Document:

Confidential Treatment

  	
   

  
	
  Requested

  	
   

  

 

Exhibit
10.23

 

PATENT
LICENSE AGREEMENT

 

This Agreement is made as
of June 26, 2003 by and between:

 

AVON
PRODUCTS, INC., a corporation in good standing, organized and
existing under the laws of the State of New York, having a principal office at
1345 Avenue of the Americas, New York, New York 10105, and its Affiliates
(hereinafter collectively called “AVON”);
and

 

OBAGI
MEDICAL PRODUCTS, INC., a corporation in good standing,
organized and existing under the laws of the State of Delaware, having a
principal office at 310 Golden Shore, Ste 100, Long Beach, California, and its
Affiliates (hereinafter collectively called “OMP”).

 

WITNESSETH

 

WHEREAS,
AVON represents that it owns and has the right to license
certain patents which claim products and methods utilizing ascorbic acid; and

 

WHEREAS,
OMP has developed and continues to develop skin care products, particularly
facial peels; and

 

WHEREAS,
OMP wishes to acquire a license from AVON for use in or associated with OMP’s current
and future commercial activities relating to the sale of products containing
ascorbic acid on the terms set forth herein;

 

NOW,
THEREFORE, the parties hereby mutually agree as follows:

 

ARTICLE I - DEFINITIONS

 

Wherever used in this
Agreement, unless otherwise clearly indicated in the context, the following
terms shall have the meaning indicated below:

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

 

1.                          “Affiliate”
means any corporation or other legal business entity now or hereafter
controlling, controlled by or under common control with a party to this
Agreement. The term “control” (including the terms “controlling,” “controlled
by” and “under common control with”) means the possession, direct or indirect,
of the power to direct or cause the direction of the managing policies of an
entity due to the ownership of voting securities or voting rights, by contract
or otherwise.

 

2.                          “Effective
Date” means the date written on the first line of this Agreement.

 

3.                          “Medical
Spa” means a spa affiliated with a licensed physician, at which Rx products are
sold.

 

4.                          “Net
Sales” means the gross amount at which Products (as defined hereafter) are sold
or invoiced by OMP, less trade, quantity or cash discounts, return credits and
allowances actually given.

 

5.                          “Licensed
Patents” means U.S. Patent Nos. 6,299,889; 5,703,122; 5,516,793 and 4,983,382
and all continuations, continuations-in-part, extensions, divisionals,
substitutes, replacements, reexaminations and reissues and counterparts thereof
in any and every country of the world, any claim of which would be infringed by
Products manufactured, used, sold, offered for sale or distributed by OMP after
the Effective Date, absent this Agreement.

 

6.                          “Products”
means skin care products containing an ascorbic acid component limited to
Vitamin C and which fall within the scope of any claim of the Licensed Patents.
Foot care products are excluded from the scope of skin care products.

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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ARTICLE II - LICENSE GRANT

 

1.                          For the
Term of this Agreement, as defined in Article V herein, AVON hereby grants to
OMP upon the terms and conditions set forth in this Agreement: (a) an
exclusive, worldwide, payment-bearing license under the Licensed Patents,
without the right to sublicense, to allow OMP to make, have made, use, sell,
offer for sale and distribute Products directly to physicians and Medical Spas
for sale to and/or use by consumers; and (b) a non-exclusive, payment-bearing
license under the Licensed Patents, without the right to sublicense, to allow
OMP, or its authorized distributors acting on OMP’s behalf, to make, have made,
use, sell, offer for sale and distribute Products directly to drug stores
outside the United States only for sale to and/or use by consumers, Without
limiting the scope of the exclusive grant set forth in subparagraph (a) of this
Article II, Paragraph 1, it is understood and agreed that all Products sold to
and/or used by consumers, as set forth in this Article II, Paragraph 1, shall
at all times be marketed to such consumers under the “Obagi” or other trademark
owned by OMP.

