WAIVER, AMENDMENT AND EXCHANGE AGREEMENT
THIS
WAIVER, AMENDMENT AND EXCHANGE AGREEMENT (the “Agreement”), dated as
of September __, 2009, is entered into by and among Innovative Card
Technologies, Inc., a Delaware corporation (the “Company”), and the
persons identified as “Holders” on the signature pages hereto (the “Holders”). Defined
terms not otherwise defined herein shall have the meanings set forth in the
Purchase Agreements (as defined below).
WHEREAS,
pursuant to those certain Securities Purchase Agreements, dated January 8, 2008
and April 15, 2008 (the “Purchase
Agreements”), among the Company and the applicable Holders, the Holders
purchased from the Company an aggregate of $8,500,000 in principal amount of 8%
Senior Secured Convertible Debentures of the Company (the “Debentures”) and were
issued warrants exercisable for shares of Common Stock (the “Warrants”);
and
WHEREAS,
certain Events of Defaults (as defined under the Debentures) as set forth on
Annex A
attached hereto have occurred and continue to occur on and prior to
the date hereof (“Existing Defaults”);
and
WHEREAS,
the Company and the Holders have agreed to waive the Existing Defaults for the
consideration granted by the Company to the Holders as set forth
hereunder.
NOW
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, each Holder hereby agrees as follows:
1. Waiver. Subject
to the terms and conditions hereunder, each Holder hereby waives its right to
exercise or enforce its rights under the Transaction Documents, including the
Debentures, solely on account of the Existing Defaults as they exist on the date
hereof provided that this waiver shall not apply to any future Events of Default
that may occur after the date hereof or prior existing Events of Default that
are not included as Existing Defaults, whether known or unknown to the Company
as of the date hereof. Additionally, each Holder hereby agrees to
waive any late fees, increased interest or liquidated damages that have accrued
prior to the date hereof provided that this waiver shall not apply to any future
late fees, increased interest or liquidated damages that may occur after the
date hereof. For purposes of clarity, the parties hereto agree
that no interest currently due and payable or payable in the future under the
Debentures shall be waived.
2. Amendments and other
Agreements.
(a) Amended and Exchanged
Debentures and Warrants. The Company hereby agrees to issue
each Holder an amended and restated Debenture, in the form of Exhibit A attached
hereto (the “Amended
and Exchanged Debenture(s)”) with a principal amount equal to the
principal amount of such Holder’s current Debenture plus any accrued but unpaid
interest as of the date hereof and any future interest to be accrued on and
before April 1, 2010 and accrued but unpaid liquidated damages, if any, as set
forth on Annex
B and an amended and restated warrant, in the form of Exhibit B attached
hereto (“Amended and
Exchanged Warrant(s)”). Other than as amended thereunder, the
rights and obligations of the Holders and of the Company with respect to the
Amended and Exchanged Debentures, the Amended and Exchanged Warrants and any
securities underlying such securities (including the replacement common stock
purchase warrants issuable pursuant to the Amended and Exchange Warrants) shall
be identical in all respects to the rights and obligations of the Holders and of
the Company with respect to the Debentures, the Warrants and the Underlying
Shares issued and issuable pursuant to the Purchase Agreements. For
clarity, the Purchase Agreements and all Transaction Documents thereunder are
hereby amended so that the term “Debentures” includes the Amended and Exchanged
Debentures, the term “Warrants” includes the Amended and Exchanged Warrants (and
common stock purchase warrants issued thereunder) and the term “Underlying
Shares” includes the shares of Common Stock issuable upon conversion and
issuance thereof, and the term “Transaction Documents” shall be amended to
include this Agreement. The Amended and Exchanged Debentures and
Amended and Exchanged Warrants are being issued in substitution for and not in
satisfaction of the Debentures and Warrants, as applicable; provided, however, the Holder
acknowledges and agrees that upon the issuance and acceptance of the certificate
evidencing its Amended and Exchanged Debenture and Amended and Exchanged
Warrants issued pursuant to this Section, the original certificate evidencing
its Debenture and Warrants will be deemed cancelled.
(b) Amendments to the Purchase
Agreements.
(i) clause
(a) of the term “Exempt Issuance” in the Purchase Agreements is hereby amended
to increase the number of shares issuable thereunder from 100,000 to 500,000, in
the aggregate, during any 12 month period for issuances with a bona-fide
effective price per share of Common Stock of at least $0.25 and an additional
500,000, in the aggregate, during any 12 months period for issuances with a
bona-fide effective price per share of Common stock of at least $0.50, all
prices and share numbers reference above subject to adjustment for reverse and
forward stock splits and the like.
