exhibit104.htm


    EXHIBIT
10.4

    


     

    SEVENTH AMENDED AND RESTATED
SECURITY AGREEMENT

     

    


     

    Seventh
Amended and Restated Security Agreement, dated as of August 18, 2008 made by and
among ISCO International, Inc., a Delaware Corporation with offices at 1001
Cambridge Drive, Elk Grove Village, Illinois 60007 (the “Company”), the Company’s
undersigned subsidiary (the “Subsidiary,” the Company and
the Subsidiary are hereafter together referred to as the “Debtors” or individually as a
“Debtor”), Manchester
Securities Corporation, a New York corporation with offices at 712 Fifth Avenue,
36th
Floor, New York, New York 10019 (“Manchester”), Alexander
Finance, LP, an Illinois limited partnership with offices at 1560 Sherman
Avenue, Evanston, IL 60201 (“Alexander”; Manchester and
Alexander are sometimes individually referred to as a “Secured Party” or together
referred to as “Secured
Parties”), and Manchester Securities Corporation as collateral agent (the
“Collateral
Agent”).

     

    This
Agreement amends and restates the Sixth Amended and Restated Security Agreement,
dated as of May 29, 2008, as amended (the “Existing Security
Agreement”).

     

    NOW THEREFORE, in
consideration of the foregoing, each Debtor hereby agrees with the Secured
Parties and Collateral Agent as follows:

     

    SECTION
1. Grant of Security
Interest.

     

    (a) As
collateral security for all of the Obligations (as defined in Section 2 hereof),
the Debtors hereby jointly and severally pledge and collaterally assign to the
Collateral Agent and the Secured Parties, and grant to the Collateral Agent and
the Secured Parties a continuing first priority security interest (subject to
Permitted Liens (as defined in the 2008 Loan Agreement, dated May 29, 2008, by
and among the Company and the Secured Parties (the “2008 Loan Agreement”) and
the August 2008 Loan Agreement dated as of the date hereof entered into by and
among the Company and the Secured Parties (the “August 2008 Loan Agreement”)) in the
following (the “Collateral”):  “Collateral” means all assets
of the Debtors (whether currently owned or hereafter acquired by a Debtor),
including without limitation all presently existing and hereafter arising (i)
accounts, contract rights, and all other forms of obligations owing to the
Debtors from any source, including, without limitation, from affiliates and
insiders of the Debtors (“Accounts”); (ii) all of the
Debtors’ books and records, including ledgers, records indicating, summarizing,
or evidencing the Debtors’ assets or liabilities, or the Collateral, all
information relating to the Debtors’ business operations or financial condition,
all computer programs, disc or tape files, printouts, runs or other computer
prepared information, and any equipment containing such information (the
Debtors’ “Books”); (iii)
all of the Debtors’ present and hereafter acquired equipment, wherever located,
and all attachments, accessories, accessions, replacements, substitutions,
additions and improvements to any of the foregoing, wherever located (“Equipment”); (iv) all of
the Debtors’ present and hereafter acquired general intangibles and other
personal property (including, but not limited to, contract rights, rights
arising under common law, statutes or regulations, choses or things in action,
goodwill, patents and patentable inventions, whether described and claimed
therein or otherwise, and all reissues, divisions, continuations,
continuations-in-part, substitutes, renewals, and extensions thereof, and all
improvements thereon and all other rights of any kind whatsoever accruing
thereunder or pertaining thereto, trade names, trademarks, patent and trademark
applications, service marks, copyrights, copyright applications, blueprints,
drawings, purchase orders, customer lists, monies due under any royalty or
licensing agreements, infringements, claims, computer programs, discs or tapes,
deposit accounts, insurance premium rebates, tax refunds, and tax refund claims,
as well as all cash collateral that is hypothecated to secure letters of credit
or bonding obligations and the right to sue or otherwise recover for any and all
past, present and future infringements and misappropriations thereof, and all
income, royalties, damages and other payments now and hereafter due and/or
payable with respect thereto) (“General Intangibles”);
(v) all present and future inventory in which a Debtor has any interest,
and all of the Debtors’ present and future raw materials, work in process,
finished goods, and packing and shipping material, wherever located, any
documents of title representing any of the above (“Inventory”); (vi) all of
the Debtors’ negotiable collateral, including all of the Debtors’ present and
future letters of credit, notes, drafts, instruments, certificated securities
(including but not limited to, the “Pledged Securities” as defined below),
documents, personal property leases (where a Debtor is the lessor), chattel
paper and the Debtors’ books and records relating to any of the foregoing
(“Negotiable
Collateral”); and (vii) any money or other assets of the Debtors
which hereafter come into the possession, custody or control of the Debtors, and
the proceeds and products, whether tangible or intangible, of any of the
foregoing including proceeds of insurance covering any or all of the Collateral,
and any and all Accounts, Equipment, General Intangibles, Inventory, Negotiable
Collateral, money, deposit accounts or other tangible or intangible, real or
personal, property resulting from the sale, exchange, collection or other
disposition of the Collateral, or any portion thereof or interest therein, and
the proceeds and products thereof; in each case howsoever a Debtor’s interest
therein may arise or appear (whether by ownership, security interest, claim or
otherwise).  For purposes of this Security Agreement, the term “Pledged Securities” means (i)
all capital stock and all other securities issued or issuable by all current and
future subsidiaries, whether currently issued or issued in the future (“Subsidiary Securities”); (ii)
any capital stock or other securities currently owned or received by the Debtors
in the future (“Further
Securities”); (iii) all other securities which may be issued or issuable
in exchange for or in respect of the Further Securities and Subsidiary
Securities pursuant to the terms hereof; (iv) all dividends, cash, instruments,
securities and other property from time to time received, receivable or
otherwise distributed, in respect of, in, for, or upon the exchange or
conversion of the securities referred to in clauses (i), (ii) and (iii) above;
and (v) all rights and privileges of the Debtors with respect to the Pledged
Securities and other properties referred to in clauses (i), (ii), (iii) and
(iv).

     

    (b) Any
pledge, collateral assignment or grant of a security interest to the Collateral
Agent and Secured Parties in the Collateral pursuant to the Existing Security
Agreement shall continue in full force and effect.

     

    (c) Upon the
future receipt of any certificated securities by any Debtor, such Debtor shall
immediately deliver the certificates representing such securities, together with
stock powers duly executed in blank to the Collateral Agent and corporate
resolutions of a type reasonably acceptable to the Secured Parties.

