:

                                                              
         4343 East Camelback Road,                               and to:
         Suite 250                                               Akin, Gump, Strauss, Hauer &
         Phoenix, Arizona  85018-2100 USA                        Feld, L.L.P.
         Attn:  Jonah Shacknai                                   590 Madison Avenue
                                                                 New York, New York  10022
                                                                 Attn:  Stephen E. Older, Esq.




         Section 9.3 Confidential Information. Bioglan and Medicis shall each
hold (and shall cause their respective Affiliates to hold) in confidence all
documents and information received by it in connection with the transactions
contemplated by this Agreement and, in the event that for any reason the
transactions contemplated by this Agreement shall not be


                                       23
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consummated, Bioglan and Medicis shall refrain (and shall cause their respective
Affiliates to refrain) from disclosing or otherwise using such documents and
information except in connection with any legal proceeding that may be
contemplated or instigated by either party against the other in relation to any
matter arising out of or under this Agreement, or as required by law or
regulation. This Section 9.3 shall not apply to information generally available
to the public through no fault of the disclosing party. Nothing in this Section
9.3 shall prevent either party from disclosing such information as may be
required by applicable law or any governmental or regulatory body or by the
rules or regulations of any national securities exchange upon which the
securities of either party are listed. If either party is requested to disclose
confidential information pursuant to the preceding sentence, (i) such party will
notify the other party immediately of the existence, terms and circumstances
surrounding such a request so that the other party may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions of this
Agreement, and (ii) if, in the absence of a protective order, such disclosure is
required in the opinion of the disclosing party's counsel, such party may make
such disclosure without liability hereunder, provided that only that portion of
the confidential information which is legally required is disclosed, the other
party receives notice of the information to be disclosed as far in advance of
its disclosure as practicable and will use its reasonable best efforts to ensure
that confidential treatment will be accorded to all such disclosed information.
Bioglan shall not disclose confidential information to any third party in
connection with the marketing and selling of Bioglan's securities to such third
party without the prior written consent of Medicis (which consent shall not be
unreasonably withheld), provided that such consent shall be deemed granted if
Medicis has not responded to a request by Bioglan for such consent within
twenty-four (24) hours after Medicis receives actual notice of such request with
sufficient information regarding the terms and conditions of such proposed
disclosure to allow Medicis to evaluate the proposed disclosure.

         Section 9.4 Amendment. This Agreement may be amended, modified or
supplemented only by written agreement of the parties hereto.

         Section 9.5 Binding Effect. The rights and obligations of Bioglan and
Medicis under this Agreement and the agreements contemplated hereby shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but may not be assigned by either party
without the prior written consent of the other party. Nothing set forth herein
shall prevent either party from assigning its rights or obligations hereunder to
an Affiliate of said party provided that no such assignment shall relieve said
party of its obligations hereunder.

         Section 9.6 Press Releases. Bioglan and Medicis agree to approve
jointly the text of an initial press release announcing the execution of this
Agreement or the consummation of the transactions contemplated hereby and not to
use the name of the other party in any press information, marketing or
advertising materials or other release to the public without the prior written
approval of the other, which approval shall not be unreasonably withheld. The
foregoing shall not be deemed to prevent either party from making any public
announcement or issuing any circular which may be required by legislation or any
governmental or regulatory body or by the rules and regulations of any national
securities exchange upon which the securities of either party are traded;
provided that the disclosing party has notified the non-disclosing party of the
intended text of such public announcement and the non-disclosing party has been
given an opportunity to



                                       24
   29
comment on such text prior to its announcement. The disclosing party shall make
such changes as are reasonably requested.

         Section 9.7 Expenses; Taxes. Medicis and Bioglan shall each be
responsible for their respective costs incurred in connection with this
Agreement and the transactions contemplated hereby. Except as otherwise provided
herein, Bioglan shall pay all recording fees and all taxes due by Bioglan in
connection with the transfer of the Purchased Assets to Bioglan hereunder.

         Section 9.8 Headings. All headings in this Agreement are for
convenience only and shall not affect the interpretation or meaning of any
provision hereof.

         Section 9.9 Entire Agreement. This Agreement and the Disclosure Letter,
together with the other agreements provided for herein, and the Schedules and
Exhibits attached hereto, constitutes the entire agreement of the parties,
merges all prior negotiations, agreements and understandings, and states in full
all representations and warranties applicable to this Agreement. To the extent
there are any inconsistencies between the provisions of this Agreement and the
Disclosure Letter, the Schedules and Exhibits and any of the other agreements
provided for herein, this Agreement shall govern.

         Section 9.10 Waiver. No delay on the part of any party in exercising
any right, power, or privilege hereunder shall operate as a waiver thereof; nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege. The rights and remedies of any party based on, arising out
of or otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of facts
upon which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
contained in this Agreement (or in any other agreement between the parties) as
to which there is no inaccuracy or breach.

         Section 9.11 Severability. If any provision of this Agreement is found
or declared to be invalid or unenforceable by any court or other competent
authority having jurisdiction, such finding or declaration shall not invalidate
any other provision hereof, and this Agreement shall thereafter continue in full
force and effect except that such invalid or unenforceable provision, and (if
necessary) other provisions thereof, shall be reformed by a court of competent
jurisdiction so as to effect, insofar as is practicable, the intention of the
parties as set forth in this Agreement, provided that if such court is unable or
unwilling to affect such reformation, the invalid or unenforceable provision
shall be deemed deleted to the same extent as if it had never existed.

         Section 9.12 Termination. If the Closing does not occur on or prior to
August 30, 1999 this Agreement shall terminate, but without prejudice to the
provisions of Section 2.2(b); provided that Medicis may, at its option, extend
this Agreement to a date no later than December 31, 1999 by providing notice to
Bioglan and Bioglan may, at its option, extend this Agreement to a date no later
than December 31, 1999 by providing notice to Medicis if the



                                       25
   30
Closing has not occurred by that date because any of the conditions set forth in
Section 4.1 have not been satisfied; provided, however, that the provisions of
Sections 9.3, 9.7, 9.12 and 9.13 and Article X shall survive the termination of
this Agreement; and provided further that such termination shall not relieve any
party hereto of any liability for any breach of this Agreement.

         Section 9.13 Governing Law. This Agreement shall be governed by the
substantive laws of the State of Arizona, United States of America (without
regard to principles of conflict of laws) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
Bioglan consents and submits to the personal jurisdiction of the state and
federal courts in Arizona.

         Section 9.14 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         Section 9.15 Shareholder Approval. Subject to Section 9.12,
notwithstanding the Closing having taken place, if Bioglan shall for any reason
whatsoever fail to procure shareholder approval as provided in Section 7.5, then
(other than the assignment of the Dermastick License provided in Article XI,
which shall survive) the Closing shall be deemed for all purposes never to have
taken place and all documents delivered at the Closing shall be cancelled and
deemed to be null and void and all the Purchased Assets and Assumed Liabilities
shall be re-transferred to Medicis in the condition that they are in at such
time and the Micanol License Agreement shall be terminated; provided that the
Deposit shall be forfeited to Medicis and subject thereto, except for the
Security Agreement and the Trademark Security Agreement, neither party shall be
under any further liability or obligation to the other whether pursuant to this
Agreement or otherwise howsoever; provided, further, that the Security Agreement
and the Trademark Security Agreement shall remain in full force and effect.

                                   ARTICLE X
                                   ARBITRATION

         Section 10.1 Submission to Arbitration. The parties shall promptly
submit to arbitration any dispute which may arise in connection with this
Agreement that is not promptly resolved by them, except that each party may seek
injunctive relief for breaches of this Agreement if either party makes a good
faith determination that a breach of the terms of this Agreement by the other
party will result in irreparable harm and that injunctive relief is the only
adequate remedy.

         Section 10.2 Arbitrator and Rules of Arbitration. The American
Arbitration Association shall have jurisdiction over the arbitration, which
shall be conducted in accordance with the Commercial Arbitration Rules of such
Association, except as modified by agreement of the parties.

         Section 10.3 Selection of Arbitrators. In the event a dispute is to be
submitted to arbitration pursuant to this Article X, the parties agree that the
dispute shall be resolved by a private arbitration conducted by one arbitrator.
Within ten (10) days after the submission of such dispute to arbitration, the
parties shall agree upon one arbitrator, selected from a panel of



                                       26
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five individuals, none of whom is an officer, director or employee of a party or
an Affiliate of such party, or a person who has a direct or indirect personal or
financial interest in the outcome of the arbitration, designated by the American
Arbitration Association from its permanent panel of commercial arbitrators. The
parties shall select the arbitrator by alternately striking names of the
individuals so designated until only one name remains. A coin toss will
determine which party is to strike the first name.

         Section 10.4 Procedure. The arbitrator shall set a hearing date for an
arbitration (the "Hearing") within ninety (90) days from the date the arbitrator
is selected, unless otherwise agreed by the parties. At least fifteen (15) days
before the Hearing, each party shall submit to the arbitrator a list of all
witnesses and exhibits which it intends to present at the Hearing. No later than
five (5) days before the Hearing, each party shall provide to the arbitrator a
short (not to exceed five single-spaced pages or such other page limit as the
arbitrator permits) statement of its position with regard to the dispute.
Notwithstanding the Commercial Arbitration Rules, each party shall have the
right to conduct up to a total of two (2) depositions. At the Hearing, each
party shall, unless it waives the opportunity, make an oral opening statement
and an oral closing statement. The arbitrator shall not be strictly bound by
rules of procedure or rules of evidence, but shall use the Federal Rules of
Evidence as a guideline in conducting the Hearing. When testimony is complete
and each party has introduced its exhibits pursuant to the provisions of this
Agreement, and each party has made a closing statement pursuant to the
provisions of this Agreement or waived the opportunity to do so, the arbitrator
shall declare the Hearing closed; provided that the parties may submit
post-hearing briefs pursuant to an agreed upon schedule or a schedule formulated
by the arbitrator. The Hearing shall be conducted in private. Attendance at the
Hearing shall be limited to the following: (i) the arbitrator; (ii)
representatives of each party; (iii) each party's attorneys and such attorneys'
assistants or advisors, if any, including expert witnesses if any; (iv) a court
reporter if requested by either party; and (v) any witnesses. The arbitrator may
sequester witnesses upon the motion of a party. Within thirty (30) days of the
close of the Hearing or submission of the post-hearing briefs, the arbitrator
shall issue a written opinion and an award (the "Award") based on evidence,
arguments and post-hearing briefs, if any. The Award shall be a decision of the
arbitrator, shall resolve the parties' dispute and shall be final and binding on
the parties. Except as otherwise provided in this Agreement, there shall be no
ex parte communication regarding the subject matter of the Hearing, in which
event the arbitrator will render and deliver to the parties a written opinion
and Award within thirty (30) days of being notified that the parties waive the
Hearing. Notwithstanding any other provision of this Agreement, the arbitrator
shall have no power to delete from, add to or modify the terms of this
Agreement, and may not award any remedy which effectively conflicts directly or
indirectly with any provision of this Agreement.

         Section 10.5 Arbitration Costs. In any arbitration, all of the
reasonable costs and expenses of the successful party ("Successful Party")
(including reasonable attorneys' fees and expenses), all fees and expenses of
experts retained by the Successful Party and all costs of the arbitrator shall
be borne by the losing party ("Losing Party") in such arbitration. The "Losing
Party" and the "Successful Party" shall be determined by the arbitrator based on
the relative success or failure of each party to such arbitration.



                                       27
   32
                                   ARTICLE XI
                                   DERMASTICK

         Section 11.1 Assignment of Dermastick License. Notwithstanding any of
the other provisions of this Agreement, on June 30, 1999 Medicis will (or will
cause its relevant Affiliate to) sell, assign, convey, transfer and deliver to
Bioglan AB, and Bioglan will cause its Affiliate Bioglan AB to acquire from
Medicis or its Affiliate all of Medicis' or its Affiliate's right, title and
interest in, to and under the Dermastick License free from any liens, charges,
encumbrances, sub-licenses or other third party rights whatsoever.

         Section 11.2 Consideration. The consideration for the assignment of the
Dermastick License shall be the sum of US $1,600,000 which sum shall (subject to
Section 11.3) be paid by Bioglan to Medicis on June 30, 1999.

         Section 11.3 Offset. Provided that Bioglan shall obtain the shareholder
approval as provided in Section 7.5, the consideration paid pursuant to Section
11.2 shall be offset against and deducted from the sums otherwise due to Medicis
pursuant to the Promissory Note.

         Section 11.4 Warranties. Medicis hereby represents and warrants to
Bioglan as of the date hereof as follows:

         (a) neither Medicis nor any of its Affiliates has assigned, sublicensed
or granted, nor is there otherwise outstanding, any material lien or encumbrance
of any kind in or affecting the Dermastick License.

         (b) Medicis or its relevant Affiliate has the full legal right, power
and authority to convey the Dermastick License.

         (c) there are no material disputes or litigation known to Medicis
relating in any way to the Dermastick License.

         Section 11.5 Form of Assignment. The assignment of the Dermastick
License shall be substantially in the form of the License Assignment set forth
in Exhibit A attached hereto with such amendments thereto as are appropriate
having regard to the identity of the assignor and assignee therein and the
consideration as are provided for in this Section 11.

         Section 11.6 Deliveries. On June 30, 1999 Medicis shall (or shall cause
it relevant Affiliate to) execute and deliver to Bioglan AB an assignment of the
Dermastick License duly executed, together with the original Dermastick License
and Bioglan shall (or shall cause Bioglan AB to) execute and deliver to Medicis
a counterpart assignment of the Dermastick License duly executed, together with
payment of the consideration referred to in Section 11.2.


                            [SIGNATURE PAGE FOLLOWS]


                                       28
   33
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.

                                        MEDICIS PHARMACEUTICAL CORPORATION


                                        By: /s/ Mark A. Prygocki, Sr.
                                            -----------------------------
                                            Mark A. Prygocki, Sr.
                                            Chief Financial Officer


                                        BIOGLAN PHARMA PLC


                                        By: /s/ Terry I. Sadler
                                            -----------------------------
                                            Terry I. Sadler
                                            Chairman and Chief Executive Officer






                                       29
   34
                                   SCHEDULE 2

                                   TRADEMARKS


- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
          TRADEMARK                   COUNTRY            REG. NO.       REG. DATE                       CLASS & GOODS/
                                                                                                          SERVICES
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
                                                                           
THERAPLEX                                US              1639471          4/2/91       IC3:  DERMATOLOGICAL OINTMENT, NAMELY, SKIN
                                                                                       MOISTURIZERS.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
THERAPLEX CLEARLOTION                    US              1797498         10/12/93      IC5:  Dermatologic products; namely, a
                                                                                       therapeutic skin emollient for the treatment
                                                                                       of dry or damaged skin.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZONALON                                  JP              3302703          5/9/97       IC5:  Pharmaceutical preparations.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZONALON                                  MX               495222          6/20/95      IC5:  Topical dermatological preparations.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZONALON                                  US              1864160         11/22/94      IC5:  Topical dermatological preparations.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX                                  CL              516,028          7/6/98       IC5:  Topical analgesic preparation.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX                                  FR              1484342          7/7/87       IC5:  Topical analgesic preparation.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX                                  JP              2242915          7/30/90      Class 1:  Chemicals, medicines, medical
                                                                                       accessories.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX                                  KR               324198         10/17/95      IC10:  Drugs for central nervous system,
                                                                                       drugs for peripheral nervous system, drugs
                                                                                       for sensory organs, drugs for skin, drugs for
                                                                                       dispensing use.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ACTIVATED CONDITIONING SYSTEM            PU                                            IC5:  Conditioning component of a
                                                                                       dermatologic hair shampoo.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ACTIVATED CONDITIONING SYSTEM            US                                            IC5:  Conditioning component of a
                                                                                       dermatologic hair shampoo.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ACTIVATED CONDITIONING SYSTEM            US              1732211         11/10/92      Supplemental Register:  IC3:  Dermatologic
                                                                                       conditioning component of a hair shampoo.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ACTIVATED DELIVERY SYSTEM                PU                                            IC5:  Conditioning component of a
                                                                                       dermatologic hair shampoo.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ACTIVATED DELIVERY SYSTEM                US                                            Principal Register: IC5:  Carrier component
                                                                                       of a dermatologic hair shampoo.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ACTIVATED DELIVERY SYSTEM                US              1744076         12/29/92      Supplemental Register:  IC5:  Carrier
                                                                                       component of dermatologic hair shampoo,
                                                                                       containing coal, tar, and conditioners.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ACTIVATED HYDROSILICONE                  US              1853452          9/13/94      IC5:  Dermatologic preparation; namely a
                                                                                       component of a thermapeutic




                                       30
   35


- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
          TRADEMARK                   COUNTRY            REG. NO.       REG. DATE                       CLASS & GOODS/
                                                                                                          SERVICES
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
                                                                           
                                                                                       skin emollient which functions to prevent
                                                                                       moisture loss through the skin.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX                                  MX               477353         10/20/94      IC5:  Topical analgesic products.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX                                  US              1423561          1/6/87       IC5:  Cream for relief of herpes zoster
                                                                                       (shingles).
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX                                  US              1978408          6/4/96       IC5:  Topical analgesic pharmaceutical
                                                                                       preparations.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX & DESIGN                         US              1989291          7/23/96      IC5:  Topical analgesic preparations.
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------
ZOSTRIX HP TRIPLE STRENGTH &             US              1992073          8/6/96       IC5:  Topical analgesic preparations.
Design
- ------------------------------    -----------------    ----------    ---------------   ---------------------------------------------





                                       31
   36
                                   SCHEDULE 3

                             DEFERRED PAYMENT ASSETS

All pharmaceutical topical preparations that are currently sold under the U.S.
tradenames:

                                     Zostrix
                                     Zonalon
                                  Theramycin Z
             Benzashave (Except in such territories described in the
             Letter of Disclosure and Schedule 4 to this Agreement)
                                    Pramegel
                                    Texacort
                                      A-Fil
                                      Meted
                             Packer's Pine Tar Soap
                                    Occlusal
                                     Pentrax

Medicis makes no representation or warranty to the salability of the products
outside the U.S.




                                       32
   37
                                   SCHEDULE 4

                                   TERRITORIES


Bioglan is granted the right to manufacture, market and sell the products listed
in Schedule 3 subject to the terms and conditions of the Licensing Agreements in
all territories of the world in which Bioglan decides to market the products,
except that with respect to the Benzashave product, Medicis has granted rights
to Embil Pharmaceutical Co. LTD to sell Benzashave in Turkey, Cyprus, Morocco,
Tunisia, Turkmenistan and Algeria.





                                       33
   38
                                   SCHEDULE 5

                                OTHER AGREEMENTS

                                Chemsyn Agreement






                                       34
   39
                                   SCHEDULE 6

                          PREVIOUS AGREEMENTS PRODUCTS


                                  Theramycin Z
                                   Benzashave
                                    Pramegel
                                    Texacort
                                      A-Fil
                                      Meted
                             Packer's Pine Tar Soap
                                     Pentrax
                                    Occlusal

                                   TERRITORIES

                         All countries other than Canada




                                       35
   40
                                    EXHIBIT A

                           FORM OF LICENSE ASSIGNMENT








                                       36
   41
                                    EXHIBIT B

                          FORM OF TRADEMARK ASSIGNMENT








                                       37
   42
                                    EXHIBIT C

                              FORM OF BILL OF SALE







                                       38
   43
                                    EXHIBIT D

                      FORM OF TRANSITION SERVICES AGREEMENT









                                       39
   44
                                    EXHIBIT E

                       FORM OF CANADIAN LICENSE AGREEMENT








                                       40
   45
                                    EXHIBIT F

                           FORM OF LICENSE AGREEMENT







                                       41
   46
                                    EXHIBIT G

                             FORM OF PROMISSORY NOTE






                                       42
   47
                                    EXHIBIT H

                           FORM OF SECURITY AGREEMENT





                                       43
   48
                                    EXHIBIT I

                           FORM OF LICENSE TERMINATION




                                       44
   49
                                    EXHIBIT J

                      FORM OF TRADEMARK SECURITY AGREEMENT





                                       45

EX-10.96

   1
                                                                  EXHIBIT 10.96




                            ASSET PURCHASE AGREEMENT

                                  by and among

                             THE EXOREX COMPANY, LLC

                               BIOGLAN PHARMA PLC

                       MEDICIS PHARMACEUTICAL CORPORATION

                                       and

                            IMX PHARMACEUTICALS, INC.

                         -------------------------------

                            Dated as of June 29, 1999
                         -------------------------------




   2
                                TABLE OF CONTENTS





                                                                                                                Page
                                                                                                             
ARTICLE I DEFINITIONS..........................................................................................  1

ARTICLE II SALE AND PURCHASE; PURCHASE PRICE...................................................................  3
   Section   2.1    Sale and Purchase of Assets................................................................  3
   Section   2.2    Purchase Price.............................................................................  4
   Section   2.3    Form of Payment............................................................................  4
   Section   2.4    Assumption of Obligations..................................................................  4

ARTICLE III CLOSING............................................................................................  4
   Section   3.1    Closing....................................................................................  4
   Section   3.2    Closing Deliveries of the LLC..............................................................  4
   Section   3.3    Closing Deliveries of Bioglan..............................................................  5

ARTICLE IV CONDITIONS TO CLOSING...............................................................................  5
   Section   4.1    Conditions to Bioglan's Obligations........................................................  5
   Section   4.2    Conditions to the LLC's Obligations........................................................  6

ARTICLE V OTHER MATTERS........................................................................................  6
   Section   5.1    Use of Know-How............................................................................  6
   Section   5.2    New Product Development....................................................................  7
   Section   5.3    Risks Associated With the Products.........................................................  7
   Section   5.4    Agreement to Distribute....................................................................  7
   Section   5.5    Notification of Customers..................................................................  7
   Section   5.6    Customer Orders............................................................................  7
   Section   5.7    Accounts Receivable........................................................................  7
   Section   5.8    Product Registration.......................................................................  8
   Section   5.9    Recall and Return of Products..............................................................  9
   Section   5.10   Dissolution of the LLC.....................................................................  9
   Section   5.11   Payment of Royalties.......................................................................  9

ARTICLE VI REPRESENTATIONS AND WARRANTIES......................................................................  9
   Section   6.1    Representations and Warranties of the LLC..................................................  9
   Section   6.2    Representations and Warranties of Bioglan..................................................  12

ARTICLE VII CONDUCT PRIOR TO CLOSING...........................................................................  13
   Section   7.1    Cooperation................................................................................  13
   Section   7.2    Conduct of Business by LLC.................................................................  13
   Section   7.3    Review.....................................................................................  13
   Section   7.4    Contribution Margin........................................................................  13

ARTICLE VIII INDEMNIFICATION...................................................................................  14
   Section   8.1    Indemnification by Medicis and IMX.........................................................  14
   Section   8.2    Indemnification by Bioglan.................................................................  15


                                       i

   3




                                                                                                           
   Section   8.4    Discontinuance of Operations...............................................................  16
   Section   8.5    Returns of Products........................................................................  16

ARTICLE IX GENERAL PROVISIONS..................................................................................  16
   Section   9.1    Survival of Representations and Warranties.................................................  16
   Section   9.2    Notices....................................................................................  16
   Section   9.3    Confidential Information...................................................................  17
   Section   9.4    Amendment..................................................................................  18
   Section   9.5    Binding Effect.............................................................................  18
   Section   9.6    Press Releases.............................................................................  18
   Section   9.7    Expenses; Taxes............................................................................  18
   Section   9.8    Headings...................................................................................  19
   Section   9.9    Entire Agreement...........................................................................  19
   Section   9.10   Waiver.....................................................................................  19
   Section   9.11   Severability...............................................................................  19
   Section   9.12   Termination................................................................................  19
   Section   9.13   Governing Law..............................................................................  19
   Section   9.14   Counterparts...............................................................................  20
   Section   9.15   Shareholder Approval.......................................................................  20

ARTICLE X ARBITRATION..........................................................................................  20
   Section   10.1   Submission to Arbitration..................................................................  20
   Section   10.2   Arbitrator and Rules of Arbitration........................................................  20
   Section   10.3   Selection of Arbitrators...................................................................  20
   Section   10.4   Procedure..................................................................................  20
   Section   10.5   Arbitration Costs..........................................................................  21


                                       ii

   4
                             SCHEDULES AND EXHIBITS


                                    SCHEDULES

Schedule 1.............................................................Products
Schedule 2...........................................................Trademarks



                                    EXHIBITS

Exhibit A.................................................Form of Bill of Sale
Exhibit B.................................Form of Transition Services Agreement
Exhibit C............................................Form of License Assignment
Exhibit D..........................................Form of Trademark Assignment

                                      iii

   5
                               PURCHASE AGREEMENT

PURCHASE AGREEMENT (the "Agreement") dated as of this 29th day of June 1999, by
and among THE EXOREX COMPANY, LLC, a Delaware limited liability company (the
"LLC"), BIOGLAN PHARMA PLC, a company incorporated under the laws of England and
Wales under company registration number 1779870 ("Bioglan"), MEDICIS
PHARMACEUTICAL CORPORATION ("Medicis") and IMX PHARMACEUTICALS, INC.
("IMX").

                              W I T N E S S E T H:

         WHEREAS, Medicis and Bioglan have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement") dated as of June 29, 1999 whereby
Medicis has agreed to sell to Bioglan and Bioglan has agreed to purchase from
Medicis all of Medicis' right, title and interest in, to and under the Purchased
Assets (as defined therein);

         WHEREAS, in connection with the transactions contemplated by the Asset
Purchase Agreement the parties thereto have conditioned execution of the Asset
Purchase Agreement on the execution of this Agreement.

         NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereby agree as follows:

                                   ARTICLE I
                                 DEFINITIONS

         In this Agreement the following terms shall have the following
meanings:

         "Affiliate" means any person, firm, corporation or other business
entity, directly or indirectly controlling, controlled by or under direct or
indirect common control with another person. A person shall be deemed to control
another person if such person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such entity,
whether through ownership of voting securities, by contract or otherwise.

         "Business" means the development, manufacture, marketing and sale of
the Exorex Product Line and the related telephone product information and
ordering services provided to customers and distributors and product fulfillment
center.

         "Contribution Margin" means the amount equal to Net Sales less (i) all
reasonable charges from June 1, 1999 to the Closing for overhead directly
associated with the Products and the direct and indirect cost of goods (absent
the cost of Inventory paid at the Closing Date by Bioglan), and (ii) returns
from the period from June 1, 1999 to the Closing.

         "Disclosure Letter" means the disclosure letter as of the date hereof
from the LLC to Bioglan relating to the representations and warranties set out
in Section 6.1.

         "Exorex Product Line" means all skin care products developed by the LLC
for the treatment of and relief from psoriasis or other dermatological
conditions including, without

                                       1

   6
limitation, shampoos and cream products and marketed under the trademark or
tradename "Exorex," including without limitation the Products listed on Schedule
1.

     "Know-How" means the information known to the LLC relating solely and
uniquely to the formulae, manufacturing processes, customer lists, marketing and
advertising rights and promotional materials, technology and testing data for
the Products.

     "Products" means the pharmaceutical products which are set forth on
Schedule 1.

     "Net Sales" means the gross amount invoiced by the LLC and its Affiliates
to third parties on all sales of Products and any improvements (as defined in
the License Agreement), less deductions for: (i) sales taxes, value-added taxes
and excise taxes, tariffs, import or export duties, and duties paid or allowed
by a selling party and any other governmental charges imposed upon the import,
use or sale of such Products (except income taxes of the LLC, its Affiliates and
sublicensees) which are included in the gross amount invoiced; (ii) allowed
customary trade and quantity discounts (such discounts not to exceed 10% of the
sales price) and sales discounts (as defined in accordance with GAAP, such
discounts not to exceed 5% of the sales price); (iii) transportation, bulk
packaging, handling and freight charges (such charges not to exceed 3% of the
sales price) and reasonable and customary insurance where such are separately
stated as part of the sales price and are included in the gross amount invoiced;
and (iv) allowances and credits to its Affiliates or sublicensees which shall be
excluded from the computation of Net Sales, but Net Sales shall include
subsequent sales to third parties by such Affiliates or sublicensees. For
purposes of determining Net Sales, a sale shall be deemed to have occurred when
the Products have been shipped by the LLC, its Affiliates or a sublicensee.

     "Trademarks" means the trademarks listed in Schedule 2 hereto together with
the goodwill symbolized by such trademarks.

     "Warranties" means the warranties and representations of the LLC set out in
Section 6.1.

     The following terms have the meanings defined for such terms in the
Sections set forth below:

Term                                                                   Section
Agreement.............................................................Recitals
Asset Purchase Agreement..............................................Recitals
Assumed Liabilities........................................................2.4
Award.....................................................................10.4
Basket..................................................................8.3(e)
Bill of Sale ..........................................................3.2 (a)
Bioglan...............................................................Recitals
Closing....................................................................3.1
Closing Date...............................................................3.1
Excluded Assets............................................................2.1
GAAP....................................................................6.1(g)
Hearing...................................................................10.4
IMX...................................................................Recitals

                                       2

   7
Indemnified Party.......................................................8.3(a)
Indemnifying Party......................................................8.3(a)
Inventory..................................................................2.2
Joint Notice...............................................................5.5
License Agreement..........................................................2.1
LLC...................................................................Recitals
Losing Party..............................................................10.5
Losses.....................................................................8.1
Material Adverse Effect.................................................6.1(d)
Medical Affairs Liaison.................................................5.8(d)
Medicis...............................................................Recitals
New Authorizations......................................................5.8(a)
Purchase Price.............................................................2.2
Purchased Assets...........................................................2.1
Required Consents.......................................................4.1(c)
Successful Party..........................................................10.5


                                   ARTICLE II
                        SALE AND PURCHASE; PURCHASE PRICE

     Section 2.1 Sale and Purchase of Assets. Subject to the terms and
conditions set forth herein, and in reliance upon the representations and
warranties contained herein, the LLC will sell, assign, convey, transfer and
deliver to Bioglan or to the nominated Affiliate of Bioglan, and Bioglan will
purchase and acquire from the LLC the following assets of the LLC, including,
without limitation, (i) the Exorex Product Line in the United States, (ii) all
rights related to the Exorex Product Line in the United States, (iii) the Exorex
trademark, (iv) an assignment of the license by and between Pegasus Dermasearch
(Pty) Limited and Interderm Limited dated June 23, 1995 as subsequently amended
on September 18, 1995, September 1, 1996, January 15, 1998, and March [ ], 1998
(the "License Agreement") to the extent it relates to the Exorex Product, (v)
the helpline, including all employees of the Business and all obligations
relating to such employees, (vi) the Facility Agreement between the LLC and IMX
dated June 18, 1998, (vii) the Inventory (as defined herein), (viii) an amount
equal to the Contribution Margin to be paid pursuant to the Transition Services
Agreement, (ix) the Software License Agreement from IMX to LLC, dated as of June
18, 1998, and (x) all other ordinary course obligations, including obligations
and contracts related to distribution, sales and marketing obligations related
to the Business (the "Purchased Assets") except: (i) the New Product Agreement
between Medicis and IMX dated June 18, 1998; (ii) the non-Disclosure and
Invention Agreements entered into by (a) Adele Folk, dated as of June 18, 1998,
(b) Gary Spielfogel, dated as of June 18, 1998, (c) Marc Falkin, dated as of
June 18, 1998 and (d) Bill Forster, dated as of June 18, 1998; (iii) the
Consulting, Confidentiality and Non-Compete Agreement between the LLC and IMX
dated June 18, 1998 ; (iv) the Exclusive Distribution Assignment Agreement
between IMX and the LLC, dated June 18, 1998; and (v) the Assignment and
Assumption Agreement between IMX and the LLC, dated June 18, 1998 (the "Excluded
Assets").

                                       3

   8
     Section 2.2 Purchase Price. In consideration for the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets, Bioglan will pay the
LLC consideration as set forth in Section 2.2(a) of the Asset Purchase Agreement
and LLC's cost (less the sum of US $200,000) for all inventory (the "Inventory")
of the Products as of June 1, 1999 with a remaining shelf life of no less than
twelve (12) months as of June 1, 1999 (the "Purchase Price") and in the manner
herein and therein provided and the LLC hereby gives its consent to the payment
of the Purchase Price being satisfied in such manner. The parties hereby agree
that any Inventory with a shelf life of less than twelve (12) months shall be
transferred by the LLC to IMX. Medicis agrees to accept payment of the balance
of the sum due in respect of that portion of the Inventory related to raw
material and bulk inventory (after allowing for the sum paid therefor on the
Closing in accordance with Section 3.3(f)) on September 30, 1999.

     Section 2.3 Form of Payment. Except as otherwise provided herein, all
payments made hereunder shall be made in United States Dollars by wire transfer
in immediately available funds to an account designated in writing by Medicis to
Bioglan.

     Section 2.4 Assumption of Obligations. Subject to the terms and conditions
set forth herein, and in reliance upon the representations and warranties
contained herein, at the Closing, in consideration for the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets to Bioglan, the LLC
will assign, convey and transfer to Bioglan, and Bioglan will unconditionally
assume and undertake to pay, perform and discharge, in a timely manner and in
accordance with the terms thereof, all liabilities related to or arising out of
the Purchased Assets as are incurred and become due at any time following June
1, 1999 (collectively, the "Assumed Liabilities"). Without limiting the
generality of the foregoing, Bioglan hereby agrees to assume, undertake and
perform all obligations of the LLC under the Assumed Liabilities to the extent
such obligations arise or are to be performed after June 1, 1999.

                                  ARTICLE III
                                     CLOSING

     Section 3.1 Closing. The consummation of the transactions contemplated
herein (the "Closing") shall take place within five (5) business days of
satisfaction of the conditions set forth in Article IV, or at such other date
and time as mutually agreed to by the parties (the "Closing Date").

     Section 3.2 Closing Deliveries of the LLC. At the Closing, and subject
always to Section 9.15, the LLC shall execute (where appropriate) and deliver to
Bioglan:

          (a) a Bill of Sale substantially in the form of Exhibit A attached
     hereto, executed by the LLC;

          (b) a Transition Services Agreement substantially in the form of
     Exhibit B attached hereto, executed by the LLC, Medicis and IMX;

          (c) a Secretary's Certificate of the LLC setting forth copies of the
     resolutions or other instruments authorizing this Agreement and the
     transactions contemplated herein;

                                       4

   9
          (d) an Officer's Certificate of the LLC as required under Section
     4.1(b) hereof;

          (e) a copy of all consents, approvals and authorizations as required
     under Section 4.1(c) hereof;

          (f) a License Assignment for the License Agreement substantially in
     the form of Exhibit C attached hereto;

          (g) a Trademark Assignment substantially in the form of Exhibit D
     attached hereto;

          (h) the Inventory, together with a receipt of payment for the sum paid
     on account therefor pursuant to Section 3.3(f);

          (i) a certified true copy of the License Agreement and all amendments
     thereto; and

          (j) such other documents as Bioglan shall reasonably request.

     Section 3.3 Closing Deliveries of Bioglan. At the Closing, and subject
always to Section 9.15, Bioglan shall deliver to the LLC:

          (a) a Transition Services Agreement substantially in the form of
     Exhibit B attached hereto, executed by Bioglan;

          (b) a Secretary's Certificate of Bioglan setting forth copies of the
     resolutions or other instruments authorizing this Agreement and the
     transactions contemplated herein;

          (c) an Officer's Certificate of Bioglan as required under Section
     4.2(a) hereof;

          (d) a counterpart License Assignment for the License Agreement
     substantially in the form of Exhibit C attached hereto;

          (e) a counterpart Trademark Assignment substantially in the form of
     Exhibit D attached hereto;

          (f) an amount equal to the LLC's cost for the finished goods included
     in the Inventory; and

          (g) such other documents as the LLC shall reasonably request.


                                   ARTICLE IV
                              CONDITIONS TO CLOSING

     Section 4.1 Conditions to Bioglan's Obligations. Bioglan's obligation to
consummate the transactions contemplated herein at the Closing are subject to
the fulfillment at

                                       5

   10
or prior to the Closing of each of the following conditions, the fulfillment of
any of which may be waived, in whole or in part or subject to conditions, by
Bioglan:

          (a) The completion by the LLC, Medicis and IMX of all acts necessary
     to authorize their execution, delivery and performance of this Agreement
     and the other agreements provided for herein, and the consummation of the
     transactions contemplated herein and therein.

          (b) All the representations and warranties (including the disclosures
     made in the Disclosure Letter) of the LLC contained in this Agreement being
     true and correct in all material respects as of the date of execution of
     this Agreement and at the Closing Date and all of the agreements of the LLC
     which are provided in this Agreement to be performed at or prior to the
     Closing having been duly performed, and the LLC having complied with this
     Agreement in all other material respects and the LLC having delivered to
     Bioglan a certificate, dated as of the Closing Date, and signed by an
     executive officer of the LLC, to the effect set forth in this Section
     4.1(b).

          (c) The LLC, Medicis and IMX having obtained all consents, approvals,
     releases, discharges and authorizations necessary to be obtained on the
     part of the LLC, Medicis and IMX to consummate the transactions
     contemplated hereby, including without limitation, all necessary consents
     of shareholders, mortgagees, lienholders, encumbrancers, assignees and
     licensors (pursuant to the License Agreement) (the "Required Consents").

          (d) The simultaneous consummation of the transactions contemplated
     pursuant to the Asset Purchase Agreement.

     Section 4.2 Conditions to the LLC's Obligations. The obligations of the LLC
to consummate the transactions contemplated at the Closing are subject to the
fulfillment at or prior to the Closing of each of the following conditions, the
fulfillment of any of which may be waived, in whole or in part or subject to
conditions, by the LLC:

          (a) All the representations and warranties of Bioglan contained in
     this Agreement being true and correct in all material respects as of the
     date of execution of this Agreement and at the Closing Date and all of the
     agreements of Bioglan which are provided in this Agreement to be performed
     at or prior to the Closing Date having been duly performed, and Bioglan
     having complied with this Agreement in all other material respects, and
     Bioglan having delivered to the LLC a certificate, dated as of the Closing
     Date and signed by an executive officer of Bioglan, to the effect set forth
     in this Section 4.2(a).

          (b) The simultaneous consummation of the transactions contemplated
     pursuant to the Asset Purchase Agreement.

                                   ARTICLE V
                                  OTHER MATTERS

     Section 5.1 Use of Know-How. Except as otherwise provided for in this
Agreement, after the Closing, the LLC shall not use the Know-How. Furthermore,
after the Closing the LLC shall not disclose the Know-How to any third party,
unless such disclosure is required by law or regulation.

                                       6

   11
     Section 5.2 New Product Development. Notwithstanding anything in this
Agreement to the contrary, the transfer and assignment to Bioglan by the LLC of
the Purchased Assets shall not prevent the LLC, IMX or Medicis from continuing
to manufacture and sell other products included or expected to be included in
their current line or to use other trademarks owned by the LLC, IMX or Medicis
or restrict the rights of the LLC, IMX or Medicis to develop and sell new
products using the same active ingredients contained in the Products, but using
different formulations, or different presentations, and under different product
trademarks.

     Section 5.3 Risks Associated With the Products. After the Closing Date,
subject to the terms of the Transition Services Agreement, Bioglan shall bear
the entire responsibility for and risk in the manufacture, distribution,
marketing and sale of the Products, including, subject to Section 8.5, those
associated with returns of Product sold by the LLC prior to June 1, 1999, and
compliance with all regulations and laws pertaining to the Products. The LLC
shall, for one year following the Closing Date, use its reasonable best efforts
to assist Bioglan in these matters, but they shall remain the sole
responsibility of Bioglan.

     Section 5.4 Agreement to Distribute. In order to ensure continued supply of
the Products to customers following consummation of this Agreement, the LLC
hereby agrees to act as distributor of the Products for the earlier of (i) a
period of four (4) months from the consummation of this Agreement, or (ii) until
Bioglan gives written notice to the LLC that Bioglan has developed its own
distribution network. This period shall be extended, at the written request of
Bioglan, for a further two (2) months if, after using its reasonable best
efforts, Bioglan has been unable to develop its own distribution system at the
end of the four month period. Upon expiration of the period for which the LLC
shall distribute Products on behalf of Bioglan as set forth above, the LLC shall
return to Bioglan any inventory of the Products in the LLC possession as of the
date thereof.

     Section 5.5 Notification of Customers. The LLC and Bioglan agree to
cooperate in the notification to customers of the transactions contemplated by
this Agreement. Neither the LLC nor Bioglan shall notify any customers of such
transactions without the written consent of the other. Such notification (the
"Joint Notice") shall be in such form as is reasonably satisfactory to Bioglan
and the LLC and shall also inform such customers of Bioglan's address.

     Section 5.6 Customer Orders. The LLC agrees for a period of four (4) months
after the Closing Date to use its reasonable best efforts to forward to Bioglan
all customer orders or inquiries for the Products received after the Closing as
soon as practicable after receipt by the LLC. The LLC agrees that, for a period
of six (6) months from the Closing Date, it will inform any customers ordering
the Products or requesting information about the Products, that Bioglan is now
supplying the Products and provide such customers with Bioglan's address.

     Section 5.7 Accounts Receivable.

          (a) In the event that the LLC receives any payment relating to any
     accounts receivable that accrued on or after the date on which the
     Transition Services Agreement is terminated or expires, such payment will
     be the property of, and will be immediately forwarded and remitted to
     Bioglan. The LLC will promptly endorse and deliver to Bioglan any cash,
     checks or other documents received by the LLC on account of any such
     accounts receivable and

                                       7

   12
will advise Bioglan of any counterclaims or set-offs that may arise subsequent
to the Closing Date with respect to such accounts receivable.

          (b) In the event that Bioglan or any of Bioglan's Affiliates receive
     any payment relating to any accounts receivable that accrued prior to the
     date on which the Transition Services Agreement is terminated or expires,
     such payment will be the property of, and will be immediately forwarded and
     remitted to the LLC. Bioglan or any such Affiliates will promptly endorse
     and deliver to the LLC any cash, checks or other documents received by
     Bioglan or any such Affiliate on account of any such accounts receivable
     and will advise the LLC of any counterclaims or set-offs that may arise
     subsequent to the Closing Date with respect to such accounts receivable.

     Section 5.8 Product Registration.

          (a) After the Closing, Bioglan will initially market the Products
     under the Authorizations, such Authorizations having been varied to permit
     the same. Such distribution relationship shall continue until Bioglan
     obtains regulatory authorization from the FDA to market the Products under
     its own authorizations (the "New Authorizations").

          (b) To permit Bioglan to distribute and sell the Products, Bioglan
     shall, promptly following signature hereof at its own expense, file all
     necessary instruments with the FDA to obtain a waiver to vary the LLC's
     Authorizations to allow Bioglan to sell the Products.

          (c) Bioglan shall, at its sole expense, file a product license
     application with the FDA for each of the Products. The LLC shall, at its
     expense, file all necessary instruments with the FDA to authorize Bioglan
     to cross-refer to the data contained in the Authorizations in order for
     Bioglan to obtain the New Authorizations.

          (d) Within thirty (30) days after the Closing Date, the parties shall
     each appoint a primary liaison (the "Medical Affairs Liaison") to
     communicate with each other with regard to the actions and information
     required pursuant to this Section 5.8 and shall notify the other of the
     name, address and telephone number of the person so appointed.

          (e) During the period that Bioglan is selling the Products under the
     Authorizations, each party shall advise the other as set forth in (i) and
     (ii) below of any adverse drug experience associated with the Products. In
     addition, Bioglan shall report all adverse drug experience information it
     obtains, including that obtained from the LLC, to the FDA as set forth in
     Section 5.8(f) below:

          (i)  Any adverse drug experience information obtained by a party shall
               be reported to Bioglan's Medical Affairs Liaison, by telephone or
               in writing (only by facsimile) within three (3) business days
               after the first party's initial receipt of the information;
               provided, however, that any report of a serious unlabelled side
               effect or any report of a death shall be reported to Bioglan's
               Medical Affairs Liaison within twenty-four (24) hours of receipt
               of the information; and

          (ii) The reports of adverse drug experience shall contain the
               following information: (i) the date the report was received; (ii)
               the name of the reporter;

                                       8

   13
               (iii) the address and telephone number of the reporter; (iv) the
               patient details; (v) the suspected drug; (vi) other concomitant
               therapy; (vii) a description of the adverse drug experience; and
               (viii) any additional relevant information; provided such
               information is obtainable through the use of reasonable efforts
               and is not subject to any duty of non-disclosure or confidence.

          (f) Bioglan shall report all adverse drug experience information
     associated with the Products, including those received from the LLC under
     this Section 5.8 to the FDA, in accordance with the laws and regulations of
     the United States.

          (g) After the Closing, Bioglan shall bear the entire responsibility
     for the manufacture, distribution, advertising and sale of the Products and
     for all actions required by the FDA and other governmental laws and
     regulations relating to the manufacture, distribution, and use of the
     Products after June 1, 1999.

          (h) Upon the grant to Bioglan of the New Authorizations, the LLC
     agrees at its own expense to take all reasonably necessary steps to cancel,
     transfer or assign forthwith at Bioglan's option its Authorizations in the
     United States.

          Section 5.9 Recall and Return of Products. During the period that
     Bioglan is selling Products pursuant to the Authorizations, Bioglan shall,
     at its cost, be responsible for all activities to be performed relating to
     any recall or return of such Products and the LLC shall during such period
     promptly notify Bioglan of all decisions and notifications of the FDA
     relating to the Products.

          Section 5.10 Dissolution of the LLC. Medicis shall dissolve the LLC
     within eight (8) months of the Closing Date and shall not use the name
     Exorex in connection with any of its Affiliates or any Products sold by
     Medicis or its Affiliates. Medicis shall not infringe or seek to infringe
     on the Exorex Trademark pursuant to applicable United States law.

          Section 5.11 Payment of Royalties. The LLC agrees that it will pay all
     royalties which accrued under the License Agreement prior to June 1, 1999
     in accordance with the terms of the License Agreement, failing which,
     Medicis will pay the royalties on behalf of the LLC.


                                   ARTICLE VI
                         REPRESENTATIONS AND WARRANTIES

          Section 6.1 Representations and Warranties of the LLC. Except as set
     forth in the Disclosure Letter or Section 6.1(g) and Section 6.1(k), the
     LLC hereby warrants to Bioglan as of the date hereof as follows:

          (a) Ownership of LLC Interests. Prior to Closing, Medicis will own
     100% of the LLC interests. Prior to Closing, no person will hold any
     membership interest or any right to receive any income, profits,
     distributions or assets of the LLC, other than Medicis. None of the LLC
     Interests were issued in violation of any preemptive or similar rights.

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   14
          (b) Organization. The LLC (i) is a corporation duly organized and
     validly existing and in good standing under the laws of Delaware and (ii)
     has all necessary corporate power and authority to own its properties and
     to conduct its business, as currently conducted.

          (c) Authorization. The execution and delivery of this Agreement and
     the other agreements contemplated hereby, and the consummation of the
     transactions contemplated hereby and thereby, are within the corporate
     power of the LLC, Medicis and IMX and have been or will be, on or prior to
     the Closing Date, duly authorized by all necessary corporate proceedings,
     if required, and such agreements have been or will be, on or prior to the
     Closing, duly executed and delivered by the LLC, Medicis and IMX.

          (d) Execution and Delivery. Neither the execution of this Agreement
     and the other agreements contemplated hereby nor the consummation of the
     transactions contemplated herein and therein: (i) requires the LLC, Medicis
     or IMX to obtain any approval, consent or withholding of objections on the
     part of any regulatory or governmental body, (ii) will result in any
     violation or breach of any term or provision of the LLC's Certificate of
     Formation or the organizational documentation of Medicis or IMX; (iii) will
     constitute a default under any material indenture, mortgage, deed of trust,
     license agreement or other contract or agreement to which the LLC, Medicis
     or IMX is a party or to which the LLC interests may be subject; or (iv)
     will violate any provision of any judicial, governmental or administrative
     order, writ, injunction, award, judgment or decree applicable to the LLC,
     Medicis or IMX which could result in a material adverse effect in the
     condition, business or operations ("Material Adverse Effect") of the LLC.

          (e) Binding Obligation. As of the Closing, this Agreement and the
     other agreements contemplated hereby will have been duly and validly
     authorized, executed and delivered by the LLC, Medicis and IMX and, when
     duly executed and delivered by Bioglan, will constitute valid and binding
     obligations of the LLC, , Medicis and IMX enforceable against each of the
     LLC, Medicis and IMX in accordance with their terms, except as such
     enforcement may be limited by bankruptcy or other laws of general
     application affecting creditor rights or general principles of equity or
     principles of public policy relating to indemnification.

          (f) Broker. Except for Corporate Development Specialists, Inc.,
     neither the LLC nor any officer, director or agent of the LLC has employed
     any broker, finder, or agent with respect to this Agreement or the
     transactions contemplated hereby.

          (g) Gross Sales. Medicis represents and warrants that the amount of
     gross sales, less returns, for the calendar year ended December 31 1998,
     and for the calendar quarter ended March 31, 1999 as accounted for by the
     LLC in accordance with United States generally accepted account principles
     ("GAAP"), which has been provided by the LLC to Bioglan prior to the date
     of this Agreement as contained in the Disclosure Letter, was correct in all
     material respects. The LLC has also provided Bioglan in the Disclosure
     Letter with information regarding shipments and returns for the period from
     April 1, 1999 to May 31, 1999, which information Medicis represents and
     warrants was correct in all material respects.

                                       10

   15
          (h) Trademarks. The Trademarks are currently being used commercially
     by the LLC and have been properly filed or registered with the U.S. Patent
     and Trademark Office and are valid and in full force and effect as of the
     date of execution of this Agreement.

          Except as may be restricted or prohibited by any applicable law, rule,
     regulation or decision, the LLC has the exclusive right to use, transfer
     and assign, free and clear of any liens or encumbrances, the registrations
     for the Trademarks.

          To the LLC's knowledge, the manufacture, use or sale of the Products
     by the LLC or the use of the Trademarks in the United States of America for
     the sale of the Products does not infringe the rights of any third party
     including inter alia intellectual property rights.

          Except for any restriction or prohibition set forth in any applicable
     law, rule, regulation, decision or other governmental action, the LLC is
     not aware of any restriction or prohibition which would prevent or restrict
     the disclosure of the Know-How to Bioglan hereunder. (i) Adverse Drug
     Experiences. The LLC has informed Bioglan of all material adverse drug
     experiences related to the Products of which it has knowledge.

