Document:

Promissory Note dated 11/8/01

 

Exhibit 10.39

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR AN EXEMPTION THEREFROM.

PROMISSORY NOTE

	 	 
	U.S.$2,188,888	Dated: November 8, 2001

	 	FOR VALUE RECEIVED, the undersigned, ISCO INTERNATIONAL, INC., a Delaware
corporation formerly known as ILLINOIS SUPERCONDUCTOR CORPORATION with
offices at 451 Kingston Court, Mt. Prospect, Illinois 60056 (“Borrower”),
promises to pay to the order of ALEXANDER FINANCE, L.P., an Illinois
limited partnership (“Lender”), at 1560 Sherman Avenue, Evanston,
Illinois 60201, in lawful money of the United States, the principal sum
of Two Million One Hundred and Eighty Eight Thousand and Eight Hundred
and Eighty Eight Dollars (U.S.$2,188,888) due March 31, 2003, subject to
extension as set forth in Section 3 below (the “Maturity Date”), and to
pay interest on the principal sum outstanding under this Note at the rate
of 14% per annum, compounded annually, which interest shall also be due
and payable on the Maturity Date. Accrual of interest shall commence on
the first day to occur after the date hereof and shall continue until
payment in full of the principal sum and all other amounts due hereunder
have been made. The principal of, and interest on, this Note are payable
in such currency of the United States of America as of the time of
payment is legal tender for payment of public and private debts. This
Note is one of the Notes (the “Notes”) issued pursuant to the Note
Purchase Agreement, dated as of November 6, 2001 (the “Note Purchase
Agreement”) by and among Borrower, the Lender, and Elliott Associates,
L.P. (“Elliott”).

     This Note is subject to the following additional provisions:

     1.     Interest and Payment Application. Interest shall be calculated on a
360 day year simple interest basis and paid for the actual number of days
elapsed. All interest due hereunder shall be payable at the Maturity Date.
Notwithstanding anything contained herein, the outstanding principal balance
and interest due hereunder shall bear interest, from and after the occurrence
and during the continuance of an Event of Default (as defined below) hereunder,
at the rate equal to the lower of twenty percent (20%) per annum, compounded
annually, or the highest rate permitted by law, and from and after such time
interest shall be payable from time to time on demand. Unless otherwise agreed
or required by applicable law, payments will be applied first to any unpaid
collection costs, then to unpaid interest and fees and any remaining amount to
principal.

 

     2.     Prepayment.

		
	 	     (a)   Borrower may pre-pay all or any part of this Note at any time, without
cost or penalty.

		
	 	     (b)   In the event that, at any time while the Note remains outstanding, the
Lender provides equity or equity-linked financing to the Borrower (an “Equity
Transaction"), then on the date of funding for the Equity Transaction, an
amount under this Note (principal plus interest) equal to the lesser of: (i)
the full amount of principal and accrued interest then outstanding or (ii) the
amount of consideration Lender provides pursuant to the Equity Transaction,
shall become due and payable.

     3.     Extension of Maturity Date. In the event that, while any Notes remain
outstanding, (a) the Borrower conducts a bona fide cash capital-raising
transaction which consists solely of the sale for cash of shares of the
Borrower’s common stock (“Common Stock”) or shares of the Borrower’s preferred
stock convertible into Common Stock at a fixed price (subject to customary
anti-dilution provisions), in either case with or without warrants to purchase
Common Stock at a fixed price (subject to customary anti-dilution provisions),
where the gross cash proceeds to the Borrower (before deducting bona fide
transaction costs) are at least $5 million (a “Qualified Equity Transaction”);
(b) the Borrower affords all holders of outstanding Notes the opportunity to
participate in that Qualified Equity Transaction on equivalent terms and in an
amount not less than the then outstanding principal and interest of the Notes;
and (c) at least one holder of Notes participates in the Equity Transaction,
and pursuant to Section 2(b) of the Notes all of such holder’s Notes are
repurchased; then the Maturity of all the remaining outstanding Notes,
including this Note, shall be extended to March 31, 2005.

