Exhibit 10.18
BUSINESS LOAN AGREEMENT

               
 
           
Borrower:
  Nocopi Technologies, Inc.   Lender:   Sovereign Bank, a federal savings bank
 
  9C Portland Road       Villanova Office
 
  West Conshohocken, PA 19428       2 Aldwyn Lane
 
          P. O. Box 608
 
          Villanova, PA 19085-1431
 
             

THIS BUSINESS LOAN AGREEMENT dated August 19, 2008, is made and executed between
Nocopi Technologies, Inc. (“Borrower”) and Sovereign Bank, a federal savings
bank (“Lender”) on the following terms and conditions. Borrower has received
prior commercial loans from Lender or has applied to Lender for a commercial
loan or loans or other financial accommodations, including those which may be
described on any exhibit or schedule attached to this Agreement. Borrower
understands and agrees that: (A) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower’s representations, warranties, and agreements as
set forth in this Agreement; (B) the granting, renewing, or extending of any
Loan by Lender at all times shall be subject to Lender’s sole judgment and
discretion; and (C) all such Loans shall be and remain subject to the terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of August 19, 2008, and shall
continue in full force and effect until such time as all of Borrower’s Loans in
favor of Lender have been paid in full, including principal, interest, costs,
expenses, attorneys’ fees, and other fees and charges, or until such time as the
parties may agree in writing to terminate this Agreement.
ADVANCE AUTHORITY. The following person or persons are authorized to request
advances and authorize payments under the line of credit until Lender receives
from Borrower, at Lender’s address shown above, written notice of revocation of
such authority: Michael Feinstein, President of Nocopi Technologies, Inc.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender’s satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.
     Loan Documents. Borrower shall provide to Lender the following documents
for the Loan: (1) the Note; (2) Security Agreements granting to Lender security
interests in the Collateral; (3) financing statements and all other documents
perfecting Lender’s Security Interests; (4) evidence of insurance as required
below; (5) together with all such Related Documents as Lender may require for
the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.
     Borrower’s Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents. In addition, Borrower shall have provided such other
resolutions, authorizations, documents and instruments as Lender or its counsel,
may require.

 

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     Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in this
Agreement or any Related Document.
     Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
     No Event of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement or
under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
     Organization. Borrower is a corporation for profit which is, and at all
times shall be, duly organized, validly existing, and in good standing under and
by virtue of the laws of the Commonwealth of Pennsylvania. Borrower is duly
authorized to transact business in all other states in which Borrower is doing
business, having obtained all necessary filings, governmental licenses and
approvals for each state in which Borrower is doing business. Borrower maintains
an office at 9C Portland Road, West Conshohocken, PA 19428. Unless Borrower has
designated otherwise in writing, the principal office is the office at which
Borrower keeps its books and records including its records concerning the
Collateral. Borrower will notify Lender prior to any change in the location of
Borrower’s state of organization or any change in Borrower’s name.
     Assumed Business Names. Borrower has filed or recorded all documents or
filings required by law relating to all assumed business names used by Borrower.
Excluding the name of Borrower, the following is a complete list of all assumed
business names under which Borrower does business: None.
     Authorization. Borrower’s execution, delivery, and performance of this
Agreement and all the Related Documents have been duly authorized by all
necessary action by Borrower and do not conflict with, result in a violation of,
or constitute a default under (1) any provision of (a) Borrower’s articles of
incorporation or organization, or bylaws, or (b) any agreement or other
instrument binding upon Borrower or (2) any law, governmental regulation, court
decree, or order applicable to Borrower or to Borrower’s properties.
     Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower’s financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not presently
due and payable, Borrower owns and has good title to all of Borrower’s
properties free and clear of all liens and security interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower’s properties are titled in Borrower’s legal name,
and Borrower has not used or filed a financing statement under any other name
for at least the last five (5) years.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:
     Notices of Claims and Litigation. Promptly inform Lender in writing of
(1) all material adverse changes in Borrower’s financial condition, and (2) all
existing and all threatened litigation, claims,

 

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investigations, administrative proceedings or similar actions affecting Borrower
or any Guarantor which could materially affect the financial condition of
Borrower or the financial condition of any Guarantor.
     Financial Records. Maintain its books and records in accordance with
accounting principles acceptable to Lender, applied on a consistent basis, and
permit Lender to examine and audit Borrower’s books and records at all
reasonable times.
     Financial Statements. Furnish Lender with such financial statements and
other related information at such frequencies and in such detail as Lender may
reasonably request.
     Loan Proceeds. Use all Loan proceeds solely for the following specific
purposes: Working Capital.
     Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower’s properties, income, or profits. Provided
however, Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (1) the legality of the same shall
be contested in good faith by appropriate proceedings, and (2) Borrower shall
have established on Borrower’s books adequate reserves with respect to such
contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
     Performance. Perform and comply, in a timely manner, with all terms,
conditions, and provisions set forth in this Agreement, in the Related
Documents, and in all other instruments and agreements between Borrower and
Lender. Borrower shall notify Lender immediately in writing of any default in
connection with any agreement.
     Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.
     Compliance with Governmental Requirements. Comply with all laws,
ordinances, and regulations, now or hereafter in effect, of all governmental
authorities applicable to the conduct of Borrower’s properties, businesses and
operations, and to the use or occupancy of the Collateral, including without
limitation, the Americans With Disabilities Act. Borrower may contest in good
faith any such law, ordinance, or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Borrower has notified
Lender in writing prior to doing so and so long as, in Lender’s sole opinion,
Lender’s interests in the Collateral are not jeopardized. Lender may require
Borrower to post adequate security or a surety bond, reasonable satisfactory to
Lender, to protect Lender’s interest.
     Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower’s other
properties and to examine or audit Borrower’s books, accounts, and records and
to make copies and memoranda of Borrower’s books, accounts and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party,

