Document:

Second Amended and Restated Security Agreement

 Exhibit 10.2 
  
 SECOND AMENDED AND RESTATED SECURITY AGREEMENT 
  
 Second Amended and Restated Security Agreement, dated as of July 23, 2004 made by and among ISCO International, Inc., a
Delaware Corporation with offices at 451 Kingston Court, Mt. Prospect, Illinois 60056 and formerly known as Illinois Superconductor Corporation (the “Company”), each of the Company’s undersigned subsidiaries (the
”Subsidiaries,” the Company and Subsidiaries are hereafter collectively 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 Security Agreement, dated as of October 23, 2002 by and among the Debtors, the Lenders and the Collateral Agent, as previously amended and restated on October 24, 2003, and as
further amended on February 24, 2004 (the “Original 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 Second
Amended and Restated Loan Agreement dated as of the date hereof by and among the Company and the Secured Parties (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,
including, without limitation, the promissory note issued by Illinois Superconductor Canada Corporation to the Company (“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
Original 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 the type described in Section 1(b) of the Original Security Agreement. 
  

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 (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 the Loan Agreement, dated
as of October 23, 2002 by and between the Company and the Secured Parties, as amended and restated on October 24, 2003, as amended on February 24, 2004, and as further amended and restated as of the date hereof (the “Loan
Agreement”); (ii) the Company’s 91⁄2 secured grid notes, due April 1, 2005, as amended (the “2002 Notes”); (iii) the Company’s 14% secured grid notes due April 1, 2005, as amended (the “2003
Notes”); (iv) the Company’s 14% secured grid notes due April 1, 2005 (the “2004 Notes”); (v) the guaranties dated as of October 23, 2002 issued by each of the Subsidiaries to the Secured Parties, as amended and
restated on October 24, 2003, as amended on February 24, 2004, and as further amended and restated as of the date hereof (the “Restated Guaranties”) (the Loan Agreement, the 2002 Notes, the 2003 Notes, the 2004 Notes, the Restated
Guaranties and the 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 
  

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 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 
  

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 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. 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 
  

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 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. On a monthly basis, 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 monthly by the Debtors to reflect any changes thereto. 
  
 (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. 
  

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 (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 
  

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 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. 
  

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 (v) Debt. The Company has no Debt other than Debt created under the Transaction Documents or as
disclosed on Schedule 3(v) hereto. None of the Subsidiaries have any Debt other than that disclosed on Schedule 3(v) hereto. 
  
 (w) Monthly Compliance Certificate. On the last business day of each calendar month, 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 Guarantees 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 2002 Notes, 2003 Notes or 2004 Notes. An Event of Default shall have occurred under the 2002 Notes, 2003 Notes, 2004 Notes or the Loan Agreement. 
  
 (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. 
  

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 (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 
  

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 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. 
  

 11 

 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 2004
Notes, then the 2003 Notes, then the 2002 Notes (on a pro rata basis based on the Principal Amount (as defined in the 2004 Notes, 2003 Notes and 2002 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. 
  

 12 

 (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. 
  

 13 

 (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, 
  

 14 

 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. EACH DEBTOR, THE COLLATERAL AGENT AND THE SECURED PARTIES 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. 
  

 15 

 (c) Attorneys’ Fees; Expenses. The Debtors agrees 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, when sent via facsimile 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 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 
 Attention: Dan Gropper 
  
 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 
 Attention: Lawrence D. Hui, Esq. 
  
 If to Alexander: 
  
 Alexander Finance, LP 
 1560 Sherman Avenue

 Evanston, Illinois 
 Telephone:
(847) 733-0232 
 Facsimile: (847) 733-0339 
 Attention: Bradford T. Whitmore 
  

 16 

 With a copy to: 
  

Sachnoff & Weaver 
 30 S. Wacker Drive

 Chicago, Illinois 60606 
 Telephone: (312) 207-3879 
 Facsimile: (312) 207-6400 
 Attention: Evelyn C. Arkebauer, Esq. 
  
 If to the Company or a Subsidiary: 
  
 ISCO
International, Inc. 
 451 Kingston Court 
 Mount Prospect, Illinois 60056 
 Telephone: (847) 391-9400 
 Facsimile: (847) 391-5015 
 Attention: Frank
Cesario 
  
 With a copy to: 
  
 Pepper Hamilton LLP 
 400 Berwyn Park 
 899 Cassatt Road 

1235 Westlakes Drive 
 Berwyn, Pennsylvania
19312 
 Telephone: (610) 640-7800 
 Facsimile: (610) 640-7835 
 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. 
  

