-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J6nTt/th2w5oulGNA16I9DeH+sfemGy+nwso6WFZfQmbzaHv4+4f49mRPYzgr61I rAN9yKM/PQhLpzJUMbfabg== 0000950116-01-000670.txt : 20010418 0000950116-01-000670.hdr.sgml : 20010418 ACCESSION NUMBER: 0000950116-01-000670 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOCOPI TECHNOLOGIES INC/MD/ CENTRAL INDEX KEY: 0000888981 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SERVICES, NEC [8900] IRS NUMBER: 870406496 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-20333 FILM NUMBER: 1604455 BUSINESS ADDRESS: STREET 1: 537 APPLE ST STREET 2: STE 100 CITY: WEST CONSHOHOCKEN STATE: PA ZIP: 19428-2903 BUSINESS PHONE: 6108349600 MAIL ADDRESS: STREET 1: 537 APPLE ST STREET 2: 230 SUGARTOWN RD STE 100 CITY: WEST CONSHOHOCKEN STATE: PA ZIP: 19428-2903 10KSB40 1 0001.txt FORM 10-KSB Form 10-KSB - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB - -------------------------------------------------------------------------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ----------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ______________________ Commission file number 0-20333 ----------------------------------------------------- Nocopi Technologies, Inc. - -------------------------------------------------------------------------------- (Name of small business issuer in its charter) Maryland 87-0406496 - -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 537 Apple Street, West Conshohocken, PA 19428 - ---------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (610) 834-9600 -------------- Securities registered under Section 12(b) of the Exchange Act: Title of each clas Name of each exchange on which registered None Not Applicable - ----------------------------- ----------------------------------------- Securities registered under section 12(g) of the Exchange Act: Common Stock $.01 par value - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _. Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [x] Form 10-KSB - -------------------------------------------------------------------------------- State issuer's revenues for its most recent fiscal year. $1,230,700 State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer. $4,500,000 at March 31, 2001. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 37,734,362 shares of Common Stock, $.01 par value at March 31, 2001. DOCUMENTS INCORPORATED BY REFERENCE None Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART I ITEM 1. BUSINESS Background Nocopi Technologies, Inc. (hereinafter "Nocopi", "Registrant" or the "Company") was organized in 1983 to exploit a technology developed by its founders for impeding the reproduction of documents on office copiers. In its early stages of development, Nocopi's business consisted primarily of selling copy resistant paper to protect corporate documents and information. More recently, Registrant has increasingly focused on developing and marketing technologies for document and product authentication which can reduce losses caused by fraudulent document reproduction and by product counterfeiting and/or diversion. Registrant derives revenues by licensing its technologies, both to end-users and to value-added resellers, and, by selling products incorporating its technologies and technical support services. Registrant's financial condition has been deteriorating in recent years and continued to deteriorate during the year ended December 31, 2000. For several years, Registrant has sought to respond to this deterioration by reducing its general and administrative, marketing and research and development expenses. These actions significantly reduced operating costs, but also resulted in a decline in revenues, with the result that Registrant's decline has not stabilized or been reversed. By the end of 2000, this decline had led to a working capital deficiency and adverse liquidity that threatened to require the imminent cessation of Registrant's operations. During the first quarter of 2001, Registrant received a $325,000 investment from a licensee in return for common stock constituting approximately 10% of Registrant's outstanding common stock and the funds invested have permitted Registrant to continue in operation in the near term. However, Registrant believes that, to survive, it must obtain additional capital in the very near term both to fund continuing operating deficits and to fund investment needed to increase its operating revenues to levels that will sustain its operations. During 2000, Registrant has focused on continuing to conduct its business while minimizing expenses and pursuing the marketing of its technologies to the very limited extent permitted by Registrant's financial condition. Registrant has also sought to explore options, including fundamental transactions, that could improve Registrant's long term prospects or result in enhanced shareholder value. During 2000, Registrant sought to raise funds to reinvest in its core business by pursuing negotiations with its former European exclusive licensee for the sale to the licensee of its investment in the licensee and the European rights to its technologies. These negotiations were unsuccessful and, as described below, Registrant is currently involved in a substantial dispute with its former licensee. In the past year, members of Registrant's board of directors have expended substantial time and effort in pursuing perceived opportunities to enhance Registrant's revenues in the near term in order to stabilize and improve Registrant's financial performance. Although Registrant believes that these efforts may result in improved revenues, Registrant's ongoing dispute with its former European licensee has significantly increased expense levels and it remains highly uncertain whether Registrant can achieve positive cash flow before its adverse liquidity forces it to cease or suspend operations. Registrant's management intends to seek additional capital and may continue to explore possible business combination opportunities as such opportunities are presented. Anti-Counterfeiting and Anti-Diversion Technologies and Products Continuing developments in copying and printing technologies have made it ever easier to counterfeit a wide variety of documents. Lottery tickets, gift certificates, event and transportation tickets, travelers' checks and the like are all susceptible to counterfeiting, and Registrant believes that losses from such counterfeiting have increased substantially with improvements in these technologies. Product counterfeiting has long caused losses to manufacturers of brand name products, and Registrant believes these losses have also increased as the counterfeiting of labeling and packaging has become easier. Registrant's document authentication technologies are useful to businesses desiring to authenticate a wide variety of printed materials and products. These include a technology with the ability to print invisibly on certain areas of a document. The invisible printing can be activated or revealed by use of a special highlighter pen when 1 authentication is required. This technology is marketed under the trade mark COPIMARK(TM). Other variations of the COPIMARK(TM) technology involve multiple color responses from a common pen, visible marks of one color that turn another color with the pen or visible and invisible marks that turn into a multicolored image. A related technology is Nocopi's RUB & REVEAL(R) system, which permits the invisible printing of an authenticating symbol or code that can be revealed by rubbing a fingernail over the printed area. These technologies provide users with the ability to authenticate documents and detect counterfeit documents. Applications include the authentication of documents having intrinsic value, such as checks, travelers' checks, gift certificates and event tickets, and the authentication of product labeling and packaging. When applied to product labels and packaging, such technologies can be used to detect counterfeit products whose labels and packaging would not contain the authenticating marks invisibly printed on the packaging or labels of the legitimate product, as well as to combat product diversion (i.e. sale of legitimate products through unauthorized distribution channels or in unauthorized markets). Registrant's related invisible inkjet technology permits manufacturers and distributors to track the movement of products from production to ultimate consumption when coupled with proprietary software. Document Security Products Registrant continues to offer a line of burgundy colored papers that deter photocopying and transmission by facsimile. This colored paper inhibits photocopier reproduction at the cost of loss of easy legibility to the reader. Registrant currently offers its copy resistant papers in three grades, each balancing improved copy resistance against diminished legibility. Registrant also sells user defined, pre-printed forms on which selected areas are colored to inhibit reproduction. An example is a doctor's prescription form with the signature area protected. This product line is called SELECTIVE NOCOPI(TM). Registrant also offers several inks that impede photocopying by color copiers. This technology is called COLORBLOC(R). Since late 1999, Registrant has, in addition to marketing its own technologies and products, acted as a distributor for the Wicker 2000 line of security paper. This patented product, complementary to the Registrant's line of security paper, produces a message, such as "unauthorized copy", when a copy of an original document that was printed or typed on the Wicker 2000 paper, is reproduced on a photocopier. The following table illustrates the approximate percentage of Registrant's revenues accounted for by each type of its products for each of the two last fiscal years:
Year Ended December 31, -------------------------- Product Type 2000 1999 - ------------ ---- ---- Anti-Counterfeiting & Anti-Diversion Technologies and Products 90% 96% Document Security Products 10% 4%
Marketing The marketing approach of Registrant is to offer sufficient flexibility in its products and technologies so as to provide cost effective solutions to a wide variety of counterfeiting, diversion and copier fraud problems. As a technology company, Registrant generates revenues primarily by collecting license fees from market-specific manufacturers who incorporate Registrant's technologies into their manufacturing process and their products. Registrant also licenses its technologies directly to end-users. Registrant has identified a number of major markets for its technologies and products, including security printers, manufacturers of labels and packaging materials and distributors of brand name products. Within each market, key potential users have been identified, and several have been licensed. Within North America, sales efforts include direct selling by company personnel to create end user demand and selling through licensee sales forces and sales agents with support from company personnel. Registrant has determined that technical sales support by its personnel is of great importance to increasing its licensees' sales of products incorporating Registrant's technologies and, therefore, seeks to maintain, to the extent permitted by its limited resources, its commitment to providing such support. 2 Since 1999, Registrant's management has refocused the company's marketing efforts somewhat in view of the limited resources available to the Company for marketing and the need to improve the Registrant's cash flow. Current marketing efforts are focused on Registrant's more mature technologies that can be utilized by customers with relatively less development efforts. As continued improvements in color copier and desktop publishing technology make counterfeiting and fraud opportunities less expensive and more available, Registrant intends, to the extent feasible, to maintain an interactive product development and enhancement program with the combined efforts of marketing, applications engineering and research and development. Registrant's objective is to concentrate its efforts on developing market-ready products with the most beneficial ratios of market potential to development time and cost. Except in Europe, Registrant has historically sought to market its technologies through its own employees and through independent sales representatives. In 1994, the Registrant formed a European company, Euro-Nocopi, S.A., to market the Company's technologies in Europe under an exclusive licensing arrangement. The Registrant owns approximately an 18% interest in Euro-Nocopi, S.A. and holds warrants permitting it to increase its interest to 55%. In December 2000, Registrant terminated its licensing arrangement with Euro-Nocopi, S.A. due to its commencement of proceedings to liquidate and dissolve and to its failure to pay license fees and other amounts due to Registrant under the licensing arrangement. Registrant currently is seeking to exploit the European market for its technologies in the same manner as it has historically pursued other markets, but may seek to establish a joint venture or another arrangement with a third party for the purpose of better exploiting the European marketplace. Major Customers During 2000, Registrant made sales or obtained revenues equal to 10% or more of Registrant's 2000 total revenues from one non-affiliated customer, Xerox Corporation, which accounted for approximately 18% of 2000 revenues. Outside Sales Agents Registrant has engaged outside sales agents who are paid commissions on sales to various customers of Registrant and may also receive retainers and reimbursement for certain expenses. During 2000 the total payments to outside sales agents was approximately $40,000 as compared to such payments of approximately $100,000 in 1999. Manufacturing Registrant has a small facility for the manufacture of its security inks. Except for this facility, Registrant does not maintain manufacturing facilities. Registrant presently subcontracts the manufacture of its applications (mainly printing and coating) to third party manufacturers and expects to continue such subcontracting. Because some of the processes that Nocopi uses in its applications are based on relatively common manufacturing technologies, there appears to be no technical or economic reason for Registrant to invest capital in its own manufacturing facilities. Registrant has established a quality control program that currently entails laboratory analysis of developed technologies. When warranted, Registrant's specially trained technicians travel to third party production facilities to install equipment, train client staff and monitor the manufacturing process. Patents Nocopi has received various patents and has patents pending in the United States, Canada, South Africa, Saudi Arabia, Australia, New Zealand, Japan, France, the United Kingdom, Belgium, the Netherlands, Germany, Austria, Italy, Sweden, Switzerland, Luxembourg, and Liechtenstein. Patent applications for Registrant's technology (including improvements in the technology) have also been filed in numerous other jurisdictions where commercial usage is foreseen, including other countries in Europe, Japan, Australia, and New Zealand, and the rights under such applications have been assigned to Registrant. Registrant's patent counsel, which conducted the appropriate searches in Canada and the United States, has reviewed the results of searches conducted in Europe and advised management that effective patent protection for Registrant's technology should be obtainable in all countries in which the patent applications have been filed. There can be no assurance, however, that such protection will be obtained. 3 When a new product or process is developed, the developer may seek to preserve for itself the economic benefit of the product or process by applying for a patent in each jurisdiction in which the product or process is likely to be exploited. Generally speaking, in order for a patent to be granted, the product or process must be new and be inventively different from what has been previously patented or otherwise known anywhere in the world. Patents generally have a duration of 17 years from the date of grant or 20 years from the date of application depending on the jurisdiction concerned, after which time any person is free to exploit the product or process covered by a patent. A person who is the owner of a patent has, within the jurisdiction in which the patent is granted, the exclusive right to exploit the patent either directly or through licensees, and is entitled to prevent any person from infringing on the patent. The granting of a patent does not prevent a third party from seeking a judicial determination that the patent is invalid. Such challenges to the validity of a patent are not uncommon and are occasionally successful. There can be no assurance that a challenge will not be filed to one or more of Registrant's patents and that, if filed, such challenge(s) will not be successful. In the United States and Canada, the details of the product or process that is the subject of a patent application are not publicly disclosed until a patent is granted. However, in some other countries, patent applications are automatically published at a specified time after filing. As a result of the Registrant's deteriorating financial condition, the Registrant wrote-off unamortized patent costs of $503,000 in the fourth quarter of 1999 due to the uncertainty of their recoverability and charges current patent costs to expense as incurred. Research and Development Nocopi has been involved in research and development since its inception. Although Registrant's deteriorating financial condition has forced it to reduce funding for research and development in recent years, it intends to continue its research and development activities in three areas. First, Registrant will continue to refine its present family of products. Second, Registrant will seek to develop specific customer applications. Finally, if feasible, Registrant will seek to expand its technology into new areas of implementation. During the years ended December 31, 2000, and 1999, Nocopi expended approximately $203,400 and $145,700 respectively, on research and development activities (excluding capital expenditures related to research and development activities, which were nominal). Competition In the area of document and product authentication and serialization, Registrant is aware of other technologies, both covert and overt surface marking techniques, requiring decoding implements or analytical methods to reveal the relevant information. These technologies are offered by other companies for the same anti-counterfeiting and anti-diversion purposes the Registrant markets its covert technologies. These include, among others, biological DNA codes, microtaggants, thermochronic, UV and infrared inks as well as encryption, 2D symbology and laser engraving. Registrant believes its patented and proprietary technologies provide a unique and cost-effective solution to the problem of counterfeiting and gray marketing in the document and product authentication markets it has traditionally sought to exploit. Registrant knows of one large company that recently began to offer an expanding portfolio of product security solutions, some of which may be competitive with Registrant's authentication technologies. In order both to minimize the adverse effect of this new competition and to participate in the competitor's success, it has entered into a license agreement with this competitor so that products incorporating Registrant's technologies can be offered as part of this portfolio. Registrant is not aware of any competitors that market paper which functions in the same way as Nocopi security papers, although management is aware of a limited number of competitors which are attempting different approaches to the same problems which Registrant's products address. Registrant is aware of a Japanese company that has developed a film overlay that is advertised as providing protection from photocopying. Registrant has examined the film overlay and believes that it has a limited number of applications. Nocopi security paper is also considerably less expensive than the film overlay. 