Document:

exv10w18

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.

 

 

     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,

 

 

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,

 

 

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.

 

 

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.

 

 

     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

 

 

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.

 

 

     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,

 

 

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	 	 

 

 

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.

 

 

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.

 

 

     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

 

 

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

 

 

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

 

 

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.

 

 

BORROWER:

NOCOPI TECHNOLOGIES, INC.

	 	 	 
	/s/ Michael Feinstein, M. D.
	 	 
	 

Michael Feinstein,
 President of Nocopi Technologies, Inc.
	 	 

 

 

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:

 

 

	 	(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

 

 

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.

 

 

     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.

 

 

     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.

 

 

     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.

 

 

     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.
	 	 

 

 

LENDER:

SOVEREIGN BANK, A FEDERAL SAVINGS BANK

	 	 	 
	/s/ Janet E. DeTuro
	 	 
	 

Authorized Signerexv10w1

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE

          This Separation Agreement and General Release (“Agreement”) is hereby entered into by R. Scott
Bennett (“BENNETT”) and MedQuist Inc., together with its parents, subsidiaries, divisions,
affiliates, related companies, predecessors and successors (“MEDQUIST”).

          1. Departure Date. BENNETT’s employment with MEDQUIST ended effective October 30,
2008 (the “Departure Date”). As of the Departure Date, BENNETT was relieved of all titles, duties,
responsibilities and authority as an officer of MEDQUIST.

          2. Termination of Employment Agreement/Survival of Certain Provisions. As of the
Departure Date, BENNETT understands and agrees that the October 26, 2005 Employment Agreement
between BENNETT and MEDQUIST (the “Employment Agreement”), was terminated, except as may otherwise
be provided for in the Employment Agreement or as may be required by operation of law. Without
limiting the foregoing, BENNETT understands and agrees that the covenants and enforcement
provisions of Section 4 of the Employment Agreement shall remain in effect in accordance with their
terms. A true and correct copy of the Employment Agreement is attached hereto as Exhibit
A.

          3. No Future MedQuist Employment. BENNETT understands and agrees that: (a) he has no
intention of applying for and will not apply for or otherwise seek reemployment or reinstatement
with MEDQUIST; and (b) MEDQUIST has no obligation to reinstate, rehire, reemploy or hire BENNETT at
any time in the future.

          4. Separation Benefits. In consideration for BENNETT entering into this Agreement and
fully abiding by its terms, and assuming BENNETT has not revoked the Agreement as described in
Paragraph 18 below, MEDQUIST agrees to provide BENNETT with the separation benefits set forth in
Section 5 of the Employment Agreement.

          5. No Other Compensation or Benefits Owing. BENNETT understands and agrees that,
except as otherwise provided for in this Agreement and as may be required by the Employment
Agreement and the Retention and Strategic Transaction Bonus Agreement between MEDQUIST and BENNETT
dated September 19, 2007 (the “Retention Agreement”), BENNETT is not and will not be due any other
compensation or benefits from MEDQUIST. As set forth in the Retention Agreement, BENNETT shall be
entitled to the Success Based Retention Bonus payment described in the Retention Agreement upon
full execution of this Agreement.

          6. Release by BENNETT. In consideration of the compensation, benefits and agreements
provided for pursuant to this Agreement and the Employment Agreement, the sufficiency of which is
hereby acknowledged, BENNETT, for himself and for any person who
may claim by or through him, releases and forever discharges MEDQUIST, and its past, present
and future parents, subsidiaries, divisions, affiliates, related companies, predecessors,
successors, officers, directors, attorneys, agents, and employees (the “Releasees”), from any and
all claims or causes of action that BENNETT had, has or may have, relating to BENNETT’S employment
with and/or termination from MEDQUIST, up until the date of this Agreement, including, but

 

