Document:

ex101.htm

Exhibit
    10.1

    AMENDMENT
      TO

    LOAN
      DOCUMENTS

    

    

    AMENDMENT
      TO THE LOAN DOCUMENTS (“Agreement”), dated as of June ___, 2007, by and among
      Manchester Securities Corporation, a New York corporation (“Manchester”),
      Alexander Finance, L.P. an Illinois limited partnership (“Alexander” and
      together with Manchester, the “Lenders”), ISCO International , Inc., a Delaware
      corporation (the “Company”), Spectral Solutions, Inc., a Colorado corporation
      (“Spectral”) and Illinois Superconductor, a Canada corporation, an Ontario
      corporation (“ISCO Canada” and together with Spectral, the
“Guarantors”).

     

    W
      I T
      N E S S E T H

    

    WHEREAS,
      pursuant to a certain Third Amended and Restated Loan Agreement, dated as of
      November 10, 2004, as amended (the “Loan Agreement”), by and among the Lenders
      and the Company, the Lenders have provided loan commitments to the Company
      in
      the aggregate principal amount of $8,500,000 which are due August 1,
      2007;

     

    WHEREAS,
      to evidence borrowing made under the Loan Agreement (and its predecessor
      agreements), the Company has issued notes (the “Notes”) to the
      Lenders;

     

     

    WHEREAS,
      the Notes and certain other obligations have been guaranteed by the Guarantors,
      who are subsidiaries of the Company, each such guaranty being made pursuant
      to
      separate Fourth Amended and Restated Guaranties dated as of June 21, 2006,
      as
      amended (the “Guaranties”);

     

     

    WHEREAS,
      the Notes and certain other obligations have been secured by the assets of
      the
      Company and the Guarantors pursuant to a certain Fourth Amended and Restated
      Security Agreement, dated as of June 22, 2006, as amended, by and among the
      Company, the Lenders and the Guarantors (the “Security Agreement”, and together
      with this Agreement, the Loan Agreement, the Notes, and the Guaranties, the
      “Loan Documents”);

     

     

    WHEREAS,
      the parties desire that the terms of the Loan Documents be modified by (i)
      extending the Maturity Date of the Notes to August 1, 2009, (ii) reducing the
      interest rate on the Notes from 9% to 7%, and (iii) provide that all the Notes
      will be convertible into shares of the Company’s common stock (“Conversion
      Shares”), on the terms and conditions set forth herein;

     

     

    WHEREAS,
      in connection with the entering into this Agreement to the Loan Documents by
      the
      parties hereto, the Lenders will convert $750,000 in principal amount
      outstanding under the Notes each holds into shares of Common Stock (the “Initial
      Conversion Shares”) immediately upon execution by the respective parties of this
      Agreement to the Loan Documents, the Amended and Restated Notes (as defined
      below) and the Registration Rights Agreement (as defined below) at a conversion
      price of $0.18 per share, the 10 day volume weighted average closing price
      of
      the Company’s Common Stock on the American Stock Exchange (“AMEX”) as of June
      21, 2007; and

     

     

    WHEREAS,
      pursuant to the Registration Rights Agreement, dated as of the date hereof
      and
      in the form and such substance of Exhibit A hereto (the “Registration
      Rights Agreement”), the Company shall register for resale under the Securities
      Act of 1933, as amended (the “Securities Act”), the Initial Conversion Shares
      and the Conversion Shares, subject to the terms and conditions set forth in
      the
      Registration Rights Agreement.

     

     

    NOW,
      THEREFORE, in consideration of the foregoing premises and the covenants
      contained herein and other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the parties hereto agree as
      follows (capitalized terms used and not defined herein shall have the meaning
      set forth in the Loan Agreement):

     

    1.  Amendment
      of Notes.  Each of the Notes issued under the Loan Agreement shall
      be amended and restated in the form of the Amended and Restated Note
      (“Amended and Restated Note”) attached hereto as Exhibit B and to
      reflect, among other things, the following: (a) the Termination Date and
      Maturity Dates (as defined in each of the Notes) for all the Notes shall be
      extended from August 1, 2007 to August 1, 2009, (b) the interest rate on each
      of
      the Notes shall be reduced from 9% to 7% per annum, subject to the terms and
      conditions under the Amended and Restated Notes, (c) the aggregate principal
      amount outstanding under the Notes held by each Lender immediately prior to
      the
      execution of this Agreement shall be reduced by $750,000 on account of the
      acquisition of the Initial Conversion Shares as set forth in Section 2 below,
      and (d) the aggregate principal amount outstanding on each of the Notes,
      together with all accrued by unpaid interest thereon, shall be convertible
      into
      Conversion Shares of the Company on the terms and conditions set forth in the
      Amended and Restated Notes.  Upon execution of this Agreement and
      issuance of the Amended and Restated Notes, all documents and certificates
      evidencing the previously issued Notes shall be immediately, and without any
      further action on the part of the Company or the Lenders, cancelled and of
      no
      further force and effect.

     

    2.  Conversion
      of Notes.  Immediately upon execution by the respective parties of
      this Agreement and to the Registration Rights Agreement, and the issuance of
      the
      Amended and Restated Notes, each of the Lenders will convert $750,000 in
      principal amount outstanding under the Notes it holds into the Initial
      Conversion Shares at a conversion price of $0.18 per share, the 10-day volume
      weighted average closing price of the Company’s Common Stock on AMEX as of June
      21, 2007.

     

    3.  Amendment
      of Loan Agreement.  The Loan Agreement is hereby amended by
      modifying the terms and references to the Original Note, New Note, July 2004
      Note and November 2004 Note (all as defined therein) in accordance with this
      Agreement.

     

    4.  Amendment
      of Security Agreement and Guaranties.

     

    (a)  The
      Security Agreement is hereby amended by modifying the term “Obligations,” as
      defined in Section 2 of the Security Agreement, to refer to the Loan Agreement,
      2002 Notes, 2003 Notes, July 2004 Notes, November 2004 Notes and Restated
      Guaranties (all as defined therein) as modified by this Agreement.

     

    (b)  Each
      of
      the Guaranties is modified such that the definition of “Obligations” in Section
      1(a) thereof, is hereby amended to include the Notes, the Loan Agreement and
      Security Agreement (as such terms are defined in the Guaranties) as amended
      by
      this Agreement.

     

    5.  Registration
      Rights Agreement.  The Company and Lenders shall execute and
      deliver the Registration Rights Agreement as of the date hereof.

     

    6.  Representations;
      Warranties and Covenants.

     

    (a)  The
      Company hereby restates the representations in Section 2.1 of the Loan Agreement
      and Section 3 of the Security Agreement, as of the date hereof (other than
      the
      representation in Section 2.1(g) of the Loan Agreement, which is made as of
      the
      date of the Loan Agreement).  The Guarantors hereby restate their
      respective representations in Section 3 of the Security Agreement and Section
      8
      of the Guaranties, as of the date hereof.  The Lenders hereby restate
      their representations in Section 2.2 of the Loan Agreement, as of the date
      hereof.

