iscosecagreement.htm

Exhibit 10.2

    FIFTH
      AMENDED AND RESTATED
      SECURITY AGREEMENT

     

    


     

    Fifth
      Amended and Restated Security Agreement, dated as of January 31, 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 Fourth Amended and Restated Security
      Agreement, dated as of June 22, 2006, 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 Third Amended and Restated Loan Agreement
      dated November 10, 2004 by and among the Company and the Secured Parties, as
      amended (the “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) Subject
      to the Amendment and Termination and Release of Guaranty dated as of the date
      hereof by and among the Company, the Secured Parties, and the Company’s former
      subsidiaries, (the “Guaranty
      Release”), 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 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 “2008 Note”); (v) the guaranty
      dated as of the date hereof (the “Guaranty”) (the Loan
      Agreement, the 2006 Notes, the 2007 Notes, the 2008 Note, the Guaranty and
      the
      Existing Security Agreement, as amended by the Guaranty Release, 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 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, or the 2008 Note.  An Event of Default
      shall have occurred under the 2006 Notes, 2007 Notes, 2008 Note, the Loan
      Agreement or the Securities Purchase Agreement between the Company and the
      Secured Parties entered into as of the date thereof.

     

    (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 2008 Note and the 2007 Notes on a parri
      passu basis, and then the 2006 Notes (on a pro rata basis based on the Principal
      Amount (as defined in the 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:  frank.cesario@iscointl.com

    Attention::  Frank
      Cesario

     

    With
      a
      copy to:

     

    Pepper
      Hamilton LLP

    400
      Berwyn Park

    899
      Cassatt Road

    Berwyn,
      Pennsylvania 19312

    Telephone:  (610)
      640-7800

    Facsimile:  (610)
      640-7835

    Email:  gallagmp@pepperlaw.com

    Attention:  Michael
      P. Gallagher, 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 agrees 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 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.

     

    



    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/
      Frank
      Cesario                                                                    


    Name:
      Frank Cesario

    Title:  
      CFO

    


    CLARITY
      COMMUNICATION SYSTEMS INC.

    


    


    By:      /s/
      Frank
      Cesario                                                                     


    Name:  
      Frank Cesario

    Title:    
      CFO

    


    MANCHESTER
      SECURITIES CORPORATION

    


    


    By:          /s/
      Elliot
      Greenberg                                                                 


    Name:                      
      Elliot Greenberg

    Title:                      
      Vice President

    


    ALEXANDER
      FINANCE, L.P.

    


    


    By:       /s/
      Brad
      Whitmore                                                                    


    Name:
      Brad Whitmore

    Title:
      President

    COLLATERAL
      AGENT:

    


    MANCHESTER
      SECURITIES CORPORATION

    


    


    By:             /s/
      Elliot
      Greenberg                                                      


    Name:                      
      Elliot Greenberg

    Title:                      
      Vice President