Document:

Exhibit 10.1

 

EXECUTION COPY

 

 

$350,000,000

 

 

PSI ENERGY, INC.

 

 

6.12% Debentures due 2035

 

 

UNDERWRITING AGREEMENT

 

 

Dated: October 18, 2005

 

 

Barclays Capital Inc.

Goldman, Sachs & Co.

BNP Paribas Securities Corp.

Harris Nesbitt Corp.

 

c/o
Barclays Capital Inc.

200
Park Avenue

New
York, NY 10166

 

Goldman, Sachs & Co.

85
Broad Street

New
York, NY 10004

 

Dear Sirs:

 

PSI Energy, Inc., an
Indiana corporation (hereinafter called the “Company”), proposes to issue and
sell $350,000,000 aggregate principal amount of its 6.12% Debentures due 2035
(hereinafter called the “Debentures”), to be issued pursuant to the provisions
of the Indenture, dated as of November 15, 1996, between the Company and The
Bank of New York Trust Company, N.A. (successor trustee to Fifth Third Bank),
as Trustee (hereinafter called the “Indenture”), as supplemented by the Ninth
Supplemental Indenture to be dated as of October 21, 2005 between the
Company and the Trustee (hereinafter called the “Supplemental Indenture”).

 

The Company has filed with the Securities and Exchange Commission
(hereinafter called the “Commission”) a registration statement (File No. 333-112552)
including a prospectus relating to various securities of the Company, including
debentures, and has filed with the Commission (or will promptly after the sale
so file) a prospectus supplement specifically relating to the Debentures
pursuant to Rule 424 under the Securities Act of 1933, as amended
(hereinafter called the “Securities Act”). 
The term “Registration Statement” means the registration statement as
amended to the date of this Agreement. 
The term “Basic Prospectus” means the prospectus included in the
Registration Statement.  The term “Prospectus”
means the Basic Prospectus together with the prospectus supplement specifically
relating to the Debentures, as filed with the Commission pursuant to Rule 424.  The term “preliminary prospectus” means a
preliminary prospectus supplement specifically relating to the Debentures
together with the Basic Prospectus.  As
used herein, the terms “Registration Statement”, “Basic Prospectus”, “Prospectus”
and “preliminary prospectus” shall include in each case the material, if any,
incorporated by reference therein.

 

I.

 

The
Company hereby represents and warrants to each Underwriter
that:

 

2

 

(a)           (i) Each
prospectus and prospectus supplement filed as part of the registration
statement as originally filed or as part of any amendment thereto or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the requirements of the Securities Act and the
applicable rules and regulations thereunder, (ii) each document
incorporated by reference in the Registration Statement and the Prospectus
complied when filed (and each document subsequently filed by the Company
pursuant to the Exchange Act and deemed incorporated by reference into the
Registration Statement and the Prospectus will, at the time of filing, comply)
in all material respects with the provisions of the Securities Exchange Act of
1934, as amended (hereinafter called the “Exchange Act”), and the applicable rules and
regulations of the Commission thereunder, and (iii) the Registration
Statement and the Prospectus, as amended or supplemented, will comply in all
material respects with the Securities Act and the applicable rules and
regulations thereunder and, as of the date hereof does not, and as of the
Closing Date will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; except that these representations and
warranties do not apply to statements or omissions in the Registration
Statement or the Prospectus, or any preliminary prospectus based upon
information furnished to the Company in writing by any Underwriter expressly
for use therein.

 

(b)           (i) The
execution and delivery by the Company of this Agreement, the issuance of the
Debentures in accordance with the Indenture and the Supplemental Indenture, the
sale of the Debentures in accordance with this Agreement, the performance by
the Company of its obligations under this Agreement and the consummation of the
transactions contemplated herein will not result in any violation by the
Company of applicable law or any terms or provisions of its articles of
consolidation or by-laws or any indenture, mortgage or other agreement or
instrument by which the Company or its subsidiary is bound that is material to
the Company and its subsidiary, taken as a whole, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or its subsidiary and (ii) the consolidated historical financial
statements of the Company, together with related schedules, included or
incorporated by reference in the Prospectus, present fairly in all material
respects the consolidated financial position of the Company and its subsidiary
at the respective dates indicated and the results of their operations and their
cash flows for the respective periods indicated in accordance with generally
accepted accounting principles consistently applied throughout such periods.

 

(c)           The Company (i) is
a corporation duly incorporated and validly existing in good standing under the
laws of the State of Indiana, (ii) except for certain operating permits
for which the Company has made application but which have either been denied or
have not yet been granted in the form requested, except for certain notices of
violations and except as may be limited by state and federal environmental laws
and regulations has due corporate and governmental authority to carry on the
public utility businesses in which it is engaged and to own and operate the
properties in use in such businesses and (iii) is duly qualified to do

 

3

 

business in each jurisdiction where the failure to
be so qualified would adversely affect the ability of the Company to perform
its obligations under this Agreement, the Indenture and the Debentures.

 

(d)           The Company’s sole
subsidiary (i) is a corporation duly incorporated and validly existing in
good standing under the laws of its state of incorporation, (ii) except
for certain operating permits for which the Company has made application but
which have either been denied or have not yet been granted in the form
requested, except for certain notices of violations and except as may be
limited by state and federal environmental laws and regulations has due
corporate and governmental authority to carry on the business in which it is engaged
and to own and operate the properties in use of such business and (iii) is
duly qualified to do business in each jurisdiction where the failure to be so
qualified would adversely affect the ability of the Company to perform its
obligations under this Agreement, the Indenture and the Debentures.

 

(e)           The Debentures
have been duly authorized and, on the Closing Date, will have been validly
executed and delivered by the Company. 
When the Debentures have been issued, executed and authenticated in
accordance with the provisions of the Indenture and the Supplemental Indenture and
delivered to and paid for by the Underwriters in accordance with the terms of
this Agreement, the holders thereof will be entitled to the benefits of the
Indenture and the Supplemental Indenture pursuant to which such Debentures are
to be issued, and the Debentures will be valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency
or similar laws affecting creditors’ rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.

