Licensor and Licensee (collectively, the “**Parties**”, each sometimes a “**Party**”) wish to enter intothis Agreement for the purpose of memorializing their understandings and agreements related to thePatented Ink Technology.2. License GrantLicensor grants to Licensee, on a personal and non-transferable basis, the right and license (the“**License**”) to use the Patented Ink Technology solely to print, have printed market, distribute, andsell the Licensed Merchandise to retailers, wholesalers and distributors located throughout theworld; provided, however, that Licensee shall not print or cause the Licensed Merchandise to beprinted at facilities located within any portion of the territory described on **Exhibit C**hereto(the “**No-print Territory**”).Licensee’s license within North America and South America (the “**Exclusive Territory**”) shall be anexclusive license. Unless and until this Agreement is terminated, Licensor shall not, and shallnot license any third party to, print, have printed, market, distribute or sell LicensedMerchandise containing the Patented Ink Technology within the Exclusive Territory. Subject toSection 5, nothing in this Agreement, however, shall limit Licensor’s rights to, and to license anythird party to, use, manufacture and sell the Patented Ink Technology in connection with or withrespect to any markets, product lines or territories in which Licensee does not then hold exclusiverights hereunder.Without prejudice to any other limitations set forth elsewhere in this Agreement, Licensee agreesthat (1) Licensee shall have no right to print or have printed Licensed Merchandise containing thePatented Ink Technology at facilities located within the No-print Territory, (2) Licensee shall notsublicense, assign or otherwise transfer the License to any third party, (3) Licensee will causeLicensed Merchandise containing the Patented Ink Technology to be printed only by third partyprinters who have been previously approved in writing by Licensor (collectively, “**ApprovedPrinters**,” each an “**Approved Printer**”), and (4) Licensee will not cause or permit LicensedMerchandise containing the Patented Ink Technology to be printed by any third party other than anApproved Printer. Licensor hereby approves those printers identified in **Exhibit D**hereto asApproved Printers and agrees that it will not unreasonably delay or withhold its approval to otherparties proposed by Licensee as Approved Printers. Licensor reserves the right to withdraw anypreviously-granted approval to an Approved Printer, including, without limitation, any printeridentified in Exhibit D, if (i) information comes to Licensor’s attention that, in Licensor’sreasonable opinion, places in jeopardy such Approved Printer’s capability or intention to fulfillits obligations under this Agreement or any related Confidentiality and Non-Disclosure Agreement,or (ii) such Approved Printer suffers a material adverse change in its financial position ortrading reputation which, in Licensor’s reasonable opinion, affects its capability or intention tofulfill its obligations under this Agreement, and (iii) in either such event, Licensee fails,within fifteen (15) business days after written notice from Licensor, which notice shall includethe information known or reasonably believed by Licensor, to provide written assurances relatedthereto that are satisfactory to Licensor.
 
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No rights or licenses are hereby granted or implied under this Agreement to any patents of Licensorother than the Licensed Patents for the Licensed Merchandise. The rights and licenses hereingranted convey no rights to Licensee to use or register any trademarks or trade names of Licensoror to use the name of Licensor or Licensor’s “Rub-It & Color” trademark in any manner whatsoever inconnection with the Licensed Merchandise.Notwithstanding the immediately preceding subparagraph, Licensor and Licensee agree that allLicensed Merchandise containing the Patented Ink Technology marketed, distributed, or sold byLicensee shall be marked with the appropriate patent notices and numbers identifying Licensor asthe patent owner as reasonably specified by Licensor in writing.3. Annual Royalties Based on Shipments of Licensed Merchandise.In consideration of the rights and license granted to it with respect to the Licensed Merchandise,Licensee shall pay to Licensor an annual royalty (the “**Annual Royalty**”). The Annual Royalty willbe payable in quarterly installments (each, a “**Quarterly Royalty**”), based upon the invoice priceless returns, allowances, trade discounts, retail co-op fees, markdowns and commissions, whichwill, in the aggregate, not exceed ten percent (10%) of the invoice price, of all LicensedMerchandise containing the Patented Ink Technology billed and shipped by Licensee during thepreceding quarter (“**Quarterly Shipments**”). The quarters upon which the Quarterly Royalties andShipments are based shall be: April 1 through June 30; July 1 through September 30; October 1through December 31; and January 1 through March 31 (each a “**Quarter**”).For Over $2.50 Books & Kits and Under $2.50 Books & Kits incorporating the Patented Ink Technologythat are sold within the Exclusive Territory, the royalty rate payable by Licensee to Licensorunder this Agreement will be five percent (5%) of the Quarterly Shipments. For Activating MarkerKits incorporating the Patented Ink Technology that are sold within the Exclusive Territory, theroyalty rate payable by Licensee to Licensor under this Agreement will be three percent (3%) of theQuarterly Shipments. For any Licensed Merchandise incorporating the Patented Ink Technology thatLicensee sells to distributors, wholesalers and retailers for resale to consumers located outsidethe Exclusive Territory, the royalty rate payable by Licensee to Licensor under this Agreement willbe two percent (2%) of the Quarterly Shipments.Each Quarterly Royalty shall be due on or before the last day of the calendar month following theQuarter during which the applicable Licensed Merchandise has been billed and shipped. The amountspayable for each Quarterly Royalty will be subject to credits for prepayments as provided inSection 4. Time is of the essence as to all royalty payments due hereunder. Royalties unpaid formore than ten (10) business days after due date shall bear interest at the prime rate (as reportedby The Wall Street Journal) plus 2%, or, if less, at the maximum allowable legal rate.
 
