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












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

  



 











 


	
  

  	
  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

  
					



 















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