Document:

exhibit102.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.

    

    

    9 1⁄2% SECURED CONVERTIBLE
NOTE DUE AUGUST 1, 2010

    

    OF

    

    ISCO INTERNATIONAL,
INC.

    

    Note No.:
AUG-[    ]

    Original
Principal Amount:
$[          ]

    Issuance
Date:  August 18, 2008                                                                                                  Elk Grove Village,
Illinois

        

          

    

    This 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”), designated as the
Company's 9 1⁄2% Secured Convertible Notes Due August 1, 2010 (“Maturity Date”) in an
aggregate principal amount (when taken together with the original principal
amounts of all other Notes) which does not exceed THREE MILLION U.S. Dollars
(U.S. $3,000,000.00) (the “Notes”).  The Notes
have been issued pursuant to the terms of that certain August 2008 Loan
Agreement dated as of the date hereof by and among the Company, the Holder (as
defined below) and [      ]
(the “August 2008 Loan Agreement”).  Capitalized terms used herein not
otherwise defined herein shall have the meaning ascribed to such terms in the
August 2008 Loan Agreement.

     

    For Value
Received, the Company hereby promises to pay to the order of [              ]
or its registered assigns or successors-in-interest (“Holder”) the principal sum of
[      ]
U.S. DOLLARS (U.S. $[       ]),
or, if less the outstanding principal amount of advances made under the August
2008 Loan Agreement, 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 9 1⁄2% per annum from the original date
of issuance, August 18, 2008 (the “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 Loan Documents.  Interest on this Note shall accrue
daily commencing on the 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.  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 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.  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.

     

    “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 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 Principal Market as reported by Bloomberg Financial L.P. on the
Trading Day immediately preceding the date on which the price is being
determined.

     

    “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 Loan 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.

     

    “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.  This
Note shall accrue interest at a rate of 9 1⁄2% per annum daily commencing on the
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) Advances
Under the Loan Agreement.  Upon the closing of each Advance
made by Lender under the August 2008 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 August 2008 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 August 2008 Loan Agreement in accordance with the terms of the August 2008
Loan Agreement and this Note.

     

    (c) 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.

     

    (d) Prepayment.  The
Company may not prepay any part of the outstanding Principal Amount prior to the
Maturity Date.

     

    Section
2. Rank.  The
obligations of the Company hereunder shall rank pari passu with the Company’s
Notes governed by the Third Amended and Restated Loan Agreement, dated as of
November 10, 2004, by and among the Company and the Holder and [          ],
as amended (the “2004
Loan Agreement”), shall
be pari passu with the Company’s 91⁄2% Grid
Notes governed by the 2008 Loan Agreement, dated May 29, 2008, by and among the
Company, Holder and [         ]
(the “2008 Loan
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 at Custodian (“DWAC”) 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 if 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 then applicable 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 Closing Date (A) issues or sells any
securities which are convertible into or exercisable or exchangeable for Common
Stock (other than Notes issued under the August 2008 Loan 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.

     

    “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.  Notwithstanding anything to the contrary herein, the
maximum number of Conversion Shares, including such shares of Common Stock
issuable pursuant to the adjustment provisions of Section 3(c) hereof, shall not
exceed the Maximum Common Stock Issuance (as defined in Section
3(i)).

     

    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. 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)(A), 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)(A), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.

     

    B. 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)(B), 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.

     

    C. 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.

     

    D. 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 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, the full number
of shares of Common Stock issuable upon conversion of all amounts outstanding
under this Note.  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 provided further, 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
Purchase 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 Standard Time), or on the first Business Day
following such receipt if received on a Business Day after 5:00 p.m. (Eastern
Standard Time) or (iii) upon receipt, when deposited with a nationally
recognized overnight courier service.

     

    (i) Conversion Limitation;
Overall Limit on Common Stock Issuable.  Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the Holders of Notes at prices below
the “book or market value” (as such terms are used in Section 713 of the AMEX
Company Guide) of the Common Stock on the date hereof shall not in the aggregate
exceed 19.9% of the number of shares of Common Stock outstanding on the date
hereof, subject to appropriate adjustment for stock splits, stock dividends, or
other similar recapitalizations affecting the Common Stock (the “Maximum Common Stock
Issuance”).  The Maximum Common Stock issuance shall be
allocated pro
rata to the
Holders of the Notes in accordance with their percentage of the purchase price
set forth below their signatures on the signature pages to the Purchase
Agreement.