     4.     No Impairment. Borrower shall not intentionally take any action which
would impair the rights of Lender hereunder.

     5.     Obligations Absolute. No provision of this Note shall alter or impair
the obligation of Borrower, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place and rate, and in
the manner, herein prescribed.

     6.     Defaults and Remedies.

		
	 	     (a)   Events of Default. An “Event of Default” is: (i) default in payment
of the principal amount or accrued but unpaid interest thereon of any of the
Notes on or after the date such payment is due, (ii) failure by the Borrower
for ten (10) days after notice to it, to comply with any other material
provision of any of the Notes, the Note Purchase Agreement or the Security
Agreement (as defined below); (iii) an Event of Default under the Security
Agreement; (iv) a breach by the Borrower of its representations or warranties
in the Note Purchase Agreement or Security Agreement; (v) any default under or
acceleration prior to maturity of any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Borrower or a subsidiary of Borrower or
for money borrowed the repayment of which is guaranteed by the Borrower or a
subsidiary of Borrower, whether such indebtedness or guarantee now exists or
shall be created hereafter, provided that the obligations with respect to any
such borrowed or accelerated amount exceeds, in the aggregate, $500,000; (vi)
any money judgment, writ or warrant of attachment, or similar process in excess
of $500,000 in the aggregate shall be entered

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	 	or filed against the Borrower or a subsidiary of the Borrower or any of
their respective properties or other assets and shall remain unpaid, unvacated,
unbonded and unstayed for a period of 45 days; (vii) if the Borrower or any
subsidiary of the Borrower pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case; (B) has an involuntary case commenced
against it, and such case is not dismissed within 30 days of such commencement
or consents to 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; (viii) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is
for relief against the Borrower in an involuntary case; (2) appoints a
Custodian of the Borrower or for all or substantially all of its property; or
(3) orders the liquidation of the Company or any subsidiary, and the order or
decree remains unstayed and in effect for ninety (90) days; or (ix) in the
event that the Borrower fails to raise, within four months of the date of the
Note Purchase Agreement, at least $15 million in cash proceeds (net of
expenses) in a pro rata rights offering to subscribe for Common Stock at a
fixed price (qualifying for the exemption pursuant to Rule 16a-9 under the
Securities Exchange Act of 1934, as amended) which seeks to raise at least $20
million in cash or in the event that the Borrower fails to file a registration
statement covering such offering within one month of the date of this Note.
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 Lender may declare all of the then outstanding
principal amount of this Note, 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 6(a) above, this
Note shall become due and payable without further action or notice.

     7.     Waivers of Demand, Etc. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby
expressly waives demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of acceleration or
intent to accelerate, all other notices whatsoever and bringing of suit and
diligence in taking any action to collect amounts called for hereunder, and
will be directly and primarily liable for the payment of all sums owing and to
be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.

     8.     Replacement Note. In the event that Lender notifies Borrower that this
Note has been lost, stolen or destroyed, a replacement Note identical in all
respects to the original Note (except for the outstanding principal amount, if
different than that shown on the original Note), shall be delivered to Lender,
provided that the Lender executes and delivers to Borrower an agreement
reasonably satisfactory to Borrower to indemnify Borrower from any loss
incurred by it in connection with this Note.

     9.     Note Purchase Agreement; Security Agreement; Guarantees. This Note is
being issued to Lender in connection with the Note Purchase Agreement and is
entitled to the benefits thereof. In addition Borrower’s obligations under
this Note are guaranteed by the

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Guarantees of Spectral Solutions, Inc. and Illinois Superconductor Canada
Corporation, subsidiaries of Borrower (the “Guarantees”) and this Note is
entitled to the benefits thereof. The Borrower’s obligations under this Note
are also secured, pursuant to the terms of the Security Agreement, dated as of
November 6, 2001, by and among the Borrower, the Guarantor, the Lender and
Alexander (the “Security Agreement”), by all the assets of the Borrower and the
Guarantors.

