Document:

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                                                                  EXHIBIT 10.22

                           MASTER SEPARATION AGREEMENT

     This AGREEMENT  ("Agreement")  is made as of December 6, 2000, by and among
KENNETH KIM ("Kim"), MARON NU-TECH, INC., a California corporation ("Maron") and
OBAGI MEDICAL PRODUCTS, INC., a California corporation ("Company").

                                    RECITALS

     WHEREAS,  Kim and Company have previously  entered into certain  agreements
that provided Kim with rights to distribute Company's products and, in addition,
Kim has acquired  certain  interests in entities which hold rights to distribute
Company's products,

     WHEREAS,  Kim hereby agrees to sell,  transfer,  convey and  relinquish all
rights to  distribute  the  Company's  products,  and to transfer to Company any
interest  held by Kim in any  entity,  except as  provided  in Section 1 herein,
which holds the rights to distribute the Company's products,

     WHEREAS, Kim believes that neither he, Maron, nor his affiliates have any
ownership interests in Obagi Singapore Pte. Ltd. ("Obagi Singapore") (other than
a possible ownership interest of Dermatech in Obagi Singapore and a legal charge
over shares of Obagi Singapore in favor of Dermatech) and he believes that Obagi
Asia Pte. Ltd. ("Obagi Asia") is dormant, with no activity,

     WHEREAS,  Kim is willing to agree not to compete with Company,  as provided
in Section 5.1 of this Agreement,  subject to the terms and conditions set forth
in this Agreement,

     WHEREAS, in consideration for the relinquishment by Kim as set forth
above, Company agrees to pay Kim the sum of two million one hundred thousand
one United States Dollars  ($2,100,001)  payable  in  accordance  with  the
terms of this Agreement,

     WHEREAS, Maron and Company executed a Restated and Amended International
Product Distribution Agreement on June 7, 1999 ("1999 Agreement"),

     WHEREAS,  Company executed a Promissory Note payable to Maron dated June 7,
1999,  providing  for  payments  over time on an  original  principal  amount of
$900,000 ("1999 Note") arising out of a Settlement  Agreement dated June 7, 1999
among Company, Kim and Maron (the "Settlement Agreement"),

     WHEREAS, Maron and Company both wish to terminate the 1999 Agreement and to
effect the  extinguishment of all obligations  under the 1999 Agreement,  except
for the  obligations  set forth in sections 9 and 11.1 of the 1999 Agreement and
in the 1999 Note, which obligations shall  specifically  survive the termination
of the 1999 Agreement, and

     WHEREAS, in consideration for the termination of the 1999 Agreement,
Company agrees to pay  Maron the sum of nine hundred thousand United States
Dollars ($900,000) payable in accordance with the terms of this Agreement,

                                       -1-

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     NOW,  THEREFORE,  in consideration of these premises,  and the mutual terms
and conditions contained herein, Kim, Maron and Company hereby agree as follows:

SECTION 1. TRANSFER OF INTERESTS; TERMINATION OF 1999 AGREEMENT PAYMENTS BY
           COMPANY

     1.1  TRANSFER OF INTERESTS BY KIM.  Upon the terms and  conditions  of this
Agreement and in  consideration  for the payments to be made by Company pursuant
to Section 1.3 herein, effective at the closing of the transactions contemplated
in this Agreement  (the  "Closing") on December 21, 2000 or sooner (the "Closing
Date"), Kim hereby agrees as follows:

          (a)  To sell, transfer, convey and assign to Company all shares of
Derma Tech, Inc. (the "Shares") owned by Kim, which Shares represent fifty
percent (50%) of the issued and outstanding shares of Derma Tech, Inc. ("Derma
Tech").

          (b) To sell,  transfer,  convey and assign to Company,  or cause to be
sold,  transferred,  conveyed and assigned to Company, any interest in any loan,
security,  any right to receive any remuneration and/or any equity interest that
Kim or his  respective  agents,  assignees,  or  entities in which Kim holds any
interest  ("Kim  Affiliates")  may have in or to Obagi  Singapore  or any of its
shareholders.

          (c) To sell,  transfer,  convey and assign to Company,  or cause to be
sold,  transferred,  conveyed and assigned to Company, all rights held by Kim in
the Obagi name and the Obagi Asia name (the "Names"), the right to use the Names
and any interest in the Names held by Obagi Asia.

          (d) To sell,  transfer,  convey and assign to Company,  or cause to be
sold,  transferred,  conveyed  and  assigned  to  Company,  all other  ownership
interests  or  rights  to  receive  any  remuneration  held  by Kim  or the  Kim
Affiliates, directly or indirectly, in any entity (other than Maron) which holds
the rights to distribute any of the Company's  products,  a complete list of all
such entities, if any, is attached hereto as Schedule 1.1(d).

          1.2  TERMINATION OF 1999  AGREEMENT.  Maron and Company agree that the
1999 Agreement shall be terminated as of the Closing Date, with the exception of
sections 9 and 11.1  thereof  which shall  survive the  termination  of the 1999
Agreement.  Effective on the  Closing,  Maron and Company  shall each  expressly
release the other, and the other's  shareholders,  directors and officers, as to
all liability for claims and demands arising from the other's performance of the
1999  Agreement,  except for claims and demands arising from sections 9 and 11.1
thereof and claims for any amounts  which are due and payable  thereunder  as of
the Closing Date, which shall survive the termination of the 1999 Agreement. For
the  elimination  of any doubt,  the parties hereby  acknowledge  and agree that
Company  remains  and shall  remain  liable to Maron  under  the 1999  Note,  in
accordance with its original terms and that a true and complete copy of the Note
is attached hereto as EXHIBIT A.

          1.3  PAYMENTS BY COMPANY.

               (a) In  consideration  of all of the  foregoing  provisions,  the
provisions of Section 5 of this Agreement,  and the terms and conditions hereof,
effective at the Closing

                                       -2-
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Company agrees to pay Kim the sum of two million one hundred thousand one
United States Dollars ($2,100,001), payable as follows:

                    (i) A cash payment of One Hundred Thousand One United
States Dollars ($100,001) which has previously been paid to Kim,  receipt of
which is hereby acknowledged; and

                    (ii) A cash payment of Four Hundred Thousand United
States Dollars ($400,000) at the Closing.

                    (iii) The balance of One Million Six Hundred Thousand
United States Dollars ($1,600,000) according to the following payment
schedule:

6/30/2001           $500,000             1/1/2002                  $375,000
6/30/2002           $625,000             1/1/2003                  $100,000

               (b) In consideration of all of the foregoing provisions and
the terms and  conditions hereof, effective at the Closing Company agrees to
pay Maron the sum of Nine Hundred Thousand United States Dollars ($900,000)
according to the following payment schedule:

1/1/2003            $150,000             6/30/2003                 $250,000
1/1/2004            $250,000             6/30/2004                 $250,000

     1.4 INTEREST.  In addition to the payments pursuant to Section 1.3,
Company agrees to pay interest to Kim and to Maron on the outstanding
principal balance during the period from the Closing Date through January 1,
2003. Interest shall be calculated based on a 365-day year at the time of
each principal payment on the outstanding principal balance on the day before
the principal payment is due and shall be fixed for the period at the rate of
six percent (6%) per annum. Beginning on January 2, 2003, interest shall be
due and payable on the then outstanding principal balance only as follows:

          (a)  Interest at the rate of One United States Dollar ($1.00) per
annum, payable on January 1, 2004; and

          (b)  Interest at the rate of One United States Dollar ($1.00) per
annum, payable on June 30, 2004;

     1.5 PROMISSORY NOTES. At the Closing, Company shall execute and deliver
to the respective payees thereof two subordinated promissory notes (the
"Notes") for the aggregate outstanding balance of Two Million Five
Hundred Thousand United States Dollars ($2,500,000) payable under Section
1.3 above, payable to Kim and Maron, respectively, in the forms attached
hereto as of EXHIBIT B and EXHIBIT C, respectively. Maron and Kim hereby
agree that the Notes and related lien shall be subordinate to the loan and
related lien of Imperial Bank (or such other commercial lender as may succeed
Imperial Bank as commercial lender to Company ("Successor Lender")) (such
senior loan or loans, however, not to exceed in any event the principal
amount of

                                       -3-

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$10,000,000), and further agree to execute the Subordination Agreements in favor
of Imperial Bank in the form of EXHIBIT D attached  hereto at the Closing and to
execute in the future a subordination agreement in favor of any Successor Lender
provided  that such  subordination  agreement  is the same in  substance  as the
Subordination Agreement, as amended, in favor of Imperial Bank.

     1.6  INSTRUMENTS OF CONVEYANCE AND TRANSFER / CLOSING DELIVERIES. At the
Closing:

          (a) Kim shall  deliver  to  Company  certificate(s)  representing  the
Shares duly endorsed in blank with stock powers attached duly executed in blank,
in proper form for transfer.

          (b) Kim shall deliver or cause to be delivered to Company accurate and
complete  copies of the documents in his  possession  consisting of the Articles
(or  Certificate)  of  Incorporation,  Bylaws,  shareholder and director (to the
extent, and if, relevant)  minutes,  written consents and other shareholder (and
director) actions taken,  list of all  shareholders,  all qualification or other
authorities (or clearances) issued by all state and other governmental bodies as
required for all of such company's  stock  issuances with all amendments to each
of the same,  and the books and records,  of each entity other than Maron (i) in
which Kim has an ownership  interest or has a right to receive  remuneration and
(ii)  which  holds  rights  to  distribute   any  of  the   Company's   products
(collectively, the "Transferred Companies").

          (c) Simultaneously with such delivery,  Kim will take all steps as may
be  reasonably  necessary  to  effectuate  the  transfer  to the  Company of all
ownership  interests  or rights to receive  remuneration  held by Kim or the Kim
Affiliates,  directly or  indirectly,  in Obagi  Singapore,  Obagi Asia and each
other Transferred Company.

          (d) The  Company  shall  cause each of the  Transferred  Companies  to
execute and deliver to Kim and Maron a waiver and release in the form of EXHIBIT
E attached hereto.

          (e) At the Closing,  Maron and Kim shall deliver to Company  checks in
the amounts,  if any, they  respectively  owe to Company as of the Closing Date.
Company  shall have  furnished  to Maron and Kim  accurate  invoices  for orders
through the Closing Date at the Closing.

     1.7 SECURITY INTEREST.  As security for Company's payment obligations under
the Notes,  Company  hereby  grants to Kim and  Maron,  as  secured  parties,  a
security  interest  in the  assets of  Company  described  in EXHIBIT F attached
hereto,  which  security  interest  shall be subordinate to the lien of Imperial
Bank (or of a  Successor  Lender,  if any,  which  is  party to a  subordination
agreement  as provided in Section  1.5 of this  Agreement).  Kim and Maron shall
each have all the  rights  of a  secured  party  under  the  California  Uniform
Commercial Code as to the security interest granted herein.

     1.8  SUB-DISTRIBUTORS.  On or before the Closing Date,  Company shall enter
into new distribution  agreements with Maron's  sub-distributors,  including but
not limited to Malaysia,  Indonesia,  and Singapore,  and with Korea (which is a
direct distributor for which Maron acts as handling agent, but for simplicity of
reference  herein shall be included  among the  subdistributors)  with regard to
distribution  of  Company's  products,  and Kim and  Maron  agree to  reasonably
cooperate with Company in facilitating  the execution of such  agreements.  Such
new

                                       -4-
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agreements shall contain  provisions  releasing Maron and Kim from any
liability under the sub-distribution  agreements between Maron and such
sub-distributors, as a condition to the  effectiveness  of the new
distribution agreements with Company. If one or more such new distribution
agreements are not executed as of the Closing Date, at the Closing Maron
shall be deemed to have assigned, and Company shall be deemed to have
assumed, without further action on the part of either party, the
sub-distribution agreements of those sub-distributors which have not entered
into new distribution agreements with Company, and Company shall indemnify,
defend and hold harmless Maron for all claims against Maron for actions or
omissions arising under the sub-distribution agreements after the Closing
Date.  Upon demand by Company,  Maron shall cooperate with Company to
terminate  any  sub-distribution  agreement after the Closing, provided  that
Company  indemnifies and holds harmless Maron, its shareholders,  officers,
and directors from any claims arising out of Maron's termination and its
cooperation with such termination.

SECTION 2. REPRESENTATIONS AND WARRANTIES

     2.1  REPRESENTATIONS AND WARRANTIES OF KIM. Kim and Maron hereby represent
and warrant to Company as follows, which representations and warranties shall be
true and correct at and as of the Closing Date:

          (a)  ENFORCEABILITY.  The execution,  delivery and performance of this
Agreement  and  the  consummation  of  the  transactions  contemplated  by  this
Agreement have been authorized and approved by Kim, Maron,  and Derma Tech. This
Agreement has been duly  executed and  delivered by Kim and  constitutes a valid
and legally  binding  agreement of Kim enforceable in accordance with its terms,
subject,  as to enforcement,  to bankruptcy,  insolvency,  fraudulent  transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.  This Agreement
has been  duly  executed  and  delivered  by Maron and  constitutes  a valid and
legally  binding  agreement of Maron  enforceable in accordance  with its terms,
subject,  as to enforcement,  to bankruptcy,  insolvency,  fraudulent  transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.

          (b) THE SHARES. The Shares are owned,  directly by Kim, free and clear
of  any  lien,  claim,  charge,   encumbrance,   pledge,  security  interest  or
restriction  of any  nature  whatsoever  ("Encumbrances")  and  represent  fifty
percent (50%) of the issued and outstanding  shares of Derma Tech. Upon delivery
of the Shares and payment therefor pursuant hereto,  good and valid title to the
Shares, free and clear of all Encumbrances, will pass to Company.

          (c)  THE TRANSFERRED COMPANIES. Kim's ownership interest or right to
receive remuneration from the Transferred Companies or their shareholders is
free and clear of any Encumbrances.

          (d)  FINANCIAL STATEMENTS. [INTENTIONALLY OMITTED].

          (e)  ABSENCE OF CERTAIN CHANGES. To the best of Kim's knowledge, other
than as specifically disclosed in this Agreement or in any of the exhibits
hereto, since January 1, 2000:

                                       -5-

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               (i) None of the assets of any  Transferred  Company has been sold
or transferred,  and none of the debts or claims of any Transferred  Company has
been cancelled, except in the ordinary course of business;

               (ii)  None of the  assets  of any  Transferred  Company  has been
leased,  mortgaged,  pledged,  subjected to any liens,  encumbrances or security
interests;

               (iii)  None  of  the  Transferred  Companies  have  acquired  any
additional  assets except as acquired in the ordinary  course of business and as
consistent with its prior business practices;

               (iv) There has been no payment by any Transferred  Company of any
dividends or any distribution by the Transferred Company of any of its assets to
any of its  shareholders  in redemption  or as the purchase  price of any of its
capital stock or in discharge or  cancellation,  whether in part or in whole, of
any indebtedness (whether in payment of principal, interest or otherwise), owing
to any of its said  shareholders,  except  a  pro-rata  distribution  to Kim and
Company of the balance in the Derma Tech bank  account at Bank of America on the
date of the Closing;

               (v) There has not been any material  increase in the compensation
payable or to become payable by any Transferred  Company to any of its employees
or agents, or any bonus payment or arrangement made to or with any of them;

               (vi)  There  has not been any  amendment  or  termination  of any
material  contract,  agreement or license to which any Transferred  Company is a
party other than in the ordinary course of business;

               (vii)  There has not been any  payment to or  commitment  entered
into by any Transferred  Company  respecting any liabilities,  expenses or costs
incurred in connection with this Agreement (including,  without limitation,  any
finder's  fee  or  commission,  but  excluding  any  legal  or  accounting  fees
occasioned hereby); and

               (viii) There has been no material damage, destruction or loss, or
other  change  of  a  material  nature,  to  the  financial  condition,  assets,
liabilities, obligations or operations of any Transferred Company.

