Note                                                                     PNCBANK


$850,000.00                                                        June 12, 1998


FOR VALUE RECEIVED,  Hydromer,  Inc., a New Jersey Corporation (the "Borrower"),
with an address at 35 Columbia Road,  Branchburg,  New Jersey 08876, promises to
pay to the order of PNC Bank, National Association (the "Bank"), in lawful money
of the United States of America in immediately  available funds at such location
as the Bank may designate  from time to time, the principal sum of Eight Hundred
Fifty Thousand  Dollars  ($850,000.00),  together with interest  accruing on the
outstanding principal balance from the date hereof as provided below:

     Initially,  the Loan will be repaid in monthly payments of principal in the
sum of Four  Thousand  Seven Hundred  Twenty-Two  Dollars and  Twenty-Two  Cents
($4,722.22),  plus interest at the fixed rate of eight percent (8.0%%) per annum
beginning  with the payment due on July 1, 1998 and on the first day of each and
every month thereafter until June 1, 2003. Subject to the Call Options set forth
below,  on June 1,  2003  and  June 1,  2008  (collectively  an  "Interest  Rate
Adjustment Date") there will be an interest rate adjustment on the Loan at which
time the  interest  rate on the Loan will be adjusted to a new rate equal to the
higher of (i) the rate of interest  set forth on the Closing  Date,  or (ii) two
hundred (200) basis points over the Bank's fully  absorbed five (5) year cost of
funds on each respective  Interest Rate Adjustment Date, as determined in Bank's
sole discretion, rounded to the next highest one-eighth of one percent (0.125%),
and the Loan will then continue to be repaid in monthly payments of principal in
the sum of Four Thousand Seven Hundred  Twenty-Two  Dollars and Twenty-Two Cents
($4,722.22),  plus  interest at the new rate set forth on a respective  Interest
Rate  Adjustment  Date.  Subject to the Call  Options set forth  below,  and the
interest rate adjustments set forth herein,  the entire balance of principal and
interest is due and payable in full on June 1, 2013 (the "Maturity Date").  This
is a  fifteen  (15)  year  Loan with  Call  Options  and two (2)  interest  rate
adjustments on the fifth (5th) and tenth (10th) anniversaries of the Loan.

     The Bank shall  have the right to call the Loan due and  payable on the 5th
anniversary  of the  first  day of the  month  following  the month in which the
closing occurs, and at each 5th anniversary date thereafter,  if in the sole and
absolute  opinion of the Bank, (i) there has been any material  deterioration in
the value of the Collateral or in the Borrower's  financial  condition,  or (ii)
the Borrower has not performed  satisfactorily under the terms and conditions of
the Loan  Documents.  If the Bank elects to exercise the Call  Option,  the Bank
will notify the Borrower 120 days before the prescribed anniversary date and the
Borrower  will  have the later of (1) 180 days  from the Call  Date,  or (2) the
anniversary date in question, to pay the Loan in full.

     Interest  will be  calculated  on the  basis  of a year of 360 days for the
actual  number of days in each interest  period.  If any payment under this Note
shall become due on a Saturday,  Sunday or public  holiday under the laws of the
State where the Bank's office indicated above is located, such


<PAGE>


payment shall be made on the next succeeding  business day and such extension of
time shall be included in computing  interest in  connection  with such payment.
The Borrower hereby authorizes the Bank to charge the Borrower's deposit account
at the Bank  for any  payment  when due  hereunder.  Payments  received  will be
applied to charges,  fees and  expenses  (including  attorneys'  fees),  accrued
interest and principal in any order the Bank may choose, in its sole discretion.

Late  Payments;  Default  Rate.  If the  Borrower  fails to make any  payment of
principal,  interest or other amount  coming due pursuant to the  provisions  of
this  Note  within  ten (10)  calendar  days of the date  due and  payable,  the
Borrower  also shall pay to the Bank a late charge equal to five percent  (5.0%)
of the amount of such  payment.  Such ten (10) day period shall not be construed
in any way to  extend  the due date of any such  payment.  The  late  charge  is
imposed  for the  purpose of  defraying  the  Bank's  expenses  incident  to the
handling of  delinquent  payments and is in addition to, and not in lieu of, the
exercise by the Bank of any rights and remedies hereunder,  under the other Loan
Documents or under  applicable  laws, and any fees and expenses of any agents or
attorneys  which the Bank may employ.  Upon maturity,  whether by  acceleration,
demand or  otherwise,  and at the option of the Bank upon the  occurrence of any
Event of Default (as hereinafter  defined) and during the  continuance  thereof,
this Note shall bear  interest at a rate per annum  (based on a year of 360 days
and actual days  elapsed)  which shall be five (5)  percentage  points (5.0%) in
excess of the interest  rate in effect from time to time under this Note but not
more than the maximum rate allowed by law (the "Default Rate"). The Default Rate
shall continue to apply whether or not judgment shall be entered on this Note.

Prepayment.  Notwithstanding anything contained herein to the contrary, upon any
prepayment  by or on behalf of the Borrower  (whether  voluntary,  on default or
otherwise),  the Bank may require, if it so elects, the Borrower to pay the Bank
as  compensation  for the cost of being  prepared  to  advance  fixed rate funds
hereunder an amount equal to the Cost of Prepayment.  "Cost of Prepayment" means
an amount equal to the present  value,  if  positive,  of the product of (a) the
difference  between  (i) the  yield,  on the  beginning  date of the  applicable
interest period,  of a U.S.  Treasury  obligation with a maturity similar to the
applicable  interest  period minus (ii) the yield on the  prepayment  date, of a
U.S.  Treasury  obligation with a maturity similar to the remaining  maturity of
the applicable interest period, and (b) the principal amount to be prepaid,  and
(c) the number of years, including fractional years, from the prepayment date to
the end of the  applicable  interest  period.  The  yield on any  U.S.  Treasury
obligation  shall be  determined  by  reference to Federal  Reserve  Statistical
Release  H.15(519)  "Selected  Interest  Rates".  For purposes of making present
value  calculations,  the yield to maturity of a similar maturity U.S.  Treasury
obligation on the prepayment date shall be deemed the discount rate. The Cost of
Prepayment  shall also apply to any  payments  made  after  acceleration  of the
maturity of this Note while a Fixed Rate is in effect.

Other Loan Documents.  This Note is issued in connection  with a mortgage,  loan
agreement,   guaranty  and  other  loan  documents,   the  terms  of  which  are
incorporated  herein by reference (the "Loan Documents"),  and is secured by the
property  described in the Loan Documents (if any) and by such other  collateral
as  previously  may have  been or may in the  future be  granted  to the Bank to
secure this Note.


