<PAGE>
OBAGI MEDICAL PRODUCTS, INC.
2000 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Option/Stock Issuance Plan is intended to
promote the interests of Obagi Medical Products, Inc., a California
corporation, by providing eligible persons in the Corporation's employ or
service with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for
them to continue in such employ or service.
Capitalized terms herein shall have the meanings assigned
to such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity
programs:
(i) the Option Grant Program
under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,
and
(ii) the Stock Issuance Program
under which eligible persons may, at the discretion of the Plan
Administrator, be issued shares of Common Stock directly, either
through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to
both equity programs under the Plan and shall accordingly govern the
interests of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However,
any or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such
period of time as the Board may determine and shall be subject to removal by
the Board at any time. The Board may also at any time terminate the functions
of the Committee and reassume all powers and authority previously delegated
to the Committee.
1
<PAGE>
B. The Plan Administrator shall have full power and
authority (subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
Plan and any outstanding options or stock issuances thereunder as it may deem
necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan or any option or
stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as
follows:
(i) Employees,
(ii) non-employee members of the
Board or the non-employee members of the board of directors of any
Parent or Subsidiary, and
(iii) consultants and other
independent advisors who provide services to the Corporation (or any
Parent or Subsidiary).
B. The Plan Administrator shall have full authority to
determine, (i) with respect to the grants under the Option Grant Program,
which eligible persons are to receive the option grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or
a Non-Statutory Option, the time or times when each option is to become
exercisable, the maximum term for which the option is to remain outstanding,
and (ii) with respect to stock issuances under the Stock Issuance Program,
which eligible persons are to receive such stock issuances, the time or times
when those issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued
shares, and the consideration to be paid by the Participant for such shares.
C. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall
not exceed 250,000 shares.
B. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i)
the options expire or terminate for any reason prior to exercise in full or
(ii) the options are cancelled in accordance with the cancellation-
2
<PAGE>
regrant provisions of Article Two. Shares issued under the Plan and
subsequently repurchased by the Corporation pursuant to the Corporation's
repurchase rights under the Plan shall be added back to the number of shares
of Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or
direct stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan and (ii) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive. In no event shall any such adjustments be made
in connection with the conversion of one or more outstanding shares of the
Corporation's preferred stock into shares of Common Stock.
3
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by a Stock Option Agreement which complies
with the terms specified below. Each Stock Option Agreement evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by
the Plan Administrator in accordance with the following provisions:
(i) The exercise price per
share shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
(ii) If the person to whom the
option is granted is a 10% Shareholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I
of Article Four and the documents evidencing the option, be payable in cash
or check made payable to the Corporation. Should the Common Stock be
registered under section 12 of the 1934 Act at the time the option is
exercised, then the exercise price may also be paid as follows:
(i) in shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date, or
(ii) through a special sale and
remittance procedure pursuant to which the Optionee shall concurrently
provide irrevocable instructions (A) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable Federal,
state and local
4
<PAGE>
income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (B) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and
remittance procedure is utilized, payment of the exercise price for the
purchased shares must be made on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option grant. However, no option shall have a term
in excess of ten (10) years measured from the option grant date. The Plan
Administrator may not impose a vesting schedule upon the option grant which
is more restrictive than twenty percent (20%) per year vesting, with the
initial vesting to occur not later than one (1) year after the option grant
date. However, such limitation shall not be applicable to any option grants
made to individuals who are officers of the Corporation, non-employee Board
members or independent consultants.
C. MANNER OF EXERCISING OPTION. Optionee shall be required
to execute and deliver to the Corporation a Purchase Agreement for the Option
Shares for which the option is exercised.
D. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Should the Optionee cease
to remain in Service for any reason other than death, Disability or
Misconduct, then the Optionee shall have a period of three (3) months
following the date of such cessation of Service during which to
exercise each outstanding option held by such Optionee.
(ii) Should Optionee's Service
terminate by reason of Disability, then the Optionee shall have a
period of twelve (12) months following the date of such cessation of
Service during which to exercise each outstanding option held by such
Optionee.
(iii) If the Optionee dies while
holding an outstanding option, then the personal representative of his
or her estate or the person or persons to whom the option is
transferred pursuant to the Optionee's will or the laws of inheritance
shall have a twelve (12)-month period following the date of the
Optionee's death to exercise such option.
5
<PAGE>
(iv) Under no circumstances,
however, shall any such option be exercisable after the specified
expiration of the option term.