          (f)  ABSENCE  OF  UNDISCLOSED  LIABILITIES.   To  the  best  of  Kim's
knowledge, except as set forth in Derma Tech's balance sheet as of June 30, 2000
attached hereto as EXHIBIT G, or otherwise  disclosed in this  Agreement,  or in
any other exhibit to this  Agreement,  Derma Tech is not obligated  for, nor are
any of its assets or  properties  subject to, any  liabilities  or  obligations,
whether or not such  liabilities or obligations  are normally shown or reflected
on a balance sheet in a manner  consistent  with generally  accepted  accounting
principles, other than liabilities or obligations arising in the ordinary course
of  business  since  June  30,  2000,  which  ordinary  course  liabilities  and
obligations,  in the aggregate,  are not materially adverse to Derma Tech. Derma
Tech is not in default  with  respect to any  material  term or condition of any
material  indebtedness or liability  (including  trade  payables).  In addition,
there are no facts in  existence on the date hereof and known to Kim which might
reasonably serve as the basis, in whole or in part, for any material liabilities
or obligations of

                                       -6-
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Derma Tech, not disclosed in this  Agreement or in any of the exhibits  attached
hereto. [***].

          (g)  CLAIMS  BY KIM.  Except  as set  forth  on  Schedule  2.1(g),  no
Transferred Company is, and as of the Closing Date will not be, indebted to Kim,
its  trustor,  trustee  or  any  of  its  beneficiaries  for  any  liability  or
obligation,  whether arising by reason of an ownership  interest in such company
or otherwise.

          (h) ARTICLES,  BYLAWS, MINUTES AND PERMITS. To his best knowledge, Kim
has made available to Company accurate and complete  copies,  to the extent they
are in his possession,  of each Transferred  Company's Articles (or Certificate)
of  Incorporation,  Bylaws,  shareholder  and director  (to the extent,  and if,
relevant) minutes, written consents and other shareholder (and director) actions
taken, list of all shareholders,  and all qualification or other authorities (or
clearances)  issued by all state and other  governmental  bodies as required for
all of such company's stock  issuances,  together with all amendments to each of
the  same,  and the books  and  records  in his or  Maron's  possession  of each
Transferred  Company.  To Kim's best knowledge,  nothing contained in any of the
foregoing  prevents or adversely  affects the  consummation of the  transactions
contemplated  by  this  Agreement.   The  articles  of  incorporation,   bylaws,
qualification  documents  for stock  issuances,  and  minutes  of Derma Tech are
accurate and complete and in full force and effect.

          (i) NO OTHER RIGHTS OF PAYMENT.  Kim is not aware of any agreements or
arrangements  other  than as  disclosed  herein,  whereby  any person or entity,
including  but not  limited  to any other  shareholders  of any  company or such
shareholder's relatives or entities in which such shareholders have an interest,
is entitled to a payment of cash distributions from any Transferred Company.

          (j) SUB-DISTRIBUTION AGREEMENTS.  EXHIBIT H attached hereto contains a
true and  complete  list of Maron's  sub-distributors,  and prior to the Closing
Maron shall have delivered to Company true and complete copies of all of Maron's
agreements  with such  sub-distributors.  Such  agreements  contain the complete
agreements  between  Maron and each such  sub-distributor,  and are valid and in
full force and effect,  to Kim's and Maron's best  knowledge,  and, to Kim's and
Maron's best  knowledge,  there are no liabilities of Maron  connected with such
agreements which have not been previously disclosed to Company.

          (k)  MARON LICENSES. Maron represents that all licenses held by it are
listed on Schedule 2.1(k) attached hereto.

     2.2  REPRESENTATIONS AND WARRANTIES OF COMPANY. Company hereby represents
and warrants to Kim, which representations and warranties shall be true and
correct at and as of the Closing Date:

          (a)  ENFORCEABILITY.  The execution,  delivery and performance of this
Agreement  and  the  consummation  of  the  transactions  contemplated  by  this
Agreement have been authorized and approved by Company.  This Agreement has been
duly  executed  and  delivered  by Company and  constitutes  a valid and legally
binding agreement of Company enforceable in

                                       -7-

[***] Material has been omitted pursuant to a request for confidential
      treatment and such material has been filed separately with the
      Securities and Exchange Commission.

<PAGE>

accordance  with  its  terms,   subject,  as  to  enforcement,   to  bankruptcy,
insolvency, fraudulent transfer, reorganization,  moratorium and similar laws of
general applicability  relating to or affecting creditors' rights and to general
equity principles.

          (b) DUE  DILIGENCE.  Company has had ample  opportunity to perform due
diligence in  connection  with this  Agreement  and review any and all financial
statements,  documents,  records, reports,  schedules and other forms of data as
requested by Company.

          (c)  SUB-DISTRIBUTORS. [INTENTIONALLY OMITTED].

          (d)  SHAREHOLDERS OF COMPANY.  The  shareholders of Company holding of
record as of the date of this Agreement more than ten percent (10%) of Company's
voting shares are identified in Schedule 2.2(d) hereto.

SECTION 3. INDEMNIFICATION

     3.1  INDEMNIFICATION  BY KIM.  Effective  at the  Closing,  Kim  agrees  to
indemnify  Company against and hold Company  harmless from and in respect of any
and all losses,  liabilities,  damages,  reasonable  expenses (including without
limitation  reasonable expenses of investigation and defense and reasonable fees
and disbursements of counsel),  claims, liens or other obligations of any nature
whatsoever  (collectively,  "Losses")  which may arise out of, be based upon, be
incurred  by  virtue  of  or  result  from  or  relate  to  the  breach  of  any
representation  or warranty made by Kim in this  Agreement or in any document or
instrument delivered by Kim at the Closing Date pursuant hereto.

     3.2 INDEMNIFICATION BY COMPANY. Effective at the Closing, Company agrees to
indemnify  Kim and Maron  against  and hold Kim and Maron  harmless  from and in
respect of any and all Losses which may arise out of, be based upon, be incurred
by virtue of or result  from or relate to the  breach of any  representation  or
warranty  made by Company in this  Agreement  or in any  document or  instrument
delivered by Company at the Closing Date pursuant hereto.

     3.3 DEFENSE OF CLAIMS. In the case of any claim for  indemnification  under
Section 3.1 or 3.2 arising from a claim of a third party, an indemnified  person
shall give prompt written notice to the indemnifying  person of any claim,  suit
or demand of which such indemnified  person has knowledge and as to which it may
request indemnification  hereunder. The indemnifying person shall have the right
to defend and to direct the defense against any such claim,  suit or demand,  in
its name or in the name of the  indemnified  person,  as the case may be, at the
expense  of  the  indemnifying   person,   and  with  counsel  selected  by  the
indemnifying  person  unless  (i) such  claim,  suit or  demand  seeks an order,
injunction or other equitable relief against the indemnified person, or (ii) the
indemnified  person  shall  have  reasonably  concluded  that there is an actual
conflict of interest between the indemnified person and the indemnifying  person
in the conduct of the defense of such claim,  suit or demand,  in which case the
indemnified  person may,  with the approval of the  indemnifying  person  (which
approval  shall not be  unreasonably  withheld),  select  counsel  for itself to
defend such claim, suit or demand.  The indemnified  person shall have the right
to participate in the defense of any claim, suit or demand with counsel selected
by it. The  reasonable  fees and  disbursements  of such counsel shall be at the
expense of the indemnified person. The indemnifying person may settle any claim,
suit or demand for

                                       -8-

<PAGE>

which an  indemnified  person has sought  indemnification  under  Section 3.1 or
Section 3.2. The indemnifying  person shall have no indemnification  obligations
with  respect to any such  claim,  suit or demand  which shall be settled by the
indemnified person without the prior written consent of the indemnifying  person
(which consent shall not be unreasonably withheld, conditioned or delayed) other
than a claim,  suit or demand as to which the  indemnifying  person shall not in
fact have employed counsel to assume the defense of such claim, suit or demand.

SECTION 4. MUTUAL RELEASES

     4.1 RELEASES BY COMPANY.  Effective at the Closing,  Company,  on behalf of
itself   and  its   shareholders,   parent  or  sister   companies,   employees,
representatives,    agents,   insurers,   attorneys,   administrators,    heirs,
beneficiaries,   executors,  trustees,  principals,  predecessors,   successors,
assignors, assignees, past and present, hereby fully releases and discharges Kim
and his respective  employees,  officers,  agents,  representatives,  attorneys,
administrators,  heirs, insurers,  corporations in which Kim holds any interest,
and each of their respective predecessors,  successors, assignors and assignees,
past and  present,  with respect to any and all claims,  actions,  and causes of
action, of any kind or nature whatsoever, in law, equity, or otherwise,  whether
fixed  or  contingent,  whether  now  known  or  unknown  whether  suspected  or
unsuspected, and whether concealed or hidden, which now exist or which may exist
hereafter,  relating  to, or  arising  out of, any act,  transaction,  agreement
occurrence, event, error, or omission by any of them prior to the effective date
of this Agreement.  Notwithstanding  anything to the contrary  contained herein,
the releases set forth in this paragraph shall not be deemed to effect a release
of Kim's or Maron's obligations set forth in this Agreement.

     4.2 RELEASES BY MARON. Effective at the Closing, Maron, on behalf of itself
and its shareholders,  parent or sister companies,  employees,  representatives,
agents, insurers, attorneys,  administrators,  heirs, beneficiaries,  executors,
trustees, principals,  predecessors,  successors, assignors, assignees, past and
present,  hereby  fully  releases and  discharges  Company,  and its  respective
employees,   officers,   shareholders,   agents,   representatives,   attorneys,
administrators,  insurers, corporations in which Company holds any interest, and
each of their respective predecessors, successors, assignors and assignees, past
and present, with respect to any and all claims,  actions, and causes of action,
of any kind or nature whatsoever, in law, equity, or otherwise, whether fixed or
contingent,  whether now known or unknown, whether suspected or unsuspected, and
whether  concealed  or hidden,  which now exist,  or which may exist  hereafter,
relating  to, or arising out of, any act,  transaction,  agreement,  occurrence,
event,  error,  or omission by any of them prior to the  effective  date of this
Agreement.  Notwithstanding  anything  to the  contrary  contained  herein,  the
releases set forth in this paragraph  shall NOT be deemed to effect a release of
the Company's  obligations  under this Agreement or under the 1999 Note, nor any
other obligations set forth in this Agreement.  Instead, the obligations assumed
by Company  pursuant to this Agreement  shall survive the execution and delivery
of this  Agreement  and  shall  remain  binding  upon  Company  until all of its
obligations hereunder have been fully performed.

     4.3 RELEASES BY KIM.  Effective  at the Closing,  Kim, on behalf of himself
and his representatives,  agents, insurers,  attorneys,  administrators,  heirs,
beneficiaries,  executors, trustees, principals, corporations in which Kim holds
any interest, predecessors,  successors, assignors, assignees, past and present,
hereby fully releases and discharges Company,  Obagi Asia, Obagi Singapore,  and
Derma Tech, and their respective employees, officers, shareholders,

                                       -9-
<PAGE>

agents, representatives,  attorneys,  administrators,  insurers, corporations in
which  they  hold  any  interest,  and each of  their  respective  predecessors,
successors,  assignors and assignees,  past and present, with respect to any and
all claims, actions, and causes of action, of any kind or nature whatsoever,  in
law,  equity,  or otherwise,  whether fixed or contingent,  whether now known or
unknown,  whether  suspected or  unsuspected,  and whether  concealed or hidden,
which now exist, or which may exist  hereafter,  relating to, or arising out of,
any act, transaction, agreement, occurrence, event, error, or omission by any of
them prior to the effective date of this Agreement.  Notwithstanding anything to
the contrary  contained  herein,  the releases set forth in this paragraph shall
NOT be deemed to effect a release of Company's obligations under this Agreement.
Instead,  the  obligations  assumed by Company  pursuant to this Agreement shall
survive the  execution and delivery of this  Agreement and shall remain  binding
upon Company until all of its obligations hereunder have been fully performed.

SECTION 5. NON-COMPETITION AGREEMENT

     5.1  NON-COMPETITION.  Effective at the Closing,  during the seven (7) year
period ("Restrictive Period') commencing as of the Closing Date, Kim, Maron, and
each Kim Affiliate shall not, either directly or indirectly,  (i) promote,  sell
or offer  for sale in any  country  in the world  any  goods or  articles  which
contain  hydroquinone  as one of its  ingredients  or any system of  products in
which  one of  the  products  contains  hydroquinone  as one of its  ingredients
("Competitive  Activity")  (ii) engage in a Competitive  Activity for his or its
account,  (iii) enter the employ of,  render any services to, or lend the use of
his or its name to, any entity  engaged in a Competitive  Activity,  and/or (iv)
become  interested  in  any  such  entity  in  any  capacity,  including  as  an
individual,  partner, shareholder,  officer, director, principal, agent, member,
trustee or consultant;  provided,  however,  that Kim may own a passive security
investment in any class of  securities of an entity the  securities of which are
publicly  traded so long as the ownership of said  securities does not exceed 2%
of the issued and outstanding  securities of the class so owned. Kim or Maron or
a Kim Affiliate may purchase products from or sell products to an entity engaged
in a  Competitive  Activity so long as Kim's,  Maron's,  or the Kim  Affiliate's
business with that entity are entirely separate from the Competitive Activity of
such  entity  and the  confidentiality  obligations  of Kim,  Maron  and the Kim
Affiliate are observed.

     5.2  INTENTIONALLY OMITTED.

     5.3  CONFIDENTIALITY.  Effective  at the Closing,  Kim and Maron  hereafter
agree to hold in trust and  confidence  all  financial,  personal,  customer and
other information of a confidential  nature concerning Company and not to use or
disclose  such  information  in  any  manner  other  than  for  the  purpose  of
transactions with Company.  Nothing herein shall prevent Kim from discussing the
terms of this Agreement with his legal  representative  and/or tax and financial
advisors  or as  necessary  to enforce  this  Agreement  in a court of law or to
comply with the law or a request  from a  regulatory  organization.  Information
shall not be deemed confidential, if such information is that which:

          (a) Kim or Maron can prove by documentary  evidence was already in its
possession  and  subject  to  free  disposal  prior  to  the  disclosure  of the
information by Company;

                                      -10-
<PAGE>

          (b) Is hereafter  disclosed to Kim or Maron or a Kim Affiliate without
the  obligation  of  confidence  by a  third  party  who  did  not  derive  such
information directly or indirectly from Company;

          (c) Is or  becomes  generally  available  to  the  public  in  printed
publications in general  circulation  through no breach by Kim or Maron or a Kim
Affiliate. However, confidential information shall not be deemed to be generally
available  to the public if it is known only to a few of those people to whom it
might be of commercial  interest,  and a combination  of two or more portions of
the confidential  information  shall not be deemed to be generally  available to
the public only by reason of each separate portion being so available;

          (d)  Is disclosed pursuant to the agreement of the parties; or

          (e)  Is  disclosed  to a  person  who  separately  had  received  that
information from Company without the obligation of confidence.

