Whereas Obagi Inc. and/or the Marketer wishes to provide marketing services to OMP as an independent contractor rendering the services more fully described in the marketing program desired by OMP and described in Exhibit B attached hereto (the “Program”) and perform the duties associated with the Program set forth in Exhibit B hereto (the “Services”); and

 

Whereas the Parties desire to enter into this Agreement whereby Obagi Inc. and/or the Marketer agrees to market the Program as an independent contractor, and to perform the services set forth herein; and

 

Whereas some or all of the Parties are currently or have in the past been parties to the agreements listed on Exhibit C attached hereto (the “Prior Agreements”) and the Parties wish to have all monetary obligations, percentage discounts or any other obligation that has not already been performed by either the OMP Entities and/or the Obagi Entities which are still due or to be granted under any of the Prior Agreements or any other agreements or understandings between the Parties (the “Pre-Existing Nonperformed Obligations”) terminated and going forward the only obligations similar to or covering the same subject matter as the Pre-Existing Nonperformed Obligations that the Parties will owe to each other are those obligations described or specified in this Agreement and the accompanying Separation Agreement and Lease Agreement.

 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

1.     OBLIGATIONS OF THE OBAGI ENTITIES.

 

(a)           Marketing Obligations. During the Term (as defined in Section 10) of this Agreement, Obagi Inc. and/or the Marketer shall actively and diligently use its commercially reasonable efforts to promote the Program and Services, as defined in Exhibit B hereto, and to support the marketing of the OMP Products in accordance with the specifications set forth in the Program. As part of its marketing duties, Obagi Inc. and/or the Marketer agrees during the Term hereof to provide oversight and management of the 2063 square foot marketing space (the “Space”) located at 260-290 North Canon Drive, Beverly Hills, California (the “Premises”), to perform the Services and to provide maximum exposure for the OMP Products. Obagi Inc. and/or Marketer also agrees to perform Services and to market the products sold as part of the Program throughout the Term hereof. In the performance of all of its obligations hereunder, Obagi Inc. and/or the Marketer agrees to ensure that the Space and all Services provided by Obagi Inc. and/or the Marketer will at all times comply with any and all applicable laws and regulations promulgated by any federal, state, municipal or other level of government from time to time, including, without limitation, laws and regulations regarding zoning, advertising, the practice of medicine, healthcare, privacy and consumer protection laws as well as any and all standards and requirements specified by OMP from time to time that, in OMP’s sole discretion, are necessary or desirable to provide for and implement the Program.

 

(b)           Payment Terms. Obagi Inc. and/or the Marketer agrees that if any amount due to OMP for the purchase of OMP products remains unpaid 30 days after the earlier of (i) the date of any invoice or (ii) any notice of the breach of the terms hereof contemplated by Section 11(a)(1) hereof, then OMP may, in addition to any other remedies it may have, offset any and all sums owed by Obagi Inc. and/or the Marketer thereunder against any and all payment obligations

 

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OMP may have to Obagi Inc. and/or the Marketer, including, but not limited to, all obligations owing under Section 2 of this Agreement. Both Parties acknowledge, however, that any amounts so offset shall not constitute an accord or satisfaction and OMP shall be entitled to all remedies to recover payment for any additional amounts owed by Obagi Inc. and/or the Marketer under this Agreement.

 

(c)           Services to be Rendered. In addition to the services to be provided in Exhibit B, Obagi Inc. shall render the following marketing and other services to OMP as an independent contractor (the “Obagi Inc. Services”) on a retainer and/or fee basis as defined herein. Additional services beyond the retainer or fees shall be billed and reimbursed as mutually agreed to between Obagi Inc. and OMP in writing, in advance. The services that Obagi Inc. initially agrees to provide shall include, but not be limited to:(1)

 

(1)           The services provided under the Retainer and ProDerm Development/Royalty Fee provisions of this Agreement are as follows:

 

a)     Obagi Inc. agrees to be available, and shall provide upon request, a minimum of 10 hours per week in advising and assisting OMP in the formulation and clinical testing of new products. As part of the new product development services, OMP and Obagi Inc. agree to the following:

 

i.      That prior to the development of any new products by either OMP or Obagi Inc., both Parties will consult with each other and, pursuant to the procedures described in this Section 1(c)(1), shall determine whether OMP (the “Group A Products”), Obagi Inc. (the “Group B Products”) or neither (the “Group C Products”) will develop such product. All potential new products shall be deemed to be Group C Products until it is determined that such product is either a Group A Product or a Group B Product. Exhibit D attached hereto provides a list of all Group A Products, Group B Products and Group C Products as of the execution date of this Agreement.

