^ What state are you taking the exam in? The best way to get the most accurate information is to contact your state board.
That being said, all notes must be bound. Pencil notes are not necessarily prohibited, but it tends to raise eyebrows since you are, well, taking the exam with a pencil. How are they supposed to know you didn't write info about the exam in your notes? Some proctors are picky, others could care less. But to eliminate any doubt completely, it's best to just not have any pencil marks altogether. And as engineers, we tend to make most of our margin notes in pencil, I understand that. So depending on the amount you have, why not just photocopy your notes and put in a 3-ring binder? Could be an option. HTH.