     5.4 RIGHTS AND REMEDIES UPON BREACH. If any party breaches, or threatens to
commit a breach of, any of the provisions  hereof, the party not in breach shall
have the following  rights and remedies,  each of which shall be  independent of
the others and severally enforceable, and each of which shall be in addition to,
and not in lieu of, any other  rights or remedies  available to the party not in
breach, at law or in equity under this Agreement or otherwise:

          (a) SPECIFIC PERFORMANCE.  The right and remedy to have each and every
one of the covenants in this Agreement  specifically  enforced and the right and
remedy  to  obtain  injunctive  relief,  it  being  agreed  that any  breach  or
threatened breach of any of the covenants herein would cause irreparable  injury
to the party not in breach and that money  damages would not provide an adequate
remedy.

          (b) ACCOUNTING. The right and remedy to require the party in breach to
account  for and pay over to the party not in  breach,  as the case may be,  all
compensation, profits, monies, accruals, increments or other benefits derived or
received as the result of any  transaction or activity  constituting a breach of
this Agreement.

     5.5 SEVERABILITY OF COVENANTS. Kim and Maron acknowledge and agree that the
restrictive  covenants in this Agreement are reasonable and valid in geographic,
temporal and subject matter scope and in all other  respects,  and do not impose
limitations  greater than are  necessary to protect the  goodwill,  confidential
information,  and other business  interests of Company.  If, however,  any court
subsequently  determines  that  any of the  restrictive  covenants,  or any part
thereof is invalid or unenforceable,  the remainder of the restrictive covenants
shall not thereby be affected and shall be given full effect  without  regard to
the invalid portions.

     5.6 DURATION OR SCOPE  REDUCTION.  If any court  determines that any of the
restrictive  covenants,  or any part thereof,  is  unenforceable  because of the
duration or scope of such  provision,  such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision  shall then be enforceable to the maximum extent  permitted
by applicable law.

                                      -11-
<PAGE>

     5.7 ENFORCEABILITY IN ALL JURISDICTIONS. Kim and Maron intend to and hereby
confer  jurisdiction  to  enforce  each and every one of the  covenants  in this
Agreement upon the courts of any  jurisdiction  within the  geographic  scope of
such  restrictive  covenants.  If  the  courts  of  any  one  or  more  of  such
jurisdictions  hold the  restrictive  covenants  unenforceable  by reason of the
breadth of such scope or  otherwise,  it is the  intention of Kim and Maron that
such  determination  shall not bar or in any way affect  Company's  right to the
relief  provided  above in the  courts  of any  other  jurisdiction  within  the
geographic  scope  of  such  restrictive  covenants,  as  to  breaches  of  such
restrictive covenants in such other respective  jurisdictions,  such restrictive
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.

SECTION 6. MISCELLANEOUS AND GENERAL

     6.1  PAYMENT  OF  EXPENSES.  Upon  Closing,  each  party  hereto  shall  be
responsible  for its own expenses  incident to preparing for,  entering into and
carrying out this Agreement and the transactions contemplated hereby.

     6.2  SURVIVAL. The representations and warranties made or deemed made in
this Agreement shall survive the Closing.

     6.3  MODIFICATION  AND  AMENDMENT.  Subject to applicable  law, at any time
prior to the Closing, the parties hereto may modify or amend this Agreement,  by
written agreement between Kim, Maron, and Company.

     6.4 COUNTERPARTS. For the convenience of the parties hereto, this Agreement
may be  executed  in any number of  counterparts,  each such  counterpart  being
deemed  an  original  instrument,  and  all  such  counterparts  shall  together
constitute the same agreement. The signatures to this Agreement may be delivered
in  facsimile  form,  rather  than  original,  and the  parties  agree that such
facsimile signatures shall be deemed for all purposes as original signatures.

     6.5  GOVERNING  LAW. This  Agreement  shall be governed by and construed in
accordance with the internal laws of the State of California.  Jurisdiction  and
venue in any action arising  hereunder shall be in a court of competent  subject
matter jurisdiction in Los Angeles, California.

     6.6 NOTICE. Any notice, request,  instruction or other document to be given
hereunder  by any party to the other  shall be in writing and shall be deemed to
have been duly given (i) on the date of delivery if delivered personally,  or by
telecopy or telefacsimile,  (ii) on the first business day following the date of
dispatch if delivered by Federal Express or other next-day courier  service,  or
(iii) on the third  business day  following  the date of mailing if delivered by
registered or certified mail,  return receipt  requested,  postage prepaid.  All
notices  hereunder  shall be delivered  as set forth below,  or pursuant to such
other  instructions as may be designated in writing by the party to receive such
notice.

                                      -12-

<PAGE>

          (a)  If to Company:

                          Obagi Medical Products, Inc.
                          310 Golden Shore, Suite 200
                          Long Beach California 90802
                          Attn: CEO
                          Facsimile: (310) 320-9357

               With copy to:

                          Robert J. Stemler, Esq.
                          Keesal, Young & Logan
                          400 Oceangate
                          Long Beach, California 90801
                          Facsimile: (562) 436-7416

          (b)  If to Kim:

                          Kenneth H. Kim
                          c/o Maron Nu-Tech, Inc.
                          9025 Wilshire Boulevard, Suite 302
                          Beverly Hills, California 90211
                          Facsimile: (310) 247-0110

               With copy to:

                          Allen C. Kim, Esq.
                          Sidley & Austin
                          555 West Fifth Street
                          Los Angeles, California 90013
                          Facsimile: (213) 896-6600

          (c)  If to Maron:

                          Maron Nu-Tech, Inc.
                          9025 Wilshire Boulevard, Suite 302
                          Beverly Hills, California 90211
                          Facsimile: (310) 247-0110

               With copy to:

                          Allen C. Kim, Esq.
                          Sidley & Austin
                          555 West Fifth Street
                          Los Angeles, California 90013
                          Facsimile: (213) 896-6600

                                      -13-
<PAGE>

     6.7  ASSIGNMENT.  This  Agreement  and the  rights  hereunder  shall not be
assignable or transferable by Company,  Maron, or Kim (including by operation of
law in  connection  with a  merger,  or sale of  substantially  all the  assets)
without the prior written consent of the other parties hereto, except:

          (a) Kim may transfer Kim's right to receive payment  hereunder without
the consent of the Company to Kim's  ancestors,  descendants or spouse,  or to a
trust, partnership,  limited liability company, custodianship or other fiduciary
account  for the benefit of Kim and/or such  ancestors,  descendants  or spouse,
including any distribution from any such trust,  partnership,  limited liability
company,  custodianship  or  other  fiduciary  account  to any of the  foregoing
permitted beneficial owners or beneficiaries thereof,

          (b) Maron may distribute its rights  hereunder  without the consent of
the  Company to Kim,  Kim's  ancestors,  descendants  or spouse,  or to a trust,
partnership, limited liability company, custodianship or other fiduciary account
for the  benefit  of Kim  and/or  such  ancestors,  descendants  or  spouse in a
liquidating distribution, and

          (c) Company may, one time only, transfer without the consent of Kim or
Maron its rights,  duties and  obligations  under this  Agreement  to a Delaware
corporation  whose  assets and  shareholders  are  identical to those of Company
prior to such transfer;  provided that such Delaware  corporation  shall execute
and deliver appropriate  assignment and assumption documents (including allonges
to the Notes)  necessary and  appropriate to achieve the assumption of Company's
rights,  duties and obligations under this Agreement,  including its obligations
under the Notes.

     6.8 ATTORNEYS' FEES. If any legal proceeding is brought for the enforcement
of this Agreement, or because of an alleged breach, default or misrepresentation
in connection  with any provision of this Agreement or other dispute  concerning
this Agreement,  the successful or prevailing party shall be entitled to recover
reasonable  attorneys'  fees and other  costs  incurred in that  proceeding,  in
addition to any other relief to which it may be entitled.

     6.9 CAPTIONS.  The Article,  Section and paragraph  captions herein are for
convenience  of reference  only, do not  constitute  part of this  Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.

     6.10 FURTHER  ASSURANCES.  From time to time, as and when  requested by any
party hereto, the other party shall execute and deliver, or cause to be executed
and delivered, all such documents and instruments and shall take, or cause to be
taken,  all such further or other  actions,  as such other party may  reasonably
deem necessary or desirable to consummate the transactions  contemplated by this
Agreement.

                                      -14-
<PAGE>

     IN WITNESS  WHEREOF this  Agreement has been duly executed and delivered by
Company, Maron, and Kim as of the date first written above.

                                   MARON NU-TECH, INC.

                                   By: /s/ KENNETH H. HIM
                                      -----------------------------------------
                                   Its: President
                                      -----------------------------------------

                                   OBAGI MEDICAL PRODUCTS, INC.

                                   By:  /s/ PHILLIP J. ROSE
                                      -----------------------------------------
                                      Phillip J. Rose

                                   Its: President
                                      -----------------------------------------

                                   By: /s/ CANDACE C. CRAWFORD
                                      -----------------------------------------
                                      Candace C. Crawford

                                   Its: Secretary

                                   /s/ KENNETH H. KIM
                                   --------------------------------------------
                                   Kenneth H. Kim

                                      -15-
<PAGE>

                                   EXHIBIT A

                              1999 PROMISSORY NOTE

                                 PROMISSORY NOTE

$900,000                                             Dated: as of 7 JUNE, 1999

     1.   PRINCIPAL.

          FOR VALUE RECEIVED, the undersigned, OBAGI MEDICAL PRODUCTS, INC.,
("Borrower"), hereby promises to pay to the order of MARON NU-TECH, INC.
("Lender") the principal sum of Nine Hundred Thousand United States Dollars
and No Cents (U.S.$900,000) (the "Loan") with interest from the date of this
Note on the unpaid principal until paid at the per annum rate equivalent to
the rate designated as the "Prime Rate" in the Money Rates Table of WALL
STREET JOURNAL, Western Edition, on the date of this Note, changing on each
anniversary date of this Note to the per annum rate equivalent to the rate
designated as the "Prime Rate" in the Money Rates Table of WALL STREET
JOURNAL, Western Edition, on such anniversary date (if the Wall Street
Journal, Western Edition is not published on such dates, then the Prime Rate
to be used shall be such Prime Rate in the immediately preceding issue of the
Wall Street Journal, Western Edition. If the Wall Street Journal, Western
Edition is no longer published at any such date or if it no longer publishes
a "Prime Rate", then the "Prime Rate" shall be that rate announced as of such
date by the national bank in the United States having the greatest amount of
assets, in aggregate dollar terms, as its "prime" or "reference" rate.

     2.   PAYMENT, MATURITY DATE.

          Borrower shall make principal payments, commencing on the first
anniversary of this Note and on each anniversary date thereafter, of Three
Hundred Thousand United States Dollars and No Cents (U.S.$300,000), plus all
then accrued but unpaid interest. Unless accelerated pursuant to the terms of
this Note, the unpaid principal balance of this Note, together with all
unpaid interest accrued thereon, and all other amounts payable by Borrower
under the terms of this Note shall be due and payable on the third
anniversary date of this Note (the "Maturity Date").

          If any payment of principal or interest to be made by Borrower
shall become due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall be
included in computing any interest with respect to such payment. "Business
Day" shall mean any Monday, Tuesday, Wednesday, Thursday or Friday on which
banks are open for business in Los Angeles, California.

                                       1

<PAGE>

          All interest due hereunder shall be computed on the basis of a year
of 360 days for the actual number of days elapsed.

          Except as provided in the immediately following paragraph, all
payments received by Lender under this Note shall be credited first to any
charges or other expenses for which Lender is entitled to payment hereunder,
next to accrued but unpaid interest, and third to unpaid principal.

          Notwithstanding anything to the contrary set forth in this Note, if
at any time until payment in full of all amounts due Lender hereunder, the
rate of interest payable by the Borrower pursuant to this Note (the "Stated
Rate") exceeds the amount payable under the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "Maximum Lawful Rate"), then
in such event and so long as the Maximum Lawful Rate would be so exceeded,
the rate of interest payable hereunder shall be equal to the amount payable
under the Maximum Lawful Rate: PROVIDED, HOWEVER, that if at any time
thereafter the Stated Rate is less than the Maximum Lawful Rate, the Borrower
shall continue to pay interest hereunder at the Maximum Lawful Rate until
such time as the total interest received by the Lender hereunder is equal to
the total interest which the Lender would have received had the Stated Rate
been (but for the operation of this paragraph) the interest rate payable
since the date hereof. Thereafter, the interest rate payable hereunder shall
be the Stated Rate unless and until the Stated Rate again exceeds the Maximum
Lawful Rate, in which event this paragraph shall again apply. In no event
shall the total interest payable by the Borrower hereunder exceed the amount
payable under the Maximum Lawful Rate. In the event that a court of competent
jurisdiction shall make a final determination that the Lender has received
interest hereunder in excess of the amount payable under the Maximum Lawful
Rate, the Lender shall, to the extent permitted by applicable law, promptly
apply such excess in the following order: (i) then due and payable fees and
expenses; (ii) then due and payable interest payments; (iii) then due and
payable principal payments on the Loan; (iv) then to any other unpaid
obligations of Borrower to Lender under this Note; and (v) thereafter as a
refund to the Borrower or as a court of competent jurisdiction may otherwise
order.

     3.   MANNER OF PAYMENT.

          Principal and Interest on the Loan, and all other amounts payable
hereunder, is payable in lawful currency of the United States of America in
immediately available funds at Lender's address of 9033 Wilshire Boulevard,
Suite 203, Beverly Hills, California 90211, payable to Maron Nu-Tech, Inc.

                                       2

<PAGE>

     4.   EVENT OF DEFAULT/REMEDIES.

          a.   EVENTS OF DEFAULT. Any of the following events shall
constitute an Event of Default:

               (1)  breach by Borrower of any of Borrower's obligations or
covenants under this Note; provided that Borrower shall have ten (10) days
from the date of any failure to perform any of its obligations or covenants
under this Note not involving the payment of money to Lender, within which to
cure said failure; or

               (2)  Borrower (A) becomes insolvent or admits in writing
Borrower's inability to pay Borrower's debts as they mature, (B) makes any
assignment for the benefit of creditors, or (C) applies for or consents to
the appointment of a receiver or trustee for Borrower or for a substantial
part of Borrower's property or business, or a receiver or trustee otherwise
is appointed and is not discharged within thirty (30) days after such
appointment; or

               (3)  any of Borrower's representations or warranties made
herein or in any statement or certificate at any time given by Borrower
pursuant hereto or in connection herewith is false or misleading in any
material respect; or

               (4)  any bankruptcy, insolvency, reorganization or liquidation
proceeding or other proceeding for relief under any bankruptcy law or any law
for the relief of debtors is instituted by or against Borrower; or

               (5)  any money judgment, writ or warrant of attachment, or
similar process (singly or, if more than one, cumulatively in excess of
$25,000) is entered or filed against Borrower or any of the assets of
Borrower and (A) remains unvacated, unbonded, unstayed, undismissed or
undischarged for a period of thirty (30) days or in any event later than five
(5) days before the date of any proposed sale thereunder, or (B) Borrower has
not appealed the same in good faith to Lender's satisfaction, or

               (6)  the condition, financial or otherwise, of the Borrower
suffers any material adverse change, in the reasonable opinion of the Lender;
or

               (7)  more than fifty percent (50%) of the equity interests in
Borrower is held by a person or persons other than the holders of such equity
interests on the date of this Note.

          b.   REMEDIES. Upon the occurrence and during the continuance of an
Event of Default described in Subsections 4(a)(2) or 4(a)(4) above, all
indebtedness under this Note shall automatically be immediately due and
payable. In addition, Lender, at its option, and without notice to Borrower,
may take one or more of the

                                       3

<PAGE>

actions described below. Upon the occurrence and during the continuance of any
other Event of Default, Lender at its option and, unless otherwise specified
below, without notice to Borrower, may do any one or more of the following:

               (1)  declare all indebtedness under this Note immediately due
and payable and credit any sums received thereafter in such manner as it
elects upon such indebtedness; provided, however, that such application of
sums so received shall not serve to waive or cure any default existing under
this Note nor to invalidate any notice of default or any act done pursuant to
such notice and shall not prejudice any rights of Lender; and

               (2)  exercise any or all rights provided or permitted by law
or granted pursuant to this Note in such order and in such manner as Lender
may, in its sole judgment, determine.

          c.   NO WAIVER OF REMEDIES. No waiver of any breach of or default
under any provision of this Note shall constitute or be construed as a waiver
by Lender of any subsequent breach of or default under that or any other
provision of this Note.

          d.   REMEDIES NOT EXCLUSIVE. No remedy herein conferred upon Lender
is intended to be exclusive of any other remedy herein or in any other
agreement between the parties hereto or by law provided or permitted, but
each shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law, in equity or by statute.

