SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT

 

 

                                                                   EXHIBIT 10.11

 

                 SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT

 

                   [FORM OF SERVICES AND LICENSING AGREEMENT]

 

         This Services and Licensing   Agreement (the   "Agreement")   is made this

8th day of December 2004 by and between Advanced Aesthetics,   Inc., a Delaware

corporation ("AAI"), and Johns Hopkins Medicine ("JH"), acting through The Johns

Hopkins Health System Corporation, a Maryland corporation ("JHHS") and The Johns

Hopkins University, a Maryland corporation ("JHU").

 

                                    RECITALS

 

1. AAI is a company dedicated to providing a nationwide,   comprehensive suite of

medical and   non-medical   services   and products for   aesthetic   enhancement   in

hospitality-oriented environment.

 

2. JHU is a university   that has medical,   nursing and public health schools and

JHHS is a   hospital   system;   together,   both are   international   leaders in the

education of physicians and medical scientists,   in biomedical research,   and in

the application of medical knowledge to patient care.

 

3. AAI has assembled   leading   cosmetic   medical   professionals   to serve on its

medical   board to set clinical   policy and provide   insight and advanced   market

knowledge of clinical innovation in the field of aesthetic medicine.

 

4. AAI and JH   previously   entered into a Consulting   Services   Agreement   dated

December   17,   2003,   as amended by a First   Amendment   to   Consulting   Services

Agreement dated December 1, 2004 (the "Consulting Agreement"), pursuant to which

M and AAI   agreed to   collaborate   to   enhance   the level of quality of care and

safety for   cosmetic   medical   procedures   provided   by AAI to   patients   at AAI

facilities (the "AAI Facilities").

 

5. This   Agreement is being signed solely to confirm the status of   negotiations

between the parties.   If the open points described in Sections 1 and 4 and other

Conditions Precedent (hereinafter defined) are not agreed upon by AAI and JHI by

July 31, 2005 (subject to extension by mutual   agreement of the   parties),   this

Agreement shall be null and void.

 

6.   Working in   conjunction   with JH, AAI now   desires to develop a line of skin

care   products   with   scientifically   proven   efficacy.   As   described   in   this

Agreement, JH has agreed to (subject to the Conditions Precedent):

 

   (a) develop skin testing methodologies and skin care product efficacy testing

protocols,

 

   (b) conduct all   scientific   testing on third party and   proposed AAI produce

and

 

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   (c) place on AAI products its branded   verification   of the specific   testing

that has been   performed   on the product   and allow   branded   reference   to skin

testing methodologies validated by JH.

 

         NOW   THEREFORE,   in   consideration   of the premises,   and of the mutual

covenants and conditions contained herein, JH and AAI agree as follows:

 

   1. JH Services.

 

      (a) JH will   investigate   current   methods,   including   both protocols and

equipment for skin care parameter testing at the point of sale. Parameters to be

teste4 include hydration, tone, elasticity,   wrinkling,   pigmentation, dead skin

levels   (squames),   UV damage and sebum (the   "Skin Care   Parameters").   JH will

provide AAI with   written   reports   regarding   the accuracy and validity of such

existing testing methods.

 

      (b) Where existing protocols and equipment for Skin Care Parameter testing

do not exist or are not acceptable to JH, JH will develop   acceptable methods to

measure the condition of clients' skin with respect to the Skin Care Parameters.

JH will also confirm   identified   equipment   reliability   in   following   such JH

developed methods.

 

(c) JH will create a new testing   methodology   to   validate   selected   skin care

product   efficacy.   Among other   things,   JH will develop the testing   protocols

(using human trials, but not needing to comply with FDA/IRB standards) that will

either refute or validate   specific   narrow   claims made by skin care   providers

regarding   improvement   in one   or   more   of   the   Skin   Care   Parameters.   Such

methodologies   and   protocols   developed   by   JH   are   called   the   "JH   Testing

Standards."   Skin care   products   referenced in this Section l include both over

the counter and prescription products.