                                        2


<PAGE>


Events of Default.  The occurrence of any of the following events will be deemed
to be an  "Event  of  Default"  under  this  Note:  (i)  the  nonpayment  of any
principal,  interest or other  indebtedness under this Note within ten (10) days
of its due date;  (ii) the occurrence of any event of default or default and the
lapse of any notice or cure  period  under any Loan  Document or any other debt,
liability or obligation to the Bank of Borrower;  (iii) the filing by or against
Borrower   of  any   proceeding   in   bankruptcy,   receivership,   insolvency,
reorganization,  liquidation,  conservatorship  or  similar  proceeding,  or any
assignment by Borrower for the benefit of creditors,  or any levy,  garnishment,
attachment or similar  proceeding is instituted against any property of Borrower
held by or  deposited  with the Bank;  (iv) a default  with respect to any other
indebtedness of Borrower for borrowed money, if the effect of such default is to
cause or permit the  acceleration  of such  debt;  (v) the  commencement  of any
foreclosure proceeding,  execution or attachment against any collateral securing
the  obligations  of  Borrower to the Bank;  (vi) the entry of a final  judgment
against  Borrower  and the failure of such  Borrower to  discharge  the judgment
within ten (10) days of the entry thereof;  (vii) in the event that this Note is
secured,  the  failure  of any  Borrower  to  provide  the Bank with  additional
collateral if in the opinion of the Bank at any time or times,  the market value
of any of the  collateral  securing this Note or any guarantee has  depreciated;
(viii)  any  material  adverse  change  in  the  business,  assets,  operations,
financial   condition  or  results  of   operations   of   Borrower;   (ix)  any
representation or warranty made by Borrower to the Bank in any Loan Document, or
any other documents now or in the future securing the obligations of Borrower to
the Bank, is false,  erroneous or misleading in any material respect; or (x) the
failure of Borrower to observe or perform any covenant or other  agreement  with
the Bank  contained in any Loan  Document or any other  documents  now or in the
future  securing the  obligations of Borrower to the Bank.  Notwithstanding  the
foregoing,  the Lender will provide the Borrower  with a fifteen (15) day notice
and opportunity to cure  "Non-Monetary  Defaults" (e.g.  events of default other
than payments of  principal,  interest,  taxes,  insurance,  and other  monetary
payments),  if such Non-Monetary Defaults are capable of being cured. Notice and
opportunity  to cure will not be  necessary  for a voluntary  bankruptcy  by the
Borrower. In the event that the Non-Monetary Default is of such a nature that it
cannot be cured within such fifteen (15) day period,  and if the Borrower  shall
be diligently pursuing the cure of the Non-Monetary Default, then such period to
cure shall be extended for a period not to exceed sixty (60) days.

Upon the occurrence of an Event of Default: (a) if an Event of Default specified
in clause (iii) above shall occur, the outstanding principal balance and accrued
interest  hereunder together with any additional amounts payable hereunder shall
be immediately  due and payable without demand or notice of any kind; (b) if any
other  Event of Default  shall  occur,  the  outstanding  principal  balance and
accrued  interest   hereunder  together  with  any  additional  amounts  payable
hereunder,  at the option of the Bank and  without  demand or notice of any kind
may be accelerated and become immediately due and payable;  (c) at the option of
the Bank,  this Note will bear interest at the Default Rate from the date of the
occurrence  of the Event of Default;  and (d) the Bank may exercise from time to
time  any of the  rights  and  remedies  available  to the Bank  under  the Loan
Documents or under applicable law.

Right of Setoff.  In addition to all liens upon and rights of setoff against the
money,  securities or other  property of the Borrower  given to the Bank by law,
the Bank shall have,  with  respect to the  Borrower's  obligations  to the Bank
under this Note and to the extent  permitted  by law, a  contractual  possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby


                                       3


<PAGE>


assigns,  conveys,  delivers,  pledges  and  transfers  to the  Bank  all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other  property of the Borrower now or hereafter in the  possession of or on
deposit  with,  or in transit to, the Bank  whether held in a general or special
account or deposit,  whether held jointly with someone else, or whether held for
safekeeping  or  otherwise,  excluding,  however,  all  IRA,  Keogh,  and  trust
accounts.  Every such  security  interest  and right of setoff may be  exercised
without demand upon or notice to the Borrower.  Every such right of setoff shall
be deemed to have been exercised  immediately upon the occurrence of an Event of
Default  hereunder  without any action of the Bank,  although the Bank may enter
such setoff on its books and records at a later time.

Miscellaneous.  No delay or omission of the Bank to exercise  any right or power
arising  hereunder shall impair any such right or power or be considered to be a
waiver of any such  right or power or any  acquiescence  therein,  nor shall the
action or inaction of the Bank impair any right or power hereunder. The Borrower
agrees to pay on demand,  to the extent permitted by law, all costs and expenses
incurred  by the Bank in the  enforcement  of its rights in this Note and in any
security therefor,  including without limitation reasonable fees and expenses of
the Bank's  counsel.  If any  provision of this Note is found to be invalid by a
court,  all the other  provisions  of this Note  will  remain in full  force and
effect.  The  Borrower  and all other  makers and  indorsers of this Note hereby
forever  waive   presentment,   protest,   notice  of  dishonor  and  notice  of
non-payment.  The  Borrower  also waives all  defenses  based on  suretyship  or
impairment  of  collateral.  If this Note is executed by more than one Borrower,
the obligations of such persons or entities hereunder will be joint and several.
This Note shall bind the  Borrower  and the  heirs,  executors,  administrators,
successors and assigns of the Borrower,  and the benefits  hereof shall inure to
the benefit of Bank and its successors and assigns.

This Note has been  delivered  to and accepted by the Bank and will be deemed to
be made in the State of New Jersey. This Note will be interpreted and the rights
and liabilities of the parties hereto  determined in accordance with the laws of
the State where the Bank's  office  indicated  above is located,  excluding  its
conflict  of  laws  rules.  The  Borrower  hereby  irrevocably  consents  to the
exclusive  jurisdiction of any state or federal court for the county or judicial
district where the Bank's office  indicated above is located,  and consents that
all  service of  process  be sent by  nationally  recognized  overnight  courier
service directed to the Borrower at the Borrower's  address set forth herein and
service so made will be deemed to be completed on the business day after deposit
with such courier; provided that nothing contained in this Note will prevent the
Bank from bringing any action, enforcing any award or judgment or exercising any
rights  against the Borrower  individually,  against any security or against any
property of the  Borrower  within any other  county,  state or other  foreign or
domestic  jurisdiction.  The  Borrower  acknowledges  and agrees  that the venue
provided above is the most convenient  forum for both the Bank and the Borrower.
The Borrower  waives any  objection to venue and any  objection  based on a more
convenient forum in any action instituted under this Note.

WAIVER OF JURY TRIAL.  THE  BORROWER  IRREVOCABLY  WAIVES ANY AND ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,  PROCEEDING  OR CLAIM OF ANY
NATURE  RELATING TO THIS NOTE,  ANY DOCUMENTS  EXECUTED IN CONNECTION  WITH THIS
NOTE OR ANY  TRANSACTION  CONTEMPLATED  IN ANY OF SUCH  DOCUMENTS.  THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING


                                       4


<PAGE>


AND VOLUNTARY. THE BORROWER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD ALL THE
PROVISIONS  OF THIS  NOTE,  INCLUDING  THE  WAIVER OF JURY  TRIAL,  AND HAS BEEN
ADVISED BY COUNSEL AS NECESSARY OR APPROPRIATE.