     

    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 Prior 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 Prior ISCO Notes,
the 2008 Loan Agreement, the Registration Rights Agreement or the August 2008
Loan Agreement; (iv) an Event of Default under the Security Agreement or the
Prior ISCO Notes; (v) a breach by the Company of its representations or
warranties in the August 2008 Loan Agreement or under the Guaranty; (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. August 2008 Loan Agreement;
Security Agreement; Guaranty.  This Note is being issued to the
Holder in connection with the August 2008 Loan Agreement and is entitled to the
benefits thereof.  In addition the Company’s obligations under this
Note are guaranteed by the Guaranty 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 Clarity Communications Systems, Inc.

     

    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]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed on August 18,
2008.

     

    

    

    ISCO INTERNATIONAL,
INC.

    

    

    By:                                                                              

    Name: Gary Berger

    Title:  Chief Financial Officer

    

    

    

    

    Attest:

    

    

    

    Sign:    

    Print
Name: Evi Sukandi 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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

    
      
        
          

           

        

         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
1

     

    (Grid
Schedule of Advances Made Under the August 2008 Loan Agreement)

     

    
      	
              Date

            	
              Principal
      Amount

              of Advance

            	
              Interest Rate

            	
              Maturity Dateexhibit103.htm

     

    EXHIBIT 10.3

     

    

      REGISTRATION
RIGHTS AGREEMENT

       

      This
Registration Rights Agreement (“Agreement”) is
entered into as of August 18, 2008, among ISCO International, Inc., a Delaware
corporation with offices at 1001 Cambridge Drive, Elk Grove Village, Illinois
60007 (the “Company”) and the
Lenders set forth on the signature page hereto (the “Lenders”).

       

      W I T N E S S E T
H:

       

      WHEREAS,
pursuant to the August 2008 Loan Agreement, dated on or about the date hereof,
by and between the Company and the Lenders (the “Loan Agreement”), the
Lenders have agreed to advance the Company from time to time up to an aggregate
amount of $3,000,000 to be evidenced by secured convertible notes (the “Notes”), subject to
the terms and conditions set forth therein; and

       

      WHEREAS,
the terms of the Notes provide that they will be convertible into shares (the
“Conversion
Shares”) of the common stock, par value $0.001 per share (the “Common Stock”) of the
Company; and

       

      NOW,
THEREFORE, in consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in the Loan Agreement and this Agreement, the
Company and each Lender agree as follows:

       

      1. Certain
Definitions.  Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Loan Agreement or the
Notes.  As used in this Agreement, the following terms shall have the
following respective meanings:

       

      “Commission” or “SEC” shall mean the
Securities and Exchange Commission or any other federal agency at the time
administering the Securities Act.

       

      “Holder” and “Holders” shall
include each Lender and any transferee or transferees of Registrable Securities
and/or Notes which have not been sold to the public to whom the registration
rights conferred by this Agreement have been transferred in compliance with this
Agreement and the Loan Agreement.

       

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

       

      The terms
“register,”
“registered”
and “registration” shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.

       

      “Registrable
Securities” shall mean:  (i) the Conversion Shares (without
regard to any limitations on beneficial ownership contained in the Notes) issued
or issuable to each Holder (a) upon conversion of the Notes, (b) upon any
distribution with respect to, any exchange for or any replacement of such Notes,
or (c) upon any conversion or exchange of any securities issued in connection
with any such distribution, exchange or replacement; (ii) securities issued or
issuable upon any stock split, stock dividend, recapitalization or similar event
with respect to the foregoing; and (iii) any other security issued as a dividend
or other distribution with respect to, in exchange for or in replacement of the
securities referred to in the preceding clauses, except that any such Conversion
Shares or other securities shall cease to be Registrable Securities when (x)
they have been sold to the public or (y) they may be sold by the Holder thereof
under Rule 144(b)(1)(i).

       

      “Registration
Expenses” shall mean all reasonable expenses to be incurred by the
Company in connection with each Holder’s registration rights under this
Agreement (such amount not to exceed $5,000 in the aggregate),
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, and blue sky fees
and expenses, reasonable fees and disbursements of counsel to Holders (using a
single counsel selected by a majority in interest of the Holders) for a review
of the Registration Statement and related documents, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).

       

      “Registration
Statement” shall have the meaning set forth in Section 2(a)
herein.

       

      “Regulation D” shall
mean Regulation D as promulgated pursuant to the Securities Act, and as
subsequently amended.

       

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

       

      “Selling Expenses”
shall mean all underwriting discounts, selling commissions and transfer taxes
applicable to the sale of Registrable Securities and all fees and disbursements
of counsel for Holders not included within “Registration Expenses”.

