KNOW - HOW AND TRADEMARK LICENSE AGREEMENT

Trademark License Agreement

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OBAGI MEDICAL PRODUCTS, INC. | ROHTO PHARMACEUTICAL CO, LTD

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Title: KNOW - HOW AND TRADEMARK LICENSE AGREEMENT
Date: 9/13/2006

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Exhibit 10.7

3-A-4

KNOW - HOW AND TRADEMARK
LICENSE AGREEMENT

THIS KNOW-HOW AND TRADEMARK LICENSE AGREEMENT is entered into effective as of this 13 ^th day of September, 2002 (the “Effective Date”), between OMP , INC., a Delaware, U.S.A. corporation having its principal place of business at 310 Golden Shore, Long Beach, California 90802 (“OMP”), and ROHTO PHARMACEUTICAL CO, LTD., a Japanese company having its principal place of business at 1-8-1, Tatsumi-nishi, Ikuno-ku, Osaka 544-8666, Japan (“Rohto”).

WHEREAS, OMP has rights in cosmetic products, formulas, processing techniques and other know-how and trade secrets relating to the manufacture, processing, storage and distribution of skin care products sold under various OMP trademarks;

WHEREAS, OMP is the owner of the Obagi and Protocols trademarks and certain other trademarks used in connection with the sale of skin care products; and

WHEREAS, OMP desires to license to Rohto, and Rohto desires to obtain, the rights to use such know-how and trademarks to manufacture such product for distribution and sale solely in the Japanese mass market channel, all on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of mutual promises contained herein, the parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

As used in this Agreement, the following terms shall have the following meanings:

1.1 “Affiliate” means a corporation, partnership, trust or other entity that directly, or indirectly through one or more intermediates, controls, is controlled by or is under common control with a party to this Agreement. For such purposes, “control,” “controlled by” and “under common control with” shall mean the possession of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting stock or partnership interest, by contract or otherwise. In the case of a corporation, the direct or indirect ownership of more than fifty percent (50%) of its outstanding voting shares or the ability otherwise to elect a majority of the board of directors or other managing authority of the entity shall in any event be deemed to confer control, it being understood that the direct or indirect ownership of a lesser percentage of such shares shall not necessarily preclude the existence of control.

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

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1.2 “Facility” means Rohto’s manufacturing facility located within Japan, or such other facilities Rohto determines to use at any time with prior notification to OMP in writing.

1.3 “Know-How” means the concept for the Licensed Products, confidential formulae, active ingredient, delivery systems, and clinical efficacy and safety test data, processing techniques, product positioning and other know how, trade-secrets and the improvement of them, Product and marketing information including any product similar to the Product (including but not limited to Protocols in Europe) outside of the Territory which is owned or controlled by OMP while this Agreement is in effect.

1.4 “Licensed Products” means those certain premium-priced skin care products listed on Exhibit A that conform to the Specifications, and such other products as the parties may hereafter mutually agree in writing.

1.5 “Specifications” means those specifications for formulae and processing techniques for Licensed Products set forth on Exhibit A, as may be revised and amended from time to time by OMP.

1.6 “Territory” means the country of Japan. The parties may expand the Territory by mutual written agreement.

1.7 “OMP Trademarks” means those trademarks and tradenames set forth on Exhibit B hereto, and such other trademarks developed by OMP and supplied to Rohto as the parties may hereafter mutually agree in writing. The parties agree that OMP Trademarks shall include any trademarks or tradenames including the name “Obagi,” “Protocols” or “Skin Health Restoration,” even if such trademarks or tradenames are developed collaboratively between the parties during the term of this Agreement.

1.8 “Joint Trademarks” means those trademarks set forth on Exhibit B hereto, and such other trademarks jointly developed and/or obtained by Rohto and OMP as a result of collaboration between the two parties, other than those trademarks and tradenames described in Section 1.7.

1.9 “Rohto Trademarks” means those trademarks developed primarily by Rohto in relation to the marketing and promotion of the Products in the Territory. The OMP, Joint and Rohto Trademarks are referred to collectively in this Agreement as the “Trademarks.”

1.10 “Net Sales” means the value of Products sold by Rohto calculated on the price invoiced by Rohto to its purchaser less:

(a) Transportation charges or allowances if any, included in such amount:

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(b) Trade, quantity or cash discounts, and broker’s or agent’s commissions if any, allowed or paid;

(c) Credits or allowance, including but not limited to rebate, discount, and refund, if any, given or made on account of rejection or return of Products previously delivered: and

(d) Any tax, excise or other governmental charge included in such amount, on the production, sale, transportation, use or delivery of the Products.

