Exhibit 10.34

SETTLEMENT AND CONSENT AGREEMENT AND MUTUAL RELEASE

This Settlement and Consent Agreement and Mutual Release (the “Agreement”) is
entered into by and among Obagi Medical Products, Inc. and OMP, Inc.
(collectively “Obagi”), Stonington Partners, Inc. and Stonington Capital
Appreciation 1994 Fund, L.P. (collectively “Stonington”), on one hand, and the
McNamara Family Irrevocable Trust dated December 17, 2004, the McNamara Family
Trust dated December 27, 2004 (collectively, the “Trusts”), the estate of Austin
T. McNamara, Lucy B. McNamara individually and as trustee of the Trusts and as
executor of the estate of Austin T. McNamara, and Lighthouse Venture Group, LLC
(along with any jointly owned or related Lighthouse entity, collectively known
as “Lighthouse”) on the other hand, as of this 29th day of May 2007. The Trusts,
the estate of Austin T. McNamara, Lucy B. McNamara, in all her capacities, and
Lighthouse are sometimes hereafter collectively referred to as the “McNamara
Parties.” Obagi, Stonington, and the McNamara Parties are sometimes collectively
referred to as the “Settling Parties.”

RECITALS

A.            Austin T. McNamara had an employment relationship with Obagi, or
its subsidiaries, from approximately September, 2001, through approximately May
2006. The Settling Parties have various disputes surrounding, among other
things, the employment relationship between Austin T. McNamara and Obagi.

B.             Austin T. McNamara purchased approximately 625,000 shares of OMP,
Inc. common stock pursuant to the terms of a Stock Purchase and Subscription
Agreement and was granted options to purchase an additional 1,250,000 shares of
OMP, Inc., common stock pursuant to the terms of a Stock Option Award Agreement
(Incentive Stock Options/Nonqualified Stock Options) and a Stock Option Award
Agreement (Superior Value Options) (the option agreements are collectively
referred to as the “Stock Option Agreements”) (all references herein to numbers
of shares are after taking account of the 1:1.2 reverse split of Obagi common
stock that was effective in December 2006).

C.             OMP, Inc. later restructured, and OMP, Inc. became a wholly owned
subsidiary of Obagi Medical Products, Inc. All outstanding OMP, Inc. shares were
exchanged for shares of Obagi Medical Products, Inc. common stock and the Stock
Option Agreements were assigned by OMP, Inc. to Obagi Medical Products, Inc. and
assumed by the latter. As a result of the restructuring, Mr. McNamara owned
625,000 shares of Obagi Medical Products, Inc. common stock and options to
purchase 1,250,000 shares of Obagi Medical Products, Inc. common stock. Shares
of Obagi Medical Products, Inc. common stock are hereinafter referred to as
“Obagi Shares.”

D.            In December 2004, Austin T. McNamara transferred his Obagi Shares
and options to the Trusts and the Trusts signed agreements joining the
Investor’s Rights Agreement dated as of April 1, 2002 previously entered into by
and between Austin T. McNamara and Obagi (the “IRA”). The Trusts exercised the
option rights and purchased 1,250,000 Obagi Shares in 2005.   In October 2006,
Obagi

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filed a Form W-2c for Austin T. McNamara for the 2005 tax year treating
1,000,000 of these exercised options as non-qualified stock options under the
Internal Revenue Code of 1986, as amended (the “Code”) and 250,000 of these
exercised options as incentive stock options under the Code. The McNamara
Parties dispute the characterization by Obagi of the 1,000,000 options as
non-qualified options under the Code.

E.             On December 13, 2006, the Initial Public Offering (the “IPO”) of
Obagi common stock became effective. As part of the IPO process, the
underwriters of the offering required, among other things, that previously
issued shares be subject to a 180 day lock-up period, whereby owners of these
previously issued shares, including the Trusts, could not sell their Obagi
Shares without the express permission of the underwriters as described in the
IRA. The lock-up on the Trusts’ Obagi Shares expires on June 12, 2007.

F.             In consideration of the resolution of all of the claims between
the Settling Parties, except those described in Paragraph 4, Obagi has obtained
the consent of the lead managing underwriter of the IPO to permit the Trusts to
negotiate with certain entities for the sale of their Obagi Shares before
expiration of the lock-up.