 

ii.     In order for a potential new product or a Group C Product to be designated as a Group A or Group B Product, either Party shall present to the other Party a detailed development timeline (the “Development Timeline”) setting forth the new product’s active ingredients, anticipated efficacy, and cosmetic use in relation to other existing OMP Products. (“System Concept”)

 

iii.    Within thirty (30) calendar days after the submission of the Development Timeline, OMP shall have the option to designate such product a Group A Product. For all Group A Products, Obagi Inc. shall use its commercially reasonable efforts to work with OMP and/or such third parties as OMP may from time to time designate, in OMP’s

 

(1)   It being understood that at the beginning of each year the Parties will meet to discuss and agree in writing as to whether any changes, both additions and subtractions, need to be made to the list of additional services set forth in Section 1(c).

 

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sole discretion, to develop and evaluate products that are clinically superior to existing commercially available products. OMP agrees to fully fund the development of such products and the determination as to the clinical superiority of said developed products. All Group A Products shall be subject to the terms of the Intellectual Property License-Ownership provisions discussed below in Section 3. In the event that OMP’s Development Timeline is not met and no extensions have been granted, or OMP abandons a Group A Product, it shall give notification to Obagi Inc., and Obagi Inc. may, but is not required to, designate such product as a Group B Product pursuant to the procedures described in subparagraph (iv) below.

 

iv.    Upon Obagi Inc.’s submission of a new Group B Product Development Timeline, if OMP makes a determination that it does not desire to designate such product as a Group A Product, then it shall be required to provide Obagi Inc. with written notification of such determination. OMP shall have thirty (30) calendar days from the submission of the Development Timeline to make a determination of whether to fund the development or have Obagi Inc. fund and pursue the development of said Group B product. For all Group B Products (which do not compete with OMP current products at the time of such designation), Obagi Inc. may pursue the development and clinical evaluation. All Group B Products shall be subject to the terms of the Intellectual Property License-Ownership provisions discussed below in Section 3. All development costs and/or intellectual property costs associated with the Group B Products shall be the sole and exclusive responsibility of Obagi Inc. In the event that Obagi Inc.’s Development Timeline is not met and no extensions have been granted, or Obagi Inc. abandons a Group B Product, such product shall be designated as a Group C Product upon the expiration of the Development Timeline.

 

v.     In the event that the Development Timeline for a particular product is not met, an extension of time, if requested, shall be mutually agreed upon as long as the Party in charge of product development (either OMP or Obagi Inc.) is using commercially reasonable efforts to continue development.

 

vi.    The Parties shall only pursue the commercial development and manufacture of products which have been demonstrated to be safe for their intended use. Clinical testing is not required on those products where efficacy claims are not made, needed or appropriate for that type of product. Clinical testing will be required, however, for products which make efficacy claims or are positioned as superior to a competitive brand or product(s).

 

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b)    Obagi Inc. and/or the Marketer shall, either directly or through third parties (such third parties being engaged at the Marketer’s expense), provide a minimum of forty (40) hours per week managing the Space and supporting the Spa Program as described more fully in Exhibit B;

 

c)     Obagi Inc. shall meet and present a report to OMP on a quarterly basis describing the development status of all Group B Product and the clinical/development status of Group A Products to the extent Obagi Inc. is engaged in such activities;

 

d)    Other services as OMP may reasonably request to assist the OMP Entities in the operations of their business, including assistance in marketing the OMP Products, dealing with customers, suppliers, employees, distributors and others currently having business relationships with the OMP Entities.

 

e)     For the avoidance of doubt, in the event Obagi Inc. presents a Group B Product Development Timeline for a fully-developed product or System Concept that includes Obagi Inc.-developed proprietary and/or patentable invention(s), and OMP wishes to pursue and fund the development of such Group B Product rather than have Obagi Inc. fund and control the development process, Obagi Inc. will still be entitled to such royalty payments as may be required on the commercialization of said products pursuant to Section 2(b). It is hereby understood that OMP cannot elect to designate a Group B Product as a Group A Product merely to avoid its obligations to make royalty payments to Obagi Inc.