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The Quarterly Royalty for each Quarter shall be calculated at the net invoice price of all LicensedMerchandise containing the Patented Ink Technology billed and shipped duringthat Quarter, from which net invoice price there shall be no credits, allowances or deductions inexcess of the amount expressly authorized in this subparagraph on account of any LicensedMerchandise returns, and regardless of (i) the basis of compensation, if any, to Licensee, (ii)whether sold to affiliated or independent third parties, and (iii) whether the Licensed Merchandiseis sold on a stand-alone basis or as a component or constituent of other products. In computingthe Quarterly Royalty, the Licensee may deduct actual and good faith returns accepted from, andactual and good faith allowances granted to, Licensee’s retail customers or distributors forcooperative advertising, placement fees, pallet programs and the like up to, but not exceeding tenpercent (10%) in the aggregate of the total amount invoiced to the customer or distributor.With the Quarterly Royalty for each Quarter hereunder, Licensee shall provide Licensor with awritten report (each, a “**Report**”) stating the number of shipments, net invoice price per shipmentof all Licensed Merchandise containing the Patented Ink Technology that were made during thatQuarter, separately reported as to sales of Over $2.50 Books & Kits, Under $2.50 Books & Kits, andActivating Marker Kits both within and outside the Exclusive Territory, and, if requested byLicensor, other supporting documentation in sufficient detail so as to enable Licensor to verifythe amount of the Quarterly Royalty due for that Quarter, including documentation as to anydeductions made for returns or allowances for such invoices. Licensee further agrees to keep andpreserve true and accurate records and books showing all shipments and net invoice prices ofLicensed Merchandise containing the Patented Ink Technology for at least two (2) years, and topermit such books and records to be examined, audited and photocopied from time to time (but notmore frequently than once in any consecutive twelve month period) by an accountant chosen byLicensor, during Licensee’s normal business hours and to the extent necessary to verify thevalidity of such Reports and Quarterly Royalties hereunder. If, upon any such inspection, adiscrepancy of greater than five percent (5%) is found between the Quarterly Royalties paid byLicensee and the actual Quarterly Royalties due for such Quarter, then Licensee shall, withoutprejudice to Licensor’s other rights hereunder, reimburse Licensor for all reasonable costsincurred in conducting such inspection including travel, hotel, subsistence and fees.Notwithstanding the foregoing, the Annual Royalties payable by Licensee to Licensor with respect toLicensed Merchandise hereunder may be subject to credits and adjustments, but only to the extentexpressly set forth in the remaining subparagraphs of this section 3.For the customers of Licensed Merchandise within the Exclusive Territory now or hereafteridentified on **Exhibit F**hereto (the “**Special Rate Customers**”), Licensor shall, upon Licensee’ssubmission of satisfactory supporting documentation, allow Licensee to pay royalties calculated atthe rate of two percent (2%) of Quarterly Shipments instead of the royalty rate that wouldotherwise be due, as set forth in the preceding paragraphs. This special rate will be authorizedby Licensor if made necessary because of Licensee’s demonstrated reduced margins on LicensedMerchandise sales to the Special Rate Customers initially listed in Exhibit F. The Licensee mayfrom time to time propose to the Licensor additional customers to be added to Exhibit F as SpecialRate Customersand, in so doing, shall submit satisfactory supporting documentation of the reduced margins onLicensed Merchandise sales to such customers. No additional customers will be added to Exhibit Fas Special Rate Customers unless agreed to by Licensor in writing, which agreement will not beunreasonably withheld or delayed.
 
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Any reductions to or discounts from contractually-stated royalty rates that are granted by Licensorunder the preceding subparagraph of this section 3 will not diminish or decrease Licensee’s MinimumAnnual Royalties set forth in section 4 below. Licensor’s granting of a royalty discount to acustomer listed on Exhibit F in one instance shall not constitute a waiver or estoppel precludingLicensor from refusing to grant a similar or any other discount in any other instance that does notwarrant a discount in Licensor’s reasonable judgment based upon the circumstances presented byLicensee’s supporting documentation.The names of Licensee’s customers set forth on Exhibit F may be modified or supplemented from timeto time with the Parties’ mutual written consent; provided, however, that at no time may more thanten percent (10%) of Licensee’s then active retail customers (i.e., retail customers to whomLicensee has made bona fide shipments of Licensed Merchandise within the previous 6 months) belisted on Exhibit F.4. Minimum Annual Royalties Based on Shipments of Licensed Merchandise.Each twelve (12) month period from January 1 through December 31 shall be referred to as an “**AnnualPeriod**.” Licensee shall actively promote the sale of Licensed Merchandise while this Agreementremains in effect, and shall consult with Licensor from time to time and keep Licensor apprisedregarding to extent and focus of such promotional efforts.With respect to Licensee’s sales of Licensed Merchandise within the Exclusive Territory, Licenseeguarantees to pay Licensor a minimum royalty of at least Two Hundred Thousand Dollars ($200,000.00)during each Annual Period (the “**Minimum Annual Royalty**”).Any Quarterly Royalties paid by Licensee to Licensor on account of actual shipments of LicensedMerchandise during an Annual Period shall be credited against the applicable Minimum Annual Royaltydue hereunder for that Annual Period. Licensee shall be entitled to a credit against the MinimumAnnual Royalty due for subsequent Annual Periods to the extent Licensee’s actual Annual Royaltiesearned during the preceding Annual Period(s) exceeded its Minimum Annual Royalty for such AnnualPeriod(s).Without prejudice to Licensor’s other rights and remedies under this Agreement, if Licensee failsto generate an amount at least equal to the Minimum Annual Royalty in any Annual Period from (i)sales of Licensed Merchandise within the Exclusive Territory, and (ii) any credits from priorAnnual Period(s) for exceeding its Minimum Annual Royalty for such Annual Period(s), Licensee shallat the time of submission of the Report and the Quarterly Royalty for the last Quarter of thatAnnual Period payLicensor an aggregate amount sufficient to satisfy the unpaid portion of the Minimum Annual Royalty(the “**Royalty Shortfall Payment**”).
 