(ii) As
to any Holder that does not participate ratably in that certain Debenture and
Warrant Purchase Agreement, dated as of September __, 2009 by and among the
Company and certain Holders, the Holders hereby amend the Purchase Agreement
such that, as to such Holders only, the issuance of the Amended and Exchanged
Debentures, Amended and Exchanged Warrants, shares of Common Stock issued and
issuable thereto, including the issuance and exercise of an replacement common
stock purchase warrants issuable thereunder, are here deemed to be an “Exempt
Issuance” under the Purchase Agreement and accordingly no adjustments shall be
made to the Debentures, Warrants, Amended and Exchanged Debentures or the
Amended and Exchanged Warrants pursuant to the anti-dilution provisions
thereunder solely as a result of such issuances. For those Holders
that do participate ratably in such transaction, the conversion and exercise
price of their respective Amended and Exchanged Debentures and Amended and
Exchanged Warrants shall be adjusted pursuant to the anti-dilution provisions
set forth therein.
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(iii) The
obligation of the Company to obtain Shareholder Approval (as defined in the
Purchase Agreements) as set forth in the second, third and fourth sentences of
Section 4.11(c) of the Purchase Agreements and the restrictions on obtaining
financing prior to obtaining Shareholder Approval set forth in Section 4.13(c)
of the Purchase Agreements are no longer of any force or effect and shall be
deleted in their entirety. Additionally, the Amended and Exchanged
Debentures do not include any restriction on issuances based on Shareholder
Approval.
(iv) The
definition of “Trading Market” as defined and used in the Transaction Documents
shall hereafter be deemed to include the OTC Bulletin Board.
(c) Amendment to the Security
Agreements, Guarantee and Intercreditor Agreement. Section
20(c) of the Security Agreements (as defined in the respective Purchase
Agreements) and Section 5(a) of the Guarantees (as defined in the applicable
Security Agreements) and Section 4.5 of that certain Inter-Creditor Agreement by
and among the Holder regarding the Debentures (the “Inter-Creditor
Agreement”) shall be amended such that Holders holding 70% of the
principal amount of Amended and Restated Debentures may amend, modify,
supplement or amend the terms of such agreements if in writing and further, that
upon a request in writing by the Company of any such amendment, modification,
supplement or amendment to any such agreements (or any Transaction Documents),
the failure of a Holder to respond in writing within 5 Trading Days shall be
deemed for such purposes an irrevocable affirmative election by such
Holder. Notwithstanding anything herein to the contrary, each Holder
shall be provided with equal opportunity to participate in any such amendment,
waiver, modification or supplement on the same terms and conditions as every
other Holder. The parties hereby agree to remove ▇▇▇▇ ▇. ▇▇▇▇▇▇ as
Agent under the Security Agreements and appoint in his place ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇.
(d) Consent to Debt
Exchange. The Holders hereby consent to the exchange of no
more than $1,000,000 of unsecured debt into an equal principal amount of Amended
and Exchanged Debenture with a conversion price of $1.00, subject to adjustment
thereunder otherwise, and no more than 200,000 common stock purchase
warrants and agree that such new holder of the Amended and Exchanged Debenture
shall be added as a party to the Security Agreement and the Inter-Creditor
Agreement and shall otherwise have all rights of a Holder under the Transaction
Documents.
(e) Prohibition on Stock
Splits. The Company shall not undertake a reverse or forward
stock split or reclassification of the Common Stock without the prior written
consent of Holders holding at least 75% of the Amended and Exchanged
Debentures.
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(f)
Replacement
Warrants. Upon each cash exercise of an Amended and Exchanged
Warrant and in the time periods set forth for the delivery of the Warrant Shares
pursuant to Section 2(e)(i) of the Amended and Exchanged Warrant, the Company
shall issue to the holder thereof a new common stock purchase warrant (“Replacement Warrant”)
for the same number of Warrant Shares subject to such exercise and in the form
of the Amended and Exchanged Warrant provided that (i) such Replacement Warrant
shall (i) have an Initial Issuance Date of the date such Replacement Warrant is
issued and Termination Date which is 5 years from such Initial Issuance Date,
(ii) have an exercise price equal to the greater of (A) $0.25, subject to
adjustment for reverse and forward stock splits, recapitalizations, stock
dividends and the like and (B) the VWAP on the day of exercise of such Amended
and Exchanged Warrant which gives rise to the issuance of such Replacement
Warrant (“Replacement
Market Price”), (iii) have a price at which such Replacement Warrant may
be called pursuant to Section 2(f) of the Amended and Exchanged Warrant shall be
the Replacement Market Price plus $0.10, subject to adjustment for reverse and
forward stock splits, recapitalizations, stock dividends and the like and (iv)
no Replacement Warrant shall be issued upon exercise of the Replacement
Warrants.
