Exhibit 10.1

 

SECOND AMENDED AND RESTATED LOAN AGREEMENT

 

SECOND AMENDED AND RESTATED LOAN AGREEMENT (“Agreement”) dated as of July 23,
2004 (the “Closing Date”) by and among Manchester Securities Corporation, a New
York corporation (“Manchester”), Alexander Finance, L.P., an Illinois limited
partnership (“Alexander” and together with Manchester, the “Lenders”) and ISCO
International, Inc., a corporation organized and existing under the laws of
Delaware and formerly known as Illinois Superconductor Corporation (the
“Company”).

 

W I T N E S S E T H:

 

WHEREAS, the Lenders and the Company have entered into a Loan Agreement, dated
as of October 23, 2002 (the “Original Loan Agreement”) pursuant to which, among
other things: (i) the Lenders provided aggregate loan commitments to the Company
of up to $4,000,000; (ii) warrants to purchase common stock of the Company were
to be issued concurrently with advances under the Original Loan Agreement; and
(iii) interest on loans thereunder bore interest at the rate of 9½% per annum;
and

 

WHEREAS, the Lenders and the Company amended and restated the terms of the
Original Loan Agreement (the “First Amended and Restated Loan Agreement”) to
reflect: (i) an increase in the aggregate commitment of the Lenders to
$6,000,000; (ii) the elimination of warrant issuances from future loans; (iii)
that future loans will bear interest at the rate of 14% per annum; (iv) that
future loans mature on October 31, 2004; (v) that such future loans be subject
to the discretion of the Lenders and (vi) such other matters as are set forth
therein; and

 

WHEREAS, the Company and the Lenders, pursuant to an Amendment to Loan
Documents, dated as of February 24, 2004 (the “Amendment Agreement”) amended the
terms of the First Amended and Restated Loan Agreement as follows: (i) extending
the maturity dates of the notes issues pursuant to the Original Loan Agreement
(the “Original Notes”) and the notes issued pursuant to the First Amended and
Restated Loan Agreement (the “New Notes”) to April 1, 2005; and (ii) commencing
on March 31, 2004, interest accruing on the Original Notes shall be at the rate
of 14% per annum; and

 

WHEREAS, the Company and the Lenders desire that the aggregate loan commitments
of the Lenders to the Company hereunder be increased from $6,000,000 to
$6,500,000; and

 

WHEREAS, the Company and the Lenders desire that the amounts borrowed hereunder
(the “Loans”, which as used hereunder shall include all loans advanced under the
Original Loan Agreement and the First Amended and Restated Loan Agreement, as
amended by the Amendment Agreement) but after the date hereof with respect to
the increase in the Commitments set forth in Section 1.1 below, be evidenced by
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notes, having the rights and privileges set forth in the notes in the form and
substance of Exhibit A in the aggregate principal amount of $500,000 (the “July
2004 Notes”) hereto and which will be secured by all of the assets of the
Company and its subsidiaries pursuant a Second Amended and Restated Security
Agreement in the form and substance of Exhibit B hereto (the “Security
Agreement”);

 

WHEREAS, pursuant to Guaranties in favor of the Lenders dated the date hereof
and each in the form and substance of Exhibit C hereto (together, the
“Guaranties”), the Company’s subsidiaries, Spectral Solutions, Inc., a Colorado
corporation and Illinois Superconductor Canada Corporation (the “Guarantors”)
will guaranty the Company’s obligations under this Agreement, the Security
Agreement and the July 2004 Notes, the Original Notes and the New Notes.