 

      (d) JH will oversee the ongoing   testing of third party skin care products

using the JH Testing   Standards.   Once the JH Testing standards are established,

JH will   oversee the   selection of the   providers   and process of the testing of

third party skin care products using the human trial methodology.

 

      (e) JH will   oversee   the testing of fifteen   (15) AAI skin care   products

using the JH Testing   Standards.   Once the JH Testing Standards are established,

JH will oversee the selection of the providers and process of the testing of AAI

skin care products using the human trial methodology.

 

      In order to enable JH to provide the   services   described   in this Section

(the "Services"), AAI will provide JH with:

 

            (i)    a list and samples of candidate   equipment and technologies to

                  be tested pursuant to paragraph (a),

 

            (ii)   third party skin care   products to be tested as   described   in

                  paragraph (d),

 

            (iii) the AAI products to be tested as   described in paragraph   (e),

                  and

 

                                      -2-

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            (iv)   human trial subjects that meet JH   requirements   for both type

                  and quantity that are required for testing under (d) and (e).

 

As a   condition   to   undertaking   any   Services,   AAI and JH must first agree in

writing upon the specific   scope of such   Services,   the estimated time required

from JH faculty   and other   personnel,   deliverables   to be provided by JH and a

time schedule for such   deliverables.   AAI acknowledges   that time of JH faculty

and other   personnel   may be limited due to other   obligations.   Until a written

agreement defining the scope of, and timing for, any JH Services has been agreed

to, JH shall not be required to make faculty or other   personnel   available   for

any specific amount of time.

 

As an academic institution,   JH will provide AAI with objective,   scientifically

based findings.   AAI   acknowledges   that such findings may be negative in nature

from   AAI's   perspective,    including   a   conclusion   that   there   is   no   valid

methodology for testing Skin Care Parameters or developing JH Testing   Standards

or that skin care products   tested are not   effective.   As one of the Conditions

Precedent    (hereinafter   defined),   JH   and   AAI   must   agree   upon   parameters

distinguishing   between   research,    with   respect   to   which   JH   policies   and

principles    regarding   research   and   academic   freedom    (including.    without

limitation,   publication of unfavorable results) shall apply, and work for hire,

with respect to which certain AAI   confidentiality   rights to be negotiated will

apply.

 

      JH will   perform the   Services   in good faith and   through the   reasonable

exercise of the   professional   judgment of its faculty and staff who are engaged

to provide the Services.   JH DISCLAIMS ALL OTHER   WARRANTIES,   EITHER EXPRESS OR

IMPLIED,   INCLUDING,   WITHOUT   LIMITATION,   WARRANTIES   OF   MERCHANTABILITY   AND

FITNESS FOR A PARTICULAR PURPOSE.

 

      2.      Permitted Name Reference.

 

            (a) Subject to the prior written approval of JH, JH agrees that AAI,

and to the   extent   provided   below   Sephora   ("Sephora"),   may   make a   factual

statement that: (1) certain Skin Care Parameter testing   methodologies have been

developed   by fl or found by JH to be   effective   pursuant to Sections   1(a) and

1(b) above, which statement may be used within AAI Facilities and retail outlets

of Sephora   (so long as the   conditions   set forth below are   satisfied)   and on

their respective   websites arid in other media as mutually agreed upon by JH and

AAI, and (ii) certain skin care products   have been found to be effective   based

on the JH Testing   Standards   pursuant   to Sections   1(d) and 1(e) above,   which

statement   may be used by placing it on the product in   question   (collectively,

the "Permitted Statement of Fact"). Hypothetical examples of permissible ways in

which the Permitted   Statement of Fact may be made are set forth on EXHIBIT 1 to

this Agreement.   JH reserves the right to approve the specific   context in which

any Permitted   Statement of Fact is used   including the prominence and frequency

of usage   and   juxtaposition   with   other   content.   Specifically,   but   without

limitation: (i) any skin care product bearing Permitted Statement of Fact may be

sold only in an AAI   Facility,   a retail outlet of Sephora oz through such other

outlets   as are   mutually   agreed   upon   by JH and   AAI,   and   (ii) a   Permitted