     

    (b)  The
      Company also represents and warrants that:

     

    (i)
      Upon
      issuance in accordance with this Agreement, the Initial Conversion Shares will
      be duly authorized, validly issued, fully paid and nonassessable and free from
      all taxes (other than transfer taxes where the Notes have been transferred
      and
      other than any taxes due because of actions by a Lender), liens and charges
      with
      respect to the issue thereof and the holders of such Initial Conversion Shares
      shall be entitled to all rights and preferences accorded to a holder
      of  shares of the Company’s common stock.

     

    (ii)
      Assuming (without any independent investigation or verification by or on behalf
      of the Company) the accuracy of the representations and warranties of the
      Lenders set forth in the Loan Agreement, the issuance of the amended and
      restated Notes are exempt from registration under Section 5 of the Securities
      Act.  Neither the Company nor any person acting on its behalf has
      taken or will take any action which might subject the offering, issuance or
      sale
      of the Notes to the registration requirements of Section 5 of the Securities
      Act.

     

    (c)  The
      Company agrees to use its best efforts to obtain within one (1) year from the
      date hereof the requisite stockholder and AMEX approvals described in the
      Amended and Restated Notes, as well as AMEX’s approval for the listing of the
      Initial Conversion Shares on AMEX.

     

    (d)  The
      Company further agrees that upon obtaining the requisite stockholder and AMEX
      approvals described in the Amended and Restated Notes and upon issuance in
      accordance with this Agreement, the Loan Agreement, and the terms of the Amended
      and Restated Notes, the Conversion Shares into which the Amended and Restated
      Notes are convertible will be duly authorized, validly issued, fully paid and
      nonassessable and free from all taxes (other than transfer taxes where the
      Amended and Restated Notes have been transferred and other than any taxes due
      because of actions by a Lender), liens and charges with respect to the issue
      thereof and the holders of such Conversion Shares shall be entitled to all
      rights and preferences accorded to a holder of  shares of the
      Company’s Common Stock

     

    7.  Stock
      Legends.  Each Lender agrees to the imprinting, so long as is
      required by this Section 5, of the following legend on its Amended and Restated
      Notes, the Initial Conversion Shares and Conversion Shares:

     

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

     

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

     

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

     

    9.  Miscellaneous.

     

    (a)           As
      modified hereby, the Loan Documents shall remain in full force and
      effect.

     

    (b)           The
      Company shall, upon request of the Lenders, reimburse them for their legal
      expenses incurred in the preparation of this Agreement and for related
      transactions.

     

    [Signature
      Page Follows]

     

    
      
          

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    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:                 John
      Thode

    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:

    

    

    
      
                    

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    COLLATERAL
      AGENT

    UNDER
      SECURITY AGREEMENT:

    

    MANCHESTER
      SECURITIES CORPORATION

    

    

    By:                                                                

    Name:                 Elliot
      Greenberg

    Title:                 Vice
      President

    
      
                                                           

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    EXHIBIT
      A

    

    REGISTRATION
      RIGHTS AGREEMENT

    
      
              

                           

                            JRAPP\120192.6
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    EXHIBIT
      B

    

    FORM
      OF
      AMENDED AND RESTATED NOTE

    

    

    
      
                    

                            JRAPP\120192.6
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            6/26/07ex102.htm

    Exhibit
      10.2

    NEITHER
      THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
      HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE
      UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
      PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
      PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
      THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

    

    THIS
      NOTE
      DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL
      REDEMPTION OR CONVERSION.  AS A RESULT, FOLLOWING ANY REDEMPTION OR
      CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT
      REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED
      INTEREST SET FORTH BELOW.

    

    

    AMENDED
      AND RESTATED

    

    7%
      SENIOR SECURED CONVERTIBLE NOTE
      DUE AUGUST 1, 2009

    

    OF

    

    ISCO
      INTERNATIONAL, INC.

    

    

    Note
      No.:
      F-1 Current Principal Amount $2,520,441.39

    Original
      Issuance Date: October 23, 2002 Elk Grove Village, Illinois

    Amended
      & Restated Issuance Date: June 26, 2007

    

    

    This
      AMENDED AND RESTATED Note (“Note”) is one of a duly authorized issue of notes of
      ISCO INTERNATIONAL, INC., a corporation duly organized and existing under the
      laws of the State of Delaware (the “Company”), originally designated as part of
      the Company's 91⁄2% Secured Grid Notes due March 31, 2004, as amended from time to
      time, and is now amended and restated, with the other notes issued in that
      series and other notes issued pursuant to the Loan Agreement (as defined below),
      as a 7% Senior Secured Convertible Note Due August 1, 2009 (“Maturity Date”) of
      the Company.

     

    For
      Value
      Received, the Company hereby promises to pay to the order of MANCHESTER
      SECURITIES CORPORATION or its registered assigns or successors-in-interest
      (“Holder”) the principal sum of TWO MILLION FIVE HUNDRED TWENTY THOUSAND FOUR
      HUNDRED FORTY ONE U.S. DOLLARS AND THIRTY NINE CENTS (U.S. $ 2,520,441.39)
      (representing the principal amount outstanding on the New Issuance Date (as
      defined below), plus all accrued but unpaid interest since October 23, 2002),
      together with all accrued but unpaid interest thereon, if any, on the Maturity
      Date, to the extent such principal amount and interest has not been converted
      into the Company's Common Stock, $0.001 par value per share (the “Common
      Stock”), in accordance with the terms hereof.  Interest on the unpaid
      principal balance hereof shall accrue at the rate of 7% per annum from the
      amended and restated issuance date of this Note, June 26, 2007 (the “New
      Issuance Date”), until the same becomes due and payable on the Maturity Date, or
      such earlier date upon acceleration or by conversion or redemption in accordance
      with the terms hereof or of the other Transaction Documents.  Interest
      on this Note shall accrue daily commencing on the New Issuance Date, shall
      be
      compounded monthly and shall be computed on the basis of a 360-day year, 30-day
      months and actual days elapsed and shall be payable in accordance with Section
      1
      hereof; provided, however, that nothing in the foregoing shall be deemed to
      modify the calculation of the Principal Amount based on a different rate of
      interest applied prior to the New Issuance Date.  Notwithstanding
      anything contained herein, this Note shall bear interest on the due and unpaid
      Principal Amount from and after the occurrence and during the continuance of
      an
      Event of Default pursuant to Section 5(a), at the rate (the “Default Rate”)
      equal to the lower of twenty percent (20%) per annum or the highest rate
      permitted by law.  Unless otherwise agreed or required by applicable
      law, payments will be applied first to any unpaid collection costs, then to
      unpaid interest and fees (including late charges, if applicable) and any
      remaining amount to principal.