4 Other indirect competitors are marketing products utilizing the hologram and copy void technologies. The hologram, which has been incorporated into credit cards to foil counterfeiting, is considerably more costly than Registrant's technology. Copy void is a security device that has been developed to indicate whether a document has been photocopied. Registrant also markets a product that has similar features to the copy void technology. Registrant currently has extremely limited resources, and there can be no assurance that other businesses with greater resources than Registrant will not enter Registrant's markets and compete successfully with Registrant. Euro-Nocopi, S.A. Registrant formed Euro-Nocopi, S.A. in 1994, to market the Company's technologies in Europe under an exclusive licensing arrangement. Registrant currently owns approximately an 18% interest in Euro-Nocopi, S.A. and holds warrants currently permitting it to increase its interest to 55% for an additional investment of approximately $170,000. In addition, although the matter is disputed, Registrant believes that it has the right, exercisable through December 31, 2001, to acquire all shares of Euro-Nocopi, S.A. not owned by the Registrant for approximately one million shares of the Registrant's common stock.. During 2000, there arose between Registrant and Euro-Nocopi, S.A. a number of areas of conflict and dispute, leading each party to the licensing arrangement to assert informally that the other was in breach of its obligations under that arrangement. The parties initially sought to resolve their differences by negotiating a transaction in which Euro-Nocopi, S.A. would have purchased from Registrant its entire equity interest (including the warrants and right described above) as well as the paid-up European rights to Registrant's technologies. These negotiations terminated without agreement early in December 2000. Following the termination of the transaction negotiations, Registrant was informed by Euro-Nocopi, S.A. that it had adopted resolutions to liquidate and dissolve. In mid-December 2000, Registrant terminated its license agreement with Euro-Nocopi, S.A. in accordance with its terms and discontinued the provision of support (including the sale of proprietary inks) to Euro Nocopi, S.A. and its customers. Euro-Nocopi S.A. responded by denying that Registrant's termination of the licensing agreement was permissible or effective, and by asserting a claim that, as a result of alleged breaches of the licensing arrangement by Registrant, it was entitled to a royalty-free license to exploit Registrant's technologies in Europe. Promptly thereafter, Euro-Nocopi, S.A. commenced an action before a court in Paris, France in which it sought the entry of an order, in the nature of a preliminary injunction, to compel Registrant to honor the license agreement pending judicial or arbitral resolution of the dispute between the parties under the license agreement. Notably, in the French litigation, Euro-Nocopi S.A. did not seek an adjudication on the merits of the underlying dispute. Certain shareholders of Euro-Nocopi, S. A. subsequently joined in the proceedings commenced by Euro-Nocopi, S.A. In March 2001, the Emergency Judge hearing the action issued a decision denying the relief requested by Euro-Nocopi, S.A. and the shareholders. The decision, which does not purport to be a final adjudication of the merits of the controversy but only of Euro-Nocopi's request for preliminary relief, held that Euro-Nocopi S.A. was not entitled to the requested order because Registrant had validly terminated the licensing arrangement in mid-December, and also ordered Euro-Nocopi, S.A. to pay into escrow the approximately $125,000 that Registrant claimed was due and owing under the licensing arrangement. In mid-March 2001, Euro-Nocopi, S.A. commenced an arbitration proceeding before the American Arbitration Association in New York, NY against Registrant. In this proceeding, Euro-Nocopi, S.A. has not asserted a claim for damages but has asserted a claim for an award in the nature of a declaratory judgment to the effect that, because Registrant has (allegedly) breached the license agreement, Euro-Nocopi, S.A. is entitled to a royalty-free license to exploit Registrant's technologies in Europe. These proceedings are described below under the heading "Litigation." Following its termination of the licensing arrangement with Euro-Nocopi, S.A., Registrant has moved to directly exploit the European marketplace for its technologies. It intends, to the extent permitted by its financial condition, to continue to exploit that market, either directly, or by means of a joint venture or other arrangement with a third party possessing greater resources. 5 Employees At March 31, 2001, Registrant had four full-time employees. Registrant believes that its relations with its employees are good. Financial Information about Foreign and Domestic Operations Certain information concerning Registrant's foreign and domestic operations is contained in Note 9 to Registrant's Financial Statements included elsewhere in this Annual Report on Form 10-KSB. ITEM 2. PROPERTIES Registrant's corporate headquarters, research and ink production facilities are located at 537 Apple Street, West Conshohocken, Pennsylvania 19428. Its telephone number at that location is (610) 834-9600. These premises consist of approximately 14,800 square feet of space leased from an unaffiliated third party under a lease expiring in February 2003. Current monthly rental under this lease is $8,750 subject to an increase of $250 per month in March 2002. Registrant is also responsible for the operating costs of the building. Registrant's former corporate headquarters, located at 230 Sugartown Road, Wayne, Pennsylvania 19087, has been sub-let for the duration of the lease term at a monthly rental approximating the Registrant's rental obligation. These premises consist of approximately 2,800 square feet of space leased from an unaffiliated third party under a lease expiring in July 2001. Current monthly rental under this lease is $5,300. Registrant is currently seeking to sub-let the portion of its West Conshohocken property that it considers to be in excess of its current needs due to the loss of customers over the past years and the reduction in its number of employees. There are no assurances that Registrant will be able to obtain a tenant willing to enter into such a sublease on acceptable terms. ITEM 3. LEGAL PROCEEDINGS Except as set forth below, Registrant is not aware of any material pending litigation (other than ordinary routine litigation incidental to its business where, in management's view, the amount involved is less than 10% of Registrant's current assets) to which Registrant is or may be a party, or to which any of its properties is or may be subject, nor is it aware of any pending or contemplated proceedings against it by any governmental authority. Registrant knows of no material legal proceedings pending or threatened, or judgments entered against, any director or officer of Registrant in his capacity as such. On November 4, 1999, Norman A. Gardner, Registrant's founder, former Chief Executive Officer and, until September 1999, an employee of the Registrant, filed suit in the Court of Common Pleas of Montgomery County Pennsylvania against the Registrant, certain of its former officers and directors and an associate of certain former directors. The complaint sought damages in excess of $700,000 relating to the termination of Mr. Gardner's employment. In February 2000, Registrant and Mr. Gardner reached a settlement of the dispute pursuant to which Mr. Gardner released all claims against the Registrant and the other defendants, except for the associate of certain former directors. Under the settlement, Registrant made a lump sum payment to Mr. Gardner of $102,000 and paid him an additional $10,000 per month from January 2000 through February 2001. In January 2000, Michael McGovern, Registrant's former Chief Operating Officer, initiated a proceeding before the Pennsylvania Human Relations Commission ("PHRC") against the Registrant alleging that Registrant's termination of his employment in December 1999 constituted discrimination against him based on his religious beliefs. In May 2000, this proceeding terminated with a determination by PHRC that Registrant had not illegally discriminated against Mr. McGovern. In December 2000, Euro-Nocopi, S.A, Registrant's former European licensee, commenced emergency proceedings against Registrant in a court in Paris, France. These proceedings are described above under the heading "Euro-Nocopi, S.A." In March 2001, Euro-Nocopi, S.A. commenced arbitration proceedings against Registrant before the American Arbitration Association in New York, NY. In these proceedings, Euro-Nocopi, S.A. has sought 6 an award in the nature of a declaratory judgment to the effect that, due to alleged breaches by Registrant of the licensing arrangement between Registrant and Euro-Nocopi. S.A., it is entitled to a royalty-free license to exploit Registrant's technologies in Europe. Euro-Nocopi, S.A. has not sought an award of money damages. Registrant is currently reviewing, and has not yet formally responded to Euro-Nocopi's demand. The demand appears to allege that Registrant has committed numerous breaches of the licensing arrangement between the parties, notably by failing to disclose certain technical information, by failing to provide technical support, services and products to Euro-Nocopi, S.A. and by entering into a licensing agreement with a third party allegedly violating the exclusivity provisions of the Euro-Nocopi, S.A. licensing arrangement. Registrant intends to defend itself vigorously against these claims and intends to assert a counterclaim to recover in excess of $125,000 owed to it by Euro-Nocopi, S.A. under the terminated licensing arrangement. Registrant has been made aware that in late March 2001 certain shareholders of Euro-Nocopi, S.A. have filed suit in a court in Paris, France against certain current and former officers and directors of Registrant, and against a licensee of Registrant. Registrant is not named as a defendant in the suit. Registrant has been advised that the suit seeks damages in excess of $7 million from the defendants for various alleged acts of oppression, self-dealing and fraud in connection with the organization and capitalization of Euro-Nocopi, S.A., the management of that company and Registrant's management of its relationship with that company. Registrant anticipates that certain of the defendants will seek indemnification from the Company in connection with the lawsuit although it has not yet received any such requests or demands. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year ended December 31, 2000, no matters were submitted to a vote of Registrant's security holders. PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Registrant's Common Stock is traded on the over-the-counter market and quoted on the NASD over-the-counter Bulletin Board under the symbol "NNUP". The table below presents the range of high and low bid quotations of Registrant's Common Stock by calendar quarter for the last two full fiscal years and for a recent date, as reported by the National Quotation Bureau, Inc. The quotations represent prices between dealers and do not include retail markup, markdown, or commissions; hence, such quotations do not represent actual transactions. High Bid Low Bid -------- ------- January 1, 1999 to March 31, 1999 $.16 $.08 April 1, 1999 to June 30, 1999 $.29 $.15 July 1, 1999 to September 30, 1999 $.24 $.08 October 1, 1999 to December 31, 1999 $.21 $.09 January 1, 2000 to March 31, 2000 $.35 $.16 April 1, 2000 to June 30, 2000 $.26 $.15 July 1, 2000 to September 30, 2000 $.22 $.14 October 1, 2000 to December 31, 2000 $.17 $.06 January 1, 2001 to March 31, 2001 $.20 $.11 As of March 31, 2001, 37,734,362 shares of Registrant's Common Stock were outstanding. The number of holders of record of Registrant's Common Stock was approximately 1,100. However, Registrant estimates that it has a significantly greater number of Common Stockholders because a number of shares of Registrant's Common Stock are held of record by broker-dealers for their customers in street name. In addition to the 37,734,362 shares of 7 Common Stock which are outstanding, Registrant, at March 31, 2001, has reserved for issuance 15,264,935 shares of its Common Stock which underlie outstanding options and warrants to purchase Common Stock of the Registrant and securities issued by Euro-Nocopi, S.A., which may be converted into Registrant's common stock. Registrant has paid no cash dividends on its Common Stock and does not anticipate paying any such dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Forward-Looking Information The information in this Management's Discussion and Analysis of Results of Operations and Financial Condition contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such factors include those described in "Risk Factors." The forward-looking statements included in this report may prove to be inaccurate. In light of the significant uncertainties inherent in these forward-looking statements, you should not consider this information to be a guarantee by us or any other person that our objectives and plans will be achieved. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results (expressed or implied) will not be realized. Results of Operations The Company's revenues are derived from royalties paid by licensees of the Company's technologies, fees for the provision of technical services to licensees and from the direct sale of products incorporating the Company's technologies, such as pressure sensitive labels. Royalties consist of guaranteed minimum royalties payable by the Company's licensees in certain cases and additional royalties which typically vary with the licensee's sales or production of products incorporating the licensed technology. Service fee and sales revenues vary directly with the number of units of service or product provided. Because the Company has a relatively high level of fixed costs, its operating results are substantially dependent on revenue levels. Because revenues derived from licenses and royalties carry a much higher gross profit margin than other revenues, operating results are also significantly affected by changes in revenue mix. Both the absolute amounts of the Company's revenues and the mix among the various sources of revenue are subject to substantial fluctuation. The Company has a relatively small number of substantial customers rather than a large number of small customers. Accordingly, changes in the revenue received from a significant customer can have a substantial effect on the Company's total revenue and on its revenue mix and overall financial performance. Such changes may result from a customer's product development delays, engineering changes, changes in product marketing strategies and the like. In addition, certain customers have, from time to time, sought to renegotiate certain provisions of their license agreements and, when the Company agrees to revise terms, revenues from the customer may be affected. Revenues for 2000 were $1,230,700, a decline of 28% from $1,698,900 in 1999. Licenses, royalties and fees declined by 36% to $838,500 from $1,307,400 in 1999. The loss of $247,000 of license revenues from Paxar Corporation, the Company's largest customer in 1999, due to the termination of the license in the third quarter of 1999, accounted for 53% of the $468,900 decline in licenses, royalties and fees. Additionally, the termination or expiration of license agreements with seven other licensees during 1999 and 2000 negatively impacted 2000 revenues from licenses, royalties and fees partly offset by two customers first entering into license agreements during fiscal 2000. Product and other sales were $392,200 in 2000, approximately equal to the $391,500 of these sales in 1999. Gross profit declined to $620,800 or 50% of revenues in 2000 from $1,163,100 or 68% of revenues in 1999. The decline in gross profit, expressed in absolute dollars, is due primarily to the substantial reduction in revenues derived 8 from licenses, royalties and fees. Certain components of cost of sales related to licenses, royalties and fees, such as production labor and rent, are substantially fixed. The variable component of these costs of sales, primarily ink and chemicals, is a small percentage of the related revenues. As these revenues decline, the gross profit is negatively impacted, both in absolute dollars and as a percentage of revenues. Additionally the 1999 gross margin benefited from a $128,500 one-time reduction in cost of sales resulting from the December 1999 renegotiation of a long-standing license agreement with a partner/supplier. Under the terms of the agreement, on-going commissions due the partner/supplier were lowered and previously unpaid commissions were settled at a reduced amount. Accordingly, the Company reduced its accrued commissions at December 31, 1999 and recorded a $128,500 reduction in cost of sales. This reduction positively impacted the 1999 gross profit, expressed as a percentage of revenues, by seven percent. Product and other sales consisting primarily of manufactured products, which incorporate the Company's technologies, equipment to support the application of its technologies or other products purchased for re-sale, are generally purchased from third-party vendors and sold to the end-user or licensee. These products carry a significantly lower gross profit than licenses, royalties and fees. Research and development expenses increased to $203,400 in 2000 from $145,700 in 1999. The increase was due primarily to the inclusion of certain fees in research and development that were classified as related party expense in 1999 and a former licensee's refusal to acknowledge its obligation to reimburse the Company for approximately $47,500 in research and development expenses incurred by the Company in support of the licensee's use of the Company's laboratory personnel and facilities during the second half of 2000, offset in part by lower compensation expenses in 2000 due to staff reductions during the year. Sales and marketing expenses declined to $192,000 in 2000 from $604,300 in 1999. The decline relates primarily to lower compensation expense resulting from staff reductions in the second half of 1999, lower commission expense on the lower revenues and lower travel and sales promotion expense in 2000 compared to 1999. General and administrative expenses declined to $432,800 in 2000 from $699,000 in 1999. The decline is due in part to lower compensation expense in 2000 due to 1999 and 2000 staff reductions. Additionally, in 1999 the Company incurred approximately $125,000 of non-recurring costs associated with the Company's Annual Meeting in December 1999, at which a slate of directors nominated in opposition to the Company's incumbent Board of Directors was elected by the stockholders. Incremental expenses borne by the Company (including reimbursement of the contesting nominees' expenses) consisted primarily of legal, printing and proxy solicitation costs. The Company's legal expenses were $141,700, or 12% of revenues, in 2000 compared to $212,600, or 13% of revenues, in 1999. The relatively high level of legal expense incurred in 1999 was due primarily to the non-recurring expenses associated with the proxy contest for the Company's 1999 Annual Meeting and the 2000 legal expense included non-recurring amounts for employee related litigation and terminated negotiations relating to a proposed sale of certain assets. In the fourth quarter of 1999, the Company wrote off $507,500 of intangible assets, primarily patents, due to the uncertainty of their recoverability as a result of the Company's adverse liquidity situation. Severance expense of $394,300 in 1999 relates principally to severance arrangements with two individuals. In 1999, the Company paid $119,100 to its former President and Chief Executive Officer under a severance agreement negotiated in February 1999 and later modified by mutual consent of the parties. In the fourth quarter of 1999, a former employee filed a lawsuit against the Company, its directors and chief operating officer seeking damages allegedly resulting from the termination of his employment agreement by the Company. This lawsuit was settled in February 2000. Under the terms of the agreement, $102,000 was paid at signing with fourteen installments of $10,000 each payable monthly commencing January 2000. The Company also agreed to provide health care insurance through the term of the agreement. In accordance with the severance agreement, a charge of $265,000 was recorded at December 31, 1999 and remaining amounts due are reflected as Accrued Severance on the balance sheet at December 31, 2000. Other income (expense) includes interest on the $125,000 Series B 9% Subordinated Convertible Promissory Notes that were repaid on March 31, 2000. The decline in interest income to $18,600 in 2000 compared to $45,700 in 1999 resulted from lower levels of cash invested. 9 Equity in net income of unconsolidated affiliate represents the proportionate share in the net income or loss of Euro-Nocopi attributable to the Company's approximate 18% ownership share of Euro-Nocopi. For the first nine months of 2000, during which the Company accounted for its investment in Euro-Nocopi on the equity method, the Company's proportionate share in Euro-Nocopi's net income was $35,000 compared to $92,900 in 1999. Euro-Nocopi's 1999 financial results benefited in part from a one-time reduction in accrued commissions due a partner/supplier resulting from the renegotiation of a license agreement in late 1999. The Company changed its method of accounting for its investment in Euro-Nocopi to the cost method effective October 1, 2000 and recorded the carrying value at that date as the cost of its investment. During the fourth quarter of 2000, the Company wrote down its investment in Euro-Nocopi by $110,000 due to the uncertainty of its recoverability and recorded a charge of $68,600 resulting from the write-off of foreign currency translation adjustments. The net loss declined to $382,700 in 2000 from $1,262,600 in 1999. The $879,900 reduction in the net loss in 2000 from the prior year resulted primarily from the non-recurrence of $507,500 of intangible asset write-offs, principally patents, and $394,300 of severance expense associated with the departure two employees, including the Company's President and Chief Executive Officer, during 1999, offset in part by a $110,000 charge in 2000 related to the impairment of the Company's investment in Euro-Nocopi and a $69,000 charge resulting from the write-off of the foreign currency translation adjustment. The balance of the reduction in the net loss reflects the reductions in expenses associated with staff reductions and other cost containment measures described above, offset in part by the reductions in revenue and gross profit as the Company's business has contracted in the past several years. As a result of the Company's adverse liquidity situation, positions in production, research, sales, administration and executive management have not been filled following the departure of certain employees and consultants. Plan of Operation, Liquidity and Capital Resources The Company's cash and cash equivalents declined to $186,900 at December 31, 2000 from $750,000 at December 31, 1999. The cash was used primarily to make severance payments of $240,000 in accordance with an agreement negotiated in February 2000 and to repay the Company's $125,000 principal amount Series B Subordinated Notes on March 31, 2000. Additionally, cash in the amount of $198,100 was used to fund ongoing operations. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern as discussed in note 11. For the years ended December 31, 2000 and 1999, the Company's net losses were $382,700 and $1,262,600, respectively. In addition, the Company had negative working capital of $111,800 at December 31, 2000 and experienced negative cash flow of $563,100 and $622,900, respectively, for the years ended December 31, 2000 and 1999. During the first quarter of 2001, the Company received a $325,000 investment from a licensee in return for common stock constituting approximately 10% of the Company's outstanding common stock and the funds invested have permitted the Company to continue in operation in the near term. The loss of a number of customers during the past three years including, in 1999, the Company's largest customer, has had a material adverse effect on the Company's results of operations and upon its liquidity and capital resources. The Company believes that the conditions arising from these circumstances raise substantial doubts about the Company's ability to continue as a going concern. As a result, management of the Company believes that, to survive, it must obtain additional capital in the very near term both to fund continuing operating deficits and to fund investment needed to increase its operating revenues to levels that will sustain its operations. The Company, in response to the adverse liquidity situation, instituted a cost reduction program in late 1999 including staff reductions and curtailment of discretionary research and development and sales and marketing expenses. The Company does not currently plan any significant capital investment over the next twelve months. Factors That May Affect Future Growth and Stock Price The Company's operating results and stock price are dependent upon a number of factors, some of which are beyond the Company's control. These include: Potential Inability to Continue in Operations; Potential Need for New Equity Investment. The Company had a negative working capital of $111,800 at December 31, 2000, and experienced negative cash flow of $563,100 and $622,900, respectively, for years ended December 31, 2000 and 1999. While the Company, in early March 2001, 10 received $325,000 in new equity investment, Management does not believe the Company can significantly improve its negative cash flow in the near future through its United States operations. Subsequent to the termination of the licensing agreement with Euro-Nocopi, S.A., the Company has been seeking to negotiate end-user licenses with current users of its technologies in Europe. There can be no assurances that the Company will be able to enter into licenses with European customers that will generate sufficient revenues and cash flow to offset the negative cash flow currently being experienced in its United States operations. If the Company continues to experience negative cash flow at current levels and is unable to significantly increase its cash balances through further equity investment or otherwise, it will be forced to cease operations due to a lack of cash at an undetermined point during the second half of 2001. There are no assurances that the Company will be able to secure additional equity investment before it is forced to cease operations. Possible Inability to Develop New Business. Even if the Company is able to raise cash through additional equity investment or otherwise, it must quickly improve its operating cash flow. Because the Company has already significantly reduced its operating expenses, Management believes that any significant improvement in the Company's cash flow must result from increases in its revenues from traditional sources and from new revenue sources. The Company's ability to develop new revenues may depend on the extent of both its marketing activities and its research and development activities. The Company has reduced staffing in both areas in order to reduce operating expenses, and there are no assurances that the resources the Company can devote to marketing and to research and development will be sufficient to increase the Company's revenues to levels resulting in positive cash flow. Uneven Pattern of Quarterly and Annual Operating Results. The Company's revenues, which are derived primarily from licensing and royalties, are difficult to forecast due to the long sales cycle of the Company's technologies, the potential for customer delay or deferral of implementation of the Company's technologies, the size and timing of inception of individual license agreements, the success of the Company's licensees and strategic partners in exploiting the market for the licensed products, modifications of customer budgets, and uneven patterns of royalty revenue and product orders. As the Company's revenue base is not substantial, delays in finalizing license contracts, implementing the technology to initiate the revenue stream and customer ordering decisions can have a material adverse effect on the Company's quarterly and annual revenue expectations and, as the Company's operating expenses are substantially fixed, income expectations will be subject to a similar adverse outcome. Volatility of Stock Price. The market price for the Company's common stock has historically experienced significant fluctuations and may continue to do so. The Company has, since its inception, operated at a loss and has not produced revenue levels traditionally associated with publicly traded companies. The Company's common stock is not listed on a national or regional securities exchange and, consequently, the Company receives limited publicity regarding its business achievements and prospects, nor do securities analysts and traders extensively follow it. The market price may be affected by announcements of new relationships or modifications to existing relationships. The stock prices of many developing public companies, particularly those with small capitalizations, have experienced wide fluctuations not necessarily related to operating performance. Such fluctuations may adversely affect the market price of the Company's common stock. Intellectual Property. The Company relies on a combination of protections provided under applicable international patent, trademark and trade secret laws. It also relies on confidentiality, non-analysis and licensing agreements to establish and protect its rights in its proprietary technologies. While the Company actively attempts to protect these rights, the Company's technologies could possibly be compromised through reverse engineering or other means. In addition, the Company's ability to enforce its intellectual property rights through appropriate legal action has been and will continue to be limited by the Company's adverse liquidity. There can be no assurances that the Company will be able to protect the basis of its technologies from discovery by unauthorized third parties or to preclude unauthorized persons from conducting activities which infringe on the Company's rights. In either event, the Company's customer and licensee relationships could be adversely affected. 11 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements of Registrant meeting the requirements of Regulation S-B (except section 228.310 and Article 11 of Regulation S-X thereof) are included herein beginning at page F-1 of this Annual Report on Form 10-KSB. For information required with respect to this Item 7, see "Financial Statements and Schedules on pages F-1 through F-12 of this report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The directors and officers of the Company, their ages, present positions with the Company, and a summary of their business experience are set forth below. Michael A. Feinstein, M.D., 54, Chairman of the Board of Directors since December 1999 and Nocopi's acting Chief Executive Officer since February 2000, has been a practicing physician in Philadelphia for more than twenty years, serving for more than ten years as the President of a group medical practice including three physicians. He is a Fellow of the American College of Obstetrics and Gynecology and of the American Board of Obstetrics and Gynecology. He received his B.A. from LaSalle College and his M.D. from Jefferson Medical College. He has been an active private investor for more than thirty years, during which he has consulted with the management of the companies in which he invested on a number of occasions. Franco Harris, 51, has been a director since February 2000. Since 1990, Mr. Harris has served as President of Superbakers, Inc., a Pittsburgh, Pennsylvania maker of vitamin-fortified donuts and other nutritious bakery goods. Since 1996, Mr. Harris has also served as Chief Executive Officer of Parks Sausage Corporation, a manufacturer of sausages and other meat, beef and chicken products. He is a graduate of the Pennsylvania State University. Stanley G. Hart, 40, was elected a director in March 2001. He has been President of Westvaco Brand Security, Inc., a wholly owned subsidiary of Westvaco Corporation, since its formation in September 2000. Prior thereto, Mr. Hart served Westvaco Corporation (parent company of Westvaco Brand Security, Inc.) or its subsidiaries for more than ten years in various capacities. Most recently as General Manager and Director of Westvaco's subsidiaries in Hong Kong, Shanghai and Taipei. Richard Levitt, 43, a director since December 1999, has been engaged in the network services segment of the computer industry since 1988. In 1995, he participated in the founding of XiTech Corporation, a Pittsburgh, Pennsylvania-based provider of computing and computer networking hardware and network design and implementation services which in five years has grown to over 100 employees and over $40 million in annual sales. Since founding XiTech, he has served as one of its corporate principals as a Network Consultant and as the Manager of its Network Sales force. In these capacities, Mr. Levitt played a crucial role in the strategic and financial planning for XiTech, as well as the development of new accounts. Before joining XiTech, Mr. Levitt served as a network sales executive for Digital Equipment Corporation from 1988 to 1994 and as a network consultant for TriLogic Corporation during 1994 and 1995. Mr. Levitt holds a B.S. in Marketing from Kent State University. Waldemar Maya, Jr., 50, a director since December 1999, has served since June 1999 as Director of Finance, Airplane Services for the Boeing Company. Before joining Boeing, Mr. Maya had served from 1994 to 1998 as the Executive Vice President, Treasurer and Secretary of N.J. Malin & Associates, a Texas-based wholesaler of material handling equipment. John F. O'Brien III, 57, a director since June 2000, has been a partner in the law firm of O'Brien & Ryan, LLP, Plymouth Meeting, Pennsylvania, for more than five years. Mr. O'Brien served as Chief of Narcotics and Drug Investigations, U.S. Department of Justice, Organized Crime Strike Force from 1967 to 1980 and as the 12 Congressional Liaison to the U.S. Senate and House of Representatives from 1978 to 1980. He continues to serve as counsel to the Federal Law Enforcement Officers Association, as he has done since 1980. Mr. O'Brien is a member of the ABA Committee on Law and Medicine and is an expert on Civil and Medical Litigation and Commercial Contract Litigation. Joel A. Pinsky, 65, rejoined the board of directors in December 1999. Mr. Pinsky served as a director of the Company for more than five years until his resignation in 1998 and as its corporate secretary and general counsel until his resignation in February 1999. He has practiced business law with the firm of Gross, Pinsky, Montreal, Canada, where he is a senior partner, for more than 30 years. Mr. Pinsky has also served as a director of numerous other companies engaged in a variety of industries, all of which were privately held. Rudolph A. Lutterschmidt, 54, has been Vice President and Chief Financial Officer of the Company for more than five years. Since January 2000, Mr. Lutterschmidt has been employed by Smart & Associates, LLP, an accounting and professional services firm, where he serves as a management consultant. He continues to serve the Company as its Vice President and Chief Financial Officer on a part-time basis. He is a member of Financial Executives International, the Institute of Management Accountants and is a Certified Management Accountant. The terms of the current directors will expire at the 2001 annual meeting of stockholders of the Company. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Exchange Act requires persons who become directors and/or executive officers of a public company (such as Nocopi) to file reports with the SEC regarding their beneficial ownership of the company's securities. A report must be filed shortly after a person becomes an executive officer or director, and shortly after an executive officer or director experiences a change in his beneficial ownership of his company's securities. The initial report required to be filed by director O'Brien was filed later than the time prescribed for the filing of such report under SEC rules. To the Company's knowledge, based on information furnished to it by its directors and officers, all such persons are now current in their filing obligations under Section 16 of the Exchange Act. ITEM 10. EXECUTIVE COMPENSATION During 2000, Dr. Feinstein worked on a part time basis as the Company did not pay any compensation to Dr. Feinstein, who has served since February 2000 as the Company's acting Chief Executive Officer on a part-time basis, and no other executive officer of the Company received compensation equal to or greater than $100,000. The Company does reimburse the expenses incurred by its officers in the performance of their duties. At December 31, 2000 there were no stock options held by any executive officer or director of the Company. Director Compensation Directors have not been paid any fees for their services as such during the year ended December 31, 2000. All directors have been and will be reimbursed for reasonable expenses incurred in connection with attendance at Board of Directors meetings or other activities undertaken by them on behalf of the Company. 13 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 31, 2001, the stock ownership of each director and Named Executive (as set forth under the heading "Executive Compensation") individually, and of all directors and executive officers of the Company as a group.
Common Stock -------------------------------- Number Of Shares Beneficially Percentage of Owned Class (1) Name of Beneficial Owner ------------- -------------- Michael A Feinstein, M.D. (2)...................................................... 1,098,000 2.9% Franco Harris (3).................................................................. 45,000 * Stanley G. Hart (4)................................................................ 0 * Richard Levitt (5)................................................................. 85,800 * Waldemar Maya, Jr.................................................................. 0 * John F. O'Brien III................................................................ 0 * Joel A. Pinsky (6)................................................................. 6,000 * All Executive Officers and Directors as a Group (8 individuals) 1,235,400 3.3%
- --------------- * Less than 1.0%. (1) Where the Number of Shares Beneficially Owned (reported in the preceding column) includes shares which may be purchased upon the exercise of outstanding stock options which are or within sixty days will become exercisable ("presently exercisable options") the percentage of class reported in this column has been calculated assuming the exercise of such presently exercisable options. (2) Includes 75,500 shares held by a pension plan of which Dr. Feinstein is a trustee. (3) Includes 25,000 shares held by a pension plan of which Mr. Harris is a trustee. (4) Does not include 3,917,030 shares of Common Stock owned by Westvaco Brand Security, Inc., of which Mr. Hart is President. (5) Includes 400 shares owned by Mr. Levitt's wife. (6) Mr. Pinsky owns these shares indirectly through his ownership of Pinglick, Inc., a holding company. Except as stated herein, there are no arrangements known to the Company which may result in a change in control of the Company and each stockholder has sole voting and investment power with respect to the Company's common shares included in the above table. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Norman A. Gardner, brother-in-law of Dr. Feinstein, had been employed under an Employment Agreement expiring in October 2002. His employment was terminated by the Company in September 1999. On November 4, 1999, Mr. Gardner filed suit in the Court of Common Pleas of Montgomery County, Pennsylvania against the Company, certain of its former officers and directors and an associate of certain former directors. The complaint sought damages in excess of $700,000 relating to his termination. In February 2000, the Company and Mr. Gardner reached a settlement of the dispute pursuant to which Mr. Gardner has released all claims against the Company and the other defendants. Under the settlement, the Company made a lump sum payment to Mr. Gardner of $102,000.and agreed to pay him an additional $10,000 per month from January 2000 through February 2001. Rudolph A. Lutterschmidt, an officer, is employed by Smart & Associates, LLP, an accounting and professional services firm. Smart & Associates, LLP provided financial consulting services to the Company during the fiscal year ended December 31, 2000. Fees for 2000 services were less than $60,000. 14 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following Financial Statements are filed as part of this Annual Report on Form 10-KSB PAGE ----- Report of Independent Certified Public Accountants F-1 Balance Sheet as of December 31, 2000 F-2 Statements of Operations for the Years ended December 31, 2000 and 1999 F-3 Statements of Stockholders' Equity for the Years ended December 31, 2000 and 1999 F-4 Statements of Cash Flows for the Years ended December 31, 2000 and 1999 F-5 Notes to Financial Statements F-6 to F-12 (b) The Exhibit Index begins on Page 17 of this Annual Report on Form 10-KSB. (c) Registrant has not filed any reports on Form 8-K during the last quarter of the fiscal year covered by this Annual Report on Form 10-KSB. 15 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NOCOPI TECHNOLOGIES, INC. Registrant Dated: April 12, 2001 By: /s/ Michael A. Feinstein, M.D. ---------------------------------- Michael A. Feinstein, M.D. Chairman of the Board Dated: April 12, 2001 By: /s/ Rudolph A. Lutterschmidt -------------------------------- Rudolph A. Lutterschmidt Vice President, Chief Financial Officer and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: April 12, 2001 /s/ Michael A. Feinstein, M.D. ------------------------------ Michael A. Feinstein, M.D., Chairman of the Board Date: April 12, 2001 /s/ Franco Harris ------------------------------ Franco Harris, Director Date: April 12, 2001 ------------------------------ Stanley G. Hart, Director Date: April 12, 2001 /s/ Richard Levitt. ------------------------------ Richard Levitt, Director Date: April 12, 2001 /s/ Waldemar Maya, Jr. ------------------------------ Waldemar Maya, Jr., Director Date: April 12, 2001 ------------------------------ John F. O'Brien III, Director Date: April 12, 2001 /s/ Joel A. Pinsky ------------------------------ Joel A. Pinsky, Director 16 The following Exhibits are filed as part of this Annual Report on Form 10-KSB: Exhibit Number Description - ------- ----------- 3.1 Articles of Incorporation (1) 3.2 Bylaws (1) 3.3 Articles of Amendment to Articles of Incorporation (4) 3.4 Article of Amendment to Articles of Incorporation (6) 3.5 Amendments to Bylaws (7) 10.1 Amended and Restated Non-Qualified Stock Option Plan (3) 10.2 Amended and Restated Incentive Stock Option Plan (3) 10.3 Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan (2) 10.4 Nocopi Technologies, Inc. 1996 Stock Option Plan (4) 10.5 Employment Agreement between Registrant and Dr. A. Gundjian (5) 10.6 Form of Common Stock Purchase Warrant (5) 10.7 Lease Agreement dated February 17, 1998 relating to premises at 537 Apple Street, West Conshohocken, PA 19428 (5) 10.8 Nocopi Technologies, Inc. 1999 Stock Option Plan (6) 10.9 Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan (6) 10.10 Director Indemnification Agreement (7) 10.11 Officer Indemnification Agreement (7) 10.12 Modification of Severance Agreement between Registrant and Richard A. Check (8) 10.13 Severance Agreement between Registrant and Norman A. Gardner (8) 10.14 License Agreement with Westvaco Brand Security, Inc. 10.15 Amendment to Westvaco License Agreement 10.16 Amendment (No. 2) to Westvaco License Agreement 10.17 Stock Purchase Agreement with Westvaco Brand Security, Inc. 10.18 Registration Rights Agreement with Westvaco Brand Security, Inc. 10.19 Collateral Assignment of Patent Rights to Westvaco Brand Security, Inc. 10.20 Escrow Agreement with Westvaco Brand Security, Inc. 23.1 Consent of BDO Seidman, LLP 17 - ------------- (1) Incorporated by reference to Registrant's Registration Statement on Form 10, as filed with the Commission on or about August 19, 1992 (2) Incorporated by reference to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1993 (3) Incorporated by reference to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1994 (4) Incorporated by reference to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1996 (5) Incorporated by reference to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1997 (6) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for the Year Ended December 31, 1998 (7) Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB for the Three Months Ended September 30, 1999 (8) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for the Year Ended December 31, 1999 18 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Nocopi Technologies, Inc. West Conshohocken, Pennsylvania We have audited the accompanying balance sheet of Nocopi Technologies, Inc. as of December 31, 2000 and the related statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2000. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion,, the financial statements referred to above present fairly, in all material respects, the financial position of Nocopi Technologies, Inc. at December 31, 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO SEIDMAN, LLP Philadelphia, Pennsylvania March 30, 2001 F-1 Nocopi Technologies, Inc. Balance Sheet December 31 2000 ---- Assets Current assets Cash and cash equivalents $186,900 Accounts receivable less $22,500 allowance for doubtful accounts 72,000 Prepaid and other 39,100 ----------- Total current assets 298,000 Fixed assets Leasehold improvements 39,500 Furniture, fixtures and equipment 476,200 ----------- 515,700 Less: accumulated depreciation and amortization 459,500 ----------- 56,200 Other assets Investment in unconsolidated affiliate - net 110,600 ----------- $464,800 =========== Liabilities and Stockholders' Equity Current liabilities Accounts payable $153,000 Accrued expenses 187,700 Accrued severance 25,000 Deferred revenue 44,100 ----------- Total current liabilities 409,800 Commitments and contingencies Stockholders' equity Series A preferred stock $1.00 par value Authorized - 300,000 shares Issued and outstanding - none Common stock, $.01 par value Authorized - 75,000,000 shares Issued and outstanding - 33,817,332 shares 338,200 Paid-in capital 10,434,600 Accumulated deficit (10,717,800) ----------- 55,000 ----------- $464,800 =========== See notes to financial statements. F-2 Nocopi Technologies, Inc. Statements of Operations
Years ended December 31 2000 1999 ---- ---- Revenues Licenses, royalties and fees $838,500 $1,307,400 Product and other sales 392,200 391,500 --------- ----------- 1,230,700 1,698,900 --------- ----------- Cost of sales Licenses, royalties and fees 299,200 225,600 Product and other sales 310,700 310,200 --------- ----------- 609,900 535,800 --------- ----------- Gross profit 620,800 1,163,100 --------- ----------- Operating expenses Research and development 203,400 145,700 Sales and marketing 192,000 604,300 General and administrative 432,800 699,000 Related party expenses 43,800 198,300 Impairment of patents and other intangible assets 507,500 Severance expense 394,300 --------- ----------- 872,000 2,549,100 --------- ----------- Loss from operations (251,200) (1,386,000) --------- ----------- Other income (expenses) Interest income 18,600 45,700 Interest and bank charges (6,500) (15,200) Impairment of investment in unconsolidated affiliate (178,600) Equity in net income of unconsolidated affiliate 35,000 92,900 --------- ----------- (131,500) 123,400 --------- ----------- Net loss ($382,700) ($1,262,600) ========= =========== Basic and diluted loss per common share ($.01) ($.04) Weighted average common shares outstanding 33,817,332 33,693,999
See notes to financial statements. F-3 Nocopi Technologies, Inc. Statements of Stockholders' Equity
Accumulated Other Common stock Paid-in Comprehensive Accumulated Comprehensive Shares Amount Capital Income (Loss) Deficit Loss ------ ------ ------- ------------- ------- ---- Balance - January 1, 1999 33,587,332 $335,900 $10,406,200 $(12,900) $(9,072,500) Stock and stock options issued as compensation 230,000 2,300 28,400 Net loss (1,262,600) ($1,262,600) Translation adjustment (26,600) (26,600) ---------- -------- ----------- -------- ------------ ----------- Balance - December 31, 1999 33,817,332 338,200 10,434,600 (39,500) (10,335,100) ($1,289,200) =========== Net loss (382,700) ($382,700) Translation adjustment - net 39,500 39,500 ---------- -------- ----------- -------- ------------ ----------- Balance - December 31, 2000 33,817,332 $338,200 $10,434,600 $ 0 ($10,717,800) ($ 343,200) ========== ======== =========== ======== ============ ===========
See notes to financial statements. F-4 Nocopi Technologies, Inc. Statements of Cash Flows
Years ended December 31 2000 1999 ---- ---- Operating Activities Net loss ($382,700) ($1,262,600) Adjustments to reconcile net loss to cash used in operating activities Depreciation 36,400 49,300 Amortization 49,400 Allowance for doubtful accounts, net (25,000) Equity in net income of unconsolidated affiliate (35,000) (92,900) Impairment of investment in unconsolidated affiliate 178,600 Impairment of patents and other intangible assets 507,500 Stock and stock option compensation 30,700 --------- --------- (227,700) (718,600) (Increase) decrease in assets Accounts receivable 61,600 22,200 Prepaid and other 74,800 (61,500) Increase (decrease) in liabilities Accounts payable and accrued expenses (275,400) 152,300 Deferred revenue (137,800) 59,600 --------- --------- (276,800) 172,600 --------- --------- Cash (used in) operating activities (504,500) (546,000) Investing Activities Additions to fixed assets (14,700) (22,500) Additions to patents (30,900) Advances (to) from affiliate, net 81,100 (23,500) --------- --------- Cash provided by (used in) investing activities 66,400 (76,900) Financing Activities Repayment of notes (125,000) --------- --------- Decrease in cash and cash equivalents (563,100) (622,900) Cash and cash equivalents Beginning of year 750,000 1,372,900 --------- --------- End of year $186,900 $750,000 ========= ========= Supplemental cash flow data Interest paid $5,600 $11,300
See notes to financial statements. F-5 NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 1. Organization of the Company Nocopi Technologies, Inc. (the Company) is organized under the laws of the State of Maryland. Its main business activities are the development and distribution of document security products and the licensing of its patented authentication technologies in the United States and foreign countries. The Company operates in one principal industry segment. 2. Significant Accounting Policies Estimates - The preparation of the financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Cash and cash equivalents - Cash equivalents consist principally of time deposits and highly liquid investments with an original maturity of three months or less placed with major banks and financial institutions. Cash equivalents are carried at the lower of cost, plus accrued interest, or market value and are held in money market accounts at local banks. At December 31, 2000, Nocopi's investments in money market accounts amounted to $166,100. Fixed assets - Fixed assets are carried at cost less accumulated depreciation and amortization. Furniture, fixtures and equipment are generally depreciated on the straight-line method over their estimated service lives. Leasehold improvements are amortized on a straight-line basis over the shorter of five years or the term of the lease. Major renovations and betterments are capitalized. Maintenance, repairs and minor items are expensed as incurred. Upon disposal, assets and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income. Investment in Affiliate - The Company's investment, approximately 18%, in Euro-Nocopi, S.A. (Euro) was accounted for under the equity method through September 30, 2000 due to the technical dependence of Euro on the Company. The Company changed its method of accounting for its investment in Euro to the cost method effective October 1, 2000 and recorded the carrying value at that date as the cost of its investment. During the fourth quarter of 2000, the Company wrote down its investment in Euro by $110,000 due to the uncertainty of its recoverability. (See note 9). Patents - Patents were stated at cost less amortization and were being amortized on a straight-line basis over the lives of the patents (approximately fifteen years). In the fourth quarter of 1999, as a result of the Company's adverse liquidity situation, the Company wrote-off unamortized patent costs of $503,000 due to the uncertainty of their recoverability and is charging subsequent patent costs to expense as incurred. F-6 Revenues - Revenues consisting primarily of license fees and royalties, are recorded as earned over the license term. Product sales are recognized upon shipment of products. Income taxes - Deferred income taxes are provided for all temporary differences and net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Fair value - The carrying amounts reflected in the balance sheets for cash, cash equivalents and accounts receivable approximate fair value due to the short maturities of these instruments. The fair values represent estimates of possible value that may not be realized in the future. Loss per share - The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss in 2000 and 1999, common stock equivalents, including stock options, warrants and convertible notes were anti-dilutive. Comprehensive income (loss) - The Company follows Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", and, accordingly, reports all components of comprehensive income (loss) in the accompanying statements of stockholders' equity. As a result of the change to the cost method of accounting for the Company's investment in affiliate discussed above and in Note 9, the foreign currency translation adjustment amounting to amounting to $68,600 has been charged to operations and has been reflected as an additional impairment charge. Recently Issued Accounting Standard In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, which summarizes certain of the SEC staff's accounting principles for revenue recognition in financial statements. The adoption of this guidance in 2000 did not have a material impact on the Company's results of operations or financial position. 3. Stockholders' Equity At December 31, 2000, the Company had 10,533,606 warrants, issued in 1997, outstanding. Each warrant was exercisable for the purchase of one share of the Company's common stock at a price of $.35. The warrants will expire five years after issuance unless extended by the Board of Directors. 4. Income Taxes At December 31, 2000, the Company had net operating loss carryforwards ("NOL's") approximating $10,300,000. These operating losses are available to offset future taxable income through the year 2020. As a result of the sale of the Company's common stock in an equity offering in late 1997 and the subsequent issuances of additional shares, the amount of the NOL's carryforwards may be limited. Additionally, the utilization of these NOL's if available, to reduce the future income taxes will depend on the generation of sufficient taxable income prior to their expiration. The Company has established a 100% valuation allowance of approximately $4,100,000 at December 31, 2000 for the deferred tax assets due to the uncertainty of their realization. F-7 5. Related Party Transactions Payments and payment commitments aggregating $43,800 and $198,300 in 2000 and 1999, respectively, were made to certain officers and directors and firms employing certain officers and directors for legal fees, consulting services and related expenses. 6. Severance Severance expense of $394,300 in 1999 relates principally to severance arrangements with two individuals. In 1999, the Company paid $119,100 to its former President and Chief Executive Officer under a severance agreement negotiated in February 1999 and later modified by mutual consent of the parties. In the fourth quarter of 1999, a former employee filed a lawsuit against the Company, its directors and chief operating officer seeking damages allegedly resulting from the termination of his employment agreement by the Company. This lawsuit was settled in February 2000. Under the terms of the agreement, $102,000 was paid at signing with fourteen installments of $10,000 each payable monthly commencing January 2000. The Company also agreed to provide health care insurance through the term of the agreement. In accordance with the severance agreement, a charge of $265,000 was recorded at December 31, 1999. 7. Commitments and Contingencies The Company conducts its operations in leased facilities and leases equipment under non-cancelable operating leases expiring at various dates to 2003. Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 2000 are: $109,700 - 2001; $112,000 - 2002; and $18,400 - 2003. Total rental expense under operating leases was $102,600 and $112,200 in 2000 and 1999, respectively. The Company has sub-let its former corporate headquarters for the duration of the lease term at a monthly rental approximating the Company's rental obligation. The Company has a consulting agreement with a former executive officer and director, the term of which expires at December 31, 2002. Future minimum compensation payments under this agreement at December 31, 2000 are: $62,500 - 2001; and $62,500 - 2002. The Board of Directors of the Company in mid-2000 suspended cash payments to the consultant as a potential offset to certain payments made to the consultant by a licensee of the Company. At December 31, 2000, all other provisions of the agreement remain in force. From time to time, the Company may be subject to legal proceedings and claims that arise in the ordinary course of its business. During late 2000 and early 2001, as described in Note 9, several legal and arbitration proceedings were commenced by the Company's former European exclusive licensee and certain of its shareholders against the Company, certain former and present directors of the Company and against a licensee of the Company. As the proceedings are in their very early stages, management of the Company is unable to assess the impact that the ultimate resolution, and the related expense, of the litigation and arbitration, may have on the Company's financial position or results of operations. F-8 8. Stock Options and 401(k) Savings Plan The 1996 and 1999 Stock Option Plans provide for the granting of up to 2,700,000 incentive and non-qualified stock options to employees, non-employee directors, consultants and advisors to the Company. In the case of options designated as incentive stock options, the exercise price of the options granted must be not less than the fair market value of such shares on the date of grant. Non-qualified stock options may be granted at any amount established by the Stock Option Committee or, in the case of Discounted Options issued to non-employee directors in lieu of any portion of an Annual Retainer, in accordance with a formula designated in the Plan. A summary of stock options under the Company's stock option plans follows:
Exercise Weighted Number of Price Range Average Shares Per Share Exercise Price ------ --------- -------------- Outstanding at December 31, 1998 854,100 $.30 to $4.35 $.96 Options granted 25,000 .30 .30 -------- Outstanding at December 31, 1999 879,100 .30 to 4.35 .94 Options canceled (232,100) .30 to 4.35 2.31 --------- Outstanding at December 31, 2000 647,000 $.30 to $4.35 $.45 ======= Exercise Weighted Option Price Range Average Shares Per Share Exercise Price ------ --------- -------------- Exercisable at year end: 1999 704,100 $.30 to $4.35 $1.06 2000 647,000 $.30 to $4.35 $.45 Options available for future grant under all plans: 1999 1,975,000 2000 2,075,000
F-9 The following table summarizes information about stock options outstanding at December 31, 2000:
Ranges --------------------------------------------------------------- 1996 and 1999 Plans Former Plans Total Range of exercise prices $.30 to $.45 $3.10 to $4.35 $.30 to $4.35 ------------ -------------- ------------- Number outstanding at December 31, 2000 625,000 22,000 647,000 ------- ------ ------- Weighted average remaining contractual life (years) 4.33 .65 4.20 ---- --- ---- Weighted average exercise price $.35 $3.21 $.45 ---- ----- ---- Exercisable options: Number outstanding at December 31, 2000 625,000 22,000 647,000 ------- ------ ------- Weighted average remaining Contractual life (years) 4.33 .65 4.20 ---- --- ---- Weighted average exercise price $.35 $3.21 $.45 ---- ----- ----
The weighted average fair value per share of options granted was $.19 in 1999. No options were granted in 2000. The Company continues to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation costs for shares issued under performance share plans are recorded based upon the current market value of the Company's stock at the end of each period. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation" for employees and employee-directors as defined in SFAS No. 123. Compensation costs for grants to employees and directors would be determined based on the fair value at the date of grant in accordance with SFAS No. 123 and would be amortized over the vesting period of the option, which is generally two years. Had compensation cost for the Company's stock option grants to employees and employee-directors been determined based on the fair value at the date of grants in accordance with the provisions of SFAS No. 123, the Company would have amortized the cost over the vesting period of the option. There was no pro forma effect on the Company's net loss or the net loss per share applicable to common shares for 2000 and 1999. The fair value of each option granted is estimated on the date of grant based on a modified Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1999, expected volatility of 46%; risk free interest rate of 5.7% and expected lives of two years. At December 31, 2000, the Company has reserved 14,276,883 shares of common stock for possible future issuance upon exercise of stock options, warrants and convertible securities. The Company sponsors a 401(k) savings plan, covering substantially all employees, providing for employee and employer contributions. Employer contributions are made at the discretion of the Company. There were no contributions charged to expense during 2000 or 1999. F-10 9. Affiliate The Company organized Euro-Nocopi, S.A. (Euro) in 1994 to market the Company's technologies in Europe under an exclusive license arrangement. Euro was capitalized through a European private placement. The Company holds an approximately 18% interest in Euro and a warrant permitting it to increase its interest in Euro to 55%. This warrant, which expires on December 31, 2001, is currently exercisable. Additionally, although the matter is disputed, the Company believes it has a right to acquire, under certain conditions, all shares of Euro not owned by the Company for approximately one million shares of the Company's common stock. This call right expires on December 31, 2001. During 2000, there arose between Euro and the Company a number of areas of conflict and dispute, leading each party to the licensing arrangement to assert informally that the other was in breach of its obligations under that arrangement. The parties initially sought to resolve their differences by negotiating a transaction in which Euro would have purchased from the Company its entire equity interest (including the warrant and right described above) as well as the paid-up European rights to the Company's technologies. These negotiations terminated without agreement early in December 2000. Following the termination of the transaction negotiations, the Company was informed by Euro that it had adopted resolutions to liquidate and dissolve. In mid-December 2000, the Company terminated its license agreement with Euro in accordance with its terms and discontinued the provision of support (including the sale of proprietary inks) to Euro and its customers. As a result of the license termination the technological dependency of Euro on the Company ceased and the Company was no longer permitted to account for its investment in Euro on the equity method. Accordingly, the Company, effective