(v) During the applicable
post-Service exercise period, the option may not be exercised in the
aggregate for more than the number of vested shares for which the
option is exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which
the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding with respect to any and all option shares for
which the option is not otherwise at the time exercisable or in which
the Optionee is not otherwise at that time vested.
(vi) Should Optionee's Service
be terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time
for which the option is to remain exercisable following Optionee's
cessation of Service or death from the limited period otherwise in
effect for that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be
exercised, during the applicable post-Service exercise period, not
only with respect to the number of vested shares of Common Stock for
which such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
E. SHAREHOLDER RIGHTS. The holder of an option shall have
no shareholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become the recordholder of the purchased shares.
F. REPURCHASE RIGHTS. Until such time as the Common Stock
is first registered under section 12 of the 1934 Act, the Corporation shall
have the option, but not the obligation, to repurchase all or any part of any
shares of Common Stock issued under the Plan. Such repurchase rights shall be
exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.
6
<PAGE>
G. FIRST REFUSAL RIGHTS. Until such time as the Common
Stock is first registered under section 12 of the 1934 Act, the Corporation
shall have the right of first refusal with respect to any proposed
disposition by the Optionee (or any successor in interest) of any shares of
Common Stock issued under the Plan. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.
H. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime
of the Optionee, the option shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death.
I. WITHHOLDING. The Corporation's obligation to deliver
shares of Common Stock upon the exercise of any options granted under the
Plan shall be subject to the satisfaction of all applicable Federal, state
and local income and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options shall NOT be
subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not
be less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of
the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Shareholder, then the option term shall not exceed
five (5) years measured from the option grant date.
7
<PAGE>
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the
Plan at the time of a Corporate Transaction shall automatically vest in full
so that each such option shall, immediately prior to the effective date of
the Corporate Transaction, become fully exercisable for all of the shares of
Common Stock at the time subject to that option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. However, the
shares subject to an outstanding option shall NOT vest on such an accelerated
basis if and to the extent: (i) such option is assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and the
Corporation's repurchase rights are concurrently assigned to such successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of the option grant.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
C. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction, had the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to (i) the
number and class of securities available for issuance under the Plan
following the consummation of such Corporate Transaction and (ii) the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
D. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration (in
whole or in part) of one or more outstanding options (and the immediate
termination of the Corporation's repurchase rights with respect to the shares
subject to those options) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed in the Corporate Transaction.
E. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
8
<PAGE>
F. The grant of options under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. CORPORATION'S RIGHT TO ACCELERATE EXERCISE RIGHTS
Upon the occurrence of an Organic Change, the Corporation
shall have the right, exercisable in the Corporation's sole discretion, to
require that all Options which have become vested be exercised or become void
if not exercised within a period of fifteen (15) days after the Corporation
gives notice that it intends to consummate a transaction which would be an
Organic Change, but in any event not later than the effective date of the
Organic Change. The term "Organic Change" shall mean (a) a merger of the
Corporation with or into another corporation, (b) a consolidation of the
Corporation with another corporation, (c) sale of all or substantially all of
the assets of the Corporation, (d) sale or transfer of more than fifty
percent (50%) of the issued and outstanding Stock of the Corporation to
another person in a single transaction or series of transactions or (e) the
filing of a registration statement by the Corporation under the Securities
Act of 1933, as amended, with the United States Securities and Exchange
Commission (the "SEC") for the registration of equity securities of the
Corporation.
V. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect,
at any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the Plan
and to grant in substitution therefor new options covering the same or
different number of shares of Common Stock but with an exercise price per
share based on the Fair Market Value per share of Common Stock on the new
option grant date.
9
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock
Issuance Program through direct and immediate issuances without any
intervening option grants. Each such stock issuance shall be evidenced by a
Stock Issuance Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by
the Plan Administrator but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the issue date.
However, the purchase price per share of Common Stock issued to a 10%
Shareholder shall not be less than one hundred and ten percent (110%) of such
Fair Market Value.
