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...
Exhibit
10.5
NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS
NOTE
DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL
REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED
INTEREST SET FORTH BELOW.
AMENDED
AND RESTATED
7%
SENIOR SECURED CONVERTIBLE NOTE
DUE AUGUST 1, 2009
OF
ISCO
INTERNATIONAL, INC.
Note
No.:
F-4 Current Principal Amount $1,121,625.00
Original
Issuance Date: October 23, 2002 Elk Grove Village, Illinois
Amended
& Restated Issuance Date: June 26, 2007
This
AMENDED AND RESTATED Note (“Note”) is one of a duly authorized issue of notes of
ISCO INTERNATIONAL, INC., a corporation duly organized and existing under the
laws of the State of Delaware (the “Company”), originally designated as part of
the Company's 9½% Secured Grid Notes due March 31, 2004, as amended from time to
time, and is now amended and restated, with the other notes issued in that
series and other notes issued pursuant to the Loan Agreement (as defined below),
as a 7% Senior Secured Convertible Note Due August 1, 2009 (“Maturity Date”) of
the Company.
For
Value
Received, the Company hereby promises to pay to the order of MANCHESTER
SECURITIES CORPORATION or its registered assigns or successors-in-interest
(“Holder”) the principal sum of ONE MILLION ONE HUNDRED TWENTY ONE THOUSAND SIX
HUNDRED TWENTY FIVE U.S. DOLLARS (U.S. $1,121,625.00) (representing the
principal amount outstanding on the New Issuance Date (as defined below), plus
all accrued but unpaid interest since October 23, 2002), together with all
accrued but unpaid interest thereon, if any, on the Maturity Date, to the extent
such principal amount and interest has not been converted into the Company's
Common Stock, $0.001 par value per share (the “Common Stock”), in accordance
with the terms hereof. Interest on the unpaid principal balance
hereof shall accrue at the rate of 7% per annum from the amended and restated
issuance date of this Note, June 26, 2007 (the “New Issuance Date”), until the
same becomes due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with the terms hereof
or of the other Transaction Documents. Interest on this Note shall
accrue daily commencing on the New Issuance Date, shall be compounded monthly
and shall be computed on the basis of a 360-day year, 30-day months and actual
days elapsed and shall be payable in accordance with Section 1 hereof; provided,
however, that nothing in the foregoing shall be deemed to modify the calculation
of the Principal Amount based on a different rate of interest applied prior
to
the New Issuance Date. Notwithstanding anything contained herein,
this Note shall bear interest on the due and unpaid Principal Amount from and
after the occurrence and during the continuance of an Event of Default pursuant
to Section 5(a), at the rate (the “Default Rate”) equal to the lower of twenty
percent (20%) per annum or the highest rate permitted by law. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any unpaid collection costs, then to unpaid interest and fees (including
late
charges, if applicable) and any remaining amount to principal.
Except
as
otherwise provided herein, all payments of principal and interest (including
late charges, if applicable) on this Note shall be made in lawful money of
the
United States of America by wire transfer of immediately available funds to
such
account as the Holder may from time to time designate by written notice in
accordance with the provisions of this Note or by Company check. This
Note may not be prepaid in whole or in part except as otherwise provided
herein. Whenever any amount expressed to be due by the terms of this
Note is due on any day which is not a Business Day (as defined below), the
same
shall instead be due on the next succeeding day which is a Business
Day.
Capitalized
terms used herein and not otherwise defined shall have the meanings set forth
in
the Amendment Agreement dated on or about the New Issuance Date pursuant to
which this Note was issued (the “Amendment Agreement”). For purposes hereof the
following terms shall have the meanings ascribed to them below:
“Business
Day” shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the City of New York are authorized or required by law
or
executive order to remain closed.