WITNESS the due execution  hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.

ATTEST:                                Hydromer, Inc., a New Jersey Corporation

    /s/                                /s/
-----------------------------          -----------------------------------------
                                       Kenneth P. Brice, President and
                                       Chief Financial Officer


<PAGE>


Mortgage and                                                             PNCBANK
Security Agreement

     THIS MORTGAGE AND SECURITY  AGREEMENT (this  "Mortgage") is made as of June
12, 1998,  by Hydromer,  Inc., a New Jersey  Corporation,  with an address of 35
Columbia Road,  Branchburg,  New Jersey 08876 (the  "Mortgagor") in favor of PNC
BANK,  NATIONAL  ASSOCIATION (the  "Mortgagee"),  with an address at 500 College
Road East, Princeton, New Jersey 08540.

     WHEREAS,  the  Mortgagor is the owner of a certain  tract or parcel of land
known as 35  Industrial  Parkway,  in the  Township  of  Branchburg,  County  of
Somerset  and State of New  Jersey  a/k/a  Block 17, Lot 3.04 on the Tax Map and
described in Exhibit A attached hereto and made a part hereof, together with the
improvements now or hereafter erected thereon; and

     WHEREAS,  the Mortgagor has borrowed from the Mortgagee,  or is providing a
guaranty of a borrowing  from the  Mortgagee,  or is granting a lien pursuant to
this Mortgage as collateral  security for a borrowing from the Mortgagee,  in an
amount not to exceed the principal sum of Eight Hundred Fifty  Thousand  Dollars
($850,000.00)  (the "Loan"),  which Loan is evidenced by one or more  promissory
notes or  guaranties  in favor of the  Mortgagee  dated of even  date  with this
Mortgage (the "Note");

     NOW, THEREFORE,  for the purpose of securing the payment and performance of
the following obligations (collectively called the "Obligations"):

     (A) the Loan, the Note and all other loans, advances,  debts,  liabilities,
obligations, covenants and duties owing by the Mortgagor to the Mortgagee of any
kind or  nature,  present  or  future,  whether  or not  evidenced  by any note,
guaranty or other instrument, whether arising under any agreement, instrument or
document,  whether or not for the payment of money, whether arising by reason of
an extension of credit,  opening of a letter of credit,  loan or guarantee or in
any other manner, whether arising out of overdrafts on deposit or other accounts
or electronic  funds transfers  (whether  through  automatic  clearing houses or
otherwise)  or out of the  Mortgagee's  non-receipt  of or  inability to collect
funds or otherwise not being made whole in connection with  depository  transfer
check or other similar arrangements, whether direct or indirect (including those
acquired by  assignment  or  participation),  absolute or  contingent,  joint or
several,  due or to become due,  now  existing  or  hereafter  arising,  and any
amendments,  extensions, renewals or increases and all costs and expenses of the
Mortgagee incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection  with any of the foregoing,  including but
not limited to reasonable attorneys' fees and expenses.

     (B) Any sums advanced by the  Mortgagee or which may  otherwise  become due
pursuant to the provisions of the Note or this Mortgage or pursuant to any other
document or  instrument  at any time  delivered to the  Mortgagee to evidence or
secure any of the Obligations or which otherwise


<PAGE>


relate to any of the  Obligations  (as the same may be amended,  supplemented or
replaced from time to time, the "Loan Documents").

The Mortgagor,  for good and valuable consideration,  receipt of which is hereby
acknowledged, and intending to be legally bound hereby, does hereby give, grant,
bargain, sell, convey, assign, transfer, mortgage, hypothecate, pledge, set over
and confirm unto the Mortgagee  and does agree that the  Mortgagee  shall have a
security  interest in the  following  described  property,  all  accessions  and
additions  thereto,  all  substitutions  therefor and  replacements and proceeds
thereof, and all reversions and remainders of such property now owned or held or
hereafter acquired (the "Property"), to wit:

     (a) All of the Mortgagor's  estate in the premises  described in Exhibit A,
together  with  all of the  easements,  rights  of way,  privileges,  liberties,
hereditaments,  gores, streets, alleys,  passages,  ways, waters,  watercourses,
rights and  appurtenances  thereunto  belonging or appertaining,  and all of the
estate,  right,  title,  interest,  claim and demand whatsoever of the Mortgagor
therein and in the public streets and ways adjacent thereto, either in law or in
equity (the "Land");

     (b) All the  buildings,  structures  and  improvements  of  every  kind and
description now or hereafter  erected or placed on the Land, and all facilities,
fixtures,  machinery,  apparatus,  appliances,   installations,   machinery  and
equipment,   including,   without  limitation,  all  building  materials  to  be
incorporated  into such buildings,  all electrical  equipment  necessary for the
operation of such buildings and heating, air conditioning and plumbing equipment
now or  hereafter  attached  to,  located  in or used in  connection  with those
buildings, structures or other improvements (the "Improvements");

     (c) All rents,  issues and profits arising or issuing from the Land and the
Improvements (the "Rents")  including,  but not limited to, the Rents arising or
issuing from all leases and subleases now or hereafter entered into covering all
or any part of the Land and Improvements (the "Leases"), all of which Leases and
Rents are hereby  assigned to the  Mortgagee  by the  Mortgagor.  The  foregoing
assignment  shall be an absolute  assignment  of all of the  Mortgagor's  entire
interest in the Rents.  The foregoing  assignment  shall also  include,  without
limitation,  all  fees,  charges,  accounts  or  other  payments  for the use or
occupancy  of rooms and other  public  facilities  in hotels,  motels,  or other
lodging properties,  and all cash or securities deposited under Leases to secure
performance  of lessees of their  obligations  thereunder,  whether such cash or
securities  are to be held until the  expiration  of the terms of such leases or
applied to one or more  installments  of rent coming due prior to the expiration
of such terms. The foregoing assignment extends to Rents arising both before and
after the  commencement  by or against the  Mortgagor of any case or  proceeding
under any Federal or State bankruptcy,  insolvency or similar law. The Mortgagor
will  execute and deliver to the  Mortgagee,  on demand,  such  assignments  and
instruments  as the Mortgagee may require to confirm,  maintain and continue the
assignment hereunder;

     (d) All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or liquidated claims;


                                       2


<PAGE>


     (e) And without limiting any of the other provisions of this Mortgage,  the
Mortgagor,  as debtor,  expressly grants unto the Mortgagee, as secured party, a
security  interest in all those portions of the Property which may be subject to
the Uniform Commercial Code provisions  applicable to secured transactions under
the laws of any  state,  and the  Mortgagor  will  execute  and  deliver  to the
Mortgagee  on demand such  financing  statements  and other  instruments  as the
Mortgagee may require in order to perfect and maintain  such  security  interest
under the UCC on the aforesaid collateral.

     To have  and to hold  the  same  unto the  Mortgagee,  its  successors  and
assigns, forever.

