Document:

Exhibit 10.9

 

SEPARATION AND RELEASE AGREEMENT

 

Zein Obagi, M.D. (“Dr. Obagi” or “Employee”) and OMP,
Inc. (“OMP”) and OMP’s parent Obagi Medical Products, Inc. (“Obagi Medical”,
collectively the “Employer”) hereby knowingly and voluntarily agree to enter into
this Separation and Release Agreement (“Separation Agreement”) in order to
resolve all outstanding issues and set forth all obligations between the
parties. Employee and Employer acknowledge and agree that this Separation
Agreement constitutes the sole obligation of each to the other with respect to
the termination of Employee’s employment with and service as an officer and/or
director to the Employer, and that no other promises, commitments, or
representations have been made with or by each of the parties to the other with
respect to such employment and/or service.

 

One:  Employee’s employment with
Employer will terminate effective June 29, 2006 (“Termination Date”). In
connection with the termination of Employee’s employment, Employer and Employee
agree that Employee shall:

 

(a)                                  Resign as an officer of OMP;

 

(b)                                 Resign as an officer of Obagi Medical;

 

(c)                                  Resign as a director of OMP; and

 

(d)                                 Resign as a director of Obagi Medical.

 

Such resignations shall be effective as of the
Termination Date.

 

Two:  As
consideration for Employee’s execution of this Separation Agreement and his
agreement to the obligations set forth herein, Employer will make a single
lump-sum payment to Employee in the amount of three hundred sixty-eight
thousand and fifty-seven dollars ($368,057.00), less applicable deductions (“Severance
Payment”). Employer will make the Severance Payment to Employee no later than
fifteen (15) business days after receipt of this Separation Agreement, provided
Employee does not revoke his assent to same.

 

Employee acknowledges the Severance Payment as
defined herein includes and encompasses any severance pay to which Employee may
otherwise be entitled to from any of the Releasees (as defined in Section Seven
of this Separation Agreement) and is adequate consideration for Employee’s
agreement to the release, non-compete and other obligations set forth herein.

 

Three:  Employee
may be eligible to continue health insurance benefits pursuant to federal and
state COBRA for a period of up to thirty-six (36) months after the Termination
Date. In addition to the Severance Payment described in Section Two above,
Employer agrees to reimburse Employee for the cost of the premiums for Employee’s
health insurance under COBRA during his period of eligibility. At the conclusion
of Employee’s COBRA eligibility, Employer shall continue to reimburse Employee
for the actual cost of his and his qualified family member’s health insurance
premiums, if any, for an additional twenty-four (24) months provided, however, that such reimbursements shall be capped
at an amount equal to not more 

 

 

than eight (8) percent more
per year than Employee’s premium rate during his period of COBRA eligibility. Employer’s
obligations to Employee pursuant to this Section Three will continue for the
time periods set forth herein unless and until Employee obtains comparable
health insurance coverage from a third-party employer or other source (Employee
agrees to provide Employer with notice of same). In the event that Employee
obtains health insurance coverage from another employer or source, Employer’s
obligations pursuant to this Section Three shall cease immediately. Employer
will provide Employee with additional information regarding COBRA under
separate cover.

 

Four: 
Employee will return all Employer-owned property, documents, records and
other information of any type whatsoever concerning or relating to the business
and affairs of Employer or any predecessor corporation.

 

Five: 
Employee acknowledges that he is not entitled to any other benefits,
payments or wages in connection with his employment with the Employer and/or
his service as an officer and/or director to Employer, except as set forth in
this Separation Agreement. This Separation Agreement supersedes all previous
agreements, whether written or oral, between Employee and Employer with respect
to such employment and/or service.