 17 

 (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, each 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, 
  

 18 

 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. 
  

 19 

 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:
	 	  

	 Name:
	 	 Amr Abdelmonem, Ph.D.

	 Title:
	 	 Chief Executive Officer

	
	 SPECTRAL SOLUTIONS, INC.

		
	 By:
	 	  

	 Name:
	 	 
	 Title:
	 	 
	
	ILLINOIS SUPERCONDUCTOR CANADA CORPORATION
		
	 By:
	 	  

	 Name:
	 	 
	 Title:
	 	 
	
	 MANCHESTER SECURITIES CORPORATION

		
	 By:
	 	  

	 Name:
	 	 Elliot Greenberg

	 Title:
	 	 Vice President

	
	 ALEXANDER FINANCE, L.P.

		
	 By:
	 	  

	 Name:
	 	 
	 Title:
	 	 
	
	 COLLATERAL AGENT:

	 MANCHESTER SECURITIES CORPORATION

		
	 By:
	 	  

	 Name:
	 	 Elliot Greenberg

	 Title:
	 	 Vice President

  

 20 

 SCHEDULE A 
  

Identification, Ownership and Location of Collateral and Liens 
  

 21Secured 14% Grid Note

 EXHIBIT 10.3 
  
 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW OR AN EXEMPTION THEREFROM. 
  
 14% SECURED GRID NOTE 
  

			
	U.S.$386,900	 	Dated: July 23, 2004
	Note No.: C-2	 	Mt. Prospect, Illinois

  
 FOR VALUE RECEIVED,
the undersigned, ISCO INTERNATIONAL, INC., a Delaware corporation formerly known as ILLINOIS SUPERCONDUCTOR CORPORATION with offices at 451 Kingston Court, Mt. Prospect, Illinois 60056 (“Borrower”), promises to pay to the order of
ALEXANDER FINANCE, L.P., an Illinois limited partnership at 1560 Sherman Avenue, Suite 900, Evanston, Illinois 60210, or its registered assigns (“Lender”), in lawful money of the United States, the principal sum of Three Hundred
Eighty-Six Thousand and Nine Hundred Dollars (U.S.$386,900), or, if less, the outstanding principal amount of Advances (as defined in Loan Agreement) made to Borrower pursuant to the Second Amended and Restated Loan Agreement dated as of the date
hereof to which Borrower, Lender and Manchester Securities Corporation (“Manchester”) are parties (the “Loan Agreement”), as shown on the Grid Schedule attached as Schedule 1 hereto, due April 1, 2005, (the
“Maturity Date”), and to pay interest on the principal sum outstanding under this Note at the rate of the lesser of 14% per annum or the highest rate permitted by law, compounded annually, which interest shall also be due and
payable on the Maturity Date, or such earlier date upon acceleration in accordance with the terms hereof. Accrual of interest shall commence on the first day to occur after the date hereof and shall continue until payment in full of the principal
sum and all other amounts due hereunder have been made. The principal of, and interest on, this Note are payable in such currency of the United States of America as of the time of payment is legal tender for payment of public and private debts. This
Note is one of the Notes (the “2004 Notes”) issued pursuant to the Loan Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Loan Agreement. 
  
 This Note is subject to the following additional provisions: 
  
 1. Interest and Payment Application. Interest shall be
calculated on a 360 day year simple interest basis and paid for the actual number of days elapsed. All interest due hereunder shall be payable at the Maturity Date. Notwithstanding anything contained herein, the outstanding principal balance and
interest due hereunder shall bear interest, from and after the occurrence and during the continuance of an Event of Default (as defined below) hereunder, at the rate equal to the lower of twenty percent (20%) per annum, compounded annually, or the
highest rate permitted by law, and from and after such time interest shall be payable from time to time on demand. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs, then to accrued
and unpaid interest and fees and any remaining amount to principal. 

 2. Prepayment. Borrower may pre-pay all or any part of this Note at any time upon
thirty (30) days prior written notice to Lender, without cost or penalty in accordance with the provisions of Section 1.6(a) of the Loan Agreement, and must pre-pay this Note in the circumstances described in Section 1.6(b) of the Loan Agreement.