 

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Borrower, upon request of Lender, shall notify such party to permit Lender free
access to such records at all reasonable times to provide Lender with copies of
any records it may request, all at Borrower’s expense.
LENDER’S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender’s interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower’s failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take
any action that Lender deems appropriate on any Collateral and paying all costs
for insuring, maintaining and preserving any Collateral. All such expenditures
incurred or paid by Lender for such purposes will then bear interest at the rate
charged under the Note from the date incurred or paid by Lender to the date of
repayment by Borrower. All such expenses will become a part of the indebtedness
and, at Lender’s option, will (A) be payable on demand; (B) be added to the
balance of the Note and be apportioned among and be payable with any installment
payments to become due during either (1) the term of any applicable insurance
policy; or (2) the remaining term of the Note; or (C) be treated as a balloon
payment which will be due and payable at the Note’s maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
     Indebtedness and Liens. (1) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower’s assets (except as allowed as
Permitted Liens), or (3) sell with recourse any of Borrower’s accounts, except
to Lender.
     Continuity of Operations. (1) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(2) cease operations, liquidate, merge, transfer, acquire or consolidate with
any other entity, change its name, dissolve or transfer or sell Collateral out
of the ordinary course of business, or (3) pay any dividends on Borrower’s stock
(other than dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a “Subchapter S Corporation” (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the shareholders
to pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their status as
Shareholders of a Subchapter S corporation because of their ownership of shares
of Borrower’s stock, or purchase or retire any of Borrower’s outstanding shares
or alter or amend Borrower’s capital structure.
     Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or
assets to any other person, enterprise or entity, (2) purchase, create or
acquire any interest in any other enterprise or entity, or (3) incur any
obligation as surety or guarantor other than the ordinary course of business.
     Agreements. Borrower will not enter into any agreement containing any
provisions which would be violated or breached by the performance of Borrower’s
obligations under this Agreement or in connection herewith.

 

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CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan advances or to disburse Loan proceeds if:
(A) Borrower or any guarantor is in default under the terms of this Agreement or
any other agreement that Borrower or any guarantor has with Lender; (B) Borrower
or any guarantor dies, becomes incompetent or becomes insolvent, files a
petition in bankruptcy or similar proceedings, or is adjudged a bankrupt;
(C) there occurs a material adverse change in Borrower’s financial condition, in
the financial condition of any guarantor, or in the value of any collateral
securing any Loan; or (D) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor’s guaranty of the Loan or any other loan
with Lender; or (E) Lender in good faith deems itself insecure, even though no
Event of Default shall have occurred.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower’s accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts, and, at Lender’s option, to
administratively freeze all such accounts to allow Lender to protect Lender’s
charge and setoff rights provided in this paragraph.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
     Payment Default. Borrower fails to make any payment when due under this
Loan.
     Other Default. Borrower fails to comply with any other term, obligation,
covenant or condition contained in this Agreement or in any of the Related
Documents.
     Default in Favor of Third Parties. Borrower defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower’s property or Borrower’s ability to repay the Loans or
perform Borrower’s obligations under this Agreement or any related document.
     False Statements. Any representation or statement made by Borrower to
Lender is false in any material respect.
     Insolvency. The dissolution or termination of Borrower’s existence as a
going business, the insolvency of Borrower, the appointment of a receiver for
any part of Borrower’s property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
     Creditor or Forfeiture proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help, repossession
or any other method, by any creditor of Borrower or by any governmental agency
against any collateral securing the Loan.
     Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.

 