 

(f)            The Indenture
has been duly authorized, executed and delivered by the Company and the
Supplemental Indenture has been duly authorized by the Company and, on or prior
to the Closing Date, will have been validly executed and delivered by the
Company.  When the Supplemental Indenture
has been duly executed and delivered by the Company (assuming the due
authorization, execution and delivery of the Supplemental Indenture by the
Trustee), each of the Indenture and the Supplemental Indenture will be a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors’ rights
generally, and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability; and the Indenture has been duly qualified under the Trust
Indenture Act of 1939.

 

(g)           This Agreement
has been duly authorized, executed and delivered by the Company.

 

4

 

(h)           There has not
occurred any material adverse change (not in the ordinary course of business)
in the condition of the Company and its subsidiary, taken as a whole, from that
set forth in or contemplated by the Prospectus.

 

(i)            The Company is
not, and after giving effect to the offering and sale of the Debentures and the
application of the proceeds thereof as described in the Prospectus, will not be
an “investment company” as such term is defined in the Investment Company Act
of 1940, as amended.

 

(j)            The Company
maintains a system of internal control over financial reporting (as such term
is defined in Rule 13a-15(f) of the Exchange Act) that has been
designed by the Company’s principal executive officer and principal financial
officer, or under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.  The Company’s
management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2004.  In making this assessment, management used
the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. 
Based on its assessment and those criteria, management believed that the
internal control over financial reporting maintained by the Company, as of December 31,
2004, was effective.  The Company is not
aware of any material weaknesses in its internal control over financial
reporting.

 

(i)            The Company
maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of
the Exchange Act) that have been designed to ensure that material information
relating to the Company and its subsidiaries is made known to the Company’s
principal executive officer and principal financial officer by others within
those entities; such disclosure controls and procedures were effective, as of June 30,
2005, in providing reasonable assurance that information requiring disclosure
is recorded, processed, summarized, and reported within the timeframe specified
by the Commission’s rules and forms.

 

II.

 

The Company hereby agrees to
sell to each of the Underwriters named below, and the Underwriters, upon the
basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agree to purchase from the Company, each
severally and not jointly, the principal amount of Debentures set forth opposite
their names at a price of 99.072% of their principal amount - the purchase
price - and accrued interest from October 21, 2005, to the date of payment
and delivery:  

 

5

 

	
  Name

  	
   

  	
  Principal Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Barclays Capital Inc.

  	
   

  	
  $

  	
  122,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Goldman, Sachs & Co.

  	
   

  	
  $

  	
  122,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BNP Paribas Securities Corp.

  	
   

  	
  $

  	
  52,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Harris Nesbitt Corp.

  	
   

  	
  $

  	
  52,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  350,000,000

  	
   

  

 

III.

 

The Company is advised by
you that the Underwriters propose to make a public offering of their respective
portions of the Debentures as soon after the execution of this Agreement as in
your judgment is advisable. The Company is further advised by you that the
Debentures are to be offered to the public at 99.947% of their principal amount
- the public offering price - and accrued interest, and to certain dealers at a
price which represents a concession of up to 0.50% of their principal amount
under the public offering price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of 0.25% of their principal
amount, to certain other dealers.

 

The Company acknowledges and
agrees that the Underwriters are acting solely in the capacity of an arm’s
length contractual counterparty to the Company with respect to the offering of
Debentures contemplated hereby (including in connection with determining the
terms of the offering) and not as a financial advisor or a fiduciary to, or an
agent of, the Company or any other person.

 

IV.

 

Payment for the Debentures
shall be made by transfer of immediately available funds to an account
identified by us in writing not less than two full business days prior to the
date of payment, against delivery to you for the respective accounts of the
several Underwriters of the Debentures through The Depository Trust Company at
10:00 A.M., New York time, on October 21, 2005 or at such other time
on the same or such other date, not later than October 28, 2005 as may be
designated by you.  The time and date of
such payment and delivery are herein referred to as the “Closing Date”.  All other documents referred to herein that
are to be delivered at the Closing Date shall be delivered at that time at the
office of Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY
10017.

 

V.

 

The obligations of the
Company and the several obligations of the Underwriters hereunder are subject
to the conditions that:

 

(a)           The
Registration Statement shall have become effective under the Securities Act of
1933.

 

6

 

(b)           No
stop order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before, or
threatened by, the Commission.  The
representations and warranties of the Company contained in Article I
hereof shall be true and correct on the date hereof and on and as of the
Closing Date.

 

(c)           An
appropriate order or orders of the Indiana Utility Regulatory Commission
necessary to permit the issue and sale of the Debentures as contemplated hereby
and containing no material provision or condition which is unacceptable to the
Company or the Underwriters shall be in effect and no proceedings to suspend
the effectiveness of such order or orders shall be pending or threatened.

 

The several obligations of the Underwriters hereunder are subject to the
following further conditions:

 

(d)           There
shall have been no material adverse change (not in the ordinary course of
business) in the condition of the Company and its subsidiary, taken as a whole,
from that set forth in or contemplated by the Registration Statement and the
Prospectus; and you shall have received on the Closing Date a certificate,
dated the Closing Date and signed by an executive officer of the Company, to
the foregoing effect.

 

(e)           Subsequent
to the execution and delivery of this Agreement and prior to the Closing Date,
there shall not have occurred any downgrading of, nor shall any notice have
been given of any review with a negative implication with respect to, the
rating accorded any of the Company’s securities by any of Standard &
Poor’s Ratings Service, Moody’s Investors Service, Inc. or Fitch IBCA (or
any of their successors).

 

(f)            You shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in (b) and (c) of the first
paragraph of this Article V 
(provided that such certificate may omit any reference as to the extent
to which provisions or conditions in the orders referred to in (c) above
are acceptable to the Underwriters).  The
officer making such certificate may rely upon the best of his knowledge as to
proceedings threatened.