          (j) License Agreement. The License Agreement is in full force and
     effect, and a full and complete copy thereof including all amendments
     thereof (if any), as duly executed by all parties, is attached to the
     Disclosure Letter. There have been and are no other amendments, changes or
     waivers by either party of any of the terms thereof, written or otherwise.

               The LLC has the full legal right, power and authority to convey
     the License Agreement.

               The LLC has not assigned, sublicensed or granted, nor is there
     otherwise outstanding, any material lien or encumbrance of any kind
     in, the License Agreement.

               The LLC is in compliance with all material terms of the License
     Agreement. To the knowledge of the LLC, there are no counterclaims,
     defenses or offsets against any obligation of the LLC or any of its
     Affiliates to perform under the License Agreement.

          (k) Inventory. Medicis represents and warrants that the LLC has good
     and valid title to the Inventory, free and clear of any material lien or
     encumbrance, and has not sold or contracted to sell any of the Inventory
     other than in the ordinary course of business.

          Medicis represents and warrants that all Inventory to be sold
     hereunder is in good and marketable condition and has a remaining shelf
     life as of June 1, 1999 of not less than twelve (12) months and does not
     include any patently damaged, obsolete, or outdated material. All Products
     sold by the LLC after June 1, 1999 to the Closing Date or in Inventory as
     of the Closing Date were manufactured in accordance with Good Manufacturing
     Practices, are adequately packaged and labeled and in conformity with all
     applicable authorizations.

                                       11

   16
          (l) Litigation. There is no litigation, arbitration, proceeding,
     governmental investigation, action or claims of any kind, pending or, to
     the knowledge of the LLC, threatened, or facts which could reasonably be
     expected to give rise thereto, by or against the LLC which would affect
     Bioglan as the purchaser hereunder or relative to the License Agreements or
     the Products, including, without limitation, regarding breach of express or
     implied warranty or representation or failure to warn or relating to
     personal injury, property damage or other liability arising from or caused
     by the Products.

          (m) Contractual Obligations. There are no material obligations or
     agreements between the LLC and either or both of Medicis and IMX except for
     those obligations and agreements which are included in the Purchased Assets
     and the Excluded Assets.

          (n) Employees. The Disclosure Letter contains details of all employees
     and consultants of the Business and their current salaries. There are no
     written employment contracts with respect to the employees and consultants
     of the Business.

          (o) DISCLAIMER. OTHER THAN THOSE ARISING AS A RESULT OF A BREACH OF
     THE REPRESENTATIONS AND WARRANTIES HERETO AND THE BILL OF SALE, BIOGLAN
     HEREBY WAIVES ANY AND ALL OTHER REPRESENTATIONS, WARRANTIES, DUTIES, AND
     GUARANTEES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY OR
     OTHERWISE, CONCERNING THE PURCHASED ASSETS OR THE VALUE, CONDITION,
     EFFECTIVENESS OR COMPLIANCE WITH SPECIFICATION OF THE PRODUCTS, INCLUDING,
     BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
     ANY PARTICULAR PURPOSE, THE ABSENCE OF OBLIGATIONS BASED ON STRICT
     LIABILITY IN TORT, OR THE QUALITY OF THE MATERIALS OR WORKMANSHIP, AND
     BIOGLAN HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES IT MAY HAVE AGAINST
     MEDICIS RELATING TO ANY OF THE FOREGOING AND ARISING BY LAW OR OTHERWISE OR
     WITH RESPECT TO LOSS OF USE, REVENUE OR PROFIT, THE EXISTENCE OF ANY
     LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT DISCOVERABLE), OR
     OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES.

          Section 6.2 Representations and Warranties of Bioglan. Bioglan hereby
     represents and warrants to the LLC as of the date hereof as follows:

          (a) Organization. Bioglan (i) is a public limited company duly
     organized, validly existing under the Laws of England and Wales and (ii)
     has all necessary power and authority to own its properties and to conduct
     business as presently conducted.

          (b) Authority. The execution and delivery of this Agreement and the
     other agreements contemplated hereby, and the consummation of the
     transactions contemplated hereby and thereby, are within the corporate
     power of Bioglan and any relevant Affiliate of Bioglan, have been or will
     be, on or prior to the Closing Date, duly authorized by all necessary
     corporate proceedings except for shareholder approval, the obtaining of
     which shall be governed by and subject to Section 7.5 of the Asset Purchase
     Agreement and such agreements have been or will be, on or prior to the
     Closing, duly executed and delivered by Bioglan and any relevant Affiliate
     of Bioglan.

                                       12

   17
          (c) Execution and Delivery. Subject to the approval of the
     shareholders of Bioglan at the shareholders' meeting as contemplated in
     Section 7.5 of the Asset Purchase Agreement, neither the execution of this
     Agreement and the other agreements contemplated hereby nor the consummation
     of the transactions contemplated hereby and thereby: (i) requires Bioglan
     to obtain the approval, consent or withholding of objection on the part of
     any governmental body; (ii) will result in any violation or breach of any
     term or provisions of Bioglan's memorandum and articles of association;
     (iii) will constitute a default under any indenture, mortgage, deed of
     trust, license, agreement, or other contract or agreement to which Bioglan
     or any Affiliate of Bioglan that is a party to any of the agreements
     contemplated hereby; or (iv) will violate any provision of any judicial,
     governmental or administrative order, writ, injunction, award, judgment or
     decree applicable to Bioglan or any Affiliate of Bioglan that is a party to
     any of the agreements contemplated hereby which could reasonably be
     expected to result in a Material Adverse Effect on Bioglan.

          (d) Binding Obligation. Subject to the approval of the shareholders of
     Bioglan at the shareholders' meeting as contemplated in Section 7.5 of the
     Asset Purchase Agreement, as of the Closing, this Agreement and the other
     agreements contemplated hereby will have been duly and validly authorized,
     executed and delivered by Bioglan, and when duly executed and delivered by
     the LLC, will constitute valid and binding obligations of Bioglan,
     enforceable against Bioglan in accordance with their terms, except as such
     enforcement may be limited by bankruptcy or other laws of general
     application affecting creditor rights or general principles of equity or
     principles of public policy relating to indemnification.

          (e) Broker. Neither Bioglan nor any officer, director or agent of
     Bioglan, has employed any broker or finder with respect to this Agreement
     or the transactions contemplated hereby.

                                  ARTICLE VII
                            CONDUCT PRIOR TO CLOSING

          Section 7.1 Cooperation. The parties agree to cooperate mutually and
     make all reasonable efforts toward consummating the transactions
     contemplated hereby and fulfilling the purposes of this Agreement prior to
     and following Closing, including providing and executing such additional
     documentation and communications as may be appropriate for such purposes.

          Section 7.2 Conduct of Business by LLC. Upon execution of this
     Agreement, the LLC shall not without the prior written consent of Bioglan
     take any action out of the ordinary course of business in relation to the
     Products prior to Closing nor will it do, procure or allow anything which
     may cause, constitute or result in a breach of the Warranties. After the
     execution of this Agreement through the Closing Date, the LLC shall provide
     Bioglan, its agents, representatives and professional advisors reasonable
     access to all information and facilities relating to the Purchased Assets,
     as reasonably requested by Bioglan during normal business hours.

          Section 7.3 Review. The LLC shall permit Bioglan's auditors to inspect
     the LLC's records relating to sales of the Products to enable the said
     auditors to adequately validate

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   18
     the financial receipts relating to the sales of the Products (as
     required under the Listing Rules of the London Stock Exchange) since
     January 1, 1998; provided, however, that the LLC shall have no liability
     whatsoever in connection with the review described herein, unless the
     review shall indicate the existence of a material breach of the Warranties.

          Section 7.4 Contribution Margin. Medicis covenants that if the
     Contribution Margin is less than zero (0), then Medicis shall pay to
     Bioglan an amount equal to the deficit in the Contribution Margin. However,
     any payment required to be made by Medicis to Bioglan under this Section
     7.4 shall be reduced by the total value of all returns received after June
     1, 1999 by the LLC from CVS, Jack Eckerd and Walgreens.

                                  ARTICLE VIII
                                 INDEMNIFICATION

          Section 8.1 Indemnification by Medicis and IMX. Medicis and IMX,
     jointly and severally, agree to indemnify, defend and hold harmless Bioglan
     (and its directors, officers, employees, Affiliates, successors and
     assigns) from and against all losses, personal injuries, liabilities,
     damages (other than incidental or consequential), deficiencies, costs or
     expenses including, without limitation, interest, penalties and reasonable
     attorneys' fees and disbursements ("Losses") of Bioglan and its Affiliates
     based upon, arising out of or otherwise in respect of:

          (a) any material inaccuracy in or material breach of, any
     representation, warranty, covenant or agreement (other than with respect to
     the covenant set forth in Section 7.3, for which the LLC shall have no
     liability, unless the review shall indicate the existence of a material
     breach of the Warranties) of the LLC contained in this Agreement.

          (b) any harm to any third party caused by any defect in the Products
     manufactured, mandated, distributed, or sold by the LLC or any relevant
     Affiliate, prior to June 1, 1999, or by any negligent or wrongful act of
     the LLC or any relevant Affiliate prior to the Closing in connection with
     the manufacture, distribution, advertising, or sale of the Products, or any
     failure to comply with any regulation or statute in connection with the
     Products.

          (c) failure of the LLC prior to the Closing Date to use its reasonable
     best efforts to conduct its efforts under this Agreement at all times in
     accordance with all applicable laws and regulations which may materially
     affect the Products including without limitation the U.S. Foreign Corrupt
     Practices Act.

          Section 8.2 Indemnification by Bioglan. Bioglan agrees to indemnify,
     defend and hold harmless the LLC (and its directors, officers, employees,
     Affiliates, successors and assigns) from and against all Losses of the LLC
     based upon, arising out of or otherwise in respect of:

          (a) any material inaccuracy in or material breach of any
     representation, warranty, covenant or agreement of Bioglan, any of its
     Affiliates or sublicensees contained in this Agreement.

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   19
          (b) any harm to any third party caused by any defect in the Products
     manufactured, mandated, distributed or sold by Bioglan or any relevant
     Affiliate after June 1, 1999 or by any negligent or wrongful act of Bioglan
     in connection with the manufacture, distribution, advertising, or sale of
     the Products after the Closing Date, or any failure after the Closing Date
     to comply with any regulation or statute.

          (c) failure of Bioglan to use its reasonable best efforts to conduct
     its efforts under this Agreement at all times in strict accordance with all
     applicable laws and regulations which may materially affect the Products
     including without limitation the US Foreign Corrupt Practices Act.

          Section 8.3 Procedure for Indemnification.

          (a) If any legal proceeding shall be instituted, or any claim or
     demand made, against an indemnifying party in respect of which an
     indemnifying party may be liable hereunder, or if either party hereto for
     any reason shall believe that it has a claim against the other party
     pursuant to the respective Section 8.1 or 8.2 hereof, then the indemnified
     party or the party believing it has a claim against the other party, as the
     case may be (in either case, the "Indemnified Party"), shall give prompt
     written notice hereunder to the indemnifying party or the party against
     whom the party giving notice believes it has a claim, as the case may be
     (in either case, the "Indemnifying Party"). Such notice shall specify in
     reasonable detail the date such underlying claim or belief first was
     asserted or arose, the nature of the Loss(es) for which payment is claimed,
     the Section or Sections of this Agreement upon which such claim is based,
     and the amount payable in respect thereto, and shall provide a copy of all
     pleadings relating to the underlying claim.

          (b) If an Indemnifying Party shall receive notice pursuant to this
     Section 8.3, the Indemnifying Party may, at its sole option, elect to
     defend against the Loss, which is the subject of such notice. If the
     Indemnifying Party elects to defend, then the Indemnified Party shall have
     the right to participate in such defense, and the trial counsel for the
     Indemnified Party shall be chosen by the Indemnifying Party and such trial
     counsel shall be reasonably satisfactory to the Indemnified Party, the
     costs of which shall be borne by the Indemnified Party. If the Indemnifying
     Party does not elect to defend, then the Indemnified Party may do so by its
     own counsel, such counsel shall be reasonably satisfactory to the
     Indemnifying Party, the costs of which shall be borne by the Indemnifying
     Party, and the Indemnifying Party agrees to cooperate with the Indemnified
     Party in such defense.

          (c) If the amount of any actual Loss indemnified against hereunder
     shall at any time subsequent to the payment of any indemnity payable
     hereunder, be reduced by any recovery, settlement or other payment, then
     the amount of such reduction, less any expense incurred by the party
     receiving such recovery, settlement or other payment in connection
     therewith, shall be repaid promptly to the Indemnifying Party.

          (d) The aggregate indemnification obligations of Bioglan on the one
     hand and Medicis and IMX on the other hand under Section 8.1 or 8.2 hereof,
     as the case may be, will not exceed United States Three Million Dollars (US
     $3,000,000).

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   20
          (e) Neither party shall be obligated to indemnify the other for any
     Losses hereunder, unless and until the aggregate amount of all Losses
     exceeds United States Fifty Thousand Dollars (US $50,000) (the "Basket"),
     and shall be liable only for amounts in excess of the Basket; provided that
     the Basket shall not apply to Section 8.4 or Section 8.5.

          (f) IMX shall have no obligation to indemnify Bioglan with respect to
     Section 6.1(g) or Section 6.1(k).

          Section 8.4 Discontinuance of Operations. In addition to the other
     indemnification obligations set forth in this Article VIII, Medicis shall
     indemnify Bioglan for any out of pocket expense incurred by Bioglan in
     excess of United States Four Hundred Thousand Dollars (US $400,000) with
     respect to the discontinuance of the operations relating to the Purchased
     Assets if such operations are discontinued within two (2) months of the
     Closing Date and are not incurred due to actions taken by Bioglan other
     than those costs directly related to discontinuing such operations;
     provided, however, that the LLC shall not be responsible for more than two
     (2) weeks of severance pay for any employee of the LLC in connection with
     such discontinuance.

          Section 8.5 Returns of Products. In addition to the other
     indemnification obligations set forth in this Article VIII, Medicis shall,
     indemnify Bioglan for any return of Products returned within two (2) years
     of June 1, 1999 by CVS, Walgreens and Jack Eckerd; provided that such
     indemnification obligation shall not exceed United States Six Hundred
     Thousand Dollars (US $600,000).

                                   ARTICLE IX
                               GENERAL PROVISIONS

          Section 9.1 Survival of Representations and Warranties. All
     representations or warranties set forth herein shall survive the execution
     and delivery of this Agreement and the consummation of the transactions
     contemplated hereby for a period of two (2) years after the Closing Date.
     Thereafter, no claim for breach of any representation or warranty shall be
     made. If this Agreement is terminated pursuant to Section 9.12 hereof, none
     of the parties hereto shall be under any liability whatsoever with respect
     to any such representation or warranty. The covenants and agreements shall
     survive indefinitely, unless otherwise specified herein.

          Section 9.2 Notices. All communications under this Agreement shall be
     in writing and shall either be faxed, sent by courier or mailed by first
     class mail, postage prepaid, to the fax number and/or address specified
     below. If faxed, such communication shall be deemed to be given when sent;
     provided, however, that any fax shall be confirmed by sending a hard copy
     by express courier or first class mail (by methods specified herein) within
     one (1) business day of the sending of such fax. If sent by express courier
     or mailed by first class mail as specified herein, such communication shall
     be deemed to be given either two (2) business days after sending (for
     communications sent by courier) or ten (10) business days after mailing
     (for communications sent by mail). All communications hereunder shall be
     sent:

                                       16

   21

         TO BIOGLAN: at its address shown below or such other address as it may
         give to Medicis on behalf of the LLC by notice hereunder:

         5 Hunting Gate                              and to:
         Hitchin, Hertfordshire SG4 0TJ              Roiter Zucker Solicitors
         England                                     Regent House
         Attn:  Terry I. Sadler                      5-7 Broadhurst Gardens
                                                     Swiss Cottage
                                                     London NW6 3RZ England
                                                     Attn: Warren Roiter

         TO MEDICIS, at the address shown below or such other address as it may
         give to Bioglan by notice hereunder:




                                               
         c/o Medicis Pharmaceutical Corporation      and to:
         4343 East Camelback Road,                   Akin, Gump, Strauss, Hauer & Feld, L.L.P.
         Suite 250                                   590 Madison Avenue
         Phoenix, Arizona  85018-2100 USA            New York, New York 10022
         Attn:  Jonah Shacknai                       Attn:  Stephen E. Older, Esq.



         TO IMX, at the address shown below or such other address as it may give
         to Bioglan by notice hereunder:




                                               
         IMX Pharmaceuticals, Inc.                   and to:
         2295 Corporate Boulevard                    Nason, Yeager, Gerson, White, Lioce, P.A.
         Boca Raton, Florida 33431                   1645 Palm Beach Lakes Boulevard
         Attn:  William Forster                      Suite 1200
                                                     West Palm Beach, Florida 33401
                                                     Attn: Gary N. Gerson


     Section 9.3 Confidential Information. The parties hereto shall each hold
(and shall cause their respective Affiliates to hold) in confidence all
documents and information received by them in connection with the transactions
contemplated by this Agreement and, in the event that for any reason the
transactions contemplated by this Agreement shall not be consummated, the
parties hereto shall refrain (and shall cause their respective Affiliates to
refrain) from disclosing or otherwise using such documents and information
except in connection with any legal proceeding that may be contemplated or
instigated by any party against the other in relation to any matter arising out
of or under this Agreement, or as required by law or regulation. This Section
9.3 shall not apply to information generally available to the public through no
fault of the disclosing party. Nothing in this Section 9.3 shall prevent any
party hereto from disclosing such information as may be required by applicable
law or any governmental or regulatory body or by the rules or regulations of any
national securities exchange upon which the securities of either party are
listed. If any party hereto is requested to

                                       17

   22
disclose confidential information pursuant to the preceding sentence, (i) such
party will notify the other parties immediately of the existence, terms and
circumstances surrounding such a request so that the other parties may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement, and (ii) if, in the absence of a protective order,
such disclosure is required in the opinion of the disclosing party's counsel,
such party may make such disclosure without liability hereunder, provided that
only that portion of the confidential information which is legally required is
disclosed, the other parties receive notice of the information to be disclosed
as far in advance of its disclosure as practicable and will use its reasonable
best efforts to ensure that confidential treatment will be accorded to all such
disclosed information. Bioglan shall not disclose confidential information to
any third party in connection with the marketing and selling of Bioglan's
securities to such third party without the prior written consent of Medicis
(which consent shall not be unreasonably withheld), provided that such consent
shall be deemed granted if Medicis has not responded to a request by Bioglan for
such consent within twenty - four (24) hours after Medicis receives actual
notice of such request with sufficient information regarding the terms and
conditions of such proposed disclosure to allow Medicis to evaluate the proposed
disclosure.

     Section 9.4 Amendment. This Agreement may be amended, modified or
supplemented only by written agreement of the parties hereto.

     Section 9.5 Binding Effect. The rights and obligations of the parties
hereto under this Agreement and the agreements contemplated hereby shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but may not be assigned by either party
without the prior written consent of the other parties hereto. Nothing set forth
herein shall prevent such party from assigning its rights or obligations
hereunder to an Affiliate of said party provided that no such assignment shall
relieve said party of its obligations hereunder.

     Section 9.6 Press Releases. Bioglan, and Medicis for itself and on behalf
of the LLC and IMX, agree to approve jointly the text of an initial press
release announcing the consummation of the transactions contemplated hereby and
not to use the name of any of the other parties in any press information,
marketing or advertising materials or other release to the public without the
prior written approval of the other, which approval shall not be unreasonably
withheld. The foregoing shall not be deemed to prevent such party from making
any public announcement or issuing any circular which may be required by
legislation or any governmental or regulatory body or by the rules and
regulations of any national securities exchange upon which the securities of
such party are traded; provided that the disclosing party has notified the
non-disclosing party of such public announcement and the non-disclosing party
has been given an opportunity to comment on such announcement. The disclosing
party shall make such changes as are reasonably requested.

     Section 9.7 Expenses; Taxes. The parties hereto shall each be responsible
for their respective costs incurred in connection with this Agreement and the
transactions contemplated hereby. Except as otherwise provided herein, Bioglan
shall pay all recording fees and all taxes due by Bioglan in connection with the
transfer of the Purchased Assets to Bioglan hereunder.

                                       18

   23
     Section 9.8 Headings. All headings in this Agreement are for convenience
only and shall not affect the interpretation or meaning of any provision hereof.

     Section 9.9 Entire Agreement. This Agreement, the promissory note to be
entered into pursuant to the Closing of the Asset Purchase Agreement and the
Disclosure Letter, together with the other agreements provided for herein, and
the Schedules and Exhibits attached hereto, constitutes the entire agreement of
the parties, merges all prior negotiations, agreements and understandings, and
states in full all representations and warranties or warranties other than those
herein stated. To the extent there are any inconsistencies between the
provisions of this Agreement and the Disclosure Letter, the Schedules and
Exhibits and any of the other agreements provided for herein, this Agreement
shall govern.

     Section 9.10 Waiver. No delay on the part of any party in exercising any
right, power, or privilege hereunder shall operate as a waiver thereof; nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege. The rights and remedies of any party based on, arising out
of or otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of facts
upon which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
contained in this Agreement (or in any other agreement between the parties) as
to which there is no inaccuracy or breach.

     Section 9.11 Severability. If any provision of this Agreement is found or
declared to be invalid or unenforceable by any court or other competent
authority having jurisdiction, such finding or declaration shall not invalidate
any other provision hereof, and this Agreement shall thereafter continue in full
force and effect except that such invalid or unenforceable provision, and (if
necessary) other provisions thereof, shall be reformed by a court of competent
jurisdiction so as to effect, insofar as is practicable, the intention of the
parties as set forth in this Agreement, provided that if such court is unable or
unwilling to affect such reformation, the invalid or unenforceable provision
shall be deemed deleted to the same extent as if it had never existed.

     Section 9.12 Termination. This Agreement may be terminated or extended as
set forth in Section 9.12 of the Asset Purchase Agreement; provided, however,
that the provisions of Sections 9.3, 9.7 and 9.13 and Article X shall survive
the termination of this Agreement; and provided further that such termination
shall not relieve any party hereto of any liability for any breach of this
Agreement.

     Section 9.13 Governing Law. This Agreement shall be governed by the
substantive laws of the State of Arizona, United States of America (without
regard to principles of conflict of laws) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
Bioglan consents and submits to the personal jurisdiction of the state and
federal courts in Arizona.

                                       19

   24
     Section 9.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     Section 9.15 Shareholder Approval. Subject to Section 9.12, notwithstanding
the Closing having taken place, if Bioglan shall for any reason whatsoever fail
to procure shareholder approval as provided in Section 7.5 of the Asset Purchase
Agreement, the Closing shall be deemed for all purposes never to have taken
place and all documents delivered at the Closing shall be cancelled and deemed
to be null and void and all the Purchased Assets and Assumed Liabilities shall
be re-transferred to the LLC in the condition that they are in at such time and
subject thereto, except for the Security Agreement and the Trademark Security
Agreement (as defined in the Asset Purchase Agreement), no party hereto shall be
under any further liability or obligation to any other whether pursuant to this
Agreement or otherwise howsoever; provided, further, that the Security Agreement
and the Trademark Security Agreement shall remain in full force and effect.

                                   ARTICLE X
                                   ARBITRATION

     Section 10.1 Submission to Arbitration. The parties shall promptly submit
to arbitration any dispute which may arise in connection with this Agreement
that is not promptly resolved by them, except that each party may seek
injunctive relief for breaches of this Agreement if either party makes a good
faith determination that a breach of the terms of this Agreement by the other
party will result in irreparable harm and that injunctive relief is the only
adequate remedy.

     Section 10.2 Arbitrator and Rules of Arbitration. The American Arbitration
Association shall have jurisdiction over the arbitration, which shall be
conducted in accordance with the Commercial Arbitration Rules of such
Association, except as modified by agreement of the parties.

     Section 10.3 Selection of Arbitrators. In the event a dispute is to be
submitted to arbitration pursuant to this Article X, the parties agree that the
dispute shall be resolved by a private arbitration conducted by one arbitrator.
Within ten (10) days after the submission of such dispute to arbitration, the
parties shall agree upon one arbitrator, selected from a panel of five
individuals, none of whom is an officer, director or employee of a party or an
Affiliate of such party, or a person who has a direct or indirect personal or
financial interest in the outcome of the arbitration, designated by the American
Arbitration Association from its permanent panel of commercial arbitrators. The
parties shall select the arbitrator by alternately striking names of the
individuals so designated until only one name remains. A coin toss will
determine which party is to strike the first name.