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     Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
     Insecurity. Lender in good faith believes itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender, under this Agreement immediately will terminate
(including any obligation to make further Loan Advances or disbursements), and,
at Lender’s option, all Indebtedness immediately will become due and payable,
all without notice of any kind to Borrower, except that in the case of an Event
of Default of the type described in the “Insolvency” subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related documents or available at
law, in equity, or otherwise. Except as may be prohibited by applicable law, all
of Lender’s rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender’s right to declare a default and to exercise its rights and
remedies.
SWEEP AGREEMENT PROVISION. The Borrower acknowledges and authorizes Bank to set
up a zero balance business checking account (the “Business Line of Credit Sweep
Account”) on which checks (“Business Line of Credit Checks”) will be drawn for
the sole purpose of advancing funds against the Revolving Loans. The Business
Line of Credit Sweep Account number is 8881126028. The Borrower acknowledges
that the Business Line of Credit Checks are not the same as checks drawn on a
demand deposit account, but constitute requests for advances respecting the
Revolving Loans, which may be made at the Bank’s discretion, in accordance with
the terms of this Agreement, and are repayable ON DEMAND. The amount of each
Business Line of Credit Check shall be at least $500.00. The Bank may honor or
dishonor any Business Line of Credit Check upon the same conditions it may
advance or refuse to advance funds respecting Revolving Loans in accordance with
this Agreement. Business Line of Credit Checks may not be used to make any
payment due to the Bank. Any authorized representative of the Borrower may stop
payment on any Business Line of Credit Check by issuing a stop payment order
stating the exact amount, date and identity of the payee on the Business Line of
Credit Check. Any such stop payment order shall be in writing or if made orally
shall be confirmed in writing within 5 calendar days. The Bank shall stop
payment if the Bank determines, in its sole and unfettered discretion, that
there is adequate time to stop payment on any such Business Line of Credit Check
at the time the Bank receives such stop payment order. Subject to the terms of
this paragraph business Line of Credit Checks shall be governed by the terms of
the Bank’s rules, regulations and agreements respecting the Borrower’s checking
accounts with the Bank.
ERROR AND OMISSIONS. In consideration of the loan made by Sovereign Bank,
(hereafter referred to as “Lender” to the undersigned, the undersigned does
hereby represent the promise as follows: Upon request made by the Lender, its
successors or assigns, the undersigned will execute such documents as are
reasonable to provide assurance to Lender (1) that the obligations undertaken by
the undersigned in connection with said loan will be faithfully performed;
(2) that any and all documents and instruments signed by the undersigned in
connection with said loan are accurate statements as to the truth of the matters
set forth in them and constitute binding obligations upon the undersigned
according to their tenor; or (3) as to the amount of said loan outstanding from
time to time, and the date and amount of payments made in respect to said loan.
Upon request made by the Lender, its successors or assigns, the undersigned will
re-execute any document or instrument

 

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signed in connection with said loan or execute any document or instrument that
ought to have been signed at or before closing of said loan, or which was
incorrectly drafted and signed, to facilitate full execution of the appropriate
documents. All such requests shall receive the full cooperation and compliance
by the undersigned within seven (7) days of the making of the request set forth
above. The failure of the undersigned to comply with their obligations hereunder
shall constitute a default under the documents executed in connection with said
loan and shall entitle Lender or its successors and assigns, to the remedies
available for default under the documents executed by the undersigned.
LINE OF CREDIT RENEWAL. This Note is subject to an annual review. Renewal will
be based on Lender’s ongoing satisfaction with Borrower’s financial condition.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:
     Advance. The word “Advance” means a disbursement of Loan funds made, or to
be made, to Borrower or on Borrower’s behalf on a line of credit or multiple
advance basis under the terms and conditions of this Agreement.
     Agreement. The word “Agreement” means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Business Loan Agreement from
time to time.
     Borrower. The word “Borrower” means Nocopi Technologies, Inc. and includes
all co-signers and co-makers signing the Note and all their successors and
assigns.
     Collateral. The word “Collateral” means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor’s lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention contract,
lease or consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or otherwise.
     Event of Default. The words “Event of Default” mean any of the events of
default set forth in this Agreement in the default section of this Agreement.
     GAAP. The word “GAAP” means generally accepted accounting principles.
     Grantor. The word “Grantor” means each and all of the persons or entities
granting a Security Interest in any collateral for the Loan, including without
limitation all Borrowers granting such a Security Interest.

 

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     Guarantor. The word “Guarantor” means any guarantor, surety, or
accommodation party of any or all of the Loan.
     Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
     Indebtedness. The word “Indebtedness” means the indebtedness evidenced by
the Note or Related Documents, including all principal and interest together
with all other indebtedness and costs and expenses for which Borrower is
responsible under this Agreement or under any of the Related Documents.
     Lender. The word “Lender” means Sovereign Bank, a federal savings bank, its
successors and assigns.
     Loan. The word “Loan” means any and all loans and financial accommodations
from Lender to Borrower whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
     Note. The word “Note” means the Note executed by Nocopi Technologies, Inc.
in the principal amount of $100,000.00 dated August 19, 2008, together with all
renewals of, extensions of, modifications of, refinancings of, consolidations
of, and substitutions for the note or credit agreement.
     Permitted Liens. The words “Permitted Liens” mean (1) liens and security
interests securing indebtedness owed by Borrower to Lender; (2) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (4) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled “Indebtedness and Liens”; (5) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower’s assets.
     Related Documents. The words “Related Documents” mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Loan.
     Security Agreement. The words “Security Agreement” mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
     Security Interest. The words “Security Interest” mean, without limitation,
any and all types of collateral security, present and future, whether in the
form of a lien, charge, encumbrance, mortgage, deed of trust, security deed,
assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage,
chattel trust,

 

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factor’s lien, equipment trust, conditional sale, trust receipt, lien or title
retention contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever whether created by law, contract, or
otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED AUGUST 19, 2008.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER:
NOCOPI TECHNOLOGIES, INC.