       

      2. Registration
Requirements.  The Company shall use its best efforts to effect
the registration of the resale of the Registrable Securities (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as would permit or facilitate the resale of all the Registrable
Securities in the manner (including manner of sale) and in all states reasonably
requested by the Holder.  Such best efforts by the Company shall
include, without limitation, the following:

       

      (a) The
Company shall, as expeditiously as possible after the date hereof:

       

      (i) But in
any event within 90 days of the date hereof, prepare and file a registration
statement with the Commission pursuant to Rule 415 under the Securities Act on
Form S-3 under the Securities Act (or in the event that the Company is
ineligible to use such form, such other form as the Company is eligible to use
under the Securities Act provided that such other form shall be converted into a
Form S-3 as soon as Form S-3 becomes available to the Company) covering resales
by the Holders as selling stockholders (not underwriters) of the Registrable
Securities and, to the extent practicable, no other securities (the “Registration
Statement”), which Registration Statement, to the extent allowable under
the Securities Act and the rules promulgated thereunder (including Rule 416),
shall state that such Registration Statement also covers the resale of such
indeterminate number of additional shares of Common Stock as may be issued upon
conversion of the Notes by reason of stock splits, stock dividends or similar
transactions.  The number of shares of Common Stock initially included
in such Registration Statement shall be no less than 15,000,000 and the Company
shall amend such Registration Statement or file additional Registration
Statements to cover the number of additional shares of Common Stock that may be
issued or issuable pursuant to the terms of the Notes in the event that the
number of shares of Common Stock initially registered is
insufficient.  Nothing in the preceding sentence will limit the
Company’s obligations to reserve shares of Common Stock pursuant to Section 3(d)
of the Notes.  Thereafter the Company shall use its best efforts to
cause such Registration Statement and other filings to be declared effective as
soon as possible, and in any event prior to 180 days (or, if the SEC elects to
review the Registration Statement, 240 days) following the date
hereof (the “Effectiveness
Deadline”).  Without limiting the foregoing, the Company will
promptly respond to all SEC comments, inquiries and requests, and shall request
acceleration of effectiveness at the earliest possible date.

       

      (ii) Prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection with such Registration Statement
as may be necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement and notify
the Holders of the filing and effectiveness of such Registration Statement and
any amendments or supplements.

       

      (iii) Furnish
to each Holder such numbers of copies of a current prospectus conforming with
the requirements of the Act, copies of the Registration Statement, any amendment
or supplement thereto and any documents incorporated by reference therein and
such other documents as such Holder may reasonably require in order to
facilitate the disposition of Registrable Securities owned by such
Holder.

       

      (iv) Register
and qualify the securities covered by such Registration Statement under the
securities or “Blue Sky” laws of all domestic jurisdictions, to the extent
required; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions.

       

      (v) Notify
each Holder immediately of the happening of any event (but not the substance or
details of any such events unless specifically requested by a Holder) as a
result of which the prospectus (including any supplements thereto or thereof)
included in such Registration Statement, as then in effect, includes an untrue
statement of material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.

       

      (vi) Notify
each Holder immediately of the issuance by the Commission or any state
securities commission or agency of any stop order suspending the effectiveness
of the Registration Statement or the threat or initiation of any proceedings for
that purpose.  The Company shall use its best efforts to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.

       

      (vii) Permit
Holders and counsel to the Holders to review the Registration Statement and all
amendments and supplements thereto within a reasonable period of time (but not
less than two (2) full Trading Days (as defined in the Notes)) prior to each
filing and will not request acceleration of the Registration Statement without
prior notice to such counsel.

       

      (viii) List the
Registrable Securities covered by such Registration Statement with all
securities exchange(s) and/or markets on which the Common Stock is then listed
and prepare and file any required filings with the Principal
Market.

       

      (b) Set forth
below in this Section 2(b) are (I) events that may arise that in the Holders’
consideration will interfere with the full enjoyment of their rights under this
Agreement, the Loan Agreement and the Notes (the “Interfering Events”),
and (II) certain remedies applicable in each of these events.

       

      Paragraphs
(i) through (iii) of this Section 2(b) describe the Interfering Events, provide
a remedy to the Holders if an Interfering Event occurs.

       

      Paragraph
(iv) provides, inter alia, that the
Holders have the right to specific performance.

       

      The
preceding paragraphs in this Section 2(b) are meant to serve only as an
introduction to this Section 2(b), are for convenience only, and are not to be
considered in applying, construing or interpreting this Section
2(b).

       

      (i) Delay in Effectiveness of
Registration Statement.