     Section 10.4 Procedure. The arbitrator shall set a hearing date for an
arbitration (the "Hearing") within ninety (90) days from the date the arbitrator
is selected, unless otherwise agreed by the parties. At least fifteen (15) days
before the Hearing, each party shall submit to the arbitrator a list of all
witnesses and exhibits which it intends to present at the Hearing. No later than
five (5) days before the Hearing, each party shall provide to the arbitrator a
short (not to

                                       20

   25
exceed five (5) single-spaced pages or such other page limit as the arbitrator
permits) statement of its position with regard to the dispute. Notwithstanding
the Commercial Arbitration Rules, each party shall have the right to conduct up
to a total of two (2) depositions. At the Hearing, each party shall, unless it
waives the opportunity, make an oral opening statement and an oral closing
statement. The arbitrator shall not be strictly bound by rules of procedure or
rules of evidence, but shall use the Federal Rules of Evidence as a guideline in
conducting the Hearing. When testimony is complete and each party has introduced
its exhibits pursuant to the provisions of this Agreement, and each party has
made a closing statement pursuant to the provisions of this Agreement or waived
the opportunity to do so, the arbitrator shall declare the Hearing closed;
provided that the parties may submit post-hearing briefs pursuant to an agreed
upon schedule or a schedule formulated by the arbitrator. The Hearing shall be
conducted in private. Attendance at the Hearing shall be limited to the
following: (i) the arbitrator; (ii) representatives of each party; (iii) each
party's attorneys and such attorneys' assistants or advisors, if any, including
expert witnesses if any; (iv) a court reporter if requested by either party; and
(v) any witnesses. The arbitrator may sequester witnesses upon the motion of a
party. Within thirty (30) days of the close of the Hearing or submission of the
post-hearing briefs, the arbitrator shall issue a written opinion and an award
(the "Award") based on evidence, arguments and post-hearing briefs, if any. The
Award shall be a decision of the arbitrator, shall resolve the parties' dispute
and shall be final and binding on the parties. Except as otherwise provided in
this Agreement, there shall be no ex parte communication regarding the subject
matter of the Hearing, in which event the arbitrator will render and deliver to
the parties a written opinion and Award within thirty (30) days of being
notified that the parties waive the Hearing. Notwithstanding any other provision
of this Agreement, the arbitrator shall have no power to delete from, add to or
modify the terms of this Agreement, and may not award any remedy which
effectively conflicts directly or indirectly with any provision of this
Agreement.

     Section 10.5 Arbitration Costs. In any arbitration, all of the reasonable
costs and expenses of the successful party ("Successful Party") (including
reasonable attorneys' fees and expenses), all fees and expenses of experts
retained by the Successful Party and all costs of the arbitrator shall be borne
by the losing party ("Losing Party") in such arbitration. The Losing Party and
the Successful Party shall be determined by the arbitrator based on the relative
success or failure of each party to such arbitration.

                            [SIGNATURE PAGE FOLLOWS]

                                       21

   26
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.

                                THE EXOREX COMPANY, LLC


                                By: /s/ Mark A. Prygocki, Sr
                                    ------------------------------------------
                                    Name: Mark A. Prygocki, Sr.
                                    Title:


                                BIOGLAN PHARMA PLC

                                By: /s/ Terry I. Sadler
                                    ------------------------------------------
                                    Terry I. Sadler
                                    Chairman and Chief Executive Officer


                                MEDICIS PHARMACEUTICAL CORPORATION


                                By: /s/ Mark A. Prygocki, Sr.
                                    ------------------------------------------
                                    Mark A. Prygocki, Sr.
                                    Chief Financial Officer


                                IMX PHARMACEUTICALS, INC.


                                By: /s/ William Forster

                                    ------------------------------------------
                                    Name: William Forster
                                    Title: President


                                       22

   27
                                   SCHEDULE 1

                                    PRODUCTS



                             Exorex Aqueous Cleanser
                             Exorex Body Combo Pack
                             Exorex Display-Large
                             Exorex Display-Small
                             Exorex Excema Formula 4 oz. Gentle
                             Exorex Excema Formula 4 oz. Regular
                             Exorex Excema Formula 8 oz. Regular
                             Exorex Leave on Scalp Conditioner
                             Exorex Penetrating Emulsion
                             Exorex Prepak
                             Exorex Scalp Combo
                             Exorex Shampoo
                             Exorex Stabilizing Cream 8 oz.


                                       1

   28
                                   SCHEDULE 2

                                   TRADEMARKS


TRADEMARK              COUNTRY           REG. NO.           REG. DATE             CLASS & GOODS/
                                                                                    SERVICES
                                                              
EXOREX                   US              2049968             4/1/97       Medicated lotions and topical gels for
                                                                            use in the treatment of psoriasis.





                                       2

   29
                                   EXHIBIT A

                              FORM OF BILL OF SALE



                                       A


   30
                                    EXHIBIT B

                      FORM OF TRANSITION SERVICES AGREEMENT




                                       B

   31
                                    EXHIBIT C

                           FORM OF LICENSE ASSIGNMENT



                                       C

EX-10.97

   1
                                                                   EXHIBIT 10.97


                       MEDICIS PHARMACEUTICAL CORPORATION
                            EXECUTIVE RETENTION PLAN.


                                    ARTICLE I

                             BACKGROUND AND PURPOSE

     1.1 PURPOSE. The purpose of the Medicis Pharmaceutical Corporation
("Medicis" or the "Company") Executive Retention Plan (the "Plan") is have the
continued dedication of executives notwithstanding the possibility, threat or
occurrence of a Change in Control (as defined below), to improve the recruitment
and retention of executives by Medicis and to ensure that executive benefits are
competitive with those of other corporations.

     1.2 EFFECTIVE DATE. The effective date of this Plan shall be April 1, 1999.

     1.3 PLAN NAME. This Plan shall be known as the Medicis Executive Retention
Plan and shall include the following provisions.


                                   ARTICLE II

                                   DEFINITIONS

     As used herein, the following terms shall have the meanings set forth in
this Article II, unless a different meaning is plainly required by the context.

     2.1 BOARD. The term "Board" means the Board of Directors of Medicis.

     2.2 CAUSE. The term "Cause" shall mean the willful and continued failure to
substantially perform the duties of the Company (other than a failure resulting
from the Employee's disability), the willful engaging in conduct which is
demonstrably injurious to the Company or any subsidiary, monetarily or
otherwise, commission of a felony, or a significant violation of any statutory
or common law duty of loyalty to the Company.

     2.3 CHANGE IN CONTROL. The term "Change in Control" shall mean

          (a)  the acquisition by any individual, entity or group (a "Person"),
               including any "person" within the meaning of Section 13(d)(3) or
               14(d)(2) of the Securities Exchange Act of 1934, as amended (the
               "Exchange Act"), of beneficial ownership within the meaning of
               Rule 13d-3 promulgated under the Exchange Act, of 25% or more of
               either (i) the then outstanding shares of common stock of the
               Company (the "Outstanding Common Stock") or (ii) the combined
               voting power of the then outstanding securities of the Company
               entitled to vote generally in the election of directors (the
               "Outstanding Voting Securities"); excluding, however, the
               following: (A) any acquisition directly from the Company
               (excluding any acquisition resulting from the exercise of an
               exercise, conversion or exchange privilege unless the security
               being so exercised, converted or exchanged was acquired directly
               from the Company), (B) any acquisition by the Company, (C) any
               acquisition by an employee benefit plan (or related trust)
               sponsored or maintained by the Company or any corporation
               controlled by the Company or (D) any acquisition by any
               corporation pursuant to a transaction which complies with clauses
               (i), (ii) and (iii) of subsection (c) of this Section 2.3;
   2
          (b)  individuals who, as of the date hereof constitute the Board of
               Directors (the "Incumbent Board") cease for any reason to
               constitute at least a majority of such Board; provided that any
               individual who becomes a director of the Company subsequent to
               such date whose election or nomination for election by the
               Company's stockholders was approved by the vote of at least a
               majority of the directors then comprising the Incumbent Board
               shall be deemed a member of the Incumbent Board; and provided
               further, that any individual who was initially elected as a
               director of the Company as a result of an actual or threatened
               election contest, as such terms are used in Rule 14a-11 of
               Regulation 14A promulgated under the Exchange Act, or any other
               actual or threatened solicitation of proxies or consents by or on
               behalf of any Person other than the Board shall not be deemed a
               member of the Incumbent Board;

          (c)  consummation by the Company of a reorganization, merger or
               consolidation or sale or other disposition of all or
               substantially all of the assets of the Company (a "Corporate
               Transaction"); excluding, however, a Corporate Transaction
               pursuant to which (i) all or substantially all of the individuals
               or entities who are the beneficial owners, respectively, of the
               Outstanding Common Stock and the Outstanding Voting Securities
               immediately prior to such Corporate Transaction will beneficially
               own, directly or indirectly, more than 75% of, respectively, the
               outstanding shares of common stock, and the combined voting power
               of the outstanding securities of such corporation entitled to
               vote generally in the election of directors, as the case may be,
               of the corporation resulting from such Corporate Transaction
               (including, without limitation, a corporation which as a result
               of such transaction owns the Company or all or substantially all
               of the Company's assets either directly or indirectly) in
               substantially the same proportions relative to each other as
               their ownership, immediately prior to such Corporate Transaction,
               of the Outstanding Common Stock and the Outstanding Voting
               Securities, as the case may be, (ii) no Person (other than: the
               Company; any employee benefit plan (or related trust) sponsored
               or maintained by the Company or any corporation controlled by the
               Company; the corporation resulting from such Corporate
               Transaction; and any Person which beneficially owned, immediately
               prior to such Corporate Transaction, directly or indirectly, 25%
               or more of the Outstanding Common Stock or the Outstanding Voting
               Securities, as the case may be) will beneficially own, directly
               or indirectly, 25% or more of, respectively, the outstanding
               shares of common stock of the corporation resulting from such
               Corporate Transaction or the combined voting power of the
               outstanding securities of such corporation entitled to vote
               generally in the election of directors and (iii) individuals who
               were members of the Incumbent Board will constitute at least a
               majority of the members of the board of directors of the
               corporation resulting from such Corporate Transaction; or

          (d)  the filing by the Company of a report or proxy statement with the
               Securities and Exchange Commission pursuant to the Exchange Act
               disclosing in response to Form 8-K or Schedule 14A (or any
               successor schedule, form or report or item therein) that a Change
               in Control of the Company has occurred or will or may occur in
               the future pursuant to any then-existing contract or transaction;
               provided, that, such Change in Control does in fact occur.

     2.4 COMPANY. The term "Company" refers to Medicis or any successor thereto.

                                       2
   3
     2.5 EMPLOYEE. The term "Employee" means any person listed on Exhibit "A" to
this Plan who reports directly to the Chief Executive Officer or are determined
by the Board of Directors of the Company to be appropriate to include and listed
on Exhibit "A" or any other person designated by the Chief Executive Officer and
listed on Exhibit "A." When an Employee is listed on Exhibit "A," Employee and
Company shall execute an Acceptance Agreement in the form of Exhibit "B" hereto.
The Secretary of the Company shall maintain Exhibit "A" and shall be responsible
for coordinating the execution of Exhibit "B" as appropriate. No person shall be
considered an Employee by reason of service to the Company solely as a member of
the Board of Directors or during a period of service as a consultant.

     2.6 GOOD REASON. An Employee shall have "good reason" to terminate
employment with the Company when on or within twenty four (24) months after the
effective date of the Change in Control: (a) the Employee's duties,
responsibilities or authority are materially reduced or diminished without the
Employee's prior written consent, (b) the Employee's compensation or benefits
are reduced from the compensation and benefits which exist for the Employee on
the effective date of the Change in Control (other than ordinary course
diminutions in potential bonuses based on poor performance), (c) the Company
reduces the potential earnings of the Employee under any performance-based bonus
or incentive plan of the Company in effect immediately prior to the effective
date of a Change in Control which is disproportionate as compared to other
executives employed by the Company or any newly-created organization of which
the Company may become a part, (d) the Company amends or terminates any
performance-based bonus or incentive plan of the Company in effect immediately
prior to the effective date of a Change in Control or (e) the Company requires
the Employee's principal place of employment to be greater than 25 miles from
Employee's principal place of employment on the date of the Change in Control.

     2.7 INVOLUNTARY TERMINATION. The term "Involuntary Termination" refers to
termination of employment by determination of the Company as opposed to
termination of employment by determination of the Employee.

     2.8 SALARY. The term "Salary" means an Employee's regular, fixed rate of
salary or wages for the twelve (12) month period immediately preceding the date
Employee becomes eligible for a Benefit Allowance and other allowances
enumerated in Article IV hereof, plus all bonuses (annualized in the event that
Employee is employed by the Company for less than twelve (12) months during such
period). For purposes of determining Salary, an Employee's bonus shall be an
amount equal to his or her highest annual bonus for any year during the
Company's last three fiscal years preceding the date the Employee becomes
eligible for a Benefit Allowance and other allowances enumerated in Article IV
hereof.

     2.9 BENEFIT ALLOWANCE AND OTHER ALLOWANCES. The term "Benefit Allowance"
means the benefit payable under this Plan, and together with the other
allowances provided for by this Plan, shall be calculated in accordance with
Article IV hereof. If any payment or benefit received or to be received by the
Employee in connection with a Change in Control of the Company or termination of
the Employee's employment (whether payable pursuant to the terms of this Plan, a
stock option plan or any other plan or arrangement with the Company) (the "total
payments") will be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986 (the "Code"), the Company will pay to the
Employee, within thirty (30) days of any payments giving rise to excise tax, an
additional amount (the "gross-up payment") such that the net amount retained by
the Employee, after deduction of any excise tax on the total payments and any
federal and state and local income and employment tax and excise tax on the
gross-up payment provided for by this Section 2.9, will equal the total
payments. For purposes of determining the amount of the gross-up payment, the
Employee will be deemed to pay federal income taxes at the highest marginal rate
of federal income taxation in the calendar year that the payment is to be made,
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Employee's residence on the date of termination or the
date that excise tax is withheld by the Company, net of the maximum reduction in
federal income taxes that could be obtained by deducting such state and local
taxes. For purposes of determining whether any of the total payments would not
be deductible by the Company and would be subject to the excise tax, and the
amount of such excise tax, (1) total payments will be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all
parachute payments in excess of the base amount within the meaning of Section
280G(b)(3) will be treated as subject to the excise tax unless, in the opinion
of tax counsel selected by the Company's independent auditors prior to the
Change in Control and acceptable to the Employee, such total payments (in whole
or in part) are not parachute payments, or such parachute payments in excess of
the base amount (in whole

                                       3
   4
or in part) are otherwise not subject to the excise tax, and (2) the value of
any non-cash benefits or any deferred payment will be determined by the
Company's independent auditors in accordance with Sections 280G(d)(3) and (4) of
the Code. If the excise tax is subsequently determined to be less than the
amount originally taken into account hereunder, the Employee will repay to the
Company, when such reduction in excise tax is finally determined, the portion of
the gross-up payment attributable to such reduction. If the excise tax is
determined to exceed the amount originally taken into account hereunder
(including by reason of any payment, the existence or amount of which cannot be
determined at the time of the gross-up payment), the Company will make an
additional gross-up payment in respect of such excess (plus any interest payable
with respect to such excess) when such excess is finally determined.

     2.10 DISABILITY. The term "Disability" shall have the same meaning as
provided in the Company's long-term disability plan, or, if no such plan exists,
the meaning set forth in Section 22(e)(3) of the Code.

                                   ARTICLE III

                           ELIGIBILITY FOR ALLOWANCES

     3.1 ELIGIBILITY FOR BENEFIT ALLOWANCE AND OTHER ALLOWANCES. Except as
provided below, the Employees listed in the eligibility list attached hereto as
Exhibit "A" shall be eligible for a Benefit Allowance and other allowances under
the Plan under the following circumstances:

          (a)  the Employee experiences an Involuntary Termination other than
               for Cause on or within twenty four (24) months after the
               effective date of a Change in Control; or

          (b)  the Employee terminates his or her employment with the Company
               for Good Reason on or within twenty four (24) months after the
               effective date of a Change in Control; or

          (c)  the Employee's employment is terminated on or within twelve (12)
               months after the effective date of a Change in Control by reason
               of death or Disability.

     3.2 INELIGIBILITY FOR BENEFIT ALLOWANCE AND OTHER ALLOWANCES. An Employee
shall be ineligible for a Benefit Allowance and other allowances under the Plan
if:

          (a)  the Employee terminates his or her employment with the Company
               without Good Reason; or

          (b)  the Employee experiences an Involuntary Termination for Cause.

     3.3 CONTRACTUAL BENEFITS. If the Employee has an employment contract or
other arrangement with the Company which provides for severance or similar
benefits, the Employee shall receive the benefit of whichever agreement provides
for greater benefits.


                                   ARTICLE IV

                AMOUNT OF BENEFIT ALLOWANCE AND OTHER ALLOWANCES

     4.1 AMOUNT OF BENEFIT ALLOWANCE AND OTHER ALLOWANCES. An Employee who
satisfies the provisions of Article III hereof shall:

          (a)  receive a Benefit Allowance equal to the amount indicated on
               Exhibit "A;"

                                       4
   5
          (b)  be provided with medical, health, life, and/or disability
               insurance benefits for the periods listed on Exhibit A, or, at
               the option of the Employee, shall receive a cash payment in lieu
               of and equivalent to such insurance benefits (the "Insurance
               Payment"); provided, however, that in no event shall such
               insurance benefits be less than those provided to Employee by the
               Company any time within the twelve (12) months preceding the date
               Employee becomes eligible for the Benefit Allowance and other
               allowances;

          (c)  receive all reasonable legal fees and expenses incurred as a
               result of termination (including all such fees and expenses, if
               any, incurred in contesting or disputing any termination, in
               seeking to obtain or enforce any right or benefit provided by
               this Plan, or in interpreting this Plan) unless the Employee's
               claim is determined by a court of competent jurisdiction to be
               frivolous or otherwise without merit;

          (d)  be entitled to the continued benefit for the time period
               specified on "Exhibit A," of all active and retired employee
               benefit plans and programs or arrangements in which he or she was
               entitled to participate immediately prior to the effective date
               of the Change in Control, provided that continued participation
               is possible under the general terms and provisions of such plans
               and programs;

          (e)  receive a lump sum payment in cash at Employee's normal
               retirement age (or earlier retirement age should he or she so
               elect) as defined in the retirement plans or programs in which
               Employee participates or any successor plans or programs in
               effect immediately prior to the effective date of the Change in
               Control, in an amount equal to the lump sum value of the
               retirement pension to which Employee would have been entitled
               under the Company's pension plan, excess benefit plan and
               supplemental retirement plan, if any, if Employee's employment
               had continued through the periods set forth on Exhibit "A"
               determined as of the Employee's normal retirement age (or earlier
               retirement age, should he or she elect) reduced by the present
               value of the Employee's actual benefits under the Company's
               pension plan, excess benefit plan and supplement retirement plan;
               and

          (f)  the forfeiture provisions of any stock option agreements with the
               Employee regarding the Company's rights to profits from the
               exercise of options within three (3) years of the Employee's
               termination shall be null and void.

     4.2 TIMING. The Benefit Allowance, the Insurance Payment referred to in
Section 4.1(b) above, if any, under this Plan shall be paid in a lump sum cash
payment or transferred, as applicable, within thirty (30) business days
following an Employee becoming eligible.

     4.3 EFFECT ON OTHER BENEFITS. There shall not be drawn from the provision
of benefits under this Plan any implication of accrued vacation days, paid
holidays, paid sick leave or any other fringe or regular benefits normally
associated with employment by the Company for any part of the period during
which benefits are payable under this Plan, unless otherwise specifically
provided in writing by the Company. The fact that any such benefits are
specifically provided in writing by the Company shall not be construed to confer
any right to an additional Benefit Allowance or other allowance under this Plan.

                                    ARTICLE V

                               GENERAL PROVISIONS

                                       5
   6
     5.1 PLAN ADMINISTRATION. The Company shall be the Plan's Named Fiduciary
and Administrator and subject to the terms of the Plan, shall have complete
discretion with respect to the administration, operation and interpretation of
the Plan. The Company may consult with an attorney, accountant, actuary or other
experts and rely upon their opinions as it deems necessary and proper. Any
decisions, actions or interpretations to be made under the Plan by the Company
shall be made in its sole reasonable discretion. The determination or action of
the Company with respect to any questions arising out of or in connection with
the administration, operation and interpretation of the Plan shall be conclusive
and binding upon all persons having an interest in the Plan, unless determined
to be arbitrary and capricious.

     5.2 FUNDING OF THE PLAN. All amounts required to be paid under the Plan
shall be provided out of the general assets of the Company. The Company may, in
its sole discretion, establish any funding or accounting mechanism permitted by
law. No terminated Employee shall have any right to, or interest in, any assets
of the Company which may be applied by the Company to make payments under the
Plan.

     5.3 RIGHT TO AMEND. The Company may modify, alter, amend, or terminate the
Plan at any time and to any extent that it may deem advisable in its sole
discretion; provided, however, that, within twenty four (24) months following a
Change in Control, the Company may not modify, alter, amend or terminate the
Plan in any manner, without the written approval of all Employees then listed on
"Exhibit A" hereto. Any change shall be set forth in a written instrument which
shall be approved by the Board of Directors. Any amendment to the Plan made
prior to an actual Change in Control, but subsequent to the execution of a
definitive agreement or arrangement to effectuate such a Change in Control or
caused by the person effectuating the Change in Control which is detrimental to
the Employees listed on Exhibit A (as of the date of such amendment) shall be
deemed to have been made immediately following that Change in Control and such
amendment shall not be deemed effective unless approved by all of the affected
Employees.

     5.4 BENEFIT CLAIMS PROCEDURES. In the event a claim by a terminated
Employee relating to the amount of any distribution or its method of payment is
denied, such person will be given written notice by the Company of such denial,
which notice will set forth the reason for the denial. The terminated Employee
may, within sixty (60) days after receiving the notice, request a review of such
denial by filing a notice in writing with the Company. The Company, in its
discretion, may request a meeting with the terminated Employee to clarify any
matters it deems pertinent. The Company will render a written decision within
sixty (60) days after receipt of such request stating the reasons for its
decision.

     5.5 NON-ALIENATION OF BENEFIT ALLOWANCE. None of the payments, benefits or
rights of any Employee shall be subject to any claims of any creditor and, in
particular, to the fullest extent permitted by law, all such payments, benefits
and rights shall be free from attachment, garnishment, trustees' process or any
other legal or equitable process available to any creditor of such Employee. No
Employee shall have the right to alienate, commute, pledge, encumber or assign
any of the benefits or payouts which the Employee may expect or receive,
contingently or otherwise, under the Plan.

     5.6 NO RIGHT TO EMPLOYMENT. Nothing herein shall be deemed to give any
Employee the right to be retained in the service of the Company or to interfere
with the rights of the Company to discharge any Employee at any time and for any
reason and to treat him or her without regard to the effect which such treatment
might have upon him or her under the Plan.

     5.7 PAYMENT DUE PERSONS UNDER DISABILITY. If the Company determines that
any person to whom a payment is due hereunder is unable to care for his or her
affairs by reasons of physical or mental incapacity, the Company shall have the
power to direct that any benefit payment due or becoming due to such person,
unless claim shall have been made therefore by a duly appointed legal
representative, be paid to his or her spouse, mother, father, child or children,
or other blood relative, or to a person with whom he or she resides, without any
responsibility of the Company to see to the application of such payment, and any
such payment so made shall be a complete discharge of the liabilities of the
Plan therefore.

     5.8 RECORDS, REPORTING AND DISCLOSURE. The Company shall keep all records
necessary for the proper operation of the Plan. Such records shall be made
available to each Employee for examination during


                                       6
   7
regular business hours except that an Employee shall examine only such records
as pertain exclusively to such examining Employee and to the Plan text. The
Company shall prepare and shall file, as required by law or regulation, all
reports, forms, documents and other items required by the Code, and every other
relevant statute, each as amended, and all regulations thereunder, including
without limitation, all forms relating to withholding of income or wage taxes,
Social Security taxes, and other amounts which may be similarly reportable.

     5.9 APPENDICES. Subject to the provisions of Section 5.3, from time to
time, the Company may elect to append provisions of limited duration to this
Plan to govern what the Company determines to be special circumstances. Each
such appendix, during the period stipulated therein, shall be deemed a part of
this Plan. The rights of such Employee, as stated in such appendix, shall
supersede the rights provided under this Plan; however, the benefits provided
under such appendix shall not be less than the benefits which exist under this
Plan, and there shall be no duplication of benefits.

     5.10 EXPENSES. All expenses of administering, interpreting and enforcing
the Plan shall be paid by the Company.

     5.11 SUCCESSORS AND ASSIGNS. If any person or entity acquires forty percent
(40%) or more of the stock, assets or earning power of the Company, the Company
agrees to require such person or entity to assume the Company's obligations
under this Plan. If the Company fails to secure such assumption, an Involuntary
Termination without Cause shall be deemed to have occurred for all Employees as
of the effective date of such acquisition.

     5.12 TITLES AND HEADINGS. The titles of articles and headings of paragraphs
in this Plan are for convenience of reference only and in case of any conflict,
the text of the Plan, rather than such titles and headings, shall control.

     5.13 GOVERNING LAW. This Plan shall be construed and enforced according to
the internal laws of the State of Arizona, to the extent not preempted by
federal law. In the event that any provision of this Plan shall be held illegal
or invalid for any reason, such determination shall not affect the remaining
provisions of the Plan, but the Plan shall be construed and enforced as if said
illegal or invalid provision had never been included.

     5.14 ARBITRATION. Any and all controversies, claims or disputes arising out
of or in any way relating to the Plan shall be resolved by final and binding
arbitration in Phoenix, Arizona before a single arbitrator licensed to practice
law and in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). The arbitration shall be commenced by
filing a demand for arbitration with the AAA within sixty (60) days after the
occurrence of the facts giving rise to any such controversy, claim or dispute.
The arbitrator shall decide all issues relating to arbitrability. If the
arbitrator determines that (i) the Company has breached its agreement with the
Employee under the Plan, and (ii) the Company was unjustified in failing to make
the payments required under the Plan to the Employee, the Company shall pay the
Employee, as liquidated damages and not as a penalty, an additional amount equal
to ten percent (10%) of the amount involved in the arbitration with respect to
the Plan.