 

not limited to, any claims arising under Title VII of the Civil Rights Act of 1964, as amended, Section
1981 of the Civil Rights Act of 1866, as amended, the Civil Rights Act of 1991, as amended, the
Family and Medical Leave Act, the Age Discrimination in Employment Act, as amended by the Older
Workers Benefit Protection Act of 1990 (“ADEA”), the Americans with Disabilities Act, the Employee
Retirement Income Security Act (“ERISA); claims under any other federal, state or local statute,
regulation or ordinance; claims for discrimination or harassment of any kind, breach of contract or
public policy, wrongful or retaliatory discharge, defamation or other personal or business injury
of any kind; claims for breach of any agreement between BENNETT and MEDQUIST or for any
compensation or benefits provided for pursuant to any such agreement; and any and all other claims
to any form of legal or equitable relief or damages; any other claims for compensation or benefits;
or any claims for attorneys’ fees or costs.

          7. Exclusion for Certain Claims. BENNETT and MEDQUIST understand and agree that the
release in Paragraph 6 shall not apply to any claims, including any claims under ADEA, arising
after the effective date of this Agreement, nor shall anything herein prevent any party from
instituting any action to enforce the terms of this Agreement.

          8. Exclusion of Filing EEOC Charges/Waiver of Individual Recovery. BENNETT and
MEDQUIST understand and agree that nothing in this Agreement shall prevent BENNETT from filing a
charge with the Equal Employment Opportunity Commission (“EEOC”), or from participating in any EEOC
investigation or proceeding; provided, however, that BENNETT waives any and all rights to recover
any individual damages or relief in connection with any EEOC investigation or proceeding.

          9. Disclosure of Any Material Information. As of the date BENNETT signs this
Agreement, BENNETT represents and warrants that he has disclosed to MEDQUIST any information in
his possession concerning any conduct involving MEDQUIST that he has any reason to believe may be
unlawful, violates any MEDQUIST policy or would otherwise reflect poorly on MEDQUIST in any
respect.

          10. Duty to Cooperate. BENNETT understands and agrees that he shall cooperate fully
with MEDQUIST regarding any matter, including, but not limited to, any litigation, investigation,
governmental proceeding or internal MEDQUIST review, which relates to any matter in which BENNETT
was involved or concerning which MEDQUIST reasonably determines BENNETT may have responsive or
relevant information. BENNETT further understands and agrees that such cooperation includes, but
is not limited to, full disclosure of all relevant information; truthfully testifying and/or
answering questions; and making himself reasonably available for interviews, depositions or court
appearances in connection with any such litigation, investigation, proceeding or internal MEDQUIST
review. BENNETT understands and agrees that he shall render any such cooperation in a timely
manner and at such times and places as may be mutually agreeable to BENNETT and MEDQUIST. Upon
submission of appropriate documentation, MEDQUIST shall reimburse BENNETT for reasonable
travel, lodging, meals, and telecommunications expenses incurred by BENNETT in connection with his
compliance with this Paragraph. Except as may be prohibited by operation of law, BENNETT
understands and agrees that he shall immediately notify MEDQUIST if he is contacted for an
interview or receives a subpoena or request for information in any matter related

 - 2 - 

 

to or concerning
his employment with MEDQUIST. BENNETT further understands and agrees that he will not initiate any
communication or respond to any inquiry with a member of the press regarding MEDQUIST, and will
refer any such inquiry to MEDQUIST, unless BENNETT is responding to a press release or other
communication issued by MEDQUIST regarding BENNETT’S employment with MEDQUIST.

          11. Return of Property. BENNETT represents and warrants that as of the date he signs
this Agreement he has returned all property of MEDQUIST, regardless of the type or medium (i.e.,
hard or flash drive, computer disk, CD-ROM, DVD-ROM) upon which it is maintained, including, but
not limited to, all customer lists, vendor lists, business plans and strategies, financial data or
reports, memoranda, correspondence, software, contract terms, compensation and commission plans,
and any other documents pertaining to the business of MEDQUIST, or its customers or vendors, as
well as any credit cards, keys, identification cards, and any other documents, writings and
materials that BENNETT came to possess or otherwise acquired as a result of and/or in connection
with BENNETT’s employment with MEDQUIST. Should BENNETT later find any MEDQUIST property in
BENNETT’s possession, BENNETT agrees to immediately return it. BENNETT further agrees not to
maintain any copies of said property or make any copies of said property available to any
third-party.