 

(2)           Services to be provided on a fee basis are as follows:

 

a)     Conduct training/education seminars, including organizing and conducting Obagi Skin Health “Alumni” Advanced Training Seminar and Clinical Advisory meetings. The dates and locations of such training/education seminars shall be mutually agreed upon by OMP and Obagi Inc., in writing, in advance. The exact number of training/education seminars to be performed by Obagi Inc. shall be mutually agreed upon by OMP and Obagi Inc., provided however, that such number shall not be less than 1 and not more than 2 per year, unless otherwise mutually agreed upon between the Parties;

 

b)    Participate in at least one (1) clinical study per year. The dates, locations and subject matter of such clinical studies shall be mutually agreed upon by OMP and Obagi Inc., in writing, in advance;

 

Obagi Inc. hereby accepts such engagement and agrees to perform the above services, in addition to those described in Exhibit B, for the OMP Entities upon the terms and conditions set forth in this Agreement. During the Term (as defined in Section 10), Obagi Inc., and specifically Dr. Obagi, shall devote such time, attention, skill and energy to the business of the OMP Entities as may be reasonably required to perform the services required under this Agreement. All fee-based services shall be performed by Obagi Inc. only after receiving the prior written approval of

 

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the chief executive officer of OMP. Obagi Inc. shall report to the chief executive officer of OMP, and except for the Marketer and Dr. Obagi’s personal medical practice together with those aspects of Dr. Obagi’s practice as described and set forth in Exhibit F attached hereto (collectively, “Dr. Obagi’s Practice”), Obagi Inc. warrants that neither it nor its officers currently render services for or have a direct or indirect relationship, ownership interest in any other corporation, firm, entity or person that provides services similar to those described above, the Program, the Services, or which would be competitive to OMP. In consideration for performing the above-mentioned services, Obagi Inc. shall be compensated and reimbursed for its reasonable expenses in accordance with Sections 2(a), 2(b), 2(c)(2), 2(c)(3), and 2(c)(4) below.

 

(d)           Location of Services. Obagi Inc. shall have discretion to determine the means and manner in which it performs the services described in Section 1. However, both Parties anticipate that Obagi Inc. will perform such services primarily at the Premises or the business premises of the customers and suppliers of OMP and other locations as mutually agreed. Obagi Inc. acknowledges that it shall only be reimbursed for its actual expenses incurred in connection with its rendering services at such other locations pursuant to Section 2(c)(3) below and shall not receive any additional reimbursement for expenses incurred in connection with the rendering of services at such other location. Obagi Inc. shall submit to OMP an invoice and supporting receipts for expenses incurred for reimbursement.

 

(e)           Independent Contractor. In rendering the services described in Section 1, Obagi Inc., furnishing the services of Dr. Obagi, shall be acting as an independent contractor and not as an employee or agent of the OMP Entities. As an independent contractor, Obagi Inc. shall have discretion to determine the means and manner in which it performs the services described in this Agreement. As an independent contractor, Obagi Inc. shall have no authority, express or implied, to commit or obligate the OMP Entities in any manner whatsoever, except as specifically authorized from time to time in writing by an authorized representative of the OMP Entities. Nothing contained in this Agreement shall be construed or applied to create a partnership, joint venture or employment relationship. Obagi Inc. shall be responsible for the payment of all federal, state or local taxes payable with respect to all amounts paid to Obagi Inc. under this Agreement; provided, however, that if the OMP Entities are determined to be liable for collection and/or remittance of any such taxes, Obagi Inc. shall immediately reimburse such OMP Entity for all such payments made by such OMP Entity. The Parties agree that OMP shall advise Obagi Inc. of any audit, inquiry or investigation relating to such tax liabilities and that Obagi Inc. may participate in the defense of any such audit, inquiry or investigation. Both Parties also agree, however, that OMP shall retain final decision-making authority regarding litigation strategy and/or settlement authority with respect to any such audit, inquiry or investigation, and such authority shall not relieve Obagi Inc. of its obligation to indemnify OMP pursuant to this Section.

 

(f)            Injuries.

 

(1)           Injuries to Obagi Inc. Principal and Employees. Obagi Inc. waives any rights to recovery from the OMP Entities for any injuries that Dr. Obagi or its other employees may sustain while rendering the services described in Section 1 and that are a result of Obagi Inc.’s negligence, acts or omissions.

 

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(2)           Injuries to Others. Obagi Inc. agrees to take all necessary precautions to prevent injury to any persons (including the OMP Entities’ employees) and damage to property (including the OMP Entities’ property) during the rendering of the services describe in Section 1; and

 

(3)           Insurance. Obagi Inc. agrees maintain insurance coverage to cover any claims that may arise out of rendering services described in Section 1.