                                       7
   8
     IN WITNESS WHEREOF, and as evidence of its adoption of this Plan, the
Company has caused the same to be executed by its duly authorized officers and
its corporate seal to be affixed hereto as of April 1, 1999.

Attest:                                MEDICIS PHARMACEUTICAL CORPORATION



/s/ Mark A. Prygocki, Sr.              By: /s/ Jonah Shacknai
- -------------------------              ----------------------
Secretary

                                       Its: Chairman and Chief Executive Officer
                                            ------------------------------------

                                       8
   9
                                                                       EXHIBIT A

                       MEDICIS PHARMACEUTICAL CORPORATION
                            EXECUTIVE RETENTION PLAN






                                                                                       INSURANCE AND RETIREMENT BENEFIT
       POSITION / NAME OF EMPLOYEE                     BENEFIT ALLOWANCE                PAYMENT AND MAINTENANCE PERIOD
       ---------------------------                     -----------------                ------------------------------
                                                                                 
Persons Who Currently Report Directly to    An amount equal to two (2) times the                 Two (2) years
the Chief Executive Officer and all other   Employee's Salary
persons who subsequent to the date hereof
report directly to the Chief Executive
Officer as follows, or such other persons
as the Board of Directors shall deem
appropriate to include in this category:


Other Persons Designated by the Chief       An amount equal to one (1) times the                 One (1) year
Executive Officer as follows:               Employee's Salary

   10
                                                                       EXHIBIT B

                              ACCEPTANCE AGREEMENT

     THIS AGREEMENT made as of the _________ day of _________, 1999, by and
between, Medicis Pharmaceutical Corporation and any successor thereto (the
"Company") and ____________ (the "Key Employee").

     WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distraction of the Company's key management personnel because of the
uncertainties inherent in such a situation;

     WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders for the Company to retain the
services of the Key Employee in the event of a threat or occurrence of a Change
in Control and to ensure the Key Employee's continued dedication and efforts in
such event without undue concern for the Key Employee's personal financial and
employment security; and

     WHEREAS, in order to induce the Key Employee to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with the Key Employee
to provide the Key Employee with certain benefits in the event the Key
Employee's employment is terminated as a result of, or in connection with, a
Change in Control and to provide the Key Employee with the Gross-Up Payment (as
hereinafter defined) in accordance with the Medicis Pharmaceutical Executive
Retention Plan.

     NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:

     1. Term of Agreement. This Agreement shall commence as of the date hereof,
and shall continue in effect until June 30, 2000 (the "Term"); provided,
however, that on June 30, 2000 and on each year thereafter, the Term shall
automatically be extended for one (1) year unless either the Key Employee or the
Company shall have given written notice to the other at least ninety (90) days
prior thereto that the Term shall not be so extended; provided, further,
however, that following the occurrence of a Change in Control, the Term shall
not expire prior to the expiration of twenty four (24) months after such
occurrence.

     2. Termination of Employment. If, during the Term, the Key Employee's
employment with the Company or any successor shall be terminated within twenty
four (24) months following a Change in Control due to an Involuntary Termination
(as defined below), the Key Employee shall be entitled to the following
compensation and benefits:

                           (a) a lump sum payment equal to [2][1] times his or
her Salary (as defined below) to be paid within 30-days
following such termination;

                           (b) be provided with medical, health, life, and/or
disability insurance benefits for [twenty-four (24)] [twelve (12)] months, or,
at the option of the Key Employee, shall receive a cash payment in lieu of and
equivalent to such insurance benefits (the "Insurance Payment"); provided,
however, that in no event shall such insurance benefits be less than those
provided to Key Employee by the Company any time within the twelve (12) months
preceding the date Key Employee becomes eligible for the benefits hereunder;

                           (c) receive all reasonable legal fees and expenses
incurred as a result of termination (including all such fees and expenses, if
any, incurred in contesting or disputing any termination, in seeking to obtain
or enforce any right or benefit provided by this Agreement, or in interpreting
this Agreement) unless the Key Employee's claim is determined by a court of
competent jurisdiction to be frivolous or otherwise without merit;

                           (d) be entitled to the continued benefit for
[twenty-four (24)] [twelve (12)] months of all active and retired employee
benefit plans and programs or arrangements in which he or she was entitled to


                                       1
   11
participate immediately prior to the effective date of the Change in Control,
provided that continued participation is possible under the general terms and
provisions of such plans and programs;

                           (e) receive a lump sum payment in cash at Key
Employee's normal retirement age (or earlier retirement age should he or she so
elect) as defined in the retirement plans or programs in which Key Employee
participates or any successor plans or programs in effect immediately prior to
the effective date of the Change in Control, in an amount equal to the lump sum
value of the retirement pension to which Key Employee would have been entitled
under the Company's pension plan, excess benefit plan and supplemental
retirement plan, if any, if Key Employee's employment had continued for [twenty-
four (24)] [twelve (12)] months following his or her termination, determined as
of the Key Employee's normal retirement age (or earlier retirement age, should
he or she elect) reduced by the present value of the Key Employee's actual
benefits under the Company's pension plan, excess benefit plan and supplement
retirement plan;

                           (f) the forfeiture provisions of any stock option
agreements with the Key Employee regarding the Company's rights to profits from
the exercise of options within three (3) years of the Key Employee's termination
shall be null and void;

                           (g) the Key Employee's entitlement to any other
compensation or benefits shall be determined in accordance with the Company's
employee benefits plans and other applicable programs and practices then in
effect; provided, that, if the Key Employee has an employment contract or other
arrangement with the Company which provides for severance or similar benefits,
the Key Employee shall receive the benefit of whichever agreement provides for
greater benefits;

                           (h) in the event it shall be determined that any
payment or distribution of any type to or for the benefit of the Key Employee,
by the Company, any affiliate, any Person (as defined below) who acquires
ownership or effective control of the Company or ownership of a substantial
portion of the Company's assets (within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder) or any affiliate of such Person, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Total Payments"), is or will be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then the Key Employee shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Key Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income tax,
employment tax or Excise Tax, imposed upon the Gross Up Payment, the Key
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments. All mathematical determinations, and all
determinations as to whether any of the Total Payments are "parachute payments"
(within the meaning of Section 280G of the Code), that are required to be made
under this Section 2(h), including determinations as to whether a Gross-Up
Payment is required, the amount of such Gross-Up Payment and amounts relevant to
the last sentence of this Section 2(h), shall be made by an independent
accounting firm selected by the Company (the "Accounting Firm"), which shall
provide its determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment and any
other relevant matter, both to the Company and the Key Employee by no later than
thirty (30) days following the Termination Date, if applicable, or such earlier
time as is requested by the Company or the Key Employee (if the Key Employee
reasonably believes that any of the Total Payments may be subject to the Excise
Tax). If the Accounting Firm determines that no Excise Tax is payable by the Key
Employee, it shall furnish the Key Employee and the Company with a written
statement that such Accounting Firm has concluded that no Excise Tax is payable
(including the reasons therefor) and that the Key Employee has substantial
authority not to report any Excise Tax on his or her federal income tax return.
If a Gross-Up Payment is determined to be payable, it shall be paid to the Key
Employee within thirty (30) days after the Determination (and all accompanying
calculations and other material supporting the Determination) is delivered to
the Company by the Accounting Firm. Any determination by the Accounting Firm
shall be binding upon the Company and the Key Employee, absent manifest error.
As a result of uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments not made by the Company should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment


                                       2
   12
or Overpayment that has occurred. In the case of an Underpayment, the amount of
such Underpayment shall be promptly paid by the Company to or for the benefit of
the Key Employee. In the case of an Overpayment, the Key Employee shall, at the
direction and expense of the Company, take such steps as are reasonably
necessary (including the filing of returns and claims for refund), follow
reasonable instructions from, and procedures established by, the Company, and
otherwise reasonably cooperate with the Company to correct such Overpayment,
provided, however, that (i) the Key Employee shall not in any event be obligated
to return to the Company an amount greater than the net after-tax portion of the
Overpayment that he or she has retained or has recovered as a refund from the
applicable taxing authorities and (ii) this provision shall be interpreted in a
manner consistent with the intent of Section 2(h), which is to make the Key
Employee whole, on an after-tax basis, from the application of the Excise Tax,
it being understood that the correction of an Overpayment may result in the Key
Employee repaying to the Company an amount which is less than the Overpayment;
and

                           (i) the Key Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced by
the amount of any compensation or benefits provided to the Key Employee in any
subsequent employment.

If Key Employee's employment is terminated for any other reason than an
Involuntary Termination, he shall not be entitled to any of the payments and
benefits set forth above.

                  3. Definitions. For purposes hereof, the following terms shall
have the meanings set forth below:

                           (a) "Involuntary Termination" shall mean a
termination of Key Employee's employment (i) by the Company or its successors
for any reason other than due to Cause, (ii) by the Key Employee for Good Reason
or (iii) due to Key Employee's death or Disability.

                           (b) "Disability" shall have the same meaning as
provided in the Company's long-term disability plan, or, if no such plan exists,
the meaning set forth in Section 22(e)(3) of the Code.

                           (c) "Cause" shall mean the willful and continued
failure of Key Employee to substantially perform the duties of the Company
(other than a failure resulting from the Key Employee's Disability), the willful
engaging in conduct which is demonstrably injurious to the Company or any
subsidiary by the Key Employee, monetarily or otherwise, commission of a felony
by the Key Employee, or a significant violation of any statutory or common law
duty of loyalty to the Company by the Key Employee.

                           (d) Key Employee shall have "Good Reason" to
terminate employment with the Company when on or within twenty four (24) months
after the effective date of the Change in Control: (a) the Key Employee's
duties, responsibilities or authority are materially reduced or diminished
without the Key Employee's prior written consent, (b) the Key Employee's
compensation or benefits are reduced from the compensation and benefits which
exist for the Key Employee on the effective date of the Change in Control (other
than ordinary course diminution in potential bonuses based on poor performance),
(c) the Company reduces the potential earnings of the Key Employee under any
performance-based bonus or incentive plan of the Company in effect immediately
prior to the effective date of a Change in Control which is disproportionate as
compared to other executives employed by the Company or any newly-created
organization of which the Company may become a part, (d) the Company amends or
terminates any performance-based bonus or incentive plan of the Company in
effect immediately prior to the effective date of a Change in Control or (e) the
Company requires the Key Employee's principal place of employment to be greater
than 25 miles from Key Employee's principal place of employment on the date of
the Change in Control.

                           (e) "Salary" shall mean Key Employee's regular, fixed
rate of salary or wages for the twelve (12) month period immediately preceding
the date Key Employee becomes eligible for the benefit and other allowances set
forth in Section 2 hereof, plus all bonuses (annualized in the event that Key
Employee is employed by the Company for less than twelve (12) months during such
period). For purposes of determining Salary, an Key Employee's bonus shall be an
amount equal to his or her highest annual bonus for any year during the
Company's


                                       3
   13
last three fiscal years preceding the date the Key Employee becomes eligible for
the benefits and other allowances set forth herein.

          (f) The term "Change in Control" shall mean (a) the acquisition by any
individual, entity or group (a "Person"), including any "person" within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), of beneficial ownership within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of 25% or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding Common
Stock") or (ii) the combined voting power of the then outstanding securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (A) any
acquisition directly from the Company (excluding any acquisition resulting from
the exercise of an exercise, conversion or exchange privilege unless the
security being so exercised, converted or exchanged was acquired directly from
the Company), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c); (b) individuals who, as of the date hereof constitute
the Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided that any individual who
becomes a director of the Company subsequent to such date whose election or
nomination for election by the Company's stockholders was approved by the vote
of at least a majority of the directors then comprising the Incumbent Board
shall be deemed a member of the Incumbent Board; and provided further, that any
individual who was initially elected as a director of the Company as a result of
an actual or threatened election contest, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any Person
other than the Board shall not be deemed a member of the Incumbent Board; (c)
consummation by the Company of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Corporate Transaction"); excluding, however, a Corporate Transaction pursuant
to which (i) all or substantially all of the individuals or entities who are the
beneficial owners, respectively, of the Outstanding Common Stock and the
Outstanding Voting Securities immediately prior to such Corporate Transaction
will beneficially own, directly or indirectly, more than 75% of, respectively,
the outstanding shares of common stock, and the combined voting power of the
outstanding securities of such corporation entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or substantially all of
the Company's assets either directly or indirectly) in substantially the same
proportions relative to each other as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Common Stock and the Outstanding
Voting Securities, as the case may be, (ii) no Person (other than: the Company;
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; the corporation resulting
from such Corporate Transaction; and any Person which beneficially owned,
immediately prior to such Corporate Transaction, directly or indirectly, 25% or
more of the Outstanding Common Stock or the Outstanding Voting Securities, as
the case may be) will beneficially own, directly or indirectly, 25% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of the
outstanding securities of such corporation entitled to vote generally in the
election of directors and (iii) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or (d)
the filing by the Company of a report or proxy statement with the Securities and
Exchange Commission pursuant to the Exchange Act disclosing in response to Form
8-K or Schedule 14A (or any successor schedule, form or report or item therein)
that a Change in Control of the Company has occurred or will or may occur in the
future pursuant to any then existing contract or transaction; provided, that,
such Change in Control does in fact occur.

     4. Notice of Termination. Following a Change in Control, any intended
termination of the Key Employee's employment by the Company shall be
communicated by a notice of termination ("Notice of Termination") from the
Company to the Key Employee, and any intended termination of the Key Employee's
employment by the Key Employee for Good Reason shall be communicated by a Notice
of Termination from the Key Employee to the Company.

     5. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including any Notice of
Termination) shall be in writing, shall be signed by the Key


                                       4
   14
Employee if to the Company or by a duly authorized officer of the Company if to
the Key Employee, and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to the other,
provided that all notices to the Company shall be directed to the attention of
the Board with a copy to the Secretary of the Company. All notices and
communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.

                  6. Nature of Rights. The Key Employee shall have the status of
a mere unsecured creditor of the Company with respect to his or her right to
receive any payment under this Agreement. This Agreement shall constitute a mere
promise by the Company to make payments in the future of the benefits provided
for herein. It is the intention of the parties hereto that the arrangements
reflected in this Agreement shall be treated as unfunded for tax purposes.

                  7. Settlement of Claims. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, defense, recoupment, or other right which
the Company may have against the Key Employee or others.

                  8. Agreement Subject to Plan. The Key Employee acknowledges
that this Agreement is subject to the provisions and continuance of the Plan.
The Company may modify, alter, amend, or terminate the Plan at any time and to
any extent that it may deem advisable in its sole discretion; provided, however,
that, within twenty four (24) months following a Change in Control, the Company
may not modify, alter, amend or terminate the Plan in any manner, without the
approval of all employees then listed on "Exhibit A" hereto. Any change shall be
set forth in a written instrument which shall be approved by the Board of
Directors. Any amendment to the Plan made prior to an actual Change in Control,
but subsequent to the execution of a definitive agreement or arrangement to
effectuate such a Change in Control which is detrimental to the employees listed
on Exhibit A (as of the date of such amendment) shall be deemed to have been
made immediately following that Change in Control and such amendment shall not
be deemed effective unless approved by all of the affected employees.

                  9. Miscellaneous. Except as provided above, no provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the Key Employee
and the Company. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by any party
which are not expressly set forth in this Agreement.

                  10.  Binding Agreement.

                           (a) This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns. The Company
shall require its successors and assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place.

                           (b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Key Employee, his or her
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Key Employee's legal personal representative.

                  11. Governing Law, Arbitration. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Arizona without giving effect to the conflict of laws principles thereof. Any
and all controversies, claims or disputes arising out of or in any way relating
to the Agreement shall be resolved by final and binding arbitration in Phoenix,
Arizona before a single arbitrator licensed to practice law and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA"). The arbitration shall be commenced by filing a demand for
arbitration with the AAA within sixty (60) days after the


                                       5
   15
occurrence of the facts giving rise to any such controversy, claim or dispute.
Except as specifically provided herein, the arbitrator shall decide all issues
relating to arbitrability. If the arbitrator determines that (i) the Company has
breached this Agreement and (ii) the Company was unjustified in failing to make
the payments required under this Agreement to the Key Employee, the Company
shall pay the Key Employee, as liquidated damages and not as a penalty, an
additional amount equal to ten percent (10%) of the amount involved in the
arbitration with respect to the Agreement.

                  12. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.

                  13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto, and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto, with respect to the subject matter hereof.

                  IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officers and the Key Employee has executed
this Agreement as of the day and year first above written.


                                     Medicis Pharmaceutical Corporation



                                     By: _______________________________
                                         Jonah Shacknai
                                         Chairman and Chief Executive Officer

ATTEST:

____________________________
       Secretary


                                     By: _______________________________
                                         Name


                                       6

EX-13

   1
                                                                      EXHIBIT 13

THE FOLLOWING INFORMATION IS INCORPORATED BY REFERENCE TO PART II ITEMS 5-8 OF
THE ANNUAL REPORT ON FORM 10-K

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors (see "Factors that May Affect Future Results" below).

OVERVIEW

Medicis is the leading independent pharmaceutical company in the United States
focusing primarily on the treatment of dermatological conditions. The Company
offers prescription products and an over-the-counter ("OTC") product,
emphasizing the clinical effectiveness, quality, affordability and cosmetic
elegance of its products. Medicis has achieved a leading position in branded
products for the treatment of acne, acne-related conditions, dyschromias and
hyperpigmentation disorders and also offers the leading OTC fade cream product
in the United States. The Company has built its business through successfully
introducing prescription products such as DYNACIN(R) and TRIAZ(R) for the
treatment of acne, LUSTRA(R) for the treatment of skin dyschromia and
photoaging, as well as marketing ESOTERICA,(R) an OTC fade cream product line.
In addition, Medicis has acquired the dermatological assets LOPROX,(R)
TOPICORT(R) and A/T/S(R) from Hoechst Marion Roussel ("HMR") and LIDEX(R) and
SYNALAR(R) corticosteroid product lines from Syntex USA, Inc.
("Syntex").

      Prescription pharmaceuticals accounted for 77.0%, 77.0% and 86.5% of net
revenues in the fiscal years ending June 30, 1999 ("fiscal 1999"), June 30, 1998
("fiscal 1998") and June 30, 1997 ("fiscal 1997"), respectively.

      The Company derives a majority of its revenue from sales of the
DYNACIN,(R) TRIAZ,(R) and LIDEX(R) products, the newly developed and expanded
LUSTRA(R) line and the newly acquired LOPROX(R) and TOPICORT(R) products
(collectively the "Key Products"). The Company believes that sales of the Key
Products will constitute the majority of net revenues for the foreseeable
future. Accordingly, any factor adversely affecting the sale of the Key
Products, individually or collectively, would have a material adverse effect on
the Company's business, financial condition and results of operations. Each of
the Key Products could be rendered obsolete or uneconomical by regulatory or
competitive changes. The sale of Key Products could also be adversely affected
by other factors, including manufacturing or supply interruptions; the
development of new competitive pharmaceuticals to treat the conditions addressed
by the Key Products; technological advances; factors affecting the cost of
production; marketing or pricing actions by one or more of the Company's
competitors; changes in the prescribing practices of dermatologists; changes in
the reimbursement policies of third-party payors; product liability claims; the
outcome of disputes relating to trademarks, patents and other rights or other
factors.

      The Company's results of operations may vary from period to period due to
a variety of factors, including expenditures incurred to acquire, license and
promote pharmaceuticals; expenditures and timing relating to the acquisition and
integration of businesses; changes in the prescribing practices of
dermatologists; the introduction of new products by the Company or its
competitors; cost increases from third-party manufacturers; manufacturing and
supply interruptions; the availability and cost of raw materials; the mix of
products sold by the Company; changes in marketing and sales expenditures;
market acceptance of the Company's products; competitive pricing pressures; the
outcome of disputes relating to trademarks, patents and other rights; general
economic and industry conditions that affect customer demand and the Company's
level of research and development activities. In addition, the Company's
business has historically been subject to seasonal fluctuations, with lower
sales generally being experienced in the first quarter of each fiscal year. As a
result of customer buying patterns, a substantial portion of the Company's
revenues has been in the last month of each quarter. The Company schedules its
inventory purchases to meet anticipated customer demand. As a result, relatively
small delays in the receipt of manufactured products by the Company could result
in revenues being deferred or lost. The Company's operating expenses are based
upon anticipated sales levels, and a high percentage of the Company's operating
expenses are relatively fixed in the short term. Consequently, variations in the
timing of revenue recognition could cause significant fluctuations in operating
results from period to period and may result in unanticipated earnings
shortfalls or losses. There can be no assurance that the Company will maintain
or increase revenues or profitability or avoid losses in any future period.


                                       1
   2
      The Company recognizes revenues from sales upon shipment to its customers.
At the time of sale, the Company records reserves for returns based upon
estimates using historical experience. Sales are reported net of actual and
estimated product returns and net of pricing adjustments and/or discounts. The
Company applies royalty obligations to the cost of sales in the period the
corresponding sales are recognized.

      Medicis' customers include the nation's leading wholesale pharmaceutical
distributors, such as McKesson HBOC, Inc. ("McKesson"), Bergen Brunswig
Corporation ("Bergen Brunswig"), Cardinal Health, Inc. ("Cardinal"), Bindley
Western Industries, Inc. ("Bindley") and other major drug chains. During fiscal
1999, McKesson and Cardinal accounted for 18.0% and 14.1%, respectively, of the
Company's sales. During fiscal 1998, McKesson, Bergen Brunswig and Cardinal
accounted for 16.9%, 13.2% and 12.6%, respectively, of the Company's sales.
During fiscal 1997, McKesson, Cardinal and Bergen Brunswig accounted for 20.6%,
16.3% and 10.9%, respectively, of the Company's sales. The loss of any of these
customers' accounts could have a material adverse effect upon the Company's
business, financial condition or results of operations.

      The Company plans to spend substantial amounts of capital to continue the
research and development of pharmaceutical products. Actual expenditures will
depend upon the Company's financial condition, as well as the results of
clinical testing, delays or changes in government-required testing and approval
procedures, technological and competitive developments and strategic marketing
decisions. The Company may increase total expenditures for research and
development and expects that research and development expenditures as a
percentage of net revenues will fluctuate from period to period. The Company can
give no assurance that the research and development projects will provide
technologies or products that will be patentable, commercially feasible or
acceptable to government agencies whose approval may be necessary.

      The Company intends to seek additional acquisitions of products or
companies to leverage its existing distribution channels and marketing
infrastructure, and to aggressively market formulations of existing products.
The success of the Company's efforts is subject to a number of risks and
uncertainties including: dependence on sales of Key Products; integration of new
product acquisitions; risks associated with the GenDerm Corporation and
subsidiaries ("GenDerm") acquisition; reliance upon third-party manufacturers to
produce certain Key Products; the ability to effectively manage a changing
business; uncertainties related to pharmaceutical pricing and reimbursement; the
uncertainty of competitive forces within the pharmaceutical industry that affect
both the market for its products and the availability of product lines for
acquisitions that meet the Company's acquisition criteria. The future results of
operations, both annually and from quarter to quarter, are subject to a variety
of factors applicable to the Company and to the industries and markets in which
it operates.

      To enable Medicis to focus on its core marketing and sales activities, the
Company selectively out-sources certain non-sales and non-marketing functions,
such as laboratory research, manufacturing and warehousing. As the Company
expands its activities in these areas, additional financial resources are
expected to be utilized. The Company typically does not enter into long-term
manufacturing contracts with third-party manufacturers. Whether or not such
contracts exist, there can be no assurance that the Company will be able to
obtain adequate supplies of its products in a timely fashion, on acceptable
terms, or at all.

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
contained elsewhere herein. The following table sets forth certain data as a
percentage of net revenues for the periods indicated.




PERCENTAGE OF REVENUES                                                 June 30,
                                                   -----------------------------------------------
                                                      1999*            1998**           1997
- --------------------------------------------------------------------------------------------------
                                                                              
Net revenues                                          100.0%           100.0%          100.0%
Gross profit                                           81.5             82.0            77.3
Operating expenses                                     40.6             42.8            46.0
Operating income                                       40.9             39.2            31.3
Interest income, net                                    8.3              9.0             9.2
Income tax (expense) benefit                          (17.8)           (18.6)            1.6
                                                  ------------------------------------------------
Net income                                             31.4%            29.6%           42.1%
- --------------------------------------------------------------------------------------------------



                                       2
   3
*Absent tax-effected special charge for in-process research and development and
tax-effected gain on divested products

**Absent special charge for in-process research and development

      The following table reflects certain selected unaudited quarterly
operating results of the Company for each of the last eight quarters through the
quarter ended June 30, 1999. The Company believes that all necessary adjustments
have been included to fairly present the quarterly information. The operating
results for any quarter are not necessarily indicative of the results for any
future period. Gross profit does not include amortization of the related
intangibles.