 

Six:  Employee
agrees that acceptance of this Separation Agreement constitutes a full,
complete, and knowing waiver of any claims asserted or non-asserted which he
may have against Employer arising out of his employment and termination of
employment including any claims Employee may have under the common law of
torts, contracts, or employment agreements or under any federal, state, or
local statute, regulation, rule, ordinance, or order which covers or purports
to cover or relates to any aspect of employment, including, but not limited to,
discrimination based on race, sex, age, religion, national origin, sexual
orientation, physical, medical, or mental condition, or marital status under,
among other statutes, Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Americans with Disabilities Act, the Age Discrimination
in Employment Act, the Fair Labor Standards Act, the Family and Medical Leave
Act, the Employee Retirement Income Security Act and the Worker Adjustment and
Retraining Notification Act.

 

Seven:  As a
material inducement to Employer to enter into this Separation Agreement and in
exchange for the valuable consideration described herein, Employee hereby
irrevocably and unconditionally releases, acquits, and forever discharges
Employer and each of Employer’s directors, officers, employees,
representatives, attorneys, and all persons acting by, through, under or in
concert with any of them (collectively “Releasees”), or any of them, from any
and all charges, complaints, claims, controversies, damages, actions, causes of
action, suits, rights, demands, costs, losses, debts, and expenses (including
attorneys’ fees and costs actually incurred), known or unknown, which Employee
now has, owns, holds, or claims to have, own, or hold, or claimed to have, own,
or hold, or which Employee at any time hereafter may have, own, or hold, or
claim to have, own, or hold, from the beginning of time until the execution
date of this Separation Agreement, arising out of or in any manner relating to
all events or circumstances in any way related to Employee’s employment with
and/or service to Employer or the cessation of that employment with and/or
service to each of the Releasees.

 

2

 

As a material inducement to Employee to enter into
this Separation Agreement, Employer hereby irrevocably and unconditionally
releases, acquits and forever discharges Employee from any and all charges,
complaints, claims, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses (including attorneys’ fees
and costs actually incurred), of any nature whatsoever, known or unknown, which
Employer now has, owns, holds or claims to have, own or hold, from the
beginning of time until the execution date of this Separation Agreement,
arising out of or in any manner relating to all events or circumstances in any
way related to Employee’s employment with and/or service to Employer or the
cessation of that employment with and/or service to Employer. Moreover,
consistent with Employer’s policies in existence as of the Termination Date,
Employer agrees to indemnify and hold Employee harmless from all third party
actions that currently exist or that may later arise out of or in any manner
relating to negligent and/or unintentional acts or omissions of Employee during
the term of Employee’s employment with and/or service to the Employer.

 

Section 1542 Waiver. As to matters released, the parties
expressly waive any and all rights under Section 1542 of the Civil Code of
California, and under any statute of similar import or purpose of any other
jurisdiction. Section 1542 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.

 

Eight:  Both parties recognize that the services
Employee rendered to Employer during Employee’s employment were special, unique
and of extraordinary character. Employee acknowledges Employer’s vital interest
in retaining its employees and that the consideration described herein has been
calculated to include amounts sufficient to constitute adequate consideration
for Employee’s obligations and commitments under this Separation Agreement. Employee
further acknowledges that he has carefully read Section Eight, that he understands
the provisions contained therein, and that the specific enforcement of the
provisions contained therein will not diminish Employee’s ability to earn a
livelihood or create or impose any undue hardship on Employee. Employee acknowledges
that any breach of this Section Eight may cause irreparable damage to Employer.
Accordingly, Employee agrees to the following restrictions:

 

(a)                                  Absent Employer’s prior written approval,
Employee shall not engage or have any interest in any person or business which
engages in or operates a business competitive to Employer’s business in any
jurisdiction in which Employer conducts its business, provided,
however, that Employee may maintain his personal medical practice
(as defined in the parties’ Services Agreement, dated June 29, 2006) and
produce, market and sell Group B Products (as defined in the parties’ Services
Agreement, dated June 29, 2006);

 

(b)                                 Employee shall not solicit or attempt to divert
any business similar to Employer’s business or any customers or suppliers
related to Employer’s business to any competitor of Employer;

 

3

 

(c)                                  Employee shall not solicit any person who has
been an employee or independent contractor of Employer at any time during the
twelve (12) month period immediately preceding the attempted solicitation to
become employed or associated with any other person or business; and

 

(d)                                 Employee shall not induce any employee of Employer
or its affiliates to engage in any activity which would violate any provision of
the Intellectual Property Assignment and Nondisclosure Agreement previously
entered between Worldwide and Dr. Obagi (the “IP Agreement”), annexed hereto as
Exhibit B, and/or the obligations described in Section Eight of this Separation
Agreement.