 

(g)           Indemnification. The Obagi Entities shall indemnify, defend and hold harmless the OMP Entities and their officers, directors, agents and employees from and against all claims, losses, expenses, fees (including attorneys’ and expert witnesses’ fees), costs and judgments that may be asserted against the OMP Entities that either (a) result from the acts or omissions of any of the Obagi Entities; or (b) result from or arise in any way out of any such claims by any third parties which are based upon or are the result of any breach of this Agreement or of the warranties given by the Obagi Entities contained in this Agreement.

 

2.     OBLIGATIONS OF OMP.

 

In exchange for Obagi Inc.’s and/or the Marketer’s obligations under this Agreement, OMP shall pay and/or provide to Obagi Inc. and/or the Marketer the following, subject to Section 11:

 

(a)           Retainer. $570,000 per year on an annual retainer (subject to annual cost of living increases under the Consumer Price Index) (the “Retainer”), to be payable to Obagi Inc. in arrears at the end of each calendar month during the Term ($47,500 per month installments). The Retainer shall be payable on a prorated basis, where applicable, in the event that this Agreement is terminated at any point during the Term of this Agreement pursuant to Section 11 of this Agreement. OMP shall pay Obagi Inc. the Retainer for, among other things:

 

(1)           Advising, formulating, developing and clinical testing of Group A Products;

 

(2)           Developing, marketing and supporting the Spa Program and Services described in Exhibit B; and

 

(3)           Chairing an Annual Obagi Skin Health Alumni Symposium(2) and up to two (2) Clinical Advisory meetings. OMP agrees to organize and pay for the marketing and execution of such annual symposia and advisory meetings.

 

(b)           ProDerm Development/Royalty Fees. For the first two (2) years of this Agreement, OMP shall pay Obagi Inc. an annual payment of two hundred thousand dollars ($200,000) per year (“ProDerm Fee”) for developing the ProDerm line of products (the “ProDerm Product”), to be payable to Obagi Inc. in arrears at the end of each calendar month ($16,667 per month installments). At the conclusion of the second year of this Agreement’s term, OMP shall have the option, in its sole discretion, of continuing to market and produce the ProDerm Product. If

 

(2)   It is understood that services that Samar Obagi may provide for Symposia, are to be separately presented in terms of both scope and fee to arrange and coordinate such Symposia.  If Samar Obagi and OMP can agree upon the fee, OMP will retain Samar Obagi for her services in connection with such Symposia.  In the event that the two Parties cannot agree upon a reasonable fee, OMP will retain these services elsewhere.

 

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OMP exercises its option to continue the ProDerm Product after the conclusion of the second full year of this Agreement, OMP shall pay Obagi Inc. an annual royalty payment of $200,000 per year or an annual royalty payment equal to five percent (5%) of OMP’s net revenues (net amounts received by OMP as determined under generally accepted accounting principles) from sales of the ProDerm Product (“ProDerm Royalties”), whichever amount is greater, for as long as OMP elects to market and produce the ProDerm Product. Such ProDerm Royalties shall be paid on a quarterly basis, within thirty (30) calendar days of the close of OMP’s fiscal quarter. Obagi Inc. shall be entitled to review, on a quarterly basis, OMP’s statements of sales with respect to the ProDerm Product, and Obagi Inc. shall have the right to conduct audits of such sales at its own cost. In the event that there is an underpayment of ProDerm Royalty payments to Obagi Inc. pursuant to this Section 2(b) of greater than 5%, OMP shall compensate Obagi Inc. for the commercially reasonable costs of the audit that determined such underpayment. Notwithstanding anything in this Section to the contrary, if OMP elects not to market and/or produce the ProDerm Product after the second full year of this Agreement, or elects to stop marketing and/or producing the ProDerm Product at any time after the second full year of this Agreement, OMP’s obligations to pay Obagi Inc. the ProDerm Royalties shall cease immediately as of the date of OMP’s discontinuance of such marketing and production. In the event that OMP elects to cease marketing and producing the ProDerm Product, Obagi Inc. shall have the right to produce, market, sell, license or distribute the ProDerm Product at its sole discretion subject to the terms of Section 3 below regarding the use of Marks without having to pay any consideration whatsoever to OMP.

 

In addition, OMP shall pay Obagi Inc. royalty fees for developing Group B Products equal to five percent (5%) of OMP’s net revenues (net amounts received by OMP as determined under generally accepted accounting principles) from sales of the any and all Group B Products (“Group B Royalties”) that OMP purchases from Obagi Inc. pursuant to Section 3(h)(4), below. Such Group B Royalties shall be paid each year promptly after receipt by OMP of final audited financial statements and reports for such year from its independent auditors. Such Group B Royalties shall be paid for the life of the product.