 

(g)           You
shall have received on the
Closing Date the favorable opinion or opinions of Thompson Hine LLP, counsel
for the Company, dated the Closing Date, to the effect that:

 

(i)            each
of the Indenture and the Supplemental Indenture has been duly authorized,
executed and delivered by the Company and is valid and binding instrument
enforceable in accordance with its terms, except as (A) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and (B) rights of acceleration
and the availability of equitable remedies may be 

 

7

 

limited by equitable principles of general applicability; and the
Indenture has been duly qualified under the Trust Indenture Act of 1939;

 

(ii)           the
Debentures, when duly executed by the Company, authenticated by the Trustee and
delivered to and paid for by the Underwriters pursuant to this Agreement, will
be valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as (A) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and (B) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability; and the Debentures shall be entitled to
the benefits of the Indenture and the Supplemental Indenture;

 

(iii)          the statements in the Prospectus under the
captions “Description of the Unsecured Debt Securities” and “Certain Terms of
the Debentures,” other than the statements under the captions “Description of
the Unsecured Debt Securities – Global Securities” and “Certain Terms of the
Debentures – Global Securities,”  insofar
as such statements purport to summarize certain provisions of the documents
referred to therein, fairly summarize such provisions in all material respects;

 

(iv)          this
Agreement has been duly executed and delivered by the Company;

 

(v)           no
consent, approval, authorization, filing with or order of any court or
governmental agency or body is required to be made or obtained by the Company
pursuant to the laws, rules or regulations of the State of Indiana or of
the United States of America in connection with the performance of their
obligations hereunder or under the Indenture and Supplemental Indenture, except
such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Debentures by the
Underwriters (about which such counsel need express no opinion) and such other approvals
as have been obtained; and

 

(vi)          such
counsel (A) is of the opinion that the Registration Statement and the
Prospectus and any supplements or amendments
thereto (except for the financial statements, schedules and other financial and
statistical data included or incorporated by reference therein or excluded
therefrom or the exhibits to the Registration Statement as to which such
counsel need not express an opinion) comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations
of the Commission thereunder and (B) except for the financial statements, schedules and other
financial and statistical data included or incorporated by reference therein or
excluded therefrom or the exhibits to the Registration Statement as to
which such counsel need not express a belief, has no reason to believe that the
Registration Statement as of its effective date and at the date of this
Agreement contained an untrue statement of a

 

8

 

material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus (as amended or supplemented if applicable) as of its date and on the
Closing Date contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.

 

In
regard to clause (vi) above, such counsel may state that their opinion and
belief is based upon their participation in the preparation of the Prospectus
and any supplements and amendments thereto (other than documents incorporated
by reference) and upon their review and discussion of the contents thereof and
of the Registration Statement (in each case, including documents incorporated
by reference), but is without independent check or verification except as
specified.  In giving such opinion, Thompson
Hine LLP may assume matters governed by New York law and may rely, as to
matters of Indiana law, on the opinion of J. William DuMond, Esq., counsel
to the Company.

 

(h)           You
shall have received on the Closing Date the favorable opinion of J. William
DuMond, Esq. counsel to the Company, dated the Closing Date, to the effect
that:

 

(i)            the Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Indiana, and the Company has due corporate and governmental
authority to carry on the public utility businesses in which it is engaged and,
except where the failure would not, singularly or in the aggregate, reasonably
be expected to have a material adverse effect on the consolidated financial
position, stockholders’ equity, results of operations, business or prospects of
the Company and its subsidiary, taken as a whole, to own and operate the
properties in use in such businesses;

 

(ii)           the Company’s sole
subsidiary is a corporation duly incorporated and existing in good standing
under the laws of its state of incorporation and has due corporate and
governmental authority to carry on the business in which it is engaged, except
where the failure would not, singularly or in the aggregate, reasonably be
expected to have a material adverse effect on the consolidated financial
position, stockholders’ equity, results of operations, business or prospects of
the Company and its subsidiary, taken as a whole, and to own and operate the
properties in use in such business;

 

(iii)          the Company and
its subsidiary are each duly qualified to transact business and are in good
standing in the jurisdictions in which the conduct of their respective
businesses or the ownership or leasing of their respective properties requires
such qualification;

 

(iv)          each of the
Indenture and the Supplemental Indenture has been duly authorized, executed and
delivered by the Company and is valid and binding instrument enforceable in
accordance with its terms, except as (A) the enforceability thereof may be
limited by bankruptcy, insolvency or

 

9

 

similar laws affecting the enforcement of creditors’
rights generally and (B) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability; and the Indenture has been duly qualified under the Trust
Indenture Act of 1939;

 

(v)           the Debentures
have been duly authorized and executed by the Company and, when duly
authenticated by the Trustee and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as (A) the enforceability thereof may be limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors’ rights generally and (B) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability, and the Debentures shall be
entitled to the benefits of the Indenture and the Supplemental Indenture;

 

(vi)          an appropriate
order or orders of the Indiana Utility Regulatory Commission is in effect on
the Closing Date and no further approval, authorization, consent or order of
any other commission or other governmental authority (other than under state
securities or Blue Sky laws, as to which such counsel are not called upon to
express an opinion) is required for the issuance and sale of the Debentures;

 

(vii)         such counsel
does not know of any contract required to be filed as an exhibit to the
Registration Statement, or incorporated therein by reference, which has not
been so filed or incorporated by reference;

 

(viii)        this Agreement
has been duly authorized, executed and delivered by the Company; and

 

(ix)          each document
incorporated by reference in the Prospectus (except for the financial
statements and schedules and other financial and statistical data therein as to
which such counsel need not express an opinion) complied when filed with the
Commission as to form in all material respects with the requirements of the
Exchange Act, together with the applicable rules and regulations of the
Commission thereunder.

 

In regard to clauses (iv), (v) and (viii) above,
such counsel may state that no opinion is expressed with respect to the effect
of New York law.

 

(i)            You shall have received on the Closing Date
an opinion of Davis Polk & Wardwell, counsel for the Underwriters,
dated the Closing Date, covering the matters in (i), (ii), (iii), (iv) and
(vi) of (g) above, provided that with respect to (vi) of (g) above,
such counsel may state that their opinion and belief is based upon their
participation in the preparation of the Registration Statement and the Prospectus
and any amendments and supplements thereto (other than documents incorporated
by reference), and upon their review and discussion of the contents

 

10

 

thereof
(including documents incorporated by reference), but is without independent
check or verification except as specified. 
In giving said opinion, Davis Polk & Wardwell may rely, as to
matters of Indiana law, on the opinion of J. William DuMond, Esq., counsel
to the Company.

 

(j)            You
shall have received on the
Closing Date a letter, dated the Closing Date, in form and substance
satisfactory to you, from Deloitte & Touche LLP, independent
accountants, containing statements and information of the type ordinarily
included in accountants’ “comfort letters” to underwriters with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the Prospectus.

 

VI.