     

    (d) A
reasonably detailed list of the Collateral existing as of the date hereof is set
forth on Schedule
A attached hereto.  For each item of Collateral, Schedule A provides
the location, description and ownership and, for items of Collateral which have
a certificate of title, the jurisdiction of such certificates, and for those
items of Collateral which are mobile goods (goods that are mobile and generally
used in more than one jurisdiction such as motor vehicles, trailers and similar
items) the present location of such goods.  Schedule A also
identifies any liens and encumbrances with respect to any items of Collateral
and sets forth the jurisdiction of incorporation of each
Debtor.  Schedule A further
lists all patents and trademarks and patent and trademark applications owned by
the Debtors.

     

    SECTION
2. Security for
Obligations.  The security interest created hereby in the
Collateral constitutes continuing collateral security for the (a) prompt
payment by the Debtors, as and when due and payable, of all amounts from time to
time owing by them to the Secured Parties under (i) the Third Amended and
Restated Loan Agreement dated November 10, 2004 by and among the Company and the
Secured Parties, as amended from time to time (the “2004 Loan Agreement”); (ii) the
Company’s 5% Senior Secured Convertible Notes due June 22, 2010 issued on June
22, 2006 (the “2006
Notes”); (iii) the Company’s 7% Senior Secured Convertible Notes due
August 1, 2009 issued on June 26, 2007 (the “2007 Notes”); (iv) with
respect to Alexander only, the Company’s 7% Senior Secured Convertible Note due
August 1, 2009 issued on January 3, 2008 (the “January 2008 Note”); (v) the
2008 Loan Agreement, (vi) the 91⁄2% Secured Grid Notes due August 1, 2010 issued
on May 29, 2008 (the “May 2008
Notes”), (vii) the August 2008 Loan Agreement, (viii) the 9 1⁄2% Secured
Convertible Notes issued on the date hereof pursuant to the August 2008 Loan
Agreement (the “August
2008 Convertible Notes”) and (ix) the Amended and Restated Guaranty of
Subsidiary of even date herewith (the “Guaranty”) (the 2004 Loan
Agreement, the 2006 Notes, the 2007 Notes, the January 2008 Note, the 2008 Loan
Agreement, the May 2008 Notes, the August 2008 Loan Agreement, the August 2008
Convertible Notes and the Guaranty and the Existing Security Agreement are
hereinafter collectively referred to as the “Transaction Documents”) with
the obligations under this clause (a) being referred to as “Indebtedness” and
(b) prompt performance by the Debtors of each of their respective covenants
and duties under the Transaction Documents (the covenants and obligations
referred to in clauses (a) and (b) above hereafter collectively referred to as
the “Obligations”).  The
Debtors further jointly and severally agree that the Collateral Agent and the
Secured Parties shall have the rights stated in this Security Agreement with
respect to the Collateral in addition to all other rights which the Secured
Parties may have by law.

     

    SECTION
3. Representations and
Obligations of the Debtors.  Each of the Debtors jointly and
severally represents, warrants and covenants to the Collateral Agent and the
Secured Parties as follows:

     

    (a) Perfection of Security
Interest.  Each of the Debtors agrees to execute at any time
and from time to time such financing statements and to take whatever other
actions are requested by the Collateral Agent to perfect and continue the
Collateral Agent and the Secured Parties’ security interest in the Collateral
including, without limitation, any filings in the United States Patent and
Trademark Office or foreign recordal offices.  Upon request of the
Collateral Agent, each Debtor will deliver to the Collateral Agent any and all
documents evidencing or constituting the Collateral, possession of which is
required in order for the Collateral Agent and the Secured Parties’ to perfect
their security interest therein.  Upon request of the Collateral
Agent, the Debtors will note Collateral Agent’s and Secured Parties’ interest,
as the case may be, upon any and all Accounts if not delivered to Collateral
Agent for possession by the Collateral Agent.  The Collateral Agent
may at any time and from time to time, and without further authorization from
the Debtors, file a carbon, photographic or other reproduction of any financing
statement or of this Security Agreement for use as a financing statement to the
extent permitted by applicable law.  The Debtors will reimburse the
Collateral Agent for all reasonable expenses for the perfection and the
continuation of the perfection of Secured Parties’ security interest in the
Collateral.  Each Debtor will promptly notify the Collateral Agent of
any change in its name including any change to the assumed business names of
such Debtor.  This is a continuing Security Agreement and will
continue in effect until all Indebtedness is paid in full and any other
Obligations are satisfied and the Secured Parties shall release their interest
in the Collateral upon the full and final payment and satisfaction of the
Indebtedness and other Obligations.  If payment is made by a Debtor,
whether voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter a Secured Party is forced to remit the amount of that payment to such
Debtor’s trustee in bankruptcy or to any similar person under any federal, state
or foreign bankruptcy law or other law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Security Agreement.  If permitted or required under applicable law,
the Collateral Agent may file any financing statements with respect to the
Collateral without the signatures of the Debtors.  Any financing
statements must state that the Collateral Agent and the Secured Parties have a
lien on all of the Debtors’ assets.

     

    (b) Power of
Attorney.  Each Debtor hereby irrevocably makes, constitutes,
and appoints the Collateral Agent (and all of such Collateral Agent’s officers,
employees or agents designated by such Collateral Agent) as its true and lawful
attorney, with power to:  (i) sign such Debtor’s name on any of the
documents described hereunder or on any other similar documents to be executed,
recorded, or filed in order to perfect or continue perfected the Collateral
Agent’s and Secured Parties’ security interest in the Collateral; (ii) at any
time that an Event of Default has occurred and is continuing, execute, sign and
endorse such Debtor’s name on any invoice or bill of lading relating to any
Account, drafts against Account Debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account Debtors; (iii) send requests
for verification of Accounts; (iv) at any time that an Event of Default has
occurred and is continuing, execute, sign and endorse such Debtor’s name on any
checks, notices, instruments, acceptances, money orders, drafts, warrants or
other item of payment or security that may come into the Collateral Agent’s
possession; (v) at any time that an Event of Default has occurred and is
continuing, demand, collect, receive, receipt for, sue and recover all sums of
money or other property which may now or hereafter become due, owing or payable
from the Collateral; (vi) file any claim or claims or, following an Event of
Default, take any action or institute or take part in any proceedings, either in
its own name or in the name of such Debtor, or otherwise, which in the
discretion of the Collateral Agent may seem to be necessary or advisable; (vii)
at any time that an Event of Default has occurred and following acceleration of
the Indebtedness, direct the Account Debtors and other persons sending mail to
the Debtors to send all mail relating to the Collateral to the Collateral Agent;
(viii) at any time that an Event of Default has occurred and is continuing,
make, settle, and adjust all claims under the Debtors’ policies of insurance and
make all determinations and decisions with respect to such policies of
insurance; and (ix) at any time that an Event of Default has occurred and is
continuing, settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms which the Collateral
Agent determines to be reasonable, and the Collateral Agent may cause to be
executed and delivered any documents and releases which the Collateral Agent
determines to be necessary.  The appointment of the Collateral Agent
as such Debtor’s attorney, and each and every one of the Collateral Agent’s and
Secured Parties’ rights and powers, being coupled with an interest, is
irrevocable and shall remain in full force and effect until all of the
Indebtedness has been fully repaid and the other Obligations satisfied and the
Collateral Agent renounces such appointment.