October 1, 2000, changed its method of accounting for its investment in Euro to the cost method and recorded the carrying value at that date as the cost of its investment. During the fourth quarter of 2000, the Company wrote down its investment in Euro by $110,000 due to the uncertainty of its recoverability and recorded a charge of $68,600 resulting from the write-off of foreign currency translation adjustments. Euro responded to the license termination by denying that the Company's action was permissible, or effective, and by asserting a claim that, as a result of alleged breaches of the licensing agreement by the Company, it was entitled to a royalty-free license to exploit the Company's technologies in Europe. Promptly thereafter, Euro commenced an action before a court in Paris, France in which it sought the entry of an order, in the nature of a preliminary injunction, to compel the Company to honor the license agreement pending judicial or arbitral resolution of the dispute between the parties under the license agreement. In the French litigation, Euro did not seek an adjudication on the merits of the underlying dispute. Certain shareholders of Euro subsequently joined in the proceedings commenced by Euro. In March 2001, the Emergency Judge hearing the action issued a decision denying the relief requested by Euro and the shareholders. The decision, which does not purport to be a final adjudication of the merits of the controversy but only of Euro's request for preliminary relief, held that Euro was not entitled to the requested order because the Company had validly terminated the licensing arrangement in mid-December, and also ordered Euro to pay into escrow the approximately $125,000 that the Company claimed was due and owing under the licensing arrangement. F-11 In mid-March 2001, Euro commenced an arbitration proceeding before the American Arbitration Association in New York, NY against the Company. In this proceeding, Euro has not asserted a claim for damages but has asserted a claim for an award in the nature of a declaratory judgment to the effect that, because the Company has (allegedly) breached the license agreement, Euro is entitled to a royalty-free license to exploit the Company's technologies in Europe. The Company has been made aware that in late March 2001 certain shareholders of Euro have filed suit in a court in Paris, France against certain current and former officers and directors of the Company and against a licensee of the Company. The Company is not named as a defendant in the suit. The Company has been advised that the suit seeks damages in excess of $7 million from the defendants for various alleged acts of oppression, self-dealing and fraud in connection with the organization and capitalization of Euro, the management of that company and the Company's management of its relationship with that company. The Company anticipates that certain of the defendants will seek indemnification from the Company in connection with the lawsuit although it has not yet received any such requests or demands. In 2000 and 1999, revenues totaling approximately $188,000 and $264,000, respectively, were derived from Euro. 10. Major Customer Information The Company's largest non-affiliate customer accounted for approximately 18% and 15%, respectively, of 2000 and 1999 revenues and 24% of accounts receivable at December 31, 2000. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company also maintains allowances for potential credit losses. 11. Going Concern Since its inception, the Company has incurred significant losses and, as of December 31, 2000, had accumulated losses of $10,649,200. For the years ended December 31, 2000 and 1999, the Company's net losses were $382,700 and $1,262,600, respectively. In addition, the Company had negative working capital of $111,800 at December 31, 2000 and experienced negative cash flow of $563,100 and $622,900, respectively, for the years ended December 31, 2000 and 1999. The Company may incur further operating losses and experience negative cash flow in the future. Achieving profitability and positive cash flow depends on the Company's ability to generate and sustain significant increases in revenues and gross profits from its traditional business. There can be no assurances that the Company will be able to generate sufficient revenues and gross profits to achieve and sustain profitability and positive cash flow in the future. During the first quarter of 2001, the Company received a $325,000 investment from a licensee in return for 3,917,030 shares of its common stock constituting approximately 10% of the Company's outstanding common stock and the funds invested have permitted the Company to continue in operation in the near term. However, Management of the Company believes that, to survive, it must obtain additional capital in the very near term both to fund continuing operating deficits and to fund investment needed to increase its operating revenues to levels that will sustain its operations. There can be no assurances that the Company will be successful in obtaining sufficient additional capital, or if it does, that the additional capital will enable the Company to improve its business so as to have a material positive effect on the Company's operations and cash flow. The Company's independent certified public accountants have included a "going concern" emphasis paragraph in their audit report accompanying the 2000 financial statements. The paragraph states that the Company's recurring losses from operations raise substantial doubt about the Company's ability to continue as a going concern and cautions that the financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-12 EX-3 2 0002.txt EXHIBIT 3 Exhibit 3 Form of Joint Instruction Date: ___________________ David B. Pudlin, Esquire President Hangley Aronchick Segal & Pudlin, One Logan Square -- 27th Floor Philadelphia, PA 19109 Ladies and Gentlemen: Pursuant to Section 4(a) of that certain Escrow Agreement, dated March 2, 2001, by and among Westvaco Brand Security, Inc., a Delaware corporation (the "Licensee"), Nocopi Technologies, Inc., a Maryland corporation (the "Licensor") and the law firm of Hangley Aronchick Segal & Pudlin, a professional corporation ("HAS&P"), the Licensee and the Licensor hereby jointly notify you that the Escrow Materials shall be disposed of as follows: [insert agreed upon instructions for delivery] This joint instruction may be executed in counterparts. Sincerely, WESTVACO BRAND SECURITY, INC. By: ------------------------------------------ Name: Title: NOCOPI TECHNOLOGIES, INC. By: ------------------------------------------ Name: Title: EX-10.14 3 0003.txt EXHIBIT 10.14 LICENSE AGREEMENT THIS LICENSE AGREEMENT is made as of the lst day of September, 2000, by and between NOCOPI TECHNOLOGIES, INC., a corporation duly organized and existing under the laws of Maryland with offices at 537 Apple Street, West Conshohocken, Pennsylvania, 19428-2903 (hereinafter "NOCOPI"), and WESTVACO BRAND SECURITY, INC., a corporation duly organized and existing under the laws of Delaware, with offices at 299 Park Avenue, New York, New York 10171, and its affiliates as herein defined "hereinafter "LICENSEE"). WITNESSETH: WHEREAS, NOCOPI is the sole owner of a series of patents and patent applications dealing with and relating to, among other things: (1) a system incorporating activating inks; (2) highlighter pens; (3) counterfeit deterrent inks; and (4) information protection systems; AND WHEREAS, NOCOPI wishes to enter into a contractual arrangement with LICENSEE so as to provide LICENSEE with (i) the non-exclusive use of the NOCOPI TECHNOLOGY for the specific range of products hereinafter defined in Clause 1.06 and (ii) the exclusive use of the NOCOPI TECHNOLOGY for the range of products hereinafter defined in Clause 1.07. NOW, THEREFORE, in consideration of the premises and of the mutual agreements, provisions and covenants herein contained, the parties hereto hereby agree as follows: Page 2 ARTICLE I - DEFINITIONS 1.01 As used herein, the term "AFFILIATES" shall mean any corporation which is owned by or controlled to the extent of at least fifty percent (50%) of the issued and voting stock of such corporation by either Party. 1.02 For the purposes of this Agreement, "ADDITIONAL EARNINGS" shall mean that portion of "LICENSEE'S" net earnings during a ROYALTY YEAR, net of all costs as determined by standard accounting methods, derived from the sale by LICENSEE of NON-EXCLUSIVE PRODUCTS and EXCLUSIVE PRODUCTS which is attributed solely to incorporation of NOCOPI TECHNOLOGY. 1.03 As used herein, the term "DESIGN RIGHTS" shall mean design rights (whether registered or unregistered) which are owned or which may hereafter be owned by NOCOPI and which relate to the NOCOPI TECHNOLGY. 1.04 The "EFFECTIVE DATE" of this Agreement shall be the date first hereinabove written. 1.05 As used herein, "EUROPE" shall mean all countries as are encompassed within the area bounded by the Atlantic Ocean on the West, the Arctic Ocean on the North, the Mediterranean and its annexes on the South and the fifty (50) longitude on the East, and including also all countries or territories comprised in the geographic territories of the area previously occupied by the former Union of Soviet Socialist Republics, as well as overseas territories and departments of any country in Europe. 1.06 As used herein, the term "EXCLUSIVE PRODUCTS" shall mean only those products which incorporate NOCOPI TECHNOLOGY during the manufacturing of paperboard and paper products. 1.07 As used herein, the term "NOCOPI TECHNOLOGY" shall mean the technology furnished by NOCOPI dealing with and relating to, among other things: (1) a system Page 3 incorporating activating inks; (2) highlighter pens; (3) counterfeit deterrent inks; and (4) information protection systems; and (5) all know-how, unpatented technology, inventions, methods, patents or processes relating to the NOCOPI TECHNOLOGY now or which hereafter during the term of this agreement may be in the possession, custody or control of NOCOPI. 1.08 As used herein, the term "NOCOPI REPORT" shall mean a written report, which shall list the sale price and customer (or customer code) rather than actual name of all NON-EXCLUSIVE PRODUCTS and EXCLUSIVE PRODUCTS sold by the LICENSEE during the preceding ROYALTY PERIOD. 1.09 As used herein, the term "NON-EXCLUSIVE PRODUCTS" shall mean and shall be restricted to products derived from printing, coating or coding applications and which incorporate NOCOPI TECHNOLOGY. 1.10 As used herein, the term "QUARTERLY ROYALTY PERIOD" shall mean the period of three (3) calendar months commencing on the Effective Date, and every three (3) month period thereafter during the term of this Agreement. 1.11 As used herein, the term "ROYALTY PERIOD" shall mean a period of twelve (12) calendar months commencing on the Effective Date, and every twelve (12) month period thereafter as long as this Agreement remains in effect. 1.12 As used herein, the term "TERM" shall mean the time period contemplated by Article V1. 1.13. As used herein the term "TERRITORY" shall mean the world. Page 4 ARTICLE II - LICENSE 2.01 NOCOPI hereby grants to the LICENSEE, the exclusive right to market, promote, sell and manufacture EXCLUSIVE PRODUCTS in the TERRITORY. 2.02 NOCOPI also grants to the LICENSEE the non-exclusive right to market, promote, sell and manufacture NON-EXCLUSIVE PRODUCTS in the TERRITORY. 2.03 The LICENSEE will within thirty (30) days of the Effective Date, and on each anniversary date thereof during the term of this Agreement provide NOCOPI in good faith with an estimate of the ADDITIONAL EARNINGS that the LICENSEE expects will be realized from sales in EUROPE during the ensuing twelve month period, it being understood that such estimate shall not be deemed a representation and/or warranty by the LICENSEE as to its attainment. 2.04 NOCOPI undertakes that it will make complete and full disclosure to the LICENSEE of all of the NOCOPI TECHNOLOGY required to enable the LICENSEE to market, sell and distribute EXCLUSIVE and NON-EXCLUSIVE PRODUCTS in the TERRITORY. 2.04.1 the Licenses granted in, Articles 2.01 and 2.02 shall specifically include the right to sub-license an unaffiliated third party, provided: (i) that all such sub-licensees have executed contracts with NOCOPI which contain secrecy and confidentiality provisions contemplated by Article IX; and (ii) that the LICENSEE shall have delivered to NOCOPI within a period of ten (10) business days of execution a copy of each contract. Page 5 2.05 Notwithstanding the provisions of clauses 2.01 and 2.02 hereof but in addition thereto, NOCOPI agrees and acknowledges that as long as this Agreement remains in effect, that NOCOPI will treat as exclusive customers of the LICENSEE all customers to whom the LICENSEE may have sold NON-EXCLUSIVE PRODUCTS during the term of this Agreement. The LICENSEE recognizes and agrees that it will include all such sales in its report of ADDITIONAL EARNINGS. ARTICLE III - SUPPLY OF RAW MATERIALS 3.01 NOCOPI agrees with the LICENSEE that NOCOPI shall provide all necessary deterrent inks and dyes required by the LICENSEE for the EXCLUSIVE PRODUCTS and NON-EXCLUSIVE PRODUCTS the whole at NOCOPI'S cost plus fifteen percent(15%). LICENSEE will receive a schedule of sort by the EFFECTIVE DATE. No change will be made except upon written notice given to LICENSEE at least thirty (30) days prior to the effective date of such change. 3.02 The LICENSEE shall pay NOCOPI for the costs of all such inks within a period of forty-five (45) days following the date of invoice. ARTICLE VI - CONSIDERATION 4.01 In consideration of the rights granted to LICENSEE under this Agreement for the NOCOPI TECHNOLOGY, LICENSEE agrees to pay to NOCOPI royalties in accordance with the clauses hereinafter following. 4.02 For each ROYALTY PERIOD commencing on September 1, 2000, LICENSEE shall pay to NOCOPI at the times and in the manner set out in clauses 4.03 and 5.02 hereof a minimum annual royalty fee equal to the greater of One Hundred Thousand Dollars ($100,000.00) or five percent (5%) of the ADDITIONAL EARNINGS. In the event that one or more NOCOPI TECHNOLOGIES are incorporated by the LICENSEE into NON-EXCLUSIVE PRODUCTS and EXCLUSIVE PRODUCTS the Royalty Fee Page 6 shall be reduced to two and one-half percent (2 1/2%) for all such products utilizing NOCOPI TECHNOLOGY. 4.03 The minimum annual royalty fee of One Hundred Thousand Dollars ($100,000.00) shall be paid by the LICENSEE to NOCOPI by way of twelve (12) equal and consecutive payments of Eight Thousand Three Hundred and Thirty-Three Dollars ($8,333.00), each month commencing September 1, 2000 and thereafter continuing on the first day of each month during the term of the Agreement. Each such payment shall reflect a credit for any royalty payment due and paid at the same date or previously paid on account of the same year. ARTICLE V - RECORDS AND REPORTS 5.01 LICENSEE agrees to keep accurate and complete records in sufficient detail to record the ADDITIONAL EARNINGS for each of EUROPE and the rest of the TERRITORY during each QUARTERLY ROYALTY PERIOD or during each ROYALTY PERIOD, as the case may be, so that the amount of royalty payments due to NOCOPI may be ascertained. 5.02 LICENSEE shall deliver to NOCOPI. (i) not later than forty-five (45) days after the close of each ROYALTY PERIOD during the TERM; and (ii) commencing with the QUARTERLY ROYALTY PERIOD beginning on September 1, 2000, not later than forty-five (45) days after the close of each QUARTERLY ROYALTY PERIOD; and (iii) after the termination of this Agreement; A statement specifying the information referred to in clause 5.01 hereof and in such form and containing such details as NOCOPI reasonably requires substantiating LICENSEE'S ADDITIONAL EARNINGS in each of EUROPE and the rest of the Page 7 TERRITORY during the applicable period. LICENSEE shall, at the same time as providing the said statement, also remit the amount of any royalties due in accordance with the statement. The receipt or acceptance by NOCOPI of any statements furnished pursuant to this Agreement or any royalty payments paid hereunder (or the cashing of any cheques paid hereunder) shall not preclude NOCOPI from questioning the correctness thereof at any time and in the event that inconsistencies or mistakes are discovered in such statements or payments, they shall be rectified and appropriate payments shall immediately by made by LICENEE or credit given to LICENSEE by NOCOPI, as may be appropriate. 5.03 If LICENSEE fails to deliver such a statement to NOCOPI within forty-five (45) days of the end of the particular period, NOCOPI, in addition to any other rights and on not less than ten (10) days prior notice to LICENSEE, may employ an independent auditor qualified to practice and practicing in the United States, to examine such books and records of LICENSEE as may be necessary to enable him to report upon and certify the amount of ADDITIONAL EARNINGS and LICENSEE will promptly pay to NOCOPI the cost thereof as additional royalty. 5.04 LICENSEE agrees, upon request by NOCOPI, to permit an auditor qualified to practice and practicing in the United States, who may be designated by either party, to have access during normal business hours at least once annually on ten (10) business days' notice, to audit such books and records as may be necessary to determine the correctness of any report or payment made under this Agreement. On request, with reasonable notice, LICENSEE will make available at its offices, all relevant books of account and records. 5.05 If any audit reveals a discrepancy between the amount payable to NOCOPI and the amounts actually paid to NOCOPI and if that discrepancy exceeds five percent (5%) of the amounts payable as determined in the audit, LICENSEE shall pay all of NOCOPI'S reasonable costs associated with such audit. Otherwise, all costs associated with any audit shall be the responsibility of NOCOPI. Page 8 5.06 LICENSEE shall be entitled to receive copies of all audit reports prepared pursuant to this Article V. ARTICLE VI - MARKING AND USE OF NOCOPI'S TRADEMARK 6.01 If LICENSEE and/or any of its sublicensees utilize the trademark "NOCOPI" or any other trademark owned by NOCOPI in association with the NOCOPI TECHNOLOGY, they shall do so only in respect of products the quality and specifications of which have been previously approved of by NOCOPI, and LICENSEE shall provide NOCOPI with adequate opportunity so that NOCOPI may satisfy itself that such quality and specifications are maintained during continuance of such use. Before using such trademark in any area, LICENSEE and/or its sublicensees shall be responsible for acquainting themselves with and informing NOCOPI of all licensing formalities, user registration and quality control requirements applicable in such area, which are reasonably necessary to the protection of NOCOPI'S interest in the trademark, and NOCOPI shall co-operate with LICENSEE and/or its sublicensees at their respective expense in fulfilling such requirements, it being understood that in any area where NOCOPI takes no steps to register the trademark, there shall be no such obligation on LICENSEE and/or its sublicensees in respect of such requirements other than quality control. In the event that any good will shall accrue to LICENSEE in the trademark "NOCOPI" or any other trademark of NOCOPI in any area, LICENSEE and/or its sublicensees will agree in writing to assign such goodwill to NOCOPI on termination of this license or upon request by NOCOPI to this extent that such can be accomplished under generally accepted accounting principles. Nothing herein shall be deemed to prevent Westvaco from selling NON-EXCLUSIVE and EXCLUSIVE PRODUCTS under its own tradenames. ARTICLE VII - TERM AND TERMINATION 7.01 This Agreement shall commence on September 1, 2000 and shall continue until August 31, 2001 (unless terminated as hereinafter provided); and thereafter from year to year, unless and until terminated as provided for in Clause 7.02.1 hereof. Page 9 7.02 LICENSEE and NOCOPI shall have the option of terminating this Agreement in the following circumstances: 7.02.1 by not less than ninety (90) days' notice, in advance and in writing, given by either Party to the other, prior to August 31, 2001 or, in the event that this Agreement continues after the first 12-month period, by one hundred and twenty (120) days' notice, in advance and in writing, given by either Party to the other. 7.02.2 if a Party shall make any composition with creditors or go into liquidation whether voluntary or compulsory (other than for the purpose of solvent amalgamation or reconstruction) or analogous proceedings shall be commenced, then the other Party may, by notice in writing, forthwith terminate this Agreement. ARTICLE VIII - ADDITIONAL OBLIGATIONS 8.01 NOCOPI will provide, at the expense of the LICENSEE, such technical training for personnel of the LICENSEE as may be required in order to acquaint the LICENSEE with the NOCOPI TECHNOLOGY. For these purposes, "expense" shall include travel costs only and not include salary or other compensation or the cost of benefits for NOCOPI personnel whether employed by NOCOPI or retained by NOCOPI on any other basis. 