FISCAL 1999* AND FISCAL 1998** ANALYSIS
(in thousands, except per share data)




                                     September    December     March        June
- ----------------------------------------------------------------------------------
                                                             
Net revenues                         $  24,780   $  28,016   $  30,183   $  33,892
                                     $  13,911   $  16,928   $  22,527   $  24,205
Gross profit                            20,073      22,700      25,158      27,305
                                        11,365      13,924      18,535      19,768
Operating expenses                      10,279      10,964      11,739      14,443
                                         6,403       7,718       9,871       9,220
Operating income                         9,794      11,736      13,419      12,862
                                         4,962       6,206       8,664      10,548
Net income                               8,089       8,976       9,708       9,883
                                         3,751       4,349       6,434       8,459


NET INCOME PER COMMON SHARE:




                                     September    December     March        June
- ----------------------------------------------------------------------------------
                                                             
Basic                                $    0.29   $    0.32   $    0.34   $    0.35
                                     $    0.17   $    0.20   $    0.25   $    0.30
Diluted                                   0.28        0.30        0.33        0.34
                                          0.17        0.19        0.24        0.29


SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE:




                                     September    December     March        June
- ----------------------------------------------------------------------------------
                                                             
Basic                                   28,161      28,279      28,576      28,645
                                        21,471      21,552      25,326      28,127
Diluted                                 28,791      29,585      29,811      29,343
                                        22,366      22,429      26,329      28,909


*Absent tax-effected special charge for in-process research and development in
December quarter; absent tax effected gain on divested products in March and
June quarters

**Absent special charge December quarter

      Quarterly results may vary from period to period due to a variety of
factors including: expenditures incurred to acquire, license and promote
pharmaceutical products; expenditures and timing relating to the acquisition and
integration of products or businesses; changes in the prescribing practices of
physicians; the introduction of new products by the Company or its competitors;
cost increases from third-party manufacturers; supply interruptions; the
availability and cost of raw materials; the mix of products sold by the Company;
changes in marketing and sales expenditures; market acceptance of the Company's
products; competitive pricing pressures; the outcome of disputes relating to
trademarks, patents and other rights; general economic and industry conditions
that affect customer demand and the Company's level of research and development
activities. There can be no assurance that the Company will maintain or increase
revenues or profitability or avoid losses in any future period.


YEARS ENDED JUNE 30, 1999 AND 1998

NET REVENUES. Net revenues for fiscal 1999 increased 50.7%, or $39.3 million, to
$116.9 million from $77.6 million for fiscal 1998. The Company's net revenues
increased in fiscal 1999 primarily as a result of both unit and dollar sales
growth associated with the Company's prescription products. The Company's
prescription products accounted for 77.0% of net revenues in fiscal 1999 and in
fiscal 1998. Net revenues of the Company's prescription



                                       3
   4
products grew 50.8%, or $30.3 million, to $90.0 million in 1999 from $59.7
million in fiscal 1998, primarily due to the continued growth of the DYNACIN(R)
and LUSTRA(R) products and the newly acquired LOPROX(R) line. In fiscal 1999,
the Company's OTC products, contract revenue and the physician-dispensed
division accounted for 23.0% of net revenues. In fiscal 1998, the Company's OTC
products and physician-dispensed division accounted for 23.0% of net revenues.

GROSS PROFIT. Gross profit during fiscal 1999 increased 49.8%, or $31.6 million,
to $95.2 million from $63.6 million in fiscal 1998. As a percentage of net
revenues, gross profit was 81.5% and 82.0% in fiscal 1999 and fiscal 1998,
respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in fiscal 1999 increased 39.4%, or $10.8 million, to
$38.2 million from $27.4 million in fiscal 1998. This increase was primarily
attributable to an increase in personnel costs. The increase in personnel costs
was primarily due to an increase in the number of employees to 144 in fiscal
1999 from 125 in fiscal 1998 and yearly salary escalations for existing
employees. The increase was also due to promotional costs associated with the
sampling and advertising of the Company's products, promotional and
administrative costs associated with the EXOREX(TM) joint venture with IMX
Pharmaceuticals, Inc. ("IMX") and variable costs commensurate with increased
sales volumes. Selling, general and administrative expenses as a percentage of
net revenues in fiscal 1999 decreased 2.7 percentage points, to 32.7% from 35.4%
in fiscal 1998, primarily attributable to a decrease in promotional and
personnel costs as a percentage of sales.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in fiscal
1999 increased 17.7%, or $0.5 million, to $3.4 million from $2.9 million in
fiscal 1998. The increase is primarily due to development efforts on
LUSTRA-AF(TM) and DYNACIN(R) 75 mg. line extensions in the fourth quarter of
fiscal 1999, development efforts related to new products and expenses associated
with the clinical support of the Company's existing products.

DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
in fiscal 1999 increased 100.1%, or $2.9 million, to $5.8 million from $2.9
million in fiscal 1998. This increase is primarily attributable to the
amortization of the purchase price of the LOPROX,(R) TOPICORT(R) and A/T/S(R)
products purchased by the Company in November 1998. The Company is amortizing
this purchase price over a 25-year period. The Company's depreciation and
amortization also increased due to the full year of amortization of the
intangible assets acquired in connection with the acquisition of GenDerm in
December 1997.

IN-PROCESS RESEARCH AND DEVELOPMENT. In fiscal 1999, the Company recorded a $9.5
million charge to operations as in-process research and development as part of
the allocated purchase price on the acquisition of the LOPROX, (R) TOPICORT(R)
and A/T/S(R) products. The acquired in-process research and development consists
of technologies related to new indications and forms of certain products
acquired. The acquired in-process research and development projects are in
various stages of development, have not reached technological feasibility and
have no known alternative uses.

         The nature and efforts required to develop the acquired in-process
research and development into commercially viable products include completion of
the development stages of the commercially viable products, clinical trial
testing and FDA approval and commercialization. Due to the nature of the
pharmaceutical development process, the Company anticipates incurring additional
costs to develop these products. However, there is no certainty that any of
these development efforts will result in commercially viable products. During
the upcoming fiscal year, the Company anticipates research and development
expenditures of approximately $500,000 relating to the development of
commercially viable products. Such amounts may increase if the FDA should
require additional studies, testing or supplemental information.

         In fiscal 1998, the Company recorded a $35.4 million charge to
operations as in-process research and development as part of the allocated
purchase price of GenDerm.

         The value of the acquired in-process research and development was
determined by estimating the projected net cash flows related to such products,
including costs to complete the development, and future revenues to be earned
upon commercialization of the products. These cash flows were discounted back to
their net present value. The resulting projected net cash flows from such
projects were based upon management's estimates of revenues and



                                       4
   5
operating profits at the time of the acquisition related to such projects.
Management also reviewed the probability of product success which was estimated
using certain probability factors for each stage of development.

OPERATING INCOME (LOSS). Operating income for fiscal 1999 increased $43.3
million, to $38.3 million from a $5.0 million operating loss in fiscal 1998.
This increase is primarily a result of the $35.4 million in-process research and
development charge relating to the Company's purchase of GenDerm in fiscal 1998
and a $9.5 million in-process research and development charge relating to the
LOPROX,(R) TOPICORT(R) and A/T/S(R) product acquisition in fiscal 1999. Absent
special charges in fiscal 1999 and 1998, operating income in fiscal 1999
increased 57.4%, or $17.4 million, to $47.8 million from $30.4 million in fiscal
1998. This increase was primarily a result of higher sales volume and a decrease
of 2.7 percentage points in selling, general and administrative expenses as a
percentage of sales offset by an increase in research and development and
depreciation and amortization expenses.

NET INTEREST INCOME (EXPENSE). Interest income in fiscal 1999 increased $4.4
million, to $11.5 million from $7.1 million in fiscal 1998, primarily due to
higher average cash, cash equivalent and short-term investment balances during
fiscal 1999. The Company's higher average cash, cash equivalent and short-term
investment balances are due to a full year of proceeds from the Company's
February 1998 public offering. The Company raised offering proceeds of $209.4
million before related expenses, or $197.9 million net of related expenses.
Interest expense in fiscal 1999 increased $1.8 million, to $1.8 million from
$23,600 in fiscal 1998. This increase is primarily related to interest expense
of $1.8 million related to the contract obligation recorded in connection with
the acquisition of the LOPROX,(R) TOPICORT(R) and A/T/S(R) products.

INCOME TAX (EXPENSE) BENEFIT. Income tax expense during fiscal 1999 increased
$9.8 million, to $24.2 million from $14.4 million in fiscal 1998. The provision
for income taxes recorded for fiscal 1999 reflects management's estimate of the
effective tax rate. The increase in income tax expense in fiscal 1999, as
compared to fiscal 1998, is primarily due to an increase in pre-tax income
offset by the special charge for in-process research and development in fiscal
1998 for which no tax benefit was realized. The decrease in the effective tax
rate in fiscal 1999, as compared to fiscal 1998, is primarily attributable to
the implementation of tax saving strategies, an increase in tax-exempt interest
income and the non-deductible in-process research and development recorded in
fiscal 1998.

NET INCOME (LOSS). Net income during fiscal 1999 increased approximately $53.8
million, to $41.4 million from a $12.4 million loss in fiscal 1998. Fiscal 1999
and 1998 included special charges to operations for in-process research and
development related to the LOPROX,(R) TOPICORT(R) and A/T/S(R) acquisition in
fiscal 1999 and the purchase of GenDerm in fiscal 1998. Net income in fiscal
1999 also included $17.7 million related to a gain on the sale of assets to
Bioglan Pharma Plc ("Bioglan"). Absent tax-effected special charges and
tax-effected gain on divested products in fiscal 1999, net income increased
approximately 59.4%, or $13.6 million, to $36.6 million from $23.0 million in
fiscal 1998. This increase was due primarily to an increase in sales volume, a
decrease in selling, general and administrative costs as a percentage of net
revenues and an increase in interest income offset by an increase in
depreciation and amortization and research and development expenses.

YEARS ENDED JUNE 30, 1998 AND 1997
NET SALES. Net sales for fiscal 1998 increased 88.5%, or $36.4 million, to $77.6
million from $41.2 million for fiscal 1997. The Company's net sales increased in
fiscal 1998 primarily as a result of both unit and dollar sales growth
associated with an increase in market share of the existing prescription
products, the launch of the Company's internally developed LUSTRA(R) product and
the acquisition of GenDerm in December 1997. The Company's prescription products
accounted for 77.0% of net sales in fiscal 1998 and 86.5% in fiscal 1997. Net
sales of the Company's prescription products grew 67.7%, or $24.1 million, to
$59.7 million in 1998 from $35.6 million in fiscal 1997, primarily due to the
continued growth of the TRIAZ(R) products, a full year of sales of the LIDEX(R)
and SYNALAR(R) products acquired in February 1997, the purchase of the
prescription products from GenDerm and the launch of the Company's LUSTRA(R)
product which was introduced in the third quarter of fiscal 1998. The Company's
OTC products and physician-dispensed division accounted for 23.0% of net sales
for fiscal 1998 and 13.5% in fiscal 1997. OTC sales increased approximately
222.2%, primarily due to the acquisition of the OTC products from GenDerm in the
second quarter of fiscal 1998.


                                       5
   6
GROSS PROFIT. Gross profit during fiscal 1998 increased 100.0%, or $31.8
million, to $63.6 million from $31.8 million in fiscal 1997. As a percentage of
net sales, gross profit grew to 82.0% in fiscal 1998 from 77.3% in fiscal 1997,
primarily as a result of a full year of sales of the LIDEX(R) and SYNALAR(R)
products, the increase in sales of TRIAZ(R) products, sales of NOVACET(R) and
ZONALON(R) products, which were acquired in the GenDerm acquisition, and sales
of LUSTRA,(R) which was launched by the Company in the third quarter of fiscal
1998, all of which enjoy margins in excess of the aggregate corporate gross
profit percentages.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in fiscal 1998 increased 66.4%, or $10.9 million, to
$27.4 million from $16.5 million in fiscal 1997. This increase was primarily
attributable to an increase in promotional costs associated with the sampling
and advertising of the Company's products, promotional costs associated with the
launch of LUSTRA, (R) an internally developed prescription product, and variable
costs commensurate with increased sales volumes. The increase in personnel costs
is attributable to an increase in the number of employees to 125 in fiscal 1998
from 85 in fiscal 1997 and yearly salary escalation for existing employees.
Selling, general and administrative expenses as a percentage of net sales in
fiscal 1998 decreased 4.7 percentage points to 35.4% from 40.1% in fiscal 1997.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in fiscal
1998 increased 99.0%, or $1.4 million, to $2.9 million from $1.5 million in
fiscal 1997, primarily due to development efforts relating to the Company's
LUSTRA(R) product and expenses associated with the clinical support of the
Company's existing products.

DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
in fiscal 1998 increased 190.6%, or $1.9 million, to $2.9 million from $1.0
million in fiscal 1997. This increase is primarily attributable to the
amortization of a full year of the purchase price of the LIDEX(R) and SYNALAR(R)
products purchased by the Company in February 1997. The Company is amortizing
this purchase price over a 25-year period. The Company's depreciation and
amortization also increased due to the amortization of the intangible assets
acquired in connection with the acquisition of GenDerm in December 1997.

IN-PROCESS RESEARCH AND DEVELOPMENT. The Company recorded $35.4 million as
in-process research and development during the second quarter of fiscal 1998 as
part of the allocated purchase price of GenDerm. The amount allocated to
in-process research and development was based upon an independent appraisal of
GenDerm's completed and in-process technologies. The in-process research and
development of $35.4 million was charged to operations as required under
generally accepted accounting principles with the recording of the purchase
price allocation. No such amount was recorded in fiscal 1997.

OPERATING (LOSS) INCOME. Operating income for fiscal 1998 decreased 139.0%, or
$17.9 million, to a $5.0 million operating loss from $12.9 million in income in
fiscal 1997. This decrease is a result of a $35.4 million in-process research
and development charge relating to the Company's purchase of GenDerm in December
1997. Absent this special charge, operating income in fiscal 1998 increased
136.2%, or $17.5 million to $30.4 million from $12.9 million in fiscal 1997 as a
result of higher sales volume, coupled with a 4.7 percentage points increase in
the Company's gross profit as a percentage of net sales and a decrease of 4.7
percentage points in selling, general and administrative expenses as a
percentage of sales offset by an increase in research and development and
depreciation and amortization expenses.

NET INTEREST INCOME (EXPENSE). Interest income in fiscal 1998 increased $3.2
million, to $7.0 million from $3.8 million in fiscal 1997, primarily due to
higher cash, cash equivalent and short-term investment balances during fiscal
1998, attributable to the Company's public offering of its common stock in
February 1998, which resulted in offering proceeds of $209.4 million before
related expenses or $197.9 million net of related expenses. Interest expense in
fiscal 1998 decreased 13.8%, or $3,800, to $23,600, from $27,400 in fiscal 1997.

INCOME TAX (EXPENSE) BENEFIT. Income tax expense during fiscal 1998 increased
$15.1 million, to an expense of $14.4 million from a benefit of $0.7 million in
fiscal 1997. The Company's tax provision is recorded at an effective tax rate of
39%. No income tax benefit is associated with the charge for in-process research
and development. The income tax benefit for fiscal 1997 is a result of
management reducing the valuation allowance required to reduce
   7
deferred tax assets in accordance with Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes," to an amount the Company
believes appropriate.

NET (LOSS) INCOME. Net income during fiscal 1998 decreased approximately 171.5%,
or $29.7 million, to a $12.4 million loss from $17.3 million in income for
fiscal 1997. This decrease is the result of a special charge for in-process
research and development relating to the Company's purchase of GenDerm in
December 1997. Absent this special charge, net income for fiscal 1998 increased
32.6%, or $5.7 million, to $23.0 million from $17.3 million in fiscal 1997. This
increase was a result of an increase in sales volume, an increase in gross
profit as a percentage of net sales, a decrease in selling, general and
administrative costs as a percentage of net sales and an increase in interest
income offset by an increase in income taxes and research and development
expenses.

LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 and June 30, 1998, the Company had cash equivalents and
short-term investments of approximately $237.3 million and $237.9 million,
respectively. The Company's working capital was $278.4 million and $263.0
million at June 30, 1999 and June 30, 1998, respectively.

      In fiscal 1999, the Company's cash position was affected by the
divestiture of nine dermatological products to Bioglan for a net cash payment of
$9.8 million in the third quarter. The variation between net income of $41.4
million and cash flow from operations of $25.4 million was primarily due to the
inclusion of the gain on the June 29, 1999 sale of assets to Bioglan in the
Company's net income which was in the form of a note paid in July 1999. The
generation of $25.4 million in cash flow from operations was offset by the
Company's payment of $22.0 million to enter into a licensing agreement with HMR
for the products LOPROX,(R) TOPICORT(R) and A/T/S(R) and $14.3 million for the
purchase of Ucyclyd Pharma, Inc. ("Ucyclyd"), a privately held pharmaceutical
company. The variation between the net loss of $12.4 million and cash flow from
operations of $14.7 million in fiscal 1998 was primarily attributable to a
non-cash in-process research and development charge of $35.4 million relating to
the acquisition of GenDerm. In fiscal 1998, the Company paid a net cash amount
of $55.0 million for the acquisition of GenDerm and raised net proceeds of
$197.9 million from the sale of common equity securities in a public offering.

      At June 30, 1999 and June 30, 1998, the Company had net accounts
receivable of $31.6 million and $18.9 million, respectively. The increase in the
Company's accounts receivable balances is related primarily to a 40.0% increase
in sales volume in the fourth quarter of fiscal 1999 as compared to the quarter
ended June 30, 1998.

      At June 30, 1999 and June 30, 1998, the Company had inventories of $7.3
million and $9.2 million, respectively. The decrease in the Company's inventory
balances is related primarily to the divestiture of 13 products and the license
of three products in fiscal 1999.


OTHER MATTERS

On June 29, 1999, the Company sold the OTC products ZOSTRIX,(R) EXOREX(TM) and
THERAPLEX(R) and the prescription product ZONALON.(R) Medicis received cash of
$900,000 and issued a note receivable for $39.1 million, which was collected in
July 1999. Under terms of the agreement, the Company paid IMX $3.6 million
subsequent to fiscal 1999 for the sale of their interest in the EXOREX(TM) joint
venture.

      On April 19, 1999, the Company acquired 100% of the common stock of
Ucyclyd for net cash of approximately $14.3 million. Ucyclyd's primary product,
the orphan drug BUPHENYL,(TM) is indicated in the treatment of Urea Cycle
Disorders. Under terms of the agreement, the Company paid $15.1 million at the
close of the transaction and may be required to pay an additional contingent
consideration of $5.7 million on the first anniversary of the closing date,
subject to certain manufacturing conditions, and $2.7 million upon regulatory
approval of a product line extension.

      On March 17, 1999, the Company sold nine dermatological products for a net
cash payment of $9.8 million. The products included in the sale were: A-FIL,(TM)
AFIRM,(R) BENZASHAVE,(R) BETA-LIFTx,(R) METED,(R) PRAMEGEL,(R) PACKER'S TAR
SOAP,(R) THERAMYCIN Z(R) and TEXACORT.(R) Under a separate agreement, the
Company licensed three additional products for a period of three years with a
buyout option of $15.5 million at the end of the term. Under this agreement, the
Company will receive quarterly license revenues. The products included in this
license agreement were: OCCLUSAL-HP,(R) PENTRAX(R) and SALAC.(R)

      In November 1998, the Company agreed to license, with an option to
purchase, the LOPROX,(R) TOPICORT(R) and A/T/S(R) products from HMR. The
Company, using cash reserves, paid $22.0 million and will make two additional
annual payments of $22.0 million. The Company then has the option to purchase
the products for $16.5 million after three years. The $22.0 million due on the
first anniversary of the transaction is recorded as a short-term


                                       7
   8
obligation and the remaining balance is recorded at its discounted value as a
long-term obligation. The discount is being recorded as an interest expense over
the related period. For accounting purposes, the Company has recorded the
transaction as an acquisition. In conjunction with this acquisition, the Company
recorded a charge to operations of $9.5 million, based upon an independent
valuation relating to acquired in-process research and development for projects
that are in various stages of development, have not reached technological
feasibility and have no known alternative future uses.

      Inflation did not have a significant impact upon the results of the
Company during fiscal 1999, 1998 or 1997.


YEAR 2000

The Year 2000 issue results from the inability of some computer programs to
identify the year 2000 properly, potentially leading to errors or system
failure. A company's business may be adversely affected if it, or any of its
suppliers and customers or others with whom it transacts business (including its
banks and governmental agencies), have not timely resolved the Year 2000 issue.
In response to its rapid growth, the Company selected a new management
information system in fiscal 1997, which was implemented in fiscal 1998, that is
expected to meet its presently anticipated needs. In selecting a system, Year
2000 compliance was one of the criteria. The Company has completed its analysis
and testing of its information systems hardware and software and believes all of
its existing systems are Year 2000 compliant in all material respects.

      To date, the Company has not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. The total costs of the Year 2000 systems
assessments and conversions are currently funded through cash flows from
operating activities, and these costs are expensed as they are incurred. Most of
the Company's expenses have related to, and are expected to continue to relate
to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters in general. Most of these
costs have already been incurred, and the Company does not anticipate
significant future costs with respect to the remaining efforts. To date, the
Company has not deferred any information technology initiatives as a result of
its Year 2000 project.

      The Company continues to work with critical third parties including
customers, vendors and suppliers, who account for a significant portion of the
Company's business, to determine the impact of Year 2000 issues on their
business and operations and potential collateral impact on the business and
operations of the Company and to determine such third parties' plans to
remediate Year 2000 issues where their systems interface with the Company's
systems. The Company believes approximately 90% of its Year 2000 compliance work
is complete with the remaining work scheduled for completion by the end of the
first quarter of fiscal 2000. The Company's continuing efforts relating to Year
2000 compliance are focused on testing new hardware, software and equipment and
following up with significant vendors, suppliers and customers to ensure
continued compliance. To date, the Company has not discovered any significant
negative third-party Year 2000 compliance issues.

      The Company believes that its most significant risk with respect to Year
2000 issues relates to the performance and readiness status of third parties. A
reasonable worst case Year 2000 scenario would be the result of failures of
third parties, including without limitation, governmental entities, utilities
and financial and telecommunications systems, or a general infrastructure
collapse, that negatively impacts the Company's ability, or the ability of its
critical third parties, to provide products and services to its customers, or
the ability of its customers to purchase products, or events affecting regional,
national or global economies generally. The impact of these failures cannot be
estimated at this time; however, the Company is considering contingency plans to
limit, to the extent possible, the financial impact of these failures on its
results of operations.


MARKET RISK AND RISK MANAGEMENT POLICIES

The Company has minimal operations outside of the United States and therefore
has no significant risk to changes in foreign currencies. In addition, the
Company has only one form of debt, that is in the form of a discounted contract
obligation, which, in effect, is a fixed rate debt not subject to market rate
fluctuations.

      The Company is exposed to interest rate fluctuations on its short-term
investments, that are comprised of U.S. corporate securities and other debt
securities, which it holds on an available-for-sale basis. A 100 basis point
change in the prime rate or other indicative base rates would not materially
change the interest income the Company expects to receive.


FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report contains forward-looking statements that anticipate results
based upon Management's plans that are subject to uncertainties. Forward-looking
statements are based upon current expectations of future results. These


                                       8
   9
statements may be identified by use of the words "expects," "plans,"
"anticipates," "believes" and similar words used in conjunction with discussions
of future operations or financial performance. The Company cannot ensure that
any forward-looking statements will be accurate. Actual results could differ
materially if underlying assumptions prove inaccurate or unknown risks or
uncertainties develop. The Company assumes no obligation to update
forward-looking statements as a result of future events or developments.

      In Item 1 of the Company's Annual Report on Form 10-K for the year ended
June 30, 1999, as well as in the Company's filings on Form 10-Q, the Company
discusses in more detail various factors that could cause actual results to vary
from expectations. The Company notes these factors as permitted by the Private
Securities Litigation Reform Act of 1995. Investors should understand that it is
not possible to predict or identify all such factors and should not consider
such factors to be a complete statement of all potential risks and uncertainties
that may affect the Company's business.


                                       9
   10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MEDICIS PHARMACEUTICAL CORPORATION

We have audited the accompanying consolidated balance sheets of Medicis
Pharmaceutical Corporation and subsidiaries as of June 30, 1999 and 1998, and
the related consolidated statements of income (loss), stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial condition of Medicis
Pharmaceutical Corporation and subsidiaries at June 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles.


                                                           /s/ Ernst & Young LLP


Phoenix, Arizona
August 6, 1999


                                       10
   11
CONSOLIDATED BALANCE SHEETS




                                                                                             June 30,
                                                                          ---------------------------------------------
   ASSETS                                                                           1999                    1998
- -----------------------------------------------------------------------------------------------------------------------
                                                                                                
   Current assets:
      Cash and cash equivalents                                               $  87,718,718           $ 147,411,127
      Short-term investments                                                    149,585,195              90,510,029
      Accounts receivable, less allowances:
      1999: $3,815,000; 1998: $2,826,000                                         31,582,935              18,899,868
      Inventories                                                                 7,273,142               9,208,384
      Deferred tax assets                                                         4,525,085               3,300,000
      Note receivable                                                            39,100,000                     ---
      Other current assets                                                       15,635,164               8,800,434
                                                                          ---------------------------------------------
   Total current assets                                                         335,420,239             278,129,842

   Property and equipment, net                                                    1,704,663               1,343,603

   Intangible assets:
      Intangible assets related to acquisitions                                 137,508,154              70,386,665
      Other intangible assets                                                       973,414               6,874,626
                                                                          ---------------------------------------------
                                                                                138,481,568              77,261,291
      Less: accumulated amortization                                              9,505,319               5,977,399
                                                                          ---------------------------------------------
         Net intangible assets                                                  128,976,249              71,283,892

   Other non-current assets                                                       1,237,195               1,592,907
                                                                          ---------------------------------------------
                                                                              $ 467,338,346           $ 352,350,244
- -----------------------------------------------------------------------------------------------------------------------



See accompanying notes.