     

    (c) No
Violation.  The execution and delivery of this Security
Agreement does not violate any law or agreement governing any Debtor or to which
any Debtor is a party, and the Debtors’ certificates or articles of
incorporation and bylaws or other organizational documents do not prohibit any
term or condition of this Security Agreement.  The execution and
delivery hereof is in the interest of each of the Debtors.

     

    (d) Enforceability of
Collateral.  With respect to the Accounts, and General
Intangibles, the Collateral is enforceable in accordance with its terms, is
genuine, and complies in all material respects with applicable laws concerning
form, content and manner of preparation and execution, and, to the best of the
knowledge of the Debtors, all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral, except as such enforcement may be limited
by bankruptcy, insolvency, moratorium, fraudulent conveyance or other laws
applicable to creditors’ rights generally and by generally applicable equitable
principles, whether considered in an action at law or in equity.

     

    (e) Accounts.  All
Accounts existing as of the date hereof are good and valid Accounts representing
an undisputed, bona fide indebtedness incurred by the Account Debtors, and there
exists no set-offs or counterclaims against any such Accounts and no agreements
under which any deductions or discounts may be claimed with any Account Debtor
except as disclosed to the Collateral Agent and the Secured Parties in
writing.

     

    (f) Removal of Collateral;
Transactions Involving Collateral.  To the extent the
Collateral consists of Accounts, General Intangibles, Negotiable Collateral or
Debtors’ Books the records and other documents pertaining to the Collateral
shall be kept at the principal office of the Debtor that owns such collateral,
or at such other locations as are reasonably acceptable to the Collateral
Agent.  Except as provided below, the Debtors shall keep the
non-mobile tangible Collateral at the location(s) at which they are kept
specified on Schedule
A and shall maintain any certificate of title of any tangible Collateral
in the same jurisdiction as indicated on Schedule
A.  Except for transactions in the ordinary course of business
in accordance with past practice or for sales or dispositions on arm’s length
terms and for fair equivalent value, the Debtors shall not sell, offer to sell,
or otherwise transfer, dispose of or encumber any tangible
Collateral.  Without the prior written consent of the Secured Parties,
Debtors shall not sell, offer to sell, or otherwise transfer, dispose of or
encumber any intangible Collateral other than pursuant to license agreements
made in the ordinary course of Debtor’s business and consistent with past
business practice.  Except for transactions in the ordinary course of
business, without the prior written consent of the Secured Parties, no
Collateral that is located in the United States shall be moved outside of the
United States.

     

    (g) Title.  As
of the date hereof, the Debtors hold good and marketable title to all the
Collateral, free and clear of all liens and encumbrances except for the lien of
this Security Agreement and Permitted Liens (as defined in the August 2008 Loan
Agreement and the 2008 Loan Agreement.).  No financing statement or
other evidence of a lien or transfer covering any of the Collateral is on file
in any public office in any jurisdiction other than those which reflect the
security interest created by this Security Agreement or Permitted
Liens.  The Debtors shall defend the Collateral Agent’s and Secured
Parties’ rights in the Collateral against any and all claims and
demands.

     

    (h) Prepayments.  None
of the Collateral has been prepaid by any Account Debtor for any
Accounts.

     

    (i) Collateral Schedules and
Locations.  Upon the request of the Collateral Agent, the
Debtors shall deliver to the Collateral Agent schedules of the Collateral,
including such information as the Collateral Agent may require, including
without limitation names and addresses of Account Debtors, the location of
mobile goods or changes in any certificates of title and descriptions of any
after-acquired general intangibles.  The Debtors represent and warrant
to the Collateral Agent and the Secured Parties that Schedule A is true,
accurate and complete in all material respects and shall be updated by the
Debtors to reflect any material changes thereto or at the request of the
Collateral Agent.

     

    (j) Application of Payments
Received With Respect to Collateral.  Unless an Event of
Default (as defined in Section 4 below) has occurred and is continuing, any
amounts received by or on behalf of any Debtor with respect to any Account
pledged as Collateral hereunder may be used by such Debtor in the ordinary
course of its business.  Following the occurrence and during the
continuance of an Event of Default, any amounts received by or on behalf of any
Debtor with respect to any Account shall be applied in the following
order:  (i) costs and expenses of the Collateral Agent and the Secured
Parties reasonably incurred in connection with collecting the Indebtedness and
enforcing this Agreement and the Transaction Documents; (ii) accrued and unpaid
interest due and owing on the Indebtedness as of such date; (iii) unpaid
principal due and owing with respect to the Indebtedness as of such date; and
(iv) any excess to the Debtors or other party or parties in accordance with
applicable law or court order.

     

    (k) Possession and Collection of
Accounts.  Following an Event of Default and during the
continuance thereof or following acceleration of any Indebtedness, the records
and documents evidencing the Accounts pledged as Collateral hereunder shall,
upon the Collateral Agent’s request, be delivered to the Collateral Agent or its
agent and held in accordance with the terms of this Security
Agreement.

     

    (l) Maintenance and Inspection
of Collateral.  The Debtors shall maintain or cause to be
maintained all tangible Collateral in good condition and repair except for
ordinary wear and tear.  The Debtors will not commit or permit damage
to or destruction of the Collateral or any part of the
Collateral.  The Collateral Agent and its designated representatives
and agents shall have the right at all reasonable times, upon reasonable advance
notice, to examine, inspect, and audit the Collateral wherever located and the
books, records or any property which is otherwise used in connection with the
Collateral.  The Debtors shall immediately notify the Collateral Agent
of all material cases involving the return, rejection, repossession, loss or
damage of or to any Collateral; of any request for credit or adjustment or of
any other dispute arising with respect to the Collateral; and generally of all
happenings and events materially adversely affecting the Collateral or the value
or the amount of the Collateral.

