Amended And Restated Credit Agreement

This Amended and Restated Credit Agreement ("Agreement") is made and entered into on March 22, 2000, by and between Obagi Medical Products, Inc., a corporation ("Borrower") and Imperial Bank, a California banking corporation, ("Bank").


This Agreement amends and restates in entirety the Credit Agreement dated December 1, 1997 between the Bank and Borrower; the First Amendment to Credit Agreement dated May 28, 1999; the Second Amendment to Credit Agreement dated September 10, 1999; and the Third Amendment to Credit Agreement dated September 22, 1999.


Subject to the terms and conditions of this Agreement, any security agreement(s) executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor of Bank, or any other agreements executed in conjunction therewith (collectively, the "Loan Documents"), Bank shall make the loan(s) and or advance(s) (individually a "Loan" and collectively "Loans") referred to below to Borrower.


In consideration of mutual covenants and conditions hereof, the parties hereto agree as follows:


1. AMOUNT AND TERMS OF CREDIT


1.01 TERM LOAN A COMMITMENT.


(a) TERM LOAN A. Bank has made a term loan in the original amount of $3,000,000 ("Term Loan A"). The Term Loan A is subject to the terms and conditions of this Agreement. As of March 1, 2000, the outstanding principal amount of the Term Loan A was $2,100,000.


(b) TERM LOAN A NOTE. The interest rate, payment terms, maturity date and certain other terms of the Term Loan A are contained in a promissory note dated December 1, 1997 together with an Addendum and an Interest Rate Addendum to Note, all as such may be amended or replaced from time to time.


1.02 TERM LOAN B COMMITMENT.


(a) TERM LOAN B. Bank has made a term loan (the "Term Loan B") in the original amount of $750,000 ("Term Loan B"). The Term Loan B is subject to the terms and conditions of this Agreement. As of March 1, 2000, the outstanding principal amount of the Term Loan B was $609,375.


(b) TERM LOAN B NOTE. The interest rate, payment terms, and certain other terms of the Term Loan B are contained in a promissory note dated May 28, 1999, together with an Addendum and an Interest Rate Addendum to Note, all as such may be amended or replaced from time to time.


1.03 TERM LOAN C COMMITMENT.


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(a) TERM LOAN C. Subject to the terms and conditions of this Agreement, Bank shall make available to Borrower a term loan (the "Term Loan C") in the amount of $3,000,000.


(b) TERM LOAN C INTEREST RATE. Borrower further promises to pay to Bank from the date of the advance of the Term Loan C until paid in full, interest on the unpaid balance of the Term Loan C at the rate of interest elected by the Borrower, either at the Prime Rate (as defined in Section 1.05), plus the Applicable Term Loan C Prime Rate Margin or at the LIBOR Rate (as defined in Section 1.05) plus the Applicable Term Loan C LIBOR Rate Margin.


(c) APPLICABLE TERM LOAN C MARGINS; INTEREST COMPUTATION; LIBOR ADDENDUM:


(1) APPLICABLE TERM LOAN C MARGINS. Until Bank receives and
reviews Borrower's Compliance Certificate pursuant to Section 4.5(c) of
this Agreement for the period ending December 31, 2000, the Applicable
Term Loan C Prime Rate Margin will be 3.50%, and the Applicable Term
Loan C LIBOR Rate Margin will not be available. Thereafter, the
Applicable Term Loan C Prime Rate Margin (as set forth below) and the
Applicable Term Loan C LIBOR Rate Margin (as set forth below) will be
determined by the Bank after review of the Total Leverage Ratio, as
further defined herein, of the Borrower as follows:
------------------------------------------ ---------------------------------- ---------------------------------
TOTAL LEVERAGE RATIO APPLICABLE TERM LOAN C PRIME APPLICABLE TERM LOAN C
RATE MARGIN (%) LIBOR RATE MARGIN (%)


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

Equal to or greater than 4.5 3.50% N/A


------------------------------------------ ---------------------------------- ---------------------------------
Equal to or greater than 3.5 2.50% N/A
but less than 4.5


------------------------------------------ ---------------------------------- ---------------------------------
Equal to or greater than 2.5 2.00% N/A
But less than 3.5 times


------------------------------------------ ---------------------------------- ---------------------------------
Equal to or greater than 1.5 1.50% 3.75%
But less than 2.5 times


------------------------------------------ ---------------------------------- ---------------------------------
Less than 1.5 1.00% 3.25%


------------------------------------------ ---------------------------------- ---------------------------------
"Total Leverage Ratio" is defined as the ratio of Borrower's Total
Indebtedness to Consolidated Annualized EBITDA.