                                       11
   12
CONSOLIDATED BALANCE SHEETS




                                                                                               June 30,
                                                                               ------------------------------------
   LIABILITIES                                                                          1999               1998
- -------------------------------------------------------------------------------------------------------------------
                                                                                               
   Current liabilities:
      Accounts payable                                                            $   9,346,244      $   5,496,526
      Notes payable                                                                     100,000             11,364
      Short-term contract obligation                                                 22,000,000                ---
      Income taxes payable                                                           10,659,944            597,189
      Other accrued liabilities                                                      14,873,736          9,068,593
                                                                               ------------------------------------
      Total current liabilities                                                      56,979,924         15,173,672

   Long-term liabilities:
         Notes payable                                                                      ---             94,556
         Other non-current liabilities                                                  130,278            124,115
         Long-term contract obligation                                               34,716,456                ---
         Deferred tax liability                                                       1,935,272         10,502,416

   COMMITMENTS AND CONTINGENCIES

   MINORITY INTEREST                                                                        ---          1,960,000

   STOCKHOLDERS' EQUITY
   Preferred Stock, $0.01 par value;
         shares authorized:  5,000,000; no shares issued                                    ---                ---
   Class A Common Stock, $0.014 par value;
         shares authorized: 50,000,000; issued and outstanding:
         28,239,269 and 27,712,837 at June 30, 1999 and 1998,
         respectively                                                                   395,350            387,980
   Class B Common Stock, $0.014 par value;
         shares authorized:  1,000,000; issued and outstanding:
         422,962 at June 30, 1999 and 1998                                                5,921              5,921
   Additional paid-in capital                                                       352,155,845        343,976,037
   Accumulated other comprehensive (loss) income                                       (465,784)            77,689
   Accumulated earnings (deficit)                                                    21,485,084        (19,952,142)
                                                                               ------------------------------------
         Total stockholders' equity                                                 373,576,416        324,495,485
                                                                               ------------------------------------
                                                                                  $ 467,338,346      $ 352,350,244
- -------------------------------------------------------------------------------------------------------------------



See accompanying notes.


                                       12
   13
CONSOLIDATED STATEMENTS OF INCOME (LOSS)




                                                                                            June 30,
                                                                  -----------------------------------------------------------
                                                                          1999                 1998                 1997
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                     
   Net revenues                                                     $ 116,870,540        $  77,571,419        $  41,158,860
   Operating costs and expenses:
      Cost of sales                                                    21,633,902           13,979,793            9,361,383
      Selling, general and administrative                              38,219,119           27,423,574           16,484,329
      Research and development                                          3,396,393            2,884,479            1,449,620
      In-process research and development                               9,500,000           35,400,000                   --
      Depreciation and amortization                                     5,810,288            2,903,423              999,113
                                                                  -----------------------------------------------------------
         Operating costs and expenses                                  78,559,702           82,591,269           28,294,445
                                                                  -----------------------------------------------------------
   Operating income (loss)                                             38,310,838           (5,019,850)          12,864,415
   Interest income                                                     11,503,256            7,060,354            3,814,435
   Interest expense                                                    (1,825,200)             (23,635)             (27,403)
   Gain on sale of assets                                              17,650,903                   --                   --
                                                                  -----------------------------------------------------------
   Income before taxes                                                 65,639,797            2,016,869           16,651,447
   Income tax (expense) benefit                                       (24,202,571)         (14,424,045)             693,467
                                                                  -----------------------------------------------------------
   NET INCOME (LOSS)                                                $  41,437,226        $ (12,407,176)       $  17,344,914
                                                                  -----------------------------------------------------------

   Basic net income (loss) per common share                         $        1.46        $       (0.51)       $        0.88
   Diluted net income (loss) per common share                       $        1.41        $       (0.51)       $        0.83
   Shares used in computing basic net income (loss) per
      common share                                                     28,413,608           24,101,658           19,787,785
   Shares used in computing diluted net income (loss) per
      common share                                                     29,462,311           24,101,658           20,890,570
- -----------------------------------------------------------------------------------------------------------------------------



See accompanying notes.


                                       13
   14
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY





                                                   Class A                          Class B               Additional
                                                 Common Stock                    Common Stock               Paid-In
                                           Shares            Amount         Shares           Amount         Capital
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996                   15,370,008    $     215,180         422,962   $       5,921   $  44,128,431
- ----------------------------------------------------------------------------------------------------------------------
                                                                                          
Comprehensive income (loss):
  Net income                                       --               --              --              --              --

  Net unrealized losses on
      available-for-sale                           --               --              --              --              --
      securities

              Comprehensive income
  Exercise of stock options                   813,681           11,392              --              --       3,479,265
  Tax effect of stock
    options exercised                              --               --              --              --       1,165,000
  Options issued in lieu of
    payment for services
    rendered                                       --               --              --              --          59,500
  Public offering                           4,785,834           67,002              --              --      90,041,167
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997                   20,969,523          293,574         422,962           5,921     138,873,363
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
  Net loss                                         --               --              --              --              --
  Net unrealized gains on
    available-for-sale
    securities                                     --               --              --              --              --

              Comprehensive loss
  Exercise of stock options                   233,314            3,266              --              --         954,296
  Tax effect of stock
    options exercised                              --               --              --              --       6,305,311
  Options issued in lieu of
    payment for services
    rendered                                       --               --              --              --          57,500
  Public offering                           6,510,000           91,140              --              --     197,785,567
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998                   27,712,837          387,980         422,962           5,921     343,976,037
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
  Net income                                       --               --              --              --              --
  Net unrealized losses on
    available-for-sale
    securities                                     --               --              --              --              --
  Net unrealized gain on
    foreign currency
    translation                                    --               --              --              --              --

              Comprehensive income
  Exercise of stock options                   526,432            7,370              --              --       3,834,839
  Tax effect of stock
    options exercised                              --               --              --              --       4,329,969
  Options issued in lieu of
    payment for services
    rendered                                       --               --              --              --          15,000
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999                   28,239,269    $     395,350         422,962   $       5,921   $ 352,155,845
- ----------------------------------------------------------------------------------------------------------------------



                                         Accumulated
                                           Other          Accumulated
                                        Comprehensive      (Deficit)
                                        (Loss) Income       Earnings          Total
- ---------------------------------------------------------------------------------------
                                                                 
Balance at June 30, 1996                $          --    $ (24,889,880)   $  19,459,652
- ---------------------------------------------------------------------------------------
Comprehensive income (loss):
  Net income                                       --       17,344,914       17,344,914
  Net unrealized losses on
      available-for-sale
      securities                              (63,075)              --          (63,075)
                                                                          -------------
              Comprehensive income                                           17,281,839
  Exercise of stock options                        --               --        3,490,657
  Tax effect of stock
    options exercised                              --               --        1,165,000
  Options issued in lieu of
    payment for services
    rendered                                       --               --           59,500
  Public offering                                  --               --       90,108,169
- ---------------------------------------------------------------------------------------
Balance at June 30, 1997                      (63,075)      (7,544,966)     131,564,817
- ---------------------------------------------------------------------------------------
Comprehensive income (loss):
  Net loss                                         --      (12,407,176)     (12,407,176)
  Net unrealized gains on
    available-for-sale
    securities                                140,764               --          140,764
                                                                          -------------
              Comprehensive loss                                            (12,266,412)
  Exercise of stock options                        --               --          957,562
  Tax effect of stock
    options exercised                              --               --        6,305,311
  Options issued in lieu of
    payment for services
    rendered                                       --               --           57,500
  Public offering                                  --               --      197,876,707
- ---------------------------------------------------------------------------------------
Balance at June 30, 1998                       77,689      (19,952,142)     324,495,485
- ---------------------------------------------------------------------------------------
Comprehensive income (loss):
  Net income                                       --       41,437,226       41,437,226
  Net unrealized losses on
    available-for-sale
    securities                               (543,619)              --         (543,619)
  Net unrealized gain on
    foreign currency
    translation                                   146               --              146
                                                                          -------------
              Comprehensive income                                           40,893,753
  Exercise of stock options                        --               --        3,842,209
  Tax effect of stock
    options exercised                              --               --        4,329,969
  Options issued in lieu of
    payment for services
    rendered                                       --               --           15,000
- ---------------------------------------------------------------------------------------
Balance at June 30, 1999                $    (465,784)   $  21,485,084    $ 373,576,416
- ---------------------------------------------------------------------------------------



See accompanying notes.


                                       14
   15
CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                                June 30,
                                                            -----------------------------------------------
                                                                  1999             1998             1997
- -----------------------------------------------------------------------------------------------------------
                                                                                     
OPERATING ACTIVITIES:
Net income (loss)                                           $  41,437,226    $ (12,407,176)   $  17,344,914
 Adjustments to reconcile net income (loss) to net
         cash provided by operating activities:
    In-process research and development                         9,500,000       35,400,000               --
    Gain on sale of assets                                    (17,650,903)              --               --
    Depreciation and amortization                               5,810,288        2,903,423          999,113
    (Gain) loss on sale of available-for-sale investments          14,658          (50,931)         (37,591)
    Other non-cash expenses                                        15,000           57,500           59,500
    Deferred income tax (benefit) expense                      (9,792,229)      13,787,173       (2,092,000)
    Provision for doubtful accounts and returns                   897,000          460,000          470,000
    Accretion of premium (discount) on investments                179,649         (344,454)        (422,032)
    Accretion of discount on contract obligation                1,801,885               --               --
  Changes in operating assets and liabilities (net of
         acquired amounts):
      Accounts receivable                                     (13,285,268)     (10,944,095)      (1,612,136)
      Inventories                                               2,390,397       (4,772,069)        (901,863)
      Other current assets                                     (4,134,323)      (5,353,132)      (1,579,594)
      Accounts payable                                          2,975,103           35,575          757,186
      Income taxes payable                                     10,062,755          597,189               --
      Other accrued liabilities                                (4,796,891)      (4,623,987)         801,681
                                                            -----------------------------------------------
         Net cash provided by operating activities             25,424,347       14,745,016       13,787,178
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
 Purchase of property and equipment                              (725,165)        (833,111)        (430,691)
 Proceeds from sale of product rights                          10,712,402               --               --
 Acquisition of businesses, net of cash acquired              (14,278,840)     (54,982,386)              --
 Payments for purchase of product rights                      (25,110,371)      (5,012,483)     (28,636,227)
 Purchase of available-for-sale investments                  (202,169,056)    (147,656,185)     (75,297,924)
 Sale of available-for-sale investments                        52,644,964       74,690,916        9,685,861
 Maturity of available-for-sale investments                    89,711,000       34,500,000       14,500,000
 Change in other assets                                           355,712         (490,000)      (1,500,000)
                                                            -----------------------------------------------
         Net cash used in investing activities                (88,859,354)     (99,783,249)     (81,678,981)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
 Proceeds from the sale of common equity securities, net               --      197,876,707       90,108,169
 Payment of notes payable                                        (105,920)         (10,660)         (10,000)
 Change in other non-current liabilities                            6,163            2,354          (29,676)
 Proceeds from the exercise of options                          3,842,209          957,562        3,490,657
                                                            -----------------------------------------------
         Net cash provided by financing activities              3,742,452      198,825,963       93,559,150
- -----------------------------------------------------------------------------------------------------------
 Effect of foreign currency exchange rate on cash and
         cash equivalents                                             146               --               --
 Net (decrease) increase in cash and cash equivalents         (59,692,409)     113,787,730       25,667,347
 Cash and cash equivalents at beginning of year               147,411,127       33,623,397        7,956,050
                                                            -----------------------------------------------
 Cash and cash equivalents at end of year                   $  87,718,718    $ 147,411,127    $  33,623,397
- -----------------------------------------------------------------------------------------------------------



See accompanying notes.


                                       15
   16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999


NOTE 1. FORMATION AND DEVELOPMENT OF THE COMPANY

Medicis Pharmaceutical Corporation and its wholly owned subsidiaries ("Medicis"
or the "Company") is the leading independent pharmaceutical company in the
United States offering prescription products and an over-the-counter ("OTC")
product primarily for the treatment of dermatological conditions. The Company
has built its business by successfully introducing new prescription products as
well as acquiring rights to manufacture and sell certain dermatological products
pursuant to several license and asset purchase agreements. The Company sells
these products for use in various segments of the skin care market, including
acne, acne-related conditions, fungal infections, psoriatic conditions,
inflammatory skin conditions and pigmentation disorders.


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial statements
include the accounts of Medicis and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the current
period presentation. The Company records minority interest to the extent the
subsidiary is not wholly owned.

CASH AND CASH EQUIVALENTS. At June 30, 1999, cash and cash equivalents included
highly liquid investments invested in money market accounts consisting of
government securities and high-grade commercial paper. These investments are
stated at cost, which approximates fair value. The Company considers all highly
liquid investments purchased with a remaining maturity of three months or less
to be cash equivalents.

INVESTMENTS. The Company accounts for investments under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value with
the unrealized gains and losses reported in stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and interest and dividends on
securities are included in interest income. The cost of securities sold is based
upon the specific identification method.

INVENTORIES. The Company utilizes third parties to manufacture and package
inventories held for sale, takes title to certain inventories once manufactured,
and warehouses such goods until packaged for final distribution and sale.
Inventories consist of salable products held at the Company's warehouses, as
well as at the manufacturers' facilities, and are valued at the lower of cost or
market using the first-in, first-out method.
      Inventories are as follows:




                                              June 30,
                                     ---------------------------
                                        1999             1998
- ----------------------------------------------------------------
                                                
Raw materials                        $1,799,082       $1,086,585
Finished goods                        5,474,060        8,121,799
                                     ---------------------------
       Total inventories             $7,273,142       $9,208,384
- ----------------------------------------------------------------


PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation
is calculated on a straight-line basis over the estimated useful lives of
property and equipment (three to five years). Leasehold improvements are
amortized over the shorter of their estimated useful lives or the remaining
lease term.

INTANGIBLE ASSETS. Intangible assets resulting from acquisitions of products and
businesses principally consist of the excess of the fair value attributed to the
related developed products and are being amortized on a straight-line basis over
a 10-to 25-year period. The Company assesses the recoverability of intangible
assets resulting from these acquisitions based upon expected future undiscounted
cash flows on a product-line basis along with other relevant information.


                                       16
   17
OTHER CURRENT LIABILITIES. Other current liabilities are as follows:




                                                  June 30,
                                        -----------------------------
                                            1999              1998
- ---------------------------------------------------------------------
                                                    
Accrued incentives                      $ 2,739,245       $ 1,786,392
Accrued royalties                         1,697,439         1,040,993
Payable to affiliate                             --         1,366,846
Marketing allowance                         774,056         1,141,000
Payable to IMX                            3,600,000                --
Other accrued expenses                    6,062,996         3,733,362
                                        -----------------------------
                                        $14,873,736       $ 9,068,593
- ---------------------------------------------------------------------


REVENUE RECOGNITION. Revenue from product sales is recognized upon shipment, net
of discounts, rebates and estimated allowances for chargebacks and returns. The
Company principally authorizes returns for damaged products and exchanges for
expired products in accordance with its "Return Goods Policy and Procedures,"
and establishes reserves for such amounts at the time of sale. The Company has
not experienced significant returns of damaged or expired products.

ADVERTISING. The Company expenses advertising as incurred. Advertising expenses
for the fiscal years ended June 30, 1999 ("fiscal 1999"), June 30, 1998 ("fiscal
1998") and June 30, 1997 ("fiscal 1997") were approximately $11,922,000,
$8,347,000 and $3,806,000, respectively.

STOCK-BASED COMPENSATION. The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants to employees
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") and, accordingly, recognizes no
compensation expense for employee stock option grants.

RESEARCH AND DEVELOPMENT COSTS. All research and development costs, including
payments related to products under development and research consulting
agreements, are expensed as incurred.

INCOME TAXES. Income taxes have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."

EARNINGS (LOSS) PER SHARE. Basic and diluted earnings (loss) per common share
are calculated in accordance with the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). All
earnings (loss) per common share amounts for all periods have been presented,
and where appropriate, restated to conform to the requirements of SFAS No. 128.

STATEMENTS OF CASH FLOWS. Non-cash investing and financing activities were as
follows:




                                                                                          June 30,
                                                                      -------------------------------------------------
                                                                          1999                1998              1997
- -----------------------------------------------------------------------------------------------------------------------
                                                                                                   
Tax benefit of stock options exercised                                $ 4,329,969       $   6,305,311       $ 1,165,000
Intangibles acquired under accrued contract costs                              --                  --           600,000
Note receivable from the sale of assets                                39,100,000                  --                --
- -----------------------------------------------------------------------------------------------------------------------


USE OF ESTIMATES. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates based upon future events, which could include, among
other risks, changes in the regulations governing the manner


                                       17
   18
in which the Company sells its products, changes in the health care environment
and the reliance on contract manufacturing services.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
accrued liabilities reported in the consolidated balance sheets approximates
fair value because of the immediate or short-term maturity of these financial
instruments.

COMPREHENSIVE INCOME. The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 established standards for the reporting and display of comprehensive income
and its components. SFAS No. 130 requires certain items, such as foreign
currency translation adjustments and unrealized gains or losses on the Company's
available-for-sale securities, to be included in other comprehensive income.

SEGMENT INFORMATION. The Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 established standards for reporting
information regarding operating segments in annual financial statements and
requires selected information to be presented in interim financial reports
issued to stockholders. SFAS No. 131 also established standards for related
disclosures about products and services, geographic areas and major customers
(see Note 11). The adoption of SFAS No. 131 did not affect the Company's
consolidated financial position, results of operations or financial statement
disclosures, as the Company operates only one business segment.

NOTE 3. ACQUISITIONS AND DIVESTITURES

On June 29, 1999, the Company sold the OTC products ZOSTRIX,(R) EXOREX(TM) and
THERAPLEX(R) and the prescription product ZONALON(R) to Bioglan Pharma Plc
("Bioglan"). Bioglan paid cash of $900,000 and issued a note receivable for
$39.1 million, which was collected in July 1999. Under terms of the agreement,
the Company purchased IMX Pharmaceutical Inc.'s ("IMX") 49.0% interest in the
EXOREX(TM) joint venture for $3.6 million. On June 25, 1998, the Company paid
$4.0 million for its 51.0% interest in the EXOREX(TM) joint venture.

      On April 19, 1999, the Company acquired 100% of the common stock of
Ucyclyd Pharma, Inc. ("Ucyclyd"), a privately held pharmaceutical company based
in Baltimore, Maryland, for net cash of approximately $14.3 million. Ucyclyd's
primary product, the orphan drug BUPHENYL,(TM) is indicated in the treatment of
Urea Cycle Disorders. Under terms of the agreement, the Company paid $15.1
million at the close of the transaction and may be required to pay an additional
contingent consideration of $5.7 million on the first anniversary of the closing
date, subject to certain manufacturing conditions, and $2.7 million upon
regulatory approval of a product line extension.

      On March 17, 1999, the Company sold nine dermatological products to
Bioglan for a net cash payment of $9.8 million. The products included in the
transaction were: A-FIL,(TM) AFIRM,(R) BENZASHAVE,(R) BETA-LIFTx,(R) METED,(R)
PRAMEGEL,(R) PACKER'S TAR SOAP,(R) THERAMYCIN Z(R) and TEXACORT.(R) Under a
separate agreement, the Company licensed three additional products to Bioglan
for a period of three years with a buyout option of $15.5 million at the end of
the term. Under this agreement, the Company will receive quarterly license
revenues. The products included in this license agreement were: OCCLUSAL-HP,(R)
PENTRAX(R) and SALAC.(R)

      On November 29, 1998, the Company agreed to license, with an option to
purchase, the LOPROX,(R) TOPICORT(R) and A/T/S(R) products from Hoechst Marion
Roussel ("HMR"). The Company, using cash reserves, paid $22.0 million and plans
to make two additional annual payments of $22.0 million. The Company then has
the option to purchase the products for $16.5 million after three years. The
$22.0 million due on the first anniversary of the transaction is recorded as a
short-term obligation, and the remaining balance is recorded at its discounted
value as a long-term obligation. The discount is being recorded as an interest
expense over the related period. For accounting purposes, the Company recorded
the transaction as an acquisition. In conjunction with this acquisition, the
Company recorded a charge to operations of $9.5 million, based upon an
independent valuation relating to acquired in-process research and development
for projects that are in various stages of development, have not reached
technological feasibility and have no known alternative future uses.

      The nature and efforts required to develop the acquired in-process
research and development into commercially viable products include completion of
the development stages of the commercially viable products, clinical trial
testing and FDA approval and commercialization. Due to the nature of the
pharmaceutical development process, the Company anticipates incurring additional
costs to develop the products. However, there is no certainty that any of these
development efforts will result in commercially viable products.


                                       18
   19
      On December 3, 1997, the Company acquired 100% of the common stock of
GenDerm Corporation and subsidiary ("GenDerm") for net cash of approximately
$55.0 million. The Company could pay an additional sum not to exceed $20.0
million if sales of GenDerm products, as defined in the acquisition agreement,
are in excess of $31.0 million during calendar 1999 and certain other conditions
are met. GenDerm marketed the prescription brands NOVACET(R) and ZONALON,(R) as
well as the OTC brands ZOSTRIX,(R) OCCLUSAL-HP,(R) PENTRAX(R) and SALAC.(R) In
conjunction with the acquisition, the Company recorded a charge to operations of
$35.4 million, based upon an independent valuation, relating to acquired
in-process research and development for projects that are in various stages of
development, have not reached technological feasibility and have no known
alternative future uses. The $35.4 million charge is not deductible for tax
purposes.

      The Ucyclyd and GenDerm acquisitions were accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations" ("APB No. 16"). Under APB No. 16, purchase price
allocations were made to the assets acquired and the liabilities assumed based
upon their respective fair values. The operations of Ucyclyd and GenDerm have
been included in the consolidated statements of income (loss), as of the
acquisition date.

      Unaudited pro forma operating results for the Company, assuming the
acquisitions occurred at the beginning of the year in which they were acquired
and the immediately preceding fiscal year, are as follows:




                                                                        June 30,
                                                  ---------------------------------------------------
                                                       1999               1998                1997
- -----------------------------------------------------------------------------------------------------
                                                                                
Net revenues                                      $120,653,854       $ 95,263,143        $ 69,625,259
Net income (loss)                                   42,529,400        (11,293,208)         12,698,944
Basic net income (loss) per common share          $       1.50       $      (0.47)       $       0.64
Diluted net income (loss)  per common share       $       1.44       $      (0.47)       $       0.61
- -----------------------------------------------------------------------------------------------------


      For purposes of these pro forma operating results, the charges for
in-process research and development are presented in the year the charge was
incurred. The pro forma information does not necessarily represent the actual
results that would have occurred had the acquisitions taken place at the
beginning of each fiscal year, given the manner that the Company assimilated the
acquisitions into its business.

      On February 25, 1997, the Company acquired the LIDEX(R) and SYNALAR(R)
products from a third party for $28.0 million, with the option to pay an
additional $3.0 million, in $1.0 million installments, on the anniversary of the
purchase for each of the next three years if certain market conditions are met.
The Company paid the first installment of $1.0 million in February 1998 and the
second installment of $1.0 million in February 1999.


NOTE 4. DEBT

The Company has a revolving line of credit facility of up to $25.0 million from
Norwest Bank Arizona, N.A. The facility may be drawn upon by the Company, at its
discretion, and is collateralized by principal assets of the Company. The
outstanding balance of the credit facility bears interest at a floating rate of
150 basis points in excess of the 30-day London Interbank Offered Rate and
expires in November 2000. The agreement requires the Company to comply with
certain covenants, including covenants relating to the Company's financial
condition and results of operation. The Company has not drawn on this credit
facility.


NOTE 5. SHORT-TERM INVESTMENTS

The Company's short-term investments are intended to establish a high-quality
portfolio that preserves principal, meets liquidity needs, avoids inappropriate
concentrations and delivers an appropriate yield in relationship to the
Company's investment guidelines and market conditions.

      The following is a summary of available-for-sale securities:


                                       19
   20


                                                                    June 30, 1999
                                             ---------------------------------------------------------
                                                                   Gross          Gross          Gross
                                                              Unrealized     Unrealized           Fair
Available-for-Sale Securities                        Cost          Gains         Losses          Value
- ------------------------------------------------------------------------------------------------------
                                                                              
U.S. corporate securities                    $ 27,757,402   $     10,003   $    542,000   $ 27,225,405
Other debt securities                         122,293,723        155,512         89,445    122,359,790
                                             ---------------------------------------------------------
      Total securities                       $150,051,125   $    165,515   $    631,445   $149,585,195
- ------------------------------------------------------------------------------------------------------




                                                                    June 30, 1998
                                             ---------------------------------------------------------
                                                                   Gross          Gross          Gross
                                                              Unrealized     Unrealized           Fair
Available-for-Sale Securities                        Cost          Gains         Losses          Value
- ------------------------------------------------------------------------------------------------------
                                                                              
U.S. corporate securities                    $ 46,070,979   $     42,348   $     10,209   $ 46,103,118
Other debt securities                          44,298,286        109,686          1,061     44,406,911
                                             ---------------------------------------------------------
      Total securities                       $ 90,369,265   $    152,034   $     11,270   $ 90,510,029
- ------------------------------------------------------------------------------------------------------


      During the years ended June 30, 1999 and 1998, the gross realized gains on
sales of available-for-sale securities totaled $22,800 and $63,602,
respectively, and the gross realized losses totaled $37,458 and $12,671,
respectively. The net adjustment to unrealized gains (losses) during fiscal 1999
and fiscal 1998 on available-for-sale securities included in stockholders'
equity totaled $(543,619) and $140,764, respectively. The amortized cost and
estimated fair value of the available-for-sale securities at June 30, 1999, by
maturity, are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties, and the Company views its
available-for-sale securities as available for current operations.