     

    (m) Taxes, Assessments and
Liens.  The Debtors will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation and upon the Transaction
Documents.  A Debtor may withhold any such payment or may elect to
contest any lien if such Debtor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as the Collateral
Agent’s and Secured Parties’ interest in the Collateral is not jeopardized in
the Collateral Agent’s sole reasonable opinion.  If any of the
Collateral is subjected to a lien which is not discharged or bonded, or the
enforcement thereof stayed (in either case without granting any security
interests in any of the assets of any Debtor) within fifteen (15) days or such
longer period as is provided by applicable law, but not to exceed thirty (30)
days, the Debtors shall deposit with the Collateral Agent cash, a sufficient
corporate surety bond or other security satisfactory to the Collateral Agent (in
its discretion) in an amount adequate to provide for the discharge of the lien
plus any interest, reasonable costs, attorneys’ fees or other charges that could
accrue as a result of foreclosure or sale of the Collateral.  In any
contest the Debtor or Debtors shall defend itself or themselves, the Secured
Parties and the Collateral Agent and shall satisfy any final adverse judgment
before enforcement against the Collateral.  The Debtors shall name the
Collateral Agent as an additional obligee under any surety bond furnished in
such contest proceedings.

     

    (n) Incorporation by
Reference.  The Debtors hereby restate and affirm all
representations, warranties and agreements contained in the other Transaction
Documents (as of each date and time such representations and warranties are made
under each of the other Transaction Documents), the terms and conditions of
which are hereby incorporated herein by reference.

     

    (o) Compliance With Governmental
Requirements.  The Debtors shall comply promptly with all laws,
ordinances and regulations of all governmental authorities applicable to the
production, disposition, or use of the Collateral.  The Debtors may
contest in good faith any such law, ordinance or regulation and withhold
compliance during any proceeding, including appropriate appeals, so long as the
Collateral Agent’s interest in the Collateral, in the Collateral Agent’s sole
reasonable opinion, is not jeopardized.

     

    (p) Insurance.  The
Debtors shall maintain insurance with respect to their assets and businesses
that is customary for other similarly situated companies.

     

    (q) The Debtors’ Right to
Possession and to Collect Accounts.  Except as otherwise
provided herein, until the occurrence of an Event of Default or acceleration of
Indebtedness, the Debtors may have possession of the tangible personal property
and beneficial use of all the Collateral and may use it in any lawful manner not
inconsistent with this Security Agreement or the other Transaction Documents,
provided that the Debtors’ right to possession and beneficial use shall not
apply to any Collateral where possession of the Collateral by the Collateral
Agent is required by law to perfect the Collateral Agent’s and Secured Parties’
security interest in such Collateral.  At any time an Event of Default
exists or following acceleration of Indebtedness, the Collateral Agent may
exercise its right to directly collect the Accounts and to notify Account
Debtors to make payments directly to the Collateral Agent for application to the
Indebtedness, and the Debtors authorize and direct the Account Debtors, if the
Collateral Agent exercises such right, to make payments on the Accounts to the
Collateral Agent.  If the Collateral Agent at any time has possession
of any Collateral, whether before or after an Event of Default, the Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if the Collateral Agent takes such action for
that purpose as the Debtors shall reasonably request or as the Collateral Agent,
in the Collateral Agent’s sole reasonable discretion, shall deem appropriate
under the circumstances, but failure to honor any request by the Debtors shall
not of itself be deemed to be a failure to exercise reasonable
care.  The Collateral Agent shall not be required to take any steps
necessary to preserve any rights in the Collateral against prior parties, nor to
protect, preserve or maintain any security interest given to secure the
Collateral.  The Collateral Agent shall have the right to direct who
shall collect and service the Accounts in accordance with reasonable commercial
practices.

     

    (r) Transactions with
Others.  After the occurrence and during the continuation of
any Event of Default, the Collateral Agent may (i) extend the time for payment
or other performance, (ii) grant a renewal or change in terms or conditions, or
(iii) compromise, compound or release any obligation with an Account Obligor as
the Collateral Agent deems advisable, without obtaining the prior written
consent of the Debtors, and no such act or failure to act shall affect the
Collateral Agent’s or Secured Parties’ rights against the Debtors or the
Collateral.

     

    (s) Expenditures by the
Collateral Agent.  If not discharged or paid when due, and
provided that such items have not been contested as permitted herein, the
Collateral Agent may (but shall not be obligated to) discharge or pay any
amounts required to be discharged or paid by the Debtors under this Security
Agreement, including without limitation all taxes, liens, security interests,
encumbrances, and other claims, at any time levied or placed on the
Collateral.  The Collateral Agent also may (but shall not be obligated
to) pay all reasonable costs for insuring, maintaining and preserving the
Collateral.  All such expenditures incurred or paid by the Collateral
Agent for such purposes will then bear interest at the then rate charged under
the Notes from the date incurred or paid by the Collateral Agent to the date of
repayment by the Debtors.  All such expenses shall become a part of
the Indebtedness and, at the Collateral Agent’s option, will (i) be payable on
demand or (ii) upon notice to Debtors be added to the balance of the Notes
becoming a part of the outstanding principal amount due and payable on the
maturity date of the Notes.  This Security Agreement also will secure
payment of these amounts.  Such right under this subsection shall be
in addition to all other rights and remedies to which the Collateral Agent and
the Secured Parties may be entitled upon the occurrence of an Event of
Default.

     

    (t) Sale or Factoring of
Accounts; Release of Accounts.  Except with respect to
Permitted Liens (as defined in the Loan Agreement), or as otherwise expressly
permitted herein, the Debtors shall not sell or otherwise transfer or encumber
any of the Accounts, or other Collateral without the Collateral Agent’s written
consent.  It is expressly agreed that the Collateral Agent is under no
obligation to grant such a consent and will do so only in its sole and absolute
discretion on terms and conditions they deem acceptable in their sole and
absolute discretion.

     

    (u) In the
event that in the future, any Collateral is held by subsidiaries, affiliates or
joint ventures of the Debtors who are not a party to this Agreement, then the
Debtors shall cause such entities to grant the Collateral Agent an exclusive
first priority lien in such Accounts and Inventory, to cause such entities to
enter into security agreements reasonably satisfactory to the Collateral Agent
and the Secured Parties, and to take all actions necessary to perfect such
security interests.