     5.   REPRESENTATIONS AND WARRANTIES OF BORROWER.

          Borrower hereby makes the following representations and warranties,
which shall be deemed to be continuing representations and warranties until
payment in full of all indebtedness of Borrower to Lender arising pursuant to
this Note.

          a.   NO CONFLICT. The execution, delivery and performance of this
Note are not in contravention of or in conflict with any agreement, indenture
or undertaking to which Borrower is a party or by which Borrower or any of
Borrower's assets or property may be bound or affected and do not cause any
security interest, lien or other encumbrance to be created or imposed upon
any such property by reason thereof.

          b.   NO DEFAULT. There has occurred and is continuing no Event of
Default or any event which with the giving of notice or the lapse of time,
or both, would constitute an Event of Default.

          c.   LITIGATION. There is no action, suit or proceeding pending or,
to the best of Borrower's knowledge and belief, threatened against or
affecting Borrower which could impair the validity, effectiveness or
enforceability of, or impair Borrower's ability to

                                       4

<PAGE>

perform its obligations under this Note, whether said actions, suits or
proceedings are at law or in equity or before or by any governmental authority.

     6.  DEFAULT RATE.

         Any amounts not paid when due shall thereafter bear interest at a
rate per annum equal to the interest rate calculated pursuant to Section 1
above, plus two percent (2%).

     7.  WAIVER.

         Borrower hereby waives any right of offset Borrower may now or
hereafter have against Lender (without limiting the foregoing, Borrower
waives any offset it might have against Lender arising out of any agreements
or any commercial relationship between Borrower and Lender), and Borrower
hereby also waives diligence, presentment, protest and demand, notice of
protest, dishonor and nonpayment of this Note and expressly agrees that,
without in any way affecting the liability of Borrower hereunder, Lender may
extend any maturity date or the time for payment of any installment due
hereunder, accept additional security, release any party liable hereunder and
release any security now or hereafter securing this Note. Borrower further
waives, to the full extent permitted by law, the right to plead any and all
statutes of limitations as a defense to any demand on this Note, or on any
deed of trust, security agreement, lease assignment, guaranty or other
agreement now or hereafter securing this Note.

     8.  RIGHT OF SETOFF.

         Upon and after the occurrence of any Event of Default, Lender is
hereby authorized by Borrower, at any time and from time to time, without
notice to Borrower, to set off against, and to appropriate and apply to the
payment of, the obligations and liabilities of Borrower hereunder (whether
matured or unmatured), any accounts maintained with it by Borrower and/or any
and all amounts owing by Lender to Borrower (whether matured or unmatured,
and however evidenced).

     9.  JURISDICTION.

         For any action related to the judicial enforcement or interpretation
of this Note, Borrower expressly submits to the nonexclusive jurisdiction of
the state or federal courts located in the County of Los Angeles in the State
of California at the election of Lender, which election may be made from time
to time. Borrower further irrevocably consents to the service of process out
of any of the aforementioned courts in any such action or proceeding by
mailing of copies thereof by registered or certified mail, postage prepaid,
to Borrower at Borrower's address for notice furnished to Lender, such
service to become effective five (5) days after such mailing. Nothing herein
shall affect the right

                                      5

<PAGE>

to serve process in any other manner permitted by law or the right of Lender to
bring legal action or proceedings in any other jurisdiction.

     10.  WAIVER OF JURY TRIAL.

          BORROWER HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, OR ANY DEALINGS
RELATING TO THE SUBJECT MATTER OF THIS NOTE AND THE LENDER/BORROWER RELATIONSHIP
THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation,
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Borrower acknowledges that this waiver is a material
inducement to Lender to make the Loan and that Lender has already relied on this
waiver in entering into this transaction, and that Lender will continue to rely
on this waiver in its related future dealings. Borrower further warrants and
represents that it has reviewed this waiver with its legal counsel, and that it
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE,
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING THERETO, IN THE EVENT OF
LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     11.  LEGAL FEES.

          Borrower agrees to pay all costs and expenses, including without
limitation attorney's fees actually incurred by Lender in connection with the
enforcement of any obligation of Borrower under this Note.

     12.  SEVERABILITY.

          In case any term or any provision of this Note shall be invalid,
illegal or unenforceable, such provision shall be severable from the rest of
this Note and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

     13.  HEADINGS.

          Headings used in this Note are inserted for convenience only and shall
not be deemed to constitute a part hereof.

                                       6

<PAGE>

     14.  GOVERNING LAW.

          This Note shall be governed by and construed in accordance with the
laws of the State of California.

Borrower:

OBAGI MEDICAL PRODUCTS, INC.

By: /s/ [illegible]
   --------------------------
   Name:  [illegible]
         --------------------
   Title: C.O.O.
         --------------------

     Payment of this Note is subordinated to the payment of all the obligations
of the maker hereof to Imperial Bank pursuant to the terms of a Subordination
Agreement dated 7 JUNE 1999.

                                       7

<PAGE>

                                    EXHIBIT B

                     PROMISSORY NOTE PAYABLE TO KENNETH KIM

<PAGE>

                                 PROMISSORY NOTE

$1,600,000                                         Dated: as of _________, 2000

     1.   PRINCIPAL.

     FOR  VALUE  RECEIVED,  the  undersigned,   OBAGI  MEDICAL  PRODUCTS,
INC., ("Borrower"),  hereby  promises to pay to the order of KENNETH H. KIM
("Lender") the principal sum of One Million Six Hundred Thousand United
States Dollars and No Cents  (U.S.$1,600,000) (the "Loan") with interest from
the date of this Note on the unpaid principal until paid at the rate of six
percent per annum.

     2.   PAYMENT, MATURITY DATE.

     Borrower  shall make  principal  payments (plus all accrued but then unpaid
interest on the Loan), on the dates and in the amounts indicated below:

6/30/2001               $500,000             1/1/2002             $375,000
6/30/2002               $625,000             1/1/2003             $100,000

     Unless accelerated pursuant to the terms of this Note, the unpaid principal
balance of this Note, together with all unpaid interest accrued thereon, and all
other amounts  payable by Borrower under the terms of this Note shall be due and
payable on January 1, 2003 (the "Maturity Date").

     If any payment of principal or interest to be made by Borrower shall become
due on a day other than a Business  Day,  such payment shall be made on the next
succeeding  Business  Day and  such  extension  of time  shall  be  included  in
computing any interest with respect to such payment.  "Business  Day" shall mean
any Monday, Tuesday,  Wednesday,  Thursday or Friday on which banks are open for
business in Los Angeles, California.

     All interest due hereunder  shall be computed on the basis of a year of 365
days for the actual number of days elapsed.

     Except as provided in the  immediately  following  paragraph,  all payments
received  by Lender  under this Note shall be  credited  first to any charges or
other  expenses  for which  Lender is  entitled  to payment  hereunder,  next to
accrued but unpaid interest, and third to unpaid principal.

                                       -1-

<PAGE>

     3.   MANNER OF PAYMENT.

     Principal  and  interest  on  the  Loan,  and  all  other  amounts  payable
hereunder,  is payable  in lawful  currency  of the United  States of America in
immediately  available  funds at Lender's  address of 9025  Wilshire  Boulevard,
Suite 302, Beverly Hills,  California 90211,  payable to Kenneth H. Kim, or such
other address as Lender may designate in writing to Borrower.

     4.   EVENTS OF DEFAULT/REMEDIES.

          a.   EVENTS OF DEFAULT. Any of the following events shall constitute
an Event of Default:

               (1)  breach  by  Borrower  of any of  Borrower's  obligations  or
covenants under this Note;  provided that Borrower shall have ten (10) days from
the date of any failure to perform any of its  obligations  or  covenants  under
this Note not  involving  the payment of money to Lender,  within  which to cure
said failure; or

               (2)  Borrower   (A)  becomes   insolvent  or  admits  in  writing
Borrower's  inability  to pay  Borrower's  debts as they  mature,  (B) makes any
assignment  for the benefit of creditors,  or (C) applies for or consents to the
appointment  of a receiver or trustee for Borrower or for a substantial  part of
Borrower's property or business, or a receiver or trustee otherwise is appointed
and is not discharged within thirty (30) days after such appointment; or

               (3) any of Borrower's  representations  or warranties made herein
or in any statement or certificate at any time given by Borrower pursuant hereto
or in connection herewith is false or misleading in any material respect and has
not been cured  within ten (10) days  after  notice of such  breach by Lender to
Borrower; or

               (4) any  bankruptcy,  insolvency,  reorganization  or liquidation
proceeding or other  proceeding  for relief under any  bankruptcy law or any law
for the relief of debtors is instituted by or against Borrower; or

               (5) any money judgment, writ or warrant of attachment, or similar
process  (singly or, if more than one,  cumulatively  in excess of  $100,000) is
entered  or filed  against  Borrower  or any of the assets of  Borrower  and (A)
remains unvacated,  unbonded, unstayed, undismissed or undischarged for a period
of thirty  (30) days or in any event later than five (5) days before the date of
any proposed sale thereunder,  or (B) Borrower has not appealed the same in good
faith to Lender's satisfaction; or

               (6)  the  condition,  financial  or  otherwise,  of the  Borrower
suffers any material  adverse change,  in the reasonable  opinion of the Lender,
and has not been  cured  within  ten (10) days  after  notice of such  breach by
Lender to Borrower; or

               (7) more than  fifty  percent  (50%) of the equity  interests  in
Borrower  is held by a person or persons  other than the  holders of such equity
interests on the date of this Note,  except that no Event of Default  under this
clause  shall  occur (i) if  Borrower  is, at the time of such  change in equity
interest, a publicly traded company or (ii) if Mandarin Partners, LLC,

                                       -2-
<PAGE>

which  holds in excess of seventy  percent  (70%) of the  outstanding  shares of
Borrower on the date of this Note,  distributes shares of Borrower on a pro rata
basis to each of its  members  (provided  that such  members are the same on the
date of such distribution as on the date of this Note); or

               (8) more than  fifty  percent  (50%) of the equity  interests  in
Borrower  or in the  assets  of  Borrower  is  transferred  or sold in a  single
transaction,  except  that  Company  may,  one time  only,  transfer  without it
constituting an Event of Default its duties and obligations under this Note to a
Delaware  corporation  whose assets and  shareholders  are identical to those of
Company prior to such transfer;  provided that such Delaware  corporation  shall
execute and deliver appropriate  allonges to this Note necessary and appropriate
to achieve the assumption of Company's duties and obligations under this Note.

          b.  REMEDIES.  Upon the  occurrence  and during the  continuance of an
Event of  Default  described  in  Subsections  4(a)(2)  or  4(a)(4)  above,  all
indebtedness under this Note shall automatically be immediately due and payable.
In addition, Lender, at its option, and without notice to Borrower, may take one
or more of the  actions  described  below.  Upon the  occurrence  and during the
continuance  of any other  Event of Default,  Lender at its option  and,  unless
otherwise specified below, without notice to Borrower, may do any one or more of
the following:

               (1) declare all indebtedness  under this Note immediately due and
payable and credit any sums received thereafter in such manner as it elects upon
such indebtedness;  provided, however, that such application of sums so received
shall not serve to waive or cure any  default  existing  under  this Note nor to
invalidate  any notice of default or any act done  pursuant  to such  notice and
shall not prejudice any rights of Lender; and

               (2)  exercise  any or all rights  provided or permitted by law or
granted pursuant to this Note in such order and in such manner as Lender may, in
its sole judgment, determine.

     c.   NO WAIVER OF REMEDIES. No waiver of any breach of or default under any
provision of this Note shall constitute or be construed as a waiver by Lender of
any subsequent breach of or default under that or any other provision of this
Note.

     d.  REMEDIES  NOT  EXCLUSIVE.  No remedy  herein  conferred  upon Lender is
intended to be exclusive of any other  remedy  herein or in any other  agreement
between the parties  hereto or by law provided or  permitted,  but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity or by statute.

     5.   REPRESENTATIONS AND WARRANTIES OF BORROWER.

     Borrower hereby makes the following  representations and warranties,  which
shall be deemed to be continuing representations and warranties until payment in
full of all indebtedness of Borrower to Lender arising pursuant to this Note.

     a.   NO CONFLICT. The execution, delivery and performance of this Note are
not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower

                                       -3-
<PAGE>

is a party or by which  Borrower or any of Borrower's  assets or property may be
bound  or  affected  and do not  cause  any  security  interest,  lien or  other
encumbrance to be created or imposed upon any such property by reason thereof.

     b.   NO DEFAULT. There has occurred and is continuing no Event of Default
or any event which with the giving of notice or the lapse of time, or both,
would constitute an Event of Default.

     c. LITIGATION.  There is no action,  suit or proceeding  pending or, to the
best of  Borrower's  knowledge  and  belief,  threatened  against  or  affecting
Borrower which could impair the validity, effectiveness or enforceability of, or
impair Borrower's  ability to perform its obligations  under this Note,  whether
said actions,  suits or proceedings  are at law or in equity or before or by any
governmental authority.

     6.   DEFAULT RATE.

     Any amounts not paid when due shall thereafter bear interest at the rate of
eight percent (8.0%) per annum.

     7.   WAIVER.

     Borrower  hereby  waives any right of offset  Borrower may now or hereafter
have against Lender (without limiting the foregoing,  Borrower waives any offset
it might have against  Lender  arising out of any  agreements or any  commercial
relationship  between  Borrower  and Lender),  and  Borrower  hereby also waives
diligence,  presentment,  protest and demand,  notice of protest,  dishonor  and
nonpayment of this Note and expressly agrees that,  without in any way affecting
the liability of Borrower hereunder,  Lender may extend any maturity date or the
time for payment of any installment due hereunder,  accept additional  security,
release any party  liable  hereunder  and release any  security now or hereafter
securing this Note.  Borrower  further waives,  to the full extent  permitted by
law, the right to plead any and all statutes of  limitations as a defense to any
demand  on  this  Note,  or on any  deed of  trust,  security  agreement,  lease
assignment, guaranty or other agreement now or hereafter securing this Note.

     8.   RIGHT OF SETOFF.

     Upon and after the  occurrence  of any Event of  Default,  Lender is hereby
authorized  by Borrower,  at any time and from time to time,  without  notice to
Borrower,  to set off against,  and to appropriate  and apply to the payment of,
the  obligations  and  liabilities  of Borrower  hereunder  (whether  matured or
unmatured),  any  accounts  maintained  with it by  Borrower  and/or any and all
amounts owing by Lender to Borrower  (whether matured or unmatured,  and however
evidenced).