 

In further consideration of
the agreements of the Underwriters herein contained the Company covenants as
follows:

 

(a)           To
furnish without charge to you two signed copies of the Registration Statement
(including exhibits and documents incorporated by reference), and to each other
Underwriter a copy of the Registration Statement (without exhibits but
including documents incorporated by reference) and, during the period mentioned
in paragraph (c) below, as many copies of the Prospectus and any
amendments and supplements thereto as you may reasonably request.  The terms “supplement” and “amendment” or “amend”
as used in this Agreement shall include or refer to all documents subsequently
filed by the Company with the Commission pursuant to the Exchange Act which are
deemed to be incorporated by reference in the Registration Statement and
Prospectus from the date of filing such documents in accordance with Form S-3.

 

(b)           Before
amending or supplementing the Registration Statement or the Prospectus, to
furnish to each of you a copy of each such proposed amendment or supplement.

 

(c)           If,
during such period after the first date of the public offering of the
Debentures as in the opinion of your counsel a prospectus covering the
Debentures is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to
a purchaser, not misleading, or if it shall be necessary to amend or supplement
the Prospectus to comply with law, forthwith to prepare and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses you
will furnish to the Company) to which Debentures may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus will comply with law.

 

11

 

(d)           To
endeavor to qualify the Debentures for offer and sale under the securities or
Blue Sky laws of such jurisdictions as you shall reasonably request and to pay
all expenses (including fees and disbursements of counsel) in connection with
such qualification and in connection with the determination of the eligibility
of the Debentures for investment under the laws of such jurisdictions as you
may designate.

 

(e)           To
make generally available to the Company’s security holders as soon as
practicable an earnings statement covering the twelve-month period beginning
after the date of this Agreement, which shall satisfy the provisions of Section 11(a) of
the Securities Act (including Rule 158 thereunder).

 

(f)            During
the period beginning on the date of this Agreement and terminating on the
Closing Date not to offer, sell, contract to sell or otherwise dispose of any
debt securities of the Company substantially similar to the Debentures, without
your prior written consent.

 

VII.

 

The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and
all losses, claims, damages and liabilities (including the fees and expenses of
counsel in connection with any governmental or regulatory investigation or
proceeding) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or Prospectus (if used
within the period set forth in paragraph (c) of Article VI hereof and
as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information furnished in writing to the Company by any Underwriter
expressly for use therein.

 

In case any action shall be
brought against any Underwriter or any person controlling such Underwriter,
based upon the Registration Statement or Prospectus or any amendment or
supplement thereto or any preliminary prospectus and in respect of which
indemnity may be sought against the Company, such Underwriter shall promptly
notify the Company in writing, and the Company, upon the request of such
Underwriter, shall assume the defense thereof on behalf of such Underwriter or
controlling person, including the employment of counsel and payment of all
expenses.  In any such action, any
Underwriter or any such controlling person shall have the right to employ its
own counsel but the fees and expenses of such counsel shall be at the expense
of such Underwriter or such controlling person unless (i) the employment
of such counsel has been specifically authorized in writing by the Company or (ii) the
named parties to any such action (including any impleaded parties) include both
such Underwriter or such controlling person and the Company and such
Underwriter or such controlling person shall have

 

12

 

been
advised by such counsel that there maybe one or more legal defenses available
to it which are different from or additional to those available to the Company
(it being understood, however, that the Company shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to one firm of local counsel) for all
such Underwriters and controlling persons, which firm shall be designated in writing
by you, and that such fees and expenses shall be reimbursed as they are
incurred).  The Company shall not be
liable for indemnification (or contribution as provided below) with respect to
the settlement of any such action effected without its written consent, but if
settled with the written consent of the Company or if there be a final judgment
for the plaintiff in any such action, the Company agrees to indemnify and hold
harmless any Underwriter and any such controlling person from and against any loss
or liability by reason of such settlement or judgment (or to make contribution
as provided below).

 

Each Underwriter agrees,
severally and not jointly, to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and any person
controlling the Company to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with reference to information relating to
such Underwriter furnished in writing by such Underwriter expressly for use in
the Registration Statement, the Prospectus or any preliminary prospectus.  In case any action shall be brought against
the Company, any of its directors or any such officer or controlling person
based on the Registration Statement, the Prospectus or any preliminary
prospectus and in respect of which indemnity may be sought against any
Underwriter, the Underwriter shall have the rights and duties given to the
Company, and the Company, its directors or any such officer or controlling
person shall have the rights and duties given to the Underwriter, by the
preceding paragraph of this Article VII.

 

If the indemnification
provided for in the first paragraph of this Article VII is unavailable to
any Underwriter or other indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, then the Company, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and such
Underwriter on the other from the offering of the Debentures or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of such Underwriter on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations.  The relative benefits received by the Company
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. 
The relative fault of the Company and of the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

 

13

 

If the indemnification
provided for in this Article VII is sought solely by the Company under the
third paragraph hereof and there is no claim for indemnification by any
Underwriter or any person controlling such Underwriter arising out of the same
misstatement or omission and if such indemnification is unavailable to the
Company in respect of any losses, claims, damages or liabilities referred to in
such third paragraph, then each Underwriter, in lieu of indemnifying the
Company, shall contribute to the amount paid or payable by the Company as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
such Underwriter or Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or
liabilities,  as well as any other
relevant equitable considerations.  The
relative fault of the Company on the one hand and of such Underwriter or
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

 

The Company and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Article VII were determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the two immediately preceding paragraphs.  The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
such paragraphs shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim.  Notwithstanding the provisions of
this Article VII, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Debentures
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.  No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.  The Underwriters’ obligations to contribute
pursuant to this Article VII are several in proportion to their respective
underwriting percentages listed in Article II hereof and not joint.

 

The indemnity and
contribution agreements contained in this Article VII and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its directors or officers or any person controlling the Company
and (iii) acceptance of and payment for any of the Debentures.

 

VIII.