"Consolidated Annualized EBITDA" is defined as Borrower's Consolidated
EBITDA as calculated on an annualized basis whereby (i) through the
quarterly period ending June 30, 2001, Consolidated EBITDA for the
subject fiscal quarter shall be multiplied by four, and (ii) beginning
with the quarterly period ending September 30, 2001, Consolidated
EBITDA for the four fiscal quarters through and including the subject
fiscal quarter shall be summed.


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"Consolidated EBITDA" is defined as the sum of Borrower's (i)
consolidated net income, (ii) consolidated interest expense, (iii)
accrued consolidated federal and state income taxes payable which are
included in the determination of consolidated net income, and (iv)
consolidated depreciation and amortization.


"Total Indebtedness" is defined as all obligations for borrowed money,
including all obligations owed pursuant to this Agreement, Subordinated
Debt, guarantees, stand-by letters of credit, capitalized leases, and
other loans. Total Indebtedness excludes all preferred stock and
preferred stock dividends.


The Bank will determine the Applicable Term Loan Prime Rate Margin and
the Applicable Term Loan LIBOR Rate Margin for each fiscal quarter on
the forty-fifth (45th) day following the last day of each quarter of
the immediately preceding fiscal quarter by reference to the Compliance
Certificate delivered to the Bank by the Borrower pursuant to Section
4.5(c) of this Agreement. If Bank has not received the Compliance
Certificate by the forty-fifth (45th) day as required, the Applicable
Term Loan C Prime Rate Margin will be 3.50% and any LIBOR balances may
be converted to the Prime Rate plus the Applicable Term Loan C Prime
Rate Margin at Bank's discretion. The Total Leverage Ratio for the
immediately preceding fiscal quarter must meet the above referenced
thresholds for any decrease in the Applicable Term Loan C LIBOR Rate
Margin and the Applicable Term Loan C Prime Rate Margin to occur.


(2) LIBOR ADDENDUM. The LIBOR Addendum attached to the Term Loan C
Note shall set forth additional terms relating to LIBOR Rate loans.


(d) TERM LOAN C NOTE. The payment terms, maturity date, and certain other terms of the Term Loan C will be contained in a promissory note dated the date of this agreement ("Term Loan C Note"), as such may be amended or replaced from time to time.


1.04 ASSET BASED LINE OF CREDIT COMMITMENT


(a) LINE OF CREDIT - ACCOUNTS RECEIVABLE AND INVENTORY BORROWING BASE CONSTRAINED. Subject to all the terms and conditions of this Agreement, provided that no event of default then has occurred and is continuing, Bank shall upon Borrower's request, make advances ("ABL Loans") to Borrower, from time to time and in such amounts as Borrower shall request up to an aggregate principal amount outstanding not to exceed:


(1) Eighty percent (80%) of Eligible Accounts, plus


(2) Fifty percent (50%) of Eligible Inventory, not to exceed One
Million Dollars ($1,000,000);


as such Eligible Accounts and Eligible Inventory may be adjusted from time to time as provided for under Section 4.15 hereof (the "Borrowing Base"), and in no event more than Seven Million Dollars ($7,000,000) (the "ABL Line of Credit").


If at any time or for any reason, the outstanding principal amount of the ABL Loan Account (as defined below) is greater than the lesser of: (x) the Borrowing Base or (y) the ABL Line of Credit,


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Borrower shall immediately pay to Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to the terms of this Agreement, to make ABL Loans shall expire on the ABL Maturity Date (as hereinafter defined), subject to Bank's right to renew said commitment in its sole and absolute discretion at Borrower's request. Any such renewal of said commitment shall not be binding upon Bank unless it is in writing and signed by an officer of Bank. Provided that no Event of Default (as hereinafter defined) has occurred and is continuing, all or any portion of the ABL Loans advanced by Bank which are repaid by Borrower shall be available for reborrowing in accordance with the terms hereof. Borrower promises to pay to Bank the entire outstanding unpaid principal balance (and all accrued unpaid interest thereon) of the ABL Loan Account on the earlier of demand by Bank or May 31, 2001 ("ABL Maturity Date").