 

NOW, THEREFORE, in consideration of the foregoing premises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

ARTICLE 1

 

AMOUNT AND TERMS OF LOANS

 

Section 1.1 The Advances; Commitment. Each Lender severally and further subject
to such Lender’s sole and absolute discretion and not jointly with the other
Lender, agrees, on the terms and conditions hereinafter set forth, to make
advances (“Advances”) to the Company from time to time on any Business Day (as
defined below) during the period commencing on the date hereof and terminating
on April 1, 2005 (the “Termination Date”). Any such Advances by a Lender shall
be in an aggregate amount outstanding not to exceed at any time such Lender’s
Commitment; provided, however, that the aggregate amount available to be
borrowed under the “Commitments” shall not exceed $6,500,000. The aggregate
Commitments of the Lenders are set forth on Schedule A hereto. Within the limits
of each Lender’s Commitment in effect from time to time, and subject to both the
Lenders’ discretion (as referred to above) and the terms and conditions set
forth above, the Company may borrow under this Section 1.1. The Loans shall be
evidenced by the Notes (as defined below), which in turn are guaranteed by the
Guaranties and secured pursuant to the Security Agreement.

 

As used herein, “Business Day” shall mean any day other than a Saturday, Sunday
or other day on which commercial banks in New York City are required or
authorized to close.

 

Section 1.2 The July 2004 Loan. Lenders shall, within twenty-four (24) hours
following the execution of this Second Amended and Restated Agreement make a
Loan to the Company in the aggregate amount of one million five hundred thousand
dollars ($1,500,000) (the “July 2004 Loan”), without any prior Borrowing Request
(as defined below); provided, however, that the relative Commitments of the
Lenders with respect to the July 2004 Loan shall be Alexander, $825,000 and
Manchester, $675,000.

 

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Section 1.3 Making the Advances.

 

(a) Each set of Advances made by the Lenders (a “Borrowing”), other than the
Initial Loan under the Original Loan Agreement, the $1,000,000 Subsequent Loan
made under the First Amended and Restated Agreement, and the July 2004 Loan,
shall be made on notice (a “Borrowing Request”), given not later than 11:00 A.M.
(New York City time) on the first or fifteenth day of the month, by the Company
to the Lenders, which date shall be five (5) Business Days prior to the date of
the proposed Borrowing. Each Borrowing Request shall be by telecopier and email,
in substantially the form of Exhibit G hereto, specifying therein the requested
(i) date of such Borrowing and (ii) aggregate amount of such Borrowing. The
amount of such Borrowing shall be at least $250,000 (or less only if such amount
is the balance of the Advances available under the Notes at such time). In the
event that no Default (as defined below) or Event of Default (as defined in the
Notes) shall have occurred and be continuing and all conditions to a Borrowing
(including those set forth in Article III) shall have been satisfied and each
Lender, in its sole and absolute discretion, shall have deemed it advisable to
make the requested Advance, then the Company shall be entitled to make
Borrowings under the Financing Documents (as defined below).

 

(b) Notwithstanding the foregoing, no Loan shall be made unless both Lenders
shall have agreed to fund their respective Advances. If either Lender does not
agree to make its Advance, then the other shall not make its Advance.

 

(c) The aggregate indebtedness of the Company hereunder to each Lender shall be
evidenced by: (i) the existing note, dated as of October 23, 2002, issued to
such Lender under the Original Loan Agreement, as amended by the Amendment
Agreement (an “Original Note”); (ii) the existing New Note, dated as of October
24, 2003, issued to such Lender under the Amended and Restated Agreement, as
amended by the Amendment Agreement (a “New Note”); and (iii) a July 2004 Note
(the Original Notes, the New Notes and the July 2004 Notes shall be collectively
referred to as “Notes”).

 

Section 1.4 Repayment. On April 1, 2005, the Termination Date, the Company shall
repay to the Lenders the outstanding principal amount of the Advances evidenced
by the Notes, together with (a) all accrued interest (such interest accruing
whether or not allowable under any applicable bankruptcy laws after a bankruptcy
filing by the Company) and (b) all other amounts due under the Loan Documents
(as defined below); provided however, that any Event of Default under an
Original Note, New Note or July 2004 Note shall be an Event of Default with
respect to any of the other Notes. Upon any of the Company’s obligations
hereunder or under the other Loan Documents (as defined in Section 4.1 below)
becoming due and payable (by acceleration or otherwise), the Lenders shall be
entitled to immediate payment of such obligations.