 

This Agreement shall be
subject to termination in your absolute discretion, by notice given to the
Company, if (a) prior to the Closing Date (i) trading in securities
on the New York Stock Exchange or the American Stock Exchange shall have been
suspended or materially 

 

14

 

limited,
(ii) trading in any securities of the Company shall have been suspended on
any national securities exchange in the United States or in any
over-the-counter market in the United States, (iii) a general moratorium
on banking activities in New York shall have been declared by Federal or New
York State authorities, (iv) there shall have occurred any outbreak or
escalation of hostilities or any change in the financial markets or other
calamity or crisis, any of which is material and adverse and (b) in the
case of any of the events specified in clauses (a)(i) through (iv), such
event either singly or together makes it, in your reasonable judgment,
impracticable or inadvisable to market the Debentures.  Any termination of this Agreement pursuant to
this Article VIII shall be without liability on the part of the Company to
the Underwriters, or the Underwriters to the Company.

 

IX.

 

This Agreement shall become
effective upon signature.

 

If any one or more of the
Underwriters shall fail or refuse to purchase Debentures which it or they have
agreed to purchase hereunder, and the aggregate principal amount of Debentures
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate principal amount of
Debentures, the other Underwriters shall be obligated severally in the
proportions which the principal amount of Debentures set forth opposite their
names in Article II bears to the aggregate principal amount of Debentures
so set forth opposite the names of all such non-defaulting Underwriters, or in
such other proportions as you may specify, to purchase the Debentures which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase; provided that in no event shall the principal amount of Debentures
which any Underwriter has agreed to purchase pursuant to Article II hereof
be increased pursuant to this Article IX by an amount in excess of
one-ninth of such principal amount of Debentures without the written consent of
such Underwriter.  If any Underwriter or
Underwriters shall fail or refuse to purchase Debentures and the aggregate
principal amount of Debentures with respect to which such default occurs is more
than one-tenth of the aggregate principal amount of Debentures and arrangements
satisfactory to you and the Company for the purchase of such Debentures are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or of the Company.  In any such case which does not result in
such a termination, either you or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus
or in any other documents or arrangements may be effected.  Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.

 

If this Agreement shall be
terminated by the Underwriters, or any of them, because of any failure or
refusal on the part of the Company to comply with the terms or to fulfill any
of the conditions of this Agreement or if for any reason the Company shall be
unable to perform its obligations under this Agreement, the Company will
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering
contemplated hereunder.

 

15

 

This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

 

This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PSI
  ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Wendy
  L. Aumiller

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Wendy
  L. Aumiller

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President and

  
	
   

  	
   

  	
   

  	
  Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted:

  	
   

  
	
   

  	
   

  
	
  BARCLAYS
  CAPITAL INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Pamela
  Kendall

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Pamela
  Kendall

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  GOLDMAN,
  SACHS & CO.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Goldman,
  Sachs & Co.

  	
   

  	
   

  
	
   

  	
  (Goldman,
  Sachs & Co.)

  	
   

  
	
   

  	
   

  
	
  Acting
  severally on behalf of themselves

  	
   

  
	
  and
  the several Underwriters named in

  	
   

  
	
  Section II
  hereof

  	
   

  
								

 

16Exhibit "1"
                                       To
                       Innovative Card Technologies, Inc.
                      Subscription Application & Agreement

THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A  REGISTRATION  STATEMENT IN EFFECT WITH  RESPECT TO THE  SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY  TO THE COMPANY  THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.

Issue Date: ______________                                         Warrant No.__

                               WARRANT TO PURCHASE
                                 _______ SHARES
                               OF COMMON STOCK OF
                       INNOVATIVE CARD TECHNOLOGIES, INC.

This certifies that _______________________,  or his/its assigns (the "Holder"),
for value received,  is entitled to purchase from INNOVATIVE CARD  TECHNOLOGIES,
INC., a Delaware  corporation  (the  "Company"),  subject to the terms set forth
below,  ____________ (_________) fully paid and nonassessable shares (subject to
adjustment as provided  herein) of the Common Stock of the Company (the "Warrant
Shares")  at a per share  price of $1.25  (the  "Exercise  Price")  (subject  to
adjustment as provided herein), subject to the provisions of Section 1.1 of this
Warrant, at any time or from time to time up to and including 5:00 p.m. (Pacific
Standard  Time) on  expiration  date as set forth in  Section  1.4  hereof  (the
"Expiration  Date") upon surrender to the Company at its principal office (or at
such other  location  as the  Company  may advise the Holder in writing) of this
Warrant  properly  endorsed with the Form of  Subscription  attached hereto duly
filled  in and  signed  and  upon  payment  in cash  or by  check  or  otherwise
hereinafter  provided of the aggregate  Exercise  Price for the number of shares
for which this Warrant is being  exercised  determined  in  accordance  with the
provisions  hereof.  The Exercise  Price is subject to adjustment as provided in
Section 3 of this Warrant.

                                       1
<PAGE>

      1.  Exercise,  Issuance of  Certificates,  Reduction  in Number of Warrant
Shares.

            1.1 General. This Warrant shall vest immediately.  The vested shares
are  exercisable  at the option of the Holder of record at any time or from time
to time for all or any part of the vested Warrant Shares (but not for a fraction
of a share)  which may be  purchased  hereunder,  as that number may be adjusted
pursuant to Section 3 of this Warrant,  on or prior to the Expiration  Date. The
Company agrees that the Warrant Shares purchased under this Warrant shall be and
are deemed to be issued to the Holder as the record owner of such Warrant Shares
as of the close of  business on the date on which this  Warrant  shall have been
surrendered,  properly endorsed, the completed and executed Form of Subscription
delivered,  and payment  made for such  Warrant  Shares (i) in cash or by check,
(ii)  cancellation of  indebtedness  or other  obligations of the company to the
Holder, or (iii) by a combination of (i) and (ii).  Certificates for the Warrant
Shares so purchased, together with any other securities or property to which the
Holder is entitled upon such  exercise,  shall be delivered to the Holder by the
Company  at the  Company's  expense  as soon as  practicable  after  the  rights
represented  by this  Warrant have been so  exercised.  In case of a purchase of
less than all the Warrant Shares which may be purchased under this Warrant,  the
Company shall cancel this Warrant and execute and deliver to the Holder within a
reasonable  time a new  Warrant or Warrants of like tenor for the balance of the
Warrant Shares  purchasable  under the Warrant  surrendered  upon such purchase.
Each stock  certificate  so  delivered  shall be  registered  in the name of the
Holder.