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The Royalty Shortfall Payments that the Licensee is required to pay for any Annual Period, sincenot based on actual sales of the Licensed Merchandise, will be recorded as prepayments (the“**Prepaid Royalties**”) that will thereafter be applied as a credit against the Quarterly Royaltiesnext payable with respect to actual sales of Licensed Merchandise. But in determining whether theAnnual Royalty for an Annual Period meets the Minimum Annual Royalty, any Quarterly Royaltiespayable for actual sales of Licensed Merchandise during the current Annual Period that weresatisfied by means of a credit of Prepaid Royalties from a prior Annual Period will not be includedin the count of the Annual Royalty for the current Annual Period.If the Annual Royalty payable on the basis of Licensee’s actual sales of Licensed Merchandisewithin the Exclusive Territory for any Annual Period in the aggregate is less than $200,000.00,then, without prejudice to its other rights, and upon written notice delivered to Licensee withinsixty (60) days after the end of that Annual Period, Licensor shall be authorized and permitted atits sole option either (i) to terminate this Agreement pursuant to Section 13 effective ninety (90)days after the date of delivery of that notice, or (ii) to license the Patented Ink Technology toother third parties within the Exclusive Territory for their use with children’s merchandisecomparable to the Licensed Merchandise during the remainder of the Term, in which event Licensee’srights and license within the formerly Exclusive Territory shall become non-exclusive, withoutaffecting any of the Parties’ other rights and obligations hereunder, except that Licensee shallnot be required to pay any Minimum Annual Royalties with respect to any billings and shipments thattake place after its former Exclusive Territory has become non-exclusive.5. Licensee’s Right of First OfferIf Licensor at any time develops and wishes to introduce into the marketplace new inks, patents orinventions for children’s books and activity games/kits having a suggested retail price in excessof $2.50 per item (“**New Developments**”), Licensor shall first offer, in writing, to license the NewDevelopments to Licensee, at Licensee’s option, upon terms and conditions that are set forth inwriting from Licensor to Licensee. Licensee shall have the right and option, exercisable withinthirty (30) days after receipt of such offer, to send written notice to Licensor that Licenseeintends to accept such offer. If Licensee accepts the offer, the Parties shall promptly negotiatethe terms and conditions of the written license agreement and the signing of such license agreementmust occur within sixty (60) days from the date of notice of Licensee’s approval, otherwise thefirst offer rights of Licensee hereunder shall expire.If Licensee does not elect to accept such offer within the 30-day timeframe, or if the parties areunable, despite good faith efforts, to execute a written license agreement within thirty (30) daysafter the Licensee has delivered to the Licensor its written acceptance of the offer, then Licensormay license the New Developments to a bona fidethird party; provided that (1) an agreement is reached within one hundred twenty (120) days afterthe expiration of, or rejection by, Licensee of the offer, and (2) the third party’s license is ata royalty and upon other terms and conditions are the same as or more favorable to the Licensorthan those offered in writing to Licensee.
 