          12. Non-Disparagement. The parties agree not to engage in any form of conduct or to
make any statements or representations that disparage or otherwise impair the reputation, goodwill
or commercial interests of BENNETT or MEDQUIST.

          13. Remedies for Breach. BENNETT understands and agrees that a breach of this
Agreement or any provision of the Employment Agreement that survives its expiration will result in
immediate and irreparable injury to MEDQUIST. BENNETT, therefore, agrees that, in addition to any
remedy MEDQUIST may have under the Agreement, the Employment Agreement, or applicable law, MEDQUIST
shall be entitled to a forfeiture of any amounts still due and owing to BENNETT under the terms of
this Agreement or the Employment Agreement. Nothing herein shall be construed as prohibiting
MEDQUIST from pursuing any other remedies for any breach.

          14. Non-Admission by MedQuist. BENNETT understands and agrees that this Agreement
shall not be deemed or construed as an admission of liability by MEDQUIST for any purpose.
Specifically, but without limiting the foregoing, BENNETT understands and agrees that this
Agreement shall not constitute an admission that any action by MEDQUIST relating to BENNETT was in
any way wrongful or unlawful. BENNETT further agrees that nothing contained in this Agreement can
be used by BENNETT, or any other individual in any way as precedent for future dealings with
MEDQUIST, or any of its officers, directors, attorneys, agents or employees.

          15. General.

               (a) Severability. If any provision of this Agreement is found by a court of competent
jurisdiction to be unenforceable, in whole or in part, then that provision will be eliminated,
modified or restricted in whatever manner is necessary to make the remaining provisions enforceable
to the maximum extent allowable by law.

 - 3 - 

 

               (b) Successors. This Agreement shall be binding upon, enforceable by, and inure to
the benefit of BENNETT, MEDQUIST and each Releasee, and BENNETT’s and MEDQUIST’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees and legatees,
and to any successor or assign of each Releasee, but neither this Agreement, nor any rights,
payments, or obligations arising hereunder may be assigned, pledged, transferred, or hypothecated
by BENNETT or MEDQUIST.

               (c) Controlling Law and Venue. This Agreement shall be construed and enforced under
the laws of and before the courts of the State of New Jersey. Any action relating to this
Agreement or the Employment Agreement shall be brought in state court in Burlington County, New
Jersey, or in Federal Court for the District of New Jersey.

               (d) Waiver. No claim or right arising out of a breach or default under this Agreement
can be discharged by a waiver of that claim or right unless the waiver is in writing signed by the
party hereto to be bound by such waiver. A waiver by any party hereto of a breach or default by
another party of any provision of this Agreement shall not be deemed a waiver of future compliance
therewith and such provision shall remain in full force and effect.

               (e) Notices. All notices, requests, demands and other communications regarding this
Agreement shall be in writing and delivered in person or sent by Registered or Certified U.S. Mail,
Postage Prepaid, Return Receipt Requested, and properly addressed as follows:

	 	 	 	 	 
	 

	 	To MEDQUIST:
	 	MedQuist Inc.
	 

	 	 	 	1000 Bishops Gate Boulevard
	 

	 	 	 	Suite 300
	 

	 	 	 	Mt. Laurel, NJ 08054-4632
	 

	 	 	 	Attention: General Counsel
	 
	 	 	 	 
	 

	 	To BENNETT:
	 	R. Scott Bennett
	 

	 	 	 	6 Kenwood Court
	 

	 	 	 	Malvern, PA 19355

          16. Entire Agreement/Amendment. The parties hereto agree that this Agreement and
those provisions of the Employment Agreement that survive its expiration constitutes the entire
agreement between BENNETT and MEDQUIST, and that neither may be modified except by written
document, signed by the parties hereto.