8.02 The LICENSEE shall immediately advise NOCOPI of any legal notices served on the LICENSEE which might affect NOCOPI, handle promptly all correspondence from NOCOPI, and assist and co-operate with NOCOPI's officers, research and sales personnel during their trips to the facilities of the LICENSEE and/or the suppliers of the LICENSEE. Page 10 ARTICLE IX - LIMITATIONS OF LIABILITY AND HOLD HARMLESS 9.01 Each Party expressly saves and holds the other Party, and any AFFILIATES, harmless from any and all liability of any kind or nature whatsoever to customers and to other third parties which may arise from its negligent acts or omissions. 9.02 NOCOPI warrants that the licenses and rights granted pursuant to this Agreement, when used as intended and without unauthorized modification, do not violate any right or infringe any patent, copyright or other protection of intellectual property belonging to any third party. NOCOPI agrees to defend, indemnify, and hold harmless Westvaco and Westvaco's principals, directors, officers, employees, and/or agents from and against any and all liabilities, penalties, claims, demands, suits, and causes of action of any nature whatsoever, whether groundless or otherwise, and any and all damages, costs and expenses sustained or incurred (including cost of defense, settlement, and reasonable attorneys' fees), asserted by or on behalf of any person or entity arising out of any claim that any of the licenses or rights granted by NOCOPI pursuant to this Agreement, or the NOCOPI TECHNOLOGY applied pursuant to this Agreement, infringe any patent, copyright or protection of intellectual property generally, whether such claim is valid or baseless and wherever it may arise. This undertaking shall expressly survive any termination of this Agreement 9.03 Except as herein expressly stated, there are no warranties, expressed or implied, by operation of law or otherwise, for any item furnished hereunder. NOCOPI disclaims any implied warranty or merchantability or fitness for a particular purpose. In no event shall either Party, or its AFFILIATES, be liable for any incidental, indirect or consequential damages in connection with or arising out of this Agreement. ARTICLE X - CONFIDENTIALITY 10.01 The LICENSEE shall keep secret and confidential, the NOCOPI TECHNOLOGY and/or DESIGN RIGHTS made available to it by NOCOPI and shall not disclose the same other than to those Directors and employees of the LICENSEE or any Page 11 AFFILIATE of the LICENSEE who may be deemed to have a legitimate reason to be party to the NOCOPI TECHNOLOGY and/or DESIGN RIGHTS. 10.02 NOCOPI shall keep secret and confidential, any information which the LICENSEE passes to NOCOPI and not disclose the same except to its own employees as necessary to carry out the purposes of this Agreement. 10.03 The obligations of secrecy undertaken by both Parties pursuant to this Article X, shall not apply to information which: 10.03.1 is already, or which subsequently becomes generally known to the public through no fault of the recipient: or 10.03.2 the recipient can demonstrate was known to the receipt prior to the date disclosed. For the purposes hereof, that which the recipient can demonstrate was known will be that which the receipt can establish by written evidence was known to it at the date disclosed; or 10.03.3 is received from a third party, provided that such third party is lawfully entitled to disclose the same; or 10.03.4 is disclosed in any patent or patent application which may publish. 10.04 The obligations of secrecy pursuant to this Article (X) shall expire on the tenth anniversary of the termination of this Agreement as hereinabove provided. 10.05 The provisions of this Article (X) contain the entire understanding and agreement between the Parties with respect to matters dealing with confidentiality and cannot be Page 12 amended, modified or supplanted in any respect except by a subsequent written agreement entered into by both parities. ARTICLE XI - IMPROVEMENTS 11.01 During the term of this Agreement, the LICENSEE shall disclose to NOCOPI any improvements to the NOCOPI TECHNOLOPY and/or DESIGN RIGHTS which the LICENSEE may discover or which comes into its possession. Any such improvements shall, from the time of the LICENSEE's knowledge, conception or development, be the property of NOCOPI. Upon request by NOCOPI, the LICENSEE shall execute and deliver to NOCOPI such instrument as NOCOPI may reasonably request in order to achieve such industrial or intellectual property status as NOCOPI shall deem appropriate to perfect the assignment of the rights so granted by the LICENSEE to NOCOPI. ARTICLE XII - MISCELLANEOUS 12.01 Neither the LICENSEE nor NOCOPI shall be in default under this Agreement nor be liable for any failure to perform or for any delay in performance resulting from any cause beyond its/their reasonable control or due to compliance with any regulations, orders or act, of any federal, provincial, state or municipal government, or any department or agency thereof, civil or military authority, acts of God, acts or omissions of the other party, fires, floods or weather, strikes or lockouts, factory shutdowns, embargoes, wars, hostilities or riots, delays or shortages in transportation or inability to obtain labor, manufacturing facilities or material. 12.02 Each of the Parties shall bear all taxes imposed on each of them as a result of the existence or operation of this Agreement including, but not restricted to, any tax on or measured by any payment required to be made by it hereunder, any registration tax, any tax imposed with respect to the granting of, or transfer of, licenses or other rights or payments hereunder. Page 13 12.03 This Agreement may be varied or amended only by the written agreement of the Parties hereto through their duly authorized officers or representatives. 12.04 In any case where any notice or other communication is required or permitted to be given hereunder, such notice or communication shall be in writing and (I) personally delivered; (ii) sent by postage prepaid registered mail, or (iii) transmitted by telex or facsimile to the Parties at the addresses first hereinbefore listed or to such other addresses as the Parties may notify each other. 12.05 The relationship between the Parties shall be governed by the terms of this Agreement and shall not extend to other activities, transactions or contracts. Neither Party is in any way the legal representative or agent of, nor has nay authority to assume or create any obligation on behalf of, the other Party. The LICENSEE shall make no guarantees, warranty or representation with respect to the EXCLUSIVE PRODUCTS or to the NON-EXCLUSIVE PRODUCTS. 12.06 If any provision of this Agreement is held illegal in a judicial proceeding, such provision shall be severed from this Agreement and shall be inoperative. The Parties shall use their best endeavors to replace the severed provision with a new provision which is not illegal and which follows the principles of the severed provision as closely as is legally possible. The remainder of this Agreement shall remain binding on the Parties hereto. 12.07 No waiver of breach of any of the provisions of this Agreement shall be construed to be a waiver of any succeeding breach of the same or any other provision. 12.08 This Agreement may be executed in any number of counterparts. Any single counterpart or set of counterparts signed, in either case, by the Parties hereto, shall constitute a full and original Agreement for all purposes. Page 14 12.09 The descriptive headings of the several articles of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 12.10. The preamble hereof shall be deemed to form part of this Agreement for all purposes. ARTICLE XIII - SUPPLY OF INK 13.01 NOCOPI agrees that during the tendency of this Agreement that it will supply ink proprietary to NOCOPI at NOCOPI's cost plus fifteen percent (15%). The obligation to supply such ink shall apply only for that quantity of ink that is ordered by a purchase order emanating from the LICENSEE and which is received by NOCOPI at least thirty (30) days prior to the requested delivery date. 13.02 NOCOPI further agrees that upon request by the LICENSEE that it will provide statements justifying its cost of production for the NOCOPI ink. ARTICLE XIV - GOVERNING LAW 14.01 This Agreement shall be governed by the laws of Pennsylvania. Any action to enforce any provision of this Agreement shall be brought in an appropriate court in Pennsylvania and both parties hereby consent to the jurisdiction of Pennsylvania. ARTICLE XV - BINDING EFFECT ASSIGNMENT 15.01 This Agreement may not be assigned by either Party without the written consent of the other Party (such consent not to be unreasonably withheld) except that the LICENSEE may assign this Agreement to an AFFILIATE without consent. No assignment of this Agreement shall be valid unless and until all of the obligations of the assigning party have been assumed, in writing, by the assignee. When duly assigned in accordance with the foregoing, this Agreement shall be binding upon and inure to the benefit of the assignee. Any attempted assignment in contravention of this Agreement shall be void. Page 15 ARTICLE XVI - ARBITRATION 16.01 In the event of any dispute, difference or question arising between the Parties in connection with this Agreement, or any clause or the construction thereof, or the rights, duties or liabilities of either Party, which cannot be amicably resolved by the Parties, then and in every such case, unless the Parties concur in the appointment of a single arbitrator, the matter of difference shall be referred to three (3) arbitrators, one to be appointed by each Party, and the third to be nominated by the two so selected by the Parties, or if they cannot agree on a third, by a presiding judge of the Superior Court of the State of Pennsylvania. 16.02 In the event that either Party, within thirty (30) days of any notification made to it of the demand for arbitration by the other Party, shall not have appointed its arbitrator, such arbitrator shall be appointed by a presiding judge of the Superior Court of Pennsylvania. Arbitration shall take place at Philadelphia. The arbitrators must base their decision on this Agreement and their decision shall be binding on both parties. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their respective representatives thereunto duly authorized as of the date first hereinabove written. NOCOPI TECHNOLOGIES, INC. per:/s/ ------------------------------ Michael Feinstein, M.D. Chairman WESTVACO BRAND SECURITY, INC. per:/s/ ------------------------------ Stanley Gene Hart President EX-10.15 4 0004.txt EXHIBIT 10.15 EXHIBIT 10.15 Agreement dated December 19th, 2000 by and between NOCOPI TECHNOLOGIES, INC., a corporation organized and existing under the laws of Maryland, with offices at 537 Apple Street, West Conshohocken, Pennsylvania 19428-2903 ("NOCOPI"), and WESTVACO BRAND SECURITY INC., a corporation organized and existing under the laws of Delaware, with offices at One High Ridge Park, Stamford, Connecticut 06905, and its AFFILIATES ("LICENSEE"). 1. This Agreement amends a certain License Agreement (the "License Agreement") between the parties dated as of September 1, 2000. Section 1.13 is amended to state in its entirely as follows: Section 1.13 As used here there term "TERRITORY" shall mean the world with the exclusion of EUROPE as defined in the License Agreement. Section 4.03 is deleted in its entirely and all payments made to date under this section shall be returned to LICENSEE. Sections 7.01 and 7.02.1 are amended to set forth in their entirety are follows: 7.01 This Agreement shall commence on September 1, 2000 and shall continue until August 31, 2003 (unless terminated as hereinafter provided); and thereafter from year to year, unless and until terminated as provided for in Clause 7.02.1 hereof. 7.02 LICENSEE and NOCOPI shall have the option of terminating this Agreement in the following circumstances: 7.02.1 After August 31, 2003, by one hundred and twenty (120) days' notice, in advance and in writing, given by either Party to the other. 2. If at any time during the term of the License Agreement, NOCOPI becomes able to grant LICENSEE the exclusive right to market, promote, sell and manufacture EXCLUSIVE PRODUCTS throughout the world, and the non-exclusive right to market, promote, sell and manufacture NON-EXCLUSIVE PRODUCTS, throughout the world, then TERRITORY shall be immediately redefined to include EUROPE, and NOCOPI will take all necessary actions to confirm such right. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their respective representatives thereunto duly authorized as of the date first hereinabove written. NOCOPI TECHNOLOGIES, INC. per: /s/ ----------------------------------- Michael Feinstein, M.D. Chairman WESTVACO BRAND SECURITY INC. per: /s/ ------------------------------------ Stanley Gene Hart President EX-10.16 5 0005.txt EXHIBIT 10.16 EXHIBIT 10.16 Agreement dated as of March 2nd , 2001 by and between NOCOPI TECHNOLOGIES, INC., a corporation organized and existing under the laws of Maryland, with officers at 537 Apple Street, West Conshohocken, Pennsylvania 19428-2903 (`NOCOPI"), and WESTVACO BRAND SECURITY, INC., a corporation organized and existing under the laws of Delaware, with offices at One High Ridge Park, Stamford, Connecticut 06905, and its AFFILIATES ("LICENSEE"). 1. This Agreement amends a certain Agreement dated December 19, 2000 (the "Agreement of Amendment") and further amends a certain License Agreement (the "License Agreement") between the parties dated as of September 1, 2000. 2. At any time prior to January 1, 2003, LICENSEE may, by written notice given to NOCOPI, elect to include EUROPE, as defined in the License Agreement, within TERRITORY also as defined in the License Agreement. 3. At such time as LICENSEE elects to include EUROPE within TERRITORY as provided in "2," NOCOPI and LICENSEE shall both service the customer accounts in EUROPE which NOCOPI had established or will establish. With respect to these accounts, NOCOPI and LICENSEE shall divide equally the proceeds from each account after each recovers its respective costs for that account. Such accounts, as existing on this date, shall be set forth by March 31, 2001 on Exhibit A. Accounts established by LICENSEE shall be maintained by LICENSEE with NOCOPI receiving the fees only as provided in the LICENSE AGREEMENT. 4. In order to enable LICENSEE to continue to service customers, NOCOPI shall place in escrow all of the intellectual property, including all of the formulae and techniques, needed to manufacture the inks used in producing products which incorporate Nocopi Technology as defined in the License Agreement. The materials placed in escrow shall be released to Licensee if (i) Licensor shall be in material breach of its obligations under the License Agreement, (ii) Licensor (or any successor) shall cease to conduct business as a going concern, or (iii) Licensor, as a debtor in bankruptcy proceedings, shall reject the License Agreement pursuant to Section 365 of the Bankruptcy Code (11 U.S.C. Section 365). IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. NOCOPI TECHNOLOGIES, INC. WESTVACO BRAND SECURITY, INC. By /s/ By /s/ --------------------------------- --------------------------------- Michael A. Feinstein, M. D. Stanley G. Hart Chairman President EX-10.17 6 0006.txt EXHIBIT 10.17 EXHIBIT 10.17 STOCK PURCHASE AGREEMENT The shares of common stock offered and sold hereby have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state or other jurisdiction. These shares have been offered and will be sold in reliance upon exemptions from the registration requirements of the securities act and such laws. The sale or other disposition of these shares is restricted in accordance with the Securities Act and such laws, and may only be made pursuant to a registration under the Securities Act and those laws unless an exemption from the registration requirements thereof is available. No offer, sale or other disposition of these shares may be made, directly or indirectly, except in accordance with the Securities Act and such laws, and the rules thereunder. STOCK PURCHASE AGREEMENT dated the 20th day of February, 2001 between NOCOPI TECHNOLOGIES, INC., a Maryland corporation (the "Company"), and WESTVACO BRAND SECURITIES, INC., a Delaware corporation (the "Investor"). W I T N E S S E T H: WHEREAS, the Company proposed to offer and sell to Investor and Investor proposes to purchase from the Company an aggregate of 3,917,030 shares of the authorized and unissued common stock, par value $.0.01 per share (the "Shares") of the Company, all on the terms and conditions set forth in this Agreement; NOW, THEREFORE, the Company and Investor hereby agree as follows: 1. Purchase and Delivery. Investor hereby subscribes for and agrees to purchase, and the Company hereby agrees to sell to Investor, an aggregate of 3,917,030 Shares for an aggregate purchase price equal to $325,000. Investor shall promptly pay $300,000 on account of the purchase price to the Company in cash, by check or by wire transfer made in accordance with the Company's written instructions; the $25,000 balance of the purchase price shall be paid by crediting the Company's account payable to Investor and the Company shall promptly issue the Shares purchased to Investor. The Shares shall be represented by one or more share certificates, as Investor may reasonably direct. 2. Investor's Representations and Warranties. Investor represents and warrants to the Company, and acknowledges and intends that the Company rely thereon, as follows: (a) Investor is acquiring the Shares for Investor's own account, for investment purposes only and not with a view to making any distribution of such Shares, and no other person has a direct or indirect beneficial interest in such Shares; -1- (b) Investor is aware that the Shares are not registered under the Securities Act or any state securities laws, and are restricted securities. The sale or other disposition of the Shares by Investor is restricted in accordance with the Securities Act and such laws, and may only be made pursuant to a registration under the Securities Act and those laws unless an exemption from the registration requirements thereof is available; (c) Investor has investigated the purchase of the Shares to the extent Investor deems necessary or desirable. Investor has such knowledge and experience in financial and business matters that Investor is capable of evaluating the merits and risks of the acquisition of the Shares and of making an informed investment decision with respect thereto and Investor has the ability to bear the economic risk of an investment in the Company and to withstand a complete loss of his investment. Investor is financially able to hold the Shares for an indefinite period of time; (d) Investor has been furnished by the Company with copies of the Company's Annual Report on Form 10-KSB for the Company's fiscal year ended December 31, 1999, the Company's Quarterly Reports on Form 10-QSB for the Company's fiscal quarters ended March 31, 2000, June 30, 2000 and September 30, 2000 as filed with the Securities and Exchange Commission (the "SEC") and all other reports filed by the Company with the SEC on or after March 31, 2000 (collectively, the "Company's SEC Reports"). Investor has been afforded an opportunity to ask questions of, and receive answers from, representatives of the Company concerning the terms and conditions of Investor's purchase of the Shares and all other relevant matters and has been afforded the opportunity to obtain any additional information (to the extent the Company had such information or could acquire it without unreasonable effort or expense); (e) Investor understands that no United States federal or state agency or any agency of any other government has passed upon or made any recommendation or endorsement of any investment in the Company; (f) Investor has not been organized for the purpose of purchasing the Shares. (g) This Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action of Investor and its execution and delivery by Investors does not and will not violate or conflict with Investor's Certificate of Incorporation or by-laws, any judgment or decree binding upon Investor or any material agreement to which Investor is a party or by which it is bound; (ii) the undersigned natural person executing this Agreement on behalf of Investor has the requisite right, power, capacity and authority to enter into this Agreement on Investor's behalf; and (iii) this Agreement will be binding on and enforceable against Investor in accordance with its terms. 