NOW, THEREFORE, in consideration of the promises and mutual agreements
hereinafter set forth, the parties hereby agree as follows:

1.                     Release From Lock-up Agreement; Transfer of Obagi Shares.
Obagi hereby consents to release the Trusts from the 180 day lock-up period
under the IRA and imposed by Obagi’s lead managing underwriter of the IPO, J.P.
Morgan Securities Inc. (“JP Morgan”), to sell their Obagi Shares to UBS AG, or
its related entities (“UBS”). Obagi shall request that JP Morgan deliver a
letter from JP Morgan, concurrent herewith and substantially in the form
attached hereto as Exhibit A, providing JP Morgan’s consent to the sale of the
Obagi Shares to UBS. Upon JP Morgan’s execution and delivery of such consent
letter and the Trusts’ delivery to Obagi’s transfer agent of documents which are
customary in connection with the transfer of stock, Obagi agrees to instruct its
transfer agent to transfer the Trusts’ Obagi Shares to UBS. The transferred
shares shall include a restrictive legend precluding the transfer by UBS of
their Obagi Shares or any potion thereof until expiration of the existing
lock-up. Obagi agrees to cooperate with UBS and the Trusts to effect any
subsequent transfer by UBS of their Obagi Shares subsequent to the expiration of
the existing lock-up. The release contained in Paragraphs 2 and 3 below shallbe
immediately effective when JP Morgan delivers its written consent to the Trusts
and the transfer agent records title of the Trusts’ Obagi Shares in the name of
UBS.

2.                     Mutual Release of Claims/ No Pending Actions. Except as
expressly set forth herein at Paragraph 4, each Settling Party expressly waives
and releases any and all claims against all other Settling Parties and releases
all other Settling Parties (including, to the fullest extent applicable, its/her
present and former respective officers, directors, agents, attorneys, parent
companies, owned companies and subsidiaries, jointly owned companies,
stockholders, managers, employees, family members, heirs, predecessors,
successors, assigns, and representatives) from any and all claims that any
Settling Party may have against any other Settling Party, including but not
limited to claims regarding or related to the IRA, the Trusts’ sale

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of their Obagi Shares to UBS, or Austin T. McNamara’s employment with Obagi and
the termination thereof, whether or not such claims are presently known or
unknown to a releasing Settling Party. These mutual releases include, but are
not limited to, any claims of any kind whatsoever, arising out of any contracts,
express or implied, any covenant of good faith and fair dealing, express or
implied, any theory of employment discrimination or wrongful discharge, any
claim for alleged and disputed unpaid wages, salary, expense reimbursement or
any other payments or monetary obligations, any legal restriction on Obagi’s
right to terminate Austin T. McNamara, or any federal, state or other
governmental statute or ordinance, including without limitation Title VII of the
Civil Rights Act of 1964, the Americans with Disabilities Act, any state laws
concerning discrimination or harassment, including without limitation
California’s Fair Employment and Housing Act, or any other legal limitation on
the employment relationship or its termination, or any claim for breach of
fiduciary duty. Each Settling Party represents that she/it does not currently
have on file any complaints, charges or lawsuits against any other Settling
Party or, to the fullest extent applicable, its/her present and former
respective officers, directors, stockholders, managers, agents, employees,
attorneys, family members and representatives with any governmental agency or
any court, and agrees that she/it will not initiate, assist or encourage any
such actions except both as specifically permitted in this Agreement and as
otherwise provided by law.

3.             Releases of Unknown Claims.  The release granted by this
Agreement shall be effective as a bar to each and every claim, demand, or cause
of action that any Settling Party may have, except as set forth in Paragraph 4.
Each Settling Party recognizes that he/it may have a claim, demand, or cause of
action against another Settling Party of which the Settling Party is totally
unaware and unsuspecting but which that Settling Party is giving up by execution
of the release. Each Settling Party agrees to waive and release all such claims.
Each Settling Party expressly waives any rights or benefits conferred by the
provisions of Section 1542 of the Civil Code of the State of California, which
provides as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

It is expressly agreed that this Agreement shall extend and apply to all
unknown, unsuspected, and unanticipated injuries and damages as well as those
that are now disclosed.