     9.   JURISDICTION.

     For any action  related to the judicial  enforcement or  interpretation  of
this Note,  Borrower  expressly submits to the nonexclusive  jurisdiction of the
state or federal  courts  located  in the County of Los  Angeles in the State of
California  at the election of Lender,  which  election may be made from time to
time. Borrower further irrevocably consents to the service of process

                                       -4-
<PAGE>

out of any of the aforementioned courts in any such action or proceeding by
mailing of copies thereof by registered or certified mail, postage prepaid, to
Borrower at Borrower's address for notice furnished to Lender, such service to
become effective five (5) days after such mailing. Nothing herein shall affect
the right to serve process in any other manner permitted by law or the right of
Lender to bring legal action or proceedings in any other jurisdiction.

     10.  WAIVER OF JURY TRIAL.

     BORROWER HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, OR ANY DEALINGS RELATING
TO THE SUBJECT MATTER OF THIS NOTE AND THE LENDER/BORROWER RELATIONSHIP THAT IS
BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Borrower acknowledges that this waiver is a material
inducement to Lender to make the Loan and that Lender has already relied on this
waiver in entering into this transaction, and that Lender will continue to rely
on this waiver in its related future dealings. Borrower further warrants and
represents that it has reviewed this waiver with its legal counsel, and that it
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE,
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING THERETO. IN THE EVENT OF
LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     11.  LEGAL FEES.

     Borrower agrees to pay all costs and expenses, including without limitation
attorneys' fees actually incurred by Lender in connection with the enforcement
of any obligation of Borrower under this Note.

     12.  SEVERABILITY.

     In case any term or any provision of this Note shall be invalid, illegal or
unenforceable, such provision shall be severable from the rest of this Note and
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.

     13.  HEADINGS.

     Headings used in this Note are inserted for convenience only and shall not
be deemed to constitute a part hereof.

                                      -5-

<PAGE>

     14.  GOVERNING LAW.

     This Note shall be governed by and construed in accordance with the laws of
the State of California.

                                   Borrower:

                                   OBAGI MEDICAL PRODUCTS, INC.

                                   By:
                                      ------------------------------------------

                                       Name:
                                            ------------------------------------

                                       Title:
                                             -----------------------------------

     Payment of this Note is subordinated to the payment of all the obligations
of the maker hereof to Imperial Bank pursuant to the terms of a Subordination
Agreement dated June 7, 1999, as amended through the date of this Note.

                                      -6-

<PAGE>

                                    EXHIBIT C

                    PROMISSORY NOTE PAYABLE TO MARON NU-TECH

<PAGE>

                                 PROMISSORY NOTE

$900,000                                           Dated: as of _________, 2000

     1.   PRINCIPAL.

     FOR VALUE RECEIVED, the undersigned, OBAGI MEDICAL PRODUCTS, INC.,
("Borrower"), hereby promises to pay to the order of MARON NU-TECH, INC.
("Lender") the principal sum of Nine Hundred Thousand United States Dollars
and No Cents (U.S.$900,000) (the "Loan") with interest from the date of this
Note on the unpaid principal until paid at the rate of six percent (6%) per
annum rate through and including December 31, 2002 and at one dollar ($1.00)
per annum thereafter.

     2.   PAYMENT, MATURITY DATE.

     Borrower shall make principal payments (plus all accrued but then unpaid
interest on the Loan), on the dates and in the amounts indicated below:

1/1/2003                $150,000             6/30/2003            $250,000
1/1/2004                $250,000             6/30/2004            $250,000

     Unless accelerated pursuant to the terms of this Note, the unpaid principal
balance of this Note, together with all unpaid interest accrued thereon, and all
other amounts payable by Borrower under the terms of this Note shall be due and
payable on the third anniversary date of this Note (the "Maturity Date").

     If any payment of principal or interest to be made by Borrower shall become
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in
computing any interest with respect to such payment. "Business Day" shall mean
any Monday, Tuesday, Wednesday, Thursday or Friday on which banks are open for
business in Los Angeles, California.

     All interest due hereunder shall be computed on the basis of a year of 365
days for the actual number of days elapsed.

     Except as provided in the immediately following paragraph, all payments
received by Lender under this Note shall be credited first to any charges or
other expenses for which Lender is entitled to payment hereunder, next to
accrued but unpaid interest, and third to unpaid principal.

                                      -1-

<PAGE>

     3.   MANNER OF PAYMENT.

     Principal and interest on the Loan, and all other amounts payable
hereunder, is payable in lawful currency of the United States of America in
immediately available funds at Lender's address of 9025 Wilshire Boulevard,
Suite 302, Beverly Hills, California 90211, payable to Maron Nu-Tech, Inc., or
such other address as Lender may designate in writing to Borrower.

     4.   EVENTS OF DEFAULT/REMEDIES.

          a.   EVENTS OF DEFAULT. Any of the following events shall constitute
an Event of Default:

               (1)  breach by Borrower of any of Borrower's obligations or
covenants under this Note; provided that Borrower shall have ten (10) days from
the date of any failure to perform any of its obligations or covenants under
this Note not involving the payment of money to Lender, within which to cure
said failure; or

               (2)  Borrower (A) becomes insolvent or admits in writing
Borrower's inability to pay Borrower's debts as they mature, (B) makes any
assignment for the benefit of creditors, or (C) applies for or consents to the
appointment of a receiver or trustee for Borrower or for a substantial part of
Borrower's property or business, or a receiver or trustee otherwise is appointed
and is not discharged within thirty (30) days after such appointment; or

               (3)  any of Borrower's representations or warranties made herein
or in any statement or certificate at any time given by Borrower pursuant hereto
or in connection herewith is false or misleading in any material respect and has
not been cured within ten (10) days after notice of such breach by Lender to
Borrower; or

               (4)  any bankruptcy, insolvency, reorganization or liquidation
proceeding or other proceeding for relief under any bankruptcy law or any law
for the relief of debtors is instituted by or against Borrower; or

               (5)  any money judgment, writ or warrant of attachment, or
similar process (singly or, if more than one, cumulatively in excess of
$100,000) is entered or filed against Borrower or any of the assets of Borrower
and (A) remains unvacated, unbonded, unstayed, undismissed or undischarged for a
period of thirty (30) days or in any event later than five (5) days before the
date of any proposed sale thereunder, or (B) Borrower has not appealed the same
in good faith to Lender's satisfaction; or

               (6)  the condition, financial or otherwise, of the Borrower
suffers any material adverse change, in the reasonable opinion of the Lender and
has not been cured within ten (10) days after notice of such breach by Lender to
Borrower; or

               (7)  more than fifty percent (50%) of the equity interests in
Borrower is held by a person or persons other than the holders of such equity
interests on the date of this Note, except that no Event of Default under this
clause shall occur (i) if Borrower is, at the time of such change in equity
interest, a publicly traded company or (ii) if Mandarin Partners, LLC,

                                      -2-
<PAGE>

which holds in excess of seventy percent (70%) of the outstanding shares of
Borrower on the date of this Note, distributes shares of Borrower on a pro rata
basis to each of its members (provided that such members are the same on the
date of such distribution as on the date of this Note); or

               (8)  more than fifty percent (50%) of the equity interests in
Borrower or in the assets of Borrower is transferred or sold in a single
transaction, except that Company may, one time only, transfer without it
constituting an Event of Default its duties and obligations under this Note to a
Delaware corporation whose assets and shareholders are identical to those of
Company prior to such transfer; provided that such Delaware corporation shall
execute and deliver appropriate allonges to this Note necessary and appropriate
to achieve the assumption of Company's duties and obligations under this Note.

          b.   REMEDIES. Upon the occurrence and during the continuance of an
Event of Default described in Subsections 4(a)(2) or 4(a)(4) above, all
indebtedness under this Note shall automatically be immediately due and payable.
In addition, Lender, at its option, and without notice to Borrower, may take one
or more of the actions described below. Upon the occurrence and during the
continuance of any other Event of Default, Lender at its option and, unless
otherwise specified below, without notice to Borrower, may do any one or more of
the following:

               (1)  declare all indebtedness under this Note immediately due and
payable and credit any sums received thereafter in such manner as it elects upon
such indebtedness; provided, however, that such application of sums so received
shall not serve to waive or cure any default existing under this Note nor to
invalidate any notice of default or any act done pursuant to such notice and
shall not prejudice any rights of Lender; and

               (2)  exercise any or all rights provided or permitted by law or
granted pursuant to this Note in such order and in such manner as Lender may, in
its sole judgment, determine.

     c.   NO WAIVER OF REMEDIES. No waiver of any breach of or default under any
provision of this Note shall constitute or be construed as a waiver by Lender of
any subsequent breach of or default under that or any other provision of this
Note.

     d.   REMEDIES NOT EXCLUSIVE. No remedy herein conferred upon Lender is
intended to be exclusive of any other remedy herein or in any other agreement
between the parties hereto or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity or by statute.

     5.   REPRESENTATIONS AND WARRANTIES OF BORROWER.

     Borrower hereby makes the following representations and warranties, which
shall be deemed to be continuing representations and warranties until payment in
full of all indebtedness of Borrower to Lender arising pursuant to this Note.

     a.   NO CONFLICT. The execution, delivery and performance of this Note are
not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower

                                      -3-
<PAGE>

is a party or by which Borrower or any of Borrower's assets or property may be
bound or affected and do not cause any security interest, lien or other
encumbrance to be created or imposed upon any such property by reason thereof.

     b.   NO DEFAULT. There has occurred and is continuing no Event of Default
or any event which with the giving of notice or the lapse of time, or both,
would constitute an Event of Default.

     c.   LITIGATION. There is no action, suit or proceeding pending or, to the
best of Borrower's knowledge and belief, threatened against or affecting
Borrower which could impair the validity, effectiveness or enforceability of, or
impair Borrower's ability to perform its obligations under this Note, whether
said actions, suits or proceedings are at law or in equity or before or by any
governmental authority.

     6.   DEFAULT RATE.

     Any amounts not paid when due shall thereafter bear interest at the rate of
eight percent (8.0%) per annum.

     7.   WAIVER.

     Borrower hereby waives any right of offset Borrower may now or hereafter
have against Lender (without limiting the foregoing, Borrower waives any offset
it might have against Lender arising out of any agreements or any commercial
relationship between Borrower and Lender), and Borrower hereby also waives
diligence, presentment, protest and demand, notice of protest, dishonor and
nonpayment of this Note and expressly agrees that, without in any way affecting
the liability of Borrower hereunder, Lender may extend any maturity date or the
time for payment of any installment due hereunder, accept additional security,
release any party liable hereunder and release any security now or hereafter
securing this Note. Borrower further waives, to the full extent permitted by
law, the right to plead any and all statutes of limitations as a defense to any
demand on this Note, or on any deed of trust, security agreement, lease
assignment, guaranty or other agreement now or hereafter securing this Note.

     8.   RIGHT OF SETOFF.

     Upon and after the occurrence of any Event of Default, Lender is hereby
authorized by Borrower, at any time and from time to time, without notice to
Borrower, to set off against, and to appropriate and apply to the payment of,
the obligations and liabilities of Borrower hereunder (whether matured or
unmatured), any accounts maintained with it by Borrower and/or any and all
amounts owing by Lender to Borrower (whether matured or unmatured, and however
evidenced).

     9.   JURISDICTION.

     For any action related to the judicial enforcement or interpretation of
this Note, Borrower expressly submits to the nonexclusive jurisdiction of the
state or federal courts located in the County of Los Angeles in the State of
California at the election of Lender, which election may be made from time to
time. Borrower further irrevocably consents to the service of process out of

                                      -4-
<PAGE>

any of the aforementioned courts in any such action or proceeding by mailing of
copies thereof by registered or certified mail, postage prepaid, to Borrower at
Borrower's address for notice furnished to Lender, such service to become
effective five (5) days after such mailing. Nothing herein shall affect the
right to serve process in any other manner permitted by law or the right of
Lender to bring legal action or proceedings in any other jurisdiction.

     10.  WAIVER OF JURY TRIAL.

     BORROWER HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, OR ANY DEALINGS RELATING
TO THE SUBJECT MATTER OF THIS NOTE AND THE LENDER/BORROWER RELATIONSHIP THAT IS
BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Borrower acknowledges that this waiver is a material
inducement to Lender to make the Loan and that Lender has already relied on this
waiver in entering into this transaction, and that Lender will continue to rely
on this waiver in its related future dealings. Borrower further warrants and
represents that it has reviewed this waiver with its legal counsel, and that it
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE,
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING THERETO. IN THE EVENT OF
LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     11.  LEGAL FEES.

     Borrower agrees to pay all costs and expenses, including without limitation
attorneys' fees actually incurred by Lender in connection with the enforcement
of any obligation of Borrower under this Note.

     12.  SEVERABILITY.

     In case any term or any provision of this Note shall be invalid, illegal or
unenforceable, such provision shall be severable from the rest of this Note and
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.

     13.  HEADINGS.

     Headings used in this Note are inserted for convenience only and shall not
be deemed to constitute a part hereof.

                                      -5-
<PAGE>

     14.  GOVERNING LAW.

     This Note shall be governed by and construed in accordance with the laws of
the State of California.

                                   Borrower:

                                   OBAGI MEDICAL PRODUCTS, INC.

                                   By:
                                      ------------------------------------------

                                      Name:
                                           -------------------------------------

                                      Title:

     Payment of this Note is subordinated to the payment of all the obligations
of the maker hereof to Imperial Bank pursuant to the terms of a Subordination
Agreement dated June 7, 1999, as amended through the date of this Note.

                                      -6-

<PAGE>

                                    EXHIBIT D

                         AMENDED AND RESTATED ADDENDUM

                           TO SUBORDINATION AGREEMENT

This Amended and Restated Addendum is made and entered into as of ______, 2000
between Maron Nu-Tech, Inc. and Kenneth H. Kim (jointly and severally, "We" or
"Subordinated Creditor") and Imperial Bank ("Bank" and "You") and Obagi Medical
Products, INc. ("Borrower"). This Amended and Restated Addendum amends and
supplements the Subordination Agreement (Payment Authorized)("Subordination
Agreement") dated June 7, 1999 executed by Maron Nu-Tech, Inc. in favor of Bank
and accepted by the Borrower and amends and restates that Addendum to
Subordination Agreement (Payment Authorized) dated June 7, 1999 executied by
Maron Nu-Tech, Inc. in favor of BAnk and accepted by the Borrower. In the case
of any inconsistency between the terms herein and the terms of teh Subordination
Agreement, the terms herein shallin all cases govern and control. All
capitalized terms herein, unless otherwise defined herein shall have the meaning
set forth in the Subordination Agreement.

1.   Notwithstanding any other provisions of the Subordination Agreement, the
     claims of the Borrower owing to the Subordinated Creditor ("Subordinated
     Claims") which are subordianted to the claims of the Borrower to the Bank
     ("Senior Claims") pursuant to the Suboridation Agreement are only those
     relating to that Promissory Note executed by the Borrower in favor of Maron
     Nu-Tech, Inc. Dated June 7, 1999 in the prinicpal amount of $900,000, that
     Promissory NOte executed by the Borrower in favor of Maron Nu-Tech, Inc. of
     even date herewith in the principal amount of $900,000, and that Promissory
     Note executed by teh Borrower in favor of Kenneth H. Kim of even date
     herewith in the prinicpal amount of $1,600,000. Wherever the term "Claims"
     is used in the Subordination Agreement relating to the claims of the
     Borrower to the Subordinated Creditor, it shall mean the Subordinated
     Claims.

2.   Notwithstanding any other provisions in the Subordiantion Agreement, if the
     Subordinated Creditor shall notify the Bank that a payment default has
     occurred in the Subordinated Claims, after a period of 180 days following
     such notice the Subordinated Creditor may accept or receive any payments of
     any kin of, or on account of, the Subordinated Claims and may take any
     action to enforce the Subordinated Claims.