“Change
in Control Transaction” will be deemed to exist if (i) there occurs any
consolidation, merger or other business combination of the Company with or
into
any other corporation or other entity or person (whether or not the Company
is
the surviving corporation), or any other corporate reorganization or transaction
or series of related transactions in which in any of such events the voting
stockholders of the Company prior to such event cease to own 50% or more of
the
voting stock, or corresponding voting equity interests, of the surviving
corporation after such event (including without limitation any “going private”
transaction under Rule 13e-3 promulgated pursuant to the Exchange Act (as
defined below) or tender offer by the Company under Rule 13e-4 promulgated
pursuant to the Exchange Act for 20% or more of the Company's Common Stock),
(ii) any person (as defined in Section 13(d) of the Exchange Act), together
with
its affiliates and associates (as such terms are defined in Rule 405 under
the
Securities Act), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Company's voting power, (iii) there
is
a replacement of more than one-half of the members of the Company’s Board of
Directors which is not approved by those individuals who are members of the
Company's Board of Directors on the date thereof, or (iv) in one or a series
of
related transactions, there is a sale or transfer of all or substantially all
of
the assets of the Company, determined on a consolidated basis, or (v) the
execution by the Company of an agreement to which the Company is a party or
which it is bound providing for an event set forth in (i), (ii), (iii) or (iv)
above.
“Conversion
Ratio” means, at any time, a fraction, of which the numerator is the entire
outstanding Principal Amount of this Note (or such portion thereof that is
being
redeemed or repurchased), and of which the denominator is the then applicable
Conversion Price.
“Conversion
Price” shall equal $0.20 (which Conversion Price shall be subject to adjustment
as set forth herein).
“Conversion
Shares” means the shares of Common Stock into which the Notes are convertible
(including repayment in Common Stock as set forth herein) in accordance with
the
terms hereof and the Amendment Agreement and Loan Agreement.
“Convertible
Securities” means any convertible securities, warrants, options or other rights
to subscribe for or to purchase or exchange for, shares of Common
Stock.
“Debt”
shall mean indebtedness of any kind.
“Effective
Date” means the date on which a Registration Statement covering all the
Conversion Shares and other Registrable Securities (as defined in the
Registration Rights Agreement) is declared effective by the Securities and
Exchange Commission.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.
“Fair
Market Price” shall mean the closing price (or closing bid price) for the Common
Stock on the Trading Day immediately preceding the date on which the price
is
being determined.
“Loan
Agreement” shall mean the Third Amended and Restated Loan Agreement, dated as of
November 10, 2004, as amended, by and among the Company, Manchester Securities
Corporation and Alexander Finance, L.P.
“Market
Price” shall equal 90% of the average of the VWAP for each of the twenty (20)
Trading Days, excluding the five (5) highest Trading Days (i.e. the
Trading Days with the highest VWAP) from the average, immediately preceding
the
date on which such Market Price is being determined.
“MFN
Transaction” shall mean a transaction in which the Company issues or sells any
securities in a capital raising transaction or series of related transactions
(the “MFN Offering”) which grants to the investor (the “MFN Investor”) the right
to receive additional securities based upon future capital raising transactions
of the Company on terms more favorable than those granted to the MFN Investor
in
the MFN Offering.
“Per
Share Selling Price” shall include the amount actually paid by third parties for
each share of Common Stock in a sale or issuance by the Company. In
the event a fee is paid by the Company in connection with such transaction
directly or indirectly to such third party or its affiliates, any such fee
shall
be deducted from the selling price pro rata to all shares sold in the
transaction to arrive at the Per Share Selling Price. A sale of
shares of Common Stock shall include the sale or issuance of rights, options,
warrants or convertible, exchangeable or exercisable securities, issued or
sold
on or subsequent to the Closing Date, under which the Company is or may become
obligated to issue shares of Common Stock, and in such circumstances the Per
Share Selling Price of the Common Stock covered thereby shall also include
the
exercise, exchange or conversion price thereof (in addition to the consideration
received by the Company upon such sale or issuance less the fee amount as
provided above). In case of any such security issued or sold on or
subsequent to the Closing Date in an MFN Transaction, the Per Share Selling
Price shall be deemed to be the lowest conversion or exercise price at which
such securities are converted or exercised, or the lowest adjustment price
in
the case of an MFN Transaction, over the life of such securities. If
shares are issued for a consideration other than cash, the Per Share Selling
Price shall be the fair value of such consideration as determined in good faith
by independent certified public accountants mutually acceptable to the Company
and the Purchaser. In the event the Company directly or indirectly
effectively reduces the conversion, exercise or exchange price for any
Convertible Securities issued or sold on or subsequent to the Closing Date
which
are currently outstanding (other than pursuant to the terms of the transaction
documentation for such securities as in effect on the date hereof), then the
Per
Share Selling Price shall equal such effectively reduced conversion, exercise
or
exchange price.