 

2.                          In the
event OMP shall make or contribute to any invention or improvement which is (a)
within the scope of any Licensed Patent, or (b) conceived and/or made based
upon and as a result of (i) the disclosure by Avon of its Confidential
Information (as hereinafter defined) or (ii) the use of the patented technology
of the Licensed Patents ((a) and (b) collectively referred to as
“Improvements”), OMP shall promptly disclose such Improvements to AVON in
writing, and assign to AVON its full worldwide right, title and interest in and
to such Improvements, including without limitation the right for AVON to apply
for patents on such Improvements in its own

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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name, and AVON shall grant and hereby does grant OMP (c) a
non-transferable, non-sublicenseable, payment-free license commensurate in
scope with the exclusivities, business channels and territories set forth in
Article II, paragraph 1 above to practice, during the Term of this Agreement,
Improvements within the scope of the Licensed Patents solely to make, have
made, use, sell, offer for sale and distribute Products, and (d) a perpetual,
non-exclusive, non-transferable, non-sublicensable, payment-free license in the
business channels and territories set forth in Article II, paragraph 1 above to
practice Improvements outside the scope of the Licensed Patents. OMP agrees to
take such further actions as may be reasonably requested by AVON, at AVON’S
expense, including without limitation signing patent application and assignment
documents prepared by AVON, in order to vest in AVON ownership of such
Improvements.

 

3.                          No
license is granted to OMP for the manufacture, use, sale, offer for sale or
distribution of any product or service covered by the Licensed Patents other
than the Products expressly defined herein and expressly in the business
channels and territories described in Article II, paragraph 1 above.

 

4.                          OMP
shall use its best commercial efforts to manufacture, distribute and sell the
Products no later than March 1, 2004. OMP shall mark all Products it sells
and/or distributes with the patent numbers of the Licensed Patents.

 

5.                          Notwithstanding
anything contained in this Agreement to the contrary, AVON and OMP understand
and agree that this Agreement shall not in any way restrict or exclude AVON
from making, using, selling, offering for sale or distributing any products in
any business channel anywhere in the world. AVON agrees to provide three

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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(3) months notice to OMP in advance of the introduction for sale of any
Product within the business channels and territories set forth in Article II,
paragraph 1 above.

 

ARTICLE III - PAYMENTS

 

1.                          In
consideration of the licenses herein granted, OMP shall pay to AVON the
following sums:

 

(a)                     a
non-refundable license issue fee of [***] Dollars payable in three
(3) installments as follows:

 

(i) [***] Dollars [***] within
ten (10) days of the Effective Date of this Agreement;

 

(ii) [***] Dollars [***] within
one year from the Effective Date of this Agreement; and

 

(iii) [***] Dollars [***] within
two years from the Effective Date of this Agreement; and

 

(b)                    Throughout the
Term of this Agreement, (i) a royalty of [***] percent of Net Sales of Products
sold in a territory covered by one or more of the Licensed Patents; and (ii) a
royalty of [***] percent [***] of Net Sales of Products manufactured in a
territory covered by one or more of the Licensed Patents but sold in a
territory not covered by one or more of the Licensed Patents. Royalties paid by
OMP shall be non-refundable.

 

2.                          Royalties
provided for in this Agreement, when overdue, shall bear interest at a rate per
annum equal to          percent [***]
in excess of the “prime rate”

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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published by “The Wall Street Journal” at the time such payment is due,
and for the time period until payment is received by AVON.

 

3.                          In the
event of a renewal of the Term of this Agreement, as set forth in Article V,
paragraph I herein, a non-refundable annual renewal fee of [***] Dollars [***]
shall be due and payable on the date of each such annual renewal.

 

ARTICLE IV - ACCOUNTING PROVISIONS

 

1.                          OMP
shall keep or cause to be kept, in accordance with generally accepted
accounting principles, books, records and accounts covering its operations
applicable to this Agreement and containing all information necessary for the
accurate determination of amounts payable hereunder. OMP also agrees to permit,
at AVON’s expense, a certified public accountant to examine, no more than twice
per year, and during regular business hours, such books, records and accounts
as may be necessary to determine the completeness and accuracy of accounting
reports required to be made hereunder. If a discrepancy of more than [***]
percent [***] is found, such examination shall be at the expense of OMP.