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Failure by Licensee on any occasion to exercise the right of first offer afforded herein shall notconstitute a waiver of Licensee’s right to exercise such right of first offer on any lateroccasion. If any sale to the third party does not take place within the timeframe set forth above,then Licensee’s right of first offer will apply to each and every subsequent proposed license ofNew Developments.If Licensee elects to accept Licensor’s offer to license the New Developments, the licenseagreement offered by Licensor to Licensee shall include similar assurances, undertakings,representations, warranties and commitments by the Licensee to those set forth in this Agreement,including without limitation annual royalties, minimum annual royalties and shortfall payments thatare established based upon the reasonable expectations of the Licensor and the Licensee as to thecommercial prospects for the New Development.6. Licensor’s Sales of Ink to Licensee’s Approved PrintersThe parties contemplate that Licensee will cause the Licensed Merchandise to be printed by one ormore Approved Printers. Licensor shall have no legal obligation to authorize a third party toserve as an Approved Printer hereunder unless such third party agrees (1) to purchase all requiredRub-It & Color ink (the “**Ink**”) from Licensor under and pursuant to the General Terms and Conditionsof Sale attached hereto as **Exhibit G**, (2) to meet and satisfy all written and reasonablespecifications issued by Licensor with respect to the handling, storage and use of the Ink, (3) toprovide access to its printing facilities from time to time sufficient to enable Licensor to assesscompliance with Licensor’s written specifications and quality control procedures, (4) to execute,together with Licensee, and abide by the Confidentiality and Non-Disclosure Agreement (the “**NDA**”)attached hereto as **Exhibit H**, and (5) not to print any Licensed Merchandise containing the Ink at afacility located within the No-print Territory.Notwithstanding anything to the contrary set forth in the General Terms and Conditions of Sale, allInk sold by Licensor hereunder shall be paid for by the Approved Printer (or by Licensee, if theApproved Printer fails to remit any amount in a timely manner) as follows: One half (50%) upon thedate of delivery to the port of entry or airport then servicing the facilities of the ApprovedPrinter, and one half (50%) within thirty (30) days after the date of such delivery. Licensorshall use commercially reasonable efforts, and in any event efforts that are at least comparable tothose it uses to protect its own confidential information, not to disclose, or permit thedisclosure of, the identities of Licensee’s Approved Printer(s) to any of Licensee’s knowncompetitors.To the extent that there are any inconsistencies between the provisions in the General Terms andConditions of Sale and the provisions of this Agreement, the provisions of this Agreement willprevail.
 
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Within a reasonable time period after the license of any New Developments to Licensee, Licensoragrees to have independent laboratories perform a reasonable number of testings and to providewritten certifications to Licensee and any Approved Printer that then-current samples of the Inkand the then-current Ink’s chemical formulations for such New Developments satisfy (i) therequirements of not being toxic or a skin/eye irritant as defined in 16 CFR §1500.3(b)(5) and (8),(ii) the requirements of ASTM Standard F-963 for heavy metals content and lead content pursuant to16 CFR §1303, (iii) ASTM Standard D-4236, (iv) Toxological Risk Assessment (Acute Eye/Skin/OralToxicity Evaluation), (v) USP 51 Preservative Effectiveness, (vi) USP 61 Microbial Cleanliness and(iv) any other children’s safety standards to which Licensor submits the Ink for testing. IfLicensee desires Licensor to obtain additional testings and/or certifications beyond those that arecustomarily provided by Licensor or that, in Licensor’s reasonable opinion, are excessive incomparison to the royalties being generated under this Agreement, Licensor reserves the right torequire Licensee to share equally in the costs of such additional testings and certifications.After (i) execution of the NDA and this Agreement, and (ii) Licensor’s approval of any ApprovedPrinter, Licensor shall provide samples of the Ink to Licensee’s Approved Printer, and shall alsomake a technical representative available at a mutually convenient time to provide reasonableintroductory technological assistance to Licensee’s Approved Printer with regard to use of the Ink.Licensee shall reimburse Licensor for one half (50%) of such representative’s actual travel,lodging and subsistence expenses, plus his other reasonable out-of-pocket expenses therebyincurred.Licensor agrees to sell its Ink to Licensee’s Approved Printers at the initial rate of between$12.50 to $18.50 (USD) per pound, depending on Ink color and quantity and packaging requirements.Licensor shall not increase the price for the Ink during the initial twelve (12) months in whichthis Agreement remains in effect and, thereafter, by written notice delivered to the ApprovedPrinter and the Licensee at least sixty (60) days prior to the date that the price increase iseffective, may increase the price for the Ink on an annual basis subject to the limitation that theincrease may not by more than the greater of (i) ten percent (10%) of the price applicable for theprior per year or (ii) the actual increases in the costs of raw materials to produce the Ink on adollar-for-dollar basis in accordance with appropriate supporting documentation. Licensor agreesto use commercially reasonable efforts to limit the increases in the costs of raw materialsrequired to produce the Ink.Notwithstanding the foregoing, if at any time Licensor is unable to manufacture or deliver toLicensee’s Approved Printers the Ink meeting the parties’ agreed-upon written specifications and insufficient quantities to meet Licensee’s needs for its use, then, after giving Licensor writtennotice and at least thirty (30) calendar days in which to remedy the unavailability ornon-compliance with such specifications, Licensee shall be permitted to purchase non-infringingreplacement ink from a third party manufacturer, until such time as Licensor can manufacture (i)enough of the Ink to meet Licensee’s needs or (ii) Inks that meets Licensee’s specifications.
 