“Principal
Amount” shall refer to the sum of (i) the original principal amount of this
Note, (ii) all accrued but unpaid interest hereunder, and (iii) any default
payments owing under the Transaction Documents but not previously paid or added
to the Principal Amount.
“Principal
Market” shall mean the American Stock Exchange or such other principal market or
exchange on which the Common Stock is then listed for trading.
“Redemption
Date” shall mean the date on which the Company has elected to redeem this Note
pursuant to Section 1(c) below.
“Registration
Statement” shall have the meaning set forth in the Registration Rights
Agreement.
“Securities
Act” shall mean the Securities Act of 1933, as amended.
“Trading
Day” shall mean (x) if the Common Stock is listed on the New York Stock Exchange
or the American Stock Exchange, a day on which there is trading on such stock
exchange, or (y) if the Common Stock is not listed on either of such stock
exchanges but sale prices of the Common Stock are reported on an automated
quotation system, a day on which trading is reported on the principal automated
quotation system on which sales of the Common Stock are reported, or (z) if
the
foregoing provisions are inapplicable, a day on which quotations are reported
by
National Quotation Bureau Incorporated.
“VWAP”
shall mean the daily volume weighted average price of the Common Stock on the
Principal Market as reported by Bloomberg Financial L.P. (based on a trading
day
from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time) using the AQR function
on
the date in question.
The
following terms and conditions shall apply to this Note:
Section
1. Payments
of Principal and Interest.
(a) Interest. Subject
to Section 3(i) below, this Note shall accrue interest at a rate of 7% per
annum
daily commencing on the New Issuance Date, shall be compounded monthly and
shall
be computed on the basis of a 360-day year, 30-day months and actual days
elapsed. Accrued interest shall be added to the Principal Amount of
this Note.
(b) Payment
of Principal. Subject to the provisions hereof, the Principal
Amount of this Note shall be due and payable in cash on the Maturity
Date.
(c) Redemption
Right of Company. Beginning on the two (2) year anniversary of
the New Issuance Date, the Company shall have the right to redeem this Note
in
full (but not less than full) in cash upon delivering notice in writing sixty
(60) days prior to such Redemption Date. Nothing in this Section 1(c)
shall prohibit the Holder from converting this Note prior to the Redemption
Date.
Section
2. Seniority. The
obligations of the Company hereunder shall rank pari passu to the Company’s
notes issued under and governed by the Loan Agreement and the Securities
Purchase Agreement, dated as of June 22, 2006, by and among the Company and
the
Holder and Alexander Finance, L.P. (the “Purchase Agreement”), and shall be
senior to the Company’s unsecured indebtedness.
Section
3. Conversion.
(a) Conversion
by Xxxxxx. 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 Xxxxxx (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 Xxxxxx
(and, at the election of the Holder, any accrued interest or applicable late
charges) so converted and repaid and the dates of such conversions or repayments
or shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon each such
conversion or repayment.
(i) Stock
Certificates or DWAC. The Company will deliver to the Holder not
later than three (3) Trading Days after the Conversion Date, a certificate
or
certificates which shall be free of restrictive legends and trading restrictions
(assuming that the Registration Statement has been declared effective),
representing the number of shares of Common Stock being acquired upon the
conversion of this Note. In lieu of delivering physical certificates
representing the shares of Common Stock issuable upon conversion of this Note,
provided the Company's transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon
request of the Holder, the Company shall use commercially reasonable efforts
to
cause its transfer agent to electronically transmit such shares issuable upon
conversion to the Holder (or its designee), by crediting the account of the
Holder’s (or such designee’s) prime broker with DTC through its Deposit
Withdrawal Agent Commission system (provided that the same time periods herein
as for stock certificates shall apply). If in the case of any
conversion hereunder, such certificate or certificates are not delivered to
or
as directed by the Holder by the third Trading Day after the Conversion Date,
the Holder shall be entitled by written notice to the Company at any time on
or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return this Note
tendered for conversion.
(c) Conversion
Price Adjustments.