     10.     Payment of Expenses. Borrower agrees to pay all debts and expenses,
including reasonable attorneys’ fees and expenses, which may be incurred by the
Lender in preparing, administering or enforcing this Note and/or collecting any
amount due under this Note, the Note Purchase Agreement, the Security Agreement
or the Guarantees.

     11.     Savings Clause. In case any provision of this Note is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not
in any way be affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is collected
in excess of the applicable maximum rate, the excess collected shall be applied
to reduce the principal debt. If the interest actually collected hereunder is
still in excess of the applicable maximum rate, the interest rate shall be
reduced so as not to exceed the maximum amount allowable under law.

     12.     Amendment. Neither this Note nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
both Borrower and Lender; except that Sections 3 and 6 hereof may not be
amended, nor the interest rate or principal amount hereunder increased or the
maturity date hereunder shortened, nor may a waiver of the Event of Default set
forth in Section 6(a)(ix) be effected, without the consent of the holders of
75% of the aggregate principal maximum amount of the outstanding Notes.

     13.     Assignment Etc. Lender may (i) without notice transfer or assign to
one or more of its affiliates at any time, or to any other party, if an Event
of Default shall have occurred, this Note or any interest herein and (ii) other
than in cases described in clause (i), may mortgage, encumber or transfer this
Note or any of its rights or interest in and to this Note or any part hereof in
accordance with applicable securities laws, rules and regulations. Each
assignee, transferee and mortgagee shall have the right to transfer or assign
its interest in accordance with the prior sentence. Each such assignee,
transferee and mortgagee shall have all of the rights of Lender under this
Note, the Note Purchase Agreement, the Security Agreement and the Guarantees.
This Note shall be binding upon Borrower and its successors and shall inure to
the benefit of the Lender and its successors and assigns.

     14.     No Waiver. No failure on the part of Lender to exercise, and no delay
in exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power. Each and every right, remedy or power hereby granted
to Lender or allowed it by law or other agreement shall be cumulative and not
exclusive of any other, and may be exercised by Lender from time to time.

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     15.     Miscellaneous. Unless otherwise provided herein, any notice or other
communication to Borrower hereunder shall be sufficiently given if in writing
and personally delivered or mailed to Borrower by certified mail, return
receipt requested, at its address set forth above or such other address as it
may designate for itself in such notice to Lender, and communications shall be
deemed to have been received when delivered personally or, if sent by mail or
facsimile, then when actually received by the party to whom it is addressed.
Whenever the sense of this Note requires, words in the singular shall be deemed
to include the plural and words in the plural shall be deemed to include the
singular. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may (1) renew, extend (repeatedly and for
any length of time) or modify this Note (in accordance with Section 12 above),
or release any party or any guarantor or collateral, (2) impair, fail to
realize upon or perfect any security interest Lender may have from time to time
in collateral, or (3) take any other action deemed necessary by Lender, in each
case without the consent of or notice to anyone and without releasing Borrower
or any guarantor from any liability.

     16.     Choice of Law and Venue; Waiver of Jury Trial. THIS NOTE SHALL BE
CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW OR CHOICE OF LAW. Borrower hereby agrees that all actions
or proceedings arising directly or indirectly from or in connection with this
Note shall, at Lender’s sole option, be litigated only in the Supreme Court of
the State of New York or the United States District Court for the Southern
District of New York, in each case, located in New York County, New York.
Borrower consents to the exclusive jurisdiction and venue of the foregoing
courts and consents that any process or notice of motion or other application
to either of said courts or a judge thereof may be served inside or outside the
State of New York or the Southern District of New York by certified or
registered mail, return receipt requested, directed to Borrower at its address
set forth in this Note (and service so made shall be deemed “personal service”
and be deemed complete five (5) days after the same has been posted as
aforesaid) or by personal service or in such other manner as may be permissible
under the rules of said courts. BORROWER HEREBY WAIVES ANY RIGHT TO A JURY
TRIAL IN CONNECTION WITH ANY LITIGATION PURSUANT TO THIS NOTE.