 

Employee’s obligations
pursuant to this Section Eight shall continue for a period of five (5) years
from the execution date of this Separation Agreement.

 

Nine:  In the event that Employee breaches Section Eight
of this Separation Agreement in any way, Employer shall be entitled to
institute proceedings pursuant to Section Fourteen to obtain damages for and to
enjoin the violation by Employee of any provision hereof, to enforce the
specific performance by Employee of any provision hereof, and to obtain
reimbursement of its attorneys’ fees for any action to enforce Section Eight. The
parties hereto agree that the damages that may be suffered by Employer as a
result of any violations of Section Eight would be difficult to ascertain. Accordingly,
the parties agree that in the event of a breach by Employee of Section Eight, Employer
shall be entitled to seek preliminary relief in any court of competent
jurisdiction in aid of arbitration, including injunctions enjoining Employee
from violating such provisions pending the outcome of any arbitrations pursuant
to Section Fourteen. Employer shall also be entitled to receive the amount of
revenues earned by Employee and by Employee’s new employer or affiliate(s) as a
direct or indirect result of Employee’s efforts, for any period of time in
which Employee breaches Section Eight. The parties further agree that in the
event of an impending breach by Employee of Section Eight, Employer shall be
entitled to preliminary relief in aid of arbitration, including injunctions
enjoining Employee from violating such provisions pending the outcome of any arbitration.
The remedies referred to above shall not be deemed to be exclusive of any other
remedies available to Employer to enforce the performance or observation of the
covenants and agreements contained in this Separation Agreement.

 

Ten: 
Employee acknowledges that the terms of this Separation Agreement and
all discussions leading up to it are confidential and agrees that he will not
divulge the terms of this Separation Agreement to any third party, except his
immediate family, financial advisor, attorney or as required by court order or
governmental regulations.

 

Eleven: 
Employee warrants that he is fully competent to enter into this Separation
Agreement, he acknowledges that he has been afforded an opportunity to review
this Separation Agreement with his attorney, that he has read and understands
this Separation Agreement, and that he has signed this Separation Agreement
freely and voluntarily.

 

Twelve:  This
Separation Agreement shall be construed, interpreted and enforced in accordance
with the laws of the State of California, without giving effect to that body of
law concerning conflicts of law.

 

4

 

Thirteen: 
Employee agrees not to directly or indirectly take, support, encourage
or participate in any action or attempted action which in any way would damage
the reputation of Employer and/or any of its subsidiaries, parents or
affiliates. Likewise, Employer agrees not to directly or indirectly take,
support, encourage or participate in any action or attempted action which in
any way would damage the reputation of Employee.

 

Fourteen:  Any and all disputes, claims or controversies
arising out of or relating to this Separation Agreement or the breach,
termination, enforcement, interpretation or validity thereof, including the
determination of the scope or applicability of this arbitration provision,
shall be determined and resolved by binding arbitration before JAMS/Endispute (“JAMS”)
in Los Angeles, California before one (1) arbitrator. The arbitration shall be
administered by JAMS Comprehensive Arbitration Rules and Procedures. Judgment
on the Award may be entered in any court having jurisdiction. This clause shall
not preclude the parties from seeking provisional remedies in aid of
arbitration from a court having appropriate jurisdiction pursuant to Section
Eight. The arbitrator shall, in the Award, allocate all or part of the costs of
arbitration, including the fees of the arbitrator and the reasonable attorneys’
fees to the prevailing party. The award in such arbitration proceeding shall be
final and binding, and may be entered in any court of competent jurisdiction. To
the extent that there is any variance between the JAMS rules and this Separation
Agreement, this Separation Agreement shall control. The parties hereto each
agree to take all steps, and execute all documents, necessary for the
implementation of arbitration proceedings. All statutes of limitations
applicable to any dispute apply to the arbitration.