       

      (A) In the
event that such Registration Statement has not been declared effective
by:  (x) the Effectiveness Deadline if the SEC does not elect to
review the Registration Statement or (y) within 180 days (or, if the SEC elects
to review the Registration Statement, 240 days) of the date hereof, if the SEC
elects to review the Registration Statement, or the Company at any time fails to
issue unlegended Registrable Securities to the extent required by Article 5 of
the Loan Agreement, then the Company shall pay each Holder (other than (i) in
the case of a Registration Statement not declared effective, a Holder of
Registrable Securities that the Company could exclude from registration in
accordance with Section 9 and (ii) in the case of a failure to issue unlegended
certificates in accordance with the Loan Agreement, a Holder that is not a party
to, including as a permitted assignee bound to, the Loan Agreement) a Monthly
Delay Payment (as defined below) with respect to each successive 30-day period
(or portion thereof appropriately prorated) thereafter that effectiveness of the
Registration Statement is delayed or failure to issue such unlegended
Registrable Securities persists.

       

      (B) Subject
to subsection (C)(II) below, as used in this Agreement, a “Monthly Delay
Payment” shall be a cash payment equal to 1% of the amount equal to (x)
the Conversion Price multiplied by (y) the sum of the number of Conversion
Shares that are Registrable Securities and held by the applicable Holder plus
the number of Conversion Shares issuable upon conversion of Notes held by such
Holder.  Payment of the Monthly Delay Payments shall be due and
payable from the Company to such Holder on the later of (I) the end of the
applicable 30-day period or portion thereof and (II) 5 business days after
demand therefor.  At the option of the Holder, Monthly Delay Payments
may be added to the outstanding Principal Amount of the Notes held by
it.

       

      (C) Notwithstanding
the foregoing, (I) there shall be excluded from the calculation of the number of
days that the Registration Statement has not been declared effective the delays
which are solely attributable to delays in the Holders providing information
required for the Registration Statement or to the Holders not having otherwise
complied with their obligations hereunder; (II) the aggregate amount of Monthly
Delay Payments payable to a Holder pursuant to this Agreement shall not exceed
ten (10) times the amount of Monthly Delay Payment calculated for such Holder
pursuant to subsection (B) above; and (III) no Monthly Delay Payments shall
accrue as to any Registrable Securities from and after the date such security is
no longer a Registrable Security.

       

      (ii) No Listing; Suspension of
Class of Shares

       

      (A) In the
event that the Company fails, refuses or for any other reason is unable to cause
the Registrable Securities covered by the Registration Statement to be listed
(subject to issuance) with the Principal Market (as defined in the Notes) at all
times during the period (“Listing Period”) from
the date (“Effectiveness Commencement
Date”) which is the earlier of the effectiveness of the Registration
Statement and the 180th day
(or, if the SEC elects to review the Registration Statement, the 240th
day)following the date hereof until such time as the registration period
specified in Section 5 terminates, then the Holder shall have available the
remedy set forth in Section 4(a) of the Notes.

       

      (B) In the
event that shares of Common Stock of the Company are not listed the Principal
Markets at all times following the date hereof, or are otherwise suspended from
trading and remain unlisted or suspended for 3 consecutive days, then the Holder
shall have available the remedy set forth in Section 4(a) of the
Notes.

       

      (iii) Blackout
Periods.

       

      (A) In the
event the Registration has become effective and, afterwards, any Holder’s
ability to sell Registrable Securities under the Registration Statement is
suspended for more than (i) 30 days in any 90-day period or (ii) 60 days in any
calendar year (“Blackout Period”),
including without limitation by reason of any suspension or stop order with
respect to the Registration Statement or the fact that an event has occurred as
a result of which the prospectus (including any supplements thereto) included in
such Registration Statement then in effect includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, then the Company shall provide to each Holder a
Monthly Delay Payment for each 30-day period or portion thereof (appropriately
prorated) from and after the expiration of the Blackout Period, on the terms set
forth in Section 2(b)(i)(B) above.

       