          17. Knowing and Voluntary Action. BENNETT acknowledges that he received this
Agreement on October 30, 2008 and has consulted an attorney before signing this Agreement. BENNETT
further represents and warrants that he has read this Agreement; has been given a period of at
least twenty one (21) days to consider the Agreement; understands its
meaning and application; and is signing of his own free will with the intent of being bound by
it. If BENNETT elects to sign this Agreement prior to the expiration of twenty one (21) days, he
has done so voluntarily and knowingly.

 - 4 - 

 

          18. Revocation of Agreement. BENNETT further acknowledges that he may revoke this
Agreement at any time within a period of seven (7) days following the date he signs the
Agreement. Notice of revocation shall be made in writing, sent via Registered or Certified U.S.
Mail, Postage Prepaid, Return Receipt Requested and properly addressed to MEDQUIST in accordance
with Paragraph 15 above. Such revocation must be received by MEDQUIST by the close of business of
the first day following the end of the seven-day revocation period. This Agreement shall not
become effective until after the time period for revocation has expired.

          IN WITNESS WHEREOF, the parties have executed and agreed to this Agreement consisting of five
(5) pages.

	 	 	 	 	 	 	 
	 	 	R. SCOTT BENNETT	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ R. Scott Bennett	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Date: November 6, 2008	 	 
	 
	 	 	 	 	 	 
	 	 	MEDQUIST INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Peter Masanotti	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Title: President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	Date: November 14, 2008	 	 

 - 5 - 

 

Exhibit A

(see attached)

 - 6 - 

 

October 26, 2005

Via Overnight Mail and Facsimile

Mr. R. Scott Bennett

6 Kenwood Court

Malvern, PA 19355

Dear Scott:

          On behalf of MedQuist Inc. (the “Company”), this Agreement describes the terms of your
new employment as the Company’s Senior Vice President — Sales & Marketing, which must commence on a
date mutually agreed to in writing by you and the Company (the “Employment Commencement
Date”). For purposes of this Agreement, you are referred to as the “Employee.” Other
capitalized terms used in this Agreement have the meanings defined in Section 7, below.

          1. Term. The Company shall employ Employee
hereunder for a three (3) year term commencing on the Employment Commencement Date hereof (the
“Term”), which Term will be automatically extended for additional one (1) year periods
beginning on the third anniversary of the Employment Commencement Date and upon each subsequent
anniversary thereof unless either party provides the other party with at least ninety (90) days
prior written notice of its intention not to renew this Agreement unless terminated earlier
pursuant to Sections 3 or 5 of this Agreement.

          2. Consideration.

               a. Compensation. As consideration for all
services rendered by Employee to the Company and for the Covenants contained herein, Employee will
be entitled to:

               (1) base salary at an annual rate of $240,000, subject to
review and adjustment annually during the Term;

               (2) signing bonus of $150,000 to be paid within thirty (30)
days of Employment Commencement Date. In the event that you voluntarily resign from the Company
within your first 12 months of employment, this signing bonus must be repaid on a pro rata basis.

               (3) participate in MedQuist’s Management Bonus Plan,
commencing in 2006. Your target bonus in this plan will be 45% of your base salary for 2006 and
following years. The target bonus is the payment amount that the Employee shall be eligible to
receive if the Company and Employee both attain the pre-established bonus plan target objectives.
The actual bonus award may be higher or lower than the target bonus amount based upon achievement
of the objectives by Employee and the Company. Management Bonus Plan target objectives shall be
developed on or before February 28th of each year of the Management Bonus Plan. Payment
of $54,000, which is equal to half of your annual target bonus for the year ending December 31,
2006, is guaranteed;