<PAGE>

3. Because the Subordinated Creditors are taking security interest in the assets
of Borrower to secure their claims under the Notes dated of even date herewith,
the last paragraph on page 1 of the Subordination Agreement is not applicable
and is hereby deleted.

                                   MARON NU-TECH, INC.

                                   By:
                                      ------------------------------------------

                                   Its:
                                      ------------------------------------------

                                   OBAGI MEDICAL PRODUCTS, INC.

                                   By:
                                      ------------------------------------------

                                   Its:
                                      ------------------------------------------

                                   ---------------------------------------------
                                   Kenneth H. Kim

                                   IMPERIAL BANK

                                   By:
                                      ------------------------------------------

                                   Its:
                                      ------------------------------------------

<PAGE>

                                    EXHIBIT E

                               WAIVER AND RELEASE

For good and valuable consideration, the receipt of which is hereby
acknowledged, in the form of the change of ownership of the undersigned, the
undersigned, on behalf of itself and its shareholders, parent or sister
companies, employees, representatives, agents, insurers, attorneys,
administrators, heirs, beneficiaries, executors, trustees, principals,
predecessors, successors, assignors, assignees, past and present, hereby fully
releases and discharges Maron Nu- Tech, Kenneth Kim and their respective
employees, officers, agents, representatives, attorneys, administrators, heirs,
insurers, corporations in which either Maron Nu-Tech or Kim holds any interest,
and each of their respective predecessors, successors, assignors and assignees,
past and present, with respect to any and all claims, actions, and causes of
action, of any kind or nature whatsoever, in law, equity, or otherwise, whether
fixed or contingent, whether now known or unknown whether suspected or
unsuspected, and whether concealed or hidden, which now exist or which may exist
hereafter, relating to, or arising out of, any act, transaction, agreement
occurrence, event, error, or omission by any of them prior to the effective date
of this Agreement.

                                   DERMA TECH, INC.

                                   By:
                                     ----------------------------------------
                                   Name:
                                   Title:

<PAGE>

                                    EXHIBIT E

                               WAIVER AND RELEASE

For good and valuable consideration, the receipt of which is hereby
acknowledged, in the form of the change of ownership of the undersigned, the
undersigned, on behalf of itself and its shareholders, parent or sister
companies, employees, representatives, agents, insurers, attorneys,
administrators, heirs, beneficiaries, executors, trustees, principals,
predecessors, successors, assignors, assignees, past and present, hereby fully
releases and discharges Maron Nu- Tech, Kenneth Kim and their respective
employees, officers, agents, representatives, attorneys, administrators, heirs,
insurers, corporations in which either Maron Nu-Tech or Kim holds any interest,
and each of their respective predecessors, successors, assignors and assignees,
past and present, with respect to any and all claims, actions, and causes of
action, of any kind or nature whatsoever, in law, equity, or otherwise, whether
fixed or contingent, whether now known or unknown whether suspected or
unsuspected, and whether concealed or hidden, which now exist or which may exist
hereafter, relating to, or arising out of, any act, transaction, agreement
occurrence, event, error, or omission by any of them prior to the effective date
of this Agreement.

                                   OBAGI SINGAPORE PTE LTD.

                                   By:
                                     -------------------------------------------
                                     Name:
                                     Title:

<PAGE>

                                    EXHIBIT E

                               WAIVER AND RELEASE

For good and valuable consideration, the receipt of which is hereby
acknowledged, in the form of the change of ownership of the undersigned, the
undersigned, on behalf of itself and its shareholders, parent or sister
companies, employees, representatives, agents, insurers, attorneys,
administrators, heirs, beneficiaries, executors, trustees, principals,
predecessors, successors, assignors, assignees, past and present, hereby fully
releases and discharges Maron Nu- Tech, Kenneth Kim and their respective
employees, officers, agents, representatives, attorneys, administrators, heirs,
insurers, corporations in which either Maron Nu-Tech or Kim holds any interest,
and each of their respective predecessors, successors, assignors and assignees,
past and present, with respect to any and all claims, actions, and causes of
action, of any kind or nature whatsoever, in law, equity, or otherwise, whether
fixed or contingent, whether now known or unknown whether suspected or
unsuspected, and whether concealed or hidden, which now exist or which may exist
hereafter, relating to, or arising out of, any act, transaction, agreement
occurrence, event, error, or omission by any of them prior to the effective date
of this Agreement.

                                   OBAGI ASIA PTE LTD.

                                   By:
                                     -------------------------------------------
                                     Name:
                                     Title:

<PAGE>

                                    EXHIBIT F

                            DESCRIPTION OF COLLATERAL

All of the following described property and any and all proceeds and products
thereof, whether now owned or hereafter existing, and in which Obagi Medical
Products, Inc. now has or hereafter has any right, title or interest:

          (a)  all equipment, wherever located, and all additions and accessions
thereto and replacements therefor,

          (b)  all inventory,

          (c)  all accounts, documents, contract rights, chattel paper,
instruments, and general intangibles,

          (d)  all rights, agreements, contracts and assignments of Obagi
Medical Products, Inc.,

          (e)  all machinery, furniture and fixtures,

          (f)  all patent applications, trademarks and tradenames, rights and
interests in copyrights, trade secrets,

          (g)  all deposit accounts and all cash,

          (h)  all goodwill,

          (i)  all ledger sheets, books, files, and other documents and records
and all equipment containing such ledger sheets, files, documents and records,
and

          (j)  all proceeds of any of the foregoing.

<PAGE>

                                    EXHIBIT G
--------------------------------------------------------------------------------

                            DERMA TECH BALANCE SHEET

<PAGE>

                                    EXHIBIT H

                               SUB-DISTRIBUTORS *

INDONESIA:                        Pt. Obagi Indonesia
                                  Wisma Danamon Aetna Life, 14/F
                                  Jl. Jend, Sudirman Kav 45-46
                                  Jakarta 12930, Indonesia
                                  Tel: No. (62-21) 577-1558
                                  Fax No. (62-21) 577-1559
                                  Contact Person:  Hendrik Chandra

KOREA:                            Maron Cosmetic Co., Ltd. *
                                  85-2 Chungdam-dong, Kangnam-ku
                                  Seoul, Korea
                                  Tel. No. (822) 518-2555
                                  Fax No. (822) 518-2554
                                  Contact Person:  Jung In Lee and Jong Hwa Ahn

MALAYSIA:                         Obagi Malaysia
                                  Shop Lot 2-1-7, Block 2
                                  1st Floor, Api-Api Centre
                                  Jalan Centre Point, Kota Kinabalu 88000
                                  Sabah, Malaysia
                                  Tel. No. (60-88) 261-013
                                  Fax No. (60-88) 266-186
                                  Contact Person:  Fan Yong Thau

SINGAPORE:                        Obagi (S) Pte Ltd.
                                  442 Orchard Road
                                  #02-29/30/32/33
                                  Orchard Hotel Shopping Arcade
                                  Singapore 238879
                                  Tel. No. (65) 738-2998
                                  Fax No. (65) 738-6628
                                  Contact Person:  Rudi Koh

* (Maron Cosmetic Co., Ltd. is a direct distributor for which Maron acts as
handling agent)
<PAGE>

                                 SCHEDULE 1.1(d)

                                 OTHER INTERESTS

                                Derma Tech, Inc.

                            Obagi Singapore Pte. Ltd.

                              Obagi Asia Pte. Ltd.

<PAGE>

                                 SCHEDULE 2.1(g)

                                  CLAIMS BY KIM

                                      None.

<PAGE>

                                 SCHEDULE 2.1(k)

                                 MARON LICENSES

                                      None.

<PAGE>

                                 SCHEDULE 2.2(d)

                       10% OR MORE SHAREHOLDERS OF COMPANY

                     Zein Obagi and Samar Obagi Family Trust

                             Mandarin Partners, LLC

<PAGE>

                                KENNETH H. KIM
                                   PRESIDENT
                              MARON NU-TECH, INC.
                            9025 WILSHIRE BOULEVARD
                                   SUITE 302
                        BEVERLY HILLS, CALIFORNIA 90211

                              December 18, 2000

Mr. Philip J. Rose
President and CEO
Obagi Medical Products, Inc.
310 Golden Shore, First Floor
Long Beach, California 90802

         RE:  Master Separation Agreement

Dear Phil:

This letter will confirm our agreement, at your request, to amend Section 1.1
of the Master Separation Agreement, to extend the Closing Date from December
18, 2000 to December 21, 2000, by mutual agreement. This letter will also
confirm that I will date the Stock Assignment as of January 2, 2001. Your
countersignature below will confirm this agreement.

Very truly yours,

/s/ Kenneth H. Kim

KENNETH H. KIM, individually and as President of Maron Nu-Tech, Inc.

The foregoing is agreed, without prejudice to the undersigned's position in
the dispute over the payment schedule set forth in the Master Separation
Agreement and the Promissory Notes which are exhibits thereto:

Obagi Medical Products, Inc.

By: /s/ Philip J. Rose
----------------------------
        Philip J. Rose
        President and CEO

<PAGE>

                                KENNETH H. KIM
                                   PRESIDENT
                              MARON NU-TECH, INC.
                            9025 WILSHIRE BOULEVARD
                                   SUITE 302
                        BEVERLY HILLS, CALIFORNIA 90211

                              December 22, 2000

Mr. Philip J. Rose
President and CEO
Obagi Medical Products, Inc.
310 Golden Shore, First Floor
Long Beach, California 90802

         RE:  Master Separation Agreement

Dear Phil:

This letter will confirm our agreement to amend the Master Separation
Agreement and the note payable to Mr. Kim under the Master Separation
Agreement ("Kim Note") to change the payment schedule on payments to be made
to Kenneth H. Kim. The principal payment which would otherwise be due to be
paid to Kenneth H. Kim on January 1, 2001 in the amount of $250,000 shall
instead be payable in equal parts on January 1, 2002 and June 30, 2002 (so
that the principal payment due on January 1, 2002 shall now total $375,000
and the principal payment due on June 30, 2002 shall be $625,000). The first
interest payment on the Kim Note shall now be due on June 30, 2001.

My attorneys will be authorized to revise the pages of the Master Separation
Agreement and Kim Note necessary to reflect this amendment, and those revised
pages shall be inserted into the final Master Separation Agreement and Kim
Note.

Your countersignature below will confirm your agreement to this amendment.

Very truly yours,

/s/ Kenneth H. Kim

KENNETH H. KIM, individually and as President of Maron Nu-Tech, Inc.

The foregoing is agreed:

Obagi Medical Products, Inc.

By: /s/ Philip J. Rose
----------------------------
        Philip J. Rose
        President and CEO

<PAGE>

Company agrees to pay Kim the sum of Two Million One Hundered Thousand One
United States Dollars ($2,100,001), payable as follows:

                    (i) A cash payment of One Hundered Thousand One United
States Dollars ($100,001) which has previously been paid to Kim,  receipt of
which is hereby acknowledged; and

                    (ii) A cash payment of Four Hundred Thousand United
States Dollars ($400,000) at the Closing.

                    (iii) The balance of One Million Six Hundred Thousand
United States Dollars ($1,600,000) according to the following payment
schedule:

6/30/2001           $500,000             1/1/2002                  $375,000
6/30/2002           $625,000             1/1/2003                  $100,000

          (b) In consideration of all of the foregoing provisions and the
terms and  conditions hereof, effective at the Closing Company agrees to pay
Maron the sum of Nine Hundred Thousand United States Dollars ($900,000)
according to the following payment schedule:

1/1/2003            $150,000             6/30/2003                 $250,000
1/1/2004            $250,000             6/30/2004                 $250,000

     1.4 INTEREST.  In addition to the payments pursuant to Section 1.3,
Company agrees to pay interest to Kim and to Maron on the outstanding
principal balance during the period from the Closing Date through January 1,
2003.  Interest shall be calculated  based on a 365-day year at the time of
each principal  payment on the outstanding principal balance on the day
before the principal payment is due and shall be fixed for the  period at the
rate of six percent (6%) per  annum. Beginning on January 2, 2003, interest
sahll be due and payable on the then outstanding principal balance only as
follows:

          (a)  Interest at the rate of One United States Dollar ($1.00) per
annum, payable on January 1, 2004; and

          (b)  Interest at the rate of One United States Dollar ($1.00) per
annum, payable on June 30, 2004; and

     1.5 PROMISSORY NOTES. At the Closing,  Company shall execute and deliver
to the respective  payees thereof two  subordinated  promissory notes (the
"Notes") for the  aggregate  outstanding  balance of Two Million Five
Hundred Thousand United States Dollars ($2,500,000) payable under Section
1.3 above, payable to Kim and Maron, respectively, in the forms attached
hereto as of EXHIBIT B and EXHIBIT C, respectively.  Maron and Kim hereby
agree that the Notes and related lien shall be subordinate to the loan and
related lien of Imperial Bank (or such other commercial lender as may succeed
Imperial Bank as commercial  lender to Company ("Successor Lender")) (such
senior loan or loans, however, not to exceed in any event the principal
amount of

                                       -3-

<PAGE>

                                 PROMISSORY NOTE

$1,600,000                                          Dated: as of _________, 2000

     1.   PRINCIPAL.

     FOR  VALUE  RECEIVED,  the  undersigned,   OBAGI  MEDICAL  PRODUCTS,
INC., ("Borrower"),  hereby  promises to pay to the order of KENNETH H. KIM
("Lender") the principal sum of One Million Six Hundred Thousand United
States Dollars and No Cents  (U.S.$1,600,000) (the "Loan") with interest from
the date of this Note on the unpaid principal until paid at the rate of six
percent per annum.

     2.   PAYMENT, MATURITY DATE.

     Borrower  shall make  principal  payments (plus all accrued but then unpaid
interest on the Loan), on the dates and in the amounts indicated below:

6/30/2001               $500,000             1/1/2002             $375,000
6/30/2002               $625,000             1/1/2003             $100,000

     Unless accelerated pursuant to the terms of this Note, the unpaid principal
balance of this Note, together with all unpaid interest accrued thereon, and all
other amounts  payable by Borrower under the terms of this Note shall be due and
payable on January 1, 2003 (the "Maturity Date").

     If any payment of principal or interest to be made by Borrower shall become
due on a day other than a Business  Day,  such payment shall be made on the next
succeeding  Business  Day and  such  extension  of time  shall  be  included  in
computing any interest with respect to such payment.  "Business  Day" shall mean
any Monday, Tuesday,  Wednesday,  Thursday or Friday on which banks are open for
business in Los Angeles, California.

     All interest due hereunder  shall be computed on the basis of a year of 365
days for the actual number of days elapsed.

     Except as provided in the  immediately  following  paragraph,  all payments
received  by Lender  under this Note shall be  credited  first to any charges or
other  expenses  for which  Lender is  entitled  to payment  hereunder,  next to
accrued but unpaid interest, and third to unpaid principal.

                                       -1-

<PAGE>

                                KENNETH H. KIM
                                   PRESIDENT
                              MARON NU-TECH, INC.
                            9025 WILSHIRE BOULEVARD
                                   SUITE 302
                        BEVERLY HILLS, CALIFORNIA 90211

                              December 22, 2000

Mr. Philip J. Rose
President and CEO
Obagi Medical Products, Inc.
310 Golden Shore, First Floor
Long Beach, California 90802

         RE:  Master Separation Agreement

Dear Phil:

This letter will confirm our agreement to amend further the Master Separation
Agreement by substituting two forms of Subordination Agreement for the
Amended and Restated Addendum to Subordination Agreement, Exhibit D to the
Master Separation Agreement.