     Provided,  however,  that if the  Mortgagor  shall pay to the Mortgagee the
Obligations,  and if the  Mortgagor  shall  keep and  perform  each of its other
covenants,  conditions  and  agreements  set forth  herein and in the other Loan
Documents, then, upon the termination of all obligations, duties and commitments
of the Mortgagor  under the  Obligations  and this Mortgage,  and subject to the
provisions of Section 24 hereof,  the estate hereby  granted and conveyed  shall
become null and void.


1. Representations and Warranties.  The Mortgagor represents and warrants to the
Mortgagee that the Mortgagor has good and  marketable  title to an estate in fee
simple  absolute  in the Land and  Improvements  and has all  right,  title  and
interest in all other property constituting a part of the Property, in each case
free and clear of all liens and  encumbrances,  except as may  otherwise  be set
forth on an Exhibit B hereto.  This  Mortgage is a valid and  enforceable  first
lien on the  Property  (except  as set  forth  on  Exhibit  B  hereto),  and the
Mortgagee  shall,  subject to the  Mortgagor's  right of possession  prior to an
Event of Default,  quietly enjoy and possess the Property.  The Mortgagor  shall
preserve  such title as it warrants  herein and the validity and priority of the
lien  hereof and shall  forever  warrant  and  defend the same to the  Mortgagee
against the claims of all persons.

     2.  Affirmative  Covenants.  Until all of the  Obligations  shall have been
fully paid, satisfied and discharged the Mortgagor shall:

          a. Payment and Performance of Obligations. Pay or cause to be paid and
     perform all Obligations when due as provided in the Loan Documents.

          b. Legal Requirements. Promptly comply with and conform to all present
     and future laws, statutes,  codes,  ordinances,  orders and regulations and
     all covenants,  restrictions  and conditions which may be applicable to the
     Mortgagor or to any of the Property (the "Legal Requirements").

          c.  Impositions.  Before  interest  or  penalties  are due thereon and
     otherwise  when due,  the  Mortgagor  shall pay all taxes of every kind and
     nature,  all  charges  for any  easement or  agreement  maintained  for the
     benefit  of  any of the  Property,  all  general  and  special  assessments
     (including, without limitation, any condominium or planned unit development
     assessments,  if any),  levies,  permits,  inspection and license fees, all
     water and sewer rents and charges, and all other


                                       3


<PAGE>


     charges and liens,  whether of a like or different nature,  imposed upon or
     assessed against the Mortgagor or any of the Property (the  "Impositions").
     Within thirty (30) days after the payment of any Imposition,  the Mortgagor
     shall deliver to the Mortgagee evidence acceptable to the Mortgagee of such
     payment.  The Mortgagor's  obligations to pay the Impositions shall survive
     the  Mortgagee's   taking  title  to  the  Property  through   foreclosure,
     deed-in-lieu or otherwise.

          d.  Maintenance  of  Security.  Use,  and  permit  others to use,  the
     Property  only for its  present  use or such  other  uses as  permitted  by
     applicable Legal Requirements and approved in writing by the Mortgagee. The
     Mortgagor  shall keep the  Property  in good  condition  and order and in a
     rentable and tenantable  state of repair and will make or cause to be made,
     as and when necessary, all repairs, renewals, and replacements,  structural
     and nonstructural, exterior and interior, foreseen and unforeseen, ordinary
     and extraordinary,  provided, however, that no structural repairs, renewals
     or  replacements  shall  be made  without  the  Mortgagee's  prior  written
     consent. The Mortgagor shall not remove, demolish or alter the Property nor
     commit or suffer  waste with  respect  thereto,  nor permit the Property to
     become  deserted or abandoned.  The  Mortgagor  covenants and agrees not to
     take or permit any action with  respect to the  Property  which will in any
     manner impair the security of this Mortgage.

     3. Leases.  The Mortgagor  shall not (I) execute an assignment or pledge of
the Rents  and/or the Leases other than in favor of the  Mortgagee;  (ii) accept
any  prepayment  of an  installment  of any Rents  prior to the due date of such
installment;  or (iii) enter into or amend any of the terms of any of the Leases
without the Mortgagee's prior written consent. Any or all leases or subleases of
all or any part of the  Property  shall be subject in all  respects to the prior
written consent of the Mortgagee,  shall be subordinated to this Mortgage and to
the rights of the  Mortgagee  and,  together  with any and all rents,  issues or
profits  relating  thereto,  shall be assigned at the time of  execution  to the
Mortgagee as additional  collateral  security for the  Obligations,  all in such
form,  substance  and detail as is  satisfactory  to the  Mortgagee  in its sole
discretion.

     4. Due on Sale Clause.  The Mortgagor  shall not sell,  convey or otherwise
transfer any interest in the Property  (whether  voluntarily  or by operation of
law),  or  agree  to do so,  without  the  Mortgagee's  prior  written  consent,
including  but not  limited to (I) any sale,  conveyance,  assignment,  or other
transfer  of  (including  installment  land sale  contracts),  or the grant of a
security interest in, all or any part of the legal and/or equitable title to the
Property;  (ii) any lease of all or any  portion of the  Property;  or (iii) any
sale, conveyance,  assignment,  or other transfer of, or the grant of a security
interest  in,  any  share  of  stock of the  Mortgagor,  except  in favor of the
Mortgagee.   Any  default  under  this   paragraph   shall  cause  an  immediate
acceleration of the  indebtedness  secured by the Note without any demand by the
Mortgagee.

     5. Insurance.  The Mortgagor shall keep the Property  continuously insured,
in an amount not less than the cost to  replace  the  Property  or an amount not
less than eighty  percent  (80%) of the full  insurable  value of the  Property,
whichever is greater, against loss or damage by fire, with extended coverage and
against  other  hazards  as the  Mortgagee  may from time to time  require.  The
Mortgagor shall also maintain  comprehensive general public liability insurance,
in an amount of not


                                       4


<PAGE>


less than required by the Mortgagee,  property damage and Workers'  compensation
insurance,  builder's  risk  insurance  with  respect  to any  construction,  or
reconstruction  and  contractual  liability  insurance  for  obligations  of the
Mortgagor under the Leases, with an insurance company or companies  satisfactory
to the  Mortgagee,  and in such total amounts (other than the foregoing fire and
extended  coverage  insurance)  as the  Mortgagee may require from time to time.
Such insurance shall include  protection for continuation of income for a period
of twelve (12) months,  in the event of any damage caused by the perils referred
to above. All policies,  including policies for any amounts carried in excess of
the required  minimum and policies not  specifically  required by the Mortgagee,
shall be in form  satisfactory  to the  Mortgagee,  shall  meet all  coinsurance
requirements  of the  Mortgagee,  shall be  maintained in full force and effect,
shall be  assigned  to the  Mortgagee,  with  premiums  prepaid,  as  collateral
security  for  payment of the  Obligations,  shall be  endorsed  with a standard
mortgagee clause in favor of the Mortgagee and shall provide for at least thirty
(30) days notice of  cancellation  to the Mortgagee.  Such insurance  shall also
name the Mortgagee as an  additional  insured  under the  comprehensive  general
public  liability policy and the Mortgagor shall also deliver to the Mortgagee a
copy of the replacement cost coverage endorsement. If the Property is located in
an area which has been identified by any governmental agency,  authority or body
as a flood hazard area or the like,  then the Mortgagor  shall  maintain a flood
insurance  policy  covering the Property in an amount not less than the original
principal  amount of the Loan or the maximum limit of coverage  available  under
the federal program, whichever amount is less.

