This Patent
License Agreement is made and effective as of April 1, 2006
(the “ Effective Date ”) between Nocopi
Technologies, Inc., 9-C Portland Road, West Conshohocken,
Pennsylvania 19428 (the “ Licensor ”) and Giddy
Up, LLC, 3630 Plaza Drive, #6, Ann Arbor, Michigan 48108 and Color
Loco, LLC, 3630 Plaza Drive, #6, Ann Arbor, Michigan 48108 (jointly
and severally, the “ Licensee ”).
Licensor is the
owner of the patent rights set forth in Exhibit A
hereto, including all continuations, divisionals,
continuations-in-part, reissues, and any other related U.S. or
foreign patents (collectively “the Licensed Patents
”), pertaining to Licensor’s Rub-It & Color ink
technology (the “ Patented Ink Technology
”).
Licensee wishes
to acquire a license from Licensor to enable Licensee to print,
have printed, market, distribute, and sell children’s
soft-cover books, activity/art kits, stationery, stickers, sticker
books, and related items of merchandise set forth in
Exhibit B hereto, each of which having a suggested
retail price in excess of $2.50 per item (the “
Products ”). Children’s soft-cover books,
activity/art kits, stationery, sticker books and related items of
merchandise having a suggested retail price below $2.50 per item
(collectively, the “ Other Products ”) shall not
be considered Products hereunder.
Placemats sold
on a stand-alone basis (i.e., without being part of a book or kit)
(collectively, the “ Excluded Products ”) are
also not Products (regardless of their suggested retail price), and
are expressly excluded from, and outside the scope of, this
Agreement. Licensee shall have no rights with respect to any Other
Products or Excluded Products except with Licensor’s prior
written consent which may be granted or withheld by Licensor in its
sole discretion.
Licensor and
Licensee (collectively, the “ Parties ”, each
sometimes a “ Party ”) wish to enter into this
Patent License Agreement (the “ Agreement ”) for
the purpose of memorializing their understandings and agreements
related to the Patented Ink Technology. For avoidance of doubt, all
references to Licensee in this Agreement incorporate by reference
and include both Giddy Up, LLC and Color Loco, LLC, each of which
shall enjoy the rights and be responsible for the obligations of
Licensee hereunder.
Licensor 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, and sell the Products to retailers, wholesalers and
distributors located throughout the world; provided, however, that
Licensee shall not print or cause the Products to be printed 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 an exclusive license. Unless and until this Agreement is
terminated, Licensor shall not, and shall not license any third
party to, print, have printed, market, distribute or sell Products
containing the Patented Ink Technology within the Exclusive
Territory. Subject to Section 5, nothing in this Agreement,
however, shall limit Licensor’s rights to, and to license any
third party to, use, manufacture and sell the Patented Ink
Technology in connection with or with respect to any markets,
product lines or territories in which Licensee does not then hold
exclusive rights hereunder.
Without
prejudice to any other limitations set forth elsewhere in this
Agreement, Licensee agrees that (1) Licensee shall have no
right to print or have printed Products containing the Patented Ink
Technology at facilities located within the No-print Territory,
(2) Licensee shall not sublicense, assign or otherwise
transfer the License to any third party, (3) Licensee will
cause Products containing the Patented Ink Technology to be printed
only by third party printers who have been previously approved in
writing by Licensor (collectively, “ Approved Printers
,” each an “ Approved Printer ”), and
(4) Licensee will not cause or permit Products containing the
Patented Ink Technology to be printed by any third party other than
an Approved Printer. The Licensor hereby approves those printers
identified in Exhibit D hereto as Approved Printers and
agrees that it will not unreasonably delay or withhold its approval
to other parties proposed by the Licensee as Approved Printers.
Licensor reserves the right to withdraw any previously-granted
approval to an Approved Printer, including, without limitation, any
printer identified in Exhibit D, if (i) information comes
to Licensor’s attention that, in Licensor’s reasonable
opinion, places in jeopardy such Approved Printer’s
capability or intention to fulfill its 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 or trading reputation
which, in Licensor’s reasonable opinion, affects its
capability or intention to fulfill 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 include the information known or
reasonably believed by Licensor, to provide written assurances
related thereto that are satisfactory to Licensor.
No rights or
licenses are hereby granted or implied under this Agreement to any
patents of Licensor other than the Licensed Patents for the
Products. The rights and licenses herein granted convey no rights
to Licensee to use or register any trademarks or trade names of
Licensor or to use the name of Licensor or Licensor’s
“Rub-It & Color” trademark in any manner whatsoever
in connection with the Products.