1.11 “Channel” means the sales and distribution channels in which Rohto is currently engaged: specifically Drug Stores and Variety Stores, including their mail-order and Internet sales activities. It also may include by mutual agreement, dispensaries attached to doctor’s offices for the sale of over-the-counter drugs. To be considered in the Territory, mail order and internet sales must be made to “ship to” and billing addresses in the Territory.

1.12 “Drug Stores” are defined as stores specifically licensed to sell the over-the-counter drug as a significant portion of their revenue.

1.13 “Variety Stores” are defined as stores that are not licensed to sell prescription medicines or over-the-counter drugs but are otherwise similar to drug stores in term of the type of products they carry and consumer demographics that they target for appeal. Variety Stores sell many kinds of goods including cosmetics, accessories and other small household or personal items. Examples of Variety Stores include Loft and Sony Plaza. Variety stores do not include or encompass upscale “department” stores such as those operated by Matsuzakaya Co., The Daimaru, Inc., Isetan Co. or Hankyu Department Stores Inc.

ARTICLE 2
LICENSE GRANT AND EFFECTIVE DATE

2.1 License to Know-How . Subject to the terms and conditions of this Agreement, OMP hereby grants to Rohto the exclusive, royalty-bearing license to use the Know-How to manufacture Licensed Products at the Facility and to market, sell and distribute such Licensed Products in the Channel in the Territory. OMP shall not itself use, nor grant to any other person the right to use, the Know-How in the Channel in the Territory to manufacture, marketing, sale and distribution of Licensed Products or similar products within the Channel of the Territory. OMP shall not knowingly sell Licensed Products to persons (other than Rohto) in the Channel in the Territory, nor shall OMP authorize any other licensee of the Know-How to sell Licensed Products in the Channel in the Territory.

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2.2 License to Trademarks . Subject to the terms and conditions of this Agreement, OMP hereby grants to Rohto the license to use the OMP Trademarks and Joint Trademarks solely to market, advertise, sell and promote Licensed Products in the Channel in the Territory. OMP will not license and has not licensed any other party to apply such Trademarks to Licensed Products or similar product within the Channel of the Territory during the term of this Agreement, and will not itself export, or knowingly support a third party exporting, Licensed Products bearing such Trademarks into the Channel in the Territory. OMP retains the right to license third parties during the term of this Agreement to use within the Territory any of OMP Trademarks or Joint Trademarks so long as they are not marketed or sold within the Channel. OMP assumes no responsibility and shall have no liability regarding exports by third parties into the Territory of products, including Licensed Products bearing the OMP Trademarks or Joint Trademarks.

2.3 No Right of Sublicense . Rohto may not sublicense or otherwise transfer to any third party any of Rohto’s rights to use the Know-How or Trademarks, without the prior written consent of OMP. Such consent shall not be unreasonably withheld.

2.4 Limited License . This license is limited to Licensed Products which meet or exceed the Specifications, and Rohto shall not use the Know-How or OMP Trademarks or Joint Trademarks for any other purpose. No other license, express or implied, is granted with respect to the Know-How or OMP Trademarks or Joint Trademarks. OMP reserves all rights not expressly granted hereunder.

ARTICLE 3
DISCLOSURE OF KNOW-HOW AND TECHNICAL ASSISTANCE

3.1 Disclosure of Know-How . Within sixty (60) days after the Effective Date, OMP shall provide Rohto with any requested materials, including quality assurance materials, documents and other tangible information, that embody the Know-How. Rohto agrees not to copy such materials, without the prior written consent of OMP, except as may be reasonably necessary to exercise its rights under this Agreement. During the term of this Agreement, OMP shall continue to disclose such Know-How as may be reasonably necessary for the manufacture of the Licensed Products.

3.2 Technical Assistance . If Rohto requests, during the one (1) year period following the Effective Date, OMP shall provide to Rohto the reasonable services of appropriate personnel to assist in the transfer of the Know-How to Rohto, to demonstrate the methods or processes of manufacturing and packaging the Licensed Products and to assist Rohto in establishing manufacturing processes for the Licensed Products. Such technical assistance shall be provided at such times and in such locations as the parties may mutually

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agree. After such one (1) year period, OMP may provide to Rohto additional technical assistance upon such terms as the parties may mutually agree.