3. Representations and Warranties of the Company. The Company represents and warrants to Investor, and acknowledges and intends that Investor may rely thereon, as follows: -2- (a) The Company's SEC Reports constitute all reports required to be filed with the SEC by the Company on or after March 30, 2000. When filed, each of the Company's SEC Reports (except to the extent revised or superseded by a subsequent filing) complied as to form in all material respects with the requirements of the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder and, to the Company's knowledge after reasonable inquiry, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of when they were made and the circumstances under which they were made, not misleading. (b) This Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action of the Company and its execution and delivery by the Company do not and will not violate or conflict with the Company's Articles of Incorporation or by-laws, any judgment or decree binding upon the Company or any material agreement to which the Company is a party or by which it is bound; (ii) the undersigned natural person executing this Agreement on behalf of the Company has the requisite right, power, capacity and authority to enter into this Agreement on the Company's behalf; and (iii) this Agreement will be binding on and enforceable against the Company in accordance with its terms; (c) The Company is a corporation duly organized and validly existing under the laws of the State of Maryland. The Company has all necessary corporate power and authority to operate its business and presently conducted and to enter into and perform its obligations under this Agreement. The Company's authorized capital consists of ___ shares of common stock, par value $__ per shares, of which ____ shares are issued and outstanding on the date hereof. Except as described in the Company's SEC Reports, there are outstanding no options, warrants or similar instruments entitling or authorizing any person to purchase shares of common stock of the Company. The Shares, when paid for and issued in accordance with this Agreement, will be duly and validly issued, fully paid and non-assessable. (d) Except for the proceedings commenced against the Company by Euro-Nocopi, S.A in which certain shareholders of Euro-Nocopi have intervened as plaintiffs (which have been disclosed to Investor), there is no pending nor, to the Company's knowledge, threatened litigation or governmental investigation or proceeding against the Company. 4. Limitations on Transfer to be Noted on Share Certificates. Investor under stands and acknowledges that the certificates evidencing the Shares will be marked with a restrictive legend reflecting the unregistered status of the Shares under the Securities Act and any applicable state securities laws. In addition, Investor acknowledges that a notation referring to such status and the resulting limitations on the transferability of the Shares will be placed in the transfer records of the Company to aid in the prevention of transfers of record without compliance with the foregoing restrictions. -3- 5. Other Agreements. This Agreement shall become effective when it has been executed and delivered by the parties, provided that the parties shall also have executed and delivered a certain Registration Rights Agreement and a certain Collateral Assignment of Patent Rights, each of even date herewith. 6. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to its conflicts of law rules or principles. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to Investor's purchase of the Shares, and no amendment, alteration or modification of this Agreement shall be valid, unless such amendment, alteration or modification is expressed in a written instrument duly executed by Investor and the Company. (c) The representations and warranties made in Sections 2 and 3 of this Agreement shall survive for a period of one year following the consummation of the transactions contemplated hereby. (d) This Agreement shall inure to the benefit of and be binding upon the successors and assigns of Investor and the Company. (e) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) If any of the provisions contained herein shall be deemed to be unenforceable for any reason, the parties hereto agree that this Agreement shall be interpreted so as to be enforceable to the greatest extent possible. -4- IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. NOCOPI TECHNOLOGIES, INC. WESTVACO BRAND SECURITIES, INC. By:_____________________________ By:______________________________ Michael A. Feinstein, MD, Chairman Stan Hart, President -5- EX-10.18 7 0007.txt EXHIBIT 10.18 EXHIBIT 10.18 REGISTRATION RIGHTS AGREEMENT THIS AGREEMENT is dated February 20, 2001 by and between NOCOPI TECHNOLOGIES, INC., a Maryland corporation (the "Company") and WESTVACO BRAND SECURITY, INC., a Delaware corporation ("Holder"). WITNESSETH: Holder is the record and beneficial owner of 3,917,030 shares (the "Shares") of the Company's common stock, par value $.01 per share (the "Common Stock") representing approximately ten percent (10%) of the Company's currently outstanding Common Stock. Holder desires to obtain certain rights with respect to the registration of Shares under the Securities Act of 1933, as amended (the "Act") in order to facilitate the public sale and distribution of all or a part of such Shares, and the Company is willing to furnish such rights under and subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: 1. Registration Rights. ------------------- (a) Registration of Common Stock by the Company. At any time prior to February 20, 2003, whenever the Company shall propose to file a registration statement (other than on Form S-4, Form S-8 or any successor forms thereto) under the Securities Act of 1933, as amended (the "Act"), or a similar document under any other statute then in effect corresponding to the Act relating to the public offering of shares of Common Stock of the Company within the United States (a "Registration Statement"), the Company shall (i) give written notice at least thirty (30) days prior to the filing thereof to the Holder specifying the date on which the Company proposes to file such Registration Statement and advising the Holder of its right to have any Shares included therein, (ii) at the written request of the Holder given to the Company within fifteen (15) days after receipt of any such notice (which request shall specify the Shares intended to be sold or disposed of), include among the securities covered by such Registration Statement, the number of such Shares so requested to be included, and (iii) use its reasonable efforts to cause such Registration Statement to become effective and to remain effective for the period required to permit the public offering and sale by the Holder of the Shares covered thereby (but not for more than 90 days following the effective date thereof). However, if all or any part of the proposed registration is to be underwritten (whether on a "best efforts" or a "firm commitment" basis), the managing underwriter shall have the right to exclude Shares to the extent the inclusion of such Shares would, in the written opinion of such managing underwriter, adversely affect the successful distribution of the underwritten portion of the public offering, provided such exclusion applies on a proportional basis not only to the Shares but also to all other securities proposed to be included other than those for which the Company initiated the registration. Any exclusion of Shares shall be made pro rata among the Holder and other affected shareholders. (b) Ancillary Company Action to be Taken in Connection with Any Registration. Whenever the Company shall include any Shares among the securities covered by a Registration Statement pursuant to Section 1(a), the Company shall (i) comply with all applicable rules and regulations of the Securities and Exchange Commission in connection therewith, (ii) thereafter, for such period of time as shall be required in connection with the transactions contemplated thereby and permitted by applicable rules, regulations and administrative practice (but not for more than 90 days following the effective date of such Registration Statement), file such post-effective amendments and supplements thereto as shall be necessary so that neither such Registration Statement nor any related prospectus, prospectus supplement or amendment shall contain any material misstatement or omission relative to the Company or any of its assets or its business or affairs and so that such Registration Statement and prospectus, prospectus supplement or amendment will otherwise comply with all applicable legal requirements, (iii) furnish to the Holder such number of copies of such Registration Statement and any related preliminary prospectus, prospectus, post-effective amendment, supplement or similar document forming a part thereof as Holder may reasonably request) and (iv) take all action which may be necessary under the securities or Blue Sky laws of any state (except that the Company shall not be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction), and as may be reasonably requested by the Holder, to permit the public offering and sale of the Shares held by the Holder and covered by such Registration Statement. (c) Conditions Precedent to Registration. Anything in this Section 1 to the contrary notwithstanding, the Company shall not be obliged to include among the securities covered by a Registration Statement any Shares requested to be so included pursuant to Section 1(a) unless the Holder shall theretofore have furnished the Company, in writing, all information with respect to the Holder, the Shares requested to be so included, the transaction or transactions which the Holder contemplates and each underwriter who will act in connection therewith, which any law, rule or regulation requires to be disclosed therein. In addition, the obligations of the Company hereunder are subject to and conditioned upon the Holder's providing such other information and taking such action as may reasonably be requested by the Company in connection with such registration. (d) Expenses. If Holder requests that Shares be included in a Registration Statement pursuant to Section 1(a), the out-of-pocket expense incurred by the Company in connection with such Registration Statement or the public offering of securities thereunder which it would not have incurred but for such request, together with all underwriting discounts and commissions applicable to Holder's Shares, shall be borne by the Holder. -2- (e) Indemnification. The Holder shall indemnify, and agree to contribution in favor of, the Company, its directors, officers and affiliates, for any losses caused by any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in such Registration Statement or prospectus or any preliminary prospectus or any amendment or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement is contained in information specifically furnished in writing by the Holder expressly for use therein. Any person entitled to indemnification under the provisions of the Section 1(e) shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification, and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, permit such indemnifying party to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified party; and if such defense is so assumed, such indemnifying party shall not be subject to any liability for any settlement made without its consent (which shall not be unreasonably withheld). (f) Listing of Shares. At any time as any shares of Common Stock are listed on a national securities exchange or designated as a national market system security by the National Association of Securities Dealers, Inc. ("NASD"), or otherwise listed on the NASD automated quotation system, and a Registration Statement filed pursuant to Section 1(a) has been declared effective, the Company will promptly obtain and maintain the approval for listing of each such exchange or system, as the case may be, of the Shares included in such Registration Statement. (g) Excluded Shares. Any Shares shall be cease to be entitled to the benefits of the provisions of this Section 1 when (i) a Registration Statement covering such Shares has been declared effective and they have been disposed of pursuant to such effective Registration Statement, (ii) they are distributed to the public pursuant to Rule 144 or Rule 144A under the Act, or (iii) they have been otherwise transferred by the Holder. (h) Holdback. The Holder agrees, to the extent required by applicable law, not to effect any public sale or distribution of Shares, or any securities convertible into or exchangeable or exercisable for such Shares, during the five business days prior to, and during the 90 day period following, the effective date of such Registration Statements (except as part of such registration), if and to the extent timely notified in writing by the Company, in the case of a non-underwritten public offering, or by the managing underwriter, in the case of an underwritten public offering. The Company agrees not to effect any public sale or distribution of Common -3- Stock, any securities similar to the Shares, or convertible into or exchangeable or exercisable for such securities during the five business days prior to, and during the 90 day period following, the effective date of any Registration Statement in which the Holder is participating pursuant to this Section 1 (except as part of such registration and except pursuant to a registration on Form S-4 or Form S-8, or any successor to such forms). 2. Assignment; Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3. Entire Agreement; Modification. This Agreement constitutes the entire agreement of the parties with respect to its subject matter and supersedes all prior or contemporaneous understandings, negotiations and agreements of the parties concerning such subject matter. This Agreement may be modified only in a writing signed by the parties hereto specifically stating an intent to modify this Agreement. 4. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with the substantive laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed within that State, without giving effect to conflicts of laws principles. 5. Notice. Any notice, request or other communication required or permitted to be given pursuant to this Agreement shall be in writing and shall be (a) mailed by U.S. Express Mail or U.S. Certified Mail, in either case Return Receipt Requested, (b) delivered by recognized overnight courier such as Federal Express, or (c) hand delivered to the party to whom addressed at the following addresses: if to the Company, Nocopi Technologies, Inc. 537 Apple St. West Conshohocken, PA 19428 Attn: Michael A. Feinstein, Chairman with copy to: Hangley Aronchick Segal & Pudlin One Logan Square Philadelphia, PA. 19103 Attn: Thomas F. Hurley, Esquire if to the Holder, Westvaco Brand Security, Inc. One High Ridge Park Stamford, CT 06905 Attn: Stanley Hart, President -4- or at such other address as may be designated by a party in writing. All written communications shall be deemed effective upon the earlier of the actual receipt thereof by the addressee or the expiration of two business days from the date such communication is placed in the hands of the post office, a recognized overnight courier, or a messenger service. IN WITNESS WHEREOF, this Agreement has been executed by the parties the day and year first above written. NOCOPI TECHNOLOGIES, INC. By:______________________________________ Michael A. Feinstein, Chairman WESTVACO BRAND SECURITY, INC. By:______________________________________ Stanley Hart, President -5- EX-10.19 8 0008.txt EXHIBIT 10.19 EXHIBIT 10.19 COLLATERAL ASSIGNMENT OF PATENT RIGHTS THIS COLLATERAL ASSIGNMENT OF PATENT RIGHTS (this "Assignment") is made the 20th day of February, 2001 by and between NOCOPI TECHNOLOGIES, INC., a Maryland corporation ("Assignor"), and WESTVACO BRAND SECURITY, INC., a Delaware corporation ("Assignee"). Background Assignor and Assignee have entered into a License Agreement dated as of September 1, 2000 and an Amendment thereto dated December 19, 2000 (such agreement, as so amended and as it may hereafter further be amended, is hereinafter referred to as the "License Agreement") pursuant to which, among other things, Assignor granted to Assignee rights to market, promote, sell and manufacture certain products which incorporate "Nocopi Technology" (as such term is defined in the License Agreement.) Certain elements of the Nocopi Technology are the subject of one or more of the United States patents (such patents, together with all related patent applications and submittals and all extensions and modifications thereof, are hereinafter referred to as the "Patents"). Assignor and Assignee desire to enter into this Agreement in order to secure the performance by Assignor of its obligations under the License Agreement. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, receipt of which the parties hereby acknowledge, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Assignment to Secure Obligations. To secure the full and timely performance by Assignor of its obligations under the License Agreement and, without limiting the generality of the foregoing, the prompt payment of any damages owed by Assignor to Assignee by reason of Assignor's breach or wrongful termination of the License Agreement, together with any interest accrued thereon at the legal rate (collectively, the "Obligations"), Assignor hereby pledges, assigns, hypothecates, delivers and sets over to Assignee and grants to Assignee a first lien on, and first security interest in all of Assignor's right, title and interest in and to all of the Patents heretofore or hereafter issued which are related to any elements of the Nocopi Technology and all of Assignor's rights thereunder and interests therein, together with all Proceeds of any of the foregoing (collectively, the "Patent Rights"). 1 2. Certain Rights of Assignee After Event of Default. 2.1 Sale of Patent Rights. If an Event of Default, as hereinafter defined, shall occur and be continuing, Assignee shall have the right, without demand of performance or other demand, advertisement or further notice of any kind (except the notice specified in Section 2.4 of the time and place of public or private sale) to or upon the Assignor or any other person (all and each of which demands, advertisements, and/or notices are, to the extent permitted by law, hereby expressly waived), forthwith to collect, receive, appropriate and realize upon the Patent Rights, or any part thereof, and forthwith to sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver the Patent Rights, or any part thereof, in one or more public or private sale or sales, at any exchange, board, auction or at the Assignee's offices or elsewhere, at such prices and on such terms as the Assignee may deem best, for cash or on credit or for future delivery without assumption of any credit risk. At any such sale or sales Assignee or its nominee may purchase any or all of the Patent Rights upon such terms as he may deem best. Any sale shall be conducted in a commercially reasonable manner. 2.2 Effect of Sale. Upon any such sale or sales, the Patent Rights so sold shall be held by the purchasers thereof absolutely free from any right or equity of redemption in Assignor, or any similar rights, claims or equities, all of which are hereby expressly waived and released by Assignor. 2.3 Application of Proceeds Upon Disposition of the Collateral. The proceeds of any sale or sales of the Patent Rights shall be received and applied, after deduction for any expenses of sale including reasonable attorneys' fees and disbursements, to the payment of the Obligations in any manner or order which Assignee, in its sole discretion, may elect, without further notice to or consent of Assignor and without regard to any equitable principles of marshaling or other like equitable doctrines, and any excess shall be returned to Assignor. Assignor hereby acknowledges and agrees that Assignee is not required to exercise all remedies and rights available to him equally with respect to all of the Patent Rights and Assignee may select less than all of the Patent Rights with respect to which the remedies as determined by Assignee may be exercised. 2.4 Reasonable Notice of Proposed Sale. Assignee agrees to give ten (10) days advance notice to the Assignor of the time and place of any public or private sale or sales of the Patent Rights and the Assignor agrees that such notice shall constitute reasonable notification. 2.5 Remedies Cumulative. Assignor agrees that the rights, powers and remedies given to Assignee by this Agreement are cumulative and not exclusive of any thereof or of any other powers, rights or remedies available to Assignee. 3. Representations and Warranties. Assignor hereby covenants, represents and warrants as follows: 3.1 The Patent Rights are owned by Assignor free and clear of any pledge, mortgage, hypothecation, lien, charge, encumbrance, or security interest therein or any other adverse claim with respect thereto. 2 3.2 This Assignment creates a valid first lien on and perfected security interest in the Patent Rights, subject to no prior security interest, lien, charge, or encumbrance or agreement granting or purporting to grant to any third party a security interest or other lien in the Patent Rights. 3.3 As long as any part of the Obligations is outstanding or not paid in full, Assignor will not sell, assign, convey, or otherwise dispose of any of the Patent Rights, nor create, incur, or permit to exist any pledge, mortgage, lien, charge, encumbrance, or any security interest whatsoever with respect to the Patent Rights. 3.4 Assignor shall not change its name or commence to do business under any other name without having first (a) given to Assignee at least thirty (30) days' prior written notice of such change and (b) executed, delivered and filed (and paid filing fees and taxes) all such documents as may be necessary or advisable in the opinion of Assignee to continue to perfect and protect the liens created hereby. 