MODIFICATION, WAIVER AND
CONSENT AGREEMENT
This
Modification, Waiver and Consent Agreement is made this 17th day of
December, 2008 (“Agreement”) among IDO Security Inc., a
Nevada corporation (the “Company”), and the
signatories hereto who are Subscribers under a Subscription
Agreement with the Company dated on or about December 24, 2007
(“Subscription Agreement”).
WHEREAS, the
Company is contemplating an additional investment of an aggregate
of up to $1,351,137.50 Purchase Price in promissory Notes,
Preferred Stock and Warrants of the Company (“New
Financing”); and
WHEREAS, the
Company is in default of material terms of the Transaction
Documents and the Subscribers may elect to exercise their rights to
accelerate the Maturity Date of the Notes and foreclose on the
Collateral under the Security Agreement.
NOW THEREFORE,
in consideration of the promises and mutual covenants contained
herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto hereby consent and agree as follows:
1.
All capitalized terms herein shall have the meanings ascribed to
them in the Transaction Documents (as defined in the Subscription
Agreement).
2.
The undersigned consent to the New Financing and to the amendment
of all Schedules, Exhibits and documents including but not limited
to the Collateral Agent Agreement, Security Agreement, and the
Intercreditor and Modification Agreement to include the New
Financing and to subordinate Subscribers’ security interest
and to authorize the Collateral Agent to make additional filings at
the discretion of the Collateral Agent to memorialize the first
priority security interest to be granted, to the investors in
the New Financing.
3.
Annexed hereto is Amended Schedules A-1(Junior Lenders) and A-2
(Senior Lenders) to the Security Agreement and Collateral Agent
Agreement which will replace the current Schedule A.
4.
The undersigned Subscribers waive the rights granted to them
pursuant to Section 12(a), Right of First Refusal, of the
Subscription Agreement, only to the extent such rights relate to
the New Financing but do not waive the anti-dilution rights and
protections contained in Section 12(b) Favored Nations Provision of
the Subscription Agreement and in the Transaction
Documents.
5.
Subscribers hereby agree and consent to the issuance by the Company
of up to 100,000 shares of the Company’s Common Stock (or
securities convertible into common stock) to service
providers.
6.
Subscribers agree to waive through December 31, 2008 the
Company’s defaults of the terms of the Transaction Documents
but do not waive any liquidated damages.
7.
Company acknowledges, agrees and represents that in connection with
the New Financing the rights and provisions of Section 12(b)
Favored Nations Provision of the Subscription Agreement, Section
3.4 (d) of the Note and Section 3.4 of the Warrant shall apply to
the Securities issued and issuable to Subscribers pursuant to the
Subscription Agreement and Transaction Documents.
8.
The Company acknowledges and agrees that the New Financing will not
result in the commencement of a new holding period pursuant to Rule
144 for any person holding Securities of the Company or having the
right to receive Securities of the Company.
9.
The following Section 2.1 of the Notes dated December 24, 2007
shall be deleted
2.1.
Payment of Monthly Amount in Cash or Common Stock
. Subject to Section 3.2 hereof, the Borrower, at the
Borrower’s election, shall pay the Monthly Amount (i) in cash
in an amount equal to 110% of the Principal Amount component of the
Monthly Amount and 100% of all other components of the Monthly
Amount, within four (4) business days after the applicable
Repayment Date, or (ii) in registered Common Stock at an applied
conversion rate equal to the lesser of (A) the Fixed Conversion
Price (as defined in section 3.1 hereof), or (B) seventy-five
percent (75%) of the average of the closing bid price of the common
stock as reported by Bloomberg L.P. for the Principal Market for
the ten trading days preceding the date a Notice of Conversion, if
any, [as described in Section 3.3a] is given to the Borrower by
Holder after Borrower notifies Holder of its election to pay the
Monthly Amount with shares of Common Stock pursuant to the
following sentence. The Borrower must send