(b) LIMITATION ON ADVANCE OF ANY ABL LOANS. Notwithstanding any of the provisions contained in Section 1.04 (a) hereof, prior to any advance of an ABL Loan, a representative of Bank shall have conducted an audit of Borrower's books and records relating to the Accounts and Inventory and any other Collateral for the ABL Loans and made extracts therefrom, and arranged for verification of the Accounts, directly with the account debtors or otherwise, and of the Inventory all with results satisfactory to Bank, the cost of such audit shall be at Borrower's sole expense. Based on Bank's review of such audit, and prior to the advance of an ABL Loan in accordance with the terms hereof, Bank may adjust the Borrowing Base percentage, in its sole and reasonable discretion, as provided for under Section 4.15 hereof.. Unless an Event of Default has occurred and continues, Bank shall conduct no more than two (2) audits per calendar year.


(c) LOAN LEDGER ACCOUNT; USE OF PROCEEDS. The amount of each ABL Loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank for the ABL Line of Credit (herein called the "ABL Loan Account") and Bank shall credit the ABL Loan Account with all loan repayments in respect thereof made by Borrower.


(d) ABL INTEREST RATE. Borrower further promises to pay to Bank from the date of the advance of the initial ABL Loan through the ABL Maturity Date, on or before the tenth (10th) day of each month, interest on the unpaid balance of the ABL Loan Account at a rate of interest elected by the Borrower, either at the Prime Rate, which shall vary concurrently with any change in such Prime Rate, plus the Applicable ABL Prime Rate Margin or at the LIBOR Rate plus the applicable ABL LIBOR Rate Margin.


(e) APPLICABLE ABL MARGINS; INTEREST COMPUTATION; LIBOR ADDENDUM:


(1) APPLICABLE ABL MARGIN. The Applicable ABL Prime Rate Margin (as
set forth below) and the Applicable ABL LIBOR Rate Margin (as set forth
below) will be determined by Bank as described in Section 1.03 (c) of
this Agreement, subject to the following applicable margins:


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------------------------------------------ ---------------------------------- ---------------------------------
TOTAL LEVERAGE RATIO APPLICABLE ABL APPLICABLE ABL
PRIME RATE MARGIN (%) LIBOR RATE MARGIN (%)


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

Equal to or greater than 2.5 1.00% 3.25%


------------------------------------------ ---------------------------------- ---------------------------------
Equal to or greater than 1.5 0.50% 2.75%
but less than 2.5


------------------------------------------ ---------------------------------- ---------------------------------
Less than 1.5 0.00% 2.25%


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


The initial Applicable ABL Prime Rate Margin will be 0.00% and the
initial Applicable ABL LIBOR Rate Margin will be 2.25% until Bank's
receipt of Borrower's Compliance Certificate as required pursuant to
Section 4.05(c) for the period ending March 31, 2000, provided that
such Compliance Certificate is received on or before its due date. Any
time that the Compliance Certificate has not been received on or before
its due date, the Applicable ABL Prime Rate Margin will be 1.00% and
the Applicable ABL LIBOR Rate Margin will be 3.25%.


(2) LIBOR ADDENDUM. The LIBOR Addendum attached hereto shall set forth
additional terms relating to LIBOR Rate loans.


(f) APPLICATION OF RECEIPTS. All sums received by Bank, whether from Borrower or from Borrower's account debtors shall be applied to the outstanding ABL Loan balance immediately upon receipt thereof by the Bank. The Borrower will be charged, on a monthly basis, for the uncollected balance fees. Notwithstanding the above, Borrower will continue to maintain dominion over cash receipts until receipts are transferred to Bank.


(g) CERTAIN DEFINITIONS. As used herein the following terms shall have the following meanings:


"Accounts" means any right to payment for goods sold or leased, or rented, or to be sold or to be leased, or to be rented, or for services rendered or to be rendered no matter how evidenced, including accounts receivable, contract rights, chattel paper, instruments, purchase orders, notes, drafts, acceptances, general intangibles and other forms of obligations and receivables.