(i) Stock
Dividends and Splits. If the Company or any of its subsidiaries, at
any time while the Notes are outstanding (A) shall pay a stock dividend or
otherwise make a distribution or distributions on any equity securities
(including instruments or securities convertible into or exchangeable for such
equity securities) in shares of Common Stock, or (B) subdivide outstanding
Common Stock into a larger number of shares, then the applicable then Conversion
Price shall be multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding before such event and the
denominator of which shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section
3(c)(i) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case
of a
subdivision.
(ii) Distributions. If
the Company or any of its subsidiaries, at any time while the Notes are
outstanding, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Company or any of its subsidiaries (excluding
those
referred to in Section 3(c)(i) above), then concurrently with such distributions
to holders of Common Stock, the Company shall distribute to holders of the
Notes
the amount of such indebtedness, assets, cash or rights or warrants which the
holders of the Notes would have received had the Notes been converted into
Common Stock.
(iii) Common
Stock Issuances. In the event that the Company or any of its
subsidiaries on or subsequent to the date of the Amendment Agreement (A) issues
or sells any securities which are convertible into or exercisable or
exchangeable for Common Stock (other than Notes issued under the Loan Agreement
or Purchase Agreement or shares or options issued or which may be issued
pursuant to the Company’s 2003 Equity Incentive Plan, as amended (the “Incentive
Plan”), up to the Incentive Plan Limit (as defined below)), or any warrants or
other rights to subscribe for or to purchase or any options for the purchase
of
its Common Stock, (B) directly or indirectly effectively reduces the conversion,
exercise or exchange price for any Convertible Securities (other than shares
or
options issued or which may be issued pursuant to the Incentive Plan up to
the
Incentive Plan Limit) which are currently outstanding (other than pursuant
to
terms existing on the date hereof) or (C) issues or sells any Common Stock
at or
to an effective Per Share Selling Price which is less than the Conversion Price
in effect immediately prior to such issue or sale or record date, as applicable,
then the Conversion Price shall be reduced by multiplying the existing
Conversion Price by a fraction (x) the numerator of which shall be the sum
of
(i) the number of shares of Common Stock outstanding immediately prior to such
sale or issuance or reduction and (ii) the number of shares of Common Stock
which the aggregate consideration received by the Company would purchase at
such
Conversion Price; and (y) the denominator of which shall be the number of shares
of Common Stock outstanding (or deemed outstanding, as discussed below)
immediately after such issue, sale or reduction. effective concurrently with
such issue or sale to equal such lower Per Share Selling Price.
“Incentive
Plan Limit” shall mean an amount, with respect to each calendar year, equal to
2.5% of the number of the Company’s outstanding shares of Common Stock, provided
that (AA) this amount shall be net of any shares or options issued under the
Incentive Plan which are cancelled, forfeited, expired or redeemed, and (BB)
for
purposes of calculating this amount, restricted shares shall count as two shares
of Common Stock and option shares shall count as one share of Common
Stock. To the extent that the Company issues securities under the
Incentive Plan beyond the Incentive Plan Limit, such issuances shall not be
exempt from the adjustment provisions of this Note.
For
the
purposes of the foregoing adjustment, in the case of any Convertible Securities,
the maximum number of shares of Common Stock issuable upon exercise, exchange
or
conversion of such Convertible Securities shall be deemed to be outstanding,
provided that no further adjustment shall be made upon the actual issuance
of
Common Stock upon exercise, exchange or conversion of such Convertible
Securities.
In
the
event a fee is paid by the Company in connection with a transaction described
in
this clause (iii), the portion of such fee in excess of 3% of the purchase
price
in such transactions shall be deducted from the selling price pro rata to all
shares sold in the transaction to arrive at the Per Share Selling
Price.
For
purposes of this Section 3(c)(iii), if an event occurs that triggers more than
one of the above adjustment provisions, then only one adjustment shall be made
and the calculation method which yields the greatest downward adjustment in
the
Conversion Price shall be used.
For
purposes of making the foregoing adjustments, the following provisions shall
apply.