     IN WITNESS WHEREOF, Borrower has caused this instrument to be duly
executed by an officer thereunto duly authorized.

	 	 	 	 
	 	ISCO INTERNATIONAL, INC.
	 
	 	By:	 	
/s/ CHARLES F. WILLES

Charles F. Willes

Executive Vice President

and Chief Financial Officer

ATTEST:

5Guaranty of Illinois Superconductor Canada Corp.

 

Exhibit 10.40

GUARANTY

OF

ILLINOIS SUPERCONDUCTOR CANADA CORPORATION

     ISCO INTERNATIONAL INC., a corporation organized and existing under the
laws of Delaware and formerly known as Illinois Superconductor Corporation
(“ISCO”) and the corporate parent of ILLINOIS SUPERCONDUCTOR CANADA
CORPORATION, a corporation organized and existing under the laws of the
Province of Ontario (“Guarantor”), has issued to ELLIOTT ASSOCIATES, L.P., a
limited partnership organized under the laws of the State of Delaware and
ALEXANDER FINANCE L.P., an Illinois limited partnership (collectively,
“Payees”), 14% promissory notes due March 31, 2003, in the aggregate principal
amount of $9,425,000 (the “Notes”) pursuant to the Note Purchase Agreement
dated November 6, 2001 (the “Note Purchase Agreement”).

     Section 1. Guaranty.

     (a)   In consideration of Payees purchasing the Notes and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby absolutely, irrevocably and unconditionally
guarantees to the Payees the full payment and performance when due of any and
all obligations and undertakings of ISCO under the Notes, the Note Purchase
Agreement and the Security Agreement (the “Security Agreement”) being entered
into pursuant to the Note Purchase Agreement (such obligations and undertakings
shall hereinafter be referred to as the “Obligations”), together with all
reasonable attorneys’ fees, disbursements and all other costs and expenses of
collections incurred by Payees in enforcing any of such Obligations and/or this
Guaranty.

     (b)   Notwithstanding the provisions of Section 1(a), the Guarantor’s
obligations hereunder shall not exceed the maximum amount that would not be
subject to avoidance under fraudulent conveyance, fraudulent transfer, and
other similar laws.

     Section 2. Certain Guarantor Waivers.

     (a)   Waivers of Notice, Etc. Guarantor waives notice of acceptance of this
Guaranty and notice of the creation or performance of any of the Obligations,
and waives presentment, demand of payment, protest or notice of protest, notice
of dishonor or nonperformance of any of the Obligations, suit or taking other
action or non-action by the Payees, ISCO or any other guarantor against, and
any other notice to, any party liable thereon (including, without limitation,
Guarantor). Guarantor also hereby waives any notice of default by ISCO and any
other notice to which Guarantor might otherwise be entitled, the right to
interpose any counterclaim or consolidate any other action with an action on
this Guaranty, and the benefit of any statute of limitations affecting its
liabilities hereunder or the enforcement hereof. No act or omission of any
kind in connection with any of the foregoing shall in any way impair or
otherwise affect the

 

legality, validity, binding effect or enforceability of any term or
provision of this Guaranty or any of the obligations of Guarantor hereunder.

