EXHIBIT 10.1

LOAN AGREEMENT

     LOAN AGREEMENT (“Agreement”) dated as of October 23, 2002 (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 Company desires to borrow from the Lenders, and the Lenders
desire to advance to the Company, subject to the terms and provisions of this
Agreement and further subject to their absolute discretion, from time to time
during the period (the “Commitment Period”), from the date hereof until March
31, 2004 (the “Termination Date”), amounts up to the sum of their aggregate
individual Commitments as set forth on Schedule A attached hereto;

     Whereas, the Lenders have agreed to advance one million dollars
($1,000,000) to the Company within twenty-four (24) hours following the
execution of this Agreement pursuant to the terms set forth herein and in the
Notes (as defined below).

     Whereas, the Company and the Lenders desire that the amounts borrowed
hereunder (the “Loans”) be evidenced by secured grid notes, having the rights
and privileges set forth in the notes in the form and substance of Exhibit A
(the “Notes”) hereto and which will be: secured by all of the assets of the
Company and its subsidiaries pursuant to a 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 Notes;

     Whereas, the Company and the Lenders desire that concurrently with each
Advance (as defined below), a warrant to purchase shares (“Warrant Shares”) of
the Company Common Stock par value $0.001 per share (“Common Stock”), in the
form of Exhibit I attached hereto (each a “Warrant” and collectively, the
“Warrants”), be issued; and

     Whereas, pursuant to the Registration Rights Agreement, dated as of the
date hereof and in the form and such substance of Exhibit H hereto (the
“Registration Rights

 

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Agreement”), the Company shall register for resale under the Securities Act of
1933, as amended (the “Securities Act”), the Warrant Shares.

     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 Commitment Period. 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 $4,000,000. 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, 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 Initial Loan. Lenders shall, within twenty-four (24) hours
following the execution of this Agreement make a Loan to the Company in the
aggregate amount of one million dollars ($1,000,000) (the “Initial Loan”),
without any prior Borrowing Request (as defined below).

     Section 1.3 Making the Advances.

          (a) Each set of Advances made by the Lenders (a “Borrowing”), other
than the Initial 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. 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

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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 a Note.

          (d) Concurrently with each Advance, the Company shall issue to each of
the Lenders a Warrant. Each Warrant shall expire on the Termination Date, and
shall be exercisable at an exercise price of $.20 per Warrant Share (the
“Exercise Price”). The number of Warrant Shares underlying each Warrant shall be
determined by dividing the principal amount of the Advance made by the Lender
receiving the Warrant by the Exercise Price, rounding to the nearest whole
number.

     Section 1.4 Repayment. On the Termination Date, the Company shall repay to
the Lenders the outstanding principal amount of the Advances, together with all
accrued interest (such interest accruing whether or not allowable under any
applicable bankruptcy laws after a bankruptcy filing by the Company) and all
other amounts due hereunder or under the other Financing Documents (as defined
below). Upon any of the Company’s obligations hereunder or under the other
Financing Documents 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 Loans shall be
due and payable in their entirety.

     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 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

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Guarantor of any capital 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
Financing Documents, in the following order: first, to the payment of any fees,
costs, expenses, or charges of the Lenders arising under the Financing
Documents, second, to the payment of interest accrued on the outstanding
Advances; and third, to the payment of the principal amount of the outstanding
Advances. 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.

     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 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;

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             (ii) the Registration Rights Agreement;          (iii) the Security
Agreement;          (iv) UCC financing statements, naming Lenders as the secured
parties and the Company as the debtor, substantially in the form and substance
of Exhibit D hereto (the “UCC Financing Statements”);          (v) Patent and
Trademark financing statements naming the Lenders as secured parties and the
Company as the debtor, substantially in the form and substance of Exhibit E
hereto (the “Patent and Trademark Financing Statements”);          (vi) Legal
Opinion of outside counsel to the Company, in the form of Exhibit F hereto.    
     (vii) Secretary’s Certificate and Incumbency Certificate; and    
     (viii) UCC Lien Searches

     Section 1.10 This Agreement, the Registration Rights Agreement, the
Security Agreement, the Notes, the Warrants, the UCC Financing Statements and
the 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 Financing 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 Financing
Documents (a “Material Adverse Effect”).

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          (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, including, the issuance of the Warrants and Warrant Shares
upon exercise of the Warrants, have been duly authorized by all requisite
corporate action on the part of the Company. Each of the Financing Documents
(other than the Warrants) has been duly executed and delivered by the Company
and constitutes, or in the case of the Warrants, will constitute 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, or, except as a result of the issuance of the Warrants
hereunder, securities, rights or obligations 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) Issuance of Warrant Shares. The Warrant Shares are duly authorized
and reserved for issuance and, upon such exercise in accordance with the
Warrants such Warrant Shares, will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances,
and subject to the filing and acceptance of an Additional Listing Application on
the American Stock Exchange entitled to be traded on the American Stock Exchange
(or if applicable, upon filing of a corresponding form with the New York Stock
Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market, collectively
with the American Stock Exchange, the “Approved Markets”).