Statement of Fact   regarding Skin Care Parameter   testing   methodologies   may be

made only within an AAI Facility or Sephora   outlet that in fact adheres to such

methodologies. With respect to Sephora, Permitted Statements of Fact may be used

only so long as Sephora   continues to (i) be a wholly-owned   subsidiary of LVMH,

and (ii) market its retail outlets in a high quality

 

                                      -3-

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manner to a   sophisticated   customer   base with each   outlet   staffed   by highly

trained skin experts and   supported by reliable and accurate   skin   diagnostics,

and (iii) comply with the restrictions on usage of Permitted   Statements of Fact

and the Mark as set forth in this   Agreement.   At or prior to   execution of this

Agreement,   AAI will   provide JH with a   commitment   from Sephora to comply with

such   restrictions.   Lu   addition,   to the extent   any retail   outlet of AAI and

Sephora indicates that it adheres to testing for Skin Care Parameters   developed

or validated by JH, JH reserves the right,   at AAI's   expense,   to make periodic

inspections of such retail outlet to confirm that it is appropriately   utilizing

such testing   standards.   Such inspections shall occur with such frequency as is

determined by JH to be necessary in its reasonable discretion.   Any reference to

JH that is not   consistent   with the,   examples on Exhibit 1 or any other use of

the Mark (hereinafter   defined),   except as otherwise provided in the Consulting

Agreement,   shall be subject to the prior   written   approval of JH, which may be

granted   or   denied   in   its   sole   discretion.   The   Johns   Hopkins   name,   any

derivatives   of   such   name,   and   any   logos   or   symbols   of JH or   any of its

affiliates are herein collectively called the "Mark".

 

            (b) Any   usage   of a   Permitted   Statement   of Fact   not   previously

approved   in writing by JH wilt be   subject to   consultation   with and the final

approval of JH as   described   above,   with   appropriate   lead time in each case.

Unless   otherwise   agreed in writing by JH, requests for approval of a Permitted

Statement of Fact shall be submitted at least fourteen (14) days in advance. The

director of the Health   Publishing   Business   Group of the School of   Medicine's

Office of Corporate Communications   (currently Mr. Steve Libowitz) will serve as

JH's first   source of review and the sole   contact   with   media.   No JH faculty,

staff,   student or administrator or any other person   associated with JH will be

made   available to the media unless it is with the express,   written   consent of

the director of the Health Publishing Business Group of the School of Medicine's

Office of Corporate Communications.

 

      3. Intellectual   Property. If JH develops, in whole or in part, any unique

(i.e.   not available in the public domain or brought to JH by AAI)   intellectual

property as a result of providing the Services, such intellectual property shall

belong   solely   to JH,   JHHS or JHU and,   as such,   can be used by them   without

restriction   or   limitation   or   any   compensation   to   AAI.   AAI   shall   have a

perpetual,    non-exclusive    license    to   use   Skin   Care    Parameter    testing

methodologies   and   JH   Testing   Standards   developed   by JH   pursuant   to   this

Agreement.   However,   AAI may   make a   Permitted   Statement   of   Fact   or   other

reference to JH in connection with such   methodologies   or JH Testing   Standards

only as   permitted   in,   and   during   the Term of   (hereinafter   defined),   this

Agreement.