     

    (v) Debt.  The
Company has no Debt other than Debt created under the Transaction Documents or
as disclosed on Schedule 3(v)
hereto.  The Subsidiary does not have any Debt other than that
disclosed on Schedule
3(v) hereto.

     

    (w) Compliance
Certificate.  Upon the request of the Collateral Agent, the
Company shall deliver to the Collateral Agent a certificate executed by the
Chief Financial Officer of the Company stating that each of the representations
made by the Debtors in this Security Agreement are true as of the date of such
certificate and no default or Event of Default has occurred under this Security
Agreement.

     

    (x) Additional
Guarantors.  The Company shall cause each of its subsidiaries
formed or acquired on or subsequent to the date hereof to deliver a guarantee to
the Secured Parties substantially in the form of the Subsidiary Guaranty being
delivered on the date hereof.

     

    SECTION
4. Events of Default;
Remedies.

     

    Events of
Default.  Each of the following shall constitute an Event of
Default under this Security Agreement:

     

    (a) Event of Default under the
2006 Notes, 2007 Notes, January 2008 Note, May 2008 Notes or August 2008
Convertible Notes.  An Event of Default shall have occurred
under the 2006 Notes, 2007 Notes, January 2008 Note, May 2008 Notes, the August
2008 Convertible Notes, the 2004 Loan Agreement, the August 2008 Loan Agreement,
the 2008 Loan Agreement, the Securities Purchase Agreement between the Company
and the Secured Parties entered into as of June 22, 2006, or the applicable
Registration Rights Agreements entered into by and among the Company and the
Secured Parties relating to the 2006 Notes, the 2007 Notes and the January 2008
Note.

     

    (b) Other
Defaults.  Failure of any Debtor to comply with or to perform
when due or required (after the expiration of any applicable stated cure
periods) any term, obligation, covenant or condition contained in this Security
Agreement.

     

    (c) False
Statements.  Any warranty, representation or statement made or
furnished to the Collateral Agent or the Secured Parties by or on behalf of the
Debtors under this Security Agreement or any certificate or schedule required
thereby is false or misleading in any material respect, either now or at the
time made or furnished.

     

    (d) Defective
Collateralization.  This Security Agreement ceases to be in
full force and effect at any time and for any reason (other than by reasons
caused solely by actions of the Collateral Agent); or the security interest
intended to be created by this Security Agreement is not created and perfected,
or such security interest ceases to be valid and perfected at any time and for
any reason.

     

    (e) Material Adverse
Change.  The Secured Parties shall have determined in good
faith (which determination shall be conclusive) that a material adverse change
has occurred in the condition, value or operation of a material portion of the
Collateral.

     

    SECTION
5. Rights and Remedies on
Default.  If an Event of Default occurs and is continuing under
this Security Agreement, at any time thereafter, the Collateral Agent and the
Secured Parties shall have all the rights of a secured party under the New York
Uniform Commercial Code.  In addition and without limitation, the
Collateral Agent and the Secured Parties may exercise any one or more of the
following rights and remedies:

     

    (a) Accelerate
Indebtedness.  The Collateral Agent may declare the entire
Indebtedness immediately due and payable, without notice.

     

    (b) Assemble
Collateral.  The Collateral Agent may require the Debtors to
deliver to the Collateral Agent all or any portion of the Collateral and other
documents relating to the Collateral.  The Collateral Agent may
require the Debtors to assemble the Collateral and make it available to the
Collateral Agent at a place to be designated by the Collateral
Agent.  The Collateral Agent also shall have full power to enter upon
the property of the Debtors to take possession of and remove the
Collateral.  If the Collateral contains other goods not covered by
this Security Agreement at the time of repossession, the Debtors agree that the
Collateral Agent may take such other goods, provided that the Collateral Agent
makes reasonable efforts to return them to the Debtors after
repossession.

     

    (c) Sell the
Collateral.  The Collateral Agent shall have full power to
sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof
in its own name or that of the Debtors.  The Collateral Agent may sell
the Collateral at public auction or private sale.  Unless the
Collateral threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Collateral Agent will give the Debtors
reasonable notice of the time after which any private sale or any other intended
disposition of the Collateral is to be made.  The requirements of
reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition.  All expenses relating to
the disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Security Agreement and
shall be payable on demand, with interest at the lower of twenty percent (20%)
per annum or the highest rate permitted by law from date of expenditure until
repaid.

     

    (d) Foreclosure.  Maintain
a judicial suit for foreclosure and sale of the Collateral.

     

    (e) Appoint
Receiver.  To the extent permitted by applicable law, the
Collateral Agent shall have the following rights and remedies regarding the
appointment of a receiver:  (i) the Collateral Agent may have a
receiver appointed as a matter of right, (ii) the receiver may be an employee of
the Collateral Agent and may serve without bond, and (iii) all fees of the
receiver and the receiver’s attorney shall become part of the Indebtedness
secured by this Security Agreement and shall be payable on demand, with interest
at the lower of twenty percent (20%) per annum or the highest rate permitted by
law from date of expenditure until repaid.

     

    (f) Transfer
Title.  Effect transfer of title upon sale of all or part of
the Collateral.  For this purpose, the Debtors irrevocably appoint the
Collateral Agent, acting singly, as its attorneys-in-fact to execute
endorsements, assignments and instruments in the name of the Debtors as shall be
necessary or reasonable.  With respect to any such transfer of
trademarks, the applicable Debtor hereby transfers all goodwill associated
therewith.

     

    (g) Collect Revenues, Apply
Accounts.  The Collateral Agent, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral.  The Collateral Agent may at any time in its discretion
transfer any Collateral into its own names or that of its nominees and receive
the payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in such
order of preference as the Collateral Agent may determine.  The
Collateral Agent may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as the Collateral Agent may
determine, whether or not the Indebtedness is then due.  For these
purposes, the Collateral Agent may, on behalf of and in the name of the Debtors,
open and dispose of mail addressed to any Debtor; change any address to which
mail and payments are to be sent; and endorse notes, checks, drafts, money
orders, documents of title, instruments and items pertaining to payment,
shipment or storage of any Collateral.  To facilitate collection, the
Collateral Agent may, notify Account Debtors and obligors on any Collateral to
make payments directly to the Collateral Agent.

     

    (h) Obtain
Deficiency.  If the Collateral Agent chooses to sell any or all
of the Collateral and/or pursue any other remedy available hereunder, under any
other agreement, at law or in equity, the Collateral Agent may obtain a judgment
against the Debtors for any deficiency remaining on the Indebtedness due to the
Secured Parties after application of all amounts received from the exercise of
the rights provided in this Security Agreement.  The Debtors shall be
liable for a deficiency even if the transaction described in this Subsection is
a sale of accounts or chattel paper.