     (b)   Guaranty Not Affected. Guarantor hereby covenants, agrees and
consents that Payees may, at any time and from time to time (whether or not
after revocation or termination of this Guaranty), without incurring
responsibility to Guarantor, and without impairing or releasing any of the
obligations of Guarantor hereunder and, upon or without any terms or
conditions, and in whole or in part: (i) agree with ISCO to change the manner,
place or terms of performance, including (without limitation) any change or
extend the time of performance of, renew or alter, any of the Obligations, any
security therefor, or any other liability incurred directly or indirectly in
respect thereof, or to make any other change in the Obligations, and the
guaranty herein made shall apply to the Obligations as so changed, extended,
renewed or altered; (ii) take additional security, for or sell, exchange,
release, surrender, substitute, realize upon or otherwise deal with in any
manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, any of the Obligations or any other
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and/or any offset thereagainst; (iii) exercise or
refrain from exercising any rights against ISCO or others (including, without
limitation, Guarantor) or otherwise act or refrain from acting; (iv) settle or
compromise any Obligation, any security therefor, or any liability (including
any of those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or subordinate the performance of all or any part thereof to the
performance of any of the Obligations (whether due or not) to creditors of ISCO
other than Payees and Guarantor; (v) apply any sums by whomsoever paid or
howsoever realized to any Obligation regardless of what Obligations remain
unperformed; (vi) cancel, compromise, modify, or waive the provisions of any
document relating to any of the Obligations; (vii) release any other guarantor
or surety of the Obligations; and (viii) grant ISCO any indulgence as Payees
may, in its sole discretion, determine.

     (c)   Failure to Perfect Lien, Etc. No failure by Payees to file, record or
otherwise perfect any lien or security interest, nor any improper filing or
recording, nor any failure by Payees to insure or protect any security nor any
other dealing (or failure to deal) with any security by Payees with respect to
any of the Obligations, shall impair or release any of the obligations of the
Guarantor hereunder. No invalidity, irregularity or unenforceability of all or
any part of the Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty is a primary obligation of
Guarantor.

     (d)   Waiver of Subrogation. No payment by Guarantor except the
indefeasible performance in full of the Obligations shall entitle Guarantor to
be subrogated to any of the rights of Payees. Guarantor shall have no right of
reimbursement or indemnity whatsoever and no right of recourse to or with
respect to any assets or property of ISCO or to any security for the
Obligations, unless and until all of the Obligations have been indefeasibly
performed in full, other than as such reimbursement or indemnity rights are
waived in the next paragraph below,

     (e)   Payment Guaranty; Waiver of Defenses, Counterclaims, Etc. Guarantor
hereby agrees that this Guaranty constitutes guaranty of payment, performance
and compliance (and not a guaranty of collection only), and waives any right to
require that any resort be had by Payees to ISCO or any other guarantor or to
any security pledged with respect to the performance of any of the Obligations.
Further, this guaranty of payment is absolute and unconditional, and shall

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remain valid, binding and fully enforceable irrespective of any
circumstance of any nature that might otherwise constitute a defense, offset,
claim, abatement or counterclaim that Guarantor or ISCO may assert against
Payees with respect to any of the Obligations or otherwise, including, but not
limited to, failure of consideration, fraudulent inducement, breach of
warranty, payment, statute of frauds, statute of limitations, accord and
satisfaction, and usury, and irrespective of the validity, legality, binding
effect or enforceability of the terms of any agreement or instrument relating
to any of the Obligations. Guarantor hereby absolutely, unconditionally and
irrevocably waives any and all rights to assert any such defenses, offsets,
claims, abatements and counterclaims. In the event Payees are not permitted or
otherwise unable (because of the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding) to accelerate the Obligations but
would otherwise be permitted to do so at such time pursuant to the Purchase
Agreement, Payees may demand performance in full under this Guaranty as if all
of the Obligations had been duly accelerated, and Guarantor will not raise, and
hereby expressly waives, any claim or defense with respect to such
acceleration.

     Section 3. Remedies. In the case of any proceedings to collect any
obligations of Guarantor, Guarantor shall pay all costs and expenses of every
kind for collection and enforcement of this Guaranty, including attorneys’ fees
and disbursements. Upon the occurrence and during the continuance of any
failure of any of the Obligations to be performed when due, the Payees may
elect to nonjudicially or judicially foreclose against any real or personal
property security it holds for the Obligations, or accept an assignment of any
such security in lieu of foreclosure or compromise or adjust any part of the
Obligations, or make any other accommodation with ISCO or any other guarantor,
pledgor or surety, or exercise any other remedy against ISCO or any other
guarantor, pledgor or surety, or any security, in accordance with and subject
to the provisions of the documents creating such security interests. No such
action by Payees will release, limit or otherwise affect the obligations of
Guarantor to Payees, even if the effect of that action is to deprive Guarantor
of the right to collect any reimbursement from ISCO or any other person for any
sums paid to Payees.