 

(c)           Services, Fees and Expenses.

 

(1)           Training and Consulting Fees. For the training/education seminars and other services described in Section 1(c)(2), outside of Dr. Obagi’s Practice, Obagi Inc. will be compensated at $5000 per day for each day of such services provided by Dr. Obagi on behalf of Obagi Inc. For training/education seminars that are conducted at the Premises or at other locations within Dr. Obagi’s Practice (as defined below), Obagi Inc. will be compensated at a discount rate of $2500 per day for such services provided by Dr. Obagi on behalf of Obagi Inc. The fees paid pursuant to this Section shall be referred to as the “Training Fees”.

 

(2)           Clinical Service Fees. For clinical testing of all products not included in Group A or B, OMP agrees to compensate Obagi Inc. $2500 per patient completed, for clinical studies in which Dr. Obagi agrees to and does participate.

 

(3)           Travel Expenses. Travel days, when no training is conducted, will be reimbursed at $5000 per weekday and $3000 per weekend day. For clarity, if Dr. Obagi

 

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travels to a location and conducts training on the same day of his travel, he will not be paid pursuant to this paragraph and shall only receive the $5000 Training Fee. All expenses, except First Class Airfare and hotel accommodations, incurred by Dr. Obagi that are in excess of the amounts payable pursuant to this Section 2(c)(3) will not be paid by OMP and will remain Dr. Obagi’s responsibility. Dr. Obagi acknowledges that this per diem rate shall cover all of the expenses that he shall incur in rendering such services and that the OMP Entities shall not be obligated to pay him any more than the amounts described in this Section 2(c).

 

(4)           Marketing Expenses. OMP agrees to provide marketing support / advice and to pay 50% of all invoiced commercially reasonable marketing design and development (not production) expenses associated with opening of the Space and launching the Program through the earlier of the opening of the Spa or December 31, 2006, provided however, such reimbursement shall not exceed one hundred thousand dollars ($100,000.00), unless otherwise approved in writing by the CEO of OMP, unless otherwise required to be approved by the OMP Board of Directors.

 

(d)           Indemnification. The OMP Entities shall indemnify, defend and hold harmless the Obagi Entities and any of their officers, directors, agents and employees from and against all claims, losses, expenses, fees (including attorneys’ and expert witnesses’ fees), costs and judgments that may be asserted against the Obagi Entities that either (a) result from the acts or omissions of either of the OMP Entities; or (b) result or arise in any way out of any such third party claims against OMP products; or (c) result from or arise in any way out of any such claims by any third parties which are based upon or are the result of any breach of the warranties given by the OMP Entities contained in this Agreement.

 

(e)           Right of First Refusal. Obagi Medical, subject to Board approval, hereby grants Dr. Obagi a right of first offer (“Right of First Offer”) to purchase his Pro Rata Share (as defined in the following sentence) of any equity securities of Obagi Medical, which Obagi Medical may, from time to time, propose to issue and sell to a third party investor. “Pro Rata Share” shall mean an amount equal to the fraction obtained by dividing (a) the sum of the total number of shares of Obagi Medical common stock then held by the Obagi Entities by (b) the sum of the total number of shares of Obagi Medical common stock then issued and outstanding. This Right of First Offer shall terminate upon any initial public offering of Obagi Medical’s common stock.

 

(f)            Quarter Reporting. OMP shall meet and present a report to Obagi Inc. on a quarterly basis describing the development status of all Group A Products.

 

3.     INTELLECTUAL PROPERTY LICENSE-OWNERSHIP.

 

(a)           Program Data. Subject to existing Federal and State privacy laws regarding Obagi Inc.’s patients (including compliance with HIPAA), as between Obagi Inc. and/or the Marketer on one hand and OMP on the other, and subject to Section 11, Obagi Inc. and/or the Marketer shall be the owner of all accounts, customer lists and other customer information and data (the “Program Data”) developed in connection with the Program; provided, however, that OMP shall have a perpetual, royalty-free, non-exclusive license to have access to and to utilize the Program Data.