            1.2  Limitation  on  Exercise.  The  Company  shall not  effect  any
exercise of this  Warrant,  and the Holder  shall not have the right to exercise
any portion of this Warrant, pursuant to Section 1.1 or otherwise, to the extent
that after giving effect to such issuance after exercise,  the Holder  (together
with  the  Holder's  Affiliates),  as  set  forth  on  the  applicable  Form  of
Subscription,  would  beneficially own in excess of 9.9% of the number of shares
of the  Common  Stock  outstanding  immediately  after  giving  effect  to  such
issuance. For purposes of the foregoing sentence, the number of shares of Common
Stock  beneficially  owned by the Holder and its  Affiliates  shall  include the
number of shares of Common  Stock  issuable  upon  exercise of this Warrant with
respect to which the  determination  of such  sentence is being made,  but shall
exclude the number of shares of Common  Stock  which would be issuable  upon (A)
exercise of the  remaining,  nonexercised  portion of this Warrant  beneficially
owned by the Holder or any of its Affiliates and (B) = exercise or conversion of
the unexercised or nonconverted  portion of any other  securities of the Company
(including,  without limitation,  any convertible instrument or warrant) subject
to a limitation on conversion or exercise analogous to the limitation  contained
herein beneficially owned by the Holder or any of its Affiliates.  Except as set
forth in the preceding  sentence,  for purposes of this Section 1.2,  beneficial
ownership  shall be calculated in accordance  with Section 13(d) of the Exchange
Act. For purposes of this Section 1.2, in determining  the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding  shares
of Common Stock as reflected in (x) the Company's  most recent Form 10-Q or Form
10-K, as the case may be, (y) a more recent public  announcement  by the Company
or (z) any other notice by the Company or the Company's  Transfer  Agent setting
forth the number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder,  the Company shall within two trading days confirm orally
and in  writing  to the  Holder  the  number  of shares  of  Common  Stock  then
outstanding. In any case, the number of outstanding shares of Company Common

                                       2
<PAGE>

Stock shall be determined  after giving effect to the  conversion or exercise of
securities  of  the  Company,  including  this  Warrant,  by the  Holder  or its
Affiliates  since  the date as of which  such  number of  outstanding  shares of
Common Stock was reported.  The  provisions of this Section 1.2 may be waived by
the Holder  upon,  at the  election of the Holder,  not less than 61 days' prior
notice to the Company,  and the provisions of this Section 1.2 shall continue to
apply until such 61st day (or such later date, as  determined by the Holder,  as
may be specified in such notice of waiver).

            1.3 Cashless  Exercise.  If after one year  following  the date this
Warrant is issued there is no effective  registration  statement registering the
Warrant  Shares,  this  Warrant  may also be  exercised  by means of a "cashless
exercise" in which the Holder shall be entitled to receive a certificate for the
number of Warrant Shares equal to the quotient  obtained by dividing [(A-B) (X)]
by (A), where:

            (A)   = the average of the high and low trading  prices per share of
                  Common  Stock on the  Trading Day  preceding  the date of such
                  election,  provided  if  the  Company's  Common  Stock  is not
                  trading, the fair market value of one share of Common Stock as
                  determined  by the Board of Directors of the Company,  in good
                  faith (at the date of such calculation);

            (B)   = the Exercise Price of the Warrants; and

            (X)   = the number of Warrant  Shares  issuable upon exercise of the
                  Warrants in accordance with the terms of this Warrant.

            1.4 Expiration  Date.  Unless the Company,  in its sole  discretion,
extends any expiration date set forth herein (such  extension  referred to as an
"Expiration Date Extension"), this Warrant shall terminate at 5:00 p.m. (P.S.T.)
on [insert date 5 years from the Issue Date].

            1.5 Record Ownership. To the extent permitted by applicable law, the
person  in whose  name any  certificate  for  shares  of  Common  Stock or other
evidence of ownership of any other  security is issued upon exercise or exchange
of the  Warrant  shall for all  purposes  be deemed to have become the holder of
record of such shares or other  security on the Delivery Date,  irrespective  of
the  date of  delivery  of such  certificate  or  other  evidence  of  ownership
(subject,  in the case of any  exercise  to which  Section  1.7 of this  Warrant
applies,  to the  consummation  of a  transaction  upon which such  exercise  is
conditioned),  notwithstanding that the transfer books of the Company shall then
be closed or that such  certificates  or other  evidence of ownership  shall not
then actually have been delivered to such person.

      1.6  Approvals.  If any  securities  constituting  Warrant  Shares  or any
portion  thereof to be issued upon  exercise or exchange of the Warrant  require
registration  or approval  under any applicable  law, or require  listing on any
national  securities  exchange or national  market system before such securities
may be so issued,  the Company  will as  expeditiously  as  possible  cause such
securities to be registered,  approved or listed, as applicable. The Company may
suspend  the  exercise  of  the  Warrant  for  the  period   during  which  such
registration, approval or listing is required but not in effect.

                                       3
<PAGE>

            1.7  Conditional  Exercise or Exchange.  Any form of subscription or
exchange form delivered  under Sections 1.1 or 8.2 may condition the exercise or
exchange of this Warrant on the  consummation of a transaction  being undertaken
by the Company or the Holder,  and such exercise or exchange shall not be deemed
to have occurred except  concurrently with the consummation of such transaction,
except that,  for purposes of  determining  whether such exercise or exchange is
timely  it  shall be  deemed  to have  occurred  on the  date of  delivery  (the
"Delivery  Date") of the  subscription  or exchange form. If any exercise of the
Warrant is so  conditioned,  then,  subject to delivery of the items required by
Sections 1.1 and 2 of this Warrant,  the Company shall deliver the  certificates
and other  evidence of ownership of other  securities or other  property in such
manner  as  the  Holder  shall  direct  as  required  in  connection   with  the
consummation of such transaction upon which the exercise is conditioned.  At any
time that the Holder shall give notice to the Company that such  transaction has
been  abandoned  or that the Holder has  withdrawn  from  participation  in such
transaction,  the Company shall return the items delivered  pursuant to Sections
1.1 and 2 of this  Warrant,  and the  Holder's  election to exercise the Warrant
shall be deemed rescinded.

            1.8  Regulatory  Problem.  The Holder shall not exercise or exchange
the Warrant for shares of Common Stock if after giving  effect to such  exercise
or exchange the Holder  reasonably  determines  that such exercise would violate
any  law  or  regulation  or  any  requirement  of  any  governmental  authority
applicable to Holder or his affiliates.