     

    (i) Application of
Proceeds.  The proceeds of any foreclosure or realization upon
the Collateral shall be applied:

     

    (i) First, to
the costs and expenses of collection;

     

    (ii) Second,
to overdue interest;

     

    (iii) Third, to
the outstanding principal amount of the Indebtedness; and

     

    (iv) Fourth,
any excess to the Debtors or other party or parties in accordance with
applicable law or court order.

     

    (j) Other Rights and
Remedies.  The Collateral Agent and the Secured Parties shall
have all the rights and remedies of a secured creditor under the provisions of
the New York Uniform Commercial Code, as may be amended from time to
time.  In addition, the Collateral Agent and the Secured Parties shall
have and may exercise any or all rights and remedies they may have available at
law, in equity, or otherwise.

     

    SECTION
6. Cumulative
Remedies.  All of the Collateral Agent’s and the Secured
Parties’ rights and remedies, whether evidenced by this Security Agreement, or
the other Transaction Documents or by any other writing, shall be cumulative and
may be exercised singularly or concurrently.  Election by the
Collateral Agent or the Secured Parties to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of a Debtor under this Security Agreement, after
such Debtor’s failure to perform, shall not affect the Collateral Agent’s and
Secured Parties’ right to declare a default and to exercise their
remedies.

     

    SECTION
7. Pledged
Securities.

     

    (a) So long
as no Event of Default shall have occurred and be continuing:

     

    (i) The
Debtors shall be entitled to exercise any and all voting and other consensual
rights pertaining to the Pledged Securities or any part thereof for any purpose
not inconsistent with the terms of this Security Agreement or the Transaction
Documents; provided, however, that the Debtors shall not exercise or refrain
from exercising any such right if such action would have a material adverse
effect on the value of the Pledged Securities or any part thereof; and provided
further that the Debtors shall give the Collateral Agent at least five days’
prior written notice of the manner in which it intends to exercise, or the
reasons for refraining from exercising, any such right.

     

    (ii) The
Debtors shall be entitled to receive and retain any and all dividends and
interest paid in respect of the Pledged Securities; provided, however, that any
and all

     

    (A) (I)
dividends and other distributions paid or payable in cash in respect of any
Pledged Securities in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus, (II) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Pledged Securities or
(III), cash dividends resulting from transactions outside the ordinary course of
business, shall be used to prepay first the August 2008 Convertible Notes, May
2008 Notes, the January 2008 Note, the 2007 Notes and the 2006
Notes on a pari passu
basis (on a pro rata
basis based on the Principal Amount (as defined in the May 2008 Notes, January
2008 Note, 2006
Notes, and 2007 Notes, as applicable) outstanding on each such Note),
or

     

    (B) dividends
and interest paid or payable other than in cash in respect of, and instruments
and other property received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Securities shall be, and shall be forthwith
delivered to the Collateral Agent to hold as, Collateral and shall, if received
by the Debtors, be received in trust for the benefit of the Secured Parties, be
segregated from the other property or funds of the Debtors and be forthwith
delivered to the Collateral Agent as Collateral in the same form as so received
(with any necessary endorsement).

     

    The Debtors, promptly upon the request
of the Collateral Agent, shall execute such documents and do such acts as may be
necessary or desirable in the reasonable judgment of the Collateral Agent to
give effect to this Section 7(a)(ii).

     

    (iii) The
Debtors shall deliver to the Collateral Agent any distribution consisting of
Subsidiary Securities or Further Securities immediately upon receipt, together
with executed stock powers and corporate resolutions authorizing the transfer of
title of such shares after an Event of Default pursuant to the terms of this
Security Agreement.

     

    (iv) The
Collateral Agent shall execute and deliver (or cause to be executed and
delivered) to the Debtors all such proxies and other instruments as Debtors may
reasonably request for the purpose of enabling the Debtors to exercise the
voting and other rights that it is entitled to exercise pursuant to clause (i)
above and to receive the dividends or interest payments that it is authorized to
receive and retain pursuant to clause (ii) above.

     

    (b) Upon the
occurrence and during the continuance of an Event of Default:

     

    (i) All
rights of Debtors (x) to exercise or refrain from exercising the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 7(a)(i) shall, upon notice to Debtors by the Secured Parties, cease
and (y) to receive the dividends and interest payments that it would otherwise
be authorized to receive and retain pursuant to Section 7(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall thereupon have the sole right to exercise or
refrain from exercising such voting and other consensual rights and to receive
and hold as Pledged Securities such dividends, interest payments and other
distributions.  For the avoidance of doubt, the Collateral Agent is
hereby granted an irrevocable proxy coupled with an interest to exercise all
voting power with respect to the Subsidiary Securities and/or the Further
Securities, effective upon the occurrence of an Event of Default.

     

    (ii) All
dividends, interest payments and other distributions that are received by the
Debtors contrary to the provisions of clause (i) of this Section 7(b) shall be
received in trust for the benefit of the Secured Parties, shall be segregated
from other funds of Debtors and shall be forthwith paid over to the Collateral
Agent as Collateral in the same form as so received (with any necessary
endorsement).

     

    SECTION
8. The Collateral Agent’s
Duties.

     

    (a) Other
than as specified in this Security Agreement and any amendment hereto, the
Collateral Agent shall not be required to take or refrain from taking any
actions, to exercise or refrain from exercising any rights, or to make or
refrain from making any requests unless it shall first receive proper
instructions from Secured Parties holding at least 75% of the outstanding
principal amount of the Obligations (or their respective successors or
assigns).

     

    (b) The
Collateral Agent shall hold all Collateral received by it, and shall make
disposition thereof, only in accordance with this Security Agreement or any
amendment thereto.  Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder,
the Collateral Agent shall have no duty as to any Collateral, as to ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Pledged Securities, whether or not the
Collateral Agent or any of the Secured Parties has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any parties or any other rights pertaining to any
Collateral.

     

    (c) The
Collateral Agent shall not be under any duty or obligation to inspect, review or
examine any document, instrument, certificate, agreement or other papers to
determine that they are enforceable or that they are other than what they
purport to be on their face.  The Collateral Agent shall hold any
Collateral delivered to the Collateral Agent as the agent of the and for the
benefit of each Secured Party, without preference as to any Secured
Party.