  
 3. No Impairment. Borrower shall not
intentionally take any action which would impair the rights of Lender hereunder. 
  
 4. Obligations Absolute. No provision of this Note shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time,
place and rate, and in the manner, herein prescribed. 
  
 5.
Advances Under the Loan Agreement. Upon the closing of each Advance made by Lender under the Loan Agreement, Lender shall adjust the grid schedule attached to this Note as Schedule 1 to reflect the principal amount and the terms of
such Advance. Notwithstanding anything to the contrary contained herein or in the Loan Agreement, Lender’s failure to so adjust the grid schedule shall not in any manner affect Borrower’s obligation to repay the amount of any Advances made
by Lender under the Loan Agreement in accordance with the terms of the Loan Agreement and this Note. 
  
 6. Defaults and Remedies. 
  
 (a) Events of Default. An “Event of Default” is: (i) default in payment of the principal amount or accrued but unpaid
interest thereon of any of the 2004 Notes or any of the Notes issued by the Company on October 24, 2003 to the Lender and Manchester, as amended on February 24, 2004 (the “2003 Notes”) or any of the Notes issued by the Company on
October 23, 2002 to the Lender and Manchester, as amended on February 24, 2004 (the “2002 Notes” and together with the 2004 Notes and 2003 Notes, the “Loan Notes”) on or after the date such payment is due, (ii)
failure by Borrower for ten (10) days after notice to it, to comply with any other material provision of any of the Loan Notes or the Loan Agreement; (iii) an Event of Default under the Security Agreement (as defined below); (iv) a breach by
Borrower of its representations or warranties in the Loan Agreement; (v) any default under or acceleration prior to maturity of any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by Borrower or a subsidiary of Borrower or for money borrowed the repayment of which is guaranteed by Borrower or a subsidiary of Borrower, whether such indebtedness or guarantee now exists or shall be created
hereafter, provided that the obligations with respect to any such borrowed or accelerated amount exceeds, in the aggregate, $500,000; (vi) any money judgment, writ or warrant of attachment, or similar process in excess of $500,000 in the
aggregate shall be entered or filed against Borrower or a subsidiary of Borrower or any of their respective properties or other assets and shall remain unpaid, unvacated, unbonded and unstayed for a period of 45 days; (vii) if Borrower or any
subsidiary of Borrower pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) has an involuntary case commenced against it, and such case is not dismissed within 30 days of such commencement or consents to

  

 - 2 - 

 the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it
for all or substantially all of its property; (D) makes a general assignment for the benefit of its creditors; or (E) admits in writing that it is generally unable to pay its debts as the same become due; or (viii) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that: (1) is for relief against Borrower in an involuntary case; (2) appoints a Custodian of Borrower or for all or substantially all of its property; or (3) orders the liquidation of the Company or
any subsidiary, and the order or decree remains unstayed and in effect for ninety (90) days. The terms “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. The term
“Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. 
  
 (b) Remedies. If an Event of Default occurs and is continuing with respect to any of the Loan Notes, Lender may declare all of the then outstanding
principal amount of this Note, including any accrued and unpaid interest due thereon, to be due and payable immediately, except that in the case of an Event of Default arising from events described in clauses (vii) and (viii) of Section 6(a) above,
this Note shall become due and payable without further action or notice. 
  
 7. Waivers of Demand, Etc. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, hereby
expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection
of any amount called for hereunder. 
  
 8. Replacement
Note. In the event that Lender notifies Borrower that this Note has been lost, stolen or destroyed, a replacement Note identical in all respects to the original Note (except for the outstanding principal amount, if different than that shown
on the original Note), shall be delivered to Lender, provided that Lender executes and delivers to Borrower an agreement reasonably satisfactory to Borrower to indemnify Borrower from any loss incurred by it in connection with this Note. 

 
 9. Loan Agreement; Security Agreement; Guaranties. This Note
is being issued to Lender in connection with the Loan Agreement and is entitled to the benefits thereof. In addition Borrower’s obligations under this Note are guaranteed by the Second Amended and Restated Guaranties (the
“Guaranties”) of Spectral Solutions, Inc. and Illinois Superconductor Canada Corporation, subsidiaries of Borrower (the together, the “Guarantors”) and this Note is entitled to the benefits thereof.
Borrower’s obligations under this Note are also secured, pursuant to the terms of the Second Amended and Restated Security Agreement, dated as of July         , 2004, by and among Borrower,
Guarantors, Lender and Manchester (the “Security Agreement”), by all the assets of Borrower and Guarantors. 
  