A. [Intentionally
Omitted]
B. Issuance
of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities (other than shares or options issued or which
may be issued pursuant to the Incentive Plan up to the Incentive Plan Limit)
and
the lowest price per share for which one share of Common Stock is issuable
upon
such conversion, exchange or exercise thereof is less than the Conversion Price
in effect immediately prior to such issuance, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance of sale of such Convertible Securities
for
such price per share. For the purposes of this Section 3(c)(iii)(B),
the “lowest price per share for which one share of Common Stock is issuable upon
such conversion, exchange or exercise” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion, exchange or exercise of such
Convertible Security. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock upon conversion,
exchange or exercise of such Convertible Securities, and if any such issue
or
sale of such Convertible Securities is made upon exercise of any options for
which adjustment of the Conversion Price had been or are to be made pursuant
to
other provisions of this Section 3(c)(iii)(B), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
C. Change
in Option Price or Rate of Conversion. Except for shares or
options issued or which may be issued pursuant to the Incentive Plan up to
the
Incentive Plan Limit, if the purchase or exercise price provided for in any
Convertible Securities, the additional consideration, if any, payable upon
the
issue, conversion, exchange or exercise of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
or
exercisable for Common Stock changes at any time, the Conversion Price in effect
at the time of such change shall be adjusted to the Conversion Price that would
have been in effect at such time had such Convertible Securities provided for
such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or
sold. For purposes of this Section 3(c)(iii)(C), if the terms of any
option or Convertible Security that was outstanding as of the date of issuance
of the Notes are changed in the manner described in the immediately preceding
sentence, then such option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be
made if such adjustment would result in an increase of the Conversion Price
then
in effect.
D. Calculation
of Consideration Received. In case any option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such options by the parties thereto, then solely for purposes
of
this Section 3, the options will be deemed to have been issued for a
consideration of $0.01. If any Common Stock or Convertible Securities
(other than shares or options issued or which may be issued pursuant to the
Incentive Plan up to the Incentive Plan Limit) are issued or sold or deemed
to
have been issued or sold for cash, the consideration received therefor will
be
deemed to be the gross amount received by the Company therefor. If
any Common Stock or Convertible Securities (other than shares or options issued
or which may be issued pursuant to the Incentive Plan up to the Incentive Plan
Limit) are issued or sold for a consideration other than cash, the amount of
the
consideration other than cash received by the Company will be the fair value
of
such consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the arithmetic average of the Closing Sale Prices of such securities
during the ten (10) consecutive Trading Days ending on the date of receipt
of
such securities. The fair value of any consideration other than cash
or securities will be determined jointly by the Company and the holders of
the
Notes. If such parties are unable to reach agreement within ten (10)
days after the occurrence of an event requiring valuation (the “Valuation
Event”), the fair value of such consideration will be determined within five (5)
Business Days after the tenth (10th) day following
the
Valuation Event by an independent, reputable appraiser selected by the Company
and the holders of the Notes.
E. Record
Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, options or Convertible Securities or
(B)
to subscribe for or purchase Common Stock, options or Convertible Securities,
then such record date will be deemed to be the date of the issue or sale of
the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(iv) Rounding
of Adjustments. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may
be.
(v) Notice
of
Adjustments. Whenever any Affected Conversion Price is adjusted
pursuant to Section 3(c)(ii) or (iii) above, the Company shall promptly deliver
to each holder of the Notes, a notice setting forth the Affected Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment, provided that any failure to so provide such notice
shall not affect the automatic adjustment hereunder.
(vi) Change
in
Control Transactions. In case of any Change in Control Transaction,
the Holder shall have the right thereafter to, at its option, (A) convert this
Note, in whole or in part, at the then applicable Conversion Price into the
shares of stock and other securities, cash and/or property receivable upon
or
deemed to be held by holders of Common Stock following such Change in Control
Transaction, and the Holder shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of
the
Company into which this Note could have been converted immediately prior to
such
Change in Control Transaction would have been entitled if such conversion were
permitted, subject to such further applicable adjustments set forth in this
Section 3 (provided that the limitations in Section 3(i) shall not apply to
the
extent that Holder shall have waived them) or (B) require the Company or its
successor to redeem this Note, in whole or in part, at a redemption price equal
to 110% of the outstanding Principal Amount (plus any accrued interest or
applicable late charges) being redeemed. The terms of any such Change
in Control Transaction shall include such terms so as to continue to give to
the
Holders the right to receive the amount of securities, cash and/or property
upon
any conversion or redemption following such Change in Control Transaction to
which a holder of the number of shares of Common Stock deliverable upon such
conversion would have been entitled in such Change in Control Transaction,
and
interest payable hereunder shall be in cash or such new securities and/or
property, at the Holder’s option. This provision shall similarly
apply to successive reclassifications, consolidations, mergers, sales, transfers
or share exchanges. Notwithstanding any other provisions of this
Note, the Holder shall be permitted to convert all or any portion of the
Principal Amount (plus any accrued interest or late charges, if applicable)
at
the Conversion Price described in Section 3(c) herein at any time until the
consummation of the Change in Control Transaction.