      2. Shares to be Fully  Paid.  The  Company  covenants  and agrees that all
Warrant  Shares,  will,  upon  issuance  and,  if  applicable,  payment  of  the
applicable  Exercise Price, be duly authorized,  validly issued,  fully paid and
nonassessable,  and free of all liens and encumbrances,  except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.

      3.  Adjustment of Exercise Price and Number of Shares.  The Exercise Price
and the number of Warrant Shares shall be proportionately  adjusted from time to
time upon the occurrence of any capital  reorganization or any  reclassification
of Common Stock, or the consolidation, merger, combination or exchange of shares
with another entity, or the divisive  reorganization  of the Company.  Upon each
adjustment of the Exercise Price, the Holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment,  the
number  of  shares   obtained  by  multiplying  the  Exercise  Price  in  effect
immediately  prior  to such  adjustment  by the  number  of  shares  purchasable
pursuant hereto  immediately prior to such adjustment,  and dividing the product
thereof by the Exercise Price resulting from such adjustment.

      4. Voting Rights.  Nothing contained in this Warrant shall be construed as
conferring  upon the Holder the right to vote or to consent to or receive notice
as a shareholder of the Company on any other matters or any rights whatsoever as
a shareholder of the Company.

                                       4
<PAGE>

      5. Compliance with Securities Act: Transferability of Warrant, Disposition
of Shares of Common Stock.

            5.1  Compliance  with  Securities  Act.  The Holder,  by  acceptance
hereof,  agrees  that this  Warrant  and the  Warrant  Shares to be issued  upon
exercise  hereof are being  acquired for  investment and that he will not offer,
sell,  or otherwise  dispose of this Warrant or any Warrant  Shares except under
circumstances which will not result in a violation of the Securities Act of 1933
(the  "Act") or any  applicable  state  securities  laws.  This  Warrant and all
Warrant Shares (unless  registered  under the Act) shall be stamped or imprinted
with a legend in substantially the following form:

           THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
           ACT OF 1933, AS AMENDED OR THE  SECURITIES OR BLUE SKY LAWS OF
           ANY STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
           HYPOTHECATED  IN THE ABSENCE OF A  REGISTRATION  STATEMENT  IN
           EFFECT  WITH  RESPECT TO THE  SECURITIES  UNDER SUCH ACT OR AN
           OPINION  OF  COUNSEL  SATISFACTORY  TO THE  COMPANY  THAT SUCH
           REGISTRATION IS NOT REQUIRED,  OR UNLESS SOLD PURSUANT TO RULE
           144 OF SUCH ACT.

            5.2 Access to Information; Pre-Existing Relationship. Holder has had
the  opportunity to ask questions of, and to receive  answers from,  appropriate
executive  officers of the Company with respect to the terms and  conditions  of
the transactions contemplated hereby and with respect to the business,  affairs,
financial  condition and results of  operations  of the Company.  Holder has had
access to such  financial  and other  information  as is  necessary in order for
Holder to make a fully  informed  decision as to investment in the Company,  and
has had the opportunity to obtain any additional information necessary to verify
any of  such  information  to  which  Holder  has  had  access.  Holder  further
represents and warrants that he has either (i) a pre-existing  relationship with
the Company or one or more of its officers or directors  consisting  of personal
or business  contacts of a nature and  duration  which enable him to be aware of
the character,  business acumen and general business and financial circumstances
of the Company or the officer or director with whom such relationship  exists or
(ii) such  business  or  financial  expertise  as to be able to protect  his own
interests in connection with the purchase of the Shares.

                                       5
<PAGE>

            5.3 Warrant  Transferable.  Subject to  compliance  with  applicable
federal  and state  securities  laws under which this  Warrant was issued,  this
Warrant and all rights hereunder are transferable,  in whole or in part, without
charge to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed;  provided,  however, that the Holder shall notify the Company
in writing  in advance of any  proposed  transfer  and shall not  transfer  this
Warrant or any rights hereunder to any person or entity which is then engaged in
a  business  that  in the  reasonable  judgment  of  the  Company  is in  direct
competition with the Company. As promptly as practicable but in any event within
ten (10) Business Days of receipt of such properly endorsed Warrant, the Company
shall  issue,  register  and  deliver  to the  Holder  thereof a new  Warrant or
Warrants  of like  kind and tenor  representing  in the  aggregate  the right to
purchase the same number of Warrant  Shares that could be purchased  pursuant to
the Warrant  being  transferred.  Holder shall pay  Company's  reasonable  costs
incurred in effectuating such transfer.

            5.4 Disposition of Warrant Shares.  With respect to any offer, sale,
or other disposition of the Warrant or any Warrant Shares, the Holder hereof and
each  subsequent  Holder of this Warrant  agrees to give  written  notice to the
Company prior thereto,  describing  briefly the manner thereof,  together with a
written  opinion  of such  holder's  counsel,  if  reasonably  requested  by the
Company,  to the  effect  that  such  offer,  sale or other  disposition  may be
effected without  registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of the Warrant or Warrant Shares, as
the case may be, and indicating  whether or not under the Act  certificates  for
the Warrant or Warrant  Shares to be sold or  otherwise  disposed of require any
restrictive legend as to applicable  restrictions on transferability in order to
insure  compliance with the Act. Promptly upon receiving such written notice and
opinion,  the Company, as promptly as practicable,  shall notify the Holder that
such Holder may sell or otherwise dispose of the Warrant or Warrant Shares,  all
in  accordance  with the terms of the  notice  delivered  to the  Company.  If a
determination  has been made pursuant to this  subparagraph 5.4 that the opinion
of the counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder  promptly after such  determination  has been
made.  Notwithstanding  the  foregoing,  the  Warrant or  Warrant  Shares may be
offered,  sold or otherwise  disposed of in  accordance  with Rule 144 under the
Act,  provided that the Company shall have been furnished with such  information
as the Company may request to provide  reasonable  assurance that the provisions
of Rule 144 have been satisfied.  Each  certificate  representing the Warrant or
Warrant Shares thus transferred  (except a transfer  pursuant to Rule 144) shall
bear a legend as to the applicable  restrictions on  transferability in order to
insure  compliance with the Act, unless in the aforesaid  opinion of counsel for
the Holder,  such legend is not required in order to insure  compliance with the
Act. The Company may issue stop transfer  instructions  to its transfer agent in
connection with such restrictions.