3. Representations and
Warranties. The Company hereby makes to the Holders the following
representations and warranties:
(a) Authorization;
Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, its board of directors or its
stockholders in connection therewith. This Agreement has been duly
executed by the Company and, when delivered in accordance with the terms hereof
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) No
Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any material agreement,
credit facility, debt or other material instrument (evidencing a Company or
Subsidiary debt or otherwise) or other material understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) conflict with or result
in a violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.
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(d) Equal
Consideration. Except as otherwise set forth herein, no
consideration has been offered or paid to any person to amend or consent to a
waiver, modification, forbearance or otherwise of any provision of any of the
Transaction Documents.
(e) Survival and Bring
Down. All of the Company’s warranties and representations
contained in this Agreement shall survive the execution, delivery and acceptance
of this Agreement by the parties hereto. Except as set forth on Annex C attached
hereto and the SEC Reports as of the date hereof, the Company
expressly reaffirms that each of the representations and warranties set forth in
the Purchase Agreements, continues to be true, accurate and complete, and the
Company hereby remakes and incorporates herein by reference each such
representation and warranty as though made on the date of this
Agreement.
(f) Holding Period for Amended
and Restated Debentures and Amended and Restated Warrants. Pursuant to
Rule 144, the holding period of the Amended and Exchanged Debentures and the
Amended and Restated Warrants (and Underlying Shares issuable upon conversion or
cashless exercise thereof) shall tack back to the original issue date of the
Debentures and Warrants. The Company agrees not to take a position
contrary to this Section 3(f). The Company agrees to take all
actions, including, without limitation, the issuance by its legal counsel of any
necessary legal opinions (which may be satisfied pursuant to Section 5),
necessary to issue to the Amended and Exchanged Debentures and the Amended and
Exchanged Warrants (and Underlying Shares issuable upon conversion and cashless
exercise thereof) without restriction and not containing any restrictive legend
without the need for any action by the Holder. The Company is not
subject to Rule 144(i).
(g) No
Novation. The Amended and Exchanged Debentures and the Amended
and Exchanged Warrants are being issued in substitution for and not in
satisfaction of the Debentures and Warrants, respectively. The
Amended and Exchanged Debentures and the Amended and Exchange Warrants shall not
constitute a novation or satisfaction and accord of any of the Debentures and
Warrants, as the case may be. The Company hereby acknowledges and
agrees that the Amended and Exchanged Debentures and the Amended and Exchanged
Warrants shall amend, restate, modify, extend, renew and continue the terms and
provisions contained in the Debentures and Warrants, as the case may be, and
shall not extinguish or release the Company or any of its Subsidiaries under any
Transaction Document (as defined in the Purchase Agreements) or otherwise
constitute a novation of its obligations thereunder.
(h) No Event of
Default. The Company represents and warrants to each Holder
that after giving effect to the terms of the waivers contemplated in this
Agreement, no Event of Default (as defined in the Amended and Exchanged
Debentures) shall have occurred and be continuing as of the date
hereof.
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4. Registration
Rights. As a result of the changes made to Rule 144
promulgated under the Securities Act of 1933, as amended (the “Securities Act”)
which are effective February 15, 2008 and based on the Company’s representation
that it is not subject to Rule 144(i), the Company's obligations, pursuant to
the Registration Rights Agreements (as defined in the applicable Purchase
Agreements), by and among the Company and each of the undersigned (the “Registration Rights
Agreements”), to register the shares of Common Stock issuable upon
conversion and/or cashless exercise of the Amended and Exchanged Debentures and
the Amended and Exchanged Warrants, are hereby
suspended. Additionally, subject to the terms, conditions and
representations set forth herein, the Holders hereby agree that the Company can
withdraw the registration statement(s) filed pursuant to the Registration Rights
Agreements, and agree that the Company shall not be required to maintain the
effectiveness of such registration statement with respect to any Underlying
Shares.