2. Subject to the provisions of Section I of
Article Four, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable
to the Corporation, or
(ii) past services rendered to
the Corporation (or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully
and immediately vested upon issuance or may vest in one or more installments
over the Participant's period of Service or upon attainment of specified
performance objectives. However, the Plan Administrator may not impose a
vesting schedule upon any stock issuance effected under the Stock Issuance
Program which is more restrictive than twenty percent (20%) per year vesting,
with initial vesting to occur not later than one (1) year after the issuance
date. Such limitation shall not apply to any Common Stock issuances made to
the officers of the Corporation, non-employee Board members or independent
consultants.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash
dividend) which the Participant may have the
10
<PAGE>
right to receive with respect to the Participant's unvested shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting requirements
applicable to the Participant's unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full shareholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest
in those shares is vested. Accordingly, the Participant shall have the right
to vote such shares and to receive any regular cash dividends paid on such
shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued
under the Stock Issuance Program or should the performance objectives not be
attained with respect to one or more such unvested shares of Common Stock,
then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further shareholder rights
with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money indebtedness), the
Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. FIRST REFUSAL RIGHTS. Until such time as the Common
Stock is first registered under section 12 of the 1934 Act, the Corporation
shall have the right of first refusal with respect to any proposed
disposition by the Participant (or any successor in interest) of any shares
of Common Stock issued under the Stock Issuance Program. Such right of first
refusal shall be exercisable in accordance with the terms established by the
Plan Administrator and set forth in the document evidencing such right.
D. PURCHASE OPTION. Until such time as the Common Stock is
first registered under section 12 of the 1934 Act, the Corporation shall have
the option, but not the obligation, to purchase all or any part of any shares
of Common Stock issued under the Plan. Such purchase rights shall be
exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.
11
<PAGE>
II. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant
with restrictive legends on the certificates evidencing those unvested shares.
12
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price or the purchase price for shares
issued to such person under the Plan by delivering a full-recourse,
interest-bearing promissory note payable in one or more installments and
secured by the purchased shares. However, any promissory note delivered by a
consultant must be secured by collateral in addition to the purchased shares
of Common Stock. In no event shall the maximum credit available to the
Optionee or Participant exceed the SUM of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee or the Participant in connection with the option exercise or share
purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the
Board, but no option granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the
Corporation's shareholders. If such shareholder approval is not obtained
within twelve (12) months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall terminate and cease
to be outstanding, and no further options shall be granted and no shares
shall be issued under the Plan. Subject to such limitation, the Plan
Administrator may grant options and issue shares under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the EARLIEST of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for
issuance under the Plan shall have been issued as vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. All options and unvested stock issuances outstanding at that
time under the Plan shall continue to have full force and effect in
accordance with the provisions of the documents evidencing such options or
issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations with respect to options or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment
13
<PAGE>
or modification. In addition, certain amendments may require shareholder
approval pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program
and shares may be issued under the Stock Issuance Program which are in each
instance in excess of the number of shares of Common Stock then available for
issuance under the Plan, provided any excess shares actually issued under
those programs shall be held in escrow until there is obtained shareholder
approval of an amendment sufficiently increasing the number of shares of
Common Stock available for issuance under the Plan. If such shareholder
approval is not obtained within twelve (12) months after the date the first
such excess issuances are made, then (i) any unexercised options granted on
the basis of such excess shares shall terminate and cease to be outstanding
and (ii) the Corporation shall promptly refund to the Optionees and the
Participants the exercise or purchase price paid for any excess shares issued
under the Plan and held in escrow, together with interest (at the applicable
Short Term Federal Rate) for the period the shares were held in escrow, and
such shares shall thereupon be automatically cancelled and cease to be
outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale
of shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common
Stock upon the exercise of any options or upon the issuance or vesting of any
shares issued under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly
reserved by each, to terminate such person's Service at any time for any
reason, with or without cause.
14
<PAGE>
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
15
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Obagi Medical Products, Inc., a California
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Obagi Medical Products, Inc. which shall by
appropriate action adopt the Plan.
G. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined
by the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
A-1
<PAGE>
(i) If the Common Stock is at the time traded on the
NASDAQ National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the NASDAQ National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on
any Stock Exchange nor traded on the NASDAQ National Market, then the
Fair Market Value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which
materially reduces his or her duties and responsibilities or the level
of management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
without the individual's consent.
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
A-2
<PAGE>
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds
for the dismissal or discharge of any Optionee, Participant or other person
in the Service of the Corporation (or any Parent or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code section 422.
P. OPTION GRANT PROGRAM shall mean the option grant program in
effect under the Plan.
Q. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
R. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
S. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 2000 Stock Option/Stock
Issuance Plan, as set forth in this document.
U. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
V. SERVICE shall mean the provision of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
A-3
<PAGE>
Z. STOCK OPTION AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of option shares
under the Stock Option Plan.
AA. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
BB. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Code section 424(d)) possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).
A-4