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7. Insurance and IndemnificationLicensee shall maintain throughout the Term of this Agreement and for two (2) years thereafterinsurance policies with reputable insurers with an AM Best rating of ‘A’ who are satisfactory toLicensor, including Comprehensive General Liability, and Product Liability, with a minimum limit of$5,000,000.00. To the extent not paid by the Approved Printer or its insurance carriers, Licensee,to the best of its financial capabilities, will indemnify, defend and hold Licensor harmless fromand against any liabilities, claims and damages of any kind, and all costs, including reasonableattorney’s fees, arising from or relating to an Approved Printer’s improper disclosure,dissemination or use of the Ink or the Patented Ink Technology in violation of this Agreement, anyNDA entered into by Licensee or the Approved Printer, or applicable patent and other intellectualproperty laws.Licensee’s liability to Licensor under this Agreement shall not be limited to Licensee’s insurancecoverage. Licensee shall provide Licensor with a certificate of insurance evidencing the requiredcoverage, and showing Licensor as a named additional insured, and will provide at least thirty (30)days prior written notice of policy cancellation or modification. Licensee shall also provideLicensor with updated certificates of insurance on the renewal anniversary of any policies requiredunder this Agreement.8. Representations, Limited Warranty and Damage LimitationsLicensor warrants that it is the owner and/or patent holder of the Licensed Patents, and thatLicensee’s use of the Patented Ink Technology as authorized by this Agreement will not violate orinfringe upon the patents issued by any country in North America, and Licensor represents to thebest of its current actual knowledge but without specific investigation Licensee’s use of thePatented Ink Technology as authorized by this Agreement will not violate or infringe upon thepatents issued by any other country in the Exclusive Territory or any proprietary rights of anythird parties. Licensor warrants that each of the Licensed Patents is as of the date of thisAgreement in full force and effect and that the Licensor will during the continuance of the term ofthis Agreement take all actions that are necessary or appropriate to maintain those LicensedPatents in full force and effect. Licensor shall defend at its own expense, with counsel of itschoosing, any third-party action, suit, claim or proceeding (“Claim”) brought against Licenseealleging that the Licensee’s use of the Patented Ink Technology as authorized by this Agreementinfringes upon or misappropriates any such third-party’s rights under any patent issued by anycountry in North America, any patent issued by any other country in the Exclusive Territory whichby written proof is shown to have been known by Licensor as of the Effective Date, or otherproprietary rights. Licensee may elect at its sole expense to participate in such defense throughits legal counsel. Licensor shall pay, to the best of its financial capabilities, any damagesfinally awarded against Licensee in connection with such Claim or constituting a settlement of suchClaim. Licensor shall not be required to pay any settlement that it has not approved. Ifinfringement is held to exist, Licensor shall, at its own expense and its sole option, eithersupply to
 
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 Licensee suitable replacements for the infringing material, or Licensor may terminate this Agreement. In eitherinstance, to the best of its financial capabilities, Licensor shall be liable to the Licensee forthe damages and expenses incurred by the Licensee solely as a result of such infringement,including, without limitation, any damages that result from the option elected by the Licensorpursuant to the preceding sentence. Without limiting the generality of the foregoing, theobligations of Licensor under this subparagraph shall be inapplicable to any Claim that alleges, inwhole or in part, that Licensee printed or caused any Licensed Merchandise to be printed atfacilities located within the No-print Territory, and shall be contingent upon Licensee promptlynotifying Licensor in writing of such Claim, providing all necessary information and fullycooperating as reasonably required by the Licensor, at Licensee’s expense, in the defense of suchClaim.Licensee shall notify Licensor of any activities by third parties that may constitute a potentialinfringement or be in violation of Licensor’s Patented Ink Technology and which may from time totime come to the attention of Licensee. If such third party is a customer of Licensee, Licenseeshall notify the third party customer of the existence of Licensor’s Patented Ink Technology andLicensee’s role as exclusive licensee for the manufacture of Licensed Merchandise containing thePatented Ink Technology in the Exclusive Territory. If the third party customer promptly agrees inwriting to refrain from using the Patented Ink Technology except in Licensed Merchandise purchasedfrom Licensee, Licensor will take no further action against the third party customer.If other third parties’ activities may constitute a potential infringement of the Patented InkTechnology, Licensor shall be responsible for taking the steps it deems appropriate to address suchinfringement, including at Licensor’s sole discretion the institution of legal proceedings againstsuch third party. Such litigation shall be under the sole control of the Licensor. Licensor mayconsult with the Licensee on the conduct of such litigation and the Licensee agrees to reasonablycooperate with the Licensor in connection with such litigation, for example, by providing at itsown expense any information within its possession reasonably required for use in such litigation.Any award or settlement of damages as a result of such litigation shall belong to the Licensor.This provision shall not preclude the Licensee from separately seeking recovery from the thirdparty of damages incurred by the Licensee as a result of such infringement; provided, however, thatLicensee shall not institute any action seeking such a separate recovery from a third party withoutreasonable prior written notice to Licensor.If any material portion of the Patented Ink Technology is found to be invalid or unenforceable byan appellate court of competent jurisdiction, or by a lower court of competent jurisdiction whosedecision Licensor elects not to appeal in a timely manner, or if a settlement of such litigationoccurs which in effect eliminates the patent protection on the Patented Ink Technology, then eitherParty may elect to terminate this Agreement by written notice to the other Party. Any award orsettlement of damages as a result of third party litigation challenging the patent protection ofthe Patented Ink Technology which results in payment to such third party shall be theresponsibility of Licensor unless it can be shown that the infringement was caused by Licenseeusing the Patented Ink Technology in a manner inconsistent with the intended uses set forth in thisAgreement.
 