(vii) Notice
of
Certain Events. If:
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A.
|
the
Company shall declare a dividend (or any other distribution) on its
Common
Stock; or
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B.
|
the
Company shall declare a special nonrecurring cash dividend on or
a
redemption of its Common Stock; or
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C.
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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
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D.
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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
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E.
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the
Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the
Company;
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then
the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of this Note, and shall cause to be mailed to the Holder
at its last address as it shall appear upon the books of the Company, on or
prior to the date notice to the Company's stockholders generally is given,
a
notice stating (x) the date on which a record is to be taken for the purpose
of
such dividend, distribution, redemption, rights or warrants, or if a record
is
not to be taken, the date as of which the holders of Common Stock of record
to
be entitled to such dividend, distributions, redemption, rights or warrants
are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock
of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange.
(d) Reservation
and Issuance of Underlying Securities. The Company covenants
that, beginning immediately after the Required Approvals (as defined below)
are
obtained, it will at all times reserve and keep available out of its authorized
and unissued Common Stock solely for the purpose of issuance upon conversion
of
this Note (including repayments in stock), free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
the
Notes, not less than an amount equal to the number of Conversion
Shares. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid, nonassessable and freely tradeable.
(e) No
Fractions. Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the closing price of a share of Common Stock
on the Principal Market at such time. If the Company elects not, or
is unable, to make such cash payment, the Holder shall be entitled to receive,
in lieu of the final fraction of a share, one whole share of Common
Stock.
(f) Charges,
Taxes and Expenses. Issuance of certificates for shares of Common
Stock upon the conversion of this Note (including repayment in stock) shall
be
made without charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall
be
issued in the name of the Holder or in such name or names as may be directed
by
the Holder; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
Holder, this Note when surrendered for conversion shall be accompanied by an
assignment form; and providedfurther, that the Company shall not
be required to pay any tax or taxes which may be payable in respect of any
such
transfer.
(g) Cancellation. After
all of the Principal Amount (including accrued but unpaid interest and default
payments (including any applicable late charges) at any time owed on this Note)
have been paid in full or converted into Common Stock, this Note shall
automatically be deemed canceled and the Holder shall promptly surrender the
Note to the Company at the Company’s principal executive offices.
(h) Notices
Procedures. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by confirmed facsimile, electronic transmission, or by a nationally recognized
overnight courier service to the Company at the facsimile telephone number
or
address of the principal place of business of the Company as set forth in the
Loan Agreement. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, electronic transmission, or by a nationally
recognized overnight courier service addressed to the Holder at the facsimile
telephone number or address of the Holder appearing on the books of the Company,
or if no such facsimile telephone number or address appears, at the principal
place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered
personally, (ii) when sent by facsimile, upon receipt if received on a Business
Day prior to 5:00 p.m. (Eastern Time), or on the first Business Day following
such receipt if received on a Business Day after 5:00 p.m. (Eastern Time) or
(iii) upon receipt, when deposited with a nationally recognized overnight
courier service.