 

      4.   Consideration.   The consideration for the Services and the limited use

by AAI of the Permitted Statement of Fact shall be as follows:

 

            (a) AAI will pay faculty of the JHU School of   Medicine   fees in the

amount   $5,000 per day (or $700 per hour) to perform   the   Services   outlined in

Section 1 of this   Agreement   subject to normal   inflation   increases   occurring

during the Term   (hereinafter   defined) of this Agreement.   Payment will be made

within thirty (30) days after invoicing by JH

 

            (b)   In   addition   to   the   compensation    for   Services,    AAI,   in

consideration for the limited use of the Permitted Statement of Fact as provided

in this Agreement,   will provide JH

 

                                      -4-

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with   substantial   additional   compensation   to be negotiated.   Such   additional

compensation will include guaranteed annual fees, plus a royalty plus equity.

 

      5.     Term: Conditions Precedent.

 

            (a) This Agreement shall be in effect through November 30, 2009 (the

"Term"). Thereafter, this Agreement shall renew for additional five-year periods

unless either party shall provide   written   notice of   termination   to the other

party no later than 120 days prior to the then current   expiration   date. As one

of the Conditions Precedent, JH and AAI must agree upon formula to appropriately

compensate   JH for the value   created by it   pursuant to this   Agreement   in the

event the Term is not extended   beyond such   initial five (5) year period.   This

may include for example,   an ending cash payment to JH or issuance of additional

stock.

 

            (b) JH and AAI have agreed to enter into this   Agreement   to reflect

the current stage of their negotiations.   However,   the Term shall not commence,

and   neither JH nor AAI shall have any   legally   binding   obligation   under this

Agreement,   until all of the Conditions Precedent have been satisfied. If all of

the Conditions   Precedent have not been satisfied by July 31, 2005 (as such date

maybe   extended by mutual   agreement of the parties),   either party may elect by

written   notice   to the   other to   terminate   this   Agreement.   The   "Conditions

Precedent" include:

 

                  (i) written agreement by JH and AAI on: (A) the parameters for

research and academic   freedom as opposed to work for hire as noted in Section 1

of this Agreement;   (B) the amount of royalty fees,   guaranteed   annual fees and

equity as noted in Section 4(a) of this Agreement;   (C) the buyout or additional

&tock to be   provided   JH at the end of the Term as noted in   Section   5 of this

Agreement;   and   (D)   an   appropriate   scope   of   coverage   for   product   and/or

contractual liability insurance to be maintained by AAI;

 

                  (ii)   final    approval   by   internal   JH   committees   for   the

Permitted Statement of Fact (AAI acknowledges that,   notwithstanding anything to

the contrary in this Agreement, such approvals have not yet been obtained); and

 

                  (iii)   documentation of the matters described in the preceding

paragraphs (i) and (ii) by an amendment to this   Agreement   acceptable in form s

content to, and signed by, JH and AAI.

 

         Neither   JH nor AAI shall   have any legal   obligation   of any nature to

proceed   with the   transactions   described   in this   Agreement   until all of the

Conditions   Precedent have been satisfied in the sole   discretion of each party.

No implied   obligations   of any nature,   whether to   negotiate   in good faith or

otherwise, shall arise by virtue of the execution of this Agreement.

 

      6. Representations and Warranties of JH. JH represents and warrants to AAI

follows:

 

             6.1. Authorization; Validity of Agreement; No Violation.

 

                  (a) JH has the   requisite   power and   authority to (i) perform

this   Agreement   and   each   other   document   to be   performed   pursuant   to this

Agreement (collectively

 

                                       -5-

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with   this   Agreement,   the "JH   Documents")   to which   JH is a party,   and (ii)

consummate the transactions contemplated hereby and thereby.

 

                  (b)   JH has   duly   authorized,   executed   and   delivered   this

Agreement and each of the other JH Documents to which it is or will be a party.

 

                  (c) This   Agreement   and each other JH Document   are valid and

binding obligations of JH, enforceable against JH in accordance with their terms

and do not violate any law or agreement applicable to JH.