     6. Rights of  Mortgagee to Insurance  Proceeds.  In the event of loss,  the
Mortgagee shall have the exclusive  right to adjust,  collect and compromise all
insurance claims, and the Mortgagor shall not adjust,  collect or compromise any
claims under said policies  without the prior written  consent of the Mortgagee.
Each  insurer is hereby  authorized  and  directed  to make  payment  under said
policies,  including  return of unearned  premiums,  directly  to the  Mortgagee
instead  of to the  Mortgagor  and the  Mortgagee  jointly,  and  the  Mortgagor
appoints the Mortgagee as the Mortgagor's  attorney-in-fact to endorse any draft
therefor. All insurance proceeds may, at the Mortgagee's sole option, be applied
to all or any part of the  Obligations  and in any order  (notwithstanding  that
such Obligations may not then otherwise be due and payable) or to the repair and
restoration  of any of the  Property  under  such  terms and  conditions  as the
Mortgagee may impose.

     7.  Installments  for  Insurance.  Taxes and Other  Charges.  The Mortgagor
shall, if requested by the Mortgagee,  pay to the Mortgagee  monthly,  an amount
equal to one-twelfth  (1/12) of the annual  premiums for the insurance  policies
referred to hereinabove  and the annual  Impositions and any other item which at
any time may be or become a lien upon the Property (the "Escrow  Charges").  The
amounts so paid  shall be used in  payment  of the Escrow  Charges so long as no
Event of Default shall have occurred.  No amount so paid to the Mortgagee  shall
be  deemed to be trust  funds,  nor  shall  any sums  paid  bear  interest.  The
Mortgagee shall have no obligation to pay any insurance premium or Imposition if
at any time the funds being held by the Mortgagee for such premium or Imposition
are  insufficient  to make such  payments.  Upon the  occurrence  of an Event of
Default,  the  Mortgagee  shall have the right,  at its  election,  to apply any
amount so held  against  the  Obligations  due and  payable in such order as the
Mortgagee may deem fit, and the Mortgagor


                                       5


<PAGE>


hereby grants to the Mortgagee a lien upon and security interest in such amounts
for such purpose.

     8. Condemnation. The Mortgagor, immediately upon obtaining knowledge of the
institution of any proceedings for the  condemnation or taking by eminent domain
of any of the  Property,  shall  notify the  Mortgagee  of the  pendency of such
proceedings.  The  Mortgagee may  participate  in any such  proceedings  and the
Mortgagor  shall  deliver to the Mortgagee  all  instruments  requested by it to
permit such  participation.  Any award or compensation for property taken or for
damage to property not taken, whether as a result of such proceedings or in lieu
thereof,  is hereby assigned to and shall be received and collected  directly by
the  Mortgagee,  and  any  award  or  compensation  shall  be  applied,  at  the
Mortgagee's   option,   to  any  part  of  the  Obligations  and  in  any  order
(notwithstanding  that any of such  Obligations may not then be due and payable)
or to the repair and  restoration  of any of the  Property  under such terms and
conditions as the Mortgagee may impose.

     9. Environmental Matters.

     a. For purposes of this Section 9, the term "Environmental Laws" shall mean
all federal, state and local laws, regulations and orders, whether now or in the
future  enacted or issued,  pertaining to the  protection of land,  water,  air,
health,  safety or the environment.  The term "Regulated  Substances" shall mean
all substances regulated by Environmental Laws, or which are known or considered
to be harmful to the health or safety of persons,  or the  presence of which may
require investigation, notification or remediation under the Environmental Laws.
The term "Contamination" shall mean the discharge,  release, emission,  disposal
or escape of any Regulated Substances into the environment.

     b. The  Mortgagor  represents  and  warrants (I) that no  Contamination  is
present at, on or under the Property and that no  Contamination  is being or has
been emitted onto any surrounding  property;  (ii) all operations and activities
on the  Property  have  been and are  being  conducted  in  accordance  with all
Environmental  Laws,  and the  Mortgagor  has all permits and licenses  required
under the Environmental  Laws; (iii) no underground or aboveground storage tanks
are or have  been  located  on or  under  the  Property;  and  (iv) no  legal or
administrative proceeding is pending or threatened relating to any environmental
condition,  operation or activity on the  Property,  or any violation or alleged
violation of Environmental  Laws. These  representations and warranties shall be
true as of the date hereof, and shall be deemed to be continuing representations
and warranties  which must remain true,  correct and accurate  during the entire
duration of the term of this Mortgage.

     c. The  Mortgagor  shall  ensure,  at its sole cost and  expense,  that the
Property and the conduct of all  operations  and  activities  thereon comply and
continue to comply with all  Environmental  Laws. The Mortgagor shall notify the
Mortgagee  promptly  and in  reasonable  detail in the event that the  Mortgagor
becomes  aware of any  violation  of any  Environmental  Laws,  the  presence or
release of any Contamination  with respect to the Property,  or any governmental
or third party claims relating to the environmental condition of the Property or
the conduct of operations or


                                       6


<PAGE>


activities  thereon.  The  Mortgagor  also  agrees  not to  permit  or allow the
presence of Regulated  Substances on any part of the Property,  except for those
Regulated  Substances  (I)  which  are  used  in  the  ordinary  course  of  the
Mortgagor's  business,  but only to the  extent  they are in all cases used in a
manner which  complies with all  Environmental  Laws;  and (ii) those  Regulated
Substances which are naturally  occurring on the Property.  The Mortgagor agrees
not to cause, allow or permit the presence of any Contamination on the Property.

     d.  The  Mortgagee  shall  not be  liable  for,  and  the  Mortgagor  shall
indemnify,  defend and hold the Mortgagee  and all of its  officers,  directors,
employees  and  agents,  and all of  their  respective  successors  and  assigns
harmless  from and against  all  losses,  costs,  liabilities,  damages,  fines,
claims,  penalties  and  expenses  (including,  without  limitation,  reasonable
attorneys',   consultants'  and   contractors'   fees,  costs  incurred  in  the
investigation,  defense and  settlement of claims,  as well as costs incurred in
connection  with the  investigation,  remediation or monitoring of any Regulated
Substances or Contamination)  that the Mortgagee may suffer or incur (including,
without limitation,  as holder of the Mortgage, as mortgagee in possession or as
successor  in interest to the  Mortgagor as owner of the Property by virtue of a
foreclosure or acceptance of a deed in lieu of foreclosure) as a result of or in
connection with (I) any Environmental Laws (including,  without limitation,  the
assertion that any lien existing or arising pursuant to any  Environmental  Laws
takes  priority  over  the  lien  of  the  Mortgage);  (ii)  the  breach  of any
representation,  warranty,  covenant or  undertaking  by the  Mortgagor  in this
Section  9; (iii) the  presence  on or the  migration  of any  Contamination  or
Regulated  Substances on, under or through the Property;  or (iv) any litigation
or  claim  by the  government  or by any  third  party  in  connection  with the
environmental  condition  of the  Property or the  presence or  migration of any
Regulated Substances or Contamination on, under, to or from the Property.

     e. Upon the  request of the  Mortgagee,  the  Mortgagor  shall  execute and
deliver an Environmental  Indemnity Agreement satisfactory in form and substance
to the  Mortgagee,  to  more  fully  reflect  the  representations,  warranties,
covenants and  indemnities  of the Mortgagor  with respect to the  Environmental
Laws.