 

 

               (4) participate in the same employee benefit plans available
generally to other full-time employees of the Company, subject to the terms of those plans (as the
same may be modified, amended or terminated from time to time); (benefits information package
enclosed);

               (5) receive relocation support in accordance with the Company
Relocation Policy. This relocation offer will be in effect for the first twenty-four (24) months
of your employment;

               (6) if Employee’s employment is terminated by the Company
without Cause, the severance pay and benefits described below in Section 5.

               b. Long Term Incentives. In addition, from time to
time, the Board may review the performance of the Company and Employee and, in its sole discretion,
may grant stock options, shares of restricted stock or other equity-based incentives to Employee to
reward extraordinary performance and/or to encourage Employee’s future efforts on behalf of the
Company. The grant of any such equity incentives will be subject to the terms of the Company’s
equity-based plans and will be evidenced by a separate award agreement by and between the Company
and Employee.

               (1) Upon joining MedQuist, you will become entitled to a
special stock option grant of 60,000 shares of non-qualified stock options (“Special Option Grant”)
to purchase Company common stock, no par value (“Common Stock”), pursuant to the Company’s Stock
Option Plan adopted May 29, 2002 (the “Option Plan”). The grant date of the Special Option Grant
will occur on the later of (i) the date the Company becomes current in its reporting obligations
under the Securities Exchange Act of 1934; or (ii) the first date thereafter when the Form S8
Registration Statement for the Option Plan complies with the requirement of the Securities Exchange
Commission provided that you are still an employee on the grant date. The option price for the
Special Option Grant shall be equal at least to the fair market value of the Company’s Common Stock
as of the grant date. The Special Option Grant will be subject to all of the terms and conditions
of the Option Plan and the Stock Option Agreement that will be issued if and when the grant becomes
effective. Your right to exercise the option will vest in equal 20% installments on each of the
first five (5) anniversaries of the grant date. In the event of a “Change of Control” (as defined
below) of the Company while you are an employee, your Special Option Grant may, from and after the
date which is six months after the Change of Control (but not beyond the expiration date of the
option), be exercised for up to 100% of the total number of shares then subject to the Special
Option Grant minus the number of shares previously purchased upon exercise of such option (as
adjusted for any change in the outstanding shares of the Common Stock of the Company in accordance
with the terms of the Option Plan) and your vesting date will accelerate accordingly. A “Change of
Control” shall be deemed to have occurred upon the happening of any of the following events:

                    (i) A change within a twelve-month period in the holders
of more than 50% of the outstanding voting stock of the Company; or

                    (ii) Any other event deemed to constitute a “Change of
Control” by the Company’s Board of Directors.

 

 

               (2) Contingent upon Employee’s continued attainment of
performance objectives, the Company agrees to deliver a long term incentive value of $120,000
annually through one of the following, as determined in the Company’s sole discretion: (i) a stock
option grant pursuant to the Option Plan, (ii) a restricted stock grant or (iii) a cash-based long
term incentive program to be developed. The long term incentive value of Company stock will be
calculated based on an industry accepted stock valuation methodology.

          3. Employment-At-Will. Nothing contained in
this Agreement is intended to create an employment relationship whereby Employee will be employed
other than as an “at-will” employee. Employee’s employment by the Company may be terminated by
Employee or the Company at any time; provided, however, that while employed by the Company, the
terms and conditions of Employee’s employment by the Company will be as herein set forth; and
provided further, that Section 4 of this Agreement will survive the termination of
Employee’s employment.