Licensee agrees
that all Products containing the Patented Ink Technology marketed,
distributed, or sold by it shall be marked with the appropriate
patent notices and numbers as reasonably specified by Licensor in
writing.
3. Annual
Royalties Based on Shipments of Products
In
consideration of the rights and license granted to it with respect
to Products, Licensee shall pay to Licensor an annual royalty (the
“ Annual Royalty ”). The Annual
Royalty
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will be payable
in quarterly installments (each, a “ Quarterly Royalty
”), based upon the invoice price less returns, allowances,
trade discounts, retail co-op fees, markdowns and commissions,
which will, in the aggregate, not exceed ten percent (10%) of the
invoice price, of all Products containing the Patented Ink
Technology billed and shipped by Licensee during the preceding
quarter (“ Quarterly Shipments ”). The quarters
upon which the Quarterly Royalties and Shipments are based shall
be: April 1 through June 30; July 1 through September 30;
October 1 through December 31; and January 1 through
March 31 (each a “ Quarter ”).
Where the
Products incorporating the Patented Ink Technology also contain
licensed marks of other third parties (e.g., Disney, Sesame Street,
etc.) for which Licensee is paying such third party a separate
royalty (“ Licensed Products ”), the royalty
rate payable to Nocopi under this Agreement will be five percent
(5%) of the Quarterly Shipments. Where the Products containing the
Patented Ink Technology do not contain licensed marks of other
third parties for which Licensee is paying such third party a
separate royalty (“ Generic Products ”), the
royalty rate payable to Nocopi under this Agreement will be six
percent (6%) of the Quarterly Shipments.
Licensee’s list of Licensed Products as of
the date of this Agreement is attached hereto as Exhibit E .
Licensee will update Exhibit E from time to time upon
Licensor’s request to provide Licensor with information about
Licensee’s then current list of Licensed Products. Except
insofar as Exhibit E is updated to add future Products as
Licensed Products after the date of this Agreement, all such future
Products shall be deemed Generic Products hereunder.
Each Quarterly
Royalty shall be due on or before the last day of the calendar
month following the Quarter during which the applicable Products
have been billed and shipped. The amounts payable for each
Quarterly Royalty will be subject to credits for prepayments as
provided in Section 4. Time is of the essence as to all
royalty payments due hereunder. Royalties unpaid for more than ten
(10) business days after due date shall bear interest at the
prime rate (as reported by The Wall Street Journal ) plus
2%, or, if less, at the maximum allowable legal rate.
The Quarterly
Royalty for each Quarter shall be calculated at the net invoice
price of all Products containing the Patented Ink Technology billed
and shipped during that Quarter, from which net invoice price there
shall be no credits, allowances or deductions in excess of the
amount expressly authorized in this subparagraph on account of any
Product 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 Products are
sold on a stand-alone basis or as a component or constituent of
other products. In computing the Quarterly Royalty, the Licensee
may deduct actual and good faith returns accepted from, and actual
and good faith allowances granted to, Licensee’s retail
customers or distributors for cooperative advertising, placement
fees, pallet programs and the like up to, but not exceeding ten
percent (10%) in the aggregate of the total amount invoiced to the
customer or distributor.
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With the
Quarterly Royalty for each Quarter hereunder, Licensee shall
provide Licensor with a written report (each, a “
Report ”) stating the number of shipments, net invoice
price per shipment of all Products containing the Patented Ink
Technology that were made during that Quarter, separately reported
as to Licensed Products and Generic Products, and, if requested by
Licensor, other supporting documentation in sufficient detail so as
to enable Licensor to verify the amount of the Quarterly Royalty
due for that Quarter, including documentation as to any deductions
made for returns or allowances for such invoices. Licensee further
agrees to keep and preserve true and accurate records and books
showing all shipments and net invoice prices of Products containing
the Patented Ink Technology for at least two (2) years, and to
permit such books and records to be examined, audited and
photocopied from time to time (but not more frequently than once in
any consecutive twelve month period) by an accountant chosen by
Licensor, during Licensee’s normal business hours and to the
extent necessary to verify the validity of such Reports and
Quarterly Royalties hereunder. If, upon any such inspection, a
discrepancy of greater than five percent (5%) is found between the
Quarterly Royalties paid by Licensee and the actual Quarterly
Royalties due for such Quarter, then Licensee shall, without
prejudice to Licensor’s other rights hereunder, reimburse
Licensor for all reasonable costs incurred in conducting such
inspection including travel, hotel, subsistence and
fees.