 

Fifteen: 
Employee agrees that he will cooperate as reasonably necessary
consistent with his business obligations in any legal disputes and/or
proceedings and/or business matters relating to issues and/or incidents which
took place during his term of employment with and/or service to Employer. Notwithstanding
anything herein to the contrary, Employer agrees to reasonably compensate
Employee for any of his time required in respect of this paragraph, and to
reimburse Employee for all out-of pocket expenses, including reasonable
attorneys’ fees and costs actually incurred, necessitated as a result of
Employee’s fulfillment of his commitment hereto.

 

Sixteen: 
Nothing contained in this Separation Agreement nor the fact that the
parties have signed this Separation Agreement shall be considered an admission
by either party.

 

Seventeen: 
Employee warrants that he has been afforded the opportunity to review
this Separation Agreement with his legal representatives for at least
twenty-one (21) calendar days, that he has consulted with his legal
representatives prior to executing this Separation Agreement, that he has read
and understands this Separation Agreement, and that he has signed this Separation
Agreement freely and voluntarily. Further, Employee acknowledges that he has
the opportunity to revoke this Separation Agreement within seven (7) days of
signing it and that he must return any consideration received hereunder in such
event.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

5

 

PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. To signify the parties’ assent to the
terms of the Separation Agreement, the parties have executed this Separation
Agreement on the date set forth opposite their signatures which appear below.

 

 

	
   

  	
   

  	
   

  	
  /s/
  Zein E. Obagi, M.D

  	
   

  
	
   

  	
  Date

  	
   

  	
  Zein
  Obagi, M.D.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/
  Steve Carlson

  	
   

  
	
   

  	
  Date

  	
   

  	
  Obagi
  Medical Products, Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/
  Steve Carlson

  	
   

  
	
   

  	
  Date

  	
   

  	
  OMP,
  Inc.

  	
   

  

 

6Exhibit 10.10

 

 

RETAIL LEASE AGREEMENT

 

 

BY AND BETWEEN

 

SKIN HEALTH PROPERTIES, INC.,

 

AS LANDLORD

 

AND

 

OMP, INC.,

 

AS TENANT

 

 

DATED AS OF JUNE 29, 2006

 

 

 

 

RETAIL LEASE AGREEMENT

 

THIS RETAIL LEASE AGREEMENT (this “Lease”) is
entered into as of June 29, 2006, by and between SKIN HEALTH PROPERTIES, INC.,
a California corporation (“Landlord”), and OMP, INC., a Delaware
corporation (“Tenant”).

 

	
  Landlord and Tenant
  agree:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  BASIC LEASE
  INFORMATION.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Tenant’s
  Address for Notice.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  OMP, Inc.

  	
   

  
	
   

  	
   

  	
   

  	
  310 Golden
  Shore

  	
   

  
	
   

  	
   

  	
   

  	
  Suite 100

  	
   

  
	
   

  	
   

  	
   

  	
  Long Beach,
  California 90802

  	
   

  
	
   

  	
   

  	
   

  	
  Attention:
  Steve Garcia, CFO

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.2

  	
  Landlord’s
  Address for Notice.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Skin Health
  Properties, Inc.

  	
   

  
	
   

  	
   

  	
   

  	
  270 North
  Canon Drive

  	
   

  
	
   

  	
   

  	
   

  	
  Beverly
  Hills, California 90210

  	
   

  
	
   

  	
   

  	
   

  	
  Attention:
  Zein E. Obagi

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy
  to:

  	
  Valensi,
  Rose, Magaram, Morris & Murphy, PLC

  
	
   

  	
   

  	
   

  	
  2029 Century
  Park East, Suite 2050

  
	
   

  	
   

  	
   

  	
  Los Angeles,
  California 90067-3031

  
	
   

  	
   

  	
   

  	
  Attention: Michael R. Morris, Esq.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.3

  	
  Premises.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Approximately
  2,063 useable square feet located on the ground floor of the Building as
  shown on the Site Plan attached hereto as Exhibit A and
  appurtenant basement.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.4

  	
  Building.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  The building
  with an address of 270 North Canon Drive, Beverly Hills, California 90210
  (the “Building”).