 

Section 1.5 Termination of the Commitments. On the Termination Date the
Commitments of the Lenders shall be terminated in whole and the Notes shall be
due and payable in their entirety.

 

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Section 1.6 Prepayments.

 

(a) Optional. The Company may, upon 30 days’ prior written notice to the
Lenders, which notice shall state the proposed date and aggregate principal
amount of any proposed prepayment, prepay outstanding amounts under the Loans,
provided that the minimum amount of such prepayment shall be $250,000 (or lesser
amount only if such amount is the total principal amount of Notes outstanding at
such time) and if such notice is given the Company shall prepay on the proposed
repayment date such proposed prepayment amount, together with accrued interest
to the date of such prepayment on the principal amount prepaid.

 

(b) Mandatory. (i) The Company shall, on the date of receipt of cash proceeds
(net of reasonable legal expenses and taxes payable as a result of such
transaction) from (X) the sale, lease, transfer or other disposition of any
assets of the Company, any Guarantor, or any affiliate of the Company or
Guarantor other than in the ordinary course of the Company’s or the Guarantor’s
business, consistent with past practices, (Y) the incurrence or issuance by the
Company, any Guarantor, or any affiliate of the Company or Guarantor of any debt
to parties other than the Lenders, (Z) the sale or issuance by the Company, any
Guarantor, or any affiliate of the Company or any Guarantor of any capital stock
(including, without limitation, preferred stock) or any warrants, rights or
options to acquire capital stock, or any other securities other than upon the
exercise of outstanding options and warrants or the issuance of options pursuant
to the Company’s stock option plan, provided that the number of shares of Common
Stock issuable thereunder does not exceed 5% of the outstanding shares of Common
Stock, (AA) the receipt by the Company, any Guarantor or any affiliate of the
Company or any Guarantor, of any judgment, award or settlement, or (BB) a merger
or share exchange pursuant to which 50% of the Company’s voting power is
transferred, prepay an aggregate amount of the Loans equal to the lesser of (a)
the amount of outstanding Loans and (b) the amount of such net cash proceeds.

 

(c) Application of Prepayments. Any payments or prepayments by the Company or
any Guarantor permitted or required hereunder shall be applied to each Lender,
pro rata in relation to the total amount then outstanding under the Loan
Documents, in the following order: first, to the payment of any fees, costs,
expenses, or charges of the Lenders arising under the Loan Documents, second, to
the payment of interest accrued on the outstanding Advances represented by the
July 2004 Notes, third, to the payment of the principal amount of the
outstanding Advances represented by the July 2004 Notes, fourth, to the payment
of interest accrued on the outstanding Advances represented by the New Notes;
fifth, to the payment of the principal amount of the outstanding Advances
represented by the New Notes, sixth, to the payment of interest accrued on
outstanding Advances represented by the Original Notes and seventh, to the
payment of the principal amount of the outstanding Advances represented by the
Original Notes. Any prepayments, whether optional or mandatory, shall
permanently reduce the Lenders’ Commitments, pro rata, to the extent of such
prepayments.

 

Section 1.7 Interest. Interest shall accrue on the Advances as set forth in the
Notes, except that with respect to the Original Notes, commencing on March 31,
2004, interest shall accrue at the rate of the lesser of 14% per annum or the
highest rate permitted by law and shall otherwise be calculated as set forth in
the Original Notes.

 

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Section 1.8 Payments and Computations.

 

(a) The Company shall make each payment hereunder and under the Notes not later
than 3 P.M. (New York City time) on the day when due, in U.S. dollars, to the
Lenders at accounts designated by the Lenders to the Company.

 

(b) All computations of interest, fees, and charges shall be made by the Lenders
on the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest, fees, or charges are payable. Each determination by the
Lenders of an interest rate, fee, or charge hereunder shall be conclusive and
binding for all purposes, absent manifest error.