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Licensor makes the following limited warranty (“**Limited Warranty**”) to Licensee with respect to thePatented Ink Technology and the Ink: (1) for press-ready one-part Ink (i.e., Ink that requires nocombining of parts or additives prior to printing) for a period ending upon the first to occur ofeither (a) ninety (90) days after the date of manufacture, or (b) thirty (30) days after beingopened, and (2) for non press-ready two-part Ink (i.e., Ink which is supplied in parts and requirescombining or additional additives prior to printing) for a period ending upon the first to occur ofeither (a) one hundred eighty (180) days after the date of manufacture, or (b) thirty (30) daysafter being opened (either, the “**Warranty Period**”), the Inks will print on standard flexographicpresses in substantial conformance with (a) any written specifications for such Inks previouslyagreed to in writing by the parties, and (b) any Ink samples previously furnished by Licensor toLicensee, if applied to similar substrates and handled, stored and used in compliance withLicensor’s written specifications. Insignificant printing non-conformances that do not materiallyadversely affect the marketability of the Licensed Merchandise are expressly excluded from thisLimited Warranty, as are non-conformances that cannot be verified and reproduced by Licensor.Licensor shall not be responsible for any failure of the Inks to perform as warranted if suchfailure is caused by Licensee’s or its Approved Printer’s misuse or improper use of the Ink, byproblems with third party products not provided by Licensor, by the Inks being applied tosubstrates not authorized by Licensor, or by the Inks not being handled or stored in compliancewith Licensor’s directions and specifications. Subject to the provisions below for indemnity fromthird-party claims, Licensor’s sole obligation and Licensee’s sole and exclusive remedy for anybreach of the foregoing Limited Warranty will be, upon Licensee’s return of the non-conforming Inkto Licensor during the Warranty Period and Licensor’s verifying the non-conformance, for Licensorto furnish replacement Ink at no additional cost to Licensee. Any replacement Ink will bewarranted for the Warranty Period set forth above.Notwithstanding Licensor’s right to undertake quality control inspections, Licensee understandsthat Licensor shall be under no obligation to conduct any such inspections or to advise Licensor ifits Approved Printer is not performing in accordance with Licensor’s written specifications.Licensee acknowledges that Licensee is solely responsible for determining the compliance by itsApproved Printer with such written specifications. Licensee acknowledges that its investments inimplementing this Agreement are made at Licensee’s own risk and are the result of Licensee’sindependent evaluation of the Ink, this Agreement, and the business opportunities presented hereby.
 
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Subject to the provisions below for indemnity from third-party claims, neither Licensor nor any ofits affiliates, agents or representatives will have any responsibility or liability for any claims,demands, losses, injuries or damages of any kind, including but not limited to punitive orconsequential damages (such as, without limitation, the cost to reprint books or replacemerchandise, lost profits, lost revenues, lost savings or other economic losses), caused to orsuffered in any manner by Licensee resulting from (i) breach of the foregoing Limited Warranty,(ii) Licensee’s marketing, distribution and saleof Licensed Merchandise containing the Patented Ink Technology, or (iii) Licensee’s or any thirdparty’s use of the Licensed Merchandise containing the Patented Ink Technology, whether or notLicensor has been advised of the possibility of such damages, and whether based on breach ofcontract, warranty or statutory duty, negligence, strict liability or other tort, principles ofindemnity, contribution or otherwise. As an exception, but only to the extent actually paid by anyinsurance coverage under policies then held by Licensor, the Licensor will indemnify, defend(through counsel selected by Licensor or its insurer) and will hold the Licensee harmless from andagainst loss, liability, damage or expense (including, without limitation, attorney fees [if nodefense is provided] and related expenses) suffered or incurred by the Licensee as a result ofclaims made by third parties against the Licensee that are solely the result of a breach by theLicensor of its Limited Warranty. Without limiting the generality of the foregoing, the Licensor’sobligations in the preceding sentence shall be inapplicable to any claims that allege, in whole orin part, that Licensee printed or caused any Licensed Merchandise to be printed at facilitieslocated within the No-print Territory.Except for the Limited Warranty set forth above and except for Licensor’s warranty regardingpatents of third parties set forth above, neither Licensor nor any of its affiliates, agents orrepresentatives makes or gives any warranty, express or implied with respect to the Patented InkTechnology or the Ink, **including but not limited to implied warranties of merchantability andfitness for a particular purpose**, and Licensee hereby indemnifies Licensor and its affiliates,agents and representatives and shall save them and hold them harmless against any claims, demands,losses or damages of whatsoever kind caused to or suffered by them as a result of Licensee’smarketing, distribution and sale of Licensed Merchandise containing the Patented Ink Technology.9. No Sublicensing by LicenseeThis Agreement is personal to Licensee and may not be assigned or otherwise transferred byLicensee, except (i) to an entity wholly owned and controlled by Licensee, or (ii) to an entity inwhich the Licensee is merged or (iii) to an entity to which the Licensee sells or otherwisetransfers substantially all of its assets and its good will, and (iv) in any such event, promptwritten notice and contemporaneous payment of a $75,000.00 transfer fee (the “**Transfer Fee**”) toLicensor; provided, however, Licensor shall have the option in its sole and unfettered discretionto reject the proposed assignment or transfer by written notice to Licensee within thirty (30) daysafter receipt of Licensee’s written notice and the Transfer Fee, in which event, Licensor shallpromptly return the Transfer Fee and this Agreement shall terminate.
 