Notwithstanding
the foregoing, the Annual Royalties payable by Licensee to Licensor
with respect to Products hereunder may be subject to credits and
adjustments, but only to the extent expressly set forth in the
remaining subparagraphs of this section 3.
o If
Licensee’s actual Annual Royalty with respect to Products
shipped during any Annual Period exceeds Three Hundred Thousand
Dollars ($300,000.00) in the aggregate, then Licensee shall be
entitled to a credit equal to one percent (1%) of the actual Annual
Royalty paid on shipments of Generic Products during that Annual
Period (i.e., recalculating the Licensed Product royalty rate at 5%
instead of 6%). The credit shall be applied against the Quarterly
Royalties next payable under this Agreement.
o If
Licensee’s actual Annual Royalty with respect to Products
shipped during any two consecutive Annual Periods each exceeds
Three Hundred Thousand Dollars ($300,000.00) in the aggregate,
then, in addition to the credits provided above for Quarterly
Royalties previously paid, the royalty rate payable by Licensee on
subsequent shipments of Generic Products shall be reduced from 6%
to 5% for the remainder of the Term.
o For the
customers now or hereafter identified on Exhibit F
hereto (the “ Special Rate Customers ”),
Licensor shall, upon Licensee’s submission of satisfactory
supporting documentation, allow Licensee to pay royalties
calculated at up to a 50% discount from the contractually-stated
royalty rates otherwise due. This special rate will be authorized
by Licensor if made necessary because of Licensee’s
demonstrated reduced margins on Product sales to the Special Rate
Customers initially listed in Exhibit F. The Licensee may from
time to time propose to the Licensor additional customers to be
added to Exhibit F as Special Rate Customers and, in so doing,
shall submit satisfactory
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supporting
documentation of the reduced margins on Product sales to such
customers. No additional customers will be added to Exhibit F
as Special Rate Customers unless be agreed to by Licensor in
writing, which agreement will not be unreasonably withheld or
delayed.
Any reductions
to or discounts from contractually-stated royalty rates that are
granted by Licensor under the preceding subparagraphs of this
section 3 will not diminish or decrease Licensee’s Minimum
Annual Royalties with respect to Products set forth in section 4
below. Licensor’s granting of a royalty discount to a
customer listed on Exhibit F in one instance shall not
constitute a waiver or estoppel precluding Licensor from refusing
to grant a similar or any other discount in any other instance that
does not warrant a discount in Licensor’s reasonable judgment
based upon the circumstances presented by Licensee’s
supporting documentation.
The names of
Licensee’s customers set forth on Exhibit F may be
modified or supplemented from time to time with the Parties’
mutual written consent; provided, however, that at no time may more
than ten percent (10%) of Licensee’s then active customers
(i.e., customers to whom Licensee has made bona fide shipments of
Products within the previous 6 months) be listed on
Exhibit F.
4. Minimum
Annual Royalties Based on Product Shipments
Each twelve
(12) month period from January 1 through December 31
shall be referred to as an “ Annual Period .”
The period from April 1, 2006, through December 31, 2006,
is referred to as the “ Development Period .”
Licensee shall actively promote the Products during the Development
Period and each Annual Period while this Agreement remains in
effect, and shall consult with Licensor from time to time and keep
Licensor apprised regarding to extent and focus of such promotional
efforts.
Notwithstanding
anything to the contrary elsewhere in this Agreement and without
regard to actual Quarterly Shipments of the Products, Licensee
guarantees to pay Licensor Eighty Thousand Dollars ($80,000.00)
during the Development Period (the “Minimum Development
Period Royalty ”), and, commencing with the Annual Period
from January 1, 2008, through December 31, 2008 (the
“ 2008 Annual Period ”), Licensee guarantees to
pay Licensor a minimum royalty of at least One Hundred Ten Thousand
Dollars ($110,000.00) during each Annual Period (the “
Minimum Annual Royalty ”). Provided that Licensee
timely pays the Minimum Development Period Royalty to Licensor,
there will be no Minimum Annual Royalty for the 2007 Annual Period;
otherwise, Licensor, at its sole option upon written notice to
Licensee may either (i) license the Patented Ink Technology to
other third parties within the Exclusive Territory for their use
with children’s merchandise comparable to the Products during
the remainder of the Term, in which event Licensee’s rights
and license within the formerly Exclusive Territory shall become
non-exclusive, without affecting any of the Parties’ other
rights and obligations hereunder, or (ii) terminate this
Agreement in its entirety.