 

2.                          Within
thirty (30) days after the end of each calendar quarter, any part of which is
within the Term of this Agreement. OMP shall deliver to AVON a report in
writing, certified by an officer of OMP, setting forth in reasonable detail the
number of Products sold by OMP and the gross sales and Net Sales of Products
during such calendar quarter. Such report shall be made whether or not OMP has
sold Products during such quarter. Each such quarterly report shall be
accompanied with payment of royalty due, if

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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any, to AVON in respect of OMP’s activities during the period for which
such report is made. OMP, at AVON’s request, shall also provide to AVON an
annual summary within forty-five (45) days after the completion of each of
OMP’s fiscal years, prepared by such accounting firm which at the time shall be
used by OMP as its auditors, attesting to the number of Products sold by OMP
and the gross sales and Net Sales of Products in that fiscal year.

 

3.                          Whenever
for the purpose of calculating royalties, conversion from any foreign currency
shall be required (due to sales of Products outside the U.S.), such conversion
shall be made based upon the daily average rate applicable to the period that
such sales of Products were made, based upon exchange rates published in the
Wall Street Journal on the date the conversion occurs. All payments shall be
based on Net Sales of Products by OMP and may be made directly from OMP to an
account designated by AVON in the U.S.

 

ARTICLE V - TERM AND TERMINATION

 

1.                          As used
in this Agreement, the “Term of this Agreement” shall initially mean a period
of three (3) years from the Effective Date. OMP shall have the option, until
the last to expire of the Licensed Patents, and provided that the Agreement is
in full force and effect, to renew the Agreement on an annual basis, upon
payment to AVON of the annual renewal fee set forth in Article III, paragraph 3 not less than ninety (90)
days before the end of such three (3) year period and each annual renewal
period. Any such renewal period shall be included in the definition of the
“Term of this Agreement.”

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

7

 

2.                          If OMP
shall become bankrupt or become insolvent, or files a petition for bankruptcy,
and/or if the business of OMP shall be placed in the hands of a receiver,
assignee or trustee from which OMP cannot extract itself within 120 days,
and/or OMP shall be liquidated or dissolved, and/or all or substantially all of
the assets or shares of OMP shall be sold, exchanged or transferred, and/or in
the event of a merger or consolidation to which OMP is a party and to which
Avon reasonably objects, whether by the voluntary act of OMP or otherwise, this
Agreement shall immediately terminate without notice.

 

3.                          Either
party, at its option, may terminate this Agreement if the other party defaults
in the performance of any obligation hereunder and such default has not been
remedied within forty-five (45) days after written notice to the defaulting
party describing the default.

 

4.                          In the
event of any termination of this Agreement, OMP shall have no further rights
in, and shall cease practicing, the Licensed Patents and Improvements within
the scope of the Licensed Patents, and all non-refundable fees owed and
royalties accrued shall become immediately due and payable.

 

ARTICLE VI - INFRINGEMENT

 

In the event that either
party becomes aware of any actual or suspected infringement of any Licensed
Patent by a third party as a result of the manufacture, sale, distribution,
offer for sale or use of any Product in any business channel and territory
covered by Article II, paragraph 1 of this Agreement, it shall promptly notify
the other party in writing. AVON shall have the sole initial right, in its sole
discretion, to bring

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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and prosecute suit against such third party, and OMP shall cooperate,
at AVON’s sole expense, in any such suit. Except to the extent provided for
herein, all expenses of such suit shall be borne by, and any recovery obtained
or awarded shall belong to, AVON. After AVON has recovered all of its
attorneys’ fees, court costs and damages for infringing sales made by such
third party (calculated using the royalty rate set forth in Article III
herein), AVON shall pay to OMP out of such remaining, if any, recovery or
award, all of OMP’s damages as a result of the infringement by such third
party. Notwithstanding the foregoing, AVON shall not be required to pay to OMP
any amount above such remaining, if any, recovery or award. In the event that
AVON elects not to bring suit against such third party within three (3) months
after learning of the actual or suspected infringement, and diligently
prosecute such suit thereafter, OMP may, at OMP’s sole expense, and with AVON’s
reasonable approval, bring suit against such third party and join AVON as a
co-plaintiff. AVON agrees to cooperate with OMP in the prosecution of such suit
at no cost or expense to AVON. OMP shall bear the full cost and expense of such
suit, including enforcing and defending the Licensed Patents, and shall be
entitled to retain recovery from such suit, provided that, after OMP has
recovered all of its attorney’s fees and court costs, OMP shall first pay to
AVON all the royalties due for sales of the infringing products at the royalty
rate set forth in Article III herein. OMP shall not settle such suit in any way
that shall affect the rights of AVON or the scope, validity or any other aspect
of the Licensed Patents.