  
										

 

1

 

	
   

  	
  1.5

  	
  Land.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  The real
  property on which the Building is located.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.6

  	
  Term.

  	
  Five (5)
  years, commencing on August 1, 2006 (the “Commencement Date”), and
  terminating on July 31, 2011 (the “Termination Date”), as the same may
  be extended or sooner terminated as provided herein.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.7

  	
  Extension
  Options.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Tenant shall
  have the right to extend the Term of this Lease for one (1) additional period
  of five (5) years (the “Extension Term”).

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.8

  	
  Base Rent.

  	
  Base Rent
  shall initially be payable at the rate of $86,646.00 per annum, or Seven
  Thousand Two Hundred Twenty and 50/100 Dollars ($7,220.50) per month.
  Effective as of the first anniversary of the Commencement Date, and as of
  each anniversary of the Commencement Date thereafter, the Base Rent shall
  escalate by three and one-half percent (3.5%) per annum, as follows:

  

 

	
  Lease Year:

  	
   

  	
  Annual Base Rent:

  	
   

  	
  Monthly Base Rent:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  $

  	
  86,646.00

  	
   

  	
  $

  	
  7,220.50

  	
   

  
	
  2

  	
   

  	
  $

  	
  89,678.61

  	
   

  	
  $

  	
  7,473.22

  	
   

  
	
  3

  	
   

  	
  $

  	
  92,817.36

  	
   

  	
  $

  	
  7,734.78

  	
   

  
	
  4

  	
   

  	
  $

  	
  96,065.97

  	
   

  	
  $

  	
  8,005.50

  	
   

  
	
  5

  	
   

  	
  $

  	
  99,428.28

  	
   

  	
  $

  	
  8,285.69

  	
   

  

 

	
   

  	
  1.9

  	
  Security
  Deposit.

  	
  None

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.10

  	
  Useable
  Square Feet in the Premises.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Approximately
  2,063 useable square feet.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.11

  	
  Use.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  The display
  and marketing of skin health care products.

  

 

2

 

	
   

  	
  1.12

  	
  Broker.

  	
  None

  	
   

  

 

	
  Exhibit A:

  	
   

  	
  Site Plan

  
	
  Exhibit B:

  	
   

  	
  Leasehold Improvements

  
	
  Exhibit C:

  	
   

  	
  Schedule of Costs

  
	
  Exhibit D.

  	
   

  	
  Master Lease

  

 

Any reference in this Lease to the above terms shall
mean and refer to the information and terms set forth in the above Basic Lease
Information. In the event of any conflict between the Basic Lease Information
and the terms of this Lease, the terms of this Lease shall control.

 

2.             PARTIES.
This Lease is made by and between Landlord and Tenant as specified in Article
1. The exhibits as may be referred to herein are attached hereto and incorporated
as a part of this Lease.

 