"Collateral" means any and all property of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest.


"Eligible Accounts" Eligible Accounts shall only include such accounts as Bank in its sole reasonable discretion shall determine are eligible from time to time. "Eligible Accounts" shall also NOT include any of the following, without duplication:


(1) All Accounts under which payment is not received within 90
days from any invoice date.


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(2) All Accounts against which the account debtor or any other
person obligated to make payment thereon asserts any defense,
offset, counterclaim or other right to avoid or reduce the
liability represented by the Account, but only to the extend
of such counter claims.


(3) Any Accounts if the account debtor or any other person liable
in connection therewith is insolvent, subject to bankruptcy or
receivership proceedings or has made an assignment for the
benefit of creditors or whose credit standing is unacceptable
to Bank and Bank has so notified Borrower.


(4) The portion of Accounts representing amounts to be paid to
LifeCell pursuant to Borrower's Alloderm Co-Promotion
Agreement with LifeCell Corporation dated February 9, 2000
("LifeCell Agreement").


(5) Credit balances greater than 90 days from invoice date.


(6) Accounts due from a debtor if 25% or more of the aggregate
amount of accounts of such debtor have at that time remained
unpaid for more than 90 days from invoice date.


(7) For accounts representing more than 20% of Borrower's total
accounts receivable, the balance in excess of 20% is not
eligible, except for LifeCell accounts receivable pursuant to
the LifeCell Agreement, for which the concentration limit will
be applied to the end account payer rather than for LifeCell.


(8) Accounts with respect to international transactions unless
insured by an insurance company acceptable to the Bank or
covered by letters of credit issued or confirmed by a bank
acceptable to the Bank.


(9) Accounts with respect to which the account debtor is an
officer, director, shareholder, employee, subsidiary or
affiliate of Borrower, except for accounts owed by the
following entities:


Zein Obagi, M.D.


VNO Corporation


Thomas Lee, M.D.


Cellogique


(10) Accounts where the account debtor is a seller to Borrower,
whereby a potential offset (contra) exists, but only to the
extent of the potential offset (contra).


(11) Consignment or guaranteed sales.


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(12) Contract receivables; bill and hold accounts.


(13) Collection accounts.


(14) C.O.D. accounts.


(15) Salesmen's accounts for promotional purposes.


(16) All United States Government receivables, unless formally
assigned to the Bank.


(17) Accounts representing billings for service or maintenance
contracts or for inventory or equipment on rent to the account
debtor.


(18) Deferred revenues.


(19) Pre-billings.


"Inventory" means all of the Borrower's goods, merchandise and other personal property which are held for sale or lease, including those held for display or demonstration or out on lease or consignment or to be furnished under a contract of service or are raw materials, work in process or materials used or consumed, or to be used or consumed in Borrower's business, and shall include all property rights, patents, copyrights, trademarks, plans, drawings, diagrams, schematics, assembly and display materials relating thereto.


"Eligible Inventory" means Inventory eligible for advances hereunder and shall be that Inventory deemed acceptable by Bank, and shall NOT include the following, without duplication:


(1) Supplies (e.g. packaging).


(2) Raw materials / purchased parts raw materials not in saleable
form.


(3) Work in process.


(4) Inventory consigned to sales representatives.


(5) Obsolete inventory.


(6) Inventory reserve amounts.


(7) Finished goods with no/low liquidation value.


(8) Inventory in private warehouses (unless proper UCC-1 filing
and a warehouse bailment agreement are in place).


(9) Defective or inventory under repair.


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(10) Inventory not insured naming Bank as Loss Payee.


(11) Inventory not located at the following addresses:


310 Golden Shore
Long Beach, CA 90802


625 Alaska Avenue
Torrance, CA 90503


2060 E. Alosta Avenue
Suites 100-105, 150, and 200
Glendora, CA 91740


10717 N. Wolfe Rd.
Cupertino, CA 95014


(12) Inventory related to Borrower's "Kinetin" product lines.


(13) All other Inventory deemed ineligible by Bank.


(h) REQUESTS FOR ABL LOANS. Requests for ABL Loans hereunder shall be in writing duly executed by Borrower in a form satisfactory to Bank and shall contain a certification setting forth the matters referred to in Section 1, which shall disclose that Borrower is entitled to the amount of Loan being requested.