          4. Covenants.

          a. Non-Solicitation. While employed by the
Company and for the twelve (12) month period following the cessation of that employment for any
reason (and without regard to whether such cessation was initiated by Employee or the Company),
Employee will not do any of the following without the prior written consent of the Company:

               (1) solicit, entice or induce, either directly or indirectly,
any person, firm or corporation who or which is a client or customer of the Company or any of its
subsidiaries to become a client or customer of any other person, firm or corporation;

               (2) influence or attempt to influence, either directly or
indirectly, any customer of the Company or its subsidiaries to terminate or modify any written or
oral agreement or course of dealing with the Company or its subsidiaries (except in Employee’s
capacity as an employee of the Company); or

               (3) influence or attempt to influence, either directly or
indirectly, any person to terminate or modify any employment, consulting, agency, distributorship,
licensing or other similar relationship or arrangement with the Company or its subsidiaries (except
in Employee’s capacity as an employee of the Company).

          b. Non-Disclosure. Employee shall not use for
Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or
indirect benefit of any person, firm, association or company other than Company, any “Confidential
Information,” which term shall mean any information regarding the business methods, business
policies, policies, procedures, techniques, research or development projects or results, historical
or projected financial information, budgets, trade secrets, or other knowledge or processes of, or
developed by, Company or any other confidential information relating to or dealing with the
business operations of Company, made known to Employee or learned or acquired by Employee while in
the employ of Company, but Confidential Information shall not include information otherwise
lawfully known generally by or readily accessible to the general public. The foregoing provisions
of this subsection shall apply during and after the period when the Employee is an employee of the
Company and shall be in addition to (and not a limitation of) any legally applicable protections of
Company interest in confidential information, trade secrets, and the like. At the termination of
Employee’s employment with Company, Employee shall return to the

 

 

Company all copies of Confidential Information in any medium, including computer tapes and other
forms of data storage.

          c. Non-Competition. While employed by the
Company and for the twelve (12) month period following the cessation of that employment for any
reason (and without regard to whether such cessation was initiated by Employee or the Company),
Employee shall not directly or indirectly engage in (as a principal, shareholder, partner,
director, officer, agent, employee, consultant or otherwise) or be financially interested in any
business which is involved in business activities which are the same as or in direct competition
with Business activities carried on by the Company, or being definitively planned by the Company at
the time of termination of Employee’s employment. Nothing contained in this subsection shall
prevent Employee from holding for investment up to three percent (3%) of any class of equity
securities of a company whose securities are publicly traded on a national securities exchange or
in a national market system.

          d. Intellectual Property & Company Creations.

               (1) Ownership. All right, title and interest in and
to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development
techniques, discoveries, computer programs or instructions (whether in source code, object code, or
any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research,
designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to
written form or otherwise), patents, patent applications, formats, test results, marketing and
business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names,
fictitious names, brand names, corporate names, original works of authorship, copyrights,
copyrightable works, mask works, computer software, all other similar intangible personal property,
and all improvements, derivative works, know-how, data, rights and claims related to the foregoing
that have been or are conceived, developed or created in whole or in part by the Employee (a) at
any time and at any place that relates directly or indirectly to the business of the Company, as
then operated, operated in the past or under consideration or development or (b) as a result of
tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become
and remain the sole and exclusive property of the Company and shall be considered “works made for
hire” as that term is defined pursuant to applicable statutes and law.

               (2) Assignment. To the extent that any of the
Company Creations may not by law be considered a work made for hire, or to the extent that,
notwithstanding the foregoing, Employee retains any interest in or to the Company Creations,
Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or
interest that Employee has or may have, either now or in the future, in and to the Company
Creations, and any derivatives thereof, without the necessity of further consideration. Employee
shall promptly and fully disclose all Company Creations to the Company and shall have no claim for
additional compensation for Company Creations. The Company shall be entitled to obtain and hold in
its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to
such Company Creations.