     

    Except
      as
      otherwise provided herein, all payments of principal and interest (including
      late charges, if applicable) on this Note shall be made in lawful money of
      the
      United States of America by wire transfer of immediately available funds to
      such
      account as the Holder may from time to time designate by written notice in
      accordance with the provisions of this Note or by Company check.  This
      Note may not be prepaid in whole or in part except as otherwise provided
      herein.  Whenever any amount expressed to be due by the terms of this
      Note is due on any day which is not a Business Day (as defined below), the
      same
      shall instead be due on the next succeeding day which is a Business
      Day.

     

    Capitalized
      terms used herein and not otherwise defined shall have the meanings set forth
      in
      the Amendment Agreement dated on or about the New Issuance Date pursuant to
      which this Note was issued (the “Amendment Agreement”). For purposes hereof the
      following terms shall have the meanings ascribed to them below:

     

    “Business
      Day” shall mean any day other than a Saturday, Sunday or a day on which
      commercial banks in the City of New York are authorized or required by law
      or
      executive order to remain closed.

     

    “Change
      in Control Transaction” will be deemed to exist if (i) there occurs any
      consolidation, merger or other business combination of the Company with or
      into
      any other corporation or other entity or person (whether or not the Company
      is
      the surviving corporation), or any other corporate reorganization or transaction
      or series of related transactions in which in any of such events the voting
      stockholders of the Company prior to such event cease to own 50% or more of
      the
      voting stock, or corresponding voting equity interests, of the surviving
      corporation after such event (including without limitation any “going private”
transaction under Rule 13e-3 promulgated pursuant to the Exchange Act (as
      defined below) or tender offer by the Company under Rule 13e-4 promulgated
      pursuant to the Exchange Act for 20% or more of the Company's Common Stock),
      (ii) any person (as defined in Section 13(d) of the Exchange Act), together
      with
      its affiliates and associates (as such terms are defined in Rule 405 under
      the
      Securities Act), beneficially owns or is deemed to beneficially own (as
      described in Rule 13d-3 under the Exchange Act without regard to the 60-day
      exercise period) in excess of 50% of the Company's voting power, (iii) there
      is
      a replacement of more than one-half of the members of the Company’s Board of
      Directors which is not approved by those individuals who are members of the
      Company's Board of Directors on the date thereof, or (iv) in one or a series
      of
      related transactions, there is a sale or transfer of all or substantially all
      of
      the assets of the Company, determined on a consolidated basis, or (v) the
      execution by the Company of an agreement to which the Company is a party or
      which it is bound providing for an event set forth in (i), (ii), (iii) or (iv)
      above.

     

    “Conversion
      Ratio” means, at any time, a fraction, of which the numerator is the entire
      outstanding Principal Amount of this Note (or such portion thereof that is
      being
      redeemed or repurchased), and of which the denominator is the then applicable
      Conversion Price.

     

    “Conversion
      Price” shall equal $0.20 (which Conversion Price shall be subject to adjustment
      as set forth herein).

     

    “Conversion
      Shares” means the shares of Common Stock into which the Notes are convertible
      (including repayment in Common Stock as set forth herein) in accordance with
      the
      terms hereof and the Amendment Agreement and Loan Agreement.

     

    “Convertible
      Securities” means any convertible securities, warrants, options or other rights
      to subscribe for or to purchase or exchange for, shares of Common
      Stock.

     

    “Debt”
      shall mean indebtedness of any kind.

     

    “Effective
      Date” means the date on which a Registration Statement covering all the
      Conversion Shares and other Registrable Securities (as defined in the
      Registration Rights Agreement) is declared effective by the Securities and
      Exchange Commission.

     

    “Exchange
      Act” shall mean the Securities Exchange Act of 1934, as amended.

     

    “Fair
      Market Price” shall mean the closing price (or closing bid price) for the Common
      Stock on the Trading Day immediately preceding the date on which the price
      is
      being determined.

     

    “Loan
      Agreement” shall mean the Third Amended and Restated Loan Agreement, dated as of
      November 10, 2004, as amended, by and among the Company, Manchester Securities
      Corporation and Alexander Finance, L.P.

     

    “Market
      Price” shall equal 90% of the average of the VWAP for each of the twenty (20)
      Trading Days, excluding the five (5) highest Trading Days (i.e.  the
      Trading Days with the highest VWAP) from the average, immediately preceding
      the
      date on which such Market Price is being determined.

     

    “MFN
      Transaction” shall mean a transaction in which the Company issues or sells any
      securities in a capital raising transaction or series of related transactions
      (the “MFN Offering”) which grants to the investor (the “MFN Investor”) the right
      to receive additional securities based upon future capital raising transactions
      of the Company on terms more favorable than those granted to the MFN Investor
      in
      the MFN Offering.

     

    “Per
      Share Selling Price” shall include the amount actually paid by third parties for
      each share of Common Stock in a sale or issuance by the Company.  In
      the event a fee is paid by the Company in connection with such transaction
      directly or indirectly to such third party or its affiliates, any such fee
      shall
      be deducted from the selling price pro rata to all shares sold in the
      transaction to arrive at the Per Share Selling Price.  A sale of
      shares of Common Stock shall include the sale or issuance of rights, options,
      warrants or convertible, exchangeable or exercisable securities, issued or
      sold
      on or subsequent to the Closing Date, under which the Company is or may become
      obligated to issue shares of Common Stock, and in such circumstances the Per
      Share Selling Price of the Common Stock covered thereby shall also include
      the
      exercise, exchange or conversion price thereof (in addition to the consideration
      received by the Company upon such sale or issuance less the fee amount as
      provided above).  In case of any such security issued or sold on or
      subsequent to the Closing Date in an MFN Transaction, the Per Share Selling
      Price shall be deemed to be the lowest conversion or exercise price at which
      such securities are converted or exercised, or the lowest adjustment price
      in
      the case of an MFN Transaction, over the life of such securities.  If
      shares are issued for a consideration other than cash, the Per Share Selling
      Price shall be the fair value of such consideration as determined in good faith
      by independent certified public accountants mutually acceptable to the Company
      and the Purchaser.  In the event the Company directly or indirectly
      effectively reduces the conversion, exercise or exchange price for any
      Convertible Securities issued or sold on or subsequent to the Closing Date
      which
      are currently outstanding (other than pursuant to the terms of the transaction
      documentation for such securities as in effect on the date hereof), then the
      Per
      Share Selling Price shall equal such effectively reduced conversion, exercise
      or
      exchange price.

     

    “Principal
      Amount” shall refer to the sum of (i) the original principal amount of this
      Note, (ii) all accrued but unpaid interest hereunder, and (iii) any default
      payments owing under the Transaction Documents but not previously paid or added
      to the Principal Amount.