Exhibit D to the Master Separation Agreement therefore should read in its
entirety as in the pages attached to this letter amendment, and Section 1.5
of the Master Separation Agreement is hereby amended so that the phrase
"Amended and Restated Addendum to Subordination Agreement" in that Section
1.5 shall be amended and restated to read as "Subordination Agreements".

Your countersignature below will confirm your agreement to this amendment.

Very truly yours,

/s/ Kenneth H. Kim

KENNETH H. KIM, individually and as President of Maron Nu-Tech, Inc.

The foregoing is agreed:

Obagi Medical Products, Inc.

By:
----------------------------
        Philip J. Rose
        President and CEO

<PAGE>

                           SUBORDINATION AGREEMENT

The undersigned Subordinated Creditor is interested in the financial success
of OBAGI MEDICAL PRODUCTS, INC. ("Borrower"), and agrees that financial
accommodation from IMPERIAL BANK ("Bank") to Borrower is necessary, and
accordingly requests that Bank grant to or renew for Borrower such financial
accommodation as it may deem proper, and for the purpose of inducing Bank to
grant, renew or extend such financial accommodation, it is hereby severally
agreed as follows:

Notwithstanding any other provisions of this agreement, the claims of the
Borrower owing to the Subordinated Creditor ("Subordinated Claims") which are
subordinated to the claims of the Borrower to the Bank ("Senior Claims")
pursuant to this Subordination Agreement are only those relating to that
Promissory Note executed by Borrower in favor of Subordinated Creditor dated
December 22, 2000, in the principal amount of $900,000. Wherever the term
"claims" is used in the Subordination Agreement relating to the claims of the
Borrower to the Subordinated Creditor it shall mean the Subordinated Claims.

All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims
of Bank's part against Borrower now or hereafter existing, whether matured or
not, so long as any such claim on Bank's part against Borrower shall remain
unpaid, in whole or in part, and each of the undersigned agrees not to sue
upon, or collect, or to receive payment upon, by setoff or in any other
manner, any claim or claims on its part against Borrower now or hereafter
existing, nor to sell, assign, transfer, pledge, or give a security interest
in the same (except subject expressly to this Agreement), nor to enforce or
apply any security now or hereafter existing, nor to join in any petition in
bankruptcy or any assignment for the benefit of creditors, or any creditors
agreement, nor take any lien or security on any of Borrower's property, real
or personal, nor to incur any obligation to nor receive any loans, advances
or gifts from Borrower, so long as any such claim on Bank's part against
Borrower shall exist or so long as Bank is committed or otherwise obligated
to make any loans to, or grant any credit to, Borrower.

All claims on Bank's part against Borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly scheduled payment(s) on the
claims so long as no default exists on its obligations to Bank. Said priority
of payment shall apply during the ordinary course of Borrower's business and
in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other
winding up of the affairs of Borrower, or of Borrower's business, and in all
such cases respectively, the officers of Borrower and any assignee, trustee
in bankruptcy, receiver, and other person or persons in charge, are hereby
directed to pay to Bank the full amount of Bank's claims against Borrower
before persons in charge, are hereby directed to pay to Bank the full amount
of Bank's claims against Borrower before making any payment to any of the
undersigned, and so far as may be necessary for that purpose, each of the
undersigned hereby transfers and assigns to Bank all of its rights to any
payment or distribution which might otherwise be coming to it. Bank is hereby
irrevocably constituted and appointed the attorney-in-fact of each of the
undersigned to file any and all proofs of claim and any other documents and
take all other action, either in Bank's name, or in the name of the
undersigned, or any of them, which in Bank's opinion is necessary or
desirable to enable Bank to obtain all such payments.

                                 Page 1 of 3

<PAGE>

The undersigned agrees that if part or all of any claim of the undersigned
shall be evidenced by a promissory note or other instrument, the undersigned
shall cause to be placed thereon a legend stating that the payment thereof is
subordinate to the payment of all claims on Bank's part against Borrower
pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate
that payment thereof is subordinated pursuant to the terms of this
Subordination Agreement.

This Agreement shall be and constitute full and sufficient ground to entitle
Bank to be and become a party to any proceedings at law, or otherwise,
initiated by Bank or by any other party, in or by which Bank may deem it
proper to protect its interest hereunder, and the party so violating this
Agreement shall be liable to Bank for all loss and damages sustained by it
by reason of such breach, including attorney's fees to Bank's attorney in any
such legal action.

If the undersigned, or any of them, shall receive any payment or property in
violation of this Agreement, such payment or property shall be received by
such undersigned in trust for Bank and forthwith will be delivered and
transferred to Bank.

This Agreement shall be continuing in effect, it shall not be canceled or
otherwise rendered ineffective by the payment or discharge at any time of all
of Borrower's obligations to Bank, and it shall apply to any and all
financial accommodations subsequently granted, renewed or extended by Bank
for Borrower, unless the undersigned shall deliver to Bank a written notice
of revocation as to future transactions, at a time when Borrower is no longer
obligated by Bank in any way, and while Bank is not committed or otherwise
obligated to make any loans to, or grant any credit to, Borrower.

Notwithstanding any other provisions of this Subordination Agreement, if the
Subordinated Creditor shall notify the Bank that a payment default has
occurred in the Subordinated Claims, after a period of 180 days following
such date the Subordinated Creditor may take any lawful action to enforce the
Subordinated Claims, it being understood and agreed that payment of the
Subordinated Claims to the undersigned may not occur prior to the payment in
full of all obligations owed from Borrower to Bank, to Bank's satisfaction.

Notwithstanding any other provision of this Agreement, Subordinated Creditor
may secure its Subordinated Claims with a subordinated security interest in
certain assets of Borrower. Subordinated Creditor hereby subordinates such
security interest(s) whether now existing or hereafter arising, to the
security interest(s) of Bank, whether now existing or hereafter arising, with
respect to any and all assets of Borrower. Except as herein otherwise
provided, the priorities between the parties shall be determined in
accordance with the provisions of the Uniform Commercial Code. The
Subordinated Creditor may not enforce its security interest in Borrower's
assets, or commence any action to enforce such security interest until the
earlier of (i) repayment in full of all Senior Claims to the satisfaction of
the Bank, or (ii) upon the expiration of the 180 day period mentioned above,
provided that any proceeds from the Borrower's assets must first be applied
to repayment of the Senior Claim prior to applying any such proceeds to the
Subordinated Claim. Upon receipt of any proceeds by the Subordinated Creditor
from the exercise of its security interest, such payment or property shall be
received by such undersigned in trust for Bank and forthwith will be
delivered and transferred to Bank until payment in full of the Senior Claim
to the satisfaction of bank.

                                 Page 2 of 3

Signature page follows.

<PAGE>

The undersigned hereby acknowledges this Subordination Agreement and agrees
to be bound by its provisions.

                                       SUBORDINATED CREDITOR:

Dated: December 22, 2000               /s/ KENNETH H. KIM
-----------------------------          -----------------------------
                                       Mr. Kenneth H. Kim

              ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER

The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all
of the provisions thereof and to recognize all priorities and other rights
granted thereby to IMPERIAL BANK, and to pay said Bank in accordance
therewith.

                                       Obagi Medical Products, Inc.

Dated:                                 By:
       ----------------------              -------------------------

                                       By:
                                           -------------------------

                                 Page 3 of 3
<PAGE>
                           SUBORDINATION AGREEMENT

The undersigned Subordinated Creditor is interested in the financial success
of OBAGI MEDICAL PRODUCTS, INC. ("Borrower"), and agrees that financial
accommodation from IMPERIAL BANK ("Bank") to Borrower is necessary, and
accordingly requests that Bank grant to or renew for Borrower such financial
accommodation as it may deem proper, and for the purpose of inducing Bank to
grant, renew or extend such financial accommodation, it is hereby severally
agreed as follows:

Notwithstanding any other provisions of this agreement, the claims of the
Borrower owing to the Subordinated Creditor ("Subordinated Claims") which are
subordinated to the claims of the Borrower to the Bank ("Senior Claims")
pursuant to this Subordination Agreement are only those relating to that
Promissory Note executed by Borrower in favor of Subordinated Creditor dated
December 22, 2000, in the principal amount of $1,600,000. Wherever the term
"claims" is used in the Subordination Agreement relating to the claims of the
Borrower to the Subordinated Creditor it shall mean the Subordinated Claims.

All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims
on Bank's part against Borrower now or hereafter existing, whether matured or
not, so long as any such claim on Bank's part against Borrower shall remain
unpaid, in whole or in part, and each of the undersigned agrees not to sue
upon, or collect, or to receive payment upon, by setoff or in any other
manner, any claim or claims on its part against Borrower now or hereafter
existing, nor to sell, assign, transfer, pledge, or give a security interest
in the same (except subject expressly to this Agreement), nor to enforce or
apply any security now or hereafter existing, nor to join in any petition in
bankruptcy or any assignment for the benefit of creditors, or any creditors
agreement, nor take any lien or security on any of Borrower's property, real
or personal, nor to incur any obligation to nor receive any loans, advances
or gifts from Borrower, so long as any such claim on Bank's part against
Borrower shall exist or so long as Bank is committed or otherwise obligated
to make any loans to, or grant any credit to, Borrower.

All claims on Bank's part against Borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly scheduled payment(s) on the
claims so long as no default exists on its obligations to Bank. Said priority
of payment shall apply during the ordinary course of Borrower's business and
in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other
winding up of the affairs of Borrower, or of Borrower's business, and in all
such cases respectively, the officers of Borrower and any assignee, trustee
in bankruptcy, receiver, and other person or persons in charge, are hereby
directed to pay to Bank the full amount of Bank's claims against Borrower
before persons in charge, are hereby directed to pay to Bank the full amount
of Bank's claims against Borrower before making any payment to any of the
undersigned, and so far as may be necessary for that purpose, each of the
undersigned hereby transfers and assigns to Bank all of its rights to any
payment or distribution which might otherwise be coming to it. Bank is hereby
irrevocably constituted and appointed the attorney-in-fact of each of the
undersigned to file any and all proofs of claim and any other documents and
take all other action, either in Bank's name, or in the name of the
undersigned, or any of them, which in Bank's opinion is necessary or
desirable to enable Bank to obtain all such payments.

                                 Page 1 of 3

<PAGE>

The undersigned agrees that if part or all of any claim of the undersigned
shall be evidenced by a promissory note or other instrument, the undersigned
shall cause to be placed thereon a legend stating that the payment thereof is
subordinate to the payment of all claims on Bank's part against Borrower
pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate
that payment thereof is subordinated pursuant to the terms of this
Subordination Agreement.

This Agreement shall be and constitute full and sufficient ground to entitle
Bank to be and become a party to any proceedings at law, or otherwise,
initiated by Bank or by any other party, in or by which Bank may deem it
proper to protect its interest hereunder, and the party so violating this
Agreement shall be liable to Bank for all loss and damages sustained by it
by reason of such breach, including attorney's fees to Bank's attorney in any
such legal action.

If the undersigned, or any of them, shall receive any payment or property in
violation of this Agreement, such payment or property shall be received by
such undersigned in trust for Bank and forthwith will be delivered and
transferred to Bank.

This Agreement shall be continuing in effect, it shall not be canceled or
otherwise rendered ineffective by the payment or discharge at any time of all
of Borrower's obligations to Bank, and it shall apply to any and all
financial accommodations subsequently granted, renewed or extended by Bank
for Borrower, unless the undersigned shall deliver to Bank a written notice
of revocation as to future transactions, at a time when Borrower is no longer
obligated to Bank in any way, and while Bank is not committed or otherwise
obligated to make any loans to, or grant any credit to, Borrower.

Notwithstanding any other provisions of this Subordination Agreement, if the
Subordinated Creditor shall notify the Bank that a payment default has
occurred in the Subordinated Claims, after a period of 180 days following
such date the Subordinated Creditor may take any lawful action to enforce the
Subordinated Claims, it being understood and agreed that payment of the
Subordinated Claims to the undersigned may not occur prior to the payment in
full of all obligations owed from Borrower to Bank, to Bank's satisfaction.

Notwithstanding any other provision of this Agreement, Subordinated Creditor
may secure its Subordinated Claims with a subordinated security interest in
certain assets of Borrower. Subordinated Creditor hereby subordinates such
security interest(s) whether now existing or hereafter arising, to the
security interest(s) of Bank, whether now existing or hereafter arising, with
respect to any and all assets of Borrower. Except as herein otherwise
provided, the priorities between the parties shall be determined in
accordance with the provisions of the Uniform Commercial Code. The
Subordinated Creditor may not enforce its security interest in Borrower's
assets, or commence any action to enforce such security interest until the
earlier of (i) repayment in full of all Senior Claims to the satisfaction of
the Bank, or (ii) upon the expiration of the 180 day period mentioned above,
provided that any proceeds from the Borrower's assets must first be applied
to repayment of the Senior Claim prior to applying any such proceeds to the
Subordinated Claim. Upon receipt of any proceeds by the Subordinated Creditor
from the exercise of its security interest, such payment or property shall be
received by such undersigned in trust for Bank and forthwith will be
delivered and transferred to Bank until payment in full of the Senior Claim
to the satisfaction of bank.

                                 Page 2 of 3

Signature page follows.

<PAGE>

The undersigned hereby acknowledges this Subordination Agreement and agrees
to be bound by its provisions.

                                       SUBORDINATED CREDITOR:

                                       Maron Nu-Tech, Inc.

Dated: December 22, 2000               /s/ KENNETH H. KIM
-----------------------------          -----------------------------
                                       Kenneth H. Kim     President

              ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER

The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all
of the provisions thereof and to recognize all priorities and other rights
granted thereby to IMPERIAL BANK, and to pay said Bank in accordance
therewith.

                                       Obagi Medical Products, Inc.

Dated:                                 By:
       ----------------------              -------------------------

                                       By:
                                           -------------------------

                                 Page 3 of 3<PAGE>

EXHIBIT 10.5.1

BIO-REFERENCE LABORATORIES, INC. 2000 EMPLOYEE INCENTIVE STOCK OPTION PLAN

1. PURPOSE. The purpose of the 2000 Employee Incentive Stock Option Plan (the
"Plan") is to advance the interests of BIO- REFERENCE LABORATORIES, INC. , a New
Jersey corporation (the "Company"), by strengthening the Company's ability to
attract and retain in its employ people of experience and ability, and to
furnish additional incentives to Employees (as such term is hereinafter defined)
of the Company and its subsidiaries upon whose judgment, initiative and efforts
the successful conduct and development of its business largely depends, by
encouraging them to become owners of the common stock of the Company.

Accordingly, the Company may, from time to time, grant to such Employees as may
be selected in the manner hereinafter provided, options to purchase the shares
of the Company's common stock, $.01 par value (the "Common Stock") upon the
terms and conditions hereinafter established. The options to be granted shall be
options which will qualify for incentive stock option treatment under the
Internal Revenue Code of 1986, as amended ("ISO's").

2. AMOUNT AND SOURCE OF STOCK. The aggregate number and class of shares which
may be the subject of options granted pursuant to the Plan is 800,000 shares of
Common Stock, $.01 par value, of the Company (the "Shares"), subject to
adjustment as provided in Paragraph 10. Such Shares may be reserved or made
available from the Company's authorized and unissued Shares or from Shares
reacquired and held in the Company's treasury. In the event that any option
granted hereunder shall terminate prior to its exercise in full, for any reason,
including, without limitation, an option exchange pursuant to Paragraph 12
hereof, then any remaining Shares not purchased pursuant to such option shall be
added to the Shares otherwise available for issuance pursuant to the exercise of
options under the Plan.