     

    (d) The
duties and obligations of the Collateral Agent shall be determined solely by the
express provisions of this Security Agreement or any amendment hereto or any
instructions permitted hereby.  The Collateral Agent shall have no
obligation with respect to any other matters covered in any other document other
than as expressly provided herein, or any amendment hereto.  The
Collateral Agent shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Security Agreement or as
set forth in a written amendment to this Security Agreement executed by the
parties hereto or their successors or assigns.  No representations,
warranties, covenants or obligations of the Collateral Agent or any Secured
Party shall be implied with respect to this Agreement or the Collateral Agent’s
services hereunder.  Without limiting the generality of the foregoing,
the Collateral Agent:

     

    (i) shall use
the same degree of care and skill as a reasonably prudent person would use in
similar circumstances (without limiting the generality of the foregoing, the
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which the Collateral Agent
accords its own property of like tenor);

     

    (ii) shall not
be obligated to take any legal action hereunder that might in its reasonable
judgment involve any expense or liability unless it has been furnished with
reasonable indemnity from the Secured Parties;

     

    (iii) may rely
on and shall be protected in acting in good faith upon any certificate,
instrument, opinion, notice, letter, telegram or other document, or any
security, delivered to it and in good faith believed by it to be genuine and to
have been signed by the proper party or parties;

     

    (iv) may rely
on and shall be protected in acting in good faith upon the written instructions
of Secured Parties holding at least 75% of the outstanding principal amount of
the Obligations;

     

    (v) may
consult its own independent counsel satisfactory to it and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered, or omitted by it hereunder in good faith and in
furtherance of its duties hereunder, in accordance with the opinion of such
counsel;

     

    (vi) may
execute any of the powers hereunder or perform any duties hereunder either
directly or through agents or attorneys; and

     

    (vii) will be
regarded as making no representation and having no responsibilities (except as
expressly set forth herein) as to the validity, sufficiency, value, genuineness,
ownership or transferability of any portion of the Collateral, and will not be
required to and will not make any representations as to the validity, value or
genuineness of any portion of the Collateral.

     

    (e) Neither
the Collateral Agent nor any of its partners, agents or employees, shall be
liable for any error in judgment, for any mistake of fact or for any action
taken or omitted to be taken by it or them hereunder or in connection herewith
in good faith and believed by it or them to be within the purview of this
Security Agreement, except for its or their own gross negligence, lack of good
faith or willful misconduct.  In no event shall the Collateral Agent
or its partners, officers, agents and employees be held liable for any special,
indirect or consequential damages resulting from any action taken or omitted to
be taken by it or them hereunder in connection herewith even if advised of the
possibility of such damages.

     

    (f) Whenever,
in the administration of this Security Agreement, the Collateral Agent
reasonably shall deem it necessary that a matter be proved or established prior
to taking, suffering or omitting any action under this Security Agreement, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate of the Secured Parties, and such certificate shall be full warranty
to the Collateral Agent for any action taken, suffered or omitted under the
provisions of this Agreement, upon the faith thereof.

     

    SECTION
9. Miscellaneous
Provisions.

     

    (a) Entire Agreement;
Amendments.  This Security Agreement, together with the other
Transaction Documents, constitute the entire understanding and agreement of the
parties as to the matters set forth in this Security Agreement.  No
alteration of or amendment to this Security Agreement shall be effective unless
given in writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.

     

    (b) CHOICE OF LAW AND VENUE;
MUTUAL JURY TRIAL WAIVER.  THE VALIDITY OF THIS SECURITY
AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF
THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.  THE
PARTIES MUTUALLY IRREVOCABLY AND UNCONDITIONALLY AGREE (I) THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK,
NEW YORK COUNTY AND THAT THE PARTIES SHALL BE SUBJECT TO THE JURISDICTION OF
SUCH COURTS, AND (II) THAT SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, SHALL CONSTITUTE PERSONAL SERVICE.  EACH DEBTOR, THE
COLLATERAL AGENT AND THE SECURED PARTIES WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 9(b). EACH DEBTOR, THE COLLATERAL AGENT AND THE
SECURED PARTIES HEREBY WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT OR
ANY OF THE ACTIONS CONTEMPLATED HEREIN, INCLUDING WITHOUT LIMITATION CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. THE DEBTORS, THE COLLATERAL AGENT AND THE SECURED PARTIES EACH
REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     

    (c) Attorneys’ Fees;
Expenses.  The Debtors agree to pay, jointly and severally upon
demand, all of the Collateral Agent’s and Secured Parties’ costs and expenses,
including without limitation reasonable attorneys’ fees and legal expenses,
incurred in connection with the enforcement of this Security
Agreement.  The Collateral Agent or any Secured Party may pay someone
else to help enforce this Security Agreement, and the Debtors shall pay the
costs and expenses of such enforcement.  Costs and expenses include
without limitation the Collateral Agent’s and Secured Parties’ reasonable
attorneys’ fees and legal expenses whether or not there is a lawsuit, reasonable
attorneys’ fees and legal expenses for bankruptcy proceedings (and including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services.  The Debtors also shall
pay all court costs and such additional fees as may be directed by the
court.

     

    (d) Caption
Headings.  Caption headings in this Security Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Security Agreement.

     

    (e) Notices.  All
notices required to be given under this Security Agreement shall be given in
writing and shall be effective when actually delivered or two (2) days after
being deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given or, if via facsimile or
electronic transmission, when sent via facsimile or electronic transmission to
the party to whom the notice is to be given and confirmation of such
transmission has been received, at the address and/or facsimile or email address
number shown below:

     

    If to
Elliott or the Collateral Agent:

     

    Manchester
Securities Corporation

    712 Fifth
Avenue, 36th
Floor

    New York,
New York 10019

    Telephone:  (212)
974-6000

    Facsimile:  (212)
974-2092

    Email:  dMiller@elliottmgmt.com

    Attention:  Dave
Miller

     

    With a
copy to:

     

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

    551 Fifth
Avenue, 18th Floor

    New York,
New York 10176

    Telephone:  (212)
986-6000

    Facsimile:   (212)
986-8866

    Email:  LHui@kkwc.com

    Attention:  Lawrence
D. Hui, Esq.

     

    If to
Alexander:

     

    Alexander
Finance, LP

    1560
Sherman Avenue

    Evanston,
Illinois

    Telephone:  (847)
733-0232

    Facsimile:   (847)
733-0339

    Email:  BWhitmore@gbros.com

    Attention:  Bradford
T. Whitmore

    


    With a
copy to:

    


    Reed
Smith LLP

    10 S.
Wacker Drive

    Chicago,
Illinois 60606-7507

    Telephone:  (312)
207-3879

    Facsimile:   (312)
207-6400

    Email:  EArkebauer@ReedSmith.com

    Attention:  Evelyn
C. Arkebauer, Esq.