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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ARTICLE VII - INDEMNIFICATION

 

1.                          AVON
assumes no liabilities or responsibilities to OMP with respect to any
attorneys’ fees or other defense costs incurred by OMP or any actual or
consequential damages incurred by OMP as a result of any claims, demands,
actions, suits or prosecutions made or alleged against OMP by any person, firm
or corporation claiming infringement of the intellectual property rights of any
third party.

 

2.                          AVON
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE WITH
REGARD TO THE PRODUCTS OR THE LICENSED PATENTS OR ANY IMPROVEMENTS THERETO.
AVON does not assume any liabilities or responsibilities to OMP, its employees,
officers, directors, agents, customers, successors or assigns with respect to
any attorneys’ fees or other defense costs incurred by OMP, its employees,
officers, directors, agents, customers, successors or assigns or any damages or
losses incurred by OMP, its employees, officers, directors, agents, customers,
successors or assigns as a result of any claims, demands, actions, suits or
prosecutions made or alleged against OMP, its employees, officers, directors,
agents, customers, successors or assigns by any person, firm or corporation
claiming in particular, but not limited to, personal injury or property damage
caused by the Products or the manufacture, sale, use or distribution thereof.

 

3.                          OMP
agrees to indemnify and hold harmless AVON, its employees, officers, directors,
agents, successors and assigns from all reasonable attorneys’ fees and

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

10

 

other defense costs and all actual and consequential damages that may
be incurred as a result of all claims, demands, actions, suits or prosecutions
arising out of or in connection with (i) any breach or alleged breach of any of
OMP’s obligations or representations contained in this Agreement; (ii) any
Products manufactured, sold, offered for sale or distributed by or on behalf of
OMP commencing as of the Effective Date, and (iii) any use of the subject
matter embodied in Licensed Patents or Improvements by or on behalf of OMP
commencing as of the Effective Date. In any action or suit arising out of or in
connection with any breach or alleged breach of either party’s obligations,
representations or warranties under this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys’ fees and court costs.

 

ARTICLE VIII - CONFIDENTIALITY

 

OMP and AVON acknowledge
that in connection with the matters governed by this Agreement, they may
receive or may obtain, or have received, or have obtained, access to
confidential and/or proprietary information of each other, including without
limitation confidential and/or proprietary information concerning inventions,
trade secrets, know-how, methods, processes, techniques, technologies, other
technical, business and operational information related to the their
businesses, and information embodied in or relating to the Licensed Patents
(collectively, the “Confidential Information”). Except as otherwise provided
herein, Confidential Information shall remain the exclusive property of the
disclosing party, and neither party may use or disclose any Confidential
Information of the other party to any third party. OMP and AVON agree to
instruct their employees to keep confidential all received Confidential

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

11

 

Information and to implement and enforce such security measures for the
protection of all received Confidential Information as are reasonably requested
by the disclosing party. The parties agree that the following information is
not Confidential Information within the meaning of this Agreement: 1)
information that was in the public domain at the time of disclosure; 2)
information that later became part of the public domain through no act or
omission of the receiving party, its employees, agents successors or assigns;
3) information that was lawfully disclosed to the receiving party by a third
party having the right to disclose it; 4) information that was already known by
the receiving party, from other than the disclosing party, at the time such
information was disclosed in writing by the disclosing party, as evidenced by
adequate documentation provided to the disclosing party within thirty (30) days
of such disclosure; or 5) information
that was independently developed by the receiving party, as evidenced by
adequate documentation provided to the disclosing party. If the receiving party
becomes aware that any Confidential Information may be required to be disclosed
by law or by a court order, the receiving party shall promptly notify the
disclosing party and cooperate with the disclosing party in the event that the
disclosing party attempts to seek a protective order.