          (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, including, the issuance of the Warrants and
of the Warrant Shares, 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

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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 UCC and
Patent and Trademark Financing Statements; (ii) any filings which may be
required to be made by the Company with the Securities and Exchange Commission,
or state securities administrators subsequent to the date hereof, and (iii) 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 clauses (i) and (ii) 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 Notes are, and the offer and sale of the Warrants and Warrant Shares will
be, 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 Notes, Warrants or Warrant Shares to the registration
requirements of Section 5 of the Securities Act.

          (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

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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, the Warrants and by the Notes and otherwise to carry
out its obligations hereunder and thereunder. The purchase by the Lender of its
Notes, Warrants and Warrant Shares and the Commitments, if any, under the Loan
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
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, Warrants
and Warrant Shares 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
Notes, Warrant or Warrant Shares in the absence of a registration under, or
pursuant to an applicable exemption from, federal and applicable state
securities laws.

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          (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 Notes, Warrants and
Warrant Shares 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 Notes,
Warrants and Warrant Shares 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 Notes and Warrants and the merits and risks of
investing in its Notes and Warrants; (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”);

          (c) Accuracy of the Company’s Representations 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.

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          (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) Warrants. The Warrants referenced in Section 1.3(d) above shall
have been issued to Lenders.

          (h) 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 Stock Legends. Each Lender agrees to the imprinting, so long as
is required by this Section 4.1, of the following legend on its Warrants and
Warrant Shares:

     THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.

     The Warrant Shares shall not contain the legend set forth above if the
issuance thereof occurs at any time while the registration statement
(“Registration Statement”) filed pursuant to the Registration Rights Agreement
is effective under the Securities Act or in the event that the Warrant Shares
may be sold pursuant to Rule 144(k) under the Securities Act. The Company agrees
that it will provide each Lender, upon request, with a certificate or
certificates representing Warrant Shares free from such legend at such time as
such legend is no longer required hereunder. Each Lender agrees that, in
connection with any transfer of Warrant Shares by it pursuant to an effective
registration

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statement under the Securities Act, it will comply with the prospectus delivery
requirements of the Securities Act provided copies of a current prospectus
relating to such effective registration statement are or have been supplied to
such Lender.

     Section 4.2 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 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 4.3 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 4.4 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 Financing 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 Financing 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.

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

As used herein, "Permitted Liens” means (i) liens granted under the 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 Amex Rule. Notwithstanding any other provision of this
Agreement, the Notes, the Warrants and the Registration Rights Agreement, the
Lenders shall, in the aggregate, be entitled to exercise for Warrant Shares
resulting in a total of no more than 29,574,000 shares of Common Stock (19.99%
of the Common Stock issued and outstanding on the date hereof, which number
shall be subject to readjustment for any stock split, stock dividend or
reclassification of the Common Stock) (the “20% Cap”). Once a Lender has
received its total pro rata share of Warrant Shares, it may request that the
Company redeem its remaining Warrants at the applicable Premium Redemption Price
as defined in the Registration Rights Agreement. The restrictions and redemption
obligations set forth in this Section 4.5 shall cease to apply if (a) the
Company obtains written shareholder approval to issue Warrant Shares in excess
of the 20% Cap pursuant to Amex Rule 713 or (b) the Company provides the Lenders
with irrevocable written notice, based upon the advice of its counsel, that any
such issuance of Common Shares is not subject to the 20% Cap pursuant to Amex
Rule. If the number of Warrant Shares exceeds 75% of the 20% Cap, the Company
will use its best efforts promptly to obtain either the shareholder approval or
the irrevocable notice described in the preceding sentence and to provide the
Lenders with a copy of same. Without limiting the foregoing, the Company shall
solicit the aforementioned shareholder approval at the next shareholders meeting
(for whatever purpose it may be called) which, if requested by holders of 75% of
the Commitments, shall not be later than 75 days after the occurrence of the
number of Warrant Shares exceeding 75% of the 20% Cap.

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 Financing Documents incurred to date
and, thereafter, upon request of

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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 Financing Documents.

     Section 5.2 Entire Agreement. This Agreement, together with the Notes, the
Security Agreement, the Guaranties and the other Financing 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.

     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:   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

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      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 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. 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.

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     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.

     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 Financing 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 Financing Documents.

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     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 Financing
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.

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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:  /s/ Amr Abdelmonem  

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  Name:   Amr Abdelmonem, Ph.D.   Title: Chief Executive Officer

          MANCHESTER SECURITIES CORPORATION  
    By:  /s/ Elliott Greenberg  

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  Name:   Elliot Greenberg   Title:   Vice President     ALEXANDER FINANCE, L.P.
 
    By:  /s/ Bradford T. Whitmore  

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  Name:   Bradford T. Whitmore   Title: President, Bun Partners, Inc.

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SCHEDULES

      Schedule A   Schedule of Lenders   Company Schedules    

EXHIBITS

      Exhibit A   Secured Grid Note   Exhibit B   Security Agreement   Exhibit C
  Guaranties   Exhibit D   UCC Financing Statements   Exhibit E   Patent and
Trademark Financing Filings   Exhibit F   Legal opinion of counsel to the
Company   Exhibit G   Form of Notice of Borrowing   Exhibit H   Registration
Rights Agreement

 

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SCHEDULE A

          Lender   Commitment

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Manchester Securities Corporation
  $ 2,247,600  
Alexander Finance, L.P.
  $ 1,752,400  
Total
  $ 4,000,000