     

    “Principal
      Market” shall mean the American Stock Exchange or such other principal market or
      exchange on which the Common Stock is then listed for trading.

     

    “Redemption
      Date” shall mean the date on which the Company has elected to redeem this Note
      pursuant to Section 1(c) below.

     

    “Registration
      Statement” shall have the meaning set forth in the Registration Rights
      Agreement.

     

    “Securities
      Act” shall mean the Securities Act of 1933, as amended.

     

    “Trading
      Day” shall mean (x) if the Common Stock is listed on the New York Stock Exchange
      or the American Stock Exchange, a day on which there is trading on such stock
      exchange, or (y) if the Common Stock is not listed on either of such stock
      exchanges but sale prices of the Common Stock are reported on an automated
      quotation system, a day on which trading is reported on the principal automated
      quotation system on which sales of the Common Stock are reported, or (z) if
      the
      foregoing provisions are inapplicable, a day on which quotations are reported
      by
      National Quotation Bureau Incorporated.

     

    “VWAP”
      shall mean the daily volume weighted average price of the Common Stock on the
      Principal Market as reported by Bloomberg Financial L.P. (based on a trading
      day
      from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time) using the AQR function
      on
      the date in question.

     

    The
      following terms and conditions shall apply to this Note:

     

    Section
      1.  Payments
      of Principal and Interest.

     

    (a)  Interest.  Subject
      to Section 3(i) below, this Note shall accrue interest at a rate of 7% per
      annum
      daily commencing on the New Issuance Date, shall be compounded monthly and
      shall
      be computed on the basis of a 360-day year, 30-day months and actual days
      elapsed.  Accrued interest shall be added to the Principal Amount of
      this Note.

     

    (b)  Payment
      of Principal.  Subject to the provisions hereof, the Principal
      Amount of this Note shall be due and payable in cash on the Maturity
      Date.

     

    (c)  Redemption
      Right of Company.  Beginning on the two (2) year anniversary of
      the New Issuance Date, the Company shall have the right to redeem this Note
      in
      full (but not less than full) in cash upon delivering notice in writing sixty
      (60) days prior to such Redemption Date.  Nothing in this Section 1(c)
      shall prohibit the Holder from converting this Note prior to the Redemption
      Date.

     

    Section
      2.  Seniority.  The
      obligations of the Company hereunder shall rank pari passu to the Company’s
      notes issued under and governed by the Loan Agreement and the Securities
      Purchase Agreement, dated as of June 22, 2006, by and among the Company and
      the
      Holder and Alexander Finance, L.P. (the “Purchase Agreement”), and shall be
      senior to the Company’s unsecured indebtedness.

     

    Section
      3.  Conversion.

     

    (a)  Conversion
      by Holder.  Subject to the terms hereof and restrictions and
      limitations contained herein, the Holder shall have the right, at such Holder's
      option, at any time and from time to time to convert the outstanding Principal
      Amount under this Note in whole or in part by delivering to the Company a fully
      executed notice of conversion in the form of conversion notice attached hereto
      as Exhibit A (the “Conversion Notice”), which may be transmitted by
      facsimile  or electronic transmission (with the original mailed on the
      same day be certified or registered mail, postage prepaid and return receipt
      requested), on the date of conversion (the “Conversion Date”).  A
      Conversion Notice shall be deemed sent on the date of delivery if delivered
      before 5:00 p.m. Eastern Standard Time on such date, or the day following such
      date if delivered after 5:00 p.m. Eastern Standard
      Time.  Notwithstanding anything to the contrary herein, this Note and
      the outstanding Principal Amount hereunder shall not be convertible into Common
      Stock to the extent that such conversion would result in the Holder hereof
      exceeding the limitations contained in, or otherwise violating the provisions
      of
      Section 3(i) below.

     

    (b)  Conversion
      Date Procedures.  Upon conversion of this Note pursuant to this
      Section 3, the outstanding Principal Amount hereunder shall be converted into
      such number of fully paid, validly issued and non-assessable shares of Common
      Stock, free of any liens, claims and encumbrances, as is determined by dividing
      the outstanding Principal Amount (and, at the election of the Holder, any
      accrued interest or applicable late charges) being converted by the then
      applicable Conversion Price.  If a conversion under this Note cannot
      be effected in full for any reason, or if the Holder is converting less than
      all
      of the outstanding Principal Amount hereunder pursuant to a Conversion Notice,
      the Company shall, upon request by the Holder, promptly deliver to the Holder
      (but no later than five Trading Days after the Conversion Date) a Note for
      such
      outstanding Principal Amount (and, at the election of the Holder, any accrued
      interest or applicable late charges) as has not been converted if this Note
      has
      been surrendered to the Company for partial conversion.  The Holder
      shall not be required to physically surrender this Note to the Company upon
      any
      conversion hereunder unless the full outstanding Principal Amount (and, at
      the
      election of the Holder, any accrued interest or applicable late charges)
      represented by this Note is being converted or repaid.  The Holder and
      the Company shall maintain records showing the outstanding Principal Amount
      (and, at the election of the Holder, any accrued interest or applicable late
      charges) so converted and repaid and the dates of such conversions or repayments
      or shall use such other method, reasonably satisfactory to the Holder and the
      Company, so as not to require physical surrender of this Note upon each such
      conversion or repayment.

     

    (i)  Stock
      Certificates or DWAC.  The Company will deliver to the Holder not
      later than three (3) Trading Days after the Conversion Date, a certificate
      or
      certificates which shall be free of restrictive legends and trading restrictions
      (assuming that the Registration Statement has been declared effective),
      representing the number of shares of Common Stock being acquired upon the
      conversion of this Note.  In lieu of delivering physical certificates
      representing the shares of Common Stock issuable upon conversion of this Note,
      provided the Company's transfer agent is participating in the Depository Trust
      Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon
      request of the Holder, the Company shall use commercially reasonable efforts
      to
      cause its transfer agent to electronically transmit such shares issuable upon
      conversion to the Holder (or its designee), by crediting the account of the
      Holder’s (or such designee’s) prime broker with DTC through its Deposit
      Withdrawal Agent Commission system (provided that the same time periods herein
      as for stock certificates shall apply).  If in the case of any
      conversion hereunder, such certificate or certificates are not delivered to
      or
      as directed by the Holder by the third Trading Day after the Conversion Date,
      the Holder shall be entitled by written notice to the Company at any time on
      or
      before its receipt of such certificate or certificates thereafter, to rescind
      such conversion, in which event the Company shall immediately return this Note
      tendered for conversion.

     

    (c)  Conversion
      Price Adjustments.