(i) Required
Approvals. The Holder acknowledges that the Company is required
to seek the approval of its stockholders to (i) increase the number of
authorized shares of Common Stock available for issuance under its Certificate
of Incorporation, as amended (the “Certificate of Incorporation”) and (ii) issue
the shares of Common Stock issuable upon conversion of the Notes pursuant to
the
rules of the American Stock Exchange (“AMEX”). Notwithstanding
anything contained herein to the contrary, the Notes shall not be convertible
into shares of Common Stock until (A) the Certificate of Incorporation shall
have been amended to increase the number of shares of Common Stock available
for
issuance in sufficient number to include the shares of Common Stock issuable
pursuant to the Notes, (B) the issuance of such shares shall have been approved
by the Company’s stockholders and (C) such shares shall have been approved for
listing on AMEX (“collectively, the “Required Approvals”). The
Company shall use its reasonable best efforts to seek the approval of its
stockholders to amend the Certificate of Incorporation to increase the number
of
shares of Common Stock available for issuance in sufficient number to include
the shares of Common Stock issuable pursuant to the Notes, approve the issuance
of the shares of Common Stock issuable upon conversion of the Notes, and the
approval by AMEX to list such shares on AMEX. Notwithstanding the
above, the Required Approvals shall be obtained within one (1) year of the
New
Issuance Date (the “Approval Deadline”). In the event that the
Required Approvals are not obtained by the first anniversary of the New Issuance
Date, then the interest rate shall thereafter be increased to accrue at a rate
of 15% per annum. If the Initial Conversion Shares and Conversion
Shares are not registered under the Registration Rights Agreement by the fifteen
(15) month anniversary of the New Issuance Date, then the then-current interest
rate shall increase by a rate of 1% per annum each month thereafter (commencing
on the day immediately following such 15-month anniversary date) until such
shares are registered, up to the Default Rate.
Section
4. Defaults
and Remedies.
(a) Events
of
Default. An
“Event of Default” is: (i) a default in the payment of any Principal
Amount of the Notes; (ii) default in payment of the principal amount or accrued
but unpaid interest thereon of any of the June 2006 Notes issued to Holder
(as
defined in the Purchase Agreement), or the Amended and Restated Notes (as
defined in the Amendment Agreement) other than this Note (collectively, this
Note, the other Amended and Restated Notes and the June 2006 Notes shall be
referred to as the “ISCO Notes”), on or after the date such payment is due,
(iii) failure by the Company for ten (10) days after notice to it, to comply
with any other material provision of any of the ISCO Notes, the Registration
Rights Agreement or the Purchase Agreement or the Loan Agreement; (iv) an Event
of Default under the Security Agreement or the ISCO Notes; (v) a breach by
the
Company of its representations or warranties in the Loan Agreement, Amendment
Agreement or under any of the Guaranties (as defined below); (vi) any default
under or acceleration prior to maturity of any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by the Company or a subsidiary of the
Company or for money borrowed the repayment of which is guaranteed by the
Company or a subsidiary of the Company, whether such indebtedness or guarantee
now exists or shall be created hereafter, provided that the obligations with
respect to any such borrowed or accelerated amount exceeds, in the aggregate,
$500,000; (vii) any money judgment, writ or warrant of attachment, or similar
process in excess of $500,000 in the aggregate shall be entered or filed against
the Company or a subsidiary of the Company or any of their respective properties
or other assets and shall remain unpaid, unvacated, unbonded and unstayed for
a
period of 45 days; (viii) if the Company or any subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law: (A)
commences a voluntary case; (B) has an involuntary case commenced against it,
and such case is not dismissed within 30 days of such commencement or consents
to the entry of an order for relief against it in an involuntary case; (C)
consents to the appointment of a Custodian of it for all or substantially all
of
its property; (D) makes a general assignment for the benefit of its creditors;
or (E) admits in writing that it is generally unable to pay its debts as the
same become due; or (ix) a court of competent jurisdiction enters an order
or
decree under any Bankruptcy Law that: (1) is for relief against the
Company in an involuntary case; (2) appoints a Custodian of the Company or
for
all or substantially all of its property; or (3) orders the liquidation of
the
Company or any subsidiary, and the order or decree remains unstayed and in
effect for ninety (90) days. The terms “Bankruptcy Law” means Title
11, U.S. Code, or any similar federal or state law for the relief of
debtors. The term “Custodian” means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
(b) Remedies. If
an Event of Default occurs and is continuing with respect to any of the Notes,
the Holder may declare all of the then outstanding Principal Amount of this
Note
and all other Notes held by the Holder, including any interest due thereon,
to
be due and payable immediately, except that in the case of an Event of Default
arising from events described in clauses (vii) and (viii) of Section 4(a)
hereof, this Note shall become due and payable without further action or
notice. In the event of an acceleration, the amount due and owing to
the Holder shall be the greater of (1) 110% of the outstanding Principal Amount
of the Notes held by the Holder (plus all accrued and unpaid interest, if any)
and (2) the product of (A) the highest closing price for the five (5) Trading
Days immediately preceding the Holder’s acceleration and (B) the Conversion
Ratio. In either case the Company shall pay interest on such amount
in cash at the Default Rate to the Holder if such amount is not paid within
seven days of Holder’s request. The remedies under this Note shall be
cumulative.