 

ARTICLE IX - GENERAL PROVISIONS

 

1.                          This
Agreement will be governed by and interpreted in accordance with the laws of
the State of New York, USA, without giving effect to any conflict of laws
provisions. Each of the parties hereto irrevocably and unconditionally consents
to submit to the exclusive jurisdiction of the courts of the State of New York
and the United States

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

12

 

of America in each case located in New York County, New York for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby.

 

2.                          Neither
this Agreement nor any of the rights or obligations hereunder shall be assigned by OMP without the prior written
consent of AVON (which consent shall not be unreasonably withheld), provided
that assignment shall not relieve OMP of any liabilities accrued hereunder
prior to such assignment. This Agreement shall be binding upon and inure to the
benefit of AVON and OMP and their respective successors, assigns, and
transferees of assets as permitted in accordance with this Article IX,
paragraph 2.

 

3.                          If any
provision of this Agreement shall be deemed ineffective or invalid, the remaining
provisions hereof shall not be affected thereby and shall continue to be in
full force and effect.

 

4.                          Any
notices required or permitted to be given hereunder shall be in writing and
shall be sent by prepaid registered mail, return receipt requested, or by
facsimile transmission with a confirmation copy simultaneously sent by first
class mail, to the following addresses or to such addresses as the parties may
communicate to each other according to the provisions herein. All notices shall
be deemed to have been served one (1) day after confirmed facsimile
transmission, or upon actual receipt of registered mail.

 

	
  TO AVON:

  	
   

  	
  AVON PRODUCTS, INC.

  1345 Avenue of the Americas

  New York, NY 10105

  
	
   

  	
   

  	
  Attention: Gilbert L. Klemann
  II, Esq.

  
	
   

  	
   

  	
  Senior Vice President
  and General Counsel

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  AVON PRODUCTS, INC.

  Avon Place

  

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

13

 

	
   

  	
   

  	
  Suffern, NY 10901

  
	
   

  	
   

  	
  Attention: Janice J. Teal, Ph.D.

  
	
   

  	
   

  	
  Group Vice President
  and Chief Scientific Officer

  
	
   

  	
   

  	
   

  
	
  TO OMP:

  	
   

  	
  OMP, INC.

  
	
   

  	
   

  	
  310 Golden Shore Dr., Ste 120

  Long Beach, CA 90802

  Attn: Curtis Cluff

  
	
   

  	
   

  	
  SVP and Chief
  Financial Officer

  

 

5.                          Except
as may be required by law, the terms and conditions of this Agreement shall not
be disclosed, publicized or otherwise communicated by AVON or OMP to third
parties, except to any purchaser to whom assignment is permitted; provided,
however, that such disclosure be made pursuant to a non-disclosure agreement.

 

6.                          This
Agreement embodies and constitutes the entire agreement, and supersedes any and
all prior agreements, understandings and arrangements, oral or written, between
the parties hereto relating to the subject matter hereof.

 

7.                          Each
party warrants to the other that they have the authority to enter into this
Agreement and that the individual signing this Agreement has full authority to
execute this Agreement on behalf of the party for which they sign, and that,
when executed, this Agreement shall be valid, binding and legally enforceable
against each of the parties. However, no portion of this Agreement shall become
effective until all parties have executed this Agreement.

 

8.                          This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original.

 

9.                          This
Agreement may not be amended or modified, except by a written amendment, signed
by the parties hereto, which expressly states that it is intended to be

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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an amendment to this Agreement. No other writing, irrespective of its
content, and no course of conduct shall act as an amendment or modification of
this Agreement.

 

10.                    No failure or
delay of either party to this Agreement to enforce or exercise a right under
any one or more of the provisions of this Agreement shall be construed to be a
waiver of such provision. Nor shall any single or partial exercise of any right
or power under this Agreement preclude any further exercise of any other right
or power. The waiver of any one provision herein shall not be deemed to be a
waiver of any other provision herein.