4.             Non-Released Claims/Carve-Out.  The Settling Parties expressly
retain, and carve-out from this Agreement and the release contained herein, all
rights, claims and causes of action, known or unknown, relating to (i) the Stock
Option Agreements, including without limitation, the tax characterization of the
stock options granted thereunder, or (ii) any federal, state, or local taxes or
tax obligations, including without limitation interest and penalties, whether
arising directly or through disallowance of any deductions, of any of the
Settling Parties arising from or relating to the transfer, or exercise by the
Trusts or Austin T. McNamara of any Obagi stock options. Nothing in this
Agreement, therefore, shall be understood to waive, release, apply to or limit
any of such rights, claims, or causes of actions, including without limitation
any rights, claims, or causes of action any of the Settling Parties may have
with respect

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to any breach of the Stock Option Agreements or any failure to pay the proper
taxes due as a result of the exercise of the stock options granted under the
Stock Option Agreements.

5.                     Representation. This Agreement is the product of
arms-length negotiations. It was negotiated for each of the Settling Parties by
a representative of their own choosing. The Settling Parties are voluntarily
entering into this Agreement. The McNamara Parties have not requested and do not
request that Obagi provide them with any non-public information concerning Obagi
and will not represent to any buyer of their Obagi Shares that they are privy to
any non-public information concerning Obagi (except for information related to
the disputes between the Settling Parties which shall not be shared with any
buyer of their Obagi Shares). Obagi’s role in the sale of the Obagi Shares by
the Trusts has been limited to introducing the Trusts to certain potential
buyers, acquiring a release from JP Morgan of the lock-up provision on behalf of
the Trusts, and instructing its transfer agent to allow the transfer of the
Trusts’ Obagi Shares to UBS. Obagi has not made any representations to the
McNamara Parties regarding the value of their Obagi Shares. The McNamara Parties
acknowledge that their decision to sell their Obagi Shares and their decision
about the value of their Obagi Shares were each made independent from anything
said or any information provided by Obagi in the course of these negotiations.

6.                     Public Disclosure. The McNamara Parties acknowledge that
Obagi will make a public disclosure of the signing of this release and the
release of the lock-up. Obagi’s disclosure hereunder shall be limited solely to
the amount of disclosure that is required under applicable law.

7.                     Compromise. This Agreement is a compromise of
disagreements and potential disagreements between the Parties in order avoid the
expense, uncertainty, and disruption of litigation. This Agreement is not to be
construed as an admission for any purpose whatsoever on the part of any Settling
Party.

8.                     Actions. If any lawsuit is brought relating to this
Agreement or any breach of it, the “prevailing party” (as determined under
California law) will be entitled to reasonable attorney’s fees and its other
legal remedies.

9.                     Headers; Severability; Governing Law; Venue. Headers in
this Agreement are for reference only. If any provision or portion of this
Agreement is found to be void or unenforceable, it shall be severable and shall
in no way affect any other provision of this Agreement, the application of such
provision in any other circumstances, or the validity or enforceability of this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of California. The Parties agree that the only proper
venue for resolving future disputes between the Parties will be in Los Angeles
County.

10.                  Notices. Any notice hereunder shall be in writing and shall
be deemed to be given to the party to whom addressed when delivered to such
party or received by such party if sent by telecopy (or 3 days after mailing if
sent by registered or certified mail, return receipt requested, prepaid and
addressed) at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:

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To McNamara Parties:

 

Lucy B. McNamara

10202 Sycamore Circle

Villa Park, California 92861

 

 

 

Copies to:

 

Sheppard Mullin Richter & Hampton LLP

Attn: David I. Sunkin, Esq.

333 South Hope Street, Suite 4800

Los Angeles, California 90071

Facsimile: (213) 443-2750

 

 

 

To Obagi:

 

Obagi Medical Products, Inc.

310 Golden Shore

Long Beach, California 90802

 

 

 

Copies to:

 

Heller Ehrman LLP

Attn:  Jerry Marks, Esq.

333 South Hope Street, 39th Floor

Los Angeles, California 90071

Facsimile: (213) 614-1868

 

 

 

To Stonington:

 

Stonington Partners, Inc.