                                                            June 30, 1999
                                                 -----------------------------------
                                                     Cost       Estimated Fair Value
- ------------------------------------------------------------------------------------
                                                          
Available-for-sale
     Due in one year or less                     $ 19,831,930       $ 19,816,312
     Due after one year through two years         113,938,386        113,474,878
     Due after two years                           16,280,809         16,294,005
                                                 -----------------------------------
                                                 $150,051,125       $149,585,195
- ------------------------------------------------------------------------------------



NOTE 6. COMMITMENTS AND CONTINGENCIES

OCCUPANCY ARRANGEMENTS. The Company presently occupies approximately 29,000
square feet of office space, at an average annual expense of $433,000, under a
lease agreement that expires in May 2005. The lease contains certain rent
escalation clauses and, upon expiration, can be renewed for a period of five
years. Rent expense was approximately $564,000, $350,000 and $203,000 for fiscal
1999, 1998 and 1997, respectively. The Company is currently evaluating its
present office space in conjunction with its estimated personnel growth and is
considering acquiring additional space, either at its existing location or, if
not available, in another building within the Phoenix metropolitan area.

      Medicis Canada, Inc., a wholly owned subsidiary, presently leases
approximately 7,500 square feet of office and warehouse space in St-Laurent,
Quebec, Canada, under a lease agreement, that expires in April 2000.

RESEARCH AND DEVELOPMENT AND CONSULTING CONTRACTS. The Company has, in the past,
and may in the future enter into agreements with various research organizations
and individuals under which the Company acquires certain patent and marketing
rights for therapeutics developed under such agreements in exchange for
providing funding for collaborative research. It is also anticipated that,
before any commercial marketing can be commenced, the Company will be required
to secure certain regulatory approvals on the technological processes involved.
The Company has various consulting agreements with certain scientists in
exchange for the assignment of certain rights and consulting services. In
addition, the Company has granted options to purchase shares of Class A Common
Stock that are included in the stock option plan described in Note 9. These
options vest annually over the commitment periods. At June 30, 1999, the Company
had approximately $843,000 of commitments (solely attributable to the


                                       20
   21
Chairman of the Central Research Committee of the Company) payable over the
remaining five years under an agreement, that is cancelable by either party
under certain conditions.

LICENSING, MARKETING AND MANUFACTURING AGREEMENTS. The Company has entered into
licensing and marketing agreements under which it has obtained rights to market
certain existing and future pharmaceutical products. Generally, the terms of
such agreements vary, but range from 10 to 20 years from the date of the first
sale of the related product or until the expiration of the patent applicable to
the product. The agreements provide for varying royalties with certain stated
minimum annual amounts, which vary by agreement from $35,000 to $50,000. Total
minimum royalties required to be paid on products currently being sold are
approximately $85,000 per year.

      In July 1997, the Company entered into a joint product development and
distribution agreement with an unrelated third party whereby the Company will
pay certain costs with respect to certain product approvals estimated to be
approximately $1.0 million.

      The Company purchases its inventory from third party manufacturers, many
of whom are the sole source of products for the Company. The failure of such
manufacturers to provide an uninterrupted supply of products would adversely
impact the Company's ability to sell such products.

OTHER. The Company and certain of its subsidiaries are parties to other actions
and proceedings incident to their business. Liability in the event of final
adverse determinations in any of these matters is either covered by insurance
and/or established reserves, or, in the current opinion of management, after
consultation with counsel, should not, in the aggregate, have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.


NOTE 7. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:




                                                                                 June 30,
                                                 ------------------------------------------------------------------------
                                                              1999                                   1998
                                                 ------------------------------------------------------------------------
                                                    CURRENT           LONG-TERM            Current            Long-term
- -------------------------------------------------------------------------------------------------------------------------
                                                                                                
Deferred tax assets:
  Net operating loss carry forwards              $         --       $    416,000        $         --        $    599,000
  Reserves and liabilities                          4,525,000                 --           3,300,000                  --
  Research and development credits                         --             94,000                  --           1,137,000
  Alternative minimum tax credits                          --                 --                  --             129,584
                                                 ------------------------------------------------------------------------
                                                    4,525,000             510,000           3,300,000           1,865,584
Excess of net book value over tax basis of
  intangible assets                                        --         (2,445,000)                 --         (12,368,000)
                                                 ------------------------------------------------------------------------
Deferred tax assets (liabilities)                $  4,525,000       $ (1,935,000)       $  3,300,000        $(10,502,416)
- -------------------------------------------------------------------------------------------------------------------------


      During fiscal 1998, the Company acquired all of the outstanding stock of
GenDerm in a taxable stock acquisition. As a result of the GenDerm acquisition,
net deferred tax liabilities and current taxes payable were recorded. The
deferred tax liability related to acquired intangible assets that have no tax
basis. The deferred tax assets acquired related to reserves, acquired net
operating loss carry forwards, research and development credits and other tax
credits. All of the net operating losses and tax credits acquired in the GenDerm
acquisition are limited for tax purposes under both the separate return
limitation year rules and Internal Revenue Code sections 382 and 383, which
limit the annual utilization of net operating losses and tax credits.

      At June 30, 1999, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $1,100,000 and research and
development credits of approximately $94,000, which begin expiring in varying
amounts in the years 2003 through 2012 if not previously utilized. All of the
net operating loss and tax credit carry forwards are attributable to the
Company's acquisition of GenDerm. As such, they are limited for tax purposes
under both the separate return limitation year rules and Internal Revenue Code
sections 382 and 383, which limit the annual utilization of net operating
losses.


                                       21
   22
      During fiscal 1999, 1998 and 1997, the Company made tax payments of
$19,837,000, $1,874,000 and $1,133,000, respectively.

      Components of the provision for income taxes (benefit) are as follows:




                                                      June 30,
                                ----------------------------------------------------
                                     1999                1998                1997
- ------------------------------------------------------------------------------------
                                                               
Current
    Federal                     $ 30,562,000        $  3,221,629        $    272,000
    State                          3,415,000           1,570,000           1,126,533
    Foreign                           19,000                  --                  --
                                ----------------------------------------------------
                                  33,996,000           4,791,629           1,398,533
- ------------------------------------------------------------------------------------
Deferred
    Federal                       (9,049,000)          8,644,416          (1,830,000)
    State                           (744,000)            988,000            (262,000)
                                ----------------------------------------------------
                                  (9,793,000)          9,632,416          (2,092,000)
- ------------------------------------------------------------------------------------
  Total                         $ 24,203,000        $ 14,424,045        $   (693,467)
- ------------------------------------------------------------------------------------


      Income tax expense (benefit) for the three years ended June 30, 1999, 1998
and 1997 differs from the amount computed applying the federal statutory rates
as follows:




                                                                    June 30,
                                                      ----------------------------------
                                                      1999          1998          1997
- ----------------------------------------------------------------------------------------
                                                                        
Statutory federal income tax rate                      35.0%         35.0%        35.0%
State tax rate, net of federal benefit                  2.5           4.0          5.0
Change in valuation allowance                          --            --          (44.2)
Tax exempt interest                                    (2.0)        (14.4)        --
In-process research and development                    --           684.5         --
Other                                                   1.4           6.0         --
                                                      ----------------------------------
                                                       36.9%        715.1%        (4.2%)
- ----------------------------------------------------------------------------------------



NOTE 8. STOCK TRANSACTIONS

Class A Common Stock has one vote per share, and Class B Common Stock has 10
votes per share. Each share of Class B Common Stock may be converted into one
share of Class A Common Stock at the option of the holder or, in some
circumstances, may automatically be converted upon a vote of the Board of
Directors and the majority of the Class B Common Stock shareholders.

      On January 12, 1999, the Board of Directors declared a 3-for-2 stock split
effected in the form of a 50% stock dividend payable February 16, 1999, to
common shareholders of record at the close of business on January 29, 1999. Per
share amounts and the weighted average number of shares outstanding have been
retroactively revised for all periods presented.

      In February 1998, the Company completed a public offering for 6,000,000
primary shares of the Company's Class A Common Stock at a price of $32.17 per
share. The underwriters also exercised the over-allotment option of 510,000
primary shares at a price of $32.17 per share. Gross proceeds from the offering
before related expenses totaled $209,405,000.

      On March 7, 1997, the Board of Directors declared a 3-for-2 stock split
effected in the form of a 50% stock dividend payable March 28, 1997, to common
shareholders of record at the close of business on March 17, 1997. Per share
amounts and the weighted average number of shares outstanding have been
retroactively revised for all periods presented.

      On October 2, 1996, the Company completed a public offering for
approximately 4,200,000 primary shares of the Company's Class A Common Stock at
a price of $20.00 per share. The underwriters also exercised the over-allotment
option of approximately 600,000 primary shares at a price of $20.00 per share.
Gross proceeds from the offering before related expenses totaled approximately
$95.7 million.


                                       22
   23
      On July 23, 1996, the Board of Directors declared a 3-for-2 stock split
effected in the form of a 50% stock dividend payable August 2, 1996, to common
shareholders of record at the close of business on July 22, 1996. Per share
amounts and the weighted average number of shares have been retroactively
revised for all periods presented.


NOTE 9. STOCK OPTION PLANS

The Company has six Stock Option Plans (the 1998, 1996, 1995, 1992, 1990 and
1988 Plans or, collectively, the "Plans"). The 1998, 1996, 1995, 1992, 1990 and
1988 Plans have the following options outstanding: 0; 2,299,591; 424,011;
345,456; 45,942; and 133,847, respectively. The Plans allow the Company to
designate options as qualified incentive or non-qualified on an as-needed basis.
Qualified and non-qualified stock options vest over a period determined at the
time the options are granted ranging from one to five years. Options are granted
at the fair market value on the grant date. Options outstanding at June 30,
1999, vary in price from $1.03 to $44.67, with a weighted average of $20.76
outlined in the following chart:




Range of Exercise    Weighted Number    Weighted Average    Average Exercise    Weighted Number    Average Exercise
           Prices        Outstanding    Contractual Life               Price        Exercisable               Price
- -------------------------------------------------------------------------------------------------------------------
                                                                                      
      $1.03-$1.83            241,867                 .62              $ 1.53            190,482              $ 1.53
      $1.95-$8.44            316,669                1.74              $ 2.57            307,256              $ 2.44
    $12.11-$23.33            510,881                7.33              $14.82            172,187              $15.84
    $23.83-$26.42          1,166,944                9.08              $24.03             11,058              $24.24
    $26.44-$30.29            759,668                8.26              $28.72            148,394              $28.81
    $30.33-$33.29            128,780                8.27              $30.78             52,095              $30.67
    $33.33-$38.29             35,125                9.08              $35.12              2,385              $34.20
    $39.38-$44.67             88,913                9.53              $40.80                  0              $ 0.00
- -------------------------------------------------------------------------------------------------------------------


      A summary of stock options granted within the Plans and related
information for the years ended June 30, 1999, 1998 and 1997 is as follows:




                                                                               Weighted
                                                                                Average
                                    Qualified   Nonqualified         Total        Price
- ---------------------------------------------------------------------------------------
                                                                  
Balance at June 30, 1996              739,952      1,209,642     1,949,594    $    2.92
- ---------------------------------------------------------------------------------------

Granted                               426,890        252,641       679,531    $   14.71
Exercised                            (236,433)      (512,411)     (748,844)   $    3.79
Terminated/expired                    (61,461)        (7,232)      (68,693)   $    7.32
                                   ----------------------------------------------------
Balance at June 30, 1997              868,948        942,640     1,811,588    $    6.79
- ---------------------------------------------------------------------------------------

Granted                               566,630        495,554     1,062,184    $   29.18
Exercised                             (87,434)      (145,880)     (233,314)   $    4.11
Terminated/expired                    (83,645)        (2,781)      (86,426)   $   18.26
                                   ----------------------------------------------------
Balance at June 30, 1998            1,264,499      1,289,533     2,554,032    $   15.70
- ---------------------------------------------------------------------------------------

Granted                               718,023        703,103     1,421,126    $   25.47
Exercised                            (296,708)      (222,224)     (518,932)   $    7.36
Terminated/expired                   (191,854)       (15,525)     (207,379)   $   25.63
                                   ----------------------------------------------------
Balance at June 30, 1999            1,493,960      1,754,887     3,248,847    $   20.76
- ---------------------------------------------------------------------------------------


      Options exercisable under the Plans at June 30, 1999 were 883,857 with an
average exercisable price of $11.30. During fiscal 1999, 7,500 non-qualified
stock options not subject to the Plans were exercised at a price of $6.47. An
additional 1,875 non-qualified stock options not subject to the Plans were
issued and outstanding to outside parties at June 30, 1999, with an exercise
price of $6.47.


                                       23
   24
      The Company elected the adoption of the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") in fiscal 1998. In accordance with the provisions
of SFAS No. 123, the Company applies APB No. 25 and related interpretations in
accounting for option grants to employees under its stock option plans. If the
Company had elected to recognize compensation costs based upon the fair value of
the options granted at grant date as prescribed by SFAS No. 123, operating
results would have changed to the pro forma amounts indicated in the table
below:




                                               1999             1998              1997
- -----------------------------------------------------------------------------------------
                                                                   
Net income (loss) - as reported          $  41,437,226    $ (12,407,176)    $  17,344,914
Net income (loss) - pro forma            $  36,930,216    $ (15,346,543)    $  15,742,000
Diluted earnings (loss)
         Per common share as reported    $        1.41    $       (0.51)    $        0.83
         Per common share pro forma      $        1.25    $       (0.64)    $        0.75
- -----------------------------------------------------------------------------------------


      The weighted average fair value of options granted during fiscal 1999,
1998 and 1997 was $12.03, $16.27 and $9.19, respectively.

      Pro forma results disclosed are based upon the provisions of SFAS No. 123
using the Black-Scholes option pricing model and are not likely to be
representative of the effect on pro forma net income for future years. The
Black-Scholes option pricing model was developed for use in estimating the fair
value of traded options, which, unlike options granted by the Company, have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from options traded on an exchange, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options.

      The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions:




                                          1999      1998      1997
- --------------------------------------------------------------------
                                                    
Expected dividend yield                    0.0%      0.0%      0.0%
Expected stock price volatility           0.50      0.50      0.70
Risk-free interest rate                    5.5%      5.5%      5.7%
Expected life options                    5 YEARS   5 Years   5 Years
- --------------------------------------------------------------------



NOTE 10. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
common share:




                                                                                   June 30,
                                                                  -------------------------------------------
                                                                       1999           1998            1997
- -------------------------------------------------------------------------------------------------------------
                                                                                        
Numerator
    Net income (loss)                                             $ 41,437,226   $(12,407,176)   $ 17,344,914
Denominator for basic net income (loss) per common share            28,413,608     24,101,658      19,787,785
    Effect of dilutive securities:
    Stock options                                                    1,048,703             --       1,102,785
Denominator for dilutive net income (loss) per common share         29,462,311     24,101,658      20,890,570
Basic net income (loss) per common share                          $       1.46   $      (0.51)   $       0.88
Diluted net income (loss) per common share                        $       1.41   $      (0.51)   $       0.83
- -------------------------------------------------------------------------------------------------------------


      Options that are anti-dilutive because the exercise price was greater than
the average market price of the common shares are not included in the
computation of diluted earnings per share. There were no dilutive securities in
1998 given that the Company had a net loss.


                                       24
   25
NOTE 11. SIGNIFICANT CUSTOMERS

For fiscal 1999, two customers accounted for approximately 18.0% and 14.1% of
sales. For fiscal 1998, three customers accounted for approximately 16.9%, 13.2%
and 12.6% of sales. For fiscal 1997, three customers accounted for approximately
20.6%, 16.3% and 10.9% of sales.


NOTE 12. FINANCIAL INSTRUMENTS - CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and accounts receivable.

      The Company maintains cash, cash equivalents and short-term investments
primarily with two financial institutions that invest funds in short-term,
interest-bearing, investment-grade, marketable securities. The Company performs
periodic evaluations of the relative credit standing of these financial
institutions.

      At June 30, 1999 and 1998, three customers comprised approximately 58.1%
and 46.9%, respectively, of accounts receivable. The Company does not require
collateral from its customers, but performs periodic credit evaluations of its
customers' financial condition. Management does not believe a significant credit
risk existed at June 30, 1999.


NOTE 13. DEFINED CONTRIBUTION PLAN

The Company has a defined contribution plan (the "Contribution Plan") that is
intended to qualify under Section 401(k) of the Internal Revenue Code. All
employees, except those who have not attained the age of 21, are eligible to
participate in the Contribution Plan. Participants may contribute, through
payroll deductions, up to 20.0% of their basic compensation, not to exceed
Internal Revenue Code limitations. Although the Contribution Plan provides for
profit sharing contributions by the Company, the Company has not made any such
contributions since its inception.


NOTE 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The table below lists the quarterly financial information for fiscal 1999 and
1998. All figures are in thousands, except per share data, and certain amounts
do not total to the annual amounts due to rounding.




                                                     Fiscal Year Ended June 30, 1999
                                 -----------------------------------------------------------------------
(For the Quarters Ended)         September 30, 1998   December 31, 1998   March 31, 1999   June 30, 1999
- --------------------------------------------------------------------------------------------------------
                                                                               
Net revenues                          $ 24,780             $ 28,016          $ 30,183         $ 33,892
Gross profit                            20,073               22,700            25,158           27,305
Net income                               8,089                3,181            13,975           16,192
Basic net income
     per common share                 $   0.29             $   0.11          $   0.49         $   0.57
Diluted net income
     per common share                 $   0.28             $   0.11          $   0.47         $   0.55
- --------------------------------------------------------------------------------------------------------




                                                      Fiscal Year Ended June 30, 1998
                                 -----------------------------------------------------------------------
(For the Quarters Ended)         September 30, 1997   December 31, 1997   March 31, 1998   June 30, 1998
- --------------------------------------------------------------------------------------------------------
                                                                               
Net revenues                          $ 13,911             $ 16,928          $ 22,527         $ 24,205
Gross profit                            11,365               13,924            18,535           19,768
Net income (loss)                        3,751              (31,051)            6,434            8,459
Basic net income (loss)
     per common share                 $  0.17              $  (1.44)         $   0.25         $   0.30
Diluted net income (loss)
     per common share                 $  0.17              $  (1.44)         $   0.24         $   0.29
- --------------------------------------------------------------------------------------------------------


      The quarterly net income per share data disclosed above does not agree
with the amounts reported in the Company's Quarterly Reports on Form 10-Q filed
with the Securities and Exchange Commission, as the amounts have been revised to
reflect the stock splits discussed in Note 8, and the effect of SFAS No. 128
related to basic and diluted earnings per share. Gross profit does not include
amortization of the related intangibles.


                                       25
   26
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
DIVIDEND POLICY. The Company declared a 3-for-2 stock split in the form of a 50%
stock dividend paid on February 16, 1999 to holders of record on January 29,
1999. The Company has never declared a cash dividend. The Company intends to
retain any earnings to fund future growth and the operation of its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future.

PRICE RANGE OF COMMON STOCK. The Company's Class A Common Stock during fiscal
1999 was traded on the Nasdaq National Market under the symbol "MDRX" through
September 23, 1998. At market open on September 24, 1998, the Company's Class A
Common Stock began trading on the New York Stock Exchange under the symbol
"MRX." The following table sets forth for the fiscal periods indicated, the
range of high and low sales prices for the Class A Common Stock of the Company
on the Nasdaq National Market and the New York Stock Exchange, as adjusted to
reflect (i) the 3-for-2 stock split in the form of a 50% stock dividend paid on
February 16, 1999 to holders of record as of January 29, 1999, as adjusted to
the nearest 1/16.




                                                                High            Low
- ---------------------------------------------------------------------------------------
                                                                       
Fiscal year ended June 30, 1999
      First Quarter                                          $ 29-15/16      $ 19-7/8
      Second Quarter                                           43-3/16         25-5/8
      Third Quarter                                            47-3/4          25-7/8
      Fourth Quarter                                           31              23-1/4
- ---------------------------------------------------------------------------------------
Fiscal year ended June 30, 1998
      First Quarter                                          $ 37            $ 25
      Second Quarter                                           37-5/16         26-11/16
      Third Quarter                                            34-1/16         25-11/16
      Fourth Quarter                                           32-1/4          22-3/16
- ---------------------------------------------------------------------------------------


On September 2, 1999, the last reported sale price on the New York Stock
Exchange for the Company's Class A Common Stock was $27.06 per share. As of such
date, there were approximately 323 holders of record of Class A Common Stock.


                                       26
   27
SELECTED FINANCIAL DATA

The following selected financial data has been derived from the consolidated
financial statements of Medicis Pharmaceutical Corporation for the fiscal years
1999, 1998, 1997, 1996 and 1995. Gross profit does not include amortization of
the related intangibles.


STATEMENT OF OPERATIONS DATA:




                                                                                    June 30,
                                                  ---------------------------------------------------------------------------
(in thousands, except per share data)                1999             1998             1997            1996            1995
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                     
Net revenues                                      $ 116,871        $  77,571        $  41,159       $  25,310       $  19,132
Gross profit                                         95,236           63,592           31,797          18,354          13,282
Operating expenses:
      Selling, general and administrative            38,219           27,424           16,484          10,868          10,330
         Research and development expenses            3,396            2,885            1,450             952             770
      In-process research and development             9,500           35,400               --              --              --
      Depreciation and amortization                   5,810            2,903              999             559             522
                                                  ---------------------------------------------------------------------------
      Total operating expenses                       56,925           68,612           18,933          12,379          11,622
      Operating income (loss)                        38,311           (5,020)          12,864           5,975           1,660
Other:
      Gain on sale of assets                         17,650               --               --              --             107
      Net interest income (expense)                   9,678            7,037            3,787              79             (94)
      Income tax (expense) benefit                  (24,202)         (14,424)             694           1,826             (60)
                                                  ---------------------------------------------------------------------------
Net income (loss)                                 $  41,437        $ (12,407)       $  17,345       $   7,880       $   1,613
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per common share          $    1.46        $   (0.51)       $    0.88       $    0.52       $    0.11
Diluted net income (loss) per common share        $    1.41        $   (0.51)       $    0.83       $    0.50       $    0.11
Number of shares used in computing basic net
  income (loss) per common share                     28,414           24,102           19,788          15,195          14,836
Number of shares used in computing diluted
net income (loss) per common share                   29,462           24,102           20,891          15,882          14,836
- -----------------------------------------------------------------------------------------------------------------------------


BALANCE SHEET DATA:




                                                                                       June 30,
                                                       --------------------------------------------------------------------
(in thousands)                                           1999           1998           1997           1996           1995
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                                    
Cash, cash equivalents and short-term
       investments                                     $237,304       $237,921       $ 85,132       $  7,956       $    953
Working capital                                         278,440        262,956         94,803         12,401            619
Total assets                                            467,338        352,350        140,537         26,313         13,850
Long-term obligations                                    34,716             95            111            117            694
Stockholders' equity                                    373,576        324,495        131,565         19,460          7,387
- ---------------------------------------------------------------------------------------------------------------------------



                                       27

EX-21.1

   1
                                                                    EXHIBIT 21.1


                                  SUBSIDIARIES


- -        Medicis, The Dermatology Company(R)

- -        Medicis Dermatologics, Inc.

- -        Dermavest, Inc.

- -        Advanced Pharmaceutical Research

- -        Medicis Acquisition Corporation

- -        Medicis Manufacturing Corporation

- -        Medicis Partners, Inc.

- -        GenDerm Corporation

- -        Medicis Canada, Ltd.

- -        Ucyclyd Pharma, Inc.

EX-23.1

   1
                                                                    EXHIBIT 23.1



               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Medicis Pharmaceutical Corporation of our report dated August 6, 1999,
included in the 1999 Annual Report to Shareholders of Medicis Pharmaceutical
Corporation.

Our audit also included the financial statement schedule of Medicis
Pharmaceutical Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.

We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-45573) pertaining to the 1988 and 1990 Stock Option Plans, in
the Registration Statement (Form S-8 No. 33-88590) pertaining to the 1992 Stock
Option Plan, in the Registration Statement (Form S-8 No. 33-311419) pertaining
to the 1995 Stock Option Plan, in the Registration Statement (Form S-8 No.
33-333647) pertaining to the 1996 Stock Option Plan, and in the Registration
Statement (Form S-8 No. 333-81647) pertaining to the 1998 Stock Option Plan of
Medicis Pharmaceutical Corporation of our report dated August 6, 1999, with
respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Medicis Pharmaceutical Corporation.


                                                           /s/ ERNST & YOUNG LLP
                                                           ---------------------

Phoenix, Arizona
September 24, 1999

EX-27

 

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<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          JUN-30-1999
<PERIOD-START>                             JUL-01-1998
<PERIOD-END>                               JUN-30-1999
<CASH>                                      87,718,718
<SECURITIES>                               149,585,195
<RECEIVABLES>                               35,397,935
<ALLOWANCES>                                 3,815,000
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