3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), or if so designated, by resolution of
the Board, by a committee selected by the Board (the "Committee"), and to be
composed of not less than two (2) members to be appointed from time to time by
such Board, and who, at any time they exercise discretion in administering the
Plan and within one year prior thereto, shall have not been eligible for
selection as a person to whom stock could have been allocated or to whom stock
options or stock appreciation rights could have been granted pursuant to the
Plan or any other plan of the Company or any of its affiliates entitling the
participants therein to acquire stock, stock options or stock appreciation
rights of the Company or any of its affiliates.

The Board or, if so designated, the Committee, shall have full authority to
interpret the Plan, to establish and amend rules and regulations relating to it,
to determine the Employees to whom options may be granted under the Plan, to
determine the terms and provisions of the option agreements and to make all
other determinations necessary or advisable for the administration of the Plan.
The Board or, if so designated. the Committee, shall have full authority to
amend the Plan; provided, however, that any amendment that (i) increases the
number of Shares that may be the subject of stock options granted under the
Plan, (ii) increases the period during which options may be granted or the
permissible term of options under the Plan, or (iii) decreases the minimum
exercise price of such options, shall only be adopted by the Board or, if so
designated, the Committee, subject to shareholder approval. No amendment to the
Plan shall, without the consent of the holder of an existing option, materially
and adversely affect his rights under any option. The date of which the Board
or, if so designated, the Committee adopts resolutions granting an option to a
specified individual shall constitute the date of grant of such option (the
"Date of Grant"); provided, however, that if the grant of an option is made
subject to the occurrence of a subsequent event (such as, for example, the
commencement of employment), the date on which such subsequent event occurs
shall be the Date of Grant. The adoption of any such resolution by the majority
of the members of the Board or, if so designated, the Committee, shall complete
the necessary corporate action constituting the grant of said option and an
offer of Shares for sale to said individual under the Plan.

4. (a) ELIGIBILITY. Employees of the Company or subsidiaries of the Company, as
determined by the Board or, if so designated, the Committee, shall be eligible
to receive options hereunder; provided, however, that no option shall be
granted hereunder to any person who, together with his spouse, children and
trusts and custodial accounts for their

                                        1

<PAGE>

benefit, immediately at the time of the grant of such option and assuming its
immediate exercise, would beneficially own, within the meaning of Section 424(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), Shares possessing
more than ten percent (10%) of the total combined voting power of all of the
outstanding stock of the Company (a "Ten Percent Shareholder"), unless such an
option granted to the Ten Percent Shareholder satisfies the additional
conditions for options, designated as an ISO, granted to Ten Percent
Shareholders set forth in subparagraph (c)(5) of Section 422 of the Code. For
purposes of the Plan, an "Employee" shall include full and part time employees
of the Company or any subsidiary of the Company who may also be officers and/or
directors of the Company and/or any subsidiary; provided, however, that such
options shall only be issued to employees eligible to receive such options as
ISOs under the Code. Furthermore, for purposes of the Plan, a subsidiary shall
mean any corporation of which the Company owns or controls, directly or
indirectly, fifty percent (50%) or more of the outstanding shares of capital
stock normally entitled to vote for the election of directors and any
partnership of which the Company or a corporate subsidiary is a general partner.
From time to time the Board or, if so designated, the Committee shall, in its
sole discretion, within the applicable limits of the Plan, select from among the
eligible individuals those persons to whom options shall be granted under the
Plan, the number of Shares subject to each option, and the exercise price, terms
and conditions of any options to be granted hereunder .

(b) Notwithstanding anything to the contrary herein, the Board, or if so
designated, the Committee, shall only grant an option designated as an ISO to
such persons who are eligible to receive an ISO pursuant to Section 422 of the
Code.

5. (a) OPTION PRICE; MAXIMUM GRANT. The exercise price for the Shares
purchasable under options granted pursuant to the Plan shall not be less than
100%, or, in the case of an option granted to a Ten Percent Shareholder, 110% ,
of the fair market value per share of the Shares subject to option under the
Plan at the Date of Grant, as determined by the Board or, if so designated, the
Committee, in good faith. The Board, or if so designated, the Committee, shall
consider the closing price of the Common Stock on the date the option is granted
(if listed on a national securities exchange), the representative closing bid
price as reported by NASDAQ or the National Quotation Bureau, Inc. or such other
reasonable method based on market quotations. The exercise price for options
granted pursuant to the Plan shall be subject to adjustment as provided in
Paragraph 10.

(b) With respect to those options granted pursuant to the Plan, the aggregate
fair market value, determined as of the Date of Grant, of the Shares subject to
such options which may be granted to an individual and which are initially
exercisable in anyone calendar year , under this Plan and all other stock option
plans of the Company and of any parent or subsidiary of the Company pursuant to
which incentive stock options may be granted, shall not exceed $100,000. The
Board, or Committee, may adopt a vesting schedule as it may determine in
connection with any option granted under the Plan; provided, however, in no
event shall an option granted pursuant to the Plan vest more than $100,000 in
anyone year, determined at the time of grant.

6. (a) TERM OF OPTION. Subject to the provisions of the Plan, the Board, or if
so designated, the Committee, shall have absolute discretion in determining the
period during which, the rate at which, and the terms and conditions upon which
any option granted hereunder may be exercised, and whether any option
exercisable in installments is to be exercisable on a cumulative or
non-cumulative basis; provided, however, that no option granted hereunder shall
be exercisable for a period exceeding ten (10) years or, in the case of an
option granted to a Ten Percent Shareholder, five (5) years from the Date of
Grant. Unless the resolution granting an option provides otherwise, each option
granted hereunder shall, subject to the provisions of Paragraph 9 hereof, be
exercisable for a period of ten (10) years or, in the case of an option granted
to a Ten Percent Shareholder, five (5) years from the Date of Grant.

(b) The grant of options by the Board or, if so designated, the Committee, shall
be effective as of the date on which the Board or, if so designated, the
Committee, shall authorize the option; provided, however, that no option granted
hereunder shall be exercisable unless and until the holder shall enter into an
individual option agreement with the Company which shall set forth the terms and
conditions of such option. Each such agreement shall expressly incorporate

                                        2

<PAGE>

by reference the provisions of this Plan and shall state that in the event of
any inconsistency between the provisions hereof and the provisions of such
agreement, the provisions of this Plan shall govern.

7. EXERCISE OF OPTIONS. An option shall be exercised when written notice of such
exercise, signed by the person entitled to exercise the option, has been
delivered or transmitted by registered or certified mail to the Secretary of the
Company at its then principal office. Said notice shall specify the number of
Shares for which the option is being exercised and shall be accompanied by
(i) such documentation, if any, as may be required by the Company as provided in
subparagraph II(b), and (ii) payment in full of the aggregate option price. Such
payment shall be in the form of (i) cash or (ii) a certified check (unless such
certification is waived by the Company) payable to the order of the Company in
the amount of the aggregate option price. Delivery of said notice shall
constitute an irrevocable election to purchase the Shares specified in said
notice, and the date on which the Company receives the last of said notice,
documentation and the aggregate option exercise price for all of the Shares
covered by the notice shall be the date as of which the Shares so purchased
shall be deemed to have been issued. The person entitled to exercise the option
shall not have the right or status as a holder of the Shares to which such
exercise relates prior to receipt by the Company of the payment, notice and
documentation expressly referred to in this Paragraph 7.

8. EXERCISE AND CANCELLATION OF OPTIONS UPON TERMINATION OF EMPLOYMENT OR DEATH.
Except as set forth below, if a bolder shall voluntarily or involuntarily
terminate his service as an Employee of the Company or any subsidiary of the
Company, the option of such bolder shall terminate upon the date of such
termination of employment regardless of the expiration date specified in such
option. If the termination of employment is due to retirement (as defined by the
Board or, if so designated, the Committee, in its sole discretion), the holder
shall have the privilege of exercising any option which the holder could have
exercised on the day upon which he ceased to be an employee of the Company or
any subsidiary of the Company; provided, however, that such exercise must be
accomplished within the term of such option and within three (3) months of the
holder's retirement. If the termination of employment is due to disability (to
an extent and in a manner as shall be determined by the Board or, if so
designated, the Committee, in its sole discretion), he (or his duly appointed
guardian or conservator) shall have the privilege of exercising any option that
be could have exercised on the day upon which he ceased to be an employee of the
Company or any subsidiary of the Company; provided, however, that such exercise
must be accomplished within the term of such option and within one (I) year of
the termination of his employment with the Company or any subsidiary of the
Company. If termination of employment is due to the death of the holder, the
duly appointed executor or administrator of his estate shall have the privilege
at any time of exercising any option that the holder could have exercised on the
date of his death; provided, however, that such exercise must be accomplished
within the term of such option and within one (I) year of the holder's death.
For all purposes of the Plan, an approved leave of absence as defined under the
Code or Regulations thereunder for an ISO shall not constitute interruption or
termination of employment.

Nothing contained herein or in any option agreement shall be construed to confer
on any option holder any right to be continued in the employ of the Company or
any subsidiary of the Company or derogate from any right of the Company or any
subsidiary of the Company to retire, request the resignation of or discharge
such option holder, or to layoff or require a leave of absence of such option
holder (with or without pay), at any time, with or without cause.

9. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan shall be
sold, pledged, assigned or transferred in any manner except to the extent that
options may be exercised by an executor or administrator as provided in
Paragraph 8 hereof. An option may be exercised, during the lifetime of the
holder thereof, only by such holder or his duly appointed guardian or
conservator in the event of his disability.

10. (a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the outstanding Shares
are subdivided, consolidated, increased, decreased, changed into, or exchanged
for a different number or kind of shares or other securities of the Company
through reorganization, merger, recapitalization, reclassification, capital
adjustment or otherwise, or if the Company shall issue additional Shares as a
dividend or pursuant to a stock split, then the number and kind of Shares
available for issuance pursuant to the exercise of options to be granted under
this Plan and all Shares subject to the unexercised portion of any option
theretofore granted and the option price of such options shall be adjusted to
prevent the inequitable

                                        3
<PAGE>

enlargement or dilution of any rights hereunder; provided, however, that any
such adjustment in outstanding options under the Plan shall be made without
change in the aggregate exercise price applicable to the unexercised portion of
any such outstanding option. Distributions to the Company's shareholders
consisting of property other than shares of Common Stock of the Company or its
successors and distributions to shareholders of rights to subscribe for Common
Stock shall not result in the adjustment of the Shares purchasable under
outstanding options or the exercise price of outstanding options. Adjustments
under this paragraph shall be made by the Board or, if so designated, by the
Committee, whose determination thereof shall be conclusive and binding. Any
fractional Share resulting from adjustments pursuant to this paragraph shall be
eliminated from any then outstanding option. Nothing contained herein or in any
option agreement shall be construed to affect in any way the right or power of
the Company to make or become a party to any adjustments, reclassifications,
reorganizations or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or otherwise transfer all or any part of its
business or assets.

(b) If, in the event of a merger or consolidation, the Company is not the
surviving corporation, and in the event that the agreement governing such merger
or consolidation do not provide for the substitution of new options or other
rights in lieu of the options granted hereunder or for the express assumption of
such outstanding options by the surviving corporation, or in the event of the
dissolution or liquidation of the Company, the holder of any option theretofore
granted under this Plan shall have the right not less than five (5) days prior
to the record date for the determination of shareholders entitled to participate
in such merger, consolidation, dissolution or liquidation, to exercise his
option, in whole or in part, without regard to any installment provisions that
may have been made part of the terms and conditions of such option; provided,
that any conditions precedent to such exercise set forth in any option agreement
granted under this Plan, other than the passage of time, have been satisfied. In
any such event, the Company will mail or cause to be mailed to each holder of an
option hereunder a notice specifying the date that is to be fixed as of which
all holders of record of the Shares shall be entitled to exchange their Shares
for securities, cash or other property issuable or deliverable pursuant to such
merger , consolidation, dissolution or liquidation. Such notice shall be mailed
at least ten (10) days prior to the date therein specified. In the event any
then outstanding option is not exercised in its entirety on or prior to the date
specified therein, all remaining outstanding options granted hereunder and any
and all rights thereunder shall terminate as of said date.

II. (a) GENERAL RESTRICTIONS. No option granted hereunder shall be exercisable
if the Company shall, at any time and in its sole discretion, determine that (i)
the listing upon any securities exchange, registration or qualification under
any state or federal law of any Shares otherwise deliverable upon such exercise,
or (ii) consent or approval of any regulatory body or the satisfaction of
withholding tax or other withholding liabilities, is necessary or appropriate in
connection with such exercise prior thereto. In any such events, the
exercisability of such options shall be suspended and shall not be effective
unless and until the grantee of such option has paid such withholding tax or
listing, registration, qualification or approval shall have been effected or
obtained free of any conditions not acceptable to the Company in its sole
discretion, notwithstanding any termination of any option or any portion of any
option during the period when exercisability has been suspended.

(b) The Board or, if so designated, the Committee, may require, as a condition
to the right to exercise an option, that the Company receive from the option
holder, at the time of any such exercise, representations, warranties and
agreements to the effect that the Shares are being purchased by the holder only
for investment and without any present intention to sell or otherwise distribute
such Shares and that the option holder will not dispose of such Shares in
transactions which, in the opinion of counsel to the Company, would violate the
registration provisions of the Securities Act of 1933, as then amended, and the
rules and regulations thereunder. The certificates issued to evidence such
Shares shall bear appropriate legends summarizing such restrictions on the
disposition thereof.

12. EXCHANGE OF OPTIONS. The Board, or if so designated, the Committee, shall
have the right to grant options hereunder that are granted subject to the
condition that the grantee shall agree with the Company to terminate all or a
portion of another option or options previously granted under the Plan. The
Shares that had been issuable pursuant to the exercise

                                        4

<PAGE>

of the option terminated in the exchange of options shall, upon such
termination, again become available for issuance pursuant to the exercise of
options under the Plan.

13. LOANS TO EMPLOYEES. The Board, or if so designated, the Committee, acting on
behalf of the Company, shall have the authority and may, in its sole discretion,
lend money to, or guaranty any obligation of, an Employee for the purpose of
enabling such Employee to exercise an option granted hereunder; the amount of
such loan or obligation, however, shall be limited to an amount equal to fifty
percent (50% ) of the exercise price of such option. Any loan made hereunder
shall bear interest at the rate of not less than the Base Rate of Chase
Manhattan Bank, N.A. at the time of such loan plus one percent (1%) per annum;
may be unsecured or secured in such manner as the Board, or the Committee, shall
determine, including, without limitation, a pledge of the subject shares; and
shall be subject to such other terms and conditions as the Board, or the
Committee, may determine.
14. TERMINATION. Unless the Plan shall theretofore have been terminated as
hereinafter provided, the Plan shall terminate on August 24, 2010, which date is
ten (10) years from the date of the original adoption hereof by the Board, and
no options under the Plan shall thereafter be granted, provided, however, the
Board at any time may, in its sole discretion, terminate the Plan prior to the
foregoing date. No termination of the Plan shall, without the consent of the
holder of an existing option, materially and adversely affect his rights under
such option.

The Plan shall be submitted to the shareholders of the Company for approval in
accordance with the applicable provisions of the New Jersey Business Corporation
Act as promptly as practicable and in any event within one year after the date
of the original adoption hereof by the Board. Any options granted hereunder
prior to such shareholder approval shall not be exercisable unless and until
such approval is obtained. If such approval is not obtained on or before August
24, 2001, which date is one ( 1) year from the date of the original adoption
hereof by the Board, the Plan and any options granted hereunder shall be
terminated.

                                       5

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