 

11.                    Except as
specifically provided herein, nothing herein shall be construed as granting to
either party hereto, by implication, estoppel or otherwise, any right, title or
interest in or to, or any license under, any patent or patent application, now
or subsequently owned by the other party or its designee.

 

12.                    Except as set
forth in Article II, paragraph 4 herein, OMP shall not publicize, commercially
or otherwise, positively or negatively, any association, relation or comparison
between its Products and AVON or the products of AVON.

 

13.                    The terms and
conditions of Article II, paragraph 2; Article III, Paragraph 2; Article IV,
paragraph 2; Article V, paragraph 4; Article VII, paragraph 3; Article VIII;
and Article IX shall survive the expiration or termination of this Agreement
for any reason.

 

IN WITNESS WHEREOF, the
parties have caused this Agreement to be executed in duplicate originals by
their respective duly authorized representatives.

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

15

 

	
  AVON PRODUCTS,
  INC.

  	
   

  	
  OBAGI MEDICAL PRODUCTS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Janice
  J. Teal

  	
   

  	
   

  	
  By:

  	
  /s/ Austin McNamara

  	
   

  
	
   

  	
   

  	
   

  
	
  Printed Name:

  	
   Janice J.
  Teal

  	
   

  	
   

  	
  Printed Name:

  	
   Austin McNamara

  	
   

  
	
   

  	
   

  	
   

  
	
  Title: 

  	
  GVP Research
  & Dev—Avon

  	
   

  	
   

  	
  Title:

  	
  CEO

  	
   

  
	
   

  	
  6/26/03

  	
   

  	
   

  	
   

  	
  6/24/03

  
											

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION, CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

16Exhibit 10.24

 

OBAGI MEDICAL PRODUCTS, INC.

 

January 25, 2005

 

Stonington
Capital Appreciation 1994 Fund LP

767 5th Avenue

48th Floor

New York, NY 10153

 

The
Zein & Samar Obagi Family Trust

9033
Wilshire Blvd. Ste. 100

Beverly
Hills, CA 90211

 

Re:                                Repurchase of the Series A
Preferred Stock of Obagi Medical, Inc.

 

Ladies
and Gentlemen:

 

Obagi Medical Products a Delaware corporation (the “Company”)
is expected to enter into a Credit Agreement with Merrill Lynch Capital prior
to February 11, 2005 (the “Credit Agreement”). Pursuant to the Credit
Agreement, the Company’s wholly-owned subsidiary OMP, Inc. (“OMP”) will
receive approximately $70,000,000 in 5-year term loan proceeds, and a funding
commitment under a separate revolving line of credit for approximately another
$10,000,000.

 

The Company and OMP propose to use the funds to: (1)
pay the holders of the Company’s Series A Preferred Stock, par value $0.0001,
(the “Series A Preferred Stock”) all accrued dividends thereon of
approximately $78 per share and repurchase all outstanding shares of Series A
Preferred Stock for a purchase price of $100 per share; (ii) pay a dividend to
all holders of the Company’s Common Stock, par value $0.0001, outstanding as of
a date of record to be determined in the range of $2.75 to $3.25 per share; and
(iii) provide working capital to fund the OMP’s operational requirements.

 

Subject to and conditioned upon the closing of the Credit Agreement,
the following sets forth the terms and conditions pursuant to which the Company
has agreed to repurchase all of the shares of the Company’s Series A Preferred
Stock held by each of Stonington Capital Appreciation 1994 Fund LP (“Stonington”)
and the Zein & Samar Obagi Family Trust (the “Obagi Trust” and along with
Stonington the “Preferred Stockholders”). The shares of Preferred Stock
being purchased by the Company hereunder are hereinafter referred to as the “Preferred
Shares”.

 

1.                                          Sale of the Preferred Shares. (a) Subject and conditioned upon the
closing of the Credit Agreement and to the terms and conditions of this letter
agreement, on a mutually agreed date to be not later than February 11, 2004
(the “Closing Date”), the Preferred Stockholders agree to sell, and the
Company agrees to purchase 99,840 shares of Preferred Stock from Stonington and
18,375 shares of Preferred Stock from the Obagi Trust at a price of $100.00 per
share, for an aggregate purchase price of $11,821,500 (the “Purchase Price”).