 

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(b)           Trademark License. Subject to Section 3(c), OMP hereby grants to Obagi Inc. and/or the Marketer a limited, non-exclusive, irrevocable license to use, reproduce and display OMP’s trademarks and trade names and logos attached hereto as Exhibit E, which exhibit may be amended from time to time by OMP (the “Marks”), solely for the purposes of identifying, advertising, marketing and promoting OMP Products in connection with (x) the Program and the Space as described in Section 1(a) herein; (y) subject to OMP’s approval (which shall not be unreasonably withheld), such additional office locations at which Dr. Obagi may practice, provided however, that such additional office locations shall be subject to the terms of this Agreement; and (z) Dr. Obagi’s Practice, in all media, and strictly in accordance with Obagi Inc.’s, the Marketer’s (the “Licensees”) obligations as set forth in the rest of this Section 3. The Licensees cannot and shall not sublicense the rights granted to the Licensees under this 3(b). To be clear, the licenses granted pursuant to this Section 3 are the only licenses granted by the OMP Entities to the Licensees and supersede and replace any prior licenses that have been previously granted by the OMP Entities to the Licensees, including but not limited to those license granted pursuant to the Termination, License and Obligation Agreement dated December 17, 2002 between OMP, Dr. Obagi and the Zein and Samar Obagi Family Trust. The Licensees shall not use any Mark in any way whatsoever in connection with any Group B Products unless they first obtain the advance written approval of OMP. However, the Licensees shall be allowed to develop a new trademark or trade name for the Group B Products which may include Skin Health, Skin Health Institute and the by-line, “Formulated By, or Developed By, Dr. Zein Obagi, M.D.”, or something similar, provided however, that any such new trademark or trade name shall be sufficiently different from any Mark as to be able to achieve registration with the United States Patent and Trademark Office on an arms-length basis. All licenses granted under this Section 3(b) shall survive the term of this Agreement.

 

(c)           Trademark Use. The Licensees may not alter the form or format of any of the Marks provided to the Licensees for use in accordance with this Agreement without the prior written approval of OMP. All goodwill arising out of the use of any of the Marks as provided for hereunder shall inure solely to the benefit of, and automatically vest in, OMP. The Licensees agree to cooperate with OMP in facilitating OMP’s control of the nature and quality of services rendered by the Licensees in connection with the Marks, to permit reasonable inspection of the Licensees’ operations, and to supply OMP with specimens of all uses of the Marks upon request. The Licensees shall comply with all applicable laws and regulations and obtain all appropriate government approvals pertaining to the use of the Marks. OMP may terminate the license granted in Section 3(b) herein if, in OMP’s reasonable discretion, the Licensees’ use of any of the Marks tarnishes, blurs or dilutes the quality associated with such Marks or the associated goodwill and such problem is not cured within thirty (30) days of notice of such breach. Title to and ownership of the Marks shall remain at all times with OMP. There are no implied licenses under this Agreement. The Licensees shall not exceed the scope of the rights granted hereunder. The Licensees shall use the Marks in conformance with all OMP trademark usage policies. The Licensees shall not take any action inconsistent with OMP’s ownership of the Marks and the Licensees shall not form any combination marks with the Marks.

 

(d)           OMP Marketing Materials. OMP grants Obagi Inc. and/or the Marketer a non-exclusive license to use and reproduce the marketing materials designated by OMP to Obagi Inc. and/or the Marketer in writing from time to time, solely for the purposes of promoting the Program described in Section 1 and in Exhibit B hereto (including the sale of the OMP Products

 

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in accordance with the terms hereof). All rights not expressly granted to Obagi Inc. and/or the Marketer herein are reserved to OMP. Obagi Inc. and/or the Marketer shall not exceed the scope of the rights granted hereunder.

 

(e)           Marketing Materials Prepared by the Marketer. Obagi Inc. and/or the Marketer grants OMP, during the Term, a non-exclusive license to use and reproduce the marketing materials created by Obagi Inc. and/or the Marketer under Section 1(a), which marketing materials are subject to approval by OMP under Section 3(f) herein.

 

(f)            Approval by OMP. For the purposes of promoting the Program, the Space, Dr. Obagi’s Practice and those office locations at which Dr. Obagi practices that are operated by Cellogique, Inc., as described in Section 1 and Section 3(b), respectively, the Licensees agree only to use: (i) the Marks, in accordance with the terms of this Section 3; (ii) the OMP marketing materials referenced in Section 3(d) herein; and (iii) the marketing materials created by the Licensees under the terms of Section 1(a), which marketing materials are subject to approval under this Section 3(f). Prior to displaying or otherwise using any marketing materials to promote the Program, including any modifications to previously approved materials, the Licensees shall furnish to OMP a copy of such marketing materials for approval. Approval or disapproval of such marketing materials shall be in OMP’s sole discretion. Approval of any marketing materials by OMP hereunder must be in writing. OMP shall use commercially reasonable efforts to provide the Licensees with such written approval in a timely manner. If any marketing material is disapproved by OMP, such material shall not be displayed or otherwise used by the Licensees for promoting the Space, Dr. Obagi’s Practice or such other office locations described in Section 3(b).