    


    If to the
Company or a Subsidiary:

     

    ISCO
International, Inc.

    1001
Cambridge Drive

    Elk Grove
Village, Illinois  60007

    Telephone:  (847)
391-9400

    Facsimile:   (847)
391-5015

    Email:  gary.berger@iscointl.com

    Attention:  Gary
Berger

     

    With a
copy to:

     

    McGuireWoods
LLP

    Suite
4100

    77 Wacker
Drive

    Chicago,
IL 60601-1818

    Telephone:
(312) 321-7652

    Facsimile:  (312)
698-4585

    Email:
sglickson@mcguirewoods.com

    Attention:
Scott Glickson, Esq.

     

    Any party
may change its address for notices under this Security Agreement by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party’s address.  For notice purposes, the
Debtors agree to keep the Collateral Agent informed at all times of the Debtors’
current addresses.

     

    (f) Severability.  The
parties acknowledge and agree that the Collateral Agent and the Secured Parties
are not agents or partners of each other, that all representations, warranties,
covenants and agreements of the Collateral Agent and the Secured Parties
hereunder are several and not joint, that the Collateral Agent and the Secured
Parties shall not have any responsibility or liability for the representations,
warranties, agreements, acts or omissions of the other and that any rights
granted to the Collateral Agent and the Secured Parties hereunder shall be
enforceable by each of the Collateral Agent and the Secured Parties
hereunder.  If a court of competent jurisdiction finds any provision
of this Security Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances.  If feasible,
any such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision cannot
be so modified, it shall be stricken, and all other provisions of this Security
Agreement in all other respects shall remain valid and enforceable and such
offending provision shall not be affected in any other
jurisdiction.

     

    (g) Successor
Interests.  Subject to the limitations set forth above on
transfer of the Collateral, this Security Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns to the extent
permitted by Section 5.6 of the 2008 Loan Agreement.  The Debtors
shall not, however, have the right to assign this Security Agreement without the
prior written consent of the Secured Parties which may be withheld for any
reason in the Secured Parties’ sole discretion.

     

    (h) Waiver.  The
Collateral Agent and the Secured Parties shall not be deemed to have waived any
rights under this Security Agreement unless such waiver is given in writing and
signed by the Collateral Agent and the Secured Parties.  No delay or
omission on the part of the Collateral Agent or Secured Parties in exercising
any right shall operate as a waiver of such right or any other
right.  A waiver by the Collateral Agent or Secured Parties of a
provision of this Security Agreement shall not prejudice or constitute a waiver
of the Collateral Agent’s or the Secured Parties’ right otherwise to demand
strict compliance with that provision or any other provision of this Security
Agreement.  No prior waiver by the Collateral Agent or Secured
Parties, nor any course of dealing between the Secured Parties and the Debtors,
shall constitute a waiver of any of the Collateral Agent’s or the Secured
Parties’ rights or of any of the Debtors’ obligations as to any future
transactions.  Whenever the consent of the Collateral Agent and/or the
Secured Parties is required under this Security Agreement, the granting of such
consent in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of the Collateral Agent and/or the
Secured Parties.

     

    (i) Indemnity.  The
Debtors agree, jointly and severally, to indemnify, pay and hold the Collateral
Agent, each Secured Party and the officers, partners, directors, employees,
agents and affiliates thereof (collectively, the “indemnitees”) harmless from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) that may be imposed on, incurred by, or asserted
against any indemnitee, in any manner relating to or arising out of this
Security Agreement and any action undertaken or contemplated
hereby.  This indemnification shall survive the satisfaction and
payment of the Indebtedness and termination of this Security
Agreement.

     

    (j) Subsidiary
Liability.  Notwithstanding anything in this Security Agreement
to the contrary, the Subsidiary’s obligations hereunder shall not exceed the
maximum amount that would not be subject to avoidance under fraudulent
conveyance, fraudulent transfer, and other similar laws.

     

    (k) No
Subrogation.  Notwithstanding any payment made by any Debtor
hereunder or any set-off or application of funds of any Debtor by the Secured
Parties, no Debtor shall be entitled to be subrogated to any of the rights of
the Secured Parties against a Debtor or any collateral security or guarantee or
right of offset held by the Secured Parties for the payment of the Indebtedness,
nor shall any Debtor seek or be entitled to seek any contribution or
reimbursement from another Debtor in respect of payments made by such Debtor
hereunder, until all amounts owing to the Secured Parties by the Debtors under
any Transaction Documents are paid in full.  If any amount shall be
paid to any Debtor on account of such subrogation rights at any time when any
such amounts shall not have been paid in full, such amount shall be held by such
Debtor in trust for the Secured Parties, segregated from other funds of such
Debtor, and shall, forthwith upon receipt by such Debtor, be turned over to the
Secured Parties in the exact form received by such Debtor (duly indorsed by such
Debtor to Secured Parties, if required), to be applied against the Indebtedness
of the Debtors under the Transaction Documents, whether matured or unmatured, in
such order as the Secured Parties may determine.

     

    (l) The
actions of the holders of 75% of the outstanding principal amount of the
Obligations shall be deemed the actions of Secured Parties for purposes of
giving any notice or enforcing any rights or remedies.

     

    


    [Signature
Page Follows]


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized, as of the date
first above written.

     

    


    ISCO
INTERNATIONAL, INC.

    


    


    By: /s/ Gary
Berger                                                                           

    Name:                      Gary
Berger

    Title:                      Chief
Financial Officer

    


    


    CLARITY
COMMUNICATION SYSTEMS INC.

    


    


    By:  /s/ Gary Berger
                                                                         

    Name: Gary Berger

    Title:   Chief Financial
Officer

    


    


    MANCHESTER
SECURITIES CORPORATION

    


    


    By: /s/ Elliot
Greenberg                                                                           

    Name:                      Elliot
Greenberg

    Title:                      Vice
President

    


    


    ALEXANDER
FINANCE, L.P.

    


    


    By:  /s/ Bradford
Whitmore                                                                        

    Name: Bradford
Whitmore 

    Title: President Bun Partners, Inc.


                      Its: General Partner


    


    


    COLLATERAL
AGENT:

    


    MANCHESTER
SECURITIES CORPORATION

    


    


    By: /s/ Elliot
Greenberg                                                                           

    Name:                      Elliot
Greenberg

    Title:                      Vice
President