      (B) Notwithstanding
anything to the contrary herein, the Company may suspend the filing or
availability of a Registration Statement or prospectus or delay the disclosure
of any material non-public information or pending development concerning the
Company for a specified period if the disclosure of such information or
development during such period would be materially detrimental, in the good
faith judgment of the Company’s general counsel and one or more executive
officers of the Company, to the Company (a “Grace Period”);
provided, however, that the Company shall promptly (i) notify the Holders in
writing of the existence of such material non-public information or pending
development giving rise to a Grace Period (provided that the Company shall not
disclose the content of such material non-public information or pending
development to the Holders) and the date on which the Grace Period will begin,
and (ii) notify the Holders in writing of the date on which the Grace Period
ends. No single Grace Period shall, without incurring any liability to pay the
Monthly Delay Payments pursuant to Section 2(b)(i)(B), exceed twenty (20)
consecutive days and the aggregate duration of all Grace Periods shall not,
without incurring any liability to pay the Monthly Delay Payments pursuant to
Section 2(b)(i)(B), exceed forty (40) days during any three hundred sixty-five
day period (each Grace Period complying with this Section 2(b)(iii)(B) being an
“Allowable Grace
Period”). For purposes of determining the length of a Grace Period, the
Grace Period shall be deemed to begin on and include the date stated in the
notice referred to in clause (i) above as the beginning of such Grace Period and
shall end on and include the earlier of (I) the date stated in the notice
referred to in clause (ii) above as the end of such Grace Period or, (II) to the
extent considered appropriate by the Company in its sole discretion, such
earlier date as to which the Company may advise the Holders in writing after the
Company’s provision of the notices described above; provided, however, that no
Grace Period shall be longer than an Allowable Grace Period without incurring
any liability to pay the Monthly Delay Payments pursuant to Section 2(b)(i)(B).
The Company agrees to use all reasonable efforts to ensure that the Holders may
resume sales under the relevant Registration Statement as soon as such
suspension, in the sole discretion of the Company, is no longer necessary. The
provisions of Sections 2(a)(iii) and 2(a)(v) of this Agreement shall not be
applicable, and the Company shall not have any obligation to pay any Monthly
Delay Payments by reason of any delay pursuant to Section 2(b)(i) or Blackout
Period, during the period of any Allowable Grace Period.

       

      (iv) Cumulative
Remedies.  The Monthly Delay Payments provided for above are in
addition to and not in lieu or limitation of any other rights the Holders may
have at law, in equity or under the terms of the Notes, the Loan Agreement and
this Agreement, including without limitation, the right to monetary contract
damages and specific performance; provided that (x) no holder of Notes may
collect default interest in addition to Monthly Delay Payments and (y) no holder
of Notes may collect more than one Monthly Delay Payment with respect to the
same 30-day period or portion thereof.  Each Holder shall be entitled
to specific performance of any and all obligations of the Company in connection
with the registration rights of the Holders hereunder.

       

      (c) The
Holders agree to cooperate as reasonably requested by the Company in connection
with the preparation and filing of the Registration Statement.

       

      (d) If the
Holder(s) intend to distribute the Registrable Securities by means of an
underwriting, the Holder(s) shall so advise the Company.  Any such
underwriting may only be administered by nationally or regionally recognized
investment bankers reasonably satisfactory to the Company.

       

      (e) The
Company shall enter into such customary agreements for secondary offerings
(including a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other reasonable actions reasonably
requested by the Holders in connection with any underwritten offering or when
the SEC has required that the Holders be identified as underwriters in the
Registration Statement in order to expedite or facilitate the disposition of
such Registrable Securities and in such connection:

       

      (i) make such
representations and warranties to the Holders and the underwriter or
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters in secondary offerings;

       

      (ii) cause to
be delivered to the sellers of Registrable Securities and the underwriter or
underwriters, if any, opinions of outside counsel to the Company, on and dated
as of the effective day (or in the case of an underwritten offering, dated the
date of delivery of any Registrable Securities sold pursuant thereto) of the
Registration Statement, and within ninety (90) days following the end of each
fiscal year thereafter, which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Holders and the
underwriter(s), if any, and their counsel and covering such matters that are
customarily given to underwriters in underwritten offerings, addressed to the
Holders and each underwriter, if any;

       

      (iii) cause to
be delivered, immediately prior to the effectiveness of the Registration
Statement (and, in the case of an underwritten offering, at the time of delivery
of any Registrable Securities sold pursuant thereto), and at the beginning of
each fiscal year following a year during which the Company’s independent
certified public accountants shall have reviewed any of the Company’s books or
records, a “comfort” letter from the Company’s independent certified public
accountants addressed to each underwriter (including the Holders, if the SEC has
required them to be identified as underwriters in the Registration Statement),
if any, to the extent requested by such underwriters, stating that such
accountants are independent public accountants within the meaning of the
Securities Act and the applicable published rules and regulations thereunder,
and otherwise in customary form and covering such financial and accounting
matters as are customarily covered by letters of the independent certified
public accountants delivered in connection with secondary offerings; such
accountants shall have undertaken in each such letter to update the same during
each such fiscal year in which such books or records are being reviewed so that
each such letter shall remain current, correct and complete throughout such
fiscal year; and each such letter and update thereof, if any, shall be
reasonably satisfactory to such underwriters;

       

      (iv) if an
underwriting agreement is entered into, the same shall include customary
indemnification and contribution provisions to and from the underwriters and
procedures for secondary underwritten offerings; and

       

      (v) deliver
such documents and certificates as may be reasonably requested by the Holders of
the Registrable Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i) above and with any
customary conditions contained in the underwriting agreement, if
any.