 

(g)           Notification and Disclosure. Obagi Inc. shall promptly notify the OMP Entities in writing of the existence and nature of, and shall promptly and fully disclose to the OMP Entities, any and all ideas, designs, practices, processes, apparatus, improvements, new product developments and inventions, proposed to be created or developed by Obagi Inc. pursuant to the new products development services described in Section 1(c)(1) or otherwise that Obagi Inc. has conceived or first actually reduced to practice and/or may conceive or first actually reduce to practice during the Term, including but not limited to those products listed in Exhibit D, or which Obagi Inc. may conceive or reduce to practice (all of which are hereinafter referred to as “Inventions”), within six months after the Term, if such Inventions relate to a product or process upon which Obagi Inc. worked during the Term or during the period of Dr. Obagi’s employment with OMP.

 

(h)           Ownership of Inventions. The ownership of all Inventions shall be as follows.

 

(1)           All Group A Products in development and any products that are developed and commercialized as a Group A Product, shall be the sole and exclusive property of OMP. OMP shall have the right to produce, market, sell, license or distribute these developed Group A Products without having to pay any further consideration, besides the Retainer, to Obagi Inc. Group A Products that are transferred to Group B Products shall be subject to the terms and conditions of Group B Products herein. The Obagi Entities shall have the right to purchase any

 

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of these developed Group A Products from OMP pursuant to the terms of Section 6 hereof.

 

(2)           All Group B Products, both those in development and any products that are developed that were a Group B Product, shall initially be the sole and exclusive property of Obagi Inc. unless otherwise acquired by OMP under the option terms within this Agreement under Section 3(h)(4).

 

(3)           Obagi Inc. shall present to OMP all developed Group B Products and any product data relating to such developed Group B Products, including but not limited to any clinical support for product claims to the extent any such claims are made, to OMP immediately upon the conclusion of the development of such Group B Product. OMP shall have thirty (30) calendar days from the date after it receives a full dossier on the formulation, validated manufacturing process, safety and clinical data, or such longer period of time as is mutually agreed to in writing between the Parties, which time extension shall not be unreasonably withheld, to confirm any reported data and Obagi Inc.’s clinical results.

 

(4)           If OMP decides to produce, market and distribute such developed Group B Product, then OMP shall purchase such Group B Product from Obagi Inc. for an amount which is equal to one hundred twenty five percent (125%) of all Obagi Inc.’s supported direct expenses associated with the development of such product, provided however, if such expenses are greater than five hundred thousand dollars ($500,000), then the Parties will mutually agree on a lower percentage mark-up. In addition, OMP shall pay Obagi Inc. a royalty fee subject to the terms of Section 2(b) above. Once OMP purchases such developed Group B Product pursuant to the terms of this Section 3(h)(4) then such product shall immediately become the sole and exclusive property of OMP and the Obagi Entities shall only have the right to purchase such developed products pursuant to the terms of Section 6 hereof.

 

(5)           In the event that OMP does not elect to purchase such developed Group B Product from Obagi Inc. pursuant to the terms of Section 3(h)(4) above, Obagi Inc. shall have the right to produce, market, sell, license or distribute such developed Group B Product at its sole discretion subject to the terms of Section 3 above regarding the use of Marks without having to pay any consideration whatsoever to OMP.

 

(i)            Copyrightable Material.

 

(1)           All right, title, and interest in all copyrightable material which Dr. Obagi shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, in connection with a Group A Product, and/or a Group B Product that OMP purchases pursuant to Section 3(h)(4), shall be the property of the OMP Entities and are hereby assigned to the OMP Entities along with ownership of any and all copyrights in the copyrightable material. Obagi Inc. agrees to execute all papers and perform all other acts necessary to assist the OMP Entities to obtain and register copyrights on such materials in any

 

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and all countries. Where applicable, works of authorship created by Obagi Inc. for the OMP Entities in performing the services hereunder, in connection with the Group A Products, shall be considered “works made for hire” as defined in the U.S. Copyright Act.

 

(2)           All right, title, and interest in all copyrightable material which Dr. Obagi shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, in connection with a Group B Product that OMP does not purchase pursuant to Section 3(h)(4) shall be the property of Obagi Inc. and are hereby assigned to Obagi Inc. along with ownership of any and all copyrights in the copyrightable material unless OMP exercises the right to purchase under the terms of this Agreement per Section 3(h)(4). The OMP Entities agree to execute all papers and perform all other acts necessary to assist Obagi Inc. to obtain and register copyrights on such materials in any and all countries. Where applicable, works of authorship created by Obagi Inc. for the OMP Entities in performing the services hereunder, in connection with the Group B Products, shall not be considered “works made for hire” as defined in the U.S. Copyright Act.