3.             INCORPORATION
OF MASTER LEASE. Notwithstanding that this document is called a Retail
Lease Agreement and the parties hereto are referred to as Landlord and Tenant,
this document is actually a sublease and is subject to the provisions of the
certain Standard Multi-Tenant Office Lease - Gross dated May 15, 2006 attached
hereto as Exhibit D (the “Master Lease”) by and between ZSO, LP, a
California limited partnership as the lessor thereunder (“Master Landlord”),
and Zein E. Obagi, M.D., Inc., a California corporation, and Landlord,
collectively as the lessee thereunder. This Lease is and shall be at all times
subject and subordinate to the Master Lease. If and to the extent that terms of
the Master Lease and this Lease shall conflict, the terms of this Lease shall
prevail. Provided, however, notwithstanding the foregoing or anything to the
contrary contained in the Master Lease or herein, Landlord acknowledges and
agrees that (a) Tenant shall not have any repair, maintenance, restoration,
compliance or other obligations hereunder with respect to the Premises except
as expressly set forth in this Lease, nor any monetary or payment obligations
under this Lease other than the Rent and insurance obligations set forth in
Sections 7 and 8 hereof, and (b) the following provisions of the Master Lease
shall not be applicable to this Lease: 
Sections 1.2(b), 1.6, 1.9, 1.13, 2.2, 2.3, 2.5, 2.6, 2.9, 2.10, 3.3,
4.2, 6.2, 6.3, 7.1, 7.4, 8.3(c), 8.4, 8.7, 10.1, 10.2, 10.3, 10.4, 11.2, the
second and third sentences of Section 11.4, 13.1(d), 17, the second sentence of
Section 40, Section 41, Section 43(a) and the second sentence of Section 49 of
the Master Lease. The second sentence of Section 36 of the Master Lease shall
not apply to the Leasehold Improvements. Landlord agrees to keep the Master
Lease in effect during the Term of this Sublease and to make commercially
reasonable efforts to enforce its rights thereunder for the benefit of Tenant,
subject, however, to any earlier termination of the Master Lease without the
fault of Landlord, and to enforce all of Landlord’s rights under the Master
Lease for the benefit of Tenant. In the event that the Master Lease shall
terminate during the Term of this Lease, then Master Landlord shall assume the
obligations of Landlord under this Lease and recognize Tenant as its tenant
under all of the terms of this Lease, allowing Tenant, at its option, to remain
in possession of the Premises upon all the terms of this Lease through the
Termination Date, unless sooner terminated pursuant to the terms and conditions
hereof.

 

3

 

4.             PREMISES/LEASEHOLD
IMPROVEMENTS.

 

4.1           Lease of Premises.

 

Landlord hereby
leases the Premises to Tenant and Tenant leases the Premises from Landlord for
the Term, at the rental, and upon all the conditions set forth herein. The
Premises are located in the Building. Use of any mezzanine, basement or storage
space shall be at no additional charge and the area of such space shall not be
included in the area of the Premises.

 

4.2           Landlord’s Construction of Leasehold Improvements. Landlord shall use commercially reasonable efforts
to cause the Leasehold Improvements (as set forth on Exhibit B) to be
completed by September 1, 2006, subject to minor punchlist items. In respect of
the performance by Landlord of the Leasehold Improvements, Tenant has
heretofore paid Legacy Construction, the contractor for construction of the
Leasehold Improvements, the sum of One Million Eight Hundred Seventeen Thousand
One Hundred Eleven and No/100 Dollars ($1,817,111.00) (“Tenant’s Leasehold
Improvement Share”), as more particularly shown on the Schedule of Costs
attached hereto as Exhibit C. Landlord expressly acknowledges and
agrees, on behalf of itself and all people or entities affiliated with
Landlord, that Tenant’s sole obligation and liability with respect to the
performance of, and the payment for, the Leasehold Improvements shall be the
payment of the Tenant’s Leasehold Improvement Share and that, regardless of the
actual cost of the Leasehold Improvements or any costs incurred in connection
therewith, Tenant shall not owe or be required to pay to Landlord or to any
people or entities affiliated with Landlord any additional amounts or any
amount in excess of Tenant’s Leasehold Improvement Share heretofore paid.

 

5.             TERM.

 

5.1           Term.  The Term of this Lease shall be for the
period which commences on the Commencement Date and ends on the Termination
Date unless sooner terminated pursuant to any provision hereof. If Landlord is
unable to deliver possession of the Premises on or before the Commencement
Date, Landlord shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the Termination Date. Tenant shall
not, however, be obligated to pay Rent or perform its other obligations
hereunder until it receives possession of the Premises. If possession is not
delivered within sixty (60) days after the Commencement Date, Tenant may, at
its option, by notice in writing to Landlord delivered within ten (10) days of
the expiration of such 60-day period, cancel this Lease, in which event both
parties hereto shall be discharged from all obligations hereunder. Except as
otherwise provided herein, if possession is not tendered to Tenant within 60
days after the Commencement Date and Tenant does not terminate this Lease, as
aforesaid, any period of rent abatement that Tenant would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Tenant would otherwise have enjoyed under the terms
hereof.