1.05 INTEREST CALCULATIONS. The term "Prime Rate" shall mean the rate that the Bank has announced as its prime lending rate, which shall vary concurrently with any change in the Prime Rate. The term "LIBOR Rate" shall mean the LIBOR rate as specified in the addendum annexed hereto or to the Note relating to the appropriate term loans. Interest based on the Prime Rate shall vary concurrently with any change in the Prime Rate. All interest shall be computed at the rate specified herein or in Note relating to a term loan on the basis of the actual number of days during which the principal balance of the corresponding Loans are outstanding divided by 360, which shall for interest computation purposes be considered one (1) year.


1.06 DOCUMENTATION FEE, COSTS AND EXPENSES. In addition to any other amounts due, or to become due, concurrently with the execution hereof, Borrower agrees to pay to Bank a documentation fee not to exceed $5,000, as well as reasonable external legal fees and all other costs and expenses incurred by the Bank in the preparation of this Agreement, the other Loan Documents and the perfection of any security interest granted to Bank by Borrower.


1.07 LOAN FEES.


(a) COMMITMENT FEES. In addition to any other amounts due, or to become due, concurrent with the execution hereof, in connection with: (1) the ABL Line of Credit, Borrower shall pay to


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Bank a loan fee of Seventeen Thousand Five Hundred Dollars ($17,500) and (2) the Term Loan C, Borrower shall pay to Bank a facility fee of Thirty Thousand Dollars ($30,000).


(b) NON-USAGE FEE. Borrower shall pay to Bank a fee on the unused portion of the ABL Line of Credit equal to one half of one percent (0.50%) per annum, payable quarterly in arrears on the first day of each quarter.


1.08 COLLATERAL. Borrower shall grant or cause to be granted to Bank a first priority lien on any and all personal property assets of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest or pursuant to the terms of any security agreement, an intellectual property security agreement or otherwise as security for all of Borrower's obligations to Bank, all as may be subject to Section 5.03 hereof.


1.09 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest, fees, costs, and/or expenses due under this Agreement by charging Borrower's demand deposit account number 08-221-316 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower.


1.10 LATE CHARGE. If any installment payment, interest payment, principal payment or principal balance due to Bank is delinquent ten (10) or more days, Borrower agrees to pay Bank a late charge in the amount of five percent (5%) of the payment so due and unpaid on the ABL Line and in accordance with the appropriate Note for the term loans, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the Bank to accept any past due payment or less than the total unpaid principal balance after maturity. All payments, at Bank's sole discretion, shall be applied first to any late charges owing, then to interest and the remainder, if any, to principal.


1.11 DEFAULT RATE. If an Event of Default occurs hereunder as defined in Article VI, then during the continuance thereof at the Bank's option, the interest rate shall be five percent (5%) per year in excess of the rate otherwise applicable on the ABL Line and or in accordance with the appropriate note for any term loan..


2. REPRESENTATIONS OF BORROWER


Borrower represents and warrants that:


2.01 EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and existing and in good standing under the laws of the state of California without limit as to the duration of its existence and is authorized and in good standing to do business in the state of California. Borrower has the appropriate powers and adequate authority, rights and franchises to own its property and to carry on its business as now conducted, and is duly qualified and in good standing in each state in which the character of the properties owned by it therein or the conduct of its business makes such qualification necessary. Borrower has the power and adequate authority to make and carry out this Agreement. Borrower has no investment in any other business entity unless specified in writing to Bank.


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2.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this Agreement and the Loan Documents are duly authorized and do not require the consent or approval of any governmental body or other regulatory authority; are not in contravention of or in conflict with any law or regulation or any term or provision of Borrower's articles of incorporation, by-laws, or similar document as the case may be, and this Agreement is the valid, binding and legally enforceable obligation of Borrower in accordance with its terms; subject only to bankruptcy, insolvency or similar laws affecting creditors rights generally.


2.03 NO CONFLICT. The execution, delivery and performance of this Agreement and the Loan Documents are not in contravention of or in conflict with any agreement, indenture or undertaking to which Borrower is a party or by which it or any of its property may be bound or affected, and do not cause any lien, ...