               (3) Disclosure & Cooperation. Employee shall keep
and maintain adequate and current written records of all Company Creations and their development by
Employee (solely or jointly with others), which records shall be available at all times to and
remain the sole property of the Company. Employee shall communicate promptly and disclose to the
Company, in such form as the Company may reasonably request, all information, details and data
pertaining to any Company Creations. Employee further agrees to execute and deliver to the Company
or its designee(s) any and all

 

 

formal transfers and assignments and other documents and to provide any further cooperation or
assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights
in the Company Creations. Employee hereby designates and appoints the Company or its designee as
Employee’s agent and attorney-in-fact to execute on Employee’s behalf any assignments or other
documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s
rights in any Company Creations.

          e. Acknowledgments. Employee acknowledges that
the Covenants are reasonable and necessary to protect the Company’s legitimate business interests,
its relationships with its customers, its trade secrets and other confidential or proprietary
information. Employee further acknowledges that the duration and scope of the Covenants are
reasonable given the nature of this Agreement and the position Employee holds or will hold within
the Company. Employee further acknowledges that the Covenants are included herein to induce the
Company to enter into this Agreement and that the Company would not have entered into this
Agreement or otherwise employed or continued to employ the Employee in the absence of the
Covenants. Finally, Employee also acknowledges that any breach, willful or otherwise, of the
Covenants will cause continuing and irreparable injury to the Company for which monetary damages,
alone, will not be an adequate remedy.

          f. Enforcement.

               (1) If any court determines that the Covenants, or any part
thereof, is unenforceable because of the duration or scope of such provision, that court will have
the power to modify such provision and, in its modified form, such provision will then be
enforceable.

               (2) The parties acknowledge that significant damages will be
caused by a breach of any of the Covenants, but that such damages will be difficult to quantify.
Therefore, the parties agree that if Employee breaches any of the Covenants, liquidated damages
will be paid by Employee in the following manner:

                    (i) any Company stock options, stock appreciation rights,
restricted stock units or similar equity incentives then held by Employee, whether or not then
vested, will be immediately and automatically forfeited;

                    (ii) any shares of restricted stock issued by the Company,
then held by Employee or his permitted transferee and then subject to forfeiture will be
immediately and automatically forfeited; and

                    (iii) any obligation of the Company to provide severance pay
or benefits (whether pursuant to Section 5 or otherwise) will cease.

               (3) In addition to the remedies specified in Section
4(f)(2) and any other relief awarded by any court, if Employee breaches any of the Covenants:

                    (i) Employee will be required to account for and pay over to
the Company all compensation, profits, monies, accruals, increments or other benefits derived or
received by Employee as a result of any such breach; and

                    (ii) the Company will be entitled to injunctive or other
equitable relief to prevent further breaches of the Covenants by Employee.

 

 

               (4) If Employee breaches Section 4, then the duration
of the restriction therein contained will be extended for a period equal to the period that
Employee was in breach of such restriction.

          5. Termination. Employee’s employment by the
Company may be terminated at any time. Upon termination, Employee will be entitled to the payment
of accrued and unpaid salary through the date of such termination. All salary, commissions and
benefits will cease at the time of such termination, subject to the terms of any benefit plans then
in force or enforceable under applicable law and applicable to Employee, and the Company will have
no further liability or obligation hereunder by reason of such termination; provided, however, that
subject to Section 4(f)(2)(iii), if Employee’s employment is terminated by the Company
without Cause, Employee will be entitled to (a) continued payment of his base salary (at the rate
in effect upon termination) for a period of 12 months; (b) a payment equal to the average of the
last three bonuses from the MedQuist Management Bonus Plan received by Employee. In the event that
there are not three full years of employment, then the average of the last two years will apply.
If less than two years, the target bonus will be paid; and notwithstanding the foregoing, no amount
will be paid or benefit provided under this Section 5 unless and until (x) Employee
executes and delivers a general release of claims against the Company and its subsidiaries in a
form prescribed by the Company, which release shall not conflict with any of the terms of this
Agreement without the mutual written consent of Employee and Company, and (y) such release becomes
irrevocable. Any severance pay or benefits provided under this Section 5 will be in lieu
of, not in addition to, any other severance arrangement maintained by the Company.