     

    (i)  Stock
      Dividends and Splits.  If the Company or any of its subsidiaries, at
      any time while the Notes are outstanding (A) shall pay a stock dividend or
      otherwise make a distribution or distributions on any equity securities
      (including instruments or securities convertible into or exchangeable for such
      equity securities) in shares of Common Stock, or (B) subdivide outstanding
      Common Stock into a larger number of shares, then the applicable then Conversion
      Price shall be multiplied by a fraction, the numerator of which shall be the
      number of shares of Common Stock outstanding before such event and the
      denominator of which shall be the number of shares of Common Stock outstanding
      after such event.  Any adjustment made pursuant to this Section
      3(c)(i) shall become effective immediately after the record date for the
      determination of stockholders entitled to receive such dividend or distribution
      and shall become effective immediately after the effective date in the case
      of a
      subdivision.

     

    (ii)  Distributions.  If
      the Company or any of its subsidiaries, at any time while the Notes are
      outstanding, shall distribute to all holders of Common Stock evidences of its
      indebtedness or assets or cash or rights or warrants to subscribe for or
      purchase any security of the Company or any of its subsidiaries (excluding
      those
      referred to in Section 3(c)(i) above), then concurrently with such distributions
      to holders of Common Stock, the Company shall distribute to holders of the
      Notes
      the amount of such indebtedness, assets, cash or rights or warrants which the
      holders of the Notes would have received had the Notes been converted into
      Common Stock.

     

    (iii)  Common
      Stock Issuances.  In the event that the Company or any of its
      subsidiaries on or subsequent to the date of the Amendment Agreement (A) issues
      or sells any securities which are convertible into or exercisable or
      exchangeable for Common Stock (other than Notes issued under the Loan Agreement
      or Purchase Agreement or shares or options issued or which may be issued
      pursuant to the Company’s 2003 Equity Incentive Plan, as amended (the “Incentive
      Plan”), up to the Incentive Plan Limit (as defined below)), or any warrants or
      other rights to subscribe for or to purchase or any options for the purchase
      of
      its Common Stock, (B) directly or indirectly effectively reduces the conversion,
      exercise or exchange price for any Convertible Securities (other than shares
      or
      options issued or which may be issued pursuant to the Incentive Plan up to
      the
      Incentive Plan Limit) which are currently outstanding (other than pursuant
      to
      terms existing on the date hereof) or (C) issues or sells any Common Stock
      at or
      to an effective Per Share Selling Price which is less than the Conversion Price
      in effect immediately prior to such issue or sale or record date, as applicable,
      then the Conversion Price shall be reduced by multiplying the existing
      Conversion Price by a fraction (x) the numerator of which shall be the sum
      of
      (i) the number of shares of Common Stock outstanding immediately prior to such
      sale or issuance or reduction and (ii) the number of shares of Common Stock
      which the aggregate consideration received by the Company would purchase at
      such
      Conversion Price; and (y) the denominator of which shall be the number of shares
      of Common Stock outstanding (or deemed outstanding, as discussed below)
      immediately after such issue, sale or reduction. effective concurrently with
      such issue or sale to equal such lower Per Share Selling Price.

     

    “Incentive
      Plan Limit” shall mean an amount, with respect to each calendar year, equal to
      2.5% of the number of the Company’s outstanding shares of Common Stock, provided
      that (AA) this amount shall be net of any shares or options issued under the
      Incentive Plan which are cancelled, forfeited, expired or redeemed, and (BB)
      for
      purposes of calculating this amount, restricted shares shall count as two shares
      of Common Stock and option shares shall count as one share of Common
      Stock.  To the extent that the Company issues securities under the
      Incentive Plan beyond the Incentive Plan Limit, such issuances shall not be
      exempt from the adjustment provisions of this Note.

     

    For
      the
      purposes of the foregoing adjustment, in the case of any Convertible Securities,
      the maximum number of shares of Common Stock issuable upon exercise, exchange
      or
      conversion of such Convertible Securities shall be deemed to be outstanding,
      provided that no further adjustment shall be made upon the actual issuance
      of
      Common Stock upon exercise, exchange or conversion of such Convertible
      Securities.

     

    In
      the
      event a fee is paid by the Company in connection with a transaction described
      in
      this clause (iii), the portion of such fee in excess of 3% of the purchase
      price
      in such transactions shall be deducted from the selling price pro rata to all
      shares sold in the transaction to arrive at the Per Share Selling
      Price.

     

    For
      purposes of this Section 3(c)(iii), if an event occurs that triggers more than
      one of the above adjustment provisions, then only one adjustment shall be made
      and the calculation method which yields the greatest downward adjustment in
      the
      Conversion Price shall be used.

     

    For
      purposes of making the foregoing adjustments, the following provisions shall
      apply.

     

    A.  [Intentionally
      Omitted]

     

    B.  Issuance
      of Convertible Securities.  If the Company in any manner issues or
      sells any Convertible Securities (other than shares or options issued or which
      may be issued pursuant to the Incentive Plan up to the Incentive Plan Limit)
      and
      the lowest price per share for which one share of Common Stock is issuable
      upon
      such conversion, exchange or exercise thereof is less than the Conversion Price
      in effect immediately prior to such issuance, then such share of Common Stock
      shall be deemed to be outstanding and to have been issued and sold by the
      Company at the time of the issuance of sale of such Convertible Securities
      for
      such price per share.  For the purposes of this Section 3(c)(iii)(B),
      the “lowest price per share for which one share of Common Stock is issuable upon
      such conversion, exchange or exercise” shall be equal to the sum of the lowest
      amounts of consideration (if any) received or receivable by the Company with
      respect to any one share of Common Stock upon the issuance or sale of the
      Convertible Security and upon the conversion, exchange or exercise of such
      Convertible Security.  No further adjustment of the Conversion Price
      shall be made upon the actual issuance of such Common Stock upon conversion,
      exchange or exercise of such Convertible Securities, and if any such issue
      or
      sale of such Convertible Securities is made upon exercise of any options for
      which adjustment of the Conversion Price had been or are to be made pursuant
      to
      other provisions of this Section 3(c)(iii)(B), no further adjustment of the
      Conversion Price shall be made by reason of such issue or sale.

     

    C.  Change
      in Option Price or Rate of Conversion.  Except for shares or
      options issued or which may be issued pursuant to the Incentive Plan up to
      the
      Incentive Plan Limit, if the purchase or exercise price provided for in any
      Convertible Securities, the additional consideration, if any, payable upon
      the
      issue, conversion, exchange or exercise of any Convertible Securities, or the
      rate at which any Convertible Securities are convertible into or exchangeable
      or
      exercisable for Common Stock changes at any time, the Conversion Price in effect
      at the time of such change shall be adjusted to the Conversion Price that would
      have been in effect at such time had such Convertible Securities provided for
      such changed purchase price, additional consideration or changed conversion
      rate, as the case may be, at the time initially granted, issued or
      sold.  For purposes of this Section 3(c)(iii)(C), if the terms of any
      option or Convertible Security that was outstanding as of the date of issuance
      of the Notes are changed in the manner described in the immediately preceding
      sentence, then such option or Convertible Security and the Common Stock deemed
      issuable upon exercise, conversion or exchange thereof shall be deemed to have
      been issued as of the date of such change.  No adjustment shall be
      made if such adjustment would result in an increase of the Conversion Price
      then
      in effect.