3.3 Marketing Assistance . OMP will provide reasonable assistance in terms of OMP employee time and attention to assist in the promotion of the Products in Japan. This assistance will include the cooperation of Dr. Obagi (or his successor) in his capacity as the Chief Medical Officer of OMP.

ARTICLE 4
OWNERSHIP, IMPROVEMENTS AND INFRINGEMENT

4.1 Ownership . Rohto acknowledges that OMP owns all right, title and interest in and to the Know-How and the OMP Trademarks and Joint Trademarks, and that Rohto will not acquire any ownership right or interest in the Know-How or the OMP Trademarks or Joint Trademarks by virtue of the disclosure of Know-How or license of such Trademarks to Rohto hereunder.

4.2 Improvements and New Products . If Rohto discovers or devises any improvement to the Licensed Products, or in any process or method of manufacturing the Licensed Products, it shall disclose to OMP within thirty (30) days of filing for any protection by Rohto of its intellectual property related to such discovery, including but not limited to a patent application, the nature and means of making use of the improvement (or if Rohto declines to file for protection for such intellectual property, at least thirty (30) days prior to implementing use of such intellectual property in the Licensed Products). Rohto shall not incorporate into the Licensed Products any improvements except with the prior written consent of OMP. Upon written approval from Rohto, not to be unreasonably withheld, OMP will also be granted a license to use Rohto’s improvements with OMP’s products outside of the Territory. Such grant-back license shall be non-exclusive and with no sub-license right; provided, however, that OMP shall have the right to sublicense to its distributors and contract manufacturers. Such license shall be royalty-free for any minor or incremental improvements to the Licensed Products, such as upgrades to the quality of ingredient(s), introduction of a new ingredient that improves the product effectiveness or changes to a process or method of manufacturing the Licensed Products that result in manufacturing cost reductions of 20% or less. The parties shall negotiate separate terms in good faith for royalty on any other significant improvements to the Licensed Products other than the minor or incremental improvements as described in this Section.

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4.3 Third Party Infringement .

(a) Rohto shall notify OMP in writing of any infringement, misappropriation or imitation of the Trademarks, Know-How or the Licensed Products by any third party, promptly after any of the foregoing comes to Rohto’s attention. OMP shall have the right, but not the obligation, to commence or prosecute any claims or suits in its own name or in the name of Rohto or join Rohto as a party thereto to address such infringement, misappropriation or imitation related to any OMP Trademarks or Joint Trademarks. If OMP brings an action to discontinue such infringement, misappropriation or imitation, such action shall be solely at OMP’s cost, with Rohto providing such reasonable cooperation as OMP may request in writing. If OMP declines to bring an action, Rohto may do so at Rohto’s sole cost. Rohto shall not institute any suit or take any action on account of any such infringement, misappropriation or imitation without the prior written consent of OMP.

(b) Rohto shall have the right, but not the obligation, to commence or prosecute any claims or suits in its own name or in the name of OMP or join OMP as a party thereto to address such infringement, misappropriation or imitation related to any Rohto Trademarks. If Rohto brings an action to discontinue such infringement, misappropriation or imitation, such action shall be solely at Rohto’s cost, with OMP providing such reasonable cooperation as Rohto may request in writing. If Rohto declines to bring an action, OMP may do so at OMP’s sole cost. OMP shall not institute any suit or take any action on account of any such infringement, misappropriation or imitation without the prior written consent of Rohto. Rohto shall also notify OMP of any claims that Rohto’s use of any of the trademarks used with the Products conflicts with the asserted rights of others.

4.4 Cooperation . For the purpose of maintaining the value of the Licensed Products in the Territory, the parties agree to cooperate in good faith for the purpose of securing and preserving OMP’s rights in and to the Know-How and OMP Trademarks and Joint Trademarks, and Rohto’s rights in the improvements described in Section 4.2 and Rohto Trademarks.

4.5 Officer Activities . OMP shall use commercially reasonable efforts to assure that to the extent permitted by applicable law, OMP’s directors, officers, and employees, including Dr. Zein Obagi, will neither promote, market, distribute, and sell nor solicit any third party to promote, market, distribute, and sell any products similar to or competing with the Licensed Products in the Channel in the Territory.

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4.6 Power and Authority to Act . OMP represents and warrants that OMP is legal and beneficial owner of all right and interest in and to (or has sufficient licenses to) Know-How and OMP Trademarks and Joint Trademarks and has full power and authority to grant licenses and perform its obligations under this Agreement.