     
/s/ Michael Feinstein, M.D.
 
   
Michael Feinstein,
President of Nocopi Technologies, Inc.
   

LENDER:
SOVEREIGN BANK, A FEDERAL SAVINGS BANK

         
By:
  /s/ Janet E. DeTuro    
 
       
 
  Authorized Signer    

 

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PROMISSORY NOTE

               
 
           
Borrower:
  Nocopi Technologies, Inc.   Lender:   Sovereign Bank, a federal savings bank
 
  9C Portland Road       Villanova Office
 
  West Conshohocken, PA 19428       2 Aldwyn Lane
 
          P. O. Box 608
 
          Villanova, PA 19085-1431
 
             

     
Principal Amount: $100,000.00
  Date of Note: August 19, 2008

PROMISE TO PAY. Nocopi Technologies, Inc. (“Borrower”) promises to pay to
Sovereign Bank, a federal savings bank (“Lender”), or order, in lawful money of
the United States of America, the principal amount of One Hundred Thousand &
00/100 Dollars ($100,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until repayment of each
advance.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
     Borrower will pay this loan immediately upon Lender’s DEMAND. In addition,
Borrower will pay regular monthly payments of all accrued unpaid interest, due
as of each payment date, beginning thirty (30) days from the date of the Note,
with all subsequent interest payments due on the same day of each month
thereafter.
Unless otherwise agreed or required by applicable law, payments will be applied
first to any accrued unpaid interest; then to principal, then to any late
charges; and then to any unpaid collection costs. Borrower will pay Lender at
Lender’s address shown above or at such other place as Lender may designate in
writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in a index which is the Sovereign Bank Prime Rate.
The Sovereign Bank Prime Rate shall mean the rate per annum from time to time
established by Lender as the Prime Rate and made available by Lender at its main
office or, in the discretion of Lender, the base, reference or other rate then
designated by Lender for general commercial loan reference purposes, it being
understood that such rate is a reference rate, not necessarily the lowest,
established from time to time, which serves as the basis upon which effective
interest rates are calculated for loans making reference thereto, (the “Index”).
The Index is not necessarily the lowest rate charged by Lender on its loans and
is set by Lender in its sole discretion. If the Index becomes unavailable during
the term of this loan, Lender may designate a substitute index after notifying
Borrower. Lender will tell Borrower the current Index rate upon Borrower’s
request. The interest rate change will not occur more often than each time as
and when the “Index” changes. Borrower understands that Lender may make loans
based on other rates as well. The interest to be applied to the unpaid principal
balance of this Note will be calculated as described in the “INTEREST
CALCULATION METHOD” paragraph using a rate of 0.500 percentage points over the
Index. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.

 

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INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360
basis; that is, by applying the ratio of the interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. All interest payable
under this Note is computed using this method.
PREFERRED RATE REDUCTION. The interest rate on this Note includes a preferred
rate reduction. Following is a description of the event that would cause the
preferred rate reduction to terminate and how the new rate will be determined
upon termination of the preferred rate reduction.
     Description of Event That Would Cause the Preferred Rate Reduction to
Terminate. In the event the Lender or Borrower cancels the pre-authorized
internal transfer from a Sovereign Bank Business Checking Account, or the
Borrower closes the Sovereign Bank Business Checking Account, or, if for 3
consecutive months, the Lender attempts to deduct the amounts due under this
Note from such Sovereign Bank Business Checking Account and there are
insufficient funds in such account.
     How The New Rate Will Be Determined Upon Termination of the Preferred
Reduction. Effective on the date of the closure or termination of the Sovereign
Bank Business Checking Account (as applicable), the interest rate set forth
above will be increased by one (1%) percent per annum.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower’s obligation to continue to make payments of accrued unpaid interest.
Rather, early payments will reduce the principal balance due. Borrower agrees
not to send Lender payments marked “paid in full”, “without recourse”, or
similar language. If Borrower sends such a payment, Lender may accept it without
losing any of Lender’s rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment instrument
that indicates that the payment constitutes “payment in full” of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction
of a disputed amount must be mailed or delivered to: Sovereign Bank, P. O. Box
12707, Reading, PA 19612-2707.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $10.00,
whichever is greater.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, the interest rate on this Note shall be increased by adding a
4.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin
shall also apply to each succeeding interest rate change that would have applied
had there been no default. If judgment is entered in connection with this Note,
interest will continue to accrue after the date of judgment at the rate in
effect at the time judgment is entered. However, in no event will the interest
rate exceed the maximum interest rate limitations under applicable law.
DEFAULT. Each of the following shall constitute an event of default (“Event of
Default”) under this Note:
     Payment Default. Borrower fails to make any payment when due under this
Note.