     Section 4. Reinstatement, Indemnification, Etc. If claim is ever made
upon Payees for repayment, return, restoration or other recovery of any amount
or amounts received by Payees in payment or on account of any of the
Obligations, and Payees repay all or part of such amount: (a) because such
payment or application of proceeds is or may be avoided, invalidated, declared
fraudulent, set aside or determined to be void or voidable as a preferential
transfer, fraudulent conveyance, impermissible set off or a diversion of trust
funds; or (b) for any other reason, including (without limitation) by reason of
(i) any judgment, decree or order of any court or administrative body having
jurisdiction over Payees or any of their property, or (ii) any settlement or
compromise of any such claim effected by Payees with any such claimant
(including ISCO); then, and in such event, Guarantor agrees that any such
judgment, decree, order, settlement or compromise shall be binding upon
Guarantor, notwithstanding any revocation hereof or the cancellation of any
Notes or other instrument or document evidencing any of the Obligations and the
obligations of Guarantor hereunder shall continue to apply, or shall
automatically (and without further action) be reinstated if not then in effect,
as case may be, and Guarantor shall be and remain liable to Payees hereunder
for the amount so repaid or recovered to the same extent as if such amount had
never originally been received by Payees. Guarantor hereby indemnifies Payees,
and agrees to reimburse and hold Payees harmless on demand, from and against
all actions, claims, losses, judgments, damages, amounts paid in

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settlement and expenses (including reasonable attorneys’ fees and court
costs) brought against or incurred by Payees and arising out of, relating to or
in connection with any of the Obligations.

     Section 5. Waiver of Rights, Etc. No delay on the part of Payees in
exercising any of their options, powers or rights, or partial or single
exercise thereof, shall constitute a waiver thereof. No waiver of any of their
rights hereunder, and no modification or amendment of this Guaranty, shall be
deemed to be made by Payees unless the same shall be in writing, duly signed by
an officer of each Payee on behalf of such Payee, and each such waiver, if any,
shall apply only with respect to the specific instance involved, and shall in
no way impair the rights of Payees or the obligations of Guarantor to Payees in
any other respect at any other time.

     Section 6. Enforcement, Etc. Payees, in their sole discretion, may
proceed to exercise or enforce any right, power, privilege, remedy or interest
that Payees may have under this Guaranty, the Obligations or any applicable
law: at law, in equity, in rem or in any other forum available under applicable
law; without notice except as otherwise expressly required by law provided
herein; without pursuing, exhausting or otherwise exercising or enforcing any
other right, power, privilege, remedy or interest that Payees may have against
or in respect of Guarantor, the Obligations, ISCO, any other guarantor, surety,
pledgor, collateral or any other person or thing; and without regard to any act
or omission of Payees or any other person.

     Section 7. Reliance. Guarantor expressly acknowledges that Guarantor has
not received or relied upon any oral or written agreements, understandings,
representations or warranties from Payees or any other party with respect to
this Guaranty (or any of Guarantor’s obligations hereunder), and that this
Guaranty contains the entire understanding of the parties with respect to the
subject matter hereof and supersedes and replaces any and all prior oral or
written agreements and understandings with respect thereto.

     Section 8. Representations, Warranties and Agreements of the Guarantor.
The Guarantor hereby makes the following representations and warranties to
Payees as of the date hereof:

     (a)   Organization and Qualification. The Guarantor is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Colorado, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Guarantor has no subsidiaries. The Guarantor is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it makes
such qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not, individually or in the aggregate,
(x) adversely affect the legality, validity or enforceability of any of this
Guaranty in any material respect, (y) have a material adverse effect on the
results of operations, assets, prospects, or financial condition of the
Guarantor or (z) adversely impair in any material respect the Guarantor’s
ability to perform fully on a timely basis its obligations under this Guaranty
(a “Material Adverse Effect”).