          6. Miscellaneous.

          a.
Arbitration. Except a controversy or claim arising out or relating to Section 4 of this
Agreement, any controversy or claim arising out of or relating to this Agreement or the breach of
any covenant or agreement contained herein, shall be commenced by filing a notice (the “Notice”)
for arbitration with the American Arbitration Association (“AAA.”), with a copy to the other party
hereto. Such controversy or claim shall be decided by arbitration in Philadelphia, Pennsylvania,
in accordance with the Employment Arbitration Rules of the AAA. then obtaining. The decision and
the award of damages rendered by the Arbitrator shall be final and binding and judgment may be
entered upon it in any court having jurisdiction thereof.

          b. Other Agreements. Employee represents and warrants to the Company that there are no
restrictions, agreements or understandings whatsoever to which he is a party that would prevent or
make unlawful his execution of this Agreement, that would be inconsistent or in conflict with this
Agreement or Employee’s obligations hereunder, or that would otherwise prevent, limit or impair the
performance by Employee of his duties to the Company.

          c.
Entire Agreement; Amendment. This Agreement contains the entire agreement and
understanding of the parties hereto relating to the subject matter hereof, and merges and
supersedes all prior and contemporaneous discussions, agreements and understandings of every nature
relating to the employment of Employee by the Company. This Agreement may not be changed or
modified, except by an agreement in writing signed by each of the parties hereto.

          d.
Waiver. Any waiver of any term or condition hereof will not operate as a waiver of any
other term or condition of this Agreement. Any failure to enforce any provision hereof will not
operate as a waiver of such provision or of any other provision of this Agreement.

 

 

          e.
Governing Law. This Agreement shall be governed by, and enforced in accordance with, the
laws of the State of New Jersey without regard to the application of the principles of conflicts of
laws.

          f.
Severability. Whenever possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any
other provision or the effectiveness or validity of any provision in any other jurisdiction, and
this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been herein contained.

          g.
Wage Claims. The parties intend that all obligations to pay compensation to Employee be
obligations solely of the Company. Therefore, intending to be bound by this provision, Employee
hereby waives any right to claim payment of amounts owed to him, now or in the future, from
directors or officers of the Company in the event of the Company’s insolvency.

          h.
Successors and Assigns. This Agreement is binding on the Company’s successors and assigns.

          i.
Section Headings. The section headings in this Agreement are for convenience only; they
form no part of this Agreement and will not affect its interpretation.

          j.
Counterparts. This Agreement may be executed in multiple counterparts, each of which will
be deemed to be an original and all of which together will constitute but one and the same
instrument.

     7. Definitions. Capitalized terms used herein
will have the meanings below defined:

          a.
“Business” means electronic transcription services and other health information management
solutions services businesses in which the Company or its subsidiaries are engaged anywhere within
the United States.

          b.
“Cause” means the occurrence of any of the following: (1) Employee’s refusal, willful
failure or inability to perform (other than due to illness or disability) his employment duties or
to follow the lawful directives of his superiors; (2) misconduct or gross negligence by Employee in
the course of employment; (3) conduct of Employee involving fraud, embezzlement, theft or
dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or
nolo contendere to a crime involving moral turpitude or that otherwise could reasonably be expected
to have an adverse effect on the operations, condition or reputation of the Company, (5) a material
breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol
abuse or use of controlled drugs other than in accordance with a physician’s prescription.

          c.
“Covenants” means the covenants set forth in Section 4 of this Agreement.

 

 

          To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement,
please sign below in the space provided within five (5) days of the date of this Agreement and
return a signed copy to my attention. If the Agreement is not signed and returned within (5) days,
the terms and conditions of this Agreement will be deemed withdrawn.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Sincerely,	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	MEDQUIST INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

Frank W. Lavelle
	 	 
	 

	 	 	 	 	 	President	 	 
	 
	 	 	 	 	 	 	 	 
	Accepted and Agreed:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

R. Scott Bennett

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