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Of the Minimum
Development Period Royalty, Fifty Thousand Dollars ($50,000.00)
shall be due and payable from Licensee to Licensor on the Effective
Date, and the remaining Thirty Thousand Dollars ($30,000.00) shall
be due and payable from Licensee to Licensor on the sooner to occur
of either (i) the 270 th day after the Effective Date, or (ii) the
date upon which first finished Product containing the Patented Ink
Technology has been shipped by Licensee.
The Minimum
Development Period Royalty will be applied as a credit against any
Quarterly Royalties payable with respect to Products shipped during
the Development Period such that Quarterly Royalties will only be
payable to the extent royalties otherwise payable from shipments of
Products during the Development Period exceed the Minimum
Development Period Royalty. In addition, Licensee shall be entitled
to a credit against the Minimum Annual Royalty due for subsequent
Annual Periods to the extent Licensee’s actual Quarterly
Royalties during the Development Period exceed the credit for the
Minimum Development Period Warranty.
Any Quarterly
Royalties paid by Licensee to Licensor on account of actual
shipments of Products during an Annual Period shall be credited
against the Minimum Annual Royalty due hereunder for that Annual
Period. In addition, Licensee shall be entitled to a credit against
the Minimum Annual Royalty due for subsequent Annual Periods to the
extent Licensee’s actual Annual Royalties during the
preceding Annual Period(s) exceeded its Minimum Annual Royalty for
such Annual Period(s).
Without
prejudice to Licensor’s other rights and remedies under this
Agreement, if Licensee fails to generate an Annual Royalty at least
equal to the Minimum Annual Royalty in any Annual Period, Licensee
shall at the time of submission of the Report and the Quarterly
Royalty for the last Quarter of that Annual Period pay Licensor an
aggregate amount sufficient to satisfy the unpaid portion of the
Minimum Annual Royalty (the “ Royalty Shortfall
Payment ”).
The Minimum
Development Period Royalty and any Royalty Shortfall Payments that
the Licensee is required to pay for any Annual Period, since not
based on actual sales of the Products, will be recorded as
prepayments (the “ Prepaid Royalties ”) that
will thereafter be applied as a credit against the Quarterly
Royalties next payable with respect to actual sales of Products.
But in determining whether the Annual Royalty for an Annual Period
meets the Minimum Annual Royalty, any Quarterly Royalties payable
for actual sales of Products during the current Annual Period that
were satisfied by means of a credit of Prepaid Royalties from a
prior Annual Period will not be included in 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
Products for the 2008 Annual Period is less than $110,000 and
cumulative Annual Royalties payable based on Licensee’s
actual sales of the Products for the 2006, 2007 and 2008 Annual
Periods are less than $190,000, or if the Annual Royalty payable on
the basis of Licensee’s actual sales of Products for the 2009
Annual Period or any later Annual Period is less than the Minimum
Annual Royalty applicable to that Annual Period, then,
without
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prejudice to
its other rights, and upon written notice delivered to Licensee
within sixty (60) days after the end of that Annual Period,
Licensor shall be authorized and permitted at its 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 to other third parties within the Exclusive Territory
for their use with children’s merchandise comparable to the
Products during the remainder of the Term, in which event
Licensee’s rights and license within the formerly Exclusive
Territory shall become non-exclusive, without affecting any of the
Parties’ other rights and obligations hereunder, except that
Licensee shall not be required to pay any Minimum Annual Royalties
with respect to any billings and shipments that take place after
its former Exclusive Territory has become non-exclusive.
5.
Licensee’s Right of First Offer
If Licensor at
any time develops and wishes to introduce into the marketplace new
inks, patents or inventions for children’s books and activity
games/kits having a suggested retail price in excess of $2.50 per
item (“ New Developments ”), Licensor shall
first offer, in writing, to license the New Developments to
Licensee, at Licensee’s option, upon terms and conditions
that are set forth in writing from Licensor to Licensee. Licensee
shall have the right and option, exercisable within thirty
(30) days after receipt of such offer, to send written notice
to Licensor that Licensee intends to accept such offer. If Licensee
accepts the offer, the Parties shall promptly negotiate the terms
and conditions of the written license agreement and the signing of
such license agreement must occur within sixty (60) days from
the date of notice of Licensee’s approval, otherwise the
first offer rights of Licensee hereunder shall expire.
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