     10.  Inspection of Property.  The  Mortgagee  shall have the right to enter
upon the  Property  at any  reasonable  hour for the purpose of  inspecting  the
order,  condition and repair of the buildings and improvements  erected thereon,
as well as the  conduct  of  operations  and  activities  on the  Property.  The
Mortgagee may enter the Property (and cause the  Mortgagee's  employees,  agents
and  consultants  to enter  the  Property),  upon  prior  written  notice to the
Mortgagor,  to conduct any and all environmental  testing deemed  appropriate by
the  Mortgagee  in its  sole  discretion.  The  environmental  testing  shall be
accomplished  by whatever means the Mortgagee may deem  appropriate,  including,
but not limited to, the taking of soil  samples and the  installation  of ground
water  monitoring  wells or other intrusive  environmental  tests. The Mortgagor
shall  provide  the  Mortgagee  (and  the  Mortgagee's  employees,   agents  and
consultants)  reasonable  rights  of  access  to the  Property  as  well as such
information about the Property and the past or present conduct of operations and
activities thereon as the Mortgagee shall reasonably request.


                                       7


<PAGE>


     11. Events of Default.  The  occurrence of any one or more of the following
events  shall  constitute  an "Event  of  Default"  hereunder:  (a) any Event of
Default (as defined in any of the Obligations); (b) any default under any of the
Obligations  that does not have a defined  set of  "Events of  Default"  and the
lapse of any notice or cure period provided in such  Obligations with respect to
such default; (C) demand by the Mortgagee under any of the Obligations that have
a demand  feature;  (d) the  failure  by the  Mortgagor  to  perform  any of its
obligations under this Mortgage or under any Environmental  Indemnity  Agreement
executed and delivered pursuant to Section 9(e) hereof; (e) falsity,  inaccuracy
or material breach by the Mortgagor of any written  warranty,  representation or
statement  made or furnished to the Mortgagee by or on behalf of the  Mortgagor;
(f) an uninsured  material  loss,  theft,  damage,  or destruction to any of the
Property, or the entry of any judgment against the Mortgagor or any lien against
or the making of any levy, seizure or attachment of or on the Property;  (g) the
failure of the Mortgagee to have a first priority mortgage lien on the Property;
(h) any indication or evidence  received by the Mortgagee that the Mortgagor may
have directly or indirectly  been engaged in any type of activity  which, in the
Mortgagee's  discretion,  might result in the  forfeiture of any property of the
Mortgagor to any governmental entity,  federal,  state or local; (I) foreclosure
proceedings  are  instituted  against the Property upon any other lien or claim,
whether  alleged to be superior or junior to the lien of this Mortgage;  (j) the
failure by the Mortgagor to pay any  Impositions  as required under Section 2(C)
hereof,  or to maintain in full force and effect any  insurance  required  under
Section  5  hereof;  or (k)  the  filing  by or  against  the  Mortgagor  of any
proceeding in bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship  or similar  proceeding,  or any assignment by the Mortgagor for
the benefit of creditors.

     12. Rights and Remedies of Mortgagee.  If an Event of Default  occurs,  the
Mortgagee may, at its option and without demand, notice or delay, do one or more
of the following:

          a. The Mortgagee may declare the entire  unpaid  principal  balance of
     the Obligations,  together with all interest thereon, to be due and payable
     immediately.

          b. The  Mortgagee may (I) institute and maintain an action of mortgage
     foreclosure  against  the  Property  and  the  interests  of the  Mortgagor
     therein,   (ii)  institute  and  maintain  an  action  on  any  instruments
     evidencing  the  Obligations  or any portion  thereof,  and (iii) take such
     other  action at law or in equity  for the  enforcement  of any of the Loan
     Documents as the law may allow, and in each such action the Mortgagee shall
     be entitled to all costs of suit and attorneys' fees.

          c. The Mortgagee may, in its sole and absolute discretion: (I) collect
     any or all of the  Rents,  including  any Rents past due and  unpaid,  (ii)
     perform any  obligation  or exercise  any right or remedy of the  Mortgagor
     under any Lease,  or (iii)  enforce any  obligation of any tenant of any of
     the Property.  The  Mortgagee may exercise any right under this  subsection
     (c), whether or not the Mortgagee shall have entered into possession of any
     of the  Property,  and  nothing  herein  contained  shall be  construed  as
     constituting  the  Mortgagee  a  "mortgagee  in  possession",   unless  the
     Mortgagee  shall  have  entered  into and  shall  continue  to be in actual
     possession of the Property.  The Mortgagor  hereby  authorizes  and directs
     each and every  present and future tenant of any of the Property to pay all
     Rents  directly to the  Mortgagee and to perform all other  obligations  of
     that tenant


                                       8


<PAGE>


     for the  direct  benefit of the  Mortgagee,  as if the  Mortgagee  were the
     landlord  under the Lease with that tenant;  immediately  upon receipt of a
     demand by the  Mortgagee to make such payment or perform such  obligations.
     The  Mortgagor  hereby  waives  any  right,  claim or  demand it may now or
     hereafter  have  against any such tenant by reason of such payment of Rents
     or performance  of  obligations  to the Mortgagee,  and any such payment or
     performance to the Mortgagee  shall discharge the obligations of the tenant
     to make such payment or performance to the Mortgagor.

          d. The Mortgagee shall have the right, in connection with the exercise
     of its  remedies  hereunder,  to the  appointment  of a  receiver  to  take
     possession and control of the Property and/or to collect the Rents, without
     notice and without  regard to the  adequacy  of the  Property to secure the
     Obligations.  The  Mortgagee  or a  receiver,  while in  possession  of the
     Property,  shall have the right to make  repairs  and to make  improvements
     necessary or advisable in its or his opinion to preserve the  Property,  or
     to make and keep them rentable to the best advantage, and the Mortgagee may
     advance moneys to a receiver for such  purposes.  Any moneys so expended or
     advanced by the  Mortgagee or by a receiver  shall be added to and become a
     part of the Obligations secured by this Mortgage.

     13. Application of Proceeds.  The Mortgagee shall apply the proceeds of any
foreclosure  sale of, or other  disposition  or  realization  upon,  or Rents or
profits  from,  the  Property  to  satisfy  the  Obligations  in such  order  of
application as the Mortgagee shall determine in its exclusive discretion.