     

    D.  Calculation
      of Consideration Received.  In case any option is issued in
      connection with the issue or sale of other securities of the Company, together
      comprising one integrated transaction in which no specific consideration is
      allocated to such options by the parties thereto, then solely for purposes
      of
      this Section 3, the options will be deemed to have been issued for a
      consideration of $0.01.  If any Common Stock or Convertible Securities
      (other than shares or options issued or which may be issued pursuant to the
      Incentive Plan up to the Incentive Plan Limit) are issued or sold or deemed
      to
      have been issued or sold for cash, the consideration received therefor will
      be
      deemed to be the gross amount received by the Company therefor.  If
      any Common Stock or Convertible Securities (other than shares or options issued
      or which may be issued pursuant to the Incentive Plan up to the Incentive Plan
      Limit) are issued or sold for a consideration other than cash, the amount of
      the
      consideration other than cash received by the Company will be the fair value
      of
      such consideration, except where such consideration consists of marketable
      securities, in which case the amount of consideration received by the Company
      will be the arithmetic average of the Closing Sale Prices of such securities
      during the ten (10) consecutive Trading Days ending on the date of receipt
      of
      such securities.  The fair value of any consideration other than cash
      or securities will be determined jointly by the Company and the holders of
      the
      Notes.  If such parties are unable to reach agreement within ten (10)
      days after the occurrence of an event requiring valuation (the “Valuation
      Event”), the fair value of such consideration will be determined within five (5)
      Business Days after the tenth (10th) day following
      the
      Valuation Event by an independent, reputable appraiser selected by the Company
      and the holders of the Notes.

     

    E.  Record
      Date.  If the Company takes a record of the holders of Common
      Stock for the purpose of entitling them (A) to receive a dividend or other
      distribution payable in Common Stock, options or Convertible Securities or
      (B)
      to subscribe for or purchase Common Stock, options or Convertible Securities,
      then such record date will be deemed to be the date of the issue or sale of
      the
      shares of Common Stock deemed to have been issued or sold upon the declaration
      of such dividend or the making of such other distribution or the date of the
      granting of such right of subscription or purchase, as the case may
      be.

     

    (iv)  Rounding
      of Adjustments.  All calculations under this Section 3 shall be made
      to the nearest cent or the nearest 1/100th of a share, as the case may
      be.

     

    (v)  Notice
      of
      Adjustments.  Whenever any Affected Conversion Price is adjusted
      pursuant to Section 3(c)(ii) or (iii) above, the Company shall promptly deliver
      to each holder of the Notes, a notice setting forth the Affected Conversion
      Price after such adjustment and setting forth a brief statement of the facts
      requiring such adjustment, provided that any failure to so provide such notice
      shall not affect the automatic adjustment hereunder.

     

    (vi)  Change
      in
      Control Transactions.  In case of any Change in Control Transaction,
      the Holder shall have the right thereafter to, at its option, (A) convert this
      Note, in whole or in part, at the then applicable Conversion Price into the
      shares of stock and other securities, cash and/or property receivable upon
      or
      deemed to be held by holders of Common Stock following such Change in Control
      Transaction, and the Holder shall be entitled upon such event to receive such
      amount of securities, cash or property as the shares of the Common Stock of
      the
      Company into which this Note could have been converted immediately prior to
      such
      Change in Control Transaction would have been entitled if such conversion were
      permitted, subject to such further applicable adjustments set forth in this
      Section 3 (provided that the limitations in Section 3(i) shall not apply to
      the
      extent that Holder shall have waived them) or (B) require the Company or its
      successor to redeem this Note, in whole or in part, at a redemption price equal
      to 110% of the outstanding Principal Amount (plus any accrued interest or
      applicable late charges) being redeemed.  The terms of any such Change
      in Control Transaction shall include such terms so as to continue to give to
      the
      Holders the right to receive the amount of securities, cash and/or property
      upon
      any conversion or redemption following such Change in Control Transaction to
      which a holder of the number of shares of Common Stock deliverable upon such
      conversion would have been entitled in such Change in Control Transaction,
      and
      interest payable hereunder shall be in cash or such new securities and/or
      property, at the Holder’s option.  This provision shall similarly
      apply to successive reclassifications, consolidations, mergers, sales, transfers
      or share exchanges.  Notwithstanding any other provisions of this
      Note, the Holder shall be permitted to convert all or any portion of the
      Principal Amount (plus any accrued interest or late charges, if applicable)
      at
      the Conversion Price described in Section 3(c) herein at any time until the
      consummation of the Change in Control Transaction.

     

    (vii)  Notice
      of
      Certain Events.  If:

     

    
      	
               

            	
              A.

            	
              the
                Company shall declare a dividend (or any other distribution) on its
                Common
                Stock; or

            

    

    

    
      	
               

            	
              B.

            	
              the
                Company shall declare a special nonrecurring cash dividend on or
                a
                redemption of its Common Stock; or

            

    

    

    
      	
               

            	
              C.

            	
              the
                Company shall authorize the granting to all holders of the Common
                Stock
                rights or warrants to subscribe for or purchase any shares of capital
                stock of any class or of any rights;
                or

            

    

    

    
      	
               

            	
              D.

            	
              the
                approval of any stockholders of the Company shall be required in
                connection with any reclassification of the Common Stock of the Company,
                any consolidation or merger to which the Company is a party, any
                sale or
                transfer of all or substantially all of the assets of the Company,
                of any
                compulsory share of exchange whereby the Common Stock is converted
                into
                other securities, cash or property;
                or

            

    

    

    
      	
               

            	
              E.

            	
              the
                Company shall authorize the voluntary or involuntary dissolution,
                liquidation or winding up of the affairs of the
                Company;

            

    

    

    then
      the
      Company shall cause to be filed at each office or agency maintained for the
      purpose of conversion of this Note, and shall cause to be mailed to the Holder
      at its last address as it shall appear upon the books of the Company, on or
      prior to the date notice to the Company's stockholders generally is given,
      a
      notice stating (x) the date on which a record is to be taken for the purpose
      of
      such dividend, distribution, redemption, rights or warrants, or if a record
      is
      not to be taken, the date as of which the holders of Common Stock of record
      to
      be entitled to such dividend, distributions, redemption, rights or warrants
      are
      to be determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of Common Stock
      of
      record shall be entitled to exchange their shares of Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange.

