FIRST AMENDMENT TONOTE

          

 

This FIRST AMENDMENT TO NOTE (the “Amendment”) is made as of January 8, 2009 and effective as of January 2, 2009, by and among ISCO International, Inc., a Delaware corporation (the “Company”), Alexander Finance, L.P., an Illinois limited partnership (“Alexander”), and solely for purposes of Sections 4, 5  and 6 of this Amendment, Manchester Securities Corporation, a New York corporation (“Manchester”).

 

 

WHEREAS, on January 3, 2008, the Company issued to Alexander that certain New Amended and Restated 7% Senior Secured Convertible Note dated January 3, 2008 (the “Note”); and

WHEREAS, the Company has requested that Alexander amend the Note to provide for certain changes as more fully set forth herein.

 

NOW, THEREFORE, in consideration of the covenants and agreements herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Alexander agree as follows:

1. Definitions.  All capitalized terms used herein and not defined or amended herein shall have the meanings ascribed to them in the Note.

2.	The Note is hereby amended as follows:

a.	Replace the definition of “Fair Market Price” in its entirety with the following:

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

b.	Delete the definition of “Market Price” in its entirety.

c.	Delete the definition of “Principal Market” in its entirety.

d.	Replace the definition of “Trading Day” in its entirety with the following:

“ “Trading Day” shall mean (x) if the Common Stock is listed on the New York Stock Exchange, NASDAQ or NYSE Alternext US, 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.”

e.	Delete the definition of “VWAP” in its entirety.

f.	Replace Section 3(c)(ii)(D) in its entirety with the following:

“D.  Calculation of Consideration Received.  In case any option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such options by the parties thereto, then solely for purposes of this Section 3, the options will be deemed to have been issued for a consideration of $0.01.  If any Common Stock or Convertible Securities (other than shares or options issued or which may be issued pursuant to the Incentive Plan up to the Incentive Plan Limit) are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the gross amount received by the Company therefor.  If any Common Stock or Convertible Securities (other than shares or options issued or which may be issued pursuant to the Incentive Plan up to the Incentive Plan Limit) are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the arithmetic average of the Fair Market 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, the Holder, and the holders of the Amended and Restated 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.”

g.	Replace Section 3(d) in its entirety with the following:

“(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 Holder and the holders of the Amended and Restated Notes, not less than an amount equal to the number of Conversion Shares.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid, nonassessable and freely tradeable.”

h.	Replace Section 3(e) in its entirety with the following:

“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 Fair Market Price of a share of Common Stock 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.”

i.	Replace Section 3(i) in its entirety with the following:

“(i)  If the Conversion Shares are not registered under the Registration Rights Agreement by September 30, 2009, if the registration statement is not reviewed by the SEC, or by November 30, 2009 if the registration statement is reviewed by the SEC, then the then-current interest rate shall increase by a rate of 1% per annum each month thereafter until such shares are registered, up to the Default Rate; provided however if the Securities and Exchange Commission (the “Commission”) instructs the Company that less than all, or none, of the Conversion Shares may be included in the Registration Statement, there shall be no increase in the interest rate pursuant to this Section 3(i) unless and until the Commission instructs the Company that such Conversion Shares may be permitted to be included in the Registration Statement and the Company has failed to register such Conversion Shares.”

j.	Replace Section 4(b) in its entirety with the following:

“(b)  Remedies.  If an Event of Default occurs and is continuing with respect to any of the ISCO Notes, the Holder may declare all of the then outstanding Principal Amount of this Note and all other ISCO 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 ISCO Notes held by the Holder (plus all accrued and unpaid interest, if any) and (2) the product of (A) the highest Fair Market 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.”

3. The Company and Alexander acknowledge that each of Spectral Solutions, Inc. and Illinois Superconductor Canada Corporation has been voluntarily dissolved, and no longer guarantees the Company’s obligations under the Note.

4. The Company, Alexander and Manchester agree and acknowledge that this Amendment has been made and entered into in compliance with Section 6(c) of the Note.

 

5. The Company’s execution, delivery and performance of this Amendment does not violate any material term, provision or covenant of any agreement that is currently in effect between the Company and either of Alexander or Manchester.

 

6. The Note, as amended hereby, shall remain in full force and effect and all terms hereof are hereby ratified and confirmed by the Company. Except for specifically provided herein, all other terms and conditions of the Note shall remain in full force and effect.  Except with respect to the Note, nothing contained in this Amendment shall be deemed to be or construed as a waiver or modification of any terms or provisions of any agreement between Alexander and the Company or Manchester and the Company, or any rights of Alexander or Manchester arising thereunder as a result of the Company’s execution, delivery and performance of this Amendment.

 

7. Any and all references to the Note and any instrument previously and now hereafter executed by the Company shall be deemed to refer to the Note as amended by this Amendment and any future amendments hereafter entered into between the Company and Alexander.

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first written above.