 

5.2           Tenant’s Option to
Extend.  Tenant shall have the right
to extend the Term of this Lease in accordance with the Extension Option as
provided for in Article 1, provided that Tenant is not in default of any
provision of this Lease (beyond any applicable notice and cure period) at the
time of its exercise of the Option or upon the commencement of the Extension
Term. Tenant may exercise the Extension Option by delivering to Landlord
written notice of Tenant’s intention to exercise the Extension Option (the “Notice
of Intent”) no later than ninety (90) days and no earlier than one hundred
eighty (180) days prior to the expiration of the initial Term of this Lease,
time being of the essence. If proper notification of the exercise of the
Extension Option is not given and/or received, the Extension Option shall
automatically expire. 

 

4

 

The Extension
Term shall be upon all of the terms and conditions contained in this Lease. The
Extension Option is personal to the original Tenant and cannot be assigned or
exercised by anyone other than said original Tenant and only while the original
Tenant is in full possession of the Premises and without the intention of
thereafter assigning or subletting; provided, however, notwithstanding the
foregoing, the Extension Option shall be assignable to any person or entity to
whom Tenant sells all or substantially all of its assets or stock or with whom
Tenant merges.

 

6.             USE.  The Premises may be used only for the uses
set forth in Section 1.11 hereof and for no other purpose (the “Permitted
Use”).

 

7.             RENT.

 

7.1           Base Rent.  Tenant shall pay Landlord throughout the Term
hereof, as it may be extended, the Base Rent on a monthly basis, as set forth
in Section 1.8 hereof, in lawful money of the United States of America, payable
in advance on the first (1st) day of each month commencing with the
Commencement Date; subject, however, to the provisions of Section 6.2 below.
Base Rent for any period during the Term hereof which is for less than one
month shall be prorated based on the number of days in such month. Base Rent
shall be payable to Landlord at the address stated in Section 1.2 or to such
other persons or at such other places as Landlord may designate in writing.
Base Rent and any other amounts payable by Tenant to Landlord hereunder are
sometimes hereinafter referred to as “Rent.”

 

7.2           Prepaid Rent.  Landlord expressly acknowledges
and agrees that Tenant has heretofore paid to Landlord or its agent the sum of
Three Hundred Seventy-Nine Thousand Eight Hundred Thirty-Two and No/100 Dollars
($379,832.00) (the “Prepaid Rental”), as more particularly shown on Exhibit
C. Landlord expressly acknowledges and agrees that the Prepaid Rental shall
be credited, until fully applied, against Tenant’s obligations to pay Rent
under this Lease commencing on the Commencement Date. Landlord also
acknowledges that the Prepaid Rental fully satisfies all amounts owing or
becoming payable under this Lease.

 

8.             INSURANCE
MAINTAINED BY TENANT. Tenant shall be required to obtain and maintain,
throughout the Term of this Lease, the commercial general liability insurance
described in Section 8.2(a) of the Master Lease, only.

 

9.             QUIET
ENJOYMENT. Landlord covenants and agrees that, so long as this Lease is in
full force and effect, Tenant shall lawfully and quietly hold, occupy and enjoy
the Premises during the Term of this Lease without disturbance by Landlord or
by any person having an interest in the Premises paramount to Landlord’s
interest or by any person claiming through or under Landlord. The foregoing
express covenant shall be in addition to and not in derogation of any implied
or other rights of quiet enjoyment Tenant may have under applicable law.