     14.  Mortgagee's  Right  to  Protect  Security.  The  Mortgagee  is  hereby
authorized to do any one or more of the  following,  irrespective  of whether an
Event of Default has occurred: (a) appear in and defend any action or proceeding
purporting  to  affect  the  security  hereof  or the  rights  or  powers of the
Mortgagee hereunder;  (b) purchase such insurance policies covering the Property
as it may  elect if the  Mortgagor  fails to  maintain  the  insurance  coverage
required  hereunder;  and (C) take such action as the Mortgagee may determine to
pay, perform or comply with any Impositions or Legal  Requirements,  to cure any
Events of Default and to protect its security in the Property.

     15.  Appointment of Mortgagee as  Attorney-in-Fact.  The Mortgagee,  or any
officer of the Mortgagee,  is hereby irrevocably appointed  attorney-in-fact for
the Mortgagor  (without  requiring any of them to act as such), such appointment
being coupled with an interest,  to do any or all of the following:  (a) collect
the Rents after the occurrence of an Event of Default;  (b) settle for,  collect
and  receive any awards  payable  under  Section 8 hereof  from the  authorities
making the same; and (C) execute, deliver and file such financing statements and
other  instruments as the Mortgagee may require in order to perfect and maintain
its security  interest under the Uniform  Commercial  Code on any portion of the
Property.

     16. Certain  Waivers.  The Mortgagor hereby waives and releases all benefit
that  might  accrue to the  Mortgagor  by virtue of any  present  or future  law
exempting  the  Property,  or any  part of the  proceeds  arising  from any sale
thereon from attachment, levy or sale on execution, or


                                       9


<PAGE>


providing for any stay of execution,  exemption  from civil process or extension
of time for payment,  and, unless  specifically  required herein, all notices of
the  Mortgagor's  default or of the  Mortgagee's  election to  exercise,  or the
Mortgagee's  actual exercise of any option under this Mortgage or any other Loan
Document.  The Mortgagor  waives all rights or defenses arising by reason of any
"one  action" or  "anti-deficiency"  law, or any other law which may prevent the
Mortgagee from bringing any action against the Mortgagor,  including a claim for
deficiency  to the extent the  Mortgagee  is  otherwise  entitled to a claim for
deficiency,  before or after the  Mortgagee's  commencement or completion of any
foreclosure  action or any other action to exercise  its  remedies  hereunder or
otherwise available at law or in equity.

     17. No Merger.  There shall be no merger of the interest or estate  created
by this Mortgage  with any other  interest or estate in the Property at any time
held by or for the benefit of the  Mortgagee or any  subsidiary  or affiliate in
any capacity, without the express prior written consent of the Mortgagee.

     18.  Mortgage  Secures  Future  Advances.  This  Mortgage  is given for the
purpose of creating a lien on real property in order to secure not only existing
indebtedness,  but also future advances, whether such advances are obligatory or
to be made at the option of the Mortgagee, or otherwise, and whether made before
or after default or maturity or other similar  events,  to the same extent as if
such future  advances  were made on the date of the execution  hereof,  although
there may be no advance  made at the time of the  execution  hereof and although
there may be no  indebtedness  outstanding  at the time any advance is made. The
types of future  advances  secured by and having  priority  under this  Mortgage
shall  include,  without  limitation,  (I) advances and  readvances of principal
under the Note or other Loan Documents and (ii) disbursements and other advances
for the payment of taxes, assessments,  maintenance charges,  insurance premiums
or costs  relating to the Property,  for the discharge of liens having  priority
over the lien of this Mortgage,  for the curing of waste of the Property and for
the payment of service  charges and  expenses  incurred by reason of default and
including late charges,  attorneys' fees and court costs, together with interest
thereon.  The lien of this Mortgage,  as to third persons with or without actual
knowledge  thereof,  shall  be  valid as to all  such  indebtedness  and  future
advances,  from the date of recordation,  to the extent permitted by the laws of
the  state  in  which  the  Property  is  situated.  The  total  amount  of  the
indebtedness  secured by this  Mortgage  may  decrease or increase  from time to
time,  but the total unpaid  principal  balance at any one time shall not exceed
the maximum principal amount of the Obligations.

     19. Notices. All notices, demands, requests,  consents, approvals and other
communications  required or permitted  hereunder  must be in writing and will be
effective  upon  receipt  if  delivered  personally  to  the  Mortgagor  or  the
Mortgagee,  or if sent by facsimile  transmission with confirmation of delivery,
or by nationally  recognized overnight courier service, to the address set forth
above or to such other address as the Mortgagor or the Mortgagee may give to the
other in writing for such purpose.


                                       10


<PAGE>


     20.  Preservation  of  Rights.  No  delay  or  omission  on the part of the
Mortgagee to exercise any right or power arising  hereunder will impair any such
right or  power or be  considered  a  waiver  of any such  right or power or any
acquiescence  therein,  nor will the action or inaction of the Mortgagee  impair
any right or power  arising  hereunder.  The  Mortgagee's  rights  and  remedies
hereunder are cumulative and not exclusive of any other rights or remedies which
the  Mortgagee  may  have  under  other  agreements,  at law or in  equity.  The
Mortgagee may exercise any one or more of its rights and remedies without regard
to the adequacy of its security.

     21. Illegality. In case any one or more of the provisions contained in this
Mortgage  should be  invalid,  illegal  or  unenforceable  in any  respect,  the
validity,  legality and  enforceability  of the remaining  provisions  contained
herein shall not in any way be affected or impaired thereby.

     22.  Changes  in  Writing.  No  modification,  amendment  or  waiver of any
provision  of this  Mortgage  nor  consent  to any  departure  by the  Mortgagor
therefrom,  will in any event be  effective  unless the same is in  writing  and
signed by the Mortgagee, and then such waiver or consent shall be effective only
in the specific  instance  and for the purpose for which given.  No notice to or
demand on the  Mortgagor in any case will entitle the  Mortgagor to any other or
further notice or demand in the same, similar or other circumstance.

     23.  Entire   Agreement.   This  Mortgage   (including  the  documents  and
instruments  referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and  understandings,  both written and oral,  between
the Mortgagor and the Mortgagee with respect to the subject matter hereof.

     24.  Survival;  Successors and Assigns.  This Mortgage will be binding upon
and inure to the benefit of the Mortgagor and the Mortgagee and their respective
heirs, executors,  administrators,  successors and assigns;  provided,  however,
that the  Mortgagor may not assign this Mortgage in whole or in part without the
prior written  consent of the Mortgagee and the Mortgagee at any time may assign
this Mortgage in whole or in part;  and provided,  further,  that the rights and
benefits  under  Sections 9, 10 and 26 hereof shall also inure to the benefit of
any persons or entities who acquire  title or ownership of the Property  from or
through the  Mortgagee or through  action of the  Mortgagee  (including  but not
limited to a foreclosure, sheriffs or judicial sale). The provisions of Sections
9, 10 and 26 hereof shall survive the  termination,  satisfaction  or release of
this  Mortgage,  the  foreclosure  of this Mortgage or the delivery of a deed in
lieu of foreclosure.