 

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     Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Borrower.
     Default in Favor of Third Parties. Borrower or any Grantor defaults under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower’s property or Borrower’s ability to repay this
Note or perform Borrower’s obligations under this Note or any of the related
documents.
     False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower’s behalf under this Note or the
related documents is false or misleading in any material respect, either now or
at the time made or furnished or becomes false or misleading at any time
thereafter.
     Insolvency. The dissolution or termination of Borrower’s existence as a
going business, the insolvency of Borrower, the appointment of a receiver for
any part of Borrower’s property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
     Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help, repossession
or any other method, by any creditor of Borrower or by any governmental agency
against any collateral securing the loan. This includes a garnishment of any of
Borrower’s accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.
     Events Affecting Guarantor. Any of the preceding events occurs with respect
to any guarantor, endorser, surety, or accommodation party of any of the
indebtedness or any guarantor, endorser, surety, or accommodation party dies or
becomes incompetent, or revokes or disputes the validity of, or liability under,
any guaranty of indebtedness evidenced by this Note.
     Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
     Adverse Change. A material adverse change occurs in Borrower’s financial
condition, or Lender believes the prospect of payment or performance of this
Note is impaired.
     Insecurity. Lender in good faith believes itself insecure.
     Cure Provisions. If any default, other than a default in payment is curable
and if Borrower has not been given a notice of a breach of the same provision of
this Note within the preceding twelve (12) months, it may be cured if Borrower,
after receiving written notice from Lender demanding cure of such default:
(1) cures the default within thirty (30) days; or (2) if the cure requires more
than thirty (30) days, immediately initiates steps

 

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which Lender deems in Lender’s sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonable practical.
LENDER’S RIGHTS. Upon default, Lender may, after giving such notices as required
by applicable law, declare the entire unpaid principal balance under this Note
and all accrued unpaid interest immediately due, and then Borrower will pay that
amount.
ATTORNEY’S FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender’s reasonable
attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit,
including reasonable attorneys’ fees, expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction), and
appeals. If not prohibited by applicable law, Borrower also will pay any court
costs, in addition to all other sums provided by law.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.
GOVERNING LAW. This Note will be governed by federal law applicable to Lender
and, to the extent not preempted by federal law, the laws of the Commonwealth of
Pennsylvania without regard to its conflicts of law provisions. This Note has
been accepted by Lender in the Commonwealth of Pennsylvania.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower’s accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts, and, at Lender’s option, to
administratively freeze all such accounts to allow Lender to protect Lender’s
charge and setoff rights provided in this paragraph.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, by need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender’s
office shown above. The following person or persons are authorized to request
advances and authorize payments under the line of credit until Lender receives
from Borrower, at Lender’s address shown above, written notice of revocation of
such authority: Michael Feinstein, President of Nocopi Technologies, Inc.
Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of
Borrower’s accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender’s
internal records, including daily computer print-outs.
CYCLE DOWN PROVISION. The Borrower will be required once each calendar year to
pay down principal outstanding respecting the Revolving Loan, and accrued
interest thereon, such that for the thirty (30) consecutive day period following
such repayment, the total of all principal and interest outstanding respecting
the Revolving Loan shall not exceed forty (40%) percent of the Revolving Loan
amount and the Borrower shall not be permitted to borrow or request advances or
other financial accommodations respecting the Revolving

 

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Loan during such thirty (30) day period if it would cause the amount outstanding
respecting the Revolving Loan to exceed such percentage.
TERM OUT PROVISION IF LINE IS RESTRICTED PRIOR TO DEMAND. All advances shall be
payable on demand. Until demand is made, the Borrower will make monthly
payments, on the payment due date, in an amount equal to all accrued and unpaid
interest and any other charges assessed to the account through the payment due
date. If the Lender has terminated its commitment to make Advances but has not
demanded full payment of the balance, on each payment date the Borrower shall
pay: (a) all accrued and unpaid interest and other charges assessed to the
account through the payment due date: and (b) one forty-eighth (1/48th) of the
principal balance outstanding as of the date the Lender terminated its
commitment to make advances.
LINE OF CREDIT REVEWAL. This Note is subject to an annual review. Renewal will
be based on Lender’s ongoing satisfaction with Borrower’s financial condition.
ANNUAL FEE. A $100.00 annual fee will be charged to the Borrower’s checking
account on the first anniversary of the first statement cycle after the Line is
established and in the same cycle of each following year. In the case where the
Borrower has no open DDA, the Borrower will be billed for and agrees to pay the
Annual Fee.
SWEEP AGREEMENT PROVISION. The Borrower acknowledges and authorizes Bank to set
up a zero balance business checking account (the “Business Line of Credit Sweep
Account”) on which checks (“Business Line of Credit Checks”) will be drawn for
the sole purpose of advancing funds against the Revolving Loans. The Business
Line of Credit Sweep Account number is 8881126028. The Borrower acknowledges
that the Business Line of Credit Checks are not the same as checks drawn on a
demand deposit account, but constitute requests for advances respecting the
Revolving Loans, which may be made at the Bank’s discretion, in accordance with
the terms of this Agreement, and are repayable ON DEMAND. The amount of each
Business Line of Credit Check shall be at least $500.00. The Bank may honor or
dishonor any Business Line of Credit Check upon the same conditions it may
advance or refuse to advance funds respecting Revolving Loans in accordance with
this Agreement. Business Line of Credit Checks may not be used to make any
payment due to the Bank. Any authorized representative of the Borrower may stop
payment on any Business Line of Credit Check by issuing a stop payment order
stating the exact amount, date and identity of the payee on the Business Line of
Credit Check. Any such stop payment order shall be in writing or if made orally
shall be confirmed in writing within 5 calendar days. The Bank shall stop
payment if the Bank determines, in its sole and unfettered discretion, that
there is adequate time to stop payment on any such Business Line of Credit Check
at the time the Bank receives such stop payment order. Subject to the terms of
this paragraph Business Line of Credit Checks shall be governed by the terms of
the Bank’s rules, regulations and agreements respecting the Borrower’s checking
accounts with the Bank.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower’s heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed by
law, waive