5. Legal
Opinion. The Company hereby agrees to cause its legal counsel
to issue a legal opinion to the undersigned Holders and the Company’s Transfer
Agent regarding this Agreement and the transactions contemplated hereby, in form
and substance reasonably acceptable to the Purchasers, including an opinion that
the 144 Eligible Securities may be sold pursuant to Rule 144 without volume
restrictions or manner of sale limitations as of the date hereof and that
certificates representing the 144 Eligible Securities issuable upon conversion
of the Amended and Exchanged Debentures or a “cashless exercise” of the Amended
and Exchanged Warrants may be issued without a restrictive legend as required
pursuant to Section 4.1 of the Purchase Agreements.
6. Miscellaneous.
(a) The
foregoing waivers shall not be effective unless and until all Holders shall have
agreed to the terms and conditions hereunder. The waivers, agreements
and obligations of the Holders set forth herein shall be null and void in the
event this Agreement is not executed by all Holders on or before September 15,
2009. In addition, the respective obligations, amendments, agreements
and waivers of the Holders hereunder are subject to the following conditions
being met: (a) the accuracy in all material respects of the representations and
warranties of the Company contained herein (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) and (b) the performance by the
Company of all if its obligations, covenants and agreements required to be
performed hereunder. Except as expressly set forth above, all of the
terms and conditions of the Transaction Documents shall continue in full force
and effect after the execution of this Agreement and shall not be in any way
changed, modified or superseded by the terms set forth herein. The
Company shall, within 2 Trading Days of the date hereof, issue a Current Report
on Form 8-K disclosing the material terms of the transactions contemplated
hereby, and shall attach this Agreement and all other related agreements
thereto, including, without limitation, the Amended and Exchanged Debentures and
Amended and Exchanged Warrants (the “8-K
Filing”). From and after the filing of the 8-K Filing with the
Commission, the Holder shall not be in possession of any material, nonpublic
information received from the Company, any of its Subsidiaries or any of their
respective officers, directors, employees or agents, that is not disclosed in
the 8-K Filing. The Company shall consult with the Holders in issuing
any other press releases with respect to the transactions contemplated
hereby.
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(b) This
Agreement may be executed in two or more counterparts and by facsimile signature
or otherwise, and each of such counterparts shall be deemed an original and all
of such counterparts together shall constitute one and the same
agreement.
(c) The
Company has elected to provide all Holders with the same terms and form of
agreement for the convenience of the Company and not because it was required or
requested to do so by the Holders. The obligations of each Holder
under this Agreement, and any Transaction Document are several and not joint
with the obligations of any other Holder, and no Holder shall be responsible in
any way for the performance or non-performance of the obligations of any other
Holder under this Agreement or any Transaction Document. Nothing
contained herein or in any Transaction Document, and no action taken by any
Holder pursuant thereto, shall be deemed to constitute the Holders as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Holders are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by this
Agreement or the Transaction Documents. Each Holder shall be entitled
to independently protect and enforce its rights, including without limitation,
the rights arising out of this Agreement or out of the other Transaction
Documents, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose. Each Holder has
been represented by its own separate legal counsel in their review and
negotiation of this Agreement and the Transaction Documents.
(d) Except
for the legal fees and expenses of counsel to ▇.▇. ▇▇▇▇▇▇▇, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the issuance of the Amended and Exchanged Debentures
and the Amended and Exchanged Warrants.
(e) If
any provision of this Agreement is prohibited by law or otherwise determined to
be invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).
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(f) This
Agreement shall be governed by and interpreted in accordance with laws of the
State of New York, excluding its choice of law rules. The parties
hereto hereby waive the right to a jury trial in any litigation resulting from
or related to this Agreement. The parties hereto consent to exclusive
jurisdiction and venue in the federal courts sitting in the southern district of
New York, unless no federal subject matter jurisdiction exists, in which case
the parties hereto consent to exclusive jurisdiction and venue in the New York
state courts in the borough of Manhattan, New York. Each party waives
all defenses of lack of personal jurisdiction and forum non
conveniens. Process may be served on any party hereto in the manner
authorized by applicable law or court rule.
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IN
WITNESS WHEREOF, this Agreement is executed as of the date first set forth
above.
INNOVATIVE CARD TECHNOLOGIES,
INC.
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By:
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Name:
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Title:
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[signature
page(s) of Holders to follow]
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COUNTERPART
SIGNATURE PAGE OF HOLDER TO
AMONG
INNOVATIVE CARD TECHNOLOGIES, INC.. AND
THE
HOLDERS THEREUNDER
Name of
Holder:____________________________________
By:
_______________________________________________
Name:_____________________________________________
Title:______________________________________________
Principal
Amount of Debentures: _______________________
Warrants:
__________________________________________