       

      (f) The
Company shall make available for inspection by the Holders, representative(s) of
all the Holders together, any underwriter participating in any disposition
pursuant to a Registration Statement, and any attorney or accountant retained by
any Holder or underwriter, all financial and other records customary for
purposes of the Holders’ due diligence examination of the Company and review of
any Registration Statement, all SEC Documents (as defined in the Loan Agreement)
filed subsequent to the Closing, pertinent corporate documents and properties of
the Company, and cause the Company’s officers, directors and employees to supply
all information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such Registration Statement, provided
that such parties agree to keep such information
confidential.  Notwithstanding the foregoing, the foregoing right
shall not extend to any Holder (i) who is not a financial investor or entity or
(ii) who, itself or through any affiliate, has any strategic business interest
that would reasonably be expected to be in conflict with any business of the
Company or its subsidiaries.

       

      (g) Subject
to Section 2(b) above and to clause (i) below, the Company may suspend the use
of any prospectus used in connection with the Registration Statement only in the
event, and for such period of time as, (i) such a suspension is required by the
rules and regulations of the Commission or (ii) it is determined in good faith
by the Board of Directors of the Company that because of valid business reasons
(not including the avoidance of the Company’s obligations hereunder), it is in
the best interests of the Company to suspend such use, and prior to suspending
such use in accordance with this clause (ii) the Company provides the Holders
with written notice of such suspension, which notice need not specify the nature
of the event giving rise to such suspension.  The Company will use
reasonable best efforts to cause such suspension to terminate at the earliest
possible date.  This provision shall not affect the right of Holders
to receive Monthly Delay Payments pursuant to Section 2(b) above.

       

      (h) If the
Holders become entitled, pursuant to an event described in clause (ii) and (iii)
of the definition of Registrable Securities, to receive any securities in
respect of Registrable Securities that were already included in a Registration
Statement, subsequent to the date such Registration Statement is declared
effective, and the Company is unable under the securities laws to add such
securities to the then effective Registration Statement, the Company shall
promptly file, in accordance with the procedures set forth herein, an additional
Registration Statement with respect to such newly Registrable
Securities.  The Company shall use its best efforts to (i) cause any
such additional Registration Statement, when filed, to become effective under
the Securities Act, and (ii) keep such additional Registration Statement
effective during the period described in Section 5 below and cause such
Registration Statement to become effective within 90 days of that date that the
need to file the Registration Statement arose.  All of the
registration rights and remedies under this Agreement shall apply to the
registration of the resale of such newly reserved shares and such new
Registrable Securities, including without limitation the provisions providing
for default payments contained herein.

       

      (i) The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and the
prospectus used in connection with such Registration Statement, which prospectus
is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may
be necessary to keep such Registration Statement effective at all times during
the Registration Period (as defined below), and, during such period, comply with
the provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by such Registration
Statement.  In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 2(h)) by reason of the Company filing a
report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the
1934 Act, the Company shall have incorporated such report by reference into such
Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement such
Registration Statement.

       

      (j) Each
Holder agrees by its acquisition of the Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Sections 2(a)(v) or 2(a)(vi), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder’s receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(h),
or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.  The Company may provide appropriate stop
orders to enforce the provisions of this paragraph.

       

      (k) If
requested by a Holder, the Company shall (i) as soon as practicable incorporate
in a prospectus supplement or post-effective amendment such information as a
Holder reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) as soon
as practicable make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) as soon as
practicable, supplement or make amendments to any Registration Statement if
reasonably requested by a Holder holding any Registrable
Securities.

       

      3. Expenses of
Registration.  All Registration Expenses in connection with any
registration, qualification or compliance with registration pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses of a Holder
shall be borne by such Holder.

       

      4. Registration on Form
S-3.  The Company shall use its best efforts to remain
qualified for registration on Form S-3 or any comparable or successor form or
forms, or in the event that the Company is ineligible to use such form, such
form as the Company is eligible to use under the Securities Act, provided that
if such other form is used, the Company shall convert such other form to a Form
S-3 as soon as the Company becomes so eligible, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement or Form S-3 covering the Registrable
Securities has been declared effective by the SEC.

       

      5. Registration
Period.  In the case of the registration effected by the
Company pursuant to this Agreement, the Company shall keep such registration
effective until the earlier of (a) the date on which all the Holders have
completed the sales or distribution described in the Registration Statement
relating thereto or, (b) until such Registrable Securities may be sold by the
Holders under Rule 144(b)(1)(i) (provided that the Company’s transfer agent has
accepted an instruction from the Company to such effect) (the “Registration
Period”).  Subject to Section 8 below, this Agreement shall be
terminated automatically without further action by any party hereto upon the
expiration of the Registration Period.