     

    (d)  Reservation
      and Issuance of Underlying Securities.  The Company covenants
      that, beginning immediately after the Required Approvals (as defined below)
      are
      obtained, it will at all times reserve and keep available out of its authorized
      and unissued Common Stock solely for the purpose of issuance upon conversion
      of
      this Note (including repayments in stock), free from preemptive rights or any
      other actual contingent purchase rights of persons other than the holders of
      the
      Notes, not less than an amount equal to the number of Conversion
      Shares.  The Company covenants that all shares of Common Stock that
      shall be so issuable shall, upon issue, be duly authorized, validly issued,
      fully paid, nonassessable and freely tradeable.

     

    (e)  No
      Fractions.  Upon a conversion hereunder the Company shall not be
      required to issue stock certificates representing fractions of shares of Common
      Stock, but may if otherwise permitted, make a cash payment in respect of any
      final fraction of a share based on the closing price of a share of Common Stock
      on the Principal Market at such time.  If the Company elects not, or
      is unable, to make such cash payment, the Holder shall be entitled to receive,
      in lieu of the final fraction of a share, one whole share of Common
      Stock.

     

    (f)  Charges,
      Taxes and Expenses.  Issuance of certificates for shares of Common
      Stock upon the conversion of this Note (including repayment in stock) shall
      be
      made without charge to the holder hereof for any issue or transfer tax or other
      incidental expense in respect of the issuance of such certificate, all of which
      taxes and expenses shall be paid by the Company, and such certificates shall
      be
      issued in the name of the Holder or in such name or names as may be directed
      by
      the Holder; provided, however, that in the event certificates for
      shares of Common Stock are to be issued in a name other than the name of the
      Holder, this Note when surrendered for conversion shall be accompanied by an
      assignment form; and providedfurther, that the Company shall not
      be required to pay any tax or taxes which may be payable in respect of any
      such
      transfer.

     

    (g)  Cancellation.  After
      all of the Principal Amount (including accrued but unpaid interest and default
      payments (including any applicable late charges) at any time owed on this Note)
      have been paid in full or converted into Common Stock, this Note shall
      automatically be deemed canceled and the Holder shall promptly surrender the
      Note to the Company at the Company’s principal executive offices.

     

    (h)  Notices
      Procedures.  Any and all notices or other communications or
      deliveries to be provided by the Holder hereunder, including, without
      limitation, any Conversion Notice, shall be in writing and delivered personally,
      by confirmed facsimile, electronic transmission, or by a nationally recognized
      overnight courier service to the Company at the facsimile telephone number
      or
      address of the principal place of business of the Company as set forth in the
      Loan Agreement.  Any and all notices or other communications or
      deliveries to be provided by the Company hereunder shall be in writing and
      delivered personally, by facsimile, electronic transmission, or by a nationally
      recognized overnight courier service addressed to the Holder at the facsimile
      telephone number or address of the Holder appearing on the books of the Company,
      or if no such facsimile telephone number or address appears, at the principal
      place of business of the Holder.  Any notice or other communication or
      deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered
      personally, (ii) when sent by facsimile, upon receipt if received on a Business
      Day prior to 5:00 p.m. (Eastern Time), or on the first Business Day following
      such receipt if received on a Business Day after 5:00 p.m. (Eastern Time) or
      (iii) upon receipt, when deposited with a nationally recognized overnight
      courier service.

     

    (i)  Required
      Approvals.  The Holder acknowledges that the Company is required
      to seek the approval of its stockholders to (i) increase the number of
      authorized shares of Common Stock available for issuance under its Certificate
      of Incorporation, as amended (the “Certificate of Incorporation”) and (ii) issue
      the shares of Common Stock issuable upon conversion of the Notes pursuant to
      the
      rules of the American Stock Exchange (“AMEX”).  Notwithstanding
      anything contained herein to the contrary, the Notes shall not be convertible
      into shares of Common Stock until (A) the Certificate of Incorporation shall
      have been amended to increase the number of shares of Common Stock available
      for
      issuance in sufficient number to include the shares of Common Stock issuable
      pursuant to the Notes, (B) the issuance of such shares shall have been approved
      by the Company’s stockholders and (C) such shares shall have been approved for
      listing on AMEX (“collectively, the “Required Approvals”).  The
      Company shall use its reasonable best efforts to seek the approval of its
      stockholders to amend the Certificate of Incorporation to increase the number
      of
      shares of Common Stock available for issuance in sufficient number to include
      the shares of Common Stock issuable pursuant to the Notes, approve the issuance
      of the shares of Common Stock issuable upon conversion of the Notes, and the
      approval by AMEX to list such shares on AMEX.  Notwithstanding the
      above, the Required Approvals shall be obtained within one (1) year of the
      New
      Issuance Date (the “Approval Deadline”).  In the event that the
      Required Approvals are not obtained by the first anniversary of the New Issuance
      Date, then the interest rate shall thereafter be increased to accrue at a rate
      of 15% per annum.  If the Initial Conversion Shares and Conversion
      Shares are not registered under the Registration Rights Agreement by the fifteen
      (15) month anniversary of the New Issuance Date, then the then-current interest
      rate shall increase by a rate of 1% per annum each month thereafter (commencing
      on the day immediately following such 15-month anniversary date) until such
      shares are registered, up to the Default Rate.

     

    Section
      4.  Defaults
      and Remedies.

     

    (a)  Events
      of
      Default.                                           An
“Event of Default” is:  (i) a default in the payment of any Principal
      Amount of the Notes; (ii) default in payment of the principal amount or accrued
      but unpaid interest thereon of any of the June 2006 Notes issued to Holder
      (as
      defined in the Purchase Agreement), or the Amended and Restated Notes (as
      defined in the Amendment Agreement) other than this Note (collectively, this
      Note, the other Amended and Restated Notes and the June 2006 Notes shall be
      referred to as the “ISCO Notes”), on or after the date such payment is due,
      (iii) failure by the Company for ten (10) days after notice to it, to comply
      with any other material provision of any of the ISCO Notes, the Registration
      Rights Agreement or the Purchase Agreement or the Loan Agreement; (iv) an Event
      of Default under the Security Agreement or the ISCO Notes; (v) a breach by
      the
      Company of its representations or warranties in the Loan Agreement, Amendment
      Agreement or under any of the Guaranties (as defined below); (vi) 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 the Company or a subsidiary of the
      Company or for money borrowed the repayment of which is guaranteed by the
      Company or a subsidiary of the Company, 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; (vii) 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
      the Company or a subsidiary of the Company or any of their respective properties
      or other assets and shall remain unpaid, unvacated, unbonded and unstayed for
      a
      period of 45 days; (viii) if the Company or any subsidiary of the Company
      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 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 (ix) a court of competent jurisdiction enters an order
      or
      decree under any Bankruptcy Law that:  (1) is for relief against the
      Company in an involuntary case; (2) appoints a Custodian of the Company 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 Notes,
      the Holder may declare all of the then outstanding Principal Amount of this
      Note
      and all other Notes held by the Holder, including any 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 4(a)
      hereof, this Note shall become due and payable without further action or
      notice.  In the event of an acceleration, the amount due and owing to
      the Holder shall be the greater of (1) 110% of the outstanding Principal Amount
      of the Notes held by the Holder (plus all accrued and unpaid interest, if any)
      and (2) the product of (A) the highest closing price for the five (5) Trading
      Days immediately preceding the Holder’s acceleration and (B) the Conversion
      Ratio.  In either case the Company shall pay interest on such amount
      in cash at the Default Rate to the Holder if such amount is not paid within
      seven days of Holder’s request.  The remedies under this Note shall be
      cumulative.