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10. Assignment of Patents Subject to Licensor’s right in its sole and unfettered discretion to sell or otherwise transfer itsLicensed Patents to an entity into which Licensor is merged or an entity that acquires all orsubstantially all of Licensor’s common stock or assets, the Licensor reserves the right in othercircumstances to sell or otherwise assign one or more of theLicensed Patents and all or any rights under one or more of the Licensed Patents (an “**Assignment**”)subject to the following:If during the term of this Agreement the Licensor receives an offer for an Assignment containingterms acceptable to the Licensor (an “**Offer**”), then before acceptance, the Licensor shall deliver acopy of that Offer to the Licensee and identify to the Licensee the proposed assignee (the“**Assignee**”) and, in such event, the Licensee shall have the right (the “**Refusal Right**”),exercisable by written notice delivered to the Licensor within thirty (30) days following the dateof the Licensee’s receipt of the Offer (an “**Acceptance**”), to acquire the Patent(s) or the rightsunder the Patent(s) that are described in the Offer at the price and on the terms and conditionsstated in that Offer. If the Licensee delivers the Acceptance within the period specified above,then the Licensor and Licensee shall proceed with the closing of the Assignment on the later of thedate specified in the Offer or sixtieth (60th) business day after the date that theLicensee received the Offer. If the Licensee does not deliver the Acceptance within the periodspecified above, then the Licensor may proceed with the closing of the Assignment to the Assigneeon the date specified in the Offer.If Licensee does not exercise the Refusal Right to an Assignment as provided above and the Licensorproceeds with the Assignment to the Assignee, the rights of the Assignee with respect to thePatent(s) and rights under Patent(s) that are the subject of that Assignment shall be subject tothe rights of the Licensee under this Agreement. Without limiting the generality of the precedingsentence, if the Assignment includes any rights with respect to the Ink, the Assignee, as acondition to the Assignment, shall assume in writing and shall thereafter be obligated to supplythe Ink to the Licensee and its Approved Printers as provided in this Agreement. No Assignmentshall relieve the Licensor of its obligations to the Licensee under this Agreement unless otherwiseagreed in writing by the Licensor.11. NoticesAny notice or other communication required or permitted under this Agreement must be in writing,including via facsimile, and must be sent to the Party at the address first noted above for thatParty, or at such other address as that Party may have designated in the manner prescribed herein.Unless a time period is expressly defined by business days, any other reference to “day” or “days”in this Agreement means calendar days.12. Confidentiality and Non-DisclosureLicensee hereby acknowledges and affirms all terms and conditions set forth in the Non-DisclosureAgreement previously executed on behalf of Licensor. In addition, as a condition to thisAgreement, Licensee shall execute, together with any Approved Printer, an additionalConfidentiality & Non-Disclosure Agreement with Licensor containing terms and conditionssatisfactory to Licensor.
 
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13. Term of AgreementThis Agreement shall commence on January 1, 2010, and shall remain in effect until December 31,2012 (the “**Initial Term**”) unless the Agreement is extended (i) by the Parties’ mutual writtenagreement or (ii) by Licensee under the circumstances set forth in this Section 13, or unless theAgreement is terminated before the end of the Initial Term for a reason expressly set forth in thisSection 13 or elsewhere contained in the Agreement.Upon written notice to Licensor received not later than five (5) business days after the end of theInitial Term or any Renewal Term, Licensee shall have the automatic right to renew this Agreementfor additional period of three (3) years (each, a “**Renewal Term**”) if during the Annual Periodending December 31, 2012 (the “**2012 Annual Period**”) or during the last Annual Period of eachRenewal Term, Licensee generates Annual Royalties through actual shipments of the LicensedMerchandise within the Exclusive Territory at least equal to Two Hundred Fifty Thousand Dollars($250,000.00). During each Annual Period of any Renewal Term, Licensee shall be required togenerate Minimum Annual Royalties from sales of Licensed Merchandise within the Exclusive Territorythat in the aggregate equal or exceed Two Hundred Fifty Thousand Dollars ($250,000.00) per year.The Initial Term and any Renewal Terms are sometimes referred to as the “**Term**.”This Agreement shall automatically terminate in the event of Licensee’s liquidation, dissolution,bankruptcy, winding up, assignment for the benefit of creditors, or any similar procedure.The Licensee shall have the option to terminate this Agreement in the event of Licensor’sliquidation, dissolution, bankruptcy, winding up, assignment for the benefit of creditors, or anysimilar procedure, but if the Licensee does not elect to terminate, then this Agreement, and therights and obligations of the Licensee hereunder, shall remain in full force and effect, bindingupon and inuring to the benefit of the Licensee and the party succeeding to the Licensor’s rightsand obligations hereunder.This Agreement shall also terminate if, subsequent to its effective date, Licensee asserts theinvalidity of any aspect of the Patented Ink Technology, coupled with or followed by eitherLicensee’s withholding or notice of its intention to withhold, or denial of any obligation to payany sums due hereunder, or by Licensee’s initiation or participation in any suit, action orproceeding challenging or denying the validity of any aspect of Licensor’s Patented Ink Technology.Finally, in the event of any breach by either Party of its obligations under this Agreement or thebreach by the Licensor of its obligations to supply Ink to the Licensee’s Approved Printers and, inany such event, the breach is not cured to the reasonable satisfaction of the non-breaching Partywithin ten (10) calendar days after written notice from the non-breaching Party if the breachrelates to the non-payment of money, or within thirty (30) calendar days after such written noticefor any other type of breach, the non-breaching Party, at its election may affirm this Agreementand seek and secure specific performanceby the breaching Party of its obligations under this Agreement or may terminate this Agreement and,in either instance, may seek and secure reimbursement for damages incurred as a result of suchbreach.
 