     25. Interpretation.  In this Mortgage, the singular includes the plural and
the plural the singular;  words  importing any gender include the other genders;
references to statutes are to be construed as including all statutory provisions
consolidating,  amending or  replacing  the statute  referred  to; the word "or"
shall be deemed to  include  "and/or",  the words  "including",  "includes"  and
"include"  shall be deemed to be  followed  by the words  "without  limitation".
Section headings in this Mortgage are included for convenience of reference only
and shall not constitute a part of this Mortgage for any other purpose.  If this
Mortgage is executed by more than one party as  Mortgagor,  the  obligations  of
such persons or entities will be joint and several.


                                       11


<PAGE>


     26. Indemnity. The Mortgagor agrees to indemnify each of the Mortgagee, its
directors,  officers and employees  and each legal entity,  if any, who controls
the Mortgagee (the  "Indemnified  Parties") and to hold each  Indemnified  Party
harmless from and against any and all claims, damages,  losses,  liabilities and
expenses  (including,  without  limitation,  all fees of  counsel  with whom any
Indemnified  Party may consult and all  expenses of  litigation  or  preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified  Party in connection with or arising out of the matters referred
to in this  Mortgage or in the other Loan  Documents  by any  person,  entity or
governmental  authority (including any person or entity claiming derivatively on
behalf of the  Mortgagor),  whether (a) arising  from or incurred in  connection
with any breach of a representation,  warranty or covenant by the Mortgagor,  or
(b) arising out of or resulting  from any suit,  action,  claim,  proceeding  or
governmental  investigation,  pending or  threatened,  whether based on statute,
regulation  or order,  or tort,  or contract or  otherwise,  before any court or
governmental  authority,  which arises out of or relates to this  Mortgage,  any
other Loan Document, or the use of the proceeds of the Loan; provided,  however,
that the  foregoing  indemnity  agreement  shall not apply to  claims,  damages,
losses,  liabilities and expenses solely  attributable to an Indemnified Party's
gross negligence or willful  misconduct.  The indemnity  agreement  contained in
this Section shall survive the termination of this Mortgage, payment of any Loan
and  assignment of any rights  hereunder.  The Mortgagor may  participate at its
expense in the defense of any such action or claim.

     27. Governing Law and Jurisdiction. This Mortgage has been delivered to and
accepted by the  Mortgagee  and will be deemed to be made in the State where the
Mortgagee's office indicated above is located. This Mortgage will be interpreted
and the rights and liabilities of the Mortgagor and the Mortgagee  determined in
accordance  with the laws of the State where the  Mortgagee's  office  indicated
above is  located,  except  that the laws of the  State  where the  Property  is
located  (if  different  from the State where such  office of the  Mortgagee  is
located)  shall govern the creation,  perfection  and  foreclosure  of the liens
created hereunder on the Property or any interest therein.  The Mortgagor hereby
irrevocably consents to the exclusive jurisdiction of any state or federal court
for the county or judicial district where the Mortgagee's office indicated above
is  located,  and  consents  that all  service of process be sent by  nationally
recognized   overnight   courier  service  directed  to  the  Mortgagor  at  the
Mortgagor's  address  set forth  herein and service so made will be deemed to be
completed on the business day after  deposit with such  courier;  provided  that
nothing  contained in this Mortgage will prevent the Mortgagee from bringing any
action,  enforcing  any award or judgment or exercising  any rights  against the
Mortgagor  individually,  against any  security  or against any  property of the
Mortgagor  within  any  other  county,   state  or  other  foreign  or  domestic
jurisdiction.  The  Mortgagor  acknowledges  and agrees that the venue  provided
above is the most convenient forum for both the Mortgagee and the Mortgagor. The
Mortgagor  waives  any  objection  to venue  and any  objection  based on a more
convenient forum in any action instituted under this Mortgage.

     28.  Waiver of Jury Trial.  THE  MORTGAGOR  IRREVOCABLY  WAIVES ANY AND ALL
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,  PROCEEDING  OR CLAIM OF ANY
NATURE RELATING TO THIS MORTGAGE, ANY


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<PAGE>


DOCUMENTS   EXECUTED  IN  CONNECTION  WITH  THIS  MORTGAGE  OR  ANY  TRANSACTION
CONTEMPLATED  IN ANY OF SUCH  DOCUMENTS.  THE  MORTGAGOR  ACKNOWLEDGES  THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

     29. Loan Subject to Modification. This Mortgage secures a loan which by its
terms is subject to modification as defined in N.J.S.A. 46:9-8.1.

     30. True and Correct Copy.  THE MORTGAGOR  ACKNOWLEDGES  THAT THE MORTGAGOR
HAS RECEIVED, WITHOUT CHARGE, A TRUE AND CORRECT COPY OF THIS MORTGAGE.

The Mortgagor acknowledges that it has read and understood all the provisions of
this  Mortgage,  including  the waiver of jury  trial,  and has been  advised by
counsel as necessary or appropriate.


ATTEST:                                 Hydromer, Inc., a New Jersey Corporation

/s/ ILLEGIBLE                           /s/ Kenneth P. Brice
-------------------------------         ----------------------------------------
                                        Kenneth P. Brice, Vice President and 
                                        Chief Financial Officer


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<PAGE>


                                  SCHEDULE "A"
                                LEGAL DESCRIPTION

ALL that tract or parcel of land and premises,  situate,  lying and being in the
Township of Branchburg  in the County of Somerset and State of New Jersey,  more
particularly described as follows:

BEGINNING  at the most  northerly  corner  of Lot 30, as shown on "Plan of Major
Subdivision-Final Plat; Industrial Property of Herbert  Vollers-Readington Road,
situated in Branchburg  Twp.,  Somerset  County" dated September  1965,  revised
April 1967, which map was filed in the Somerset County Clerk's Office as Map No.
1139 and from said Beginning point running

1. South 66 degrees 06 minutes 44 seconds East,  531.87 feet along the southerly
property  line of the  Central  Railroad  Company  of New  Jersey to a point and
corner of Lot 3A as shown on the map herein referred to; thence

2.  South 24  degrees  15 minutes  West,  493.73  feet along line of  Industrial
Parkway;  thence  

3. North 65  degrees 45 minutes  West.  658.13  feet along  Industrial  Parkway;
thence

4. North 38 degrees 41 minutes 12 seconds East, 506.36 place of BEGINNING.


<PAGE>


                                 ACKNOWLEDGMENT

STATE OF NEW JERSEY      :
                         :ss
COUNTY OF MIDDLESEX      :

     BE IT  REMEMBERED  that  on  June  12,  1998  before  me,  the  subscriber,
personally  appeared  Kenneth P. Brice,  the Vice President and Chief  Financial
Officer of Hydromer, Inc., a New Jersey Corporation, and who, I am satisfied, is
the person who executed the within  instrument  and he did  acknowledge  that he
signed,  sealed and  delivered  the same as such officer  aforesaid and that the
within  instrument  is the voluntary  act and deed of such  corporation  made by
virtue of a Resolution of its Board of Directors.

     Witnesseth my hand and seal.

                                                 /s/ Robert D. Frawley
                                         -------------------------------------
                                                   ROBERT D. FRAWLEY
                                                    ATTORNEY AT LAW
                                                  STATE OF NEW JERSEY


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