Vice President of Regulatory Affairs And Product Technology & Development Employment Agreement

OBAGI MEDICAL PRODUCTS INC.


EMPLOYMENT AGREEMENT


Dr. Vartan Libaridian 17751 Sherman Way Reseda, CA 92000


Dear Vartan,


I am pleased to offer you the position of Vice President of Regulatory Affairs and Product Technology & Development, on the following terms:


You will perform the duties customarily associated with this position with respect to the Company's operations on a full-time basis. You will report directly to the Chief Medical Officer of the Company on matters relating to Product Technology and Development and to myself on all other matters. You will be based in Long Beach, California, or such other location, which the Company establishes as its principal place of business. It is currently anticipated that the Company will relocate its operations to the Long Beach area, sometime at the beginning of 1998.


A. TERM


The term of your employment shall be for a period of one (1) year commencing on 1 January 1998, and shall be automatically renewed for successive one-year terms unless either party gives notice to the other prior to the expiration of the initial term or any renewal term subject to the termination provisions set forth herein.


B. TRANSITION YEAR 1998


For the duration of 1998 we have agreed that this will be a Transition Year, during which the Company will arrange to purchase your laboratory equipment, and you will arrange to move your laboratory and operations from its current location in Reseda to the Company's facility in Long Beach. We have agreed to work with you on formulating a Transition Plan. This Transition Plan will in detail schedule this move, and will be agreed to by all parties before the commencement of this Employment Agreement. The details of this Transition Plan are set forth as Exhibit "C" attached hereto.


C. COMPENSATION


SALARY: Your salary shall be $120,000 per annum subject to annual cost of living increases based on the Consumer Price Index for All Items, All Urban Consumers for the Los Angeles-Anaheim-Riverside, CA area or such greater increase as may be approved by the Company's Board of Directors in its discretion. Your salary shall be paid bi-weekly, subject to standard payroll deductions and withholdings.


OBAGI MEDICAL PRODUCTS INC.


BONUS: You shall be entitled to an annual bonus based on the achievement of certain benchmarks as set forth on Exhibit "A" attached hereto. You will be eligible to earn a bonus of 25% of base salary, as adjusted for performance in accordance with the benchmarks set forth in Exhibit "A". All bonuses will be subject to the legal deductions and withholdings, etc. as customary. No bonus is payable unless you are employed by the Company on December 31 of the applicable year.


STOCK OPTION GRANT: The Company intends to grant you stock options to purchase common stock of the Company. The terms of the stock options are set forth on Exhibit "B" attached hereto.


BENEFITS: You will be eligible for vacation and sick leave according to standard Company policy for employees having at least three (3) years' seniority. You will also receive all other benefits the Company provides to its most senior employees (e.g., health or dental insurance coverage). You will be eligible to participate a 401k plan, which the Company expects to establish.


D. EXPENSES


The Company shall reimburse you for all other reasonable, ordinary and necessary expenses incurred in the performance of your duties (such reimbursement shall be conditioned upon the submission of reasonable detailed receipts and/or invoices substantiating such expenses).


E. TERMINATION


Either you or the Company may terminate your employment with or without cause, at any time, for any reason whatsoever without advance notice. This at-will employment relationship cannot be changed except by writing signed by the Chairman of the Board of the Company.


If the Company terminates your employment without cause, you will receive as your sole severance, your base salary for six months (6) payable bi-weekly subject to the customary legal deductions and withholdings. These payments shall cease immediately if you violate any provision of this agreement, including the provisions of Section F. If the Company exercises this right to terminate your employment without cause, no compensation will be owed to you other than the severance payment referred to in the previous sentence.


If you voluntarily terminate your employment, if you die or become physically or mentally disabled, or if the Company terminates your employment for cause, all compensation and benefits shall cease immediately, and you will receive no severance benefits or any other special payments. For purposes of this agreement, termination for cause shall mean material misconduct, including, but not limited to (i) conviction of any felony or any crime involving moral turpitude or dishonesty or which is punishable by imprisonment in a state or federal correctional facility; (ii) participation in a fraud or act of dishonesty against the Company or any of its customers or suppliers; (iii) willful and material breach of Company policies or willful violation of reasonable rules, regulations, ...