 

(c) Whenever any payment hereunder or under the Notes shall be stated to be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest or fees, as the case may
be.

 

Section 1.9 Financing Documents. Concurrently with the execution and delivery of
this Agreement and the July 2004 Notes, the Company is delivering to the Lenders
the following additional documents, each dated as of the date hereof, the
execution and delivery of which are a condition to the Lenders’ Commitments set
forth in Section 1.1(a) above:

 

(i) the Guaranties;

 

(ii) the Security Agreement;

 

(iii) Amendments to UCC financing statements, naming Lenders as the secured
parties and the Company as the debtor (the “UCC Financing Statements”) if
required by Lenders;

 

(iv) Amendments to Patent and Trademark financing statements naming the Lenders
as secured parties and the Company as the debtor (the “Patent and Trademark
Financing Statements”) if required by Lenders;

 

(v) Legal Opinion of outside counsel to the Company, in the form of Exhibit F
hereto delivered not later than five (5) Business after the date hereof.

 

(vi) Secretary’s Certificate and Incumbency Certificate; and

 

(vii) UCC Lien Searches

 

It shall be an Event of Default under the Notes if the legal opinion referred to
in clause (v) above is not delivered within five (5) Business Days of the date
hereof.

 

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Section 1.10 This Agreement, the Guaranties, the Security Agreement, the July
2004 Notes, the Amended UCC Financing Statements and the Amended Patent and
Trademark Financing Statements are collectively referred to herein as the
“Financing Documents.”

 

ARTICLE 2

 

REPRESENTATIONS AND WARRANTIES

 

Section 2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the Lenders
as of the date hereof:

 

(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than the Guarantors. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of any of the Loan Documents in any material respect, (y) have a material
adverse effect on the results of operations, assets, or financial condition of
the Company or (z) adversely impair in any material respect the Company’s
ability to perform fully on a timely basis its obligations under the Loan
Documents (a “Material Adverse Effect”).

 

(b) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
the Financing Documents, and otherwise to carry out its obligations thereunder.
The execution and delivery of each of the Financing Documents by the Company and
the consummation by it of the transactions contemplated thereby, have been duly
authorized by all requisite corporate action on the part of the Company. Each of
the Financing Documents has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.

 

(c) Capitalization. The authorized, issued and outstanding capital stock of the
Company is set forth in Schedule 2.1(c). No shares of Common Stock are entitled
to preemptive or similar rights, nor is any holder of the Common Stock entitled
to preemptive or similar rights arising out of any agreement or understanding
with the Company by virtue of any of the Financing Documents. Except as
disclosed in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, securities, rights or obligations

 

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convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.

 

(d) [Intentionally Omitted.]

 

(e) No Conflicts. The execution, delivery and performance of the Financing
Documents by the Company and the consummation by the Company of the transactions
contemplated thereby, do not and will not (i) conflict with or violate any
provision of its Certificate of Incorporation or By-laws or (ii) conflict with,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including Federal and state securities laws and regulations), or by
which any material property or asset of the Company is bound or affected, except
in the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as could
not, individually or in the aggregate, have or result in a Material Adverse
Effect. The business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.

 

(f) Consents and Approvals. The Company is not required to obtain any consent,
waiver, authorization or order of, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
person in connection with the execution, delivery and performance by the Company
of the Financing Documents other than: (i) the filing of the Amendments to the
UCC and Patent and Trademark Financing Statements if any are required by
Lenders; and (ii) in all other cases, where the failure to obtain such consent,
waiver, authorization or order, or to give or make such notice or filing, would
not materially impair or delay the ability of the Company to effect the
transactions contemplated by this Agreement free and clear of all liens and
encumbrances of any nature whatsoever or would not otherwise have a Material
Adverse Effect (the approvals referred to in clause (i) are hereinafter referred
to as the “Required Approvals”). The Company has no reason to believe that it
will be unable to obtain the Required Approvals.