4.7 Third Party Intellectual Property . OMP represents and warrants that, to the best of its knowledge, OMP has no knowledge of any infringement or of any pending or threatened claim relating in any manner to Know-How and OMP Trademarks; and to the best of OMP’s knowledge, the Know-How is valid and enforceable and that its use as contemplated under this Agreement would not infringe any third party’s intellectual property.

4.8 Trademark Reputation . OMP agrees to use commercially reasonable efforts to maintain good-will and good reputation of OMP Trademarks and Joint Trademarks. Both parties further covenant not to use door-to-door sales, or multi level distribution channel as their distribution channel in the Territory.

ARTICLE 5
PRODUCT QUALITY AND MANUFACTURING PRACTICES

5.1 Quality of Licensed Products . Rohto acknowledges that, if the Licensed Products fail to conform to the Specifications, or otherwise are not consistent with OMP’s image and reputation for overall high quality products, then the substantial goodwill which OMP has built up and now possesses in connection with the Know-How and OMP Trademarks and Joint Trademarks will be impaired. Accordingly, Rohto hereby agrees that:

(a) The Licensed Products (including all packaging, labeling and advertising) shall conform to the Specifications therefor, and be of high standards and of such quality, style and appearance as shall (in the judgment of OMP) be reasonably adequate and suited to their exploitation to the best advantage and to the protection of the Know-How, OMP Trademarks, Joint Trademarks and goodwill pertaining thereto;

(b) The Licensed Products shall be manufactured, processed, labeled, marketed, sold and distributed in accordance with all applicable laws, rules and regulations, and shall not be adulterated, contaminated or misbranded within the meanings of any applicable law or regulation; and

(c) The policies for the marketing, distribution and sale of the Licensed Products by Rohto shall be of high standards and to the best advantage of the Know-How and Trademarks and that the same shall in no manner reflect adversely upon the good name of OMP, or upon any of its products, the Know-How or the Trademarks.

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Notwithstanding the foregoing, in no event may OMP require Rohto to manufacture any Licensed Product to Specifications that do not comply with applicable laws.

5.2 Manufacturing Practices . Without limiting the generality of any obligations of Rohto hereunder, Rohto agrees to meet or exceed all its manufacturing practices and standards (as of the Effective Date) with respect to all manufacturing activities for the Product. Rohto shall provide OMP with written notice of any material changes in such manufacturing practices. During the term of this Agreement, Rohto agrees that OMP or its agent (reasonably acceptable to Rohto) will be permitted to inspect the Facility annually to assure compliance with such manufacturing practices; and, OMP shall provide Rohto with a copy of the results of such inspection. If such inspection discloses deficiencies in the Facility, OMP may request, and Rohto shall implement, corrective actions, at Rohto’s expense and on a timetable mutually acceptable to the parties. In addition, in such event, OMP shall have the right to conduct reasonably frequent inspections of the Facility. OMP shall have the right to terminate this Agreement if Rohto fails to implement commercially reasonable corrective actions. OMP shall also be permitted, at its own expense, to place a representative at the Facility to monitor Rohto’s performance hereunder for the initial production of each new Licensed Product.

ARTICLE 6
MARKETING AND SALES

6.1 Submission for Approval . Rohto shall submit a representative sample of its proposed advertising and promotional materials (including, without limitation, packaging, package inserts, labels, tags, advertising copy, advertising layouts, radio and television presentations, publicity and promotional materials, catalogues and other sales or trade literature, all of which shall hereinafter be collectively referred to as the “Materials”) pertaining to the Licensed Products to OMP for written approval before prior to the launch of each new Licensed Product. OMP reserves the right to disapprove of any proposed copy and in such case, shall provide appropriate changes or comments to Rohto. OMP will notify Rohto of the approval status within ten (10) business days after receipt of such materials. Failure to notify Rohto of such status within ten (10) business days following the request for approval shall constitute approval. Thereafter, Rohto will have no obligation to seek approval for minor changes including but not limited to introducing a new size/SKU of an existing product or formula, and adding or deleting a non-active ingredient by 2% or less or changing a non-active ingredient by 2% or less. Rohto will, however, submit more significant changes to OMP for its prior written approval. Examples of significant changes include a new product launch, a line extension (introducing a unique new product not a new size/SKU of an existing product or formula), a change in logo dimensions/proportions, a significant change in formulations (adding/deleting an active ingredient), o