 10. Payment of Expenses. Borrower agrees to pay all debts and expenses, including reasonable attorneys’ fees and expenses, which may be
incurred by Lender in preparing, administering or enforcing this Note and/or collecting any amount due under this Note, the Loan Agreement, the Security Agreement or the Guaranties. 
  

 - 3 - 

 11. Savings Clause. In case any provision of this Note is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the
remaining provisions of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If
any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate
shall be reduced so as not to exceed the maximum amount allowable under law. 
  
 12. Amendment. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by both Borrower and Lender; except that Sections 4 and 6
hereof may not be amended, nor the interest rate or principal amount hereunder increased or the maturity date hereunder shortened, without the consent of the holders of 75% of the aggregate principal maximum amount of the outstanding Loan Notes.

  
 13. Assignment Etc. Lender may not transfer or
assign any of its rights or interests in or to this Note or any part hereof (other than to any affiliate of such Lender) without the prior written consent of the Borrower, such consent not to be unreasonably withheld; provided, however, that Lender
may mortgage, encumber or transfer this Note or any of its rights or interest in and to this Note or any part hereof in accordance with applicable securities laws, rules and regulations. Each assignee, transferee and mortgagee shall have the right
to transfer or assign its interest in accordance with the prior sentence. Each such assignee, transferee and mortgagee shall have all of the rights of Lender under this Note, the Loan Agreement, the Security Agreement and the Guaranties. This Note
shall be binding upon Borrower and its successors and shall inure to the benefit of Lender and its successors and assigns. Any transfer made in violation of this provision shall be null and void. 
  
 14. No Waiver. No failure on the part of Lender to exercise,
and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right, remedy or power hereunder preclude any other or future exercise of any other right,
remedy or power. Each and every right, remedy or power hereby granted to Lender or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Lender from time to time. 
  
 15. Miscellaneous. Unless otherwise provided herein, any notice
or other communication to Borrower hereunder shall be sufficiently given if in writing and personally delivered or mailed to Borrower by certified mail, return receipt requested, at its address set forth above or such other address as it may
designate for itself in such notice to Lender, and communications shall be deemed to have been received when delivered personally or, if sent by mail or facsimile, then when actually received by the party to whom it is addressed. Whenever the sense
of this Note requires, words in the singular shall be deemed to include the plural and 
  

 - 4 - 

 words in the plural shall be deemed to include the singular. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may (1) renew, extend (repeatedly and for any
length of time) or modify this Note (in accordance with Section 12 above), or release any party or any guarantor or collateral, (2) impair, fail to realize upon or perfect any security interest Lender may have from time to time in collateral, or (3)
take any other action deemed necessary by Lender, in each case without the consent of or notice to anyone and without releasing Borrower or any guarantor from any liability. 
  
 16. Choice of Law and Venue; Waiver of Jury Trial. THIS NOTE SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. Borrower hereby agrees that all actions or proceedings arising directly or indirectly from or in connection with this Note shall, at Lender’s sole option, be litigated
only in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York, in each case, located in New York County, New York. Borrower consents to the exclusive jurisdiction and venue of the
foregoing courts and consents that any process or notice of motion or other application to either of said courts or a judge thereof may be served inside or outside the State of New York or the Southern District of New York by certified or registered
mail, return receipt requested, directed to Borrower at its address set forth in this Note (and service so made shall be deemed “personal service” and be deemed complete five (5) days after the same has been posted as aforesaid) or by
personal service or in such other manner as may be permissible under the rules of said courts. BORROWER HEREBY WAIVES ANY RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS NOTE. 
  
 IN WITNESS WHEREOF, Borrower has caused this instrument to be duly
executed by an officer thereunto duly authorized. 
  

			
	 ISCO INTERNATIONAL, INC.

		
	 By:
	 	  

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

  
 ATTEST: 
  

	
	

  

 - 5 - 

 SCHEDULE 1 
  

(Grid Schedule of Advances Made Under the Loan Agreement) 
  

							
	 Date

	 	 Principal Amount
 of Advance

	 	 Interest Rate

	  	Maturity Date

  

 - 6 -

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