            5.5 Market  Standoff.  The Holder agrees that if so requested by the
Company  or  any   representative   of  the   underwriters  in  connection  with
registration  of the initial  public  offering of any  securities of the Company
under the Act,  the Holder  shall not sell or  otherwise  transfer  any  Warrant
Shares or other  securities of the Company  during the 120 day period  following
the effective date of such registration  statement.  The Company may impose stop
transfer  instructions  with  respect to  securities  subject  to the  foregoing
restrictions until the end of such 120 day period.

                                       6
<PAGE>

            5.6 Register. This Warrant is, and any Warrant issued,  exchanged or
transferred  hereunder  shall be registered in a warrant  register (the "Warrant
Register").  The Warrant Register shall set forth the number of the Warrant, the
name and address of the Holder hereof and the original  number of Warrant Shares
purchasable upon the exercise hereof. The Warrant Register will be maintained by
the Company and will be available for  inspection by the Holder at the principal
office of the Company or such other location as the Company may designate to the
Holder in the manner set forth in Section 7. The  Company  shall be  entitled to
treat the Holder as the owner in fact  thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in the Warrant on
the part of any other person.

      6.  Modification and Waiver.  This Warrant and any provision hereof may be
changed,  waived,  discharged,  or  terminated  only by an instrument in writing
signed by the party against which enforcement of the same is sought.

      7. Governing Law; Waiver of Jury Trial.

            7.1  Governing  Law.  All  questions  concerning  the  construction,
interpretation and validity of this Agreement shall be governed by and construed
and  enforced  in  accordance  with the  domestic  laws of the State of New York
without  giving  effect  to any  choice or  conflict  of law  provision  or rule
(whether  in the State of New York or any other  jurisdiction)  that would cause
the  application  of the laws of any  jurisdiction  other  than the State of New
York. In furtherance of the foregoing, the internal law of the State of New York
will control the  interpretation  and  construction of this  Agreement,  even if
under  such  jurisdiction's  choice  of law or  conflict  of law  analysis,  the
substantive  law of some other  jurisdiction  would  ordinarily  or  necessarily
apply.

            7.2 Waiver of Jury Trial.  BECAUSE  DISPUTES  ARISING IN  CONNECTION
WITH COMPLEX FINANCIAL  TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY  RESOLVED
BY AN  EXPERIENCED  AND EXPERT  PERSON AND THE PARTIES WISH  APPLICABLE  LAWS TO
APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH  APPLICABLE  LAWS.  THEREFORE,  TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,  THE
PARTIES  HERETO  WAIVE  ALL  RIGHT  TO  TRIAL  BY  JURY IN ANY  ACTION,  SUIT OR
PROCEEDING  BROUGHT  TO ENFORCE  OR DEFEND  ANY  RIGHTS OR  REMEDIES  UNDER THIS
AGREEMENT OR ANY DOCUMENTS RELATED HERETO.

      8. Exchange of Warrant for Warrants.

            8.1 Lost Warrant.  The Company represents and warrants to the Holder
hereof that upon receipt of evidence  reasonably  satisfactory to the Company of
the loss, theft, destruction,  or mutilation of this Warrant and, in the case of
any such loss,  theft or  destruction,  upon receipt of an indemnity  reasonably
satisfactory  to  the  Company,  or in the  case  of any  such  mutilation  upon
surrender and  cancellation  of the Warrant,  the Company will, at the Company's
expense,  make and deliver a new  Warrant,  of like tenor,  in lieu of the lost,
stolen, destroyed or mutilated Warrant.

                                       7
<PAGE>

            8.2  Exchange.  The Holder may exchange  this Warrant at his option,
upon  presentation and surrender of this Warrant to Company,  for other Warrants
of different  denominations,  entitling  the Holder to purchase in the aggregate
the same number of Warrant  Shares.  A Warrant  may be divided or combined  with
other  Warrants  that carry the same rights,  upon  presentation  thereof at the
principal  office of the Company,  together with written  notice  specifying the
names and denominations in which new Warrants are to be issued and signed by the
holder  thereof.  In order to effect an exchange  permitted by this Section 8.2,
the Holder shall  deliver to the Company this Warrant  accompanied  by a written
request  signed by the Holder  specifying  the number and  denominations  of the
Warrant or the Warrants to be issued in such exchange and the names in which the
Warrant or Warrants  are to be issued.  As promptly  as  practicable  but in any
event within ten (10)  Business  Days of receipt of such a request,  the Company
shall, without charge, issue, register and deliver to the Holder each Warrant to
be issued in such exchange.

      9. Fractional  Shares.  No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the  Holder  entitled  to such  fraction  a sum in cash  equal to such  fraction
(calculated to the nearest 1/100th of a share)  multiplied by the then effective
Exercise Price on the date the Form of Subscription is received by the Company.

      10.  Successors and Assigns.  This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the  successors of the Company
and the  Holder.  The  provisions  of this  Warrant  are  intended to be for the
benefit  of all  Holders  from  time  to  time of this  Warrant,  and  shall  be
enforceable by any such Holder.

                                       8
<PAGE>

                               NOTICE OF EXERCISE

(To be signed only upon exercise of Warrant)

To:   Innovative Card Technologies, Inc.

      The undersigned,  the holder of the attached Common Stock Warrant,  hereby
irrevocably  elects to exercise the purchase  right  represented by such Warrant
for,  and to purchase  thereunder,  shares of Common  Stock of  Innovative  Card
Technologies,  Inc. (the "Company") and herewith makes payment (i) in cash or by
check,  (ii) cancellation of indebtedness or other obligations of the company to
the Holder, or by a combination of (i) and (ii), of $_________ therefor.  Please
issue the share  certificate  representing  the  warrant  shares in the name of:
____________________.

The warrant shares shall be delivered to:

---------------------
---------------------
---------------------

The  undersigned  represents  that he is acquiring such Common Stock for his own
account for investment and not with a view to or for sale in connection with any
distribution thereof.

DATED:  ___________

                                    -----------------------------------------
                                    (Signature must conform in all respects
                                    to name of  Holder as specified on the
                                    face of the Warrant)

                                    Name: ___________________________________

                                    Title: __________________________________

                                       9

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