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Termination of this Agreement for any reason shall not affect obligations accruing before theeffective date of such termination, or any obligation which is stated in the Agreement to survivetermination. In the event of termination of this Agreement on account of Licensee’s uncureddefault, then, in addition to any other remedies at law or equity, Licensee shall forthwith pay toLicensor the remainder of the Annual Minimum Royalties due for the balance of the Term. In theevent of termination of this Agreement on account of Licensor’s uncured default, the Licensee shallhave such rights and remedies at law or equity as are permitted under applicable law.14. Force MajeureEach Party shall be excused from delays in performing or from its failure to perform hereunder tothe extent that such delays or failures result from causes beyond the reasonable control of suchParty. Performance times shall be considered extended for a period of time equivalent to the timelost because of such delay. This Section shall be inapplicable to any failure to make a payment ofmoney due under the Agreement.15. Dispute ResolutionIn the event of any dispute between the Parties relating to money damages under this Agreement, theParties shall submit such dispute to non-binding mediation conducted by a mediator appointed by theAmerican Arbitration Association’s Philadelphia, Pennsylvania office, and the mediation shall takeplace in Philadelphia, Pennsylvania. The expenses of the mediator shall be equally shared unlessthe mediator determines otherwise. If non-binding mediation is unsuccessful in resolving thedispute within ninety (90) calendar days after the mediator’s appointment, the Parties shall submitsuch dispute to binding arbitration conducted by a single arbitrator appointed by the AAA’sPhiladelphia, Pennsylvania office, and the arbitration shall take place in Philadelphia,Pennsylvania. The expenses of the arbitrator shall be shared equally unless the arbitratordetermines otherwise. The arbitrator shall award the prevailing Party recovery of its reasonableattorney’s fees, but each Party shall otherwise bear its own expenses incurred in connection withthe mediation or arbitration. The arbitrator’s award may be enforced by any court havingjurisdiction over the Parties.
 
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16. Other ProvisionsIf, in the event of Licensor’s liquidation, dissolution, bankruptcy, winding up, assignment for thebenefit of creditors, or any similar procedure or the breach by the Licensor of any obligationunder this Agreement or the breach by the Licensor of its obligations to supply Ink to theLicensee’s Approved Printers and the failure of the Licensor to remedy that breach within theperiod permitted under Section 13, the Licensee does not elect to terminate this Agreement andinstead affirms and continues this Agreement, and if theLicensor thereafter does not or cannot supply to the Licensee or its Approved Printers the Inkrequired in order to produce the Licensed Merchandise, then the Licensor shall provide to theLicensee all technical and other information required by the Licensee in order to continuemanufacturing the Licensed Merchandise, including but not limited to, all formulations for the Ink(including percentage of each ingredient, CAS numbers for each ingredient and MSDS sheets for eachingredient) and for manufacturing the Ink (including sources of ink ingredients, sources for inkmanufacturing, ingredient storage requirements, mixing methods, ocean and air shippingspecifications and any other specialized processing that may be required).The sections of this Agreement relating to Representations, Limited Warranty and Damage Limitationsand to Confidentiality and Non-Disclosure shall continue in full force and effect and shall survivethe termination of this Agreement for any reason. Notwithstanding termination of the Agreement,Licensee may use any Ink then on hand which has been fully paid for; otherwise, such Ink shall bepromptly returned to Licensor or destroyed.The Parties are contractors independent of each other, and this Agreement does not create a jointventure or partnership. Neither Party has the authority to bind the other Party to any thirdparty.This Agreement shall be governed and construed in accordance with the laws of the Commonwealth ofPennsylvania without regard to the conflicts of laws or principles thereof. Any action or suitseeking equitable or injunctive relief related to this Agreement shall be brought only in the stateor federal courts covering Montgomery County, Pennsylvania.If either Party prevails in any action hereunder, it shall, in addition, be entitled to recover itsreasonable attorney’s fees.This Agreement sets forth the entire agreement and understanding between the Parties as to itssubject matter and supersedes all prior discussions between the Parties. Neither Party shall bebound by any terms or conditions with respect to such subject matters other than as expresslyprovided herein, or in a further written instrument executed by both Parties on or after the dateof this Agreement. No modification of this Agreement shall be effective unless in writing andsigned by both Parties. A waiver of a breach under this Agreement shall not be a waiver of anysubsequent breach hereunder. Failure of either Party to enforce compliance with any term orcondition of this Agreement shall not constitute a waiver of such term or condition. If anyprovision of this Agreement is found to be invalid or unenforceable, such provision is to thatextent to be deemed omitted, and the remaining provisions shall not be affected in any way.Section headings are for reference purposes only and shall not affect the meaning or constructionof the paragraphs to which they relate.
 
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In witness whereof, the Parties have executed this Agreement as of the date first set forth above,intending to be legally bound.       **Nocopi Technologies, Inc.**   **Elmer’s Products, Inc.**         /s/ Michael Feinstein, MD Signature   /s/ Raymond J. Baran Signature         Michael Feinstein, MD Printed Name   Raymond J. Baran Printed Name         CEO Title   Authorized Representative Title         12-17-09 Date   12/19/09 Date  
 
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