 

(g) Private Offering. Assuming (without any independent investigation or
verification by or on behalf of the Company) the accuracy of the representations
and warranties of Lenders set forth herein, the offer and sale of the July 2004
Notes are exempt from registration under Section 5 of the Securities Act of
1933, as amended (the “Securities Act”). Neither the Company nor any person
acting on its behalf has taken or will take any action which might subject the
offering, issuance or sale of the July 2004 Notes to the registration
requirements of Section 5 of the Securities Act.

 

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(h) SEC Documents. The Company has filed all reports or other filings required
to be filed by it under Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the three years preceding the date hereof
(the foregoing materials being collectively referred to herein as the “SEC
Documents”), on a timely basis. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, and none of the SEC Documents, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the Securities and
Exchange Commission with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved, except as may be otherwise
indicated in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company’s last filed Annual Report on Form 10-K and except as disclosed on
Schedule 2.1(h), there has been no event, occurrence or development that has had
a Material Adverse Effect which is not specifically disclosed in any of the SEC
Documents.

 

(i) Brokers. The Company has taken no action which would give rise to any claim
by any person for brokerage commissions, finder’s fees or similar payments by
the Company or the Lenders relating to the Financing Documents or the
transactions contemplated thereby.

 

(j) Compliance with Obligations to the Lenders. The Company is in compliance
with all of its obligations to the Lenders, including without limitation,
pursuant to prior agreements.

 

Section 2.2 Representations and Warranties of Lenders. Each Lender severally
hereby makes the following representations and warranties to the Company as to
itself only as of the date hereof:

 

(a) Organization; Authority. The Lender is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite legal power and authority to
enter into and to consummate the transactions contemplated hereby, by the
Security Agreement and by the July 2004 Notes and otherwise to carry out its
obligations hereunder and thereunder. The purchase by the Lender of its July
2004 Notes and the Commitments, if any, under this Agreement and the making of
Loans from time to time hereunder at such Lender’s discretion, has been duly
authorized by all necessary action on the part of the Lender. This Agreement has
been duly executed and delivered by the Lender and

 

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constitutes its valid and legally binding obligation, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors’ rights generally and to general principles
of equity.

 

(b) Investment Intent. Each Lender is acquiring its Notes for its own account
and without a present intention to distribute or resell it in violation of
applicable securities laws. No Lender will offer, sell, transfer, assign, pledge
or hypothecate any portion of the July 2004 Notes in the absence of a
registration under, or pursuant to an applicable exemption from, federal and
applicable state securities laws.

 

(c) Experience. The Lender has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in its July 2004 Notes and has so evaluated
the merits and risks of such investment.

 

(d) Ability of Lender to Bear Risk of Investment; Accredited Investor. The
Lender is able to bear the economic risk of an investment in its July 2004 Notes
at the present time, is able to afford a complete loss of such investment. The
Lender is an “accredited investor” as such term is defined in Rule 501 under the
Securities Act.

 

(e) Access to Information. The Lender acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of its July 2004 Notes and the merits and risks of investing in its
July 2004 Notes; (ii) access to information about the Company and the Company’s
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment.

 

ARTICLE 3

 

CONDITIONS TO ADVANCES

 

Any making of any Advance by each Lender is subject to the satisfaction at or
before the date of such Advance of each of the conditions set forth below. These
conditions are for the benefit of each Lender and may be waived by such Lender
at any time at its discretion.

 

(a) Discretion of Lender. The Lender shall have determined, in its sole and
absolute discretion that the making of such Advance is desirable;

 

(b) Absence of Default or Event of Default. There shall be no Event of Default
(as defined in the Notes) or any event which, with the passage of time and/or
the giving of notice, would constitute an Event of Default (“Default”);

 

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(c) Accuracy of the Company’s Representations and Warranties. The
representations and warranties of the Company under this Agreement shall be true
and correct in all material respects as of the date of this Agreement, as of the
date on which the Borrowing Request with respect to such Borrowing was delivered
by the Company to the Lenders, and as of the date of such Borrowing as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date);
provided, that any representations and warranties which are limited by their
terms to materiality shall have been or shall be (as applicable) true and
correct in all respects.