       

      6. Indemnification.

       

      (a) Company
Indemnity.  The Company will indemnify and hold harmless each
Holder, each of its officers, directors, agents and partners, and each person
controlling of each of the foregoing, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls, within
the meaning of Section 15 of the Securities Act and the rules and regulations
thereunder, any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made, or any violation by the Company of the Securities Act or any
state securities law or in either case, any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each Holder, each of its officers, directors, agents and
partners, and each person controlling each of the foregoing, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to a Holder to the extent that any
such claim, loss, damage, liability or expense arises out of or is based (i) on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or the underwriter (if any) therefor and stated to be
specifically for use therein or (ii) the failure of a Holder to deliver at or
prior to the written confirmation of sale, the most recent prospectus, as
amended or supplemented.  The indemnity agreement contained in this
Section 6(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent will not be unreasonably
withheld).

       

      (b) Holder
Indemnity.  Each Holder will, severally and not jointly, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify and
hold harmless the Company, each of its directors, officers, agents and partners,
and each underwriter, if any, of the Company’s securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder, each other Holder (if any), and each of their officers,
directors and partners, and each person controlling of such other Holder(s)
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading in light of the
circumstances under which they were made, and will reimburse the Company and
such other Holder(s) and their directors, officers and partners, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein, and provided that the maximum amount for which such Holder shall be
liable under this indemnity shall not exceed the net proceeds received by such
Holder from the sale of the Registrable Securities pursuant to the registration
statement in question.  The indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any such claims,
losses, damages or liabilities if such settlement is effected without the
consent of such Holder (which consent shall not be unreasonably
withheld).

       

      (c) Procedure.  Each
party entitled to indemnification under this Section 6 (the “Indemnified Party”)
shall give notice to the party required to provide indemnification (the “Indemnifying Party”)
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim in any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at its own expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6 except to the extent that the Indemnifying Party is
materially and adversely affected by such failure to provide
notice.  No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.  Each Indemnified Party shall furnish such non-privileged
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting
therefrom.

       

      7. Contribution.  If
the indemnification provided for in Section 6 herein is unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein (other than by reason of the exceptions provided therein),
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages or liabilities as between the
Company on the one hand and any Holder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of such Holder in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.  The relative fault of the Company on the one hand and
of any Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder.

       

      In no
event shall the obligation of any Indemnifying Party to contribute under this
Section 7 exceed the amount that such Indemnifying Party would have been
obligated to pay by way of indemnification if the indemnification provided for
under Section 6(a) or 6(b) hereof had been available under the
circumstances.

       

      The
Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation (even
if the Holders or the underwriters were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraphs.  The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim.  Notwithstanding the provisions of this section, no
Holder or underwriter shall be required to contribute any amount in excess of
the amount by which (i) in the case of any Holder, the net proceeds received by
such Holder from the sale of Registrable Securities pursuant to the registration
statement in question or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that such Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission.  No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.

       

      8. Survival.  The
indemnity and contribution agreements contained in Sections 6 and 7 and the
representations and warranties of the Company referred to in Section 2(d)(i)
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement or the Loan Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company, and (iii) the consummation of the sale or
successive resales of the Registrable Securities.

       

      9. Information by
Holders.  Each Holder shall promptly furnish to the Company
such information regarding such Holder and the distribution and/or sale proposed
by such Holder as the Company may from time to time reasonably request in
writing in connection with any registration, qualification or compliance
referred to in this Agreement, and the Company may exclude from such
registration the Registrable Securities of any Holder who unreasonably fails to
furnish such information within a reasonable time after receiving such
request.  The intended method or methods of disposition and/or sale
(Plan of Distribution) of such securities as so provided by such Holder shall be
included without alteration in the Registration Statement covering the
Registrable Securities and shall not be changed without written consent of such
Holder.  Each Holder agrees that, other than ordinary course brokerage
arrangements, in the event it enters into any arrangement with a broker dealer
for the sale of any Registrable Securities through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, such Holder shall promptly deliver to the Company in writing
all applicable information required in order for the Company to be able to
timely file a supplement to the Prospectus pursuant to Rule 424(b) under the
Securities Act, to the extent that such supplement is legally
required.  Such information shall include a description of (i) the
name of such Holder and of the participating broker dealer(s), (ii) the number
of Registrable Securities involved, (iii) the price at which such Registrable
Securities were or are to be sold, and (iv) the commissions paid or to be paid
or discounts or concessions allowed or to be allowed to such broker dealer(s),
where applicable.