 

10.           NOTICE. Notwithstanding the provisions of Section 23.1 of the Master Lease,
Tenant’s address for notice purposes shall be as set forth in Section 1.1
hereof throughout the Term of this Lease, or such different address as Tenant
may by written notice specify to Landlord, but the Premises shall not
constitute Tenant’s address for notice.

 

11.           LANDLORD’S INDEMNITY. Landlord shall indemnify, defend and hold 

 

5

 

Tenant harmless from and
against all loss, cost and expense, including reasonable attorneys’ fees,
arising from any injury or damage to any person or property, occurring in or
about the Building (including the Premises) or the Land as a result of any
negligent act, omission or willful misconduct of Landlord or its officers,
contractors, licensees, agents, tenants, employees, guests, or visitors, or
arising from any breach or default under this Lease by Landlord. The foregoing
provisions shall not be construed to make Landlord responsible for loss, damage,
liability or expense resulting from injuries to third parties caused by the
grossly negligent act, omission or willful misconduct of Tenant, or its
officers, contractors, licensees, agents, subtenants, assignees, employees or
invitees.

 

Each party hereto represents and warrants to the other
that it is authorized to execute and deliver this Lease on such party’s behalf,
and that the person
executing this Lease is authorized by it to do so.

 

The parties hereto have executed this Lease as of the
date first set forth above.

 

 

	
   

  	
  LANDLORD:

  	
  TENANT:

  
	
   

  	
   

  	
   

  
	
   

  	
  SKIN HEALTH PROPERTIES, INC.,

  a California corporation

  	
  OMP, INC., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zein E. Obagi M.D.

  	
   

  	
  By:

  	
  /s/ Steve Carlson

  	
   

  
	
   

  	
  Name:

  	
  Zein E. Obagi, M.D.

  	
   

  	
  Name:

  	
  Steve Carlson

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  	
  Its:

  	
  President and Chief Executive Officer

  	
   

  
											

 

6

 

CONSENT BY MASTER LANDLORD

 

The undersigned Master Landlord
hereby consents to the foregoing Sublease and agrees to the following:  For so long as the foregoing Sublease shall
remain in full force and effect, Master Landlord shall not lease or permit any
portion of the Building, other than the Premises, to be used for the Permitted
Use, except for any space that may be occupied by Zein Obagi, M.D., Samar Obagi,
the Zein and Samar Obagi Family Trust, Zein E. Obagi, M.D., Inc., or Landlord.
In addition, for so long as this Lease shall remain in full force and effect,
neither the Building nor any part thereof may be named for a direct or indirect
competitor of the business to be conducted in the Premises by Tenant without
Tenant’s written consent, which consent may be withheld in Tenant’s sole
discretion. In the event that this covenant is violated, Tenant acknowledges
and agrees that its sole remedy shall be to terminate this Lease, and Tenant
hereby waives all other rights or remedies that it may have in connection
therewith.

 

MASTER
LANDLORD:

ZSO, LP, a California limited
partnership

 

 

	
  By:

  	
  /s/ Zein E.
  Obagi M.D.

  	
   

  	
   

  
	
  Name:

  	
  Zein E.
  Obagi, M.D.

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  

 

 

Dated:  June 29, 2006

 

 

CONSENT BY ZEIN E. OBAGI, M.D., INC.

 

The undersigned, who jointly
with Landlord constitutes the “Lessee” under the Master Lease, hereby consents
to the terms and conditions of the foregoing Sublease.

 

ZEIN E. OBAGI, M.D., INC., a California corporation

 

 

	
  By:

  	
  /s/ Zein E.
  Obagi M.D.

  	
   

  	
   

  
	
  Name:

  	
  Zein E.
  Obagi, M.D.

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  

 

 

Dated:  June 29, 2006

 

7

 

EXHIBIT A

 

SITE PLAN

 

 

[To be attached]

 

A-1

 

EXHIBIT B

 

LEASEHOLD IMPROVEMENTS 

 

B-1

 

EXHIBIT C

 

SCHEDULE OF COSTS

 

C-1

 

EXHIBIT D

 

MASTER LEASE

 

 

[To be attached]

 

D-1

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