     (b)   Authorization; Enforcement. The Guarantor has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Guaranty, and otherwise to carry out its obligations
hereunder. The execution and delivery of this Guaranty

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by the Guarantor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of the Guarantor. This Guaranty has been duly executed and
delivered by the Guarantor and constitutes the valid and binding obligation of
the Guarantor enforceable against the Guarantor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally the enforcement of, creditors’ rights and remedies
or by other equitable principles of general application.

     (c)   No Conflicts. The execution, delivery and performance of this
Guaranty by the Guarantor and the consummation by the Guarantor of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its Certificate of Incorporation or By-laws or (ii)
conflict with, constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Guarantor is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or govern-mental authority to which the
Guarantor is subject (including Federal and state securities laws and
regulations), or by which any material property or asset of the Guarantor is
bound or affected, except in the case of each of clauses (ii) and (iii), such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Guarantor is not being conducted
in violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, do not have a
Material Adverse Effect.

     (d)   Consents and Approvals. The Guarantor is not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other govern-mental authority
or other person in connection with the execution, delivery and performance by
the Guarantor of this Guaranty.

     Section 9. Successors and Assigns. This Guaranty is binding upon the
Guarantor and its successors or assigns, and shall inure to the benefit of
Payees and their respective successors and assigns.

     Section 10. Modification, Etc. This Guaranty cannot be terminated or
changed orally and no provision hereof may be modified or waived except in
writing by the holders of 75% of the outstanding principal amount of the Notes.

     Section 11. Section and Other Headings. The Sections and other headings
contained in this Guaranty are for reference purposes only and shall not affect
the Meaning or interpretation of this Guaranty.

     Section 12. Governing Law. THIS GUARANTY AND THE RIGHTS OF PAYEES AND THE
OBLIGATIONS OF GUARANTOR HEREUNDER SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE -STATE OF NEW YORK WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE 0-LAW.

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     Section 13. Severability. In the event that any term or provision of this
Guaranty shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by a governmental authority
having jurisdiction and venue, that determination shall not impair or otherwise
affect the validity, legality or enforceability (a) by or before that authority
of the remaining terms and provisions of this Guaranty, which shall be enforced
as if the unenforceable term or provision were deleted, or (b) by or before any
other authority of any of the terms and provisions of the Guaranty.

     Section 14. Consent to Jurisdiction. Guarantor hereby irrevocably submits
to the exclusive jurisdiction and venue of any New York state and federal court
located in New York County, New York, over any action or proceeding arising out
of any dispute between Guarantor and Payees, and Guarantor further irrevocably
consents To the service of any process in any such action or proceeding by the
mailing of a copy of such process to Guarantor at the address set forth below.

     Section 15. Waiver of Jury Trial, Inconvenient Forum. GUARANTOR AND, BY
ACCEPTING THIS GUARANTY, PAYEES, HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION ARISING OUT OF) UNDER OR IN CONNECTION WITH THIS GUARANTY, OR
THE TRANSACTIONS CONTEMPLATED HEREBY, AND ANY RIGHT TO OBJECT TO INCONVENIENT
FORUM OR IMPROPER VENUE IN NEW YORK COUNTY, NEW YORK. GUARANTOR HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF PAYEES NOR PAYEES’ COUNSEL HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT PAYEES WOULD NOT, IN THE

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EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL.
GUARANTOR ALSO ACKNOWLEDGES THAT PAYEES HAS BEEN INDUCED TO ACCEPT THIS
GUARANTY BY, AMONG OTHER THINGS , THE FOREGOING WAIVER OF TRIAL BY JURY.

Dated the 6th day of November, 2001

ILLINOIS SUPERCONDUCTOR CANADA CORPORATION

By: /s/ Charles F. Willes

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