     

    Section
      5.  Loan
      Agreement; Amendment Agreement; Security Agreement;
      Guaranties.  This Note is being issued to the Holder in connection
      with the Loan Agreement and Amendment Agreement and is entitled to the benefits
      thereof.  In addition the Company’s obligations under this Note are
      guaranteed by the Guaranties (the “Guaranties”) of Spectral Solutions, Inc. and
      Illinois Superconductor Canada Corporation, subsidiaries of the Company (the
      together, the “Guarantors”) and this Note is entitled to the benefits
      thereof.  The Company’s obligations under this Note are also secured,
      pursuant to the terms of the Security Agreement by all the assets of the Company
      and the Guarantors.

     

    Section
      6.  General.

     

    (a)  Payment
      of Expenses.  The Company agrees to pay all reasonable charges and
      expenses, including reasonable attorneys' fees and expenses, which may be
      incurred by the Holder in successfully enforcing this Note and/or collecting
      any
      amount due under this Note.

     

    (b)  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 allowable under
      law.

     

    (c)  Amendment.  Neither
      this Note nor any term hereof may be amended, waived, discharged or terminated
      other than by a written instrument signed by the Company and holders of 75%
      of
      the Principal Amount of all Notes.

     

    (d)  Assignment,
      Etc.  The Holder may assign or transfer this Note to any
      transferee.  The Holder shall notify the Company of any such
      assignment or transfer promptly.  This Note shall be binding upon the
      Company and its successors and shall inure to the benefit of the Holder and
      its
      successors and permitted assigns.

     

    (e)  No
      Waiver.  No failure on the part of the Holder 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 the Holder 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 the Holder or allowed it by law or other agreement shall
      be
      cumulative and not exclusive of any other, and may be exercised by the Holder
      from time to time.

     

    (f)  Governing
      Law; Jurisdiction.

     

    (i)  Governing
      Law.  THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
      THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS
      PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW
      OF
      ANY OTHER JURISDICTION.

     

    (ii)  Jurisdiction.  The
      Company irrevocably submits to the exclusive jurisdiction of any State or
      Federal Court sitting in the State of New York, County of New York, over any
      suit, action, or proceeding arising out of or relating to this
      Note.  The Company irrevocably waives, to the fullest extent permitted
      by law, any objection which it may now or hereafter have to the laying of the
      venue of any such suit, action, or proceeding brought in such a court and any
      claim that suit, action, or proceeding has been brought in an inconvenient
      forum.

     

    The
      Company agrees that the service of process upon it mailed by certified or
      registered mail, postage prepaid and return receipt requested (and service
      so
      made shall be deemed complete three days after the same has been posted as
      aforesaid) or by personal service shall be deemed in every respect effective
      service of process upon it in any such suit or proceeding.  Nothing
      herein shall affect Holder's right to serve process in any other manner
      permitted by law.  The Company agrees that a final non-appealable
      judgment in any such suit or proceeding shall be conclusive and may be enforced
      in other jurisdictions by suit on such judgment or in any other lawful
      manner.

     

    (iii)  No
      Jury
      Trial.  The Company hereby knowingly and voluntarily waives any and
      all rights it may have to a trial by jury with respect to any litigation based
      on, or arising out of, under, or in connection with, this Note.

     

    (g)  Replacement
      Notes.  This Note may be exchanged by Holder at any time and from
      time to time for a Note or Notes with different denominations representing
      an
      equal aggregate outstanding Principal Amount, as reasonably requested by Holder,
      upon surrendering the same.  No service charge will be made for such
      registration or exchange.  In the event that Holder notifies the
      Company that this Note has been lost, stolen or destroyed, a replacement Note
      identical in all respects to the original Note (except for registration number
      and Principal Amount, if different than that shown on the original Note), shall
      be issued to the Holder, provided that the Holder executes and delivers to
      the
      Company an agreement reasonably satisfactory to the Company to indemnify the
      Company from any loss incurred by it in connection with the Note.

     

     [Signature
      Page Follows]

    
      
                    

                  #8964852
            v1      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Note to be duly executed on June
      ___, 2007.

    

    

    ISCO
      INTERNATIONAL,
      INC.

    

    

    By:                                                                                      

    Name:

    Title:

    

    

    

    

    Attest:

    

    

    

    Sign:                                                    

    Print
      Name:

    
      
              

                  #8964852
            v1      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    FORM
      OF CONVERSION NOTICE

    

    (To
      be
      Executed by the Holder

    in
      order
      to Convert a Note)

    

    The
      undersigned hereby elects to convert the aggregate outstanding Principal Amount
      (as defined in the Note) indicated below of this Note into shares of Common
      Stock, $0.001 par value per share (the “Common Stock”), of ISCO INTERNATIONAL,
      INC. (the “Company”) according to the conditions hereof, as of the date written
      below.  If shares are to be issued in the name of a person other than
      the undersigned, the undersigned will pay all transfer taxes payable with
      respect thereto and is delivering herewith such certificates and opinions as
      reasonably requested by the Company in accordance therewith.  No fee
      will be charged to the holder for any conversion, except for such transfer
      taxes, if any.  The undersigned represents as of the date hereof that,
      after giving effect to the conversion of this Note pursuant to this Conversion
      Notice, the undersigned will not exceed the “Restricted Ownership Percentage”
contained in Section 3(i) of this Note and will remain in compliance with
      Section 3(i) of this Note.

    

    
      	
              Conversion
                information:

            	 	 

    

    Date
      to Effect
      Conversion

    

    
      	
               

            	 

    

    
      	
               

            	
              Aggregate
                Principal Amount of Note Being
                Converted

            

    

    

    
      	
               

            	 

    

    
      	
               

            	
              Aggregate
                Interest (plus any applicable late charges) Being
                Converted

            

    

    

    
      	
               

            	 

    

    
      	
               

            	
              Number
                of shares of Common Stock
                to be Issued

            

    

    

    
      	
               

            	 

    

    Applicable
      Conversion
      Price

    

    
      	
               

            	 

    

    Signature

    

    
      	
               

            	 

    

    Name

    

    
      	
               

            	 

    

    Address

    

    

     

    

    

    
      
              

                  #8964852
            v1

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