 

(d) Performance by the Company. The Company shall have performed all agreements
and satisfied all conditions required to be performed or satisfied by the
Company at or prior to the delivery of the Borrowing Request and at or prior to
the Borrowing.

 

(e) Legality and Possibility. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by the
Financing Documents.

 

(f) Security. No changes to the type, validity and sufficiency of the Lender’s
collateral security shall have occurred, in the good faith judgment of the
Lender, to cause the value of such collateral to be impaired.

 

(g) Miscellaneous. The Company shall have delivered to the Lenders such other
documents relating to the transactions contemplated by this Agreement and the
other Financing Documents as the Lenders may reasonably request.

 

ARTICLE 4

 

COVENANTS

 

Section 4.1 Affirmative Covenants. The Company covenants that from the date
hereof and for so long as any portion of the Loans or other obligation under the
Financing Documents, the Registration Rights Agreement dated October 23, 2002
between the Company and the Lenders (the “Registration Rights Agreement”), the
Security Agreement dated as of October 23, 2002, as amended, by and between the
Company and the Lenders (the “Original Security Agreement”), the UCC Financing
Statements and Patent and Trademark Financing Statements executed in connection
with the Original Loan Agreement (the “Original Financing Statements”), the
Original Notes, the New Notes, the Guaranties of the Original Notes, the
Guaranties of the New Notes, the Amended and Restated Security Agreement dated
as of October 24, 2003, as amended by the Amendment Agreement (the “2003
Security Agreement”), the amendments to the Original Financing Statements, and
the Warrants issued in connection with the Original Loan Agreement (“Warrants”
and collectively with the Registration Rights Agreement, the Original Notes, the
New Notes, the Guaranties of the Original

 

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Notes and the Guaranties of the New Notes, the Original Security Agreement, the
2003 Security Agreement, the Amendment Agreement, the Original Financing
Statements, the amendments to the Original Financing Statements and the
Financing Documents, the “Loan Documents”) shall remain outstanding, it will
observe or perform each of the following unless such observance or performance
is expressly waived by the Lenders in writing:

 

(a) Corporate Existence. It will maintain its corporate existence in good
standing and remain qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its activities or the character of the
properties it owns or leases makes such qualification necessary.

 

(b) Continuation of Business. Except as set forth on Schedule 4.1(b), it will
continue to conduct its business, in all material aspects, as conducted on the
day hereof in compliance in all material respects with all applicable rules and
regulations of applicable governmental authorities.

 

Section 4.2 Dividends; Stock Repurchases. So long as any Notes remain
outstanding, the Company will not declare any dividends on any shares of any
class of its capital stock (other than dividends consisting solely of Common
Stock or rights to purchase Common Stock of the Company), or apply any of its
property or assets to the purchase, redemption or other retirement of, or set
apart any sum for the payment of any dividends on, or for the purchase,
redemption or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of its capital
stock.

 

Section 4.3 Incurrence of Debt; Liens; Transfer of Assets to Subsidiaries. For
so long as any Commitments or portion of the Loans (or any other obligation
under the Loan Documents) remain outstanding, neither the Company nor any
subsidiary of the Company shall:

 

(a) Directly or indirectly create, incur, assume, guarantee, or otherwise become
or remain directly or indirectly liable with respect to, any indebtedness of any
kind, other than (i) indebtedness under the Notes; (ii) other indebtedness to
the Lenders which indebtedness is expressly subordinated in writing to the
indebtedness under the Loan Documents; or (iii) indebtedness to trade creditors
in the ordinary course of business consistent with past practice.

 

(b) Directly or indirectly create, incur, assume or permit to exist any lien,
pledge, charge or encumbrance on or with respect to any of its property or
assets (including any document or instrument in respect of goods or accounts
receivable) whether now owned or held or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens.

 

(c) Directly or indirectly transfer any of its assets to any subsidiary of the
Company.