540 Madison Avenue

New York, New York  10022

 

11.           Miscellaneous. This Agreement constitutes the entire agreement
with respect to any matters referred to in it, and this Agreement supersedes any
and all other agreements between the Parties. This Agreement may only be amended
in writing signed by a representative for each of the Parties, and it is
executed voluntarily and with full knowledge of its significance.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date and
year first above written.

OBAGI MEDICAL PRODUCTS, INC.

 

 

 

 

 

 

By:

 /s/ Stephen Garcia

 

 

 

Name:  Stephen Garcia

 

 

Title:   Executive Vice President / CFO

 

 

 

 

 

OMP, INC.

 

 

 

 

 

 

By:

 /s/ Stephen Garcia

 

 

 

Name:  Stephen Garcia

 

 

Title:    Executive Vice President / CFO

 

 

 

 

 

STONINGTON PARTNERS, INC.

 

 

 

 

 

 

By:

 /s/ Albert J.Fitzgibbons, III

 

 

 

Name:  Albert J.Fitzgibbons, III

 

 

Title: 

 

 

 

 

 

STONINGTON CAPITAL APPRECIATION
      1994 FUND, L.P.

 

 

 

 

 

 

By:

 /s/ Albert J.Fitzgibbons, III

 

 

 

Name:  Albert J.Fitzgibbons, III

 

 

Title: 

 

 

 

 

 

MCNAMARA FAMILY IRREVOCABLE
TRUST DATED DECEMBER 17, 2004

 

 

 

 

 

 

By:

 /s/ Lucy B. McNamara

 

 

 

Name:  Lucy B. McNamara

 

 

Title:    Trustee

 

 

 

 

 

MCNAMARA FAMILY TRUST DATED
      DECEMBER 27, 2004

 

 

 

 

 

 

By:

 /s/ Lucy B. McNamara

 

 

 

Name:  Lucy B. McNamara

 

 

Title:    Trustee

 

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ESTATE OF AUSTIN T. MCNAMARA

 

 

 

 

 

 

By:

 /s/ Lucy B. McNamara

 

 

 

Name:  Lucy B. McNamara

 

 

Title:    Trustee

 

 

 

 

 

LIGHTHOUSE VENTURE GROUP, LLC

 

 

 

 

 

 

By:

 /s/ Lucy B. McNamara

 

 

 

Name:  Lucy B. McNamara

 

 

Title:    Member

 

 

 

 

 

 

 

 /s/ Lucy B. McNamara

 

 

Lucy B. McNamara, an individual

 

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Exhibit A

J.P. MORGAN SECURITIES INC.

May 26, 2007

Obagi Medical Products, Inc.

310 Golden Shore

Long Beach, CA 90802

Attention: Steven R. Carlson

Re:  Release of Lock-Up

Ladies and Gentlemen:

Reference is hereby made to the Underwriting Agreement dated December 13, 2006
(the “Underwriting Agreement”) between Obagi Medical Products, Inc. (the
“Company”) and J.P. Morgan Securities Inc. (“JPMorgan”), as representative of
the several underwriters named therein (the “Underwriters”) and that certain
Letter, dated December 13, 2006 (the “Side Letter”) executed and delivered on
behalf of the Company by Mr. Steve Carlson, CEO and President of Obagi Medical
Products, Inc. for the benefit of the Underwriters.

Notwithstanding anything in the Side Letter to the contrary, JPMorgan, on behalf
of the Underwriters, hereby gives its consent to allow the Company to release
the McNamara Family Irrevocable Trust and the McNamara Family Trust (the
“Estates”) from their obligations under Section 2.9 of the Investor Rights
Agreement dated as of April 1, 2002, by and between the Company and Austin
T. McNamara, to the extent necessary to allow the transfer by the Estates of up
to 1,875,001 shares of common stock, par value $0.001 per share, of the Company
held by the Estates to UBS AG London Branch (the “Transferee”), subject to the
condition that the Transferee executes a written Lock-Up agreement substantially
in the form attached to the Underwriting Agreement for the benefit of the
Underwriters. Except as specifically set forth herein, the Side Letter shall
remain in full force and effect according to its terms.

Very truly yours,

J.P. Morgan Securities Inc.,

as representative of the Underwriters,

By:

/s/ Paul Henderson

 

 

Name:  Paul Henderson

 

Title:    Managing Director

 

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