 

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presentment, demand for payment, and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan or release
any party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender’s security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several. If any portion of this Note is for any
reason determined to be unenforceable, it will not affect the enforceability of
any other provisions of this Note.
CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY
ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA OR ELSEWHERE TO APPEAR AT ANY TIME FOR BORROWER AFTER A DEFAULT
UNDER THIS NOTE AND WITH OR WITHOUT COMPLAINT FILED, CONFESS OR ENTER JUDGMENT
AGAINST BORROWER FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE AND ALL ACCRUED
INTEREST, LATE CHARGES AND ANY AND ALL AMOUNTS EXPENDED OR ADVANCED BY LENDER
RELATING TO ANY COLLATERAL SECURING THIS NOTE, TOGETHER WITH COSTS OF SUIT, AND
AN ATTORNEY’S COMMISSION OF TEN PERCENT (10%) OF THE UNPAID PRINCIPAL BALANCE
AND ACCRUED INTEREST FOR COLLECTION, BUT IN ANY EVENT NOT LESS THAN FIVE HUNDRED
DOLLARS ($500) ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY ISSUE
IMMEDIATELY; AND FOR SO DOING, THIS NOTE OR A COPY OF THIS NOTE VERIFIED BY
AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN THIS NOTE TO
CONFESS JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE OF THAT
AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT
IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE. BORROWER HEREBY WAIVES ANY RIGHT
BORROWER MAY HAVE TO NOTICE OR TO A HEARING IN CONNECTION WITH ANY SUCH
CONFESSION OF JUDGMENT AND STATES THAT EITHER A REPRESENTATIVE OF LENDER
SPECIFICALLY CALLED THIS CONFESSION OF JUDGMENT PROVISION TO BORROWER’S
ATTENTION OR BORROWER HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THIS NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL
CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

 

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BORROWER:
NOCOPI TECHNOLOGIES, INC.

     
/s/ Michael Feinstein, M. D.
   
 
Michael Feinstein,
President of Nocopi Technologies, Inc.
   

 

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COMMERCIAL SECURITY AGREEMENT

               
 
           
Grantor:
  Nocopi Technologies, Inc.   Lender:   Sovereign Bank, a federal savings bank
 
  9C Portland Road       Villanova Office
 
  West Conshohocken, PA 19428       2 Aldwyn Lane
 
          P. O. Box 608
 
          Villanova, PA 19085-1431
 
             

THIS COMMERCIAL SECURITY AGREEMENT dated August 19, 2008, is made and executed
between Nocopi Technologies, Inc. (“Grantor”) and Sovereign Bank, a federal
savings bank (“Lender”).
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
indebtedness and performance of all other obligations under the Note of this
Agreement:
     All assets, including but not limited to, all inventory, equipment,
accounts (including but not limited to all health-care-insurance receivables),
chattel paper (whether tangible or electronic), instruments (included but not
limited to all promissory notes), letter-of-credit rights, letters of credit,
documents, deposit accounts, investment property, money, other rights to payment
and performance, choses in action (including but not limited to commercial tort
claims) and general intangibles (including but not limited to all software and
all payment intangibles); all tax refunds, all warranties, all intellectual
property, including but not limited to licenses, license agreements, trademarks,
trade names, know how, copyrights and patents; all attachments, accessions,
accessories, fittings, increases, tools, parts, repairs, supplies and commingled
goods relating to the foregoing property, and all additions, replacements of and
substitutions for all or any part of the foregoing property; all insurance
refunds relating to the foregoing property; all good will relating to the
foregoing property; all records and data and embedded software relating to the
foregoing property, and all equipment, inventory and software to utilize,
create, maintain and process any such records and data on electronic media; and
all supporting obligations relating to the foregoing property; all whether now
existing or hereafter arising, whether now owned or hereafter acquired or
whether now or hereafter subject to any rights in the foregoing property; and
all products and proceeds (including but not limited to all insurance payments)
of or relating to the foregoing property.
In addition, the word “Collateral” also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

 

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  (A)   All accessions, attachments, accessories, tools, parts, supplies,
replacements of and additions to any of the collateral described herein, whether
added now or later.     (B)   All products and produce of any of the property
described in this Collateral section.     (C)   All accounts, general
intangibles, instruments, rents, monies, payments, and all other rights, arising
out of a sale, lease, consignment or other disposition of any of the property
described in this Collateral section.     (D)   All proceeds (including
insurance proceeds) from the sale, destruction, loss, or other disposition of
any of the property described in this Collateral section, and sums due from a
third party who has damaged or destroyed the Collateral or from that party’s
insurer, whether due to judgment, settlement or other process.     (E)   All
records and data relating to any of the property described in this Collateral
section, whether in the form of a writing, photograph, microfilm, microfiche, or
electronic media, together with all of Grantor’s right, title and interest in
and to all computer software required to utilize, create, maintain, and process
any such records or data on electronic media.

CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all
obligations, debts and liabilities, plus interest thereon, of Grantor to Lender,
or any one or more of them, as well as all claims by Lender against Grantor or
any one or more of them, whether now existing or hereafter arising, whether
related or unrelated to the purpose of the Note, whether voluntary or otherwise,
whether due or not due, direct or indirect, determined or undetermined, absolute
or contingent, liquidated or unliquidated, whether Grantor may be liable
individually or jointly with others, whether obligated as guarantor, surety,
accommodation party or otherwise, and whether recovery upon such amounts may be
or hereafter may become barred by any statute of limitations, and whether the
obligation to repay such amounts may be or hereafter may become otherwise
unenforceable.
FUTURE ADVANCES. In addition to the Note, this Agreement secures all future
advances made by Lender to Grantor regardless of whether the advances are made
a) pursuant to a commitment or b) for the same purposes.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Grantor’s accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Grantor holds
jointly with someone else and all accounts Grantor may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts, and, at Lender’s option, to
administratively freeze all such accounts to allow Lender to protect Lender’s
charge and setoff rights provided in this paragraph.
GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and promises to Lender that:
     Perfection of Security Interest. Grantor agrees to take whatever actions
are requested by Lender to perfect and continue Lender’s security interest in
the Collateral. Upon request of Lender, Grantor will deliver

 

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to Lender any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender’s interest upon any and all chattel
paper and instruments if not delivered to Lender for possession by Lender.
     Notices to Lender. Grantor will promptly notify Lender in writing at
Lender’s address shown above (or such other addresses as Lender may designate
from time to time) prior to any (1) change in Grantor’s name; (2) change in
Grantor’s assumed business name(s); (3) change in the management of the
Corporation Grantor; (4) change in the authorized signer(s); (5) change in
Grantor’s principal office address; (6) change in Grantor’s state of
organization; (7) conversion of Grantor to a new or different type of business
entity; or (8) change in any other aspect of Grantor that directly or indirectly
relates to any agreements between Grantor and Lender. No change in Grantor’s
name or state of organization will take effect until after Lender has received
notice.
     No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of incorporation and bylaws do not prohibit any term or
condition of this Agreement.
     Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor’s business, or as otherwise provided
for in this Agreement, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security interest provided for
in this Agreement, without the prior written consent of Lender.
     Title. Grantor represents and warrants to Lender that Grantor holds good
and marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than those
which reflect the security interest created by this Agreement or to which Lender
has specifically consented. Grantor shall defend Lender’s rights in the
Collateral against the claims and demands of all other persons.
     Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause
others to keep and maintain, the Collateral in good order, repair and condition
at all times while this Agreement remains in effect. Grantor further agrees to
pay when due all claims for work done on, or services rendered or material
furnished in connection with the Collateral so that no lien or encumbrance may
ever attach to or be filed against the Collateral.
     Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such payment
or may elect to contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so long as Lender’s
interest in the Collateral is not jeopardized in Lender’s sole opinion. If the
Collateral is subjected to a lien which is not discharged within fifteen
(15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to provide
for the discharge of the lien plus any interest, costs, reasonable attorneys’
fees or other charges that could accrue as a result of foreclosure or sale of
the Collateral. In any contest Grantor shall defend itself and Lender and shall
satisfy any final adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional oblige under any surety bond
furnished in the contest proceedings.

 

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     Compliance with Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral, including without limitation
payment when due of all taxes, assessments and liens upon the Collateral.
     Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability coverage
together with such other insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at least
thirty (30) days’ prior written notice to Lender and not including any
disclaimer of the insurer’s liability for failure to give such a notice. Each
insurance policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all policies covering assets
in which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
     Financing Statements. Grantor authorizes Lender to file a UCC financing
statement, or alternatively, a copy of this Agreement to perfect Lender’s
security interest. At Lender’s request, Grantor additionally agrees to sign all
other documents that are necessary to perfect, protect, and continue Lender’s
security interest in the Property. Grantor will pay all filing fees, title
transfer fees, and other fees and costs involved unless prohibited by law or
unless Lender is required by law to pay such fees and costs. Grantor irrevocably
appoints Lender to execute documents necessary to transfer title if there is a
default. Lender may file a copy of this Agreement as a financing statement. If
Grantor changes Grantor’s name and address, or the name or address of any person
granting a security interest under this Agreement changes, Grantor will promptly
notify the Lender of such change.
LENDER’S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender’s interest in the collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor’s failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take
any action that Lender deems appropriate on the Collateral and paying all costs
for insuring, maintaining and preserving the Collateral. All such expenditures
incurred or paid by Lender for such purposes will then bear interest at the rate
charged under the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses will become a part of the indebtedness
and, at Lender’s option, will (A) be payable on demand; (B) be added to the
balance of the Note and be apportioned among and be payable with any installment
payments to become due during either (1) the term of any applicable insurance
policy; or (2) the remaining term of the Note; or (C) be treated as a balloon
payment which will be due and payable at the Note’s maturity.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
     Payment Default. Grantor fails to make any payment when due under the
indebtedness.
     Other Default. Grantor fails to comply with any other term, obligation,
covenant or condition contained in this Agreement or in any of the Related
Documents.