 

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As used herein, “Permitted Liens” means (i) liens granted under the Original
Security Agreement or under the 2003 Security Agreement; (ii) liens imposed by
mandatory provisions of law such as materialmen’s, mechanic’s or warehousemen’s;
(iii) liens for taxes, assessments and governmental charges or levies imposed
upon the Company or any subsidiaries or their income, profits or property, if
the same are not yet due and payable or if the same are contested in good faith
and as to which adequate reserves have been provided; (iv) pledges or deposits
made to secure payment of worker’s compensation insurance, unemployment
insurance, pensions or social security programs or to secure the performance of
letters of credits, bids, tenders, public or statutory obligations, surety,
performance bonds and other similar obligations; (v) encumbrances consisting of
zoning restrictions, easements, or other restrictions on the use of real
property, provided that such do not impair the use of such property for the uses
intended and none of which is violated by existing or proposed structures or
land use and (vi) the liens and encumbrances disclosed on Schedule A of the
Security Agreement.

 

Section 4.5 Warrants issued under Original Loan Agreement. With respect to the
Warrants, the provisions of the Registration Rights Agreement and of Section 4.5
of the Original Loan Agreement shall continue to apply.

 

ARTICLE 5

 

MISCELLANEOUS

 

Section 5.1 Fees and Expenses. The Company shall pay, concurrently with the
execution and delivery of this Agreement, the reasonable fees and expenses of
legal counsel for the Lenders incident to the negotiation, preparation,
execution, delivery and performance of the Loan Documents incurred to date and,
thereafter, upon request of a Lender, the Company, shall pay any additional fees
and expenses incurred by the Lenders and incident to the filing, negotiation,
preparation, performance or amendment of the Loan Documents.

 

Section 5.2 Entire Agreement. This Agreement, together with the Notes, the
Security Agreement, the Guaranties and the other Loan Documents, contains the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings, oral or written, with
respect to such matters.

 

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Section 5.3 Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been
delivered (i) upon receipt, when delivered personally; (ii) when sent by
facsimile, upon receipt if received on a business day prior to 5:00 p.m.
(Central Time), or the first business day following such receipt if received on
a business day after 5:00 p.m. (Central Time); or (iii) upon receipt, when
deposited with a nationally recognized overnight express courier service, fully
prepaid, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

ISCO International, Inc.

   

451 Kingston Court

   

Mt. Prospect, Illinois 60056

   

Attn: Frank Cesario

   

Fax: (847) 391-5015

With copies to:

       

Pepper Hamilton LLP

   

400 Berwyn Park

   

899 Cassatt Road

   

Berwyn, Pennsylvania 19312

   

Attn: Michael P. Gallagher

   

Fax: (610) 640-7835

If to Manchester Securities Corp.:

 

712 Fifth Avenue, 36th Floor

   

New York, New York 10019

   

Attn: Dan Gropper

   

Fax: (212) 974-2092

With copies to:

       

Kleinberg, Kaplan, Wolff & Cohen, P.C.

   

551 Fifth Avenue

   

New York, NY 10176

   

Attn: Lawrence D. Hui

   

Fax: (212) 986-8866

If to Alexander:

 

Alexander Finance, LP

   

1560 Sherman Avenue, Suite 900

   

Evanston, Illinois 60201

   

Attn: Bradford T. Whitmore

   

Fax: (847) 733-0339

With copies to:

       

Sachnoff & Weaver

   

30 S. Wacker Drive

   

Chicago, Illinois 60606

   

Attn: Evelyn C. Arkebauer, Esq.

   

Fax: (312) 207-6400

 

or such other address or facsimile number as may be designated in writing
hereafter, in the same manner, by such person.

 

Section 5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and by Lenders holding at least 75% of the Commitments; or, in the
case of a waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition or
requirement of this

 

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Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.