 

            6.2.   Investment   Undertaking.   JH   acknowledges   that the Preferred

Shares to be issued pursuant to Section 4(a) of this Agreement and the shares of

common stock,   par value $.01 per share,   of AAI issuable upon conversion of the

Preferred Shares will be "restricted   securities" within the meaning of Rule 144

of the General Rules and   Regulations   under the   Securities   Act of 1933 ("Rule

144").   JH is acquiring the Preferred   Shares for its own account and not with a

view to their distribution within the meaning of Section 2(11) of the Securities

Act of 1933. JHHS and JHU are "accredited   investors," as defined in Rule 501 of

Regulation D under the   Securities   Act of 1933.   JH   understands   that Rule 144

requires that the Preferred   Shares and the shares of common stock issuable upon

conversion   may not be   disposed   of for a   period   of at   least   one   year.   JH

understands   that it must   bear   the   economic   risk   of the   investment   in the

Preferred   Shares and the shares of common stock issuable upon conversion of the

Preferred Shares indefinitely because such shares may not be sold,   hypothecated

or otherwise disposed of unless subsequently registered under the Securities Act

of 1933 and applicable state securities laws, or an exemption from   registration

is available.

 

      7.   Representations   and Warranties of AAI. AAI represents and warrants to

JH as follows:

 

            7.1. Authorization; Validity of Agreement; No Violation.

 

                  (a) AAI has the   requisite   capacity and   authority to perform

this   Agreement   and   each   other   document   to be   performed   pursuant   to this

Agreement (collectively,   with this Agreement, the "AAI Agreements") to which it

is a party and to consummate the transactions contemplated hereby and thereby.

 

                  (b) AAI has duly   authorized,   executed and delivered this and

each of the other AAI Agreements.

 

                  (c) This   Agreement   and each other AAI   Agreement   is a valid

binding   obligation   of AAI,   enforceable   against it in   accordance   with their

respective terms do not violate any law or agreement applicable to AAI.

 

            7.2.   Shares   Duly   Authorized.   The   Preferred   Shares   and   Common

issuable upon conversion   thereof have been duly authorized and upon issuance in

with their terms will be duly and validly issued and non-assessable.

 

      8. Other Agreements of the Parties. In addition to the other provisions of

this Agreement, the parties agree as follows:

 

                                      -6-

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            8.1. Licenses;   Professional   Insurance.   AAI will cause (i) all AAI

Facilities to be fully licensed by all appropriate agencies,   and (ii) each such

AAI Facility to carry all required liability and professional   insurance. In any

event,   AAI shall at a minimum   maintain the   insurance   coverages   set forth on

EXHIBIT 2 to this   Agreement.   Such   insurance   shall name   JHHS,   JHU and their

affiliates as additional   insureds and provide that JH will receive   thirty (30)

day advance written notice of any change in, or cancellation of,   coverage.   AAI

shall provide   certificates   evidencing such insurance to JH within fifteen (15)

days after request.

 

            8.2.   General Conduct of Business.   AAI will conduct its business in

accordance   with   all   applicable   laws   and the   provisions   of the   Consulting

Agreement.

 

            8.3. Financing Reporting. AAI shall provide to JH:

 

                  (a) As soon as available,   and in any event within thirty (30)

days   after   the   end of each   calendar   quarter,   copies   of a   balance   sheet,

operating   statement   and cash   flow   statement   for AAI as of the close of such

period,   in each case   setting   forth in   comparative   form the   figures for the

corresponding   period   of the   preceding   year,   all in   reasonable   detail   and

certified as complete and correct,   subject to changes   resulting   from year-end

adjustments,   by the chief financial   officer of AAI, which shall be accompanied

by: (i) a letter from such chief financial officer   certifying that AAI has paid

all sums due to JH pursuant to this Agreement and (ii) a breakdown,   in form and

detail reasonably acceptable to JH, of royalty fees due JH; and

 

                  (b) As soon as available,   and in any event within one hundred

twenty (120) days after the close of each of its fiscal years, copies of: (i) an

audited   balance sheet of AAI as of the close of such fiscal year,   and (ii) for

each such fiscal year, audited operating and cash flow statements,   in each case

setting forth in comparative form the fi