 

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     Default in Favor of Third Parties. Grantor defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Grantor’s property or ability to perform Grantor’s obligations
under this Agreement or any of the Related Documents.
     False Statements. Any representation or statement made by Grantor to Lender
is false in any material respect.
     Insolvency. The dissolution or termination of Grantor’s existence as a
going business, the insolvency of Grantor, the appointment of a receiver for any
part of Grantor’s property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
     Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help, repossession
or any other method, by any creditor of Grantor or by any governmental agency
against any collateral securing the Indebtedness.
     Events Affecting Guarantor. Any of the preceding events occurs with respect
to any guarantor, endorser, surety, or accommodation party of any of the
Indebtedness or guarantor, endorser, surety, or accommodation party dies or
becomes incompetent or revokes or disputes the validity of, or liability under,
any Guaranty of the Indebtedness.
     Adverse Change. A material adverse change occurs in Grantor’s financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
     Insecurity. Lender in good faith believes itself insecure.
     Cure Provisions. If any default, other than a default in payment is curable
and if Grantor has not been given a notice of a breach of the same provision of
this Agreement within the preceding twelve (12) months, it may be cured if
Grantor, after receiving written notice from Lender demanding cure of such
default: (1) cures the default within thirty (30) days; or (2) if the cure
requires more than thirty (30) days, immediately initiates steps which Lender
deems in Lender’s sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default
under any indebtedness, or should Grantor fail to comply with any of Grantor’s
obligations under this Agreement, Lender shall have all the rights of a secured
party under the Pennsylvania Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
     Accelerate Indebtedness. Lender may declare the entire indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice of any kind to Grantor.

 

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     Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in Lender’s own name
or that of Grantor. Lender may sell the Collateral at public auction or private
sale. Unless the Collateral threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Lender will give Grantor, and
other persons as required by law, reasonable notice of the time and place of any
public sale, or the time after which any private sale or any other disposition
of the Collateral is to be made. However, no notice need be provided to any
person who, after Event of Default occurs, enters into and authenticates an
agreement waiving that person’s right to notification of sale. The requirements
of reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure until
repaid.
     Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as may
be amended from time to time. In addition, Lender shall have and may exercise
any or all other rights and remedies it may have available at law, in equity, or
otherwise.
     Election of Remedies. Except as may be prohibited by applicable law, all of
Lender’s rights and remedies, whether evidenced by this Agreement, the Related
Documents, or by any other writing, shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor’s failure to perform, shall not affect Lender’s right to declare a
default and exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:
     Agreement. The word “Agreement” means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
     Borrower. The word “Borrower” means Nocopi Technologies, Inc. and includes
all co-signers and co-makers signing the Note and all their successors and
assigns.
     Collateral. The word “Collateral” means all of Grantor’s right, title and
interest in and to all the Collateral as described in the Collateral Description
section of this Agreement.
     Event of Default. The words “Event of Default” mean any of the events of
default set forth in this Agreement in the default section of this Agreement.

 

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     Grantor. The word “Grantor” means Nocopi Technologies, Inc.
     Guaranty. The word “Guaranty” means the guaranty from guarantor, endorser,
surety, or accommodation party to Lender, including without limitation a
guaranty of all or part of the Note.
     Indebtedness. The word “indebtedness” means the indebtedness evidenced by
the Note or Related Documents, including all principal and interest together
with all other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents. The
liens and security interests created pursuant to this Agreement covering the
Indebtedness which may be created in the future shall relate back to the date of
this Agreement. Specifically, without limitation, Indebtedness includes the
future advances set forth in the Future Advances provision, together with all
interest thereon and all amounts that may be indirectly secured by the
Cross-Collateralization provision of this Agreement.
     Lender. The word “Lender” means Sovereign Bank, a federal savings bank, its
successors and assigns.
     Note. The word “Note” means the Note executed by Nocopi Technologies, Inc.
in the principal amount of $100,000.00 dated August 19, 2008, together with all
renewals of, extensions of, modifications of, refinancings of, consolidations
of, and substitutions for the note or credit agreement.
     Property. The word “Property” means all of Grantor’s right, title and
interest in and to all the Property as described in the “Collateral Description”
section of this Agreement.
     Related Documents. The words “Related Documents” mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT AND AGREES TO ITS TERMS. THE AGREEMENT IS DATED AUGUST 19, 2008.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR:
NOCOPI TECHNOLOGIES, INC.

     
/s/ Michael Feinstein, M. D.
   
 
Michael Feinstein,
President of Nocopi Technologies, Inc.
   

 

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LENDER:
SOVEREIGN BANK, A FEDERAL SAVINGS BANK

     
/s/ Janet E. DeTuro
   
 
Authorized Signer