 

(b)                                    The Purchase Price shall be payable on the
Closing Date by wire transfer of immediately available funds to an account
designated by each of Stonington and the Obagi

 

1

 

Trust.

 

2.                                          Seller’s Representations. The Preferred Stockholders hereby represent
and warrant to the Company the following: (a) that each Preferred Stockholder
is the record and beneficial owner of record of their Preferred Shares, (b)
that the Preferred Shares are being transferred to the Company free and clear
of any security interest, mortgage, pledge or assignment by way of security,
charge, lien (statutory or otherwise) or other encumbrance, limitation or
restriction of any kind or nature whatsoever (except for those set forth in the
Company’s Certificate of Incorporation and the Investors’ Rights Agreement by
and between the a predecessor of the Company, Mandarin Partners LLC and the
Zein and Samar Obagi Family Trust, dated December 2, 1997 as amended on
November 15, 2000 and January 10, 2001 (the “Investors’ Rights Agreement”)),
(c) that the Preferred Stockholders hereby waive any and all rights that they
may have under the Investors’ Rights Agreement in connection with the sale and
purchase of the Preferred Shares, (d) that the sale of the Preferred Shares to
the Company has been authorized by all necessary limited partner, trust or
other action on the part of the Preferred Stockholders, and (e) that the
persons executing this letter agreement on behalf of the Preferred Stockholders
are duly authorized to do so.

 

3.                                          Termination. In the event that the Credit Agreement fails to close or the sale of
all of the Preferred Shares to the Buyers as contemplated hereby does not occur
by February 11, 2004, the obligation of the Company to purchase the Preferred
Shares, and the Preferred Stockholder’s obligation to sell such shares to the
company, shall terminate. Upon such termination, neither the Company nor the
Preferred Stockholders shall have any continuing obligation to the other
parties hereto with respect to the transactions contemplated hereby.

 

4.                                           Miscellaneous.

 

(a)                                     This letter agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes any and all prior understanding, agreements or
representations, written or oral, relating to the subject matter hereof.

 

(b)                                    All matters relating to the interpretation,
construction, validity and enforcement of this letter agreement shall be
governed by the internal laws of the State of New York, without giving effect
to any choice of law provisions thereof to the extent such principles would
lead to the application of a substantive law other than the law of the State of
New York.

 

(c)                                     Each party hereto agrees that any suit,
action or proceeding based on any matter arising out of or in connection with
this letter agreement or the transactions contemplated hereby shall be brought
in the United States District Court for the Southern District of New York or
any New York State court sitting in New York City, and each party hereby
irrevocably consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum.

 

2

 

(d)                                    EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS LETTER AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

 

(e)                                     This letter agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.

 

If the foregoing terms are acceptable to you, please acknowledge such
by signing your name below.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  Obagi
  Medical Products, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Austin
  McNamara

  	
   

  
	
   

  	
   

  	
  Name:
  Austin McNamara

  	
   

  
	
   

  	
   

  	
  Title:
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Curtis Cluff

  	
   

  
	
   

  	
   

  	
  Name:
  Curtis Cluff

  	
   

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  	
   

  
	
   

  	
   

  
	
  AGREED
  AND ACCEPTED AS OF THE

  DATE SET FORTH ABOVE:

  	
   

  
	
   

  	
   

  
	
  STONINGTON
  CAPITAL APPRECIATION

  1994 FUND LP

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Bradley Hoecker

  	
   

  	
   

  
	
   

  	
  By: Bradley
  Hoecker

  	
   

  	
   

  
	
   

  	
  Its: Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  THE
  ZEIN & SAMAR OBAGI FAMILY

  TRUST

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Zein Obagi

  	
   

  	
   

  
	
   

  	
  By: Zein Obagi

  	
   

  	
   

  
	
   

  	
  Its: Trustee

  	
   

  	
   

  

 

3

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