 

Section 5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

 

Section 5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor any Lender may assign this Agreement or any rights or
obligations hereunder (other than an assignment from a Lender to an affiliate of
such Lender) without the prior written consent of the other; provided that in
the event of an assignment by a Lender requiring the Company’s consent, the
Company’s consent shall not be unreasonably withheld. Any transfer made in
violation of this provision shall be null and void. The assignment by a party of
this Agreement or any rights hereunder shall not affect the obligations of such
party under this Agreement.

 

Section 5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

 

Section 5.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.

 

Section 5.9 Survival. The agreements, representations and warranties and
covenants contained in this Agreement shall survive the delivery of the Notes
pursuant to this Agreement and any Advances made thereunder.

 

Section 5.10 Counterpart and Facsimile Signatures. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the executing party with the same
force and effect as if such facsimile signature page were an original thereof.

 

Section 5.11 Publicity. The Company and the Lenders shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither the Company nor any
Lender shall issue any such press release or otherwise make any such public
statement without the prior consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement.

 

14

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Section 5.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.

 

Section 5.13 Payment of Expenses. The Company agrees to pay all costs and
expenses, including reasonable attorneys’ fees and expenses, which may be
incurred by any Lender in successfully enforcing any Financing Document,
including without limitation in enforcing Section 5.14 below.

 

Section 5.14 Indemnification. The Company hereby agrees to indemnify, defend and
hold harmless each Lender and its respective partners, shareholders, officers,
affiliates, employees or agents (“Indemnified Parties”), from and against any
and all losses, claims, damages, liabilities and costs, including reasonable
legal fees (collectively “Losses”) (i) incurred as a result of the breach by the
Company or any subsidiary of any representation, covenant or other provision in
any Loan Document; (ii) incurred as a result of entering into this Agreement;
(iii) incurred in enforcing this Section 5.14 or (iv) incurred involving a
third-party claim and arising out of the acquisition, holding and/or enforcement
by such Lender of any of the Loan Documents.

 

Section 5.15 Like Treatment of Lenders. Neither the Company nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemptions or
exchange of the Notes, or any Advance thereunder or otherwise, to any holder of
Notes, for or as an inducement to, or in connection with the solicitation of,
any consent, waiver or amendment of any terms or provisions of the Loan
Documents, unless such consideration is required to be paid to all holders of
Notes bound by such consent, waiver or amendment whether or not such holders so
consent, waive or agree to amend and whether or not such holders tender their
Notes for redemption or exchange. The Company shall not, directly or indirectly,
redeem to prepay any Advances unless such offer of redemption is made pro rata
to all holders on identical terms.

 

[Signature Page Follows]

 

15

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized persons as of the date first indicated
above.

 

ISCO INTERNATIONAL, INC.

By:

 

 

--------------------------------------------------------------------------------

Name:

 

Amr Abdelmonem, Ph.D.

Title:

 

Chief Executive Officer

MANCHESTER SECURITIES CORPORATION

By:

 

 

--------------------------------------------------------------------------------

Name:

 

Elliot Greenberg

Title:

 

Vice President

ALEXANDER FINANCE, L.P.

By:

 

 

--------------------------------------------------------------------------------

Name:

   

Title

   

 

16

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SCHEDULES

 

Schedule A

  

Schedule of Lenders

Company Schedules

     EXHIBITS

Exhibit A

  

Secured Grid Note

Exhibit B

   Second Amended and Restated Security Agreement

Exhibit C

  

Second Amended and Restated Guaranties

Exhibit D

   Amendments to UCC Financing Statements

Exhibit E

   Amendments to Patent and Trademark Financing Filings

Exhibit F

  

Legal opinion of counsel to the Company

Exhibit G

  

Form of Notice of Borrowing

--------------------------------------------------------------------------------

SCHEDULE A

 

Lender

--------------------------------------------------------------------------------

   Commitment

--------------------------------------------------------------------------------

Manchester Securities Corporation

   $ 3,484,500

Alexander Finance, L.P.

   $ 3,015,500

Total

   $ 6,500,000