Section
5. Loan
Agreement; Amendment Agreement; Security Agreement;
Guaranties. This Note is being issued to the Holder in connection
with the Loan Agreement and Amendment Agreement and is entitled to the benefits
thereof. In addition the Company’s obligations under this Note are
guaranteed by the Guaranties (the “Guaranties”) of Spectral Solutions, Inc. and
Illinois Superconductor Canada Corporation, subsidiaries of the Company (the
together, the “Guarantors”) and this Note is entitled to the benefits
thereof. The Company’s obligations under this Note are also secured,
pursuant to the terms of the Security Agreement by all the assets of the Company
and the Guarantors.
Section
6. General.
(a) Payment
of Expenses. The Company agrees to pay all reasonable charges and
expenses, including reasonable attorneys' fees and expenses, which may be
incurred by the Holder in successfully enforcing this Note and/or collecting
any
amount due under this Note.
(b) Savings
Clause. In case any provision of this Note is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity
and
enforceability of the remaining provisions of this Note will not in any way
be
affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is
collected in excess of the applicable maximum rate, the excess collected shall
be applied to reduce the principal debt. If the interest actually
collected hereunder is still in excess of the applicable maximum rate, the
interest rate shall be reduced so as not to exceed the maximum allowable under
law.
(c) Amendment. Neither
this Note nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and holders of 75%
of
the Principal Amount of all Notes.
(d) Assignment,
Etc. The Holder may assign or transfer this Note to any
transferee. The Holder shall notify the Company of any such
assignment or transfer promptly. This Note shall be binding upon the
Company and its successors and shall inure to the benefit of the Holder and
its
successors and permitted assigns.
(e) No
Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power
hereby granted to the Holder or allowed it by law or other agreement shall
be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(f) Governing
Law; Jurisdiction.
(i) Governing
Law. THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS
PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW
OF
ANY OTHER JURISDICTION.
(ii) Jurisdiction. The
Company irrevocably submits to the exclusive jurisdiction of any State or
Federal Court sitting in the State of New York, County of New York, over any
suit, action, or proceeding arising out of or relating to this
Note. The Company irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of the
venue of any such suit, action, or proceeding brought in such a court and any
claim that suit, action, or proceeding has been brought in an inconvenient
forum.
The
Company agrees that the service of process upon it mailed by certified or
registered mail, postage prepaid and return receipt requested (and service
so
made shall be deemed complete three days after the same has been posted as
aforesaid) or by personal service shall be deemed in every respect effective
service of process upon it in any such suit or proceeding. Nothing
herein shall affect Holder's right to serve process in any other manner
permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful
manner.
(iii) No
Jury
Trial. The Company hereby knowingly and voluntarily waives any and
all rights it may have to a trial by jury with respect to any litigation based
on, or arising out of, under, or in connection with, this Note.
(g) Replacement
Notes. This Note may be exchanged by Holder at any time and from
time to time for a Note or Notes with different denominations representing
an
equal aggregate outstanding Principal Amount, as reasonably requested by Xxxxxx,
upon surrendering the same. No service charge will be made for such
registration or exchange. In the event that Xxxxxx 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]
#8965000
v1
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed on June
___, 2007.
ISCO
INTERNATIONAL,
INC.
By:
Name:
Title:
Attest:
Sign:
Print
Name:
#8965000
v1
EXHIBIT
A
FORM
OF CONVERSION NOTICE
(To
be
Executed by the Holder
in
order
to Convert a Note)
The
undersigned hereby elects to convert the aggregate outstanding Principal Xxxxxx
(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.
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Conversion
information:
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Date
to Effect
Conversion
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Aggregate
Principal Amount of Note Being
Converted
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Aggregate
Interest (plus any applicable late charges) Being
Converted
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Number
of shares of Common Stock
to be Issued
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Applicable
Conversion
Price
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Signature
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Name
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Address
#8965000
v1