       

      10. Replacement
Certificates.  The certificate(s) representing the Registrable
Securities held by any Lender (or then Holder) may be exchanged by such Lender
(or such Holder) at any time and from time to time for certificates with
different denominations representing an equal aggregate number of Registerable
Securities, as reasonably requested by such Lender (or such Holder) upon
surrendering the same.  No service charge will be made for such
registration or exchange.  Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any certificates representing a Registrable Security and, in the case of loss,
theft or destruction, of indemnity reasonably satisfactory to it, or upon
surrender and cancellation of such certificate if mutilated, the Company will
make and deliver a new certificate of like tenor and dated as of such
cancellation at no charge to the holder.

       

      11. Transfer or
Assignment.  Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The rights granted to the
Lenders by the Company under this Agreement to cause the Company to register
Registrable Securities may be transferred or assigned (in whole or in part) to a
permitted transferee or assignee of Notes or Registrable Securities, and all
other rights granted to the Lenders by the Company hereunder may be transferred
or assigned to any permitted transferee or assignee of any Notes or Registrable
Securities; provided in each case that the Company must be given written notice
by the Lenders at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned; and provided further that the transferee or
assignee of such rights agrees in writing to be bound by the registration
provisions of this Agreement.

       

      12. Reports Under The 1934
Act.

       

      With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Securities Act or any other similar rule or regulation of the SEC that
may at any time permit the Holders to sell securities of the Company to the
public without registration (“Rule 144”), the
Company agrees to:

       

      (a) make and
keep public information available, as those terms are understood and defined in
Rule 144;

       

      (b) file with
the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and

       

      (c) furnish
to each Holder so long as such Holder owns Registrable Securities, promptly upon
request, (i) a written statement by the Company, if true, that it has complied
with the reporting requirements of Rule 144, the Securities Act and the 1934
Act, (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested to permit the Holders to sell
such securities pursuant to Rule 144 without registration.

       

      13. Miscellaneous.

       

      (a) Remedies.  The
Company and the Lenders acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached.  It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.

       

      (b) Jurisdiction.  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.  NOTHING IN THIS SECTION
13(b) SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.  THE COMPANY AND EACH LENDER 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 13(b).

       

      (c) Notices.  Any
notice or other communication required or permitted to be given hereunder shall
be in writing by facsimile, electronic transmission, mail or personal delivery
and shall be effective upon actual receipt of such notice.  The
addresses for such communications shall be:

       

      to the
Company:

       

      ISCO
International, Inc.

      1001
Cambridge Drive

      Elk Grove
Village, Illinois  60007

      Telephone:  (847)
391-9400

      Facsimile:   (847)
391-5015

      Attention::  Gary
Berger

      E-mail:
gary.berger@iscointl.com

      

      with a
copy to:

       

      McGuireWoods
LLP

      Suite
4100

      77 Wacker
Drive

      Chicago,
IL 60601-1818

      Attn:
Scott Glickson, Esq.

      Fax:
(312) 698-4585

      

      to the
Lenders:

       

      As set
forth on Schedule I hereto

       

      with a
copy to:

       

      As set
forth on Schedule I hereto

       

      Any party
hereto may from time to time change its address for notices by giving at least
five days’ written notice of such changed address to the other parties
hereto.

       

      (d) Waivers.  No
waiver by any party of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it
thereafter.

       

      (e) Execution in
Counterpart.  This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same
counterpart.

       

      (f) Signatures.  Facsimile
signatures shall be valid and binding on each party submitting the
same.

       

      (g) Entire Agreement;
Amendment.  This Agreement, together with the Loan Agreement,
the Notes and the agreements and documents contemplated hereby and thereby,
contains the entire understanding and agreement of the parties.

       

      (h) Governing
Law.  This Agreement and the validity and performance of the
terms hereof shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts executed and to be performed
entirely within such state.

       

      (i) Jury
Trial.  EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY
JURY.

       

      (j) Titles.  The
titles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.

       

      (k) No Strict
Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any
party.

       

      [Signature
Page Follows]

       

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      In Witness Whereof, the
parties hereto have caused this Agreement to be duly executed as of the date
first above written.

       

      ISCO
INTERNATIONAL, INC.

      

      

      

      By:    /s/Gary
Berger                                                                       

      Name:
Gary Berger

      Title:
Chief Financial Officer

      

      

      MANCHESTER
SECURITIES CORP.

      

      

      By:      /s/Elliot Greenberg
                                                                     

      Name:
Elliot Greenberg

      Title:
Vice President 

      

      

      ALEXANDER
FINANCE, L.P.

      

      

        By:  /s/
Bradford Whitmore 

              Name:  Bradford
Whitmore

              Title    
President Bun Partners, Inc. 

                           Its:
 General Partner

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