 

(j)            Spa Concept Franchise.

 

(1)           The business conducted in the Space, or the Program, as referred to in Section 1(a) and Exhibit B shall be the sole and exclusive property of Obagi Inc., Dr. Obagi and/or its nominee and the operations obligations shall solely be Dr. Obagi’s and/or Obagi Inc.’s (excluding OMP’s commitment pursuant to the accompanying Lease Agreement);

 

(2)           During the Term of this Agreement and six months thereafter, Obagi Inc. hereby grants to OMP a first option to an exclusive worldwide right to open or cause a third party to open any business similar to the business conducted in the Space for the remainder of the Term, if any, and three years thereafter. OMP shall have thirty (30) calendar days of being notified by Obagi Inc. of its intention of opening such business and its proposed location, to notify Obagi Inc. in writing that it desires to exercise such option. If OMP does not deliver such notification to Obagi Inc., then Obagi Inc., if allowed to do so pursuant to Section 4, and subject to the conditions of Sections 3(b) and 3(c), is hereby permitted to (a) open such business itself or (b) grant a license to a third party to open such business.

 

(k)           Survival. Subsections 2(b), 2(d), 2(e), 3(b), 3(d), 3(g), 3(h), 3(i), 3(j) and Section 6 shall survive the Term.

 

4.     NON-CIRCUMVENTION

 

The Parties shall not circumvent or evade any of their respective obligations under this Agreement, nor induce or conspire with any third party, including, but not limited to, any partner of a party, to circumvent or evade any of its obligations to the other party hereunder. The Parties understand that each is bound by a covenant of good faith and fair dealing under which each

 

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Party shall not deny the other Party the benefit of this Agreement and under which each Party has an affirmative duty to cooperate to assist the other Party in achieving the benefit of this Agreement.

 

5.     CONFIDENTIAL INFORMATION

 

(a)           The Parties acknowledge and agree that, in order to perform the obligations pursuant to the terms of this Agreement, each Party may disclose to the other Party (the “Recipient”) certain proprietary and confidential information, including without limitation any design, process, procedure, formula, improvement or systems information that is commercially valuable to the OMP Entities or Obagi Entities and not generally known in the industry (the “Information”). No Party shall disclose, transfer, use, copy, or allow access to any Information, except to such Party’s employees, attorneys and certified public accountants who have a need to know such Information consistent with the requirements of this Agreement and who have undertaken an obligation of confidentiality and limitation of use in writing, acceptable to the disclosing Party in its reasonable discretion, it being understood that notwithstanding the obtaining of such obligation of confidentiality and limitation of use, the Party engaging such persons shall also continue to be responsible for any unauthorized disclosures of the Information by any of them.

 

(b)           A Recipient will not be obliged to maintain the confidentiality of any such Information if the Recipient can demonstrate that (i) the Information was known by the Recipient before receiving such Information from the disclosing Party; (ii) the Information is available or became available to the public through sources independent of the Recipient, through no fault of the Recipient; (iii) the Information is available or became available to the Recipient from a third party who had a right to disclose such Information; or (iv) the Recipient is legally required to disclose such Information. The obligations set forth in this Section 5 shall survive the termination of this Agreement.

 

(c)           Each Party agrees that the other Party shall suffer irreparable harm if it fails to comply with its obligations set forth in this Section 5, and further agrees that monetary damages shall be inadequate to compensate the other Party for any such breach. Accordingly, each Party agrees that the disclosing Party shall, in addition to any other remedies available to it at law or in equity, be entitled to the issuance of injunctive relief to enforce the provisions hereof.

 

(d)           Upon the disclosing Party’s request, the Recipient will promptly return to the disclosing Party all copies of the Information, will destroy all notes, abstracts and other documents that contain Information, and will provide to the disclosing Party a written certification of an officer of the Recipient that it has done so. Nothing in this Agreement will be construed as granting any rights to the Recipient, by license or otherwise, to any of the disclosing Party’s Information, except as specifically stated in this Agreement.

 

6.     DISTRIBUTION AGREEMENTS / DISCOUNTS

 

All products distributed by OMP which are supplied by OMP to Obagi Inc. and/or Dr. Obagi’s Practice shall be pursuant to the terms and conditions of applicable distribution agreements, including the indemnification provisions provided therein. The maximum discount

 

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