3.5 Assignor has full right, power and authority to enter into this Assignment. The execution and delivery of this Assignment by Assignor has been duly authorized by the board of directors of Assignor, and such action by the Assignor's board of directors constitutes all necessary corporate action on the part of Assignor in connection with such execution and delivery. For the purposes of this Section 3, it is understood and agreed that the interests of other licensees of the Nocopi Technology or elements thereof will be deemed not to be an encumbrance upon any of the Patent Rights. 4. Further Assurances. Assignor agrees that at any time or times, promptly upon written request by the Assignee, Assignor will execute and deliver such further documents and do such further acts as may, in the reasonable opinion of Assignee, be necessary to assure that the Patent Rights are subject to a valid, perfected first security interest and/or first lien hereunder, and at Assignor's expense, cause all such documents to be filed or recorded in the manner required by law to secure the effectiveness and the continuation and perfection of the security interests hereby created. 5. Additional Security. Assignee may take or release other security, may grant extensions, renewals or indulgences with respect to the Obligations, and may apply any other security therefor held by Assignor to the satisfaction of the Obligations without prejudice to any of its rights hereunder. 6. Satisfaction of Obligations. Upon the full satisfaction of the Obligations, this Assignment shall become void and of no further effect, and, in such event, upon the reasonable request of Assignor, Assignee shall execute, deliver and file such documents as Assignor may reasonably determine are necessary or appropriate to confirm that the Obligations have been satisfied and/or that the security interest granted herein is terminated. 3 7. Event of Default. An Event of Default shall exist hereunder at such time as (i) Assignor shall have committed a material breach of the License Agreement, and (ii) the amount of Assignee's claim against Assignor arising from such breach shall have been liquidated by agreement of the parties, by entry of a final non-appealable judgment by a court having jurisdiction, or by allowance of such claim in connection with bankruptcy proceedings of Assignor. 8. Assignment. Assignee may assign all (but not less than all) of its right, title and interest in and to this Assignment, but only in connection with the permitted assignment of its interest under the License Agreement and only to the permitted assignee of such interest. 9. Severability. Any provision of this Agreement prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. 10. Survival of Terms. All agreements, covenants, representations and warranties in this Assignment shall survive the execution and delivery of this Assignment. 11. Expenses. Assignor will reimburse Assignee for all reasonable costs of collection or enforcement (including without limitation reasonable attorneys' fees and expenses) incurred in enforcing the obligations Assignor under this Assignment. 12. Notices. All notices required hereunder or given in connection with this Assignment shall be given in the manner permitted or required in the License Agreement. 13. Miscellaneous. This Assignment shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Pennsylvania, and it shall be binding upon Assignor and Assignee and their respective successors and assigns, and may not be terminated or modified orally but only in writing making specific reference hereto and signed by all the parties hereto. Headings in this Assignment are for reference purposes only and shall not limit or otherwise affect the meaning hereof. This Assignment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one Assignment. 4 IN WITNESS WHEREOF, each of the parties hereto has caused this Assignment to be duly executed as of the date first above written. NOCOPI TECHNOLOGIES, INC. WESTVACO BRAND SECURITY, INC. By:___________________________ By:_____________________________ Michael A. Feinstein, M.D., Stanley Hart, President Chairman 5 Exhibit A [List of Patents Pledged] 6 EX-10.20 9 0009.txt EXHIBIT 10.20 EXHIBIT 10.20 ESCROW AGREEMENT ESCROW AGREEMENT ("Escrow Agreement"), made March __, 2001, by and among WESTVACO BRAND SECURITY, INC., a Delaware corporation (the "Licensee"), NOCOPI TECHNOLOGIES, INC., a Maryland corporation (the "Licensor") and the law firm of HANGLEY ARONCHICK SEGAL & PUDLIN, a professional corporation ("HAS&P" or the "Escrow Agent"). Background Licensor and Licensee have entered into a License Agreement dated as of September 1, 2000 and an Amendment thereto dated December 19, 2000 (such agreement, as so amended and as it may hereafter further be amended, is hereinafter referred to as the "License Agreement") pursuant to which, among other things, Licensor granted to Licensee rights to market, promote, sell and manufacture certain products which incorporate "Nocopi Technology" (as such term is defined in the License Agreement.) Certain elements of the Nocopi Technology are the subject of one or more United States patents (such patents, together with all related patent applications and submittals and all extensions and modifications thereof, are hereinafter referred to as the "Patents"), and information concerning such elements is on file with the United States Patent and Trademark Office and is publicly available. Other information potentially necessary for the commercial exploitation of the Nocopi Technology as contemplated by the License Agreement is proprietary information of Licensor that is not publicly available. Contemporaneously with the execution of this Agreement, Licensor has executed and delivered to Licensee a certain Collateral Assignment of Patent Rights to secure its obligations under the License Agreement. To provide further assurances to Licensee that it will be able to enjoy the benefits accruing to it under the License Agreement, Licensee and Licensor have agreed that Licensor will deposit certain materials relevant to the Nocopi Technology with HAS&P, as escrow agent, to be held and delivered in accordance with the terms and conditions of this Agreement, and HAS&P has agreed to serve in such capacity, all under and subject to the terms and conditions of this Agreement. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Appointment of Escrow Agent. HAS&P is hereby appointed to act as escrow agent to hold the materials to be deposited with it as set forth in Section 2 (the "Escrow Materials") and to make distribution of the Escrow Materials only in accordance with the terms hereof, and HAS&P hereby accepts such appointment and agrees to act in the capacity of escrow agent in accordance with the terms hereof. 1 2. Delivery of Escrow Materials; Acknowledgment of Receipt. Within five Business Days (as hereinafter defined) after the execution hereof, Licensor shall deliver to HAS&P, in a sealed envelope, one copy of all unpublished and proprietary technical documentation, including relevant formulae, commentary and explanatory matter for the production of Nocopi's inks, reasonably necessary, together with information which is publicly available from the United States Patent and Trademark Office with respect to the Patents, to permit the commercial exploitation of the Nocopi Technology by Licensee as contemplated by the License Agreement without further assistance or cooperation by Licensor. Escrow Agent shall accept such sealed envelope and shall hold it unopened, without examining, or having any responsibility for reviewing, examining or verifying in any respect, the contents of such envelope. Promptly following its receipt of such envelope from Licensor, Escrow Agent shall acknowledge its receipt thereof in writing to Licensor and Licensee. 3. Disposition of Escrow Materials. The Escrow Agent shall not dispose of the Escrow Materials or any portion thereof except: (a) in accordance with a written instruction, in the form of Exhibit 3, executed jointly or in counterparts by both (i) Licensee and (ii) the Licensor (in which case the required disposition of the Escrow Materials or portion thereof shall be made within five (5) Business Days after the Escrow Agent's receipt of, and in accordance with, such instruction); or (b) to the Licensee, in accordance with Licensee's written demand for delivery, with a copy to the other parties hereto, accompanied by a copy of a final order or judgment of a court of competent jurisdiction or decision of an arbitration panel determining the rights of Licensee and the Licensor with respect to the Escrow Materials and supporting such demand for delivery, accompanied by an opinion of counsel to the demanding party, addressed to the Escrow Agent and stating that (i) such order or judgment has been finally affirmed on appeal by the highest court before which such appeal may be sought or has become final by lapse of time or is otherwise not subject to appeal or (ii) such decision of the arbitration panel is binding and is not subject to appeal (in which case the required disposition of the Escrow Materials or portion thereof shall be made within five (5) Business Days after the Escrow Agent's receipt of, and in accordance with, such demand, unless another time for such disposition is provided in the order, judgment or decision); or (c) to the Licensor, but only following written confirmation by the Licensee that the License Agreement is terminated and that it has no further interest as a licensee thereunder (which written confirmation Licensee agrees to furnish promptly upon the termination or expiration of the License Agreement); or 2 (d) to a successor escrow agent or a court of competent jurisdiction as contemplated by Section 4.8 of this Agreement; or (e) in the event that the Escrow Agent believes that a dispute exists or is likely to exist between the Licensor and the Licensee with respect to the License Agreement or the Escrow Materials, to any court of competent jurisdiction. "Business Day" shall mean a day other than a Saturday, Sunday or day on which a state bank is authorized or permitted to close in the Commonwealth of Pennsylvania. 4. Certain Provisions Pertaining to the Escrow Agent. Licensee and the Licensor hereby recognize and acknowledge that the Escrow Agent did not seek its role hereunder and is serving hereunder at the request of, and as an accommodation to, Licensee. The Escrow Agent is not being paid specially for services hereunder. Accordingly, it is understood and agreed as follows: 4.1 Administrative Duties. The Escrow Agent shall hold the Escrow Materials during the period or periods specified in this Escrow Agreement and shall dispose of the Escrow Materials in accordance with the terms hereof and not as the property of the Escrow Agent. The duties and responsibilities of the Escrow Agent shall be entirely administrative and not discretionary, and shall arise solely under and in accordance with this Escrow Agreement. 4.2 Limitation of Escrow Agent's Liability; Exculpation. Each of the Licensee and the Licensor agrees, for the Escrow Agent's benefit, that the Escrow Agent shall not be liable to Licensor or Licensee for monetary damages by reason of this Escrow Agreement, or by reason of the performance or non-performance by Escrow Agent of its duties hereunder, except for the actual damages of a party directly caused by the willful misconduct or bad faith of the Escrow Agent in connection with this Escrow Agreement. In no event shall the Escrow Agent be liable for any indirect, consequential, incidental, or special damages, or for punitive or exemplary damages. In addition, and not in limitation of the preceding paragraph, Escrow Agent shall not be liable for any reasonable action taken by it in good faith and believed by it to be authorized or within the rights or powers conferred upon it by this Escrow Agreement, and may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith or in accordance with or in reliance upon the opinion of such counsel. In addition, the Escrow Agent shall have no liability if it distributes the Escrow Materials in accordance with Section 3 or an order of a court of competent jurisdiction or if it delivers such Escrow Materials to such a court for disposition by such court. 3 4.3 Genuineness. Escrow Agent may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or printed by the proper party or parties. 4.4 Indemnification. Licensor and Licensee hereby, jointly and severally, indemnify and hold harmless the Escrow Agent and its shareholders, directors, officers and employees, and their respective successors, heirs and assigns, from and against all claims, demands, costs, liabilities and expenses, including, without limitation, attorneys' fees and costs which may be asserted against any of them or to which any of them may be exposed or may incur or suffer, directly or indirectly, by reason of the execution or performance or non-performance of this Escrow Agreement by Escrow Agent, unless (and only to the extent that) such claims, demands, costs, liabilities or expenses are based upon the willful misconduct or bad faith of the Escrow Agent in performing its duties pursuant to this Escrow Agreement. This Section 4.4 shall survive and continue in effect notwithstanding any termination of this Escrow Agreement or the resignation of the Escrow Agent. The indemnification provided in this Section 4.4 is only for the benefit of the Escrow Agent and its shareholders, directors, officers and employees and their respective successors and assigns, and not for the benefit of any other party to this Agreement.. 4.5 Reimbursement. Escrow Agent hereby agrees that it is serving hereunder as an accommodation to the Licensor and the Licensor and shall impose no charge for its services hereunder, provided such services are limited to the duties expressly set forth in this Escrow Agreement. 4.6 Waiver of Conflicts. Neither the Escrow Agent's acceptance of its duties as Escrow Agent hereunder nor its performance or non-performance thereof shall affect the right of the Escrow Agent to represent, or have business or other relationships with the Licensor, and Licensee and the Licensor each hereby waives all conflicts of interest or differing interests, if any, arising from or in connection with the acceptance and performance of this Escrow Agreement by the Escrow Agent. In addition, Licensee and the Licensor hereby agree that they will not raise or otherwise assert a claim against the Escrow Agent based upon a conflict of interest as a result of its service as Escrow Agent hereunder and representation of Licensor and agree that delivery by the Escrow Agent of the Escrow Materials into a court of competent jurisdiction shall satisfy any restrictions arising from a real or perceived conflict of interest that may arise in connection herewith. 4.7 No Other Duties. This Escrow Agreement expressly sets forth all the duties of the Escrow Agent with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Escrow Agreement against the Escrow Agent. Escrow Agent shall not be bound by the provisions of any agreement among the other parties hereto except this Escrow Agreement. 4.8 Resignation. Escrow Agent may resign and be discharged from its duties or obligations under this Escrow Agreement by giving not less than thirty (30) days' prior written notice to the Licensee and the Licensor of such resignation, provided that no such resignation shall be effective until a successor Escrow Agent, designated jointly by Licensee and the Licensor, has agreed to serve as Escrow Agent in accordance with the terms of this Escrow 4 Agreement. Notwithstanding the foregoing, if no successor is appointed within thirty (30) days after such resignation notice is deemed given hereunder, the Escrow Agent may deliver the Escrow Materials into a court of competent jurisdiction and, thereupon, shall be released from any and all obligations and liabilities arising under or in connection with this Escrow Agreement or its duties as an escrow agent hereunder. 5. Termination. The duties of the Escrow Agent shall be terminated (a) upon delivery of the Escrow Materials by the Escrow Agent in accordance with this Escrow Agreement; (b) by written mutual consent signed by all parties, or (c) by delivery of the Escrow Materials into a court of competent jurisdiction pursuant to or in accordance with this Agreement. 6. Miscellaneous. 6.1 Entire Agreement; Amendment. This Escrow Agreement embodies the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and there are no prior or contemporaneous agreements, understandings, inducements, conditions, representations, warranties, covenants or other commitments of any kind, express or implied, between the parties hereto, other than those set forth in this Escrow Agreement and in the other written agreements referred to in this Escrow Agreement. This Escrow Agreement may be amended only by a written instrument, signed by Licensee and the Licensor. 6.2 Exhibits and Sections. All references herein to an "Exhibit" or "Section" refer to an exhibit to or section of this Escrow Agreement. The captions of the Sections are not to be considered part of this Escrow Agreement, are included solely for convenience, are not intended to be full or accurate descriptions of the content thereof and shall not affect the construction thereof. The Exhibits are an integral part of this Escrow Agreement. 6.3 Severability. The provisions of this Escrow Agreement are severable, and in the event that any provision hereof should, for any reason, be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof, and such invalid or unenforceable provision shall be construed by limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. 6.4 Parties in Interest. All of the terms and provisions of this Escrow Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, delegatees, heirs, devisees, successors and assigns. Except as otherwise expressly provided herein, neither Licensee's nor an Licensor's rights or obligations under this Escrow Agreement shall be assignable without the express written consent of the other party. There are no intended third party beneficiaries of this Escrow Agreement 5 and this Escrow Agreement is not intended to, and shall not, create any right, cause of action in or on behalf of any person or entity other than the parties hereto and their respective successors or assigns. 6.5 Notices. All notices required to be given hereunder shall be given in writing to the appropriate party or parties at the following addresses: (a) If to Licensee: Westvaco Brand Security, Inc. One High Ridge Park Stamford, CT 06905 Attention: Chief Executive Officer (b) If to Escrow Agent: David B. Pudlin, Esq. Hangley Aronchick Segal & Pudlin, a professional corporation One Logan Square -- 27th Floor Philadelphia, PA 19103 (c) If to Licensor: Nocopi Technologies, Inc. 537 Apple Street West Conshohocken, PA 19428 Attention: Chief Executive Officer Each party may change its address for purposes of receiving notices hereunder by giving a notice of such change to the other party at least ten days in advance thereof. All notices shall be delivered either in person or by registered mail, return receipt requested, and shall be deemed to have been delivered, if in person upon delivery thereof, or if by registered mail on the date shown on the return receipt. 7.6 Governing Law. This Escrow Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and shall be governed by the laws of the Commonwealth of Pennsylvania, without regard to principles of conflicts of law. 7.7 Construction. All references herein to the masculine gender shall also include the feminine and neuter, and vice versa, and all references herein to the singular form shall also include the plural, and vice versa, all as the context may require. 7.8 Timing. Time is of the essence of all provisions of this Escrow Agreement. 6 7.9 Counterparts. This Escrow Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 7.10 Venue for Suit. Licensor and Licensee agree that the Escrow Agent shall not be made a party to any suit or action arising out of or relating to this Agreement except for a suit or action commenced in a court of general jurisdiction sitting in Philadelphia, Pennsylvania, which shall be the exclusive venue of any such action. If the Escrow Agent is made a party to any suit or action in violation of this Section 7.10, it shall be dismissed from such action upon its motion or request, and the party responsible for making the Escrow Agent a party to such suit or action shall pay all costs and expenses, including attorneys' fees, incurred by the Escrow Agent in obtaining such dismissal. IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow Agreement as of the date first above written. WESTVACO BRAND SECURITY, INC. By:_____________________________ Name: Title: NOCOPI TECHNOLOGIES, INC. By:_____________________________ Name: Michael A. Feinstein Title: Chairman HANGLEY ARONCHICK SEGAL & PUDLIN, a professional corporation, as Escrow Agent By: ___________________________ Name: David B. Pudlin, Esquire Title: President 7 EX-23.1 10 0010.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting a part of the Registration Statements on Form S-8 (SEC File No. 33-84388 and 33-84402) of our report dated March 30, 2001, relating to the financial statements of Nocopi Technologies, Inc. appearing in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. BDO SEIDMAN, LLP Philadelphia, PA April 12, 2001 -----END PRIVACY-ENHANCED MESSAGE-----